**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

** **

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES**

**EXCHANGE 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 of Incorporation:           |   | **Delaware**   |
|-----------------------------------|--------|----------------|
|                              |   |           |
| IRS Employer  Identification No.: |   | **05-0616156** |

 

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

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange

Act).                                                                                                                                                                                                                                                                     Yes  o           No  ý

 

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

 

 

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**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                                                                                                  |       |
|                                                                                                 | 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**                               FINANCIAL INFORMATION

** **

## **ITEM 1.**                             FINANCIAL STATEMENTS

## ** **

**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.

 

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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)**

** **
| ** **                     | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**  | ** ** | ** **  | ** ** |
|--------------------------------|------------|------------------|------------|-------------|------------|-----------------|------------|-------------|------------|
| ** **                     | ** ** | **Common Stock** | ** ** | **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 Corporationand its subsidiaries are engaged in the manufacturing, marketing anddistribution of coated, uncoated and carbonless papers, which are manufacturedat five mills in the United States. The consolidated financial statementsinclude the accounts of the Company and its majority-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 Corporationand its consolidated subsidiaries. All intercompany transactions and balanceshave been eliminated.

 

These interim consolidatedfinancial statements have not been audited. However, in the opinion ofmanagement, all normal recurring adjustments necessary to present fairly thefinancial position and the results of operations for the interim periodpresented have been made. These interim financial statements have been preparedon the basis of accounting principles and practices generally accepted in theUnited States of America.

 

Certain information andfootnote disclosures normally included in annual financial statements presentedin accordance with accounting principles and practices generally accepted inthe United States of America have been condensed or omitted. The results ofoperations for interim periods are not necessarily indicative of the results tobe expected for the full year. The accompanying financial statements should beread in conjunction with our predecessor’s annual financial statements andnotes thereto for the year ended December 31, 2004, included in theregistration statement on Form S-4, as filed on June 20, 2005, asamended.

 

**B.**            ACQUISITION AND RELATED TRANSACTIONS

** **

On May 2, 2005, NewPage Corporationand subsidiaries acquired the Printing and Writing Papers Business (the “predecessor”)from MeadWestvaco Corporation (“MeadWestvaco”) (the “acquisition”). On January 14,2005, our indirect parent, Escanaba Timber LLC (“Escanaba Timber”), andMeadWestvaco entered into an equity and asset purchase agreement (the “purchaseagreement)” pursuant to which we and our subsidiaries acquired the coated andcarbonless papers 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.

 

•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.

 

7

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•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 the purchaseagreement, of which $1,980,000 was paid in cash and $100,000 was paid in theform of NewPage Holding PIK notes.

 

Included in accountsreceivable at June 30, 2005, is a receivable from MeadWestvaco ofapproximately $20,000 for the estimated post-closing purchase priceadjustments.

 

The consolidated balancesheets in these financial statements include the assets acquired andliabilities assumed of MeadWestvaco’s coated and carbonless papers group andreflect an allocation of purchase price based on estimated fair value at thedate of acquisition. The amount of the purchase price allocated to NewPage isdifferent from the sum of the payments made through NewPage toMeadWestvaco as a result of a difference between the relative fair value of theassets acquired by NewPage and Escanaba Timber and the relative paymentsmade by each company. A summary of the preliminary purchase price allocated toNewPage for the fair value of the assets acquired and the obligationsassumed at the date of the acquisition is presented below. The purchase priceallocation is preliminary and is subject to completion of final appraisals andfinal determination of post-closing purchase price 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 summarizesselected unaudited pro forma consolidated statements of operations data of the predecessorfor the first half ended June 30, 2005 and 2004 as if the acquisition hadbeen completed at 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 unauditedpro forma consolidated financial data is included only for the purposes ofillustration and does not necessarily indicate what the operating results wouldhave been if the acquisition had been completed on such date. Moreover, thisinformation does not necessarily indicate what our future operating resultswill be. This information includes two months of actual data in 2005 for theperiod subsequent to the date of the acquisition. For periods prior to theacquisition, the unaudited pro forma information includes allocations to thepredecessor of certain expenses maintained by MeadWestvaco for periods afterthe 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 atthe lower of cost or market. Cost is determined using the last-in, first-out(LIFO) method for substantially all raw materials, finished goods andproduction materials. Cost of all other inventories, mainly stores and suppliesinventories, is determined by the average cost method.

 

**D.**            INTANGIBLES AND OTHER ASSETS

** **

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 FINANCIAL INSTRUMENTS

** **

As of May 2, 2005,we entered into a commodity basket option contract as part of the Transactionsand paid a premium of $72,000 for the contract. This commodity basket optioncontract is a purchased basket of put options on a mix of natural gas, marketpulp and the Euro. While the option was designed to help protect againstdecreases in the North American prices of coated paper by reference to theprices of natural gas and market pulp, and material decreases in the value ofthe Euro relative to the U.S. dollar, there is no assurance that the commoditybasket option contract will actually protect us against any such pricedecreases or that the historical level of correlation will continue during thethree-year period of the contract. Because of the uncertainty of futurecorrelation, we will not apply hedge accounting treatment for this contract andwill record changes in the fair value of the contract in other (income)expense. Other (income) expense for the two months ended June 30, 2005,includes an unrealized loss of $20,038 determined based on the mark-to-market valueof the contract. The fair value for purchased contracts is based on the amount wecould receive from the counterparty to settle the contract.

 

As of June 30, 2005,we entered into two interest rate swap agreements and one interest rate capagreement to hedge the variability of cash flows on a portion of ourfloating-rate debt. We entered into a $150,000 notional amount interest rateswap expiring June 2009 and a $150,000 notional amount interest rate swapexpiring June 2010. We purchased a $150,000 notional amount interest ratecap with a cap rate of 4.50% that expires June 2008 for $957. Thesecontracts are accounted for as cash-flow hedges, with changes in fair valuerecorded as a component of other comprehensive income and any ineffectivenessrecorded in interest expense.

 

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**F.**             LONG-TERM DEBT

** **

In conjunction with the acquisition,we issued $1,693,571 of long-term debt 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 offinancing fees related to the issuance of the above debt. In addition, werecognized an expense of $11,000 after the acquisition related to bridgefinancing commitment fees. We will amortize the remainder of the financingcosts to interest expense over the terms of the related debt issues.

