**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-Q**

 

**ý****QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

** **

**Forthe quarterly period ended March 31, 2003**

** **

**OR**

** **

**o****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

** **

**For thetransition period from                                to                              **

** **

**Commissionfile number 1-11113**

** **

**RIVERWOOD HOLDING, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                     |   | **58-2205241**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **814  Livingston Court  Marietta, Georgia 30067**               |
| (Address of  principal executive offices)  (Zip Code)            |
|                                                             |   |                                  |
| **(770)  644-3000**                                              |
| (Registrant’s  telephone number, including area code)       |

 

(Former name,former address and former fiscal year,if changed since last report)

 

Indicate by check mark whether the registrant (1) hasfiled all reports to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes  o     No  ý

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

Yes  o     No  ý

 

At May 6, 2003 there were 7,054,930 shares and 500,000shares of the registrant’s Class A and Class B common stock, respectively, outstanding.

 

 

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**PART I.FINANCIAL INFORMATION**

** **

**ITEM 1. FINANCIAL STATEMENTS**

 

 

As used in this Form10-Q, unless the context otherwise requires: “RIC” refers to the corporationformerly named Riverwood International Corporation; the “Predecessor” or the “PredecessorCompany” refers to RIC and its subsidiaries in respect of periods prior to the1996 Merger (as defined herein); the “Company” refers to the registrant,Riverwood Holding, Inc., a Delaware corporation (“Riverwood Holding”) and itssubsidiaries; “RIC Holding” refers to RIC Holding, Inc., a Delawarecorporation, successor by merger to RIC and a wholly-owned subsidiary ofRiverwood Holding; and “Riverwood” refers to Riverwood InternationalCorporation, a Delaware corporation formerly named Riverwood International USA,Inc. and a wholly-owned subsidiary of RIC Holding.

 

2

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**RIVERWOOD HOLDING, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(In thousands of dollars)**

**(unaudited)**

 
|                                                                                                                                                                                                                                                                  |   | **March 31,  2003** |      | **December 31,  2002** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|------------------------|--------|
| **ASSETS**                                                                                                                                                                                                                                                            |   |                |      |                   |   |
| Current Assets:                                                                                                                                                                                                                                                       |   |                |      |                   |   |
| Cash and Equivalents                                                                                                                                                                                                                                                  |   | $                   | 10,622    |                   | $      | 13,757 |   |
| Receivables, Net of Allowances                                                                                                                                                                                                                                        |   | 137,162             |      | 137,284                |   |
| Inventories                                                                                                                                                                                                                                                           |   | 181,896             |      | 174,383                |   |
| Prepaid Expenses                                                                                                                                                                                                                                                      |   | 10,619              |      | 8,566                  |   |
| Total Current Assets                                                                                                                                                                                                                                                  |   | 340,299             |      | 333,990                |   |
|                                                                                                                                                                                                                                                                  |   |                |      |                   |   |
| Property, Plant and Equipment, Net of Accumulated  Depreciation of $799,931 in 2003 and $777,047 in 2002                                                                                                                                                              |   | 1,222,488           |      | 1,232,945              |   |
| Goodwill                                                                                                                                                                                                                                                              |   | 268,284             |      | 268,284                |   |
| Other Assets                                                                                                                                                                                                                                                          |   | 122,620             |      | 122,453                |   |
| Total Assets                                                                                                                                                                                                                                                          |   | $                   | 1,953,691 |                   | $      | 1,957,672 |   |
|                                                                                                                                                                                                                                                                  |   |                |      |                   |   |
| **LIABILITIES**                                                                                                                                                                                                                                                       |   |                |      |                   |   |
| Current Liabilities:                                                                                                                                                                                                                                                  |   |                |      |                   |   |
| Short-Term Debt                                                                                                                                                                                                                                                       |   | $                   | 98,560    |                   | $      | 98,696 |   |
| Accounts Payable and Other Accrued Liabilities                                                                                                                                                                                                                        |   | 182,167             |      | 180,652                |   |
| Total Current Liabilities                                                                                                                                                                                                                                             |   | 280,727             |      | 279,348                |   |
|                                                                                                                                                                                                                                                                  |   |                |      |                   |   |
| Long-Term Debt, Less Current Portion                                                                                                                                                                                                                                  |   | 1,430,130           |      | 1,429,650              |   |
| Other Noncurrent Liabilities                                                                                                                                                                                                                                          |   | 119,184             |      | 116,148                |   |
| Total Liabilities                                                                                                                                                                                                                                                     |   | 1,830,041           |      | 1,825,146              |   |
|                                                                                                                                                                                                                                                                  |   |                |      |                   |   |
| Contingencies and Commitments (Note 4)                                                                                                                                                                                                                                |   |                |      |                   |   |
|                                                                                                                                                                                                                                                                  |   |                |      |                   |   |
| Class A Redeemable Common Stock $120/share  redemption value; 54,930 and 57,930 shares issued and outstanding at March  31, 2003 and December 31, 2002, respectively                                                                                                  |   | 6,591               |      | 6,951                  |   |
|                                                                                                                                                                                                                                                                  |   |                |      |                   |   |
| **SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                                                         |   |                |      |                   |   |
| Common Stock par value $.01 per Share;                                                                                                                                                                                                                                |   |                |      |                   |   |
| Class A Common Stock, 9,000,000 shares  authorized; 7,054,930 and 7,057,930 shares designated at March 31, 2003 and  December 31, 2002, respectively; 7,000,000 shares of non-redeemable Common  Stock issued and outstanding at March 31, 2003 and December 31, 2002 |   | 70                  |      | 70                     |   |
| Class B Common Stock, 3,000,000 shares authorized;  500,000 shares of non-redeemable Common Stock issued and outstanding at March  31, 2003 and at December 31, 2002                                                                                                  |   | 5                   |      | 5                      |   |
| Capital in Excess of Par Value                                                                                                                                                                                                                                        |   | 748,748             |      | 748,748                |   |
| Accumulated Deficit                                                                                                                                                                                                                                                   |   | (524,873            | )         | (515,107               | )      |
| Accumulated Derivative Instruments Loss                                                                                                                                                                                                                               |   | (6,392              | )         | (6,135                 | )      |
| Minimum Pension Liability Adjustment                                                                                                                                                                                                                                  |   | (71,304             | )         | (71,304                | )      |
| Cumulative Currency Translation Adjustment                                                                                                                                                                                                                            |   | (29,195             | )         | (30,702                | )      |
| Total Shareholders’ Equity                                                                                                                                                                                                                                       |   | 117,059             |      | 125,575                |   |
| Total Liabilities and Shareholders’ Equity                                                                                                                                                                                                                       |   | $                   | 1,953,691 |                   | $      | 1,957,672 |   |

 

See Notes to Condensed Consolidated FinancialStatements.

 

3

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**RIVERWOOD HOLDING, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**AND COMPREHENSIVE (LOSS)**

**(In thousands of dollars)**

**(unaudited)**

** **
|                                            |   | **Three Months Ended** |    |
|-------------------------------------------------|--------|------------------------|---------|
|                                            |   | **March 31,  2003**    |    | **March 31,  2002** |   |
|                                            |   |                   |    |   |   |
| Net Sales                                       |   | $                      | 298,026 |   | $ | 291,184 |   |
| Cost of Sales                                   |   | 239,889                |    | 233,855 |   |
| Selling, General and  Administrative            |   | 29,870                 |    | 27,615 |   |
| Research, Development  and Engineering          |   | 1,467                  |    | 1,316 |   |
| Other Expense (Income),  Net                    |   | 1,877                  |    | (2,471 | ) |
|                                            |   |                   |    |   |   |
| Income from Operations                          |   | 24,923                 |    | 30,869 |   |
| Interest Income                                 |   | 103                    |    | 455 |   |
| Interest Expense                                |   | 33,980                 |    | 39,060 |   |
|                                            |   |                   |    |   |   |
| (Loss) before Income  Taxes                     |   | (8,954                 | )       | (7,736 | ) |
| Income Tax Expense                              |   | 1,016                  |    | 95 |   |
| Equity in Net Earnings  of Affiliates           |   | 204                    |    | 114 |   |
| Net (Loss)                                      |   | (9,766                 | )       | (7,717 | ) |
| Other Comprehensive  Income (Loss), Net of Tax: |   |                   |    |   |   |
| Derivative Instruments  (Loss) Gain             |   | (257                   | )       | 1,150 |   |
| Foreign Currency  Translation Adjustments       |   | 1,507                  |    | (1,128 | ) |
| Comprehensive (Loss)                            |   | $                      | (8,516  | ) | $ | (7,695 | ) |

 

See Notes to Condensed Consolidated FinancialStatements.

 

4

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**RIVERWOOD HOLDING, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS**

**(In thousands of dollars)**

**(unaudited)**

** **
|                                                                               |   | **Three Months Ended** |   |
|------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                               |   | **March 31, 2003**     |   | **March 31, 2002** |   |
| **Cash Flows from Operating  Activities:**                                         |   |                   |   |   |   |
| Net (Loss)                                                                         |   | $                      | (9,766 | ) | $ | (7,717 | ) |
| Noncash Items Included in Net (Loss):                                              |   |                   |   |   |   |
| Depreciation and Amortization                                                      |   | 31,161                 |   | 32,103 |   |
| Current and Deferred Income Taxes                                                  |   | 157                    |   | 179 |   |
| Pension, Postemployment and Postretirement  Benefits Expense, Net of Contributions |   | 5,024                  |   | 1,375 |   |
| Equity in Net Earnings of Affiliates, Net of  Dividends                            |   | (204                   | )      | 498 |   |
| Amortization of Deferred Debt Issuance Costs                                       |   | 1,563                  |   | 1,784 |   |
| Other                                                                              |   | 95                     |   | (2,851 | ) |
| Changes in Operating Assets & Liabilities:                                     |   |                   |   |   |   |
| Receivables                                                                        |   | (107                   | )      | (10,347 | ) |
| Inventories                                                                        |   | (8,233                 | )      | (4,310 | ) |
| Prepaid Expenses                                                                   |   | (1,948                 | )      | (4,450 | ) |
| Accounts Payable and Other Accrued Liabilities                                     |   | (1,437                 | )      | (6,423 | ) |
| Other Noncurrent Liabilities                                                       |   | 837                    |   | (350 | ) |
| Net Cash Provided by (Used in) Operating  Activities                               |   | 17,142                 |   | (509 | ) |
|                                                                               |   |                   |   |   |   |
| **Cash Flows from Investing  Activities:**                                         |   |                   |   |   |   |
| Purchases of Property, Plant and Equipment                                         |   | (19,582                | )      | (12,282 | ) |
| Increase in Other Assets                                                           |   | (1,075                 | )      | (925 | ) |
| Net Cash Used in Investing Activities                                              |   | (20,657                | )      | (13,207 | ) |
|                                                                               |   |                   |   |   |   |
| **Cash Flows from Financing  Activities:**                                         |   |                   |   |   |   |
| Borrowings under Revolving Credit Facilities                                       |   | 94,950                 |   | 88,650 |   |
| Payments on Revolving Credit Facilities                                            |   | (94,042                | )      | (69,616 | ) |
| Payments on Debt                                                                   |   | (162                   | )      | — |   |
| Repurchases of Redeemable Common Stock                                             |   | (360                   | )      | (120 | ) |
| Net Cash Provided by Financing Activities                                          |   | 386                    |   | 18,914 |   |
| Effect of Exchange Rate Changes on Cash                                            |   | (6                     | )      | (508 | ) |
| Net (Decrease) Increase in Cash and Equivalents                                    |   | (3,135                 | )      | 4,690 |   |
| Cash and Equivalents at Beginning of Period                                        |   | 13,757                 |   | 7,369 |   |
| Cash and Equivalents at End of Period                                              |   | $                      | 10,622 |   | $ | 12,059 |   |

 

See Notes to Condensed Consolidated FinancialStatements.

