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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

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

For the quarterly period ended January 31, 2008

OR



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

For the transition period from              to

Commission File Number: 333-118844





THE NEWARK GROUP, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|New Jersey                                                     |  | 22-2884844                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



|                                        |  |           
|--------------------------------------- |  | ----------
|20 Jackson Drive Cranford, New Jersey   |  | 07016     
|(Address of principal executive office) |  | (Zip Code)

Registrants telephone number, including area code: (908) 276-4000



(Former name, former address and former fiscal year, if changed since last
report)





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

Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈    Accelerated filer   ̈    Non-accelerated filer  x

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

The number of common shares outstanding at January 31, 2008 was 3,634,080.









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INDEX



|                               |  |                                                                                                               |  |   
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------- |  | --
|                               |  | Page                                                                                                         
|PART I  FINANCIAL INFORMATION |  |                                                                                                              
|                               |  |                                                                                                              
|Item 1.                        |  | Unaudited Condensed Consolidated Financial Statements:                                                        |  |   
|                               |  |                                                                                                              
|                               |  | Condensed Consolidated Balance Sheets as of January 31, 2008 and April 30, 2007                               |  | 1 
|                               |  |                                                                                                              
|                               |  | Condensed Consolidated Statements of Operations for the three and nine months ended January 31, 2008 and 2007 |  | 2 
|                               |  |                                                                                                              
|                               |  | Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, 2008 and 2007           |  | 3 
|                               |  |                                                                                                              
|                               |  | Condensed Consolidated Statement of Permanent Stockholders Equity for the nine months ended January 31, 2008 |  | 4 
|                               |  |                                                                                                              
|                               |  | Notes to Condensed Consolidated Financial Statements                                                          |  | 5 
|                               |  |                                                                                                              
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 16
|                               |  |                                                                                                              
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 28
|                               |  |                                                                                                              
|Item 4.                        |  | Controls and Procedures                                                                                       |  | 29
|                               | 
|Part II  OTHER INFORMATION    |  |                                                                                                              
|                               |  |                                                                                                              
|Item 1.                        |  | Legal Proceedings                                                                                             |  | 29
|                               |  |                                                                                                              
|Item 1A.                       |  | Risk Factors                                                                                                  |  | 30
|                               |  |                                                                                                              
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                   |  | 30
|                               |  |                                                                                                              
|Item 3.                        |  | Defaults Upon Senior Securities                                                                               |  | 30
|                               |  |                                                                                                              
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                           |  | 30
|                               |  |                                                                                                              
|Item 5.                        |  | Other Information                                                                                             |  | 30
|                               |  |                                                                                                              
|Item 6.                        |  | Exhibits and Reports                                                                                          |  | 30
|                               |  |                                                                                                              
|                               |  | SIGNATURES                                                                                                    |  | 31



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THE NEWARK GROUP, INC. AND SUBSIDIARIES

PART I FINANCIAL INFORMATION



|Item 1. | Unaudited Condensed Consolidated Financial Statements.
|------- | ------------------------------------------------------

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

AS OF JANUARY 31, 2008 AND APRIL 30, 2007

(Dollars in Thousands, Except Share and Per-Share Data)





|                                                                                                                 |  |                 |         |   |               |   |         |  
|---------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | - | ------------- | - | ------- | -
|                                                                                                                 |  | January 31,2008 |         |   | April 30,2007 |  
|ASSETS                                                                                                           |  |                 |         |   |               |   |         |  
|CURRENT ASSETS:                                                                                                  |  |                 |         |   |               |   |         |  
|Cash and cash equivalents                                                                                        |  | $               | 18,621  |   |               | $ | 11,806  |  
|Accounts receivable (less allowance for doubtful accounts of $6,083 and $5,241, respectively)                    |  |                 | 127,640 |   |               |   | 128,125 |  
|Inventories                                                                                                      |  |                 | 80,703  |   |               |   | 75,266  |  
|Other current assets                                                                                             |  |                 | 20,106  |   |               |   | 18,685  |  
|Assets held for sale                                                                                             |  |                 | 912     |   |               |   | 755     |  
|                                                                                                                 |  |                 |         |   |               |   |         |  
|Total current assets                                                                                             |  |                 | 247,982 |   |               |   | 234,637 |  
|RESTRICTED CASH                                                                                                  |  |                 | 75      |   |               |   | 12      |  
|PROPERTY, PLANT AND EQUIPMENT  Net                                                                              |  |                 | 296,402 |   |               |   | 295,534 |  
|GOODWILL                                                                                                         |  |                 | 51,758  |   |               |   | 48,945  |  
|LONG-TERM INVESTMENTS                                                                                            |  |                 | 20,469  |   |               |   | 18,481  |  
|OTHER ASSETS                                                                                                     |  |                 | 15,941  |   |               |   | 18,493  |  
|                                                                                                                 |  |                 |         |   |               |   |         |  
|TOTAL ASSETS                                                                                                     |  | $               | 632,627 |   |               | $ | 616,102 |  
|                                                                                                                 |  |                 |         |   |               |   |         |  
|                                                                                                                 |  |                
|LIABILITIES, TEMPORARY EQUITY AND PERMANENT STOCKHOLDERS EQUITY                                                 |  |                 |         |   |               |   |         |  
|CURRENT LIABILITIES:                                                                                             |  |                 |         |   |               |   |         |  
|Accounts payable                                                                                                 |  | $               | 112,570 |   |               | $ | 104,788 |  
|Current maturities of debt                                                                                       |  |                 | 6,770   |   |               |   | 10,878  |  
|Income taxes and other taxes payable                                                                             |  |                 | 4,497   |   |               |   | 2,983   |  
|Accrued salaries and wages                                                                                       |  |                 | 13,093  |   |               |   | 14,319  |  
|Other accrued expenses                                                                                           |  |                 | 14,004  |   |               |   | 10,609  |  
|                                                                                                                 |  |                 |         |   |               |   |         |  
|Total current liabilities                                                                                        |  |                 | 150,934 |   |               |   | 143,577 |  
|SENIOR DEBT                                                                                                      |  |                 | 104,355 |   |               |   | 99,118  |  
|SUBORDINATED DEBT                                                                                                |  |                 | 185,296 |   |               |   | 180,138 |  
|DEFERRED INCOME TAXES                                                                                            |  |                 | 10,629  |   |               |   | 8,040   |  
|PENSION OBLIGATION                                                                                               |  |                 | 18,928  |   |               |   | 18,766  |  
|SWAP OBLIGATION                                                                                                  |  |                 | 14,565  |   |               |   | 14,775  |  
|OTHER LIABILITIES                                                                                                |  |                 | 6,388   |   |               |   | 5,841   |  
|                                                                                                                 |  |                 |         |   |               |   |         |  
|Total liabilities                                                                                                |  |                 | 491,095 |   |               |   | 470,255 |  
|                                                                                                                 |  |                 |         |   |               |   |         |  
|COMMITMENTS AND CONTINGENCIES (Note 9)                                                                           |  |                 |         |   |               |   |         |  
|TEMPORARY EQUITY - COMMON STOCK, SUBJECT TO PUT RIGHTS, (648,279 shares)                                         |  |                 | 26,617  |   |               |   | 26,617  |  
|                                                                                                                 |  |                 |         |   |               |   |         |  
|PERMANENT STOCKHOLDERS EQUITY:                                                                                  |  |                 |         |   |               |   |         |  
|Common stock, $.01 per share stated value; authorized 10,000,000 shares, issued and outstanding 6,005,000 shares |  |                 | 60      |   |               |   | 60      |  
|Additional paid-in capital                                                                                       |  |                 | 374     |   |               |   | 374     |  
|Retained earnings                                                                                                |  |                 | 172,226 |   |               |   | 181,822 |  
|Accumulated other comprehensive income (loss)                                                                    |  |                 | 4,747   |   |               |   | (534    | )
|Treasury stock, 2,370,920 shares at cost                                                                         |  |                 | (62,492 | ) |               |   | (62,492 | )
|                                                                                                                 |  |                 |         |   |               |   |         |  
|Total permanent stockholders equity                                                                             |  |                 | 114,915 |   |               |   | 119,230 |  
|                                                                                                                 |  |                 |         |   |               |   |         |  
|TOTAL LIABILITIES, TEMPORARY EQUITY AND PERMANENT STOCKHOLDERS EQUITY                                           |  | $               | 632,627 |   |               | $ | 616,102 |  
|                                                                                                                 |  |                 |         |   |               |   |         |  

See notes to condensed consolidated financial statements



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THE NEWARK GROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2008 AND 2007