 

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

### *** ***

The senior secured creditfacilities consist of a senior secured term loan of $750,000 and a seniorsecured revolving credit facility of $350,000. Subject to customary conditions,including the absence of defaults under the revolving facility, amountsavailable under the revolving facility may be borrowed, repaid and re-borrowed,including in the form of letters of credit and swing line loans, until thematurity date thereof. The revolving facility was partially utilized to fundthe acquisition and pay related expenses, and may be utilized to fund ourworking capital, to fund permitted acquisitions and capital expenditures, andfor other general corporate purposes. The availability under our revolvingcredit facility is reduced by our outstanding letters of credit, which totaled$9,974 at June 30, 2005. The amount of loans and letters of creditavailable to us pursuant to the revolving facility is limited to the lesser of$350,000 or an amount determined pursuant to a borrowing base. The borrowingbase at any time will be equal to 85% of the book value of our and oursubsidiaries’ eligible account receivables, plus the lesser of (i) 75% ofthe lower of cost or market value of our and our subsidiaries’ eligibleinventory or (ii) 85% of the “net cost recovery percentage” of our and oursubsidiaries’ eligible inventory, minus certain reserves established by thecollateral agent under the revolving facility. The collateral agent has theright to change these advance rates under certain circumstances. Theeligibility of accounts receivable and inventory for inclusion in the borrowingbase is determined in accordance with certain customary criteria specifiedpursuant to the revolving facility. For purposes of the borrowing base, “netcost recovery percentage” is the percentage determined by dividing the amountthat would be recovered in an orderly liquidation of the inventory, asdetermined from the most recent inventory appraisal conducted under the termsof the revolving facility, by the cost of the inventory covered by suchappraisal. Based on availability under the borrowing base as of June 30,2005, we had $145,134 of additional borrowing under the revolving seniorsecured credit facility. Unless terminated earlier, the revolving facilitymatures at May 1, 2010. Amounts outstanding under our revolving facilityinitially bear interest, at our option, at a rate per annum equal to either: (i) thebase rate plus an applicable margin (initially 1.00%), or (ii) LIBOR plusan applicable margin (initially 2.00%). Certain customary fees are payable tothe lenders and the agents under the senior secured credit facilities,including, without limitation, a commitment fee for our revolving facilitybased upon non-use of available funds and letter of credit fees and issuerfronting fees.

 

The senior term facility maturesat May 1, 2011 and will amortize in 20 consecutive equal quarterlyinstallments in an aggregate annual amount equal to 1.0% of the originalprincipal amount of the senior term facility during the first five yearsthereof, with the balance payable in four equal quarterly

 

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installments in year six.The senior term facility is subject to mandatory prepayment with, in general, (i) 100%of the net cash proceeds of certain asset sales, subject to certainreinvestment rights; (ii) 100% of the net cash proceeds of certaininsurance and condemnation payments, subject to certain reinvestment rights; (iii) 50%of the net cash proceeds of equity offerings; (iv) 100% of the net cashproceeds of debt incurrences (other than debt incurrences permitted under theterm facility); and (v) 75% of our excess cash flow, as defined in thesenior secured credit facility (declining in stages to zero, in accordance witha leverage ratio test). The loans under the senior term facility bear interest,at our option, at a rate per annum equal to either: (i) the base rate plus2.00%, or (ii) LIBOR plus 3.00%.

 

The senior secured creditfacilities are jointly and severally guaranteed by our parent and each of our domesticsubsidiaries. Subject to certain customary exceptions, we and each of theguarantors granted to the lenders under the revolving facility a first prioritysecurity interest in and lien on our and our domestic subsidiaries’ present andfuture cash, deposit accounts, accounts receivable, inventory and intercompanydebt owed to us, our parent and our guarantor domestic subsidiaries. Subject tocertain customary exceptions, we and each of the guarantors granted to thelenders under the term facility (i) a first priority security interest inand lien on substantially all of our and our domestic subsidiaries’ present andfuture property and assets (other than cash, deposit accounts, accountsreceivable, inventory and intercompany debt owed to us, our parent and ourguarantor domestic 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 domestic subsidiaries.

 

The senior secured creditfacilities contain various customary affirmative and negative 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, (iii) repay otherindebtedness, (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 facevalue of 10% senior secured notes and $225,000 of floating rate senior securednotes. The senior secured notes mature on May 1, 2012. Interest on the 10%senior secured notes accrues at the rate of 10% per annum and is payablesemi-annually in arrears on May 1 and November 1, commencing on November 1,2005. Interest on the 10% senior secured notes is computed on the basis of a 360-dayyear comprised of twelve 30-day months. Interest on the floating rate seniorsecured notes accrues at a rate per annum, reset quarterly, equal to LIBOR plus6.25%. We will pay interest on the floating rate senior secured notesquarterly, in arrears, on every February 1, May 1, August 1 and November 1,commencing on August 1, 2005.

 

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----

 

The senior secured notesare secured on a second-priority basis by liens on all of our assets of the Companyand the guarantors other than the collateral securing the revolving seniorcredit facility and the stock of our subsidiaries; are subordinated, to theextent of the value of the assets securing such indebtedness, to the seniorsecured credit facility; are senior in right of payment to our existing andfuture subordinated indebtedness, including the senior subordinated notes; andare jointly and severally unconditionally guaranteed by our domesticsubsidiaries.

 

At any time prior to May 1,2008, we may redeem up to 30% of the 10% senior secured notes at a redemptionprice of 110% with the net cash proceeds of one or more equity offerings by theCompany or a contribution to the common equity capital of the Company from thenet proceeds of one or more Equity Offerings by a direct or indirect parent ofthe Company. At any time prior to May 1, 2009, we may also redeem all or apart of the 10% senior secured 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 partof the 10% senior secured notes at an initial redemption price of 106.0%. Atany time prior to May 1, 2008, we may redeem up to 30% of the floatingrate senior secured notes at a redemption price of 100%, plus LIBOR on the dateof redemption, plus 6.25% with the net cash proceeds of one or more EquityOfferings by the Company or a contribution to the common equity capital of theCompany from the net proceeds of one or more Equity Offerings by a direct orindirect parent of the Company. On or after May 1, 2009, we may redeem allor a part of the floating rate senior secured notes at an initial redemptionprice of 103.0%. If a Change of Control occurs, each holder of senior securednotes has the right to require us to repurchase all or any part of that holder’ssenior secured notes at 101% of the face value.

 

The senior secured notescontain various customary covenants (subject to customary exceptions andcertain existing obligations and liabilities), including, but not limited to,restrictions on our ability and the ability of our subsidiaries to (i) disposeof assets, (ii) incur additional indebtedness and guarantee obligations orissue preferred stock, (iii) repay other indebtedness, (iv) paycertain restricted payments and dividends, (v) create liens on assets orprohibit the creation of liens on assets, (vi) make investments, loans oradvances, (vii) restrict distributions to our company from oursubsidiaries, (viii) make certain acquisitions, (ix) engage inmergers or consolidations, (x) enter into sale and leaseback transactions, (xi)engage in certain transactions with subsidiaries that are not guarantors of thesenior secured credit facilities or with affiliates or (xii) amend the terms ofthe notes and otherwise restrict corporate activities.

 

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

### *** ***

We issued $200,000 facevalue of senior subordinated notes that mature on May 1, 2013. The seniorsubordinated notes are general unsecured obligations and are subordinated inright of payment to all our existing and future senior debt, including thesenior secured notes and borrowings under the senior secured credit facilities.Interest on the senior subordinated notes accrues at the rate of 12.0% perannum and is payable semi-annually in arrears on May 1 and November 1,commencing on November 1, 2005. The senior subordinated notes are jointlyand severally guaranteed by each of our domestic subsidiaries.

 

At any time prior to May 1,2008, we may redeem up to 30% of the senior subordinated notes at a redemptionprice of 112.0% with the net cash proceeds of one or more equity offerings bythe Company or a contribution to the common equity capital of the Company fromthe net proceeds of one or more equity offerings by a direct or indirect parentof the Company. At any time prior to May 1, 2009, we may also redeem allor a part of the senior subordinated notes at a redemption price equal

 

12

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to 100% plus a “make-whole”premium. On or after May 1, 2009, we may redeem all or a part of thesenior subordinated notes at an initial redemption price of 106.0%. If a Changeof Control occurs, each holder of the senior subordinated notes has the rightto require us to repurchase all or any part of that holder’s seniorsubordinated notes at 101% of the face value.

