Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Impairment of Goodwill. We periodically evaluate acquired businesses for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our acquired businesses. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired. Evaluating the impairment of goodwill also requires us to estimate future operating results and cash flows which also require judgment by management. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

Self-Insurance. We are self-insured for the majority of our workers' compensation costs and group health insurance costs, subject to specific retention levels. Consulting actuaries and administrators assist us in determining our liability for self-insured claims. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our workers' compensation costs and group health insurance costs.

Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. We record valuation allowances due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain state net operating losses carried forward and state tax credits, before they expire. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods we may need to establish an additional valuation allowance which could materially impact our financial position and results of operations.

Pension and Other Postretirement Benefits. The determination of our obligation and expense for pension and other postretirement benefits is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 8 to the consolidated financial statements and include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation and healthcare costs. In accordance with generally accepted accounting principles, actual results that differ from our assumptions are accumulated and amortized over future periods and therefore, generally affect our recognized expense, recorded obligation and funding requirements in future periods. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension and other postretirement benefit obligations and our future expense.

Results of Operations 2001 – 2000

The following table shows volume, gross paper margins and related data for the periods indicated. The volume information shown below includes shipments of unconverted paperboard and converted paperboard products. Tonnage volumes from our business segments, excluding tonnage produced or converted by our unconsolidated joint ventures, are combined and presented along end-use market lines. Additional financial information is reported by segment in Note 11 of the consolidated financial statements.

		Years Ended December 31,
								%
	2000		2001			Change	Change
Production source of paperboard tons sold (in thousands): From paperboard mill production		999.1		892.4		(106.7)		–10.7%
Outside purchases		122.4		123.1		0.7		0.6%
Total paperboard tonnage		1,121.5		1,015.5		(106.0)		–9.5%
Tons sold by market (in thousands): Tube, core and composite container volume Paperboard (internal)		202.9		187.6		(15.3)		–7.5%
Outside purchases		25.9		25.9		–		0.0%
Tube, core and composite container converted products		228.8		213.5		(15.3)		–6.7%
Unconverted paperboard		37.6		32.7		(4.9)		–13.0%
Tube, core and composite container volume		266.4		246.2		(20.2)		–7.6%
Folding carton volume Paperboard (internal)		67.9		85.2		17.3		25.5%
Outside purchases		86.8		92.2		5.4		6.2%
Folding carton converted products		154.7		177.4		22.7		14.7%
Unconverted paperboard		270.2		232.4		(37.8)		–14.0%
Folding carton volume		424.9		409.8		(15.1)		–3.6%
Gypsum wallboard facing paper volume Unconverted paperboard		196.1		151.5		(44.6)		–22.7%
Outside purchases (for resale)		0.5		–		(0.5)		–100.0%
Gypsum wallboard facing paper volume		196.6		151.5		(45.1)		–22.9%
Other specialty products volume Paperboard (internal)		108.7		68.0		(40.7)		–37.4%
Outside purchases		9.2		5.0		(4.2)		–45.7%
Other specialty converted products		117.9		73.0		(44.9)		–38.1%
Unconverted paperboard		115.7		135.0		19.3		16.7%
Other specialty products volume		233.6		208.0		(25.6)		–11.0%
Total paperboard tonnage		1,121.5		1,015.5		(106.0)		–9.5%
Gross paper margins ($/ton): Paperboard mill: Average same-mill net selling price		$ 445		$ 413		$ (32)		–7.2%
Average same-mill recovered fiber cost		104		65		(39)		–37.5%
Paperboard mill gross paper margin		$341		$348		$7		2.1%
Tube and core: Average net selling price		$786		$783		$(3)		–0.4%
Average paperboard cost		441		447		6		1.4%
Tube and core gross paper margin		$345		$336		$(9)		–2.6%

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