RIVERWOOD HOLDING INC, 10-K405, 1998-03-12

RIVERWOOD HOLDING INC
10-K405, 1998-03-12
PAPERBOARD MILLS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL PERIOD ENDED DECEMBER 31, 1997

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

FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-11113

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

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DELAWARE
(State or other jurisdiction of
incorporation or organization) 58-2205241
SUITE 350 (I.R.S. employer
1013 CENTRE ROAD identification no.)
WILMINGTON, DELAWARE 19805
(Address of principal executive offices) (Zip Code)
</TABLE>

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

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

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

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

As of March 9, 1998 there were 7,062,050 shares and 500,000 shares of the
registrant's Class A Common Stock, par value $0.01 per share (the "Class A
Common Stock"), and Class B Common Stock, par value $0.01 per share (the "Class
B Common Stock," and together with the Class A Common Stock, "Holding Common
Stock"), respectively, outstanding.
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TABLE OF CONTENTS TO FORM 10-K

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PAGE
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PART I......................................................................... 1
ITEM 1. BUSINESS.................................................... 1
ITEM 2. PROPERTIES.................................................. 8
ITEM 3. LEGAL PROCEEDINGS........................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 9
PART II........................................................................ 10
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 10
ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA........................... 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 33
ITEM 8. FINANCIAL STATEMENTS........................................ 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 90
PART III....................................................................... 90
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 90
ITEM 11. EXECUTIVE COMPENSATION...................................... 94
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 97
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 98
PART IV........................................................................ 100
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K....................................................... 100
</TABLE>

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

ITEM 1. BUSINESS

OVERVIEW

The Company is a leading provider of paperboard and paperboard packaging
solutions, either directly or through independent converters, to multinational
beverage and consumer products companies, such as Anheuser-Busch Companies,
Inc., Miller Brewing Company, numerous Coca-Cola bottling companies, PepsiCo,
Inc., Sara Lee Corporation and Mattel, Inc. The Company is one of only two major
manufacturers of coated unbleached kraft paperboard ("CUK Board"). CUK Board,
which serves as the principal raw material for the Company's packaging products,
is a specialized high-quality grade of paperboard with superior strength
characteristics and printability for high-resolution graphics that make it
particularly well suited for a variety of packaging applications. In order to
capitalize on the significant growth in CUK Board demand, the Company has
invested over $1 billion since the beginning of 1992 in expanding its Coated
Board business segment. The Company's Coated Board business segment accounted
for approximately 90% of the Company's net sales for the year ended December 31,
1997. The Company also manufactures and sells linerboard, corrugating medium and
kraft paper (collectively, "containerboard") through its Containerboard business
segment.

On October 18, 1996, the Company sold substantially all of the assets of
its U.S. Timberlands/Wood Products business segment for approximately $550
million in cash. In addition, the buyer, Plum Creek Timber Company, L.P.,
assumed certain specified preclosing liabilities. Under the terms of the
agreement for such sale, the Company and the buyer entered into a twenty-year
supply agreement with a ten-year renewal option for the purchase by the Company,
at market-based prices, of a majority of the Company's requirements for pine
pulpwood and residual chips at its West Monroe, Louisiana paper mill (the "West
Monroe Mill"), as well as a portion of the Company's needs for hardwood pulpwood
at the West Monroe Mill. The Company did not realize any gain or loss on the
sale.

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

COATED BOARD

Overview

The Company's primary focus is the production and sale of CUK Board for use
as multiple packaging beverage cartons ("carrierboard") for beer, soft drinks
and other beverages, and folding cartons ("folding cartonboard") for
confectionary, frozen and dry foods, toys and other consumer products. The
Company sells carrierboard under the brand names Aqua-Kote(R) and Kraftbrite(R)
and folding cartonboard under the brand names Pearl-Kote(R) and OmniKote(R). In
1997, carrierboard accounted for approximately 60% of the Company's total CUK
Board shipments.

The Company utilizes over three-fourths of its carrierboard production in
its integrated beverage business and sells the remainder in the open market to
independent converters, including licensees of the Company's proprietary carton
designs, principally for use in the beverage packaging market. In its integrated
beverage business, the Company provides integrated beverage packaging solutions
that generally include each of the following elements: (i) the production of
carrierboard, (ii) the printing and cutting, or conversion, of carrierboard into
beverage cartons for use on packaging machines and (iii) the sale to customers
of converted beverage cartons for use on proprietary packaging machines
designed, manufactured and installed by the

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Company. As part of the Company's integrated beverage business, particularly in
its international operations, the Company's carrierboard may be sold to and
converted by licensees of the Company's beverage carton designs who, in turn,
sell converted beverage cartons to end-users for use on the Company's
proprietary packaging machines. The Company's integrated beverage business also
includes sales of Company produced and converted carrierboard to customers for
use on third party packaging machines.

The Company produces and sells folding cartonboard principally in the open
market to independent converters for use in folding cartons for packaging a
variety of consumer products. The Company focuses on folding cartonboard
applications for consumer products companies seeking the strength and
printability of CUK Board. The Company's ability to produce either carrierboard
or folding cartonboard on its CUK Board paper machines enables the Company to
respond to changes in supply and demand in these businesses. Additionally, at
its paper mill in Norrkoping, Sweden (the "Swedish Mill"), the Company
manufactures white lined chip board ("WLC"), a coated 100% recycled paperboard
grade used principally in European folding carton applications.

CUK Board Production

The Company produces CUK Board at its West Monroe Mill and its Macon,
Georgia mill (the "Macon Mill"). These mills have a current total combined
annual production capacity of over one million tons of CUK Board. In February
1997, the Company completed a project to modify the pulp mill at the Macon Mill
at a cost of approximately $32 million. The pulp mill was modified to permit
separate processing of pine and hardwood fibers and to increase pulp capacity,
which will enable the Company to increase CUK Board output on its Macon Mill
machines while reducing dependence on old corrugated containers ("OCC"). In June
1997, the Company completed the conversion of the second Macon Mill linerboard
machine to CUK Board production at a cost of approximately $85 million, and
commenced CUK Board production on the machine. The Company expects that the
machine will achieve its full, annual production capacity of approximately
275,000 tons of CUK Board in 18 to 24 months following the June 1997 start-up.

The Company's CUK Board shipments from its West Monroe Mill were
approximately 648,400 tons during the year ended December 31, 1997. CUK Board
shipments from the Macon Mill were approximately 292,000 tons of CUK Board
during the year ended December 31, 1997.

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

Converting Operations

The Company converts CUK Board as well as other grades of paperboard into
cartons at 17 carton converting plants at 16 sites that it operates in the
United States, the United Kingdom, Spain, France and Australia, as well as
through converting plants associated with its joint ventures in Brazil, Japan,
Denmark and licensees in other markets outside the United States. The converting
plants print, cut and glue paperboard on multi-color printing presses, cutting
lines and gluing lines into cartons designed to meet customer specifications.

The Company's U.S. converting plants are dedicated to converting
carrierboard produced by the Company into beverage cartons. In 1996, the Company
completed a program begun in 1994 to upgrade its existing domestic converting
plants with new printing presses and related equipment, and opened a new
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converting plant located in Perry, Georgia near the Macon Mill. As part of its
ongoing reorganization of operations, the Company closed its last folding
cartonboard converting plant in the U.S., located in Kankakee, Illinois in 1996
and closed a beverage multiple packaging converting plant in Bakersfield,
California in April 1997. The Company's international converting plants convert
carrierboard and folding cartonboard produced by the Company, as well as
paperboard supplied by outside producers, into cartons.

The Company has entered into an agreement with Carter Holt Harvey for the
sale of substantially all of Riverwood's folding carton assets in Australia. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Business Trends and Initiatives".

Proprietary Packaging Machinery and Carton Designs

The Company employs a "pull through" marketing strategy in its integrated
beverage business, the key elements of which are (i) the design and manufacture
of proprietary packaging machines, (ii) the installation of the machines at
beverage customer locations under multi-year machinery use arrangements and
(iii) the development of proprietary beverage cartons with high resolution
graphics for use on those machines. The Company leases substantially all of its
packaging machines to customers, typically under machinery use agreements with
original terms of three to six years. The Company continues to shift its mix of
packaging machinery placements to international markets. Packaging machinery
placements during the year ended December 31, 1997 remained relatively constant
when compared to the number of packaging machines placed during the year 1996.
The Company expects to place approximately 20% fewer new packaging machines in
1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Business Trends and Initiatives".

The Company's packaging machines are designed to package Polyethylene
Terephthalate ("PET") bottles and glass bottles, cans and other primary
containers, using beverage cartons designed by the Company, made from the
Company's CUK Board and converted into beverage cartons by the Company, its
joint venture partners or its licensees. In order to meet customer requirements,
the Company has developed an extensive portfolio of packaging machines
consisting of several principal machinery lines, including over 60 different
models of packaging machines. The Company's machines package cans and PET or
glass bottles in a number of formats including baskets, clips, trays, wraps and
fully enclosed cartons. These machines have packaging ranges from two to 36 cans
per package and have the ability to package cans at speeds of up to 3,000 cans
per minute. The Company also manufactures ancillary equipment, such as machines
for taping cartons and placing coupons in cartons.

The Company designs cartons and designs, tests and manufactures prototype
packaging machinery at its Product Development Center (the "PDC") in Marietta,
Georgia, which was established in 1992. At the PDC, the Company integrates
carton and packaging machinery designs to create packaging solutions to meet
customer needs. The Company manufactures and also designs packaging machinery at
its principal U.S. manufacturing facility in Crosby, Minnesota and at a facility
near Barcelona, Spain. As part of its ongoing reorganization of operations, the
Company closed its packaging machinery manufacturing facilities in Marietta,
Georgia and Koln, Germany in April and June 1997, respectively, and reduced the
number of employees at its Marietta, Georgia and Crosby, Minnesota facilities in
February 1997. By manufacturing packaging machinery in one U.S. and one European
location, the Company expects to improve customer service, simplify its work
processes and reduce costs.

Marketing and Distribution

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

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Carrierboard. In its carrierboard operations, the Company's major
customers for beverage cartons include Anheuser-Busch Companies, Inc., Miller
Brewing Company, numerous Coca-Cola bottling companies and PepsiCo, Inc. The
Company also sells carrierboard in the open market to independent converters,
including licensees of the Company's proprietary carton designs, for the
manufacture of beverage cartons.

Folding Cartonboard. In its folding cartonboard operations, the Company
sells substantially all of its folding cartonboard to numerous independent
converters that convert the folding cartonboard into cartons for consumer
products. In many cases, the Company has a relationship with multinational
end-user consumer products companies, such as Sara Lee Corporation and Mattel,
Inc., but sells its folding cartonboard to an independent converter that
manufactures folding cartons and, in turn, sells these cartons to the end-user.
The Company has established account relationships with a number of major
independent converters. These relationships involve multi-year commitments by
the Company to supply a significant portion of these customers' requirements for
CUK Board. If the customer decides to purchase CUK Board, it has agreed to
purchase a significant portion of its CUK Board requirements from the Company.
The terms of these arrangements include certain limitations on the Company's
ability to raise the selling prices of its folding cartonboard.

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

Joint Ventures. The Company is a party to joint ventures with Rengo
Company Limited and Danapak Holding A/S to market machinery-based packaging
systems in Japan and Scandinavia, respectively. The joint ventures cover CUK
Board supply, use of proprietary carton designs and marketing and distribution
of packaging systems. The Company is considering additional joint venture
opportunities and similar arrangements. In addition, a Brazilian joint venture
produces and markets cartons for machinery-based multiple packaging customers in
Argentina, Brazil, Paraguay and Uruguay, with carrierboard and packaging
machines supplied by the Company.

Raw Materials

Pine pulpwood, hardwood and recycled fibers are the principal raw materials
used in the manufacture of the Company's CUK Board products. With the October
1996 sale of the Company's timberlands in Louisiana and Arkansas, the Company
now relies on private landowners and the open market for its fiber requirements.
Under the terms of the sale of those timberlands, the Company and the buyer,
Plum Creek Timber Company, L.P., entered into a 20-year supply agreement, with a
10-year renewal option, for the purchase by the Company, at market-based prices,
of a majority of the West Monroe Mill's requirements for pine pulpwood and
residual chips, as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. The Company purchases the remainder of the
wood fiber used in CUK Board production at the West Monroe Mill from other
private landowners in this region. The Company believes that adequate supplies
of open market timber currently are available to meet its fiber needs at the
West Monroe Mill.

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

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

The Company produces WLC at the Swedish Mill, which shipped approximately
143,000 tons of such board during 1997. WLC is used for a variety of folding
carton applications principally throughout Europe.

Competition

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

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

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

CONTAINERBOARD

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

In 1997, the Company shipped approximately 201,800 tons of linerboard from
the Macon Mill and approximately 132,100 tons of corrugating medium, 78,000 tons
of kraft paper and 9,700 tons of linerboard from it West Monroe Mill.

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

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

In addition to the Company's U.S. containerboard operations, the Company
currently owns 50% of Igaras Papeis e Embalagens S.A. ("Igaras"), an integrated
containerboard producer located in Brazil, which was acquired by Riverwood's
predecessor companies in 1958. Igaras was a wholly-owned subsidiary of the
Company prior to the Company's sale of approximately 50% of its interest in
Igaras on December 29, 1994 to Companhia Suzano Papel e Celulose, S.A.
("Suzano") for $100 million. In connection with the Merger, Suzano received an
additional share of common stock of Igaras, and as a result the Company and
Suzano each

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own 50% of the common stock of Igaras. The arrangements between the Company and
Suzano were not otherwise affected. Igaras operates two mills and three
corrugated box plants and owns or leases approximately 176,000 acres of
timberlands which are used exclusively for wood chip and energy requirements of
the paper mills. In 1996 Igaras completed the construction of a multiple
packaging plant in Brazil. At its mills, Igaras operates three paper machines
primarily for the production of linerboard, with a fourth paper machine for
production of corrugating medium. Igaras's total containerboard shipment in 1997
was approximately 363,300 tons. Igaras sold approximately 38% of its 1997
linerboard production in export markets. Igaras also sells linerboard,
corrugating medium and corrugated boxes through direct sales offices in Brazil.
Outside of Brazil, Igaras distributes linerboard primarily through independent
sales representatives. In January 1998, Igaras acquired Ponte Nova Papeis e
Embalagens Ltda. whose assets include two corrugated containers plants and a
recycling pulp and paper plant. See Note 14 to the Consolidated Financial
Statements of Igaras.

PATENTS, TRADEMARKS AND LICENSES

The Company has a large patent portfolio, presently owning, controlling or
holding rights to approximately 1,550 U.S. and foreign patents, with 2,900
patent applications currently pending. The Company's patents fall into two
principal categories: packaging machinery and structural carton designs.

The Company is the plaintiff in two actions against Mead with respect to
the Company's Twin-Stack(R) System. The Company has recently learned that with
respect to one of these actions, a lower court has ruled in favor of Mead. The
Company is currently considering whether to appeal this decision. In addition to
these two actions Mead has brought suit in England and France against the
Company with respect to a carrier handle patent. A lower court in France has
ruled in favor of the Company against Mead, and the Company is currently
awaiting Mead's decision whether to appeal the court's ruling. The Company does
not expect these lawsuits, either individually or in the aggregate, to have a
material adverse effect on the Company's business, results of operations or
financial condition.

EMPLOYEES AND LABOR RELATIONS

As of December 31, 1997, the Company had approximately 5,100 employees
worldwide (excluding employees of joint ventures), approximately 3,800 of whom
were members of unions and covered by collective bargaining agreements.

Work has continued under the Company's collective bargaining agreement
covering employees at the Macon Mill, which was renewable on January 1, 1998.
Labor agreement negotiations are continuing at the Macon Mill and cover
discussions ranging from economics to new contract language with respect to
outsourcing work and asset sales. The union negotiating committee has agreed to
recommend the Company's latest proposal to the union members. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Business Trends and Initiatives".

There are four unions representing the Company's U.S. employees, one of
which, the United Paperworkers International Union, is associated with the West
Monroe Mill and converting facility where it represents approximately 1,200, and
the Macon Mill where it represents 300 of the 400 employees through three local
unions. There has not been a work stoppage at the West Monroe Mill in the last
ten years, nor at the Macon Mill since its acquisition by the Company in 1992.
The current union contract covering the West Monroe Mill was negotiated and
ratified by the union in February 1997 and covers the six-year period from March
1, 1997 to February 28, 2003. The contract covering employees at the adjacent
converting plant was negotiated and ratified by the union in 1996 and covers the
four-year period from September 1, 1996 through August 31, 2000. The Clinton,
Mississippi converting facility contract was negotiated and ratified by the
union in January 1997 and covers the six-year period from February 1, 1997
through January 31, 2003. The Cincinnati, Ohio carton plant completed a wage and
benefit reopener negotiations for its labor agreement which covers the six-year
period from February 1, 1995 through January 1, 2001. The Fort Atkinson,
Wisconsin carton plant labor agreement will be up for negotiation in September
1998. The Company's U.S. converting plants, other than its converting facility
in Perry, Georgia, are represented by unions.

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

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ENVIRONMENTAL MATTERS

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

In late 1993, the U.S. Environmental Protection Agency (the "EPA") proposed
regulations (generally referred to as the "cluster rules") that would mandate
more stringent controls on air and water discharges from United States pulp and
paper mills. In 1996, the EPA released additional information regarding the
proposed cluster rules. Based on this information, the Company expects that the
cluster rules may be finally promulgated in 1998 and estimates the capital
spending that may be required to comply with the cluster rules could reach $55
million to be spent at its two U.S. paper mills over an eight-year period
beginning in 1998.

In late 1995, the Louisiana Department of Environmental quality ("DEQ")
notified the Company that the Predecessor may be liable for the remediation of
hazardous substances at a wood treatment site in Shreveport, Louisiana that the
Predecessor or its predecessor previously operated, and at a former oil refinery
site in Caddo Parish, Louisiana that the Company currently owns. Neither the
Company nor the Predecessor ever operated the oil refinery. In response to the
DEQ, the Company has provided additional information concerning these sites and
has commenced its own evaluation of any claims and remediation liabilities for
which it may be responsible. The Company received a letter from the DEQ dated
May 20, 1996, requesting a plan for soil and groundwater sampling of the wood
treatment site. The Company first met with the DEQ on July 18, 1996 and then
submitted a soil sampling plan to the DEQ. The Company received approval for a
site sampling plan in November 1997, and completed the sample collection in
December 1997. The analytic results of this sampling are pending. On September
6, 1996, the Company received from the DEQ a letter requesting remediation of
the former oil refinery site in Caddo Parish, Louisiana. The Company met with
the DEQ on February 17, 1997 to discuss these matters. The Company is in
discussions with the DEQ regarding the participation of other responsible
parties in any clean-up of hazardous substances at both of these sites.

The Company is engaged in environmental remediation projects for certain
properties currently owned or operated by the Company and certain properties
divested by the Company for which responsibility was retained for pre-existing
conditions. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway. To address these
contingent environmental costs, the Company has accrued reserves when such costs
are probable and can be reasonably estimated. The Company believes that, based
on current information and regulatory requirements, the accruals established by
the Company for environmental expenditures are adequate. Based on current
knowledge, to the extent that additional costs may be incurred that exceed the
accrued reserves, such amounts are not expected to have a material impact on the
results of operations, cash flows or financial condition of the Company,
although no assurance can be given that material costs will not be incurred in
connection with clean-up activities at these properties, including the
Shreveport and Caddo Parish sites referred to above.

7
<PAGE> 11

ITEM 2. PROPERTIES

HEADQUARTERS

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

MANUFACTURING FACILITIES

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

<TABLE>
<CAPTION>
APROX. NO. OF PRINCIPAL PRODUCTS MANUFACTURED
TYPE OF FACILITY AND LOCATION(1) SQ. FEET OF FLOOR SPACE OR USE OF FACILITY
-------------------------------- ----------------------- -------------------------------
<S> <C> <C>
PAPERBOARD MILLS:
West Monroe, LA........................... 1,535,000 CUK Board; linerboard; corrugating
medium; kraft paper
Macon, GA................................. 756,000 CUK Board; linerboard
Norrkoping, Sweden........................ 417,000 White lined chip board
CONVERTING PLANTS:
West Monroe, LA (2 plants)................ 621,000 Beverage carriers
Cincinnati, OH............................ 241,800 Beverage carriers
Clinton, MS............................... 210,000 Beverage carriers
Perry, GA(2).............................. 130,000 Beverage carriers
Ft. Atkinson, WI.......................... 120,000 Beverage carriers
Bristol, Avon, United Kingdom............. 428,000 Beverage carriers; folding cartons
Smithfield, New South Wales, Australia.... 230,000 Beverage carriers; folding cartons
Reservoir, Victoria, Australia............ 136,000 Beverage carriers; folding cartons
and litho laminate
Woodville, South Australia, Australia..... 71,000 Beverage carriers; folding cartons
Dandenong, Victoria, Australia............ 59,000 Beverage carriers; folding cartons
Marsden, Queensland, Australia............ 56,000 Beverage carriers; folding cartons
Igualada, Barcelona, Spain................ 131,000 Beverage carriers; folding cartons
Beauvois en Cambresis, France............. 70,000 Folding cartons
Le Pont de Claix, France.................. 120,000 Folding cartons
St. Paul Trois Chateaux, France........... 15,000 Folding cartons
Montdidier, France........................ 50,000 Folding cartons
</TABLE>

8
<PAGE> 12

- ---------------
(1) The Company leases the facilities in Marietta, Georgia; Clinton, Mississippi
(part only); Dandenong, Victoria, Australia; Marsden, Queensland, Australia
(underlying land only); Reservoir, Victoria, Australia; Beauvois en
Cambresis, France; Le Pont De Claix, France; St. Paul Trois Chateaux,
France; and Montdidier, France. All other facilities listed are owned by the
Company.
(2) The facility located in Perry, Georgia is leased from the Middle Georgia
Regional Development Authority in consideration of the issuance of
industrial development bonds by such entity.

ITEM 3. LEGAL PROCEEDINGS

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

On December 6, 1995, Forrest Kelly Clay, a former shareholder of the
Predecessor, commenced a purported class action lawsuit in the United States
District Court for the Northern District of Georgia, against the Company and
certain officials of the Company (the "Individual Defendants," and together with
the Company, the "Defendants"). In his complaint, Clay alleges that the
Defendants violated the federal securities laws by disseminating misleading
statements and by omissions concerning the strategic alternatives that the
Predecessor was considering, including its potential sale to a third-party
investor. The complaint also alleged that the Individual Defendants, through
their exercise of stock appreciation rights ("SARs"), violated the federal
securities laws by trading in the Predecessor's securities while in possession
of material, non-public information. The complaint generally seeks damages in an
unspecified amount, as well as other relief. On June 2, 1997, the court granted
the Defendants' Motion for Summary Judgment and dismissed the action in its
entirety. The court based its ruling on the fact that (i) none of the statements
attributable to the Company concerning its review of the strategic alternatives
was false and (ii) there is no causal relationship between plaintiff's purchase
of common stock and the Individual Defendants' exercise of SARs. Clay filed his
Notice of Appeal to the United States Court of Appeals for the Eleventh Circuit
on June 5, 1997. All of the briefs have been submitted to the court and oral
argument was held on February 13, 1998.

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

During the fourth quarter of 1997, there were no matters submitted to a
vote of security holders.

9
<PAGE> 13

PART II

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

There is no established public trading market for the Class A Common Stock
or Class B Common Stock of Holding. The shares of Class A Common Stock and Class
B Common Stock were held of record by 65 stockholders and one stockholder,
respectively, at December 31, 1997. Holding did not pay any dividends on either
class of Common Stock during 1997 or 1996. The Company's debt instruments
restrict the ability of the Company to pay dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources -- Covenant
Restrictions".

10
<PAGE> 14

ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA

On March 27, 1996, Holding, through its wholly-owned subsidiaries, acquired
all of the outstanding shares of common stock of RIC. The purchase method of
accounting was used to record assets acquired and liabilities assumed by
Holding. As a result of the Merger, purchase accounting and the effect of the
disposition of substantially all of the U.S. Timberlands/Wood Products business
segment (see Notes 1 and 24 in Notes to Consolidated Financial Statements) and
certain Other Costs of the Predecessor, the accompanying financial statements of
the Predecessor and the Company are not comparable in all material respects
since the financial statements report results of operations and cash flows of
these two separate entities.

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------------------- ---------------------------------------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 27, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
INCOME (LOSS)
Net Sales.......................... $1,138,854 $ 852,112 $ 293,649 $1,342,304 $1,282,788 $1,120,366
Income from Operations(a)(b)....... 6,912 1,419 15,650 133,137 154,187 83,497
(Loss) Income from Continuing
Operations....................... (146,957) (130,362) (2,050) 45,538 10,249 3,234
Income from Discontinued
Operations(a).................... -- 35,546 -- -- -- --
Net (Loss) Income(a)(c)(d)......... (152,473) (105,136) (2,050) 45,538 2,377 1,071
FINANCIAL POSITION
(as of period end)
Total Assets....................... $2,606,185 $2,671,487 $2,206,206 $2,201,328 $2,102,292 $2,070,306
Long-Term Debt, less current
portion.......................... 1,712,944 1,567,259 1,063,798 1,053,794 994,770 1,049,425
Redeemable Common Stock............ 6,045 9,390 -- -- -- --
Shareholders' Equity............... 479,434 654,209 557,487 562,310 516,251 500,139
ADDITIONAL DATA
Additions to Property, Plant and
Equipment(e)..................... $ 142,314 $ 132,286 $ 44,074 $ 170,085 $ 240,222 $ 288,851
Research, Development and
Engineering Expense.............. 5,171 7,339 2,031 9,909 9,356 8,771
EBITDA(a)(f)....................... 165,927 148,560 56,133 263,707 210,164 183,351
</TABLE>

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

(a) On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/Wood Products business segment for approximately $550
million in cash. The operating results for the U.S. Timberlands/Wood
Products business segment have been classified as discontinued operations
for the nine months ended December 31, 1996. Discontinued operations of the
U.S. Timberlands/Wood Products business segment have not been reclassified
in the Predecessor's Statement of Operations. See Note 24 in Notes to
Consolidated Financial Statements for results of operations of the U.S.
Timberlands/ Wood Products business segment for periods prior to the date of
the sale.

(b) On December 29, 1994, the Predecessor sold approximately 50 percent of its
investment in Igaras, an integrated containerboard producer located in
Brazil, which produces linerboard, corrugating medium and corrugated boxes,
after first spinning off a wholly-owned subsidiary to operate the
Predecessor's packaging machinery operations in Brazil. Prior to that date,
the Predecessor included the results of operations of Igaras in the
Consolidated Financial Statements through the date of the sale. Subsequent
to December 29, 1994, neither the Company nor the Predecessor consolidates
Igaras, but instead reports its investment in Igaras using the equity
method.

(c) Net (Loss) Income for the year ended December 31, 1997, the nine months
ended December 31, 1996 and the year ended December 31, 1994, included an
Extraordinary Loss on Early Extinguishment of Debt of $2.5 million, $10.3
million and $7.9 million, respectively, net of applicable tax, as described
in Note 21 of the Notes to Consolidated Financial Statements.
11
<PAGE> 15

(d) Net (Loss) Income for the year ended December 31, 1997 included a charge of
$3.1 million, net of tax, for the cumulative effect of a change in
accounting for computer systems development project costs (see Note 22 in
Notes to Consolidated Financial Statements). Net (Loss) Income for the year
ended December 31, 1993 included a charge of $2.1 million, net of tax, for
the cumulative effect of a change in accounting for postemployment benefits.

(e) Includes amounts invested in packaging machinery and capitalized interest.
Additions in 1995 and 1994 included $13.2 million and $7.8 million,
respectively, related to the acquisition of businesses.

(f) EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the
Merger) before consolidated interest expense, consolidated income taxes,
consolidated depreciation and amortization, cost of timber harvested and
other non-cash charges deducted in determining consolidated net income and
extraordinary items and the cumulative effect of accounting changes and
earnings of, but including dividends from, non-controlled affiliates. EBITDA
excludes (i) the EBITDA of Igaras but includes dividends actually received
from Igaras, (ii) Other Costs (see Note 18 in Notes to Consolidated
Financial Statements) of the Predecessor and (iii) Purchased Asset Costs
resulting from purchase accounting for periods subsequent to the Merger. The
Company believes that EBITDA provides useful information regarding the
Company's debt service ability, but should not be considered in isolation or
as a substitute for the Consolidated Statements of Operations or cash flow
data.

12
<PAGE> 16

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

OVERVIEW

THE MERGER AND PURCHASED ASSET COSTS

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

The Merger was accounted for as a purchase in accordance with APB Opinion
No. 16, "Business Combinations" ("APB 16"). Purchase accounting results in
increased cost of sales, amortization and depreciation. Additionally, the
post-Merger capital structure has resulted, and will continue to result, in
higher reported interest expense. The consolidated financial statements for
periods prior to March 28, 1996 have been prepared on the historical cost basis
using accounting principles that had been adopted by the Predecessor. As a
result of the Merger, purchase accounting, the effect of the disposition of
substantially all of the assets of the U.S. Timberlands/Wood Products business
segment and certain Other Costs of the Predecessor, the results of operations of
the Company for periods subsequent to the Merger are not comparable in all
material respects to the results of operations of the Predecessor for periods
prior to the Merger.

In connection with the Merger, the Company entered into a credit agreement
(as amended, the "Senior Secured Credit Agreement") that currently provides for
senior secured credit facilities (the "Senior Secured Credit Facilities")
consisting of $644 million in outstanding term loans under a term loan facility
(the "Term Loan Facility") and a $400 million revolving credit facility (the
"Revolving Facility"). In addition, Riverwood International Machinery, Inc.
("RIMI"), a wholly-owned subsidiary of Riverwood, entered into a credit
agreement (as amended, the "Machinery Credit Agreement", and together with the
Senior Secured Credit Agreement, the "Credit Agreements") providing for a $140
million secured revolving credit facility (the "Machinery Facility," and
together with the Senior Secured Credit Facilities, the "Facilities") for the
purpose of financing or refinancing packaging machinery. In connection with the
Merger, the Company also completed an offering of $250 million aggregate
principal amount of 10 1/4% Senior Notes due 2006 (the "Senior Notes") and $400
million aggregate principal amount of 10 7/8% Senior Subordinated Notes due 2008
(the "Senior Subordinated Notes" and together with the Senior Notes, the "1996
Notes"). On July 28, 1997, the Company completed an offering of $250 million
principal amount of 10 5/8% Senior Notes due 2007 (the "Initial Notes"). The net
proceeds of this offering were applied to prepay certain revolving credit
borrowings under the Revolving Facility (without any commitment reduction) and
to refinance certain Tranche A term loans and other borrowings under the Senior
Secured Credit Agreement. A registration statement under the Securities Act of
1933, as amended, registering senior notes of the Company identical in all
material respects to the Initial Notes (the "Exchange Notes") offered in
exchange for the Initial Notes, became effective October 1, 1997. On November 3,
1997, the Company completed its exchange offer of the Initial Notes for the
Exchange Notes. The Initial Notes and the Exchange Notes are referred to herein
as the 1997 Notes.

Under the terms and definitions of the Senior Secured Credit Agreement and
the indentures (the "Indentures") for the 1996 Notes and 1997 Notes, certain
expenses and costs are excluded from the Company's Net (Loss) Income in
determining EBITDA, including amortization, depreciation or expenses associated
with the write-up of inventory, fixed assets and intangible assets in accordance
with APB 16 and APB Opinion No. 17, "Intangible Assets", collectively referred
to as the "Purchased Asset Costs".

13
<PAGE> 17

During the year ended December 31, 1997, the Company's (Loss) Income from
Operations included Purchased Asset Costs as follows:

<TABLE>
<CAPTION>
COATED BOARD CONTAINERBOARD TOTAL
------------ -------------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cost of Sales (excluding depreciation
expense)..................................... $ 3,934 $ -- $ 3,934
Depreciation expense........................... 19,311 3,644 22,955
Amortization of intangible assets.............. 5,588 -- 5,588
------- ------ -------
Net impact on (loss) income from operations.... $28,833 $3,644 $32,477
======= ====== =======
</TABLE>

During the nine-month period ended December 31, 1996, the Company's (Loss)
Income from Operations included Purchased Asset Costs as follows:

<TABLE>
<CAPTION>
COATED BOARD CONTAINERBOARD TOTAL
------------ -------------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cost of Sales (excluding depreciation
expense)..................................... $ 581 $ -- $ 581
Depreciation expense........................... 10,472 2,687 13,159
Amortization of intangible assets.............. 2,576 -- 2,576
------- ------ -------
Net impact on (loss) income from operations.... $13,629 $2,687 $16,316
======= ====== =======
</TABLE>

SALE OF U.S. TIMBERLANDS/WOOD PRODUCTS

On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment for approximately $550
million in cash. In addition, the buyer assumed certain specified preclosing
liabilities. Under the terms of the agreement for such sale, the Company and the
buyer, Plum Creek Timber Company, L.P., entered into a 20-year supply agreement
with a 10-year renewal option for the purchase by the Company, at market-based
prices, of a majority of the West Monroe Mill's requirements for pine pulpwood
and residual chips, as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. The Company did not realize any gain or loss
on the sale. The operating results for the U.S. Timberlands/Wood Products
business segment were classified as discontinued operations for periods
beginning March 28, 1996 and ending October 18, 1996 (the date of the sale) in
the Consolidated Statements of Operations. Discontinued operations have not been
segregated in the Statements of Cash Flows nor have they been reclassified as
discontinued operations in the Predecessor's Consolidated Statements of
Operations and Consolidated Balance Sheets.