 

The senior subordinatednotes contain various customary covenants (subject to customary exceptions andcertain existing obligations and liabilities), including, but not limited to,restrictions on our ability and the ability of our subsidiaries to (i) disposeof assets, (ii) incur additional indebtedness and guarantee obligations orissue preferred stock, (iii) repay other indebtedness, (iv) paycertain restricted payments and dividends, (v) create liens on assets orprohibit the creation of liens on assets, (vi) make investments, loans oradvances, (vii) restrict distributions to our company from oursubsidiaries, (viii) make certain acquisitions, (ix) engage inmergers or consolidations, (x) enter into sale and leaseback transactions, (xi)engage in certain transactions with subsidiaries that are not guarantors of thesenior secured credit facilities or with affiliates or (xii) amend the terms ofthe notes and otherwise restrict corporate activities.

 

**G.**            EQUITY

** **

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

 

### ***EquityAwards***

### *** ***

Certain members of ourmanagement and our chairman were granted Class A Common PercentageInterests and Class B Common Percentage Interests of Maple TimberAcquisition LLC (our ultimate parent) (the “Management Interests”) relating toour business. The equity interests of Maple Timber Acquisition LLC areclassified into two separate series: one relating to our business and onerelating to the business of Escanaba Timber. The series of equity interests relatingto 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 the ManagementInterests will vest only if performance targets are met during 2006 and 2007.All 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.”

 

13

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**H.**            BUSINESS SEGMENTS

** **

Our principal businesssegments are Coated Paper System and Carbonless Paper System.

 

The Coated Paper Systemis engaged in the manufacturing, marketing and distribution of coated papersprimarily used for commercial printing, magazines, catalogs, textbooks, andlabels. The products in this segment include: coated papers, uncoated papersproduced in Michigan and Kentucky, and market pulp production. This segment’sproducts are manufactured at four U.S. mills and supported by multipledistribution and converting locations.

 

The Carbonless PaperSystem is engaged in the manufacturing, marketing and distribution ofcarbonless and technical papers used primarily for business forms. The productsin this segment include: value-added carbonless papers, uncoated papers, andspecialty papers. This segment’s products are manufactured at one U.S. mill andone off-site coating facility.

 

The segments are measuredon earnings before interest, taxes and certain other (income) expenses that arecorporate items. Sales between the segments are transacted based on marketprices. We have no operations or long-lived assets outside of the UnitedStates.

 
| ** **                                         | ** ** | **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     |   |

 

The following is areconciliation of the segment operating profit (loss) reported above to theamount of income (loss) before equity in earnings of investee reported in theconsolidated 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    | ) |

 

14

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| ** **               | ** ** | **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 madeagainst us for the costs of environmental remedial measures taken or to be taken.Reserves for such liabilities have been established and no insurance recoverieshave been anticipated in the determination of the reserves. We are involved invarious other litigation and administrative proceedings arising in the normalcourse of business. Although the ultimate outcome of such matters cannot bepredicted with certainty, we do not believe that the currently expected outcomeof any matter, lawsuit or claim that is pending or threatened, or all of themcombined, will have a material adverse effect on our financial condition,results of operations or liquidity.

 

**J.**             RETIREMENT AND OTHER POSTRETIREMENT BENEFITS

** **

At the acquisition weassumed certain retirement obligations for active hourly employees and receivedrelated retirement plan assets. We do not expect to make any contributions tothe retirement plan during the current year.

 

At the acquisition weassumed certain postretirement health care obligations for active employees. Wefund the postretirement health care benefits on a pay-as-you-go basis so thatour contributions are equal to the benefits paid to participants.

 

We also sponsor definedcontribution plans for certain employees, which provide for companycontributions of a specified percentage of each employee’s total compensation.Certain of these plans include a profit-sharing component that varies dependingon the achievement of certain objectives.

 

The funded status of thedefined benefit plans at May 1, 2005, was as follows:

 
| ** **                                      | ** ** | ** **     | ** ** | **Post-**      | ** ** |
|-------------------------------------------------|------------|----------------|------------|----------------|------------|
| ** **                                      | ** ** | **Retirement** | ** ** | **retirement** | ** ** |
| ** **                                      | ** ** | **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 postretirementbenefit plan utilized a weighted-average assumed rate of increase in the percapita cost of covered benefits (i.e., health care cost trend rate) of 13.0% for2005 and decreasing 1.0% per year to an ultimate trend rate of 5.0% in 2013 andremaining at that level thereafter.

 

15

----

 

A summary of thecomponents of net periodic costs for the two months ended June 30, 2005,is as follows:

 
| ** **                      | ** ** | ** **     | ** ** | **Post-**      | ** ** |
|---------------------------------|------------|----------------|------------|----------------|------------|
| ** **                      | ** ** | **Retirement** | ** ** | **retirement** | ** ** |
| ** **                      | ** ** | **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 benefit payments for the plans for May 1through December 31, 2005, each of the next five years and for the fiveyears thereafter are expected to be paid as follows:

 
| ** **           | ** ** | ** **     | ** ** | **Post-**      | ** ** |
|----------------------|------------|----------------|------------|----------------|------------|
| ** **           | ** ** | **Retirement** | ** ** | **retirement** | ** ** |
| ** **           | ** ** | **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 though 2015     |       | 89,274         |       | 19,776         |       |
|                      |            |                |            |                |            |  |  |

 

## **K.**            INCOME TAX EXPENSE

## ** **

For the two months ended June 30, 2005, werecorded an income tax benefit of $22,507 offset by a valuation allowance ofthe same amount. We have not recorded a deferred tax benefit for the amount ofour loss before income taxes subsequent to the acquisition since it is morelikely than 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.

 

## **L.**            RELATED PARTY TRANSACTIONS

## ** **

At the acquisition, we entered into fiber supplyagreements with our indirect parent, Escanaba Timber LLC, whereby we areentitled to purchase timber fibers from them at prevailing market rates. Duringthe two months ended June 30, 2005, we made purchases of $6,020 from them.At the acquisition, we were required to deposit $4,624 with them as a result ofour lack of credit history as a stand-alone entity. In addition, we providecertain management services to them, including human resources, informationtechnology and accounting. Our billings to them for these services are notsignificant.

 

An affiliate of CerberusCapital Management, L.P., our equity sponsor, was paid a fee by our indirect parent,Escanaba Timber, in connection with the Transactions.

 

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

## ** **

In November 2004, the Financial AccountingStandards Board issued SFAS No. 151, *InventoryCosts*. This Statement amends ARB No. 43, Chapter 4 to clarifythe accounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material. In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. The adoption of thisStatement has no effect on us as our current accounting complies with theguidance.

