** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

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** **

**FORM 10-Q/A**

** **

**AMENDMENT NO. 1 TO FORM 10-Q**

** **

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIESEXCHANGE ACT OF 1934**

** **

**For the Quarterly Period ended June 30, 2005**

** **

**Commission File No. 333-125952**

** **

**NEWPAGE CORPORATION**

**Courthouse Plaza Northeast**

**Dayton, Ohio  45463**

**877.855.7243**

 

State ofIncorporation:                                                                                    **Delaware**

 

IRS EmployerIdentification No.:                                 **05-0616156**

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.            Yeso               No  ý

 

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

 

There were 100 Common Shares of the Company, $0.01 par value,outstanding as of August 1, 2005.

 

 

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This Amendment is being filed to restate the condensed combinedfinancial statements of the Printing and Writing Papers Business ofMeadWestvaco Corporation (the “predecessor”) for the one month and four monthsended April 30, 2005, to correct the accounting for the allocation ofcosts of defeasing certain debt related to the predecessor, income taxes and the immaterial effect ofcorrecting certain other corporate allocations and accounting adjustments.See Note 2 to the Condensed Combined Financial Statements of the predecessorfor further information.

 

**NEWPAGE CORPORATION**

**INDEX**

** **
| **PART I**                                                                                      | **FINANCIAL INFORMATION**                                                                                                                                       | ** ** |
|------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                           | ** **                                                                                                                                                      | ** ** |
| Item 1. Financial Statements:                                                                        |                                                                                                                                                            |
| Successor                                                                                            |                                                                                                                                                            |
| NewPage Corporation and Subsidiaries:                                                           |                                                                                                                                                            |
|                                                                                                 | Condensed Consolidated Balance Sheet as of  June 30, 2005                                                                                                  |       |
|                                                                                                 | Consolidated Statement of Operations for the two  months ended June 30, 2005                                                                               |       |
|                                                                                                 | Consolidated Statement of Stockholders’ Equity for the  two months ended June 30, 2005                                                                |       |
|                                                                                                 | Condensed Consolidated Statement of Cash Flows for the  two months ended June 30, 2005                                                                     |       |
|                                                                                                 | Notes to Condensed Consolidated Financial Statements                                                                                                            |       |
| Predecessor                                                                                          |                                                                                                                                                            |
| Printing and Writing Papers Business (A Business of  MeadWestvaco Corporation):                      |                                                                                                                                                            |
|                                                                                                 | Combined  Statements of Operations for the one month and four months ended  April 30, 2005 and the second quarter and first half ended June 30,  2004 |       |
|                                                                                                 | Condensed  Combined Balance Sheet as of December 31, 2004                                                                                                  |       |
|                                                                                                 | Statement of Changes in Combined Equity                                                                                                                         |       |
|                                                                                                 | Combined Statements of Cash Flows for the four months  ended April 30, 2005 and the first half ended June 30, 2004                                    |       |
|                                                                                                 | Notes to Condensed Combined Financial Statements                                                                                                                |       |
|                                                                                                 |                                                                                                                                                            |       |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |                                                                                                                                                            |
|                                                                                                 |                                                                                                                                                            |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  |                                                                                                                                                            |
|                                                                                                 |                                                                                                                                                            |
| Item 4. Controls  and Procedures                                                                     |                                                                                                                                                            |
|                                                                                                 |                                                                                                                                                            |
| **PART II**                                                                                     | **OTHER  INFORMATION**                                                                                                                                          | ** ** |
| ** **                                                                                           | ** **                                                                                                                                                      | ** ** |
| Item  6. Exhibits                                                                                    |                                                                                                                                                            |
|                                                                                                 |                                                                                                                                                            |       |
| Signature                                                                                            |                                                                                                                                                            |       |

 

2

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**PART I                  FINANCIALINFORMATION**

** **

## **ITEM 1.                  FINANCIALSTATEMENTS**

## ** **

**NEWPAGECORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEET (unaudited)**

**JUNE 30, 2005**

**(In thousands)**

** **
| **ASSETS**                                                                  | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|
| Cash and cash equivalents                                                   |       | $          | 536        |   |
| Accounts receivable, net                                                    |       | 238,293    |       |
| Inventories (Note C)                                                        |       | 481,314    |       |
| Other current assets                                                        |       | 11,938     |       |
| Total current assets                                                        |       | 732,081    |       |
|                                                                        |       |       |       |
| Property, plant and equipment, net of  accumulated depreciation of $26,643  |       | 1,418,762  |       |
| Intangibles and other assets (Note D)                                       |       | 204,011    |       |
| TOTAL ASSETS                                                                |       | $          | 2,354,854  |   |
|                                                                        |       |       |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                               | ** ** | ** ** | ** ** |
| Accounts payable                                                            |       | $          | 137,504    |   |
| Accrued expenses                                                            |       | 127,259    |       |
| Current maturities of long-term debt (Note  F)                              |       | 7,500      |       |
| Total current liabilities                                                   |       | 272,263    |       |
|                                                                        |       |       |       |
| Long-term debt (Note F)                                                     |       | 1,681,274  |       |
| Other long-term obligations                                                 |       | 57,804     |       |
|                                                                        |       |       |       |
| Commitments and contingencies                                               |       |       |       |
|                                                                        |       |       |       |
| STOCKHOLDERS’ EQUITY:                                                  |       |       |       |
| Common stock, 100 shares issued and  outstanding, $0.01 per share par value |       |       |       |
| Additional paid-in capital                                                  |       | 399,780    |       |
| Accumulated deficit                                                         |       | (56,267    | )          |
| Total stockholders’ equity                                             |       | 343,513    |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                             |       | $          | 2,354,854  |   |

 

See notes to condensedconsolidated financial statements.

** **

**3**

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** **

**NEWPAGE CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENT OF OPERATIONS (unaudited)**

**TWO MONTHS ENDED JUNE 30, 2005**

**(In thousands)**

** **
| Net sales                                                                                                                               |   | $       | 351,681 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|---------|---------|--------|
|                                                                                                                                    |   |    |    |
| Cost of sales                                                                                                                           |   | 333,998 |    |
| Selling, general and administrative  expenses                                                                                           |   | 19,627  |    |
| Interest expense (including amortization of  debt issuance costs and debt discount and write-off of bridge financing costs  of $12,454) |   | 35,835  |    |
| Other (income) expense, net (Note E)                                                                                                    |   | 19,038  |    |
|                                                                                                                                    |   |    |    |
| Income (loss) before equity in earnings of  investee                                                                                    |   | (56,817 | )       |
|                                                                                                                                    |   |    |    |
| Equity in earnings of investee                                                                                                          |   | 550     |    |
|                                                                                                                                    |   |    |    |
| Net income (loss)                                                                                                                       |   | $       | (56,267 | )      |

 

See notes to condensedconsolidated financial statements.

 

4

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**NEWPAGE CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENT OF STOCKHOLDERS’ EQUITY (unaudited)**

**TWO MONTHS ENDED JUNE 30, 2005**

**(In thousands)**

** **
| ** **                     | ** ** | **Common Stock** | ** ** | **Additional  Paid-in** | ** ** | **Accumulated** | ** ** |
|--------------------------------|------------|------------------|------------|-------------------------|------------|-----------------|------------|
| ** **                     | ** ** | **Shares**       | ** ** | **Amount**              | ** ** | **Capital**     | ** ** | **Deficit** | ** ** |
| Issuance of  common stock      |       | 100              |       | $                       | —     |            | $          | 399,615 |   | $ |   |
| Net income  (loss)             |       |             |       |                    |       |            |       | (56,267 | ) |
| Equity award  expense          |       |             |       |                    |       | 165             |       |   |   |
|                           |       |             |       |                    |       |            |       |   |   |
| Balance at  June 30, 2005 |       | 100              |       | $                       | —     |            | $          | 399,780 |   | $ | (56,267 | ) |
|                                |            |                  |            |                         |            |                 |            |  |  |  |  |  |

 

See notes to condensedconsolidated financial statements.

 

5

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**NEWPAGE CORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)**

**TWO MONTHS ENDED JUNE 30, 2005**

**(In thousands)**

** **
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                |   |       |    |
|------------------------------------------------------------------------------------------------------|--------|------------|---------|
| Net income (loss)                                                                                    |   | $          | (56,267 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities:  |   |       |    |
| Depreciation, depletion and amortization                                                             |   | 27,834     |    |
| Amortization of debt issuance costs and  debt discount and write-off of bridge financing costs       |   | 12,454     |    |
| Unrealized loss on option contract                                                                   |   | 20,038     |    |
| Equity in earnings of investee                                                                       |   | (550       | )       |
| Equity award expense                                                                                 |   | 165        |    |
| Change in operating assets and liabilities                                                           |   | 7,571      |    |
| Net cash provided by (used in) operating  activities                                                 |   | 11,245     |    |
|                                                                                                 |   |       |    |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                                |   |       |    |
| Cash paid for acquisition                                                                            |   | (1,994,239 | )       |
| Capital expenditures                                                                                 |   | (12,160    | )       |
| Cash paid for option contracts                                                                       |   | (72,957    | )       |
| Net cash used in investing activities                                                                |   | (2,079,356 | )       |
|                                                                                                 |   |       |    |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                                |   |       |    |
| Proceeds from issuance of common stock                                                               |   | 437,287    |    |
| Proceeds from issuance of long-term debt  and initial draw of revolver                               |   | 1,693,571  |    |
| Payment of debt issuance costs                                                                       |   | (57,211    | )       |
| Net borrowings (payments) on revolving  credit facility                                              |   | (5,000     | )       |
| Net cash provided by financing activities                                                            |   | 2,068,647  |    |
|                                                                                                 |   |       |    |
| Net increase (decrease) in cash and cash  equivalents and cash and cash equivalents at end of period |   | $          | 536     |   |
|                                                                                                 |   |       |    |
| SUPPLEMENTAL INFORMATION—Cash paid for  interest                                                |   | $          | 32      |   |

 

See notes to condensedconsolidated financial statements.

 

6

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**NEWPAGE CORPORATION AND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(In thousands)**

** **

**A.            BASIS OF PRESENTATION**

** **

NewPage Corporation and its subsidiaries are engaged in themanufacturing, marketing and distribution of coated, uncoated and carbonlesspapers, which are manufactured at five mills in the United States. Theconsolidated financial statements include the accounts of the Company and itsmajority-owned or controlled subsidiaries. In this Quarterly Report on Form 10-Q,unless otherwise noted, the terms “we,” “our,” “ours,” “us,” “Company” and “NewPage”refer to NewPage Corporation and its consolidated subsidiaries. Allintercompany transactions and balances have been eliminated.

 

These interim consolidated financial statements have not been audited.However, in the opinion of management, all normal recurring adjustmentsnecessary to present fairly the financial position and the results ofoperations for the interim period presented have been made. These interimfinancial statements have been prepared on the basis of accounting principlesand practices generally accepted in the United States of America. 

 

Certain information and footnote disclosures normally included inannual financial statements presented in accordance with accounting principlesand practices generally accepted in the United States of America have beencondensed or omitted. The results of operations for interim periods are notnecessarily indicative of the results to be expected for the full year. Theaccompanying financial statements should be read in conjunction with ourpredecessor’s annual financial statements and notes thereto for the year ended December 31,2004, included in the registration statement on Form S-4, as filed on June 20,2005, as amended.

 

**B.            ACQUISITION ANDRELATED TRANSACTIONS**

** **

On May 2, 2005, NewPage Corporation and subsidiaries acquiredthe Printing and Writing Papers Business (the “predecessor”) from MeadWestvacoCorporation (“MeadWestvaco”) (the “acquisition”). On January 14, 2005, ourindirect parent, Escanaba Timber LLC (“Escanaba Timber”), and MeadWestvacoentered into an equity and asset purchase agreement (the “purchase agreement”)pursuant to which we and our subsidiaries acquired the coated and carbonlesspapers group of MeadWestvaco. The purchase agreement and related documentscontemplated the occurrence of the following events, which we collectivelyrefer to as the “Transactions,” which were completed on May 2, 2005:

 

•Escanaba Timber contributed $415,000 of cash equity, as an investment in commonstock, to NewPage Holding Corporation, also referred to as NewPage Holding.

•NewPage Holding issued $100,000 of NewPage Holding PIK notes toMeadWestvaco as part of the consideration and an additional $25,000 of NewPage HoldingPIK notes for cash. NewPage Holding contributed the net cash proceeds fromthe PIK notes and the $415,000 of cash contributed by Escanaba Timber to NewPage Corporation,as an investment in the common stock of NewPage Corporation.

•We entered into two senior secured credit facilities, consisting of a $750,000senior secured term loan and a $350,000 senior secured asset-based revolvingcredit facility.

 

7

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•We issued $225,000 of floating rate senior secured notes due 2012 and $350,000of 10% senior secured notes due 2012.

•We issued $200,000 of 12% senior subordinated notes due 2013.

•NewPage Corporation and its subsidiaries paid approximately $2,080,000 forMeadWestvaco’s Coated and Carbonless Papers Group, excluding fees and expensesand subject to the post-closing purchase price adjustments specified in thepurchase agreement, of which $1,980,000 was paid in cash and $100,000 was paidin the form of NewPage Holding PIK notes.

 

Included in accounts receivable at June 30, 2005, is a receivablefrom MeadWestvaco of approximately $20,000 for the estimated post-closingpurchase price adjustments.

 

The consolidated balance sheets in these financial statements includethe assets acquired and liabilities assumed of MeadWestvaco’s coated andcarbonless papers group and reflect an allocation of purchase price based onestimated fair value at the date of acquisition. The amount of the purchaseprice allocated to NewPage is different from the sum of the payments madethrough NewPage to MeadWestvaco as a result of a difference between therelative fair value of the assets acquired by NewPage and Escanaba Timberand the relative payments made by each company. A summary of the preliminarypurchase price allocated to NewPage for the fair value of the assetsacquired and the obligations assumed at the date of the acquisition ispresented below. The purchase price allocation is preliminary and is subject tocompletion of final appraisals and final determination of post-closing purchaseprice adjustments. 

 
| Current assets                 |   | $         | 672,096   |   |
|--------------------------------|--------|-----------|-----------|--------|
| Property,  plant and equipment |   | 1,432,502 |      |
| Intangibles  and other assets  |   | 99,337    |      |
| Total assets acquired          |   | 2,203,935 |      |
| Current  liabilities           |   | (212,104  | )         |
| Other  long-term obligations   |   | (58,010   | )         |
| Total liabilities assumed      |   | (270,114  | )         |
| Net purchase price allocated   |   | $         | 1,933,821 |   |

 

The following table summarizes selected unaudited pro formaconsolidated statements of operations data of the predecessor for the firsthalf ended June 30, 2005 and 2004 as if the acquisition had been completedat the beginning of the year.

 
| **Unaudited pro forma financial data** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|
| Net sales                              |       | $        | 1,067,570  |     | $          | 1,055,413 |   |
| Net loss                               |       | (70,268  | )          | (81,565  | )          |
|                                        |            |          |            |          |            |  |  |

 

This selected unaudited pro forma consolidated financial data isincluded only for the purposes of illustration and does not necessarilyindicate what the operating results would have been if the acquisition had beencompleted on such date. Moreover, this information does not necessarilyindicate what our future operating results will be. This information includestwo months of actual data in 2005 for the period subsequent to the date of theacquisition. For periods prior to the acquisition, the unaudited pro formainformation includes allocations to the predecessor of certain expensesmaintained by MeadWestvaco for periods after the date of the acquisition.

 

8

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**C.            INVENTORIES**

** **

Inventories as of June 30, 2005, consist of:

 
| Finished and in-process goods |   | $      | 346,229 |   |
|-------------------------------|--------|--------|---------|--------|
| Raw  materials                |   | 61,917 |    |
| Stores and  supplies          |   | 73,168 |    |
|                          |   | $      | 481,314 |   |

 

Inventories are valued at the lower of cost or market. Cost isdetermined using the last-in, first-out (LIFO) method for substantially all rawmaterials, finished goods and production materials. Cost of all other inventories,mainly stores and supplies inventories, is determined by the average costmethod.

 

**D.            INTANGIBLES AND OTHERASSETS**

 

Intangibles and other assets as of June 30, 2005, consist of:

 
| Option contracts                         |   | $      | 52,919  |   |
|------------------------------------------|--------|--------|---------|--------|
| Financing  costs                         |   | 44,854 |    |
| Prepaid pension  asset                   |   | 43,398 |    |
| Intangibles—customer  relationships |   | 30,223 |    |
| Other                                    |   | 32,617 |    |
|                                     |   | $      | 204,011 |   |

 

**E.             DERIVATIVE FINANCIALINSTRUMENTS**

** **

As of May 2, 2005, we entered into a commodity basket optioncontract as part of the Transactions and paid a premium of $72,000 for thecontract. This commodity basket option contract is a purchased basket of putoptions on a mix of natural gas, market pulp and the Euro. While the option wasdesigned to help protect against decreases in the North American prices ofcoated paper by reference to the prices of natural gas and market pulp, andmaterial decreases in the value of the Euro relative to the U.S. dollar, thereis no assurance that the commodity basket option contract will actually protectus against any such price decreases or that the historical level of correlationwill continue during the three-year period of the contract. Because of theuncertainty of future correlation, we will not apply hedge accounting treatmentfor this contract and will record changes in the fair value of the contract inother (income) expense. Other (income) expense for the two months ended June 30,2005, includes an unrealized loss of $20,038 determined based on themark-to-market value of the contract. The fair value for purchased contracts isbased on the amount we could receive from the counterparty to settle thecontract.

