** **

**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

### **Washington, D.C. 20549**

###  

**(Mark One)**

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHESECURITIES EXCHANGE ACT OF 1934**

 

### **For the quarterly period ended September 30,2005**

###  

**OR**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHESECURITIES EXCHANGE ACT OF 1934**

 

### **For thetransition period from                     to**

###  

**RegistrationNumber: 333-114032**

 

**BLUE RIDGE PAPER PRODUCTS INC.**

(Exact name of registrant asspecified in charter)

 

| **Delaware**              | ** ** | **56-2136509**                            |
|---------------------------|------------|-------------------------------------------|
| (State of  incorporation) |       | (I.R.S.  Employer Identification  Number) |

 

## **41 MAIN STREET**

**CANTON,NORTH CAROLINA 28716**

(Address of principal executiveoffice)

 

Registrant’s telephone number,including area code: **828-454-0676**

 

# Indicate by check mark whether the registrant(1) has filed all reports required to be filed by section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such report), and (2) hasbeen subject to such filing requirements for the past 90 days.

#  

# Yes ýNo o

#  

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

 

# Yes oNo ý

#  

Indicate by check mark whether the registrant is a shell company (asdefined by Rule 12b-2 of the Exchange Act).

 

# Yes oNo ý

#  

The number of common sharesoutstanding at September 30, 2005 was 1,000.

 

 

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**BLUE RIDGE PAPER PRODUCTS INC.**

 

**AND SUBSIDIARIES**

 
| INDEX         |                  |
|---------------|-----------------------|
|          |                  |
| PART 1.  | FINANCIAL INFORMATION |   |
|          |                  |
|          | Item 1.               | Financial  Statements |   |
|          |                  |   |   |
|          |                  | Condensed Consolidated Balance Sheets, September 30, 2005  (unaudited) and December 31, 2004 (derived from audited financial  statements |   |
|          |                  |   |   |
|          |                  | Condensed Consolidated Statements of Operations, Three Months Ended  September 30, 2005 and 2004 (unaudited), Nine Months Ended  September 30, 2005 and 2004 (unaudited) |   |
|          |                  |   |   |
|          |                  | Condensed  Consolidated Statements of Cash Flows, Nine Months Ended September 30,  2005 and 2004 (unaudited) |   |
|          |                  |   |   |
|          |                  | Notes  to Condensed Consolidated Financial Statements (unaudited) |   |
|          |                  |   |   |
|          | Item 2.               | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|          |                  |   |   |
|          | Item 3.               | Quantitative and  Qualitative Disclosures About Market Risk |   |
|          |                  |   |   |
|          | Item 4.               | Controls and  Procedures |   |
|          |                  |   |   |
| PART II. | OTHER INFORMATION     |   |
|          |                  |   |   |
|          | Item 6.               | Exhibits |   |
|               |                       |  |  |  |

 

2

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| ** **  | ** **               | **PART 1. FINANCIAL INFORMATION** | ** ** |
|-------------|--------------------------|----------------------------------------|------------|
|        |                     |                                   |       |
| **ITEM 1.** | **FINANCIAL STATEMENTS** | ** **                             |

 

**BLUE RIDGEPAPER PRODUCTS INC.**

 

**Condensed Consolidated Balance Sheets**

**September 30, 2005 and December 31, 2004**

**(Dollars in thousands)**

**(unaudited)**

 
| ** **                                                                                                                      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                      | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| **Assets**                                                                                                                      |       |                   |       |                  |       |
|                                                                                                                            |       |                   |       |                  |       |
| Current  assets:                                                                                                                |       |                   |       |                  |       |
| Cash                                                                                                                            |       | $                      | 1,804      |                  | $          | 2,466 |   |
| Accounts receivable, net of allowance for  doubtful accounts and discounts of $1,227 and $1,820 in 2005 and 2004,  respectively |       | 61,920                 |       | 45,814                |       |
| Inventories                                                                                                                     |       | 50,289                 |       | 47,006                |       |
| Prepaid expenses                                                                                                                |       | 971                    |       | 1,715                 |       |
| Insurance proceeds receivable                                                                                                   |       | 257                    |       | 10,539                |       |
| Income tax receivable                                                                                                           |       | 55                     |       | 76                    |       |
| Deferred tax asset                                                                                                              |       | 4,287                  |       | 4,256                 |       |
| Other current assets                                                                                                            |       | 36                     |       | —                |       |
| Total current assets                                                                                                            |       | 119,619                |       | 111,872               |       |
|                                                                                                                            |       |                   |       |                  |       |
| Property, plant, and equipment, net of  accumulated depreciation of $101,289 and $88,517 in 2005 and 2004,  respectively        |       | 187,395                |       | 187,336               |       |
| Deferred financing costs, net                                                                                                   |       | 5,468                  |       | 6,491                 |       |
| Other assets                                                                                                                    |       | 161                    |       | 55                    |       |
| Total assets                                                                                                                    |       | $                      | 312,643    |                  | $          | 305,754 |   |
|                                                                                                                            |       |                   |       |                  |       |
| **Liabilities and Stockholder’s Deficit**                                                                                  |       |                   |       |                  |       |
| ** **                                                                                                                      |       |                   |       |                  |       |
| Current  liabilities:                                                                                                           |       |                   |       |                  |       |
| Current portion of senior debt                                                                                                  |       | $                      | 41         |                  | $          | 39 |   |
| Current portion of capital lease obligation                                                                                     |       | 624                    |       | 603                   |       |
| Accounts payable                                                                                                                |       | 46,410                 |       | 44,521                |       |
| Accrued expenses and other current  liabilities                                                                                 |       | 32,885                 |       | 33,742                |       |
| Interest payable                                                                                                                |       | 5,474                  |       | 1,655                 |       |
| Total current liabilities                                                                                                       |       | 85,434                 |       | 80,560                |       |
| Senior debt,  net of current portion                                                                                            |       | 149,314                |       | 144,075               |       |
| Parent  Pay-In-Kind (PIK) Senior Subordinated Note                                                                              |       | 42,512                 |       | 40,681                |       |
| Capital  lease obligations                                                                                                      |       | 1,109                  |       | 1,484                 |       |
| Pension and  postretirement benefits                                                                                            |       | 22,244                 |       | 21,211                |       |
| Deferred tax  liability                                                                                                         |       | 4,287                  |       | 4,256                 |       |
| Other  liabilities                                                                                                              |       | 751                    |       | 1,271                 |       |
| Total liabilities                                                                                                               |       | 305,651                |       | 293,538               |       |
| Obligation  to redeem ESOP shares                                                                                               |       | 38,901                 |       | 35,257                |       |
| Obligation  to redeem restricted stock units of Parent                                                                          |       | 2,309                  |       | 2,119                 |       |
| Commitments  and contingencies (See notes)                                                                                      |       |                   |       |                  |       |
| Stockholder’s  equity (deficit):                                                                                           |       |                   |       |                  |       |
| Common stock (par value $0.01, 1000 shares  authorized and outstanding in 2005 and 2004, respectively)                          |       | —                 |       | —                |       |
| Additional paid-in capital                                                                                                      |       | 52,791                 |       | 51,400                |       |
| Accumulated deficit                                                                                                             |       | (74,458                | )          | (65,374               | )          |
| Unearned compensation                                                                                                           |       | (111                   | )          | —                |       |
| Accumulated other comprehensive loss                                                                                            |       | (4,524                 | )          | (4,524                | )          |
|                                                                                                                            |       | (26,302                | )          | (18,498               | )          |
| Receivable from Parent                                                                                                          |       | (7,916                 | )          | (6,662                | )          |
| Total stockholder’s deficit                                                                                                |       | (34,218                | )          | (25,160               | )          |
| Total liabilities and stockholder’s deficit                                                                                |       | $                      | 312,643    |                  | $          | 305,754 |   |

 

See accompanying notes to condensedconsolidated financial statements.