 

5

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**RIVERWOOD HOLDING, INC.**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**(unaudited)**

 

**NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION**

 

Riverwood Holding, Inc.(“Riverwood Holding”) and its wholly-owned subsidiary RIC Holding, Inc. (“RICHolding”) and the corporation formerly named CDRO Acquisition Corporation wereincorporated in 1995 to acquire the stock of its predecessor, the corporationformerly named Riverwood International Corporation (“RIC”).

 

On March 27, 1996,Riverwood Holding, through its wholly-owned subsidiaries, acquired all of theoutstanding shares of common stock of RIC. On such date, CDRO AcquisitionCorporation was merged into RIC (“1996 Merger”). RIC, as the survivingcorporation in the 1996 Merger, became a wholly-owned subsidiary of RICHolding. On March 28, 1996, RIC transferred substantially all of its propertiesand assets to the corporation formerly named Riverwood International USA, Inc.,other than the capital stock of Riverwood International USA, Inc, and RIC wasmerged into RIC Holding. Thereupon, Riverwood International USA, Inc. wasrenamed “Riverwood International Corporation.” Upon consummation of thesubsequent merger, RIC Holding, as the surviving corporation in the subsequentmerger, became the parent company of Riverwood International Corporation(“Riverwood International”).

 

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

 

In connection with the1996 Merger, the purchase method of accounting was used to establish and recorda new cost basis for the assets acquired and liabilities assumed. Thedifference between the purchase price and the fair market values of the assetsacquired and liabilities assumed was recorded as goodwill.

 

References to the“Company” are to Riverwood Holding and its subsidiaries.

 

The accompanyingCondensed Consolidated Financial Statements of the Company included herein havebeen prepared by the Company without an audit, pursuant to the rules andregulations of the Securities and Exchange Commission. Certain information andfootnote disclosures normally included in the financial statements prepared inaccordance with generally accepted accounting principles have been condensed oromitted pursuant to such rules and regulations. In the opinion of management,all adjustments, consisting of normal recurring adjustments necessary for afair presentation of the financial position, results of operations and cashflows for the interim periods presented have been made. The CondensedConsolidated Balance Sheet as of December 31, 2002 was derived from auditedfinancial statements.

 

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

For a summary of theCompany’s significant accounting policies, please refer to the Company’s reporton Form 10-K filed with the Securities and Exchange Commission for the yearended December 31, 2002.

 

The preparation of theCondensed Consolidated Financial Statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the Condensed Consolidated Financial Statements and the reportedamounts of revenues and expenses during the reporting period. Actual amountscould differ from those estimates.

 

6

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The Company’s CondensedConsolidated Financial Statements include all significant subsidiaries in whichthe Company has the ability to exercise direct or indirect control overoperating and financial policies. Intercompany transactions and balances areeliminated in consolidation.

 

As permitted by SFAS No.123 “*Accounting for Stock-Based Compensation*”,the Company continues to apply intrinsic value accounting for its stock optionplans under Accounting Principles Board Opinion No. 25 (“APB 25”), “*Accounting for Stock Issued to Employees*”.Compensation cost for stock options, if any, is measured as the excess of themarket price of the Company’s common stock at the date of grant over theexercise price to be paid by the grantee to acquire the stock. The Company hasadopted disclosure-only provisions of SFAS No. 123 and SFAS No. 148, “*Accounting for Stock-Based Compensation—Transitionand Disclosure—an Amendment of FASB Statement No. 123*”. TheCompany’s pro forma net earnings based upon the fair value at the grant datesfor awards under the Company’s plans are disclosed below.

 

If the Company hadelected to recognize compensation expense based upon the fair value at thegrant dates for awards under these plans, the Company’s Net (Loss) would havebeen as follows:

 
|                                                                                                                                               |   | **Three  Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                                                               |   | **March 31,**           |   | **March 31,** |   |
| **(In thousand of dollars)**                                                                                                                       |   | **2003**                |   | **2002** |   |
| Net (Loss), as  reported                                                                                                                           |   | $(9,766                 | )      | $(7,717 | ) |
| Deduct: Total  additional stock-based employee compensation cost, net of tax, that would have  been included in Net (Loss) under fair value method |   | (123                    | )      | (56 | ) |
| Pro forma Net  (Loss)                                                                                                                              |   | $(9,889                 | )      | $(7,773 | ) |

 

The Company recognizedcompensation expense on stock options for which the exercise price was lessthan the fair value at the date of grant in the amount of $0.3 million and $0.1million for the three months ended March 31, 2003 and 2002, respectively.

 

The Company hasreclassified the presentation of certain prior period information to conform tothe current presentation format.

 

The Company haspreviously restated its results of operations for the first three quarters of2002 to report its investment in Rengo Riverwood Packaging Ltd. (“Rengo”) usingthe equity method.

 

**NOTE 3 – INVENTORIES**

 

The major classes ofinventories were as follows:

 
| **(In thousands of dollars)** |   | **March 31, 2003** |    | **December 31, 2002** |   |
|-------------------------------|--------|--------------------|---------|-----------------------|--------|
|                          |   |               |    |                  |   |
| Finished goods                |   | $                  | 88,093  |                  | $      | 78,518 |   |
| Work-in-process               |   | 16,241             |    | 15,175                |   |
| Raw materials                 |   | 40,292             |    | 42,841                |   |
| Supplies                      |   | 37,270             |    | 37,849                |   |
| Total                         |   | $                  | 181,896 |                  | $      | 174,383 |   |

 

In the fourth quarter of2002, the Company changed its method of valuing inventory from the last-in,first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method as overtime the FIFO method more closely matches revenues with costs. The FIFO methodmore accurately reflects the cost related to the actual physical flow of rawmaterials and finished goods inventory. Accordingly, the Company believes theFIFO method of valuing inventory will result in a better measurement ofoperating results. All previously reported results were restated to reflect theretroactive application of the accounting change as required by generallyaccepted accounting principles in the United States.

 

**NOTE 4 – CONTINGENCIES AND COMMITMENTS**

 

The Company is committedto compliance with all applicable foreign, federal, state and localenvironmental laws and regulations. Environmental law is, however, dynamicrather than static. As a result, costs that are unforeseeable at this time, maybe incurred when new laws are enacted, and when environmental agencies adopt orrevise rules and regulations. In general, the environmental laws that theCompany is subject to regulate discharges and emissions of constituents to theair, soil and water, prescribe procedures for the use, reuse, reclamation,recycling and disposal of designated waste materials and impose liability andrequirements relating to the cleanup of contamination. In certain instances, stateenvironmental laws may be stricter than their federal counterparts.

 

The federal Clean Air Actimposes stringent limits on air emissions, establishes a federal permit program(Title V) and provides for civil and criminal enforcement sanctions. In responseto these requirements, in the early 1990’s the Company switched fromsolvent-based to water-based inks and varnishes at its converting operations inorder to reduce and meet requirements with respect to emissions of volatileorganic compounds. Where necessary, the Company’s plants have received orsubmitted an application to the appropriate permitting authority for a Title Vpermit.

 

The federal Clean WaterAct establishes a system of minimum national effluent standards for eachindustry, water quality standards for the nation’s waterways and a permitprogram that provides discharge limitations. It also regulates releases andspills of oil and hazardous materials and wastewater and stormwater discharges.The Company’s mill in West Monroe, Louisiana is the only one of the Company’sfacilities that is a direct discharger to a water body and a permit currentlycovers its discharges to the

 

7

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Ouachita River. TheCompany’s other operations discharge to publicly owned treatment works and aresubject to pretreatment requirements and limitations.

 

The federal ComprehensiveEnvironmental Response, Compensation and Liability Act (“CERCLA”) establishesliability for waste generators, current and former site owners and operatorsand others in connection with releases of hazardous materials. In certaininstances, the Company has been identified as a Potentially Responsible Party(“PRP”) under CERCLA and similar state laws.

 

In 1998, the U.S.Environmental Protection Agency adopted regulations (generally referred to asthe “cluster rules”) that mandated more stringent controls on air and waterdischarges from United States pulp and paper mills. Over the next three years,the Company anticipates that it will spend approximately $22 million at its twoU.S. mills to comply with these regulations.

 

The Company is involvedin environmental investigation and remediation projects for certain propertiescurrently or formerly owned or operated by the Company, and at certain wastedisposal sites. Some of these projects are being addressed under federal andstate statutes, such as the CERCLA and analogous state laws. The Company’scosts in certain instances cannot be reliably estimated until the remediationprocess is substantially underway or liability has been addressed. The Companyaccrues reserves for these contingencies when the liability is probable and thecosts are reasonably estimable. The Company believes that based on currentinformation and regulatory requirements, its accruals for environmental mattersare adequate. However, there can be no assurance that the Company will notincur significant costs in excess of accrued amounts in connection withremediation activities and other environmental matters.

 

In late 1995, the LouisianaDepartment of Environmental Quality (the “DEQ”) notified the Predecessor ofpotential liability for the remediation of hazardous substances at a formerwood treatment site in Shreveport, Louisiana (known as the Line Avenue Site)that the Predecessor or its predecessors previously operated. In August 2001,the Company entered into an agreement with the DEQ and the landowners toremediate the site. The agreement required the removal of soils containingwood-treating constituents in excess of regulatory standards, consolidation ofthese soils in a sub-portion of the site, capping of the sub-portion, land userestrictions, future operations and maintenance (“O&M”) to ensure theintegrity of the cap, long-term monitoring of the groundwater, and a recordedprohibition on the use of on-site groundwater. The Company contracted with aqualified contractor to remediate the site at a cost of approximately $1.3million. In addition, each of the O&M and groundwater monitoring costs forthe initial five years are expected to be approximately $0.1 million (no suchcosts are estimated beyond the initial five-year period). As of March 31, 2003,all of the required soil excavation and consolidation has been completed. TheCompany expects to complete construction of the cap by June 2003. As of March31, 2003, the Company has paid its contractor approximately $1.0 million toremediate the site. The Company has been reimbursed approximately half of thesecosts from a PRP that has entered into a settlement agreement with the Company.

 

On July 6, 2000, theCompany and the DEQ entered into a Settlement Agreement for remediation of asite in Caddo Parish, Louisiana (known as the Shoreline Refinery Site). Theprincipal contamination at this site was an approximately 5 acre impoundment ofoil-based sludge that appeared to originate from an oil refinery that wasoperated by prior operators. The remedial action contemplated by the SettlementAgreement required the neutralization, stabilization and consolidation ofsludges and soils at the site, capping of the consolidated materials, theestablishment of a vegetative cover, and five years of post-closure care of thecapped area. The Company contracted to complete the  remedial action in accordance with the terms of the SettlementAgreement. In a November 26, 2002 letter to the Company, the DEQ stated thatall required construction activities were accomplished and that the five-yearpost-closure care and reporting period would commence. The Company conveyed theproperty to its contractor on October 22, 2000.

 

The Company is a party toa number of lawsuits arising out of the ordinary conduct of its business. Whilethere can be no assurance as to their ultimate outcome, the Company does notbelieve that these lawsuits will have a material impact on the results ofoperations, cash flows or financial condition of the Company.

 

8

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The Company has been aplaintiff in actions filed in the U.S. District Court for the Northern Districtof Georgia against The MeadWestvaco Corporation (“MeadWestvaco”), successor bymerger to The Mead Corporation, and R.A. Jones Co. Inc. (“R.A. Jones”) claiminginfringement of the Company’s patents for its packaging machines and seekingdamages sufficient to compensate for such infringement. The patents in suitwere found infringed but invalid by a jury in a trial against R.A. Jones inAugust 2001. This finding of invalidity as to U.S. Patent Nos. 5,666,789 and5,692,361 was appealed  to the Court ofAppeals for the Federal Circuit (the “CAFC”). The suit against MeadWestvaco wasdismissed by mutual agreement, subject to being refiled, pending the outcome ofthe appeal of the decision in the case against R.A. Jones. The CAFC vacated theholding of invalidity as to U.S. Patent Nos. 5,666,789 and 5,692,361 andremanded to the District Court for determination of proper inventive entity.The finding of infringement was affirmed by the CAFC. Further proceedingsconsistent with the decision of the CAFC will follow in the District Court.