OTHER COSTS OF PREDECESSOR

Prior to March 28, 1996, the Predecessor Company incurred expenses
associated with stock-based compensation plans, expenses related to RIC's review
of strategic alternatives and provision for environmental reserves. These
expenses were classified as Other Costs on the Predecessor's Consolidated
Statements of Operations. Stock-based compensation expense was allocated to each
of the business segments based upon the responsibility of the individuals
holding or exercising the stock incentive benefits. During the three months
ended March 27, 1996, $1.2 million, $0.1 million, $0.2 million and $0.8 million
of stock-based compensation expenses were allocated to the Coated Board,
Containerboard and U.S. Timberlands/Wood Products business segments and
Corporate and Eliminations, respectively, as compared to $7.4 million, $0.9
million, $0.8 million and $8.7 million, respectively, for the year ended
December 31, 1995. Expenses related to RIC's review of strategic alternatives
and environmental reserves were included in Corporate and Eliminations for
business segment reporting purposes.

GENERAL

The Company reports its results in two business segments: Coated Board and
Containerboard. The operating results of the U.S. Timberlands/Wood Products
business segment have been classified as discontinued operations for the period
beginning March 28, 1996 through the date of the sale. The results of the
operations of the U.S. Timberlands/Wood Products business segment have not been
classified as
14
<PAGE> 18

discontinued operations in the Predecessor's Consolidated Statements of
Operations for periods prior to the Merger. The Coated Board business segment
includes (i) the production and sale of CUK Board for packaging cartons from the
Macon Mill and the West Monroe Mill, and WLC board from the Swedish Mill; (ii)
converting operations facilities in the United States, Australia and Europe; and
(iii) the design, manufacture and installation of packaging machinery related to
the assembly of beverage cartons. The Containerboard business segment includes
the production and sale of linerboard, corrugating medium and kraft paper from
paperboard mills in the United States. The discontinued U.S. Timberlands/Wood
Products business segment included timberlands and operations engaged in the
supply of pulpwood to the West Monroe Mill from the Company's former U.S.
timberlands, as well as the manufacture and sale of lumber and plywood.

The table below sets forth Net Sales, Income (Loss) from Operations and
EBITDA. EBITDA is defined as consolidated net income (exclusive of non-cash
charges resulting from purchase accounting during the periods subsequent to the
Merger) before consolidated interest expense, consolidated income taxes,
consolidated depreciation and amortization, cost of timber harvested and other
non-cash charges deducted in determining consolidated net income and
extraordinary items and the cumulative effect of accounting changes and earnings
of, but including dividends from, non-controlled affiliates. EBITDA excludes (i)
the EBITDA of Igaras but includes dividends actually received from Igaras, (ii)
Other Costs of the Predecessor and (iii) Purchased Asset Costs resulting from
purchase accounting for periods subsequent to the Merger. The Company believes
that EBITDA provides useful information regarding the Company's debt service
ability, but should not be considered in isolation or as a substitute for the
Consolidated Statements of Operations or cash flow data.

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------- ----------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 27, DECEMBER 31,
1997 1996 1996 1995
------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Net Sales (Segment Data):
Coated Board..................................... $1,029,493 $749,688 $234,608 $1,007,123
Containerboard................................... 109,361 102,424 25,496 192,497
U.S. Timberlands/Wood Products................... -- -- 37,336 159,749
Intersegment Eliminations........................ -- -- (3,791) (17,065)
---------- -------- -------- ----------
Net Sales.......................................... $1,138,854 $852,112 $293,649 $1,342,304
========== ======== ======== ==========
Income (Loss) from Operations (Segment Data):
Coated Board..................................... $ 64,819 $ 54,976 $ 24,638 $ 103,683
Containerboard................................... (41,244) (30,969) (5,955) 17,539
U.S. Timberlands/Wood Products................... -- -- 13,868 49,583
Corporate and Eliminations....................... (16,663) (22,588) (16,901) (37,668)
---------- -------- -------- ----------
Income from Operations............................. $ 6,912 $ 1,419 $ 15,650 $ 133,137
========== ======== ======== ==========
EBITDA (Segment Data):
Coated Board..................................... $ 187,589 $135,449 $ 47,174 176,606
Containerboard................................... (15,544) (15,624) (1,242) 38,403
U.S. Timberlands/Wood Products................... -- 44,805 16,766 57,805
Corporate and Eliminations....................... (6,118) (16,070) (6,565) (9,107)
---------- -------- -------- ----------
EBITDA............................................. $ 165,927 $148,560 $ 56,133 $ 263,707
========== ======== ======== ==========
</TABLE>

BUSINESS TRENDS AND INITIATIVES

The Company's cash flow from operations and EBITDA are influenced by sales
volume and selling prices for its products and raw material costs, and are
affected by a number of significant business, economic and competitive factors.
Many of these factors are not within the Company's control. Historically, in the
Coated Board business segment, the Company has experienced stable pricing for
its integrated beverage carton products, and moderate cyclical pricing for its
folding cartonboard, which is principally sold in the open

15
<PAGE> 19

market. The Company's folding cartonboard sales are affected by competition from
competitors' CUK Board and other substrates -- SBS, CCN and, internationally,
WLC -- as well as by general market conditions. In the Containerboard business
segment, conditions in the cyclical worldwide commodity paperboard markets have
a substantial impact on the Company's containerboard sales. During the second
half of 1997, the Company realized improvement in its containerboard selling
prices consistent with industry trends.

The Company is pursuing a number of long-term initiatives designed to
improve productivity and profitability while continuing to implement its Coated
Board business strategy. In June 1997, the Company completed the upgrade of the
second Macon Mill paperboard machine to begin CUK Board production. During the
second half of 1997, the Company produced approximately 30,000 tons of CUK Board
on the second Macon Mill paperboard machine. In addition, approximately 154,000
tons of linerboard was produced on this paper machine during 1997. The Company
expects that the second Macon Mill paperboard machine will be able to produce
approximately 275,000 tons of CUK Board annually in 18 to 24 months following
the June 1997 start-up. In addition, the Company has taken actions to increase
open market folding cartonboard sales volume, completed a profit center
reorganization of its operations, implemented a number of cost saving measures
and effected several management changes and, as part of its ongoing reevaluation
of current operations and assets, has reduced planned capital expenditures and
begun a Company-wide inventory reduction initiative. As a result of the
inventory reduction initiative, inventory decreased by approximately $37 million
at December 31, 1997 as compared to December 31, 1996. The Company continues to
evaluate its current operations and assets with a view to rationalizing its
operations and improving profitability, in particular with respect to its
international folding cartonboard business converting assets and strategy.

On March 12, 1998, the Company entered into an agreement with Carter Holt
Harvey ("Carter Holt") for the sale of Riverwood's folding carton business in
Australia. The closing of the sale, which is subject to customary conditions, is
expected to occur by the end of March 1998. Under the terms of the agreement for
such sale, the Company will sell to Carter Holt substantially all of Riverwood's
Australian folding carton assets, and Carter Holt will assume certain specified
liabilities. The Company will retain substantially all of its beverage multiple
packaging business in Australia. Under the agreement, Carter Holt has agreed to
purchase from the Company a portion of its coated board requirements in
Australia and to supply beverage cartons to meet the Company's needs for its
Australian beverage business. After applying the proceeds of the transaction to
repay all outstanding borrowings under its Australian revolving credit facility
and to pay transaction-related expenses, the Company expects to reinvest in its
business the remaining estimated net proceeds of approximately $40 million
Australian dollars (subject to certain post-closing adjustments). Riverwood does
not expect the sale of its Australian folding carton business to significantly
impact its 1998 results of operations or EBITDA.

The Company continues to shift its mix of packaging machinery placements
from the U.S. to international locations and is reducing U.S. staffing in its
Packaging Machinery Division. Packaging machinery placements during the year
ended December 31, 1997 remained relatively constant when compared to the number
of packaging machines placed during the year ended December 31, 1996. The
Company will be more selective in future packaging machinery placements to
ensure appropriate returns and, accordingly, expects a reduction of
approximately 20% in new packaging machinery placements during the year ended
December 31, 1998. Despite the expected reduction in the rate of new packaging
machinery placements, the Company expects an increase in beverage cartonboard
tonnage in 1998 as the number of packaging machines in service and the
cartonboard throughput per machine increases.

Early 1998 CUK Board sales and backlog are strong, but production
shortfalls at the Macon Mill reduced the Company's CUK Board inventory levels
below target levels. Principal contributors to the production

16
<PAGE> 20

shortfall were distractions associated with continuing efforts to negotiate a
new labor agreement at the Macon Mill and a failure to maintain ramp-up of
production on the second paper machine at the Macon Mill.

OUTLOOK

The Company expects that its 1998 EBITDA will significantly exceed its 1997
EBITDA, although no assurance can be given in this regard. The achievement of
this expectation is dependent upon (among other things) a number of profit
improvement initiatives, including significantly increasing open market folding
cartonboard sales volumes above 1997 levels, selling price improvements for
containerboard products, improvements in international converting operations,
improving U.S. mill throughput as the successful start-up of the second Macon
Mill paper machine continues, and continued cost savings from actions taken to
date. The Company anticipates that the cost savings from actions taken to date
will reduce expenditures by approximately $30 million on an annualized basis,
over half of which was realized during 1997. Management expects to identify an
additional $10 million of annualized cost savings to be acted upon in 1998 (see
"-- Business Trends and Initiatives"). The Company expects that it will achieve
continued sales volume increases in its international beverage and U.S. soft
drink carton markets in 1998, while its U.S. beer carton volume will remain
relatively flat, consistent with U.S. brewers trading market share, though no
assurance can be given that this volume growth will be achieved. The Company
expects that U.S. open market board prices for SBS and CUK Board will not
increase substantially in 1998, despite announced price increases.

1997 Compared with 1996

RESULTS OF OPERATIONS

The following is a discussion of the Company's results of operations on a
pro forma basis. The discussion is based upon the year ended December 31, 1997,
exclusive of the net effect of Purchased Asset Costs made in this period, in
comparison to the nine-month period ended December 31, 1996, exclusive of the
net effect of Purchased Asset Costs made in this period, plus the three-month
period ended March 27, 1996, exclusive of Other Costs and the U.S.
Timberlands/Wood Products business segment results of operations, as follows:

<TABLE>
<CAPTION>
PRO FORMA % INCREASE PRO FORMA
YEAR ENDED (DECREASE) YEAR ENDED
DECEMBER 31, FROM PRIOR DECEMBER 31,
1997 YEAR 1996
------------ ---------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales (Segment Data):
Coated Board................................. $1,029,493 4.6% $ 984,296
Containerboard............................... 109,361 (14.5) 127,920
---------- ----------
Net Sales...................................... 1,138,854 2.4 1,112,216
Cost of Sales.................................. 973,502 3.9 937,149
---------- ----------
Gross Profit................................... 165,352 (5.5) 175,067
Selling, General and Administrative............ 116,581 (10.9) 130,821
Research, Development and Engineering.......... 5,171 (44.7) 9,349
Other Expense, net............................. 4,211 (6.1) 4,487
---------- ----------
Income from Operations......................... $ 39,389 29.5% $ 30,410
========== ==========
Income (Loss) from Operations (Segment Data):
Coated Board................................. $ 93,652 (0.9)% $ 94,486
Containerboard............................... (37,600) (10.2) (34,117)
Corporate.................................... (16,663) 44.4 (29,959)
---------- ----------
Income from Operations......................... $ 39,389 29.5% $ 30,410
========== ==========
</TABLE>

17
<PAGE> 21

PAPERBOARD SHIPMENTS

The following represents shipments of Coated Board and Containerboard to
outside customers. Shipments of Coated Board represent sales to customers of
beverage carrierboard, folding cartonboard and WLC (other than from the Swedish
Mill). Shipments from the Swedish Mill represent sales to customers of WLC
produced at this mill. Shipments of Containerboard represent sales to customers
of linerboard, corrugating medium and kraft paper. Total shipments for the years
ended December 31, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS OF TONS)
<S> <C> <C>
Coated Board................................................ 933.1 837.5
Swedish Mill................................................ 143.0 122.4
Containerboard.............................................. 421.6 476.8
------- -------
1,497.7 1,436.7
======= =======
</TABLE>

NET SALES

As a result of the factors described below, the Company's Net Sales in 1997
increased by $26.6 million, or 2.4 percent, compared with 1996. Net Sales in the
Coated Board business segment increased by $45.2 million in 1997, or 4.6
percent, to $1,029.5 million from $984.3 million in 1996, due primarily to
increased sales volume in international and U.S. beverage markets and U.S.
folding cartonboard markets combined with slightly improved selling prices and
better product mix in U.S. beverage markets. These improvements were offset
somewhat by lower selling prices in U.S. folding cartonboard markets, lower
selling prices and sales volume in international folding cartonboard markets and
negative impacts of foreign currency translation associated with the
strengthening of the U.S. dollar. Net Sales in the Containerboard business
segment decreased $18.5 million, or 14.5 percent, to $109.4 million in 1997 from
$127.9 million in 1996, due principally to lower average selling prices and a 12
percent decrease in sales volumes as a result of the significant decline in
containerboard markets worldwide that began in the latter part of 1995 and
continued into the second quarter of 1997. Containerboard selling prices began
to improve in the third quarter of 1997, and although the Company's average
containerboard selling prices for 1997 were below the average for 1996, the
Company's containerboard selling prices for the fourth quarter of 1997 exceeded
those of the same period of 1996. Linerboard sales volume declined significantly
due to an overall shift from linerboard to CUK Board production.

GROSS PROFIT

As a result of the factors discussed below, the Company's Gross Profit for
1997 decreased $9.7 million, or 5.5 percent, to $165.4 million from $175.1
million in 1996. The Company's gross profit margin decreased to 14.5 percent for
1997 from 15.7 percent in 1996. In the Containerboard business segment, Gross
Profit decreased $5.0 million to a loss of $32.1 million in 1997 as compared to
a loss in 1996 of $27.1 million. This decrease was due principally to lower
average selling prices of containerboard. Gross profit in the Coated Board
business segment decreased by $6.4 million, or 3.1 percent, to $198.3 million in
1997 as compared to $204.7 million in 1996, while its gross profit margin
decreased to 19.3 percent in 1997 from 20.8 percent in 1996. This decrease in
gross profit resulted principally from lower selling prices in worldwide folding
cartonboard markets, offset somewhat by slightly higher selling prices and lower
production costs in the Company's U.S. integrated beverage business.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, General and Administrative expenses decreased $14.2 million, or
10.9 percent, to $116.6 million in 1997 as compared to $130.8 million in 1996,
and as a percentage of Net Sales, decreased from 11.8 percent in 1996 to 10.2
percent in 1997. This decrease was due primarily to Company cost reduction
initiatives that began in early 1997, offset somewhat by incremental costs
relating to the implementation of a new computerized information system (see
"-- Liquidity and Capital Resources -- Upgrade of Information Systems and Year
2000 Compliance").

18
<PAGE> 22

RESEARCH, DEVELOPMENT AND ENGINEERING

Research, Development and Engineering expenses decreased by $4.2 million,
or 44.7 percent, to $5.2 million in 1997 from $9.4 million in 1996 due
principally to reduced research and development activities on packaging
machinery resulting from the closure of the packaging machinery facilities in
Marietta, Georgia and Koln, Germany in April and June 1997, respectively.

OTHER EXPENSE, NET

Other Expense, net, decreased by approximately $0.3 million, or 6.1
percent, to $4.2 million in 1997.

INCOME FROM OPERATIONS

Primarily as a result of the factors discussed above, the Company's Income
from Operations in 1997 increased by $9.0 million, or 29.5 percent, to $39.4
million from $30.4 million in 1996, while the Company's operating margin
increased to 3.5 percent in 1997 from 2.7 percent in 1996. (Loss) from
Operations in the Containerboard business segment increased $3.5 million to a
loss of $37.6 million in 1997 from a (Loss) from Operations of $34.1 million in
1996, primarily as a result of the factors described above. Income from
Operations in the Coated Board business segment decreased $0.8 million, or 0.9
percent, to $93.7 million in 1997 from $94.5 million in 1996, while the
operating margin decreased to 9.1 percent in 1997 from 9.6 percent for 1996,
primarily as a result of the factors described above.

FLUCTUATIONS IN U.S. CURRENCY EXCHANGE RATES

Fluctuations in U.S. dollar currency exchange rates did not have a
significant impact on Gross Profit, operating expenses or Income from Operations
of the Company or any of its business segments during 1997 or 1996.

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

INTEREST INCOME

Interest Income increased slightly to $1.1 million in 1997 from $1.0
million in the year ended December 31, 1996.

INTEREST EXPENSE

Interest Expense remained relatively unchanged at $172.2 million in 1997
resulting from the reduction in debt related to the October 1996 repayment of
term loans from a portion of the proceeds of the sale of substantially all of
the assets of the U.S. Timberlands/Wood Products business segment, offset by the
increased indebtedness incurred in connection with the Merger in March 1996.
During 1997 and 1996, the Company capitalized interest of $3.5 million and $2.5
million, respectively. Amortization of deferred debt issuance costs, exclusive
of the amount recognized as an extraordinary loss on early extinguishment of
debt (see "-- Extraordinary Loss on Early Extinguishment of Debt"), was $11.8
million and $12.4 million for 1997 and 1996, respectively.

INCOME TAX EXPENSE (BENEFIT)

During 1997, the Company recognized an income tax expense of $5.6 million
on a Loss from Continuing Operations before Income Taxes and Equity in Net
Earnings of Affiliates of $164.2 million. During the Year ended December 31,
1996, the Company recognized an income tax expense of $0.7 million on a Loss
from Continuing Operations before Income Taxes and Equity in Net Earnings of
Affiliates of $154.1 million. These expenses differed from the statutory U.S.
federal income tax rate primarily because of valuation allowances established on
net operating loss carryforward tax assets in the U.S. and certain international
locations where the realization of such benefits is less likely than not.
19
<PAGE> 23

EQUITY IN NET EARNINGS OF AFFILIATES

Equity in Net Earnings of Affiliates is comprised primarily of the
Company's equity in net earnings of Igaras, which is accounted for under the
equity method of accounting. Equity in Net Earnings of Affiliates increased $0.4
million, or 1.9 percent, to $22.9 million for 1997. During 1997 and 1996, the
Company received net dividends from Igaras of approximately $4.0 million and
$5.0 million, respectively. Under the Igaras joint venture agreement, Igaras is
required to pay dividends equal to at least 25 percent of its net profits.
Additionally during 1997 and 1996, the Company received net dividends from its
equity investments other than Igaras of $1.2 million and $0.4 million,
respectively.

DISCONTINUED OPERATIONS

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT

On July 28, 1997, the Company completed an offering of the 1997 Notes. The
net proceeds of this offering were applied to prepay certain revolving credit
borrowings under the Revolving Facility (without any commitment reduction), and
to refinance certain Tranche A term loans and other borrowings under the Senior
Secured Credit Agreement. During the third quarter of 1997, the Company recorded
a non-cash, extraordinary charge to earnings of approximately $2.5 million, net
of tax of $0, related to the write-off of the applicable portion of deferred
debt issuance costs on the Tranche A term loans.

In October 1996, the Company applied the proceeds from the sales of the
U.S. Timberlands/Wood Products business segment to loans outstanding under the
Term Loan Facility and to outstanding borrowings under the Revolving Credit
Facility. This early retirement of debt resulted in a non-cash extraordinary
charge in 1996 of $10.3 million, net of tax of $0, relating to the write-off of
deferred debt issuance costs.

CHANGE IN ACCOUNTING PRINCIPLE

In accordance with the EITF (Emerging Issues Task Force) consensus reached
on November 20, 1997, the Company is required to change its accounting for
business process reengineering costs. EITF 97-13 "Accounting for Costs Incurred
in Connection with a Consulting Contract or an Internal Project that Combines
Business Process Reengineering and Information Technology Transformation,"
requires that the cost of business process reengineering activities that are
part of a project to acquire, develop or implement internal use software,
whether done internally or by third parties, be expensed as incurred.
Previously, the Company capitalized these costs as systems development costs.

The accounting change, effective in the fourth quarter of 1997, resulted in
a cumulative charge of $3.1 million, net of tax of $0.

20
<PAGE> 24

1996 Compared with 1995

RESULTS OF OPERATIONS

The following is a discussion of the Company's results of operations on a
pro forma basis. The discussion is based upon the nine-month period ended
December 31, 1996, exclusive of the net effect of Purchased Asset Costs made in
this period, plus the three-month period ended March 27, 1996, exclusive of
Other Costs and the U.S. Timberlands/Wood Products business segment results of
operations, in comparison to the year ended December 31, 1995, exclusive of
Other Costs and the U.S. Timberlands/Wood Products business segment results of
operations, as follows:

<TABLE>
<CAPTION>
PRO FORMA % INCREASE PRO FORMA
YEAR ENDED (DECREASE) YEAR ENDED
DECEMBER 31, FROM PRIOR DECEMBER 31,
1996 YEAR 1995
------------ ---------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales (Segment Data):
Coated Board................................. $ 984,296 (2.3)% $1,007,123
Containerboard............................... 127,920 (33.5) 192,497
---------- ----------
Net Sales...................................... 1,112,216 (7.3) 1,199,620
Cost of Sales.................................. 937,149 (2.2) 957,951
---------- ----------
Gross Profit................................... 175,067 (27.6) 241,669
Selling, General and Administrative............ 130,821 5.7 123,737
Research, Development and Engineering.......... 9,349 (4.8) 9,819
Other Expense, net............................. 4,487 16.9 3,838
---------- ----------
Income from Operations......................... $ 30,410 (70.8)% $ 104,275
========== ==========
Income (Loss) from Operations (Segment Data):
Coated Board................................. $ 94,486 (14.9)% $ 111,070
Containerboard............................... (34,117) -- 18,460
Corporate.................................... (29,959) (18.6) (25,255)
---------- ----------
Income from Operations......................... $ 30,410 (70.8)% $ 104,275
========== ==========
</TABLE>

PAPERBOARD SHIPMENTS

The following represents shipments of Coated Board and Containerboard to
outside customers. Shipments of Coated Board represent sales to customers of
beverage carrierboard, folding cartonboard, and WLC (other than from the Swedish
Mill). Shipments from the Swedish Mill represent sales to customers of WLC
produced at this mill. Shipments of Containerboard represent sales to customers
of linerboard, corrugating medium and kraft paper. Total shipments for the years
ended 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS OF TONS)
<S> <C> <C>
Coated Board................................................ 837.5 853.3
Swedish Mill................................................ 122.4 133.7
Containerboard.............................................. 476.8 458.3
------- -------
1,436.7 1,445.3
======= =======
</TABLE>

NET SALES

As a result of the factors described below, the Company's Net Sales in 1996
declined by $87.4 million, or 7.3 percent, compared with 1995. Net Sales in the
Containerboard business segment decreased $64.6 million, or 33.6 percent, to
$127.9 million in 1996 from $192.5 million in 1995, due principally to selling
price declines as a result of the significant decline in containerboard markets
worldwide that began in the latter part of 1995 and continued through 1996,
which were partially offset by increased sales volumes. Net Sales in the Coated
Board business segment decreased by $22.8 million in 1996, or 2.3 percent, to
$984.3 million from $1,007.1

21
<PAGE> 25

million in 1995, due primarily to decreased sales volume as a result of an
overall decline in demand in U.S. and international folding cartonboard markets
and international beverage markets due to substitution by customers of competing
substrates for the Company's coated board in these markets, as a result of
pricing pressures, quality and production issues at the West Monroe Mill and
other competitive factors. These decreases were offset somewhat by a shift in
product mix in U.S. beverage markets to higher sales of U.S. integrated beverage
products as well as selling price increases in U.S. integrated beverage markets.

GROSS PROFIT

As a result of the factors discussed below, the Company's Gross Profit for
1996 decreased $66.6 million, or 27.6 percent, to $175.1 million from $241.7
million in 1995. The Company's gross profit margin decreased to 15.7 percent for
1996 from 20.1 percent in 1995. In the Containerboard business segment, Gross
Profit decreased $52.4 million in 1996 as compared to 1995, to a loss in 1996 of
$27.1 million. This decrease was due principally to selling price declines
resulting from the significant decline in containerboard markets worldwide that
began in the latter part of 1995 and continued through 1996. In the Coated Board
business segment, Gross Profit decreased by $12.5 million, or 5.8 percent, to
$204.7 million in 1996 as compared to $217.2 million in 1995, while its gross
profit margin percentage decreased to 20.8 percent in 1996 from 21.6 percent in
1995. The decrease in the gross profit margin resulted principally from a shift
in sales from folding cartonboard open markets to lower margin U.S. integrated
beverage products combined with increased production costs in certain
international folding cartonboard markets, lower selling prices in U.S. folding
cartonboard open markets and unabsorbed fixed costs at the two U.S. paper mills
as a result of CUK Board paper machine outages effected in the fourth quarter of
1996 in order to correct CUK Board inventory imbalances. These factors were
offset somewhat by selling price increases in U.S. domestic integrated beverage
markets.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, General and Administrative expenses increased $7.1 million, or 5.7
percent, to $130.8 million in 1996 as compared to $123.7 million in 1995, and as
a percentage of Net Sales, increased from 10.3 percent in 1995 to 11.8 percent
in 1996. This increase is primarily a result of higher warehousing expenses and
lower deferral of packaging machine design costs, which were somewhat offset by
a decline in incentive compensation expenses.

RESEARCH, DEVELOPMENT AND ENGINEERING

Research, Development and Engineering expenses decreased by $0.5 million,
or 4.8 percent, to $9.3 million in 1996.

OTHER EXPENSE, NET

Other Expense, net, increased by approximately $0.6 million, or 16.9
percent, to $4.5 million in 1996 primarily as a result of lower sales of minor
surplus assets and higher banking fees, partially offset by higher gains on
foreign currency transactions.

INCOME FROM OPERATIONS

Primarily as a result of the factors discussed above, the Company's Income
from Operations in 1996 decreased by $73.9 million, or 70.8 percent, to $30.4
million from $104.3 million in 1995, while the Company's operating margin
decreased to 2.7 percent in 1996 from 8.7 percent in 1995. Income from
Operations in the Containerboard business segment decreased $52.6 million to a
loss of $34.1 million in 1996 from Income from Operations of $18.5 million in
1995, primarily as a result of the factors described above. Income from
Operations in the Coated Board business segment decreased $16.6 million, or 14.9
percent, to $94.5 million in 1996 from $111.1 million in 1995, while the
operating margin decreased to 9.6 percent from 11.0 percent for 1995, primarily
as a result of the factors described above.

22
<PAGE> 26

FLUCTUATIONS IN U.S. CURRENCY EXCHANGE RATES

Fluctuations in U.S. dollar currency exchange rates did not have a
significant impact on Net Sales, Gross Profit, operating expenses or Income from
Operations of the Company or Predecessor or any of its business segments during
1996 or 1995.

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

INTEREST INCOME

Interest Income decreased $1.0 million to $1.0 million in the Year ended
December 31, 1996 from the same period of 1995, primarily as a result of lower
average balances of cash and equivalents and marketable securities in 1996 as
compared to 1995.

INTEREST EXPENSE

Interest Expense increased $66.5 million to $172.2 million in the year
ended December 31, 1996 from 1995 primarily as a result of incremental
indebtedness incurred in connection with the Merger. During 1996 and 1995, the
Company capitalized interest of $2.5 million and $2.3 million, respectively.
Amortization of deferred debt issuance costs, exclusive of the amount recognized
as an extraordinary loss on early extinguishment of debt (see "-- Extraordinary
Loss on Early Extinguishment of Debt"), for 1996 and 1995 was $12.4 million and
$2.7 million, respectively. The increase in the amortization of deferred debt
issuance costs in 1996 is a result of significantly higher deferred debt
issuance costs incurred in connection with the above mentioned incremental
borrowings.

INCOME TAX EXPENSE (BENEFIT)

During the Year ended December 31, 1996, the Company recognized an income
tax expense of $0.7 million on a Loss from Continuing Operations before Income
Taxes and Equity in Net Earnings of Affiliates of $154.1 million. This expense
differed from the statutory federal income tax rate primarily because of
valuation allowances established on net operating loss carryforward tax assets
in the United States and certain international locations where the realization
of such benefits is less likely than not. During 1995, the Predecessor received
$16.1 million of gross dividends from its equity investment in Igaras, of which
$12.1 million was a special dividend. Accordingly, the Predecessor recognized
the related income taxes and withholding taxes on these dividends. As a result,
the effective income tax rate for 1995 was 64 percent.

EQUITY IN NET EARNINGS OF AFFILIATES

Equity in Net Earnings of Affiliates is comprised primarily of the
Company's equity in net earnings of Igaras, which is accounted for under the
equity method of accounting. Equity in Net Earnings of Affiliates decreased
$12.4 million to $22.5 million for 1996 from 1995, primarily as a result of the
significant decline in containerboard markets worldwide. During the year ended
December 31, 1996, the Company received dividends from Igaras of approximately
$5.0 million. Under the Igaras joint venture agreement, Igaras is required to
pay dividends equal to at least 25 percent of its net profits.

DISCONTINUED OPERATIONS

On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment for approximately $550
million in cash. The Company did not recognize any gain or loss on the sale. Net
Sales in the U.S. Timberlands/Wood Products business segment decreased by $28.0
million, or 19.6 percent, in 1996 as compared to 1995, due principally to the
partial year of sales reported in 1996 and to decreased plywood selling prices,
offset somewhat by higher lumber selling prices. Excluding the effects of
Purchased Asset Costs for 1996, and excluding Other Costs for periods prior to
the Merger, Income from Operations in the U.S. Timberlands/Wood Products
business segment increased $1.5 million, or 3.0

23
<PAGE> 27

percent, in 1996 as compared to 1995, primarily as a result of lower log costs
and increased selling prices for lumber.

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT

In October 1996, the Company applied the proceeds from the sale of the U.S.
Timberlands/Wood Products business segment to loans outstanding under the Term
Loan Facility and to outstanding borrowings under the Revolving Credit Facility.
This early retirement of debt resulted in a non-cash extraordinary charge in
1996 of $10.3 million, net of tax of $0, relating to the write-off of deferred
debt issuance costs.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

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

CASH FLOWS

Cash and equivalents decreased by approximately $1.6 million in 1997
primarily as a result of $160.4 million and $4.2 million of net cash used in
investing and operating activities, respectively, offset in part by $166.0
million of net cash provided by financing activities. Cash used in investing
activities related principally to the purchases of property, plant and equipment
(see "-- Liquidity and Capital Resources -- Capital Expenditures"). Cash
provided by financing activities resulted primarily from net debt borrowings
(see "-- Liquidity and Capital Resources"). Depreciation and amortization during
1997 totaled approximately $137.4 million, and is expected to be approximately
$145 million to $150 million for 1998.

The Company's cash flows from its operations and EBITDA are subject to
moderate seasonality with demand usually increasing in the spring and summer.
The Company's Coated Board business segment experiences seasonality principally
due to the seasonality of the worldwide multiple packaging beverage segment.
Historically, the Company's Coated Board business segment reports its strongest
sales in the second and third quarters of the fiscal year, driven by the
seasonality of the Company's integrated beverage business.

LIQUIDITY AND CAPITAL RESOURCES

Generally

The Company's liquidity needs arise primarily from debt service on the
substantial indebtedness incurred in connection with the Merger and from the
funding of its capital expenditures. As of December 31, 1997, the Company had
outstanding approximately $1,751 million of long-term debt, consisting primarily
of $650 million aggregate principal amount of the 1996 Notes, $250 million of
the 1997 Notes, $644 million outstanding under the Term Loan Facility and
additional amounts under the Revolving Facility, the Machinery Facility and
other debt issues and facilities (see Note 10 to the Consolidated Financial
Statements). During 1997, the Company had a net increase in borrowings of
approximately $178.0 million.

DEBT SERVICE

Principal and interest payments under the Term Loan Facility, the Revolving
Facility and the Machinery Facility, together with interest payments on the 1997
Notes and 1996 Notes, represent significant liquidity requirements for the
Company. The Company applied $105.0 million of the proceeds from the 1997 Notes
in July 1997 to refinance a portion of the Tranche A term loans under the Term
Loan Facility, $50 million of the proceeds of the 1997 Notes to refinance the
Tranche D term loan under the Senior Secured Credit Agreement, and the remaining
proceeds from the 1997 Notes to prepay outstanding revolving credit

24
<PAGE> 28

borrowings under the Revolving Facility. Scheduled term loan principal payments
under the Term Loan Facility have been reduced to reflect this application of
proceeds. Annual term loan amortization requirements under the Term Loan
Facility, after giving effect to the refinancing of the Term Loan Facility from
a portion of the proceeds of the 1997 Notes, will be approximately $3 million,
$4 million, $4 million, $120 million, $173 million, $184 million and $156
million for each of the years 1998 through 2004, respectively. This application
of proceeds did not involve any reduction in the current aggregate Revolving
Facility commitment of $400 million. In the third quarter of 1997, the Company
recorded a non-cash extraordinary charge to earnings of approximately $2.5
million, net of tax, related to the write-off of the applicable portion of
deferred debt issuance costs on the Tranche A term loans under the Term Loan
Facility.