 

As of June 30, 2005, we entered into two interest rate swapagreements and one interest rate cap agreement to hedge the variability of cashflows on a portion of our floating-rate debt. We entered into a $150,000notional amount interest rate swap expiring June 2009 and a $150,000notional amount interest rate swap expiring June 2010. We purchased a$150,000 notional amount interest rate cap with a cap rate of 4.50% thatexpires June 2008 for $957. These contracts are accounted for as cash-flowhedges, with changes in fair value recorded as a component of othercomprehensive income and any ineffectiveness recorded in interest expense.

 

9

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**F.             LONG-TERM DEBT**

** **

In conjunction with the acquisition, we issued $1,693,571 of long-termdebt on May 2, 2005, as follows:

 
| Revolving senior secured credit facility              |   | $       | 175,367   |   |
|-------------------------------------------------------|--------|---------|-----------|--------|
| Term loan  senior secured credit facility             |   | 750,000 |      |
| Floating rate  senior secured notes                   |   | 225,000 |      |
| 10% senior  secured notes (face amount $350,000)      |   | 345,706 |      |
| 12% senior  subordinated notes (face amount $200,000) |   | 197,498 |      |
| Total  long-term debt, including current portion      |   | $       | 1,693,571 |   |

 

We incurred $46,211 of financing fees related to the issuance of theabove debt. In addition, we recognized an expense of $11,000 after theacquisition related to bridge financing commitment fees. We will amortize theremainder of the financing costs to interest expense over the terms of therelated debt issues.

 

### ***SeniorSecured Credit Facilities***

### *** ***

The senior secured credit facilities consist of a senior secured termloan of $750,000 and a senior secured revolving credit facility of $350,000.Subject to customary conditions, including the absence of defaults under therevolving facility, amounts available under the revolving facility may beborrowed, repaid and re-borrowed, including in the form of letters of creditand swing line loans, until the maturity date thereof. The revolving facilitywas partially utilized to fund the acquisition and pay related expenses, andmay be utilized to fund our working capital, to fund permitted acquisitions andcapital expenditures, and for other general corporate purposes. Theavailability under our revolving credit facility is reduced by our outstandingletters of credit, which totaled $9,974 at June 30, 2005. The amount ofloans and letters of credit available to us pursuant to the revolving facilityis limited to the lesser of $350,000 or an amount determined pursuant to aborrowing base. The borrowing base at any time will be equal to 85% of the bookvalue of our and our subsidiaries’ eligible account receivables, plus thelesser of (i) 75% of the lower of cost or market value of our and oursubsidiaries’ eligible inventory or (ii) 85% of the “net cost recoverypercentage” of our and our subsidiaries’ eligible inventory, minus certainreserves established by the collateral agent under the revolving facility. Thecollateral agent has the right to change these advance rates under certaincircumstances. The eligibility of accounts receivable and inventory forinclusion in the borrowing base is determined in accordance with certaincustomary criteria specified pursuant to the revolving facility. For purposesof the borrowing base, “net cost recovery percentage” is the percentagedetermined by dividing the amount that would be recovered in an orderlyliquidation of the inventory, as determined from the most recent inventoryappraisal conducted under the terms of the revolving facility, by the cost ofthe inventory covered by such appraisal. Based on availability under theborrowing base as of June 30, 2005, we had $145,134 of additionalborrowing under the revolving senior secured credit facility. Unless terminatedearlier, the revolving facility matures at May 1, 2010. Amountsoutstanding under our revolving facility initially bear interest, at ouroption, at a rate per annum equal to either: (i) the base rate plus anapplicable margin (initially 1.00%), or (ii) LIBOR plus an applicablemargin (initially 2.00%). Certain customary fees are payable to the lenders andthe agents under the senior secured credit facilities, including, withoutlimitation, a commitment fee for our revolving facility based upon non-use ofavailable funds and letter of credit fees and issuer fronting fees.

 

10

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The senior term facility matures at May 1, 2011 and will amortizein 20 consecutive equal quarterly installments in an aggregate annual amountequal to 1.0% of the original principal amount of the senior term facilityduring the first five years thereof, with the balance payable in four equalquarterly installments in year six. The senior term facility is subject tomandatory prepayment with, in general, (i) 100% of the net cash proceedsof certain asset sales, subject to certain reinvestment rights; (ii) 100%of the net cash proceeds of certain insurance and condemnation payments,subject to certain reinvestment rights; (iii) 50% of the net cash proceedsof equity offerings; (iv) 100% of the net cash proceeds of debtincurrences (other than debt incurrences permitted under the term facility);and (v) 75% of our excess cash flow, as defined in the senior securedcredit facility (declining in stages to zero, in accordance with a leverageratio test). The loans under the senior term facility bear interest, at ouroption, at a rate per annum equal to either: (i) the base rate plus 2.00%,or (ii) LIBOR plus 3.00%.

 

The senior secured credit facilities are jointly and severallyguaranteed by our parent and each of our domestic subsidiaries. Subject tocertain customary exceptions, we and each of the guarantors granted to thelenders under the revolving facility a first priority security interest in andlien on our and our domestic subsidiaries’ present and future cash, depositaccounts, accounts receivable, inventory and intercompany debt owed to us, ourparent and our guarantor domestic subsidiaries. Subject to certain customaryexceptions, we and each of the guarantors granted to the lenders under the termfacility (i) a first priority security interest in and lien onsubstantially all of our and our domestic subsidiaries’ present and futureproperty and assets (other than cash, deposit accounts, accounts receivable,inventory and intercompany debt owed to us, our parent and our guarantordomestic subsidiaries), including the capital stock of our domesticsubsidiaries and 65% of the capital stock of our foreign subsidiaries, if any,as well as our capital stock owned by our parent and (ii) a secondpriority security interest in and lien on our and our domestic subsidiaries’present and future cash, deposit accounts, accounts receivable, inventory andintercompany debt owed to us, our parent or our guarantor domesticsubsidiaries.

 

The senior secured credit facilities contain various customaryaffirmative and negative covenants (subject to customary exceptions and certainexisting obligations and liabilities), including, but not limited to, restrictionson our ability and the ability of our subsidiaries to (i) dispose ofassets, (ii) incur additional indebtedness and guarantee obligations, (iii) repayother indebtedness, (iv) pay certain restricted payments and dividends, (v) createliens on assets or prohibit the creation of liens on assets, (vi) makeinvestments, loans or advances, (vii) restrict distributions to ourcompany from our subsidiaries, (viii) make certain acquisitions, (ix) engagein mergers or consolidations, (x) enter into sale and leaseback transactions,(xi) engage in certain transactions with subsidiaries that are not guarantorsof the senior secured credit facilities or with affiliates or (xii) amend theterms of the notes and otherwise restrict corporate activities. In addition,under the senior term facility (and under the revolving facility to the extentthat on or after September 30, 2005, our unused borrowing availabilityunder the revolving facility plus excess cash are below $40,000 for 10consecutive business days), we are required to comply with specified financialratios and tests, including a minimum interest and fixed charge coverageratios, maximum senior and total leverage ratios and maximum capitalexpenditures.

 

### ***FloatingRate and 10% Senior Secured Notes***

### *** ***

We issued $350,000 face value of 10% senior secured notes and $225,000of floating rate senior secured notes. The senior secured notes mature on May 1,2012. Interest on the 10% senior secured notes accrues

 

11

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at the rate of 10% per annum and is payable semi-annually in arrears onMay 1 and November 1, commencing on November 1, 2005. Intereston the 10% senior secured notes is computed on the basis of a 360-day yearcomprised of twelve 30-day months. Interest on the floating rate senior securednotes accrues at a rate per annum, reset quarterly, equal to LIBOR plus 6.25%.We will pay interest on the floating rate senior secured notes quarterly, inarrears, on every February 1, May 1, August 1 and November 1,commencing on August 1, 2005.

 

The senior secured notes are secured on a second-priority basis byliens on all of our assets of the Company and the guarantors other than thecollateral securing the revolving senior credit facility and the stock of oursubsidiaries; are subordinated, to the extent of the value of the assetssecuring such indebtedness, to the senior secured credit facility; are seniorin right of payment to our existing and future subordinated indebtedness,including the senior subordinated notes; and are jointly and severallyunconditionally guaranteed by our domestic subsidiaries.

 

At any time prior to May 1, 2008, we may redeem up to 30% of the10% senior secured notes at a redemption price of 110% with the net cashproceeds of one or more equity offerings by the Company or a contribution tothe common equity capital of the Company from the net proceeds of one or moreEquity Offerings by a direct or indirect parent of the Company. At any timeprior to May 1, 2009, we may also redeem all or a part of the 10% seniorsecured notes at a redemption price equal to 100% plus a “make-whole” premium.On or after May 1, 2009, we may redeem all or a part of the 10% seniorsecured notes at an initial redemption price of 106.0%. At any time prior to May 1,2008, we may redeem up to 30% of the floating rate senior secured notes at aredemption price of 100%, plus LIBOR on the date of redemption, plus 6.25% withthe net cash proceeds of one or more Equity Offerings by the Company or acontribution to the common equity capital of the Company from the net proceedsof one or more Equity Offerings by a direct or indirect parent of the Company.On or after May 1, 2009, we may redeem all or a part of the floating ratesenior secured notes at an initial redemption price of 103.0%. If a Change ofControl occurs, each holder of senior secured notes has the right to require usto repurchase all or any part of that holder’s senior secured notes at 101% ofthe face value.

 

The senior secured notes contain various customary covenants (subjectto customary exceptions and certain existing obligations and liabilities),including, but not limited to, restrictions on our ability and the ability ofour subsidiaries to (i) dispose of assets, (ii) incur additionalindebtedness and guarantee obligations or issue preferred stock, (iii) repayother indebtedness, (iv) pay certain restricted payments and dividends, (v) createliens on assets or prohibit the creation of liens on assets, (vi) makeinvestments, loans or advances, (vii) restrict distributions to ourcompany from our subsidiaries, (viii) make certain acquisitions, (ix) engagein mergers or consolidations, (x) enter into sale and leaseback transactions,(xi) engage in certain transactions with subsidiaries that are not guarantorsof the senior secured credit facilities or with affiliates or (xii) amend theterms of the notes and otherwise restrict corporate activities.

 

### ***12%Senior Subordinated Notes***

### *** ***

We issued $200,000 face value of senior subordinated notes that matureon May 1, 2013. The senior subordinated notes are general unsecuredobligations and are subordinated in right of payment to all our existing andfuture senior debt, including the senior secured notes and borrowings under thesenior

 

12

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secured credit facilities. Interest on the senior subordinated notesaccrues at the rate of 12.0% per annum and is payable semi-annually in arrearson May 1 and November 1, commencing on November 1, 2005. Thesenior subordinated notes are jointly and severally guaranteed by each of ourdomestic subsidiaries.

 

At any time prior to May 1, 2008, we may redeem up to 30% of thesenior subordinated notes at a redemption price of 112.0% with the net cashproceeds of one or more equity offerings by the Company or a contribution tothe common equity capital of the Company from the net proceeds of one or moreequity offerings by a direct or indirect parent of the Company. At any timeprior to May 1, 2009, we may also redeem all or a part of the senior subordinatednotes at a redemption price equal to 100% plus a “make-whole” premium. On orafter May 1, 2009, we may redeem all or a part of the senior subordinatednotes at an initial redemption price of 106.0%. If a Change of Control occurs,each holder of the senior subordinated notes has the right to require us torepurchase all or any part of that holder’s senior subordinated notes at 101%of the face value.

 

The senior subordinated notes contain various customary covenants(subject to customary exceptions and certain existing obligations andliabilities), including, but not limited to, restrictions on our ability andthe ability of our subsidiaries to (i) dispose of assets, (ii) incuradditional indebtedness and guarantee obligations or issue preferred stock, (iii) repayother indebtedness, (iv) pay certain restricted payments and dividends, (v) createliens on assets or prohibit the creation of liens on assets, (vi) makeinvestments, loans or advances, (vii) restrict distributions to ourcompany from our subsidiaries, (viii) make certain acquisitions, (ix) engagein mergers or consolidations, (x) enter into sale and leaseback transactions,(xi) engage in certain transactions with subsidiaries that are not guarantorsof the senior secured credit facilities or with affiliates or (xii) amend theterms of the notes and otherwise restrict corporate activities.

 

**G.            EQUITY**

** **

In conjunction with the acquisition, we received an equity investmentof $539,313 in common stock from our parent, NewPage Holding. We have 100shares issued and outstanding of $0.01 par value common stock.

 

### ***EquityAwards***

### *** ***

Certain members of our management and our chairman were granted Class ACommon Percentage Interests and Class B Common Percentage Interests ofMaple Timber Acquisition LLC (our ultimate parent) (the “Management Interests”)relating to our business. The equity interests of Maple Timber Acquisition LLCare classified into two separate series: one relating to our business and onerelating to the business of Escanaba Timber. The series of equity interestsrelating to our business consists of Class A Common Percentage Interests, Class BCommon Percentage Interests and Preferred Percentage Interests. The Class Aand Class B Common Percentage Interests participate in distributions onlyafter holders of the Preferred Percentage Interests have received a return oftheir capital plus a preferred return thereon. Additionally, the Class BCommon Percentage Interests will participate in the equity of our business onlyafter the Class A Common Percentage Interests have received $200,000 indistributions. Of the Management Interests, 50% will vest over time, 10%vesting at the close of the acquisition, 45% vesting at December 31, 2006and the other 45% vesting at December 31, 2007. The other 50% of theManagement Interests will vest only if performance targets are met during 2006and 2007. All

 

13

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Management Interests will vest only to the extent the employee remainsemployed by us on each vesting date or, if our chairman remains chairman of ourcompany on each vesting date. However, all Management Interests willautomatically vest upon a “change of control” or an “initial public offering.”The fair value of the restricted Management Interests granted to our members ofmanagements and our chairman totaled $2,026. Effective as of the acquisition,we adopted SFAS No. 123 (Revised), *Share-basedPayment.* In accordance with SFAS No. 123R, we have not recordedthe unvested shares as paid-in capital. We have recognized expense of $165during the two months ended June 30, 2005, and will recognize theadditional compensation expense over the vesting periods with the offsetrecorded as an increase in additional paid-in capital. Furthermore, certainother members of our management were issued options to purchase Class ACommon Percentage Interests that only vest upon the occurrence of a “change ofcontrol” or an “initial public offering.”

 

**H.            BUSINESS SEGMENTS**

** **

Our principal business segments are Coated Paper System and CarbonlessPaper System.

 

The Coated Paper System is engaged in the manufacturing, marketing anddistribution of coated papers primarily used for commercial printing,magazines, catalogs, textbooks, and labels. The products in this segmentinclude: coated papers, uncoated papers produced in Michigan and Kentucky, andmarket pulp production. This segment’s products are manufactured at four U.S.mills and supported by multiple distribution and converting locations. 

 

The Carbonless Paper System is engaged in the manufacturing, marketingand distribution of carbonless and technical papers used primarily for businessforms. The products in this segment include: value-added carbonless papers,uncoated papers, and specialty papers. This segment’s products are manufacturedat one U.S. mill and one off-site coating facility. 

