UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-Q







x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
      the quarterly period ended: September 30, 2007


OR




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




For
      the transition period from: 
      to




Commission
      file numbers: 333-82084-01


333-82084





PAPERWEIGHT
                                              DEVELOPMENT CORP.
                                          APPLETON
                                              PAPERS INC.(Exact
                                              Name of Registrant as Specified in
                                              Its Charter)
                                          (Exact
                                              Name of Registrant as Specified in
                                              Its
                                              Charter)





Wisconsin
                                          Delaware(State
                                              or Other Jurisdiction of
                                            Incorporation
                                              or Organization)
                                          (State
                                              or Other Jurisdiction of
                                            Incorporation
                                              or Organization)39-2014992
                                          36-2556469(I.R.S.
                                              Employer
                                            Identification
                                              No.)
                                          (I.R.S.
                                              Employer
                                            Identification
                                              No.)825
                                              East Wisconsin Avenue, P.O. Box 359,
                                            Appleton,
                                              Wisconsin
                                          54912-0359(Address
                                              of Principal Executive Offices)
                                          (Zip
                                              Code)




Registrants’
      telephone number, including area code: (920) 734-9841





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




Indicate
      by check mark whether each of the registrants is a large accelerated filer,
      an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      accelerated filer   ̈                Accelerated
      filer   ̈                Non-accelerated
      filer  x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).    Yes   ̈    No  x




As
      of
      November 1, 2007, 10,925,633 shares of Paperweight Development Corp. common
      stock, $.01 par value, were outstanding. There is no trading market for the
      common stock of Paperweight Development Corp. As of November 1, 2007, 100 shares
      of Appleton Papers Inc.’s common stock, $100.00 par value, were outstanding.
      There is no trading market for the common stock of Appleton Papers Inc. No
      shares of Paperweight Development Corp. or Appleton Papers Inc. were held by
      non-affiliates.




Appleton
      Papers Inc. meets the conditions set forth in General Instruction H(1)(a) and
      (b) and is therefore filing this form with the reduced disclosure
      format.


-1-


INDEX




Page
                                            NumberPART I
                                          FINANCIAL
                                              INFORMATIONItem 1
                                          Financial
                                              Statements (unaudited)
                                          3a)
                                              Condensed Consolidated Balance
                                              Sheets
                                          3b)
                                              Condensed Consolidated Statements of
                                              Operations
                                          4c)
                                              Condensed Consolidated Statements of
                                              Cash
                                              Flows
                                          5d)
                                              Consolidated Statements of Redeemable
                                              Common Stock,
                                              Accumulated Deficit, Accumulated Other
                                              Comprehensive Loss and
                                              Comprehensive  Income (Loss)
                                          6e)
                                              Notes to Condensed Consolidated Financial
                                              Statements
                                          7Item 2
                                          Management’s
                                              Discussion and Analysis of Financial
                                              Condition
                                              and Results of Operations
                                          31Item 3
                                          Quantitative
                                              and Qualitative Disclosures About Market
                                              Risk
                                          36Item 4
                                          Controls
                                              and Procedures
                                          36PART II
                                          OTHER
                                              INFORMATIONItem
                                              1
                                          Legal
                                              Proceedings
                                          36Item 1A
                                          Risk
                                              Factors
                                          36Item
                                              2
                                          Unregistered
                                              Sales of Equity Securities and Use
                                              of
                                              Proceeds
                                          38Item
                                              3
                                          Defaults
                                              Upon Senior Securities
                                          38Item
                                              4
                                          Submission
                                              of Matters to a Vote of Security
                                              Holders
                                          38Item
                                              5
                                          Other
                                              Information
                                          38Item 6
                                          Exhibits
                                          39Signatures
                                          40





-2-
 Table
          of Contents


PART
      1—FINANCIAL
      INFORMATION





Item
      1—Financial Statements (unaudited)





PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESCONDENSED
                                              CONSOLIDATED BALANCE SHEETS(unaudited)(dollars
                                              in thousands, except share data)September
                                              30, 2007
                                          
                                          
                                          December
                                              30, 2006ASSETSCurrent
                                              assetsCash
                                              and cash equivalents
                                          
                                          $
                                          37,132
                                          
                                          
                                          $
                                          19,975Accounts
                                              receivable, less allowance fordoubtful
                                              accounts of $3,810 and $2,799, respectively
                                          
                                          
                                          147,625
                                          
                                          
                                          
                                          139,776Inventories
                                          
                                          
                                          136,045
                                          
                                          
                                          
                                          138,754Other
                                              current assets
                                          
                                          
                                          27,043
                                          
                                          
                                          
                                          26,416Total
                                              current assets
                                          
                                          
                                          347,845
                                          
                                          
                                          
                                          324,921Property,
                                              plant and equipment, net of accumulated
                                              depreciation of $348,905 and
                                              $306,139, respectively
                                          
                                          
                                          413,826
                                          
                                          
                                          
                                          432,710Goodwill
                                          
                                          
                                          80,544
                                          
                                          
                                          
                                          80,669Intangible
                                              assets, net
                                          
                                          
                                          86,058
                                          
                                          
                                          
                                          97,283Environmental
                                              indemnification receivable
                                          
                                          
                                          103,485
                                          
                                          
                                          
                                          58,031Other
                                              assets
                                          
                                          
                                          32,990
                                          
                                          
                                          
                                          22,509Total
                                              assets
                                          
                                          $
                                          1,064,748
                                          
                                          
                                          $
                                          1,016,123LIABILITIES,
                                              REDEEMABLE COMMON STOCK, ACCUMULATED
                                              DEFICIT
                                            AND
                                              ACCUMULATED OTHER COMPREHENSIVE LOSSCurrent
                                              liabilitiesCurrent
                                              portion of long-term debt
                                          
                                          $
                                          2,250
                                          
                                          
                                          $
                                          6,384Accounts
                                              payable
                                          
                                          
                                          71,287
                                          
                                          
                                          
                                          76,281Accrued
                                              interest
                                          
                                          
                                          11,049
                                          
                                          
                                          
                                          2,610Restructuring
                                              reserve
                                          
                                          
                                          611
                                          
                                          
                                          
                                          2,305Other
                                              accrued liabilities
                                          
                                          
                                          85,379
                                          
                                          
                                          
                                          95,276Total
                                              current liabilities
                                          
                                          
                                          170,576
                                          
                                          
                                          
                                          182,856Senior
                                              secured notes payable
                                          
                                          
                                          222,188
                                          
                                          
                                          
                                          189,149Revolving
                                              lines of credit
                                          
                                          
                                          2,737
                                          
                                          
                                          
                                          186Variable
                                              rate industrial development bonds
                                          
                                          
                                          8,650
                                          
                                          
                                          
                                          8,650State
                                              of Ohio assistance loan
                                          
                                          
                                          9,105
                                          
                                          
                                          
                                          -Capital
                                              lease obligation
                                          
                                          
                                          1,500
                                          
                                          
                                          
                                          1,931Postretirement
                                              benefits other than pension
                                          
                                          
                                          55,984
                                          
                                          
                                          
                                          57,180Accrued
                                              pension
                                          
                                          
                                          39,233
                                          
                                          
                                          
                                          44,458Environmental
                                              liability
                                          
                                          
                                          128,485
                                          
                                          
                                          
                                          83,031Other
                                              long-term liabilities
                                          
                                          
                                          3,609
                                          
                                          
                                          
                                          6,511Senior
                                              notes payable
                                          
                                          
                                          162,130
                                          
                                          
                                          
                                          167,600Senior
                                              subordinated notes payable
                                          
                                          
                                          157,000
                                          
                                          
                                          
                                          157,000Commitments
                                              and contingencies (Note 12)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Redeemable
                                              common stock, $0.01 par value, shares
                                              authorized: 30,000,000, shares
                                              issued and outstanding:
                                            10,925,734 and 11,550,231, respectively
                                          
                                          
                                          172,224
                                          
                                          
                                          
                                          190,466Accumulated
                                              deficit
                                          
                                          
                                          (64,820
                                          )
                                          
                                          
                                          (67,885
                                          )Accumulated
                                              other comprehensive loss
                                          
                                          
                                          (3,853
                                          )
                                          
                                          
                                          (5,010
                                          )Total
                                              liabilities, redeemable common stock,
                                              accumulated deficit and accumulated
                                              other comprehensive loss
                                          
                                          $
                                          1,064,748
                                          
                                          
                                          $
                                          1,016,123








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


-3-
 Table
          of Contents








PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESCONDENSED
                                              CONSOLIDATED STATEMENTS OF
                                              OPERATIONS(unaudited)(dollars
                                              in thousands)Three
                                              Months Ended September 30, 2007
                                          
                                          
                                          Three
                                              Months Ended October 1, 2006
                                          
                                          
                                          Nine
                                              Months Ended September 30, 2007
                                          
                                          
                                          Nine
                                              Months Ended October 1, 2006Net
                                              sales
                                          
                                          $
                                          272,947
                                          
                                          
                                          $
                                          272,227
                                          
                                          
                                          $
                                          793,483
                                          
                                          
                                          $
                                          810,139Cost
                                              of sales
                                          
                                          
                                          206,341
                                          
                                          
                                          
                                          202,179
                                          
                                          
                                          
                                          604,994
                                          
                                          
                                          
                                          606,923Gross
                                              profit
                                          
                                          
                                          66,606
                                          
                                          
                                          
                                          70,048
                                          
                                          
                                          
                                          188,489
                                          
                                          
                                          
                                          203,216Selling,
                                              general and administrative expenses
                                          
                                          
                                          48,109
                                          
                                          
                                          
                                          51,370
                                          
                                          
                                          
                                          146,709
                                          
                                          
                                          
                                          153,668Restructuring
                                              and other charges
                                          
                                          
                                          365
                                          
                                          
                                          
                                          1,402
                                          
                                          
                                          
                                          3,349
                                          
                                          
                                          
                                          2,088Operating
                                              income
                                          
                                          
                                          18,132
                                          
                                          
                                          
                                          17,276
                                          
                                          
                                          
                                          38,431
                                          
                                          
                                          
                                          47,460Other
                                              expense (income)Interest
                                              expense
                                          
                                          
                                          12,554
                                          
                                          
                                          
                                          12,622
                                          
                                          
                                          
                                          37,047
                                          
                                          
                                          
                                          37,206Debt
                                              extinguishment expenses
                                          
                                          
                                          88
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,141
                                          
                                          
                                          
                                          -Interest
                                              income
                                          
                                          
                                          (522
                                          )
                                          
                                          
                                          (177
                                          )
                                          
                                          
                                          (1,898
                                          )
                                          
                                          
                                          (633
                                          )Foreign
                                              exchange (gain) loss
                                          
                                          
                                          (664
                                          )
                                          
                                          
                                          23
                                          
                                          
                                          
                                          (1,251
                                          )
                                          
                                          
                                          (281
                                          )Income
                                              before income taxes
                                          
                                          
                                          6,676
                                          
                                          
                                          
                                          4,808
                                          
                                          
                                          
                                          3,392
                                          
                                          
                                          
                                          11,168Benefit
                                              for income taxes
                                          
                                          
                                          (603
                                          )
                                          
                                          
                                          (238
                                          )
                                          
                                          
                                          (2,064
                                          )
                                          
                                          
                                          (654
                                          )Net
                                              income
                                          
                                          $
                                          7,279
                                          
                                          
                                          $
                                          5,046
                                          
                                          
                                          $
                                          5,456
                                          
                                          
                                          $
                                          11,822








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


-4-
 Table
          of Contents





PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESCONDENSED
                                              CONSOLIDATED STATEMENTS OF CASH
                                              FLOWSFOR
                                              THE NINE MONTHS ENDED(unaudited)(dollars
                                              in thousands)September
                                              30, 2007
                                          
                                          
                                          October
                                              1, 2006Cash
                                              flows from operating activities:Net
                                              income
                                          
                                          $
                                          5,456
                                          
                                          
                                          $
                                          11,822Adjustments
                                              to reconcile net income to net cash
                                              provided by operating
                                              activities:Depreciation
                                          
                                          
                                          47,372
                                          
                                          
                                          
                                          49,873Amortization
                                              of intangible assets
                                          
                                          
                                          5,821
                                          
                                          
                                          
                                          7,069Amortization
                                              of financing fees
                                          
                                          
                                          2,065
                                          
                                          
                                          
                                          1,878Employer
                                              401(k) noncash matching contributions
                                          
                                          
                                          5,158
                                          
                                          
                                          
                                          5,264Foreign
                                              exchange gain
                                          
                                          
                                          (1,251
                                          )
                                          
                                          
                                          (281
                                          )Loss
                                              on disposals of equipment
                                          
                                          
                                          970
                                          
                                          
                                          
                                          715Accretion
                                              of capital lease obligation
                                          
                                          
                                          117
                                          
                                          
                                          
                                          146Debt
                                              extinguishment expenses
                                          
                                          
                                          266
                                          
                                          
                                          
                                          -(Increase)/decrease
                                              in assets and increase/(decrease) in
                                              liabilities:Accounts
                                              receivable
                                          
                                          
                                          (5,752
                                          )
                                          
                                          
                                          (8,591
                                          )Inventories
                                          
                                          
                                          3,095
                                          
                                          
                                          
                                          564Other
                                              current assets
                                          
                                          
                                          (595
                                          )
                                          
                                          
                                          (2,857
                                          )Accounts
                                              payable and other accrued liabilities
                                          
                                          
                                          (5,689
                                          )
                                          
                                          
                                          15,339Restructuring
                                              reserve
                                          
                                          
                                          (1,707
                                          )
                                          
                                          
                                          (3,976
                                          )Accrued
                                              pension
                                          
                                          
                                          (5,698
                                          )
                                          
                                          
                                          (1,937
                                          )Other,
                                              net
                                          
                                          
                                          775
                                          
                                          
                                          
                                          (238
                                          )Net
                                              cash provided by operating activities
                                          
                                          
                                          50,403
                                          
                                          
                                          
                                          74,790Cash
                                              flows from investing activities:Proceeds
                                              from sale of equipment
                                          
                                          
                                          4
                                          
                                          
                                          
                                          794Restricted
                                              cash for mill expansion
                                          
                                          
                                          (8,665
                                          )
                                          
                                          
                                          -Additions
                                              to property, plant and equipment
                                          
                                          
                                          (28,427
                                          )
                                          
                                          
                                          (17,710
                                          )Net
                                              cash used by investing activities
                                          
                                          
                                          (37,088
                                          )
                                          
                                          
                                          (16,916
                                          )Cash
                                              flows from financing activities:Payments
                                              of senior secured notes payable
                                          
                                          
                                          (196,095
                                          )
                                          
                                          
                                          (30,261
                                          )Proceeds
                                              from senior secured notes payable
                                          
                                          
                                          225,000
                                          
                                          
                                          
                                          -Payments
                                              of senior notes payable
                                          
                                          
                                          (5,470
                                          )
                                          
                                          
                                          (100
                                          )Debt
                                              acquisition costs
                                          
                                          
                                          (2,229
                                          )
                                          
                                          
                                          -Bond
                                              consent costs
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (7,994
                                          )Payments
                                              relating to capital lease obligation
                                          
                                          
                                          (548
                                          )
                                          
                                          
                                          (548
                                          )Proceeds
                                              from revolving lines of credit
                                          
                                          
                                          72,129
                                          
                                          
                                          
                                          24,368Payments
                                              of revolving lines of credit
                                          
                                          
                                          (69,578
                                          )
                                          
                                          
                                          (25,535
                                          )Proceeds
                                              from State of Ohio financing
                                          
                                          
                                          9,105
                                          
                                          
                                          
                                          -Proceeds
                                              from issuance of redeemable common
                                              stock
                                          
                                          
                                          4,355
                                          
                                          
                                          
                                          4,460Payments
                                              to redeem common stock
                                          
                                          
                                          (28,590
                                          )
                                          
                                          
                                          (17,514
                                          )Decrease
                                              in cash overdraft
                                          
                                          
                                          (3,990
                                          )
                                          
                                          
                                          (3,709
                                          )Net
                                              cash provided (used) by financing activities
                                          
                                          
                                          4,089
                                          
                                          
                                          
                                          (56,833
                                          )Effect
                                              of foreign exchange rate changes on
                                              cash and cash
                                              equivalents
                                          
                                          
                                          (247
                                          )
                                          
                                          
                                          293Change
                                              in cash and cash equivalents
                                          
                                          
                                          17,157
                                          
                                          
                                          
                                          1,334Cash
                                              and cash equivalents at beginning of
                                              period
                                          
                                          
                                          19,975
                                          
                                          
                                          
                                          18,422Cash
                                              and cash equivalents at end of period
                                          
                                          $
                                          37,132
                                          
                                          
                                          $
                                          19,756




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


-5-
 Table
          of Contents





PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESCONSOLIDATED
                                              STATEMENTS OF REDEEMABLE COMMON
                                              STOCK,ACCUMULATED
                                              DEFICIT, ACCUMULATED OTHER COMPREHENSIVE
                                              LOSS AND COMPREHENSIVE INCOME
                                              (LOSS)FOR
                                              THE NINE MONTHS ENDED(unaudited)(dollars
                                              in thousands, except share data)Redeemable
                                              Common StockShares
                                              Outstanding
                                          
                                          
                                          Amount
                                          
                                          
                                          Accumulated
                                              Deficit
                                          
                                          
                                          Accumulated
                                              Other Comprehensive Loss
                                          
                                          
                                          Comprehensive
                                              Income (Loss)Balance,
                                              December 30, 2006
                                          
                                          
                                          11,550,231
                                          
                                          
                                          $
                                          190,466
                                          
                                          
                                          $
                                          (67,885
                                          )
                                          
                                          $
                                          (5,010
                                          )Comprehensive
                                              income:Net
                                              income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          5,456
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          5,456Foreign
                                              currency translation adjustment
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,992
                                          
                                          
                                          
                                          1,992Realized
                                              and unrealized losses on derivatives
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (835
                                          )
                                          
                                          
                                          (835
                                          )Total
                                              comprehensive income
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          6,613Issuance
                                              of redeemable common stock
                                          
                                          
                                          241,924
                                          
                                          
                                          
                                          7,957
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Redemption
                                              of redeemable common stock
                                          
                                          
                                          (866,421
                                          )
                                          
                                          
                                          (28,590
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Accretion
                                              of redeemable common stock
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,391
                                          
                                          
                                          
                                          (2,391
                                          )
                                          
                                          
                                          -Balance,
                                              September 30, 2007
                                          
                                          
                                          10,925,734
                                          
                                          
                                          $
                                          172,224
                                          
                                          
                                          $
                                          (64,820
                                          )
                                          
                                          $
                                          (3,853
                                          )Balance,
                                              December 31, 2005
                                          
                                          
                                          11,938,060
                                          
                                          
                                          $
                                          185,292
                                          
                                          
                                          $
                                          (61,982
                                          )
                                          
                                          $
                                          (25,854
                                          )Comprehensive
                                              income:Net
                                              income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          11,822
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          11,822Foreign
                                              currency translation adjustment
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          5,332
                                          
                                          
                                          
                                          5,332Realized
                                              and unrealized gains on derivatives
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          346
                                          
                                          
                                          
                                          346Total
                                              comprehensive income
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          17,500Issuance
                                              of redeemable common stock
                                          
                                          
                                          278,714
                                          
                                          
                                          
                                          8,042
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Redemption
                                              of redeemable common stock
                                          
                                          
                                          (587,764
                                          )
                                          
                                          
                                          (17,514
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Accretion
                                              of redeemable common stock
                                          
                                          
                                          -
                                          
                                          
                                          
                                          13,461
                                          
                                          
                                          
                                          (13,461
                                          )
                                          
                                          
                                          -Balance,
                                              October 1, 2006
                                          
                                          
                                          11,629,010
                                          
                                          
                                          $
                                          189,281
                                          
                                          
                                          $
                                          (63,621
                                          )
                                          
                                          $
                                          (20,176
                                          )The
                                              accompanying notes are an integral
                                              part of these condensed consolidated
                                              financial statements.