The Revolving Facility will mature in March 2003 and the Machinery Facility
will mature in March 2001, with all amounts then outstanding becoming due. The
Company expects that its working capital and business needs will require it to
continue to have access to these or similar revolving credit facilities after
their respective maturity dates, and that the Company accordingly will have to
extend, renew, replace or otherwise refinance such facilities at or prior to
such dates. No assurance can be given that it will be able to do so. The loans
under the Facilities bear interest at floating rates based upon the interest
rate option elected by the Company. The Tranche A term loans, Tranche B term
loans and Tranche C term loans under the Term Loan Facility bore interest as of
December 31, 1997 at an average rate per annum of 8.9 percent. The Senior Notes,
the 1997 Notes and the Senior Subordinated Notes bear interest at rates of
10 1/4 percent, 10 5/8 percent and 10 7/8 percent, respectively. Interest
expense in 1998 is expected to be approximately $190 million, including
approximately $10 million of non-cash amortization of deferred debt issuance
costs. During 1997, cash paid for interest was approximately $155.4 million. The
Company's Australian revolving credit facility matures in September 1998, with
all amounts then outstanding becoming due. The Company accordingly will have to
extend, renew, replace or otherwise refinance such facility at or prior to such
date. No assurance can be given that it will be able to do so. The total amount
outstanding under such facility was $20.4 million at December 31, 1997 and was
included in Short-term debt in the Consolidated Balance Sheets. The Company
intends to use a portion of the proceeds from the sale of its Australian folding
carton business to repay all outstanding borrowings under such facility. See
"-- Business Trends and Initiatives".

The Company uses interest rate swap and cap agreements to fix or cap a
portion of its variable rate Term Loan Facility to a fixed rate in order to
reduce the impact of interest rate changes on future income. The difference to
be paid or received under these agreements is recognized as an adjustment to
interest expense related to that debt. At December 31, 1997, the Company had
interest rate swap agreements (with a notional amount of $250 million) under
which the Company will pay fixed rates of 6.0675 percent to 6.375 percent and
receive three-month LIBOR, and three-month 7.0 percent LIBOR cap agreements
(with a notional amount of $400 million) that expire through May 31, 1998.

COVENANT RESTRICTIONS

The Credit Agreements impose restrictions on the Company's ability to make
capital expenditures and both the Credit Agreements and the Indentures governing
the 1996 Notes and the 1997 Notes limit the Company's ability to incur
additional indebtedness. Such restrictions, together with the highly leveraged
nature of the Company, could limit the Company's ability to respond to market
conditions, meet its capital spending program, provide for unanticipated capital
investments or take advantage of business opportunities. The covenants contained
in the Credit Agreements also, among other things, restrict the ability of the
Company and its subsidiaries to dispose of assets, incur guarantee obligations,
repay the relevant 1996 Notes or the 1997 Notes, pay dividends, create liens on
assets, enter into sale and leaseback transactions, make investments, loans or
advances, make acquisitions, engage in mergers or consolidations, make capital
expenditures or engage in certain transactions with affiliates, and otherwise
restrict corporate activities. The covenants contained in such indentures also
impose restrictions on the operation of the Company's business. At December 31,
1997, the Company was in compliance with the financial covenants in the Credit
Agreements.

In connection with the offering of the 1997 Notes, certain financial and
other covenants in the Credit Agreements were amended to reflect the Company's
recent financial results and market and operating
25
<PAGE> 29

conditions, as well as the consummation of the 1997 Notes offering and the
prepayment of the Term Loan Facility and other borrowings. Covenant
modifications included reductions in permitted capital expenditures (subject to
certain carryover allowances and other adjustments) of no more than $175
million, $140 million, $140 million, and $135 million for 1997 through 2000,
respectively, and $130 million per year thereafter. The amended covenants
specify, among other changes, the elimination of the minimum consolidated net
worth requirements, and the following amended minimum EBITDA and interest
coverage ratio requirements for each four quarter period ending during the
following test periods:

<TABLE>
<CAPTION>
PERIOD EBITDA INTEREST COVERAGE RATIO
- ------ ------------ -----------------------
<S> <C> <C>
December 31, 1996 - December 30, 1997.............. $130 million 0.80 to 1.00
December 31, 1997 - December 30, 1998.............. $140 million 0.85 to 1.00
December 31, 1998 - December 30, 1999.............. $200 million 1.00 to 1.00
December 31, 1999 - December 30, 2000.............. $265 million 1.25 to 1.00
December 31, 2000 - December 30, 2001.............. $325 million 1.50 to 1.00
December 31, 2001 - December 30, 2002.............. $350 million 1.75 to 1.00
December 31, 2002 - December 30, 2003.............. $375 million 2.00 to 1.00
Thereafter......................................... $400 million 2.25 to 1.00
</TABLE>

CAPITAL EXPENDITURES

Capital spending during 1997 was approximately $142.3 million. During 1997,
the Company completed projects to modify the pulp mill at the Macon Mill and to
convert the second paperboard machine at the Macon Mill to CUK Board production.
The cost of the pulp mill modification, completed in February 1997, was
approximately $32 million. The paper machine conversion cost approximately $85
million. Cumulative capital spending on this paper machine conversion project
through December 31, 1997 was approximately $84 million. Capital spending on
these two projects totaled approximately $69 million in 1997. Other capital
spending during 1997 related primarily to increasing paper production
efficiencies, increasing converting capacity, manufacturing packaging machinery
and upgrading the Company's information systems. With the completion of both the
pulp mill modification and the second paper machine conversion at the Macon
mill, total capital spending for 1998 is expected to be approximately $100
million, and is expected to relate principally to maintenance, environmental and
productivity improvement projects, the production of packaging machinery and the
planned upgrading of the Company's information systems (which is expected to
cost up to approximately $30 million through 1999). See "-- Upgrade of
Information Systems and Year 2000 Compliance".

FINANCING SOURCES AND CASH FLOWS

In connection with and following the Merger, the Company decided in 1996 to
exit certain businesses and operating activities, including the sale or closure
of the Company's last dedicated folding cartonboard converting plant in the
United States, located in Kankakee, Illinois, packaging machinery manufacturing
plants in Marietta, Georgia and Koln, Germany, a beverage multiple packaging
converting plant in Bakersfield, California and the trucking transportation
operations in West Monroe, Louisiana, as well as the consolidation and
realignment of certain operations in the United States, Australia and Europe.
The cost of exiting these businesses and operating activities was approximately
$38.6 million which was accrued during 1996 as a purchase accounting adjustment.
The costs relate principally to the severance of approximately 750 employees,
relocation and other plant closure costs. At December 31, 1997, $12.0 million of
this total was accrued in Other accrued liabilities on the Consolidated Balance
Sheets. During 1997, $18.3 million was paid out and charged against the accrual
and related primarily to severance costs.

26
<PAGE> 30

At December 31, 1997, the Company and its U.S. and international
subsidiaries had the following amounts of commitments, amounts outstanding and
amounts available under revolving credit facilities:

<TABLE>
<CAPTION>
TOTAL TOTAL AMOUNT TOTAL AMOUNT
AMOUNT OF OUTSTANDING AT AVAILABLE AT
COMMITMENTS DECEMBER 31, 1997 DECEMBER 31, 1997
----------- ----------------- -----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revolving Facility.................... $400,000 $144,400 $255,600
Machinery Facility.................... 140,000 19,000 33,000
International Facilities.............. 50,380 29,682 20,698
-------- -------- --------
$590,380 $193,082 $309,298
======== ======== ========
</TABLE>

The Machinery Facility is limited by a borrowing base. Undrawn Revolving
Facility availability is expected to be used to meet future working capital and
other business needs of the Company. The Company anticipates pursuing additional
working capital financing for its foreign operations as necessary.

As described above, the Company has substantial liquidity, but anticipates
additional borrowings under the Revolving Facility throughout 1998. The Company
believes that cash generated from operations, together with amounts available
under its Revolving Facility, the Machinery Facility and other available
financing sources, will be adequate to permit the Company to meet its debt
service obligations, capital expenditure program requirements, ongoing operating
costs and working capital needs until the maturity of the Revolving Facility
(assuming extension or refinancing of the Machinery Facility at its earlier
maturity), although no assurance can be given in this regard. The Company's
future financial and operating performance, ability to service or refinance its
debt and ability to comply with the covenants and restrictions contained in its
debt agreements (see "-- Covenant Restrictions"), will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control and will be substantially dependent on the
selling prices for the Company's products and the Company's ability to
successfully implement its overall business and profitability strategies.

While the Company believes that Igaras has adequate liquidity, the Company
shares control of Igaras with its joint venture partner and future dividend
payments from Igaras, if any, would be subject to restrictions in the joint
venture agreement and would reflect only the Company's remaining interest of 50
percent. Under the Igaras joint venture agreement, Igaras is required to pay
dividends equal to at least 25 percent of its net profits. Due to currency
fluctuations, inflation and changes in political and economic conditions,
earnings from Brazilian operations have been subject to significant volatility.
There can be no assurance that such volatility will not recur in the future.

ENVIRONMENTAL AND LEGAL MATTERS

In late 1993, the U.S. Environmental Protection Agency (the "EPA") proposed
regulations (generally referred to as the "cluster rules") that would mandate
more stringent controls on air and water discharges from United States pulp and
paper mills. In 1996, the EPA released additional clarification of the proposed
cluster rules. Based on this information, the Company expects that the cluster
rules may be finally promulgated in 1998 and estimates the capital spending that
may be required to comply with the cluster rules could reach $55 million to be
spent at its two U.S. paper mills over an eight-year period beginning in 1998.

In late 1995, the Louisiana Department of Environmental Quality (the "DEQ")
notified the Company that the Predecessor may be liable for the remediation of
hazardous substances at a wood treatment site in Shreveport, Louisiana, that the
Predecessor or its predecessor previously operated, and at a former oil refinery
site in Caddo Parish, Louisiana that the Company currently owns. Neither the
Company nor the Predecessor ever operated the oil refinery. In response to the
DEQ, the Company has provided additional information

27
<PAGE> 31

concerning these sites and has commenced its own evaluation of any claims and
remediation liabilities for which it may be responsible. The Company received a
letter from the DEQ dated May 20, 1996, requesting a plan for soil and
groundwater sampling of the wood treatment site. The Company first met with the
DEQ on July 18, 1996, and then submitted a soil sampling plan to the DEQ. The
Company received approval for a site sampling plan in November 1997 and
completed the sample collection in December 1997. The analytical results of this
sampling are pending. On September 6, 1996, the Company received from the DEQ a
letter requesting remediation of the former oil refinery site in Caddo Parish,
Louisiana. The Company met with the DEQ on February 17, 1997 to discuss these
matters. The Company is in discussions with the DEQ regarding the participation
of other responsible parties in any clean up of hazardous substances at both of
these sites.

The Company is engaged in environmental remediation projects for certain
properties currently owned or operated by the Company and certain properties
divested by the Company for which responsibility was retained for pre-existing
conditions. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway. To address these
contingent environmental costs, the Company has accrued reserves when such costs
are probable and can be reasonably estimated. The Company believes that, based
on current information and regulatory requirements, the accruals established by
the Company for environmental expenditures are adequate. Based on current
knowledge, to the extent that additional costs may be incurred that exceed the
accrued reserves, such amounts are not expected to have a material impact on the
results of operations, cash flows, or financial condition of the Company,
although no assurance can be given that material costs will not be incurred in
connection with clean-up activities at these properties, including the
Shreveport and Caddo Parish sites referred to above.

On December 6, 1995, Forrest Kelly Clay, a former shareholder of the
Predecessor, commenced a purported class action lawsuit in the United States
District Court for the Northern District of Georgia, against the Company and
certain officials of the Company (the "Individual Defendants," and together with
the Company, the "Defendants"). In his complaint, Clay alleges that the
Defendants violated the federal securities laws by disseminating misleading
statements and by omissions concerning the strategic alternatives that the
Predecessor was considering, including its potential sale to a third-party
investor. The complaint also alleged that the Individual Defendants, through
their exercise of stock appreciation rights ("SARs"), violated the federal
securities laws by trading in the Predecessor's securities while in possession
of material, non-public information. The complaint generally seeks damages in an
unspecified amount, as well as other relief. On June 2, 1997, the court granted
Defendants' Motion for Summary Judgment and dismissed the action in its
entirety. The court based its ruling on the fact that (i) none of the statements
attributable to the Company concerning its review of strategic alternatives was
false and (ii) there is no causal relationship between plaintiff's purchase of
common stock and the Individual Defendants' exercise of SARs. Clay filed his
Notice of Appeal to the United States Court of Appeals for the Eleventh Circuit
on June 5, 1997. All of the briefs have been submitted to the court and oral
argument was held on February 13, 1998.

INTERNATIONAL OPERATIONS

At December 31, 1997, approximately 17 percent of the Company's total net
assets were denominated in currencies other than the U.S. dollar. The Company
has significant operations in countries that use the Swedish krona, the British
pound sterling, the Spanish peseta, the French franc or the Australian dollar as
their functional currencies. The effect of generally stronger U.S. dollar
currency exchange rates in Sweden, Britain, Spain, France and Australia produced
a net currency translation adjustment loss of approximately $22.3 million, which
was recorded as an adjustment to shareholders' equity for the year ended
December 31, 1997. The magnitude and direction of this adjustment in the future
depends on the relationship of the U.S. dollar to other currencies. The Company
cannot predict major currency fluctuations. The Company's revenues from export
sales fluctuate with changes in foreign currency exchange rates. The Company
pursues a currency hedging program in order to limit the impact of foreign
currency exchange fluctuations on financial results. See "-- Financial
Instruments".

28
<PAGE> 32

FINANCIAL INSTRUMENTS

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

The Company pursues a currency hedging program which utilizes derivatives
to limit the impact of foreign currency exchange fluctuations on its
consolidated financial results. Under this program, the Company has entered into
forward exchange and option contracts in the normal course of business to hedge
certain foreign currency denominated transactions. Realized and unrealized gains
and losses on these forward contracts are included in the measurement of the
basis of the related foreign currency transaction when recorded. The premium on
an option contract is accounted for separately and amortized to Other Expense,
net, over the term of the contract. These instruments involve, to varying
degrees, elements of market and credit risk in excess of the amounts recognized
in the Consolidated Balance Sheets. The Company does not hold or issue financial
instruments for trading purposes.

IMPACT OF INFLATION

In the U.S., the inflation rate was approximately two percent for 1997. In
both Europe and Australia, where the Company has manufacturing facilities, the
inflation rate for 1997 was less than three percent. Net sales from
international operations during the period amounted to approximately $384.0
million, or 31.2 percent of the Company's combined Net Sales in 1997.

UPGRADE OF INFORMATION SYSTEMS AND YEAR 2000 COMPLIANCE

The Company has begun to upgrade its information systems through an
initiative expected to cost up to approximately $30 million to be spent through
1999. When the upgrade is complete, the Company expects a major improvement in
its information systems and business processes. This initiative is expected to
be complete by June 1999. Spending on this project during 1997 totaled
approximately $10.0 million of which $5.7 million was capitalized.

In conjunction with the information systems upgrade, the Company is also in
the process of replacing its computer software applications and systems to
accommodate the "Year 2000" dating changes necessary to permit correct recording
of yearly dates for 2000 and later years. The Company does not expect that the
cost of its Year 2000 compliance program will be material to its financial
condition or results of operations (other than the investment in information
systems of up to approximately $30 million). The Company believes that it will
be able to achieve compliance by June 1999, but would anticipate a material
disruption in its operations as the result of any failure by the Company to be
in compliance. In the event that any of the Company's significant suppliers or
customers does not successfully and timely achieve their Year 2000 compliance,
the Company's business or operations could be adversely affected.

TAX MATTERS RELATING TO THE MERGER

In connection with the Merger, the former majority owner of the Company
agreed to bear the cost of a Section 338(h)(10) election for U.S. federal tax
purposes and for purposes of state taxes for which the former majority owner and
the Company filed returns on a combined basis. The Company agreed to bear the
cost of this election for the purposes of other state taxes ("stand-alone
taxes"), including Louisiana income tax. During 1997, the Company paid $33.2
million in stand-alone taxes relating to the election, including $27.5 million
in Louisiana income tax, and received related tax refunds of $8.1 million. The
Company's calculation of its Louisiana tax was based on state law in effect at
the time of the Merger, including a 1993 amendment. In May 1997, the Louisiana
Supreme Court declared the 1993 amendment to be void under the Louisiana
Constitution, retroactive to 1993. It is possible that the voiding of the 1993
amendment could result in the
29
<PAGE> 33

Company being required to pay significant additional Louisiana income tax
relating to the election (plus potential penalties and statutory interest on the
additional taxes). After consultation with Louisiana tax counsel, the Company
filed its Louisiana income tax return for the period ended March 27, 1996 in
reliance on the Louisiana tax law in effect at the time of the Merger, without
the payment of any additional tax due to the voiding of the 1993 amendment.
There can be no assurance, however, that the Company would ultimately prevail on
this issue if Louisiana were to challenge such filing position. If the Company
were not to prevail in such a challenge, significant additional Louisiana income
tax relating to the election could be payable. Management estimates that the
maximum amount of such additional tax is approximately $47 million (plus
potential penalties and statutory interest on any additional tax). Management
believes that the additional tax ultimately paid (if any) would be substantially
less than the estimated maximum amount, although no assurance can be given in
this regard. The Company and its advisors are continuing to study this
situation. Since the law is unclear and the amounts involved could be
significant, it may be several years before this matter is resolved.

During the third quarter of 1997, the Company resolved certain tax issues
related to the Merger, pursuant to the Tax Matters Agreement entered into in
connection with the Merger, resulting in the receipt of approximately $16.8
million (including $0.5 million of interest) in cash from the former majority
owner of the Company.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

The statements contained in this report (other than the financial
statements and other statements of historical fact) are forward-looking
statements, including, without limitation, (i) the statements in "--Business
Trends and Initiatives" concerning (a) the improvements which the Company's
long-term initiatives, including, without limitation, its profit center
reorganization, are designed to achieve, (b) the Company's expectation that the
second Macon Mill paper machine will be able to produce approximately 275,000
tons annually of CUK Board in 18 to 24 months following the June 1997 start-up
and (c) the Company's expectation that new packaging machinery placements will
be reduced in 1998; (ii) the statements in "--Outlook" concerning the Company's
expectation that (a) its 1998 EBITDA will significantly exceed its 1997 EBITDA
as well as each of the factors which the Company believes support such
expectation, (b) it will identify an additional $10 million of annualized cost
savings to be acted upon in 1998, (c) it will achieve continued sales volume
increases in its international beverage and U.S. soft drink carton markets in
1998, while its U.S. beer carton volume will remain relatively flat, (d)
international open market folding cartonboard sales volumes will be increased
and (e) U.S. open market board prices for SBS and CUK Board will not increase
substantially in 1998; (iii) the statements in "--Financial Condition, Liquidity
and Capital Resources" concerning (a) the Company's expectation that
depreciation and amortization for 1998 will be approximately $145 million to
$150 million, (b) the Company's expectation that 1998 interest expense will be
approximately $190 million, including approximately $10 million of non-cash
amortization of deferred debt issuance costs, (c) the Company's expectations
that total capital spending for 1998 will be approximately $100 million and that
the planned upgrading of the Company's information systems will cost up to
approximately $30 million (and its belief that the Company will achieve Year
2000 compliance by June 1999), (d) the Company's belief that cash generated from
operations, together with amounts available under available financing sources,
will be adequate to permit the Company to meet its debt service obligations,
capital expenditure program requirements, ongoing operating costs and working
capital needs until the maturity of the Revolving Facility (assuming extension
or refinancing of the Machinery Facility at its earlier maturity), (e) the
Company's expectations with respect to capital spending that may be required to
comply with the cluster rules and that, based on current knowledge,
environmental costs are not expected to have a material impact on the results of
operations, cash flows or financial condition of the Company and (f) the
Company's beliefs and estimates in respect of certain Louisiana income tax
matters relating to the Section 338(h)(10) election, including, without
limitation, management's belief that additional tax ultimately paid (if any)
would be substantially less than $47 million; and (iv) other statements as to
management's or the Company's expectations and beliefs presented in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

30
<PAGE> 34

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

- The Company's high degree of leverage could have important consequences
to the Company, including but not limited to the following: (i) the
Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired in the future; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds
available to the Company for other purposes; (iii) certain of the
Company's borrowings will be at variable rates of interest, which will
expose the Company to the risk of increased interest rates; and (iv) the
Company's flexibility to adjust to changing market conditions and ability
to withstand competitive pressures could be limited, and the Company may
be more vulnerable to a downturn in general economic conditions or its
business or be unable to carry out capital spending that is important to
its strategy and productivity improvement programs.

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

- The Company's ability to meet its debt service and other obligations will
depend in significant part on the selling prices that the Company
realizes for its folding cartonboard and containerboard products.
Notwithstanding the steps taken by the Company to improve its operating
results, at the depressed selling prices for folding cartonboard and
containerboard that have prevailed since 1996, the Company's cash flow
from operations has been less than its debt service and maintenance
capital expenditure requirements. Accordingly, the Company's long-term
prospects will depend on its realizing improved pricing for these
products.

- The Company's ability to meet its debt service and other obligations will
depend in significant part on the extent to which the Company can
implement successfully its business strategy. The components of the
Company's strategy are subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
control of the Company.

- The Company currently estimates that it will take several years for
coated board markets to absorb the significant increase in the Company's
CUK Board capacity resulting from the upgrade of the second Macon Mill
paper machine. The Company expects to sell a significant portion of its
additional CUK Board production in open markets, principally
internationally. There can be no assurance that additional CUK Board
output can be sold in these markets or that such additional CUK Board can
be sold without experiencing price reductions. Efficient start-up and
production of CUK Board from the upgraded second Macon Mill machine is
dependent upon many manufacturing process and engineering factors, and
there can be no assurance that the Company will not experience equipment
failures, lengthy shut-downs or other disruptions in production during
the start-up process.

- All of the Company's CUK Board is produced at its West Monroe and Macon
Mills. Any prolonged disruption in either facility's production due to
labor difficulties, equipment failures, destruction of or
31
<PAGE> 35

material damage to such facility, or other reasons, could have a material
adverse effect on the Company's results of operations. Labor disputes,
strikes, work stoppages or other disturbances could materially adversely
affect the business, results of operations and financial condition of the
Company. The unions at the Macon Mill continue to work under a contract
which was renewable on January 1, 1998, and the Company is currently in
labor negotiations with such unions.

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

- Amounts paid by the Company for pine pulpwood, hardwood and recycled
fibers, used in the manufacture of paperboard, and various chemicals used
in the coating of CUK Board, represent the largest components of the
Company's variable costs of CUK Board and containerboard production. The
cost of these materials is subject to market fluctuations caused by
factors beyond the Company's control. OCC recycled fiber pricing tends to
be very volatile. With the October 1996 sale of the Company's
timberlands, the Company now relies on private landowners and the open
market for all of its virgin and recycled fiber requirements (except for
CUK Board clippings from its converting operations). Under the terms of
the sale of those timberlands, the Company and the buyer entered into a
20-year supply agreement, with a 10-year renewal option, for the purchase
by the Company, at market-based prices, of a majority of the West Monroe
Mill's requirements for pine pulpwood and residual chips, as well as a
portion of the Company's needs for hardwood pulpwood at the West Monroe
Mill. While the Company has not experienced any significant difficulty in
obtaining adequate supplies of virgin or recycled fiber for its West
Monroe Mill or Macon Mill, there can be no assurance that this will
continue to be the case for either such mill. Moreover, significant
increases in the cost of these materials, to the extent not reflected in
prices for the Company's products, could have a material adverse effect
on the Company's results of operations.

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

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

ACCOUNTING CHANGES

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes
standards for the way public companies report information about operating
segments in annual financial statements and requires that those companies report
selected

32
<PAGE> 36

information about operating segments in interim financial reports. SFAS No. 131
is effective for fiscal years beginning after December 31, 1997. The Company has
not determined the impact that SFAS No. 131 will have on its business segment
disclosures.

In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosure About Pensions
and other Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 revises
disclosure requirements about employers' pension and other postretirement
benefit plans. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997. The Company has not determined the impact that SFAS No. 132
will have on its pension and other postretirement benefit disclosures.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable for 1997.

33
<PAGE> 37

ITEM 8. FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

RIVERWOOD HOLDING, INC.

<TABLE>
<S> <C>
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 35
Consolidated Statements of Operations for the year ended
December 31, 1997, the nine months ended December 31,
1996, the three months ended March 27, 1996 (Predecessor)
and the year ended December 31, 1995 (Predecessor)........ 36
Consolidated Statements of Cash Flows for the year ended
December 31, 1997, the nine months ended December 31,
1996, the three months ended March 27, 1996 (Predecessor)
and the year ended December 31, 1995 (Predecessor)........ 37
Consolidated Statements of Shareholders' Equity for the year
ended December 31, 1997, the nine months ended December
31, 1996, the three months ended March 27, 1996
(Predecessor) and the year ended December 31, 1995
(Predecessor)............................................. 39
Notes to Consolidated Financial Statements.................. 40
Selected Quarterly Financial Data (Unaudited)............... 71
Management's Report......................................... 73
Reports of Independent Accountants.......................... 74
</TABLE>

IGARAS PAPEIS E EMBALAGENS S.A.

<TABLE>
<S> <C>
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 76
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1997............... 77
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1997............... 78
Consolidated Statements of Shareholders' Equity for each of
the three years in the period ended December 31, 1997..... 79
Notes to Consolidated Financial Statements.................. 80
Report of Independent Accountants........................... 89
</TABLE>

34
<PAGE> 38

RIVERWOOD HOLDING, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $ 15,751 $ 17,357
Receivables, net of allowances............................ 151,554 153,864
Inventories............................................... 174,498 211,965
Prepaid expenses.......................................... 10,451 8,113
Deferred tax assets....................................... 75 2,897
---------- ----------
Total Current Assets.............................. 352,329 394,196
Property, Plant and Equipment, at cost:
Land and improvements..................................... 43,315 35,761
Buildings................................................. 115,147 117,042
Machinery and equipment................................... 1,691,900 1,608,182
---------- ----------
1,850,362 1,760,985
Less, Accumulated Depreciation............................ 205,527 85,768
---------- ----------
Property, Plant and Equipment, net........................ 1,644,835 1,675,217
Deferred Tax Assets....................................... 1,106 1,532
Investments in Net Assets of Equity Affiliates............ 141,690 125,030
Goodwill, net of accumulated amortization of $13,475 in
1997 and $5,900 in 1996................................ 304,448 318,543
Other Assets.............................................. 161,777 156,969
---------- ----------
Total Assets...................................... $2,606,185 $2,671,487
========== ==========
LIABILITIES
Current Liabilities:
Short-term debt........................................... $ 44,330 $ 18,173
Accounts payable.......................................... 116,308 125,014
Compensation and employee benefits........................ 37,510 38,017
Income taxes.............................................. 22,475 42,031
Other accrued liabilities................................. 93,694 112,205
---------- ----------
Total Current Liabilities......................... 314,317 335,440
Long-Term Debt, less current portion...................... 1,712,944 1,567,259
Deferred Income Taxes..................................... 14,383 19,722
Other Noncurrent Liabilities.............................. 79,062 85,467
---------- ----------
Total Liabilities................................. 2,120,706 2,007,888
CONTINGENCIES AND COMMITMENTS (Note 15)
REDEEMABLE COMMON STOCK, at current redemption value........ 6,045 9,390
---------- ----------
SHAREHOLDERS' EQUITY
Nonredeemable Common Stock................................ 75 75
Capital in Excess of Par Value............................ 751,153 751,153
(Accumulated Deficit)..................................... (257,609) (105,136)
Cumulative Currency Translation Adjustment................ (14,185) 8,117
---------- ----------
Total Shareholders' Equity........................ 479,434 654,209
---------- ----------
Total Liabilities and Shareholders' Equity........ $2,606,185 $2,671,487
========== ==========
</TABLE>

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

35
<PAGE> 39

RIVERWOOD HOLDING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

On March 27, 1996, Holding, through its wholly-owned subsidiary RIC
Holding, acquired all of the outstanding shares of common stock of RIC. The
purchase method of accounting was used to record assets acquired and liabilities
assumed by Holding. As a result of the Merger, purchase accounting, the effect
of the disposition of substantially all of the U.S. Timberlands/Wood Products
business segment (see Note 24) and certain Other Costs of the Predecessor, the
accompanying financial statements of the Predecessor and the Company are not
comparable in all material respects since the financial statements report
results of operations and cash flows of these two separate entities.

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------- ----------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 27, DECEMBER 31,
1997 1996 1996 1995
------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Net Sales..................................... $1,138,854 $ 852,112 $293,649 $1,342,304
Cost of Sales................................. 1,000,391 734,314 232,701 1,050,081
Selling, General and Administrative........... 116,581 99,819 30,936 126,191
Research, Development and Engineering......... 5,171 7,339 2,031 9,909
Other Costs................................... -- -- 11,114 21,516
Other Expense, net............................ 9,799 9,221 1,217 1,470
---------- --------- -------- ----------
Income from Operations........................ 6,912 1,419 15,650 133,137
Interest Income............................... 1,116 702 329 2,006
Interest Expense.............................. 172,230 145,845 26,392 105,741
---------- --------- -------- ----------
(Loss) Income from Continuing Operations
before Income Taxes and Equity in Net
Earnings of Affiliates...................... (164,202) (143,724) (10,413) 29,402
Income Tax Expense (Benefit).................. 5,645 4,180 (3,436) 18,797
---------- --------- -------- ----------
(Loss) Income from Continuing Operations
before Equity in Net Earnings of
Affiliates.................................. (169,847) (147,904) (6,977) 10,605
Equity in Net Earnings of Affiliates.......... 22,890 17,542 4,927 34,933
---------- --------- -------- ----------
(Loss) Income from Continuing Operations...... (146,957) (130,362) (2,050) 45,538
Income from Discontinued Operations,
net of tax of $0.......................... -- 35,546 -- --
---------- --------- -------- ----------
(Loss) Income before Extraordinary Item and
Cumulative Effect of a Change in
Accounting.................................. (146,957) (94,816) (2,050) 45,538
Extraordinary Loss on Early Extinguishment of
Debt, net of tax of $0...................... (2,463) (10,320) -- --
---------- --------- -------- ----------
(Loss) Income before Cumulative Effect of a
Change in Accounting........................ (149,420) (105,136) (2,050) 45,538
Cumulative Effect of a Change in Accounting,
net of tax of $0.......................... (3,053) -- -- --
---------- --------- -------- ----------
Net (Loss) Income............................. $ (152,473) $(105,136) $ (2,050) $ 45,538
========== ========= ======== ==========
</TABLE>

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

36
<PAGE> 40

RIVERWOOD HOLDING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------------------- ---------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 27, DECEMBER 31,
1997 1996 1996 1995
------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income................................... $(152,473) $ (105,136) $ (2,050) $ 45,538
Noncash Items Included in Net (Loss) Income:
Depreciation, amortization and cost of timber
harvested....................................... 137,384 100,846 24,438 92,646
Extraordinary loss on early extinguishment of
debt, net....................................... 2,463 10,320 -- --
Deferred income taxes............................. 5,391 (403) (3,574) 7,047
Pension, postemployment and postretirement
benefits expense (credit), net of
contributions................................... 4,925 (553) 1,861 (277)
Equity in net earnings of affiliates, net of
dividends....................................... (17,662) (12,136) (4,927) (18,818)
Amortization of deferred debt issuance costs...... 11,800 11,226 619 2,635
Other, net........................................ 720 979 (2,350) (1,503)
Changes Net of Effects of Acquisitions/Dispositions:
Decrease (Increase) in Current Assets:
Receivables....................................... (948) 7,934 14,737 (30,598)
Inventories....................................... 32,223 21,261 (14,659) (29,075)
Prepaid expenses.................................. (3,655) (1,670) 8,298 (3,144)
(Decrease) Increase in Current Liabilities:
Accounts payable.................................. (4,095) (13,633) 18,182 3,484
Compensation and employee benefits................ 706 (9,977) (10,248) 5,669
Income taxes...................................... 13,701 344 (3,343) (9,969)
Other accrued liabilities......................... (18,387) (29,267) 12,360 7,024
Decrease in Other Noncurrent Liabilities............ (16,289) (4,199) (2,569) (2,413)
--------- ----------- -------- ---------
Net Cash (Used In) Provided by Operating
Activities........................................ (4,196) (24,064) 36,775 68,246
--------- ----------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of RIC, net of Cash Acquired............ -- (1,459,372) -- --
Purchases of Property, Plant and Equipment.......... (142,314) (132,286) (44,074) (156,875)
Payment for Acquisitions, net....................... -- -- -- (1,087)
Proceeds from Sales of Assets, net of selling
costs............................................. 8,989 550,727 623 20,669
Proceeds from Tax Matters Settlement................ 16,800 -- -- --
Payment of Merger Related Costs..................... (34,794) -- -- --
Increase in Other Assets............................ (9,035) (7,407) (8,004) (11,401)
Purchases of Marketable Securities Classified as
Held-to-Maturity.................................. -- -- -- (1,375)
Proceeds from the Maturities of Marketable
Securities........................................ -- 78 439 2,630
Acquisition of Equipment Previously Leased under
Operating Leases.................................. -- (46,742) -- --
--------- ----------- -------- ---------
Net Cash Used in Investing Activities............... (160,354) (1,095,002) (51,016) (147,439)
--------- ----------- -------- ---------
</TABLE>

37
<PAGE> 41

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

38
<PAGE> 42

RIVERWOOD HOLDING, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
(ACCUMULATED CUMULATIVE
NONREDEEMABLE CAPITAL IN DEFICIT) CURRENCY TOTAL
COMMON EXCESS OF RETAINED TRANSLATION SHAREHOLDERS'
STOCK PAR VALUE EARNINGS ADJUSTMENT EQUITY
------------- ---------- ------------ ----------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
PREDECESSOR:
- ------------------------------------------------
BALANCES AT DECEMBER 31, 1994................... $655 $523,830 $ 10,277 $(18,511) $ 516,251
Net Income.................................... -- -- 45,538 -- 45,538
Currency translation adjustment............... -- -- -- 8,041 8,041
Issuance of 162,052 shares of Common Stock.... 2 2,984 -- -- 2,986
Dividends of $0.16 per share of Common
Stock....................................... -- -- (10,506) -- $ (10,506)
---- -------- --------- -------- ---------
BALANCES AT DECEMBER 31, 1995................... 657 526,814 45,309 (10,470) 562,310
Net (Loss).................................... -- -- (2,050) -- (2,050)
Currency translation adjustment............... -- -- -- (989) (989)
Issuance of 43,148 shares of Common Stock..... -- 846 -- -- 846
Dividends of $0.04 per share on Common
Stock....................................... -- -- (2,630) -- (2,630)
---- -------- --------- -------- ---------
BALANCES AT MARCH 27, 1996...................... $657 $527,660 $ 40,629 $(11,459) $ 557,487
==== ======== ========= ======== =========
COMPANY:
- ------------------------------------------------
BALANCES AT MARCH 28, 1996...................... $ -- $ 1 $ -- $ -- $ 1
Net (Loss).................................... -- -- (105,136) -- (105,136)
Currency translation adjustment............... -- -- -- 8,117 8,117
Issuance of 7,000,000 shares of Class A
Common Stock................................ 70 699,930 -- -- 700,000
Issuance of 500,000 shares of Class B
Common Stock................................ 5 49,995 -- -- 50,000
Stock issuance costs.......................... -- (451) -- -- (451)
Adjustment to redemption value of Redeemable
Common Stock................................ -- 1,678 -- -- 1,678
---- -------- --------- -------- ---------
BALANCES AT DECEMBER 31, 1996................... 75 751,153 (105,136) 8,117 654,209
Net (Loss).................................... -- -- (152,473) -- (152,473)
Currency translation adjustment............... -- -- -- (22,302) (22,302)
Adjustment to redemption value of Redeemable
Common Stock................................ -- -- -- -- --
---- -------- --------- -------- ---------
BALANCES AT DECEMBER 31, 1997................... $ 75 $751,153 $(257,609) $(14,185) $ 479,434
==== ======== ========= ======== =========
</TABLE>

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

39
<PAGE> 43

RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

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

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

Holding and its subsidiaries RIC Holding and Acquisition Corp. conducted no
significant business other than in connection with the Merger and related
transactions through March 27, 1996. Additionally, Holding and RIC Holding are
holding companies with no significant independent operations and no significant
assets other than their investments in the capital stock of RIC Holding and
Riverwood, respectively.

