** **

**FORM10-Q**

** **

**SECURITIES AND EXCHANGE COMMISSION**

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

###  

**(Mark One)**

 

**ý****  QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

** **

### **For the quarterly period ended March 31, 2005**

###  

**OR**

** **

**o****  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

** **

### **For the transition period from               to               **

### ** **

Registration Number:  **333-114032**

 

**BLUE RIDGE PAPER PRODUCTS INC.**

(Exact name of registrant as specified incharter)

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

 

## **41 MAIN STREET**

**CANTON, NORTH CAROLINA 28716**

(Address of principal executive office)

 

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

 

# Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such report), and (2) has been subject to suchfiling requirements for the past 90 days.

#  

# Yes   ý   No   o

#  

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

 

# Yes   o   No   ý

#  

The number of common shares outstanding atMarch 31, 2005 was 10,729,294.

 

 

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**BLUE RIDGE PAPER PRODUCTS INC.**

 

**AND SUBSIDIARY**

 
|        | INDEX                 |                                                                                                                                  |
|-------------|-----------------------|---------------------------------------------------------------------------------------------------------------------------------------|
|        |                  |                                                                                                                                  |
| **PART 1.** | FINANCIAL INFORMATION |                                                                                                                                  |
|        |                  |                                                                                                                                  |
|        | Item 1.               | Condensed Consolidated Balance Sheets,  March 31, 2005 (unaudited) and December 31, 2004 (derived from audited  financial statements) |   |
|        |                  |                                                                                                                                  |   |
|        |                  | Condensed Consolidated Statements of  Operations, Three Months Ended March 31, 2005 and 2004 (unaudited)                              |   |
|        |                  |                                                                                                                                  |   |
|        |                  | Condensed Consolidated Statements of Cash  Flows, Three Months Ended March 31, 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 Ridge Paper Products Inc. and  Subsidiary**           |
| ** **      | **CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)** |

 

**BLUE RIDGE PAPER PRODUCTS INC****.**

** **

**Condensed Consolidated Balance Sheets**

**March 31,2005 and December 31, 2004**

**(Dollars inthousands)**

**(unaudited)**

 
| ** **                                                                                                                     | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| **Assets**                                                                                                                     |       |                |       |                   |       |
| Current assets:                                                                                                                |       |                |       |                   |       |
| Cash                                                                                                                           |       | $                   | 2,347      |                   | $          | 2,466 |   |
| Accounts receivable, net of allowance for  doubtful accounts and discounts of $1,023 and $1,820 in 2005 and 2004, respectively |       | 56,372              |       | 45,814                 |       |
| Inventories                                                                                                                    |       | 50,207              |       | 47,006                 |       |
| Prepaid expenses                                                                                                               |       | 1,256               |       | 1,715                  |       |
| Insurance proceeds receivable                                                                                                  |       | 6,100               |       | 10,539                 |       |
| Income tax receivable                                                                                                          |       | 55                  |       | 76                     |       |
| Deferred tax asset                                                                                                             |       | 4,160               |       | 4,256                  |       |
| Total current assets                                                                                                           |       | 120,497             |       | 111,872                |       |
| Property, plant, and equipment, net of  accumulated depreciation of $92,857 and $88,517 in 2005 and 2004,  respectively        |       | 185,016             |       | 187,336                |       |
| Deferred financing costs, net                                                                                                  |       | 6,160               |       | 6,491                  |       |
| Other assets                                                                                                                   |       | 184                 |       | 55                     |       |
| Total assets                                                                                                                   |       | $                   | 311,857    |                   | $          | 305,754 |   |
| **Liabilities  and Stockholder’s Equity (Deficit)**                                                                       |       |                |       |                   |       |
| Current liabilities:                                                                                                           |       |                |       |                   |       |
| Current portion of senior debt                                                                                                 |       | $                   | 40         |                   | $          | 39 |   |
| Current portion of capital lease obligation                                                                                    |       | 623                 |       | 603                    |       |
| Accounts payable                                                                                                               |       | 33,857              |       | 44,521                 |       |
| Accrued expenses and other current  liabilities                                                                                |       | 31,074              |       | 33,742                 |       |
| Interest payable                                                                                                               |       | 5,390               |       | 1,655                  |       |
| Total current liabilities                                                                                                      |       | 70,984              |       | 80,560                 |       |
| Senior debt, net of current portion                                                                                            |       | 156,939             |       | 144,075                |       |
| Parent Pay-In-Kind (PIK) Senior  Subordinated Note                                                                             |       | 40,681              |       | 40,681                 |       |
| Capital lease obligations                                                                                                      |       | 1,327               |       | 1,484                  |       |
| Pension and postretirement benefits                                                                                            |       | 21,854              |       | 21,211                 |       |
| Deferred tax liability                                                                                                         |       | 4,160               |       | 4,256                  |       |
| Other liabilities                                                                                                              |       | 1,275               |       | 1,271                  |       |
| Total liabilities                                                                                                              |       | 297,220             |       | 293,538                |       |
| Obligation to redeem ESOP shares                                                                                               |       | 36,885              |       | 35,257                 |       |
| Obligation to redeem restricted stock units  of Parent                                                                         |       | 2,195               |       | 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                                                                                                     |       | 51,666              |       | 51,400                 |       |
| Accumulated deficit                                                                                                            |       | (64,657             | )          | (65,374                | )          |
| Unearned compensation                                                                                                          |       | (263                | )          | —                 |       |
| Accumulated other comprehensive loss                                                                                           |       | (4,524              | )          | (4,524                 | )          |
|                                                                                                                           |       | (17,778             | )          | (18,498                | )          |
| Receivable from Parent                                                                                                         |       | (6,665              | )          | (6,662                 | )          |
| Total stockholder’s equity (deficit)                                                                                      |       | (24,443             | )          | (25,160                | )          |
| Total liabilities and stockholder’s equity  (deficit)                                                                     |       | $                   | 311,857    |                   | $          | 305,754 |   |

 

See accompanying notes to condensed consolidated financial statements.