-6-
 Table
          of Contents





PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








1.           BASIS
      OF PRESENTATION





In
      the opinion of management, all
      necessary adjustments have been made for the fair presentation of the results
      of
      operations for the three and nine months ended September 30, 2007 and October
      1,
      2006, the cash flows for the nine months ended September 30, 2007 and October
      1,
      2006 and financial position at September 30, 2007. All adjustments were of
      a
      normal recurring nature.





These
      Condensed Consolidated Financial
      Statements should be read in conjunction with the audited Consolidated Financial
      Statements and Notes of Paperweight Development Corp. (“PDC”) and subsidiaries
      for each of the three years in the period ended December 30, 2006, which are
      included in the annual report on Form 10-K for the year ended December 30,
      2006.
      The consolidated balance sheet data as of December 30, 2006, contained within
      these Condensed Financial Statements, was derived from the audited financial
      statements but does not include all disclosures required by accounting
      principles generally accepted in the United States of America. Appleton Papers
      Inc. (“Appleton”) is a wholly-owned subsidiary of PDC.





The
      results of operations for any
      interim period are not necessarily indicative of the results to be expected
      for
      the full year.








2.           GOODWILL
      AND OTHER INTANGIBLE ASSETS





Goodwill
      and intangible assets with
      indefinite lives are not amortized; however, they are tested for impairment
      annually. Amortization is recorded for other intangible assets with determinable
      lives. The changes in the carrying amount of goodwill for the nine-month period
      ended September 30, 2007 are as follows (dollars in thousands):





Goodwill
                                          
                                          Secure
                                              and Specialized Print Services
                                          
                                          
                                          Performance
                                              Packaging
                                          
                                          
                                          TotalBalance
                                              as of December 30, 2006
                                          
                                          $
                                          30,421
                                          
                                          
                                          $
                                          50,248
                                          
                                          
                                          $
                                          80,669Currency
                                              translation and other
                                          
                                          
                                          (125
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (125
                                          )Balance
                                              as of September 30, 2007
                                          
                                          $
                                          30,296
                                          
                                          
                                          $
                                          50,248
                                          
                                          
                                          $
                                          80,544





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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








Appleton’s
      other intangible assets
      consist of the following (dollars in thousands):





As
                                              of September 30, 2007
                                          
                                          
                                          As
                                              of December 30, 2006Gross
                                              Carrying Amount
                                          
                                          
                                          Accumulated
                                              Amortization
                                          
                                          
                                          Gross
                                              Carrying Amount
                                          
                                          
                                          Accumulated
                                              AmortizationAmortizable
                                              intangible assets:Trademarks
                                          
                                          $
                                          54,225
                                          
                                          
                                          $
                                          16,945
                                          
                                          
                                          $
                                          56,553
                                          
                                          
                                          $
                                          14,966Patents
                                          
                                          
                                          30,988
                                          
                                          
                                          
                                          29,270
                                          
                                          
                                          
                                          32,630
                                          
                                          
                                          
                                          26,904Customer
                                              relationships
                                          
                                          
                                          31,062
                                          
                                          
                                          
                                          6,946
                                          
                                          
                                          
                                          31,231
                                          
                                          
                                          
                                          5,542Non-compete
                                              agreements
                                          
                                          
                                          2,381
                                          
                                          
                                          
                                          2,307
                                          
                                          
                                          
                                          2,382
                                          
                                          
                                          
                                          2,235Subtotal
                                          
                                          
                                          118,656
                                          
                                          
                                          
                                          55,468
                                          
                                          
                                          
                                          122,796
                                          
                                          
                                          
                                          49,647Unamortizable
                                              intangible assets:
                                            Trademarks
                                          
                                          
                                          22,870
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          24,134
                                          
                                          
                                          
                                          -Total
                                          
                                          $
                                          141,526
                                          
                                          
                                          $
                                          55,468
                                          
                                          
                                          $
                                          146,930
                                          
                                          
                                          $
                                          49,647





Of
      the $141.5 million of acquired
      intangible assets, $77.1 million was assigned to registered trademarks.
      Trademarks of $44.7 million related to carbonless paper and $9.5 million related
      to Appleton’s 2003 and 2005 acquisitions are being amortized over their
      estimated useful lives of 20 years, while the remaining $22.9 million are
      considered to have an indefinite life and, as such, are not subject to
      amortization. The remaining acquired intangible assets are being amortized
      over
      their estimated useful lives ranging from 3 to 25 years for patents and customer
      relationships and 1 to 5 years for non-compete agreements. Amortization expense
      for the three and nine months ended September 30, 2007 approximated $1.8 million
      and $5.8 million, respectively. Amortization expense for the three and nine
      months ended October 1, 2006 approximated $2.4 million and $7.1 million,
      respectively.





During
      first quarter 2007, Appleton
      received formal notice from the Internal Revenue Service that it agreed to
      settle Appleton’s refund claims filed for tax years 1999 and 2000. The total
      amount of the refund was $6.3 million, of which, $5.2 million was a refund
      of
      income tax paid and $1.1 million was interest. As this refund related to tax
      periods prior to the November 9, 2001 acquisition date, the $5.2 million was
      recorded as a reduction in purchase price via a decrease to long-lived
      intangible assets. Of the $1.1 million of interest, approximately $1.0 million
      pertained to the accrual of interest subsequent to the acquisition date, and
      as
      such, was included in first quarter 2007 interest income. The remaining $0.1
      million of interest earned was related to tax periods prior to the acquisition
      date and was also recorded as a reduction in purchase price via a decrease
      to
      long-lived intangible assets. This refund was received by Appleton in early
      April. During second quarter 2007, Appleton filed claims for the corresponding
      state income tax refunds. The total amount of these refund claims is $0.4
      million, of which, $0.3 million is a refund of state income tax paid and $0.1
      million is interest. As this refund also related to tax periods prior to the
      acquisition date, $0.3 million of tax and interest has been recorded as a
      reduction in purchase price via a decrease to long-lived intangible assets.
      The
      remaining $0.1 million of interest pertained to the accrual of interest
      subsequent to the acquisition date and is included in second quarter 2007
      interest income.


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          of Contents





PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








3.           RESTRUCTURING
      AND OTHER CHARGES





During
      the first nine months of 2007,
      Appleton reduced salaried employment in the U.S. by 13 employees. As a result,
      Appleton recorded $1.1 million of expense during the first nine months of 2007
      for employee termination benefits. During this same period, Appleton paid $1.5
      million related to these employee termination benefits, liabilities for which
      were incurred in 2007 and prior periods. See Note 15 for allocation of
      restructuring charges by segment.





Late
      in 2006, BemroseBooth Limited
      (“BemroseBooth”) began an employee reduction plan at its Derby facility. These
      efforts continued during 2007 with employment being reduced by an additional
      56
      employees. As a result, BemroseBooth recorded $1.9 million of expense during
      the
      first nine months of 2007 for employee termination benefits. During this same
      period, BemroseBooth paid $2.2 million related to these employee termination
      benefits, liabilities for which were incurred in 2007 and prior
      periods.





In
      1999,
      Appleton committed to exiting its New York distribution center in 2001, because
      it was no longer needed as a result of the closure of the Newton Falls mill,
      and
      thus recorded $6.0 million of related restructuring and other charges expected
      to be incurred until the long-term lease expired in July 2007. During 2007,
      $0.3
      million of additional restructuring expense was recorded for repairs to be
      made
      to the facility in accordance with the expiration terms of the lease agreement.
      Through the first nine months of 2007, Appleton paid $1.3 million for lease
      payments and repairs.





The
      table below summarizes the
      components of the restructuring reserve included in the consolidated balance
      sheets at September 30, 2007 and December 30, 2006 (dollars in
      thousands):





December
                                              30, 2006 Reserve
                                          
                                          
                                          2007
                                              Additions to Reserve
                                          
                                          
                                          2007
                                              Charges Against Reserve
                                          
                                          
                                          September
                                              30, 2007 ReserveDistribution
                                              center exit costs
                                          
                                          $
                                          1,194
                                          
                                          
                                          $
                                          348
                                          
                                          
                                          $
                                          (1,342
                                          )
                                          
                                          $
                                          200BemroseBooth
                                              restructuring
                                          
                                          
                                          391
                                          
                                          
                                          
                                          1,907
                                          
                                          
                                          
                                          (2,247
                                          )
                                          
                                          
                                          51U.S.
                                              employee termination benefits
                                          
                                          
                                          720
                                          
                                          
                                          
                                          1,094
                                          
                                          
                                          
                                          (1,454
                                          )
                                          
                                          
                                          360$
                                          2,305
                                          
                                          
                                          $
                                          3,349
                                          
                                          
                                          $
                                          (5,043
                                          )
                                          
                                          $
                                          611





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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








4.           INVENTORIES





Inventories
      consist of the following
      (dollars in thousands):





September
                                              30, 2007
                                          
                                          
                                          December
                                              30, 2006Finished
                                              goods
                                          
                                          $
                                          74,498
                                          
                                          
                                          $
                                          76,189Raw
                                              materials, work in process and supplies
                                          
                                          
                                          70,919
                                          
                                          
                                          
                                          73,615145,417
                                          
                                          
                                          
                                          149,804Inventory
                                              reserve
                                          
                                          
                                          (5,691
                                          )
                                          
                                          
                                          (7,369
                                          )139,726
                                          
                                          
                                          
                                          142,435LIFO
                                              reserve
                                          
                                          
                                          (3,681
                                          )
                                          
                                          
                                          (3,681
                                          )$
                                          136,045
                                          
                                          
                                          $
                                          138,754





Stores
      and spare parts inventory
      balances of $21.9 million and $22.4 million at September 30, 2007 and December
      30, 2006, respectively, are valued at average cost and included in raw
      materials, work in process and supplies. Inventories valued using the FIFO
      method approximated 23% of Appleton’s total inventory balance at September 30,
      2007 and 21% of Appleton’s total inventory balance at December 30,
      2006.








5.           PROPERTY,
      PLANT AND EQUIPMENT





Property,
      plant and equipment balances
      consist of the following (dollars in thousands):





September
                                              30, 2007
                                          
                                          
                                          December
                                              30, 2006Land
                                              and improvements
                                          
                                          $
                                          14,227
                                          
                                          
                                          $
                                          14,023Buildings
                                              and improvements
                                          
                                          
                                          104,674
                                          
                                          
                                          
                                          101,342Machinery
                                              and equipment
                                          
                                          
                                          571,112
                                          
                                          
                                          
                                          556,520Software
                                          
                                          
                                          34,475
                                          
                                          
                                          
                                          33,331Capital
                                              lease
                                          
                                          
                                          4,764
                                          
                                          
                                          
                                          4,764Construction
                                              in progress
                                          
                                          
                                          33,479
                                          
                                          
                                          
                                          28,869762,731
                                          
                                          
                                          
                                          738,849Accumulated
                                              depreciation/amortization
                                          
                                          
                                          (348,905
                                          )
                                          
                                          
                                          (306,139
                                          )$
                                          413,826
                                          
                                          
                                          $
                                          432,710





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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








Depreciation
      expense for the three months and nine months ended September 30, 2007
      and  October 1, 2006 consists of the following (dollars in
      thousands):





Depreciation
                                              Expense
                                          
                                          For
                                              the Three Months Ended September 30,
                                              2007
                                          
                                          
                                          For
                                              the Three Months Ended October 1, 2006
                                          
                                          
                                          For
                                              the Nine Months Ended September 30,
                                              2007
                                          
                                          
                                          For
                                              the Nine Months Ended October 1, 2006Cost
                                              of sales
                                          
                                          $
                                          13,396
                                          
                                          
                                          $
                                          14,226
                                          
                                          
                                          $
                                          40,928
                                          
                                          
                                          $
                                          42,752Selling,
                                              general and administrative expenses
                                          
                                          
                                          2,033
                                          
                                          
                                          
                                          2,267
                                          
                                          
                                          
                                          6,444
                                          
                                          
                                          
                                          7,121$
                                          15,429
                                          
                                          
                                          $
                                          16,493
                                          
                                          
                                          $
                                          47,372
                                          
                                          
                                          $
                                          49,873








6.           OTHER
      ASSETS




Other
      assets
      consist of the following (dollars in thousands):





September
                                              30, 2007
                                          
                                          
                                          December
                                              30, 2006Deferred
                                              debt issuance costs
                                          
                                          $
                                          14,834
                                          
                                          
                                          $
                                          15,811Other
                                          
                                          
                                          9,491
                                          
                                          
                                          
                                          6,698$
                                          24,325
                                          
                                          
                                          $
                                          22,509








7.           OTHER
      ACCRUED LIABILITIES




Other
      accrued
      liabilities, as presented in the current liabilities section of the balance
      sheet, consist of the following (dollars in thousands):





September
                                              30, 2007
                                          
                                          
                                          December
                                              30, 2006Payroll
                                              and bonus
                                          
                                          $
                                          15,320
                                          
                                          
                                          $
                                          23,090Trade
                                              discounts
                                          
                                          
                                          24,177
                                          
                                          
                                          
                                          25,672Workers’
                                              compensation
                                          
                                          
                                          3,238
                                          
                                          
                                          
                                          3,165Accrued
                                              insurance
                                          
                                          
                                          2,326
                                          
                                          
                                          
                                          912Other
                                              accrued taxes
                                          
                                          
                                          2,702
                                          
                                          
                                          
                                          5,764Postretirement
                                              benefits other than pension
                                          
                                          
                                          2,863
                                          
                                          
                                          
                                          2,863Fox
                                              River liabilities
                                          
                                          
                                          18,200
                                          
                                          
                                          
                                          18,200Other
                                          
                                          
                                          16,553
                                          
                                          
                                          
                                          15,610$
                                          85,379
                                          
                                          
                                          $
                                          95,276





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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








8.           NEW
      ACCOUNTING PRONOUNCEMENTS





In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation (“FIN”) 48, “Accounting for Uncertainty in Income Taxes – an
      Interpretation of FASB Statement 109.” FIN 48 prescribes a comprehensive model
      for how a company should recognize, measure, present and disclose, in its
      financial statements, uncertain tax positions the company has taken or expects
      to take on a tax return (including a decision whether to file a return in a
      particular jurisdiction). Under FIN 48, financial statements will reflect
      expected future tax consequences of such positions presuming the taxing
      authorities’ full knowledge of the position and all relevant facts, but without
      considering time values. Additionally, FIN 48 also revises disclosure
      requirements and introduces a prescriptive, annual, tabular rollforward of
      the
      unrecognized tax benefits. The provisions of FIN 48 were adopted by PDC in
      the
      beginning of 2007 and did not have a significant effect on its financial
      statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) 157, “Fair Value Measurements.”  SFAS 157 provides a single
      definition of fair value, together with a framework for measuring it, and
      requires additional disclosure about the use of fair value to measure assets
      and
      liabilities. SFAS 157 also emphasizes that fair value is a market-based
      measurement, not an entity-specific measurement. Fair value refers to the price
      that would be received to sell an asset or paid to transfer a liability in
      an
      orderly transaction between market participants in the market in which the
      reporting entity transacts. The standard clarifies the principle that fair
      value
      should be based on the assumptions market participants would use when pricing
      the asset or liability. In support of this principle, the standard establishes
      a
      fair value hierarchy that prioritizes the information used to develop
      assumptions. The fair value hierarchy gives the highest priority to quoted
      prices in active markets and the lowest priority to unobservable data, for
      example, the reporting entity’s own data. Under the standard, fair value
      measurements would be separately disclosed by level within the fair value
      hierarchy. These provisions are effective for financial statements issued for
      fiscal years beginning after November 15, 2007. PDC is currently evaluating
      the
      impact, if any, on its financial statements.