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

The allocation of the net cash paid for the acquisition is summarized as
follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------
<S> <C>
Current assets.......................................... $ 412,165
Property, plant and equipment........................... 2,130,012
Intangible assets....................................... 385,819
Other noncurrent assets................................. 137,476
Liabilities............................................. (1,606,100)
----------
Total................................................... $1,459,372
==========
</TABLE>

The consolidated financial statements presented herein for the periods
prior to March 28, 1996, represent the Predecessor's financial position, results
of operations and cash flows prior to the Merger and, consequently, are stated
on the Predecessor's historical cost basis. The consolidated financial
statements as of December 31, 1997 and 1996, and for the year and nine months
then ended, respectively, reflect the adjustments which were made to record the
Merger. On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment. The operating results for
the U.S. Timberlands/Wood Products business segment have been classified as
discontinued operations for the period beginning March 28, 1996 and ending
October 18, 1996 (date of sale) in the Consolidated Statements of Operations.
Discontinued operations have not been segregated in the Consolidated Statements
of Cash Flows nor have they been reclassified as discontinued operations in the
Predecessor's Consolidated Statements of Operations and Consolidated Balance
Sheets. Accordingly, the financial statements of the Predecessor for periods
prior to March 28, 1996 are not comparable in all material respects with the
financial statements subsequent to the date of the Merger. The most significant
differences relate to discontinued operations and to adjustments recorded in
connection with the Merger for inventory, property, plant and equipment,
intangibles and debt which resulted in increased cost of sales, amortization,
depreciation and interest expense in the year ended December 31, 1997 and the
nine months ended December 31, 1996 and will continue to do so in future
periods.

40
<PAGE> 44
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) PRINCIPLES OF CONSOLIDATION

The following is a summary of significant accounting policies of the
Company. For a summary of the Predecessor's significant accounting policies,
please refer to the Predecessor's financial statements incorporated by reference
in the annual report filed with the Securities and Exchange Commission on Form
10-K dated December 31, 1995.

The accompanying consolidated financial statements include all of the
accounts of Riverwood Holding, Inc. and its subsidiaries. The accompanying
consolidated financial statements include the worldwide operations of the
paperboard, packaging and packaging machinery businesses and (through the date
of sale, see Note 24), the wood products businesses. All significant
transactions and balances between the consolidated operations have been
eliminated.

The Company's international subsidiaries are principally consolidated and
reported on the basis of fiscal years ending November 30 and interim quarterly
periods ending on a date approximately one month prior to the U.S. quarterly
periods. The U.S. quarterly periods are generally on a 13-week basis ending on a
Saturday; however, the length of the first and fourth quarters will vary
depending upon the calendar.

The Company accounts for investments in which it has a 20 percent to 50
percent ownership interest and for corporate joint ventures using the equity
method.

(B) CASH AND EQUIVALENTS

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

Inventories are stated at the lower of cost or market. Cost of inventories
is determined principally on the last-in, first-out ("LIFO") basis. Average cost
bases are used to determine the cost of supplies inventories.

(D) PROPERTY, PLANT AND EQUIPMENT

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

Costs directly associated with the development and testing of computer
information systems are deferred and included in property, plant and equipment.
Such costs are amortized on a straight-line basis over the expected useful life
of 5 years. Costs indirectly associated with such projects and ongoing
maintenance costs are expensed as incurred. A total of $5.7 million and nil in
costs relating to software development were capitalized in 1997 and 1996,
respectively, and included in property, plant and equipment at December 31,
1997.

Interest is capitalized on major projects. The capitalized interest is
recorded as part of the asset to which it relates and is amortized over the
asset's estimated useful life. Capitalized interest was approximately $3.5
million, $2.0 million, $0.5 million and $2.3 million in the year ended December
31, 1997, the nine-month period ended December 31, 1996, the three-month period
ended March 27, 1996 and the year ended December 31, 1995, respectively.

41
<PAGE> 45
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(E) DEPRECIATION, AMORTIZATION AND COST OF TIMBER HARVESTED

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

<TABLE>
<S> <C>
Buildings.................................................. 10 to 40 years
Land improvements.......................................... 3 to 20 years
Machinery and equipment.................................... 2 to 40 years
Furniture and fixtures..................................... 1 to 12 years
Automobiles and light trucks............................... 2 to 5 years
</TABLE>

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

Cost of timber harvested was based on unit cost rates calculated using the
total estimated yield of timber to be harvested and the unamortized timber
costs.

The Company assesses its long-lived assets other than goodwill for
impairment whenever facts and circumstances indicate that the carrying amount
may not be fully recoverable. To analyze recoverability, the Company projects
future cash flows, undiscounted and before interest, over the remaining life of
such assets. If these projected cash flows are less than the carrying amount, an
impairment would be recognized, resulting in a write-down of assets with a
corresponding charge to earnings. The impairment loss is measured based upon the
difference between the carrying amount and the fair value of the assets.

Goodwill is amortized on a straight-line basis over 40 years. The cost of
patents, licenses and trademarks is amortized on a straight-line basis over 15
to 20 years. The related amortization expense is included in Other (Expense)
Income, net, in the Consolidated Statements of Operations. The Company assesses
goodwill for impairment whenever facts and circumstances indicate that the
carrying amount may not be fully recoverable. To analyze recoverability, the
Company projects future cash flows, undiscounted and before interest, over the
remaining life of the goodwill. If these projected cash flows are less than the
carrying amount of the goodwill, an impairment would be recognized, resulting in
a write down of goodwill with a corresponding charge to earnings. The impairment
loss is measured based upon the difference between the carrying amount of the
goodwill and the undiscounted future cash flows before interest.

(F) CAPITALIZATION AND AMORTIZATION OF CERTAIN COSTS

Certain pre-operating and start-up costs are incurred during the process of
bringing major projects into production. Such costs are deferred until the
project becomes commercially operational. These costs are then amortized over a
five-year period. Included in Other Assets were $1.3 million and $0.8 million of
unamortized, pre-operating and start-up costs at December 31, 1997 and 1996,
respectively.

(G) INTERNATIONAL CURRENCY

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

The Company enters into forward exchange contracts to hedge certain foreign
currency denominated exposures and option contracts to hedge anticipated
transactions denominated in foreign currency. Realized

42
<PAGE> 46
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and unrealized gains and losses on these contracts are included in Other
(Expense) Income, net, in the Consolidated Statements of Operations. The
discount or premium on a forward exchange contract is included in the
measurement of the basis of the related foreign currency transaction when
recorded. The premium on an option contract is accounted for separately and
amortized to Other (Expense) Income, net, over the term of the contract.

(H) INCOME TAXES

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

(I) REVENUE RECOGNITION

The Company recognizes revenue primarily when goods are shipped to
customers. Revenues from packaging machinery use agreements received in advance
are recognized on a straight-line basis over the term of the agreements.

(J) INSURANCE RESERVES

It is the Company's policy to self-insure or fund a portion of certain
expected losses related to group health benefits. Provisions for losses expected
are recorded based on the Company's estimates, on an undiscounted basis, of the
aggregate liabilities for known claims and estimated claims incurred but not
reported.

(K) ENVIRONMENTAL REMEDIATION RESERVES

The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
such losses are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value.

(L) RECLASSIFICATION

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

(M) USE OF ESTIMATES

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

43
<PAGE> 47
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3. RECEIVABLES

The components of receivables at December 31 were as follows:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Trade....................................................... $144,479 $138,587
Less, allowance............................................. 560 829
-------- --------
143,919 137,758
Other....................................................... 7,635 16,106
-------- --------
$151,554 $153,864
======== ========
</TABLE>

NOTE 4. FINANCIAL INSTRUMENTS

The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business. These financial instruments include foreign
currency forward exchange contracts and interest rate swap and cap agreements.
These instruments involve, to varying degrees, elements of market and credit
risk in excess of the amounts recognized in the Consolidated Balance Sheets. The
Company does not hold or issue such financial instruments for trading purposes.

The Company enters into forward exchange contracts to hedge substantially
all accounts receivable and certain accounts payable resulting from transactions
denominated in nonfunctional currencies. The purpose of the forward exchange
contracts is to protect the Company from the risk that the eventual functional
currency cash flows resulting from the collection of the hedged accounts
receivable or payment of the hedged accounts payable will be adversely affected
by changes in exchange rates. At December 31, 1997 and 1996, the Company had
various forward exchange contracts, with maturities ranging up to one year, to
exchange nonfunctional currencies for functional currencies (to hedge accounts
receivable and payable denominated in non-functional currencies). When
aggregated and measured in U.S. dollars at year-end exchange rates, the notional
amount of these forward exchange contracts totaled approximately $62.1 million
and $60.0 million at December 31, 1997 and 1996, respectively. Generally,
unrealized gains and losses resulting from these contracts are recognized
currently in operations and approximately offset corresponding unrealized gains
and losses recognized on the hedged accounts receivable or accounts payable.

The Predecessor also entered into forward contracts to hedge the debt
incurred in connection with the acquisition of a beverage and folding carton
converting business in France. The Company assumed these forward contracts in
the Merger. The purpose of the forward contract was to protect the Company from
the risk that the eventual functional currency cost of the debt incurred in
connection with the acquisition would be adversely affected by changes in
exchange rates. At December 31, 1997 and 1996, the notional amount of these
forward contracts totaled approximately $5.3 million and $5.7 million,
respectively. Unrealized losses resulting from these forward contracts were not
significant at both December 31, 1997 and 1996.

During 1997 and 1996, the Company and Predecessor entered into option
contracts to hedge certain anticipated foreign currency transactions. The
purpose of the option contracts is to protect the Company from the risk that the
eventual functional currency cash flows resulting from anticipated foreign
currency transactions will be adversely affected by changes in exchange rates.
At December 31, 1997, no option contracts were outstanding. At December 31,
1996, various option contracts existed, with maturities ranging up to one year.
When aggregated and measured in U.S. dollars at year-end exchange rates, the
notional amounts under these purchased option contracts totaled approximately
$40.4 million at December 31, 1996. Option contract premiums are amortized over
the term of the contract. Gains, if any, related to these contracts are
recognized in income when the anticipated transaction occurs. Total gains
recognized on option contracts during the year ended December 31, 1997, the
nine-month period ended December 31, 1996, the three-month

44
<PAGE> 48
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

period ended March 27, 1996, and the year ended December 31, 1995 totaled
approximately $1.4 million, $0.1 million, nil, and $2.1 million, respectively.
At December 31, 1996, unrealized gains on outstanding option contracts were nil.
There were no call spreads outstanding at December 31, 1997 and 1996. Gains and
losses resulting from call spreads are recognized currently in operations based
on quoted market prices. Net gains resulting from call spreads recognized during
the year ended December 31, 1997, the nine months ended December 31, 1996, the
three months ended March 27, 1996, and the year ended December 31, 1995 totaled
approximately nil, nil, $0.1 million, and $0.3 million, respectively.

The Company uses interest rate swap and cap agreements to fix or cap a
portion of its variable rate Term Loan Facility to a fixed rate in order to
reduce the impact of interest rate changes on future income. The differential to
be paid or received under these agreements is recognized as an adjustment to
interest expense related to the debt. At December 31, 1997, the Company had
interest rate swap agreements (with a notional amount of $250 million) under
which the Company will pay fixed rates of 6.0675 percent to 6.3750 percent and
receive three-month LIBOR. At December 31, 1997, the Company capped its
three-month LIBOR interest rate exposure to 7.0 percent under cap agreements
(with a notional amount of $400 million) that expire through May 31, 1998.

The Company's customers are not concentrated in any specific geographic
region, but are concentrated in certain industries. Customers of the Coated
Board business segment include the beverage and packaged foods industries.
Customers of the Containerboard business segment include integrated and
non-integrated containerboard converters. During the year ended December 31,
1997, no single customer accounted for more than 10 percent of the Company's net
sales. During the nine months ended December 31, 1996, one customer accounted
for approximately 11 percent of the Company's net sales. During the three months
ended March 27, 1996 and the year ended December 31, 1995, no single customer
accounted for more than 10 percent of the Predecessor's net sales. There were no
significant accounts receivable from a single customer at December 31, 1997 and
1996. The Company reviews a customer's credit history before extending credit.
The Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.

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

NONTRADE RECEIVABLES AND SHORT TERM BORROWINGS

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

LONG-TERM DEBT

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

FORWARD EXCHANGE AND OPTION CONTRACTS

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

INTEREST RATE SWAP AND CAP AGREEMENTS

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

45
<PAGE> 49
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNTS VALUE AMOUNTS VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Nontrade receivables.............. $ 7,635 $ 7,635 $ 16,106 $ 16,106
Short-term borrowings............. $ 6,284 $ 6,284 $ 6,919 $ 6,919
Long-term debt.................... $1,750,990 $1,735,086 $1,578,513 $1,521,444
Current forward exchange
contracts....................... $ -- $ (116) $ -- $ (463)
Currency option contracts......... $ -- $ -- $ 90 $ 196
Interest rate swap contracts...... $ -- $ (773) $ -- $ (1,689)
Interest rate cap contracts....... $ 159 $ -- $ 992 $ 160
</TABLE>

NOTE 5. INVENTORIES

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

<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Finished goods.............................................. $ 66,559 $ 89,412
Work-in progress............................................ 11,173 12,496
Raw materials............................................... 65,030 71,075
Supplies.................................................... 31,736 38,982
-------- --------
$174,498 $211,965
======== ========
</TABLE>

Inventories in the amount of $27.9 million and $33.0 million at December
31, 1997 and 1996, respectively, were valued using the first-in, first-out
("FIFO") or average cost method. The balance of the inventories was valued using
the LIFO method. The excess of current values over amounts for financial
reporting purposes was $6.9 million and $1.5 million at December 31, 1997 and
1996, respectively. The Predecessor valued its U.S. inventories principally on
the LIFO basis while all international inventories were valued on the FIFO
basis.

In connection with the Merger, the Company adjusted its inventory balances
to its estimated fair value which resulted in the elimination of the
Predecessor's LIFO reserve of approximately $28.3 million and a write-up of the
acquired inventory to a value which exceeded the Predecessor's FIFO cost by
approximately $16.3 million. The write-up to inventory is charged to cost of
sales when, and if, the March 27, 1996 LIFO base inventory layers are
liquidated. Approximately $3.9 million and $0.6 million of this fair value
write-up of inventories was charged to cost of sales during the year ended
December 31, 1997, and the nine months ended December 31, 1996, respectively.

NOTE 6. INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES

The major components of Investments in Net Assets of Equity Affiliates at
December 31 were as follows:

<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Equity investment in Igaras................................. $137,964 $121,163
Other equity investments.................................... 3,726 3,867
-------- --------
$141,690 $125,030
======== ========
</TABLE>

46
<PAGE> 50
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Investments are accounted for using the equity method of accounting. The
most significant of these investments is Igaras. The following represents the
summarized balance sheet information for Igaras as of December 31:

<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Current Assets.............................................. $115,756 $ 87,543
Noncurrent Assets........................................... $364,604 $286,382
Current Liabilities......................................... $ 86,655 $ 70,678
Noncurrent Liabilities...................................... $ 90,141 $ 31,964
Shareholders' Equity........................................ $303,564 $271,283
</TABLE>

The following represents the summarized income statement information for
Igaras for the year ended December 31, 1997, the nine months ended December 31,
1996, the three months ended March 27, 1996 and December 31, 1995:

During the year ended December 31, 1997, the nine-month period ended
December 31, 1996, the three-month period ended March 27, 1996 and the year
ended December 31, 1995, paperboard was sold to Igaras totaling approximately
$12.6 million, $4.8 million, $0.3 million and $6.0 million, respectively. The
amount of the carrying value of the investment in Igaras at December 31, 1997
and 1996 differs from the underlying equity in net assets by $13.8 million and
$14.5 million, respectively, and relates to the write-down of this investment to
estimated fair value in purchase accounting, declared but unpaid dividends, and
to the elimination of profit in Igaras's ending inventory. Included in
Receivables at December 31, 1997 and 1996 were amounts due from Igaras of $1.7
million and $4.2 million, respectively, for paperboard sales. Included in Other
Assets as of December 31, 1997 are long-term receivables from Igaras of $3.7
million, net of unamortized discount of $1.0 million, for packaging machinery
sales. No such receivable existed at December 31, 1996.

The amount of the Company's portion of Igaras's undistributed earnings at
December 31, 1997 and 1996 was approximately $38.6 million and $17.5 million,
respectively. The amount of dividends received from Igaras during the year ended
December 31, 1997, the nine months ended December 31, 1996, the three months
ended March 27, 1996 and the year ended December 31, 1995 were $4.0 million,
$5.0 million, nil and $16.1 million, respectively, net of taxes of $0.7 million,
nil, nil, and nil, respectively.

47
<PAGE> 51
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. OTHER ASSETS

Other Assets included intangible assets at December 31 as follows:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Patents, licenses, and trademarks, net...................... $ 63,785 $ 61,376
Deferred start-up costs..................................... 1,351 809
-------- --------
Total amortizable assets.................................... 65,136 62,185
Less, accumulated amortization.............................. (5,921) (2,281)
-------- --------
59,215 59,904
Deferred debt issuance costs, net........................... 62,575 68,247
Pension assets.............................................. 12,698 13,880
Capitalized spare parts..................................... 17,074 9,440
Deferred design costs....................................... 2,559 1,229
Other....................................................... 7,656 4,269
-------- --------
$161,777 $156,969
======== ========
</TABLE>

NOTE 8. SHORT-TERM DEBT

Short-term debt at December 31 consisted of the following:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Short-term borrowings....................................... $ 6,284 $ 6,919
Current portion of long-term debt........................... 38,046 11,254
------- -------
$44,330 $18,173
======= =======
</TABLE>

In connection with the Merger, the Company called $125 million of
Convertible Subordinated Notes, of which $6.1 million was not redeemed at
December 31, 1997 and are included in current portion of long-term debt.

Short-term borrowings were principally at the Company's international
subsidiaries. The Company's Australian revolving credit facility matures in
September 1998, with all amounts then outstanding becoming due. Total amount
outstanding under this facility was $20.4 million at December 31, 1997 and was
included in Short-term debt in the Consolidated Balance Sheets. The weighted
average interest rate on short-term borrowings as of December 31, 1997 and 1996
was 3.5 percent and 4.3 percent, respectively.

NOTE 9. COMPENSATION AND EMPLOYEE BENEFITS

Accruals for future compensated employee absences, principally vacation,
were $16.3 million and $18.0 million at December 31, 1997 and 1996,
respectively, and were included in Compensation and employee benefits on the
Consolidated Balance Sheets.

NOTE 10. LONG-TERM DEBT

In connection with the Merger, the Company entered into the Senior Secured
Credit Agreement with certain lenders providing the Senior Secured Credit
Facilities with aggregate commitments not to exceed $1,550 million, including
the $1,150 million Term Loan Facility and the $400 million Revolving Facility.
In addition, RIMI, entered into the Machinery Credit Agreement providing for the
$140 million Machinery

48
<PAGE> 52
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Facility with certain lenders for the purpose of financing or refinancing
packaging machinery. In connection with the Merger, the Company also completed
the Notes Offering of $250 million aggregate principal amount of 10 1/4% Senior
Notes due 2006 and $400 million aggregate principal amount of 10 7/8% Senior
Subordinated Notes due 2008. Furthermore, substantially all outstanding
indebtedness (with certain limited exceptions) and packaging machinery leasing
obligations of RIC and its subsidiaries were repaid or terminated in connection
with the Merger.

The Term Loan Facility will mature in 2004, the Revolving Facility will
mature in 2003 and the Machinery Facility will mature in 2001, with all amounts
then outstanding becoming due. The loans under the Facilities bear interest at
floating rates based upon the interest rate option elected by the Company.

On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment for approximately $550
million in cash (see Note 24). The Company applied $400.0 million of the sale
proceeds to repay term loans under the Term Loan Facility, including
approximately $375.0 million of Tranche A term loans, approximately $18.4
million of Tranche B term loans and approximately $6.6 million of Tranche C term
loans. The Company applied the remaining sale proceeds to outstanding revolving
credit borrowings under the Revolving Credit Facility. This application of
proceeds did not involve any revolving credit commitment reduction. Such
commitment remains at $400 million.

On July 28, 1997, the Company completed an offering of $250 million
principal amount of the 1997 Notes. The net proceeds of this offering were
applied to prepay certain revolving credit borrowings under the Company's
Revolving Facility (without any commitment reduction) and to refinance certain
Tranche A term loans and other borrowings under the Senior Secured Credit
Agreement. A registration statement under the Securities Act of 1933, as
amended, registering the New Notes offered in exchange for the 1997 Notes became
effective October 1, 1997. On November 3, 1997, the Company completed its
exchange offer of the 1997 Notes for the New Notes.

In connection with the 1997 Notes, the Company's senior secured lenders
modified certain financial and other covenants to reflect, among other things,
the Company's recent financial results and market and operating conditions, as
well as the consummation of the 1997 Notes offering and prepayment of the Term
Loan Facility and other borrowings. The amended covenants also specify permitted
capital expenditures (subject to certain carryover allowances and other
adjustments) of no more than $175 million, $140 million, $140 million, and $135
million for 1997 through 2000, respectively, and $130 million per year
thereafter. The amended covenants also specify, among other changes, the
elimination of the minimum consolidated net worth requirements, and the
following amended minimum EBITDA and interest coverage ratio requirements for
each four quarter period ending during the following test periods:

<TABLE>
<CAPTION>
PERIOD EBITDA INTEREST COVERAGE RATIO
------ ------ -----------------------
<S> <C> <C>
December 31, 1996 - December 30, 1997................ $130 million 0.80 to 1.00
December 31, 1997 - December 30, 1998................ $140 million 0.85 to 1.00
December 31, 1998 - December 30, 1999................ $200 million 1.00 to 1.00
December 31, 1999 - December 30, 2000................ $265 million 1.25 to 1.00
December 31, 2000 - December 30, 2001................ $325 million 1.50 to 1.00
December 31, 2001 - December 30, 2002................ $350 million 1.75 to 1.00
December 31, 2002 - December 30, 2003................ $375 million 2.00 to 1.00
Thereafter........................................... $400 million 2.25 to 1.00
</TABLE>

The Credit Agreements impose restrictions on the Company's ability to make
capital expenditures and both the Credit Agreements and the Indentures governing
the Notes limit the Company's ability to incur additional indebtedness. Such
restrictions, together with the highly leveraged nature of the Company, could
limit the Company's ability to respond to market conditions, to meet its capital
spending program, to provide for unanticipated capital investments or to take
advantage of business opportunities. The covenants contained

49
<PAGE> 53
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in the Credit Agreements also, among other things, restrict the ability of the
Company and its subsidiaries to dispose of assets, incur guarantee obligations,
repay the Notes, pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations, make capital expenditures or engage in
certain transactions with affiliates, and otherwise restrict corporate
activities. The covenants contained in the Indentures governing the Notes also
impose restrictions on the operation of the Company's businesses. The Company
was in compliance with the financial covenants in its Credit Agreements at
December 31, 1997.

At December 31, 1997, the Company and its U.S. and international
subsidiaries had the following amounts undrawn under revolving credit
facilities:

The Machinery Facility availability is limited by a borrowing base.

50
<PAGE> 54
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term debt at December 31 consisted of the following:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS OF DOLLARS)
--------------------------
<S> <C> <C>
Senior Notes with interest payable semi-annually at 10.625
percent, payable in 2007................................. $ 250,000 $ --
Senior Notes with interest payable semi-annually at 10.25
percent, payable in 2006................................. 250,000 250,000
Senior Subordinated Notes with interest payable
semi-annually at 10.875 percent, payable in 2008......... 400,000 400,000
Senior Secured Term Loan Facility with interest payable at
various dates less than one year at floating rates (8.5
percent to 9.5 percent at December 31, 1997), payable
through 2004............................................. 644,012 750,000
Senior Secured Revolving Credit Facility with interest
payable at various dates less than one year at floating
rates (8.5 percent to 10.0 percent at December 31, 1997),
payable in 2003.......................................... 144,400 101,300
Machinery Facility with interest payable at various dates
less than one year at floating rates (8.5 percent at
December 31, 1997), payable in 2001...................... 19,000 25,000
Senior Notes with interest payable semi-annually at 10.75
percent, payable in 2000................................. 529 529
Senior Subordinated Notes with interest payable
semi-annually at 11.25 percent, payable in 2002.......... 804 804
Convertible Subordinated Notes with interest payable
semi-annually at 6.75 percent, payable in 2003,
convertible beginning March 27, 1996..................... 6,064 6,141
Senior Subordinated Notes with interest payable
semi-annually at 10.375 percent, payable in 2004......... 15 15
Pollution control revenue bonds with interest payable
semi-annually at 6.25 percent, payable through 2007...... 1,000 1,000
Notes payable to individuals with interest payable in
January 1998 at 6.0 percent, payable January 1998........ 5,278 5,256
International Notes payable to banks with interest payable
at various dates less than one year at interest rates
ranging from 1.1 percent to 5.3 percent at December 31,
1997, payable through 1998............................... 24,182 33,247
Capitalized leases with interest payable from 6.52 percent
to 10.25 percent, payable through 2002................... 5,675 5,185
Other...................................................... 31 36
---------- ----------
1,750,990 1,578,513
Less, current portion...................................... 38,046 11,254
---------- ----------
$1,712,944 $1,567,259
========== ==========
</TABLE>

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

51
<PAGE> 55
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term debt maturities and expirations of funded long-term working
capital commitments at December 31, 1997, were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------
<S> <C>
1998.................................................... $ 38,046
1999.................................................... 6,128
2000.................................................... 5,160
2001.................................................... 139,794
2002.................................................... 174,556
After 2002.............................................. 1,387,306
----------
$1,750,990
==========
</TABLE>

NOTE 11. REDEEMABLE COMMON STOCK

During the nine months ended December 31, 1996, Holding completed an
offering of Holding Common Stock to certain members of management and key
employees of the Company. As of December 31, 1996, the Company had issued
111,900 shares of Holding Class A Common Stock to Management Investors at fair
value for gross cash proceeds of $11.2 million, less issuance costs of $0.1
million. The common stock held by Management Investors is mandatorily redeemable
at fair market value as determined by the Executive Committee of the Board of
Directors and in certain circumstances the Management Investors can require the
Company to repurchase the Holding Class A Common Stock. These shares are
classified as Redeemable Common Stock on the Consolidated Balance Sheets and are
carried at their redemption value at December 31, 1997. Any change in the
redemption amount is charged or credited to Capital in Excess of Par Value.
During 1997, the Company repurchased 39,350 shares of Redeemable Common Stock
for $85 per share and has committed to repurchase an additional 10,500 shares of
Redeemable Common Stock for $85 per share in the first quarter of 1998. There
were no redemptions of Redeemable Common Stock during the nine months ended
December 31, 1996.

In connection with the issuance of Redeemable Common Stock to Management
Investors, the Company has guaranteed loans, with full recourse, from a bank to
certain Management Investors totaling approximately $2.0 million at December 31,
1997.

NOTE 12. NONREDEEMABLE COMMON STOCK

On March 27, 1996, Holding completed an offering of 7,000,000 shares of
Class A Common Stock with a par value of $0.01 per share to certain
institutional investors for $700 million. Total Class A Common Stock authorized
for issuance at December 31, 1997 was 9,000,000 shares, of which amount
7,072,550 shares were outstanding, including 72,550 shares issued to Management
Investors as Redeemable Common Stock (see Note 11). Also on March 27, 1996,
Holding completed an offering of 500,000 shares of Class B Common Stock with a
par value of $0.01 per share to an institutional investor for $50 million. Total
Class B Common Stock, which is non-voting, authorized for issuance at December
31, 1997 was 3,000,000 shares, of which 500,000 shares were outstanding.

NOTE 13. STOCK INCENTIVE PLANS

On March 31, 1997, a certain key executive received a total of 225,000
non-qualified options to purchase shares of redeemable Class A Common Stock (the
"Stock Options") at a weighted average exercise price of $75.00 per share. Of
these Stock Options granted in 1997, 112,500 options vest over a five-year
period and 112,500 options have accelerated vesting based on achievement of
certain financial goals or on September 30,

52
<PAGE> 56
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2006, whichever occurs first. On June 4, 1996, the Management Investors received
a total of 296,550 non-qualified Stock Options at a weighted average exercise
price of $100 per share. Of these Stock Options granted in 1996, 223,800 vest
over a five-year period and 72,750 options have accelerated vesting based on
achievement of certain financial goals or on December 4, 2005, whichever occurs
first. As of December 31, 1997, no Stock Options were exercised, 128,907 Stock
Options at a weighted average exercise price of $100 were canceled leaving
392,543 Stock Options with a remaining weighted average contractual life of 4
years, and 40,333 Stock Options had vested at a weighted average exercise price
of $100 per share. As of December 31, 1996, no stock options were exercised,
cancelled or had vested.

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for the Stock Options.
Accordingly, the Company recognized compensation expense for Stock Options when
the exercise price is less than the related fair value at the date of grant or
when the performance criteria are met. During the year ended December 31, 1997
and the nine months ended, December 31, 1996, the Company recognized
compensation expense of $0.4 million and nil, respectively, related to Stock
Options. Had compensation expense for the Company's grants of Stock Options been
determined in accordance with Statement of Financial Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company's Net
Loss for the year ended December 31, 1997 and the nine months ended December 31,
1996 would approximate $154.4 million and $106.0 million, respectively. The
weighted average fair value of the Stock Options was estimated to be $27.46 per
option on the date of grant for stock options granted in 1997, and $22.36 per
option on the date of grant for stock options granted in 1996. The Company used
the Black-Scholes option-pricing model to value the stock options with the
following assumptions: dividend yield of zero, no volatility, risk-free interest
rates ranging from 6.57 to 6.75 percent, a zero forfeiture rate and an expected
life of three to five years. The effects of applying SFAS No. 123 in this pro
forma disclosure are not indicative of future amounts.

In 1992, Predecessor adopted the Riverwood International Corporation 1992
Long-Term Incentive Plan and in 1994, the Predecessor adopted the Riverwood
International Corporation 1994 Long-Term Incentive Plan (the "Incentive Plans").
The Incentive Plans permitted the granting of stock options, stock appreciation
rights, restricted stock units, performance units, dividend equivalents and
other awards valued in whole or in part by reference to or otherwise based on
the Company's common stock. Prior to 1993, no awards had been granted under
terms of the Incentive Plans. In conjunction with the Merger, the Predecessor's
Incentive Plans were terminated and all outstanding restricted stock units and
stock appreciation rights were exercised at a price of $20.25 per unit/right.