 

3

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**BLUE RIDGE PAPER PRODUCTS INC.**

 

**Condensed Consolidated Statements of Operations**

**Three months ended March 31, 2005and 2004**

**(Dollars inthousands)**

**(unaudited)**

 
| ** **                                                                                                             | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                                                                              |       | $        | 128,547    |     | $          | 120,981 |   |
| Cost of goods sold:                                                                                                    |       |     |       |     |       |
| Cost of goods sold, excluding depreciation  and amortization, flood-related loss and, repairs and insurance recoveries |       | 113,195  |       | 113,565  |       |
| Depreciation and amortization                                                                                          |       | 3,904    |       | 4,262    |       |
| Flood-related loss and repairs                                                                                         |       | 848      |       | —   |       |
| Insurance recoveries                                                                                                   |       | (100     | )          | —   |       |
| Gross profit                                                                                                           |       | 10,700   |       | 3,154    |       |
| Selling, general and administrative  expenses                                                                          |       | 5,147    |       | 6,577    |       |
| Depreciation and amortization                                                                                          |       | 436      |       | 458      |       |
| Insurance recoveries                                                                                                   |       | (23      | )          | —   |       |
| ESOP expense                                                                                                           |       | 1,631    |       | 1,800    |       |
| Profit-sharing expense                                                                                                 |       | 80       |       | —   |       |
| Operating profit (loss)                                                                                                |       | 3,429    |       | (5,681   | )          |
| Other income (expense):                                                                                                |       |     |       |     |       |
| Interest expense, excluding amortization of  deferred financing costs                                                  |       | (4,258   | )          | (3,960   | )          |
| Amortization of deferred financing costs                                                                               |       | (332     | )          | (289     | )          |
| Government grant income                                                                                                |       | 1,878    |       | —   |       |
|                                                                                                                   |       | (2,712   | )          | (4,249   | )          |
| Profit (loss) before income taxes                                                                                      |       | 717      |       | (9,930   | )          |
| Income tax                                                                                                             |       | —   |       | —   |       |
| Net profit (loss)                                                                                                      |       | $        | 717        |     | $          | (9,930 | ) |

 

See accompanying notes to condensed consolidated financial statements.

 

4

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**BLUE RIDGEPAPER PRODUCTS INC.**

 

**Condensed Consolidated Statements of Cash Flows**

**Threemonths ended March 31, 2005 and 2004**

**(Dollars inthousands)**

**(unaudited)**

 
| ** **                                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Cash flows from operating activities:                                       |       |     |       |     |       |
| Net profit (loss)                                                           |       | $        | 717        |     | $          | (9,930 | ) |
| Adjustment to reconcile net loss to net  cash used in operating activities: |       |     |       |     |       |
| Depreciation and amortization                                               |       | 4,340    |       | 4,720    |       |
| Compensation expense for Parent restricted  stock                           |       | 76       |       | 59       |       |
| Amortization of deferred financing costs                                    |       | 331      |       | 289      |       |
| ESOP expense                                                                |       | 1,631    |       | 1,800    |       |
| Parent PIK Senior Subordinated Note for  interest                           |       | 915      |       | 835      |       |
| Changes in operating assets and  liabilities:                               |       |     |       |     |       |
| Accounts receivable, net                                                    |       | (10,558  | )          | (2,748   | )          |
| Inventories                                                                 |       | (3,201   | )          | 3,406    |       |
| Prepaid expenses                                                            |       | 459      |       | (40      | )          |
| Insurance proceeds receivable                                               |       | 4,439    |       | —   |       |
| Income tax receivable                                                       |       | 21       |       | —   |       |
| Accounts payable                                                            |       | (10,664  | )          | (2,675   | )          |
| Accrued and other current liabilities                                       |       | (2,668   | )          | 534      |       |
| Interest payable                                                            |       | 2,820    |       | 3,035    |       |
| Pension and postretirement benefits                                         |       | 643      |       | 449      |       |
| Other assets and liabilities                                                |       | (125     | )          | (283     | )          |
| Net cash used in operating activities                                       |       | (10,824  | )          | (549     | )          |
| Cash flows used in investing activities:                                    |       |     |       |     |       |
| Additions to property, plant, and equipment                                 |       | (2,020   | )          | (2,165   | )          |
| Proceeds from sale of property, plant, and  equipment                       |       | —   |       | 2        |       |
| Net cash used in investing activities                                       |       | (2,020   | )          | (2,163   | )          |
| Cash flows from financing activities:                                       |       |     |       |     |       |
| Repurchase of Parent common and preferred  stock                            |       | (3       | )          | (276     | )          |
| Payments on separation notes payable                                        |       | —   |       | (1,615   | )          |
| Proceeds from borrowings under line of  credit                              |       | 54,050   |       | 34,965   |       |
| Repayment of borrowings under line of  credit                               |       | (41,175  | )          | (30,750  | )          |
| Cash paid for refinancing credit facilities                                 |       | —   |       | (151     | )          |
| Repayments of long-term debt and capital  lease obligations                 |       | (147     | )          | (126     | )          |
| Net cash provided by financing activities                                   |       | 12,725   |       | 2,047    |       |
| Net decrease in cash                                                        |       | (119     | )          | (665     | )          |
| Cash, beginning of period                                                   |       | 2,466    |       | 2,123    |       |
| Cash, end of period                                                         |       | $        | 2,347      |     | $          | 1,458 |   |
| Supplemental disclosures of cash flow  information:                         |       |     |       |     |       |
| Cash paid for interest, including capitalized  interest                     |       | $        | 614        |     | $          | 90 |   |
| Noncash investing and financing activities:                                 |       |     |       |     |       |
| Issuance of restricted stock units                                          |       | 339      |       | —   |       |

 

See accompanying notes to condensed consolidated financial statements.