 

16

----

 

In March 2005, theFinancial Accounting Standards Board issued FASB Interpretation No. 47, *Accounting for Conditional Asset Retirement Obligations, aninterpretation of FASB Statement No. 143*. This Interpretationclarifies the accounting for conditional asset retirement obligations in whichthe timing and (or) method of settlement are conditional on a future event thatmay or may not be within the control of the entity. An entity is required torecognize a liability for the fair value of a conditional asset retirementobligation if the fair value of the liability can be reasonably estimated.Uncertainty about the timing and (or) method of settlement of a conditionalasset retirement obligation should be factored into the measurement of theliability when sufficient information exists. This Interpretation is effectiveno later than the end of fiscal years ending after December 15, 2005 (December 31,2005 for us). This Statement is not expected to have a material effect on our financialposition, results of operations, or compliance with 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** | ** ** |
| Net sales  (including sales to related parties of $3,683 and $10,238, respectively) |       | $                       | 172,388    |                    | $          | 715,889 |   |
|                                                                                |       |                    |       |                    |       |
| Cost of sales                                                                       |       | 164,267                 |       | 672,034                 |       |
| Selling, general  and administrative expenses                                       |       | 10,072                  |       | 39,445                  |       |
| Interest expense                                                                    |       | 645                     |       | 2,781                   |       |
| Other income,  net                                                                  |       | (140                    | )          | (1,122                  | )          |
|                                                                                |       |                    |       |                    |       |
| Income (loss)  before income taxes and equity income from investee                  |       | (2,456                  | )          | 2,751                   |       |
| Income tax  (benefit)                                                               |       | (961                    | )          | 776                     |       |
| Equity income  from investee (net of income tax of $97 and $383, respectively)      |       | 173                     |       | 681                     |       |
|                                                                                |       |                    |       |                    |       |
| Net income  (loss)                                                                  |       | $                       | (1,322     | )                       | $          | 2,656 |   |

* *

*The accompanying notes are anintegral part of these financial statements.*

 

18

----

 
| ** **                                                                          | ** ** | **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 anintegral part of these financial statements.*

 

19

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**PRINTING AND WRITING PAPERS BUSINESS**

**(A BUSINESSOF 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  contingences       |       |                       |       |
|                                |       |                       |       |
| Combined equity                     |       | 1,712,513                  |       |
|                                |       | $                          | 2,646,887  |   |

 

*The accompanying notes are anintegral part of these financial statements.*

 

20

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**PRINTING AND WRITING PAPERS BUSINESS**

**(ABUSINESS OF MEADWESTVACO CORPORATION)**

**PREDECESSOR**

**COMBINEDSTATEMENT OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                                            | ** ** | **Four Months Ended**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| **In thousands**                                                                                                      | ** ** | **April 30, 2005** | ** ** |
| **Cash  flows from operating activities:**                                                                            |       |                    |       |
| Net income                                                                                                       |       | $                       | 2,656      |   |
| Adjustments to reconcile net income  to net cash provided by operating activities: |       |                    |       |
| Depreciation  and amortization                                                                                   |       | 76,712                  |       |
| Deferred income taxes                                                                                       |       | 1,159                   |       |
| Loss on sales of assets,  net                                                                     |       | 1,510                   |       |
| Investee –  earnings and distributions                                                                           |       | 1,006                   |       |
| Changes in operating  assets and liabilities:                                                               |       |                    |       |
| Accounts  receivable, net                                                                                             |       | (1,947                  | )          |
| Inventories                                                                                                           |       | (59,339                 | )          |
| Other current  assets                                                                                                 |       | (2,983                  | )          |
| Other long-term  assets                                                                                               |       | (3,051                  | )          |
| Accounts payable                                                                                                      |       | 2,591                   |       |
| Accrued expenses                                                                                                      |       | (17,584                 | )          |
| Other  liabilities                                                                                                    |       | 741                     |       |
| Net cash provided  by operating activities                                                             |       | 1,471                   |       |
|                                                                                                                  |       |                    |       |
| **Cash  flows from investing activities:**                                                                            |       |                    |       |
| Additions to  property, plant and equipment                                                                           |       | (18,768                 | )          |
| Proceeds from sale  of property, plant and equipment                                                                  |       | —                  |       |
| Net cash used in  investing activities                                                                                |       | (18,768                 | )          |
|                                                                                                                  |       |                    |       |
| **Cash  flows from financing activities:**                                                                            |       |                    |       |
| Repayment of  long-term debt                                                                                          |       | (145,035                | )          |
| Net transactions  with MeadWestvaco Corporation                                                                       |       | 162,332                 |       |
| Net cash provided  by financing activities                                                                            |       | 17,297                  |       |
|                                                                                                                  |       |                    |       |
| **Increase  (decrease) in cash and cash equivalents**                                                                 |       | $                       | —     |   |

 

*The accompanying notes are anintegral part of these financial statements.*

 

21

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| ** **                                                                                                          | ** ** | **First Half Ended**   | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| **In thousands**                                                                                                    | ** ** | **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 anintegral part of these financial statements.*

 

22

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**PRINTING AND WRITING PAPERS BUSINESS**

**(ABUSINESS OF MEADWESTVACO CORPORATION)**

 

**NOTES TOUNAUDITED COMBINED FINANCIAL STATEMENTS (IN THOUSANDS)**

 

**1.  Description of Business and Basis ofPresentation**

 

These combined financialstatements present the historical results of the Printing and Writing PapersBusiness, which is sometimes referred to as the Coated and Carbonless PapersGroup (the “Business”), which was 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 thehistorical Papers business segment of MeadWestvaco adjusted to excludeMeadWestvaco’s investment in Northwood Panelboard and the operations ofSpecialty Papers, which is a distinct and different business under separatemanagement that will not be purchased. The Business is engaged in the manufacturing, marketing and distributionof coated, uncoated and carbonless papers, which are manufactured at fivedomestic mills.

 

These combined financialstatements are intended to present the historical results of the Businessoperations during each respective period. As such, these combined financial statements include allocations ofcertain expenses, as well as assets and liabilities historically maintained byMeadWestvaco and not recorded in the accounts of the Business.  The Business and MeadWestvaco managementbelieve such allocations have been made on a reasonable basis.  However, these combined financial statementsmay not necessarily be indicative of the results that would have been obtainedif the Business had operated as a separate entity during the periods presented.

 

The combined equity ofthe Business comprises the excess of the Business’ assets over itsliabilities.  Combined equity is affectedby the Business’ operating results, expense allocations from MeadWestvaco andcash transfers between the Business and MeadWestvaco, including settlement ofintercompany transactions and amounts paid or received relating to interest andincome taxes, as MeadWestvaco manages all treasury activities of the Business.

 

These interim combinedfinancial 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 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 andfootnote disclosures normally included in annual financial statements presentedin accordance with GAAP have been condensed or omitted.  The results of operations for interim periodsare not necessarily indicative of the results to be expected for the fullyear.  The accompanying financialstatements should be read in conjunction with the Business’s annual financialstatements 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 measurescompensation cost for MeadWestvaco stock options issued to employees using theintrinsic value-based method of accounting in accordance with AccountingPrinciples Board Opinion No. 25, *Accounting for StockIssued to Employees*(“APB 25”). The Business adopted the disclosure requirements of SFAS No. 148, *Accounting for Stock-Based Compensation – 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:

 

23

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| ** **                                                                                                                                                   | ** ** | **One Month Ended  April 30, 2005** | ** ** | **Four Months Ended  April 30, 2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------|------------|
| Net income  (loss) – as reported                                                                                                                        |       | $                                        | (1,322     | )                                          | $          | 2,656 |   |
| 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 income  (loss)                                                                                                                  |       | $                                        | (1,387     | )                                          | $          | 2,395 |   |

 
| ** **                                                                                                                                                   | ** ** | **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.  Restructuring**

 

**One month ended April 30,2005**

 

For the one month ended April 30,2005, there were no restructuring charges.