(Dollars in Thousands)





|                                                                |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|--------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | ------- | --------------- |  | - | --------------- | - |  | - | ------- | -
|                                                                |  | For the Three Months Ended |         |   | For the Nine Months Ended |  
|                                                                |  | January 31,2008            |         |   | January 31,2007           |   |         | January 31,2008 |  |   | January 31,2007 |  
|NET SALES                                                       |  | $                          | 252,103 |   |                           | $ | 223,116 |                 |  | $ | 769,952         |   |  | $ | 681,920 |  
|COST OF SALES                                                   |  |                            | 233,614 |   |                           |   | 199,231 |                 |  |   | 692,123         |   |  |   | 598,139 |  
|                                                                |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|Gross profit                                                    |  |                            | 18,489  |   |                           |   | 23,885  |                 |  |   | 77,829          |   |  |   | 83,781  |  
|                                                                |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|OPERATING EXPENSES:                                             |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|Selling, general and administrative                             |  |                            | 22,655  |   |                           |   | 20,714  |                 |  |   | 64,457          |   |  |   | 61,792  |  
|Restructuring and impairments                                   |  |                            | 215     |   |                           |   | 189     |                 |  |   | 541             |   |  |   | 636     |  
|                                                                |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|Total operating expenses                                        |  |                            | 22,870  |   |                           |   | 20,903  |                 |  |   | 64,998          |   |  |   | 62,428  |  
|                                                                |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|OPERATING (LOSS) INCOME                                         |  |                            | (4,381  | ) |                           |   | 2,982   |                 |  |   | 12,831          |   |  |   | 21,353  |  
|                                                                |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|OTHER (EXPENSE) INCOME:                                         |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|Interest expense                                                |  |                            | (6,981  | ) |                           |   | (6,710  | )               |  |   | (21,146         | ) |  |   | (20,480 | )
|Interest income                                                 |  |                            | 89      |   |                           |   | 21      |                 |  |   | 1,004           |   |  |   | 177     |  
|Equity in income of affiliates                                  |  |                            | 153     |   |                           |   | 665     |                 |  |   | 1,416           |   |  |   | 1,979   |  
|Other (expense) income  net                                    |  |                            | (698    | ) |                           |   | 24      |                 |  |   | (554            | ) |  |   | 89      |  
|                                                                |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|Total other expense                                             |  |                            | (7,437  | ) |                           |   | (6,000  | )               |  |   | (19,280         | ) |  |   | (18,235 | )
|                                                                |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|(LOSS) EARNINGS FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES |  |                            | (11,818 | ) |                           |   | (3,018  | )               |  |   | (6,449          | ) |  |   | 3,118   |  
|INCOME TAX EXPENSE                                              |  |                            | 1,125   |   |                           |   | 850     |                 |  |   | 3,147           |   |  |   | 3,275   |  
|                                                                |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  
|NET LOSS                                                        |  | $                          | (12,943 | ) |                           | $ | (3,868  | )               |  | $ | (9,596          | ) |  | $ | (157    | )
|                                                                |  |                            |         |   |                           |   |         |                 |  |   |                 |   |  |   |         |  

See notes to condensed consolidated financial statements



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THE NEWARK GROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED

FOR THE NINE MONTHS ENDED JANUARY 31, 2008 AND 2007

(Dollars in Thousands)





|                                                                                |  |      |         |   |      |   |         |  
|------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                |  | 2008 |         |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |      |         |   |      |   |         |  
|Net loss                                                                        |  | $    | (9,596  | ) |      | $ | (157    | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |      |         |   |      |   |         |  
|Depreciation and amortization                                                   |  |      | 25,960  |   |      |   | 25,736  |  
|Impairment of assets                                                            |  |      |        |   |      |   | 40      |  
|Loss (gain) on sale of property, plant and equipment                            |  |      | 38      |   |      |   | (185    | )
|Gain on insurance proceeds on equipment                                         |  |      | (1,882  | ) |      |   |        |  
|Equity in income of affiliates                                                  |  |      | (1,416  | ) |      |   | (1,979  | )
|Loss on derivative activities                                                   |  |      | 878     |   |      |   | 63      |  
|Proceeds from dividends paid by equity investments in affiliates                |  |      | 934     |   |      |   | 2,204   |  
|Deferred income tax (benefit) expense                                           |  |      | (1,434  | ) |      |   | 1,021   |  
|Changes in assets and liabilities:                                              |  |      |         |   |      |   |         |  
|Decrease in accounts receivable                                                 |  |      | 4,636   |   |      |   | 2,196   |  
|(Increase) decrease in inventories                                              |  |      | (3,249  | ) |      |   | 2,120   |  
|Decrease (increase) in other current assets                                     |  |      | 614     |   |      |   | (1,083  | )
|Decrease in other assets                                                        |  |      | 2,282   |   |      |   | 421     |  
|Increase in accounts payable and accrued expenses                               |  |      | 9,113   |   |      |   | 3,977   |  
|Decrease in other liabilities                                                   |  |      | (3,113  | ) |      |   | (3,960  | )
|                                                                                |  |      |         |   |      |   |         |  
|Net cash provided by operating activities                                       |  |      | 23,765  |   |      |   | 30,414  |  
|                                                                                |  |      |         |   |      |   |         |  
|                                                                                |  |     
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |      |         |   |      |   |         |  
|Capital expenditures                                                            |  |      | (17,311 | ) |      |   | (15,599 | )
|Acquisition costs                                                               |  |      | (1,915  | ) |      |   | (1,447  | )
|Proceeds from sale of property, plant and equipment                             |  |      | 134     |   |      |   | 750     |  
|Proceeds from insurance on equipment                                            |  |      | 1,882   |   |      |   |        |  
|Increase in restricted cash                                                     |  |      | (63     | ) |      |   | (175    | )
|                                                                                |  |      |         |   |      |   |         |  
|Net cash used in investing activities                                           |  |      | (17,273 | ) |      |   | (16,471 | )
|                                                                                |  |      |         |   |      |   |         |  
|                                                                                |  |     
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |      |         |   |      |   |         |  
|Proceeds from long-term debt                                                    |  |      | 23,957  |   |      |   |        |  
|Repayments of long-term debt                                                    |  |      | (22,044 | ) |      |   | (9,620  | )
|Changes in cash overdraft                                                       |  |      | (1,862  | ) |      |   | (1,493  | )
|                                                                                |  |      |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                             |  |      | 51      |   |      |   | (11,113 | )
|                                                                                |  |      |         |   |      |   |         |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                         |  |      | 272     |   |      |   | (494    | )
|                                                                                |  |      |         |   |      |   |         |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                       |  |      | 6,815   |   |      |   | 2,336   |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                  |  |      | 11,806  |   |      |   | 6,688   |  
|                                                                                |  |      |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                        |  | $    | 18,621  |   |      | $ | 9,024   |  
|                                                                                |  |      |         |   |      |   |         |  
|                                                                                |  |     
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                              |  |      |         |   |      |   |         |  
|Cash paid during the period for:                                                |  |      |         |   |      |   |         |  
|Interest                                                                        |  | $    | 16,911  |   |      | $ | 15,866  |  
|                                                                                |  |      |         |   |      |   |         |  
|Income Taxes:                                                                   |  |      |         |   |      |   |         |  
|Paid                                                                            |  | $    | 1,617   |   |      | $ | 2,872   |  
|                                                                                |  |      |         |   |      |   |         |  
|(Refunded)                                                                      |  | $    |        |   |      | $ | (5      | )
|                                                                                |  |      |         |   |      |   |         |  
|Purchases of property, plant and equipment included in accounts payable         |  | $    | 2,403   |   |      | $ | 1,780   |  
|                                                                                |  |      |         |   |      |   |         |  

See notes to condensed consolidated financial statements



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THE NEWARK GROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENT OF PERMANENT STOCKHOLDERS EQUITY - UNAUDITED

FOR THE NINE MONTHS ENDED JANUARY 31,
2008

(Dollars in Thousands)





|                                                                      |  |       |         |   |                                            |   |       |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |        |  
|--------------------------------------------------------------------- |  | ----- | ------- | - | ------------------------------------------ | - | ----- | ------------- |  | - | ---------------- | - |  | ------------------------ | ------- | ----------- |  | ------------------------ | --- |  | - | -- |  | - | ------ | -
|                                                                      |  | Total |         |   | AccumulatedOtherComprehensiveIncome (Loss) |   |       | TreasuryStock |  |   | RetainedEarnings |   |  | AdditionalPaid InCapital |         | CommonStock |  | TotalComprehensiveIncome |    
|BALANCE APRIL 30, 2007                                                |  | $     | 119,230 |   |                                            | $ | (534  | )             |  | $ | (62,492          | ) |  | $                        | 181,822 |             |  | $                        | 374 |  | $ | 60 |  |   |        |  
|Net loss                                                              |  |       | (9,596  | ) |                                            |   |      |               |  |   |                 |   |  |                          | (9,596  | )           |  |                          |    |  |   |   |  | $ | (9,596 | )
|Other comprehensive income:                                           |  |       |         |   |                                            |   |       |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |        |  
|Unrealized gains/(losses) on marketable securities available for sale |  |       | (6      | ) |                                            |   | (6    | )             |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | (6     | )
|Foreign currency translation adjustments                              |  |       | 5,906   |   |                                            |   | 5,906 |               |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | 5,906  |  
|Change in fair value of cash flow hedges                              |  |       | (619    | ) |                                            |   | (619  | )             |  |   |                 |   |  |                          |        |             |  |                          |    |  |   |   |  |   | (619   | )
|                                                                      |  |       |         |   |                                            |   |       |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |        |  
|BALANCE JANUARY 31, 2008                                              |  | $     | 114,915 |   |                                            | $ | 4,747 |               |  | $ | (62,492          | ) |  | $                        | 172,226 |             |  | $                        | 374 |  | $ | 60 |  | $ | (4,315 | )
|                                                                      |  |       |         |   |                                            |   |       |               |  |   |                  |   |  |                          |         |             |  |                          |     |  |   |    |  |   |        |  

See notes to condensed consolidated financial statements



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##### Table of Contents

THE NEWARK GROUP, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(Dollars in Thousands, Except Share and Per Share Amounts)



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

Business and Principles of Consolidation The Newark Group, Inc., including its wholly owned subsidiaries (the Company), is an integrated global producer of recycled paperboard and converted paperboard products,
with significant manufacturing and converting operations in North America and Europe. The Companys customers are global manufacturers and converters of paperboard.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial
information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments
consisting of normal recurring adjustments and accruals, as well as accounting changes considered necessary for a fair presentation, have been reflected in these condensed consolidated financial statements. Additionally, the preparation of these
financial statements requires management to make estimates and assumptions that affect: a) the reported amounts of assets and liabilities, b) the disclosure of contingent assets and liabilities at the date of the financial statements and c) the
reported amounts of revenues and expenses during the reporting period; actual results could differ from those estimates. Operating results for the three and nine-month periods ended January 31, 2008 are not necessarily indicative of the results
that may be expected for the year ending April 30, 2008 due to seasonal and other factors. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended April 30, 2007 included in the Companys annual report on Form 10-K.