NOTE 14. CURRENCY TRANSLATION ADJUSTMENT

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

53
<PAGE> 57
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 15. CONTINGENCIES AND COMMITMENTS

Total rental expense was approximately $15.2 million for the year ended
December 31, 1997, $14.3 million in the nine-month period ended December 31,
1996, $3.8 million in the three-month period ended March 27, 1996, and $21.7
million for the year ended December 31, 1995.

At December 31, 1997, total commitments of the Company under long-term,
noncancelable contracts were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------
<S> <C>
1998................................................ $13,834
1999................................................ 11,750
2000................................................ 10,958
2001................................................ 8,680
2002................................................ 7,677
After 2002.......................................... 12,709
-------
$65,608
=======
</TABLE>

In late 1993, the EPA proposed regulations (generally referred to as the
"cluster rules") that would mandate more stringent controls on air and water
discharges from the United States pulp and paper mills. In 1996, the EPA
released additional information regarding the proposed cluster rules. Based on
this information, the Company expects that the cluster rules may be finally
promulgated in 1998 and estimates the capital spending that may be required to
comply with the cluster rules could reach $55 million to be spent at its two
U.S. paper mills over an eight-year period beginning in 1998.

In late 1995, the DEQ notified the Company that the Predecessor may be
liable for the remediation of hazardous substances at a wood treatment site in
Shreveport, Louisiana that the Predecessor or its predecessor previously
operated, and at a former oil refinery site in Caddo Parish, Louisiana that the
Company currently owns. Neither the Company nor the Predecessor ever operated
the oil refinery. In response to the DEQ, the Company has provided additional
information concerning these sites and has commenced its own evaluation of any
claims and remediation liabilities for which it may be responsible. The Company
received a letter from the DEQ dated May 20, 1996, requesting a plan for soil
and groundwater sampling of the wood treatment site. The Company first met with
the DEQ on July 18, 1996 and then submitted a soil sampling plan to the DEQ. The
Company received approval for a site sampling plan in November 1997, and
completed the sample collection in December 1997. The analytical results of this
sampling are pending. On September 6, 1996, the Company received from the DEQ a
letter requesting remediation of the former oil refinery site in Caddo Parish,
Louisiana. The Company met with the DEQ on February 17, 1997 to discuss these
matters. The Company is in discussions with the DEQ regarding the participation
of other responsible parties in any clean-up of hazardous substances at both of
these sites.

54
<PAGE> 58
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

additional costs may be incurred that exceed the accrued reserves, such amounts
are not expected to have a material impact on the results of operations, cash
flows or financial condition of the Company, although no assurance can be given
that material costs will not be incurred in connection with clean-up activities
at these properties, including the Shreveport and Caddo Parish sites referred to
above.

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

On December 6, 1995, Forrest Kelly Clay, a former shareholder of the
Predecessor, commenced a purported class action lawsuit in the United States
District Court for the Northern District of Georgia, against the Company and
certain officers of the Company (the "Individual Defendants," and together with
the Company, the "Defendants"). In his complaint, Clay alleges that the
Defendants violated the federal securities laws by disseminating misleading
statements and by omissions concerning the strategic alternatives that the
Predecessor was considering, including its potential sale to a third-party
investor. The complaint also alleged that the Individual Defendants, through
their exercise of SARs, violated the federal securities laws by trading in the
Predecessor's securities while in possession of material, non-public
information. The complaint generally seeks damages in an unspecified amount, as
well as other relief. On June 2, 1997, the court granted Defendants' Motion for
Summary Judgment and dismissed the action in its entirety. The court based its
ruling on the fact that (i) none of the statements attributable to the Company
concerning its review of strategic alternatives was false and (ii) there is no
causal relationship between plaintiff's purchase of common stock and the
Individual Defendants' exercise of SARs. Clay filed his Notice of Appeal to the
United States Court of Appeals for the Eleventh Circuit on June 5, 1997. All of
the briefs have been submitted to the court and oral argument was held on
February 13, 1998.

In connection with the Merger, the former majority owner of the Company
agreed to bear the cost of a Section 338(h)(10) election for federal tax
purposes and for purposes of state taxes for which the former majority owner and
the Company filed returns on a combined basis. The Company agreed to bear the
cost of this election for the purposes of other state taxes ("stand-alone
taxes"), including Louisiana income tax. During 1997, the Company paid $33.2
million in stand-alone taxes relating to the election, including $27.5 million
in Louisiana income tax, and received related tax refunds of $8.1 million. The
Company's calculation of its Louisiana tax was based on state law in effect at
the time of the Merger, including a 1993 amendment. In May 1997, the Louisiana
Supreme Court declared the 1993 amendment to be void under the Louisiana
Constitution, retroactive to 1993. It is possible that the voiding of the 1993
amendment could result in the Company being required to pay significant
additional Louisiana income tax relating to the election (plus potential
penalties and statutory interest on the additional taxes). After consultation
with Louisiana tax counsel, the Company filed its Louisiana income tax return
for the period ended March 27, 1996 in reliance on the Louisiana tax law in
effect at the time of the Merger, without the payment of any additional tax due
to the voiding of the 1993 amendment. There can be no assurance, however, that
the Company would ultimately prevail on this issue if Louisiana were to
challenge such filing position. If the Company were not to prevail in such a
challenge, significant additional Louisiana income tax relating to the election
could be payable. Management estimates that the maximum amount of such
additional tax is approximately $47 million (plus potential penalties and
statutory interest on any additional tax). Management believes that the
additional tax ultimately paid (if any) would be substantially less than the
estimated maximum amount, although no assurance can be given in this regard. The
Company and its advisors are continuing to study this situation. Since the law
is unclear and the amounts involved could be significant, it may be several
years before this matter is resolved.

55
<PAGE> 59
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. PENSIONS

U.S. HOURLY AND SALARIED PENSION PLANS

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

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

(A) PENSION EXPENSE

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

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

56
<PAGE> 60
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(B) FUNDED STATUS

The following table sets forth the funded status of the Company's U.S.
Hourly plan and Salaried plan as of December 31:

<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- --------------- ------------- ---------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation..... $195,019 $ 1,165 $171,501 $ 843
-------- ------- -------- -------
Accumulated benefit
obligation................. $207,414 $ 1,249 $175,399 $ 930
-------- ------- -------- -------
Projected benefit
obligation................. $216,598 $ 1,995 $184,879 $ 2,008
Plan assets at fair value....... 221,175 -- 202,543 --
-------- ------- -------- -------
Plan assets in excess of (less
than) projected benefit
obligation.................... 4,577 (1,995) 17,664 (2,008)
Unrecognized net loss (gain).... 4,442 147 (4,764) 116
Unrecognized prior service
cost.......................... 3,679 -- 980 --
-------- ------- -------- -------
Net pension asset (liability)... $ 12,698 $(1,848) $ 13,880 $(1,892)
======== ======= ======== =======
</TABLE>

Projected benefit obligations were determined using a discount rate of 7.0
percent in 1997 and 7.5 percent in 1996. The rate of increase in future
compensation levels for the Salaried plan was 4.5 percent in both 1997 and 1996.
The vested benefit obligation reflects the benefits the employees would be
entitled to receive if the employees were to terminate their employment
immediately.

On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment (see Note 24). Accordingly,
the pension expense related to the U.S. Timberlands/Wood Products employees was
included through the date of sale and the funded status of the U.S.
Timberlands/Wood Products portion of the pension plan was excluded from the
funded status as of December 31, 1996. In connection with this sale, pension
benefits were curtailed. Accordingly, the pension benefit obligation was reduced
by approximately $2.7 million and was recorded as an adjustment to the market
value of assets acquired in the Merger.

INTERNATIONAL PENSION PLANS

(A) PENSION EXPENSE

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

57
<PAGE> 61
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

Certain assumptions used in determining the pension expense related to the
international plans were as follows:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------- -----------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 27, DECEMBER 31,
1997 1996 1996 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Discount rates................. 6.5 - 8.0% 6.5 - 8.0% 6.5 - 8.0% 6.5 - 9.0%
Rates of increase in future
compensation levels.......... 2.5 - 5.8% 2.5 - 6.5% 2.5 - 6.5% 2.5 - 7.5%
Expected long-term rates of
return on assets............. 6.5 - 8.8% 6.5 - 9.5% 6.5 - 9.5% 6.5 - 9.5%
</TABLE>

Approximately 330 employees participate in a multi-employer pension plan
that provides defined benefits to employees under certain union-employer
organization agreements. Pension expense for this plan was $4.7 million, $2.5
million, $0.9 million, and $2.5 million for the year ended December 31, 1997,
the nine months ended December 31, 1996, the three months ended March 27, 1996
and the year ended December 31, 1995, respectively.

58
<PAGE> 62
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(B) FUNDED STATUS

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

<TABLE>
<CAPTION>
1997 1996
------------- -------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation............................... $67,827 $43,873
------- -------
Accumulated benefit obligation.......................... $70,434 $45,245
------- -------
Projected benefit obligation............................ $75,642 $75,132
Plan assets at fair value................................. 77,846 72,305
------- -------
Plan assets in excess of (less than) projected benefit
obligation.............................................. 2,204 (2,827)
Unrecognized net loss (gain).............................. (1,465) 4,012
------- -------
Net pension asset......................................... $ 739 $ 1,185
======= =======
</TABLE>

Projected benefit obligations were determined using discount rates ranging
from 6.5 to 8.0 percent in both 1997 and 1996. The rate of increase in future
compensation levels ranged from 2.5 to 5.8 percent in 1997 and 2.5 to 6.5
percent in 1996. The vested benefit obligation reflects the benefits the
employees would be entitled to receive if the employees were to terminate their
employment immediately.

As of December 31, 1997 and 1996, accrued retirement contributions for the
international pension plans included in Compensation and employee benefits on
the Consolidated Balance Sheets were $3.7 million and $1.2 million,
respectively.

VOLUNTARY SAVINGS AND DEFINED CONTRIBUTION PLANS

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

The Company's wholly-owned Australian subsidiary has defined contribution
plans for eligible salaried and hourly employees. Both groups of employees may
contribute up to 100 percent of their compensation. During 1997 and 1996, the
Company and Predecessor were required by law to contribute 6 percent of all
eligible employees' compensation. The Company nor Predecessor made any further
matching contributions beyond the required 6 percent in both 1997 and 1996.

Contributions to these plans were $3.9 million for the year ended December
31, 1997, $2.9 million for the nine months ended December 31, 1996, $1.0 million
for the three months ended March 27, 1996 and $3.5 million for the year ended
December 31, 1995.

Accrued savings plan contributions included in Compensation and employee
benefits on the Consolidated Balance Sheets were nil at both December 31, 1997
and 1996.

NOTE 17. OTHER POSTRETIREMENT BENEFITS

The Company sponsors defined benefit postretirement health care plans that
provide medical and life insurance coverage to eligible salaried and hourly
retired U.S. employees and their dependents. The base level of medical coverage
is provided to the retiree at no cost. No postretirement medical benefits are
offered to salaried employees who began employment after December 31, 1993.

59
<PAGE> 63
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The other postretirement benefits expense consisted of the following:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------- -----------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 27, DECEMBER 31,
1997 1996 1996 1995
------------ ------------ ------------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Service costs -- benefits
earned during the period..... $ 350 $ 398 $ 141 $ 411
Interest cost on accumulated
postretirement benefits...... 1,815 1,511 491 2,248
Net amortization............... (136) -- (158) (633)
------ ------ ----- ------
Total other
postretirement
benefits expense... $2,029 $1,909 $ 474 $2,026
====== ====== ===== ======
Discount rate used in
calculation.................. 7.5% 7.5% 7.0% 9.0%
====== ====== ===== ======
</TABLE>

The unfunded accrued postretirement benefit obligation cost reconciled with
the amounts shown in the Consolidated Balance Sheets at December 31 was as
follows:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of the accumulated postretirement
benefit obligation:
Retirees.................................................. $16,933 $17,060
Fully eligible active plan participants................... 2,125 2,530
Other active plan participants............................ 6,781 7,169
------- -------
Accumulated postretirement benefit obligation............... 25,839 26,759
Unrecognized prior service cost............................. 1,752 --
Unrecognized net (loss)..................................... (1,626) --
------- -------
Total accrued postretirement benefit obligation... $25,965 $26,759
======= =======
</TABLE>

The current portion of the postretirement benefit obligations were
approximately $2.5 million and $2.2 million as of December 31, 1997 and 1996,
respectively.

The actuarial present values of accumulated postretirement benefit
obligations were determined using a discount rate of 7.0 percent and 7.5 percent
in 1997 and 1996, respectively. For measurement purposes, a 6.5 percent annual
rate of increase in the per capita cost of covered medical benefits was assumed
for 1997 for all current and future retirees. This rate was assumed to decrease
gradually to 5.5 percent by the year 2000 and to remain at that level
thereafter. The health care cost trend rate assumption has an effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the actuarial present
value of accumulated postretirement benefit obligation as of December 31, 1997
by $0.7 million and the aggregate of the service and interest cost components of
the periodic cost for the year then ended by $0.1 million.

On October 18, 1996, the Company sold substantially all of the assets of
the U.S. Timberlands/Wood Products business segment (see Note 24). Accordingly,
the postretirement benefit expense related to the U.S. Timberlands/Wood Products
employees was included through the date of sale and the unfunded accrued
postretirement benefit obligation at December 31, 1996 excluded amounts relating
to the U.S. Timberlands/ Wood Products business segment. In connection with this
sale, postretirement benefits were curtailed. Accordingly, the unfunded accrued
postretirement benefit was reduced by approximately $1.6 million and was
recorded as an adjustment to the market value of assets acquired in the Merger.

60
<PAGE> 64
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 18. OTHER COSTS

Other Costs include expenses associated with stock-based compensation plans
and other expenses related to Predecessor's review of strategic alternatives
beginning in April 1995 throughout the date of the Merger (see Note 1). For the
three-month period ended March 27, 1996 and for the year ended December 31,
1995, Predecessor recognized charges of $2.3 million and $17.8 million,
respectively, related to the stock-based compensation plans. For business
segment reporting purposes, these expenses are allocated either to the
respective business segments or Corporate segment based upon the responsibility
of the individuals holding or exercising the stock incentive benefits.
Predecessor incurred $8.0 million and $3.7 million of other expenses in the
three-month period ended March 27, 1996 and in fiscal year 1995, respectively,
related to its review of strategic alternatives and included such expenses in
Corporate and Eliminations for business segment reporting purposes.
Additionally, in the three-month period ended March 27, 1996, the Predecessor
accrued approximately $0.8 million of environmental expenses and included such
expenses in Corporate and Eliminations for business segment reporting purposes.

NOTE 19. FOREIGN CURRENCY MOVEMENT EFFECT

Net international currency transaction (losses) gains included in
determining Income from Operations for the year ended December 31, 1997,
nine-month period ended December 31, 1996, three-month period ended March 27,
1996 and for the year ended December 31, 1995 were $(1.1) million, $1.4 million,
$(0.5) million, and $(0.3) million, respectively.

NOTE 20. INCOME TAXES

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

61
<PAGE> 65
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

A reconciliation of income tax expense (benefit) on Income (Loss) from
Continuing Operations including Equity in Net Earnings of Affiliates using the
statutory U.S. income tax rate compared with the Company's actual income tax
expense (benefit) is as follows:

During 1995, Predecessor received $16.1 million of gross dividends from
Igaras, of which amount $12.1 million was a special, one-time dividend.
Accordingly, the Company recognized the related income taxes and withholding
taxes on these dividends during 1995.

62
<PAGE> 66
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred tax (liabilities) assets at December 31, 1997 and 1996 were
comprised of the following:

<TABLE>
<CAPTION>
1997 1996
----------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Property, plant and equipment............................... $(193,204) $(79,718)
Inventories................................................. -- (6,678)
Undistributed earnings of foreign subsidiaries.............. (7,518) (5,999)
Other compensation and benefits............................. (1,451) --
Other....................................................... -- (646)
--------- --------
Gross deferred tax liabilities............................ $(202,173) $(93,041)
--------- --------
U.S. net operating loss carryforward........................ 165,441 67,332
International net operating loss carryforwards.............. 24,639 13,715
Revaluation of assets....................................... 23,272 34,594
Inventories................................................. 18,766 --
Goodwill.................................................... 16,427 16,592
Reserves.................................................... 12,135 8,270
Deferred revenues........................................... 6,546 5,095
Other postretirement benefits............................... 8,488 11,165
State and local benefit..................................... 5,101 985
Other compensation and benefits............................. -- 6,020
Other....................................................... 4,388 --
--------- --------
Gross deferred tax assets................................. 285,203 163,768
--------- --------
Valuation allowance......................................... (96,232) (86,020)
--------- --------
Net deferred tax liability................................ $ (13,202) $(15,293)
========= ========
</TABLE>

The Company has assessed its earnings history and trends, sales backlog,
budgeted pretax earnings, deferred tax liabilities against which deferred tax
assets could be offset, and expiration dates of carryforwards, and has
determined that, as of December 31, 1997 and 1996, it is more likely than not
that nil and nil, respectively, of net deferred tax assets will be realized. The
valuation allowance of $96.2 million at December 31, 1997, is maintained on net
deferred tax assets for which the Company has not determined that realization is
more likely than not. The Company will continue to assess the valuation
allowance and make adjustments as appropriate.

The U.S. federal net operating loss carryforward amount totals $494.6
million of which $95.6 million expires in 2012 and $399.0 million expires in
2013. International net operating loss carryforward amounts total $60.8 million
of which $11.0 million expire through 2003 and $49.8 million have no expiration
date.

Undistributed earnings intended to be reinvested indefinitely by the
international subsidiaries totaled approximately $14.5 million at December 31,
1997. No U.S. deferred income tax has been recorded on these undistributed
earnings.

NOTE 21. EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT

On July 28, 1997, the Company completed an offering of the 1997 Notes (see
Note 10). The net proceeds of this offering were applied to prepay certain
revolving credit borrowings under the Revolving Facility (without any commitment
reduction), and to refinance certain Tranche A term loans and other borrowings
under the Senior Secured Credit Agreement. During the third quarter of 1997, the
Company recorded a non-cash, extraordinary charge to earnings of approximately
$2.5 million, net of tax of $0, related to the write-off of the applicable
portion of deferred debt issuance costs on the Tranche A term loans.

63
<PAGE> 67
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In October 1996, the Company applied the proceeds from the sale of the U.S.
Timberlands/Wood Products business segment (see Note 24) to loans outstanding
under the Term Loan Facility and to outstanding borrowings under the Revolving
Credit Facility (see Note 10). This early retirement of debt resulted in a
non-cash extraordinary charge of $10.3 million, net of income taxes of $0,
relating to the write-off of deferred debt issuance costs.

NOTE 22. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR SOFTWARE DEVELOPMENT
PROJECT COSTS

In accordance with EITF (Emerging Issues Task Force) consensus reached on
November 20, 1997, the Company is required to change its accounting for business
process reengineering costs. EITF 97-13 "Accounting for Costs Incurred in
Connection with a Consulting Contract or an Internal Project that Combines
Business Process Reengineering and Information Technology Transformation,"
requires that the cost of business process reengineering activities that are
part of a project to acquire, develop or implement internal use software,
whether done internally or by third parties, be expensed as incurred.
Previously, the Company capitalized these costs as systems development costs.

The accounting change, effective in the fourth quarter of 1997, resulted in
a cumulative charge of $3.1 million, net of tax of $0.

NOTE 23. SUPPLEMENTAL CASH FLOW INFORMATION

The following is a summary of net cash paid in connection with the Merger
(see Note 1):

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
-------------------------
<S> <C>
Fair value of assets acquired........................... $ 3,091,507
Liabilities assumed..................................... (1,606,100)
-----------
Cash paid............................................... 1,485,407
Less, cash acquired..................................... (26,035)
-----------
Net cash paid for acquisition........................... $ 1,459,372
===========
</TABLE>

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

At the date of the Merger, the Company purchased packaging machinery and a
converting press, totaling approximately $47 million, that were previously
financed under operating lease arrangements.

NOTE 24. DISCONTINUED OPERATIONS

64
<PAGE> 68
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the West Monroe Mill, as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. The Company did not recognize any gain or loss
on the sale.

The operating results for the U.S. Timberlands/Wood Products business
segment have been classified as discontinued operations for the period beginning
March 28, 1996 through October 18, 1996 (the date of sale) in the Consolidated
Statements of Operations. Discontinued operations have not been segregated in
the Consolidated Statements of Cash Flows nor have they been reclassified as
discontinued operations in the Predecessor's Consolidated Statements of
Operations and Consolidated Balance Sheets.

Net sales of the discontinued U.S. Timberlands/Wood Products business
segment for the period beginning March 28, 1996 through October 18, 1996 (the
date of sale) and income from operations for the same period was $81.1 million
and $35.5 million, respectively.

NOTE 25. PRO FORMA DATA

The following unaudited pro forma financial data has been prepared assuming
that the Merger and related financings were consummated on January 1, 1995 and
excludes from all periods presented the results of operations of the U.S.
Timberlands/Wood Products business segment which was sold on October 18, 1996
(see Note 24) and the interest and extraordinary charge on debt retired from the
proceeds of such sale (see Note 21). This pro forma financial data is presented
for informational purposes and is not necessarily indicative of the operating
results that would have occurred had the Merger been consummated on January 1,
1995, nor is it necessarily indicative of future operations.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Net Sales.......................................... $1,110,818 $1,199,270
========== ==========
Net Loss........................................... $ (135,514) $ (61,265)
========== ==========
</TABLE>

NOTE 26. BUSINESS COMBINATIONS AND DISPOSALS

In connection with the Merger, the Company decided to exit certain
businesses and operating activities, including the sale or closure of the
Company's last dedicated folding carton converting plant in the U.S., located in
Kankakee, Illinois, a packaging machinery manufacturing plant in Marietta,
Georgia, a beverage multiple packaging converting plant in Bakersfield,
California and the trucking transportation operations in West Monroe, Louisiana,
as well as the consolidation and realignment of certain operations in the U.S.,
Australia and Europe. The cost of exiting these businesses and operating
activities were recorded as an adjustment to the market value of assets acquired
in the Merger and totaled approximately $38.6 million and related to the
severance of approximately 750 employees, relocation and other plant closure
costs. At December 31, 1997 and 1996, $12.0 million and $29.1 million of this
total was included in Other accrued liabilities in the Consolidated Balance
Sheets, respectively, and is expected to be paid out through 1998.

65
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RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 27. SUBSEQUENT EVENT -- SALE OF AUSTRALIAN FOLDING CARTON BUSINESS
(UNAUDITED)

Net sales applicable to the Australian folding carton business were
approximately $65 million for the year ended December 31, 1997. Total net assets
applicable to the Australian folding carton business as of December 31, 1997,
were approximately $24 million. The Company does not expect to recognize any
significant gain or loss on this sale.

NOTE 28. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

The Company reports its results in two business segments: Coated Board and
Containerboard. On October 18, 1996, the Company sold substantially all of the
assets of the U.S. Timberlands/Wood Products business segment. The operating
results of the U.S. Timberlands/Wood Products business segment have been
classified as discontinued operations for the period beginning March 28, 1996
through the date of the sale. The results of operations of the U.S.
Timberlands/Wood Products business segment have not been reclassified as
discontinued operations in the Predecessor's Consolidated Statement of
Operations (see Note 24). The Coated Board business segment includes the
production and sale of coated board for packaging cartons from its West Monroe,
Louisiana and Macon, Georgia mills and from its mill in Sweden; carton
converting facilities in the United States, Australia and Europe; and the
design, manufacture and installation of packaging machinery related to the
assembly of beverage cartons. The Containerboard business segment includes the
production and sale of linerboard, corrugating medium and kraft paper from
paperboard mills in the United States. The discontinued U.S. Timberlands/Wood
Products business segment included timberlands and operations engaged in the
supply of pulpwood to the West Monroe Mill from the Company's U.S. timberlands,
as well as the manufacture and sale of lumber and plywood.

The Company's four separate geographic areas are the United States,
Central/South America, Europe and Asia-Pacific. The United States area includes
paper mills, beverage and folding cartonboard facilities, packaging machinery
facilities and prior to the sale of the U.S. Timberlands/Wood Products (see Note
24), 538,000 acres of owned and leased timberlands, lumber mills and a plywood
plant. The Europe area includes a coated recycled paperboard mill, beverage and
folding cartonboard plants and a packaging machinery facility. The Asia-Pacific
area includes beverage and folding cartonboard plants.

66
<PAGE> 70
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Business segment information is as follows:

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------- ----------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 27, DECEMBER 31,
1997 1996 1996 1995
------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
NET SALES
Coated Board............................ $1,029,493 $749,688 $234,608 $1,007,123
Containerboard.......................... 109,361 102,424 25,496 192,497
U.S. Timberlands/Wood Products(F)....... -- -- 37,336 159,749
Intersegment Eliminations(A)............ -- -- (3,791) (17,065)
---------- -------- -------- ----------
$1,138,854 $852,112 $293,649 $1,342,304
========== ======== ======== ==========
INCOME (LOSS) FROM OPERATIONS
Coated Board(B)......................... $ 64,819 $ 54,976 $ 24,638 $ 103,683
Containerboard(B)....................... (41,244) (30,969) (5,955) 17,539
U.S. Timberlands/Wood Products(B)(F).... -- -- 13,868 49,583
Corporate(B)(C)......................... (16,663) (22,588) (16,901) (37,668)
---------- -------- -------- ----------
$ 6,912 $ 1,419 $ 15,650 $ 133,137
========== ======== ======== ==========
CAPITAL EXPENDITURES
Coated Board............................ $ 131,119 $121,997 $ 39,779 $ 147,097
Containerboard.......................... 5,203 6,784 1,919 16,490
U.S. Timberlands/Wood Products(F)....... -- 2,223 2,004 3,650
Corporate............................... 5,992 1,282 372 2,848
---------- -------- -------- ----------
$ 142,314 $132,286 $ 44,074 $ 170,085
========== ======== ======== ==========
DEPRECIATION, AMORTIZATION AND COST OF
TIMBER HARVESTED
Coated Board............................ $ 115,779 $ 75,748 $ 17,800 $ 63,800
Containerboard.......................... 20,388 17,005 4,332 19,553
U.S. Timberlands/Wood Products(F)....... -- 7,086 1,735 7,118
Corporate............................... 1,217 1,007 571 2,175
---------- -------- -------- ----------
$ 137,384 $100,846 $ 24,438 $ 92,646
========== ======== ======== ==========
</TABLE>

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------ -----------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS AT DECEMBER 31
Coated Board........................................... $2,033,072 $1,943,411 $1,262,164
Containerboard......................................... 332,850 482,902 378,910
U.S. Timberlands/Wood Products(F)...................... -- -- 279,763
Corporate(D)........................................... 240,263 245,174 280,491
---------- ---------- ----------
$2,606,185 $2,671,487 $2,201,328
========== ========== ==========
</TABLE>

67
<PAGE> 71
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------ -----------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS AT DECEMBER 31
United States.......................................... $1,930,542 $2,019,649 $1,464,546
Central/South America.................................. 14,198 12,910 12,710
Europe................................................. 233,534 247,360 298,711
Asia-Pacific........................................... 188,983 155,119 159,411
Corporate(D)........................................... 240,263 245,174 280,491
Eliminations(E)........................................ (1,335) (8,725) (14,541)
---------- ---------- ----------
$2,606,185 $2,671,487 $2,201,328
========== ========== ==========
</TABLE>

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

(A) Represents the elimination of intersegment sales from the U.S.
Timberlands/Wood Products business segment of pulpwood and chips used in the
Coated Board and the Containerboard business segments.

(B) Stock-based compensation expense has been allocated to each of the business
segments based upon the responsibility of the individuals holding or
exercising the stock incentive benefits. During the three months ended March
27, 1996, $1.2 million, $0.1 million, $0.2 million and $0.8 million of
stock-based compensation expense were allocated to the Coated Board,
Containerboard and U.S. Timberlands/Wood Products business segments and
Corporate and Eliminations, respectively. During 1995, $7.4 million, $0.9
million, $0.8 million and $8.7 million were recorded in the Coated Board,
Containerboard, U.S. Timberlands/Wood Products and Corporate and
Eliminations business segments, respectively. Expenses associated with the
Company's review of strategic alternatives and environmental reserves are
included in Corporate for business segment reporting purposes and have been
allocated for geographic area information.

68
<PAGE> 72
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(D) Corporate assets are principally the equity investment in Igaras, U.S. cash
and equivalents, prepaid pension costs and other prepayments, deferred loan
costs, deferred tax assets and a portion of property, plant and equipment.

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

(F) On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/Wood Products business segment for $550 million in cash.
The Company did not recognize any gain or loss on the sale. The operating
results for the U.S. Timberlands/Wood Products business segment have been
classified as discontinued operations for the period beginning March 28,
1996 through October 18, 1996 (see Note 24).

NOTE 29. RELATED PARTY TRANSACTIONS

The Company receives certain management services provided by Clayton,
Dubilier and Rice, Inc. ("CD&R"), an affiliate of an equity investor in the
Company. Charges for such services, including reimbursement of expenses, totaled
approximately $0.5 million and $0.6 million for the year ended December 31,
1997, and the nine-month period ended December 31, 1996, respectively, and were
included in operating expenses in the Consolidated Statements of Operations.
Additionally, the Company paid fees totaling approximately $15.1 million to CD&R
and an affiliate of another equity investor in connection with the Merger and
related financing.

Predecessor received a portion of its corporate and other related services
from Manville. These services, which terminated in connection with the Merger,
and amounts are summarized as follows.

TREASURY MANAGEMENT AGREEMENT

Effective May 1992, Predecessor entered into a Treasury Management
Agreement with Manville that provided for Predecessor's excess cash balances to
be invested separately from Manville. Pursuant to the Treasury Management
Agreement, Manville provided Predecessor with certain treasury management
services on a fee basis.

INTERCOMPANY AGREEMENT

Predecessor had a formalized Intercompany Agreement with Manville that
provided, among other things, that Manville make available to Predecessor
certain management services for a fee. The Intercompany Agreement provided for
certain legal services, U.S. income tax compliance, internal audit and health,
safety and environmental services. Fees charged to Predecessor took into
consideration sales, personnel, estimates of time spent to provide such services
or other appropriate bases that management believed to be representative of the
services received.

Selling, General and Administrative expenses included $0.8 million and $4.7
million for the three-month period ended March 27, 1996 and the year ended
December 31, 1995, respectively, reflecting a reimbursement of the costs
estimated to have been incurred by Manville on behalf of Predecessor for
Corporate, General and Administrative services to Predecessor. In addition,
Predecessor participated in Manville's various property, general liability and
other insurance programs. Additionally, prior to 1994, Predecessor participated
in Manville's medical insurance program. Under these programs, insurance expense
was charged to Predecessor based on its claims experience, property values or
other appropriate bases. Insurance expense charged to Predecessor from Manville
was $0.6 million and $6.3 million for the three-month period ended March 27,
1996 and the year ended December 31, 1995, respectively. These charges were made
on a basis management believed reasonable.

69
<PAGE> 73
RIVERWOOD HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

TAX SHARING AGREEMENT

Predecessor had entered into a Tax Sharing Agreement with Manville to
provide for: (i) the payment of taxes for periods during which Manville and
Predecessor are included in the same consolidated group for U.S. federal, state
or local income tax purposes, (ii) the cooperation of the parties in realizing
certain tax benefits and (iii) the conduct of tax audits and various related
matters.

70
<PAGE> 74

RIVERWOOD HOLDING, INC.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Results of operations for the four quarters of 1997 and 1996 are shown
below:

<TABLE>
<CAPTION>
(LOSS)
BEFORE
EXTRAORDINARY
ITEM AND
CUMULATIVE
INCOME EFFECT OF AN
GROSS (LOSS) FROM ACCOUNTING
(QUARTER) NET SALES PROFIT OPERATIONS CHANGE NET LOSS(A)
--------- ---------- -------- ----------- ------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
COMPANY:
1997
First......................... $ 267,188 $ 31,979 $(1,739) $ (37,844) $ (37,844)
Second........................ 294,034 35,309 245 (38,626) (38,626)
Third......................... 284,875 39,264 7,515 (32,081) (34,544)
Fourth........................ 292,757 31,911 891 (38,406) (41,459)
---------- -------- ------- --------- ---------
Total............... $1,138,854 $138,463 $ 6,912 $(146,957) $(152,473)
========== ======== ======= ========= =========
1996
Second........................ $ 293,884 $ 41,489 $ 6,112 $ (21,254) $ (21,254)
Third......................... 291,645 41,081 3,044 (25,754) (25,754)
Fourth........................ 266,583 35,228 (7,737) (47,808) (58,128)
---------- -------- ------- --------- ---------
Total............... $ 852,112 $117,798 $ 1,419 $ (94,816) $(105,136)
========== ======== ======= ========= =========
PREDECESSOR:
1996
First......................... $ 293,649 $ 60,948 $15,650 $ (2,050) $ (2,050)
========== ======== ======= ========= =========
</TABLE>

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

NOTES:

(A) On July 28, 1997, the Company completed an offering of the 1997 Notes. The
net proceeds of this offering were applied to prepay certain revolving
credit borrowings under the Revolving Facility (without any commitment
reduction), and to refinance certain Tranche A term loans and other
borrowings under the Senior Secured Credit Agreement. During the third
quarter of 1997, the Company recorded a non-cash, extraordinary charge to
earnings of approximately $2.5 million, net of tax of $0, related to the
write-off of the applicable portion of deferred debt issuance costs on the
Tranche A term loans.