 

3

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**BLUE RIDGEPAPER PRODUCTS INC.**

** **

**Condensed ConsolidatedStatements of Operations**

**Three- andNine-Month Periods Ended September 30, 2005 and 2004**

**(Dollars inthousands)**

**(unaudited)**

 
| ** **                                                                                                              | ** ** | **Three-Month Period Ended  September 30,** | ** ** | **Nine-Month Period Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                              | ** ** | **2005**                                         | ** ** | **2004**                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net sales                                                                                                               |       | $                                                | 129,781    |                                            | $          | 117,448 |   | $ | 383,534 |   | $ | 359,874 |   |
| Cost of  goods sold:                                                                                                    |       |                                             |       |                                            |       |   |   |   |   |
| Cost of goods sold, excluding depreciation  and amortization, flood-related losses and repairs and insurance recoveries |       | 117,676                                          |       | 107,473                                         |       | 344,766 |   | 338,730 |   |
| Depreciation and amortization                                                                                           |       | 3,749                                            |       | 4,050                                           |       | 11,486 |   | 12,374 |   |
| Flood-related  losses and repairs                                                                                       |       | 634                                              |       | 18,056                                          |       | 1,960 |   | 18,056 |   |
| Insurance  recoveries                                                                                                   |       | (257                                             | )          | (16,056                                         | )          | (357 | ) | (16,056 | ) |
| Gross profit                                                                                                            |       | 7,979                                            |       | 3,925                                           |       | 25,679 |   | 6,770 |   |
| Selling,  general and administrative expenses                                                                           |       | 6,110                                            |       | 6,832                                           |       | 16,299 |   | 19,956 |   |
| Loss on  litigation                                                                                                     |       | 2,000                                            |       | —                                          |       | 2,000 |   | — |   |
| Depreciation  and amortization                                                                                          |       | 427                                              |       | 476                                             |       | 1,289 |   | 1,376 |   |
| Insurance  recoveries                                                                                                   |       | —                                           |       | —                                          |       | (23 | ) | — |   |
| ESOP expense                                                                                                            |       | 1,630                                            |       | 1,800                                           |       | 4,892 |   | 5,400 |   |
| Profit-sharing  expense                                                                                                 |       | —                                           |       | —                                          |       | 80 |   | — |   |
| Gain on sale  of assets                                                                                                 |       | (44                                              | )          | (58                                             | )          | (44 | ) | (52 | ) |
| Operating profit (loss)                                                                                                 |       | (2,144                                           | )          | (5,125                                          | )          | 1,186 |   | (19,910 | ) |
| Other income  (expense):                                                                                                |       |                                             |       |                                            |       |   |   |   |   |
| Interest expense, excluding amortization of  deferred financing costs                                                   |       | (4,333                                           | )          | (4,003                                          | )          | (12,988 | ) | (11,869 | ) |
| Amortization of deferred financing costs                                                                                |       | (350                                             | )          | (321                                            | )          | (1,023 | ) | (908 | ) |
| Government grant income                                                                                                 |       | 1,436                                            |       | —                                          |       | 3,742 |   | — |   |
| Loss on equity method investment                                                                                        |       | (1                                               | )          | —                                          |       | (1 | ) | — |   |
|                                                                                                                    |       | (3,248                                           | )          | (4,324                                          | )          | (10,270 | ) | (12,777 | ) |
| Loss before income taxes                                                                                                |       | (5,392                                           | )          | (9,449                                          | )          | (9,084 | ) | (32,687 | ) |
| Income tax                                                                                                              |       | —                                           |       | —                                          |       | — |   | — |   |
| Net loss                                                                                                                |       | $                                                | (5,392     | )                                               | $          | (9,449 | ) | $ | (9,084 | ) | $ | (32,687 | ) |

 

See accompanying notes to condensed consolidated financial statements.

 

4

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**BLUE RIDGEPAPER PRODUCTS INC.**

 

**Condensed Consolidated Statements of Cash Flows**

**Nine Months Ended September 30, 2005 and 2004**

**(Dollars in thousands)**

**(unaudited)**

 
| ** **                                                                                              | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Cash flows from operating  activities:                                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss                                                                                                |       | $          | (9,084     | )          | $          | (32,687 | ) |
| Adjustment to reconcile net loss to net  cash provided by operating activities:                         |       |       |       |       |       |
| Depreciation and amortization                                                                           |       | 12,775     |       | 13,750     |       |
| Asset impairment due to flood related  losses                                                           |       | —     |       | 706        |       |
| Compensation expense for Parent restricted  stock                                                       |       | 222        |       | 138        |       |
| Amortization of deferred financing costs                                                                |       | 1,023      |       | 908        |       |
| ESOP expense                                                                                            |       | 4,892      |       | 5,400      |       |
| Gain on sale of assets                                                                                  |       | (44        | )          | (52        | )          |
| Parent PIK Senior Subordinated Note for interest                                                        |       | 2,828      |       | 2,589      |       |
| Changes in operating assets and  liabilities:                                                           |       |       |       |       |       |
| Accounts receivable, net                                                                                |       | (16,106    | )          | (2,305     | )          |
| Inventories                                                                                             |       | (3,283     | )          | 20,609     |       |
| Prepaid expenses                                                                                        |       | 744        |       | (181       | )          |
| Insurance proceeds receivable                                                                           |       | 10,282     |       | (11,056    | )          |
| Income tax receivable                                                                                   |       | 21         |       | (44        | )          |
| Other current assets                                                                                    |       | (36        | )          | —     |       |
| Accounts payable                                                                                        |       | 1,889      |       | 6,524      |       |
| Accrued expenses and other current  liabilities                                                         |       | (857       | )          | 3,746      |       |
| Interest payable                                                                                        |       | 2,822      |       | 3,050      |       |
| Pension and postretirement benefits                                                                     |       | 1,033      |       | 572        |       |
| Other assets and liabilities                                                                            |       | (628       | )          | (1,545     | )          |
| Net cash provided by operating activities                                                               |       | 8,493      |       | 10,122     |       |
| Cash flows  used in investing activities:                                                               |       |       |       |       |       |
| Additions to property, plant, and equipment                                                             |       | (12,739    | )          | (9,900     | )          |
| Proceeds from sale of property, plant, and  equipment                                                   |       | 45         |       | 70         |       |
| Net cash used in investing activities                                                                   |       | (12,694    | )          | (9,830     | )          |
| Cash flows  from financing activities:                                                                  |       |       |       |       |       |
| Repurchase of Parent common and preferred  stock                                                        |       | (1,254     | )          | (944       | )          |
| Payments on separation notes payable                                                                    |       | —     |       | (1,615     | )          |
| Proceeds from borrowings under line of  credit                                                          |       | 124,800    |       | 102,315    |       |
| Repayment of borrowings under line of  credit                                                           |       | (119,530   | )          | (92,755    | )          |
| Cash paid for refinancing credit facilities                                                             |       | —     |       | (279       | )          |
| Repayments of long-term debt and capital  lease obligations                                             |       | (477       | )          | (381       | )          |
| Net cash provided by financing activities                                                               |       | 3,539      |       | 6,341      |       |
| Net increase (decrease) in cash                                                                         |       | (662       | )          | 6,633      |       |
| Cash,  beginning of period                                                                              |       | 2,466      |       | 2,123      |       |
| Cash, end of  period                                                                                    |       | $          | 1,804      |       | $          | 8,756 |   |
| Supplemental  disclosures of cash flow information:                                                     |       |       |       |       |       |
| Cash paid for interest, including  capitalized interest of $305 and $599 in 2005 and 2004, respectively |       | $          | 7,375      |       | $          | 7,348 |   |
| Noncash  investing and financing activities:                                                            |       |       |       |       |       |
| Conversion of accrued interest to note  payable                                                         |       | 1,831      |       | 1,804      |       |
| Issuance of restricted stock units                                                                      |       | 333        |       | —     |       |

 

See accompanying notes to condensed consolidated financial statements.

 

5

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#### **NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**(Dollars in thousands)**

 

**(1)  Basis of Presentation**

 

The accompanying unaudited condensed consolidated interim financialstatements have been prepared in accordance with Regulation S-X related tointerim period financial statements and, in the opinion of management, includeall adjustments (consisting only of normal recurring accruals) that arenecessary for the fair presentation of results for the interim periods. Resultsfor the nine months ended September 30, 2005 may not necessarily beindicative of full-year results. It is suggested that these condensed consolidatedinterim financial statements be read in conjunction with the auditedconsolidated financial statements of Blue Ridge Paper Products Inc. (the “Company”)for the year ended December 31, 2004.

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make a number of estimates and assumptions relating to thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements. These estimates andassumptions also affect the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from those estimates.

 

**(2)  Liquidity**

 

TheCompany’s working capital needs are satisfied through its $50,000 revolvingcredit facility, which matures December 15, 2008.The creditagreement requires that the Company meet certain financial covenants, includinga minimum borrowing availability threshold and a fixed charge coverage ratio. Atcertain times during 2004, the credit agreement was amended to reduce theminimum borrowing availability threshold from $15,000 to $5,000 for a specifiedperiod of time. On December 21, 2004, the revolving credit agreement wasamended to reduce the amount subject to borrowing availability restrictionsfrom $15,000 to $7,500 on a permanent basis. For further discussion, see theCompany’s annual report on Form 10-K for the year ended December 31,2004. On August 5, 2005, the credit agreement was amended to includespecified foreign account debtors as eligible accounts in determining borrowingbase availability. This amendment was effective with the July 2005borrowing base. In addition, the Company must meet certain affirmative andnegative operating covenants. In the event of default or if the outstandingbalance of the revolving credit facility is greater than $25,000, the borrowingavailability falls below $7,500 and the fixed charge coverage ratio is lessthan 1.1 to 1.0, the credit agreement provides for activation of controlledbank accounts to apply daily cash collections toward the outstanding revolvingloan balance. Management believes the existing credit facility is adequate forthe Company’s current cash flow needs. Continued compliance with debt covenantsand sufficient liquidity is dependent upon business operations consistent withmanagement’s plan for 2005. However, uncertainties exist within the Company’smarkets that include, but are not limited to, availability and pricing of raw materialsand energy, unforeseen disruption in plant operations, labor disputes,significant competition, relationships with large customers, product demand,environmental compliance, litigation, loss of key managers and exposures tointerest rate changes.