The equity
method is used to account for the Companys investment in the common stock of other companies where the Company maintains ownership between 20 and 50 percent, and has the ability to exercise significant influence over the investees
operating and financial policies. These investments are included in long-term investments. In the event that management identifies an other than temporary decline in the estimated fair value of an equity method investment to an amount below its
carrying value, such investment is written down to its estimated fair value. All significant intercompany profits, transactions and balances have been eliminated.

Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks and short-term investments with maturity of three months or less from date of purchase. Cash overdrafts are
included in accounts payable and are $15,054 and $16,916 as of January 31, 2008 and April 30, 2007, respectively.

Derivative
Instruments From time to time, the Company enters into derivative instruments with third-party institutions to hedge its exposure to interest rate, foreign currency exchange and certain energy and other raw material price risks. All
derivatives, whether designated in hedging relationships or not, are recorded on the consolidated balance sheet at fair value. If the derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative
is recorded in other comprehensive income (loss) and is recognized in the income statement when the hedged item affects earnings. Changes in the fair value of derivatives that are not designated as cash flow hedges are recorded currently in earnings
together with changes in the fair value of the hedged item attributable to the ineffective portion of the hedge.

We discontinue hedge
accounting prospectively when (i) a derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item, (ii) a derivative expires or is sold, terminated or exercised, (iii) a derivative is
de-designated as a hedge because it is unlikely that a forecasted transaction will occur or (iv) we determine that designation of a derivative as a hedge is no longer appropriate.

When we discontinue cash flow hedge accounting because the hedging instrument is sold, terminated or no longer designated (de-designated), the amount
reported in other comprehensive income up to the date of sale, termination or de-designation continues to be reported in other comprehensive income until the forecasted underlying transaction affects earnings.

Environmental The Company is subject to extensive federal, state and local environmental laws and regulations, including those that relate
to air emissions, wastewater discharges, solid and hazardous waste management and disposal and site remediation. Concerning environmental claims, the Company records any liabilities and discloses the required information in accordance with Financial
Accounting Standard (FAS) No. 5, Accounting for Contingencies, Statement of Position 96-1, Environmental Remediation Liabilities and FAS 143, Accounting for



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Asset Retirement Obligations. Additionally, from time to time, the Company may be identified, along with other entities, as being among parties
potentially responsible for contribution to costs associated with the investigation, correction and remediation of environmental conditions at disposal sites subject to federal and/or analogous state laws. Costs associated with environmental
obligations are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Estimates of costs for future environmental compliance and remediation are necessarily
imprecise due to such factors as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the identification of currently unknown remediation sites and the allocation of costs among
the potentially responsible parties under applicable statutes. Costs of future expenditures for environmental remediation obligations are discounted to their present value when the amount and timing of expected cash payments are reliably
determinable (see Note 9).



|2. | RECENT ACCOUNTING PRONOUNCEMENTS
|-- | --------------------------------

In
December 2007, the Financial Accounting Standards Board (the FASB) issued FAS No. 141 (revised 2007), Business Combinations (FAS 141(R)). FAS 141(R) expands the definition of a business combination and
requires the fair value of the purchase price of an acquisition, including the issuance of equity securities, to be determined on the acquisition date. FAS 141(R) also requires that all assets, liabilities, contingent considerations, and
contingencies of an acquired business be recorded at fair value at the acquisition date. FAS 141(R) further requires that acquisition costs generally be expensed as incurred, restructuring costs generally be expensed in periods subsequent to the
acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. FAS 141(R) is effective for fiscal years beginning after
December 15, 2008 with early adoption prohibited. The Company is currently evaluating the effect, if any, that FAS 141(R) may have on its consolidated financial statements.

In December 2007, the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB
No. 51 (FAS 160). FAS 160 changes the accounting and reporting for minority interests such that minority interests will be recharacterized as noncontrolling interests and will be required to be reported as a component of
equity. FAS 160 also requires that purchases or sales of equity interests that do not result in a change in control be accounted for as equity transactions and, upon a loss of control, requires the interest sold, as well as any interest retained, to
be recorded at fair value with any gain or loss recognized in earnings. FAS 160 is effective for fiscal years beginning on or after December 15, 2008 with early adoption prohibited. The Company is currently evaluating the effect that FAS 160
may have on its consolidated financial statements.

In February 2007, the FASB issued FAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 (FAS 159). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. This
provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without being required to apply complex hedge accounting provisions. FAS 159 is effective for fiscal
years beginning after November 15, 2007, and the Company is currently evaluating the effect that FAS 159 may have on its consolidated financial statements.

In September 2006, the FASB issued FAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statements No. 87, 88, 106, and
132(R) (FAS 158). FAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. FAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. FAS 158 has expanded the disclosure requirements for pension plans and other post-retirement plans. This statement provides different effective dates for the recognition and related
disclosure provisions and for the required changes to a fiscal year-end measurement date. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective for the Company as of the year ended
April 30, 2008. The requirement to measure plan assets and benefit obligations as of the date of the Companys fiscal year-end is effective for the Company for the fiscal year ended April 30, 2009. The Company is currently evaluating
the effect this statement may have on its consolidated financial statements.

In September 2006, the FASB issued FAS No. 157,
Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value, expands disclosures about fair value measurements and was to be effective for fiscal years beginning after
November 15, 2007. However, in December 2007, the FASB issued a proposal to delay, by one year, the effective dates of parts of FAS 157. The proposed delay would apply to all non-



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financial assets and non-financial liabilities except those recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually). The Company is currently evaluating the effect that FAS 157 may have on its consolidated financial statements.

Effective
May 1, 2007, the Company adopted the provisions of FASB Interpretation 48 Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No.109 (FIN 48). FIN 48 was issued to clarify the accounting for
uncertain tax positions recognized in the financial statements by prescribing a recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return. FIN 48 stipulates that the tax effects from an uncertain
tax position can be recognized in the financial statements only if it is more likely than not that the position would be sustained upon audit based on the technical merits of the position. The adoption of the provisions of FIN 48 required the
cumulative effect of the change in accounting principle be recorded as an adjustment to opening retained earnings; upon adoption there was no adjustment to opening retained earnings. The Company accounts for interest costs and penalties related to
income taxes as income tax expense in the Companys condensed consolidated financial statements.



|3. | INVENTORIES
|-- | -----------

Inventories consist of the following:



|                             |  |                 |        |               |   |       
|---------------------------- |  | --------------- | ------ | ------------- | - | ------
|                             |  | January 31,2008 |        | April 30,2007
|Raw Materials                |  | $               | 31,810 |               | $ | 29,063
|Finished Goods               |  |                 | 45,311 |               |   | 42,937
|Other Manufacturing Supplies |  |                 | 3,582  |               |   | 3,266 
|                             |  |                 |        |               |   |       
|                             |  | $               | 80,703 |               | $ | 75,266
|                             |  |                 |        |               |   |       



|4. | ASSETS HELD FOR SALE
|-- | --------------------

The Company entered into a
Purchase and Sale Agreement (the Agreement) dated August 2, 2006, for the sale of land in Natick, MA where the paperboard mill we closed in November 2005 is located. This facility was closed based on the need for rationalization of
capacity and the near-term requirement of significant capital investment at the facility which offered little or no return. The closing of the property sale is expected to be completed within the next twelve months. The net book value of these
assets is $900 and is reflected as Assets held for sale on the condensed consolidated balance sheets.