 

**Four months ended April 30,2005**

 

During the four monthsended April 30, 2005, the Business recorded total pretax charges of $169for employee separation costs, all of which was recorded within cost of sales.

 

**Quarter ended June 30, 2004**

 

For the quarter ended June 30,2004, the Business recorded total pretax charges of $120 for employeeseparation costs, of which $97 and $23 were recorded within cost of sales andselling, general and administrative expenses, respectively.

 

**First half ended June 30,2004**

 

During the first half of2004, the Business recorded total pretax charges of $425 for employeeseparation costs, of which $400 and $25 were recorded within cost of sales andselling, general and administrative expenses, respectively.

 

24

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**Prior periods**

 

As part of the Business’splanned integration strategy and various restructuring activities, the Businesshad charges of $13,481 for the separation benefits of approximately 120employees associated with restructuring activities of prior periods.  As of June 30, 2004, approximately 49%of the affected employees had been separated. The remaining separations substantially occurred by the end of 2004.

 

**Summary of other restructuringcharges, other than Westvaco and Mead merger related**

 

The activity related tothe plans above was as follows for the four months ended April 30, 2005:

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

 

The activity related tothe plans above was as follows for the first half of 2004:

 
| ** **                                                                          | ** ** | **Employee  costs** | ** ** | **Other  costs** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------|------------|------------------|------------|-----------|------------|
| Balance of related accruals at December 31, 2003 |       | $                   | 3,904      |             | $          | (8        | )          | $ | 3,896 |   |
| Add:  current charges                                                |       | 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-relatedrestructuring**

 

MeadWestvaco establishedaccruals relating primarily to employee separation costs, facility closurecosts and other actions relating to the integration of certain Mead operationsinto MeadWestvaco.  Costs associated withthese integration actions were recognized as a component of purchaseaccounting, resulting in the establishment of liabilities and adjustments togoodwill.  Accordingly, these costs didnot impact 2002 earnings and were not allocated to segments.  The integration actions included the closureof three older, high-cost coated paper machines and related facilities at theChillicothe, Ohio, paper mill and the integration of the Mead and Westvacopaper groups.  Costs associated withdecommissioning the machines and most employee termination benefits for 347employees totaled $23,009, of which $2,150 was for asset impairments.

 

At March 31, 2005,there was no remaining balance of liabilities established in conjunction withthe actions related to the Westvaco and Mead merger.

 

**Summary of Westvaco and Meadmerger-related restructuring**

 

The activity in theaccrued liability related to the plan described above was as follows for thefirst quarter of 2005:

 
| ** **                                                                          | ** ** | **Other   costs** | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------|------------|
| Balance of related accruals at December 31, 2004 |       | $                 | 1,326      |   |
| Less:  payments                                                           |       | 1,326             |       |
| Balance of related accruals at March 31, 2005    |       | $                 | —     |   |

 

The activity in theaccrued liability related to the plan described above was as follows for thefirst half of 2004:

 

25

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| ** **                                                                          | ** ** | **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      |   |

 

**3.  Inventories and Property, Plant andEquipment**

 
| ** **                                 | ** ** | **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 andequipment is net of accumulated depreciation of $1,702,617 at December 31,2004.

 

**4.  Goodwill and Other Intangible Assets**

 

Unless otherwise deemednecessary by events or changes in circumstances, the Business performs itsannual impairment review of goodwill during the fourth quarter of each yearunder the guidance of SFAS No. 142, *Goodwill and OtherIntangible Assets.*

 

Intangible assets subject to amortization, included inother assets, include customer contracts and lists.  The gross carrying amount for theseidentifiable intangible assets was $49,550 at December 31, 2004.  Accumulated amortization associated withthese identifiable intangible assets was $19,399 at December 31, 2004.

 

The Business recordedamortization expense of $446, $1,785, $1,850 and $3,389 for the one month andfour months ended April 30, 2005 and the quarter and half year ended June 30,2004, respectively, relating to those identifiable assets, subject toamortization.

 

Based on the currentvalue of intangible assets subject to amortization, the estimated amortizationexpense for 2005 and each of the succeeding 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 and dispositions occur in the future, these amounts mayvary.

 

**5.  Employee Retirement and PostretirementBenefits**

 

The employees of theBusiness are participants in various defined benefit pension and postretirementplans sponsored by MeadWestvaco, and the assets and liabilities are combinedwith those related to other MeadWestvaco businesses.  Similarly, MeadWestvaco manages its domesticpostretirement benefit plans on a combined basis, and claims data and liabilityinformation related to the Business is aggregated and combined, by plan, withthose related to other MeadWestvaco businesses. As a result, no assets or liabilities are reflected on the Business’scombined balance sheet, and pension and postretirement expense for the Businesshas been determined on a multi-employer plan basis.

 

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

 

The employees of theBusiness are also eligible to participate in defined contribution benefit planssponsored by MeadWestvaco.  Under theterms of the defined contribution benefit plans, participant contributions maybe directed into a number of investment options.  MeadWestvaco matching contributions are madeto a fund that invests in MeadWestvaco

 

26

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shares. During the one month and four months ended April 30, 2005 andthe quarter and half year ended June 30, 2004, the Business incurred expensesof approximately $844, $3,695, $2,708 and $5,430, respectively, for matchingcontributions to the defined contribution benefit 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.

 

**6.  Segment Information**

 

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)** | ** ** |
| Coated Paper                       |       | $         | 136,278    |              | $          | 1,135 |   |
| Carbonless Paper                   |       | 36,110    |       | (3,321            | )          |
| Total                              |       | $         | 172,388    |              | $          | (2,186 | ) |

 
| ** **                            | ** ** | **Trade** | ** ** | **Segment**       | ** ** |
|---------------------------------------|------------|-----------|------------|-------------------|------------|
| **Four Months Ended April 30,  2005** | ** ** | **Sales** | ** ** | **Profit (Loss)** | ** ** |
| Coated Paper                          |       | $         | 580,934    |              | $          | 11,891 |   |
| Carbonless Paper                      |       | 134,955   |       | (8,076            | )          |
| Total                                 |       | $         | 715,889    |              | $          | 3,815 |   |

 
| ** **                              | ** ** | **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 | ) |

 

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| ** **                         | ** ** | **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 | ) |

 

**7.  Environmental and LegalMatters**

 