 

**NOTE 5 – BUSINESS SEGMENT INFORMATION**

 

The Company reports itsresults in two business segments: Coated Board and Containerboard. Thesesegments are evaluated by the chief operating decision maker based primarily onincome from operations. The Company’s reportable segments are strategicbusiness units that offer different products. The Coated Board business segmentincludes the production and sale of coated board for its beverage multiplepackaging and consumer products packaging businesses from its West Monroe,Louisiana and Macon, Georgia mills and from its mill in Sweden; cartonconverting facilities in the United States, Europe and Brazil; and the design,manufacture and installation of packaging machinery related to the assembly ofbeverage cartons. The Containerboard business segment includes the productionand sale of linerboard, corrugating medium and kraft paper from paperboardmills in the United States.

 

Business segmentinformation is as follows:

 
|                           |   | **Three  Months Ended** |    |
|--------------------------------|--------|-------------------------|---------|
| **(In  thousands of dollars)** |   | **March  31,  2003**    |    | **March  31,  2002** |   |
| NET  SALES:                    |   |                    |    |   |   |
| Coated  Board                  |   | $                       | 275,912 |   | $ | 272,026 |   |
| Containerboard                 |   | 22,114                  |    | 19,158 |   |
|                           |   | $                       | 298,026 |   | $ | 291,184 |   |
|                           |   |                    |    |   |   |
| INCOME  FROM OPERATIONS:       |   |                    |    |   |   |
| Coated  Board                  |   | $                       | 38,880  |   | $ | 44,138 |   |
| Containerboard                 |   | (6,677                  | )       | (8,276 | ) |
| Corporate  And Eliminations    |   | (7,280                  | )       | (4,993 | ) |
|                           |   | $                       | 24,923  |   | $ | 30,869 |   |

 

9

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**NOTE 6 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES**

 

The Company is exposed tofluctuations in interest rates on its variable rate debt and fluctuations inforeign currency transaction cash flows. The Company actively monitors thesefluctuations and uses derivative instruments from time to time to manage itsexposure. In accordance with its risk management strategy, the Company usesderivative instruments only for the purpose of managing risk associated withfluctuations in the cash flow of the underlying exposures identified bymanagement. The Company does not trade or use derivative instruments with theobjective of earning financial gains on interest or currency rates, nor does ituse leveraged instruments or instruments where there are no underlyingexposures identified. The Company’s use of derivative instruments may result inshort-term gains or losses and may increase volatility in its earnings.

 

The following is asummary of the Company’s derivative instruments as of March 31, 2003 and theaccounting policies it employs:

 

# ***Hedges of Anticipated Cash Flows***

 

The following is areconciliation of current period changes in the fair value of the interest rateswap agreements and foreign currency forward and option contracts which havebeen recorded as Accumulated Derivative Instruments Loss in the accompanyingCondensed Consolidated Balance Sheets at March 31, 2003 and December 31, 2002and as Derivative Instruments (Loss) Gain in the accompanying CondensedConsolidated Statement of Operations and Comprehensive (Loss) for the threemonths ended March 31, 2003.

 
| **(In thousands of dollars)**         |   |   |   |
|---------------------------------------|--------|--------|--------|
|                                  |   |   |   |
| Balance at December 31, 2001          |   | $      | (4,570 | ) |
| Reclassification to earnings          |   | 6,014  |   |
| Current period decrease in fair value |   | (7,579 | )      |
| Balance at December 31, 2002          |   | (6,135 | )      |
| Reclassification to earnings          |   | 994    |   |
| Current period decrease in fair value |   | (1,251 | )      |
| Balance at March 31, 2003             |   | $      | (6,392 | ) |

 

At March 31, 2003, therewas no material ineffective portion related to the changes in fair value of theinterest rate swap agreements or foreign currency forward and option contractsand there were no amounts excluded from the measure of effectiveness. 

 

The balance of $6.4million recorded in Accumulated Derivative Instruments Loss at March 31, 2003is expected to be reclassified into future earnings, contemporaneously with andoffsetting changes in the related hedged exposure. The estimated amount to bereclassified into future earnings as interest expense over the next twelvemonths through March 31, 2004 is approximately $4.4 million. The actual amountthat will be reclassified to future earnings over the next twelve months mayvary from this amount as a result of changes in market conditions. No amountswere reclassified to earnings during 2003 in connection with forecastedtransactions that were no longer considered probable of occurring.

 

The Company uses interestrate swap agreements to fix a portion of its variable rate Term Loan Facilityto a fixed rate in order to reduce the impact of interest rate changes onfuture income. The differential to be paid or received under these agreementsis recognized as an adjustment to interest expense related to the debt. AtMarch 31, 2003, the Company had interest rate swap agreements with a notionalamount of $410 million, which expire on various dates through the year 2003 and2004 under which the Company will pay fixed rates of 2.21% to 3.52% and receivethree-month LIBOR.

 

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*Derivativesnot Designated as Hedges*

 

The Company has foreigncurrency forward contracts used to hedge the exposure associated with foreigncurrency denominated receivables. These contracts are presently beingmarked-to-market through the income statement and will continue to bemarked-to-market through the income statement.

 

The Company enters intofixed price natural gas contracts designed to effectively hedge prices for asubstantial portion of its natural gas requirements at its two U.S. mills. Thepurpose of the fixed price natural gas contracts is to eliminate or reduceprice risk with a focus on making cash flows more predictable. As of March 31,2003, the Company had entered into contracts to hedge substantially all of itsnatural gas requirements for its two U.S. mills through October 31, 2003. Thecontract price and fair value of these natural gas contracts was approximately$10.8 million and $14.9 million, respectively. These contracts are notaccounted for as derivative instruments under SFAS No. 133, as they qualify forthe normal purchase exemption.

 

**NOTE 7 – NEW ACCOUNTING PRONOUNCEMENTS**

 

In June 2001, the FASBissued SFAS No. 143, *“Accounting for Asset Retirement Obligations”*(“SFASNo. 143”), which is effective January 1, 2003. SFAS No. 143 addresses financialaccounting and reporting for obligations associated with the retirement oftangible long-lived assets and the associated asset retirement costs. The Companyadopted SFAS No. 143 effective January 1, 2003 and the adoption did not have asignificant impact on its financial position and results of operations. 

 

In April 2002, the FASBissued SFAS No. 145, “*Recission of FASB Statements No. 4, 44, and 64,**Amendmentof FASB Statement No. 13, and Technical Corrections as of April 2002”*(“SFAS No. 145”). This statement rescinds SFAS No. 4, *“Reporting Gains and Losses fromExtinguishment of Debt”* (“SFAS No. 4”) and an amendment of theStatement, SFAS No. 64, *“Extinguishments of Debt Made to Satisfy**Sinking-FundRequirements.”* This Statement also rescinds SFAS No. 44, *“Accountingfor Intangible**Assets of Motor Carriers.”* This statementamends SFAS No. 13, *“Accounting for Leases”*, to eliminate aninconsistency between the required accounting for sale-leaseback transactionsand the required accounting for certain lease modifications that have economiceffects that are similar to sale-leaseback transactions. The Company adoptedSFAS No. 145 effective January 1, 2003 which will result in a reclassificationof expenses from Extraordinary Loss on Early Extinguishment of Debt to (Loss)before Income Taxes of approximately $11.5 million, $8.7 million and $2.1million for the years ended December 31, 2002, 2001 and 2000, respectively,associated with the rescission of SFAS No. 4.

 

In July 2002, the FASBissued SFAS No. 146, *“Accounting for Costs Associated with Exit orDisposal Activities”* (“SFAS No. 146”), which was effective December31, 2002. SFAS No. 146 addresses financial accounting and reporting for costsassociated with exit or disposal activities and nullifies Emerging Issues TaskForce (“EITF”) Issue No. 94-3, *“Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring).”* This Statement requires that aliability for a cost associated with an exit or disposal activity be recognizedwhen the liability is incurred, and concludes that an entity’s commitment to anexit plan does not by itself create a present obligation that meets thedefinition of a liability. This Statement also establishes that fair value isthe objective of initial measurement of the liability. The provisions of thisStatement are effective for exit or disposal activities that are initiatedafter December 31, 2002, with early application encouraged. The Company adoptedSFAS No. 146 effective January 1, 2003 and the adoption did not have asignificant impact on its financial position and results of operations.

 

In December 2002, theFASB issued SFAS No. 148, *“Accounting for Stock-Based Compensation— Transitionand Disclosure, Amendment of SFAS No. 123”* (“SFAS No. 148”). ThisStatement provides additional transition guidance for those entities that electto voluntarily adopt the provisions of SFAS No. 123, *“Accounting for Stock-BasedCompensation.”* Furthermore, SFAS No. 148 mandates new disclosures inboth interim and year-end financial statements within the Company’s SignificantAccounting Policies footnote. The Company has elected not to adopt therecognition provisions of SFAS No. 123, as amended by SFAS No. 148 (See Note2).

 

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**NOTE 8 – DEFINITIVE MERGER AGREEMENT**

 

On March 25, 2003,Riverwood Holding, Riverwood Acquisition Sub LLC, a Delaware limited liabilitycompany and a wholly-owned subsidiary of Riverwood Holding (“Merger Sub”) andGraphic Packaging International Corporation, a Colorado corporation (“Graphic”)entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuantto the Merger Agreement and other related transaction documents, Graphic willmerge with and into Merger Sub (the “Graphic Merger”). Prior to consummation ofthe Graphic Merger, Riverwood Holding will effect a stock split. In connectionwith the Graphic Merger, the shareholders of Graphic will receive one share ofRiverwood Holding common stock and associated Riverwood Holding shareholderrights for each share of Graphic common stock and associated Graphicshareholder rights they own immediately prior to the Graphic Merger. Uponcompletion of the transaction, holders of Riverwood Holding common stock willown 57.5% and holders of Graphic common stock will own 42.5% of the commonstock of Riverwood Holding. The Merger Agreement has been approved by therespective Boards of Directors of Riverwood Holding and Graphic. Consummationof the Graphic Merger is subject to customary closing conditions, includingapproval by Graphic’s shareholders and regulatory approvals.

 

In connection with theexecution of the Merger Agreement, Riverwood Holding and certain majorshareholders of Graphic entered into a Voting Agreement dated March 25, 2003(the “Voting Agreement”) pursuant to which such shareholders agreed to vote forthe Graphic Merger and against any other transaction involving Graphic. Inaddition, pursuant to the Voting Agreement and as a condition to theeffectiveness of the Graphic Merger, The Grover C. Coors Trust (the “Trust”),the holder of Graphic’s 10% Series B Convertible Preferred Stock (the“Preferred Stock”) has agreed to convert all of the outstanding shares of thePreferred Stock into Graphic common stock. In consideration for the Trust’sconversion of the Preferred Stock, Riverwood Holding has agreed to pay theTrust, in cash, a conversion payment, in an amount equal to the estimatedpresent value, calculated using a discount rate of 8.5%, of dividends payableto the Trust on the Preferred Stock from the effective time of the GraphicMerger through August 15, 2005, the first date on which Graphic could haveredeemed the Preferred Stock. While the exact amount that will be paid to theTrust by Riverwood Holding depends upon the date of completion of the GraphicMerger, assuming that the effective time of the Graphic Merger will occur onJuly 1, 2003, Riverwood Holding currently anticipates that the payment inconsideration for the conversion of the Preferred Stock will be approximately$19.7 million.

 

On May 3, 2002, RiverwoodHolding filed a Form S-1 registration statement with the Securities andExchange Commission (“SEC”) for the registration under the Securities Act of1933 of $350 million of its common stock in a proposed initial public offering.On March 27, 2003, Riverwood Holding filed with the SEC an application to withdrawthe registration statement. As a result, the Company recorded an approximate$1.9 million charge in the first quarter of 2003 to write off costs it haddeferred associated with the proposed transaction.

 

**NOTE 9 – SUBSEQUENT EVENT**

 

On May 2, 2003, RiverwoodHolding filed a Form S-4 registration statement with the SEC for theregistration under the Securities Act of 1933 of the shares of RiverwoodHolding common stock being issued to Graphic shareholders in the GraphicMerger.