In accordance with EITF (Emerging Issues Task Force) consensus reached on
November 20, 1997, the Company is required to change its accounting for
business process reengineering costs. EITF 97-13 "Accounting for Costs
Incurred in Connection with a Consulting Contract or an Internal Project
that Combines Business Process Reengineering and Information Technology
Transformation," requires that the cost of business process reengineering
activities that are part of a project to acquire, develop or implement
internal use software, whether done internally or by third parties, be
expensed as incurred. Previously, the Company capitalized these costs as
systems development costs. The accounting change, effective in the fourth
quarter of 1997, resulted in a cumulative charge of $3.1 million, net of tax
of $0.

During the fourth quarter of 1997, the Company recorded a charge of $5.2
million related to a LIFO inventory valuation and recognition of expense
associated with the liquidation of inventory written-up in connection with
the Merger.

certain specified preclosing liabilities. Under the terms of the agreement
for such sale, the Company and the buyer entered into a twenty-year supply
agreement with a ten-year renewal option for the purchase by the Company, at
market-based prices, of a majority of the Company's requirements for pine
pulpwood and residual chips at its West Monroe Mill, as well as a portion of
the Company's needs for hardwood pulpwood at the West Monroe Mill. The
Company did not recognize any gain or loss on the sale. The Company applied
the proceeds from this sale to outstanding loans under the Term Loan
Facility and to outstanding borrowings under the Revolving Credit Agreement.
This early retirement of debt resulted in a non-cash extraordinary charge to
fourth quarter 1996 Net Loss of $10.3 million, net of income taxes of $0,
relating to the write-off of deferred debt issuance costs.

72
<PAGE> 76

MANAGEMENT'S REPORT

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

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

The consolidated financial statements prepared by Management have been
audited in accordance with generally accepted auditing standards by Deloitte &
Touche LLP (for the year ended December 31, 1997, the nine months ended December
31, 1996 and three months ended March 27, 1996) and Coopers & Lybrand L.L.P.
(1995), Independent Accountants, whose reports are also presented.

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

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

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

<TABLE>
<S> <C>
Stephen M. Humphrey Thomas M. Gannon
President and Chief Executive Officer Senior Vice President
and Chief Financial Officer
</TABLE>

73
<PAGE> 77

REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Riverwood
Holding, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended December 31, 1997, the nine months ended December 31, 1996 and
the three months ended March 27, 1996 (Predecessor). Our audits also included
the financial statement Schedule II for the year ended December 31, 1997, the
nine months ended December 31, 1996 and the three months ended March 27, 1996
(Predecessor). These financial statements and financial statement Schedule II
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
Schedule II based on our audits. We did not audit the financial statements of
Igaras Papeis e Embalagens S.A. (Igaras), the Company's investment in which is
accounted for by use of the equity method. The Company's equity in Igaras' net
assets of $137,964,000 and $121,163,000 at December 31, 1997 and 1996,
respectively, and in Igaras' net income of $21,480,000; $17,542,000 and
$4,927,000 for the year ended December 31, 1997, the nine months ended December
31, 1996 and the three months ended March 27, 1996 (Predecessor), respectively,
are included in the accompanying financial statements. The financial statements
of Igaras for the year ended December 31, 1997 and 1996, respectively, were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for such company, is
based on the report of such other auditors.

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

In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of Riverwood Holding, Inc. and subsidiaries at December
31, 1997 and 1996, and the results of their operations and their cash flows for
the year ended December 31, 1997, the nine months ended December 31, 1996 and
the three months ended March 27, 1996 (Predecessor) in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Atlanta, Georgia
February 13, 1998

74
<PAGE> 78

REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of Riverwood International Corporation for
the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material aspects, the consolidated results of operations and cash flows
of Riverwood International Corporation for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Atlanta, Georgia
January 22, 1996

75
<PAGE> 79

IGARAS PAPEIS E EMBALAGENS S.A.

CONSOLIDATED BALANCE SHEETS

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

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Equivalents...................................... $ 40,094 $ 23,177
Receivables, Net.......................................... 39,491 27,296
Inventories............................................... 30,655 31,601
Prepaid Income Tax........................................ 10 --
Other Assets.............................................. 5,506 5,469
-------- --------
Total Current Assets.............................. 115,756 87,543
Property, Plant and Equipment, Net.......................... 353,200 274,404
Deferred Tax Assets......................................... 4,149 5,331
Other Noncurrent Assets..................................... 7,255 6,647
-------- --------
Total Assets...................................... $480,360 $373,925
======== ========
LIABILITIES
Current Liabilities:
Short-Term Debt........................................... $ 28,316 $ 30,774
Current Portion of Long-Term Debt......................... 32,711 5,724
Accounts Payable.......................................... 12,205 14,550
Income Taxes.............................................. -- 4,502
Deferred Income Taxes..................................... 130 130
Other Accrued Liabilities................................. 13,293 14,998
-------- --------
Total Current Liabilities......................... 86,655 70,678
Long-Term Debt, less Current Portion...................... 68,960 14,587
Pension Fund.............................................. 2,267 2,032
Deferred Income Taxes..................................... 12,970 14,474
Other Noncurrent Liabilities.............................. 5,944 871
-------- --------
Total Liabilities................................. 176,796 102,642
-------- --------
Contingencies and Commitments (Note 10)
SHAREHOLDERS' EQUITY
Preferred Stock:
Class A (No par Value; 32 Shares Authorized, Issued and
Outstanding in 1997 and 1996, respectively)............ -- --
Class B (No par Value; No Shares Authorized, Issued and
Outstanding in 1997 and 1996, respectively)............ -- --
Common Stock (No par Value; 167,309,968 Shares Authorized,
Issued and Outstanding in 1997 and 1996,
respectively).......................................... 170,984 170,984
Retained Earnings......................................... 132,580 100,299
-------- --------
Total Shareholders' Equity........................ 303,564 271,283
-------- --------
Total Liabilities and Shareholders' Equity........ $480,360 $373,925
======== ========
</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.
76
<PAGE> 80

IGARAS PAPEIS E EMBALAGENS S.A.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net Sales.................................................. $239,454 $234,698 $275,551
Cost of Sales.............................................. 165,983 156,577 139,011
Selling, General and Administrative Expenses............... 20,174 19,989 19,049
Translation Losses, Net.................................... 2,466 2,115 2,457
Other (Expense) Income, Net................................ (1,637) 854 (6,502)
-------- -------- --------
Income from Operations..................................... 49,194 56,871 108,532
Interest Income............................................ 4,864 8,872 16,171
Interest Expense........................................... 3,968 4,914 5,909
-------- -------- --------
Income before Income Taxes................................. 50,090 60,829 118,794
Current Income Tax Expense................................. 7,739 12,400 45,226
Deferred Income Tax Expense(Income)........................ (322) 3,764 3,558
-------- -------- --------
Net Income................................................. $ 42,673 $ 44,665 $ 70,010
======== ======== ========
</TABLE>

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

77
<PAGE> 81

IGARAS PAPEIS E EMBALAGENS S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
-------- -------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income.............................................. $ 42,673 $ 44,665 $ 70,010
Noncash Items Included in Net Income:
Depreciation, Amortization and Cost of Timber
Harvested.......................................... 19,561 16,632 14,847
Deferred Income Tax Expense(Income).................. (322) 3,764 3,558
Pension Expense, Net of Funding...................... 347 337 168
Other, Net........................................... (248) (306) (313)
(Increase) Decrease in Current Assets:
Receivables.......................................... 1,270 (5,399) (3,786)
Inventories.......................................... 946 1,577 (12,937)
Other Assets......................................... (109) (788) (2,975)
Increase (Decrease) in Current Liabilities:
Accounts Payable..................................... (2,345) 1,444 2,065
Income Taxes......................................... (4,512) (30,062) 34,038
Other Current Liabilities............................... (1,705) 1,289 3,253
Increase (Decrease) in Other Noncurrent Liabilities..... 5,073 (60) 931
-------- -------- ---------
Net Cash Provided by Operating Activities:................ 60,629 33,093 108,859
-------- -------- ---------
Cash Flows from Investing Activities:
Purchases of Property, Plant and Equipment.............. (98,661) (60,010) (41,343)
Proceeds from Sales of Property, Plant and Equipment.... 297 615 457
(Increase) Decrease in Other Noncurrent Assets.......... (608) (1,619) 947
-------- -------- ---------
Net Cash Used in Investing Activities..................... (98,972) (61,014) (39,939)
-------- -------- ---------
Cash Flows from Financing Activities:
Proceeds from Long-Term Debt............................ 90,927 9,350 6,084
Proceeds from Short-Term Debt........................... 55,166 70,476 92,889
Payments on Short-Term Debt............................. (80,441) (68,964) (88,677)
Dividends............................................... (10,392) (9,993) (32,233)
-------- -------- ---------
Net Cash Provided by (Used in) Financing Activities....... 55,260 869 (21,937)
-------- -------- ---------
Net Increase (Decrease) in Cash and Equivalents........... 16,917 (27,052) 46,983
Cash and Equivalents at Beginning of Period............... 23,177 50,229 3,246
-------- -------- ---------
Cash and Equivalents at End of Period..................... $ 40,094 $ 23,177 $ 50,229
======== ======== =========
Supplemental Disclosure of Cash Flow Information:
Cash Paid during the Year for:
Income Taxes............................................ $ 12,083 $ 40,161 $ 8,583
Interest................................................ $ 6,699 $ 6,776 $ 6,982
======== ======== =========
</TABLE>

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

78
<PAGE> 82

IGARAS PAPEIS E EMBALAGENS S.A.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK TOTAL
------------------ COMMON RETAINED SHAREHOLDERS'
CLASS A CLASS B STOCK EARNINGS EQUITY
------- ------- -------- -------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994......... -- -- $170,984 $ 27,850 $198,834
Net Income............................ -- -- -- 70,010 70,010
Dividends of $0.275 per Share on
Common Stock........................ -- -- -- (32,233) (32,233)
------ ------ -------- -------- --------
Balances at December 31, 1995......... -- -- 170,984 65,627 236,611
Net Income............................ -- -- -- 44,665 44,665
Dividends of $0.060 per Share on
Common Stock........................ -- -- -- (9,993) (9,993)
------ ------ -------- -------- --------
Balances at December 31, 1996......... 170,984 100,299 271,283
Net Income............................ -- -- -- 42,673 42,673
Dividends of $0.061 per Share on
Common Stock........................ -- -- -- (10,392) (10,392)
------ ------ -------- -------- --------
Balances at December 31, 1997......... $170,984 $132,580 $303,564
====== ====== ======== ======== ========
</TABLE>

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

79
<PAGE> 83

IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
Igaras Papeis e Embalagens S.A. and its wholly-owned subsidiary, Igaras
Agro-Florestal Ltda. (herein referred to as "the Company"). All significant
transactions and balances between the consolidated operations have been
eliminated.

(B) PRINCIPLES OF TRANSLATION

The accounting records of the Company are maintained in local currency. The
Company's financial statements, including the adjustments made outside the local
books of account, have been translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation" ("SFAS No. 52"), as follows:

BALANCE SHEETS

<TABLE>
<S> <C> <C>
Inventories; Prepaid Expenses; Property, Plant and
Equipment
Advances for Energy Supply and Shareholders' Equity At Historical
Exchange Rates
</TABLE>

<TABLE>
<CAPTION>
AT THE YEAR END
EXCHANGE RATES OF:
----------------------
1997 1996
--------- ---------
<S> <C> <C>
All Other Assets and Liabilities........................... R$1.1164 R$1.0394
US$1.00 US$1.00
</TABLE>

STATEMENTS OF OPERATIONS

<TABLE>
<S> <C> <C>
Cost of Sales; Depreciation; Cost of Timber Harvested and At Historical
Amortization of Other Assets Exchange Rates
All Other Income and Expense Items At Average Exchange
Rate for the Period
</TABLE>

All translation gains and losses are included in income from operations.

Effective January 1, 1998, and concurrent with the determination that
Brazil is no longer a highly inflationary economy, the Company determined that
its functional currency is the U.S. dollar. Accordingly, the Company will
continue to present its consolidated financial statements prepared in accordance
with accounting principles generally accepted in the United States translated
under the historical rate method.

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

(D) INVENTORIES

Inventories are stated at average cost which is lower than market.

(E) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Cost includes capitalized
interest incurred during the construction phase. In 1997, 1996 and 1995,
$4,592,000, $2,504,000, and $736,000 of interest expense was capitalized,
respectively.

80
<PAGE> 84
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Expenditures for significant improvements, or for replacement parts, which
extend the useful life of an asset for more than one year, are capitalized,
while maintenance and repair costs are charged against operations as incurred.
The Company reviews for impairment whenever events or changes in circumstances
indicate that the carrying amount of these assets may not be recoverable.

Gains and losses from normal retirement or replacement of property, plant
and equipment are reflected in accumulated depreciation with no effect on
current period earnings. The amount of related accumulated deferred losses, net
of accumulated depreciation, was $381,000 and $369,000 as of December 31, 1997
and 1996, respectively. Gains and losses arising from abnormal disposals are
included in income from operations.

(F) DEPRECIATION AND COST OF TIMBER HARVESTED

Depreciation of cost is provided over the estimated useful lives of the
related assets using the straight-line method.

The estimated useful lives used in computing depreciation were as follows
for all years presented:

<TABLE>
<S> <C>
Land Improvements........................................... 35 years
Buildings and Building Equipment............................ 35 years
Machinery, Equipment and Vehicles........................... 5 to 20 years
Furniture and Fixtures...................................... 16 years
Computer Hardware........................................... 4 to 5 years
</TABLE>

Timber and timberlands are stated at cost. Cost of timber harvested is
based on unit cost rates calculated using the total estimated yield of timber to
be harvested and the unamortized timber costs.

(G) INCOME TAXES

Deferred income taxes are recognized in accordance with SFAS No. 109,
"Accounting for Income Taxes". The standard requires, among other things, the
use of the liability method of computing deferred income taxes. Under the
liability method, the effect of changes in corporate tax rates on deferred
income taxes is recognized currently as an adjustment to income tax expense. The
liability method also requires that deferred tax assets or liabilities be
recorded based on the difference between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.

(H) REVENUE RECOGNITION

The Company recognizes revenue primarily when goods are shipped to
customers.

(I) USE OF ESTIMATES

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

NOTE 2. EFFECTS OF INFLATION

Brazilian corporate law and tax regulations required monetary correction,
until December 31, 1995 (price-level restatement) of permanent assets (fixed
assets, deferred charges and permanent investments) and shareholders' equity
accounts using the Ufir index published by the Brazilian Government. The
computed monetary correction amounts were recorded in the respective Brazilian
balance sheet accounts with the net

81
<PAGE> 85
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

amount recorded as a gain or loss in the Brazilian statement of operations. As
of January 1, 1996, as established by the Brazilian corporation law and tax
regulations (Law No. 9.249/95), the monetary correction of the financial
statements was abolished. Consequently, there are no effects of monetary
correction in the income tax for 1997 and 1996.

NOTE 3. RECEIVABLES

The components of receivables were as follows at December 31:

<TABLE>
<CAPTION>
1997 1996
---------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Trade....................................................... $39,791 $ 40,957
Less:
Export Drafts Discounted with Recourse.................... -- (13,465)
Allowance for Bad Debts................................... (300) (196)
------- --------
$39,491 $ 27,296
======= ========
</TABLE>

Effective January 1, 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". Accordingly,
$12,128,000 has been included in Receivables, Net and Short-Term Debt in the
accompanying consolidated balance sheet as of December 31, 1997 with respect to
these arrangements.

Export sales by geographic area were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Europe............................................. $ 8,245 $10,511 $28,348
Asia -- Africa..................................... 17,506 21,242 28,395
Latin America, Other than Brazil................... 27,453 22,979 27,454
------- ------- -------
Total Export Sales....................... $53,204 $54,732 $84,197
======= ======= =======
</TABLE>

The remaining net sales for each of the periods presented were to customers
which were not concentrated in any specific region, but were concentrated
primarily in the consumer products industry. No single customer accounted for
more than 10% of the Company's net sales, and there were no significant accounts
receivable from a single customer. The Company reviews a customer's credit
history before extending credit. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. Bad debt expense was
$104,000, $191,000 and $0 for the years ended December 31, 1997, 1996 and 1995,
respectively.

82
<PAGE> 86
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4. INVENTORIES

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

<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Finished Goods.............................................. $ 1,766 $ 2,580
Work-in-Process............................................. 785 1,180
Raw Materials............................................... 13,341 12,177
Maintenance Materials and Other Supplies.................... 16,506 17,349
Less: Reserve for Obsolete and Slow-Moving Inventory........ (1,743) (1,685)
------- -------
$30,655 $31,601
======= =======
</TABLE>

NOTE 5. PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment were as follows at December
31:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Land and Land Improvements................................. $ 8,429 $ 8,095
Buildings and Building Equipment........................... 40,819 38,812
Machinery, Equipment and Vehicles.......................... 288,056 259,112
Furniture and Fixtures..................................... 4,745 4,568
Computer Hardware.......................................... 1,907 1,743
Construction in Progress................................... 94,314 33,560
-------- --------
438,270 345,890
Less: Accumulated Depreciation............................. 147,120 131,692
-------- --------
291,150 214,198
Timber and Timberlands, less Cost of Timber Harvested...... 62,050 60,206
-------- --------
$353,200 $274,404
======== ========
</TABLE>

83
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IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6. LONG-TERM DEBT

Long-term debt consisted of the following at December 31:

<TABLE>
<CAPTION>
PRINCIPAL PERIOD
DUE OUTSTANDING ANNUAL INTEREST RATE 1997 1996
------------- ----------- ----------------------------- ----------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Credibanco Annually 1993-1997 9.7% $ -- $ 492
Frances e Brasileiro Monthly 1995-1999 5.18% 243 405
Frances e Brasileiro Monthly 1995-1999 5.54% 301 502
Credibanco Semi-annually 1996-1997 Libor + 1.5% -- 431
(7.3 at December 31, 1996)
Credibanco Semi-annually 1996-1997 Libor + 1.5% -- 368
(7.3 at December 31, 1996)
Credibanco Semi-annually 1996-1997 Libor + 1.5% -- 640
(7.3 at December 31, 1996)
ING Bank Annually 1996-1999 5.8% 3,374 3,374
ING Bank Annually 1996-1999 5.8% 658 658
Finame Monthly 1993-1998 12.0% 2,863 6,186
BNDES Monthly 1994-1999 12.0% 860 1,457
BNDES Monthly 1997-1999 12.0% 516 779
BNDES Monthly 1997-2000 12.5% 581 842
BNDES Monthly 1997-2000 10.5% 591 771
BNDES Monthly 1998-2001 12.0% 2,625 3,229
Chase Tri-annually 1997-2000 6.62% 1,779 --
Santander Semi-annually 1997-2001 Libor + 0.25% 824 --
(6.19 at December 31, 1997)
Unibanco Semi-annually 1997-2002 Libor + 5.40% 3,750 --
(11.46 at December 31, 1997)
Ing Bank Annually 1997-2001 Libor + 1.75% 10,000 --
(5.87 at December 31, 1997)
BNDES Monthly 1997-2007 8.04% + 1.50% 6,206 --
BNDES Monthly 1997-2007 8.04% + 1.50% 27,647 --
Frances -- PAC Monthly 1997-2002 10.00% 2,129 --
Frances -- PAC Monthly 1997-2002 11.00% 662 --
Unibanco Monthly 1997-2002 10.50% 390 --
Unibanco Monthly 1997-2002 11.00% 691 --
FNB -- New England Semi-annually 1997-2001 7.34% 546 --
ING Bank Annually 1997-1998 7.86% a 8.25% 4,847 --
ING Bank Annually 1997-1998 Libor + 2.00% 2,094 --
(6.12 at December 31, 1997)
Credibanco Annually 1997-1998 7,00% a 8.65% 1,893 --
ING Bank Annually 1997-1999 Libor + 2.125% (6.00 at 2,137 --
December 31, 1997)
ING Bank Annually 1997-1999 Libor + 0.125% (6.50 at 2,181 --
December 31, 1997)
EPP -- Credit Lyonnais Annually 1997-1998 Libor + 2.00% 15,000 --
(5.81 at December 31, 1997)
Frances Semi-annually 1997-2002 Libor + 1.375% 2,003 --
(6.20 at December 31, 1997)
Frances Annually 1997-1999 Libor + 2.75% 1,730 --
(7.35 at December 31, 1997)
Frances Annually 1997-1998 7.90% 325 --
Credibanco Annually 1997-1998 Libor + 0.75% 1,851 --
(6.75 at December 31, 1997)
Others 374 177
-------- -------
101,671 20,311
Less Current Portion 32,711 5,724
-------- -------
$ 68,960 $14,587
======== =======
</TABLE>

84
<PAGE> 88
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term debt maturities and expirations of funded long-term working
capital commitments at December 31, 1997 were as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C>
1998................................................. $ 32,711
1999................................................. 17,178
2000................................................. 9,324
2001................................................. 17,073
2002 - 2007.......................................... 25,385
--------
$101,671
========
</TABLE>

The weighted average interest rate on short-term debt approximated 8% at
December 31, 1997 and 1996, respectively.

Loans and financings obtained from BNDES and Credibanco are guaranteed by
first mortgage of farms located in the State of Santa Catarina, chattel mortgage
and pledged machinery and equipment. There are no other restrictions,
guarantees, collateral or covenants associated with long-term debt.

NOTE 7. OTHER ACCRUED LIABILITIES

The components of other accrued liabilities were as follows at December 31:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Wages and Compensation...................................... $ 5,711 $ 7,389
Value-Added and Other Taxes Payable......................... 1,464 1,579
Amount Due to Affiliate..................................... 1,533 3,137
Other....................................................... 4,585 2,893
------- -------
$13,293 $14,998
======= =======
</TABLE>

NOTE 8. PENSION FUND

The Company maintains a noncontributory defined benefit plan to supplement
the pension benefit provided by the government pension system. The plan covers
all employees meeting minimum eligibility requirements. Pension benefits are
based primarily on years of service and the employee's compensation near
retirement. The Company's funding policy is to contribute funds to trusts as
necessary to maintain the plan on an actuarially sound basis. Plan assets are
primarily invested in listed stocks and Brazilian government bonds.

The components of the periodic pension expense were as follows for the
following years:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
--------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service Cost -- Benefits Earned during the Year.......... $ 844 $ 820 $ 721
Interest Cost on Projected Benefit Obligation............ 620 562 469
Actual Return on Plan Assets Gain........................ (446) (357) (162)
Amortization of Prior Service Cost....................... 112 112 112
------ ------ ------
Total Pension Expense.................................... $1,130 $1,137 $1,140
====== ====== ======
</TABLE>

85
<PAGE> 89
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Certain assumptions used in determining the pension expense and net pension
liability for 1997, 1996 and 1995 were as follows:

<TABLE>
<S> <C>
Discount Rates 5% per year above Inflation in Brazil
Rates of Increase in Future Compensation
Levels 3% per year above Inflation in Brazil
Expected Long-Term Rates of Return on
Assets 5% per year above Inflation in Brazil
</TABLE>

The following table sets forth the funded status of the plan as of December
31:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial Present Value of:
Vested Benefit Obligation................................. $ 7,874 $ 6,694
======== ========
Accumulated Benefit Obligation............................ $ 9,632 $ 8,683
======== ========
Projected Benefit Obligation.............................. $(13,663) $(12,527)
Plan Assets at Fair Value................................... 10,650 8,662
-------- --------
Plan Assets less Projected Benefit Obligation............... (3,013) (3,865)
Unrecognized Net Gain(Loss)................................. (979) 24
Unrecognized Prior Service Cost............................. 1,571 1,683
-------- --------
Pension Liability -- Current................................ (154) (126)
Pension Liability -- Long-Term.............................. (2,267) (2,032)
-------- --------
Net Pension Liability............................. $ (2,421) $ (2,158)
======== ========
</TABLE>

The unrecognized prior service cost is amortized on a straight-line basis
over the average remaining service of employees, which approximates 23 years.

NOTE 9. INCOME TAXES

During 1997, 1996 and 1995, the statutory income tax rates including the
social contribution tax on ordinary profits were approximately 33%, 32% and 48%,
respectively. The statutory income tax rate on agricultural profits including
the social contribution tax was 32% for 1996 and 1997 and 33% for 1997.

On December 27, 1996, the government enacted Law No. 9430/96 changing the
statutory income tax rate from 32% to 33% (including social contribution),
effective January 1, 1997. This rate change caused an increase of $89,000 in
deferred income taxes which was recognized during 1996.

86
<PAGE> 90
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Approximate tax effects of temporary differences giving rise to the net
deferred tax assets and liabilities were as follows at December 31:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred Tax Assets:
Provision for Loss on Eletrobras Bonds.................... $ 927 $ 1,019
Inflationary Losses....................................... 858 1,842
Pensions.................................................. 802 712
Miscellaneous............................................. 1,562 1,758
------- -------
Total Deferred Tax Assets......................... $ 4,149 $ 5,331
======= =======
Deferred Tax Liabilities:
Inflationary Profit....................................... $ 3,834 $ 9,749
Property, Plant and Equipment............................. 9,249 4,670
Miscellaneous............................................. 17 185
------- -------
Total Deferred Tax Liabilities.................... $13,100 $14,604
======= =======
</TABLE>

The current and long-term portions of the net deferred tax liability were
$130,000 and $12,970,000, respectively, in 1997, and $130,000 and $14,474,000,
respectively, in 1996.

The reported amount of income tax expense on income before income taxes
differs from the amount of income tax expense that would result from applying
the Brazilian statutory income tax rate to income before income taxes for the
following reasons:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Brazilian Statutory Expense........................... $16,529 $20,074 $57,235
Accelerated Depreciation.............................. -- -- (8,069)
Interest on Own Capital............................... (2,335) (4,089) --
Inflationary Profit................................... (5,915) (1,188) 641
Other, Net............................................ (862) 1,367 (1,023)
------- ------- -------
Income Tax Expense.......................... $ 7,417 $16,164 $48,784
======= ======= =======
</TABLE>

NOTE 10. CONTINGENCIES AND COMMITMENTS

As of December 31, 1997, outstanding purchase commitments relating to
capital projects totaled approximately $35,000,000.

NOTE 11. SHAREHOLDERS' EQUITY

The capital shares consist of 167,309,968 common shares, of which
83,654,984 common shares are owned by Riverwood and 83,654,984 common shares are
owned by Saragy S.A. In addition, the Company has authorized and issued 32
shares of Class A preferred stock. These preferred shares have preference in the
event of a liquidation of the Company.

These Class A preferred shares also have rights to dividends equal to those
of the common shares.
87
<PAGE> 91
IGARAS PAPEIS E EMBALAGENS S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Class A preferred shares are not entitled to vote and are not
convertible into common shares. As of April 30, 1996, one Class B preferred
share was converted into one common share with no par value for Saragy S.A. and,
additionally, 50,309,984 common shares with no par value were issued of which
25,154,992 was distributed to Riverwood and 25,154,992 to Saragy S.A.

Earnings may be distributed only out of Reais retained earnings reflected
in the books of Igaras Papeis e Embalagens S.A. As of December 31, 1997, the
U.S. dollar equivalent of this amount available for distribution was
approximately $25,187,000.

NOTE 12. RELATED-PARTY TRANSACTIONS

During the years ended December 31, 1997, 1996 and 1995, the Company
purchased approximately $21,000,000, $5,100,000 and $5,700,000 of paper and
machinery respectively, from Riverwood. Intercompany profits in ending inventory
are not material at December 31, 1997 and 1996.

NOTE 13. OTHER (EXPENSE) INCOME, NET

Other (expense) income, net in 1995, included approximately $3,600,000 of
expenses related to the settlement of certain sales tax matters and
approximately $2,300,000 of bonus compensation expenses.

NOTE 14. SUBSEQUENT EVENTS

On January 6, 1998, Igaras acquired Ponte Nova Papeis e Embalagens Ltda.
("Ponte Nova"), created as a result of a spin-off from Trombini Papel e
Embalagens S.A. ("Trombini"). Ponte Nova was formed with the assets and certain
liabilities of two corrugated containers plants and a recycling pulp and paper
plant. The total purchase price was approximately $35,000,000, not subject to
financing. Under the terms of this agreement, on January 6, 1998, Igaras paid
approximately $20,909,000. Trombini has 150 days from the date of the agreement
to unencumber the remaining assets of these plants and, at such time, these
assets will be transferred to Igaras for an additional $14,091,000.

The acquisition was accounted for as a purchase and, accordingly, the
purchase price will be allocated to the underlying assets and liabilities based
on their estimated fair market values at the date of acquisition. The estimated
value of the total assets of these plants was approximately $28,824,000 and the
liabilities assumed totaled $596,000.

88
<PAGE> 92

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Directors of
IGARAS PAPEIS E EMBALAGENS S.A.:

We have audited the accompanying consolidated balance sheets of IGARAS
PAPEIS E EMBALAGENS S.A. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IGARAS PAPEIS E
EMBALAGENS S.A. as of December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles in the United States of America.

As discussed in Note 3 to the consolidated financial statements, in 1997
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 125.

COOPERS & LYBRAND BIEDERMANN, BORDASCH

Sao Paulo, Brazil
January 28, 1998

89
<PAGE> 93

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

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

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

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

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen M. Humphrey....................... 53 President and Chief Executive Officer and Director
Thomas M. Gannon.......................... 48 Senior Vice President and Chief Financial Officer
Robert H. Burg............................ 52 Senior Vice President, Human Resources
Robert C. Hart............................ 60 Senior Vice President, Paperboard Operations
Octavio Orta.............................. 53 Senior Vice President, Coated Board Sales and
Packaging Operations
B. Charles Ames........................... 72 Chairman and Director
Kevin J. Conway........................... 39 Director
Leon J. Hendrix, Jr. ..................... 56 Director
Hubbard C. Howe........................... 69 Director
Alberto Cribiore.......................... 52 Director
Brian J. Richmand......................... 44 Director
Lawrence C. Tucker........................ 55 Director
Samuel M. Mencoff......................... 41 Director
G. Andrea Botta........................... 44 Director
Joseph E. Parzick......................... 42 Director
</TABLE>

Stephen M. Humphrey is the President and Chief Executive Officer and a
director of Holding, RIC Holding and Riverwood. Mr. Humphrey joined Riverwood in
March 1997. From 1994 through 1996, Mr. Humphrey was Chairman, President and
Chief Executive Officer of National Gypsum Company, a manufacturer and supplier
of building products and services. From 1981 until 1994 Mr. Humphrey was
employed by Rockwell International Corporation, a manufacturer of electronic
industrial automation products, telecommunications systems and defense
electronics products and systems ("Rockwell"), where he held a number of key
executive positions. Mr. Humphrey is also a director of Atrium Companies Inc., a
manufacturer of doors and windows for the home construction market.

Thomas M. Gannon is Senior Vice President and Chief Financial Officer,
positions he assumed in July 1997. From August 1995 until July 1997, Mr. Gannon
was employed by Libby-Owens-Ford Co., a manufacturer of home, commercial and
automobile flat glass products, most recently as Corporate Vice President of
Finance and Administration and Chief Financial Officer. From April 1976 through
August 1995, Mr. Gannon served in various positions with Rockwell.

Robert H. Burg is Senior Vice President, Human Resources of Riverwood. Mr.
Burg joined Riverwood in January 1993. From 1981 until he joined Riverwood, Mr.
Burg was employed by Colgate-Palmolive Company, a manufacturer and distributor
of household and personal care products, most recently as Vice President of
Global Compensation and Development.

Robert C. Hart is Senior Vice President, Paperboard Operations of
Riverwood. Mr. Hart joined Riverwood in 1967 in a position at the West Monroe
Mill and has been in his current position as Senior Vice President since 1992.

90
<PAGE> 94

Octavio Orta is Senior Vice President, Coated Board Sales & Packaging
Operations of Riverwood. Mr. Orta joined Riverwood in 1990 as Vice President,
International Division.

B. Charles Ames is Chairman of the Boards of Holding, RIC Holding and
Riverwood. Since 1989, Mr. Ames has been a principal of Clayton, Dubilier &
Rice, Inc., a New York-based private investment firm ("CD&R"). Mr. Ames is Vice
President and a director of CD&R Investment Associates, Inc. ("Associates
Inc."), a Delaware corporation that is the managing general partner of CD&R
Associates V Limited Partnership, a Cayman Islands exempted limited partnership
("Associates V"), the general partner of Clayton, Dubilier & Rice Fund V Limited
Partnership, a Cayman Islands exempted limited partnership ("CD&R Fund V"). Mr.
Ames is also a limited partner of Associates V and serves as a director of WESCO
Distribution, Inc., a wholesale distributor of electrical products ("WESCO"),
and its parent CDW Holding Corporation ("CDW Holding"), Lexmark International,
Inc., a global developer, manufacturer and supplier of laser and inkjet printers
("Lexmark"), and its parent Lexmark International Group, Inc. ("LIG"), and
Remington Arms Company, Inc., a manufacturer of sporting goods products for the
hunting, shooting sports and fishing markets ("Remington"), and its parent RACI
Holding, Inc. ("RACI"). CDW Holding, LIG and RACI are companies in which an
investment fund managed by CD&R has an investment. He is also a director of The
Progressive Corporation, a holding company, and M.A. Hanna Company, a
manufacturer of rubber and plastic compounds.