 

The segments are measured on earnings before interest, taxes andcertain other (income) expenses that are corporate items. Sales between thesegments are transacted based on market prices. We have no operations orlong-lived assets outside of the United States.

 
| ** **                                         | ** ** | **Two Months** | ** ** |
|----------------------------------------------------|------------|----------------|------------|
| ** **                                         | ** ** | **2005**       | ** ** |
| Net sales:                                         |       |           |       |
| Coated Paper System                                |       | $              | 278,819    |   |
| Carbonless Paper System                            |       | 72,862         |       |
| Total                                              |       | $              | 351,681    |   |
|                                               |       |           |       |
| Segment  operating profit (loss):                  |       |           |       |
| Coated Paper System                                |       | $              | 6,935      |   |
| Carbonless Paper System                            |       | (7,440         | )          |
| Total                                              |       | $              | (505       | ) |
|                                               |       |           |       |
| Segment  depreciation, depletion and amortization: |       |           |       |
| Coated Paper System                                |       | $              | 26,790     |   |
| Carbonless Paper System                            |       | 1,044          |       |
| Total                                              |       | $              | 27,834     |   |

 

14

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The following is a reconciliation of the segment operating profit(loss) reported above to the amount of income (loss) before equity in earningsof investee reported in the consolidated financial statements:

 
| ** **                                           | ** ** | **Two Months** | ** ** |
|------------------------------------------------------|------------|----------------|------------|
| ** **                                           | ** ** | **2005**       | ** ** |
| Segment  operating profit (loss)                     |       | $              | (505       | ) |
| Interest  expense                                    |       | (35,835        | )          |
| Other income                                         |       | 111            |       |
| Unrealized  gain (loss) on option contracts          |       | (20,038        | )          |
| Pre-tax  equity in earnings of investee              |       | (550           | )          |
| Income (loss) before equity in earnings of  investee |       | $              | (56,817    | ) |

 
| ** **              | ** ** | **June 30,** | ** ** |
|-------------------------|------------|-------------------|------------|
| ** **              | ** ** | **2005**          | ** ** |
| Segment  assets:        |       |              |       |
| Coated Paper System     |       | $                 | 2,007,813  |   |
| Carbonless Paper System |       | 181,057           |       |
| Corporate               |       | 165,984           |       |
| Total                   |       | $                 | 2,354,854  |   |

 

**I.              CONTINGENCIES**

** **

Claims have been made against us for the costs of environmentalremedial measures taken or to be taken. Reserves for such liabilities have beenestablished and no insurance recoveries have been anticipated in thedetermination of the reserves. We are involved in various other litigation andadministrative proceedings arising in the normal course of business. Althoughthe ultimate outcome of such matters cannot be predicted with certainty, we donot believe that the currently expected outcome of any matter, lawsuit or claimthat is pending or threatened, or all of them combined, will have a materialadverse effect on our financial condition, results of operations or liquidity.

 

**J.             RETIREMENT AND OTHERPOSTRETIREMENT BENEFITS**

** **

At the acquisition we assumed certain retirement obligations for activehourly employees and received related retirement plan assets. We do not expectto make any contributions to the retirement plan during the current year. 

 

At the acquisition we assumed certain postretirement health careobligations for active employees. We fund the postretirement health care benefitson a pay-as-you-go basis so that our contributions are equal to the benefitspaid to participants.

 

We also sponsor defined contribution plans for certain employees, whichprovide for company contributions of a specified percentage of each employee’stotal compensation. Certain of these plans include a profit-sharing componentthat varies depending on the achievement of certain objectives.

 

15

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The funded status of the defined benefit plans at May 1, 2005, wasas follows:

 
| ** **                                      | ** ** | **Retirement** | ** ** | **Postretirement** | ** ** |
|-------------------------------------------------|------------|----------------|------------|--------------------|------------|
| ** **                                      | ** ** | **Plan**       | ** ** | **Plan**           | ** ** |
| Benefit  obligation                             |       | $              | 259,229    |               | $          | 28,798 |   |
| Fair value  of plan assets                      |       | 302,786        |       |               |       |
| Funded  status—long-term asset (liability) |       | $              | 43,557     |               | $          | (28,798 | ) |
|                                            |       |           |       |               |       |
| Weighted-average  assumptions:                  |       |           |       |               |       |
| Discount rate                                   |       | 5.25           | %          | 5.25               | %          |
| Long-term rate of return on plan assets         |       | 8.00           | %          |               |       |

 

The postretirement benefit plan utilized a weighted-average assumedrate of increase in the per capita cost of covered benefits (i.e., health carecost trend rate) of 13.0% for 2005 and decreasing 1.0% per year to an ultimatetrend rate of 5.0% in 2013 and remaining at that level thereafter.

 

A summary of the components of net periodic costs for the two monthsended June 30, 2005, is as follows:

 
| ** **                      | ** ** | **Retirement** | ** ** | **Postretirement** | ** ** |
|---------------------------------|------------|----------------|------------|--------------------|------------|
| ** **                      | ** ** | **Plan**       | ** ** | **Plan**           | ** ** |
| Service cost                    |       | $              | 1,900      |               | $          | 164 |   |
| Interest  cost                  |       | 2,224          |       | 250                |       |
| Expected  return on plan assets |       | (3,965         | )          |               |       |
| Net periodic costs              |       | $              | 159        |               | $          | 414 |   |

 

Future benefitpayments for the plans for May 1 through December 31, 2005, each ofthe next five years and for the five years thereafter are expected to be paidas follows:

 
| ** **           | ** ** | **Retirement** | ** ** | **Postretirement** | ** ** |
|----------------------|------------|----------------|------------|--------------------|------------|
| ** **           | ** ** | **Plan**       | ** ** | **Plan**           | ** ** |
| 2005 (eight  months) |       | $              | 8,000      |               | $          | 230 |   |
| 2006                 |       | 11,793         |       | 818                |       |
| 2007                 |       | 12,901         |       | 1,456              |       |
| 2008                 |       | 15,337         |       | 2,175              |       |
| 2009                 |       | 16,257         |       | 2,892              |       |
| 2010                 |       | 16,691         |       | 3,458              |       |
| 2011 through  2015   |       | 89,274         |       | 19,776             |       |
|                      |            |                |            |                    |            |  |  |

 

## **K.            INCOME TAX EXPENSE**

## ** **

For the twomonths ended June 30, 2005, we recorded an income tax benefit of $22,507offset by a valuation allowance of the same amount. We have not recorded adeferred tax benefit for the amount of our loss before income taxes subsequentto the acquisition since it is more likely than not that we will not realizethis benefit, as defined in SFAS No. 109, as a result of the negativeevidence presented by our predecessor’s history of losses over the past threeyears.

 

16

----

 

## **L.            RELATED PARTY TRANSACTIONS**

## ** **

At theacquisition, we entered into fiber supply agreements with our indirect parent,Escanaba Timber LLC, whereby we are entitled to purchase timber fibers fromthem at prevailing market rates. During the two months ended June 30,2005, we made purchases of $6,020 from them. At the acquisition, we wererequired to deposit $4,624 with them as a result of our lack of credit historyas a stand-alone entity. In addition, we provide certain management services tothem, including human resources, information technology and accounting. Ourbillings to them for these services are not significant.

 

An affiliate of Cerberus Capital Management, L.P., our equity sponsor,was paid a fee by our indirect parent, Escanaba Timber, in connection with theTransactions.

 

## **M.           RECENTLY ISSUED ACCOUNTING STANDARDS**

## ** **

In November 2004,the Financial Accounting Standards Board issued SFAS No. 151, *Inventory Costs*. This Statement amends ARBNo. 43, Chapter 4 to clarify the accounting for abnormal amounts of idlefacility expense, freight, handling costs, and wasted material. In addition,this Statement requires that allocation of fixed production overheads to thecosts of conversion be based on the normal capacity of the productionfacilities. The adoption of this Statement has no effect on us as our currentaccounting complies with the guidance.

 

In March 2005, the Financial Accounting Standards Board issuedFASB Interpretation No. 47, *Accounting for ConditionalAsset Retirement Obligations, an interpretation of FASB Statement No. 143*.This Interpretation clarifies the accounting for conditional asset retirementobligations in which the timing and (or) method of settlement are conditionalon a future event that may or may not be within the control of the entity. Anentity is required to recognize a liability for the fair value of a conditionalasset retirement obligation if the fair value of the liability can bereasonably estimated. Uncertainty about the timing and (or) method ofsettlement of a conditional asset retirement obligation should be factored intothe measurement of the liability when sufficient information exists. ThisInterpretation is effective no later than the end of fiscal years ending after December 15,2005 (December 31, 2005 for us). This Statement is not expected to have amaterial effect on our financial position, results of operations, or compliancewith our debt covenants.

 

* * * * *

 

17

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**PRINTING AND WRITING PAPERS BUSINESS**

**(ABUSINESS OF MEADWESTVACO CORPORATION)**

**PREDECESSORCOMBINED STATEMENTS OF OPERATIONS**

**(Unaudited)**
| *** ***                                                                                 | *** *** | **One Month Ended**      | *** *** | **Four Months Ended**    | *** *** |
|----------------------------------------------------------------------------------------------|--------------|--------------------------|--------------|--------------------------|--------------|
| **In thousands**                                                                             | ** **   | **April 30,  2005** | ** **   | **April 30,  2005** | ** **   |
| ** **                                                                                   | ** **   | **(As  Restated)**       | ** **   | **(As  Restated)**       | ** **   |
| Net sales (including sales to related  parties of $3,683 and $10,238, respectively)          |         | $                        | 172,725      |                     | $            | 716,226 |   |
|                                                                                         |         |                     |         |                     |         |
| Cost of sales                                                                                |         | 164,583                  |         | 673,286                  |         |
| Selling, general and administrative expenses                                                 |         | 10,120                   |         | 39,493                   |         |
| Interest expense, including loss on  defeasance of debt of $17,776 and $17,776, respectively |         | 18,421                   |         | 20,557                   |         |
| Other income, net                                                                            |         | (271                     | )            | (1,253                   | )            |
|                                                                                         |         |                     |         |                     |         |
| Loss before income taxes and equity income  from investee                                    |         | (20,128                  | )            | (15,857                  | )            |
| Income tax benefit                                                                           |         | (8,868                   | )            | (7,459                   | )            |
| Equity income from investee (net of income  tax of $97 and $383, respectively)               |         | 173                      |         | 681                      |         |
|                                                                                         |         |                     |         |                     |         |
| Net loss                                                                                     |         | $                        | (11,087      | )                        | $            | (7,717 | ) |

* *

*Theaccompanying notes are an integral part of these financial statements.*

 

18

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**PRINTINGAND WRITING PAPERS BUSINESS**

**(ABUSINESS OF MEADWESTVACO CORPORATION)**

**PREDECESSORCOMBINED STATEMENTS OF OPERATIONS**

**(Unaudited)**
| ** **                                                                          | ** ** | **Second Quarter Ended** | ** ** | **First Half Ended**   | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------|------------|------------------------|------------|
| **In thousands**                                                                    | ** ** | **June 30, 2004**   | ** ** | **June 30, 2004** | ** ** |
| Net sales (including sales to related  parties of $7,716 and $12,077, respectively) |       | $                        | 538,687    |                   | $          | 1,055,413 |   |
|                                                                                |       |                     |       |                   |       |
| Cost of sales                                                                       |       | 552,158                  |       | 1,085,794              |       |
| Selling, general and administrative  expenses                                       |       | 33,249                   |       | 63,314                 |       |
| Interest expense                                                                    |       | 2,366                    |       | 4,716                  |       |
| Other income, net                                                                   |       | (847                     | )          | (1,797                 | )          |
|                                                                                |       |                     |       |                   |       |
| Loss before income taxes and equity income  from investee                           |       | (48,239                  | )          | (96,614                | )          |
| Income tax benefit                                                                  |       | (18,254                  | )          | (36,558                | )          |
| Equity income from investee (net of income  tax of $269 and $588, respectively)     |       | 479                      |       | 1,044                  |       |
|                                                                                |       |                     |       |                   |       |
| Net loss                                                                            |       | $                        | (29,506    | )                      | $          | (59,012 | ) |
|                                                                                     |            |                          |            |                        |            |  |  |  |

* *

*The accompanying notes are an integral partof these financial statements.*

 

19

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**PRINTING AND WRITING PAPERS BUSINESS**

**(ABUSINESS OF MEADWESTVACO CORPORATION)**

**PREDECESSOR**

**CONDENSEDCOMBINED BALANCE SHEET**

**(Unaudited)**
| **In thousands**                    | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------|------------|----------------------------|------------|
| ASSETS                              |       |                       |       |
| Accounts  receivable, net           |       | $                          | 199,506    |   |
| Inventories                         |       | 321,409                    |       |
| Other  current assets               |       | 19,902                     |       |
| Current assets                      |       | 540,817                    |       |
|                                |       |                       |       |
| Property,  plant and equipment, net |       | 2,033,373                  |       |
|                                |       |                       |       |
| Other  assets, net                  |       | 72,697                     |       |
|                                |       | $                          | 2,646,887  |   |
|                                |       |                       |       |
| LIABILITIES  AND COMBINED EQUITY    |       |                       |       |
| Accounts  payable                   |       | $                          | 123,183    |   |
| Accrued  expenses                   |       | 144,056                    |       |
| Current liabilities                 |       | 267,239                    |       |
|                                |       |                       |       |
| Long-term  debt                     |       | 145,035                    |       |
| Other long-term  obligations        |       | 15,765                     |       |
| Deferred  income taxes              |       | 506,335                    |       |
| Total liabilities                   |       | 934,374                    |       |
|                                |       |                       |       |
| Commitments  and contingencies      |       |                       |       |
|                                |       |                       |       |
| Combined  equity                    |       | 1,712,513                  |       |
|                                |       | $                          | 2,646,887  |   |

 

*The accompanying notes are an integral part ofthese financial statements.*

 

20

----

 

**PRINTINGAND WRITING PAPERS BUSINESS**

**(ABUSINESS OF MEADWESTVACO CORPORATION)**

**PREDECESSOR**

**STATEMENT OF CHANGES IN COMBINED EQUITY**

**(Unaudited)**

** **
| **In thousands**                                               | ** ** | **EQUITY**        | ** ** |
|----------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                     | ** ** | **(As Restated)** | ** ** |
| BALANCE,  DECEMBER 31, 2004                          |       | $                 | 1,712,513  |   |
|                                                           |       |              |       |
| Net loss for the four months ended  April 30, 2005        |       | (7,717            | )          |
| Payment by MeadWestvaco Corporation to  defease long-term debt |       | 161,930           |       |
| Transactions with MeadWestvaco Corporation,  net               |       | 16,617            |       |
|                                                           |       |              |       |
| BALANCE,  APRIL 30, 2005                             |       | $                 | 1,883,343  |   |

* *

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

 

21

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**PRINTINGAND WRITING PAPERS BUSINESS**

**(ABUSINESS OF MEADWESTVACO CORPORATION)**

**PREDECESSOR**

**COMBINED STATEMENT OF CASH FLOWS****(Unaudited)**
| *** ***                                                                                                        | ** ** | **Four Months Ended**   | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| **In thousands**                                                                                                    | ** ** | **April 30, 2005** | ** ** |
| ** **                                                                                                          | ** ** | **(As  Restated)**      | ** ** |
| **Cash  flows from operating activities:**                                                                          |       |                    |       |
| Net loss                                                                                                       |       | $                       | (7,717     | ) |
| Adjustments to reconcile net loss  to net cash provided by operating activities: |       |                    |       |
| Depreciation and amortization                                                                                  |       | 75,906                  |       |
| Deferred income taxes                                                                                     |       | (7,076                  | )          |
| Loss on sales of assets,  net                                                                   |       | 515                     |       |
| Investee–earnings and distributions                                                                            |       | 1,006                   |       |
| Loss on defeasance of debt                                                                                          |       | 17,776                  |       |
| Changes in operating assets and  liabilities:                                                             |       |                    |       |
| Accounts receivable, net                                                                                            |       | (3,002                  | )          |
| Inventories                                                                                                         |       | (59,296                 | )          |
| Other current assets                                                                                                |       | (3,010                  | )          |
| Other long-term assets                                                                                              |       | (2,499                  | )          |
| Accounts payable                                                                                                    |       | 3,916                   |       |
| Accrued expenses                                                                                                    |       | (15,518                 | )          |
| Other liabilities                                                                                                   |       | 601                     |       |
| Net cash provided by  operating activities                                                           |       | 1,602                   |       |
|                                                                                                                |       |                    |       |
| **Cash  flows from investing activities:**                                                                          |       |                    |       |
| Additions to property, plant and equipment                                                                          |       | (17,356                 | )          |
| Net cash used in investing activities                                                                               |       | (17,356                 | )          |
|                                                                                                                |       |                    |       |
| **Cash  flows from financing activities:**                                                                          |       |                    |       |
| Net transactions with MeadWestvaco Corporation                                                                      |       | 15,754                  |       |
| Net cash provided by financing activities                                                                           |       | 15,754                  |       |
|                                                                                                                |       |                    |       |
| **Increase (decrease) in cash and cash  equivalents**                                                               |       | $                       | —     |   |
| ** **                                                                                                          |       |                    |       |
| **Non-Cash Transactions:**                                                                                          |       |                    |       |
| Payment by MeadWestvaco Corporation to  defease long-term debt                                                      |       | $                       | 161,930    |   |
| Contribution of property, plant and  equipment by MeadWestvaco Corporation                                          |       | $                       | 863        |   |

* *

*The accompanying notes are an integral partof these financial statements.*

 

22

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**PRINTINGAND WRITING PAPERS BUSINESS**