In
      September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
      87, 88, 106, and 132(R).”  SFAS 158 requires the Company to recognize
      the overfunded or underfunded status of its defined benefit and retiree medical
      plans as an asset or liability on the 2007 year-end balance sheet with changes
      in the funded status recognized through accumulated other comprehensive income
      in the year in which they occur. Additionally, SFAS 158 requires the Company
      to
      measure the funded status of a plan as of the date of its year-end no later
      than
      2008. PDC is currently evaluating the impact on its financial
      statements.


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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








9.           PENSION
      BENEFITS





Appleton
      has both defined benefit and
      defined contribution pension plans. The components of the corresponding net
      periodic pension cost include the following (dollars in thousands):





Pension
                                              Benefits
                                          
                                          For
                                              the Three Months Ended September 30,
                                              2007
                                          
                                          
                                          For
                                              the Three Months Ended October 1, 2006
                                          
                                          
                                          For
                                              the Nine Months Ended September 30,
                                              2007
                                          
                                          
                                          For
                                              the Nine Months Ended October 1, 2006Net
                                              periodic benefit costService
                                              cost
                                          
                                          $
                                          1,910
                                          
                                          
                                          $
                                          1,883
                                          
                                          
                                          $
                                          5,731
                                          
                                          
                                          $
                                          5,648Interest
                                              cost
                                          
                                          
                                          5,603
                                          
                                          
                                          
                                          5,251
                                          
                                          
                                          
                                          16,808
                                          
                                          
                                          
                                          15,754Expected
                                              return on plan assets
                                          
                                          
                                          (6,436
                                          )
                                          
                                          
                                          (5,799
                                          )
                                          
                                          
                                          (19,309
                                          )
                                          
                                          
                                          (17,396
                                          )Amortization
                                              ofPrior
                                              service cost
                                          
                                          
                                          56
                                          
                                          
                                          
                                          54
                                          
                                          
                                          
                                          169
                                          
                                          
                                          
                                          162Actuarial
                                              loss
                                          
                                          
                                          471
                                          
                                          
                                          
                                          559
                                          
                                          
                                          
                                          1,414
                                          
                                          
                                          
                                          1,677Net
                                              periodic benefit cost
                                          
                                          $
                                          1,604
                                          
                                          
                                          $
                                          1,948
                                          
                                          
                                          $
                                          4,813
                                          
                                          
                                          $
                                          5,845





During
      the first nine months of 2007, Appleton contributed $9 million to its pension
      plan for plan year 2006.








10.           POSTRETIREMENT
      BENEFIT PLANS OTHER THAN PENSIONS





Appleton
      has defined postretirement benefit plans that provide medical, dental and life
      insurance for certain retirees and eligible dependents. The components of other
      postretirement benefit cost include the following (dollars in
      thousands):





Other
                                              Postretirement Benefits
                                          
                                          For
                                              the Three Months Ended September 30,
                                              2007
                                          
                                          
                                          For
                                              the Three Months Ended October 1, 2006
                                          
                                          
                                          For
                                              the Nine Months Ended September 30,
                                              2007
                                          
                                          
                                          For
                                              the Nine Months Ended October 1, 2006Net
                                              periodic benefit costService
                                              cost
                                          
                                          $
                                          209
                                          
                                          
                                          $
                                          211
                                          
                                          
                                          $
                                          625
                                          
                                          
                                          $
                                          633Interest
                                              cost
                                          
                                          
                                          647
                                          
                                          
                                          
                                          649
                                          
                                          
                                          
                                          1,943
                                          
                                          
                                          
                                          1,947Amortization
                                              ofPrior
                                              service cost
                                          
                                          
                                          (539
                                          )
                                          
                                          
                                          (539
                                          )
                                          
                                          
                                          (1,617
                                          )
                                          
                                          
                                          (1,617
                                          )Net
                                              periodic benefit cost
                                          
                                          $
                                          317
                                          
                                          
                                          $
                                          321
                                          
                                          
                                          $
                                          951
                                          
                                          
                                          $
                                          963


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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








11.           SHARE-BASED
      COMPENSATION





In December 2001, Appleton adopted the Appleton Papers Inc. Long-Term Incentive
      Plan. In July 2002, Appleton adopted the Appleton Papers Canada Ltd. Share
      Appreciation Rights Plan. These plans provide officers and key employees the
      opportunity to earn phantom stock units, the value of which is related to the
      change in the fair market value of PDC’s common stock under the terms of the
      employee stock ownership plan (the “ESOP”) prior to the grant date or the
      exercise date, as applicable. Appleton adopted SFAS 123R, “Share-Based Payment,”
effective January 1, 2006. As of January 1, 2007, 337,000 new phantom stock
      units were issued under the Appleton Papers Inc. Long-Term Incentive Plan at
      a
      share price of $33.62. In addition, as of January 1, 2007, 2,082 new share
      units
      were issued to the non-employee directors at a share price of $33.62. As of
      July
      1, 2007, 3,192 additional share units were issued to the non-employee directors
      at a share price of $32.89. The year-end 2006 share price of $33.62 decreased
      to
      $32.89 as of July 1, 2007. Compensation income of $0.8 million and $1.0 million
      was recorded for the three and nine months ended September 30, 2007,
      respectively. Compensation expense for the three and nine months ended October
      1, 2006 was $1.1 million and $2.8 million, respectively.








12.           COMMITMENTS
      AND CONTINGENCIES


Lower
      Fox River





Various
      state and federal government
      agencies and Native American tribes have asserted claims against Appleton and
      other parties with respect to historic discharges of polychlorinated biphenyls
      (“PCBs”) into the Lower Fox River in Wisconsin.





In
      June 1997, the United States
      Environmental Protection Agency (“EPA”) published notice that it intended to
      list the Lower Fox River on the National Priorities List of Contaminated Sites
      pursuant to the federal Comprehensive Environmental Response, Compensation,
      and
      Liability Act. The EPA identified seven potentially responsible parties (“PRPs”)
      for PCB contamination in the Lower Fox River, including NCR and Appleton as
      the
      former and current owners and operators of the Appleton plant and a paper mill
      in Combined Locks.





A
      study performed by the U.S. Fish and
      Wildlife Service (“FWS”) in 2000 concluded that the discharges from the Appleton
      plant and the Combined Locks paper mill represent a percentage in the range
      of
      36% to 52% of the total PCBs discharged. These preliminary estimates have not
      been finalized and will not be binding on the PRPs. The final allocation of
      liability among the PRPs will be determined by negotiation, litigation or other
      dispute resolution processes. Based on historical and technical analyses
      performed by environmental engineers Appleton has engaged, Appleton believes
      that the percentage of PCBs discharged from the Appleton and Combined Locks
      facilities is less than 20% of the total PCBs discharged.


-14-
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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








As
      part of the November 9, 2001
      acquisition, Arjo Wiggins Appleton Ltd. (“AWA”), agreed to indemnify PDC for the
      first $75 million and for all amounts over $100 million in liabilities relating
      to the Lower Fox River and, in turn, PDC agreed to indemnify Appleton for the
      first $75 million and for all amounts over $100 million in liabilities relating
      to the Lower Fox River. A portion of Appleton’s potential liability for the
      Lower Fox River may be joint and several. If, in the future, one or more of
      the
      other PRPs were to become insolvent or unable to pay their respective share(s)
      of the potential liability, Appleton could be responsible for a portion of
      their
      share(s). Based on a review of publicly available financial information,
      Appleton believes the other PRPs will be required, and have adequate financial
      resources, to pay their share of the remediation and natural resource damages
      (“NRD”) claims for the Lower Fox River.





Pursuant
      to a 2001 consent decree with
      various government agencies, which expired in 2005, Appleton and NCR
      collectively paid $41.5 million for interim restoration and remediation efforts.
      The consent decree does not constitute a final settlement or provide protection
      against future claims; however, Appleton and NCR will receive full credit
      against remediation costs and NRD claims for all monies expended under the
      consent decree.





In
      2003, the Wisconsin Department of
      Natural Resources (“DNR”) issued two Records of Decision (“RODs”), with which
      the EPA concurred, estimating total costs for the Lower Fox River remedial
      action plan of approximately $400 million.





Pursuant
      to a 2006 consent decree, NCR
      and Sonoco Products Company agreed to fund a remedial project in the fourth
      segment of the Lower Fox River at an estimated cost of $30 million. Appleton
      expects it will contribute to NCR’s portion of this remedial project, consistent
      with a 1998 interim settlement agreement and a 2006 arbitration determination
      between Appleton and NCR. In addition, pursuant to a 2006 consent decree, which
      expired in 2006, Appleton and NCR collectively paid approximately $750,000
      toward interim restoration efforts and the preparation of a report analyzing
      the
      progress toward the restoration goals related to the Lower Fox
      River.





In
      February 2007, the EPA and DNR
      issued a General Notice letter to the PRPs. The EPA and DNR are seeking to
      have
      one or more of the PRPs enter into an agreement to implement all remaining
      remedial actions for segments two, three, four and five of the river. On June
      6,
      2007, the EPA issued an Amended ROD (also referred to as the Optimized Remedy)
      which modifies the remedial action plan outlined in the 2003 RODs and provides
      a
      revised estimate of $390 million of remaining costs to complete the remedial
      work on the Lower Fox River. Appleton has re-evaluated its estimate of potential
      liability pursuant to the Amended ROD, as discussed below.





In
      June 2007, Appleton and NCR
      collectively agreed to pay $2.8 million to fund a land acquisition in partial
      settlement of NRD claims. The land acquisition payment does not constitute
      a
      final settlement or provide protection against future claims; however, Appleton
      and NCR will receive full credit against NRD claims.


-15-
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          of Contents





PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








A
      precise estimate of Appleton’s
      ultimate share of liability cannot be made at this time due to uncertainties
      with respect to: the scope and cost of implementing the final remediation plan;
      the scope of restoration and final valuation of NRD assessments; the evolving
      nature of remediation and restoration technologies and governmental policies;
      and Appleton’s share of liability relative to the other PRPs. However, the
      issuance of the RODs and the beginning of remediation activities, provides
      Appleton the ability to reasonably estimate its potential liability.
      Accordingly, at December 30, 2006 the total reserve was $101.2 million for
      this
      environmental liability. During second quarter 2007, and based upon the Amended
      ROD, Appleton re-evaluated its estimate of potential liability and as a result
      increased its reserve by $58.9 million. This additional reserve amount will
      accrete at a discount rate of 5% until it reaches $65.1 million. During the
      first nine months of 2007, $14.7 million of payments were made against this
      reserve and $1.3 million of accretion was recorded. As a result, $146.7 million
      is remaining in the reserve as of September 30, 2007; $18.2 million is recorded
      in other accrued liabilities and $128.5 million is recorded as a long-term
      environmental liability.





As
      stated above, AWA agreed to
      indemnify Appleton for the first $75 million and for all amounts over $100
      million in liabilities relating to the Lower Fox River. At December 30, 2006,
      the total indemnification receivable from AWA was $76.2 million. During the
      first nine months of 2007, $14.7 million of indemnification payments were
      received from AWA, $1.3 million of accretion was recorded and $58.9 million
      of
      additional indemnification receivable was recorded. As a result, at September
      30, 2007, $121.7 million remains as the indemnification receivable; $18.2
      million is recorded as other current assets and $103.5 million is recorded
      as
      environmental indemnification receivable. The $25.0 million difference between
      the reserve and the indemnification receivable represents the share of Lower
      Fox
      River costs for which Appleton is responsible.





Appleton
      used the following estimates
      in evaluating its total Lower Fox River liability and establishing its
      reserves:  (1) total remaining costs for remediation of $468 million,
      based on the DNR’s estimate in the 2007 Amended ROD of $390 million of remaining
      costs for remediation, plus a 20% contingency; (2) the FWS preliminary estimate
      that discharges from the Appleton plant and the Combined Locks mill represent
      36% to 52% of the total PCBs discharged by the PRPs, which is substantially
      greater than Appleton’s estimate (Appleton assumes that Appleton and NCR are
      primarily responsible for only the discharges from the Appleton and Combined
      Locks facilities and not for discharges from other sources as alleged by other
      PRPs); (3) costs to settle NRD claims against Appleton and NCR, estimated at
      $20
      million or less based on the IGP’s settlement of other NRD claims; (4)
      Appleton’s responsibility for over half of the claims asserted against Appleton
      and NCR, based on the interim settlement agreement with NCR and the arbitration
      determination; (5) $38 million in fees and expenses through 2010; and (6) actual
      costs, fees and expenses paid through September 30, 2007. Because of the
      numerous uncertainties underlying these estimates, it is possible that
      Appleton’s share of costs could be materially different than what is currently
      recorded.


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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








West
      Carrollton Mill





The
      West Carrollton mill operates
      pursuant to various state and federal permits for discharges and emissions
      to
      air and water. As a result of the de-inking of carbonless paper containing
      PCBs
      through the early 1970s, there have been releases of PCBs and volatile organic
      compounds into the soil in the area of thewastewater impoundments
      at the West Carrollton facility and low levels of PCBs have been detected in
      groundwater immediately under this area. In addition, PCB contamination is
      present in sediment in the adjacent Great Miami River, but it is believed that
      this contamination is from a source other than the West Carrollton
      mill.





Based
      on investigation and delineation
      of PCB contamination in soil and groundwater in the area of the wastewater
      impoundments, Appleton believes that it could be necessary to undertake remedial
      action in the future, although Appleton is currently under no obligation to
      do
      so. Appleton has not had any discussions or communications with any federal,
      state or local agencies or authorities regarding remedial action to address
      PCB
      contamination at the West Carrollton mill. The cost for remedial action, which
      could include installation of a cap, long-term pumping, treating and/or
      monitoring of groundwater and removal of sediment in the Great Miami River,
      was
      estimated in 2001 to range up to approximately $10.5 million, with approximately
      $3 million in short-term costs and the remainder to be incurred over a period
      of
      30 years. However, costs could exceed this amount if additional contamination
      is
      discovered, if additional remedial action is necessary or if the remedial action
      costs are more than expected.





Because
      of the uncertainty surrounding
      the ultimate course of action for the West Carrollton mill property, the Great
      Miami River remediation and Appleton’s share of these remediation costs, if any,
      no provision has been recorded in the accompanying financial statements for
      estimated remediation costs. In conjunction with the November 9, 2001
      acquisition of PDC by the ESOP, and as limited by the terms of the purchase
      agreement, AWA agreed to indemnify PDC for 50% of all environmental liabilities
      at the West Carrollton mill up to $5.0 million and 100% of all such
      environmental costs exceeding $5.0 million. In addition, the former owners
      and
      operators of the West Carrollton mill may be liable for all or part of the
      cost
      of remediation of historic PCB contamination.





Other





From
      time to time, Appleton may be
      subject to various demands, claims, suits or other legal or regulatory
      proceedings arising in the ordinary course of its business. A comprehensive
      insurance program is maintained to provide a measure of financial protection
      against such matters, though not all such exposures are, or can be, addressed
      by
      insurance. Estimated costs are recorded for such demands, claims, suits or
      proceedings of this nature when reasonably determinable. Appleton has
      successfully defended such claims, settling some for amounts which are not
      material to the business and obtaining dismissals in others. While Appleton
      vigorously defends itself and expects to prevail in any similar cases that
      may
      be brought against Appleton in the future, there can be no assurance that
      Appleton will be successful in its defense.





Except
      as described above, assuming
      Appleton’s expectations regarding defending such demands, claims, suits or other
      legal or regulatory proceedings prove accurate, Appleton does not believe that
      any pending or threatened demands, claims, suits or other legal or regulatory
      proceedings will have, individually or in the aggregate, a materially adverse
      effect on its financial position, results of operations or cash
      flows.


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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








13.           EMPLOYEE
      STOCK OWNERSHIP PLAN





Appleton’s
      matching contribution charged to expense was $1.6 million and $1.7 million
      for
      the three months ended September 30, 2007 and October 1, 2006, respectively.
      Appleton’s matching contribution charged to expense was $5.2 million and $5.3
      million for the nine months ended September 30, 2007 and October 1, 2006,
      respectively. The third quarter 2007 matching contribution of $1.6 million
      will
      be made to the Company Stock Fund upon receipt of the corresponding employee
      deferrals to be received from the ESOP trustee at the end of the fourth quarter
      2007. As a result of hardship withdrawals, required diversifications and
      employee terminations, 866,421 shares of PDC redeemable common stock were
      repurchased during the first nine months of 2007 at an aggregate price of
      approximately $28.6 million. During the same period, the ESOP trustee purchased
      132,417 shares of PDC redeemable common stock for an aggregate price of $4.4
      million from pre-tax deferrals, rollovers and loan payments made by employees,
      while Appleton’s matching contribution for this same period resulted in an
      additional 109,507 shares of redeemable common stock being
      purchased.





Redeemable
      common stock is being
      accreted up to the earliest redemption date based upon the estimated fair market
      value of the redeemable common stock as of September 30, 2007. PDC accreted
      the
      redeemable common stock by $2.4 million for the nine months ended September
      30,
      2007. Based upon the estimated fair value of the redeemable common stock, an
      ultimate redemption liability of approximately $337 million was determined.
      The
      redeemable common stock recorded book value as of September 30, 2007 was $172
      million, which leaves a remaining unrecognized liability to be accreted of
      approximately $165 million.