 

5

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**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

**(Dollars inthousands)**

 

**(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 three months ended March 31, 2005 may not necessarily be indicative offull-year results.  It is suggested thatthese condensed consolidated interim financial statements be read inconjunction with the audited consolidated financial statements of Blue RidgePaper 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 and assumptions also affectthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

**(2) Liquidity**

 

The Company’s workingcapital needs are satisfied through its $50,000 revolving credit facility,which matures December 15, 2008.  Thecredit agreement requires that the Company meet certain financial covenants,including a minimum borrowing availability threshold and a fixed chargecoverage ratio.  At certain times during2004, the credit agreement was amended to reduce the minimum borrowingavailability threshold from $15,000 to $5,000. On December 21, 2004, the revolving credit agreement was amended toreduce the amount subject to borrowing availability restrictions from $15,000to $7,500 on a permanent basis.  Inaddition, the Company must meet certain affirmative and negative operatingcovenants.  In the event of default or ifthe outstanding balance of the revolving credit facility is greater than$25,000 and the borrowing availability falls below $7,500, the credit agreementprovides for activation of controlled bank accounts to apply daily cashcollections toward the outstanding revolving loan balance.  Management believes the existing creditfacility is adequate for the Company’s cash flow needs through the next 12months.  Continued compliance with debtcovenants and sufficient liquidity is dependent upon business operationsconsistent with management’s plan for 2005. However, uncertainties exist within the Company’s markets which include,but are not limited to, availability and pricing of raw materials, unforeseendisruption in plant operations, labor disputes, significant competition,relationships with large customers, product demand, environmental compliance,litigation, loss of key managers and exposures to interest rate changes.

 

The maximum and minimum borrowing availability at March 31, 2005 andDecember 31, 2004 are as follows:

 
| ** **                   | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------|------------|---------------------|------------|------------------------|------------|
|                         |       |                |       |                   |       |
| Borrowing Base               |       | $                   | 51,020     |                   | $          | 41,763 |   |
| Revolver Balance             |       | 31,225              |       | 18,350                 |       |
| Letters of Credit            |       | 6,056               |       | 6,056                  |       |
| Maximum Availability         |       | 13,739              |       | 17,357                 |       |
| Credit Agreement Restriction |       | 7,500               |       | 7,500                  |       |
| Excess Availability          |       | $                   | 6,239      |                   | $          | 9,857 |   |

 

6

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**(3) Recent Developments**

 

*Flood losses related to Hurricanes Francesand Ivan*

 

On September 8, 2004, Western North Carolina experienced a flood fromHurricane Frances exceeding the Federal Emergency Management Association (FEMA)100-year flood plain levels.  This forcedthe shutdown of the Canton pulp and paper mill. The Company’s Corporate Headquarters building was also flooded.  On September 17, 2004, more serious floodingoccurred from Hurricane Ivan.  Thecombined downtime of the Canton mill in whole or in part from the two floodswas 26 days.

 

Property damage losses and related repairs and maintenance from thesetwo floods through December 31, 2004 were $22,649.  During the period ended March 31, 2005, anadditional expense was recorded of $867, of which $848 is reflected in grossprofit and $19 is included in selling, general and administrative expenses.  The Company estimates its total losses fromthese floods (excluding business interruption) to range from $23,500 to$25,000, of which approximately $22,000 is recoverable through insuranceproceeds and government grants.  For theyear ended December 31, 2004 and for the quarter ended March 31, 2005, theCompany had recorded insurance recoveries of $20,539 and $123,respectively.  Insurance recoveries of$14,562 had been collected prior to March 31, 2005.

 

In the wake of these events,the Company has been awarded two grants for repairs and maintenance of thewastewater treatment facility located within the Canton mill that is also usedby the Town of Canton.  The first grantwas awarded by FEMA for repairs incurred from the two floods.  This grant was in the amount of $1,479, ofwhich $1,392 was received on January 20, 2005. The second grant was awarded by the State of North Carolina in theamount of $4,500 to be paid on a reimbursement basis.  This grant provides for flood controlrepairs, improvements to the wastewater treatment facility and repairs to themill sewer infrastructure.  The Companyhas recognized these grants to the extent they have incurred costs from repairsand improvements resulting in the recognition of government grant income of$1,878 in the quarter ended March 31, 2005. The remaining $4,101 is expected to be recognized as income over thenext 12 – 18 months.

 

*Parmalat Bankruptcy*

 

On February 24, 2004, Parmalat, USA (“Parmalat”), a significantcustomer, filed for Chapter 11 bankruptcy protection.  At that time, the Company had outstandingaccounts receivable of $1,158.  Inaddition, the Company had received cash payments of $2,984 related to accountsreceivable that were potentially subject to “preferential payment” treatment asdefined in Chapter 11 bankruptcy laws and regulations.  As of December 31, 2004, the Company assessedthe potential of collecting the outstanding receivables and the likelihood thatcash payments deemed as preferential would be unsuccessfully defended and recordeda valuation allowance of $1,158 related to this customer.