 

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**ITEM 2.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**General**

 

The Company reports itsresults in two business segments: Coated Board (relating to the Company’scoated unbleached kraft paperboard (“CUK Board”) used in its beverage multiplepackaging and consumer products packaging businesses) and Containerboard. TheCoated Board business segment includes (1) the production and sale of CUK Boardfor cartons from the Company’s West Monroe, Louisiana and Macon, Georgia millsand white lined chip board (“WLC”) from its paper mill in Norrköping, Sweden;(2) carton converting plants in the United States, Europe and Brazil; and (3)the design, manufacture and installation of packaging machinery related to theassembly of cartons for beverage and non-beverage consumer productsapplications. The Containerboard business segment includes the production andsale of linerboard, corrugating medium and kraft paper from paperboard mills inthe United States. The Company intends to stop producing linerboard as itcontinues to shift production capacity to higher margin CUK Board.

 

The table below setsforth EBITDA as defined in the Company’s Senior Secured Credit Agreement(“Credit Agreement EBITDA”). The Company is required under its Senior SecuredCredit Agreement to comply with a specified consolidated debt to CreditAgreement EBITDA leverage ratio and a specified consolidated Credit AgreementEBITDA to interest expense ratio for specified periods (see “—CovenantRestrictions”). Credit Agreement EBITDA may not be comparable to othercompanies’ definitions of “EBITDA”, is not a defined term under accountingprinciples generally accepted  in theUnited States and should not be considered a substitute for the CondensedConsolidated Statements of Operations or cash flow data.

** **

Thereconciliation of Net (Loss) Income to Credit Agreement EBITDA is as follows:
| **(In thousands of dollars)**                  |   | **Consolidated** |       | **Coated****Board** |       | **Container-  board** |       | **Corporate  and  Eliminations** |       |
|------------------------------------------------|--------|------------------|------------|---------------------|------------|-----------------------|------------|----------------------------------|------------|
|                                           |   |             |       |                |       |                  |       |                             |       |
| **For the Three Months Ended March  31, 2003** |   |             | ** ** |                | ** ** |                  | ** ** |                             | ** ** |
| Net (Loss) Income (A)                          |   | $                | (9,766     | )                   | $          | 38,880                |       | $                                | (6,677     | ) | $ | (41,969 | ) |
| Income Tax Expense                             |   | 1,016            |       | —              |       | —                |       | 1,016                            |       |
| Interest Expense, Net                          |   | 33,877           |       | —              |       | —                |       | 33,877                           |       |
| Depreciation and Amortization                  |   | 31,161           |       | 25,600              |       | 3,320                 |       | 2,241                            |       |
| Equity in Net Earnings of Affiliates           |   | (204             | )          | —              |       | —                |       | (204                             | )          |
| Other non-cash charges (B)                     |   | 3,558            |       | 1,989               |       | 396                   |       | 1,173                            |       |
| Dividends from equity investments              |   | —           |       | —              |       | —                |       | —                           |       |
| Credit Agreement EBITDA (C)                    |   | $                | 59,642     |                | $          | 66,469                |       | $                                | (2,961     | ) | $ | (3,866 | ) |
|                                           |   |             |       |                |       |                  |       |                             |       |
| **For the Three Months Ended March  31, 2002** |   |             |       |                |       |                  |       |                             |       |
| Net (Loss) Income (A)                          |   | $                | (7,717     | )                   | $          | 44,138                |       | $                                | (8,276     | ) | $ | (43,579 | ) |
| Income Tax Expense                             |   | 95               |       | —              |       | —                |       | 95                               |       |
| Interest Expense, Net                          |   | 38,605           |       | —              |       | —                |       | 38,605                           |       |
| Depreciation and Amortization                  |   | 32,103           |       | 26,694              |       | 3,107                 |       | 2,302                            |       |
| Equity in Net Earnings of Affiliates           |   | (114             | )          | —              |       | —                |       | (114                             | )          |
| Other non-cash charges (B)                     |   | (724             | )          | (1,655              | )          | 120                   |       | 811                              |       |
| Dividends from equity investments              |   | 612              |       | —              |       | —                |       | 612                              |       |
| Credit Agreement EBITDA (C)                    |   | $                | 62,860     |                | $          | 69,177                |       | $                                | (5,049     | ) | $ | (1,268 | ) |

 

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**Notes:**

(A) The Company does notallocate Income Tax Expense, Interest Expense, Net, Equity in Net Earnings ofAffiliates and Dividends from equity investments to the Coated Board orContainerboard segments; all such financial statement items are included as aCorporate credit or charge. As such, Income (Loss) from Operations as reportedof the Coated Board and Containerboard segments are equal to Net Income (Loss)of the Coated Board and Containerboard segments, respectively. 

 

(B) Other non-cashcharges include non-cash charges for pension, postretirement and postemploymentbenefits, and amortization of premiums on hedging contracts deducted in determiningnet income.

 

(C) Credit AgreementEBITDA is calculated in accordance with the definitions contained in theCompany’s Senior Secured Credit Agreement. Credit Agreement EBITDA is definedas consolidated net income (exclusive of non-cash charges resulting frompurchase accounting during the periods subsequent to the 1996 Merger) beforeconsolidated interest expense, consolidated income taxes, consolidateddepreciation and amortization, and other non-cash charges deducted indetermining consolidated net income, extraordinary items and the cumulativeeffect of accounting changes and earnings of, but including dividends from,non-controlled affiliates.

 

**BusinessTrends and Initiatives**

 

The Company’s cash flowfrom operations and Credit Agreement EBITDA are influenced by sales volume andselling prices for its products and raw material and energy costs, and areaffected by a number of significant business, economic and competitive factors.Many of these factors are not within the Company’s control. Historically, inthe Coated Board business segment, the Company has experienced stable pricingfor its integrated beverage carton products, and moderate cyclical pricing forits cartonboard, which historically has been principally sold in the openmarket. The Company’s cartonboard sales are affected by competition fromcompetitors’ CUK Board and other substrates— solid bleached sulfate (“SBS”),recycled clay coated news (“CCN”) and, internationally, WLC—as well as bygeneral market conditions.

 

In the Containerboard businesssegment, conditions in the cyclical worldwide commodity paperboard markets havea substantial impact on the Company’s Containerboard sales. During the firstquarter of 2003, the Company did not take any market related downtime at itsU.S. mills. The Company expects to take 7 days, or approximately 2,700 tons, ofmedium market related downtime during 2003 on its medium machine, but theamount of downtime could change depending upon market conditions. The downtimeresults from a number of factors, but principally a weak containerboard marketand production above planned rates. As a result of expected downtime during2003, the Company estimates the impact on earnings at its U.S. mills to beapproximately $0.5 million related to the under-absorption of fixed costs.

 

Energy, including naturalgas, fuel oil and electricity, represents a significant portion of theCompany’s manufacturing costs. During the first quarter of 2003, the Company’sfinancial results were negatively affected by energy costs when compared to thefirst quarter of 2002. The Company entered into fixed price natural gascontracts designed to mitigate the impact of future cost increases for itsnatural gas requirements at its two U.S. mills through and including October2003, and will continue to evaluate its hedge position.

 

In the fourth quarter of2002, the Company was notified by Coca-Cola Enterprises (“CCE”) that CCE willnot renew its supply contract with the Company. Under this contract, whichexpired on March 31, 2003, the Company supplied to CCE beverage cartons madefrom the Company’s CUK Board, packaging machines and related services. TheCompany’s supply contracts with its independent Coca-Cola bottling companycustomers are not subject to CCE’s non-renewal notification. CCE’s action didnot impact the Company’s 2002 results of operations. The impact on theCompany’s 2003 results of operations will depend, in part, on the extent towhich the Company supplies beverage cartons to CCE during a phase-out periodbeginning April 1, 2003, which the Company continues to discuss with CCE. TheCompany continues to explore opportunities to replace the volumes that it willlose as a result of CCE’s decision by seeking to increase sales to existing andnew customers and to develop new applications for its CUK Board. The Companycontinues to evaluate the impact of these developments and the recent increasein beverage market competitiveness on its future pricing for its beveragepackaging products. The Company can provide no assurances that it will be ableto replace all or any portion of the volumes it had expected to supply to CCEin 2003 and future periods or that it will be able to maintain current pricinglevels on its

 

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beverage packaging products. If the Company cannot replace suchvolumes, the Company estimates that its volumes will be negatively impacted byapproximately 17,000 tons in 2003 and 36,000 tons in 2004 and thereafter. In2002, the CCE business represented approximately 5% of the Company’sconsolidated net sales and Credit Agreement EBITDA.

 

The Company is pursuing anumber of long-term initiatives designed to improve productivity andprofitability. The Company realigned its business into commercially-focusedoperating units, implemented a global restructuring program, implemented anumber of cost saving measures and effected several management changes. TheCompany is continuing to implement a global Total Quality Systems (“TQS”)initiative which uses statistical process control to help design and manage alltypes of activities including production and maintenance.

 

In addition, the Companyis continuing to implement a strategy focused on the expansion into thehigh-growth segments of the consumer products packaging market. The Company istargeting segments of the non-beverage consumer products packaging market whereit intends to capitalize on its expertise in beverage multiple packaging.

 

The Company plans toimplement an initiative designed to enhance the competitiveness of its beveragecarton converting operations. This initiative is expected to add newmanufacturing technology, add press capacity and consolidate certain of theCompany’s beverage carton converting operations. The Company expects to make acapital investment of approximately $75 million, as well as related costs, overthe next 30 months.

 

The Company expectscapital expenditures will range from $110 million to $120 million in 2003 asthe Company invests to improve its process capabilities, in packagingmachinery, and to comply with environmental cluster rules. See “—Environmentaland Legal Matters.” The Company is accelerating certain capital driven costreduction projects that will deliver benefits in 2004 and 2005. The Companycontinues to evaluate its current operations and assets with a view torationalizing its operations and improving profitability, in particular withrespect to its international converting assets and strategy. Finally, theCompany is continuing to focus on reducing working capital and increasingliquidity.

 

Packaging machineryplacements during the first quarter of 2003 decreased approximately 47% whencompared to the first quarter of 2002. This decrease was partially due to thetiming of shipments. The Company expects packaging machinery placements for2003 to be comparable to 2002. The Company has been and will continue to beselective in future packaging machinery placements to ensure appropriatereturns.

 

On May 3, 2002, RiverwoodHolding filed a Form S-1 registration statement with the Securities andExchange Commission for the registration under the Securities Act of 1933 of$350 million of its common stock in a proposed initial public offering. OnMarch 27, 2003, Riverwood Holding filed with the SEC an application to withdrawthe registration statement. As a result, the Company recorded an approximate$1.9 million charge in the first quarter of 2003 to write off costs it haddeferred associated with the proposed transaction.

 

On March 25, 2003,Riverwood Holding, Riverwood Acquisition Sub LLC, a Delaware limited liabilitycompany and a wholly-owned subsidiary of Riverwood Holding (“Merger Sub”) andGraphic Packaging International Corporation, a Colorado corporation (“Graphic”)entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuantto the Merger Agreement and other related transaction documents, Graphic willmerge with and into Merger Sub (the “Graphic Merger”). Prior to consummation ofthe Graphic Merger, Riverwood Holding will effect a stock split. In connection withthe Graphic Merger, the shareholders of Graphic will receive one share ofRiverwood Holding common stock and associated Riverwood Holding shareholderrights for each share of Graphic common stock and associated Graphicshareholder rights they own immediately prior to the Graphic Merger. Uponcompletion of the transaction, holders of Riverwood Holding common stock willown 57.5% and holders of Graphic common stock will own 42.5% of the commonstock of Riverwood Holding. The Merger Agreement has been approved by therespective Boards of Directors of Riverwood Holding and Graphic.

 

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Consummation of the Graphic Merger is subject to customary closingconditions, including approval by Graphic’s shareholders and regulatoryapprovals.