The Business has been notified by the U.S.Environmental Protection Agency (the “EPA”) or by various state or localgovernments that it may be liable under federal environmental laws or underapplicable state or local laws with respect to the cleanup of hazardoussubstances at sites previously operated or used by the Business.  The Business is currently named as apotentially responsible party (“PRP”) or has received third-party requests forcontribution under the Comprehensive Environmental Response, Compensation andLiability Act (CERCLA) and similar state or local laws with respect to a numberof sites.  There are other sites whichmay contain contamination or which may be potential Superfund sites, but forwhich the Business has not received any notice or claim.  The potential liability for all these siteswill depend upon several factors, including the extent of contamination, themethod of remediation, insurance coverage and contribution by other PRPs.  The Business regularly evaluates itspotential liability at these various sites. At December 31, 2004, the Business has recorded liabilities ofapproximately $1.7 million for estimated potential cleanup costs based upon itsclose monitoring of ongoing activities and its past experience with thesematters.  The Business believes that itis reasonably possible that costs associated with these sites may exceedamounts of recorded liabilities by an amount that could range from aninsignificant amount to as much as $2 million. This estimate is less certainthan the estimate upon which the environmental liabilities were based.  After consulting with legal counsel and afterconsidering established liabilities, it is our judgment that the resolution ofpending litigation and proceedings is not expected to have a material adverseeffect on the Business’s consolidated financial condition or liquidity. In anygiven period or periods, however, it is possible such proceedings or matterscould have a material effect on the results of operations.

 

The Business is involved in various other litigationand administrative proceedings arising in the normal course of business.Although the ultimate outcome of such matters cannot be predicted withcertainty, management does not believe that the currently expected outcome ofany matter, lawsuit or claim that is pending or threatened, or all of themcombined, will have a material adverse effect on the Business’s financialcondition or liquidity.  In any givenperiod or periods, however, it is possible such proceedings or matters couldhave a material effect on the results of operations.

 

**8.  Related Party Transactions**

 

Transactions between the Business and other business segments ofMeadWestvaco commonly occur in the normal course of business.  In addition, the Business also hastransactions with MeadWestvaco’s Forestry Operations.  Purchases from Forestry Operations were $166,$2,491, $880 and $2,476 for the one month and four months ended April 30, 2005and the quarter and half 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 year endedJune 30, 2004, respectively.

 

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 or chargedby MeadWestvaco to the Business for services performed by MeadWestvaco onbehalf of the Business totaled $2,602, $11,000, $10,720 and $21,042 for the onemonth and four months ended April 30, 2005 and the quarter and half year endedJune 30, 2004, respectively.

 

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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 the quarterand 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.

 

* * * * *

 

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## **ITEM2.**  MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

## ** **

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 followingdiscussion of our financial condition and results of operations should be readin conjunction with our financial statements and notes thereto includedelsewhere in this Quarterly Report. You should also read the followingdiscussions in conjunction with risk factors and forward-looking statements(including those factors specifically relevant to the operations and financialcondition of NewPage Corporation for periods subsequent to the acquisition)contained in the Registration Statement 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.

 

## **Company Background**

## ** **

On May 2, 2005, we acquired the Printing and Writing Papers Business ofMeadWestvaco Corporation. We are the largest coated paper manufacturer in NorthAmerica based on production capacity according to industry publications. Coatedpaper is used primarily in media and marketing applications, includingcorporate annual reports, high-end advertising brochures, magazines andcatalogs and direct mail advertising. Our largest product category is coatedfreesheet paper, which is used primarily for higher-end applications such asannual reports, brochures, coated labels and magazine covers. The remainder ofour coated paper is coated groundwood paper, which is used primarily forcatalogs, magazines and textbooks. We also produce carbonless copy paper forbusiness forms, as well as uncoated paper, digital printing paper and marketpulp, a component used in the manufacturing of paper.

 

30

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## **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 competitors typically continue torun our machines 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.

 

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## **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 largermaintenance projects, such as paper machine shutdowns for annual maintenance.Day-to-day maintenance expenses have not varied significantly from year toyear. Larger maintenance projects and equipment expenses can produce year toyear 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.

 

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### ***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. OurSG&A expenses have not historically fluctuated significantly from year toyear. We expect that our SG&A expenses (excluding transitional costsrelated to the acquisition) will decrease as compared to prior to theacquisition as a result of the elimination of corporate allocations that werecharged to our predecessor by MeadWestvaco that are not related to our businessas a stand-alone company, partially offset by an increase in SG&A expensesthat we expect to incur directly as a stand-alone company, such as costs forinformation technology, 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 amount of our lossbefore income taxes subsequent to the acquisition since it is more likely thannot that we will not realize this benefit, as defined in SFAS No. 109, as aresult of the negative evidence presented by our predecessor’s history oflosses over the past three years.

 

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## **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**           | ** ** |
| **(dollars  in millions)**                                                          | ** ** | **$**            | ** ** | **%**           | ** ** | **$**        | ** ** | **%**              | ** ** | **$**           | ** ** | **%**      | ** ** | **$**      | ** ** | **%** | ** ** |
| Net sales                                                                           |       | 351.7            |       | 100.0           |       | 172.4        |       | 100.0              |       | 524.1           |       | 100.0      |       | 538.7      |       | 100.0 |   |
| Cost of sales                                                                       |       | 334.0            |       | 95.0            |       | 164.2        |       | 95.3               |       | 498.2           |       | 95.1       |       | 552.1      |       | 102.5 |   |
| Selling, general and administrative expense                                         |       | 19.6             |       | 5.6             |       | 10.1         |       | 5.8                |       | 29.7            |       | 5.6        |       | 33.2       |       | 6.2 |   |
| Interest expense                                                                    |       | 35.8             |       | 10.2            |       | 0.7          |       | 0.4                |       | 36.5            |       | 7.0        |       | 2.4        |       | 0.4 |   |
| Other (income) expense                                                              |       | 19.1             |       | 5.4             |       | (0.2         | )          | (0.1               | )          | 18.9            |       | 3.6        |       | (0.8       | )          | (0.1 | ) |
| Income (loss) before income taxes and equity in earnings of investee                |       | (56.8            | )          | (16.2           | )          | (2.4         | )          | (1.4               | )          | (59.2           | )          | (11.3      | )          | (48.2      | )          | (9.0 | ) |
| Income tax expense (benefit)                                                        |       | 0.0              |       | 0.0             |       | (0.9         | )          | (0.5               | )          | (0.9            | )          | (0.2       | )          | (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 income (loss)                                                                   |       | (56.3            | )          | (16.0           | )          | (1.3         | )          | (0.8               | )          | (57.6           | )          | (11.0      | )          | (29.5      | )          | (5.5 | ) |
|                                                                                |       |             |       |            |       |         |       |               |       |            |       |       |       |       |       |   |   |
| **Supplemental Information:**                                                       |       |             |       |            |       |         |       |               |       |            |       |       |       |       |       |   |   |
| Earnings before interest, taxes, depreciation, depletion and  amortization (EBITDA) |       | 7.4              |       |            |       | 18.4         |       |               |       | 25.8            |       |       |       | 12.0       |       |   |   |
| Net cash provided by (used in) operating activities                                 |       | 11.3             |       |            |       | 11.9         |       |               |       | 23.2            |       |       |       | 57.5       |       |   |   |

 

Net sales forthe second quarter of 2005 were $524.1 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

 

34

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quarter of2004 to $877 per ton in the second quarter of 2005, as well as higher salesvolumes and selling prices of our carbonless and uncoated papers in the secondquarter of 2005. The decrease in coated paper sales volume was largely causedby a decrease in industry demand, which we believe was due to lower advertisingand promotional spending and customer inventory reductions, and by a managementdecision to decrease export sales and to discontinue sales of certain lowmargin paper sold during the second quarter of 2004.