 

On February 18, 2005, the unsecured creditors committee ratified a planof reorganization (the “Plan”) for Parmalat. The Plan was confirmed on March 10, 2005 by the U.S. Bankruptcy Court inthe Southern District of New York.  ThePlan provided that all preference claims against trade vendors be waived.  The Plan also provided for the reimbursementof unsecured creditors claims in cash payments. The Company wrote off $404 related to its Parmalat receivable againstits established allowance and reduced its valuation allowance to $278 as ofMarch 31, 2005, related to this customer. This resulted in an improvement to earnings of $476 for the three-monthperiod ended March 31, 2005.

 

7

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**(3) Recent Developments (continued)**

 

*Restricted Stock*

 

On January 1, 2005, Blue Ridge Holding Corp., the Company’s parent (the“Parent”) entered into agreements with certain of the Company’s managementemployees entitling those employees to receive an aggregate of 37,388restricted common stock units that vest over 18 months and that grant to theemployee certain rights to acquire restricted shares of common stock of theParent.  These agreements also grant theemployee the right, upon the occurrence of certain events or conditions, torequire the Parent to repurchase any fully vested shares of restricted commonstock owned by the employee at fair market value determined at the time ofrepurchase.  The value of the restrictedcommon stock units (valued at the current value of shares of common stock ofthe Parent of $9.06 per share) is $339. The vested portion of $76 was recorded as compensation expense and isreflected in the obligation to redeem restricted stock units of Parent, and theunvested portion of $263 is reflected as unearned compensation and inadditional paid in capital at March 31, 2005 on the accompanying condensedconsolidated balance sheets.

 

*Management Fees*

 

The Company accrued management fees to its Parent’s majoritystockholder based upon a commitment made in 1999 equal to 0.5% of consolidatedgross revenues.  Due to restrictionswithin debt covenants, no management fees were paid since September 2001,although such fees continued to be accrued. On October 1, 2003, the management fee agreement with the majoritystockholder was amended to assign obligations related to the management fee tothe Parent and to amend the termination date to October 1, 2013.  On January 28, 2005, the management feeagreement was amended again to terminate the future obligations related to themanagement fee effective January 1, 2005. As of March 31, 2005 and December 31, 2004, the Company has recorded aliability of $6,736 for unpaid fees accrued under the agreement in otheraccrued expenses on the consolidated balance sheets.  The Company is restricted from paying theseaccrued fees under the terms of its indenture governing the 9.5% Senior SecuredNotes (the “Notes”) issued on December 17, 2003 and its working capital facility.

 

**(4) Recent Accounting Developments**

 

In December 2004, the FASB issued Statement of FinancialAccounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” whichrequires the measurement of all employee share-based payments to employees,including grants of employee stock options, using a fair-value-based method andthe recording of such expense in the Company’s consolidated statements ofincome.  As amended by the SEC in April2005, the accounting provisions of SFAS No. 123R for a calendar year registrantare effective for reporting periods beginning after January 1, 2006.  The Company is required to adoptSFAS No. 123R in the first quarter of 2006 and is currently evaluating theeffect that the adoption of FASB No. 123R will have on its financial positionand results of operation.

 

In December 2003, the FASB issued FASB Interpretation No. 46(revised December 2003), *Consolidation ofVariable Interest Entities* (FIN 46R), which addresses how a businessenterprise should evaluate whether it has a controlling financial interest inan entity through means other than voting rights and accordingly shouldconsolidate the entity.  FIN 46Rreplaces FASB Interpretation No. 46, *Consolidationof Variable Interest Entities,* which was issued in January 2003. TheCompany will be required to apply FIN 46R to variable interests invariable interest entities (“VIEs”) created after December 31, 2003.  For variable interests in VIEs created beforeJanuary 1, 2004, the interpretation will be applied beginning onJanuary 1, 2005.  For any VIEs thatmust be consolidated under FIN 46R that were created beforeJanuary 1, 2004, the assets, liabilities and noncontrolling interests ofthe VIE initially would be measured at their carrying amounts with anydifferences between the net amount added to the balance sheet and anypreviously recognized interest being recognized as the cumulative effect of anaccounting change.  If determining thecarrying amounts is not practicable, fair value at the date FIN 46R firstapplies may be used to measure the assets,

 

8

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**(4) Recent Accounting Developments (continued)**

 

liabilities and noncontrolling interest of the VIE. The adoption ofFIN 46R did not have a material effect on the Company’s consolidatedfinancial statements.

 

**(5) 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 bearsinterest at a fixed rate at 5.5%.  Landand office buildings in Canton, North Carolina collateralize the note.  The balance of the note payable was $754 atMarch 31, 2005.

 

On December 17, 2003, the Company sold $125,000 of the Notesthrough a private offering under Rule 144A.  The Notes have a term of five years, are dueon December 15, 2008 and bear interest at a stated rate of 9.5%, which ispayable semiannually in arrears on June 15 and December 15.  The Notes are collateralized by a seniorsecured interest in substantially all of the Company’s tangible and intangibleassets and have a subordinated secured interest in the outstanding tradeaccounts receivable and inventories.  TheCompany has the right to redeem the Notes at 104.75% and 100.00%, plus accruedinterest on or after December 15, 2006 and December 15, 2007,respectively.  Terms of the indentureunder which the Notes have been issued contain certain covenants, includinglimitations on certain restricted payments and the incurrence of additionalindebtedness.

 

On December 17, 2003, the Company entered into a revolving creditfacility with a financial institution, which provides for maximum borrowings of$45,000, subject to a borrowing base calculated using eligible accountsreceivable and inventories.  On September15, 2004 the credit agreement was amended which increased the maximumborrowings to $50,000 on a permanent basis. The revolving credit facility is collateralized by a senior securedinterest in the Company’s outstanding trade accounts receivable and inventoriesand by a subordinated secured interest in substantially all of the Company’stangible and intangible assets.  Therevolving credit facility matures on December 15, 2008, and requires theCompany to pay an annual fee of 0.375% on the unused facility amount.  The Company had an outstanding balance of$31,225 and $18,350 at March 31, 2005 and December 31, 2004, respectively andletters of credit outstanding as of March 31, 2005 and December 31, 2004 were$6,056.  The maximum borrowingavailability at March 31, 2005 was $13,739 subject to the availabilityrestriction described in Note 2.