**(ABUSINESS OF MEADWESTVACO CORPORATION)**

**PREDECESSOR**

**COMBINED STATEMENT OF CASH FLOWS****(Unaudited)**

 
| **In thousands**                                                                                                    | ** ** | **First Half Ended  June 30, 2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                                          | ** ** | ** **                               | ** ** |
| **Cash  flows from operating activities:**                                                                          |       |                                     |       |
| Net loss                                                                                                       |       | $                                        | (59,012    | ) |
| Adjustments to reconcile net loss  to net cash provided by operating activities: |       |                                     |       |
| Depreciation and amortization                                                                                  |       | 113,472                                  |       |
| Deferred income taxes                                                                                     |       | (25,908                                  | )          |
| Loss on sales of assets,  net                                                                   |       | 1,598                                    |       |
| Investee–earnings and distributions                                                                            |       | 2,838                                    |       |
| Changes in operating assets and  liabilities:                                                             |       |                                     |       |
| Accounts receivable, net                                                                                            |       | (17,374                                  | )          |
| Inventories                                                                                                         |       | 36,953                                   |       |
| Other current assets                                                                                                |       | 122                                      |       |
| Other long-term assets                                                                                              |       | (2,959                                   | )          |
| Accounts payable                                                                                                    |       | 36,822                                   |       |
| Accrued expenses                                                                                                    |       | 1,889                                    |       |
| Other liabilities                                                                                                   |       | 2,022                                    |       |
| Net cash provided by  operating activities                                                           |       | 90,463                                   |       |
|                                                                                                                |       |                                     |       |
| **Cash  flows from investing activities:**                                                                          |       |                                     |       |
| Additions to property, plant and equipment                                                                          |       | (32,087                                  | )          |
| Proceeds from sale of property, plant and  equipment                                                                |       | 100                                      |       |
| Net cash used in investing activities                                                                               |       | (31,987                                  | )          |
|                                                                                                                |       |                                     |       |
| **Cash  flows from financing activities:**                                                                          |       |                                     |       |
| Net transactions with MeadWestvaco  Corporation                                                                     |       | (58,476                                  | )          |
| Net cash used in financing activities                                                                               |       | (58,476                                  | )          |
|                                                                                                                |       |                                     |       |
| **Increase (decrease) in cash and cash  equivalents**                                                               |       | $                                        | —     |   |

 

*The accompanying notes are an integral partof these financial statements.*

 

23

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**PRINTINGAND WRITING PAPERS BUSINESS**

**(ABUSINESS OF MEADWESTVACO CORPORATION)**

** **

**NOTES TO UNAUDITED COMBINEDFINANCIAL STATEMENTS (IN THOUSANDS)**

** **

**1.  Descriptionof Business and Basis of Presentation**

** **

These combined financial statements present the historical results ofthe Printing and Writing Papers Business, which is sometimes referred to as theCoated and Carbonless Papers Group (the “Business” or the “Predecessor”), whichwas purchased from MeadWestvaco Corporation (“MeadWestvaco”) by NewPage Corporation(the “Acquisition”) pursuant to the Acquisition, which was funded on May 2,2005, but deemed to have been completed on April 30, 2005.  The Business consists of the historicalPapers business segment of MeadWestvaco adjusted to exclude MeadWestvaco’sinvestment in Northwood Panelboard and the operations of Specialty Papers,which is a distinct and different business under separate management that willnot be purchased.  The Business isengaged in the manufacturing, marketing and distribution of coated, uncoatedand carbonless papers, which are manufactured at five domestic mills.

 

These combined financial statements are intended to present thehistorical results of the Business operations during each respectiveperiod.  As such, these combinedfinancial statements include allocations of certain expenses, as well as assetsand liabilities historically maintained by MeadWestvaco and not recorded in theaccounts of the Business.  The Businessand MeadWestvaco management believe such allocations have been made on areasonable basis.  However, thesecombined financial statements may not necessarily be indicative of the resultsthat would have been obtained if the Business had operated as a separate entityduring the periods presented.

 

The combined equity of the Business comprises the excess of theBusiness’ assets over its liabilities. Combined equity is affected by the Business’ operating results, expenseallocations from MeadWestvaco and cash transfers between the Business and MeadWestvaco,including settlement of intercompany transactions and amounts paid or receivedrelating to interest and income taxes, as MeadWestvaco manages all treasuryactivities of the Business.

 

These interim combined financial statements have not been audited.  However, in the opinion of management, allnormal recurring adjustments necessary to present fairly the financial positionand the results of operations for the interim periods presented have been made.  These interim financial statements have beenprepared on the basis of accounting principles and practices generally acceptedin the United States of America (“GAAP”) applied consistently with those usedin the preparation of the Business’s annual financial statements for the yearended December 31, 2004.

 

Certain information and footnote disclosures normally included inannual financial statements presented in accordance with GAAP have beencondensed or omitted.  The results ofoperations for interim periods are not necessarily indicative of the results tobe expected for the full year.  Theaccompanying financial statements should be read in conjunction with theBusiness’s annual financial statements and notes thereto for the year ended December 31,2004, included in the registration statement on Form S-4, as filed on June 20,2005, as amended.

 

**Stock Options**

** **

The Business measures compensation cost for MeadWestvaco stock optionsissued to employees using the intrinsic value-based method of accounting inaccordance with Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees*(“APB 25”).  The Business adopted the disclosurerequirements of SFAS No. 148, *Accounting for Stock-BasedCompensation–Transition and Disclosure.*  If compensation cost for MeadWestvaco stockoptions had been determined based on the fair value method of SFAS No. 123,*Accounting for Stock-Based Compensation,*the Business’s pro forma net loss would have been as follows:

 

24

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| ** **                                                                                                                                                   | ** ** | **One Month Ended  April 30, 2005** | ** ** | **Four Months Ended  April 30, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                   | ** ** | **(As Restated)**                        | ** ** | **(As Restated)**                          | ** ** |
| Net loss–as reported                                                                                                                                    |       | $                                        | (11,087    | )                                          | $          | (7,717 | ) |
| Add:   Stock-based employee compensation expense included in reported net  income (loss), net of related tax effect                                     |       | —                                   |       | —                                     |       |
| Deduct:  Total stock-based  employee compensation expense determined under fair value-based method for  all awards, net of related tax effect |       | 65                                       |       | 261                                        |       |
| Pro forma net loss                                                                                                                            |       | $                                        | (11,152    | )                                          | $          | (7,978 | ) |

 
| ** **                                                                                                                                                   | ** ** | **Second Quarter Ended  June 30, 2004** | ** ** | **First Half Ended  June 30, 2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------|------------|
| Net loss–as reported                                                                                                                                    |       | $                                            | (29,506    | )                                        | $          | (59,012 | ) |
| Add:   Stock-based employee compensation expense included in reported net  loss, net of related tax effect                                              |       | —                                       |       | —                                   |       |
| Deduct:  Total stock-based  employee compensation expense determined under fair value-based method for  all awards, net of related tax effect |       | 196                                          |       | 378                                      |       |
| Pro forma net loss                                                                                                                            |       | $                                            | (29,702    | )                                        | $          | (59,390 | ) |

** **

**2. Restatement of Previously IssuedFinancial Statements**

** **

The condensed combinedstatements of operations for the one month and four months ended April 30,2005, have been restated to reflect the loss on the defeasance of debt byMeadWestvaco in connection with the Acquisition. The restatement reflects anincrease in interest expense of $17,776 ($11,283, net of tax) to record thepremium paid as an expense of the Business. The restatement was required as theaccounting for the defeasance of debt for these separate company financialstatements should have included the costs of the defeasance in the period endedApril 30, 2005, since the debt was related to the Business. The condensedcombined financial statements have been further adjusted for the following: anincome tax adjustment of $1,215 to increase income tax benefit for thereconciliation of the income taxes reflected on the 2004 tax return of the Predecessorto the income taxes reflected in the condensed combined financial statements;and the immaterial effect of the adjustment of $305 for other corporateallocations and accounting adjustments, including a restructuring charge reversalof $936. Conforming changes have also been made to the combined statement ofcash flows for the four months ended April 30, 2005. Changes have alsobeen made to the accompanying notes to the condensed combined financialstatements. The following table summarizes restated amounts within the 2005combined statements of operations and cash flows:

 

25

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| ** **                                                       | ** ** | **One Month Ended  April 30, 2005** | ** ** | **Four Months Ended  April 30, 2005** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                       | ** ** | **As Reported**                          | ** ** | **As Restated**                            | ** ** | **As Reported** | ** ** | **As Restated** | ** ** |
| Statement of Operations:                                         |       |                                     |       |                                       |       |   |   |   |   |
| Net sales                                                   |       | $                                        | 172,388    |                                       | $          | 172,725 |   | $ | 715,889 |   | $ | 716,226 |   |
| Cost of sales                                          |       | 164,267                                  |       | 164,583                                    |       | 672,034 |   | 673,286 |   |
| Selling,  general and administrative expenses     |       | 10,072                                   |       | 10,120                                     |       | 39,445 |   | 39,493 |   |
| Interest expense                                                 |       | 645                                      |       | 18,421                                     |       | 2,781 |   | 20,557 |   |
| Other income, net                                      |       | (140                                     | )          | (271                                       | )          | (1,122 | ) | (1,253 | ) |
| Income (loss) before income taxes and  equity income in investee |       | (2,456                                   | )          | (20,128                                    | )          | 2,751 |   | (15,857 | ) |
| Income tax expense (benefit)                                     |       | (961                                     | )          | (8,868                                     | )          | 776 |   | (7,459 | ) |
| Equity income in investee                                        |       | 173                                      |       | 173                                        |       | 681 |   | 681 |   |
| Net income (loss)                                                |       | $                                        | (1,322     | )                                          | $          | (11,087 | ) | $ | 2,656 |   | $ | (7,717 | ) |
|                                                             |       |                                     |       |                                       |       |   |   |   |   |
| Combined Statements of Cash Flows:                               |       |                                     |       |                                       |       |   |   |   |   |
| Net cash provided by operating activities                        |       |                                     |       |                                       |       | 1,471 |   | 1,602 |   |
| Net cash used in investing activities                            |       |                                     |       |                                       |       | (18,768 | ) | (17,356 | ) |
| Net cash provided by financing activities                        |       |                                     |       |                                       |       | 17,297 |   | 15,754 |   |
|                                                                  |            |                                          |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |

 

**3.  Restructuring**

** **

**One month ended April 30, 2005**

** **

For the one month ended April 30, 2005, there were norestructuring charges.

 

**Four months ended April 30, 2005**

** **

During the four months ended April 30, 2005, the Business recordedtotal pretax adjustments of expense of $169 for employee separation costs, allof which was recorded within cost of sales.

 

**Quarter ended June 30, 2004**

** **

For the quarter ended June 30, 2004, the Business recorded totalpretax adjustments of expense of $120 for employee separation costs, of which$97 and $23 were recorded within cost of sales and selling, general andadministrative expenses, respectively.

 

**First half ended June 30, 2004**

** **

During the first half of 2004, the Business recorded total pretaxadjustments of expense of $425 for employee separation costs, of which $400 and$25 were recorded within cost of sales and selling, general and administrativeexpenses, respectively.

 

**Prior periods**

** **

As part of the Business’s planned integration strategy and variousrestructuring activities, including the integration of Westvaco’s operationsinto MeadWestvaco, the Business had restructuring charges in 2002 and 2003 forthe separation benefits of an aggregate of approximately 340 employees.  As of December 31, 2004, all of theaffected employees had been separated.

 

26

----

 

**Summary of other restructuring charges, otherthan Westvaco and Mead merger related**

 

The activity related to the plans above was as follows for the fourmonths ended April 30, 2005:

 
| ** **                                                                          | ** ** | **Employee  costs** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------|------------|
| Balance of related accruals at December 31, 2004 |       | $                   | 852        |   |
| Add:  adjustments in 2005                                                           |       | 169                 |       |
| Less:  payments                                                                     |       | 533                 |       |
| Balance of related accruals at April 30, 2005    |       | $                   | 488        |   |

 

The activity related to the plans above was as follows for the firsthalf of 2004:

 
| ** **                                                                          | ** ** | **Employee  costs** | ** ** | **Other  costs** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------|------------|------------------|------------|-----------|------------|
| Balance of related accruals at December 31, 2003 |       | $                   | 3,904      |             | $          | (8        | )          | $ | 3,896 |   |
| Add:  adjustments in 2004                                                           |       | 425                 |       | —           |       | 425       |       |
| Less:  payments                                                                     |       | 2,275               |       | (8               | )          | 2,267     |       |
| Balance of related accruals at June 30, 2004     |       | $                   | 2,054      |             | $          | —    |       | $ | 2,054 |   |

 

**Westvaco and Mead merger-related restructuring**

 

In 2002 MeadWestvaco established accruals relating primarily toemployee separation costs, facility closure costs and other actions relating tothe integration of certain Mead operations into MeadWestvaco.  Costs associated with these integrationactions were recognized as a component of purchase accounting, resulting in theestablishment of liabilities and adjustments to goodwill.  Accordingly, these costs did not affect 2002earnings and were not allocated to segments. The integration actions included the closure of three older, high-costcoated paper machines and related facilities at the Chillicothe, Ohio, papermill and the integration of the Mead and Westvaco paper groups.

 

**Summary of Westvaco and Mead merger-relatedrestructuring**

 

The activity in the accrued liability related to the plan describedabove was as follows for the four months ended April 30, 2005:

 
| ** **                                                                          | ** ** | **Other Costs   (As Reported)** | ** ** | **Other Costs  (As Restated)** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------|------------|--------------------------------|------------|
| Balance of related accruals at December 31, 2004 |       |                            | $          |  1,326                    |       | $ |   1,326 |   |
| Add: charge  for adjustment to accrual                                              |       |                            | —     |                           | 121        |   |
| Less:  payments                                                                     |       |                            | 1,326      |                           | 48         |   |
| Balance of related accruals at April 30, 2005    |       |                            | $          | —                         |       | $ |   1,399 |   |
|                                                                                     |            |                                 |            |                                |            |  |  |  |  |

 

The activity in the accrued liability related to the plan describedabove was as follows for the first half of 2004:

 
| ** **                                                                          | ** ** | **Other  costs** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------|------------|
| Balance of related accruals at December 31, 2003 |       | $                | 1,591      |   |
| Less:  payments                                                                     |       | 95               |       |
| Balance of related accruals at June 30, 2004     |       | $                | 1,496      |   |

 

27

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**4.  Inventoriesand Property, Plant and Equipment**
| ** **                                 | ** ** | **December 31, 2004** | ** ** |
|--------------------------------------------|------------|----------------------------|------------|
|                                       |       |                       |       |
| Raw  materials                             |       | $                          | 52,840     |   |
| Production  materials, stores and supplies |       | 68,676                     |       |
| Finished and  in-process goods             |       | 199,893                    |       |
| Total  inventories                         |       | $                          | 321,409    |   |

 

Property, plant and equipment is net of accumulated depreciation of$1,702,617 at December 31, 2004.

 

**5.  Goodwilland Other Intangible Assets**

 

Unless otherwise deemed necessary by events or changes incircumstances, the Business performs its annual impairment review of goodwillduring the fourth quarter of each year under the guidance of SFAS No. 142,*Goodwill and Other Intangible Assets.*

 

Intangibleassets subject to amortization, included in other assets, include customercontracts and lists.  The gross carryingamount for these identifiable intangible assets was $49,550 at December 31,2004.  Accumulated amortizationassociated with these identifiable intangible assets was $19,399 at December 31,2004.

 

The Business recorded amortization expense of $446, $1,785, $1,850 and$3,389 for the one month and four months ended April 30, 2005 and thequarter and half year ended June 30, 2004, respectively, relating to thoseidentifiable assets, subject to amortization.

 

Based on the current value of intangible assets subject toamortization, the estimated amortization expense for 2005 and each of thesucceeding five years is as follows: 2005 - $5,331; 2006 - $4,858; 2007 - $3,857; 2008 - $3,998; 2009 -$2,823; 2010 - $2,625.  As acquisitions anddispositions occur in the future, these amounts may vary.

 

**6.  Long-term Debt**

 

In conjunction with the Acquisition, MeadWestvaco repaid or defeasedall outstanding debt of the Business. Included in interest expense for the onemonth and four months ended April 30, 2005, is a loss of $17,776 on thedefeasance of the debt and write-off of unamortized financing costs.

 

**7.  EmployeeRetirement and Postretirement Benefits**

 

The employees of the Business are participants in various definedbenefit pension and postretirement plans sponsored by MeadWestvaco, and theassets and liabilities are combined with those related to other MeadWestvacobusinesses.  Similarly, MeadWestvacomanages its domestic postretirement benefit plans on a combined basis, andclaims data and liability information related to the Business is aggregated andcombined, by plan, with those related to other MeadWestvaco businesses.  As a result, no assets or liabilities arereflected on the Business’s combined balance sheet, and pension andpostretirement expense for the Business has been determined on a multi-employerplan basis.

 

Pension costs recorded by the Business with respect to defined benefitpension plans for the one month and four months ended April 30, 2005 andthe quarter and half year ended June 30, 2004 were approximately $1,782,$7,129, $4,986 and $9,973, respectively.

 

The employees of the Business are also eligible to participate indefined contribution benefit plans sponsored by MeadWestvaco.  Under the terms of the defined contributionbenefit plans, participant contributions may be directed into a number ofinvestment options.  MeadWestvacomatching contributions are made to a fund that invests in MeadWestvaco shares.During the one month and four months ended April 30, 2005 and the quarterand half year ended June 30, 2004, the 

 

28

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Business incurred expenses of approximately $844, $3,695, $2,708 and$5,430, respectively, for matching contributions to the defined contributionbenefit plans.