Kevin J. Conway is a principal of CD&R and a limited partner of Associates
V. Prior to joining CD&R in 1994, Mr. Conway worked at Goldman, Sachs & Co., an
investment banking firm.

Leon J. Hendrix, Jr. has been a principal of CD&R since 1993. From 1973
until 1993, Mr. Hendrix was employed by Reliance Electric Company, a
manufacturer of industrial drives, transmissions and telecommunications
equipment, most recently as its Chief Operating Officer and a director. Mr.
Hendrix serves as a director of Keithley Instruments, Inc., a manufacturer of
electronic test and measurement instruments and systems, NACCO Industries Inc.,
a manufacturer of forklift trucks and small electric appliances and a supplier
of kitchenware, and Cambrex Corporation, a manufacturer of a broad line of
specialty chemicals. Mr. Hendrix is also the Chairman, Chief Executive Officer
and a director of Remington and RACI, a director of WESCO and CDW Holding, and a
limited partner of Associates V.

Hubbard C. Howe has been a principal of CD&R since 1990. Mr. Howe is Vice
President and a director of Associates Inc. and a limited partner of Associates
V. Mr. Howe has served as Chairman and a director of A.P.S., Inc., a distributor
of automotive replacement parts ("A.P.S."), and its parent corporation APS
Holding Corporation, a corporation in which an investment fund managed by CD&R
has an investment ("APS Holding"), since prior to 1993. Mr. Howe served as
interim Chief Executive Officer of A.P.S. and APS Holding from March 1997 until
January 1998. Mr. Howe has been a director of Remington and RACI since 1993, and
was Chairman and Chief Executive Officer of Remington and RACI until December
1997. Mr. Howe served as Vice Chairman from February 1994 until November 1997,
and as Chairman from prior to 1993 until February 1994, of Nu-kote
International, Inc., a printing supplies manufacturer, and its parent Nu-kote
Holding, Inc., a corporation in which an investment fund managed by CD&R had an
investment.

Alberto Cribiore was a principal of CD&R from 1985 to March 1997 and a
co-President of CD&R from 1995 to March 1997. Mr. Cribiore currently serves as
Managing Principal of Brera Capital Partners, LLC, a private equity investment
firm in New York. Mr. Cribiore also serves as a director of WESCO, CDW Holding,
Hansberger Global Investors, Inc., an international money management firm, and
Cambridge Energy Research Associates, Inc., a leading strategic knowledge firm
focusing on the energy industry ("CERA"). Mr. Cribiore has served as the
Chairman and a director of McCarthy, Crisanti & Maffei, Inc., a provider of
financial information ("MCM"), and its parent MCM Group, Inc. ("MGI"), since
August 1996, and also currently serves as the Chairman and a director of Global
Decisions Group, LLC, the parent company of CERA, MCM and MGI.

Brian J. Richmand has been employed principally as a General Partner of
Chase Capital Partners, formerly known as Chemical Venture Partners, the general
partner of Chase Equity Associates, L.P. ("Chase"), since 1993. Prior to joining
Chase Capital Partners, Mr. Richmand was a partner at the law firm of Kirkland &
Ellis. Mr. Richmand is also currently a director of Western Pork Production Co.,
Inc., OCI
91
<PAGE> 95

Holdings, Inc., an outdoor advertising company, and Qualitech Steel Corporation,
a manufacturer of steel and iron carbide.

Lawrence C. Tucker has been a General Partner of Brown Brothers Harriman &
Co., a private banking firm, since 1979. He also serves as a director of
WorldCom, Inc., an international provider of long distance voice, data and video
services, WellCare Management Group Inc., a healthcare management organization,
and National Healthcare Corp., an owner, operator and manager of long-term care
facilities, retirement apartments and assisted living units. Brown Brothers
Harriman & Co. is the general partner of The 1818 Fund, L.P., The 1818 Fund II,
L.P. ("1818 Fund") and The 1818 Mezzanine Fund, L.P.

Samuel M. Mencoff has been employed principally as a Vice President of
Madison Dearborn Partners, Inc., the general partner of Madison Dearborn
Partners, L.P., the general partner of Madison Dearborn Capital Partners, L.P.,
since 1993. From 1987 until 1993, Mr. Mencoff served as Vice President of First
Chicago Venture Capital, a private equity investment firm. Mr. Mencoff is a
member of the operating committees of the general partners of Huntway Partners,
L.P., a refiner and marketer of liquid asphalt, gas oil, kerosene, and jet and
diesel fuel, and Golden Oak Mining Company, L.P., a coal mining company, and is
a director of Buckeye Technologies Inc., a manufacturer of specialty cellulose
pulps and non-woven fiber products, and Bay State Paper Holding Company, a
producer of recycled containerboard and related products.

G. Andrea Botta has been President of EXOR America Inc. (formerly IFINT-USA
Inc.) ("EXOR America") since 1993 and for more than five years prior thereto,
Vice President of Acquisitions of IFINT-USA Inc. EXOR Group S.A., the parent
company of EXOR America, is the international investment holding company of the
Agnelli Group. Mr. Botta is a director of Lear Corporation, a manufacturer of
automobile and truck seating, Western Industries, Inc., a producer of metal and
plastic stampings and fabrications, Rockefeller Center Properties Inc., a former
real estate investment trust, and Constitution Reinsurance Corporation, a
provider of life, accident and health reinsurance.

Joseph E. Parzick has been a professional employee of EXOR America since
1996. Prior to joining EXOR America, Mr. Parzick was a Managing Director of
Lehman Brothers Inc., an investment banking firm.

ELECTION AND COMPENSATION OF DIRECTORS

All directors are elected annually and hold office until their successors
are elected and qualified, or until their earlier removal or resignation. The
Stockholders Agreement entered into among Holding and each of CD&R Fund V, FIMA
Finance Management Inc. ("FIMA"), 1818 Fund, HWH Investment Pte Ltd, Chase,
First Plaza Group Trust, Madison Dearborn Capital Partners, L.P. and
Wolfensohn-River LLC (collectively, the "Equity Investors"), provides that CD&R
Fund V is entitled to nominate five persons, FIMA is entitled to nominate two
persons, 1818 Fund is entitled to nominate one person and Madison Dearborn
Capital Partners, L.P. is entitled to nominate one person to serve on the Boards
of Directors (the "Boards") of each of Holding, RIC Holding and Riverwood. There
is also an understanding between Chase and CD&R Fund V with respect to the
nomination of CD&R Fund V's fifth nominee to such Boards. CD&R Fund V exercised
its intention to nominate a designee of Chase (the "Chase Designee") as its
nominee to such Boards; however, Chase does not have a legally enforceable right
to such directorship. The Chairman of each of the Boards is to be selected from
one of the CD&R Fund V nominees (other than the Chase Designee). Each of the
Boards of Holding, RIC Holding and Riverwood has an Executive Committee, a
Compensation and Benefits Committee and an Audit Committee. The Executive
Committee consists of the Chief Executive Officer, two of the CD&R Fund
V-nominated directors (other than the Chase Designee), one of the FIMA-nominated
directors and the director nominated by 1818 Fund. The Compensation and Benefits
Committee consists of two of the CD&R Fund V-nominated directors (other than the
Chase Designee), one of the FIMA-nominated directors and two directors nominated
by the Equity Investors other than CD&R Fund V and FIMA (but including the Chase
Designee)(the "Other Investors"). The Audit Committee consists of one of the
CD&R Fund V-nominated directors (other than the Chase Designee), one of the
FIMA-nominated directors, two of the Other Investor-nominated directors and one
independent director. The Executive Committee's current members are Messrs.
Ames, Botta, Conway, Humphrey and Tucker. The members of the Compensation and
Benefits

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<PAGE> 96

Committee are currently Messrs. Hendrix, Ames, Botta, Cribiore and Richmand; and
the Audit Committee consists of Messrs. Tucker, Conway, Mencoff and Parzick.

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

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<PAGE> 97

ITEM 11. EXECUTIVE COMPENSATION

MANAGEMENT COMPENSATION SUMMARY

The following table summarizes the compensation paid for services rendered
during the fiscal years indicated below by the Company or, in the case of
services rendered prior to the Merger, the Predecessor Company, to the current
and former Chief Executive Officers and the four most highly compensated other
executive officers (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
SECURITIES UNDERLYING
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------------- -----------------------
(4) (5) (6)
SALARY BONUS OTHER ANNUAL STOCK ALL OTHER
NAME YEAR $ $ COMPENSATION OPTIONS COMPENSATION
---- ---- -------- -------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
B. Charles Ames(1)............... 1997 -- -- -- -- --
Chairman 1996 -- -- -- -- --
1995 -- -- -- -- --
Stephen M. Humphrey.............. 1997 $376,894 $250,000(2) $118,433 225,000 --
President and Chief 1996 -- -- -- -- --
Executive Officer 1995 -- -- -- -- --
Thomas M. Gannon................. 1997 $123,466 $200,000(3) $187,986 0 $3,313
Sr. Vice President and 1996 -- -- -- -- --
Chief Financial Officer 1995 -- -- -- -- --
Octavio Orta..................... 1997 $285,000 $ 65,000 $ 655 0 $4,750
Sr. Vice President, Coated
Board Sales and Packaging 1996 272,083 0 2 30,000 4,500
Operations 1995 226,250 98,000 0 0 5,575
Robert C. Hart................... 1997 $270,000 $ 65,000 0 0 $4,750
Sr. Vice President, 1996 259,583 0 0 15,000 4,500
Paperboard Operations 1995 226,250 91,045 $ 5,363 0 5,575
Robert H. Burg................... 1997 $220,000 $ 55,000 0 0 $4,750
Sr. Vice President, 1996 215,000 0 0 9,000 4,500
Human Resources 1995 185,000 59,532 0 0 5,575
</TABLE>

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

(1) Mr. Ames assumed the positions of Chairman and chief executive officer of
the Company on October 8, 1996. In connection with Mr. Humphrey's
appointment to the positions of Chief Executive Officer and President on
March 31, 1997, Mr. Ames resigned as chief executive officer. Mr. Ames
continues to serve as the Chairman. Mr. Ames is a principal of CD&R and
receives no compensation directly from the Company for his services as
Chairman. The Company pays CD&R an annual fee for management and financial
consulting services (see "Certain Relationships and Related Transactions"
below), which include Mr. Ames's services as Chairman.
(2) Upon the commencement of his employment with the Company on March 31, 1997,
the Company guaranteed a minimum annual bonus to Mr. Humphrey for 1997 of at
least $250,000.
(3) Upon the commencement of his employment with the Company on July 14, 1997,
the Company paid Mr. Gannon a commencement incentive bonus of $100,000 and
guaranteed a minimum annual bonus to Mr. Gannon for 1997 of at least
$100,000.
(4) Amounts consist of tax reimbursement payments to the Named Executive
Officers in respect of certain taxable perquisites provided to them.
(5) In June 1996 certain Named Executive Officers (other than Messrs. Ames,
Humphrey and Gannon) received options to purchase shares of Common Stock of
the Company, as indicated in the Summary Compensation Table. Mr. Humphrey
received options to purchase shares of common stock of the Company in March
1997.
(6) Amounts consist of Company contributions on behalf of the Named Executive
Officers to the Company's savings plan.

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<PAGE> 98

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS OPTIONS GRANTED TO EXERCISE PRICE GRANT DATE
GRANTED EMPLOYEES IN PER SHARE PRESENT VALUE
NAME (#) FISCAL YEAR ($/SHARE)(3) EXPIRATION DATE ($)(4)
---- ------------------ ------------------ -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
S. Humphrey........... 75,000(1)(2) 100% $100 March 31, 2007 $ 620,250
75,000(1)(2) 100% 75 March 31, 2007 2,059,125
75,000(1)(2) 100% 50 March 31, 2007 3,497,625
</TABLE>

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

(1) One-half of the Options (covering 37,500 shares of Common Stock of the
Company) will become vested in five annual installments, on each of the
first five anniversaries of March 31, 1997 (the "Date of Grant"), of 10%,
20%, 30%, 20% and 20%, respectively, subject in each case to the Named
Executive Officer's continued employment.
(2) One-half of the Options (covering 37,500 shares of Common Stock of the
Company)(the "Performance Options") become vested as follows (subject in all
cases to the Named Executive Officer's continued employment): (x) up to
one-fifth of the Performance Options (covering up to 7,500 shares of Common
Stock of the Company) become vested as of each of the first five
anniversaries of the Date of Grant if the Company achieves at least 75% of
the EBITDA target for its fiscal year ending immediately prior to such
anniversary date; (y) 100% of any Performance Options that do not become
vested as described in the foregoing clause (x) become vested on the fifth
anniversary of the Date of Grant if the Company achieves its cumulative five
year EBITDA target as of the last day of its 2001st fiscal year and (z) in
the case of any Performance Options that do not become vested as described
in the foregoing clauses (x) and (y), the lesser of all such unvested
Performance Options and unvested Performance Options covering 7,500 shares
of Common Stock will become vested on each of the sixth through ninth
anniversaries of the Date of Grant if, in each such case, the Company
achieves 100% of the EBITDA Target for its fiscal year ending immediately
prior to such anniversary date. Any Performance Options that do not become
vested as described above will become vested nine years and six months
following the Date of Grant, subject to the Named Executive Officer's
continued employment.
(3) The exercise price of any Performance Options that do not become vested as
described in footnote (2) on or prior to the fifth anniversary of the Date
of Grant will increase annually by 10%, beginning on the fifth anniversary
of the Date of Grant.
(4) The dollar amounts set forth under this heading are based on an economic
option pricing model commonly used to value option grants on the basis of
certain assumptions. An economic option pricing model will produce different
results depending on the assumptions made, and the values shown above are
merely good faith estimates of the present value of the option grants.
Because one of the assumptions in the model is the future volatility in the
value of the Common Stock, the actual present value of such option grants
cannot be determined.

PENSION PLAN

All U.S. salaried employees and hourly employees at non-union locations who
satisfy the service eligibility criteria are participants in the Riverwood
International Employees Retirement Plan (the "Retirement Plan"). Pension
benefits under the Retirement Plan are limited in accordance with the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), governing tax
qualified pension plans. The Company has adopted a Supplemental Pension Plan
(the "Supplemental Plan" and, together with the Retirement Plan, the "Pension
Plans") that provides for payment to participants of retirement benefits equal
to the excess of the benefits that would have been earned by each such
participant had the limitations of the Code not applied to the Retirement Plan
and the amount actually earned by such participant under the Retirement Plan.
Each of the Named Executive Officers (other than Messrs. Humphrey and Gannon who
have not yet satisfied the plan's service criteria, and Mr. Ames, who is not
eligible to participate under the plan terms) is eligible to participate in the
Pension Plans. Benefits under the Supplemental Plan are not pre-funded; such
benefits are paid by the Company when due. The Pension Plan Table below sets
forth the

95
<PAGE> 99

estimated annual benefits payable upon retirement at or after age 65, including
amounts attributable to the Supplemental Plan, for specified remuneration levels
and years of service.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000............................ $ 24,678 $ 32,904 $ 41,130 $ 49,356 $ 57,583
150,000............................ 29,928 39,904 49,881 59,857 69,833
175,000............................ 35,178 46,904 58,631 70,357 80,083
200,000............................ 40,428 53,904 67,380 80,857 94,333
225,000............................ 45,678 60,904 73,131 91,357 106,583
250,000............................ 50,928 67,904 84,881 101,857 118,833
300,000............................ 61,428 81,904 102,381 122,857 143,333
400,000............................ 82,428 109,904 137,381 164,857 192,333
450,000............................ 92,928 123,904 154,881 185,857 216,833
500,000............................ 103,428 137,904 172,380 206,857 241,333
600,000............................ 124,428 165,904 207,381 248,857 290,333
</TABLE>

- ---------------
(A) Had the Named Executive Officers who participate in the Pension Plans
retired as of December 31, 1997, their respective five-year average
salaries, plus bonus, for purposes of the table set forth above, would have
been as follows: Mr. Hart, $313,208; Mr. Orta, $311,143; and Mr. Burg,
$231,912.

(B) On December 31, 1997, the following Named Executive Officers participating
in the Pension Plans had the following years of credited service under such
plans: Mr. Hart, 31; Mr. Orta, 8; and Mr. Burg, 5.

(C) Salary as defined in the Pension Plans includes payments under the annual
incentive compensation plan but excludes payments under any equity incentive
plan of the Company or the Predecessor Company.

EMPLOYMENT AGREEMENTS

Each of Messrs. Orta, Hart and Burg is currently a party to an employment
agreement with the Company providing for an employment term commencing in 1996
and extending for five years for Mr. Octavio Orta and three years for each other
such Named Executive Officer. The agreements provide for payment of the base
salaries and bonuses and other benefits set forth in the Summary Compensation
Table. The agreements further provide that, in the event of a termination of any
such Named Executive Officer's employment by the Company without "cause" (as
defined in the employment agreements) or by such Named Executive Officer for
"good reason" (as so defined), such Named Executive Officer is entitled to
continued salary and welfare benefits generally for a period equal to the
longest of one year, the balance of the employment term or one month for each
year of service, and a pro rata incentive bonus for the year of termination. The
agreements also contain certain noncompetition and nonsolicitation provisions
and provide for the termination of previously existing employment agreements.

On March 31, 1997 (the "Commencement Date"), Riverwood entered into an
employment agreement (the "Humphrey Agreement") with Mr. Humphrey having an
initial term of five years that extends automatically for additional one-year
periods following the expiration of the initial term. The provisions of the
Humphrey Agreement are substantially similar to those contained in the
employment agreements for the Named Executive Officers described above, except
as follows. The Humphrey Agreement provides that Mr. Humphrey will receive an
annual base salary of $500,000 and a minimum bonus of $250,000 for 1997. The
Humphrey Agreement also provides for the grant of the options described above
under "-- Options Granted in Last Fiscal Year". In the event of a termination of
Mr. Humphrey's employment by the Company without cause or by Mr. Humphrey for
good reason, Mr. Humphrey will receive continued payments of his base salary and
continued benefits for the remainder of the employment term or, if shorter, for
three years.

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<PAGE> 100

Riverwood and Holding expect to enter into an Employment Agreement,
effective as of July 14, 1997 (the "Gannon Agreement"), with Thomas M. Gannon.
The Gannon Agreement is expected to have an initial term of three years and
provide an annual base salary of $265,000 and a minimum bonus of $100,000 for
1997.

COMPENSATION COMMITTEE INTERLOCKS

During fiscal year 1997, Messrs. Hendrix, Ames, Botta, Cribiore and
Richmand served on the Compensation and Benefits Committee of the Holding Board.
Mr. Hendrix, one of the two CD&R Fund V-nominated directors, is an employee of
CD&R. CD&R received a fee from RIC Holding of $12 million in connection with the
Merger and arranging the financing thereof. CD&R receives an annual fee of
$500,000 for advisory, management, consulting and monitoring services from
Riverwood. Holding, RIC Holding and Riverwood have also agreed to indemnify the
members of the Boards employed by CD&R and CD&R against liabilities incurred
under securities laws with respect to their services for Holding, RIC Holding
and Riverwood.

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Holding owns all of the outstanding common stock of RIC Holding. RIC
Holding owns all of the outstanding common stock of Riverwood. The Holding
Common Stock is beneficially owned as follows:

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
------------------------ --------- ----------
<S> <C> <C>
Clayton, Dubilier & Rice Fund V Limited Partnership(1)...... 2,250,000 29.8%
1403 Foulk Road
Suite 106
Wilmington, DE 19803

FIMA Finance Management Inc.(2)............................. 2,250,000 29.8
Citco Building, Wickharns Bay
P.O. Box 662
Rowtown, Tortola
British Virgin Islands

The 1818 Fund II, L.P.(3)................................... 750,000 9.9
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005

HWH Investment Pte Ltd...................................... 700,000 9.2
250 North Bridge Road
Singapore 179101
Republic of Singapore

Chase Equity Associates, L.P.(4)............................ 500,000 6.6
380 Madison Avenue
New York, NY 10017

First Plaza Group Trust..................................... 500,000 6.6
Mellon Bank, N.A., as Trustee
c/o General Motors Investment Management Corporation
767 Fifth Avenue
New York, NY 10153

Madison Dearborn Capital Partners, L.P.(5).................. 500,000 6.6
Three First National Plaza
Chicago, IL 60602
</TABLE>

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<PAGE> 101

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
------------------------ --------- ----------
<S> <C> <C>

Wolfensohn-River LLC........................................ 50,000 0.7
130 Liberty Avenue
New York, NY 10006
--------- -----
Total Equity Investors............................ 7,500,000 99.2%
========= =====
Total Management Investors(6)..................... 62,050 0.8
--------- -----
Total Equity Investors and Management Investors... 7,562,050 100.0%
========= =====
</TABLE>

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

(1) B. Charles Ames, William A. Barbe, Kevin J. Conway, Donald J. Gogel, Leon J.
Hendrix, Jr., Hubbard C. Howe and Joseph L. Rice, III may be deemed to share
beneficial ownership of the shares owned of record by CD&R Fund V by virtue
of their status as voting stockholders of Associates Inc., the managing
general partner of the general partner of CD&R Fund V, but each expressly
disclaims such beneficial ownership of the shares owned by CD&R Fund V. The
stockholders of Associates Inc. share investment and voting power with
respect to securities owned by CD&R Fund V. The business address for each of
them is 1403 Foulk Road, Suite 106, Wilmington, Delaware 19803. Mr.
Cribiore, a director of Holding, RIC Holding and Riverwood, withdrew as a
limited partner of Associates V and became a non-voting stockholder of
Associates Inc. as of March 31, 1997, but retains an economic interest in
the shares of Holding Common Stock owned of record by CD&R Fund V by virtue
of his status as a withdrawn limited Partner of Associates V and as a
non-voting stockholder of Associates Inc. Mr. Cribiore disclaims any
beneficial ownership of such shares. Mr. Cribiore has no investment or
voting power with respect to the shares of Holding Common Stock owned by
CD&R Fund V.
(2) Reflects transfer on January 6, 1997 of shares formerly held by EXOR Group
S.A. to its affiliate, FIMA, a wholly-owned subsidiary.
(3) Mr. Tucker may be deemed to share beneficial ownership of the shares owned
of record by The 1818 Fund II, L.P. by virtue of his affiliation with such
organization. Mr. Tucker expressly disclaims any such beneficial ownership.
(4) Chase Equity Associates, L.P., formerly known as Chemical Equity Associates,
purchased shares of the Class B Common Stock which do not have voting
rights.
(5) Mr. Mencoff may be deemed to share beneficial ownership of the shares owned
of record by Madison Dearborn Capital L.P. by virtue of his affiliation with
such organization. Mr. Mencoff expressly disclaims any such beneficial
ownership.
(6) As of February 28, 1998, a total of 49,850 shares of management investor
stock have been repurchased as a result of involuntary termination of
employment. No directors own shares of Holding Common Stock. As of February
28, 1998, the Named Executive Officers owned an aggregate of 18,000 shares
of Holding Common Stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CD&R Fund V, which is one of Holding's largest stockholders, is a private
investment fund managed by CD&R. Amounts contributed to CD&R Fund V by its
limited partners are invested at the discretion of the general partner in equity
or equity-related securities of entities formed to effect leveraged acquisition
transactions and in the equity of corporations where the infusion of capital,
coupled with the provision of managerial assistance by CD&R, can be expected to
generate returns on investments comparable to returns historically achieved in
leveraged buyout transactions. The general partner of CD&R Fund V is Associates
V, and the general partners of Associates V are Associates Inc. and CD&R Cayman
Investment Associates, Inc., a Cayman Islands exempted company. Mr. Ames, who is
a principal of CD&R and Vice President and a director of Associates Inc. and a
limited partner of Associates V, is Chairman of Holding, RIC Holding and
Riverwood. Mr. Conway, who is a principal of CD&R and a limited partner of
Associates V, is a director of Holding, RIC Holding and Riverwood. Mr. Hendrix,
who is principal of CD&R and a limited partner of Associates V, is a director of
Holding, RIC Holding and Riverwood. Mr. Howe, who is a principal of CD&R and
Vice President and a director of Associates Inc., is a director of Holding, RIC
Holding and Riverwood.
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<PAGE> 102

See "Item 10. Directors and Executive Officers of the Registrant -- Directors
and Executive Officers." CD&R Fund V purchased $225 million of equity of Holding
in connection with the Merger.

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

In April 1996, CD&R began to receive monthly payments of an aggregate
annual fee of $375,000 for providing management and financial consulting
services to the Company and reimbursement of out-of-pocket expenses it incurred
during the nine months ended December 31, 1996. Pursuant to a consulting
agreement dated as of March 27, 1996, so long as CD&R Fund V has an investment
in the Company, CD&R will continue to receive an annual fee (and reimbursement
of out-of-pocket expenses) for providing such management and financial
consulting services to the Company. The indentures relating to the Notes allow
the payment to CD&R of annual fees for management and financial consulting
services of up to $1 million, although there is no current intention to increase
the amount of the annual fee to be received by CD&R above $500,000. During the
year ended December 31, 1997, the Company paid CD&R annual fees in the amount of
$477,500 for providing such management and financial consulting services.

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

MANAGEMENT

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

On June 4, 1996, certain members of management and key employees of the
Company purchased shares of Holding Common Stock, at a purchase price of $100.00
per share, pursuant to the Equity Incentive Plan. Under certain circumstances,
such stockholders can require the Company to purchase their shares of Holding
Common Stock. Such management stock purchases included purchases of 10,000,
5,000 and 3,000 shares of Holding by Messrs. Orta, Hart and Burg, respectively.
The Company guaranteed certain loans for $600,000 and $150,000 extended to
Messrs. Orta and Burg, respectively.

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<PAGE> 103

PART IV

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

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

1a. Consolidated financial statements of Riverwood Holding, Inc. and
subsidiaries as of December 31, 1997 and 1996 and for the year ended
December 31, 1997, the nine months ended December 31, 1996, the three
months ended March 27, 1996 (Predecessor) and the year ended December 31,
1995 (Predecessor) and reports of Independent Accountants.

1b. Consolidated financial statements of IGARAS PAPEIS E EMBALAGENS
S.A. and subsidiary as of December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997, and report of
Independent Accountants.

2. Schedule II -- Valuation and Qualifying Accounts.

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

b. Reports on Form 8-K: Form 8-K dated July 11, 1997 and filed with the
Securities and Exchange Commission on July 11, 1997; and Form 8-K dated July 11,
1997 and filed with the Securities and Exchange Commission on July 11, 1997.

c. Exhibit Index to Annual Report on Form 10-K for year ended December 31,
1997.

<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of Filed as Exhibit 2.1 to the Registration
October 25, 1995, among RIC, RIC Holding, Statement on Form S-1 (Registration No.
Inc. and CDRO Acquisition Corporation. 33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.2 Voting and Indemnification Agreement, Filed as Exhibit 2.2 to the Registration
dated as of October 25, 1995, among RIC, Statement on Form S-1 (Registration No.
Manville, RIC Holding, Inc. and CDRO 33-80475) of New River Holding, Inc.
Acquisition Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.3 Tax Matters Agreement, dated as of October Filed as Exhibit 10.3 to the Registration
25, 1995, among Manville, RIC, RIC Statement on Form S-1 (Registration No.
Holding, Inc. and CDRO Acquisition 33-80475) of New River Holding, Inc.
Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.4 Asset Purchase Agreement, dated as of Filed as Exhibit 2 to the Registrant's
August 6, 1996, among Plum Creek Timber Current Report on Form 8-K filed August
Company, L.P., Riverwood International 22, 1996 and Exhibit 2a to the
Corporation and New River Timber, LLC. Registrant's Current Report on Form 8-K
filed October 21, 1996 (Commission File
No. 1-11113), and incorporated herein by
reference.
</TABLE>

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<PAGE> 104

<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<C> <S> <C>
2.5 Amendment to Asset Purchase Agreement, Filed as Exhibit 2b to the Registrant's
dated as of October 16, 1996, among Plum Current Report on Form 8-K filed October
Creek Timber Company, L.P., Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation and New River and incorporated herein by reference.
Timber, LLC.
2.6 Wood Products Supply Agreement, dated as Filed as Exhibit 2c to the Registrant's
of October 18, 1996, between Plum Creek Current Report on Form 8-K filed October
Timber Company, L.P. and Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation. and incorporated herein by reference.
3.1 Certificate of Incorporation of Riverwood Filed as Exhibit 3.3 to the Registration
Holding, Inc. (formerly known as New River Statement on Form S-1 (Registration No.
Holding, Inc.), dated December 7, 1995. 33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
3.2 Certificate of Amendment of Certificate of Filed as Exhibit 3.2 to the Registrant's
Incorporation of Riverwood Holding, Inc., Annual Report on Form 10-K filed March 27,
dated March 27, 1996. 1997 (Commission File No. 1-11113), and
incorporated herein by reference.
3.3 Restated By-Laws of Riverwood Holding, Filed as Exhibit 3.1 to the Registrant's
Inc., as amended effective October 8, Quarterly Report on Form 10-Q filed
1996. November 8, 1996 (Commission File No.
1-11113), and incorporated herein by
reference.
4.1 Senior Secured Credit Agreement, dated Filed as Exhibit 10.1 to RIC Holding,
March 27, 1996, among RIC Holding, Inc., Inc.'s Annual Report on Form 10-K filed
the other borrowers thereto, Chemical April 16, 1996 (Commission File No.
Bank, as administrative agent, and the 1-11113), and incorporated herein by
lenders party thereto. reference.
4.2 Machinery Credit Agreement, dated March Filed as Exhibit 10.1 to RIC Holding,
27, 1996, among Riverwood International Inc.'s Annual Report on Form 10-K filed
Machinery, Inc., the other borrowers April 16, 1996 (Commission File No.
thereto, Chemical Bank, as administrative 1-11113), and incorporated herein by
agent, and the lenders party thereto. reference.
4.3 Amendment No. 1, dated as of September 13, Filed as Exhibit 4a to the Registrant's
1996, to the Credit Agreement, dated as of Current Report on Form 8-K filed October
March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank), as
administrative agent.
4.4 Amendment No. 2, dated as of September 17, Filed as Exhibit 4b to the Registrant's
1996, to the Credit Agreement, dated as of Current Report on Form 8-K filed October
March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank), as
administrative agent.
</TABLE>

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<PAGE> 105

<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<C> <S> <C>
4.5 Amendment No. 3, dated as of November 4, Filed as Exhibit 4.5 to the Registrant's
1996, to the Credit Agreement, dated as of Annual Report on Form 10-K filed March 27,
March 27, 1996, among Riverwood 1997 (Commission File No. 1-11113), and
International Corporation, the lenders incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank), as
administrative agent.
4.6 Amendment No. 4, dated as of July 15, Filed as Exhibit 4.8 to the Registration
1997, to the Credit Agreement, dated as of Statement on Form S-4 (Registration No.
March 27, 1996, among Riverwood 333-33499) of Riverwood International
International Corporation, the lenders Corporation, Riverwood Holding, Inc. and
party thereto, and The Chase Manhattan RIC Holding, Inc. under the Securities Act
Bank (formerly known as Chemical Bank), as of 1933, as amended, and incorporated
administrative agent. herein by reference.
4.7 Indenture, dated March 27, 1996, among RIC Filed as Exhibit 4.6 to RIC Holding,
Holding, Inc., Riverwood Holding, Inc., Inc.'s Annual Report on Form 10-K filed
CDRO Acquisition Corporation and Fleet April 16, 1996 (Commission File No.
National Bank of Connecticut, as trustee, 1-11113), and incorporated herein by
relating to the 10 1/4% Senior Notes due reference.
2006 of Riverwood International
Corporation, together with the First
Supplemental Indenture and the Second
Supplemental Indenture thereto.
4.8 Indenture, dated March 27, 1996, among RIC Filed as Exhibit 4.7 to RIC Holding,
Holding, Inc., Riverwood Holding, Inc., Inc.'s Annual Report on Form 10-K filed
CDRO Acquisition Corporation and Fleet April 16, 1996 (Commission File No.
National Bank of Massachusetts, as 1-11113), and incorporated herein by
trustee, relating to the 10 7/8% Senior reference.
Subordinated Notes due 2008 of Riverwood
International Corporation, together with
the First Supplemental Indenture and the
Second Supplemental Indenture thereto.
4.9 Indenture, dated as of July 28, 1997, Filed as Exhibit 4.1 to the Registration
among Riverwood International Corporation, Statement on Form S-4 (Registration No.
RIC Holding, Inc., Riverwood Holding, Inc. 333-33499) of Riverwood International
and State Street Bank & Trust Company, as Corporation, Riverwood Holding, Inc. and
trustee, relating to the 10 5/8% Senior RIC Holding, Inc. under the Securities Act
Notes due 2007 of Riverwood International of 1933, as amended, and incorporated
Corporation. herein by reference.
10.1 Form of Investor Stock Subscription Filed as Exhibit 10.6 to Registration
Agreement between Riverwood Holding, Inc. Statement on Form S-1 (Registration No.
(formerly named New River Holding, Inc.) 33-80475) of New River Holding, Inc.
and each of the investors named on the (renamed Riverwood Holding, Inc.) under
schedule thereto. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.2 Form of Management Stock Subscription Filed as Exhibit 10.4 to Registration
Agreement between New River Holding, Inc. Statement on Form S-1 (Registration No.
(renamed Riverwood Holding, Inc.) and the 33-80475) of New River Holding, Inc.
purchasers named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
</TABLE>

102
<PAGE> 106

<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<C> <S> <C>
10.3 Form of Management Stock Option Agreement Filed as Exhibit 10.5 to Registration
between New River Holding, Inc. (renamed Statement on Form S-1 (Registration No.
Riverwood Holding, Inc.) and the grantees 33-80475) of New River Holding, Inc.
named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.4 Form of Registration and Participation Filed as Exhibit 10.7 to Registration
Agreement among New River Holding, Inc. Statement on Form S-1 (Registration No.
(renamed Riverwood Holding, Inc.) and 33-80475) of New River Holding, Inc.
certain stockholders of New River Holding, (renamed Riverwood Holding, Inc.) under
Inc. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.5 Form of New River Holding, Inc. Stock Filed as Exhibit 10.10 to Registration
Incentive Plan. Statement on Form S-1 (Registration No.
33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.6 Form of Stockholders Agreement among New Filed as Exhibit 10.11 to Registration
River Holding, Inc. (renamed Riverwood Statement on Form S-1 (Registration No.
Holding, Inc.) and the stockholders of New 33-80475) of New River Holding, Inc.
River Holding, Inc. named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.7 Form of Indemnification Agreement among Filed as Exhibit 10.8 to the Registration
Riverwood Holding, Inc., RIC Holding, Statement on Form S-1 (Registration No.
Inc., RIC Holding, Inc., Riverwood 33-80475) of New River Holding, Inc.
International Corporation, Clayton, (renamed Riverwood Holding, Inc.) under
Dubilier & Rice, Inc. and Clayton, the Securities Act of 1933, as amended,
Dubilier & Rice Fund V Limited and incorporated herein by reference.
Partnership.
10.8 Form of Amended and Restated Employment Filed as Exhibit 10.9 to the Registration
Agreements among Riverwood International Statement on Form S-1 (Registration No.
Corporation, Riverwood Holding, Inc. and 33-80475) of New River Holding, Inc.
each of Thomas H. Johnson, Robert C. Hart, (renamed Riverwood Holding, Inc.) under
Octavio Orta and Frank R. McCauley. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.9 Form of Consulting Agreement among Filed as Exhibit 10.12 to the Registration
Riverwood Holding, Inc., RIC Holding, Statement on Form S-1 (Registration No.
Inc., the corporation formerly known as 33-80475) of New River Holding, Inc.
Riverwood International Corporation, (renamed Riverwood Holding, Inc.) under
Riverwood International Corporation and the Securities Act of 1933, as amended,
Clayton, Dubilier & Rice, Inc. and incorporated herein by reference.
10.10 Agreement, dated as of November 11, 1996, Filed as Exhibit 10.10 to the Registrant's
among Riverwood Holding, Inc., RIC Annual Report on Form 10-K filed March 27,
Holding, Inc., Riverwood International 1997 (Commission File No. 1-11113), and
Corporation and Thomas H. Johnson. incorporated herein by reference.
</TABLE>

103
<PAGE> 107

<TABLE>
<CAPTION>
DESCRIPTION CROSS REFERENCE OR PAGE NUMBER
----------- ------------------------------
<C> <S> <C>
10.11 Loanout Agreement, dated as of October 8, Filed as Exhibit 10.11 to the Registrant's
1996, among Riverwood Holding, Inc., RIC Annual Report on Form 10-K filed March 27,
Holding, Inc., Riverwood International 1997 (Commission File No. 1-11113), and
Corporation and Clayton, Dubilier & Rice, incorporated herein by reference.
Inc.
10.12 Employment Agreement, dated as of March Filed as Exhibit 10.1 to the Registrant's
31, 1997, among Riverwood International Quarterly Report on Form 10-Q filed May 9,
Corporation, Riverwood Holding, Inc. and 1997 (Commission File No. 1-11113), and
Stephen Humphrey. incorporated herein by reference.
10.13 Management Stock Option Agreement, dated Filed as Exhibit 10.2 to the Registrant's
as of March 31, 1997, between Riverwood Quarterly Report on Form 10-Q filed May 9,
Holding, Inc. and Stephen Humphrey. 1997 (Commission File No. 1-1113,) and
incorporated herein by reference.
21 List of subsidiaries. Filed as an exhibit hereto.
27 Financial Data Schedule. Filed as an exhibit hereto.
99 Reconciliation of Income (Loss) from Filed as an exhibit hereto.
Operations to EBITDA.
</TABLE>

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

Indenture, dated as of June 24, 1992, between RIC and Continental
Bank, National Association, as trustee, relating to 10 3/4% Senior Notes
Due 2000 (the "10 3/4% Indenture").