14.           LONG-TERM
      OBLIGATIONS





Long-term
      obligations, excluding the
      capital lease obligation, consist of the following (dollars in
      thousands):





September
                                              30, 2007
                                          
                                          
                                          December
                                              30, 2006Senior
                                              secured variable rate notes payable
                                              at LIBORplus
                                              2.25%, $501 due quarterly with $94,758
                                              dueMarch
                                              31, 2010 and $94,758 due June 11, 2010
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          195,533Senior
                                              secured variable rate notes payable
                                              at LIBORplus
                                              1.75%, $563 due quarterly with $209,812
                                              dueJune
                                              5, 2014
                                          
                                          
                                          224,438
                                          
                                          
                                          
                                          -Revolving
                                              line of credit at U.K. bank base rate
                                              plus 1.75%
                                          
                                          
                                          2,737
                                          
                                          
                                          
                                          186227,175
                                          
                                          
                                          
                                          195,719Less
                                              obligations due within one year
                                          
                                          
                                          (2,250
                                          )
                                          
                                          
                                          (6,384
                                          )224,925
                                          
                                          
                                          
                                          189,335Unsecured
                                              variable rate industrial development
                                              bonds,3.9%
                                              average interest rate at September
                                              30, 2007,$2,650
                                              due in 2013 and $6,000 due in 2027
                                          
                                          
                                          8,650
                                          
                                          
                                          
                                          8,650State
                                              of Ohio assistance loan at 6%, approximately$100
                                              due monthly and final payment due May
                                              15, 2017
                                          
                                          
                                          9,105
                                          
                                          
                                          
                                          -Senior
                                              notes payable at 8.125%, due June 15,
                                              2011
                                          
                                          
                                          162,130
                                          
                                          
                                          
                                          167,600Senior
                                              subordinated notes payable at 9.75%,
                                              due June 15, 2014
                                          
                                          
                                          150,000
                                          
                                          
                                          
                                          150,000Senior
                                              subordinated notes payable at 12.5%,
                                              due December 15, 2008
                                          
                                          
                                          7,000
                                          
                                          
                                          
                                          7,000


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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








During
      the third quarter of 2007,
      Appleton purchased $5.5 million, plus interest, of the 8.125% senior notes
      payable due June 15, 2011. This purchase was made in four separate blocks of
      $0.3 million, $0.2 million, $3.0 million and $2.0 million with Appleton
      purchasing at a discount of 0.75%, at a discount of 0.75%, at a discount of
      0.25% and at par, respectively.





In
      July 2007, Appleton entered into a
      new $12.1 million Loan and Security Agreement with the Director of Development
      of the State of Ohio, consisting of a $9.1 million State Assistance Loan and
      a
      $3.0 million State Loan (together “the Ohio Loans”). Proceeds of the Ohio Loans
      will be used to fund a portion of the costs of acquiring and installing paper
      coating and production equipment at the Company’s paper mill in West Carrollton,
      Ohio. As of the end of third quarter 2007, Appleton had only received the
      proceeds of the $9.1 million State Assistance Loan. To date, the Company has
      spent $0.4 million of these proceeds with the remaining $8.7 million recorded
      as
      restricted cash within long-term other assets as its use is restricted to
      funding capital additions. The Ohio State Assistance Loan provides for monthly
      principal payments and interest at 6% and, upon receipt of the funds, the State
      Loan provides for monthly principal payments and interest of 1% for the first
      two years and 3% thereafter.





In
      June 2007, Appleton entered into a
      new $375 million senior secured credit facility consisting of a seven-year,
      $225
      million term loan bearing interest at a base rate, or at LIBOR, at Appleton’s
      option, plus an applicable margin, which is initially set at  0.75%
      for base rate loans and 1.75% for LIBOR loans. Mandatory principal payments
      of
      $0.6 million are due quarterly with the remaining balance due June 5, 2014.
      It
      also provides access to a six-year, $150 million revolving credit facility.
      The
      new senior credit facility is unconditionally guaranteed by PDC and by
      substantially all of Appleton’s subsidiaries, other than certain immaterial
      subsidiaries. In addition, it is secured by liens on substantially all
      Appleton’s, the subsidiary guarantors’ and certain of Appleton’s other
      subsidiaries’ assets and by a pledge of Appleton’s and its subsidiaries’ capital
      stock. These funds were used to repay the $190.7 million of previous senior
      secured variable rate notes, plus interest of $1.9 million, as well as the
      $7.5
      million outstanding amount borrowed against the previous $125 million line
      of
      credit, plus interest. As a result of this refinancing, $0.3 million of deferred
      debt issuance costs related to the previous senior credit facility were written
      off. Financing fees of $2.0 million were also incurred, of which, $0.9 million
      was recorded as expense in Appleton’s statement of operations and $1.1 million
      was capitalized as deferred debt issuance costs and will be amortized over the
      term of the new senior credit facility.





During
      the first quarter of 2007,
      Appleton made a $4.4 million excess cash flow payment, plus interest, and a
      $0.5
      million mandatory debt repayment, plus interest, on its previous senior credit
      facility. Also during the quarter, Appleton borrowed $23.0 million against
      its
      revolving lines of credit. By the end of the quarter, this $23.0 million was
      repaid, as well as the $0.2 million revolving line of credit balance outstanding
      at the end of 2006. During the second quarter of 2007, Appleton borrowed $46.9
      million against its revolving lines of credit. By the end of the quarter, $44.5
      million had been repaid and a balance of $2.4 million remained outstanding.
      During the third quarter of 2007, Appleton borrowed $2.2 million against its
      revolving lines of credit under the new senior credit facility. By the end
      of
      the quarter, $1.9 million had been repaid, leaving an outstanding balance of
      $2.7 million. Also during the third quarter, Appleton made a $0.6 million
      mandatory debt repayment, plus interest, on its new senior credit
      facility.





During
      March 2006, Appleton fixed the
      interest rate, at 7.16%, on $100.0 million of the previous term loan principal
      with a three-year interest rate swap contract. Due to the refinancing of the
      previous senior secured variable rate notes, this interest rate swap was
      terminated and settled in May 2007 resulting in a gain of $0.1
      million.


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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








At
      September 30, 2007, there was
      approximately $135.6 million of unused borrowing capacity under the $150 million
      revolving credit facility for working capital and other corporate purposes.
      Approximately $14.4 million of the revolving credit facility was used to support
      outstanding letters of credit. A commitment fee of 0.35% per annum is assessed
      on the unused borrowing capacity.








15.           SEGMENT
      INFORMATION





PDC’s
      five reportable segments are as
      follows:  coated solutions, thermal papers, security papers, secure
      and specialized print services and performance packaging. Management evaluates
      the performance of the segments based primarily on operating income. Items
      excluded from the determination of segment operating income are unallocated
      corporate charges, business development costs not associated with specific
      segments, interest income, interest expense, debt extinguishment expenses and
      foreign currency gains and losses.





PDC
      does
      not allocate total assets internally in assessing operating performance. Net
      sales, operating income and depreciation and amortization, as determined by
      PDC
      for its reportable segments, are as follows (dollars in thousands):





For
                                              the Three Months Ended September 30,
                                              2007
                                          
                                          
                                          For
                                              the Three Months Ended October 1, 2006
                                          
                                          
                                          For
                                              the Nine Months Ended September 30,
                                              2007
                                          
                                          
                                          For
                                              the Nine Months Ended October 1, 2006Net
                                              salesTechnical
                                              PapersCoated
                                              solutions
                                          
                                          $
                                          145,686
                                          
                                          
                                          $
                                          145,841
                                          
                                          
                                          $
                                          430,743
                                          
                                          
                                          $
                                          436,025Thermal
                                              papers
                                          
                                          
                                          69,156
                                          
                                          
                                          
                                          65,092
                                          
                                          
                                          
                                          194,251
                                          
                                          
                                          
                                          195,676Security
                                              papers
                                          
                                          
                                          7,658
                                          
                                          
                                          
                                          7,498
                                          
                                          
                                          
                                          23,485
                                          
                                          
                                          
                                          21,576222,500
                                          
                                          
                                          
                                          218,431
                                          
                                          
                                          
                                          648,479
                                          
                                          
                                          
                                          653,277Secure
                                              and specialized print services
                                          
                                          
                                          25,705
                                          
                                          
                                          
                                          25,443
                                          
                                          
                                          
                                          71,126
                                          
                                          
                                          
                                          72,439Performance
                                              packaging
                                          
                                          
                                          24,742
                                          
                                          
                                          
                                          28,353
                                          
                                          
                                          
                                          73,878
                                          
                                          
                                          
                                          84,423Total
                                          
                                          $
                                          272,947
                                          
                                          
                                          $
                                          272,227
                                          
                                          
                                          $
                                          793,483
                                          
                                          
                                          $
                                          810,139Operating
                                              income (loss)Technical
                                              PapersCoated
                                              solutions
                                          
                                          $
                                          17,242
                                          
                                          
                                          $
                                          14,818
                                          
                                          
                                          $
                                          43,134
                                          
                                          
                                          $
                                          42,737Thermal
                                              papers
                                          
                                          
                                          851
                                          
                                          
                                          
                                          3,653
                                          
                                          
                                          
                                          5,532
                                          
                                          
                                          
                                          9,726Security
                                              papers
                                          
                                          
                                          1,054
                                          
                                          
                                          
                                          430
                                          
                                          
                                          
                                          2,495
                                          
                                          
                                          
                                          1,18719,147
                                          
                                          
                                          
                                          18,901
                                          
                                          
                                          
                                          51,161
                                          
                                          
                                          
                                          53,650Secure
                                              and specialized print services
                                          
                                          
                                          62
                                          
                                          
                                          
                                          (187
                                          )
                                          
                                          
                                          (4,323
                                          )
                                          
                                          
                                          (408
                                          )Performance
                                              packaging
                                          
                                          
                                          1,976
                                          
                                          
                                          
                                          2,707
                                          
                                          
                                          
                                          4,097
                                          
                                          
                                          
                                          6,828Unallocated
                                              corporate charges and business development
                                              costs
                                          
                                          
                                          (3,053
                                          )
                                          
                                          
                                          (4,145
                                          )
                                          
                                          
                                          (12,504
                                          )
                                          
                                          
                                          (12,610
                                          )Total
                                          
                                          $
                                          18,132
                                          
                                          
                                          $
                                          17,276
                                          
                                          
                                          $
                                          38,431
                                          
                                          
                                          $
                                          47,460


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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








For
                                              the Three Months Ended September 30,
                                              2007
                                          
                                          
                                          For
                                              the Three Months Ended October 1, 2006
                                          
                                          
                                          For
                                              the Nine Months Ended September 30,
                                              2007
                                          
                                          
                                          For
                                              the Nine Months Ended October 1, 2006Depreciation
                                              and amortization of intangible assetsTechnical
                                              PapersCoated
                                              solutions
                                          
                                          $
                                          9,967
                                          
                                          
                                          $
                                          11,425
                                          
                                          
                                          $
                                          30,530
                                          
                                          
                                          $
                                          34,390Thermal
                                              papers
                                          
                                          
                                          3,505
                                          
                                          
                                          
                                          3,617
                                          
                                          
                                          
                                          10,833
                                          
                                          
                                          
                                          11,069Security
                                              papers
                                          
                                          
                                          700
                                          
                                          
                                          
                                          709
                                          
                                          
                                          
                                          2,102
                                          
                                          
                                          
                                          2,10214,172
                                          
                                          
                                          
                                          15,751
                                          
                                          
                                          
                                          43,465
                                          
                                          
                                          
                                          47,561Secure
                                              and specialized print services
                                          
                                          
                                          1,606
                                          
                                          
                                          
                                          1,654
                                          
                                          
                                          
                                          4,900
                                          
                                          
                                          
                                          4,829Performance
                                              packaging
                                          
                                          
                                          1,426
                                          
                                          
                                          
                                          1,344
                                          
                                          
                                          
                                          4,788
                                          
                                          
                                          
                                          4,254Unallocated
                                              corporate charges
                                          
                                          
                                          13
                                          
                                          
                                          
                                          99
                                          
                                          
                                          
                                          40
                                          
                                          
                                          
                                          298Total
                                          
                                          $
                                          17,217
                                          
                                          
                                          $
                                          18,848
                                          
                                          
                                          $
                                          53,193
                                          
                                          
                                          $
                                          56,942





During
      the third quarter of
      2007, Appleton recorded restructuring costs within its reportable segments
      as follows:  $0.1 million in secure and specialized print services and
      $0.3 million in unallocated corporate charges. During third quarter 2006,
      Appleton recorded restructuring costs within its reportable segments as follows:
      $0.5 million in secure and specialized print services and $0.9 million in
      unallocated corporate charges and business development
      costs.





During
      the first nine months of 2007, Appleton recorded restructuring costs within
      its reportable segments as follows:  $0.1 million in coated solutions,
      $0.2 million in thermal papers, $1.9 million in secure and specialized print
      services, $0.2 million in performance packaging and $0.9 million in unallocated
      corporate charges. During the first nine months of 2006, Appleton recorded
      restructuring costs within its reportable segments as follows:  $0.3
      million in coated solutions, $0.1 million in thermal papers, $0.1 million in
      security papers, $0.2 million in performance packaging, $0.5 million in secure
      and specialized print services and $0.9 million in unallocated corporate charges
      and business development costs.




Given
      the seasonality of BemroseBooth's (secure and
      specialized print services segment) product offerings, the majority of its
      profit is generated in the fourth quarter of each year. To the extent that
      BemroseBooth's operating performance in the fourth quarter of 2007 does not
      meet
      the Company's projections, certain of its assets may not be fully recoverable,
      and the resultant impact could be material to the Company's consolidated
      financial statements.








16.           GUARANTOR
      FINANCIAL INFORMATION





Appleton
      (the “Issuer”) has issued senior notes and senior subordinated notes which have
      been guaranteed by PDC (the “Parent Guarantor”), C&H Packaging Company,
      Inc., American Plastics Company, Inc., Rose Holdings Limited, Bemrose Group
      Limited, The Henry Booth Group Limited, BemroseBooth Limited, HBGI Holdings
      Limited, Bemrose Security & Promotional Printing Limited and New England
      Extrusion Inc., each of which is a wholly-owned subsidiary of Appleton (the
      “Subsidiary Guarantors”). These guarantees are full, unconditional and joint and
      several.


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PAPERWEIGHT
      DEVELOPMENT CORP. AND SUBSIDIARIES





NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)








Presented
      below is condensed consolidating financial information for the Parent Guarantor,
      the Issuer, the Subsidiary Guarantors and a wholly-owned non-guarantor
      subsidiary (the “Non-Guarantor Subsidiary”) as of September 30, 2007 and
      December 30, 2006 and for the three and nine months ended September 30, 2007
      and
      October 1, 2006. This financial information should be read in conjunction with
      the Condensed Consolidated Financial Statements and related Notes.





Separate
      financial statements for the Parent and Subsidiary Guarantors are not presented
      based on management’s determination that they would not provide additional
      information that is material to readers of these financial
      statements.





The
      senior credit facility, the senior notes and the senior subordinated notes
      place
      restrictions on the subsidiaries of the Issuer that would limit dividend
      distributions by these subsidiaries.


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PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESNOTES
                                              TO CONDENSED CONSOLIDATED FINANCIAL
                                              STATEMENTS -
                                              (Continued)CONDENSED
                                              CONSOLIDATING BALANCE SHEETSEPTEMBER
                                              30, 2007(unaudited)(dollars
                                              in thousands)Parent
                                              Guarantor
                                          
                                          
                                          Issuer
                                          
                                          
                                          Subsidiary
                                              Guarantors
                                          
                                          
                                          Non-Guarantor
                                            Subsidiary
                                          
                                          
                                          Eliminations
                                          
                                          
                                          ConsolidatedASSETSCurrent
                                              assetsCash
                                              and cash equivalents
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          32,683
                                          
                                          
                                          $
                                          659
                                          
                                          
                                          $
                                          3,790
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          37,132Accounts
                                              receivable, net
                                          
                                          
                                          -
                                          
                                          
                                          
                                          113,362
                                          
                                          
                                          
                                          27,289
                                          
                                          
                                          
                                          6,974
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          147,625Inventories
                                          
                                          
                                          -
                                          
                                          
                                          
                                          104,656
                                          
                                          
                                          
                                          30,091
                                          
                                          
                                          
                                          1,298
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          136,045Other
                                              current assets
                                          
                                          
                                          18,200
                                          
                                          
                                          
                                          6,886
                                          
                                          
                                          
                                          1,873
                                          
                                          
                                          
                                          84
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          27,043Total
                                              current assets
                                          
                                          
                                          18,200
                                          
                                          
                                          
                                          257,587
                                          
                                          
                                          
                                          59,912
                                          
                                          
                                          
                                          12,146
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          347,845Property,
                                              plant and equipment, net
                                          
                                          
                                          -
                                          
                                          
                                          
                                          351,865
                                          
                                          
                                          
                                          61,937
                                          
                                          
                                          
                                          24
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          413,826Investment
                                              in subsidiaries
                                          
                                          
                                          332,469
                                          
                                          
                                          
                                          170,231
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (502,700
                                          )
                                          
                                          
                                          -Other
                                              assets
                                          
                                          
                                          103,497
                                          
                                          
                                          
                                          86,634
                                          
                                          
                                          
                                          112,896
                                          
                                          
                                          
                                          50
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          303,077Total
                                              assets
                                          
                                          $
                                          454,166
                                          
                                          
                                          $
                                          866,317
                                          
                                          
                                          $
                                          234,745
                                          
                                          
                                          $
                                          12,220
                                          
                                          
                                          $
                                          (502,700
                                          )
                                          
                                          $
                                          1,064,748LIABILITIES,
                                              REDEEMABLE COMMON STOCK, ACCUMULATED
                                              DEFICIT AND ACCUMULATED OTHER
                                              COMPREHENSIVE LOSSCurrent
                                              liabilitiesCurrent
                                              portion of long-term debt
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          2,250
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          2,250Accounts
                                              payable
                                          
                                          
                                          -
                                          
                                          
                                          
                                          56,324
                                          
                                          
                                          
                                          14,859
                                          
                                          
                                          