|5. | LONG-TERM DEBT
|-- | --------------



|                                    |  |                 |         |   |               |   |         |  
|----------------------------------- |  | --------------- | ------- | - | ------------- | - | ------- | -
|                                    |  | January 31,2008 |         |   | April 30,2007 |  
|Senior Subordinated Notes 9.75% (1) |  | $               | 175,000 |   |               | $ | 175,000 |  
|Asset-based Credit Facility (2)     |  |                 | 23,045  |   |               |   | 18,000  |  
|Term Loan (2)                       |  |                 | 15,000  |   |               |   | 15,000  |  
|Industrial Revenue Bonds (3)        |  |                 | 65,295  |   |               |   | 67,215  |  
|Subordinated Notes (4)              |  |                 | 5,316   |   |               |   | 5,967   |  
|All other (5)                       |  |                 | 12,765  |   |               |   | 8,952   |  
|                                    |  |                 |         |   |               |   |         |  
|Total Debt                          |  |                 | 296,421 |   |               |   | 290,134 |  
|Less Current Portion                |  |                 | (6,770  | ) |               |   | (10,878 | )
|                                    |  |                 |         |   |               |   |         |  
|Long-Term Debt                      |  | $               | 289,651 |   |               | $ | 279,256 |  
|                                    |  |                 |         |   |               |   |         |  



| | (1) | The Company has $175,000 of 9.75% unsecured senior subordinated notes outstanding. Interest is payable semi-annually (March 15 and September 15) and principal is due, in total,
on March 15, 2014. This debt is classified in Subordinated Debt in the condensed consolidated balance sheets.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | On March 9, 2007, the Company entered into a five-year asset-based credit agreement and a six-year credit-linked credit agreement. The asset-based facility
provides the Company a revolving line of credit in the aggregate principal amount of up to $85,000 (depending on the Companys borrowing base), up to $25,000 of which may be used for loans directly to the Companys International subsidiary
and up to $15,000 of which may
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | be used for letters of credit, and other financial accommodations. The credit-linked facility provides the Company a $15,000 term loan and a $75,000
credit-linked letter of credit facility, and other financial accommodations. Borrowings under the asset-based facility bear interest at a rate of prime or the Eurodollar rate plus a credit spread determined based on availability under the facility.
The term loan under the credit-linked facility bears interest at a rate of prime plus 1% or the Eurodollar rate plus a credit spread of 2.25%. Letters of Credit are issued under the credit-linked facility primarily to enhance the Companys
multiple Industrial Revenue Bond (IRB) issues with the credit spread being the same as the term loan. Subject to meeting certain conditions, the Company has a one-time option prior to March 9, 2010 to increase the asset-based credit
facility by an amount of up to $15,000. Likewise, subject to meeting certain conditions, the Company has a one-time option prior to March 9, 2010 to increase the credit-linked facility by an amount of up to $10,000. As of January 31,
2008, the Company had a total of $81,600 in letters of credit obligations outstanding ($68,302 of which had been used to enhance the industrial revenue bonds) which includes $6,600 outstanding under the asset-based facility. Separately, under the
asset-based facility, the Company had $23,045 in borrowings outstanding at rates between 5.46% and 6.00% (including letter of credit spread), and under the credit-linked facility had $15,000 outstanding on the term loan at a rate of 5.53%. The
Company had $35,316 of borrowing availability under the asset-based facility at January 31, 2008. The undrawn portions of the facilities are subject to a facility fee at an annual rate of 0.25% to 0.30%. This debt is classified in Senior Debt
in the condensed consolidated balance sheets.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | The Industrial Revenue Bonds are comprised of: Mercer IRB of $1,000, Mobile IRB of $4,115, Ohio IRB of $15,500, and Massachusetts IRBs of $44,680 as of January 31, 2008. These
bonds are variable rate demand bonds, secured by letters of credit, with maturity dates ranging from November 2011 through July 2031 and where the interest rates range from 4.74% to 6.18% (including letter of credit spread) and are reset every seven
days. All borrowings under these facilities are classified in Senior Debt in the condensed consolidated balance sheets with a portion in Current maturities of debt.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | The Company issued a subordinated note to a prior stockholder in exchange for the stockholders shares of common stock. The note bears interest at the prime rate in effect from
time to time, requires quarterly principal and interest payments, and is due in July 2015. As of January 31, 2008, the remaining balance on the note is $5,316. The debt associated with this note is classified in Subordinated Debt in the
condensed consolidated balance sheets with a portion in Current maturities of debt.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | All other includes the following from our International operations: $2,318 of discounted bills pending collection and $6,653 of a five year term loan. The borrowings under this five
year loan bear a variable interest rate of EURIBOR plus .75%, or 5.12%, as of January 31, 2008. Principal and interest are due every six months, at which point the interest rate is reset. Additional borrowings by our International operations
include an interest-free loan for $514, which requires equal repayment amounts every six months beginning on August 3, 2009. All other also includes a loan with Toronto Dominion Bank for $953, which bears interest at the rate of 6.50% (the
prime rate, 5.75% as of January 31, 2008, plus 0.75%), payable monthly through May 2015. The loan is secured by a mortgage on the Companys Richmond, B.C., Canada facility. This loan is classified in Senior Debt in the condensed
consolidated balance sheets with a portion in Current maturities of debt. All other further includes borrowings by Jackson Drive Corp. (see Note 11) for $2,327 which is secured by a mortgage on the Companys corporate headquarters. This loan
matures in July 2024 and carries a fixed interest rate of 5.625%.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The asset-based and credit-linked facilities include
financial covenants as follows: (a) if, during any quarter, Excess Availability, as defined under the revolving credit facility, falls below $10,000, the Company must achieve a Fixed Charge Coverage Ratio, as defined, of not less than 1.0 to
1.0. and (b) the Senior Leverage Ratio, as defined, for each twelve-month period ending as of each fiscal quarter end shall be less than or equal to 3.0 to 1.0. At January 31, 2008, the Company was in compliance with all financial
covenants.

Under the asset-based agreement, the Company (a) granted the lenders a first priority lien on all of its accounts
receivable and inventory (the ABL Priority Collateral) and a second priority lien on substantially all of its other assets, including certain real property, and (b) guaranteed the obligations, under this facility, of its
International subsidiary. Under the credit-linked agreement, the Company granted the lenders a first priority lien on substantially all of its assets, including certain real property (excluding accounts receivable and inventory), and a second
priority lien on all ABL Priority Collateral.

The Company is involved in the use of derivative financial instruments, in the form of
cross-currency interest rate swaps and various hedging transactions, to manage interest rate risk, foreign currency exchange risk, certain energy price risks and other raw material price risks. The Company is exposed to credit losses in the event of
non-performance by the counterparties to its derivative financial instruments. The Company anticipates, however, that the counterparties will be able to fully satisfy their obligations under the contracts.



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The Company has cross-currency interest rate swap agreements with a member of our bank group that had
been designated as a cash flow hedge against an existing intercompany loan to the Companys International subsidiary. Effective May 1, 2007, the Company de-designated these swaps as hedges. With this de-designation, the amount in other
comprehensive income at that point, $172, is to be reclassified into earnings over the life of the original agreements, which are scheduled to terminate in September 2009. At January 31, 2008 and April 30, 2007, the fair value of the swaps
represented a liability of $11,980 and $14,775, respectively. During the quarter ended July 31, 2007, the Company entered into another swap agreement, in relation to a second intercompany loan with its International subsidiary, that was not
designated as a hedge and represented a liability of $2,585 as of January 31, 2008. The Company has recognized losses of $878 and $63 within Other (expense) income  net on the condensed consolidated statements of operations, related to
derivative activities, during the nine month periods ended January 31, 2008 and 2007, respectively.



|6. | RETIREMENT PLANS
|-- | ----------------

The following table presents the
net periodic pension cost for the Companys domestic Pension Plans:



|                                              |  |                                 |        |   |                                |   |        |                 |  |   |                 |   |  |   |        |  
|--------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | --------------- |  | - | --------------- | - |  | - | ------ | -
|                                              |  | Pension CostsThree Months ended |        |   | Pension CostsNine Months ended |  
|                                              |  | January 31,2008                 |        |   | January 31,2007                |   |        | January 31,2008 |  |   | January 31,2007 |  
|Service Cost                                  |  | $                               | 837    |   |                                | $ | 779    |                 |  | $ | 2,511           |   |  | $ | 2,359  |  
|Interest Cost on Projected Benefit Obligation |  |                                 | 1,889  |   |                                |   | 1,785  |                 |  |   | 5,666           |   |  |   | 5,404  |  
|Expected Return on Assets (Gain) Loss         |  |                                 | (2,456 | ) |                                |   | (2,045 | )               |  |   | (7,368          | ) |  |   | (6,195 | )
|Net Amortization                              |  |                                 | 240    |   |                                |   | 230    |                 |  |   | 721             |   |  |   | 698    |  
|                                              |  |                                 |        |   |                                |   |        |                 |  |   |                 |   |  |   |        |  
|Net Pension Expense                           |  | $                               | 510    |   |                                | $ | 749    |                 |  | $ | 1,530           |   |  | $ | 2,266  |  
|                                              |  |                                 |        |   |                                |   |        |                 |  |   |                 |   |  |   |        |  

The Company estimates a cash contribution to its domestic pension plans of approximately $6,600
during fiscal year ending April 30, 2008 and has made contributions totaling $4,963 towards that $6,600 total during the nine months ended January 31, 2008. As of January 31, 2008, 66% of the plans assets were in equity
investments, 11% in fixed-income securities and 23% in cash and other.

The following table presents the net periodic pension cost for the
Companys foreign Pension Plans:



|                                              |  |                                 |     |   |                                |   |     |                 |  |   |                 |   |  |   |      |  
|--------------------------------------------- |  | ------------------------------- | --- | - | ------------------------------ | - | --- | --------------- |  | - | --------------- | - |  | - | ---- | -
|                                              |  | Pension CostsThree Months ended |     |   | Pension CostsNine Months ended |  
|                                              |  | January 31,2008                 |     |   | January 31,2007                |   |     | January 31,2008 |  |   | January 31,2007 |  
|Service Cost                                  |  | $                               | 13  |   |                                | $ | 8   |                 |  | $ | 31              |   |  | $ | 24   |  
|Interest Cost on Projected Benefit Obligation |  |                                 | 62  |   |                                |   | 40  |                 |  |   | 174             |   |  |   | 118  |  
|Expected Return on Assets (Gain) Loss         |  |                                 | (48 | ) |                                |   | (35 | )               |  |   | (132            | ) |  |   | (103 | )
|Net Amortization                              |  |                                 |    |   |                                |   | (8  | )               |  |   |                |   |  |   | (24  | )
|                                              |  |                                 |     |   |                                |   |     |                 |  |   |                 |   |  |   |      |  
|Net Pension Expense                           |  | $                               | 27  |   |                                | $ | 5   |                 |  | $ | 73              |   |  | $ | 15   |  
|                                              |  |                                 |     |   |                                |   |     |                 |  |   |                 |   |  |   |      |  



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|7. | RESTRUCTURING AND IMPAIRMENTS
|-- | -----------------------------

For the Three Months
Ended January 31, 2008 and 2007:

Fiscal 2008 Restructuring

The Paperboard and Converted Products segments incurred charges of $205 and $10, respectively, for costs to exit previously shut down facilities.