 

Upon retirement, MeadWestvaco provides life insurance and other postretirement benefits for certain MeadWestvaco retirees, including certainBusiness employees.  MeadWestvaco alsofunds certain medical benefits on a current basis with retirees paying aportion of the costs.  Costs of providingthese benefits to both active and retired employees of the Business wereapproximately $4,500, $18,200, $14,200 and $26,800 for the one month and fourmonths ended April 30, 2005 and the quarter and half year ended June 30,2004, respectively.

 

**8.  IncomeTax Provision**

 

The Business’s effective income tax rate for the one month and fourmonths ended April 30, 2005, is significantly different from the statutoryrates in effect as a result of a change in estimate of income taxes related tothe reconciliation of the income taxes reflected on the 2004 tax return of thePredecessor with the income tax provision reflected in the condensed combinedfinancial statements at December 31, 2004.

 

**9.  SegmentInformation**

 

The Business’s principal business segments are Coated Paper System andCarbonless Paper System.

 

The Coated Paper System is engaged in the manufacturing, marketing anddistribution of coated papers primarily used for commercial printing,magazines, catalogs, textbooks, and labels. The products in this segment include: coated papers, uncoated papers produced in Michigan and Kentucky, andmarket pulp production.  This segment’sproducts are manufactured at four domestic mills and supported by multipledistribution and converting locations.

 

The Carbonless Paper System is engaged in the manufacturing, marketingand distribution of carbonless and technical papers used primarily for businessforms.  The products in this segmentinclude:  value-added carbonless papers,uncoated papers, and specialty papers. This segment’s products are manufactured at one domestic mill and oneoff-site coating facility.

 

The segments are measured on earnings before taxes and extraordinaryitems.  The segments follow the sameaccounting principles described in the *Summary of SignificantAccounting Policies*, as included in the Business’s annual financialstatements for the year ended December 31, 2004.  Sales between the segments are transactedbased on market prices. There are no operations, including long-lived assets,outside of the United States.

 
| ** **                              | ** ** | **Trade**         | ** ** | **Segment**       | ** ** |
|-----------------------------------------|------------|-------------------|------------|-------------------|------------|
| **One Month Ended April 30, 2005** | ** ** | **Sales**         | ** ** | **Profit (Loss)** | ** ** |
| ** **                              | ** ** | **(As Restated)** | ** ** | **(As Restated)** | ** ** |
| Coated Paper                            |       | $                 | 136,547    |              | $          | (16,000 | ) |
| Carbonless  Paper                       |       | 36,178            |       | (3,858            | )          |
| Total                                   |       | $                 | 172,725    |              | $          | (19,858 | ) |

 
| ** **                                | ** ** | **Trade**         | ** ** | **Segment**       | ** ** |
|-------------------------------------------|------------|-------------------|------------|-------------------|------------|
| **Four Months Ended April 30, 2005** | ** ** | **Sales**         | ** ** | **Profit (Loss)** | ** ** |
| ** **                                | ** ** | **(As Restated)** | ** ** | **(As Restated)** | ** ** |
| Coated Paper                              |       | $                 | 581,203    |              | $          | (5,244 | ) |
| Carbonless  Paper                         |       | 135,023           |       | (9,549            | )          |
| Total                                     |       | $                 | 716,226    |              | $          | (14,793 | ) |

 

29

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| ** **                                  | ** ** | **Trade** | ** ** | **Segment**       | ** ** |
|---------------------------------------------|------------|-----------|------------|-------------------|------------|
| **Second Quarter Ended June 30, 2004** | ** ** | **Sales** | ** ** | **Profit (Loss)** | ** ** |
| Coated Paper                                |       | $         | 439,431    |              | $          | (28,613 | ) |
| Carbonless  Paper                           |       | 99,256    |       | (18,878           | )          |
| Total                                       |       | $         | 538,687    |              | $          | (47,491 | ) |

 
| ** **                              | ** ** | **Trade** | ** ** | **Segment**       | ** ** |
|-----------------------------------------|------------|-----------|------------|-------------------|------------|
| **First Half Ended June 30, 2004** | ** ** | **Sales** | ** ** | **Profit (Loss)** | ** ** |
| Coated Paper                            |       | $         | 857,092    |              | $          | (68,932 | ) |
| Carbonless  Paper                       |       | 198,321   |       | (26,050           | )          |
| Total                                   |       | $         | 1,055,413  |              | $          | (94,982 | ) |

 

A loss of $17,776 related tothe defeasance of debt prior to the Acquisition is included in the Coated Papersegment loss for the one month and four months ended April 30, 2005.

 

**10.  Environmentaland Legal Matters**

 

The Business has beennotified by the U.S. Environmental Protection Agency (the “EPA”) or by variousstate or local governments that it may be liable under federal environmentallaws or under applicable state or local laws with respect to the cleanup ofhazardous substances at sites previously operated or used by the Business. TheBusiness is currently named as a potentially responsible party (“PRP”) or hasreceived third-party requests for contribution under the ComprehensiveEnvironmental Response, Compensation and Liability Act (CERCLA) and similarstate or local laws with respect to a number of sites. There are other siteswhich may contain contamination or which may be potential Superfund sites, butfor which the Business has not received any notice or claim. The potentialliability for all these sites will depend upon several factors, including theextent of contamination, the method of remediation, insurance coverage andcontribution by other PRPs. The Business regularly evaluates its potentialliability at these various sites. At April 30, 2005, the Business hasrecorded liabilities of approximately $2.2 million (restated) for estimatedpotential cleanup costs based upon its close monitoring of ongoing activitiesand its past experience with these matters. The Business believes that it isreasonably possible that costs associated with these sites may exceed amountsof recorded liabilities by an amount that could range from an insignificantamount to as much as $2 million. This estimate is less certain than theestimate upon which the environmental liabilities were based. After consultingwith legal counsel and after considering established liabilities, it is ourjudgment that the resolution of pending litigation and proceedings is notexpected to have a material adverse effect on the Business’s consolidatedfinancial condition or liquidity. In any given period or periods, however, itis possible such proceedings or matters could have a material effect on theresults of operations.

 

The Business is involved invarious other litigation and administrative proceedings arising in the normalcourse of business. Although the ultimate outcome of such matters cannot bepredicted with certainty, management does not believe that the currentlyexpected outcome of any matter, lawsuit or claim that is pending or threatened,or all of them combined, will have a material adverse effect on the Business’sfinancial condition or liquidity. In any given period or periods, however, itis possible such proceedings or matters could have a material effect on theresults of operations.

 

**11.  RelatedParty Transactions**

 

Transactions between the Business and other business segments ofMeadWestvaco commonly occur in the normal course of business.  In addition, the Business also had purchasesfrom MeadWestvaco’s Forestry Operations of $166, $2,491, $880 and $2,476 forthe one month and four months ended April 30, 2005 and the quarter andhalf year ended June 30, 2004, respectively.  Sales to other MeadWestvaco business segmentswere $3,683, $10,238, $7,716 and $12,077 for the one month and four monthsended April 30, 2005 and the quarter and half year ended June 30,2004, respectively.  Purchases from otherMeadWestvaco business segments were $407, $1,459, $798 and $1,371 for the onemonth and four months ended April 30, 2005 and the quarter and half yearended June 30, 2004, respectively.

 

30

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The Business’s combined financial statements include expenseallocations for certain corporate functions provided by MeadWestvaco, such ashuman resources, legal, finance, information systems, purchasing, executivemanagement and other corporate staff. Allocations were based on relative headcount for people-related costs,the Business’s assets as a percentage of total MeadWestvaco assets, theBusiness’s sales as a percentage of total MeadWestvaco sales, or by specificidentification of costs directly associated with the Business’soperations.  The Business andMeadWestvaco management believe such allocations have been made on a reasonablebasis.  These costs are included in costof sales or selling, general and administrative expenses, consistent with theMeadWestvaco classification, in the accompanying combined statements ofoperations.  Costs allocated by orcharged by MeadWestvaco to the Business for services performed by MeadWestvacoon behalf of the Business totaled $2,602, $11,000, $10,720 and $21,042 for theone month and four months ended April 30, 2005 and the quarter and halfyear ended June 30, 2004, respectively.

 

In addition to the above, the Business shares facilities and relatedcosts (utilities and services) with other business segments ofMeadWestvaco.  Costs charged by theBusiness to MeadWestvaco for shared facilities totaled $243, $922, $679 and$1,358 for the one month and four months ended April 30, 2005 and thequarter and half year ended June 30, 2004, respectively.  These charges were based on estimates ofactual usage for utilities and head count for other services and are recordedas a reduction of the related cost.

 

* * * * *

 

31

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## **ITEM2.                  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

## ** **

## **Restatement**

## ** **

As further discussed in Note 2 to the Condensed Combined FinancialStatements of the predecessor, the condensed combined financial statements forthe one month and four months ended April 30, 2005, were restated to correctthe accounting for the allocation of costs of defeasing certain debt related tothe predecessor, income taxes and the immaterial effect of correcting certain othercorporate allocations and accounting adjustments. The management discussion andanalysis of financial condition and results of operations contained herein havebeen revised as applicable.

 

The following discussion and analysis of our financial condition andresults of operations covers certain periods prior to the acquisition.Accordingly, the discussion and analysis of historical operations of ourpredecessor during the periods prior to the acquisition do not reflect thesignificant effect that the accounting for the acquisition will have on thereporting of our financial condition and results of operations. The following discussionof our financial condition and results of operations should be read inconjunction with our financial statements and notes thereto included elsewherein this Quarterly Report. You should also read the following discussions inconjunction with risk factors and forward-looking statements (including thosefactors specifically relevant to the operations and financial condition of NewPage Corporationfor periods subsequent to the acquisition) contained in the RegistrationStatement on Form S-4.

 

This Quarterly Report contains “forward-looking statements.” Allstatements other than statements of historical fact are “forward-lookingstatements” for purposes of federal and state securities laws. Forward-lookingstatements may include the words “may,” “will,” “plans,” “estimates,” “anticipates,”“believes,” “expects,” “intends” and similar expressions. Although we believethat such statements are based on reasonable assumptions, these forward-lookingstatements are subject to numerous factors, risks and uncertainties that couldcause actual outcomes and results to be materially different from thoseprojected or assumed in our forward-looking statements. These factors, risksand uncertainties include, among others, the following: our substantial levelof indebtedness; changes in the supply and/or demand and/or prices for ourproducts; the activities of competitors; changes in significant operatingexpenses, including raw material and energy costs; changes in currency exchangerates; changes in the availability of capital; general economic and businessconditions in the United States and elsewhere in the world; changes in theregulatory environment, including requirements for enhanced environmentalcompliance; and our ability to operate as a stand-alone business.

 

Given these risks and uncertainties, we caution you not to place unduereliance on forward-looking statements. We undertake no obligation to update orrevise any forward-looking statements, either to reflect new developments, orfor any other reason, except as required by law.

 

32

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## **Company Background**

## ** **

On May 2, 2005, we acquired the Printing and Writing PapersBusiness of MeadWestvaco Corporation. We are the largest coated papermanufacturer in North America based on production capacity according toindustry publications. Coated paper is used primarily in media and marketingapplications, including corporate annual reports, high-end advertisingbrochures, magazines and catalogs and direct mail advertising. Our largestproduct category is coated freesheet paper, which is used primarily forhigher-end applications such as annual reports, brochures, coated labels andmagazine covers. The remainder of our coated paper is coated groundwood paper,which is used primarily for catalogs, magazines and textbooks. We also producecarbonless copy paper for business forms, as well as uncoated paper, digitalprinting paper and market pulp, a component used in the manufacturing of paper.

 

## **Net Sales**

## ** **

Our net sales are a function of the number of tons of paper that wesell and the price at which we sell our paper. The coated paper industry iscyclical, which results in changes in both volume and price. Paper priceshistorically have been a function of macro-economic factors, such as supply anddemand, that are largely out of our control. Price has historically beensubstantially more variable than volume and can change significantly overrelatively short time periods. Coated paper purchases typically are made bycustomers pursuant to purchase orders on an as-needed basis, and generally arenot made under contracts that provide for fixed prices or minimum volumecommitments. Uncoated paper and pulp prices historically have not materiallyaffected our operating results because uncoated paper and pulp have notcomprised a material portion of our net sales.

 

Carbonlesspaper prices have historically been less variable than our coated paper prices,and in some cases prices are fixed by contract. Because of competition fromcompeting products and technologies, carbonless paper markets have beendeclining and we expect carbonless paper to contribute a smaller percentage ofour net sales in the future. We have supply agreements with several of ourcarbonless paper customers.

 

Our earningsare sensitive to price changes for our principal products, with price changesin coated paper having the greatest effect. Fluctuations in paper prices (andcoated paper prices in particular) historically have had a direct effect on ourresults for several reasons:

 

•                                          Marketprices for paper products are a function of supply and demand, factors overwhich we have limited control.

 

•                                          Marketprices for paper products typically are not directly affected by raw materialcosts or other costs of sales, and consequently we have limited ability to passthrough increases in our costs to our customers absent increases in the marketprice.

 

•                                          Themanufacturing of paper is highly capital-intensive and a large portion of ourand our competitors’ operating costs are fixed. Additionally, paper machinesare large, complex machines that operate more efficiently when operatedcontinuously. Consequently, both we and our

 

33

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competitors typically continue to run ourmachines whenever marginal sales exceed the marginal costs.

 

During thefirst quarter of 2005, price increases were announced by coated papermanufacturers, including us, for coated paper. During the second quarter of2005, this price increase was realized somewhat slower than originallyexpected. This is largely caused by lower industry demand, which we believe iscaused in part by lower advertising and promotional spending and some customerinventory reductions.

 

## **Cost of Sales**

## ** **

The principalcomponents of our cost of sales are chemicals, timber, energy, labor,maintenance and depreciation, amortization and depletion. Costs forcommodities, including chemicals, timber and energy, are the most variablecomponent of our cost of sales because the prices of many of the commoditiesthat we use can fluctuate substantially, sometimes within a relatively shortperiod of time. In addition, our aggregate commodity purchases fluctuate basedon the volume of paper that we produce. The weighted-average cost of sales perton of paper and pulp sold for the second quarter of 2005 has only increasedslightly compared to the first quarter of 2005, primarily because of thebenefits realized from our productivity initiatives mostly offsetting increasesin commodity costs. We do not track timber, energy or chemicals on a cost ofsales basis, but instead track these costs on a cost of production basis. Costof production is calculated using the cost for the number of tons of paper weproduce instead of the cost for the number of tons of paper we sell.

 

### ***Energy***

### *** ***

We produce alarge portion of our energy requirements, historically purchasing approximately40% of our energy needs from third-party suppliers. The energy we purchase fromthird-party suppliers consists of electricity and fuel used by us, primarilyconsisting of natural gas and coal, to create some of our own energy. We expectenergy costs to remain volatile throughout 2005.

 

### ***Laborcosts***

### *** ***

Labor costsinclude wages, salary and benefit expenses attributable to our mill personnel.Mill employees at a non-managerial level are compensated on an hourly basis inaccordance with our union contracts. Management employees at our mills arecompensated on a salaried basis. Wages, salary and benefit expenses included incost of sales do not vary significantly over the short term. The size of ourhourly labor force is not expected to increase. In addition, we have notexperienced significant labor shortages.

 

### ***Maintenance***

### *** ***

Maintenanceexpense includes day-to-day maintenance, equipment repairs and larger maintenanceprojects, such as paper machine shutdowns for annual maintenance. Day-to-daymaintenance expenses have not varied significantly from year to year. Largermaintenance projects and equipment expenses can 

 

34

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produce yearto year fluctuations in our maintenance expenses. Maintenance spending istypically highest in the second quarter of each year as a result of scheduledannual maintenance shutdowns occurring during that quarter. In conjunction withour annual maintenance shutdowns, we have incidental incremental costs that areprimarily comprised of unabsorbed fixed costs from lower production volumes andother incremental costs for purchased materials and energy that would otherwisebe produced as part of normal operations of our mills.

 

### ***Depreciation,amortization and depletion***

### *** ***

Depreciation,amortization and depletion expense for our assets associated with our milloperations is included in cost of sales. Depreciation and amortization expensefor our assets associated with our non-mill related assets is included inselling, general and administrative expense. The depletion expense portion ofour cost of sales relates to the depletion of capitalized timber assets that wepurchase. We expect that depreciation, amortization and depletion expense willbe lower after the acquisition as a result of the lower asset bases assigned toproperty, plant and equipment.

 

## **Selling, Generaland Administrative (“SG&A”) Expenses**

## ** **

The principalcomponents of our SG&A expenses are wages, salaries and benefits for ouroffice personnel at our headquarters and our sales force, travel andentertainment expenses, advertising expenses, expenses relating to ourinformation technology systems and research and development expenses. Our SG&Aexpenses have not historically fluctuated significantly from year to year. Weexpect that our SG&A expenses (excluding transitional costs related to theacquisition) will decrease as compared to prior to the acquisition as a resultof the elimination of corporate allocations that were charged to ourpredecessor by MeadWestvaco that are not related to our business as a stand-alonecompany, partially offset by an increase in SG&A expenses that we expect toincur directly as a stand-alone company, such as costs for informationtechnology, legal and finance support and human resources.