                                          104
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          71,287Due
                                              to (from) parent and affiliated companies
                                          
                                          
                                          350,615
                                          
                                          
                                          
                                          (383,341
                                          )
                                          
                                          
                                          35,623
                                          
                                          
                                          
                                          (2,897
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Other
                                              accrued liabilities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          83,198
                                          
                                          
                                          
                                          11,800
                                          
                                          
                                          
                                          2,041
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          97,039Total
                                              current liabilities
                                          
                                          
                                          350,615
                                          
                                          
                                          
                                          (241,569
                                          )
                                          
                                          
                                          62,282
                                          
                                          
                                          
                                          (752
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          170,576Long-term
                                              debt
                                          
                                          
                                          -
                                          
                                          
                                          
                                          559,073
                                          
                                          
                                          
                                          2,737
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          561,810Capital
                                              lease obligation
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,500
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,500Other
                                              long-term liabilities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          214,844
                                          
                                          
                                          
                                          12,409
                                          
                                          
                                          
                                          58
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          227,311Redeemable
                                              common stock, accumulated deficit and
                                              accumulated other comprehensive
                                              loss
                                          
                                          
                                          103,551
                                          
                                          
                                          
                                          332,469
                                          
                                          
                                          
                                          157,317
                                          
                                          
                                          
                                          12,914
                                          
                                          
                                          
                                          (502,700
                                          )
                                          
                                          
                                          103,551Total
                                              liabilities, redeemable common stock,
                                              accumulated deficit and accumulated
                                              other comprehensive loss
                                          
                                          $
                                          454,166
                                          
                                          
                                          $
                                          866,317
                                          
                                          
                                          $
                                          234,745
                                          
                                          
                                          $
                                          12,220
                                          
                                          
                                          $
                                          (502,700
                                          )
                                          
                                          $
                                          1,064,748





-23-
 Table
          of Contents





PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESNOTES
                                              TO CONDENSED CONSOLIDATED FINANCIAL
                                              STATEMENTS -
                                              (Continued)CONDENSED
                                              CONSOLIDATING BALANCE SHEETDECEMBER
                                              30, 2006(dollars
                                              in thousands)Parent
                                              Guarantor
                                          
                                          
                                          Issuer
                                          
                                          
                                          Subsidiary
                                              Guarantors
                                          
                                          
                                          Non-Guarantor
                                            Subsidiary
                                          
                                          
                                          Eliminations
                                          
                                          
                                          ConsolidatedASSETSCurrent
                                              assetsCash
                                              and cash equivalents
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          17,249
                                          
                                          
                                          $
                                          817
                                          
                                          
                                          $
                                          1,909
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          19,975Accounts
                                              receivable, net
                                          
                                          
                                          -
                                          
                                          
                                          
                                          94,081
                                          
                                          
                                          
                                          37,199
                                          
                                          
                                          
                                          8,496
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          139,776Inventories
                                          
                                          
                                          -
                                          
                                          
                                          
                                          109,747
                                          
                                          
                                          
                                          27,361
                                          
                                          
                                          
                                          1,646
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          138,754Other
                                              current assets
                                          
                                          
                                          18,200
                                          
                                          
                                          
                                          6,680
                                          
                                          
                                          
                                          1,446
                                          
                                          
                                          
                                          90
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          26,416Total
                                              current assets
                                          
                                          
                                          18,200
                                          
                                          
                                          
                                          227,757
                                          
                                          
                                          
                                          66,823
                                          
                                          
                                          
                                          12,141
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          324,921Property,
                                              plant and equipment, net
                                          
                                          
                                          -
                                          
                                          
                                          
                                          367,327
                                          
                                          
                                          
                                          65,363
                                          
                                          
                                          
                                          20
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          432,710Investment
                                              in subsidiaries
                                          
                                          
                                          317,687
                                          
                                          
                                          
                                          170,040
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (487,727
                                          )
                                          
                                          
                                          -Other
                                              assets
                                          
                                          
                                          58,043
                                          
                                          
                                          
                                          87,513
                                          
                                          
                                          
                                          112,893
                                          
                                          
                                          
                                          43
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          258,492Total
                                              assets
                                          
                                          $
                                          393,930
                                          
                                          
                                          $
                                          852,637
                                          
                                          
                                          $
                                          245,079
                                          
                                          
                                          $
                                          12,204
                                          
                                          
                                          $
                                          (487,727
                                          )
                                          
                                          $
                                          1,016,123LIABILITIES,
                                              REDEEMABLE COMMON STOCK, ACCUMULATED
                                              DEFICIT AND ACCUMULATED OTHER
                                              COMPREHENSIVE LOSSCurrent
                                              liabilitiesCurrent
                                              portion of long-term debt
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          6,384
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          6,384Accounts
                                              payable
                                          
                                          
                                          -
                                          
                                          
                                          
                                          58,451
                                          
                                          
                                          
                                          17,633
                                          
                                          
                                          
                                          197
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          76,281Due
                                              to (from) parent and affiliated companies
                                          
                                          
                                          276,359
                                          
                                          
                                          
                                          (312,220
                                          )
                                          
                                          
                                          37,948
                                          
                                          
                                          
                                          (2,087
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Other
                                              accrued liabilities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          82,060
                                          
                                          
                                          
                                          16,197
                                          
                                          
                                          
                                          1,934
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          100,191Total
                                              current liabilities
                                          
                                          
                                          276,359
                                          
                                          
                                          
                                          (165,325
                                          )
                                          
                                          
                                          71,778
                                          
                                          
                                          
                                          44
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          182,856Long-term
                                              debt
                                          
                                          
                                          -
                                          
                                          
                                          
                                          522,399
                                          
                                          
                                          
                                          186
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          522,585Capital
                                              lease obligation
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,931
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,931Other
                                              long-term liabilities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          175,945
                                          
                                          
                                          
                                          14,754
                                          
                                          
                                          
                                          481
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          191,180Redeemable
                                              common stock, accumulated deficit and
                                              accumulated other comprehensive
                                              loss
                                          
                                          
                                          117,571
                                          
                                          
                                          
                                          317,687
                                          
                                          
                                          
                                          158,361
                                          
                                          
                                          
                                          11,679
                                          
                                          
                                          
                                          (487,727
                                          )
                                          
                                          
                                          117,571Total
                                              liabilities, redeemable common stock,
                                              accumulated deficit and accumulated
                                              other comprehensive loss
                                          
                                          $
                                          393,930
                                          
                                          
                                          $
                                          852,637
                                          
                                          
                                          $
                                          245,079
                                          
                                          
                                          $
                                          12,204
                                          
                                          
                                          $
                                          (487,727
                                          )
                                          
                                          $
                                          1,016,123





-24-
 Table
          of Contents





PAPERWEIGHT
                                            DEVELOPMENT CORP.
                                            AND SUBSIDIARIESNOTES
                                              TO CONDENSED CONSOLIDATED FINANCIAL
                                              STATEMENTS -
                                              (Continued)CONDENSED
                                              CONSOLIDATING STATEMENT OF OPERATIONSFOR
                                              THE NINE MONTHS ENDED SEPTEMBER 30,
                                              2007(unaudited)(dollars
                                              in thousands)Parent
                                              Guarantor
                                          
                                          
                                          Issuer
                                          
                                          
                                          Subsidiary
                                              Guarantors
                                          
                                          
                                          Non-Guarantor
                                              Subsidiary
                                          
                                          
                                          Eliminations
                                          
                                          
                                          ConsolidatedNet
                                              sales
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          647,450
                                          
                                          
                                          $
                                          144,883
                                          
                                          
                                          $
                                          45,820
                                          
                                          
                                          $
                                          (44,670
                                          )
                                          
                                          $
                                          793,483Cost
                                              of sales
                                          
                                          
                                          -
                                          
                                          
                                          
                                          490,773
                                          
                                          
                                          
                                          115,027
                                          
                                          
                                          
                                          44,003
                                          
                                          
                                          
                                          (44,809
                                          )
                                          
                                          
                                          604,994Gross
                                              profit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          156,677
                                          
                                          
                                          
                                          29,856
                                          
                                          
                                          
                                          1,817
                                          
                                          
                                          
                                          139
                                          
                                          
                                          
                                          188,489Selling,
                                              general and administrative expenses
                                          
                                          
                                          -
                                          
                                          
                                          
                                          116,694
                                          
                                          
                                          
                                          28,367
                                          
                                          
                                          
                                          1,648
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          146,709Restructuring
                                              and other charges
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,302
                                          
                                          
                                          
                                          2,047
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          3,349Operating
                                              income (loss)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          38,681
                                          
                                          
                                          
                                          (558
                                          )
                                          
                                          
                                          169
                                          
                                          
                                          
                                          139
                                          
                                          
                                          
                                          38,431Interest
                                              expense
                                          
                                          
                                          8,172
                                          
                                          
                                          
                                          36,924
                                          
                                          
                                          
                                          3,081
                                          
                                          
                                          
                                          4
                                          
                                          
                                          
                                          (11,134
                                          )
                                          
                                          
                                          37,047Debt
                                              extinguishment expenses
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,141
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,141Interest
                                              income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (12,987
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (45
                                          )
                                          
                                          
                                          11,134
                                          
                                          
                                          
                                          (1,898
                                          )(Income)
                                              loss in equity investments
                                          
                                          
                                          (13,628
                                          )
                                          
                                          
                                          263
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          13,365
                                          
                                          
                                          
                                          -Other
                                              (income) expense
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (393
                                          )
                                          
                                          
                                          50
                                          
                                          
                                          
                                          (1,099
                                          )
                                          
                                          
                                          191
                                          
                                          
                                          
                                          (1,251
                                          )Income
                                              (loss) before income taxes
                                          
                                          
                                          5,456
                                          
                                          
                                          
                                          13,733
                                          
                                          
                                          
                                          (3,689
                                          )
                                          
                                          
                                          1,309
                                          
                                          
                                          
                                          (13,417
                                          )
                                          
                                          
                                          3,392Provision
                                              (benefit) for income taxes
                                          
                                          
                                          -
                                          
                                          
                                          
                                          105
                                          
                                          
                                          
                                          (2,244
                                          )
                                          
                                          
                                          75
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (2,064
                                          )Net
                                              income (loss)
                                          
                                          $
                                          5,456
                                          
                                          
                                          $
                                          13,628
                                          
                                          
                                          $
                                          (1,445
                                          )
                                          
                                          $
                                          1,234
                                          
                                          
                                          $
                                          (13,417
                                          )
                                          
                                          $
                                          5,456





-25-
 Table
          of Contents





PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESNOTES
                                              TO CONDENSED CONSOLIDATED FINANCIAL
                                              STATEMENTS -
                                              (Continued)CONDENSED
                                              CONSOLIDATING STATEMENT OF OPERATIONSFOR
                                              THE NINE MONTHS ENDED OCTOBER 1, 2006(unaudited)(dollars
                                              in thousands)Parent
                                              Guarantor
                                          
                                          
                                          Issuer
                                          
                                          
                                          Subsidiary
                                              Guarantors
                                          
                                          
                                          Non-Guarantor
                                              Subsidiary
                                          
                                          
                                          Eliminations
                                          
                                          
                                          ConsolidatedNet
                                              sales
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          653,385
                                          
                                          
                                          $
                                          156,284
                                          
                                          
                                          $
                                          49,068
                                          
                                          
                                          $
                                          (48,598
                                          )
                                          
                                          $
                                          810,139Cost
                                              of sales
                                          
                                          
                                          -
                                          
                                          
                                          
                                          489,346
                                          
                                          
                                          
                                          120,028
                                          
                                          
                                          
                                          46,717
                                          
                                          
                                          
                                          (49,168
                                          )
                                          
                                          
                                          606,923Gross
                                              profit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          164,039
                                          
                                          
                                          
                                          36,256
                                          
                                          
                                          
                                          2,351
                                          
                                          
                                          
                                          570
                                          
                                          
                                          
                                          203,216Selling,
                                              general and administrative expenses
                                          
                                          
                                          -
                                          
                                          
                                          
                                          122,893
                                          
                                          
                                          
                                          28,773
                                          
                                          
                                          
                                          2,002
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          153,668Restructuring
                                              and other charges
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,486
                                          
                                          
                                          
                                          602
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,088Operating
                                              income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          39,660
                                          
                                          
                                          
                                          6,881
                                          
                                          
                                          
                                          349
                                          
                                          
                                          
                                          570
                                          
                                          
                                          
                                          47,460Interest
                                              expense
                                          
                                          
                                          7,499
                                          
                                          
                                          
                                          37,070
                                          
                                          
                                          
                                          2,436
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (9,799
                                          )
                                          
                                          
                                          37,206Interest
                                              income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (10,379
                                          )
                                          
                                          
                                          (6
                                          )
                                          
                                          
                                          (47
                                          )
                                          
                                          
                                          9,799
                                          
                                          
                                          
                                          (633
                                          )Income
                                              in equity investments
                                          
                                          
                                          (19,321
                                          )
                                          
                                          
                                          (5,984
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          25,305
                                          
                                          
                                          
                                          -Other
                                              (income) expense
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (536
                                          )
                                          
                                          
                                          163
                                          
                                          
                                          
                                          (257
                                          )
                                          
                                          
                                          349
                                          
                                          
                                          
                                          (281
                                          )Income
                                              before income taxes
                                          
                                          
                                          11,822
                                          
                                          
                                          
                                          19,489
                                          
                                          
                                          
                                          4,288
                                          
                                          
                                          
                                          653
                                          
                                          
                                          
                                          (25,084
                                          )
                                          
                                          
                                          11,168Provision
                                              (benefit) for income taxes
                                          
                                          
                                          -
                                          
                                          
                                          
                                          168
                                          
                                          
                                          
                                          (822
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (654
                                          )Net
                                              income
                                          
                                          $
                                          11,822
                                          
                                          
                                          $
                                          19,321
                                          
                                          
                                          $
                                          5,110
                                          
                                          
                                          $
                                          653
                                          
                                          
                                          $
                                          (25,084
                                          )
                                          
                                          $
                                          11,822





-26-
 Table
          of Contents





PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESNOTES
                                              TO CONDENSED CONSOLIDATED FINANCIAL
                                              STATEMENTS -
                                              (Continued)CONDENSED
                                              CONSOLIDATING STATEMENT OF OPERATIONSFOR
                                              THE THREE MONTHS ENDED SEPTEMBER 30,
                                              2007(unaudited)(dollars
                                              in thousands)Parent
                                              Guarantor
                                          
                                          
                                          Issuer
                                          
                                          
                                          Subsidiary
                                              Guarantors
                                          
                                          
                                          Non-Guarantor
                                              Subsidiary
                                          
                                          
                                          Eliminations
                                          
                                          
                                          ConsolidatedNet
                                              sales
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          223,267
                                          
                                          
                                          $
                                          50,386
                                          
                                          
                                          $
                                          14,475
                                          
                                          
                                          $
                                          (15,181
                                          )
                                          
                                          $
                                          272,947Cost
                                              of sales
                                          
                                          
                                          -
                                          
                                          
                                          
                                          168,225
                                          
                                          
                                          
                                          38,732
                                          
                                          
                                          
                                          14,845
                                          
                                          
                                          
                                          (15,461
                                          )
                                          
                                          
                                          206,341Gross
                                              profit (loss)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          55,042
                                          
                                          
                                          
                                          11,654
                                          
                                          
                                          
                                          (370
                                          )
                                          
                                          
                                          280
                                          
                                          
                                          
                                          66,606Selling,
                                              general and administrative expenses
                                          
                                          
                                          -
                                          
                                          
                                          
                                          37,924
                                          
                                          
                                          
                                          9,633
                                          
                                          
                                          
                                          552
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          48,109Restructuring
                                              and other charges
                                          
                                          
                                          -
                                          
                                          
                                          
                                          248
                                          
                                          
                                          
                                          117
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          365Operating
                                              income (loss)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          16,870
                                          
                                          
                                          
                                          1,904
                                          
                                          
                                          
                                          (922
                                          )
                                          
                                          
                                          280
                                          
                                          
                                          
                                          18,132Interest
                                              expense
                                          
                                          
                                          2,819
                                          
                                          
                                          
                                          12,487
                                          
                                          
                                          
                                          1,110
                                          
                                          
                                          
                                          4
                                          
                                          
                                          
                                          (3,866
                                          )
                                          
                                          
                                          12,554Debt
                                              extinguishment expenses
                                          
                                          
                                          -
                                          
                                          
                                          
                                          88
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          88Interest
                                              income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (4,370
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (18
                                          )
                                          
                                          
                                          3,866
                                          
                                          
                                          
                                          (522
                                          )Income
                                              in equity investments
                                          
                                          
                                          (10,098
                                          )
                                          
                                          
                                          (1,227
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          11,325
                                          
                                          
                                          
                                          -Other
                                              income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (259
                                          )
                                          
                                          
                                          (37
                                          )
                                          
                                          
                                          (425
                                          )
                                          
                                          
                                          57
                                          
                                          
                                          
                                          (664
                                          )Income
                                              (loss) before income taxes
                                          
                                          
                                          7,279
                                          
                                          
                                          
                                          10,151
                                          
                                          
                                          
                                          831
                                          
                                          
                                          
                                          (483
                                          )
                                          
                                          
                                          (11,102
                                          )
                                          
                                          
                                          6,676Provision
                                              (benefit) for income taxes
                                          
                                          
                                          -
                                          
                                          
                                          
                                          53
                                          
                                          
                                          
                                          (350
                                          )
                                          
                                          
                                          (306
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (603
                                          )Net
                                              income (loss)
                                          
                                          $
                                          7,279
                                          
                                          
                                          $
                                          10,098
                                          
                                          
                                          $
                                          1,181
                                          
                                          
                                          $
                                          (177
                                          )
                                          
                                          $
                                          (11,102
                                          )
                                          