Fiscal 2007 Restructuring

The Paperboard segment incurred $173 of expenses related to the maintenance of facilities closed in prior years. The Converted Products segment incurred a net of $16 in expenses relating to facilities closed in prior years; dismantling
costs of $34 were offset by releasing $18 of accrued expenses on our Kountze, TX facility as a result of its sale in January 2007.

The
components of the Companys plant restructuring and impairments incurred for the three months ended:



|                                 |  |            |     |                   |   |       |  |   |    
|-------------------------------- |  | ---------- | --- | ----------------- | - | ----- |  | - | ---
|                                 |  | Paperboard |     | ConvertedProducts |   | Total
|January 31, 2008                 |  |            |     |                   |   |       |  |   |    
|Dismantling, Mothballing & Other |  | $          | 205 |                   | $ | 10    |  | $ | 215
|                                 |  |            |     |                   |   |       |  |   |    
|Total Charges                    |  | $          | 205 |                   | $ | 10    |  | $ | 215
|                                 |  |            |     |                   |   |       |  |   |    
|January 31, 2007                 |  |            |     |                   |   |       |  |   |    
|Dismantling, Mothballing & Other |  | $          | 173 |                   | $ | 16    |  | $ | 189
|                                 |  |            |     |                   |   |       |  |   |    
|Total Charges                    |  | $          | 173 |                   | $ | 16    |  | $ | 189
|                                 |  |            |     |                   |   |       |  |   |    

For the Nine Months Ended January 31, 2008 and 2007:

Fiscal 2008 Restructuring

The
Paperboard and Converted Products segments incurred charges of $531 and $10, respectively, for costs to exit previously shut down facilities.

Fiscal 2007 Restructuring

The Paperboard segment incurred $358 of expenses related to the maintenance of facilities closed
in prior years. The Converted Products segment incurred $251 of dismantling costs on previously shut down facilities, the total of which includes $145 related to the net buyout of the remaining lease term on one facility and the release of $18 of
accrued expenses. The Converted Products segment also incurred $27 of non-cash impairment charges on equipment.

The components of the
Companys plant restructuring and impairments incurred for the nine months ended:



|                                 |  |            |     |                   |   |       |  |   |    
|-------------------------------- |  | ---------- | --- | ----------------- | - | ----- |  | - | ---
|                                 |  | Paperboard |     | ConvertedProducts |   | Total
|January 31, 2008                 |  |            |     |                   |   |       |  |   |    
|Dismantling, Mothballing & Other |  | $          | 531 |                   | $ | 10    |  | $ | 541
|                                 |  |            |     |                   |   |       |  |   |    
|Total Charges                    |  | $          | 531 |                   | $ | 10    |  | $ | 541
|                                 |  |            |     |                   |   |       |  |   |    
|January 31, 2007                 |  |            |     |                   |   |       |  |   |    
|Dismantling, Mothballing & Other |  | $          | 358 |                   | $ | 251   |  | $ | 609
|Asset Impairment                 |  |            |    |                   |   | 27    |  |   | 27 
|                                 |  |            |     |                   |   |       |  |   |    
|Total Charges                    |  | $          | 358 |                   | $ | 278   |  | $ | 636
|                                 |  |            |     |                   |   |       |  |   |    



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The following table summarizes the Companys accruals for plant restructuring costs:



|                                                                 |  |                                      |      |  
|---------------------------------------------------------------- |  | ------------------------------------ | ---- | -
|                                                                 |  | Dismantling,Mothballing & OtherCosts |     
|April 30, 2007 Accrual Balance                                   |  | $                                    | 113  |  
|Restructuring Charges for the Nine Months Ended January 31, 2008 |  |                                      | 541  |  
|Amounts Paid Against 2007 Accruals                               |  |                                      | (113 | )
|Amounts Paid Against 2008 Accruals                               |  |                                      | (488 | )
|                                                                 |  |                                      |      |  
|January 31, 2008 Accrual Balance                                 |  | $                                    | 53   |  
|                                                                 |  |                                      |      |  

The following table summarizes restructuring and impairment costs by segment for those plans
initiated since January 1, 2003 and accounted for under Statements of Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities:



|                   |  |                                         |        |                                                   |   |                                                             |  |                                                         |       |  |   |       
|------------------ |  | --------------------------------------- | ------ | ------------------------------------------------- | - | ----------------------------------------------------------- |  | ------------------------------------------------------- | ----- |  | - | ------
|                   |  | CumulativeCosts as of April 30,2007 (1) |        | Costs for the NineMonths EndedJanuary 31, 2008(2) |   | Estimated Costs toCompleteInitiatives as ofJanuary 31, 2008 |  | Total EstimatedCosts ofInitiatives as ofJanuary 31,2008
|Paperboard         |  | $                                       | 16,033 |                                                   | $ | 480                                                         |  | $                                                       | 2,370 |  | $ | 18,883
|Converted Products |  |                                         | 2,437  |                                                   |   | 10                                                          |  |                                                         |      |  |   | 2,447 
|                   |  |                                         |        |                                                   |   |                                                             |  |                                                         |       |  |   |       
|                   |  | $                                       | 18,470 |                                                   | $ | 490                                                         |  | $                                                       | 2,370 |  | $ | 21,330
|                   |  |                                         |        |                                                   |   |                                                             |  |                                                         |       |  |   |       



| | (1) | Of the $18,470 in cumulative restructuring costs, $7,998 were non-cash charges related to asset impairment.
| | --- | -----------------------------------------------------------------------------------------------------------

| | (2) | Total costs incurred in the nine months ended January 31, 2008, $490, do not agree with the nine month total charges of $531 from a prior table above since some of the costs
are related to plans initiated prior to January 1, 2003.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|8. | INCOME TAXES
|-- | ------------

The Companys consolidated tax
rate is computed using an annual effective rate for each taxable jurisdiction. The Company records income tax expense related to certain states and to foreign jurisdictions in which it has taxable income. During the nine months ended
January 31, 2008 and 2007, the Company did not provide for US federal income taxes due to the reduction in its valuation allowance against its net deferred tax assets  net operating losses.

The Company adopted the provision of FIN 48 on May 1, 2007. Upon the adoption of FIN 48, the Company had $770 of gross unrecognized tax benefits of
which $33 would affect the Companys tax rate, if recognized. The difference between the gross amount of unrecognized tax benefits and the portion that would affect the effective tax rate is attributable to items that would be offset by the
existing valuation allowance and the federal tax benefit related to state tax items. Interest costs of $4 and penalties of $16 related to income taxes are classified as income tax expense in the Companys financial statements. Tax returns for
all years from 2004 forward are subject to future examination by federal, state and Spanish tax authorities. Other foreign jurisdictions are open to examination for years beginning 2005.

No material adjustments have been made to unrecognized tax benefits as of January 31, 2008. The Company does not anticipate a material change to its
unrecognized tax benefits within the next twelve months.



|9. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------

The Company and its
subsidiaries are party to various claims, legal actions, complaints and administrative proceedings, including workers compensation and environmental claims, arising in the ordinary course of business. Although in managements opinion the
ultimate disposition of these matters will not have a material effect on the Companys financial condition, results of operations or cash flows, in the event of one or more adverse determinations related to these issues, the impact on the
Companys results of operations could be material to any specific period.



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Current Environmental Matters

The Company has identified environmental contamination at three of its closed facilities that may require remediation upon retirement of these assets.
However, no such liability has been recognized for these facilities, as the Company currently does not have sufficient information available to assess if remediation will be required or to reasonably estimate any potential obligation. For these
three locations, any potential obligation cannot be reasonably estimated as the settlement date or potential settlement dates, the settlement method or potential settlement methods, and other relevant facts to determine a reasonable estimate for the
obligation are unknown at this time.

The Massachusetts Attorney Generals Office had asserted that the Company, at one or more of its
Massachusetts mills, exceeded permitted air emissions, failed to accurately report certain emissions, and failed to submit certain required monitoring and compliance reports. In September 2007, the Company executed an agreement to settle these
allegations by paying $600 and agreeing to certain injunctive relief. The $600, which was paid on November 7, 2007, had been accrued by April 30, 2007, with such amounts recorded in the Selling, general and administrative line on the
condensed consolidated statements of operations.