 

## **Interest**

## ** **

MeadWestvacoonly allocated interest expense to our predecessor for borrowings specificallyrelated to certain mill operations. These borrowings were repaid prior to theacquisition or were retained by MeadWestvaco. We expect that our interestexpense will be substantially higher as a result of the financing arrangementsrelated to the acquisition.

 

## **Taxes**

## ** **

For periodsprior to the acquisition, our predecessor was included in the consolidatedincome tax returns of MeadWestvaco. Income taxes have been presented based on acalculation of the income tax benefit we would have generated if we hadoperated as a separate taxpayer. However, pursuant to the acquisition purchaseagreement, any prior tax benefits will be retained by MeadWestvaco. For federalincome tax purposes, the acquisition is being treated as an asset purchase andwe generally will have a tax basis in the acquired assets equal to the purchaseprice. We have not recorded a deferred tax benefit for the 

 

35

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amount of ourloss before income taxes subsequent to the acquisition since it is more likelythan not that we will not realize this benefit, as defined in SFAS No. 109,as a result of the negative evidence presented by our predecessor’s history oflosses over the past three years.

 

## **Results ofOperations**

## ** **

The followingdiscussions of the combined results of operations are based on the combinationof the Printing and Writing Papers Business of MeadWestvaco Corporation and ourpost-acquisition results. Accordingly, the results of operations for historicalas well as future periods may not be comparable to the prior periods. For the2005 results shown, our actual results for the two months ended June 30,2005, are included in the total.

 

### ***SecondQuarter 2005 Compared to Second Quarter 2004***

 
| ** **                                                                          | ** ** | ** **        | ** ** | ** **         | ** ** | **Combined**      | ** ** | ** **        | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                                          | ** ** | **Successor -**   | ** ** | ** **         | ** ** | **Successor and** | ** ** | ** **        | ** ** |
| ** **                                                                          | ** ** | **NewPage**       | ** ** | ** **         | ** ** | **Predecessor**   | ** ** | **Predecessor**   | ** ** |
| ** **                                                                          | ** ** | **Corporation**   | ** ** | **Predecessor**    | ** ** | **Second**        | ** ** | **Second**        | ** ** |
| ** **                                                                          | ** ** | **Two Months**    | ** ** | **One Month**      | ** ** | **Quarter**       | ** ** | **Quarter**       | ** ** |
| ** **                                                                          | ** ** | **Ended**         | ** ** | **Ended**          | ** ** | **Ended**         | ** ** | **Ended**         | ** ** |
| ** **                                                                          | ** ** | **June 30,** | ** ** | **April 30,** | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                          | ** ** | **2005**          | ** ** | **2005**           | ** ** | **2005**          | ** ** | **2004**          | ** ** |
| ** **                                                                          | ** ** | ** **        | ** ** | ** **         | ** ** | **(As Restated)** | ** ** | **(As Restated)** | ** ** | ** ** | ** ** |
| **(dollars in millions)**                                                           | ** ** | **$**             | ** ** | **%**              | ** ** | **$**             | ** ** | **%**             | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
| Net sales                                                                           |       | 351.7             |       | 100.0              |       | 172.7             |       | 100.0             |       | 524.4 |   | 100.0 |   | 538.7 |   | 100.0 |   |
| Cost of  sales                                                                      |       | 334.0             |       | 95.0               |       | 164.6             |       | 95.3              |       | 498.6 |   | 95.1 |   | 552.1 |   | 102.5 |   |
| Selling,  general and administrative expense                                        |       | 19.6              |       | 5.6                |       | 10.1              |       | 5.9               |       | 29.7 |   | 5.7 |   | 33.2 |   | 6.2 |   |
| Interest  expense                                                                   |       | 35.8              |       | 10.2               |       | 18.4              |       | 10.6              |       | 54.2 |   | 10.3 |   | 2.4 |   | 0.4 |   |
| Other  (income) expense                                                             |       | 19.1              |       | 5.4                |       | (0.3              | )          | (0.1              | )          | 18.8 |   | 3.6 |   | (0.8 | ) | (0.1 | ) |
| Loss before  income taxes and equity in earnings of investee                        |       | (56.8             | )          | (16.2              | )          | (20.1             | )          | (11.7             | )          | (76.9 | ) | (14.7 | ) | (48.2 | ) | (9.0 | ) |
| Income tax  expense (benefit)                                                       |       | 0.0               |       | 0.0                |       | (8.8              | )          | (5.2              | )          | (8.8 | ) | (1.8 | ) | (18.2 | ) | (3.4 | ) |
| Equity in  earnings of investee                                                     |       | 0.5               |       | 0.2                |       | 0.2               |       | 0.1               |       | 0.7 |   | 0.1 |   | 0.5 |   | 0.1 |   |
| Net loss                                                                            |       | (56.3             | )          | (16.0              | )          | (11.1             | )          | (6.4              | )          | (67.4 | ) | (12.8 | ) | (29.5 | ) | (5.5 | ) |
|                                                                                |       |              |       |               |       |              |       |              |       |   |   |   |   |   |   |   |   |
| **Supplemental  Information:**                                                      |       |              |       |               |       |              |       |              |       |   |   |   |   |   |   |   |   |
| Earnings  before interest, taxes, depreciation, depletion and amortization (EBITDA) |       | 7.4               |       |               |       | 17.7              |       |              |       | 25.1 |   |   |   | 12.0 |   |   |   |
| Net cash  provided by (used in) operating activities                                |       | 11.3              |       |               |       | 12.5              |       |              |       | 23.8 |   |   |   | 57.5 |   |   |   |

 

36

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Net sales forthe second quarter of 2005 were $524.4 million compared to $538.7 millionfor the second quarter of 2004, a decrease of 2.7%. The decrease was largelythe result of decreases in coated paper sales volumes from 533,000 tons in thesecond quarter of 2004 to 450,000 tons in the second quarter of 2005 partiallyoffset by an increase in average coated paper prices from $775 per ton in thesecond quarter of 2004 to $877 per ton in the second quarter of 2005, as wellas higher sales volumes and selling prices of our carbonless and uncoatedpapers in the second quarter of 2005. The decrease in coated paper sales volumewas largely caused by a decrease in industry demand, which we believe was dueto lower advertising and promotional spending and customer inventoryreductions, and by a management decision to decrease export sales and todiscontinue sales of certain low margin paper sold during the second quarter of2004.

 

Cost of salesfor the second quarter of 2005 was $498.6 million compared to$552.1 million for the second quarter of 2004, a decrease of 9.7%. Thedecrease was primarily attributable to lower coated paper sales volume in thesecond quarter of 2005 and lower depreciation, amortization and depletionexpense offset by higher costs of timber, energy, and chemicals. Depreciation,amortization and depletion expense decreased to $47.0 million in the secondquarter of 2005 from $57.1 million for the second quarter of 2004 as a resultof lower asset bases assigned to property, plant and equipment after theacquisition. This represents a reduction in the monthly depreciation,amortization and depletion rate of approximately 30%. Timber costs increaseddue to higher logistics costs for deliveries to the mills and logging expenses,caused primarily from higher fuel costs. In addition, cost for timber purchasedby our mill in Escanaba, Michigan was higher as a result of increased demandfor the regional timber supply as a result of new buyers competing with theexisting buyers. The increase in the cost of chemicals was primarily driven byincreases in latex prices, which historically have been volatile, fluctuatingwith the price of crude oil, from which they are derived.

 

Our grossmargin for the second quarter of 2005 improved to 4.9%, compared to (2.5)% forthe second quarter of 2004. This was due to higher sales prices, product miximprovements, and cost reduction programs offset by higher timber, energy, andchemical costs and more market-related downtime. We improved product andcustomer mix by selling a more profitable mix of products to existingcustomers, decreasing export sales and discontinuing sales of certain lowmargin paper sold during the second quarter of 2004. During the second quarterof 2005 we took market-related downtime of 19,000 tons of coated paper and9,000 tons of carbonless paper compared to no market-related downtime of coatedpaper and 5,000 tons of carbonless paper in the second quarter of 2004. Thenumber of tons of market-related downtime is calculated by comparing actualresults to planned production in tons for each machine that is taken down.Planned production is based on historical production and includes relevantfactors such as capital improvements and planned maintenance downtime.

 

Cost ofproduction is calculated using the cost for the number of tons of paper weproduce instead of the cost for the number of tons of paper we sell. During thesecond quarter of 2005 and 2004, our costs of production included$117.1 million and $107.1 million for various chemicals used in themanufacturing of paper, $72.9 million and $76.4 million for timber and$35.5 million and $33.6 million for purchased energy. During the second quarterof 2005 and 2004, our aggregate cost of chemicals amounted to $182 

 

37

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and $163 perton of paper we produced. During the second quarter of 2005, we purchased1.8 million tons of timber at a weighted-average cost of $34 per ton.During the second quarter of 2004, we purchased 1.8 million tons of timber at aweighted-average cost of $30 per ton. Electricity, natural gas and coalrepresented approximately 29%, 26% and 32%, of our total third-party energycosts during the second quarter of 2005. We expect energy costs to remainvolatile throughout the remainder of 2005.

 

Maintenanceexpense at our mills totaled $65.5 million and $63.2 million in the secondquarter of 2005 and 2004. In conjunction with our annual maintenance shutdowns,we have incidental incremental costs for the second quarter of 2005 and 2004 of$7.4 million and $9.5 million that are primarily comprised of unabsorbed fixedcosts from lower production volumes and other incremental costs for purchasedmaterials and energy that would otherwise be produced as part of normaloperations of our mills. For comparison purposes, maintenance expense was $53.8million and we had no incidental incremental costs in the first quarter of2005.

 

Selling,general and administrative expenses were $29.7 million for the secondquarter of 2005 compared to $33.2 million for the second quarter of 2004,a decrease of 10.5%. The decrease was a result of the elimination of corporateallocations that were charged to us by MeadWestvaco that are not related to ourbusiness as a stand-alone company, partially offset by an increase in SG&Aexpenses that we incurred directly as a stand-alone company, such as costs forinformation technology, legal and finance support and human resources. Inaddition, we incurred transitional costs of $2.0 million relating to the setupof our business as a stand-alone business, including professional services andconsulting costs related to information technology, human resources andfinance. As a percentage of net sales, selling, general and administrativeexpenses decreased in the second quarter of 2005 to 5.7% from 6.2% in thesecond quarter of 2004.

 

Other (income)expense for the second quarter of 2005 primarily consists of an unrealized lossof $20.0 million determined based on the mark-to-market value of a purchasedoption contract that we elected to not apply hedge accounting treatment. As of May 2,2005, we entered into a commodity basket option contract as part of theTransactions and paid a premium of $72.0 million for the contract. This commoditybasket option contract is a purchased basket of put options on a mix of naturalgas, market pulp and the Euro. While the option was designed to help protectagainst decreases in the North American prices of coated paper by reference tothe prices of natural gas and market pulp, and material decreases in the valueof the Euro relative to the U.S. dollar, there is no assurance that thecommodity basket option contract will actually protect us against any suchprice decreases or that the historical level of correlation will continueduring the three-year period of the contract. Because of the uncertainty offuture correlation, we have elected to not apply hedge accounting treatment forthis contract and will record changes in the fair value of the contract inother (income) expense, which may result in significant variability inearnings. We have elected to recognize the unwind value of derivative financialinstruments as the fair value. This means that the fair value for purchasedcontracts would be equal to the amount that we could receive from thecounterparty to settle their obligation. Fair value at any point in time isbased upon periodic confirmation of values received from the counterparty. Theremaining amounts consist primarily of agent commissions for fiber sales.

 

38

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EBITDA was$25.1 million and $12.0 million for the second quarter of 2005 and 2004. Theincrease in EBITDA was primarily a result of higher sales prices andproductivity improvements made over the last twelve months. Net cash providedby (used in) operating activities was $23.8 million and $57.5 million for thesecond quarter of 2005 and 2004. The change in net cash provided by operatingactivities was primarily a result of an increase in inventory levels in thesecond quarter of 2005 compared to a decrease in inventory levels in the secondquarter of 2004. See *Reconciliation of Net CashProvided by (Used in) Operating Activities to EBITDA* below forfurther information on the use of EBITDA as a measurement tool.

 

### ***FirstHalf 2005 Compared to First Half 2004***

### *** ***

| ** **                                                                          | ** ** | ** **        | ** ** | ** **         | ** ** | ** **        | ** ** | ** **        | ** ** | **Combined**    | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------|------------|--------------------|------------|-------------------|------------|-------------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **                                                                          | ** ** | **Successor -**   | ** ** | ** **         | ** ** | ** **        | ** ** | **Successor and** | ** ** | ** **      | ** ** | ** ** | ** ** |
| ** **                                                                          | ** ** | **NewPage**       | ** ** | ** **         | ** ** | ** **        | ** ** | **Predecessor**   | ** ** | **Predecessor** | ** ** |
| ** **                                                                          | ** ** | **Corporation**   | ** ** | **Predecessor**    | ** ** | **First**         | ** ** | **First**         | ** ** |
| ** **                                                                          | ** ** | **Two Months**    | ** ** | **Four Months**    | ** ** | **Half**          | ** ** | **Half**          | ** ** |
| ** **                                                                          | ** ** | **Ended**         | ** ** | **Ended**          | ** ** | **Ended**         | ** ** | **Ended**         | ** ** |
| ** **                                                                          | ** ** | **June 30,** | ** ** | **April 30,** | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                          | ** ** | **2005**          | ** ** | **2005**           | ** ** | **2005**          | ** ** | **2004**          | ** ** |
| ** **                                                                          | ** ** | ** **        | ** ** | ** **         | ** ** | **(As Restated)** | ** ** | **(As Restated)** | ** ** | ** **      | ** ** | ** ** | ** ** |
| **(dollars in millions)**                                                           | ** ** | **$**             | ** ** | **%**              | ** ** | **$**             | ** ** | **%**             | ** ** | **$**           | ** ** | **%**      | ** ** | **$**      | ** ** | **%** | ** ** |
| Net sales                                                                           |       | 351.7             |       | 100.0              |       | 716.2             |       | 100.0             |       | 1,067.9         |       | 100.0      |       | 1,055.4    |       | 100.0 |   |
| Cost of  sales                                                                      |       | 334.0             |       | 95.0               |       | 673.3             |       | 94.0              |       | 1,007.3         |       | 94.3       |       | 1,085.8    |       | 102.9 |   |
| Selling,  general and administrative expense                                        |       | 19.6              |       | 5.6                |       | 39.5              |       | 5.5               |       | 59.1            |       | 5.5        |       | 63.3       |       | 6.0 |   |
| Interest  expense                                                                   |       | 35.8              |       | 10.2               |       | 20.6              |       | 2.9               |       | 56.4            |       | 5.3        |       | 4.7        |       | 0.5 |   |
| Other  (income) expense                                                             |       | 19.1              |       | 5.4                |       | (1.3              | )          | (0.2              | )          | 17.8            |       | 1.7        |       | (1.8       | )          | (0.2 | ) |
| Income  (loss) before income taxes and equity in earnings of investee               |       | (56.8             | )          | (16.2              | )          | (15.9             | )          | (2.2              | )          | (72.7           | )          | (6.8       | )          | (96.6      | )          | (9.2 | ) |
| Income tax  expense (benefit)                                                       |       | 0.0               |       | 0.0                |       | (7.5              | )          | (1.0              | )          | (7.5            | )          | (0.7       | )          | (36.6      | )          | (3.5 | ) |
| Equity in  earnings of investee                                                     |       | 0.5               |       | 0.2                |       | 0.7               |       | 0.1               |       | 1.2             |       | 0.1        |       | 1.0        |       | 0.1 |   |
| Net income  (loss)                                                                  |       | (56.3             | )          | (16.0              | )          | (7.7              | )          | (1.1              | )          | (64.0           | )          | (6.0       | )          | (59.0      | )          | (5.6 | ) |
| ** **                                                                          | ** ** | ** **        | ** ** | ** **         | ** ** | ** **        | ** ** | ** **        | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Supplemental  Information:**                                                      |       |              |       |               |       |              |       |              |       |            |       |       |       |       |       |   |   |
| Earnings  before interest, taxes, depreciation, depletion and amortization (EBITDA) |       | 7.4               |       |               |       | 81.7              |       |              |       | 89.1            |       |       |       | 23.2       |       |   |   |
| Net cash  provided by (used in) operating activities                                |       | 11.3              |       |               |       | 1.5               |       |              |       | 12.8            |       |       |       | 90.5       |       |   |   |

 

39

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Net sales forthe first half of 2005 were $1,067.9 million compared to $1,055.4 millionfor the first half of 2004, an increase of 1.2%. The increase was largely theresult of an increase in average coated paper prices from $769 per ton in thefirst half of 2004 to $868 per ton in the first half of 2005. This increase waspartially offset by decreases in coated paper sales volume from 1,052,000 tonsin the first half of 2004 to 945,000 tons in the first half of 2005. Thedecrease in coated paper sales volume was largely caused by a decrease inindustry demand, which we believe was due to lower advertising spending andcustomer inventory reductions, and by a management decision to decrease exportsales and to discontinue sales of certain low margin paper sold during thefirst half of 2004.