 

6

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The maximum and minimum borrowing availability at September 30,2005 and December 31, 2004 are as follows:

 
| ** **                    | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2005**               | ** ** | **2004**              | ** ** |
|                          |       |                   |       |                  |       |
| Borrowing  base               |       | $                      | 50,000     |                  | $          | 41,763 |   |
| Revolver  balance             |       | 23,620                 |       | 18,350                |       |
| Letters of  credit            |       | 5,519                  |       | 6,056                 |       |
| Maximum  availability         |       | 20,861                 |       | 17,357                |       |
| Credit  agreement restriction |       | 7,500                  |       | 7,500                 |       |
| Minimum  availability         |       | $                      | 13,361     |                  | $          | 9,857 |   |

 

**(3)  Recent Developments**

 

*Cocke County, Tennessee Lawsuit*

 

On April 15, 2003, alawsuit seeking class action certification was filed in the Circuit Court forCocke County, Tennessee, in which the Company is a defendant. The lawsuit wasbrought on behalf of approximately 300 residents owning property adjoining thePigeon River upon which the Canton Mill is located, and into which the Companyhas a permit to discharge. The plaintiffs were seeking damages for privatenuisance in the period commencing June 1, 1999, and thereafter untilpresent. The plaintiffs in this action alleged that the discharge of (colored)water from the Canton Mill resulted in a nuisance (diminution of propertyvalue), but did not contain any allegation relating to health or safetymatters. The demand for damages was limited to a maximum of $74,000 (exclusiveof interest and costs) per individual landowner, or collectively a total of$22.5 million.

 

On August 17, 2005, aCocke County Court jury ruled in favor of the Plaintiff class awarding $2.0million for nuisance damages with no punitive damages being awarded. On September 29,2005, the Company filed a Motion for Judgment Notwithstanding the Verdict or,In the Alternative, Motion for New Trial. If this motion is denied, the Companyplans to appeal to the Tennessee Court of Appeals Eastern Section inKnoxville, Tennessee. In accordance with the requirements of Statement ofFinancial Accounting Standards No. 5, “Accounting for Contingencies” areserve of $2.0 million was established in the three-month period ended September 30,2005 to recognize the potential liability.

 

*Investment in Envases Panama, S.A.*

 

On August 11, 2005, the Company entered into a joint venture tosupply liquid packaging solutions to the Central American and Caribbeanmarkets. The new company, Envases Panama, S.A. (“Envases”), will be located inPanama City, Panama and will produce “gable top” cartons under a licensingagreement with the Company. The Company owns 20% of the stock of Envases andhas an exclusive supply agreement with Envases to provide coated board for cartonproduction. Under the guidelines for FASB Interpretation No. 46R, *Consolidation of Variable Interest Entities*,a business enterprise should evaluate whether it has a controlling financialinterest in an entity through other means than voting rights and accordinglyshould consolidate the entity. As a result of the application of the provisionsof FIN 46R, the Company determined that Envases was a Variable Interest Entity(VIE). The Company also determined that it holds a significant interest in theVIE, but is not the primary beneficiary. Therefore, the Company uses the equitymethod of accounting for financial reporting. In management’s estimation themaximum exposure to a loss as a result of the involvement with the VIE would beapproximately $1,250 in the first year. The adoption of FIN 46R did not have amaterial effect on the Company’s consolidated financial statements at September 30,2005.

 

7

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*Restricted Stock*

 

On January 1, 2005, BlueRidge Holding Corp., the Company’s parent (the “Parent”), entered intoagreements with certain of the Company’s management employees entitling thoseemployees to receive a net aggregate of 36,738 restricted common stock unitsthat vest over 18 months. The value of these awards at the Company’s currentstock value of $9.06 per share is $333 and is included in the obligation toredeem restricted stock units of Parent at September 30, 2005. The vestedportion of $222 was recorded as compensation expense and is reflected inselling, general and administrative expenses and the unvested portion of $111is reflected as unearned compensation and additional paid in capital at September 30,2005 in the accompanying condensed consolidated balance sheet.

 

*Management Fees*

 

The Company accrued managementfees to the Parent’s majority stockholder based upon a commitment made in 1999equal to 0.5% of consolidated gross revenues. Due to restrictions within debtcovenants, no management fees were paid since September 2001, althoughsuch fees continued to be accrued. On October 1, 2003, the management feeagreement with the Parent’s majority stockholder was amended to assignobligations related to the management fee to the Parent and to amend thetermination date to October 1, 2013. On January 28, 2005, themanagement fee agreement was amended again to terminate the future obligationsrelated to the management fee effective January 1, 2005. As of September 30,2005 and December 31, 2004, the Company has recorded a liability of $6,736for unpaid fees accrued under the agreement in other accrued expenses on thecondensed consolidated balance sheets. The Company is restricted from payingthese accrued fees under the terms of its indenture governing the 9.5% notesissued by the Company in December 2003 (the “Notes”) and its workingcapital facility.

 

*Flood Losses and Government Grants*

 

On September 8, 2004, Western North Carolina experienced a floodfrom Hurricane Frances exceeding the Federal Emergency Management Association(FEMA) 100-year flood plain levels. This forced the shutdown of the Canton pulpand paper mill. The Company’s Corporate Headquarters building was also flooded.On September 17, 2004, more serious flooding occurred from Hurricane Ivan.The combined downtime of the Canton mill in whole or in part from the twofloods was 26 days.

 

Property damage losses and related repairs and maintenance from thesetwo floods through December 31, 2004 were $22,649. Additional expenseswere recorded in gross profit of $634 and $1,960 during the three-month periodand nine-month period ended September 30, 2005, respectively. The Companyestimates its total losses from these floods (excluding business interruption)to range from $24,000 to $25,000, of which approximately $22,000 is recoverablethrough insurance proceeds and government grants. For the year ended December 31,2004, the Company had recorded insurance recoveries of $20,539. For thenine-month period ended September 30, 2005, the Company had recorded anadditional $380 for insurance recoveries. An insurance proceeds receivable of$257 was recorded at September 30, 2005, which reflects total insurancerecoveries collected of $20,662.

 

In the wake of these events, the Company has been awarded two grantsfor repairs and maintenance of the wastewater treatment facility located withinthe Canton mill that is also used by the Town of Canton. The first grant wasawarded by FEMA for repairs incurred from the two floods. This grant was in theamount of $1,479, all of which was received in the first two quarters of 2005. Thesecond grant was awarded by the State of North Carolina in the amount of $4,500to be paid on a reimbursement basis. This grant provides for flood controlrepairs and improvements to the wastewater treatment facilities. The Company hasrecognized this grant to the extent they have incurred costs from repairs andimprovements resulting in the recognition of government grant income of $1,436in the three-month period ended September 30, 2005 and $2,263 in thenine-month period ended September 30, 2005. The remaining $2,237 isexpected to be recognized as income over the next nine to 12 months as costsare incurred.

 

8

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*Parmalat Bankruptcy*

 

On February 24, 2004, Parmalat, USA (“Parmalat”), a significantcustomer, filed for Chapter 11 bankruptcy protection. At that time, the Companyhad outstanding accounts receivable of $1,158. In addition, the Company hadreceived cash payments of $2,984 related to accounts receivable that werepotentially subject to “preferential payment” treatment as defined in Chapter11 bankruptcy laws and regulations. As of December 31, 2004, the Companyassessed the potential of collecting the outstanding receivables and thelikelihood that cash payments deemed as preferential would be unsuccessfullydefended and recorded a valuation allowance of $1,158 related to this customer.

 

On February 18, 2005, theunsecured creditors committee ratified a plan of reorganization (the “Plan”)for Parmalat. The U.S. Bankruptcy Court in the Southern District of New Yorkconfirmed the Plan on March 10, 2005. The effective date of the Plan was April 13,2005. The Plan provided that all preference claims against trade vendors bewaived. The Plan also provided for the reimbursement of unsecured creditors’claims in cash payments. At September 30, 2005, the Company had recorded anet receivable of $423 related to the Plan. The Plan calls for periodicpayments from the bankruptcy trust over approximately the next year. On July 6,2005, the first payment was received in the amount of $53.

 

**(4)  Long-Term and Short-Term Debt**

 

In July 2003, the Company entered into a note payable with a bankfor $819 due in 2010. The note bears interest at a fixed rate at 5.5%. Land andoffice buildings in Canton, North Carolina collateralize the note. The balanceof the note payable was $735 at September 30, 2005.

 

On December 17, 2003, the Company sold $125,000 of the Notesthrough a private placement offering under Rule 144A. The Notes have aterm of five years, are due on December 15, 2008 and bear interest at astated rate of 9.5%, which is payable semiannually in arrears on June 15and December 15. The Notes are collateralized by a senior secured interestin substantially all of the Company’s tangible and intangible assets and have asubordinated secured interest in the outstanding trade accounts receivable andinventories. The Company has the right to redeem the Notes at 104.75% and100.00%, plus accrued interest on or after December 15, 2006 and December 15,2007, respectively. Terms of the indenture under which the Notes have beenissued contain certain covenants, including limitations on certain restrictedpayments and the incurrence of additional indebtedness.

