In 2001, the U.S. paperboard packaging market generated paperboard shipments of approximately 5.9 million tons. This paperboard, which is produced from both wood pulp and recycled fibers, is utilized for both beverage cartons and non-beverage cartons. The major paperboard grade used to make beverage cartons is CUK board. The major paperboard grades used to make non-beverage cartons are

solid bleached sulphate, or SBS, recycled clay-coated news, or CCN, and CUK board. White lined chip board is also used for a variety of folding carton applications principally throughout Europe.

Beverage multiple packaging is a stable, steadily growing market that has traditionally focused on packaging of containers for beer and carbonated soft drinks. U.S. shipments of CUK board for beer and carbonated soft drinks totaled approximately 1.1 million tons in 2001. The U.S. beer and carbonated soft drink multiple packaging markets have been characterized by steady volume growth, having a compound annual growth rate of 1.3% and 2.2%, respectively, from 1995 to 2000, which is expected to be 1.2% and 1.8%, respectively, from 2000 to 2005. Beverage cartons made from CUK board compete in the beverage multiple packaging market with plastics and corrugated packaging. Within the U.S. beer and soft drink packaging markets, it is estimated that CUK board accounted

for approximately 79% and 53%, respectively, of total packaged volume in 2001. The U.S. markets for bottled water and fruit juice account for a combined 17% of the market for take-home drinks relative to the combined 40% represented by beer and carbonated soft drinks.

The U.S. non-beverage consumer products paperboard packaging market generated paperboard shipments of approximately 4.7 million tons in 2001. U.S. demand for non-beverage paperboard packaging has grown at an average rate of 1% per year from 1996 to 2001. It is estimated that, given its superior strength, printability and cost characteristics, CUK is the most appropriate substrate for

approximately 35% of the non-beverage paperboard packaging market, compared with its share of approximately 12% in 2001.

The Company produces CUK board on five machines located at its West Monroe, Louisiana and Macon, Georgia mills, with a combined production capacity of approximately 1.2 million gross tons. The Company also operates a white lined chip recycled board mill in Fiskeby, Sweden. In addition, the Company designs, tests and produces packaging machinery at two U.S. facilities and one

European facility. The Company also manufactures containerboard--linerboard, corrugating medium and kraft paper--for sale in the open market.

In its beverage multiple packaging business, the Company provides a range of packaging solutions to leading multinational beverage companies, offering them carrierboard, beverage cartons and packaging machines either as an integrated solution or separately. The Company produces carrierboard at its mills, prints and cuts, or converts, the carrierboard into beverage cartons at its converting plants and manufactures packaging machines designed to package bottles and cans using its beverage cartons. The Company supplies beverage cartons in a variety of designs and formats, including 6, 12 and 24 multi-packs.

The Company’s proprietary beverage packaging machines package cans, bottles and other beverage containers into its beverage cartons at high speeds. The Company installs these machines at customer plants under long-term leases and provide value-added

support, service and advanced performance monitoring of the machines. The Company’s packaging machines are designed to create direct pull-through demand for its CUK board.

In its consumer products packaging business, the Company has historically sold cartonboard to independent converters which convert the cartonboard and sell cartons to consumer products companies, such as Kraft Foods, Nestle, Unilever and Mattel, for consumer products packaging for confectionary, frozen and dry foods, toys and other consumer products. The Company serves these customers through relationships with converters and work with both the end-user and the converter to design packaging solutions.

Gross profit for the year ended December 31, 2001 decreased by $20.7 million, or 7.7%, to $247.8 million from $268.5 million for the year ended December 31, 2000.

Research, development and engineering expenses increased by $0.5 million, or 12.2%, to $5.1 million for the year ended December 31, 2001 from $4.6 million for the year ended December 31, 2000.

Income from operations for the year ended December 31, 2001 decreased by $122.4 million, or 55.5%, to $98.1 million from $220.5 million for the year ended December 31, 2000.

Interest income increased by $0.1 million to $0.9 million for the year ended December 31, 2001 from $0.8 million for the year ended December 31, 2000.