 

Cost of salesfor the first half of 2005 was $1,007.3 million compared to$1,085.8 million for the first half of 2004, a decrease of 7.2%. Thedecrease was primarily attributable to lower coated paper sales volume in thefirst half of 2005 and lower depreciation, amortization and depletion expenseoffset by higher costs of timber, energy, and chemicals. Depreciation,amortization and depletion expense decreased to $103.7 million in the firsthalf of 2005 from $113.5 million for the first half of 2004 as a result oflower asset bases assigned to property, plant and equipment after theacquisition. Timber costs increased due to higher logistics costs fordeliveries to the mills and logging expenses, caused primarily from higher fuelcosts. In addition, cost for timber purchased by our mill in Escanaba, Michiganwas higher as a result of increased demand for the regional timber supply as aresult of new buyers competing with the existing buyers. The increase in thecost of chemicals was primarily driven by increases in latex prices, whichhistorically have been volatile, fluctuating with the price of crude oil.

 

Our grossmargin for the first half of 2005 improved to 5.7%, compared to (2.9)% for thefirst half of 2004. This was due to higher sales prices, product miximprovements and cost reduction programs offset by higher timber, energy, andchemical costs and slightly more market-related downtime. We improved productand customer mix by selling a more profitable mix of products to existingcustomers, decreasing export sales and discontinuing sales of certain lowmargin paper sold during the first half of 2004. During the first half of 2005we took market-related downtime of 19,000 tons of coated paper and 9,000 tonsof carbonless paper compared to market-related downtime in the first half of2004 of 27,000 tons of coated paper and 10,000 tons of carbonless paper.

 

During thefirst half of 2005 and 2004, our costs of production included$238.4 million and $212.7 million for various chemicals used in themanufacturing of paper, approximately $155.5 million and $147.6 millionfor timber and approximately $79.6 million and $69.5 million for purchasedenergy. During the first half of 2005 and 2004, our aggregate cost of chemicalsamounted to $181 and $166 per ton of paper we produced. During the first halfof 2005, we purchased 3.9 million tons of timber at a weighted-averagecost of $35 per ton. During the first half of 2004, we purchased 4.1 milliontons of timber at a weighted-average cost of $30 per ton. Electricity, naturalgas and coal represented approximately 27%, 26% and 29%, respectively, of ourtotal third-party energy costs during the first half of 2005.

 

Maintenanceexpense at our mills totaled $119.3 million and $114.6 million in the firsthalf of 2005 and 2004. In conjunction with our annual maintenance shutdowns, wehave incidental incremental costs for the first half of 2005 and 2004 of $7.4million and $10.1 million that are primarily comprised of 

 

40

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unabsorbedfixed costs from lower production volumes and other incremental costs forpurchased materials and energy that would otherwise be produced as part ofnormal operations of our mills.

 

Selling,general and administrative expenses were $59.1 million for the first halfof 2005 compared to $63.3 million for the first half of 2004, a decreaseof 6.6%. The decrease was a result of the elimination of corporate allocationsthat were charged to us by MeadWestvaco that are not related to our business asa stand-alone company, partially offset by an increase in SG&A expensesthat we incurred directly as a stand-alone company, such as costs forinformation technology, legal and finance support and human resources. Inaddition, we incurred transitional costs of $2.0 million relating to the setupof our business as a stand-alone business, including professional services andconsulting costs related to information technology, human resources andfinance. As a percentage of net sales, selling, general and administrativeexpenses decreased in the first half of 2005 to 5.5% from 6.0% in the firsthalf of 2004.

 

Other (income)expense for the first half of 2005 primarily consists of an unrealized loss of$20.0 million determined based on the mark-to-market value of a purchasedoption contract that we elected to not apply hedge accounting treatment. Theremaining amounts consist primarily of agent commissions for fiber sales.

 

EBITDA was$89.1 million and $23.2 million for the first half of 2005 and 2004. Theincrease in EBITDA was primarily a result of higher sales prices andproductivity improvements made over the last twelve months. Net cash providedby (used in) operating activities was $12.8 million and $90.5 million for thefirst half of 2005 and 2004. The change in net cash provided by operatingactivities was primarily a result of an increase in inventory levels in thefirst half of 2005 compared to a decrease in inventory levels in the first halfof 2004. See *Reconciliation of Net Cash Provided by (Usedin) Operating Activities to EBITDA* below for further information onthe use of EBITDA as a measurement tool.

 

### ***Reconciliationof Net Cash Provided by (Used in) Operating Activities to EBITDA***

### *** ***

EBITDA is not a measure of our liquidity under accounting principlesgenerally accepted in the United States (“GAAP”), is not intended to representcash flow from operations, as defined under GAAP, and should not be used as analternative to cash flow from operations as an indicator of liquidity. EBITDAis shown because it is a primary component of certain covenants under oursenior secured credit facility and is a basis upon which our managementassesses liquidity. In addition, our management believes EBITDA is useful toinvestors because it and similar measures are frequently used by securitiesanalysts, investors and other interested parties in the evaluation of companieswith substantial financial leverage. The use of EBITDA instead of cash flow fromoperations has limitations as an analytical tool, and you should not considerit in isolation, or as a substitute for analysis of our results as reportedunder GAAP.

 

41

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The following table presents a reconciliation of net cash provided byoperating activities to EBITDA:

 
| ** **                                            | ** ** | **Second Quarter** | ** ** | **First Half** | ** ** |
|-------------------------------------------------------|------------|--------------------|------------|----------------|------------|
| **(in millions)**                                     | ** ** | **2005**           | ** ** | **2004**       | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                            | ** ** | **(As Restated)**  | ** ** | ** **     | ** ** | **(As Restated)** | ** ** | ** ** | ** ** |
| Net cash  provided by (used in) operating activities  |       | $                  | 23.8       |           | $          | 57.5 |   | $ | 12.8 |   | $ | 90.5 |   |
| Cash  interest expense                                |       | 24.0               |       | 2.4            |       | 26.2 |   | 4.7 |   |
| Income tax  expense (benefit)                         |       | (8.8               | )          | (18.3          | )          | (7.5 | ) | (36.6 | ) |
| Income tax  expense on equity in earnings of investee |       | 0.1                |       | 0.3            |       | 0.4 |   | 0.6 |   |
| Loss on sale  of assets                               |       | 0.0                |       | (1.1           | )          | (0.5 | ) | (1.6 | ) |
| Investee—earnings  and distributions             |       | 0.8                |       | (1.5           | )          | (0.5 | ) | (2.8 | ) |
| Unrealized  loss on option contract                   |       | (20.0              | )          | 0.0            |       | (20.0 | ) | 0.0 |   |
| Deferred  income taxes                                |       | 8.8                |       | 10.7           |       | 7.1 |   | 25.9 |   |
| Equity award  expense                                 |       | (0.2               | )          | 0.0            |       | (0.2 | ) | 0.0 |   |
| Changes in  operating assets and liabilities          |       | (3.4               | )          | (38.0          | )          | 71.3 |   | (57.5 | ) |
| EBITDA                                                |       | $                  | 25.1       |           | $          | 12.0 |   | $ | 89.1 |   | $ | 23.2 |   |

 

### ***SegmentData***

### *** ***

The following table sets forth net sales and segment profit (loss) forour coated and carbonless paper segments:

 
| ** **                                             | ** ** | **Second Quarter**      | ** ** | **First Half**          | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **Ended June 30,** | ** ** | **Ended June 30,** | ** ** |
| ** **                                             | ** ** | **2005**                | ** ** | **2004**                | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                             | ** ** | **Combined**            | ** ** | ** **              | ** ** | **Combined** | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Successor and**       | ** ** | ** **              | ** ** | **Successor and** | ** ** | ** ** | ** ** |
| **(in millions)**                                      | ** ** | **Predecessor**         | ** ** | **Predecessor**         | ** ** | **Predecessor** | ** ** | **Predecessor** | ** ** |
| ** **                                             | ** ** | **(As Restated)**       | ** ** | ** **              | ** ** | **(As Restated)** | ** ** | ** ** | ** ** |
| Net sales:                                             |       |                    |       |                    |       |   |   |   |   |
| Coated paper                                           |       | $                       | 415.4      |                    | $          | 439.4 |   | $ | 860.0 |   | $ | 857.1 |   |
| Carbonless  paper                                      |       | 109.0                   |       | 99.3                    |       | 207.9 |   | 198.3 |   |
|                                                   |       | $                       | 524.4      |                    | $          | 538.7 |   | $ | 1,067.9 |   | $ | 1,055.4 |   |
|                                                   |       |                    |       |                    |       |   |   |   |   |
| Segment profit (loss) (1):                             |       |                    |       |                    |       |   |   |   |   |
| Coated paper                                           |       | $                       | 8.7        |                    | $          | (28.6 | ) | $ | 19.5 |   | $ | (68.9 | ) |
| Carbonless  paper                                      |       | (11.3                   | )          | (18.9                   | )          | (17.0 | ) | (26.1 | ) |
|                                                   |       | $                       | (2.6       | )                       | $          | (47.5 | ) | $ | 2.5 |   | $ | (95.0 | ) |
|                                                   |       |                    |       |                    |       |   |   |   |   |
| Segment depreciation, amortization and  depletion (2): |       |                    |       |                    |       |   |   |   |   |
| Coated paper                                           |       | $                       | 42.1       |                    | $          | 45.1 |   | $ | 87.1 |   | $ | 89.7 |   |
| Carbonless  paper                                      |       | 4.9                     |       | 12.0                    |       | 16.6 |   | 23.8 |   |
|                                                   |       | $                       | 47.0       |                    | $          | 57.1 |   | $ | 103.7 |   | $ | 113.5 |   |

 

----

(1)          Segment profit (loss)includes pre-tax equity in earnings of investee and excludes interest expense,taxes and certain corporate items that are included in other (income) expense.

(2)          Depreciation,amortization and depletion expense is not comparable across different periodsas a result of lower asset bases assigned to property, plant and equipmentafter the acquisition.

 

42

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### ***CoatedPaper***

### *** ***

Net sales for the coated paper segment were $415.4 million for thesecond quarter of 2005, compared to $439.4 million for the second quarter of2004, a decrease of 5.5%. The decrease was due to a decrease in sales volumeoffset in part by an increase in coated paper prices. Average coated paperprices rose from $775 per ton in the second quarter of 2004 to $877 per ton inthe second quarter of 2005; coated paper volumes decreased from 533,000 tons inthe second quarter of 2004 to 450,000 tons in the second quarter of 2005. Thedecrease in sales volume was largely caused by a fall off in industry demand,which we believe was due to lower advertising and promotional spending andcustomer inventory reductions, and by a management decision to decrease exportsales and to discontinue sales of certain low margin paper sold during thesecond quarter of 2004.

 

The coated paper segment profit was $8.7 million in the second quarterof 2005 compared to a loss of $28.6 million in the second quarter of 2004. Theincrease in segment profitability was primarily due to improved pricing andproduct mix, cost improvement programs and lower depreciation, amortization anddepletion offset in part by lower sales volumes, increased costs for chemicals,timber and energy and higher levels of market-related downtime taken. We tookmarket-related downtime in the second quarter of 2005 of 19,000 tons comparedto no market-related downtime in the second quarter of 2004.

 

Net sales for the coated paper segment were $860.0 million for thefirst half of 2005, compared to $857.1 million for the first half of 2004, anincrease of 0.3%. The increase was due to an increase in coated paper pricesoffset in part by a decrease in sales volume. Average coated paper prices rosefrom $769 per ton in the first half of 2004 to $868 per ton in the first halfof 2005; coated paper volumes decreased from 1,052,000 tons in the first halfof 2004 to 945,000 tons in the first half of 2005. The decrease in sales volumewas largely caused by a fall off in industry demand, which we believe was dueto lower advertising and promotional spending and customer inventoryreductions, and by a management decision to decrease export sales and todiscontinue sales of certain low margin paper sold during the first half of2004.

 

The coated paper segment profit was $19.5 million in the first half of2005 compared to a loss of $68.9 million in the first half of 2004. Theincrease in segment profitability was primarily due to improved pricing andproduct mix, cost improvement programs and lower levels of market-relateddowntime taken offset in part by lower sales volumes and increased costs forchemicals, timber and energy. We took market-related downtime in the first halfof 2005 of 19,000 tons compared to 27,000 tons of market-related downtime inthe first half of 2004.

 

### ***CarbonlessPaper***

### *** ***

Net sales for the carbonless paper segment, which includes carbonlesspapers and uncoated products, increased to $109.0 million in the secondquarter of 2005 from $99.3 million in the second quarter of 2004, anincrease of 9.9%. The sales increase was driven by an increase in the salesprice per ton on both carbonless and uncoated products, increased export salesof carbonless paper and an increase in uncoated paper sales volume. Carbonlesspaper sales volumes were unchanged from the corresponding period in 

 

43

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the prior year. The average price per ton of paper for this segmentincreased from $1,226 per ton in the second quarter of 2004 to $1,253 per tonin the second quarter of 2005, an increase of 2.2%.

 

The carbonless segment incurred a loss of $11.3 million in the secondquarter of 2005, compared to a loss of $18.9 million in the second quarterof 2004. The decrease in the segment loss during the second quarter of 2005 waslargely due to lower depreciation, amortization and depletion expense for thetwo months subsequent to the acquisition and productivity initiatives that werenot in place during the second quarter of 2004 offset by slightly higher levelsof market-related downtime. We took market-related downtime in the secondquarter of 2005 of 9,000 tons compared to 5,000 tons of market-related downtimein the second quarter of 2004.

 

Net sales for the carbonless paper segment increased to$207.9 million in the first half of 2005 from $198.3 million in thefirst half of 2004, an increase of 4.8%. The sales increase was driven by anincrease in sales prices per ton of carbonless paper, increased export sales ofcarbonless paper and an increase in uncoated volume offset slightly by lowervolumes of carbonless paper. The average price per ton of paper for thissegment increased from $1,245 per ton in the first half of 2004 to $1,258 perton in the first half of 2005, an increase of 1.1%.

 

The carbonless segment incurred a loss of $17.0 million in the firsthalf of 2005, compared to a loss of $26.1 million in the first half of2004. The decrease in the segment loss during the first half of 2005 waslargely due to lower depreciation, amortization and depletion expense for thetwo months subsequent to the acquisition and productivity initiatives that werenot in place during the first half of 2004. We took market-related downtime inthe first half of 2005 of 9,000 tons compared to 10,000 tons of market-relateddowntime in the first half of 2004.

 

## **Seasonality**

## ** **

We are exposed to fluctuations in quarterly sales volumes and expensesdue to seasonal factors. These seasonal factors are common in the coated paperindustry. The first quarter is typically a light sales volume quarter with someinventory build in anticipation of maintenance outages to be taken in thesecond quarter and higher sales volumes in the third quarter. Our secondquarter typically begins to build to higher sales rate and is our quarter withthe highest maintenance spending as a result of scheduled annual maintenanceshutdowns. While we expect this pattern to continue, the second quarter of 2005was atypical with softer demand than the first quarter. Our third quarter istypically our strongest quarter, reflecting a substantial increase in salesvolume as printers prepare for year-end holiday catalogs and advertising. Ouraccounts receivable and payable generally peak in the third quarter, whileinventory generally peaks in the second quarter in anticipation of the thirdquarter season. The fourth quarter is typically our second strongest salesquarter as printing for year-end holidays continues. We expect these trends tocontinue for the foreseeable future.

 

## **Outlook**

## ** **

We expect sales volumes in our third and fourth quarters to improveover our sales rate for the two months ended June 30, 2005, as we approachthe traditionally higher sales period of the year. We plan to 

 

44

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take modest machine downtime in the third quarter of 2005 in order tomaintain appropriate inventory levels. We believe that the increase in ourinventory levels during 2005 has been caused by lower industry demand combinedwith efficient production performance at our paper mills. We expect that themachine downtime will result in a decrease of production of approximately30,000 tons of coated, carbonless and uncoated paper. We will consider the needfor additional downtime from time to time based on market conditions.

 

Increases in the price of crude oil have affected the cost of certainpapermaking chemicals, purchased energy, and logistics and distribution.  Overall, we expect crude oil and energy coststo remain volatile throughout the remainder of 2005.

 

On June 2, 2005, we announced that we would be evaluating stepsneeded to ensure the carbonless paper business and associated facilities wouldremain viable for the long term. Options being considered include a sale of thesegment to a buyer with better alignment to its core business or to thecarbonless management team and/or its employees. As a third option, we wouldretain the operations and would perform a major restructuring and streamliningof the existing facilities to reduce costs. The process of reviewing theoptions is expected to take a number of months to complete.