 

**(6) Commitments and Contingencies**

 

(a)* Purchase Commitments*

 

The Company has an agreement with International Paper for supply ofwood chips.  The agreement’s firstfive-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 requiresminimum volume purchases and deliveries of 815,000 tons of wood chips duringeach contract year.  These chips aresupplied by two International Paper facilities in South Carolina and Tennesseeand account for approximately 41% of the total mill requirements.  As of March 31, 2005, the Company hascommitments to purchase wood chips of approximately $122,657 over the remainingterms of the agreements.

 

(b)* Labor Agreements*

 

The Company is committed tocollective bargaining labor agreements with the Paper, Allied-Industrial,Chemical and Energy Workers International Union (PACE) and the BellwoodPrinting Pressmen, Assistants and Specialty Workers Union.  The PACE union contract is due for renewal inMay 2006.  As provided in the contract,the

 

9

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**(6) Commitments and Contingencies (continued)**

 

Company has notified PACE thatit desires to negotiate certain provisions of the labor contract beforerenewal, and negotiations are currently underway.  If no new agreement is reached between theparties, the existing contract remains in place until May 2006.

 

(c)* Litigation, Claims and Assessments*

 

On April 15, 2003, a lawsuit seeking class action certificationwas filed in the Circuit Court for Cocke County, Tennessee, in which theCompany is a defendant.  The lawsuit isbeing brought on behalf of approximately 300 residents owning propertyadjoining the Pigeon River upon which the Canton mill is located, and intowhich the Company has a permit to discharge. The plaintiffs are seeking damages for private nuisance in the periodcommencing June 1, 1999, and thereafter until present.  The plaintiff in this action alleges that thedischarge of colored water from the Canton mill has resulted in a diminution ofproperty value, but does not contain any allegation relating to health orsafety matters.  The demand for damagesis limited to a maximum of $74 (exclusive of interest and costs) per individuallandowner.  Management has not recorded aliability for any amount related to this lawsuit as of March 31, 2005.

 

The Company is subject tolitigation that may arise in the normal course of business.  In the opinion of management, the Company’sliability, if any, under any pending litigation will not materially impact itsfinancial 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.”  TheCompany has currently accrued approximately $775 for closure of landfills as ofMarch 31, 2005.

 

**(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, theproduction processes, distribution methods and the regulatory environment aresimilar, management believes it is appropriate to separately disclose thesesegments.  The Company does not allocateselling, research and administration expenses to each segment, but managementuses operating income to measure the performance of the segments.  The financial information attributed to thesesegments is included in the following table for the three months ended March31, 2005 and 2004:

 
| ** **                    | ** ** | ** ** | ** ** | **Paper** | ** ** | **Packaging** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|-------------------------------|------------|------------|------------|-----------|------------|---------------|------------|---------------|------------|-----------|------------|
|                          |       |       |       |      |       |          |       |          |       |      |       |
| Net sales                     |       | 2005       |       | $53,914   |       | $74,633       |       | —        |       | $128,547  |       |
|                          |       | 2004       |       | 48,029    |       | 72,952        |       | —        |       | 120,981   |       |
| Operating income (loss)       |       | 2005       |       | 6,551     |       | 4,149         |       | (7,271        | )          | 3,429     |       |
|                          |       | 2004       |       | (1,537    | )          | 4,693         |       | (8,837        | )          | (5,681    | )          |
| Depreciation and amortization |       | 2005       |       | 3,085     |       | 819           |       | 436           |       | 4,340     |       |
|                          |       | 2004       |       | 3,171     |       | 1,091         |       | 458           |       | 4,720     |       |
| Total assets                  |       | 2005       |       | 207,123   |       | 87,833        |       | 16,901        |       | 311,857   |       |
|                          |       | 2004       |       | 200,366   |       | 88,753        |       | 12,055        |       | 301,174   |       |
| Capital expenditures          |       | 2005       |       | 1,587     |       | 433           |       | —        |       | 2,020     |       |
|                          |       | 2004       |       | 2,028     |       | 137           |       | —        |       | 2,165     |       |

 

10

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**(8)  Inventories**

 

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

 
| ** **       | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------|------------|---------------------|------------|------------------------|------------|
|             |       |                |       |                   |       |
| Raw Materials    |       | $                   | 17,674     |                   | $          | 15,206 |   |
| Work in Progress |       | 16,769              |       | 15,936                 |       |
| Finished Goods   |       | 15,764              |       | 15,864                 |       |
| Total            |       | $                   | 50,207     |                   | $          | 47,006 |   |

 

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**ITEM 2**. MANAGEMENT’S DISCUSSION ANDANALYSIS OF 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 arethose that do not relate solely to historical fact.  They include, but are not limited to, anystatement that may predict, forecast, indicate or imply future results,performance, achievements or 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 statementsare based on management’s expectations that involve risks and uncertainties,including, but not limited to, economic, competitive, governmental andtechnological factors outside of our control, that may cause actual results todiffer materially from trends, plans or expectations set forth in theforward-looking statements.  Given theserisks and uncertainties, actual future results may be materially different fromwhat we plan or expect.  We will notupdate these forward-looking statements even if our situation changes in thefuture.

 

#### **OVERVIEW**

#### ** **

We recorded a profit of $0.7 million for thethree months ended March 31, 2005 (the “2005 three-month period”), compared toa net loss of $9.9 million for the three months ended March 31, 2004 (the “2004three-month period”).  This is our secondconsecutive profitable three-month period.