 

In connection with theexecution of the Merger Agreement, Riverwood Holding and certain majorshareholders of Graphic entered into a Voting Agreement dated March 25, 2003(the “Voting Agreement”) pursuant to which such shareholders agreed to vote forthe Graphic Merger and against any other transaction involving Graphic. Inaddition, pursuant to the Voting Agreement and as a condition to theeffectiveness of the Graphic Merger, The Grover C. Coors Trust (the “Trust”),the holder of Graphic’s 10% Series B Convertible Preferred Stock (the“Preferred Stock”) has agreed to convert all of the outstanding shares of thePreferred Stock into Graphic common stock. In consideration for the Trust’sconversion of the Preferred Stock, Riverwood Holding has agreed to pay theTrust, in cash, a conversion payment, in an amount equal to the estimatedpresent value, calculated using a discount rate of 8.5%, of dividends payableto the Trust on the Preferred Stock from the effective time of the Graphic Mergerthrough August 15, 2005, the first date on which Graphic could have redeemedthe Preferred Stock. While the exact amount that will be paid to the Trust byRiverwood Holding depends upon the date of completion of the Graphic Merger,assuming that the effective time of the Graphic Merger will occur on July 1,2003, Riverwood Holding currently anticipates that the payment in considerationfor the conversion of the Preferred Stock will be approximately $19.7 million.

 

 

On May 2, 2003, RiverwoodHolding filed a Form S-4 registration statement with the Securities andExchange Commission for the registration under the Securities Act of 1933 ofthe shares of Riverwood Holding common stock being issued to Graphicshareholders in the Graphic Merger.

 

**Outlook**

 

The Company expects thatits 2003 full year Credit Agreement EBITDA will be comparable to its 2002Credit Agreement EBITDA, although no assurance can be given in this regard. Theachievement of this expectation is dependent upon (among other things) a numberof profit improvement initiatives, including increasing worldwide beverage andNorth American consumer products sales volumes above 2002 levels, improvingU.S. mill throughput, continued cost savings from other actions taken to dateand stable pricing for the Company’s products. In 2003, the Company expectssales volume increases in its worldwide beverage markets, and continued growthin its North American consumer products markets. The Company expectscontainerboard sales and margins to be negatively affected in 2003 due to thecontinued negative market pressures on containerboard pricing and salesvolumes. The Company believes that energy costs will negatively impact itsresults for 2003.

 

**Critical Accounting Policies**

 

The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States requires the Company to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. These estimates and assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances. Actual results could differ from these estimates underdifferent assumptions or conditions.

 

The Company believes thefollowing accounting policies are the most critical since these policiesrequire significant judgment or involve complex estimations that are importantto the portrayal of the Company’s financial conditions and operating results:

 

•The Company recognizes revenue when pervasive evidence of a sales arrangementexists, delivery has occurred, the price to the buyer is fixed anddeterminable, and the collectibility of the sales price is reasonably assured,which is primarily when goods are shipped to customers. Payments received inadvance from packaging machinery use agreements are recognized on astraight-line basis over the term of the agreements. Customer returns andallowances are provided based on estimates.

 

•The Company’s inventories are stated at the lower of cost or market with costdetermined principally by the first-in, first-out (“FIFO”) basis (see Note 3 inNotes to the Condensed Consolidated Financial Statements). Average cost basisis used to determine the cost of supplies inventories. Inventories are statednet of an allowance for slow-moving and obsolete inventory, which is based onestimates. If the

 

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condition of the inventories or the state of the Company’s businesswould deteriorate, additional allowances may be required which would reduceincome.

 

•The Company reviews long-lived assets, including goodwill and certainidentifiable intangibles for impairment whenever events or circumstancesindicate that the carrying value of an asset may not be recoverable. Upondetermination that the carrying value of the assets is impaired, the Companywould record an impairment charge or loss.

 

•The Company faces uncertainties relating to pending litigation andenvironmental investigation and remediation obligations. The Company recordsaccruals for such items based on estimates developed in consultation with legalcounsel and environmental consultants at the time when the liability isprobable and the costs are reasonably estimated. While there can be noassurance as to the ultimate outcome of any current lawsuits, claims orinvestigations relating to such uncertainties, the Company does not believethat such uncertainties will have a material adverse impact on the results ofoperations, cash flows or financial condition of the Company. However, futureuncertainties may have a material adverse impact on the results of operations,cash flows or financial condition of the Company.

 

•The Company incurs employment related expenses in connection with its pensionsand postretirement benefit plans. In order to measure the expenses associatedwith these plans, management must make various estimates and assumptions,including discount rates used to value liabilities, assumed rates of return onplan assets, compensation increases, employee turnover rates, anticipatedmortality rates and expected future healthcare costs. The estimates used bymanagement are based on the Company’s historical experience as well as currentfacts and circumstances. The Company uses third-party actuaries to assistmanagement in measuring the expense and liability associated with thesebenefits. Actual future results that vary from the previously mentionedassumptions could have a material impact on the condensed consolidatedfinancial statements.

 

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**RESULTS OF OPERATIONS**

 

The Company haspreviously restated its results of operations for the first three quarters of2002, to report its investment in Rengo Riverwood Packaging Ltd. (“Rengo”)using the equity method and to report its change in its method of determiningthe cost of inventories from the last-in, first-out method to the first-in,first-out method.

 
|                                           |   | **Three Months Ended** |    |
|------------------------------------------------|--------|------------------------|---------|
| **(In thousands of dollars)**                  |   | **March 31,  2003**    |    | **Increase  (Decrease)  From Prior  Period** |   | **March 31,  2002** |   |
| Net Sales (Segment  Data):                     |   |                   |    |   |   |   |   |
| Coated Board                                   |   | $                      | 275,912 |   | 1.4 | % | $ | 272,026 |   |
| Containerboard                                 |   | 22,114                 |    | 15.4 |   | 19,158 |   |
| Net Sales                                      |   | 298,026                |    | 2.3 |   | 291,184 |   |
| Cost of Sales                                  |   | 239,889                |    | 2.6 |   | 233,855 |   |
| Gross Profit                                   |   | 58,137                 |    | 1.4 |   | 57,329 |   |
| Selling, General and  Administrative           |   | 29,870                 |    | 8.2 |   | 27,615 |   |
| Research, Development  and Engineering         |   | 1,467                  |    | 11.5 |   | 1,316 |   |
| Other Expense (Income),  Net                   |   | 1,877                  |    | NM |   | (2,471 | ) |
| Income from Operations                         |   | $                      | 24,923  |   | (19.3 | )% | $ | 30,869 |   |
|                                           |   |                   |    |   |   |   |   |
| Income (Loss) from  Operations (Segment Data): |   |                   |    |   |   |   |   |
| Coated Board                                   |   | $                      | 38,880  |   | (11.9 | )% | $ | 44,138 |   |
| Containerboard                                 |   | (6,677                 | )       | 19.3 |   | (8,276 | ) |
| Corporate and  Eliminations                    |   | (7,280                 | )       | (45.8 | ) | (4,993 | ) |
| Income from Operations                         |   | $                      | 24,923  |   | (19.3 | )% | $ | 30,869 |   |
|                                           |   |                   |    |   |   |   |   |
| Other Financial Data:                          |   |                   |    |   |   |   |   |
|                                           |   |                   |    |   |   |   |   |
| Net Sales:                                     |   |                   |    |   |   |   |   |
| Carrierboard                                   |   | $                      | 184,011 |   | (2.2 | )% | $ | 188,108 |   |
| Cartonboard                                    |   | 59,164                 |    | 5.3 |   | 56,164 |   |
| White lined chip board                         |   | 24,862                 |    | 30.6 |   | 19,035 |   |
| Containerboard                                 |   | 22,114                 |    | 15.4 |   | 19,158 |   |
| Other (A)                                      |   | 7,875                  |    | (9.7 | ) | 8,719 |   |

 

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Note:

 

(A)Other primarily represents revenue recognized from packaging machinery serviceand use agreements and sales of certain by-products.

 

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** **

**Paperboard Shipments**

 

The following representsshipments of coated board and containerboard to outside customers. Shipments ofcoated board represent sales to customers of beverage carrierboard and foldingcartonboard. Shipments of white lined chip board represent sales to customersof WLC produced at the Swedish Mill. Shipments of containerboard representsales to customers of linerboard, corrugating medium, kraft paper and variousother items. Other primarily represents shipments of certain by-products. Totalshipments for the first quarters ended March 31, 2003 and 2002 were as follows:

 
|                        |   | **Three Months Ended** |   |
|-----------------------------|--------|------------------------|--------|
| **(In  thousands of tons)** |   | **March 31,  2003**    |   | **Increase  (Decrease)  From Prior  Period** |   | **March 31,  2002** |   |
|                        |   |                   |   |   |   |   |   |
| Coated  Board               |   |                   |   |   |   |   |   |
| Carrierboard                |   | 152.4                  |   | (1.5 | )% | 154.7 |   |
| Cartonboard                 |   | 90.0                   |   | 1.0 |   | 89.1 |   |
| White  Lined Chip Board     |   | 43.0                   |   | 9.4 |   | 39.3 |   |
| Containerboard              |   | 65.1                   |   | 13.2 |   | 57.5 |   |
| Other                       |   | 3.6                    |   | (44.6 | ) | 6.5 |   |
|                        |   | 354.1                  |   | 2.0 |  % | 347.1 |   |

 

**FIRST QUARTER 2003 COMPARED WITH FIRST QUARTER 2002**

 

**Net Sales**

 

As a result of thefactors described below, the Company’s Net Sales in the first quarter of 2003increased by $6.9 million, or 2.3%, to $298.0 million from $291.1 million inthe first quarter of 2002. Net Sales in the Coated Board business segmentincreased by $3.9 million, or 1.4%, to $275.9 million in the first quarter of2003 from $272.0 million in the first quarter of 2002, due primarily to thepositive impact of foreign currency exchange rates, higher sales volume inNorth American consumer products markets and higher sales volumes from theSwedish Mill. These increases were somewhat offset by lower pricing in North Americanbeverage markets as a result of increased beverage market competitiveness. NetSales in the Containerboard business segment increased by $2.9 million, or15.4%, to $22.1 million in the first quarter of 2003 from $19.2 million in thefirst quarter of 2002, due primarily to higher medium volumes and higherlinerboard pricing.

 

**Gross Profit**

 

As a result of thefactors discussed below, the Company’s Gross Profit for the first quarter of2003 increased by $0.8 million, or 1.4%, to $58.1 million from $57.3 million inthe first quarter of 2002. The Company’s gross profit margin decreased to 19.5%in the first quarter of 2003 from 19.7% in the first quarter of 2002. GrossProfit in the Coated Board business segment decreased by $0.9 million, or 1.3%,to $63.7 million in the first quarter of 2003 from $64.6 million in the firstquarter of 2002, while its gross profit margin decreased to 23.1% in the firstquarter of 2003 from 23.7% in the first quarter of 2002. The decrease in CoatedBoard Gross Profit was due primarily to the lower pricing in North Americanbeverage markets, higher energy costs and higher non-cash pension costssomewhat offset by higher Net Sales and worldwide cost reductions as a resultof savings gained from the Company’s TQS and other initiatives. Gross Profit inthe Containerboard business segment increased by $1.6 million to a loss of $5.6million in the first quarter of 2003 from a loss of $7.2 million in the firstquarter of 2002, while its gross profit margin increased to

 

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(25.1)% in the first quarter of 2003 from (37.7)% in the first quarterof 2002. The increase in Containerboard Gross Profit resulted principally fromhigher linerboard pricing.

 

**Selling, General and Administrative**

 

Selling, General andAdministrative expenses increased by $2.3 million, or 8.2%, to $29.9 million inthe first quarter of 2003 from $27.6 million in the first quarter of 2002, dueprimarily to increased activities to support the Company’s consumer products packagingbusiness, inflation and higher non-cash pension costs. As a percentage of NetSales, Selling, General and Administrative expenses increased to 10.0% in thefirst quarter of 2003 from 9.5% in the first quarter of 2002.

 

**Research, Development and Engineering**

 

Research, Development andEngineering expenses increased by $0.2 million, or 11.5%, to $1.5 million inthe first quarter of 2003 from $1.3 million in the first quarter of 2002.