                                          $
                                          7,279





-27-
 Table
          of Contents





PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESNOTES
                                              TO CONDENSED CONSOLIDATED FINANCIAL
                                              STATEMENTS -
                                              (Continued)CONDENSED
                                              CONSOLIDATING STATEMENT OF OPERATIONSFOR
                                              THE THREE MONTHS ENDED OCTOBER 1, 2006(unaudited)(dollars
                                              in thousands)Parent
                                              Guarantor
                                          
                                          
                                          Issuer
                                          
                                          
                                          Subsidiary
                                              Guarantors
                                          
                                          
                                          Non-Guarantor
                                            Subsidiary
                                          
                                          
                                          Eliminations
                                          
                                          
                                          ConsolidatedNet
                                              sales
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          217,038
                                          
                                          
                                          $
                                          53,696
                                          
                                          
                                          $
                                          17,106
                                          
                                          
                                          $
                                          (15,613
                                          )
                                          
                                          $
                                          272,227Cost
                                              of sales
                                          
                                          
                                          -
                                          
                                          
                                          
                                          161,442
                                          
                                          
                                          
                                          40,856
                                          
                                          
                                          
                                          15,850
                                          
                                          
                                          
                                          (15,969
                                          )
                                          
                                          
                                          202,179Gross
                                              profit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          55,596
                                          
                                          
                                          
                                          12,840
                                          
                                          
                                          
                                          1,256
                                          
                                          
                                          
                                          356
                                          
                                          
                                          
                                          70,048Selling,
                                              general and administrative expenses
                                          
                                          
                                          -
                                          
                                          
                                          
                                          41,116
                                          
                                          
                                          
                                          9,605
                                          
                                          
                                          
                                          649
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          51,370Restructuring
                                              and other charges
                                          
                                          
                                          -
                                          
                                          
                                          
                                          893
                                          
                                          
                                          
                                          509
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,402Operating
                                              income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          13,587
                                          
                                          
                                          
                                          2,726
                                          
                                          
                                          
                                          607
                                          
                                          
                                          
                                          356
                                          
                                          
                                          
                                          17,276Interest
                                              expense
                                          
                                          
                                          2,568
                                          
                                          
                                          
                                          12,536
                                          
                                          
                                          
                                          915
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3,397
                                          )
                                          
                                          
                                          12,622Interest
                                              income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3,557
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (17
                                          )
                                          
                                          
                                          3,397
                                          
                                          
                                          
                                          (177
                                          )Income
                                              in equity investments
                                          
                                          
                                          (7,614
                                          )
                                          
                                          
                                          (2,904
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          10,518
                                          
                                          
                                          
                                          -Other
                                              (income) expense
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (191
                                          )
                                          
                                          
                                          63
                                          
                                          
                                          
                                          1
                                          
                                          
                                          
                                          150
                                          
                                          
                                          
                                          23Income
                                              before income taxes
                                          
                                          
                                          5,046
                                          
                                          
                                          
                                          7,703
                                          
                                          
                                          
                                          1,748
                                          
                                          
                                          
                                          623
                                          
                                          
                                          
                                          (10,312
                                          )
                                          
                                          
                                          4,808Provision
                                              (benefit) for income taxes
                                          
                                          
                                          -
                                          
                                          
                                          
                                          89
                                          
                                          
                                          
                                          (327
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (238
                                          )Net
                                              income
                                          
                                          $
                                          5,046
                                          
                                          
                                          $
                                          7,614
                                          
                                          
                                          $
                                          2,075
                                          
                                          
                                          $
                                          623
                                          
                                          
                                          $
                                          (10,312
                                          )
                                          
                                          $
                                          5,046





-28-
 Table
          of Contents





PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESNOTES
                                              TO CONDENSED CONSOLIDATED FINANCIAL
                                              STATEMENTS -
                                              (Continued)CONDENSED
                                              CONSOLIDATING STATEMENT OF CASH FLOWSFOR
                                              THE NINE MONTHS ENDED SEPTEMBER 30,
                                              2007(unaudited)(dollars
                                              in thousands)Parent
                                              Guarantor
                                          
                                          
                                          Issuer
                                          
                                          
                                          Subsidiary
                                              Guarantors
                                          
                                          
                                          Non-Guarantor
                                              Subsidiary
                                          
                                          
                                          Eliminations
                                          
                                          
                                          ConsolidatedCash
                                              flows from operating activities:Net
                                              income (loss)
                                          
                                          $
                                          5,456
                                          
                                          
                                          $
                                          13,628
                                          
                                          
                                          $
                                          (1,445
                                          )
                                          
                                          $
                                          1,234
                                          
                                          
                                          $
                                          (13,417
                                          )
                                          
                                          $
                                          5,456Adjustments
                                              to reconcile net income (loss) to net
                                              cash(used)
                                              provided by operating activities:Depreciation
                                              and amortization
                                          
                                          
                                          -
                                          
                                          
                                          
                                          43,883
                                          
                                          
                                          
                                          9,298
                                          
                                          
                                          
                                          12
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          53,193Other
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,894
                                          
                                          
                                          
                                          530
                                          
                                          
                                          
                                          (1,099
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,325Change
                                              in assets and liabilities, net
                                          
                                          
                                          (55,477
                                          )
                                          
                                          
                                          29,245
                                          
                                          
                                          
                                          (5,314
                                          )
                                          
                                          
                                          2,558
                                          
                                          
                                          
                                          13,417
                                          
                                          
                                          
                                          (15,571
                                          )Net
                                              cash (used) provided by operating activities
                                          
                                          
                                          (50,021
                                          )
                                          
                                          
                                          94,650
                                          
                                          
                                          
                                          3,069
                                          
                                          
                                          
                                          2,705
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          50,403Cash
                                              flows from investing activities:Proceeds
                                              from sale of equipment
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4Restricted
                                              cash for mill expansion
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (8,665
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (8,665
                                          )Additions
                                              to property, plant and equipment
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (24,960
                                          )
                                          
                                          
                                          (3,453
                                          )
                                          
                                          
                                          (14
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (28,427
                                          )Net
                                              cash used by investing activities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (33,621
                                          )
                                          
                                          
                                          (3,453
                                          )
                                          
                                          
                                          (14
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (37,088
                                          )Cash
                                              flows from financing activities:Payments
                                              of long-term debt
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (201,565
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (201,565
                                          )Proceeds
                                              from long-term debt
                                          
                                          
                                          -
                                          
                                          
                                          
                                          225,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          225,000Debt
                                              acquisition costs
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (2,229
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (2,229
                                          )Payments
                                              relating to capital lease obligation
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (548
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (548
                                          )Proceeds
                                              from revolving lines of credit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          67,550
                                          
                                          
                                          
                                          4,579
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          72,129Payments
                                              of revolving lines of credit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (67,550
                                          )
                                          
                                          
                                          (2,028
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (69,578
                                          )Proceeds
                                              from State of Ohio financing
                                          
                                          
                                          -
                                          
                                          
                                          
                                          9,105
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          9,105Due
                                              to parent and affiliated companies,
                                              net
                                          
                                          
                                          74,256
                                          
                                          
                                          
                                          (71,121
                                          )
                                          
                                          
                                          (2,325
                                          )
                                          
                                          
                                          (810
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Proceeds
                                              from issuance of redeemable common
                                              stock
                                          
                                          
                                          4,355
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,355Payments
                                              to redeem common stock
                                          
                                          
                                          (28,590
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (28,590
                                          )Decrease
                                              in cash overdraft
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3,990
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3,990
                                          )Net
                                              cash provided (used) by financing activities
                                          
                                          
                                          50,021
                                          
                                          
                                          
                                          (45,348
                                          )
                                          
                                          
                                          226
                                          
                                          
                                          
                                          (810
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,089Effect
                                              of foreign exchange rate changes on
                                              cash and cash
                                              equivalents
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (247
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (247
                                          )Change
                                              in cash and cash equivalents
                                          
                                          
                                          -
                                          
                                          
                                          
                                          15,434
                                          
                                          
                                          
                                          (158
                                          )
                                          
                                          
                                          1,881
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          17,157Cash
                                              and cash equivalents at beginning of
                                              period
                                          
                                          
                                          -
                                          
                                          
                                          
                                          17,249
                                          
                                          
                                          
                                          817
                                          
                                          
                                          
                                          1,909
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          19,975Cash
                                              and cash equivalents at end of period
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          32,683
                                          
                                          
                                          $
                                          659
                                          
                                          
                                          $
                                          3,790
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          37,132





-29-
 Table
          of Contents





PAPERWEIGHT
                                              DEVELOPMENT CORP. AND SUBSIDIARIESNOTES
                                              TO CONDENSED CONSOLIDATED FINANCIAL
                                              STATEMENTS -
                                              (Continued)CONDENSED
                                              CONSOLIDATING STATEMENT OF CASH FLOWSFOR
                                              THE NINE MONTHS ENDED OCTOBER 1, 2006(unaudited)(dollars
                                              in thousands)Parent
                                              Guarantor
                                          
                                          
                                          Issuer
                                          
                                          
                                          Subsidiary
                                              Guarantors
                                          
                                          
                                          Non-Guarantor
                                            Subsidiary
                                          
                                          
                                          Eliminations
                                          
                                          
                                          ConsolidatedCash
                                              flows from operating activities:Net
                                              income
                                          
                                          $
                                          11,822
                                          
                                          
                                          $
                                          19,321
                                          
                                          
                                          $
                                          5,110
                                          
                                          
                                          $
                                          653
                                          
                                          
                                          $
                                          (25,084
                                          )
                                          
                                          $
                                          11,822Adjustments
                                              to reconcile net income to net cashprovided
                                              by operating activities:Depreciation
                                              and amortization
                                          
                                          
                                          -
                                          
                                          
                                          
                                          47,954
                                          
                                          
                                          
                                          8,981
                                          
                                          
                                          
                                          7
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          56,942Other
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,932
                                          
                                          
                                          
                                          47
                                          
                                          
                                          
                                          (257
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,722Change
                                              in assets and liabilities, net
                                          
                                          
                                          (9,165
                                          )
                                          
                                          
                                          (7,789
                                          )
                                          
                                          
                                          (11,444
                                          )
                                          
                                          
                                          1,618
                                          
                                          
                                          
                                          25,084
                                          
                                          
                                          
                                          (1,696
                                          )Net
                                              cash provided by operating activities
                                          
                                          
                                          2,657
                                          
                                          
                                          
                                          67,418
                                          
                                          
                                          
                                          2,694
                                          
                                          
                                          
                                          2,021
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          74,790Cash
                                              flows from investing activities:Proceeds
                                              from sale of equipment
                                          
                                          
                                          -
                                          
                                          
                                          
                                          6
                                          
                                          
                                          
                                          788
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          794Additions
                                              to property, plant and equipment
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (12,498
                                          )
                                          
                                          
                                          (5,212
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (17,710
                                          )Net
                                              cash used by investing activities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (12,492
                                          )
                                          
                                          
                                          (4,424
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (16,916
                                          )Cash
                                              flows from financing activities:Payments
                                              of long-term debt
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (30,361
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (30,361
                                          )Bond
                                              consent costs
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (7,994
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (7,994
                                          )Payments
                                              relating to capital lease obligation
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (548
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (548
                                          )Proceeds
                                              from revolving lines of credit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          20,000
                                          
                                          
                                          
                                          4,368
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          24,368Payments
                                              of revolving lines of credit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (22,000
                                          )
                                          
                                          
                                          (3,535
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (25,535
                                          )Due
                                              to parent and affiliated companies,
                                              net
                                          
                                          
                                          10,397
                                          
                                          
                                          
                                          (5,567
                                          )
                                          
                                          
                                          (3,245
                                          )
                                          
                                          
                                          (1,585
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Proceeds
                                              from issuance of redeemable common
                                              stock
                                          
                                          
                                          4,460
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,460Payments
                                              to redeem common stock
                                          
                                          
                                          (17,514
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (17,514
                                          )Decrease
                                              in cash overdraft
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3,709
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3,709
                                          )Net
                                              cash used by financing activities
                                          
                                          
                                          (2,657
                                          )
                                          
                                          
                                          (50,179
                                          )
                                          
                                          
                                          (2,412
                                          )
                                          
                                          
                                          (1,585
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (56,833
                                          )Effect
                                              of foreign exchange rate changes on
                                              cash and cash equivalents
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          293
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          293Change
                                              in cash and cash equivalents
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,747
                                          
                                          
                                          
                                          (3,849
                                          )
                                          
                                          
                                          436
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,334Cash
                                              and cash equivalents at beginning of
                                              period
                                          
                                          
                                          -
                                          
                                          
                                          
                                          11,144
                                          
                                          
                                          
                                          4,834
                                          
                                          
                                          
                                          2,444
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          18,422Cash
                                              and cash equivalents at end of period
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          15,891
                                          
                                          
                                          $
                                          985
                                          
                                          
                                          $
                                          2,880
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          19,756


-30-
 Table
          of Contents





Item 2
—
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations




Unless
      stated to the contrary or the context requires otherwise, all references to
      “Paperweight Development,” “PDC,” “we,” “us,” or “our” refer to Paperweight
      Development Corp. and its subsidiaries and predecessors. Appleton Papers Inc.
      is
      a wholly-owned subsidiary of Paperweight Development, which we refer to as
      “Appleton” in this report.




The
      purpose of this discussion is to provide an understanding of PDC’s and
      Appleton’s financial results and condition by focusing on changes in key
      measures from period to period. Management’s Discussion and Analysis (MD&A)
      is organized in the following sections:




Overview




Summary
      of Results




Results
      of Operations – Three Months Ended September 30, 2007




Results
      of Operations – Nine Months Ended September 30, 2007




Business
      Segment Discussion – Three and Nine Months Ended September 30, 2007




Liquidity
      and Capital Resources




This
      discussion should be read in conjunction with the accompanying Condensed
      Consolidated Financial Statements and related Notes. Reference should also
      be
      made to the Annual Report on Form 10-K for the year ended December 30,
      2006, the consolidated financial statements and related notes
      therein.




Overview




Appleton
      manufactures and sells carbonless and thermal papers as well as other specialty
      papers. We also manufacture and sell plastic films and flexible packaging
      solutions, and we produce promotional products and other print solutions in
      the
      U.K. Appleton is organized under three business units: technical papers,
      international and performance packaging. Under Generally Accepted Accounting
      Principles, we have five reportable business segments: coated solutions, thermal
      papers, security papers, secure and specialized print services and performance
      packaging.




Summary
      of Results




Following
      are highlights of results for the three months ended September 30,
      2007:




·
            Net
                sales grew 0.3% to $272.9 million.




·
            Improved
                pricing offset lower unit volumes and unfavorable mix during the
                quarter.




·
            Net
                income increased 43.1% to $7.3 million. Despite lower volumes, net
                income
                increased on the strength of improved pricing, lower selling, general
                and
                administrative expenses and an increase of $1.0 million in non-operating
                income.




Following
      are highlights of results for the nine months ended September 30,
      2007:




·
            Net
                sales declined 2.0% to $793.5 million on lower volumes and unfavorable
                mix
                offset by improved pricing in the paper
                segments.




·
            Lower
                unit volumes and unfavorable mix offset pricing improvements on a
                year-to-date basis. Unit volumes declined in all business segments
                except
                for security papers. Gains in international shipment volumes softened
                declines in domestic markets.




·
            Net
                income decreased 53.4% to $5.5 million. Net income decreased as lower
                volumes and higher raw material costs offset improved pricing,
                manufacturing gains and lower selling, general and administrative
                expenses.




Results
      of Operations – Three Months Ended September 30, 2007




The
      following discussion provides a review of results for the three months ended
      September 30, 2007 versus the three months ended October 1,
      2006.


-31-
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          of Contents







Third
                                              Quarter2007
                                          
                                          
                                          2006
                                          
                                          
                                          %
                                              Chg(dollars in millions)Net
                                              sales
                                          
                                          $
                                          272.9
                                          
                                          
                                          $
                                          272.2
                                          
                                          
                                          
                                          0.3
                                          %Cost
                                              of sales
                                          
                                          
                                          206.3
                                          
                                          
                                          
                                          202.2
                                          
                                          
                                          
                                          2.0
                                          %Gross
                                              profit
                                          
                                          
                                          66.6
                                          
                                          
                                          
                                          70.0
                                          
                                          
                                          
                                          -4.9
                                          %Selling,
                                              general and administrative expenses
                                          
                                          
                                          48.1
                                          
                                          
                                          
                                          51.3
                                          
                                          
                                          
                                          -6.2
                                          %Restructuring
                                              and other charges
                                          
                                          
                                          0.4
                                          
                                          
                                          
                                          1.4
                                          
                                          
                                          
                                          -71.4
                                          %Operating
                                              income
                                          
                                          
                                          18.1
                                          
                                          
                                          
                                          17.3
                                          
                                          
                                          
                                          4.6
                                          %Interest
                                              expense
                                          
                                          
                                          12.6
                                          
                                          
                                          
                                          12.6
                                          
                                          
                                          
                                          -Other
                                              non-operating income, net
                                          
                                          
                                          (1.2
                                          )
                                          
                                          
                                          (0.2
                                          )
                                          
                                          
                                          500.0
                                          %Income
                                              before income taxes
                                          
                                          
                                          6.7
                                          
                                          
                                          
                                          4.9
                                          
                                          
                                          
                                          36.7
                                          %Benefit
                                              for income taxes
                                          
                                          
                                          (0.6
                                          )
                                          
                                          
                                          (0.2
                                          )
                                          
                                          
                                          200.0
                                          %Net
                                              income
                                          
                                          $
                                          7.3
                                          
                                          
                                          $
                                          5.1
                                          
                                          
                                          
                                          43.1
                                          %Comparisons
                                              as a percentage of net sales:Cost
                                              of sales
                                          
                                          
                                          75.6
                                          %
                                          
                                          
                                          74.3
                                          %
                                          
                                          
                                          1.3
                                          %Gross
                                              margin
                                          
                                          
                                          24.4
                                          %
                                          
                                          
                                          25.7
                                          %
                                          
                                          
                                          -1.3
                                          %Selling,
                                              general and administrative expenses
                                          
                                          
                                          17.6
                                          %
                                          
                                          
                                          18.8
                                          %
                                          
                                          
                                          -1.2
                                          %Operating
                                              margin
                                          
                                          
                                          6.6
                                          %
                                          
                                          
                                          6.4
                                          %
                                          
                                          
                                          0.2
                                          %Income
                                              before income taxes
                                          
                                          
                                          2.5
                                          %
                                          
                                          
                                          1.8
                                          %
                                          
                                          
                                          0.7
                                          %Net
                                              income
                                          
                                          
                                          2.7
                                          %
                                          
                                          
                                          1.9
                                          %
                                          
                                          
                                          0.8
                                          %









Net
      sales
      for the quarter increased 0.3% to $272.9 million. All reportable segments except
      the coated solutions and performance packaging segments grew sales in the
      quarter as improved pricing offset lower volumes and unfavorable mix. Declines
      in domestic volumes offset strong growth in international shipments during
      the
      quarter.