 

On December 17, 2003, the Company entered into a revolving creditfacility with a financial institution, which provided for maximum borrowings of$45,000, subject to a borrowing base calculated using eligible accountsreceivable and inventories. On September 15, 2004, the credit agreementwas amended to increase the maximum borrowings to $50,000 on a permanent basis.The revolving credit facility is collateralized by a senior secured interest inthe Company’s outstanding trade accounts receivable and inventories and by asubordinated secured interest in substantially all of the Company’s tangibleand intangible assets. The revolving credit facility matures on December 15,2008, and requires the Company to pay an annual fee of 0.375% on the unusedfacility amount. The Company had an outstanding balance of $23,620 and $18,350at September 30, 2005 and December 31, 2004, respectively, andletters of credit outstanding as of September 30, 2005 and December 31,2004 were $5,519 and $6,056, respectively. The maximum borrowing availabilityat September 30, 2005 was $20,861, subject to the availability restrictiondescribed in Note 2.

 

9

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**(5)  Retirement Plans**

 

*Pension Plan*

 

The components of net periodic benefit costs relating to the Company’spension plan are as follows for the three and nine-month periods ended September 30,2005 and 2004:

 
| ** **                          | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost                        |       | $                                          | 379        |                                      | $          | 352 |   | $ | 1,138 |   | $ | 925 |   |
| Interest  cost                      |       | 230                                        |       | 201                                       |       | 689 |   | 527 |   |
| Expected  return on assets          |       | (231                                       | )          | (167                                      | )          | (692 | ) | (439 | ) |
| Amortization  of prior service cost |       | (13                                        | )          | 2                                         |       | (41 | ) | 5 |   |
| Amortization  of actuarial loss     |       | 135                                        |       | 105                                       |       | 406 |   | 275 |   |
| Settlement  charges                 |       | 0                                          |       | 0                                         |       | 0 |   | 0 |   |
| Curtailment                         |       | 0                                          |       | 0                                         |       | 0 |   | 0 |   |
| Total net  periodic benefits costs  |       | $                                          | 500        |                                      | $          | 493 |   | $ | 1,500 |   | $ | 1,293 |   |

 

Management is primarily responsible for determining the cost of pensionbenefits for this plan.  Management considered a number of factors,including consulting with an actuarial firm, when determining this cost. TheCompany estimates its benefits payments in fiscal year 2005 will beapproximately $287. Benefits payments in fiscal year 2004 were $195.

 

*Postretirement Medical Plan*

 

The components of net periodic benefit costs relating to the Company’spension plan are as follows for the three and nine-month periods ended September 30,2005 and 2004:

 
| ** **                          | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Service cost                        |       | $                                          | 136        |                                      | $          | 145 |   | $ | 408 |   | $ | 409 |   |
| Interest  cost                      |       | 247                                        |       | 226                                       |       | 739 |   | 635 |   |
| Expected  return on assets          |       | 0                                          |       | 0                                         |       | 0 |   | 0 |   |
| Amortization  of prior service cost |       | 38                                         |       | 25                                        |       | 115 |   | 72 |   |
| Amortization  of actuarial loss     |       | 4                                          |       | 6                                         |       | 13 |   | 16 |   |
| Settlement  charges                 |       | 0                                          |       | 0                                         |       | 0 |   | 0 |   |
| Curtailment                         |       | 0                                          |       | 0                                         |       | 0 |   | 0 |   |
| Total net  periodic benefits costs  |       | $                                          | 425        |                                      | $          | 402 |   | $ | 1,275 |   | $ | 1,132 |   |
|                                     |            |                                            |            |                                           |            |  |  |  |  |  |  |  |  |  |

 

Management is primarily responsible for determining the cost of pensionbenefits for this plan.  Management considered a number of factors,including consulting with an actuarial firm, when determining this cost. TheCompany estimates its benefits payments in fiscal year 2005 will beapproximately $176. Benefits payments in fiscal year 2004 were $138.

 

10

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**(6)  Commitments and Contingencies**

 

(a) *Purchase Commitments*

 

The Company has an agreement with International Paper for supply ofwood chips. The agreement’s first five-year term expired in May 2004. TheCompany has exercised its first renewal option for an additional five-yearperiod through May 2009 and has a second five-year option at itsdiscretion. The agreement requires minimum volume purchases and deliveries of815,000 tons of wood chips during each contract year. These chips are suppliedby two International Paper facilities in South Carolina and Tennessee andaccount for approximately 41% of the total mill requirements. As of September 30,2005, the Company has commitments to purchase wood chips of approximately$107,722 over the remaining current term of the agreement.

 

(b) *Labor Agreements*

 

The Company has entered intocollective bargaining labor agreements with the United Steel, Paper andForestry, Rubber, Manufacturing, Energy, Allied Industrial and ServiceWorkers,International Union (“USW”), formerly the Paper, Allied-Industrial, Chemicaland Energy Workers International Union, and the Bellwood Printing Pressmen,Assistants and Specialty Workers Union. The USW union contract is due forrenewal in May 2006. The Company has exercised its right under the laborcontract to notify USW that it desires to negotiate certain provisions of thelabor contract before renewal. If no new agreement is reached between theparties, the existing contract remains in place until May 2006.

 

(c) *Litigation, Claims andAssessments*

 

On April 15, 2003, a class action lawsuit was filed against theCompany on behalf of certain owners of property along the Pigeon River in CockeCounty, Tennessee. The demand for damages by the class participants totaledapproximately $22.5 million. On August 17, 2005, a jury in the CircuitCourt of Cocke County, Tennessee ruled in favor of the Plaintiffs awarding $2.0million for nuisance damages with no punitive damages being awarded. A reserveof $2.0 million was recorded in the third quarter ended September 30, 2005to recognize the potential liability. The Company will appeal the decision tothe Tennessee Court of Appeals Eastern Section in Knoxville, Tennessee. (SeeNote 3 for more information).

 

The Company is subject tolitigation that may arise in the normal course of business. In the opinion ofmanagement, the Company’s liability, if any, under any pending litigation willnot materially impact its financial condition or operations.

 

(d) *Environmental Liabilities*

 

As part of its environmental management program, the Company recognizesobligations for closure of landfills in accordance with SFAS No. 143, “Accountingfor Asset Retirement Obligations.” The Company has currently accruedapproximately $750 for closure of landfills as of September 30, 2005. Inaddition, prior to September 30, 2005, the Company had carried anestimated liability of $500 for environmental remediation that existed prior tothe Company’s formation. During the nine-month period ended September 30,2005, management performed a detailed analysis of projects identified andreleased the $500 reserve.

 

**(7)  Segment Information**

 

The Company’s management makes financial decisions and allocatesresources based on sales and operating income of the paper and packagingsegments. Although raw materials, the production processes, distributionmethods and the regulatory environment are similar, management believes it isappropriate to separately disclose these segments. The Company does notallocate selling, research and administration expenses to each segment, butmanagement uses

 

11

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operating income to measure the performance of the segments. Thefinancial information attributed to these segments is included in the followingtables:

 

**Blue RidgePaper Products Inc.**

**Three Months Ended September 30,2005 and 2004**

**(Dollars in Thousands)**

 
| ** **                     | ** ** | ** ** | ** ** | **Paper** | ** ** | **Packaging** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|--------------------------------|------------|------------|------------|-----------|------------|---------------|------------|---------------|------------|-----------|------------|
|                           |       |       |       |      |       |          |       |          |       |      |       |
| Net sales                      |       | 2005       |       | $         | 54,299     |          | $          | 75,482        |       | —    |       | $ | 129,781 |   |
|                           |       | 2004       |       | 46,820    |       | 70,628        |       | —        |       | 117,448   |       |
| Operating  profit (loss)       |       | 2005       |       | 5,347     |       | 2,676         |       | (10,167       | )          | (2,144    | )          |
|                           |       | 2004       |       | 641       |       | 3,342         |       | (9,108        | )          | (5,125    | )          |
| Depreciation  and amortization |       | 2005       |       | 2,906     |       | 843           |       | 427           |       | 4,176     |       |
|                           |       | 2004       |       | 3,195     |       | 855           |       | 476           |       | 4,526     |       |
| Total assets                   |       | 2005       |       | 201,984   |       | 95,653        |       | 15,006        |       | 312,643   |       |
|                           |       | 2004       |       | 195,108   |       | 85,576        |       | 18,874        |       | 299,558   |       |
| Capital  expenditures          |       | 2005       |       | 6,917     |       | 1,088         |       | 126           |       | 8,131     |       |
|                           |       | 2004       |       | 2,202     |       | 372           |       | 249           |       | 2,823     |       |
|                                |            |            |            |           |            |               |            |               |            |           |            |  |  |  |

 