 

**Other Expense (Income), Net**

 

Other Expense (Income),Net, was $1.9 million in the first quarter of 2003 as compared to $(2.5)million in the first quarter of 2002. This change was principally due to anon-cash pension adjustment recorded in the first quarter of 2002 and theapproximate $1.9 million charge in the first quarter of 2003 recorded to writeoff deferred costs associated with the proposed initial public offering (see“—Business Trends and Initiatives”).

 

**Income from Operations**

 

Primarily as a result ofthe factors discussed above, the Company’s Income from Operations in the firstquarter of 2003 decreased by $6.0 million, or 19.3%, to $24.9 million from$30.9 million in the first quarter of 2002, while the Company’s operatingmargin decreased to 8.4% in the first quarter of 2003 from 10.6.% in the firstquarter of 2002. Income from Operations in the Coated Board business segmentdecreased by $5.2 million, or 11.9%, to $38.9 million in the first quarter of2003 from $44.1 million in the first quarter of 2002, while the operatingmargin decreased to 14.1% in the first quarter of 2003 from 16.2% in the firstquarter of 2002, primarily as a result of the factors described above. Incomefrom Operations in the Containerboard business segment increased by $1.6million, or 19.3%, to a loss of $6.7 million in the first quarter of 2003 froma loss of $8.3 million in the first quarter of 2002, while the operating marginincreased to (30.2)% in the first quarter of 2003 from (43.2)% in the firstquarter of 2002, primarily as a result of the factors described above.

 

**Fluctuations in U.S. Currency Exchange Rates**

 

The weakening of the U.S.dollar currency exchange rates as compared to the Euro and other Europeancurrencies and the Japanese Yen had a modest impact on Net Sales, Gross Profit,Income from Operations, and operating expenses during the first quarter of2003.

 

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**INTEREST INCOME, INTEREST EXPENSE, INCOME TAX EXPENSE, ANDEQUITY IN NET EARNINGS OF AFFILIATES.**

 

**Interest Income**

 

Interest Income decreasedby $0.4 million to $0.1 million in the first quarter of 2003 from $0.5 millionin the first quarter of 2002 due primarily to lower average interest rates andinterest received in the first quarter of 2002 on monies held in escrow.

 

**Interest Expense**

 

Interest Expensedecreased by $5.1 million to $34.0 million in the first quarter of 2003 from$39.1 million in the first quarter of 2002 due primarily to lower averageinterest rates as a result of market interest rates and the second quarter 2002refinancing.

 

**Income Tax Expense**

 

During the first quarterof 2003, the Company recognized an income tax expense of $1.0 million on (Loss)before Income Taxes of $(9.0) million. During the first quarter of 2002, theCompany recognized an income tax expense of $0.1 million on (Loss) before IncomeTaxes of $(7.7) million. Income Tax Expense on income earned in the UnitedStates and certain foreign countries for the first quarter of both 2003 and2002 was fully offset by a reduction to valuation allowances recorded for thosecountries. Income Tax Expense for the first quarter of 2003 and 2002 primarilyrepresents Income Tax Expense on income earned in other foreign countries whereno valuation allowance is recorded. Since income earned in those foreigncountries was higher for the first quarter of 2003 in comparison to the firstquarter of 2002, Income Tax Expense was higher for the same period.

 

**Equity in Net Earnings of Affiliates**

 

Equity in Net Earnings ofAffiliates increased by $0.1 million to $0.2 million in the first quarter of2003 from $0.1 million in the first quarter of 2002 as a result of theCompany’s equity in net earnings of Rengo.

 

**FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES**

 

The Company broadlydefines liquidity as its ability to generate sufficient cash flow fromoperating activities to meet its obligations and commitments. In addition,liquidity includes the ability to obtain appropriate debt and equity financingand to convert into cash those assets that are no longer required to meetexisting strategic and financial objectives. Therefore, liquidity cannot beconsidered separately from capital resources that consist of current orpotentially available funds for use in achieving long-range business objectivesand meeting debt service commitments.

 

**Cash Flows**

 

Cash and Equivalentsdecreased by approximately $3.1 million in the first quarter of 2003 primarilyas a result of purchases of property, plant and equipment ($19.6 million)somewhat offset by cash provided by operating activities ($17.1 million) andthe net cash provided by financing activities ($0.4 million). Depreciation andamortization during the first quarter of 2003 totaled approximately $31.1million, and is expected to be approximately $125 million to $135 million in2003.

 

The Company’s net sales,income from operations and cash flows from its operations are subject tomoderate seasonality with demand usually increasing in the spring and summerdue to the seasonality of the worldwide beverage multiple packaging markets.

 

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**Liquidity and Capital Resources**

 

The Company’s liquidityneeds arise primarily from debt service on its substantial indebtedness andfrom the funding of its capital expenditures, ongoing operating costs andworking capital.

 

The Senior Secured CreditAgreement, dated August 10, 2001, among the Company and certain lenders, asamended (the “Senior Secured Credit Agreement”), provides for a $335 millionterm loan facility (the “2001 Term Loan Facility”), a $250 million term loanfacility (the “2002 Term Loan Facility” and, together under the 2001 Term LoanFacility, the “Term Loan Facilities”) and a $300 million revolving creditfacility (the “Revolving Facility” and collectively, the “Facilities”).

 

As of March 31, 2003, theCompany had outstanding approximately $1,504 million of long-term debt,consisting primarily of $400 million of its 10 7/8% Senior Subordinated Notesdue 2008 (the “Senior Subordinated Notes”), $500 million of its 10 5/8% SeniorNotes due 2007 (“Senior Notes”), $584 million outstanding under the Term LoanFacilities, $17 million under the Revolving Facility, and other debt issues andfacilities.

 

The Company currentlyanticipates entering into the following financing transactions (the “RelatedFinancing Transactions”) in connection with the Graphic Merger:

 

•                           Theclosing of new senior secured credit facilities for the combined companyproviding for approximately $1.6 billion of term loan and revolving creditcommitments.

 

•                           Theoffer and sale by the combined company of approximately $850 million of newsenior notes and/or senior subordinated notes.

 

•                           Therepayment in full of all outstanding amounts under the Senior Secured CreditAgreement and the termination of all commitments therein.

 

•                           Theconsummation of tender offers and consent solicitations for all outstandingSenior Notes and Senior Subordinated Notes expected to close concurrently withthe merger.

 

**Debt Service**

 

Principal and interestpayments under the 2001 Term Loan Facility, the Revolving Facility and the 2002Term Loan Facility, together with principal and interest payments on the SeniorNotes and the Senior Subordinated Notes, represent significant liquidityrequirements for the Company. The 2001 Term Loan Facility matures on December31, 2006 and amortizes in semi-annual installments of $37.5 million beginningJune 30, 2003 and of $46.25 million beginning June 30, 2005, amounting toprincipal payments of $75.0 million, $75.0 million, $92.5 million and $92.5million in 2003, 2004, 2005 and 2006 respectively. The 2002 Term Loan Facilityamortizes in semi-annual installments of $2.5 million annually in each of 2003,2004, 2005 and 2006 with the remaining principal due at maturity on March 31,2007. The Revolving Facility matures on December 31, 2006.

 

The loans under the Facilitiesbear interest at floating rates based upon the interest rate option elected bythe Company. The term loans under the Senior Secured Credit Agreement boreinterest as of March 31, 2003 at an average rate per annum of 4.06%. The SeniorNotes and the Senior Subordinated Notes bear interest at rates of 10 5/8% and10 7/8%, respectively. The loans under the Revolving Facility bore interest asof March 31, 2003 at an average rate per annum of 5.10%.

 

Interest expense in 2003is expected to be approximately $130 million to $135 million, includingapproximately $7 million of non-cash amortization of deferred debt issuancecosts. During the first quarter of 2003, cash paid for interest wasapproximately $35.7 million.

 

The Company expects thatits working capital and business needs will require it to continue to haveaccess to the Revolving Facility or a similar revolving credit facility afterthe maturity date, and that the Company accordingly will have to extend, renew,replace or otherwise refinance such facility at or prior to

 

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such date. No assurance can be given that it will be able to do so. TheCompany has in the past refinanced and in the future may seek to refinance itsdebt prior to the respective maturities of such debt.

 

The Company uses interestrate swap agreements to fix a portion of its variable rate term loans to afixed rate in order to reduce the impact of interest rate changes on futureincome. The difference to be paid or received under these agreements isrecognized as an adjustment to interest expense related to that debt. At March31, 2003, the Company had interest rate swap agreements with a notional amountof $410 million, under which the Company will pay fixed rates of 2.21% to 3.52%and receive three-month LIBOR.

 

**Covenant Restrictions**

 

The Senior Secured CreditAgreement, which governs the Facilities, imposes restrictions on the Company’sability to make capital expenditures and both the Senior Secured CreditAgreement and the indentures governing the Senior Subordinated Notes and theSenior Notes limit the Company’s ability to incur additional indebtedness. Suchrestrictions, together with the highly leveraged nature of the Company, couldlimit the Company’s ability to respond to market conditions, meet its capitalspending program, provide for unanticipated capital investments or takeadvantage of business opportunities. The covenants contained in the SeniorSecured Credit Agreement, among other things, restrict the ability of theCompany and its subsidiaries to dispose of assets, incur additionalindebtedness, incur guarantee obligations, prepay other indebtedness or amendother debt instruments, pay dividends, create liens on assets, enter into saleand leaseback transactions, make investments, loans or advances, makeacquisitions, engage in mergers or consolidations, change the businessconducted by Riverwood and its subsidiaries, make capital expenditures andengage in certain transactions with affiliates. The covenants contained in theindentures governing the Senior Subordinated Notes and the Senior Notes alsoimpose restrictions on the operation of the Company’s business.

 

The financial covenantsin the Senior Secured Credit Agreement specify, among other things, thefollowing requirements for each four quarter period ended during the followingtest periods:

 
| **Test Period**                        |   | **Consolidated  Debt to  Credit Agreement EBITDA  Leverage Ratio** |   | **Consolidated  Credit  Agreement EBITDA to  Interest Expense Ratio** |   |
|----------------------------------------|--------|--------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|
| December 31,  2002 - December 30, 2003 |   | 5.50 to 1.00                                                       |   | 2.00 to 1.00                                                          |   |
| December 31,  2003 - December 30, 2004 |   | 5.00 to 1.00                                                       |   | 2.10 to 1.00                                                          |   |
| December 31,  2004 - December 30, 2005 |   | 4.70 to 1.00                                                       |   | 2.25 to 1.00                                                          |   |
| December 31,  2005 - December 30, 2006 |   | 4.40 to 1.00                                                       |   | 2.25 to 1.00                                                          |   |
| December 31,  2006 - March 31, 2007    |   | 4.40 to 1.00                                                       |   | 2.25 to 1.00                                                          |   |

 

At March 31, 2003, theCompany was in compliance with the financial covenants in the Senior SecuredCredit Agreement. The Company’s ability to comply in future periods with thefinancial covenants in the Senior Secured Credit Agreement will depend on itsongoing financial and operating performance, which in turn will be subject toeconomic conditions and to financial, business and other factors, many of whichare beyond the Company’s control and will be substantially dependent on theselling prices for the Company’s products, raw material and energy costs, andthe Company’s ability to successfully implement its overall business andprofitability strategies (see “—Outlook”). If a violation of any of thecovenants occurred, the Company would attempt to get a waiver or an amendmentfrom its lenders, although no assurance can be given that the Company would besuccessful in this regard. The Senior Secured Credit Agreement and theindentures governing the Senior Subordinated Notes and the Senior Notes havecovenants as well as certain cross-default or cross-acceleration provisions;failure to comply with these covenants in any agreement could result in aviolation of such agreement which could, in turn, lead to violations of otheragreements pursuant to such cross-default or cross-acceleration provisions.

 

The Senior Secured CreditAgreement is collateralized by substantially all of the Company’s assets.