Gross
      margin was down 1.3 percentage points during the quarter to 24.4% of net sales.
      Higher raw material costs offset improved pricing and manufacturing
      gains.




Selling,
      general and administrative expenses decreased 6.2% or $3.2 million during the
      quarter. As a percentage of net sales selling, general and administrative
      expenses were down 1.2 percentage points as lower shipment volumes reduced
      distribution costs. In addition, overhead spending was reduced in the current
      quarter in part as the result of restructuring activities undertaken in prior
      quarters.




Restructuring
      and other charges declined $1.0 million compared to the prior year
      period.




Other
      non-operating income increased $1.0 million during the quarter due to $0.7
      million of foreign currency gains and $0.4 million increased interest income
      offset by $0.1 million of debt extinguishment expenses.




Appleton
      recorded an income tax benefit of $0.6 million for third quarter 2007, primarily
      due to operating losses in its U.K. subsidiary.




As
      a
      result of the foregoing, net income for the quarter increased $2.2 million
      to
      $7.3 million.




Results
      of Operations – Nine Months Ended September 30, 2007




The
      following discussion provides a review of results for the nine months ended
      September 30, 2007 versus the nine months ended October 1,
      2006.


-32-
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          of Contents







Year
                                              to Date2007
                                          
                                          
                                          2006
                                          
                                          
                                          %
                                              Chg(dollars in millions)Net
                                              sales
                                          
                                          $
                                          793.5
                                          
                                          
                                          $
                                          810.1
                                          
                                          
                                          
                                          -2.0
                                          %Cost
                                              of sales
                                          
                                          
                                          605.0
                                          
                                          
                                          
                                          606.9
                                          
                                          
                                          
                                          -0.3
                                          %Gross
                                              profit
                                          
                                          
                                          188.5
                                          
                                          
                                          
                                          203.2
                                          
                                          
                                          
                                          -7.2
                                          %Selling,
                                              general and administrative expenses
                                          
                                          
                                          146.7
                                          
                                          
                                          
                                          153.6
                                          
                                          
                                          
                                          -4.5
                                          %Restructuring
                                              and other charges
                                          
                                          
                                          3.4
                                          
                                          
                                          
                                          2.1
                                          
                                          
                                          
                                          61.9
                                          %Operating
                                              income
                                          
                                          
                                          38.4
                                          
                                          
                                          
                                          47.5
                                          
                                          
                                          
                                          -19.2
                                          %Interest
                                              expense
                                          
                                          
                                          37.0
                                          
                                          
                                          
                                          37.2
                                          
                                          
                                          
                                          -0.5
                                          %Other
                                              non-operating income, net
                                          
                                          
                                          (2.0
                                          )
                                          
                                          
                                          (0.9
                                          )
                                          
                                          
                                          122.2
                                          %Income
                                              before income taxes
                                          
                                          
                                          3.4
                                          
                                          
                                          
                                          11.2
                                          
                                          
                                          
                                          -69.6
                                          %Benefit
                                              for income taxes
                                          
                                          
                                          (2.1
                                          )
                                          
                                          
                                          (0.6
                                          )
                                          
                                          
                                          250.0
                                          %Net
                                              income
                                          
                                          $
                                          5.5
                                          
                                          
                                          $
                                          11.8
                                          
                                          
                                          
                                          -53.4
                                          %Comparisons
                                              as a percentage of net sales:Cost
                                              of sales
                                          
                                          
                                          76.2
                                          %
                                          
                                          
                                          74.9
                                          %
                                          
                                          
                                          1.3
                                          %Gross
                                              margin
                                          
                                          
                                          23.8
                                          %
                                          
                                          
                                          25.1
                                          %
                                          
                                          
                                          -1.3
                                          %Selling,
                                              general and administrative expenses
                                          
                                          
                                          18.5
                                          %
                                          
                                          
                                          19.0
                                          %
                                          
                                          
                                          -0.5
                                          %Operating
                                              margin
                                          
                                          
                                          4.8
                                          %
                                          
                                          
                                          5.9
                                          %
                                          
                                          
                                          -1.1
                                          %Income
                                              before income taxes
                                          
                                          
                                          0.4
                                          %
                                          
                                          
                                          1.4
                                          %
                                          
                                          
                                          -1.0
                                          %Net
                                              income
                                          
                                          
                                          0.7
                                          %
                                          
                                          
                                          1.5
                                          %
                                          
                                          
                                          -0.8
                                          %









Net
      sales
      declined 2.0% to $793.5 million for the nine-month period ended September 30,
      2007. Lower shipment volumes and unfavorable mix offset the effects of improved
      pricing. Net sales growth in international markets provided some offset to
      lower
      volumes in domestic markets.




Year-to-date
      in 2007, gross margin declined 1.3 percentage points to 23.8%. Lower volumes
      and
      unfavorable mix contributed to lower overall margins. In addition, higher raw
      material costs offset improved pricing and manufacturing gains.




Selling,
      general and administrative expenses decreased 4.5% or $6.9 million during 2007.
      As a percentage of net sales, selling, general and administrative expenses
      declined 0.5 percentage points due to lower distribution costs from reduced
      shipment volumes and lower overhead spending in part as the result of
      restructuring activities and lower variable incentive accruals tied to lower
      operating performance.




Restructuring
      and other charges increased $1.3 million to $3.4 million as the company’s U.K.
      subsidiary continued to restructure operations in 2007.




Other
      non-operating income in 2007 increased $1.1 million to $2.0 million year-to-date
      due to $0.9 million of foreign currency gains and $1.3 million increased
      interest income, primarily as the result of income tax recoveries, offset by
      $1.1 million of debt extinguishment expenses from terminating its previous
      credit facility during second quarter 2007.




Appleton
      recorded a year-to-date income tax benefit of $2.1 million as the result of
      operating losses and restructuring expenses experienced in its U.K.
      subsidiary.




As
      a
      result of the foregoing, 2007 year-to-date net income decreased $6.3 million
      to
      $5.5 million.




Business
      Segment Discussion – Three and Nine Months Ended September 30, 2007




Technical
      Papers




•
            Coated
                solutions segment net sales totaled $145.7 million for third quarter
                2007,
                a decrease of $0.2 million, or 0.1% from prior year levels. Lower
                shipment
                volumes and unfavorable mix offset improved pricing during the current
                quarter. Despite lower shipments in domestic markets, Appleton experienced
                increased shipments in international markets. Coated solutions segment
                third quarter 2007 operating income increased $2.4 million to $17.2
                million as pricing improvement, manufacturing cost reductions and
                lower
                selling, general and administrative expenses offset higher commodity
                costs.




-33-
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          of Contents




For
      the
      nine months ended September 30, 2007, coated solutions segment net sales totaled
      $430.7 million, a decrease of $5.3 million or 1.2% from prior year levels.
      Lower
      carbonless shipment volumes in the first nine months of 2007 and unfavorable
      mix
      offset the impact of improved pricing. Coated solutions segment operating income
      increased $0.4 million to $43.1 million for the nine months ended September
      30,
      2007. As compared to the prior year period, results for 2007 benefited from
      improved pricing, manufacturing gains and lower selling, general and
      administrative expenses, which offset negative impacts of  lower
      volumes, higher raw material costs and higher costs from a bi-annual planned
      mill maintenance outage.




•
            Thermal
                papers segment net sales totaled $69.2 million for third quarter
                2007, an
                increase of $4.1 million or 6.2% from prior year levels. The current
                quarter benefited from higher shipment volumes and improved mix.
                Thermal
                papers segment operating income decreased $2.8 million to $0.8 million
                for
                third quarter 2007. Segment results were affected by competitive
                pricing
                actions and higher raw material
                costs.




For
      the
      nine months ended September 30, 2007, thermal papers segment net sales totaled
      $194.3 million, a decrease of $1.4 million or 0.7% from prior year levels.
      Improved mix was offset by lower shipment volumes in the first nine months
      of
      2007. Thermal papers segment operating income decreased $4.2 million to $5.5
      million for the nine months ended September 30, 2007. The current period results
      reflect the effects of volume declines, competitive pricing actions, higher
      raw
      material prices and mill maintenance outage costs, which offset improved mix
      and
      reductions in manufacturing and selling, general and administrative
      costs.




Prices
      for our lightweight thermal papers have been adversely affected by increased
      imports of low-priced products from China, Germany and Korea. In September
      2007,
      Appleton filed antidumping petitions against imports of certain lightweight
      thermal paper from China, Germany and Korea and a countervailing duty petition
      against such imports from China. If the U.S. Department of Commerce finds
      illegal dumping and subsidization and the U.S. International Trade Commission
      finds that the domestic industry making these products has been injured by
      or is
      threatened with injury from these unfairly traded imports, then duties will
      be
      imposed to offset the unfair prices and to restore fair competition to the
      U.S.
      market. There can be no assurance that we will prevail in these
      cases.




•
            Security
                papers segment net sales totaled $7.7 million for third quarter 2007,
                an
                increase of $0.2 million or 2.1%, as the effects of improved pricing
                offset lower shipment volumes. Security papers segment third quarter
                2007
                operating income increased $0.6 million to $1.1 million on the strength
                of
                improved pricing and manufacturing cost
                reductions.




Security
      papers segment net sales totaled $23.5 million for the nine months ended
      September 30, 2007, an increase of $1.9 million or 8.8% primarily due to
      improved pricing. For the first nine months of 2007, security papers segment
      operating income increased $1.3 million as a result of improved pricing and
      lower manufacturing costs.




Secure
      and Specialized Print
      Services




•
            Secure
                and specialized print services segment net sales totaled $25.7 million
                for
                third quarter 2007, an increase of $0.3 million or 1.0%. Lower volumes,
                unfavorable pricing and unfavorable mix offset favorable exchange
                rates
                compared to the prior year period. Secure and specialized print services
                segment third quarter 2007 operating income increased $0.2 million
                to $0.1
                million. Segment results were adversely affected by volume declines
                and
                unfavorable pricing which offset savings from restructuring
                activities.




Secure
      and specialized print services segment net sales totaled $71.1 million for
      the
      nine months ended September 30, 2007, a decrease of $1.3 million or 1.8% from
      prior year levels. Volume decreases and unfavorable pricing and mix offset
      favorable exchange rates compared to the prior year period. For the first nine
      months of 2007, secure and specialized print services segment operating income
      decreased by $3.9 million compared to the first nine months of 2006. The current
      period results reflect lower volumes and also include a $1.9
      million restructuring charge for employee terminations, whereas the 2006
      period included a $1.1 million gain on the sale of fixed
      assets.




Given
      the seasonality of BemroseBooth's (secure and
      specialized print services segment) product offerings, the majority of its
      profit is generated in the fourth quarter of each year. To the extent that
      BemroseBooth's operating performance in the fourth quarter of 2007 does not
      meet
      the Company's projections, certain of its assets may not be fully recoverable,
      and the resultant impact could be material to the Company's consolidated
      financial statements.





Performance
      Packaging




•
            Performance
                packaging segment net sales totaled $24.7 million for third quarter
                2007,
                a decrease of $3.6 million or 12.7% from prior year levels. Lower
                shipment
                volumes and unfavorable mix offset improved pricing during the current
                quarter. Performance packaging segment third quarter 2007 operating
                income
                decreased $0.7 million to $2.0 million. Results for 2007 reflect
                the
                impact of lower volumes as well as margin declines derived from resin
                price increases, which were partially offset by improved pricing
                and gains
                in manufacturing efficiencies.




Performance
      packaging segment net sales totaled $73.9 million for the nine months ended
      September 30, 2007, a decrease of $10.5 million or 12.5% from prior year levels.
      Net sales for the current year period were unfavorably impacted by lower
      shipment volumes, lower pricing and unfavorable mix. For the first nine months
      of 2007, performance packaging segment operating income decreased by $2.7
      million compared to the first nine months of 2006. Segment results for 2007
      were
      adversely impacted by volume decreases, unfavorable mix and fluctuations in
      resin prices, which offset productivity gains and reductions in manufacturing,
      selling, general and administrative costs.




Unallocated
      Corporate
      Charges and Business Development Costs




•
            Unallocated
                corporate charges and business development costs decreased $1.1 million
                in
                third quarter 2007 compared to third quarter 2006. Third quarter
                2007
                benefited from reductions in corporate expenses in comparison to
                the prior
                year quarter. For the first nine months of 2007, unallocated corporate
                charges and business development costs decreased $0.1 million compared
                to
                the first nine months of 2006.




-34-
 Table
          of Contents




Liquidity
      and Capital Resources




Overview.Appleton’s
      primary
      sources of liquidity are cash provided by operations and available borrowings
      under its credit facility. Appleton expects that cash on hand, internally
      generated cash flow and available credit from its credit facility will provide
      the necessary funds for reasonably foreseeable operating and recurring cash
      needs (e.g., working capital, debt service, other contractual obligations and
      capital expenditures). Subject to meeting covenants in its credit facility,
      Appleton currently has approximately $135.6 million of unused borrowing capacity
      under its revolving credit facility. In July, 2007, Appleton entered into a
      new
      $12.1 million financing arrangement with the State of Ohio as part of its
      funding plans for an expansion project at its West Carrollton, Ohio facility,
      as
      described below.




Cash
      Flows from Operating
      Activities. Net cash provided by operating activities for the first nine
      months of 2007 was $50.4 million compared to net cash provided by operating
      activities of $74.8 million for the first nine months of 2006. Net income,
      adjusted for non-cash items, provided $66.0 million in operating cash during
      the
      first nine months of 2007. Non-cash items included $53.2 million of depreciation
      and amortization of intangible assets and $5.2 million in non-cash employer
      matching contributions to the Appleton Papers Retirement Savings and Employee
      Stock Ownership Plan (the “KSOP”). Uses of cash included a $9.0 million increase
      in working capital, a $5.7 million reduction in accrued pension, a net $1.7
      million decrease in restructuring reserves as Appleton paid severance benefits
      and other amounts related to restructuring activities, and a net $0.8 million
      change in other assets and liabilities.




Major
      components of the $9.0 million increase in working capital during the first
      nine
      months of 2007 were a $5.7 million reduction in accounts payable and other
      accrued liabilities, a $3.1 million decrease in inventories, a $0.6 million
      increase in other current assets and a $5.8 million increase in accounts
      receivable.




As
      discussed in Note 12 of the accompanying Notes to Condensed Consolidated
      Financial Statements, during second quarter 2007, in response to new estimates
      of remaining costs established by the Amended ROD, Appleton recorded a $58.9
      million increase to its reserve for environmental liabilities and an equal
      and
      offsetting increase to its indemnification receivable from AWA.




Cash
      Flows from
      Investing Activities.Net
      cash used by investing activities in the first nine months of 2007 totaled
      $37.1
      million. Capital spending in 2007 includes initial amounts expended for the
      expansion of Appleton’s West Carrollton, Ohio paper mill. The mill expansion
      project is expected toextend into the third quarter of 2008. The
      expansion project is being funded through a combination of cash flows from
      operations, special financing provided by the State of Ohio and borrowings
      under
      Appleton’s new senior secured credit facility. To date, Appleton has received
      $9.1 million from the State of Ohio special financing and has spent $0.4 million
      of these proceeds. The remaining $8.7 million is recorded as restricted cash
      within other long-term assets and will be disbursed within the next twelve
      months to fund capital additions.




Cash
      Flows from Financing
      Activities. Net cash provided by financing activities was $4.1 million
      for the first nine months of 2007, while $56.8 million was used in the
      comparable 2006 period.




In
      June
      2007, Appleton entered into a new $375 million senior secured credit facility
      consisting of a seven-year, $225 million term loan bearing interest at a base
      rate, or at LIBOR, at Appleton’s option, plus an applicable margin, which is
      initially set at 0.75% for base rate loans and 1.75% for LIBOR loans. Mandatory
      principal payments of $0.6 million are due quarterly with the remaining balance
      due June 5, 2014. It also provides access to a six-year, $150 million revolving
      credit facility. The new senior credit facility is unconditionally guaranteed
      by
      PDC and by substantially all of Appleton’s subsidiaries, other than certain
      immaterial subsidiaries. In addition, it is secured by liens on substantially
      all Appleton’s, the subsidiary guarantors’ and certain of Appleton’s other
      subsidiaries’ assets and by a pledge of Appleton’s and its subsidiaries’ capital
      stock. Funding proceeds from the new facility were applied to repay outstanding
      balances on Appleton’s previous senior secured notes payable and revolving lines
      of credit, which were terminated contemporaneously with the consummation of
      the
      new senior secured credit facility.