**Blue Ridge Paper Products Inc.**

**Nine Months Ended September 30, 2005 and 2004**

**(Dollars in Thousands)**

 
| ** **                     | ** ** | ** ** | ** ** | **Paper** | ** ** | **Packaging** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|--------------------------------|------------|------------|------------|-----------|------------|---------------|------------|---------------|------------|-----------|------------|
|                           |       |       |       |      |       |          |       |          |       |      |       |
| Net sales                      |       | 2005       |       | $         | 158,091    |          | $          | 225,443       |       | —    |       | $ | 383,534 |   |
|                           |       | 2004       |       | 145,031   |       | 214,843       |       | —        |       | 359,874   |       |
| Operating  profit (loss)       |       | 2005       |       | 14,793    |       | 10,930        |       | (24,537       | )          | 1,186     |       |
|                           |       | 2004       |       | (2,379    | )          | 9,201         |       | (26,732       | )          | (19,910   | )          |
| Depreciation  and amortization |       | 2005       |       | 8,997     |       | 2,489         |       | 1,289         |       | 12,775    |       |
|                           |       | 2004       |       | 9,538     |       | 2,836         |       | 1,376         |       | 13,750    |       |
| Total assets                   |       | 2005       |       | 201,984   |       | 95,653        |       | 15,006        |       | 312,643   |       |
|                           |       | 2004       |       | 195,108   |       | 85,576        |       | 18,874        |       | 299,558   |       |
| Capital  expenditures          |       | 2005       |       | 10,200    |       | 2,413         |       | 126           |       | 12,739    |       |
|                           |       | 2004       |       | 8,248     |       | 1,040         |       | 612           |       | 9,900     |       |
|                                |            |            |            |           |            |               |            |               |            |           |            |  |  |  |

 

12

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**(8)  Inventories**

 

Components of inventory at September 30, 2005 and December 31,2004 are as follows:

 
| ** **        | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------|------------|------------------------|------------|-----------------------|------------|
| ** **        | ** ** | **2005**               | ** ** | **2004**              | ** ** |
|              |       |                   |       |                  |       |
| Raw  materials    |       | $                      | 18,557     |                  | $          | 15,206 |   |
| Work in  progress |       | 14,547                 |       | 15,936                |       |
| Finished  goods   |       | 17,185                 |       | 15,864                |       |
| Total             |       | $                      | 50,289     |                  | $          | 47,006 |   |

 

#### **ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

#### **FORWARD-LOOKING STATEMENTS**

 

This filing includes “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995. Forward-looking statements are those that do not relate solely tohistorical fact. They include, but are not limited to, any statement that maypredict, forecast, indicate or imply future results, performance, achievementsor events. They may contain words such as “believe,” “anticipate,” “expect,” “estimate,”“intend,” “project,” “plan,” “will” or words or phrases of similar meaning.

 

These forward-looking statements are not guarantees of futureperformance. Forward-looking statements are based on management’s expectationsthat involve risks and uncertainties, including, but not limited to, economic,competitive, governmental and technological factors outside of our control,that may cause actual results to differ materially from trends, plans orexpectations set forth in the forward-looking statements. Given these risks anduncertainties, actual future results may be materially different from what weplan or expect. We will not update these forward-looking statements even if oursituation changes in the future.

 

#### **QUARTERLY OVERVIEW; COMPARISON TO IMMEDIATELY PRECEDING QUARTER**

 

Despite record quarterly revenues for the third quarter ended September 30,2005, our net loss was greater than the second quarter ended June 30, 2005largely due to a $2.0 million jury award in a class action lawsuit against us,a power failure at the Canton mill and higher material and energy costs, which werepartially offset due to a scheduled pulp mill outage in the second quarterended June 30, 2005 and no corresponding outage in the third quarter endedSeptember 30, 2005. While we continue to experience strong demand for ourproducts, we are encountering unprecedented increases in costs for energy,transportation, polymers and chemicals as a result of Hurricanes Katrina andRita. We believe that this difficult cost environment will continue over thenext few quarters and, as a result, we are in the process of implementingenergy surcharges to our customers to help mitigate some of the cost increasesand are focusing on our continuous improvement efforts, such as Six Sigma andLean Manufacturing, to reduce our input costs and improve customer satisfaction.

 

Earnings in the third quarter ended September 30, 2005 werenegatively impacted by the continued rise in raw material and energy costs. Whencompared to the second quarter ended June 30, 2005, these costs were upapproximately $1.2 million.

 

Pricing in the third quarter ended September 30, 2005 in ourpackaging segment improved 3.4% over the second quarter ended June 30,2005. Total volume was down approximately 2,000 tons when compared to shipmentsof 66,473 tons in the second quarter ended June 30, 2005.

 

13

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Uncoated paper shipments improved in the third quarter ended September 30,2005. Shipments for the third quarter totaled 70,841 tons, which was anincrease of 6,043 tons when compared to shipments for the second quarter ended June 30,2005. Overall pricing for uncoated paper was down 1.3% when compared to thesecond quarter ended June 30, 2005. The reduction in overall price wasprimarily due to a slight deterioration of pricing in our offset paper productline. The major challenge facing the paper segment in the fourth quarter endingDecember 31, 2005 will be to ensure a smooth transition of uncoated paperfrom the historical 84 brightness to the new 92 brightness.  In addition, we have instituted a $30 per tonincrease on Kraft papers, which represents about 2,000 tons per month inshipments and an $11 per ton energy surcharge on all grades of paper effectiveDecember 1, 2005.

 

On August 20, 2005, the electrical provider for our Canton Millexperienced an equipment failure, which in turn interrupted the power supply tothe mill. The interruption in power and subsequent impact on the mill’sgenerating capacity caused a temporary shutdown of operations in excess of 33hours. The impact on earnings for the third quarter ended September 30,2005 as a result of this outage was approximately $1.1 million.

 

On April 15, 2003, a class action lawsuit was filed against us onbehalf of certain owners of property along the Pigeon River in Cocke County,Tennessee. The demand for damages by the class participants totaledapproximately $22.5 million. On August 17, 2005, a jury in the CircuitCourt of Cocke County, Tennessee ruled in favor of the Plaintiffs awarding $2.0million for nuisance damages with no punitive damages being awarded. On September 29,2005, we filed a Motion for Judgment Notwithstanding the Verdict or, In theAlternative, Motion for New Trial. If this motion is denied, we plan to appealto the Tennessee Court of Appeals Eastern Section in Knoxville, Tennessee.A reserve of $2.0 million was recorded in the third quarter ended September 30,2005 to recognize the potential liability.

 

On August 11, 2005, we formed a joint venture to supply liquidpackaging solutions to the Central American and Caribbean markets. The newcompany, Envases Panama, S.A., will be located in Panama City, Panama and willproduce “gable top” cartons under a licensing agreement with us. We own 20% ofthe stock of Envases and have an exclusive supply agreement with Envases toprovide coated board for carton production.

 

Flood prevention activities continued in the third quarter ended September 30,2005. In the third quarter ended September 30, 2005, we recognizedgovernment grant income from the State of North Carolina totaling $1.4 million.This compares to state grant income totaling $0.3 million in the second quarterended June 30, 2005. The grant is being used to repair and morepermanently protect our wastewater treatment facility, which also serves theTown of Canton, North Carolina.

 

14

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#### **Results of Operations**

 

The following table sets forth certain sales and operating data for ourbusiness segments for the periods indicated:

 

**(Dollars in millions, except per ton amounts)**

 
| ** **                                                                  | ** ** | **Three-Month Period  Ended Septenber 30** | ** ** | **Nine-Month Period  Ended Septenber 30** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                  | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Net sales:                                                                  |       |                                       |       |                                      |       |   |   |   |   |
| Packaging                                                                   |       | $                                          | 75.5       |                                      | $          | 70.6 |   | $ | 225.4 |   | $ | 214.9 |   |
| Paper                                                                       |       | 54.3                                       |       | 46.8                                      |       | 158.1 |   | 145.0 |   |
| Total                                                                       |       | $                                          | 129.8      |                                      | $          | 117.4 |   | $ | 383.5 |   | $ | 359.9 |   |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Segments’  operating profit (loss):                                    |       |                                       |       |                                      |       |   |   |   |   |
| Packaging                                                                   |       | $                                          | 2.7        |                                      | $          | 3.4 |   | $ | 10.9 |   | $ | 9.2 |   |
| Paper                                                                       |       | 5.3                                        |       | 0.6                                       |       | 14.8 |   | (2.4 | ) |
| Total segments’ operating profit (loss), excluding  corporate expenses |       | $                                          | 8.0        |                                      | $          | 4.0 |   | $ | 25.7 |   | $ | 6.8 |   |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Corporate  expenses:                                                        |       | 10.1                                       |       | 9.1                                       |       | 24.5 |   | 26.7 |   |
| Total operating profit (loss)                                               |       | $                                          | (2.1       | )                                         | $          | (5.1 | ) | $ | 1.2 |   | $ | (19.9 | ) |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Percentage  of net sales:                                                   |       |                                       |       |                                      |       |   |   |   |   |
| Packaging                                                                   |       | 58.2                                       | %          | 60.1                                      | %          | 58.8 | % | 59.7 | % |
| Paper                                                                       |       | 41.8                                       | %          | 39.9                                      | %          | 41.2 | % | 40.3 | % |
| Total                                                                       |       | 100.0                                      | %          | 100.0                                     | %          | 100.0 | % | 100.0 | % |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Segment  operating margin:                                                  |       |                                       |       |                                      |       |   |   |   |   |
| Packaging                                                                   |       | 3.6                                        | %          | 4.8                                       | %          | 4.8 | % | 4.3 | % |
| Paper                                                                       |       | 9.8                                        | %          | 1.3                                       | %          | 9.4 | % | (1.7 | )% |
| Total                                                                       |       | 6.2                                        | %          | 3.4                                       | %          | 6.7 | % | 1.9 | % |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Shipments  (tons):                                                          |       |                                       |       |                                      |       |   |   |   |   |
| Packaging segment                                                           |       | 64,404                                     |       | 61,963                                    |       | 194,538 |   | 188,794 |   |
| Paper segment                                                               |       | 77,455                                     |       | 68,896                                    |       | 223,636 |   | 230,104 |   |
| Total                                                                       |       | 141,859                                    |       | 130,859                                   |       | 418,174 |   | 418,898 |   |
|                                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Average  price ($per ton):                                                  |       |                                       |       |                                      |       |   |   |   |   |
| Packaging segment                                                           |       | $                                          | 1,172      |                                      | $          | 1,139 |   | $ | 1,159 |   | $ | 1,138 |   |
| Paper segment                                                               |       | 701                                        |       | 679                                       |       | 707 |   | 630 |   |
| Average price                                                               |       | $                                          | 915        |                                      | $          | 897 |   | $ | 917 |   | $ | 859 |   |