 

Cost of salesfor the second quarter of 2005 was $498.2 million compared to$552.1 million for the second quarter of 2004, a decrease of 9.8%. 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 $47.4 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 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.

 

35

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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 10.7%. 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 5.6% 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 ofMay 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. Thiscommodity basket option contract is a purchased basket of put options on a mixof natural gas, market pulp and the Euro. While the option was designed to helpprotect against decreases in the North American prices of coated paper byreference to the prices of natural gas and market pulp, and material decreasesin the value of the Euro relative to the U.S. dollar, there is no assurancethat the commodity basket option contract will actually protect us against anysuch price 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 hedging accounting treatmentfor this 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.

 

EBITDA was$25.8 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 $23.2 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

 

36

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in inventorylevels in the second quarter 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**           | ** ** |
| **(dollars in millions)**                                                           | ** ** | **$**            | ** ** | **%**            | ** ** | **$**        | ** ** | **%**              | ** ** | **$**           | ** ** | **%**      | ** ** | **$**      | ** ** | **%** | ** ** |
| Net sales                                                                           |       | 351.7            |       | 100.0            |       | 715.9        |       | 100.0              |       | 1,067.6         |       | 100.0      |       | 1,055.4    |       | 100.0 |   |
| Cost of sales                                                                       |       | 334.0            |       | 95.0             |       | 672.1        |       | 93.9               |       | 1,006.1         |       | 94.2       |       | 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             |       | 2.8          |       | 0.4                |       | 38.6            |       | 3.6        |       | 4.7        |       | 0.5 |   |
| Other (income) expense                                                              |       | 19.1             |       | 5.4              |       | (1.2         | )          | (0.2               | )          | 17.9            |       | 1.7        |       | (1.8       | )          | (0.2 | ) |
| Income (loss) before income taxes and equity in earnings of investee                |       | (56.8            | )          | (16.2            | )          | 2.7          |       | 0.4                |       | (54.1           | )          | (5.0       | )          | (96.6      | )          | (9.2 | ) |
| Income tax expense (benefit)                                                        |       | 0.0              |       | 0.0              |       | 0.8          |       | 0.1                |       | 0.8             |       | 0.1        |       | (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            | )          | 2.6          |       | 0.4                |       | (53.7           | )          | (5.0       | )          | (59.0      | )          | (5.6 | ) |
|                                                                                |       |             |       |             |       |         |       |               |       |            |       |       |       |       |       |   |   |
| **Supplemental Information:**                                                       |       |             |       |             |       |         |       |               |       |            |       |       |       |       |       |   |   |
| Earnings before interest, taxes, depreciation, depletion and  amortization (EBITDA) |       | 7.4              |       |             |       | 83.3         |       |               |       | 90.7            |       |       |       | 23.2       |       |   |   |
| Net cash provided by (used in) operating activities                                 |       | 11.3             |       |             |       | 1.0          |       |               |       | 12.3            |       |       |       | 90.5       |       |   |   |

 

Net sales forthe first half of 2005 were $1,067.6 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 and

 

37

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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.

 

Cost of salesfor the first half of 2005 was $1,006.1 million compared to$1,085.8 million for the first half of 2004, a decrease of 7.3%. 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 $104.1 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 5.8%, 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 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.

 

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 6.7%. The decrease was a result of the elimination of corporate allocationsthat were charged to us by MeadWestvaco that are not related to our business as

 

38

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a stand-alonecompany, partially offset by an increase in SG&A expenses that we incurreddirectly as a stand-alone company, such as costs for information technology,legal and finance support and human resources. In addition, we incurredtransitional costs of $2.0 million relating to the setup of our business as astand-alone business, including professional services and consulting costsrelated to information technology, human resources and finance. As a percentageof net sales, selling, general and administrative expenses decreased in thefirst half of 2005 to 5.5% from 6.0% in the first half 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$90.7 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 $12.3 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 flowfrom operations has limitations as an analytical tool, and you should notconsider it in isolation, or as a substitute for analysis of our results asreported under GAAP.

 

39

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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** | ** ** |
| Net cash provided by (used in) operating  activities  |       | $                  | 23.2       |           | $          | 57.5 |   | $ | 12.3 |   | $ | 90.5 |   |
| Cash interest expense                                 |       | 24.0               |       | 2.4            |       | 26.2 |   | 4.7 |   |
| Income tax expense (benefit)                          |       | (0.9               | )          | (18.3          | )          | 0.8 |   | (36.6 | ) |
| Income tax expense on equity in earnings of  investee |       | 0.1                |       | 0.3            |       | 0.4 |   | 0.6 |   |
| Loss on sale of assets                                |       | (1.0               | )          | (1.1           | )          | (1.5 | ) | (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                                 |       | 0.6                |       | 10.7           |       | (1.4 | ) | 25.9 |   |
| Equity award expense                                  |       | (0.2               | )          | 0.0            |       | (0.2 | ) | 0.0 |   |
| Changes in operating assets and liabilities           |       | (0.8               | )          | (38.0          | )          | 74.6 |   | (57.5 | ) |
| EBITDA                                                |       | $                  | 25.8       |           | $          | 12.0 |   | $ | 90.7 |   | $ | 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**           | ** ** | ** **         | ** ** | **2005** | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Combined**       | ** ** | ** **         | ** ** | **Combined** | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Successor and**  | ** ** | **2004**           | ** ** | **Successor and** | ** ** | **2004** | ** ** |
| **(in millions)**                                      | ** ** | **Predecessor**    | ** ** | **Predecessor**    | ** ** | **Predecessor** | ** ** | **Predecessor** | ** ** |
| Net sales:                                             |       |               |       |               |       |   |   |   |   |
| Coated paper                                           |       | $                  | 415.1      |               | $          | 439.4 |   | $ | 859.8 |   | $ | 857.1 |   |
| Carbonless paper                                       |       | 109.0              |       | 99.3               |       | 207.8 |   | 198.3 |   |
|                                                   |       | $                  | 524.1      |               | $          | 538.7 |   | $ | 1,067.6 |   | $ | 1,055.4 |   |
|                                                   |       |               |       |               |       |   |   |   |   |
| Segment profit (loss) (1):                             |       |               |       |               |       |   |   |   |   |
| Coated paper                                           |       | $                  | 8.1        |               | $          | (28.6 | ) | $ | 18.8 |   | $ | (68.9 | ) |
| Carbonless paper                                       |       | (10.8              | )          | (18.9              | )          | (15.5 | ) | (26.1 | ) |
|                                                   |       | $                  | (2.7       | )                  | $          | (47.5 | ) | $ | 3.3 |   | $ | (95.0 | ) |
|                                                   |       |               |       |               |       |   |   |   |   |
| Segment depreciation, amortization and  depletion (2): |       |               |       |               |       |   |   |   |   |
| Coated paper                                           |       | $                  | 42.5       |               | $          | 45.1 |   | $ | 87.5 |   | $ | 89.7 |   |
| Carbonless paper                                       |       | 4.9                |       | 12.0               |       | 16.6 |   | 23.8 |   |
|                                                   |       | $                  | 47.4       |               | $          | 57.1 |   | $ | 104.1 |   | $ | 113.5 |   |

 

----

(1)   Segmentprofit (loss) includes pre-tax equity in earnings of investee and excludestaxes and certain corporate items that are included in other (income) expenseand interest 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.