 

## **Liquidity andCapital Resources**

## ** **

We expect that cash generated from operating activities andavailability under our revolving senior secured credit facility will be ourprincipal sources of liquidity. Based on our current level of operations, webelieve our cash flow from operations and available borrowings under ourrevolving senior secured credit facility will be adequate to meet our liquidityneeds for at least the next twelve months.

 

As of June 30, 2005, there was $170.4 million outstanding underthe revolving senior credit facility and based on availability under theborrowing base as of that date, we had $145.1 million of borrowing availabilityunder the revolving senior credit facility. Our aggregate indebtedness at June 30,2005, was $1,688.8 million. We are highly leveraged. Our ability to operate ourbusiness, service our debt requirements and reduce our total debt will dependupon our future operating performance, which will be affected by prevailingeconomic conditions and financial, business and other factors, certain of whichare beyond our control, as well as the availability of revolving creditborrowings. See our Registration Statement on Form S-4, as amended, for amore extensive discussion of liquidity and capital resources.

 

Inventory has increased from $321.4 million at December 31, 2004,to $481.3 million at June 30, 2005. Approximately half of this increase isa result of the changes caused in recording the initial acquired values at thedate of acquisition and the elimination of the MeadWestvaco LIFO reserve thatwas retained by MeadWestvaco’s LIFO pool.

 

As of June 30, 2005, we entered into two interest rate swapagreements and one interest rate cap agreement to hedge the variability of cashflows on a portion of our floating-rate debt. We entered into a $150.0 millionnotional amount interest rate swap expiring June 2009 and a $150.0 millionnotional 

 

45

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amount interest rate swap expiring June 2010. We purchased a$150.0 million notional amount interest rate cap with a cap rate of 4.50% thatexpires June 2008 for $1.0 million.

 

Capital expenditures were $12.2 million for the two months ended June 30,2005 and were $29.5 million for the first half of 2005. Capital expendituresfor all of 2005 are expected to be approximately $90.0 million and areexpected to consist of maintenance capital projects, environmental projects andcapital improvements, such as a paper machine rebuild at our mill in Luke, Maryland.Compliance with environmental laws and regulations is a significant factor inour business. We have made, and will continue to make, significant expendituresto comply with these requirements. In connection with compliance withenvironmental laws and regulations we expect to incur capital expenditures of$11.0 million in 2005 and $22.0 million in 2006 in order to maintain compliancewith applicable federal, state and local environmental laws and regulations andto meet new regulatory requirements. We anticipate that environmentalcompliance will continue to require increased capital expenditures over time asenvironmental laws or regulations, or interpretations thereof, change or thenature of our operations require us to make significant additional capitalexpenditures. We expect to fund our capital expenditures from cash flows fromoperations.

 

## **CriticalAccounting Policies**

## ** **

The preparation of financial statements in accordance with GAAPrequires management to make estimates and assumptions that affect the reportedamounts of some assets and liabilities and, in some instances, the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from these estimates. Management believes the accounting policiesdiscussed below represent those accounting policies requiring the exercise ofjudgment where a different set of judgments could result in the greatestchanges to reported results.

 

*Environmental and legal liabilities*.We record accruals for estimated environmental liabilities when remedialefforts are probable and the costs can be reasonably estimated. These estimatesreflect assumptions and judgments as to the probable nature, magnitude andtiming of required investigation, remediation and monitoring activities as wellas availability of insurance coverage and contribution by other potentiallyresponsible parties. Due to the numerous uncertainties and variables associatedwith these assumptions and judgments, and changes in governmental regulationsand environmental technologies, accruals are subject to substantialuncertainties, and actual costs could be materially greater or less than theestimated amounts. We record accruals for other legal contingencies, which arealso subject to numerous uncertainties and variables associated withassumptions and judgments, when the contingency is probable of occurring andreasonably estimable.

 

*Long-lived assets*:

 

*Useful lives*. Usefullives of tangible and intangible assets are based on management’s estimates ofthe periods over which the assets will be productively utilized in the revenuegeneration process or for other useful purposes. Factors that affect thedetermination of lives include prior experience with similar assets, productlife expectations and industry practices. The determination of useful livesdictates the 

 

46

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period over which tangible and intangible long-lived assets aredepreciated or amortized, typically using the straight-line method.

 

*Tangible assets*. We reviewlong-lived assets for impairment in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal of Long-lived Assets*.The statement requires that long-lived assets be reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable. The review for impairment requiresmanagement to predict the estimated cash flows that will be generated by thelong-lived asset over its remaining estimated useful life. Considerable judgmentmust be exercised to determine future cash flows and their timing and,possibly, choosing business value comparables or selecting discount rates touse in any value computations.

 

*Intangible assets*.Business acquisitions often result in recording intangible assets, the valuesof which are often based upon, in part, independent third-party appraisals.Like long-lived tangible assets, intangible assets are subject to periodicimpairment reviews whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. As with tangible assets,considerable judgment must be exercised to determine future cash flows andtheir timing and, possibly, choosing business value comparables or selectingdiscount rates to use in any value computations.

 

*Revenue recognition*.We recognize revenue at the point when title and the risk of ownership passesto the customer. Substantially all of our revenues are generated throughproduct sales, and shipping terms generally indicate when title and the risk ofownership have passed. Revenue is recognized at shipment for sales whenshipping terms are FOB (free on board) shipping point. For sales where shippingterms are FOB destination, revenue is recognized when the goods are received bythe customer. We provide all allowances for estimated returns and othercustomer credits such as discounts and volume rebates, when the revenue isrecognized, based on historical experience, current trends and any notificationof pending returns. The customer allowances are in many instances subjectiveand are determined with significant management judgment and are reviewedregularly to determine the adequacy of the amounts. Changes in economicconditions, markets and customer relationships may require adjustments to theseallowances from period to period.

 

*Income taxes*. Incometaxes are accounted for in accordance with SFAS No. 109, *Accounting for Income Taxes*, which recognizes deferred taxassets and liabilities based on the estimated future tax effects of differencesbetween the financial statement and tax bases of assets and liabilities giventhe enacted tax laws. We evaluate the need for a deferred tax asset valuationallowance by assessing whether it is more likely than not that we will realizeour deferred tax assets in the future. The assessment of whether or not avaluation allowance is required often requires significant judgment, includingthe forecast of future taxable income and the evaluation of tax planninginitiatives. Adjustments to the deferred tax valuation allowance are made toearnings in the period when such assessment is made. We have tax jurisdictionslocated in many states and are subject to audit in these states, as well as atthe federal level. Tax audits by their nature are often complex and can requireseveral years to resolve. In the preparation of our financial statements,management exercises judgments in estimating the potential exposure to 

 

47

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unresolved tax matters. While actual results could vary, in management’sjudgment we have adequate accruals with respect to the ultimate outcome of suchunresolved tax matters.

 

*Derivative financial instruments*.Derivative financial instruments are accounted for in accordance with SFAS No. 133,*Accounting for Derivative Instruments and HedgingActivities*. We have elected to recognize the unwind value ofderivative financial instruments as the fair value. This means that the fairvalue for purchased contracts is based on the amount we could receive from thecounterparty to settle the contract. Fair value at any point in time is basedupon periodic confirmation of values received from the counterparty. Ourcommodity basket option is a complex derivative financial instrument for whichwe have limited ability to unwind the position with a counterparty other thanthe seller of the option.

 

## **ITEM3.**                                                     QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

## ** **

Not applicable.

 

## **ITEM4.**                                                     CONTROLSAND PROCEDURES

## ** **

We maintain a system of internal accounting controls designed toprovide reasonable assurance that transactions are properly recorded andsummarized so that reliable financial records and reports can be prepared andassets safeguarded. In addition, a system of disclosure controls is maintainedto ensure that information required to be disclosed is recorded, processed,summarized and reported in a timely manner to management responsible for thepreparation and reporting of our financial information.

 

On October 3, 2005, management and the Audit Committee of theBoard of Directors of NewPage Corporation concluded that the previouslyissued condensed combined financial statements of the Printing and WritingPapers Business of MeadWestvaco Corporation (the “Predecessor”) for the onemonth and four months ended April 30, 2005, included in the Company’s June 30,2005, Quarterly Report on Form 10-Q, should be restated to reflect a losson the defeasance of debt by MeadWestvaco in connection with our acquisition ofthe Predecessor (the “Acquisition”). The restatement, as more fully describedin Note 2 to the Condensed Combined Financial Statements of the Predecessor,reflects an increase in interest expense to allocate the premium paid as anexpense of the Predecessor, income taxes and the immaterial effect for other corporateallocations and accounting adjustments. These adjustments, primarilyrelated to debt of MeadWestvaco that was not assumed by NewPage and thatrelates solely to pre-Acquisition periods, has no effect on the financialposition, results of operations, liquidity or compliance with covenants of NewPage forany period.

 

Management of the Company considered the effect of the restatement andconcluded that these adjustments do not have an effect on its assessment ofNewPage’s internal control over financial reporting or disclosure controls andprocedures because the interest expense adjustment related to the preparationof financial statements of our Predecessor on a “carve-out” basis and thetreatment of corporate allocations of our former parent company arenon-recurring in nature. Additionally, the condensed combined financialstatements were prepared by MeadWestvaco and provided to NewPage for usein our filings with the Securities and Exchange Commission. NewPage managementhad 

 

48

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reviewed the combined financial statements to ensure that they wereappropriate in form and content and were consistent with management’sunderstanding of the normal on-going operations of the Predecessor prior to theAcquisition and made inquiries of management of MeadWestvaco concerningfinancing and other corporate allocations and related accounting and reportingdecisions that were under the control of MeadWestvaco. The Company believesthat our internal control structure and procedures were appropriate in thecircumstances.

 

Management, with the participation of our Chief Executive Officer andChief Financial Officer, assesses the disclosure control systems as beingeffective as they encompass material matters for the quarter ended June 30,2005. To the best of our knowledge, there were no changes in the internalcontrol over financial reporting that occurred during the quarter ended June 30,2005, that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

 

**PART II**                                                   OTHERINFORMATION

** **

## **ITEM 6.**                                                     EXHIBITS

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                      |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                 |
| 2.1 *               |       | Equity and Asset Purchase Agreement, dated  as of January 14, 2005, among MeadWestvaco Corporation and Maple  Acquisition LLC (n/k/a Escanaba Timber LLC), as amended April 22, 2005                       |
|                |       |                                                                                                                                                                                                                 |
| 2.2 *               |       | First Amendment to Equity Asset and  Purchase Agreement, dated as of January 14, 2005, by and between  MeadWestvaco Corporation and Escanaba Timber LLC                                                         |
|                |       |                                                                                                                                                                                                                 |
| 2.3 *               |       | Second Amendment to Equity Asset and  Purchase Agreement, dated as of January 14, 2005, by and between  MeadWestvaco Corporation and Escanaba Timber LLC                                                        |
|                |       |                                                                                                                                                                                                                 |
| 3.1 *               |       | Certificate of Incorporation of NewPage Corporation                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                 |
| 3.2 *               |       | Bylaws of NewPage Corporation                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                 |
| 4.1 *               |       | Indenture for the Floating Rate Senior  Secured Notes due 2012 dated as of May 2, 2005 by and among NewPage Corporation,  the guarantors named herein and HSBC Bank USA, National Association, as  Trustee |
|                |       |                                                                                                                                                                                                                 |
| 4.2 *               |       | Indenture for the 10% Senior Secured Notes  due 2012 dated as of May 2, 2005 among NewPage Corporation, as  Issuer, the guarantors named herein, HSBC Bank USA, National Association, as  Trustee          |

 

49

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                               |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 4.3 *               |       | Indenture for the 12% Senior Subordinated  Notes due 2013 dated as of May 2, 2005 among NewPage Corporation,  the guarantors named herein, HSBC Bank USA, National Association, as Trustee                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 4.4 *               |       | Form of Floating Rate Senior Notes due  2012 (included in Exhibit 4.1)                                                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 4.5 *               |       | Form of 10% Senior Secured Notes due  2012 (included in Exhibit 4.2)                                                                                                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 4.6 *               |       | Form of 12% Senior Subordinated Notes  due 2013 (included in Exhibit 4.3)                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 4.7 *               |       | Form of Guarantee for each of the  Floating Rate Senior Notes due 2012, the 10% Senior Secured Notes due 2012,  and the 12% Senior Subordinated Notes due 2013 (included in Exhibit 4.1)                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 4.8 *               |       | Exchange and Registration Rights Agreement,  dated May 2, 2005, among NewPage Corporation, the guarantors named  herein and the Initial Purchasers set forth therein                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 4.9*                |       | Intercreditor Agreement, dated as of May 2,  2005 among NewPage Corporation, NewPage Holding Corporation,  certain subsidiaries of NewPage Corporation, JPMorgan Chase Bank, N.A.,  as revolving loan collateral agent and The Bank of New York, as collateral  trustee                                   |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 4.10 *              |       | Collateral Trust Agreement dated as of May 2,  2005 among NewPage Corporation, the Pledgors from time to time party  thereto, Goldman Sachs Credit Partners L.P., HSBC Bank USA, National  Association, and The Bank of New York                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 4.11 *              |       | Priority Lien Debt Pledge and Security  Agreement, dated as of May 2, 2005 in favor of The Bank of New York, as  collateral by and among NewPage Corporation, certain subsidiaries  thereof and The Bank of New York                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 10.1 *              |       | Fiber Supply Agreement dated as of May 2,  2005, between Escanaba Timber LLC and Escanaba Paper Company                                                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 10.2 *              |       | Fiber Supply Agreement dated as of May 2,  2005, between Escanaba Timber LLC and Chillicothe Paper Inc.                                                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 10.3 *              |       | Fiber Supply Agreement dated as of May 2,  2005, between Escanaba Timber LLC and Wickliffe Paper Company                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                          |
| 10.4 *              |       | Revolving Credit and Guaranty Agreement  dated as of May 2, 2005, among NewPage Corporation, the guarantors  named herein, the lenders party thereto from time to time, Goldman Sachs  Credit Partners L.P., JPMorgan Chase Bank, N.A., Wachovia Capital Markets  LLC, Bank of America, N.A. and UBS Securities LLC |

 

50

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                 |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                            |
| 10.5 *              |       | Term Loan Credit and Guaranty Agreement,  dated May 2, 2005, by and among NewPage Corporation, NewPage Holding  Corporation and certain of its affiliates, the lenders party thereto, Goldman  Sachs Credit Partners L.P. and USB Securities LLC |
|                |       |                                                                                                                                                                                                                                                            |
| 10.6 *              |       | Priority Lien Debt Pledge and Security Agreement,  dated May 2, 2005, by and among NewPage Corporation and certain of  its affiliates and The Bank of New York                                                                                        |
|                |       |                                                                                                                                                                                                                                                            |
| 10.7 *              |       | Revolving Credit Pledge and Security  Agreement dated as of May 2, 2005, among NewPage Corporation, the  guarantors named herein and JPMorgan Chase Bank, N.A.                                                                                        |
|                |       |                                                                                                                                                                                                                                                            |
| 10.8 *              |       | Allocation and Services Agreement dated as  of April 30, 2005 between NewPage Corporation and Escanaba Timber  LLC                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                            |
| 10.9 *              |       | Employment Letter Agreement dated May 2,  2005, by and between NewPage Corporation and Daniel A. Clark                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                            |
| 10.10 *             |       | Employment Letter Agreement dated May 2,  2005, by and between NewPage Corporation and Matthew L. Jesch                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                            |
| 10.11 *             |       | Employment Letter Agreement dated May 2,  2005, by and between NewPage Corporation and James C. Tyrone                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                            |
| 10.12 *             |       | Employment Letter Agreement dated May 2,  2005, by and between NewPage Corporation and Peter H. Vogel                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                            |
| 10.13 *             |       | Consulting Agreement dated May 2,  2005, by and between NewPage Corporation and Mark Suwyn                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                            |
| 31.1 **             |       | Certification of Chief Executive Officer  pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                  |
|                |       |                                                                                                                                                                                                                                                            |
| 31.2 **             |       | Certification of Chief Financial Officer  pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                  |
|                |       |                                                                                                                                                                                                                                                            |
| 32.1 **             |       | Certification of Chief Executive Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906  Of The Sarbanes-Oxley Act of 2002                                                                                                   |
|                |       |                                                                                                                                                                                                                                                            |
| 32.2 **             |       | Certification of Chief Financial Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906  Of The Sarbanes-Oxley Act of 2002                                                                                                   |

 

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*                                      Previouslyfiled as an exhibit to the Registration Statement on Form S-4 (Reg. No.:333-125952), filed with the SEC on June 20, 2005, and incorporated byreference herein.

 

**                               Filedherewith.

 

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**SIGNATURE**

** **

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|   | NewPage Corporation      |                  |
|--------|-------------------------------|-----------------------|
|   | (Registrant)                  |                  |
|   |                          |
|   |                          |
|   | Date:                         | October 31, 2005 |   |   /s/ Matthew L. Jesch |   |
|   | Matthew L. Jesch              |
|   | Vice President and            |
|   | Chief Financial Officer       |
|   | (Principal Financial Officer) |
|        |                               |                       |  |  |  |  |

 

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