By letters dated February 14, 2006 and June 2, 2006, the United States
Environment Protection Agency (EPA) notified the Company of its potential liability relating to the Lower Passaic River Study Area (LPRSA), which is part of the Diamond Alkali Superfund Site, under Section 107(a) of the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980. The Company is one of at least 70 potentially responsible parties (PRPs) identified thus far. The EPA alleges that hazardous substances were released from the
Companys now-closed Newark, NJ paperboard mill into the Lower Passaic River. The EPA informed the Company that it may be potentially liable for response costs that the government may incur relating to the study of the LPRSA and for unspecified
natural resource damages. The EPA demanded that the Company pay $2,830 in unreimbursed past response costs on a joint and several liability basis. Alternatively, the EPA gave the Company the opportunity to obtain a release from these past response
costs by joining the Cooperating Parties Group (the Group) and agreeing to fund an environmental study by the EPA; the Company subsequently joined the Group. In 2006, the EPA notified the Group that the cost of the study would
exceed its initial estimates and offered the Group the opportunity to conduct the study by itself rather than reimburse the government for the additional costs incurred. The Group engaged in discussions with the EPA and the Group agreed to
assume responsibility for the study pursuant to an Administrative Order on Consent. Cumulatively, as of January 31, 2008 and based upon the most recent estimates for the study, the Company has expensed $688 (none of which was expensed in
the nine months ended January 31, 2008), of which $365 remains accrued.

Additionally, by letter dated August 2, 2007, the
National Oceanic and Atmospheric Administration (NOAA) of the United States Department of Commerce sent a letter to the Company and other companies identified as PRPs notifying them that it intended to perform an assessment of injuries
to natural resources in connection with the release of hazardous substances at or from the Diamond Alkali Superfund Site. In this letter, the NOAA invited all of the identified PRPs, including the Company, to participate in the development and
performance of this assessment. The Cooperating Parties Group, collectively, decided not to participate. Some of the members of the Cooperating Parties Group, including the Company, have been seeking additional information from the NOAA to
determine whether cooperation is possible and whether or not the Cooperating Party Group should reconsider its decision not to participate.

Due to uncertainties inherent in these matters, management is unable to estimate the Companys potential exposure, including possible remediation or other environmental responsibilities that may result from these matters at this time;
such information is not expected to be known for a number of years. These uncertainties primarily include the completion and outcome of the environmental studies and the percentage of contamination/ natural resource damage, if any, ultimately
determined to be attributable to the Company and other parties. It is possible that the Companys ultimate liability resulting from these issues could be material.



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|10. | SEGMENT INFORMATION
|--- | -------------------

The Company identifies its
reportable segments in accordance with FAS 131, Disclosures about Segments of an Enterprise and Related Information by reviewing the nature of products sold, nature of the production processes, type and class of customer, methods to
distribute product and nature of regulatory environment. Profits from intercompany sales are not transferred between segments, they remain within the segment in which the sales originated. The Company principally operates in three reportable
segments which include five product lines.

The Paperboard segment consists of facilities that manufacture recycled paperboard and
facilities that collect, sort and process recovered paper for internal consumption and sales to other paper manufacturers. Inter-segment sales are recorded at prices which approximate market prices.

The Converted Products segment is principally made up of facilities that laminate, cut and form paperboard into fiber components for tubes and cores,
protective packaging, books, games and office products. Inter-segment sales are recorded at prices which approximate market prices.

The
International segment consists of facilities throughout Europe that are managed separately from North American operations. The vertical integration of this segment offers both paperboard manufacturing and converting. There are minimal business
transactions between the North American segments (Paperboard and Converted Products) and the International segment.

The Company evaluates
performance and allocates resources based on operating profits and losses of each business segment. Operating results include all costs and expenses directly related to the segment involved. Corporate includes corporate, general, administrative and
unallocated expenses.

Identifiable assets are accumulated by facility within each business segment.



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The following table presents certain business segment information for the periods indicated.



|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|-------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | ------- | ---------------- |  | - | ---------------- | - |  | - | -------- | -
|                                                               |  | For the Three Months Ended |         |   | For the Nine Months Ended |  
|                                                               |  | January 31, 2008           |         |   | January 31, 2007          |   |         | January 31, 2008 |  |   | January 31, 2007 |  
|Sales (aggregate):                                             |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Paperboard                                                     |  | $                          | 163,841 |   |                           | $ | 144,869 |                  |  | $ | 504,510          |   |  | $ | 450,665  |  
|Converted Products                                             |  |                            | 68,600  |   |                           |   | 67,274  |                  |  |   | 224,269          |   |  |   | 218,675  |  
|International                                                  |  |                            | 55,729  |   |                           |   | 44,875  |                  |  |   | 157,327          |   |  |   | 127,642  |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Total                                                          |  | $                          | 288,170 |   |                           | $ | 257,018 |                  |  | $ | 886,106          |   |  | $ | 796,982  |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Less sales (inter-segment):                                    |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Paperboard                                                     |  | $                          | (34,990 | ) |                           | $ | (32,164 | )                |  | $ | (111,537         | ) |  | $ | (109,569 | )
|Converted Products                                             |  |                            | (1,077  | ) |                           |   | (1,738  | )                |  |   | (4,617           | ) |  |   | (5,493   | )
|International                                                  |  |                            |        |   |                           |   |        |                  |  |   |                 |   |  |   |         |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Total                                                          |  | $                          | (36,067 | ) |                           | $ | (33,902 | )                |  | $ | (116,154         | ) |  | $ | (115,062 | )
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Sales (external customers):                                    |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Paperboard                                                     |  | $                          | 128,851 |   |                           | $ | 112,705 |                  |  | $ | 392,973          |   |  | $ | 341,096  |  
|Converted Products                                             |  |                            | 67,523  |   |                           |   | 65,536  |                  |  |   | 219,652          |   |  |   | 213,182  |  
|International                                                  |  |                            | 55,729  |   |                           |   | 44,875  |                  |  |   | 157,327          |   |  |   | 127,642  |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Total                                                          |  | $                          | 252,103 |   |                           | $ | 223,116 |                  |  | $ | 769,952          |   |  | $ | 681,920  |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Operating Income:                                              |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Paperboard                                                     |  | $                          | (2,026  | ) |                           | $ | 5,477   |                  |  | $ | 13,300           |   |  | $ | 26,750   |  
|Converted Products                                             |  |                            | (1,778  | ) |                           |   | (2,090  | )                |  |   | 746              |   |  |   | (3,745   | )
|International                                                  |  |                            | 4,404   |   |                           |   | 3,719   |                  |  |   | 11,819           |   |  |   | 10,041   |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Total Segment Operating Income                                 |  |                            | 600     |   |                           |   | 7,106   |                  |  |   | 25,865           |   |  |   | 33,046   |  
|Corporate Expense                                              |  |                            | 4,981   |   |                           |   | 4,124   |                  |  |   | 13,034           |   |  |   | 11,693   |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Total Operating (Loss) Income                                  |  |                            | (4,381  | ) |                           |   | 2,982   |                  |  |   | 12,831           |   |  |   | 21,353   |  
|Interest Expense                                               |  |                            | (6,981  | ) |                           |   | (6,710  | )                |  |   | (21,146          | ) |  |   | (20,480  | )
|Interest Income                                                |  |                            | 89      |   |                           |   | 21      |                  |  |   | 1,004            |   |  |   | 177      |  
|Equity in Income of Affiliates                                 |  |                            | 153     |   |                           |   | 665     |                  |  |   | 1,416            |   |  |   | 1,979    |  
|Other Income (Expense), Net                                    |  |                            | (698    | ) |                           |   | 24      |                  |  |   | (554             | ) |  |   | 89       |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|(Loss) Earnings from Continuing Operations Before Income Taxes |  |                            | (11,818 | ) |                           |   | (3,018  | )                |  |   | (6,449           | ) |  |   | 3,118    |  
|Income Tax Expense                                             |  |                            | 1,125   |   |                           |   | 850     |                  |  |   | 3,147            |   |  |   | 3,275    |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Loss from Continuing Operations                                |  | $                          | (12,943 | ) |                           | $ | (3,868  | )                |  | $ | (9,596           | ) |  | $ | (157     | )
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Depreciation and Amortization:                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Paperboard                                                     |  | $                          | 5,914   |   |                           | $ | 5,964   |                  |  | $ | 17,793           |   |  | $ | 17,757   |  
|Converted Products                                             |  |                            | 1,226   |   |                           |   | 1,223   |                  |  |   | 3,578            |   |  |   | 3,792    |  
|International                                                  |  |                            | 1,298   |   |                           |   | 899     |                  |  |   | 3,287            |   |  |   | 2,552    |  
|Corporate                                                      |  |                            | 431     |   |                           |   | 545     |                  |  |   | 1,302            |   |  |   | 1,635    |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Total                                                          |  | $                          | 8,869   |   |                           | $ | 8,631   |                  |  | $ | 25,960           |   |  | $ | 25,736   |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Purchases of Property, Plant and Equipment:                    |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Paperboard                                                     |  | $                          | 4,372   |   |                           | $ | 4,663   |                  |  | $ | 11,153           |   |  | $ | 11,938   |  
|Converted Products                                             |  |                            | 696     |   |                           |   | 459     |                  |  |   | 1,730            |   |  |   | 1,011    |  
|International                                                  |  |                            | 677     |   |                           |   | 619     |                  |  |   | 3,982            |   |  |   | 2,442    |  
|Corporate                                                      |  |                            | 129     |   |                           |   | 173     |                  |  |   | 446              |   |  |   | 208      |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Total                                                          |  | $                          | 5,874   |   |                           | $ | 5,914   |                  |  | $ | 17,311           |   |  | $ | 15,599   |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|                                                               |  |                            |         |  
|                                                               |  |                            |         |   |                           |   |         | January 31, 2008 |  |   | April 30, 2007   |  
|Identifiable Assets:                                           |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Paperboard                                                     |  |                            |         |   |                           |   |         |                  |  | $ | 332,500          |   |  | $ | 348,997  |  
|Converted Products                                             |  |                            |         |   |                           |   |         |                  |  |   | 89,045           |   |  |   | 93,744   |  
|International                                                  |  |                            |         |   |                           |   |         |                  |  |   | 188,353          |   |  |   | 161,301  |  
|Corporate                                                      |  |                            |         |   |                           |   |         |                  |  |   | 22,729           |   |  |   | 12,060   |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  
|Total                                                          |  |                            |         |   |                           |   |         |                  |  | $ | 632,627          |   |  | $ | 616,102  |  
|                                                               |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |          |  