 

40

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### ***CoatedPaper***

### *** ***

Net sales for the coated paper segment were $415.1 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 $8.1 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 $859.8 million for the firsthalf 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 $18.8 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 9.8%. 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

 

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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 $10.8 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 $207.8 millionin the first half of 2005 from $198.3 million in the first half of 2004,an increase of 4.8%. The sales increase was driven by an increase in salesprices per ton of carbonless paper, increased export sales of carbonless paperand an increase in uncoated volume offset slightly by lower volumes ofcarbonless paper. The average price per ton of paper for this segment increasedfrom $1,245 per ton in the first half of 2004 to $1,258 per ton in the firsthalf of 2005, an increase of 1.1%.

 

The carbonless segment incurred a loss of $15.5 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 with thehighest 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 approach thetraditionally higher sales period of the year. We plan to

 

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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 steps neededto ensure the carbonless paper business and associated facilities would remainviable 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 under therevolving senior credit facility and based on availability under the borrowingbase as of that date, we had $145.1 million of borrowing availability under therevolving 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 a moreextensive 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 is aresult of the changes caused in recording the initial acquired values at the dateof acquisition and the elimination of the MeadWestvaco LIFO reserve that wasretained by MeadWestvaco’s LIFO pool.

 

As of June 30, 2005, we entered into two interest rate swap agreementsand one interest rate cap agreement to hedge the variability of cash flows on aportion of our floating-rate debt. We entered into a $150.0 million notional amountinterest rate swap expiring June 2009 and a $150.0 million notional

 

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

 

Capital expenditures were $12.2 million for the two months endedJune 30, 2005 and were $30.9 million for the first half of 2005. Capitalexpenditures for all of 2005 are expected to be approximately$90.0 million and are expected to consist of maintenance capital projects,environmental projects and capital improvements, such as a paper machinerebuild at our mill in Luke, Maryland. Compliance with environmental laws andregulations is a significant factor in our business. We have made, and willcontinue to make, significant expenditures to comply with these requirements.In connection with compliance with environmental laws and regulations we expectto incur capital expenditures of $11.0 million in 2005 and $22.0 million in2006 in order to maintain compliance with applicable federal, state and localenvironmental laws and regulations and to meet new regulatory requirements. Weanticipate that environmental compliance will continue to require increasedcapital expenditures over time as environmental laws or regulations, orinterpretations thereof, change or the nature of our operations require us tomake significant additional capital expenditures. We expect to fund our capitalexpenditures from cash flows from operations.

 

## **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 recordaccruals for estimated environmental liabilities when remedial efforts areprobable and the costs can be reasonably estimated. These estimates reflectassumptions and judgments as to the probable nature, magnitude and timing ofrequired investigation, remediation and monitoring activities as well asavailability 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*. Useful lives of tangible andintangible assets are based on management’s estimates of the periods over whichthe assets will be productively utilized in the revenue generation process orfor other useful purposes. Factors that affect the determination of livesinclude prior experience with similar assets, product life expectations andindustry practices. The determination of useful lives dictates the

 

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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 review long-lived assetsfor impairment in accordance with SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-lived Assets*. The statementrequires that long-lived assets be reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. The review for impairment requires management to predict theestimated cash flows that will be generated by the long-lived asset over itsremaining estimated useful life. Considerable judgment must be exercised todetermine future cash flows and their timing and, possibly, choosing businessvalue comparables or selecting discount rates to use in any value computations.

 

*Intangible assets*. Business acquisitions oftenresult in recording intangible assets, the values of which are often basedupon, in part, independent third-party appraisals. Like long-lived tangibleassets, intangible assets are subject to periodic impairment reviews wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. As with tangible assets, considerable judgmentmust be exercised to determine future cash flows and their timing and,possibly, choosing business value comparables or selecting discount rates to usein any value computations.

 

*Revenue recognition*. We recognize revenue atthe point when title and the risk of ownership passes to the customer.Substantially all of our revenues are generated through product sales, andshipping terms generally indicate when title and the risk of ownership havepassed. Revenue is recognized at shipment for sales when shipping terms are FOB(free on board) shipping point. For sales where shipping terms are FOBdestination, revenue is recognized when the goods are received by the customer.We provide all allowances for estimated returns and other customer credits suchas discounts and volume rebates, when the revenue is recognized, based onhistorical experience, current trends and any notification of pending returns.The customer allowances are in many instances subjective and are determinedwith significant management judgment and are reviewed regularly to determinethe adequacy of the amounts. Changes in economic conditions, markets andcustomer relationships may require adjustments to these allowances from periodto period.

 

*Income taxes*. Income taxes are accounted forin accordance with SFAS No. 109, *Accounting for IncomeTaxes*, which recognizes deferred tax assets and liabilities based onthe estimated future tax effects of differences between the financial statementand tax bases of assets and liabilities given the enacted tax laws. We evaluatethe need for a deferred tax asset valuation allowance by assessing whether itis more likely than not that we will realize our deferred tax assets in thefuture. The assessment of whether or not a valuation allowance is requiredoften requires significant judgment, including the forecast of future taxableincome and the evaluation of tax planning initiatives. Adjustments to the deferredtax valuation allowance are made to earnings in the period when such assessmentis made. We have tax jurisdictions located in many states and are subject toaudit in these states, as well as at the federal level. Tax audits by theirnature are often complex and can require several years to resolve. In thepreparation of our financial statements, management exercises judgments inestimating the potential exposure to

 

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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*. Derivativefinancial instruments are accounted for in accordance with SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*.We have elected to recognize the unwind value of derivative financialinstruments as the fair value. This means that the fair value for purchasedcontracts is based on the amount we could receive from the counterparty tosettle the contract. Fair value at any point in time is based upon periodicconfirmation of values received from the counterparty. Our commodity basketoption is a complex derivative financial instrument for which we have limitedability to unwind the position with a counterparty other than the seller of theoption.

 

## **ITEM3.**  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK

## ** **

Not applicable.

 

## **ITEM4.**  CONTROLS AND 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.

 

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 June30, 2005, that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PARTII**OTHER INFORMATION

 

## **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                                                                       |
|  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                                        |

 

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| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                                                          |
|-------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description**                                                                                                                                                                                                                                                                                                     |
|        |       |                                                                                                                                                                                                                                                                                                                |
| 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 |
| 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                                                                                                                                                                                                              |

 

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| **Exhibit** | ** ** | ** **                                                                                                                                           |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description**                                                                                                                                      |
|        |       |                                                                                                                                                 |
| 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 by referenceherein.

 

**           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:  | August 15, 2005               |   |   /s/ Matthew L. Jesch |   |
|   |   | Matthew L. Jesch              |
|   |   | Vice President and            |
|   |   | Chief Financial Officer       |
|   |   | (Principal Financial Officer) |
|        |        |                               |        |  |  |  |  |

 

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