 

**THREEMONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,2004**

 

*Net Sales.*  Net sales for the three-month period ended September 30,2005, or the 2005 three-month period, increased $12.4 million or 10.6% to$129.8 million compared to $117.4 million for the three-month period ended September 30,2004, or the 2004 three-month period.

 

Net sales for our packagingsegment for the 2005 three-month period increased $4.9 million or 6.9% to $75.5million compared to $70.6 million for the 2004 three-month period. For the 2005three-month period, our packaging segment sold 64,404 tons of coated andconverted paperboard products at an average price of $1,172 per ton, comparedto 61,963 tons sold for the 2004 three-month period at an average price of$1,139 per ton. The

 

15

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increase in packaging segmentsales is attributable to a 3.9% increase in volume shipped and a 2.9% increasein average revenue per ton shipped.

 

Net sales for our paper segmentfor the 2005 three-month period increased $7.5 million or 16.0% to $54.3million compared to $46.8 million in the 2004 three-month period. Net salesvolume in our paper segment increased 8,559 tons to 77,455 tons shipped in the2005 three-month period as compared to 68,896 tons shipped in the 2004three-month period. Approximately 22.7% or $1.7 million of the net salesincrease in the 2005 three-month period reflects improved pricing for ourproducts. The remaining increase in net sales reflects the reduced volumeshipped in the 2004 three-month period resulting from production curtailmentbrought about from flood-related downtime. Average pricing in our paper segmentimproved to $701 per ton shipped in the 2005 three-month period as compared to$679 per ton shipped in the 2004 three-month period.

 

*Operating Profit*. Total segment operatingprofit increased $4.0 million to $8.0 million in the 2005 three-month periodcompared to an operating profit of $4.0 million for the 2004 three-monthperiod. As a percentage of sales, total segments operating profit increased to6.2% in the 2005 three-month period from 3.4% in the 2004 three-month period.

 

Thefollowing table sets forth significant items that increased (decreased) totalsegments operating profit:

 
| **Segment Operating Profit**                              | ** ** | **Three-Month Period Ended  September 30, 2005** | ** ** | **Three-Month Period Ended  September 30, 2004** | ** ** | **Change** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|------------|------------|
|                                                      |       | $                                                     | 8.0        |                                                  | $          | 4.0        |       | $ | 4.0 |   |
|                                                      |       |                                                  |       |                                                  |       |       |       |
| Product  pricing improvement                              |       |                                                  |       |                                                  |       | $          | 4.5        |   |
|                                                      |       |                                                  |       |                                                  |       |       |       |
| Net flood  impact in 2005 versus 2004 three-month period  |       |                                                  |       |                                                  |       | 7.7        |       |
|                                                      |       |                                                  |       |                                                  |       |       |       |
| Outbound  transportation costs                            |       |                                                  |       |                                                  |       | (0.8       | )          |
|                                                      |       |                                                  |       |                                                  |       |       |       |
| Increased  wood fiber costs                               |       |                                                  |       |                                                  |       | (0.7       | )          |
|                                                      |       |                                                  |       |                                                  |       |       |       |
| Increased  energy costs                                   |       |                                                  |       |                                                  |       | (1.2       | )          |
|                                                      |       |                                                  |       |                                                  |       |       |       |
| Plastic  resin costs used at Waynesville coating facility |       |                                                  |       |                                                  |       | (1.9       | )          |
|                                                      |       |                                                  |       |                                                  |       |       |       |
| Increased  chemical and other raw material costs          |       |                                                  |       |                                                  |       | (2.1       | )          |
|                                                      |       |                                                  |       |                                                  |       |       |       |
| Increased  benefit costs                                  |       |                                                  |       |                                                  |       | (0.7       | )          |
|                                                      |       |                                                  |       |                                                  |       |       |       |
| Other miscellaneous  and offsetting items                 |       |                                                  |       |                                                  |       | (0.8       | )          |
|                                                      |       |                                                  |       |                                                  |       |       |       |
| Total                                                     |       |                                                  |       |                                                  |       | $          | 4.0        |   |
|                                                           |            |                                                       |            |                                                       |            |            |            |  |  |  |

 

Operating profit for our packaging segment decreased $0.7 million or20.6% in the 2005 three-month period to $2.7 million or 3.6% of packagingsegment sales, compared to $3.4 million or 4.8% of packaging segment sales forthe 2004 three-month period. The decrease in operating profit for our packagingsegment was due primarily to: (i) $1.9 million increase in purchase costsof plastic/resin, our primary raw material used at our Waynesville convertingfacility; (ii) a $0.3 million increase in outbound transportation costsdue primarily to higher fuel costs; (iii) a $1.3 million increase in costsof internally produced board received from the Canton mill and passed on to thepackaging

 

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division through interdivisional transfer costs; (iv) an increaseof $0.1 million in energy costs; (v) an increase of $0.6 million inbenefit costs; (vi) an increase of $0.2 million in packing material costs;and (vii) other miscellaneous and offsetting variances totaling a negative$0.8 million. The decrease in packaging segment operating profit in the 2005three-month period was partially offset by a $3.0 million increase in averagerevenue of products sold as well as the elimination of the $1.5 millionunfavorable impact of flood-related losses incurred in the 2004 three-monthperiod.

 

Operating profit for our paper segment increased $4.7 million in the2005 three-month period to $5.3 million or 9.8% of paper segment sales,compared to an operating profit of $0.6 million or 1.3% of paper segment salesfor the 2004 three-month period. The increase in operating profit for our papersegment was due primarily to: (i) increased pricing on uncoated papersales of $1.1 million and on uncoated board sales of $0.4 million; (ii) floodlosses, net of insurance proceeds, of $6.8 million incurred in the 2004three-month compared to $0.6 million incurred in the 2005 three-month period;and (iii) a $1.3 million increase in costs of internally produced boardand passed on to the packaging division through interdivisional transfer costs.The increase in paper segment operating profit in the 2005 three-month periodwas partially offset by: (i) a $1.1 million increase in purchase costs offuels and electricity consumed at our Canton, North Carolina mill; (ii) a$0.7 million increase in the cost of wood chips, our primary raw material atour Canton, North Carolina mill; (iii) a $1.9 million increase in cost ofchemicals purchased for use in our process; (iv) a $0.1 million increasein benefit costs; and (v) a $0.5 million increase in outboundtransportation costs due primarily to higher fuel costs.

 

*Selling, General and Administrative Expenses.*Total selling, general and administrative expensesdecreased $0.7 million or 10.3% to $6.1 million in the 2005 three-month periodcompared to $6.8 million for the 2004 three-month period. The decrease inselling, general and administrative expenses for the 2005 three-month periodwas primarily attributable to a $0.7 million decrease in corporate wages andbenefits cost in the 2005 three-month period as compared to the 2004three-month period. The reduction in wages and benefits costs included theelimination of a $0.3 million reserve in the 2005 three-month period held tocomplete the closure of our Fort Worth, Texas DairyPak facility that wascompleted in 2004.

 

*Loss on Litigation.* Weestablished a $2.0 million reserve in the 2005 three-month period to recognizethe potential liability from a class action lawsuit that was filed against uson behalf of certain owners of property along the Pigeon River in Cocke County,Tennessee. The demand for damages by the class participants totaledapproximately $22.5 million. On August 17, 2005, a jury in the CircuitCourt of Cocke County, Tennessee ruled in favor of the Plaintiffs awarding $2.0million for nuisance damages with no punitive damages being awarded. On September 29,2005, we filed a Motion for Judgment Notwithstanding the Verdict or, In the Alternative,Motion for New Trial. If this motion is denied, we will appeal the decision tothe Tennessee Court of Appeals Eastern Section in Knoxville, Tennessee.

 

*Interest andAmortization Expenses.*Interest and amortizationexpenses increased $0.4 million to $4.7 million for the 2005 three-month periodcompared to $4.3 million for 2004 three-month period. This increase is dueprimarily to an increased borrowing level and increased interest rate on ourrevolving line of credit as well as an increase on our Parent PIK SeniorSubordinated Note.