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Geographic Regions

Sales to external customers (based on country of origin) and long-lived assets by geographic region are as follows:



|                                                            |  |                 |         |                 |   |        
|----------------------------------------------------------- |  | --------------- | ------- | --------------- | - | -------
|                                                            |  | January 31,2008 |         | January 31,2007
|Sales to External Customers                                 |  |                 |         |                 |   |        
|United States                                               |  | $               | 602,848 |                 | $ | 546,982
|Europe                                                      |  |                 | 157,327 |                 |   | 127,642
|Canada                                                      |  |                 | 9,777   |                 |   | 7,296  
|                                                            |  |                 |         |                 |   |        
|Total                                                       |  | $               | 769,952 |                 | $ | 681,920
|                                                            |  |                 |         |                 |   |        
|                                                            |  |                
|                                                            |  | January 31,2008 |         | April 30,2007  
|Net Property, Plant and Equipment, Goodwill and Intangibles |  |                 |         |                 |   |        
|United States                                               |  | $               | 269,127 |                 | $ | 274,724
|Europe                                                      |  |                 | 71,485  |                 |   | 62,791 
|Canada                                                      |  |                 | 7,554   |                 |   | 6,989  
|                                                            |  |                 |         |                 |   |        
|Total                                                       |  | $               | 348,166 |                 | $ | 344,504
|                                                            |  |                 |         |                 |   |        



|11. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

On October 1,
2007, the Company purchased a 50% interest in Jackson Drive Corp. (Jackson Drive), the owner of the Companys corporate headquarters, from its former Chief Executive Officer (CEO) for $393; the Companys current CEO
owns the remaining 50%. The Company leases its corporate headquarters from Jackson Drive and paid $261 under the lease in each of the nine-month periods ended January 31, 2008 and 2007. Jackson Drive is consolidated into the Companys
financial statements (see Note 5).

The paperboard mills in our International segment purchased approximately $13,170 and $8,661 of raw
material from affiliated entities accounted for as equity method investments during the nine-month periods ended January 31, 2008 and 2007, respectively.

The International segment also recorded sales of approximately $3,384 and $2,286 to two affiliated entities accounted for as equity method investments during the nine-month periods ended January 31, 2008 and
2007, respectively.

The Company paid approximately $4,353 and $4,024 to Integrated Paper Recyclers, LLC, an affiliated entity accounted for
as an equity method investment, primarily for hauling services of recyclable material during the nine-month periods ended January 31, 2008 and 2007, respectively.



|12. | OTHER MATTERS
|--- | -------------

During the first quarter of fiscal
2008, the Company received a $2,861 settlement resulting from state sales-tax related litigation. Of this total, $2,054 was recorded as a reduction to cost of sales as it represented a refund of sales taxes paid which were originally recorded to
cost of sales. The remainder, $807, was interest on the principal amount of the settlement and was recorded on the Interest income line on our condensed consolidated statement of operations.

Certain locations within the Companys Paperboard segment are awarded credits for air emissions. These locations monitor their emissions and
routinely invest funds to maintain compliance levels or to improve performance and from time to time, the Company sells excess nitrogen oxide emission credits. Costs for environmental maintenance and improvement projects are recorded in Cost of
sales and the gains from the sales of these credits are likewise recorded in Cost of sales. During August 2007, the Company sold excess emission credits through an open market created specifically to trade such emission credits, and recorded a gain
from these sales in the amount of $137. The Company also sold excess emission credits in July 2006 for a gain of $3,277.

On August 1,
2007, the Company completed the purchase of a recycled paperboard mill in Viersen, Germany, at a total cost of approximately $4,400, which includes the land, buildings, equipment and inventories, and covers all pre-acquisition costs for legal,
accounting and consulting services. The effects of this acquisition are not material to the Companys balance sheet or results of operations. The Company also has a signed agreement to purchase a cogeneration facility located next to this mill
for approximately $1,300; the Company paid approximately $420 towards this total in late February 2008 and expects to close this transaction within the next six months.



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During the quarter ended January 31, 2008, the Company received insurance proceeds of $1,882 for
equipment. These proceeds were recorded as a reduction to cost of sales in our International segment.



|Item 2. | Managements Discussion And Analysis Of Financial Condition And Results Of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion of operations and financial condition of The Newark Group should be read in conjunction with the financial statements and notes thereto included in this Quarterly Report on Form 10-Q and in
the Annual Report on Form 10-K for the year ended April 30, 2007.

This report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically are identified by use of terms such as may, should, plan, expect, anticipate,
estimate, and similar words, although some forward-looking statements are expressed differently. Forward-looking statements represent our managements judgment regarding future events. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. All statements other than statements of historical fact included in this report regarding our financial position,
business strategy, products, plans, or objectives for future operations are forward-looking statements. We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that our actual results could differ materially from
those contained in the forward-looking statements due to a number of factors, including the statements under Risk Factors and Critical Accounting Policies detailed in our Annual Report on Form 10-K for the year ended
April 30, 2007. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Overview

The Newark Group is an
integrated producer of 100% recycled paperboard and paperboard products with leading market positions in North America and Europe. We primarily manufacture folding carton, core board and industrial converting grades of paperboard, and are among the
largest producers of these grades in North America. We are also a leading producer of laminated products and graphicboard in North America and Europe as well as a major producer of tubes, cores and allied products in North America. We supply our
products to the paper, packaging, stationery, book printing, construction, plastic film, furniture and game industries. In addition, we are engaged in the collection, trading and processing of recovered paper in North America and believe that we are
among the five largest participants in this industry. No single customer accounted for more than 3.2% of our sales in our fiscal year ended April 30, 2007.

We operate in three segmentsPaperboard, Converted Products and Internationaland our products are categorized into five product lines: (i) recovered paper; (ii) 100% recycled paperboard; (iii) laminated products
and graphicboard; (iv) tube, core and allied products; and (v) solidboard packaging products. In our Paperboard segment we handle recovered paper and manufacture grades of recycled paperboard used in the production of folding cartons,
rigid boxes, tubes, cores and other products. In our Converted Products segment we manufacture tubes, cores and allied products, solidboard packaging and products used for book covers, game boards, jigsaw puzzles and loose-leaf binders. In our
International segment, which consists of a vertically integrated network of facilities in Europe, we produce 100% recycled paperboard, laminated products, graphicboard and solidboard packaging, primarily for the European market.

For the fiscal year ended April 30, 2007, the Paperboard segment represented 51% of our total sales, the Converted Products segment represented 31% of our total
sales and the International segment represented 18% of our total sales.

Our fiscal year ends April 30. All references to years, quarters or other
periods in this section refer to fiscal years, quarters or periods whether or not specifically indicated. Most percentages and dollar amounts have been rounded to aid presentation.

Our operating results are primarily influenced by sales price and volume, mill capacity utilization, recovered paper cost, energy costs and freight costs. Our sales volumes are generally driven by overall economic
conditions and more specifically by consumer non-durable goods consumption. While the industry has rationalized approximately 1.5 million tons over the last several years, we believe there remains some overcapacity in uncoated recycled
paperboard (URB). Our mill utilization rates remained relatively consistent at 94% for the nine-months ended January 31, 2008 and 95% for the same period of the prior year.

Recovered paper is our most significant raw material, and the cost of such paper has historically fluctuated significantly due to market and industry conditions. For
example, our average North American recovered paper cost per ton of paperboard produced rose from $99 per ton in 2004 to $116 per ton in 2005, dropped to $108 per ton in 2006 and rose again in 2007 to $123 per ton. Recovered paper costs have
continued to escalate through the first nine months of our 2008



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fiscal year, rising 33% to $153 per ton of paperboard produced compared to $115 per ton of paperboard produced during the first nine months of fiscal 2007.
The dramatic rise in recovered paper costs is not limited to North America, as our average recovered paper cost per ton of paperboard produced in our international mills increased 45% to $169 per ton in the first nine months of fiscal 2008 compared
to $117 per ton in the same period of the prior year. The increase in our international mill costs includes the effects of the weakening of the US dollar compared to the Euro. The major contributing factor to the increases in both our North American
and European recovered paper costs is the escalating demand for recovered paper by China.

Energy, which consists of natural gas, electricity and fuel oils
used to generate steam for use in the paper making process, is also a significant manufacturing cost for us. Average energy costs in our North American mill system, though relatively stable over the last two years at $90 and $88 per ton of
paperboard produced in 2007 and 2006, respectively, are significantly higher than the $43 per ton average energy cost in 2000, due to overall increases in natural gas, fuel oil and electricity prices. We believe that prices will likely remain at
these elevated levels in response to conditions in the Middle East, natural gas shortages in the United States and other economic conditions and the related uncertainties regarding the outcome and implications of such events. Our operating margins
are adversely affected when energy costs increase, notwithstanding that we attempt to manage fluctuations in our energy costs by utilizing financial hedges and purchasing forward contracts for a portion of our energy needs. During the quarter ended
January 31, 2008, we had approximately 45% of our natural gas needs hedged at prices favorable to targeted levels, and have approximately 50% of our needs hedged through March 2008, again at prices favorable to targeted levels. For the nine
months ended January 31, 2008 and 2007, our average energy cost per ton of paperboard produced in our North American mills remained essentially flat at $87 and $86 per ton, respectively. Energy costs in Western Europe have escalated over the
last two years, particularly relating to natural gas, and as a result, our energy costs averaged $71 per ton of paperboard produced in 2007 versus $48 per ton in 2006, a 48% increase. Prices in the first nine months of fiscal 2008 have continued to
rise, though at a slower pace, increasing 16% in the current year to $80 per ton of paperboard produced compared to $70 per ton in the same nine-month period of the prior year.