First Supplemental Indenture to the 10 3/4% Indenture, dated as of
February 13, 1996, between RIC and First Trust of Illinois, National
Association (as successor trustee to Continental Bank, National
Association).

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

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

Indenture, dated as of June 30, 1994, between RIC and The Bank of New
York, as trustee, relating to 10 3/8% Senior Subordinated Notes Due 2004
(the "10 3/8% Indenture").

First Supplemental Indenture to the 10 3/8% Indenture, dated as of
February 13, 1996, between RIC and The Bank of New York, as trustee.

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

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

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

104
<PAGE> 108

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized as of the 12th day of
March, 1998.

RIVERWOOD HOLDING, INC.

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

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

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- --------------
<C> <S> <C>

/s/ B. CHARLES AMES Chairman of the Board March 12, 1998
- ---------------------------------------------------
B. Charles Ames

/s/ STEPHEN M. HUMPHREY President and Chief Executive March 12, 1998
- --------------------------------------------------- Officer and Director
Stephen M. Humphrey

/s/ THOMAS M. GANNON Senior Vice President and Chief March 12, 1998
- --------------------------------------------------- Financial Officer
Thomas M. Gannon

/s/ ROBERT H. BURG Senior Vice President, Human March 12, 1998
- --------------------------------------------------- Resources
Robert H. Burg

/s/ ROBERT C. HART Senior Vice President, Paperboard March 12, 1998
- --------------------------------------------------- Operations
Robert C. Hart

/s/ OCTAVIO ORTA Senior Vice President, Coated March 12, 1998
- --------------------------------------------------- Board Sales and Packaging
Octavio Orta Operations

/s/ KEVIN J. CONWAY Director March 12, 1998
- ---------------------------------------------------
Kevin J. Conway

/s/ LEON J. HENDRIX, JR. Director March 12, 1998
- ---------------------------------------------------
Leon J. Hendrix, Jr.

/s/ HUBBARD C. HOWE Director March 12, 1998
- ---------------------------------------------------
Hubbard C. Howe

/s/ ALBERTO CRIBIORE Director March 12, 1998
- ---------------------------------------------------
Alberto Cribiore
</TABLE>

105
<PAGE> 109

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- --------------
<C> <S> <C>
/s/ BRIAN J. RICHMAND Director March 12, 1998
- ---------------------------------------------------
Brian J. Richmand

/s/ G. ANDREA BOTTA Director March 12, 1998
- ---------------------------------------------------
G. Andrea Botta

/s/ JOSEPH E. PARZICK Director March 12, 1998
- ---------------------------------------------------
Joseph E. Parzick

/s/ LAWRENCE C. TUCKER Director March 12, 1998
- ---------------------------------------------------
Lawrence C. Tucker

/s/ SAMUEL M. MENCOFF Director March 12, 1998
- ---------------------------------------------------
Samuel M. Mencoff
</TABLE>

106
<PAGE> 110

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

The Company did not send an annual report or proxy materials to security
holders during the year ended December 31, 1997.

107
<PAGE> 111

REPORT OF INDEPENDENT ACCOUNTANTS

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

In connection with our audit of the consolidated financial statements of
Riverwood International Corporation as of December 31, 1995 and for the year
ended December 31, 1995, which financial statements are included in this Annual
Report on Form 10-K of Riverwood Holding, Inc., we have also audited the
financial statement schedule listed in item 14(a)(2) herein.

In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.

COOPERS & LYBRAND L.L.P.

Atlanta, Georgia
January 22, 1996

108
<PAGE> 112

RIVERWOOD HOLDING, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER DEDUCTIONS AT END
(CLASSIFICATION) OF PERIOD EXPENSES ACCOUNTS (A) OF PERIOD
---------------- --------- ---------- -------- ---------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
COMPANY:
Year ended December 31, 1997:
- -----------------------------------------------
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................. $ 829 $ 449 $ -- $ (718) $ 560
Deferred tax assets.......................... 92,019 4,213 -- -- 96,232
------- ------- ------- ------- -------
Total................................ $92,848 $ 4,662 $ -- $ (718) $96,792
======= ======= ======= ======= =======
Nine Months ended December 31, 1996:
- -----------------------------------------------
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................. $ -- $ 952 $ -- $ (123) $ 829
Deferred tax assets.......................... 33,263 58,756 -- -- 92,019
------- ------- ------- ------- -------
Total................................ $33,263 $59,708 $ -- $ (123) $92,848
======= ======= ======= ======= =======
PREDECESSOR:
Three Months ended March 27, 1996:
- -----------------------------------------------
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................. $ 1,476 $ 197 $ -- $ (82) $ 1,591
Deferred tax assets.......................... 1,875 -- -- (1,000) 875
------- ------- ------- ------- -------
Total................................ $ 3,351 $ 197 $ -- $(1,082) $ 2,466
======= ======= ======= ======= =======
Twelve Months ended December 31, 1995:
- -----------------------------------------------
Allowances Reducing the Assets in the Balance
Sheet:
Doubtful accounts receivable................. $ 1,105 $ 589 $ 299 $ (517) $ 1,476
Deferred tax assets.......................... 4,327 -- -- (2,452) 1,875
------- ------- ------- ------- -------
Total................................ $ 5,432 $ 589 $ 299 $(2,969) $ 3,351
======= ======= ======= ======= =======
</TABLE>

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

(a) The reductions in the allowance for doubtful accounts receivable relate
principally to charges for which reserves were provided, net of recoveries.
The reduction in the valuation allowance for deferred tax assets represents
the reversal of a valuation allowance on certain international deferred tax
net operating loss carryforward assets for which realization became more
likely than not during 1995.

109
<PAGE> 113

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as Filed as Exhibit 2.1 to the Registration
of October 25, 1995, among RIC, RIC Statement on Form S-1 (Registration No.
Holding, Inc. and CDRO Acquisition 33-80475) of New River Holding, Inc.
Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.2 Voting and Indemnification Agreement, Filed as Exhibit 2.2 to the Registration
dated as of October 25, 1995, among RIC, Statement on Form S-1 (Registration No.
Manville, RIC Holding, Inc. and CDRO 33-80475) of New River Holding, Inc.
Acquisition Corporation. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
2.3 Tax Matters Agreement, dated as of Filed as Exhibit 10.3 to the
October 25, 1995, among Manville, RIC, Registration Statement on Form S-1
RIC Holding, Inc. and CDRO Acquisition (Registration No. 33-80475) of New River
Corporation. Holding, Inc. (renamed Riverwood
Holding, Inc.) under the Securities Act
of 1933, as amended, and incorporated
herein by reference.
2.4 Asset Purchase Agreement, dated as of Filed as Exhibit 2 to the Registrant's
August 6, 1996, among Plum Creek Timber Current Report on Form 8-K filed August
Company, L.P., Riverwood International 22, 1996 and Exhibit 2a to the
Corporation and New River Timber, LLC. Registrant's Current Report on Form 8-K
filed October 21, 1996 (Commission File
No. 1-11113), and incorporated herein by
reference.
2.5 Amendment to Asset Purchase Agreement, Filed as Exhibit 2b to the Registrant's
dated as of October 16, 1996, among Plum Current Report on Form 8-K filed October
Creek Timber Company, L.P., Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation and New River and incorporated herein by reference.
Timber, LLC.
2.6 Wood Products Supply Agreement, dated as Filed as Exhibit 2c to the Registrant's
of October 18, 1996, between Plum Creek Current Report on Form 8-K filed October
Timber Company, L.P. and Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, including a and incorporated herein by reference.
list of omitted annexes and an
undertaking of the registrant to furnish
supplementally a copy of any such
omitted annex to the Securities and
Exchange Commission upon request.
3.1 Certificate of Incorporation of Filed as Exhibit 3.3 to the Registration
Riverwood Holding, Inc. (formerly known Statement on Form S-1 (Registration No.
as New River Holding, Inc.), dated 33-80475) of New River Holding, Inc.
December 7, 1995. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
3.2 Certificate of Amendment of Certificate Filed as Exhibit 3.2 to the Registrant's
of Incorporation of Holding, dated March Annual Report on Form 10-K filed March
27, 1996. 27, 1997 (Commission File No. 1-11113),
and incorporated herein by reference.
</TABLE>

110
<PAGE> 114

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<C> <S> <C>
3.3 Restated By-Laws of Riverwood Holding, Filed as Exhibit 3.1 to the Registrant's
Inc., as amended effective October 8, Quarterly Report on Form 10-Q filed
1996. November 8, 1996 (Commission File No.
1-11113), and incorporated herein by
reference.
4.1 Senior Secured Credit Agreement, dated Filed as Exhibit 10.1 to RIC Holding,
March 27, 1996, among RIC Holding, Inc., Inc.'s Annual Report on Form 10-K filed
the other borrowers thereto, Chemical April 16, 1996 (Commission File No.
Bank, as administrative agent, and the 1-11113), and incorporated herein by
lenders party thereto. reference.
4.2 Machinery Credit Agreement, dated March Filed as Exhibit 10.1 to RIC Holding,
27, 1996, among Riverwood International Inc.'s Annual Report on Form 10-K filed
Machinery, Inc., the other borrowers April 16, 1996 (Commission File No.
thereto, Chemical Bank, as 1-11113), and incorporated herein by
administrative agent, and the lenders reference.
party thereto.
4.3 Amendment No. 1, dated as of September Filed as Exhibit 4a to the Registrant's
13, 1996, to the Credit Agreement, dated Current Report on Form 8-K filed October
as of March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank),
as administrative agent.
4.4 Amendment No. 2, dated as of September Filed as Exhibit 4b to the Registrant's
17, 1996, to the Credit Agreement, dated Current Report on Form 8-K filed October
as of March 27, 1996, among Riverwood 21, 1996 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank),
as administrative agent.
4.5 Amendment No. 3, dated as of November 4, Filed as Exhibit 4.5 to the Registrant's
1996, to the Credit Agreement, dated as Annual Report on Form 10-K filed March
of March 27, 1996, among Riverwood 27, 1997 (Commission File No. 1-11113),
International Corporation, the lenders and incorporated herein by reference.
party thereto, and The Chase Manhattan
Bank (formerly known as Chemical Bank),
as administrative agent.
4.6 Amendment No. 4, dated as of July 15, Filed as Exhibit 4.8 to the Registration
1997, to the Credit Agreement, dated as Statement on Form S-4 (Registration No.
of March 27, 1996, among Riverwood 333-33499) of Riverwood International
International Corporation, the lenders Corporation, Riverwood Holding, Inc. and
party thereto, and The Chase Manhattan RIC Holding, Inc. under the Securities
Bank (formerly known as Chemical Bank), Act of 1933, as amended, and
as administrative agent. incorporated herein by reference.
</TABLE>

111
<PAGE> 115

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<C> <S> <C>
4.7 Indenture, dated March 27, 1996, among Filed as Exhibit 4.6 to RIC Holding,
RIC Holding, Inc., Riverwood Holding, Inc.'s Annual Report on Form 10-K filed
Inc., CDRO Acquisition Corporation and April 16, 1996 (Commission File No.
Fleet National Bank of Connecticut, as 1-11113), and incorporated herein by
trustee, relating to the 10 1/4% Senior reference.
Notes due 2006 of Riverwood
International Corporation, together with
the First Supplemental Indenture and the
Second Supplemental Indenture thereto.
4.8 Indenture, dated March 27, 1996, among Filed as Exhibit 4.7 to RIC Holding,
RIC Holding, Inc., Riverwood Holding, Inc.'s Annual Report on Form 10-K filed
Inc., CDRO Acquisition Corporation and April 16, 1996 (Commission File No.
Fleet National Bank of Massachusetts, as 1-11113), and incorporated herein by
trustee, relating to the 10 7/8% Senior reference.
Subordinated Notes due 2008 of Riverwood
International Corporation, together with
the First Supplemental Indenture and the
Second Supplemental Indenture thereto.
4.9 Indenture, dated as of July 28, 1997, Filed as Exhibit 4.1 to the Registration
among Riverwood International Statement on Form S-4 (Registration No.
Corporation, RIC Holding, Inc., 333-33499) of Riverwood International
Riverwood Holding, Inc. and State Street Corporation, Riverwood Holding, Inc. and
Bank & Trust Company, as trustee, RIC Holding, Inc. under the Securities
relating to the 10 5/8% Senior Notes due Act of 1933, as amended, and
2007 of Riverwood International incorporated herein by reference.
Corporation.
10.1 Form of Investor Stock Subscription Filed as Exhibit 10.6 to Registration
Agreement between New River Holding, Statement on Form S-1 (Registration No.
Inc. (renamed Riverwood Holding, Inc.) 33-80475) of New River Holding, Inc.
and each of the investors named on the (renamed Riverwood Holding, Inc.) under
schedule thereto. the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.2 Form of Management Stock Subscription Filed as Exhibit 10.4 to Registration
Agreement between New River Holding, Statement on Form S-1 (Registration No.
Inc. (renamed Riverwood Holding, Inc.) 33-80475) of New River Holding, Inc.
and the purchasers named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.3 Form of Management Stock Option Filed as Exhibit 10.5 to Registration
Agreement between New River Holding, Statement on Form S-1 (Registration No.
Inc. (renamed Riverwood Holding, Inc.) 33-80475) of New River Holding, Inc.
and the grantees named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.4 Form of Registration and Participation Filed as Exhibit 10.7 to Registration
Agreement among New River Holding, Inc. Statement on Form S-1 (Registration No.
(renamed Riverwood Holding, Inc.) and 33-80475) of New River Holding, Inc.
certain stockholders of New River (renamed Riverwood Holding, Inc.) under
Holding, Inc. the Securities Act of 1933, as amended,
and incorporated herein by reference.
</TABLE>

112
<PAGE> 116

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<C> <S> <C>
10.5 Form of New River Holding, Inc. Stock Filed as Exhibit 10.10 to Registration
Incentive Plan. Statement on Form S-1 (Registration No.
33-80475) of New River Holding, Inc.
(renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.6 Form of Stockholders Agreement among New Filed as Exhibit 10.11 to Registration
River Holding, Inc. (renamed Riverwood Statement on Form S-1 (Registration No.
Holding, Inc.) and the stockholders of 33-80475) of New River Holding, Inc.
New River Holding, Inc. named therein. (renamed Riverwood Holding, Inc.) under
the Securities Act of 1933, as amended,
and incorporated herein by reference.
10.7 Form of Indemnification Agreement among Filed as Exhibit 10.8 to the
Riverwood Holding, Inc., RIC Holding, Registration Statement on Form S-1
Inc., Riverwood International (Registration No. 33-80475) of New River
Corporation, Clayton, Dubilier & Rice, Holding, Inc. (renamed Riverwood
Inc. and Clayton, Dubilier & Rice Fund V Holding, Inc.) under the Securities Act
Limited Partnership. of 1933, as amended, and incorporated
herein by reference.
10.8 Form of Amended and Restated Employment Filed as Exhibit 10.9 to the
Agreements among Riverwood International Registration Statement on Form S-1
Corporation, Riverwood Holding, Inc. and (Registration No. 33-80475) of New River
each of Thomas H. Johnson, Robert C. Holding, Inc. (renamed Riverwood
Hart, Octavio Orta and Frank R. Holding, Inc.) under the Securities Act
McCauley. of 1933, as amended, and incorporated
herein by reference.
10.9 Form of Consulting Agreement among Filed as Exhibit 10.12 to the
Riverwood Holding, Inc., RIC Holding, Registration Statement on Form S-1
Inc., the corporation formerly known as (Registration No. 33-80475) of New River
Riverwood International Corporation, Holding, Inc. (renamed Riverwood
Riverwood International Corporation and Holding, Inc.) under the Securities Act
Clayton, Dubilier & Rice, Inc. of 1933, as amended, and incorporated
herein by reference.
10.10 Agreement, dated as of November 11, Filed as Exhibit 10.10 to the
1996, among Riverwood Holding, Inc., RIC Registrant's Annual Report on Form 10-K
Holding, Inc., Riverwood International filed March 27, 1997 (Commission File
Corporation and Thomas H. Johnson. No. 1-11113), and incorporated herein by
reference.
10.11 Loanout Agreement, dated as of October Filed as Exhibit 10.11 to the
8, 1996, among Riverwood Holding, Inc., Registrant's Annual Report on Form 10-K
RIC Holding, Inc., Riverwood filed March 27, 1997 (Commission File
International Corporation and Clayton, No. 1-11113), and incorporated herein by
Dubilier & Rice, Inc. reference.
10.12 Employment Agreement, dated as of March Filed as Exhibit 10.1 to the
31, 1997, among Riverwood International Registrant's Quarterly Report on Form
Corporation, Riverwood Holding, Inc. and 10-Q filed May 9, 1997 (Commission File
Stephen Humphrey. No. 1-11113), and incorporated herein by
reference.
10.13 Management Stock Option Agreement, dated Filed as Exhibit 10.2 to the
as of March 31, 1997, between Riverwood Registrant's Quarterly Report on Form
Holding, Inc. and Stephen Humphrey. 10-Q filed May 9, 1997 (Commission File
No. 1-11113), and incorporated herein by
reference.
</TABLE>

113
<PAGE> 117

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT CROSS REFERENCE OR
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- ------------------
<C> <S> <C>
21 List of subsidiaries. Filed as an exhibit hereto.
27 Financial Data Schedule. Filed as an exhibit hereto.
99 Reconciliation of Income (Loss) from Filed as an exhibit hereto.
Operations to EBITDA.
</TABLE>

114

<PAGE> 1

EXHIBIT 21

SUBSIDIARIES OF REGISTRANT

<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
---------- ---------------
<S> <C>
Creacom S.A. ............................................... France
Danapak Riverwood Multipak A/S.............................. Denmark
Entreprise Maillet E.U.R.L. ................................ France
Fadec E.U.R.L. ............................................. France
Financiere de Developpement S.A. ........................... France
Fiskeby Board AB............................................ Sweden
Fiskeby Board A/S........................................... Denmark
Fiskeby Board Ltd. ......................................... United Kingdom
Fiskeby Holding AB.......................................... Sweden
Igaras Agro-Florestal Ltda. ................................ Brazil
Igaras Argentina S.A. ...................................... Argentina
Igaras Papeis e Embalagens S.A. ............................ Brazil
Imprimerie Generale S.A. ................................... France
Lemaire S.A. ............................................... France
New Materials Limited....................................... United Kingdom
Ouachita Machine Works (Partnership)........................ Louisiana
Pine Pipeline, Inc. ........................................ Louisiana
Rengo Riverwood Packaging, Ltd. ............................ Japan
RIC Holding, Inc. .......................................... Delaware
Riverwood Brazilian Investments, Inc. ...................... Delaware
Riverwood Cartons Pty. Ltd. ................................ Australia
Riverwood do Brasil Ltda. .................................. Brazil
Riverwood Espana, S.A. ..................................... Spain
Riverwood International Asia Pacific Limited................ Hong Kong
Riverwood International Asia Pte Ltd........................ Singapore
Riverwood International B.V. ............................... Netherlands
Riverwood International Canada Inc. ........................ Canada
Riverwood International Corporation......................... Delaware
Riverwood International Corporation Philanthropic Fund...... Delaware
Riverwood International (Cyprus) Limited.................... Cyprus
Riverwood International Enterprises, Inc. .................. Delaware
Riverwood International Japan, Ltd. ........................ Japan
Riverwood International Limited............................. United Kingdom
Riverwood International Machinery, Inc. .................... Delaware
Riverwood International Mexicana, S. de R.L. de C.V. ....... Mexico
Riverwood International Pension Trustee Company Ltd. ....... United Kingdom
Riverwood International S.A. ............................... France
Riverwood International S.p.A. ............................. Italy
Riverwood Mehrstruckverpackung G.m.b.H. .................... Germany
Riverwood Packaging Systems Pty. Ltd. ...................... Australia
Riverwood Swedish Investments, Inc. ........................ Delaware
Slevin South Company........................................ Arkansas
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
RIVERWOOD HOLDING, INC.'S CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS
OF OPERATIONS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 15,751
<SECURITIES> 0
<RECEIVABLES> 151,554
<ALLOWANCES> 560
<INVENTORY> 174,498
<CURRENT-ASSETS> 352,329
<PP&E> 1,644,835
<DEPRECIATION> 205,527
<TOTAL-ASSETS> 2,606,185
<CURRENT-LIABILITIES> 314,317
<BONDS> 1,712,944
0
0
<COMMON> 75
<OTHER-SE> 485,404
<TOTAL-LIABILITY-AND-EQUITY> 2,606,185
<SALES> 1,138,854
<TOTAL-REVENUES> 1,138,854
<CGS> 1,000,391
<TOTAL-COSTS> 1,000,391
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 720
<INTEREST-EXPENSE> 172,230
<INCOME-PRETAX> (164,202)
<INCOME-TAX> 5,645
<INCOME-CONTINUING> (146,957)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,463)
<CHANGES> (3,053)
<NET-INCOME> (152,473)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>

<PAGE> 1

EXHIBIT 99

RIVERWOOD HOLDING, INC.

RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA

<TABLE>
<CAPTION>
COATED CONTAINER-
BOARD BOARD CORPORATE TOTAL
-------- ---------- --------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
COMPANY:
FIRST QUARTER 1997:
Income (Loss) from Operations............................ $ 15,779 $(13,006) $ (4,512) $ (1,739)
Add: Depreciation and amortization....................... 20,949 3,803 358 25,110
Purchased asset costs(A)............................... 6,219 911 -- 7,130
Dividends from equity investments...................... -- -- 750 750
Other non-cash charges(B).............................. 1,538 254 110 1,902
-------- -------- -------- --------
EBITDA(C)................................................ $ 44,485 $ (8,038) $ (3,294) $ 33,153
======== ======== ======== ========
SECOND QUARTER 1997:
Income (Loss) from Operations............................ $ 19,307 $(12,532) $ (6,530) $ 245
Add: Depreciation and amortization....................... 23,420 3,944 289 27,653
Purchased asset costs(A)............................... 4,866 911 -- 5,777
Dividends from equity investments...................... -- -- 945 945
Other non-cash charges(B).............................. 253 2,966 1,741 4,960
-------- -------- -------- --------
EBITDA(C)................................................ $ 47,846 $ (4,711) $ (3,555) $ 39,580
======== ======== ======== ========
THIRD QUARTER 1997:
Income (Loss) from Operations............................ $ 17,996 $ (6,385) $ (4,096) $ 7,515
Add: Depreciation and amortization....................... 23,969 3,397 265 27,631
Purchased asset costs(A)............................... 6,724 911 -- 7,635
Dividends from equity investments...................... -- -- 1,022 1,022
Other non-cash charges(B).............................. 499 75 986 1,560
-------- -------- -------- --------
EBITDA(C)................................................ $ 49,188 $ (2,002) $ (1,823) $ 45,363
======== ======== ======== ========
FOURTH QUARTER 1997:
Income from Operations................................... $ 11,737 $ (9,321) $ (1,525) $ 891
Add: Depreciation and amortization....................... 22,542 5,600 305 28,447
Purchased asset costs(A)............................... 11,024 911 -- 11,935
Dividends from equity investments...................... -- -- 2,511 2,511
Other non-cash charges(B).............................. 767 2,017 1,263 4,047
-------- -------- -------- --------
EBITDA(C)................................................ $ 46,070 $ (793) $ 2,554 $ 47,831
======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1997:
Income (Loss) from Operations............................ $ 64,819 $(41,244) $(16,663) $ 6,912
Add: Depreciation and amortization....................... 90,880 16,744 1,217 108,841
Purchased asset costs(A)............................... 28,833 3,644 -- 32,477
Dividends from equity investments...................... -- -- 5,228 5,228
Other non-cash charges(B).............................. 3,057 5,312 4,100 12,469
-------- -------- -------- --------
EBITDA(C)................................................ $187,589 $(15,544) $ (6,118) $165,927
======== ======== ======== ========
</TABLE>

1
<PAGE> 2
RIVERWOOD HOLDING, INC.

RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA -- (CONTINUED)

<TABLE>
<CAPTION>
U.S.
TIMBERLANDS/
COATED CONTAINER- WOOD
BOARD BOARD PRODUCTS CORPORATE TOTAL
-------- ---------- ------------ --------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
COMPANY:
SECOND QUARTER 1996:
Income (Loss) from Operations.............. $ 19,768 $ (7,260) $ -- $ (6,396) $ 6,112
Income from discontinued operations........ -- -- 15,356 -- 15,356
Add: Depreciation and amortization......... 21,295 4,320 1,950 672 28,237
Purchased asset costs(A)................. 9,877 $ 1,217 844 (41) 11,897
Dividends from equity investments........ -- -- -- 1,408 1,408
Other non-cash charges(B)................ 1,506 (541) 784 80 1,829
-------- -------- ------- -------- --------
EBITDA(C).................................. $ 52,446 $ (2,264) $18,934 $ (4,277) $ 64,839
======== ======== ======= ======== ========
THIRD QUARTER 1996:
Income (Loss) from Operations.............. $ 20,563 $(12,207) $ -- $ (5,312) $ 3,044
Income from discontinued operations........ -- -- 17,453 -- 17,453
Add: Depreciation and amortization......... 17,484 4,644 2,241 475 24,844
Purchased asset costs(A)................. 7,021 700 1,138 87 8,946
Dividends from equity investments........ -- -- -- 696 696
Other non-cash charges(B)................ 1,506 (535) 1,313 36 2,320
-------- -------- ------- -------- --------
EBITDA(C).................................. $ 46,574 $ (7,398) $22,145 $ (4,018) $ 57,303
======== ======== ======= ======== ========
FOURTH QUARTER 1996:
Income (Loss) from Operations.............. $ 14,645 $(11,502) $ -- $(10,880) $ (7,737)
Income from discontinued operations........ -- -- 2,737 -- 2,737
Add: Depreciation and amortization......... 23,921 5,354 618 (140) 29,753
Purchased asset costs(A)................. (3,269) 770 295 (46) (2,250)
Dividends from equity investments........ -- -- -- 3,287 3,287
Other non-cash charges(B)................ 1,132 (584) 76 4 628
-------- -------- ------- -------- --------
EBITDA(C).................................. $ 36,429 $ (5,962) $ 3,726 $ (7,775) $ 26,418
======== ======== ======= ======== ========
NINE MONTHS ENDED DECEMBER 31, 1996:
Income from Operations..................... $ 54,976 $(30,969) $ -- $(22,588) $ 1,419
Income from discontinued operations........ -- -- 35,546 -- 35,546
Add: Depreciation and amortization......... 62,700 14,318 4,809 1,007 82,834
Purchased asset costs(A)............... 13,629 2,687 2,277 -- 18,593
Dividends from equity investments...... -- -- -- 5,391 5,391
Other non-cash charges(B).............. 4,144 (1,660) 2,173 120 4,777
-------- -------- ------- -------- --------
EBITDA(C).................................. $135,449 $(15,624) $44,805 $(16,070) $148,560
======== ======== ======= ======== ========
PREDECESSOR:
FIRST QUARTER 1996:
Income (Loss) from Operations.............. $ 24,638 $ (5,955) $13,868 $(16,901) $ 15,650
Add: Depreciation and amortization......... 17,800 4,332 1,735 571 24,438
Dividends from equity investments...... -- -- -- -- --
Pro forma adjustments.................. 3,471 120 218 9,533 13,342
Other non-cash charges(B).............. 1,265 261 945 232 2,703
-------- -------- ------- -------- --------
EBITDA..................................... $ 47,174 $ (1,242) $16,766 $ (6,565) $ 56,133
======== ======== ======= ======== ========
</TABLE>

2
<PAGE> 3
RIVERWOOD HOLDING, INC.

RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA -- (CONTINUED)

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

(A) Under the terms and definitions of the Senior Secured Credit Facilities and
the Indentures for the Notes, certain expenses and costs are excluded from
the Company's Income from Operations in determining EBITDA (as defined
below), including amortization, depreciation or expenses associated with the
write-up of inventory, fixed assets and intangible assets in accordance with
APB 16 and 17, collectively referred to as the "Purchased asset costs."

(B) Other non-cash charges include non-cash charges for pension, postretirement
and postemployment benefits, depletion of prepaid timber and amortization of
premiums on hedging contracts deducted in determining net income other than
Purchased asset costs (see (A) above).

(C) EBITDA is defined as consolidated net income (exclusive of non-cash charges
resulting from purchase accounting during the periods subsequent to the
Merger) before consolidated interest expense, consolidated income taxes,
consolidated depreciation and amortization, cost of timber harvested and
other non-cash charges deducted in determining consolidated net income and
extraordinary items and the cumulative effect of accounting changes and
earnings of, but including dividends from, non-controlled affiliates. EBITDA
excludes (i) equity earnings from the Company's investment in Igaras but
includes dividends actually received from Igaras, (ii) Other Costs (see Note
18 in Notes to Consolidated Financial Statements) of the Predecessor and
(iii) Purchased Asset Costs resulting from purchase accounting for periods
subsequent to the Merger. The Company believes that EBITDA provides useful
information regarding the Company's debt service ability, but should not be
considered in isolation or as a substitute for the Consolidated Statements
of Operations or cash flow data.