 

*Government Grant Income.*Flood prevention activities continue at our Canton, North Carolina millfollowing the flood damage incurred at the mill in the 2004 three-month period.In the 2005 three-month period, we recognized government grant income totaling$1.4 million. The grant is being used to repair and more permanently protectour wastewater facility, which also serves the Town of Canton, North Carolina

 

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**NINE MONTHS ENDED SEPTEMBER 30, 2005COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2004**

 

*Net Sales.*Net salesfor the nine months ended September 30, 2005, or the 2005 nine-monthperiod, increased to $383.5 million or 6.6*%*comparedto**$359.9 million for the ninemonths ended September 30, 2004, or the 2004 nine-month period. Thisincrease in total revenue is attributable to an increase in the weightedaverage revenue per ton shipped to $917 per ton in the 2005 nine-month periodfrom $859 per ton in the 2004 nine-month period. This increase in averagerevenue per ton sold resulted primarily from improved pricing in all four ofour major grade lines: paper, uncoated board, coated board and cartons. Theincrease in average weighted revenue per unit sold resulted in an approximate$24.3 million increase in total revenue in the 2005 nine-month period ascompared to the 2004 nine-month period. Total sales volume declined slightly by724 tons or 0.2% to 418,174 tons in the 2005 nine-month period compared to418,898 tons for the 2004 nine-month period. The reduction in sales volumereflected reduced productivity in our paper segment and a reduction in sales ofnon-converted bleached board, which resulted from increased transfers to ourpackaging segment for further converting into value-added products as well asto rebuild stock inventories following flood-related production losses in thethird and fourth quarters of 2004.

 

Net sales for our packaging segment for the 2005 nine-month periodincreased $10.5 million or 4.9% to $225.4 million compared to $214.9 millionfor the 2004 nine-month period. The increase in net sales is attributable to: (i) anaverage net sales price per ton increase of 2.0% for cartons and 7.4% fornon-converted coated paperboard in the 2005 nine-month period compared to the2004 nine-month period; and (ii) an 11.1% increase in volume of ournon-converted coated paperboard shipments in the 2005 nine-month period ascompared to the 2004 nine-month period. Conversely, shipment volume for ourconverted cartons declined 3.3% in the 2005 nine-month period as compared tothe 2004 nine-month period.

 

Sales for our paper segment for the 2005 nine-month period haveincreased by $13.1 million or 9.0% to $158.1 million compared to $145.0 millionfor the 2004 nine-month period. This increase was attributable to an averagenet sales price per ton increase of 10.9% for our paper grades and 16.7% foruncoated paperboard in the 2005 nine-month period as compared to the 2004nine-month period. Total segment shipment volume declined 6,468 tons or 2.8% to223,636 tons in the 2005 nine-month period as compared to 230,104 tons in the2004 nine-month period. The decline in the paper segment shipment volumereflects reduced sales of our uncoated board due to increased transfers of thatproduct to our packaging division for further value-added converting.

 

*Operating Profit*. Total segment operatingprofit increased $18.9 million to $25.7 million in the 2005 nine-month periodcompared to an operating profit of $6.8 million for the 2004 nine-month period.As a percentage of sales, total segments operating profit increased to 6.7% inthe 2005 nine-month period from 1.9% in the 2004 nine-month period.

 

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| **Segment Operating Profit**                                                | ** ** | **Nine-Month Period Ended  September 30, 2005** | ** ** | **Nine-Month Period Ended  September 30, 2004** | ** ** | **Change** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|------------|------------|
| ** **                                                                  | ** ** | $                                                    | 25.7       |                                                 | $          | 6.8        |       | $ | 18.9 | ** ** |
| ** **                                                                  | ** ** | ** **                                           | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Product pricing  improvement                                                |       |                                                 |       |                                                 |       | $          | 24.3       |   |
|                                                                        |       |                                                 |       |                                                 |       |       |       |
| Net flood  impact to 2005 versus 2004 nine-month period                     |       |                                                 |       |                                                 |       | 6.3        |       |
|                                                                        |       |                                                 |       |                                                 |       |       |       |
| Severance  expenses in 2004 over 2005                                       |       |                                                 |       |                                                 |       | 4.7        |       |
|                                                                        |       |                                                 |       |                                                 |       |       |       |
| Reduced wage  and benefit costs                                             |       |                                                 |       |                                                 |       | 4.2        |       |
|                                                                        |       |                                                 |       |                                                 |       |       |       |
| Outbound transportation  costs                                              |       |                                                 |       |                                                 |       | (2.8       | )          |
|                                                                        |       |                                                 |       |                                                 |       |       |       |
| Increased  wood fiber costs                                                 |       |                                                 |       |                                                 |       | (0.7       | )          |
|                                                                        |       |                                                 |       |                                                 |       |       |       |
| Major raw material costs (plastic resin, chemicals,  and packing materials) |       |                                                 |       |                                                 |       | (11.7      | )          |
|                                                                        |       |                                                 |       |                                                 |       |       |       |
| Energy costs  at Canton, NC mill                                            |       |                                                 |       |                                                 |       | (6.3       | )          |
|                                                                        |       |                                                 |       |                                                 |       |       |       |
| Other  miscellaneous and offsetting items                                   |       |                                                 |       |                                                 |       | 0.9        |       |
|                                                                        |       |                                                 |       |                                                 |       |       |       |
| Total                                                                       |       |                                                 |       |                                                 |       | $          | 18.9       |   |
|                                                                             |            |                                                      |            |                                                      |            |            |            |  |  |  |

 

Operating profit for our packaging segment in the 2005 nine-monthperiod increased $1.7 million to $10.9 million compared to $9.2 million for the2004 nine-month period. The increase was primarily due to: (i) increasesto the average net selling prices for coated paperboard and carton products of7.4% and 2.0%, respectively, compared to the 2004 nine-month period, adding$8.3 million to revenues and operating profit for the 2005 nine-month period ascompared to the 2004 nine-month period; (ii) severance expenses of $2.5million incurred in the 2004 nine-month period related to the shutdown of ourFort Worth, Texas DairyPak facility; (iii) reduced wage and benefit costsof $1.1 million primarily due to the consolidation of capacity within ourliquid packaging business; (iv) flood losses of $1.5 million incurred inthe 2004 nine-month period related to curtailment of production and sales ofnon-converted coated board at our Waynesville, North Carolina facility due tointerruption of board production upstream at our Canton, North Carolina mill;and (v) other miscellaneous and offsetting items totaling a positive $0.3million. The increase in packaging segment operating profit in the 2005nine-month period was partially offset by: (i) a $7.1 million increase inpurchase costs of plastic/resin, our primary raw material used at ourWaynesville converting facility; (ii) a $1.6 million increase in outboundtransportation costs due primarily to higher fuel costs; (iii) increasedtransfer in cost of rawstock paperboard of $2.9 million; (iv) increasedenergy costs of $0.1 million and; (v) increased packing material costs of$0.3 million.

 

Operating profit for our paper segment increased $17.2 million in the2005 nine-month period to $14.8 million as compared to an operating loss of$2.4 million for the 2004 three-month period. The increase in operating profitfor our paper segment was due primarily to: (i) increased pricing on papersales of $14.7 million and on uncoated board sales of $1.3 million; (ii) severanceexpenses that were $2.2 million higher in the 2004 nine-month period related toheadcount reductions at our Canton, North Carolina mill; (iii) reducedwage and benefit costs of $3.1 million primarily due to the headcountreductions completed at the Canton, North Carolina mill; (iv) increasedtransfer costs for the rawstock sent to our Waynesville facility of $2.9million; (v) flood losses, net of insurance proceeds, of $6.8 millionincurred in the 2004 nine-month compared to $2.0 million incurred in the 2005nine-month period (all

 

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business interruption losses related to flooding caused by hurricanesFrances and Ivan were incurred in 2004, however, repairs to the Canton, NorthCarolina facility’s infrastructure has continued into the 2005 nine-monthperiod); and (vi) other miscellaneous and offsetting variances totaling afavorable $0.6 million. The increase in paper segment operating profit in the2005 nine-month period was partially offset by: (i) a $6.2 millionincrease in purchase costs of fuels and electricity consumed at our Canton,North Carolina mill; (ii) a $1.2 million increase in outboundtransportation costs due primarily to higher fuel costs; (iii) a $0.7million increase in the cost of wood chips, our primary raw material at ourCanton, North Carolina mill; and (iv) an approximate $4.3 million increasein cost of chemicals and packing materials utilized in our manufacturingprocess.