During
      the nine months ended September 30, 2007, Appleton borrowed $72.1 million and
      repaid $69.6 million under its revolving lines of credit. In 2007, Appleton
      made
      market purchases of senior notes totaling $5.5 million. Proceeds from the
      issuance of PDC redeemable common stock during the nine months of 2007 totaled
      $4.4 million. The ESOP trustee purchased this stock with pre-tax deferrals,
      rollovers and loan payments made by employees during the first six months of
      2007. Payments to redeem PDC common stock were $28.6 million during the first
      nine months of 2007. Common stock redemptions during 2007 were $11.1 million
      higher than in the comparable period of 2006 based on the number of redemption
      requests received from plan participants.




In
      July
      2007, Appleton entered into a new $12.1 million Loan and Security Agreement
      with
      the Director of Development of the State of Ohio, consisting of a $9.1 million
      State Assistance Loan and a $3.0 million State Loan (together “the Ohio Loans”).
      Proceeds of the Ohio Loans will be used to fund a portion of the costs of
      acquiring and installing paper coating and production equipment at Appleton’s
      paper mill located in West Carrollton, Ohio. The Ohio State Assistance Loan
      provides for monthly principal payments and interest at 6% and, upon receipt
      of
      the funds, the State Loan provides for monthly principal payments and interest
      of 1% for the first two years and 3% thereafter.




Cash
      overdrafts decreased by $4.0 million during the first nine months of 2007.
      Cash
      overdrafts represent checks issued but not yet cleared through the banking
      system. Fluctuations in the balance are a function of quarter-end payment
      patterns and the speed with which payees deposit the checks.




New
      Accounting Pronouncements




For
      information regarding new accounting pronouncements, see Note 8 of Notes to
      Condensed Consolidated Financial Statements and Related Notes.




-35-
 Table
          of Contents




Item 3—Quantitative
      and Qualitative Disclosures About Market
      Risk




For
      information regarding quantitative and qualitative disclosures about market
      risk, see the Annual Report on Form 10-K for the fiscal year ended
      December 30, 2006.




There
      have been no material changes in the quantitative or qualitative exposure to
      market risk from that described in the Form 10-K.




Item 4—Controls
      and Procedures




Appleton
      and PDC carried out an evaluation, under the supervision and with the
      participation of their management, including their respective principal
      executive officer and principal financial officer, of the effectiveness of
      the
      design and operation of their disclosure controls and procedures as such terms
      are defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
      of
      1934, as amended (the “Exchange Act”). Appleton and PDC maintain disclosure
      controls and procedures that are designed to ensure that information required
      to
      be disclosed by Appleton and PDC in the reports filed or submitted by them
      under
      the Exchange Act is recorded, processed, summarized and reported within the
      time
      periods specified in the SEC’s rules and forms. The disclosure controls and
      procedures are also designed to ensure that the information is accumulated
      and
      communicated to management, including their respective principal executive
      and
      principal financial officers, to allow timely decisions regarding required
      disclosures. Based on their evaluation, the Chief Executive Officer and Chief
      Financial Officer of Appleton and PDC have concluded that their disclosure
      controls and procedures are effective as of the end of the period covered by
      this Form 10-Q.




There
      were no changes in the internal control over financial reporting of Appleton
      or
      PDC during the fiscal quarter covered by this report that have materially
      affected, or are reasonably likely to materially affect, their internal control
      over financial reporting.




PART
      II – OTHER INFORMATION




Item 1
–
      Legal Proceedings




For
      information regarding legal matters, please refer to Item 3 in the Annual
      Report on Form 10-K for the year ended December 30, 2006 and Note 17 to the
      Consolidated Financial Statements included therein. Reference is also made
      to
      Note 12 of the Condensed Consolidated Financial Statements included in this
      report.




Prices
      for our lightweight thermal papers have been adversely affected by increased
      imports of low-priced products from China, Germany and Korea. In September
      2007,
      Appleton filed antidumping petitions against imports of certain lightweight
      thermal paper from China, Germany and Korea and a countervailing duty petition
      against such imports from China. If the U.S. Department of Commerce finds
      illegal dumping and subsidization and the U.S. International Trade Commission
      finds that the domestic industry making these products has been injured by
      or is
      threatened with injury from these unfairly traded imports, then duties will
      be
      imposed to offset the unfair prices and to restore fair competition to the
      U.S.
      market. There can be no assurance that we will prevail in these
      cases.




Item 1A
–
Risk
      Factors




Other
      than with respect to the risk factors set forth below, there have been no
      material changes in the risk factors disclosed in the Annual Report on Form
      10-K
      for the year ended December 30, 2006.




We
      are subject to substantial costs and potential liabilities relating to
      environmental regulation and litigation.




We
      are
      subject to comprehensive and frequently changing laws and regulations enacted
      by
      various federal, state and local authorities concerned with the impact of the
      environment on human health, the limitation and control of emissions and
      discharges into the air, ground and waters, the quality of ambient air and
      bodies of water and the handling, use and disposal of specified substances.
      Financial responsibility for the cleanup or other remediation of contaminated
      property or for natural resource damages can extend to previously owned or
      used
      properties, waterways and properties owned by unrelated companies or
      individuals, as well as properties currently owned and used by us, regardless
      of
      whether the contamination is attributable entirely to prior owners. As described
      in the following risk factor, we have been identified as a potentially
      responsible party for remediation and alleged natural resource damages related
      to the Lower Fox River and Green Bay system, which we refer to as the Lower
      Fox
      River. In addition, we make capital expenditures and incur operating expenses
      for environmental obligations and matters arising from our daily
      operations.




Including
      the Lower Fox River, we have approximately $146.7 million of accrued liabilities
      as of September 30, 2007, for estimated or anticipated liabilities and legal
      and
      consulting costs relating to environmental matters arising from past operations.
      We also have approximately $121.7 million of indemnification receivables from
      our former parent company, AWA, as of September 30, 2007. While the accrued
      liabilities reflect our current estimate of the cost of these environmental
      matters, the amount that we have accrued may be inadequate. In addition, we
      may
      be named as a potentially responsible party at other sites in the future and
      the
      costs associated with such future sites may be material. We expect environmental
      laws and regulations and the interpretation and enforcement of those laws and
      regulations to become increasingly stringent and to further limit emission
      and
      discharge levels and to increase the likelihood and cost of environmental
      cleanups and related activities. All of these factors are likely to increase
      our
      operating expenses, require continuing capital expenditures and adversely affect
      the operating flexibility of our manufacturing operations and may require
      indeterminable and significant additional expenditures in connection with such
      compliance.




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We
      have been named as a potentially responsible party related to the Lower Fox
      River.




We
      have
      been named by the EPA as a PRP, under the Comprehensive Environmental Response,
      Compensation and Liability Act. We have been named a PRP because of discharges
      of PCBs, into the Lower Fox River from our Appleton Plant in the 1950s, 1960s
      and 1970s and because of discharges from the Appleton Coated paper mill in
      Combined Locks, Wisconsin, which we owned from 1978 to 2000. We could be liable
      for a significant portion of the costs of remediating the PCBs that remain
      in
      the Lower Fox River. These costs could be material to our financial position.
      In
      2003, the DNR and EPA issued two RODs covering all five segments of the Lower
      Fox River, which includes Green Bay. The RODs provide for a combination of
      dredging and capping and monitored natural recovery and contain revised
      estimates of total costs for remediation of $400 million over a 7 to 18-year
      time period. In addition to remediation, various government agencies are also
      asserting that we and the other PRPs are liable for natural resource damages
      caused by the PCBs. In October 2000, the U.S. Fish & Wildlife Service
      estimated that total natural resource damages would be in a range between $176
      million to $333 million for all PRPs in the aggregate. In February 2007, the
      EPA
      and DNR issued a General Notice letter to the PRPs. The EPA and DNR are seeking
      to have one or more of the PRPs enter into an agreement to implement all
      remaining remedial action for segments two, three, four and five of the
      river.




On
      June 6, 2007, the EPA issued an Amended ROD (also referred to as the
      Optimized Remedy) which modifies the remedial action plan outlined in the 2003
      RODs and provides a revised estimate of $390 million of remaining costs to
      complete the remedial work on the Lower Fox River. Appleton has re-evaluated
      its
      estimate of potential liability pursuant to the Amended ROD. At this time,
      we
      cannot precisely estimate our total liability for the Lower Fox River because
      we
      do not know how much the remedial actions and natural resource damages may
      cost
      or how large our share of those costs will be. Our liability could be material
      to our financial position. The issuance of the RODs and the Amended ROD and
      the
      beginning of remediation activities provides Appleton the ability to reasonably
      estimate its potential liability. Accordingly, Appleton has recorded a reserve
      for this environmental liability, before indemnification by our former
      parent.




At
      December 30, 2006, the total reserve was $101.2 million. During the first
      nine months of 2007, $14.7 million of payments were made against this reserve
      and $1.3 million of accretion was realized. Also during second quarter
      2007, and based upon the Amended ROD, Appleton re-evaluated its estimate of
      potential liability and as a result increased its reserve by $58.9 million.
      This
      additional reserve amount will accrete at a discount rate of 5% until it reaches
      $65.1 million. As a result, $146.7 million is remaining in the reserve as of
      September 30, 2007; $18.2 million is recorded in other accrued liabilities
      and
      $128.5 million is recorded as a long-term environmental liability. Although
      we
      believe our recorded environmental liability reflects a reasonable estimate
      of
      our liabilities associated with the Lower Fox River based on the RODs and the
      Amended ROD, the actual amount of liabilities associated with the Lower Fox
      River could prove to be significantly larger than our recorded environmental
      liability.




We
      have a substantial amount of indebtedness outstanding and, as a result, we
      are
      operating as a highly leveraged company.




Our
      total
      debt at September 30, 2007, was approximately $566 million. For a description
      of
      the components of our debt see “Item 2. Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” and Note 14 of Notes to Condensed
      Consolidated Financial Statements. This large amount of indebtedness
      could:




•
            make
                it more difficult for us to satisfy our obligations with respect
                to the
                senior credit facility, the senior notes and senior subordinated
                notes;




•
            require
                us to dedicate a substantial portion of cash flow from operations
                to
                payments on indebtedness, thereby reducing the availability of cash
                flow
                to fund working capital, capital expenditures, acquisitions, research
                and
                development efforts and other general corporate
                activities;




•
            limit
                our ability to obtain additional financing for working capital, capital
                expenditures, acquisitions and other general corporate activities;
                or




•
            limit
                our flexibility in planning for, or reacting to, changes in our businesses
                and the industries in which we
                operate.




Furthermore,
      although our ability to borrow money is restricted by the terms of the senior
      credit facility and the indentures governing the senior notes and senior
      subordinated notes, it may be possible for us to incur even more debt and,
      if we
      do so, these risks could intensify.




We
      may be unsuccessful in constructing, starting up and integrating the $100
      million expansion at our West Carrollton, Ohio paper mill.




Appleton
      previously announced its intention to invest approximately $100 million to
      expand thermal paper manufacturing capacity at its existing paper mill located
      in West Carrollton, Ohio. Work on the expansion project commenced during first
      quarter 2007 and will continue through the second half of 2008. Unforeseen
      circumstances may interfere with the project such that we may be required to
      spend more than the planned amounts to complete the expansion project, or the
      completion may be delayed beyond the planned start up in the second half of
      2008. Moreover, we may not be able to integrate operation of the expansion
      equipment with existing paper mill equipment as expected or achieve anticipated
      operational improvements. Additionally, although the thermal paper market in
      recent years has been growing, market conditions may be different when the
      project is completed such that we are not able to capture the intended benefits
      from the expansion project. Among other things, prices of the lightweight
      thermal paper that will be produced with the expanded capacity are being
      affected by increasing imports of low-priced products from China, Germany and
      Korea. As a result, we may not achieve the revenue and profits that supported
      the investment analysis. If any one or all or combination of these risks
      materialize, then our operating efficiency, profitability and cash flow may
      be
      materially adversely affected.




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We
      have competitors in our various markets and we may not be able to maintain
      prices and margins for our products.




We
      face
      strong competition in all of our business segments. Our competitors vary in
      size
      and the breadth of their product offerings and some of our competitors have
      significantly greater financial, technical and marketing resources than we
      do.
      Regardless of the continuing quality of our primary products, we may be unable
      to maintain our prices or margins due to:




•
            declining
                overall carbonless market size;




•
            accelerating
                decline in carbonless sheet sales;




•
            variations
                in demand for, or pricing of, carbonless
                products;




•
            increasing
                manufacturing costs;




•
            increasing
                competition in international markets or from domestic or foreign
                producers; or




•
            declining
                general economic conditions.




Our
      inability to compete effectively or to maintain our prices and margins could
      have a material adverse effect on our earnings and cash flow.




Our
      North
      American market is highly competitive. We compete based on a number of factors,
      including price, product availability, quality and customer service.
      Additionally, we compete with domestic production and imports from Europe and
      Asia. We believe that competitors in China, Germany and Korea are illegally
      dumping lightweight thermal paper into the United States and that competitors
      in
      China are being subsidized by the Chinese Government. No assurances can be
      given
      that such illegal dumping and subsidization will not continue or that the U.S.
      Department of Commerce will take actions to offset unfair prices or restore
      fair
      competition in the U.S. market. As a result, our prices for lightweight thermal
      paper may continue to be adversely affected and could result in a material
      adverse impact on our earnings and cash flow in the future. For additional
      information, see “Item 1 – Legal Proceedings.”




SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS




This
      report contains forward-looking statements. The words “will,” “may,” “should,”
“believes,” “anticipates,” “intends,” “estimates,” “expects,” “projects,”
“plans,” “seek” or similar expressions are intended to identify forward-looking
      statements. All statements in this report other than statements of historical
      fact, including statements which address Appleton’s strategy, future operations,
      future financial position, estimated revenues, projected costs, prospects,
      plans
      and objectives of management and events or developments that Appleton expects
      or
      anticipates will occur, are forward-looking statements. All forward-looking
      statements speak only as of the date on which they are made. They rely on a
      number of assumptions concerning future events and are subject to a number
      of
      risks and uncertainties, many of which are outside the Company’s control that
      could cause actual results to differ materially from such statements. These
      risks and uncertainties include, but are not limited to, the factors listed
      under “Item 1A – Risk Factors” in the Annual Report on Form 10-K for the year
      ended December 30, 2006, which factors are incorporated herein by reference
      and as updated above. Many of these factors are beyond Appleton’s ability to
      control or predict. Given these uncertainties, you should not place undue
      reliance on the forward-looking statements. Appleton disclaims any obligation
      to
      update or revise publicly any forward-looking statements, whether as a result
      of
      new information, future events or otherwise.




Item
      2 –
Unregistered Sales of Equity Securities and Use of
      Proceeds




None.




Item
      3 – Defaults
      Upon Senior Securities




None.




Item
      4 –
Submission of Matters to a Vote of Security Holders




None.




Item
      5 – Other
      Information




Not
      applicable.




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Item 6
–
      Exhibits




31.1
                                          Certification
                                              of Mark R. Richards, Chairman, President
                                              and Chief Executive Officer of
                                              Appleton Papers Inc., pursuant
                                            to
                                              Rule 15d-14(a) of the Securities Exchange
                                              Act of 1934 as
                                              amended.31.2
                                          Certification
                                              of Thomas J. Ferree, Vice President,
                                              Finance, Chief Financial Officer and
                                              Treasurer of Appleton Papers Inc.,
                                              pursuant to Rule 15d-14(a) of the
                                              Securities Exchange Act of 1934 as
                                              amended.31.3
                                          Certification
                                              of Mark R. Richards, Chairman, President
                                              and Chief Executive Officer of
                                              Paperweight Development Corp., pursuant
                                              to Rule 15d-14(a) of the
                                              Securities Exchange Act of 1934 as
                                              amended.31.4
                                          Certification
                                              of Thomas J. Ferree, Chief Financial
                                              Officer and Treasurer of Paperweight
                                              Development Corp., pursuant to Rule
                                              15d-14(a) of the Securities Exchange
                                              Act of 1934 as amended.32.1
                                          Certification
                                              of Mark R. Richards, Chairman, President
                                              and Chief Executive Officer of
                                              Appleton Papers Inc., pursuant to 18
                                              U.S.C. Section
                                              1350.32.2
                                          Certification
                                              of Thomas J. Ferree, Vice President,
                                              Finance, Chief Financial Officer and
                                              Treasurer of Appleton Papers Inc.,
                                              pursuant to 18 U.S.C. Section
                                              1350.32.3
                                          Certification
                                              of Mark R. Richards, Chairman, President
                                              and Chief Executive Officer of
                                              Paperweight Development Corp., pursuant
                                              to 18 U.S.C. Section
                                              1350.32.4
                                          Certification
                                              of Thomas J. Ferree, Chief Financial
                                              Officer and Treasurer of Paperweight
                                              Development Corp., pursuant to 18 U.S.C.
                                              Section
                                              1350.




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SIGNATURES




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 the undersigned thereunto
      duly authorized.




APPLETON
                                              PAPERS INC.
                                            (Registrant)Date:
                                              November 12, 2007
                                          /s/
                                                Thomas J. FerreeThomas
                                              J. FerreeVice
                                              President Finance, Chief Financial
                                              Officer and
                                            Treasurer
                                            (Signing
                                              on behalf of the Registrant and as
                                              the Principal
                                            Financial
                                              Officer)




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SIGNATURES




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 the undersigned thereunto
      duly authorized.




PAPERWEIGHT
                                              DEVELOPMENT CORP.
                                            (Registrant)Date:
                                              November 12, 2007
                                          /s/
                                                Thomas J. FerreeThomas
                                              J. FerreeChief
                                              Financial Officer and Treasurer
                                            (Signing
                                              on behalf of the Registrant and as
                                              the Principal
                                            Financial
                                              Officer)







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