 

Our return to profitability reflects theimplementation of our cost improvement initiatives, DairyPak consolidation,improved productivity and increased pricing in all our market segments.  Gains in our markets have been partiallyoffset by the rising costs of raw materials, energy and polymers.

 

In January 2005, we received approximately$1.4 million from the U.S. Department of the Interior and related agencies tooffset a portion of the uninsured repair expenses associated with the damagesto our waste treatment plant that we incurred during the severe flooding in thethird quarter of 2004.  Our wastetreatment facility serves as the municipal waste treatment plant for the Townof Canton.  In addition, on February 25,2005, the Governor of North Carolina signed into law a Hurricane ReliefBill.  We expect to be a recipient of$4.5 million of those funds through the Town of Canton for expenditures thatwill more permanently protect our shared wastewater facility and repair millsewer infrastructure.

 

Looking forward, we anticipate that our papersegment’s demand and pricing will remain flat in the three months ending June30, 2005, while the packaging segment will show modest improvement.  In the three months ending June 30, 2005, theCanton mill will conduct a planned annual outage of its pine pulp mill, whichwill negatively impact costs approximately by $2.0 to $2.5 million.  As a result, we anticipate that secondquarter earnings will be less than first quarter earnings.

 

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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 March 31** | ** ** |
|---------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                                  |       |                                   |       |   |   |
| Net Sales:                            |       |                                   |       |   |   |
| Packaging                             |       | $                                      | 74.6       |   | $ | 73.0 |   |
| Paper                                 |       | 53.9                                   |       | 48.0 |   |
| Total                                 |       | $                                      | 128.5      |   | $ | 121.0 |   |
|                                  |       |                                   |       |   |   |
| Operating profit (loss):              |       |                                   |       |   |   |
| Packaging                             |       | $                                      | 4.1        |   | $ | 4.7 |   |
| Paper                                 |       | 6.6                                    |       | (1.5 | ) |
| Total segments’ operating profit |       | $                                      | 10.7       |   | $ | 3.2 |   |
|                                  |       |                                   |       |   |   |
| Corporate expense                     |       | 7.3                                    |       | 8.8 |   |
| Total operating profit (loss)         |       | $                                      | 3.4        |   | $ | (5.6 | ) |
|                                  |       |                                   |       |   |   |
| Percentage of net sales:              |       |                                   |       |   |   |
| Packaging                             |       | 58.1                                   | %          | 60.3 | % |
| Paper                                 |       | 41.9                                   | %          | 39.7 | % |
| Total                                 |       | 100.0                                  | %          | 100.0 | % |
|                                  |       |                                   |       |   |   |
| Operating margin:                     |       |                                   |       |   |   |
| Packaging                             |       | 5.5                                    | %          | 6.4 | % |
| Paper                                 |       | 12.2                                   | %          | (3.1 | )% |
| Total                                 |       | 8.3                                    | %          | 2.6 | % |
|                                  |       |                                   |       |   |   |
| Shipments (tons):                     |       |                                   |       |   |   |
| Packaging segment                     |       | 63,661                                 |       | 62,601 |   |
| Paper segment                         |       | 76,073                                 |       | 81,159 |   |
| Total                                 |       | 139,734                                |       | 143,760 |   |
|                                  |       |                                   |       |   |   |
| Average price ($ per ton):       |       |                                   |       |   |   |
| Packaging segment                     |       | $                                      | 1,172      |   | $ | 1,165 |   |
| Paper segment                         |       | 709                                    |       | 592 |   |
| Average price                         |       | $                                      | 920        |   | $ | 842 |   |

 

**THREE MONTHS ENDED MARCH 31, 2005 COMPARED TOTHREE MONTHS ENDED MARCH 31, 2004**

 

*Net Sales*

 

Net sales for the 2005 three-month periodincreased $7.5 million or 6.2% to $128.5 million compared to $121.0 million forthe same period in 2004.  Our overallimprovement in revenue was attributable to a $1.6 million increase in ourpackaging segment sales and a $5.9 million increase in net sales in our papersegment.

 

Net sales for our packagingsegment in the 2005 three-month period increased $1.6 million or 2.2% to $74.6million compared to $73.0 million in 2004. The increase in packaging segment sales was primarily attributable to anincrease in average revenue per ton sold of 6.7% on non-converted coated boardsold out of our Waynesville facility and 1.4% on our carton business.  Sales volume increased 1.5% for the packagingsegment reflecting an

 

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increase in sales volume ofour non-converted board out of our Waynesville facility partially offset by adecrease in sales of cartons. In the 2005 three-month period, our packagingsegment sold 63,661 tons of coated and converted paperboard products at anaverage price of $1,172 per ton, compared to 62,601 tons sold in the 2004three-month period at an average price of $1,165 per ton.

 

Net sales for our paper segment for the 2005three-month period increased $5.9 million or 12.3% to $53.9 million compared to$48.0 million for the same period in 2004. The increase is attributable to an increase in average revenue per tonshipped to $709 per ton in the 2005 three-month period compared to $592 per tonin the 2004 three-month period.  Averagepricing on our paper grades increased approximately $60 per ton over the fourthquarter of 2004 in the first three months of 2005 and over $110 per ton fromthe same three-month period in 2004. Total sales volume for the paper segment decreased by 5,086 tons in the2005 three-month to 76,073 tons as compared to 81,159 tons for the same periodin 2004.  The volume decline is primarilyattributable to a reduction of 4,467 tons in uncoated board sales.  Uncoated board sales volumes were reduced inorder to increase transfers to our packaging segment to facilitate increasedsales of higher value products as well as to replenish coating rawstockinventories that were depleted as a result of the flood downtime incurred inthe third and fourth quarters of 2004.