 

*Selling, General andAdministrative Expenses.  *Totalselling, general and administrative expenses decreased $3.7 million or 18.5% to$16.3 million in the 2005 nine-month period compared to $20.0 million for the2004 nine-month period. The decrease in selling, general and administrativeexpenses for the 2005 nine-month period was primarily attributable to: (i) incurrenceof $0.3 million in startup costs for our medical clinic in Canton, NorthCarolina during the 2004 nine-month period; (ii) beginning in January 2005,termination of future obligations under the management fee agreement, asamended, with the majority stockholders of Blue Ridge Holding Corp., ourparent, resulting in a savings of $1.7 million in the 2005 nine-month period ascompared to the 2004 nine-month period; (iii) reversal of a $0.5 millionenvironmental reserve in the 2005 nine-month period; (iv) severanceexpenses of $0.2 million incurred in the 2004 nine-month period related toheadcount reduction at our headquarters facility; (v) reversal of a $0.5million severance reserve related to the completed closure of our Fort Worth,Texas DairyPak facility; and (vi) other miscellaneous and offsettingvariances totaling a favorable $0.5 million.

 

*Loss on Litigation*. Weestablished a $2.0 million reserve in the 2005 nine-month period to recognizethe potential liability from a class action lawsuit that was filed against uson behalf of certain owners of property along the Pigeon River in Cocke County,Tennessee. The demand for damages by the class participants totaledapproximately $22.5 million. On August 17, 2005, a jury in the CircuitCourt of Cocke County, Tennessee ruled in favor of the Plaintiffs awarding $2.0million for nuisance damages with no punitive damages being awarded. On September 29,2005, we filed a Motion for Judgment Notwithstanding the Verdict or, In theAlternative, Motion for New Trial. If this motion is denied, we will appeal thedecision to the Tennessee Court of Appeals Eastern Section in Knoxville,Tennessee.

 

*Interest andAmortization Expenses.*Interest and amortizationexpenses increased $1.2 million to $14.0 million for the 2005 nine-month periodcompared to $12.8 million for the 2004 nine-month period. This increase is dueprimarily to an increased borrowing level and increased interest rate on ourrevolving line of credit as well as an increase on our Parent PIK SeniorSubordinated Note.

 

*Government Grant Income.*Flood prevention activities continue at our Canton, North Carolina millfollowing the flood damage incurred at the mill in the 2004 nine-month period. Inthe 2005 nine-month period, we recognized government grant income totaling $3.7million. The grants are being used to repair and more permanently protect ourwastewater treatment facility, which also serves the Town of Canton, NorthCarolina.

 

#### **LIQUIDITY AND CAPITAL RESOURCES**

 

Our principal liquidity requirements are to service our debt and fundour operations and capital expenditure needs. Our total senior debt, defined astotal debt less the Parent PIK Senior Subordinated Note, at September 30,2005 was approximately $151.1 million. Subject to our performance, which ifadversely affected could affect the availability of funds, we expect to be ableto meet our liquidity requirements for the remainder of 2005 through cashprovided by operations and through borrowings available under our workingcapital facility. We cannot assure you, however, that this will be the case. InDecember 2003, we issued $125.0 million of Notes in a private offering. Proceedsfrom issuance of the Notes were used to repay our Term Loans A and B and ourexisting revolving credit facility

 

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under the 1999 credit agreement. In addition, we paid $7.0 million onthe Parent PIK Subordinated Note. We entered into a $45.0 million revolvingcredit facility in December 2003. On September 15, 2004, the creditagreement was amended to increase the facility from $45.0 million to $50.0million on a permanent basis. On August 5, 2005, the credit agreement wasamended to include specified foreign account debtors as eligible accounts indetermining borrowing base availability. This amendment was effective with the July 2005borrowing base and has increased our borrowing availability by approximately$5.5 million subject to maximum borrowing availability restrictions. Themaximum borrowing availability at December 31, 2004 and September 30,2005 was $17.4 million and $20.9 million, respectively. The revolving creditfacility contains covenant restrictions, which require covenant availability toexceed $7.5 million (as amended December 21, 2004). If the covenantavailability does not meet the required minimum availability, a fixed chargecoverage ratio covenant of 1.1 to 1.0 will be triggered. As of September 30,2005, we had a covenant availability of $20.9 million, which is $13.4 millionin excess of the required minimum.

 

Summary of Cash Flow ($ in millions):

 
| ** **                                 | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------|------------|------------------------------------------|------------|
| ** **                                 | ** ** | **2005**                                 | ** ** | **2004** | ** ** |
| Net cash  provided by operating activities |       | $                                        | 8.5        |   | $ | 10.1 |   |
| Net cash  used in investing activities     |       | (12.7                                    | )          | (9.8 | ) |
| Net cash  provided by financing activities |       | 3.5                                      |       | 6.3 |   |
| Net increase  (decrease) in cash           |       | $                                        | (0.7       | ) | $ | 6.6 |   |
|                                       |       |                                     |       |   |   |
| Cash balance                               |       | $                                        | 1.8        |   | $ | 8.8 |   |

 

The cash provided by operations was $8.5 million for the 2005nine-month period. The cash provided by operations was attributable todecreases in insurance receivable offset by an increase in accounts receivabletrade and increases in payables, accrued expenses and other liabilities and thenet loss for the 2005 nine-month period. The accounts receivable increase of$16.1 million is primarily attributed to record revenues for the 2005three-month period, as well as an increase of $4.0 million in foreignreceivables that carry longer terms than domestic sales. We received $10.1million in payments from our insurance carrier in the 2005 nine-month periodclosing the claim for the 2004 floods. The current level of inventory turns is9.2 times for the 2005 nine-month period.

 

The cash used in investing activities was $12.7 million offset by stategrant funds of $1.9 million for the 2005 nine-month period. Cash used in investingactivities for the 2004 nine-month period was $9.8 million. Capital spendingfor the 2005 nine-month period totaled $12.7 million, which includedexpenditures for environmental projects of approximately $4.5 million. For thecalendar year 2005, we currently estimate that our capital spending will beapproximately $19.2 million, of which approximately $4.0 million will be fundedby a grant from the State of North Carolina for flood prevention. The remaining$0.5 million of state grant funds will be spent in 2006.

 

Net cash provided by financing activities was $3.5 million for the 2005nine-month period, which was primarily attributable to net borrowings on ourrevolving line of credit.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

We are exposed to certain market risks, including interest rate risk. Riskexposure relating to this market risk is summarized below. This informationshould be read in connection with the consolidated financial statements and therelated notes thereto included elsewhere in this quarterly report on Form 10-Q.

 

We manage interest cost using a combination of fixed and variable ratedebt. As of September 30, 2005, we have $125.0 million of Notesoutstanding at a 9.5% fixed rate of interest and a $50.0 million workingcapital credit

 

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facility at variable rates of interest. As of September 30, 2005,approximately $23.6 million was outstanding under our working capital creditfacility consisting of short-term interest rates of 1.0% over ApplicableRevolver Index Margin and 2.75% over Applicable Revolver Libor Margin, asdefined. Our working capital facility offers two options for interest rates: ApplicableRevolver Libor margin ranging from 2.5% - 3.0% or Applicable Revolver IndexMargin ranging from .75% - 1.25%. The rate is based on revolver availability. Atthe end of September 2005, we were approximately at the mid-point of theinterest rate grid for Libor and Index Margins. In addition, as of September 30,2005, we have a $0.7 million mortgage note with a maximum interest rate of 5.5%and a remaining duration of five years.

 

#### **ITEM 4. CONTROLS AND PROCEDURES**

 

(A) Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer andChief Financial Officer have evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) and 15d-15(e))under the Securities Exchange Act of 1934. Based on their evaluation, our ChiefExecutive Officer and Chief Financial Officer have concluded that, as of September 30,2005, our disclosure controls and procedures were effective in ensuring thatmaterial information was properly disclosed in its filings with the Securitiesand Exchange Commission.

 

(B) Changes in InternalControls Over Financial Reporting

 

There have been no significantchanges in our internal controls over financial reporting during the threemonths ended September 30, 2005 that have materially affected or arereasonably likely to materially affect our internal control over financialreporting.

 

**PART II.OTHER INFORMATION**

 

#### **ITEM 6. EXHIBITS**

 

(a) Exhibits required by Item 601 of Regulation S-K

31.1 Certification of CEO pursuant to Section 302 ofSarbanes-Oxley Act of 2002

31.2 Certification of CFO pursuant to Section 302 ofSarbanes-Oxley Act of 2002

32.1 Certification of CEO and CFO pursuant to Section 906 ofSarbanes-Oxley Act of 2002

 

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## **SIGNATURES**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                                    | **BLUE RIDGE PAPER PRODUCTS INC.**  |
|-----------------------------------------|-------------------------------------|
|                                    |                                |
|                                    |                                |
| Date:  November 14, 2005 |                                |
|                                    | /S/ JOHN B. WADSWORTH               |   |
|                                    | John B. Wadsworth                   |
|                                    | Chief Financial Officer             |
|                                    |                                |
|                                    | (On behalf of the Registrant and as |
|                                    | Principal Financial Officer)        |
|                                         |                                     |  |  |

 

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### EXHIBIT INDEX

TO

FORM 10-Q

OF

BLUE RIDGE PAPER PRODUCTS INC.

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,2005

Pursuant to Section 102(d) ofRegulation S-T

(17 C.F.R. Section 232.102(d))

 

The following exhibits arefiled as part of this report:

 

31.1                           Certificationof CEO pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2                           Certificationof CFO pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1                           Certificationof CEO and CFO pursuant to Section 906 of Sarbanes-Oxley Act of 2002

 

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