 

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**CapitalExpenditures**

 

Capital spending for the first quarter of 2003 was approximately $19.6million, up 59.4% from $12.3 million in the first quarter of 2002. Capitalspending during the first quarter of 2003 related primarily to improving theCompany’s process capabilities ($15.1 million), manufacturing packagingmachinery ($4.1 million) and environmental cluster rules compliance ($0.4million). Total capital spending for 2003 is expected to be between $110million and $120 million, and is expected to relate principally to improvingthe Company’s process capabilities, the production of packaging machinery andenvironmental cluster rules compliance. The Company is accelerating certaincapital driven cost reduction projects that will deliver benefits in 2004 and2005. Over the next three years, the Company anticipates that it will spendapproximately $22 million at its two U.S. mills to comply with the clusterrules.

 

**FinancingSources and Cash Flows**

 

The Revolving Facility matures on December 31, 2006. At March 31, 2003,the Company and  its U.S. andinternational subsidiaries had the following amounts of commitments, amountsoutstanding and amounts available under revolving credit facilities:

 
| **(In  thousands of dollars)** |   | **Total Amount of  Commitments** |    | **Total Amount  Outstanding** |   | **Total Amount  Available (A)** |   |
|--------------------------------|--------|----------------------------------|---------|-------------------------------|--------|---------------------------------|--------|
|                           |   |                             |    |                          |   |                            |   |
| Revolving Facility             |   | $                                | 300,000 |                          | $      | 16,950                          |   | $ | 282,408 |   |
| International Facilities       |   | 18,606                           |    | 12,495                        |   | 6,111                           |   |
|                           |   | $                                | 318,606 |                          | $      | 29,445                          |   | $ | 288,519 |   |

 

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Note:

(A) In accordance with its debt agreements,the Company’s availability under its Revolving Facility as of March 31, 2003has been reduced by the amount of standby letter of credits issued ofapproximately $0.6 million.

 

The Company is required by its insurance company to have a standbyletter of credit to secure payment of Workers’ Compensation claims. The letterof credit, with a value of $0.4 million, expired on February 20, 2003 and wassubsequently extended. The letter of credit will automatically be extendedwithout amendment for successive one year periods from the current expirationdate and any future expiration date unless at least 45 days prior to theexpiration date the Company is notified that the financial institution electsnot to renew.

 

In addition, the Ohio Bureau of Workers’ Compensation requires theCompany to have a standby letter of credit for non-performance according to theconditions and obligations as provided under Workers’ Compensation law. It is afurther condition of the letter of credit to cover all injuries or occupationaldisease claims incurred in any period prior to and/or during the present termshould the Company not perform. The letter of credit, with a value of $0.2million, was renewed on September 20, 2002 and is automatically extendedwithout amendment for successive one year periods from the current expirationdate and any future expiration date unless at least 60 days prior to theexpiration date the Company is notified that the financial institution electsnot to renew.

 

The Company anticipates pursuing additional working capital financingfor its foreign operations as necessary. The Company believes that cashgenerated from operations, together with amounts available under its RevolvingFacility and other available financing sources, will be adequate to permit theCompany to meet its debt service obligations, capital expenditure programrequirements, ongoing operating costs and working capital needs until thematurity of the Revolving Facility, although no assurance can be given in thisregard. The Company’s future financial and operating performance, ability toservice or refinance its debt and ability to comply with the covenants andrestrictions contained in its debt agreements (see “—Covenant Restrictions”),will be subject to future economic conditions and to financial, business andother factors, many of which are beyond the Company’s control and will besubstantially dependent on the

 

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selling prices and demand for the Company’s products, raw material andenergy costs, and the Company’s ability to successfully implement its overallbusiness and profitability strategies.

 

**DerivativeInstruments and Hedging Activities**

 

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

 

The following is a summary of the Company’s derivative instruments asof March 31, 2003 and the accounting policies it employs:

 

# ***Hedges of Anticipated Cash Flows***

 

The following is a reconciliation of current period changes in the fairvalue of the interest rate swap agreements and foreign currency forward andoption contracts which have been recorded as Accumulated Derivative InstrumentsLoss in the accompanying Condensed Consolidated Balance Sheets at March 31,2003 and December 31, 2002 and as Derivative Instruments (Loss) Gain in theaccompanying Condensed Consolidated Statement of Operations and Comprehensive(Loss) for the three months ended March 31, 2003.

 
| Balance at  December 31, 2001          |   | $      | (4,570 | ) |
|----------------------------------------|--------|--------|--------|---|
| Reclassification  to earnings          |   | 6,014  |   |
| Current period  decrease in fair value |   | (7,579 | )      |
| Balance at  December 31, 2002          |   | (6,135 | )      |
| Reclassification  to earnings          |   | 994    |   |
| Current period  decrease in fair value |   | (1251  | )      |
| Balance at March  31, 2003             |   | $      | (6,392 | ) |

 

At March 31, 2003, there was no material ineffective portion related tothe changes in fair value of the interest rate swap agreements or foreigncurrency forward and option contracts and there were no amounts excluded fromthe measure of effectiveness. 

 

The balance of $6.4 million recorded in Accumulated DerivativeInstruments Loss at March 31, 2003 is expected to be reclassified into futureearnings, contemporaneously with and offsetting changes in the related hedgedexposure. The estimated amount to be reclassified into future earnings as interestexpense over the next twelve months through March 31, 2004 is approximately$4.4 million. The actual amount that will be reclassified to future earningsover the next twelve months may vary from this amount as a result of changes inmarket conditions. No amounts were reclassified to earnings during 2003 inconnection with forecasted transactions that were no longer considered probableof occurring.

 

The Company uses interest rate swap agreements to fix a portion of itsvariable rate Term Loan Facility to a fixed rate in order to reduce the impactof interest rate changes on future income. The differential to be paid orreceived under these agreements is recognized as an adjustment to interestexpense related to the debt. At March 31, 2003, the Company had interest rateswap agreements with a notional amount of

 

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$410 million, which expire on various dates through the year 2003 and2004 under which the Company will pay fixed rates of 2.21% to 3.52% and receivethree-month LIBOR.

 

*Derivativesnot Designated as Hedges*

 

The Company has foreign currency forward contracts used to hedge theexposure associated with foreign currency denominated receivables. Thesecontracts are presently being marked-to-market through the income statement andwill continue to be marked-to-market through the income statement.

 

The Company enters into fixed price natural gas contracts designed toeffectively hedge prices for a substantial portion of its natural gasrequirements at its two U.S. mills. The purpose of the fixed price natural gascontracts is to eliminate or reduce price risk with a focus on making cashflows more predictable. As of March 31, 2003, the Company had entered intocontracts to hedge substantially all of its natural gas requirements for itstwo U.S. mills through October 31, 2003. The contract price and fair value ofthese natural gas contracts was approximately $10.8 million and $14.9 million,respectively. These contracts are not accounted for as derivative instrumentsunder SFAS No. 133, as they qualify for the normal purchase exemption.

 

**Environmentaland Legal Matters**

 

The Company is committed to compliance with all applicable foreign,federal, state and local environmental laws and regulations. Environmental lawis, however, dynamic rather than static. As a result, costs that areunforeseeable at this time, may be incurred when new laws are enacted, and whenenvironmental agencies adopt or revise rules and regulations. In general, theenvironmental laws that the Company is subject to regulate discharges andemissions of constituents to the air, soil and water, prescribe procedures forthe use, reuse, reclamation, recycling and disposal of designated wastematerials and impose liability and requirements relating to the cleanup ofcontamination. In certain instances, state environmental laws may be stricterthan their federal counterparts.

 

The federal Clean Air Act imposes stringent limits on air emissions,establishes a federal permit program (Title V) and provides for civil andcriminal enforcement sanctions. In response to these requirements, in the early1990’s the Company switched from solvent-based to water-based inks andvarnishes at its converting operations in order to reduce and meet requirementswith respect to emissions of volatile organic compounds. Where necessary, theCompany’s plants have received or submitted an application to the appropriatepermitting authority for a Title V permit.

 

The federal Clean Water Act establishes a system of minimum nationaleffluent standards for each industry, water quality standards for the nation’swaterways and a permit program that provides discharge limitations. It also regulates releases and spills of oil andhazardous materials and wastewater and stormwater discharges. The Company’smill in West Monroe, Louisiana is the only one of the Company’s facilities thatis a direct discharger to a water body and a permit currently covers itsdischarges to the Ouachita River. The Company’s other operations discharge topublicly owned treatment works and are subject to pretreatment requirements andlimitations.

 

The federal Comprehensive Environmental Response, Compensation andLiability Act (“CERCLA”) establishes liability for waste generators, currentand former site owners and operators and others in connection with releases ofhazardous materials. In certain instances, the Company has been identified as aPotentially Responsible Party (“PRP”) under CERCLA and similar state laws.

 

In 1998, the U.S. Environmental Protection Agency adopted regulations(generally referred to as the    “cluster rules”) that mandated more stringent controls on air and waterdischarges from United States pulp and paper mills. Over the next three years,the Company anticipates that it will spend approximately $22 million at its twoU.S. mills to comply with these regulations.

 

The Company is involved in environmental investigation and remediationprojects for certain properties currently or formerly owned or operated by theCompany, and at certain waste disposal sites. Some of

 

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these projects are being addressed under federal and state statutes,such as the CERCLA and analogous state laws. The Company’s costs in certaininstances cannot be reliably estimated until the remediation process issubstantially underway or liability has been addressed. The Company accruesreserves for these contingencies when the liability is probable and the costsare reasonably estimable. The Company believes that based on currentinformation and regulatory requirements, its accruals for environmental mattersare adequate. However, there can be no assurance that the Company will notincur significant costs in excess of accrued amounts in connection withremediation activities and other environmental matters.

 

In late 1995, the Louisiana Department of Environmental Quality (the“DEQ”) notified the Predecessor of potential liability for the remediation ofhazardous substances at a former wood treatment site in Shreveport, Louisiana(known as the Line Avenue Site) that the Predecessor or its predecessorspreviously operated. In August 2001, the Company entered into an agreement withthe DEQ and the landowners to remediate the site. The agreement required theremoval of soils containing wood-treating constituents in excess of regulatorystandards, consolidation of these soils in a sub-portion of the site, cappingof the sub-portion, land use restrictions, future operations and maintenance(“O&M”) to ensure the integrity of the cap, long-term monitoring of thegroundwater, and a recorded prohibition on the use of on-site groundwater. TheCompany contracted with a qualified contractor to remediate the site at a costof approximately $1.3 million. In addition, each of the O&M and groundwatermonitoring costs for the initial five years are expected to be approximately$0.1 million (no such costs are estimated beyond the initial five-year period).As of March 31, 2003, all of the required soil excavation and consolidation hasbeen completed. The Company expects to complete construction of the cap by June2003. As of March 31, 2003, the Company has paid its contractor approximately$1.0 million to remediate the site. The Company has been reimbursedapproximately half of these costs from a PRP that has entered into a settlementagreement with the Company.

 

On July 6, 2000, the Company and the DEQ entered into a SettlementAgreement for remediation of a site in Caddo Parish, Louisiana (known as theShoreline Refinery Site). The principal contamination at this site was anapproximately 5 acre impoundment of oil-based sludge that appeared to originatefrom an oil refinery that was operated by prior operators. The remedial actioncontemplated by the Settlement Agreement required the neutralization,stabilization and consolidation of sludges and soils at the site, capping ofthe consolidated materials, the establishment of a vegetative cover, and fiveyears of post-closure care of the capped area. The Company contracted tocomplete the  remedial action inaccordance with the terms of the Settlement Agreement. In a November 26, 2002letter to the Company, the DEQ stated that all required construction activitieswere accomplished and that the five-year post-closure care and reporting periodwould commence. The Company conveyed the property to its contractor on October22, 2000.