 

*Operating Profit*

 

Total segments’ operating profit increased$7.5 million to $10.7 million in the 2005 three-month period compared to anoperating profit of $3.2 million for the same period in 2004.  As a percentage of sales, total segments’operating profit increased to 8.3% for the 2005 three-month period from 2.6% inthe 2004 three-month period.

 

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The following table setsforth significant items that increased (decreased) total segments’ operatingprofit:

 
| **Segment Operating Profit**                                             |   | **Three-Month  Period Ending****March 31, 2005** |   | **Three-Month  Period Ending****March 31, 2004** |   | **Change** |   |
|--------------------------------------------------------------------------|--------|--------------------------------------------------|--------|--------------------------------------------------|--------|------------|--------|
|                                                                     |   |                                             |   |                                             |   |       |   |
|                                                                     |   | $                                                | 10.7   |                                             | $      | 3.2        |   | $ | 7.5 |   |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Net flood impact in 2005                                                 |   |                                             |   |                                             |   | $          | (0.8   | ) |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Product pricing improvement                                              |   |                                             |   |                                             |   | 10.7       |   |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Outbound transportation costs                                            |   |                                             |   |                                             |   | (1.4       | )      |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Major raw material pricing (plastic resin,  wood chips and chemicals)    |   |                                             |   |                                             |   | (2.9       | )      |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Severance expenses in 2004 not in 2005                                   |   |                                             |   |                                             |   | 2.0        |   |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Energy price increases                                                   |   |                                             |   |                                             |   | (2.5       | )      |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Reduced wages & benefits costs                                       |   |                                             |   |                                             |   | 2.1        |   |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Change in sales mix (cartons versus coated  paperboard)                  |   |                                             |   |                                             |   | (0.9       | )      |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Inventory capitalization due to increased  raw material and energy costs |   |                                             |   |                                             |   | 1.0        |   |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Other items                                                              |   |                                             |   |                                             |   | 0.2        |   |
|                                                                     |   |                                             |   |                                             |   |       |   |
| Total                                                                    |   |                                             |   |                                             |   | $          | 7.5    |   |
|                                                                          |        |                                                  |        |                                                  |        |            |        |  |  |  |

 

Operating profit for our packaging segment decreased $0.6 million or12.8% in the 2005 three-month period to $4.1 million or 5.5% of packagingsegment sales, compared to $4.7 million or 6.4% of packaging segment sales forthe 2004 three-month period.  Thedecrease in operating profit for our packaging segment was due primarily to:(i) increased pricing for one of our key raw materials, plastic/resin, at theWaynesville facility of $2.5 million; (ii) decreased carton production volumeimpacting results by approximately $1.1 million and reflecting above-averageorders in the 2004 three-month period; (iii) increased costs for outboundfreight of $1.1 million; and (iv) increased transfer cost of rawstockpaperboard of $0.8 million.  The decreasein operating profit in the 2005 three-month period was partially offset by: (a)an increase in the average revenue per ton shipped in an aggregate amount of$2.2 million due to improved pricing on both our converted cartons andnon-converted coated board business; (b) a decline of approximately $1.0million in payroll and benefits costs reflecting the impact from consolidationof capacity in fiscal years 2003 and 2004; (c) severance payments of $0.9million related to capacity consolidation incurred in the 2004 three-monthperiod; (d) increased inventory capitalization of $0.6 million reflectingincreased costs for raw materials and energy; and (e) other miscellaneous andoffsetting variances of $0.2 million.

 

Operating profit for our paper segment increased $8.1 million in the2005 three-month period to $6.6 million or 12.2% of paper segment sales,compared to an operating loss of $1.5 million or (3.1)% of paper segment salesfor the 2004 three-month period. Operationally, our Canton facility returned to pre-flood productionlevels, achieving production and shipment volumes during the 2005 three-monthperiod that were comparable to the levels achieved during the same three-monthperiod in 2004.  The increase inoperating profit for our paper segment was due primarily to: (i) an increase inthe average revenue per ton shipped in an aggregate amount of $8.5 million;(ii) a

 

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decline of approximately $1.1 million in payroll and benefits costsreflecting the impact of headcount reductions completed in fiscal year 2004;(iii) severance payments of $1.1 million related to mill headcount reductionincurred in the 2004 three-month period; (iv) increased transfer revenue forthe rawstock sent to our Waynesville facility of $0.9 million; (v) increasedinventory capitalization of $0.4 million reflecting increased costs for rawmaterials and energy: and (vi) miscellaneous and offsetting variances totaling$0.4 million.  The increase in operatingprofit in the 2005 three-month period was partially offset by: (a) continuationof flood-related property damage repair and recovery costs of $0.8 million; (b)price increases in (i) our primary fuels of approximately $2.5 million and (ii)certain of our major chemicals used as raw materials of approximately $0.7million; and (c) increased costs for outbound freight of $0.3 million.

 

*Selling, General and Administrative Expenses*

 

Total selling, general and administrative expenses decreased $1.5million or 22.7% to $5.1 million in the 2005 three-month period compared to$6.6 million for the same period in 2004. The decrease in selling, general and administrative expenses for the2005 period was primarily attributable to: (i) $0.2 million of severance costsincurred in the 2004 three-month period; (ii) recording of $0.5 million changein estimate for expected recovery from a former significant customer currentlyundergoing bankruptcy proceedings (see Note 3 to our consolidated financialstatements included elsewhere in this Quarterly Report on Form 10-Q); (iii) asavings of $0.6 million as a result of the termination of a management feeunder the Management Services Agreement by and between our parent, Blue RidgeHolding Corp., and KPS Management, LLC in January 2005; and (iv) othermiscellaneous offsetting variances totaling a favorable $0.2 million.

 

*Interest and Amortization Expense*

 

Interest and amortization expenses increased $0.4 million to $4.6million for the 2005 three-month period compared to $4.2 million for the sameperiod in 2004.  This was due to anincrease in the balance for our revolving line of credit as well as an increasein interest rates.

 

*Government Grant Income*

 

In January 2005, we received approximately $1.4 million from the U.S.Department of the Interior and related agencies to offset a portion of theuninsured repair expenses associated with the damages to our wastewatertreatment plant that were incurred during the severe flooding at our Canton,North Carolina facility in September 2004. Our wastewater treatment facility serves as the municipal wastetreatment plant for the Town of Canton. In addition, on February 25, 2005, the Governor of North Carolina signedinto law a Hurricane Relief Bill designed to bring financial assistance tothose in Western North Carolina adversely affected by severe flooding.  We expect to be a recipient of $4.5 millionof those funds through the Town of Canton for expenditures that will morepermanently protect the shared wastewater facility and repair mill sewerinfrastructure.  We recognized $0.5million of these funds as receivable in the 2005 three-month period.  Government grant income has been and willcontinue to be recognized as costs are incurred for designated repairs andimprovements.

 

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

#### ** **

We entered into a $45.0 million revolving credit 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.  Themaximum borrowing availability at December 31, 2004 and March 31, 2005 was$17.4 million and $13.7 million, respectively. The revolving credit facility contains covenant restrictions, whichrequire covenant availability to exceed $7.5 million (as amended December 21,2004).  If the covenant availability doesnot meet the required minimum, a fixed charge coverage ratio covenant istriggered.  We do not believe that wewill be subject to the

 

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fixed charge coverage ratio for the remainder of 2005 based on: (i)improved market conditions; (ii) improvements to our cost structure; and (iii)reductions to working capital.

 

At March 31, 2005, we had covenant availability of $13.7 million, whichis $6.2 million in excess of the required minimum.

 

Net cash used in operations was $10.8 million for the 2005 three-monthperiod compared to net cash used in operations of $0.5 million during the sameperiod in 2004.  The change in cash usedin operations is due to a profit in the 2005 three-month period of $0.7 millioncompared to a loss of $9.9 million for the same period in 2004.  This was offset by: (i) accounts receivablesincrease of $10.6 million; (ii) accounts payable decrease of $10.7 million; and(iii) other working capital changes of $0.2 million.

 

Net cash used in investing activities was$2.0 million and $2.2 million for the 2005 and 2004 three-month periods,respectively.  Capital spending for the2005 three-month period totaled $2.0 million, which included expenditures forenvironmental projects of approximately $0.2 million and $0.3 million for floodprevention funded by a grant from the State of North Carolina.  We currently estimate that our capitalspending will be approximately $22.5 million for fiscal year 2005, of which$4.5 million will be funded by a grant from the State of North Carolina forflood prevention.

 

Net cash provided by financing activities was $12.7 million for the2005 three-month period compared to net cash provided by financing activitiesof $2.0 million for the same period in 2004. The net change in net cash provided by financing activities in the 2005three-month period was primarily due to a $12.9 million increase in borrowingsunder our working capital facility.  Thisincrease in borrowings was primarily used to fund our change in working capitaland to provide funding for capital expenditures.

 

#### **ITEM 3**.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed to certain market risks, including interest raterisk.  Risk exposure relating to thismarket risk is summarized below.  Thisinformation should be read in connection with the condensed consolidatedfinancial statements and the related notes thereto included elsewhere in thisQuarterly Report on Form 10-Q.

 

###### ***Interest Rate Risk***

###### *** ***

We manage interest cost using a combination of fixed and variable ratedebt.  As of March 31, 2005, we have$125.0 million of 9.50% senior secured notes due 2008 and a $50.0 millionworking capital credit facility at variable rates of interest.  As of March 31, 2005, approximately $31.2million was outstanding under our working capital credit facility.  Our working capital facility offers twooptions for interest rates:  ApplicableRevolver Libor Margin ranging from 2.5% - 3.0% or Applicable Revolver IndexMargin ranging from .75% - 1.25%.  Therate is based on revolver availability. During the 2005 three-month period, we used the highest percent in eachoption.  In addition, as of March 31,2005, we have a $0.8 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 and ChiefFinancial Officer have evaluated the effectiveness of our disclosure controlsand procedures (as defined in Rule 13a-15(e) and 15d-15(e)) under theSecurities Exchange Act of 1934.  Basedon their evaluation, our Chief Executive Officer and Chief Financial Officerhave concluded that, as of March 31, 2005, our disclosure controls andprocedures were effective in ensuring that material information was properlydisclosed in our filings with the Securities and Exchange Commission.

 

(B) Changes in Internal Controls OverFinancial Reporting

 

There have been no significant changes in ourinternal controls over financial reporting during the three months ended March31, 2005 that have materially affected or are reasonably likely to materiallyaffect our internal control over financial reporting.

 

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## **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 of Sarbanes-Oxley Actof 2002

31.2 Certification of CFO pursuant to Section 302 of Sarbanes-Oxley Actof 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 of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 

**BLUE RIDGE PAPER PRODUCTS INC.**

 

 
| Date: May 16, 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 MARCH 31, 2005

Pursuant to Section 102(d) of Regulation S-T

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

 

The following exhibits are filed as part ofthis report:

 

31.1                           Certification of CEOpursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2                           Certification of CFOpursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1                           Certification of CEO and CFOpursuant to Section 906 of Sarbanes-Oxley Act of 2002

 

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