 

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

 

The Company has been a plaintiff in actions filed in the U.S. DistrictCourt for the Northern District of Georgia against The MeadWestvaco Corporation(“MeadWestvaco”), successor by merger to The Mead Corporation, and R.A. JonesCo. Inc. (“R.A. Jones”) claiming infringement of the Company’s patents for itspackaging machines and seeking damages sufficient to compensate for suchinfringement. The patents in suit were found infringed but invalid by a jury ina trial against R.A. Jones in August 2001. This finding of invalidity as toU.S. Patent Nos. 5,666,789 and 5,692,361 was appealed  to the Court of Appeals for the Federal Circuit (the “CAFC”). Thesuit against MeadWestvaco was  dismissedby mutual agreement, subject to being refiled, pending the outcome of theappeal of the  decision in the caseagainst R.A. Jones. The CAFC vacated the holding of invalidity as to U.S.Patent Nos. 5,666,789 and 5,692,361 and remanded to the District Court fordetermination of proper inventive entity. The finding of infringement wasaffirmed by the CAFC. Further proceedings consistent with the decision of theCAFC will follow in the District Court.

 

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**InformationConcerning Forward-Looking Statements**

 

Certain of the statements contained in this report (other than thefinancial statements and other statements of historical fact) areforward-looking statements, including, without limitation, (i) the statementsin “—Business Trends and Initiatives” concerning (a) the Company’s expectationregarding downtime during 2003, (b) the improvements which the Company’slong-term initiatives, including, without limitation, its TQS initiative, aredesigned to achieve, (c) the Company’s expectation that capital expenditureswill range from $110 million to $120 million in 2003, (d) the Company’sexpectations regarding the impact of CCE’s non-renewal notification, (e) theCompany’s expectation regarding its beverage carton converting operationsinitiative, (f) the closing of the Graphic Merger is subject to thesatisfaction of a number of significant conditions, and (g) the Company’sexpectation regarding packaging machinery placements; (ii) the statements in“—Outlook” concerning (a) the Company’s expectation that its 2003 CreditAgreement EBITDA will be comparable to its 2002 Credit Agreement EBITDA as wellas each of the factors which the Company believes support such expectation, (b)the Company’s expectations regarding sales volumes in its worldwide beveragemarkets and continued growth in its North American consumer product markets,(c) the Company’s expectation regarding containerboard sales and margins, and(d) the Company’s expectations regarding energy costs; (iii) the statements in“—Financial Condition, Liquidity and Capital Resources” concerning (a) theCompany’s expectation that depreciation and amortization for 2003 will beapproximately $125 million to $135 million, (b) the Company’s expectation aboutentering into the Related Financing Transactions, (c) the Company’s expectationthat 2003 interest expense will be approximately $130 million to $135 million,including approximately $7 million of non-cash amortization of deferred debtissuance costs, (d) the Company’s belief that cash generated from operations,together with amounts available under available financing sources, will beadequate to permit the Company to meet its debt service obligations, capitalexpenditure program requirements, ongoing operating costs and working capitalneeds until the maturity of the Revolving Facility, and (e) the Company’sexpectations with respect to capital spending that may be required to complywith the cluster rules and that, based on current knowledge, environmentalcosts are not expected to have a material impact on the results of operations,cash flows or financial condition of the Company,(iv) other statements as tomanagement’s or the Company’s expectations and beliefs presented in this“Management’s Discussion and Analysis of Financial Condition and Results ofOperations.”

 

Forward-looking statements are made based upon management’s currentexpectations and beliefs concerning future developments and their potentialeffects upon the Company. There can be no assurance that future developmentswill be in accordance with management’s expectations or that the effect offuture developments on the Company will be those anticipated by management. Theimportant factors described elsewhere in this report (including, withoutlimitation, those discussed in “—Financial Condition, Liquidity and CapitalResources”), the Company’s Report on Form 10-K for the year ended December 31,2002 or in other Securities and Exchange Commission filings of the Company,could affect (and in some cases have affected) the Company’s actual results andcould cause such results to differ materially from estimates or expectationsreflected in such forward-looking statements.

 

While the Company periodically reassesses material trends anduncertainties affecting the Company’s results of operations and financialcondition in connection with its preparation of management’s discussion andanalysis of results of operations and financial condition contained in itsquarterly and annual reports, the Company does not intend to review or reviseany particular forward-looking statement referenced in this report in light offuture events.

 

**RecentAccounting Pronouncements**

 

In June 2001, the FASB issued SFAS No. 143, *“Accounting for Asset RetirementObligations”*(“SFAS No. 143”), which is effective January 1, 2003.SFAS No. 143 addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs. The Company adopted SFAS No. 143 effective January 1,2003 and the adoption did not have a significant impact on its financialposition and results of operations.

 

In April 2002, the FASB issued SFAS No. 145, *“Recission of FASB Statements No. 4,44, and 64,**Amendment of FASB Statement No. 13, and TechnicalCorrections as of April 2002”* (“SFAS No. 145”).

 

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This statement rescinds SFAS No. 4, *“Reporting Gains and Losses from Extinguishment ofDebt”* (“SFAS No. 4”) and an amendment of the Statement, SFAS No. 64,*“Extinguishmentsof Debt Made to Satisfy**Sinking-Fund Requirements.”* This Statementalso rescinds SFAS No. 44, *“Accounting for Intangible**Assets ofMotor Carriers.”* This statement amends SFAS No. 13, *“Accountingfor Leases”*, to eliminate an inconsistency between the requiredaccounting for sale-leaseback transactions and the required accounting forcertain lease modifications that have economic effects that are similar tosale-leaseback transactions. SFAS No. 145 will be effective for fiscal 2003,which begins January 1, 2003. Management expects that the adoption of thisstatement will result in a reclassification of expenses from Extraordinary Losson Early Extinguishment of Debt to (Loss) before Income Taxes of approximately$11.5 million, $8.7 million and $2.1 million for the years ended December 31,2002, 2001 and 2000, respectively, associated with the rescission of SFAS No. 4.

 

In July 2002, the FASB issued SFAS No. 146, *“Accounting for Costs Associated withExit or Disposal Activities”* (“SFAS No. 146”), which was effectiveDecember 31, 2002. SFAS No. 146 addresses financial accounting and reportingfor costs associated with exit or disposal activities and nullifies EmergingIssues Task Force (“EITF”) Issue No. 94-3, *“Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring).”* This Statement requires that aliability for a cost associated with an exit or disposal activity be recognizedwhen the liability is incurred, and concludes that an entity’s commitment to anexit plan does not by itself create a present obligation that meets thedefinition of a liability. This Statement also establishes that fair value isthe objective of initial measurement of the liability. The provisions of thisStatement are effective for exit or disposal activities that are initiatedafter December 31, 2002, with early application encouraged. The Company adoptedSFAS No. 146 effective January 1, 2003 and the adoption did not have asignificant impact on its financial position and results of operations.

 

In December 2002, the FASB issued SFAS No. 148, *“Accounting for Stock-BasedCompensation— Transition and Disclosure, Amendment of SFAS No. 123”*(“SFAS No. 148”). This Statement provides additional transition guidance forthose entities that elect to voluntarily adopt the provisions of SFAS No. 123, *“Accountingfor Stock-Based Compensation.”* Furthermore, SFAS No. 148 mandatesnew disclosures in both interim and year-end financial statements within theCompany’s Significant Accounting Policies footnote. The Company has elected notto adopt the recognition provisions of SFAS No. 123, as amended by SFAS No.148. See Note 2 in Notes to the Condensed Consolidated Financial Statements.

 

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**ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISK**

 

For a discussion of certain market risks related to the Company, seePart II, Item 7A, “Quantitative and Qualitative Disclosure about Market Risk”,in the Company’s Annual Report on Form 10-K for the fiscal period endedDecember 31, 2002. There have been no significant developments with respect toderivatives or exposure to market risk during the first quarter of 2003.  See Note 6 in Notes to CondensedConsolidated Financial Statements.

 

**ITEM4.  CONTROLS AND PROCEDURES**

 

(a)           **Evaluation of disclosure controls andprocedures.**  The Company’schief executive officer and its chief financial officer, based on theirevaluation of the Company’s disclosure controls and procedures (as defined inExchange Act Rule 15d-14(c)) as of a date within 90 days prior to the filing ofthis quarterly report on Form 10-Q, performed under the supervision and withthe participation of the Company’s management, have concluded that theCompany’s disclosure controls and procedures are adequate and effective for thepurposes set forth in the definition thereof in Exchange Act Rule 15d-14(c).

 

(b)           **Changes in internal controls**.  There were no significant changes in theCompany’s internal controls or in other factors that could significantly affectthe Company’s internal controls subsequent to the date of their most recentevaluation.

 

**PART II- OTHER INFORMATION**

 

**ITEM 1.                   LegalProceedings.**

 

Not applicable

 

**ITEM 2.                   Changesin Securities and Use of Proceeds.**

 

Not applicable

 

**ITEM 3.                   DefaultsUpon Senior Securities.**

 

Not applicable

 

**ITEM 4.                   Submissionof Matters to a Vote of Security Holders**.

 

On March 24, 2003, a written consent of stockholders in lieu of aspecial meeting was executed by the stockholders of the Company to approve andadopt the Merger Agreement and the Restated Certificate of Incorporation of theCompany and to approve the Company's 2003 Long-Term Incentive Plan.

 

**ITEM 5.                   OtherInformation.**

 

Not applicable

 

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**ITEM 6.                   Exhibitsand Reports on Form 8-K.**

 

(a)  Exhibits.

 

99.1 Certifications pursuant to 18 United States Code Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed as anexhibit hereto.

 

(b)  Reports onForm 8-K.

 

Filed on March 27, 2003 reporting a definitive MergerAgreement with Graphic Packaging International Corporation.

 

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**SIGNATURE**

 

Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized as of 15th day ofMay, 2003.

 

 
|   | RIVERWOOD  HOLDING, INC.                                                              |
|--------|---------------------------------------------------------------------------------------|
|   |                                                                                  |   |
|   | (Registrant)                                                                          |
|   |                                                                                  |
| Date:  | May 15, 2003                                                                          | By: |
|   | /s/          Edward  W. Stroetz Jr. |   |
|   | Edward W. Stroetz Jr.                                                                 |
|   | Secretary                                                                             |
|   |                                                                                  |   |
| Date:  | May 15, 2003                                                                          | By: |
|   | /s/          Daniel  J. Blount      |   |
|   | Daniel J. Blount                                                                      |
|   | Senior Vice President  and                                                            |
|   | Chief Financial Officer                                                               |
|        |                                                                                       |  |  |  |

 

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CERTIFICATIONS

I, Stephen M. Humphrey, certify that:

 

1.  I have reviewed thisquarterly report on Form 10-Q of Riverwood Holding, Inc.;

 

2.   Based on my knowledge, thisquarterly report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.             Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.             The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)             presented in this quarterly report our conclusions aboutthe effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.             The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)            any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.   The registrant’s othercertifying officers and I have indicated in this quarterly report whether therewere significant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
|   | Date: May 15, 2003                    |
|--------|---------------------------------------|
|   |                                  |
|   | /s/  STEPHEN  M. HUMPHREY        |   |
|   | Stephen M. Humphrey                   |
|   | President and Chief Executive Officer |

 

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CERTIFICATIONS

I, Daniel J. Blount, certify that:

 

### ***1. I have reviewed this quarterly report on Form 10-Q of Riverwood Holding,Inc.;***

 

### ***2.  Based on my knowledge, this quarterly report does not contain any untruestatement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this quarterlyreport;***

 

### ***3.             Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;***

 

### ***4.                 Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:***

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)             presented in this quarterly report our conclusions aboutthe effectiveness of the disclosure controls and procedures based on our evaluationas of the Evaluation Date;

 

### ***5.  The registrant’s other certifying officers and I have disclosed, basedon our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent functions):***

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)            any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

### ***6.  The registrant’s other certifying officers and I have indicated in thisquarterly report whether there were significant changes in internal controls orin other factors that could significantly affect internal controls subsequentto the date of our most recent evaluation, including any corrective actionswith regard to significant deficiencies and material weaknesses.***

 
|   | Date: May 15, 2003                          |
|--------|---------------------------------------------|
|   |                                        |
|   | /s/    DANIEL J. BLOUNT |   |
|   | Daniel J. Blount                            |
|   | Senior Vice President and                   |
|   | Chief Financial Officer                     |

 

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