We attempt to raise our selling prices in response to increases in raw material and energy costs. However, we are not always able to pass the full amount of these costs through to our customers on a timely basis, if
at all, and as a result, cannot always maintain our operating margins in the face of cost increases. We experience a reduction in margin during periods of recovered paper price increases due to customary time lags in implementing our price increases
to our customers. Even if we are able to recover future cost increases, our operating margins and results of operations may be materially and adversely affected by time delays in the implementation of price increases. A price increase on all grades
of coated and uncoated recycled paperboard became effective at the end of June 2006 for all North American customers and a price increase on all grades of uncoated recycled paperboard became effective for North American customers at the beginning of
March 2007. As a result of the realization of these increases, when comparing the nine-month periods ended January 31, 2008 and 2007, average sales price for our North American converted products and recycled paperboard increased $63 per ton
and $26 per ton, respectively. In December 2007, because of the continued escalation of recovered paper costs, we announced a $40 per ton price increase on all grades of uncoated recycled paperboard, effective with shipments beginning in the latter
half of January 2008. Also, in December 2007 and January 2008, we announced price increases of 6%-8% on graphicboard, tubes, cores and other allied products that take effect throughout the fourth quarter of 2008. The ultimate realization of the
recently announced price increases is unknown due to persistent industry overcapacity and the resulting competitive situation.



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THE NEWARK GROUP, INC. AND SUBSIDIARIES



Our Results of Operations

The following table sets out our segmented financial and operating information for the periods indicated.



|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|----------------------- |  | ------------------------------ | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                        |  | Three Months Ended January 31, |         |   | Nine Months Ended January 31, |  
|(in thousands)          |  | 2008                           |         |   | 2007                          |   |         | 2008 |  |   | 2007    |  
|Net Sales               |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Paperboard              |  | $                              | 128,851 |   |                               | $ | 112,705 |      |  | $ | 392,973 |   |  | $ | 341,096 |  
|Converted Products      |  |                                | 67,523  |   |                               |   | 65,536  |      |  |   | 219,652 |   |  |   | 213,182 |  
|International           |  |                                | 55,729  |   |                               |   | 44,875  |      |  |   | 157,327 |   |  |   | 127,642 |  
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total                   |  | $                              | 252,103 |   |                               | $ | 223,116 |      |  | $ | 769,952 |   |  | $ | 681,920 |  
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|                        |  |                                |         |  
|Cost of Sales           |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Paperboard              |  | $                              | 122,788 |   |                               | $ | 99,245  |      |  | $ | 355,320 |   |  | $ | 289,786 |  
|Converted Products      |  |                                | 64,498  |   |                               |   | 62,693  |      |  |   | 204,079 |   |  |   | 201,452 |  
|International           |  |                                | 46,328  |   |                               |   | 37,293  |      |  |   | 132,724 |   |  |   | 106,901 |  
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total                   |  | $                              | 233,614 |   |                               | $ | 199,231 |      |  | $ | 692,123 |   |  | $ | 598,139 |  
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|                        |  |                                |         |  
|Restructuring           |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Paperboard              |  | $                              | 205     |   |                               | $ | 173     |      |  | $ | 531     |   |  | $ | 358     |  
|Converted Products      |  |                                | 10      |   |                               |   | 16      |      |  |   | 10      |   |  |   | 278     |  
|Corporate               |  |                                |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total                   |  | $                              | 215     |   |                               | $ | 189     |      |  | $ | 541     |   |  | $ | 636     |  
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|                        |  |                                |         |  
|SG&A                    |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Paperboard              |  | $                              | 7,884   |   |                               | $ | 7,810   |      |  | $ | 23,822  |   |  | $ | 24,202  |  
|Converted Products      |  |                                | 4,793   |   |                               |   | 4,917   |      |  |   | 14,817  |   |  |   | 15,197  |  
|International           |  |                                | 4,997   |   |                               |   | 3,863   |      |  |   | 12,784  |   |  |   | 10,700  |  
|Corporate               |  |                                | 4,981   |   |                               |   | 4,124   |      |  |   | 13,034  |   |  |   | 11,693  |  
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total                   |  | $                              | 22,655  |   |                               | $ | 20,714  |      |  | $ | 64,457  |   |  | $ | 61,792  |  
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|                        |  |                                |         |  
|Operating (Loss) Income |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Paperboard              |  | $                              | (2,026  | ) |                               | $ | 5,477   |      |  | $ | 13,300  |   |  | $ | 26,750  |  
|Converted Products      |  |                                | (1,778  | ) |                               |   | (2,090  | )    |  |   | 746     |   |  |   | (3,745  | )
|International           |  |                                | 4,404   |   |                               |   | 3,719   |      |  |   | 11,819  |   |  |   | 10,041  |  
|Corporate               |  |                                | (4,981  | ) |                               |   | (4,124  | )    |  |   | (13,034 | ) |  |   | (11,693 | )
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total                   |  | $                              | (4,381  | ) |                               | $ | 2,982   |      |  | $ | 12,831  |   |  | $ | 21,353  |  
|                        |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  

The following table sets forth certain items related to our consolidated statements of operations as a percentage
of net sales for the periods indicated. A detailed discussion of the material changes in our operating results is set forth below.



|                                             |  |                                |   |  |                               |   |  |       |   |  |       |  
|-------------------------------------------- |  | ------------------------------ | - |  | ----------------------------- | - |  | ----- | - |  | ----- | -
|                                             |  | Three Months ended January 31, |   |  | Nine Months ended January 31, |  
|                                             |  | 2008                           |   |  | 2007                          |   |  | 2008  |   |  | 2007  |  
|Net sales                                    |  | 100.0                          | % |  | 100.0                         | % |  | 100.0 | % |  | 100.0 | %
|Cost of sales                                |  | 92.7                           |   |  | 89.3                          |   |  | 89.9  |   |  | 87.7  |  
|Selling, general and administration expenses |  | 9.0                            |   |  | 9.3                           |   |  | 8.4   |   |  | 9.1   |  
|Restructuring and impairments                |  | 0.1                            |   |  | 0.1                           |   |  | 0.1   |   |  | 0.1   |  
|Operating (loss) income                      |  | (1.8                           | ) |  | 1.3                           |   |  | 1.7   |   |  | 3.1   |  
|Interest expense                             |  | 2.8                            |   |  | 3.0                           |   |  | 2.8   |   |  | 3.0   |  
|Income tax expense                           |  | 0.1                            |   |  | 0.4                           |   |  | 0.4   |   |  | 0.5   |  
|Net loss                                     |  | (5.2                           | ) |  | (1.7                          | ) |  | (1.3  | ) |  |      |  



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THE NEWARK GROUP, INC. AND SUBSIDIARIES



Results of Operations

Nine Months Ended January 31, 2008 Compared to Nine Months Ended January 31, 2007

Overview

Net Sales. Net sales for the nine months ended January 31, 2008 were $770.0 million, an $88.1 million increase from $681.9 million in the same period a year
earlier. Average sales prices increased across all segments and volumes increased in our International operations while volumes decreased in our North American operations.

Cost of Sales. Cost of sales for the nine months ended January 31, 2008 was $692.1 million as compared to $598.1 million for the nine months ended January 31, 2007. The cost of recovered paper per ton
of paperboard produced in both our North American and European mills drove the increase, along with higher freight costs in all segments and higher energy costs per ton of paperboard produced in our European mills. These factors that increased total
cost of sales were partially offset by lower energy costs in our domestic mills and lower volumes in North America. Additionally, non-routine reductions to costs of sales for the nine months ended January 31, 2008 were $2.0 million from a state
sales-tax related settlement and $1.8 million from insurance proceeds on equipment. There was a $3.3 million reduction in the nine months ended January 31, 2007 from the sales of certain air emission credits at one of our California locations.

Restructuring and Impairments. Restructuring and impairment charges for the nine months ended January 31, 2008 were $0.5 million, a 15%
decrease from $0.6 million in the same period of the prior year. Current year expenses are comprised of costs to exit previously shut-down locations, mainly in our Paperboard segment, while prior-year costs are comprised of similar costs in both our
Paperboard and Converted Products segments as well as lease buy-out fees in our Converted Products segment

SG&A.SG&A increased 4% to $64.5
million in the nine months ended January 31, 2008 from $61.8 million in the nine months ended January 31, 2007, the result of higher compensation and relocation expenses, increased professional fees and the recording of additional reserves
for bad debts. While we feel our reserve for bad debts is adequate, additional reserves in both North America and Europe may be required due to the weakened economic conditions worldwide.

Operating Income. Operating income was $12.8 million in the nine-month period ended January 31, 2008 compared to $21.4 million during the nine-month period
ended January 31, 2007, a 40% decrease. The lower amount was the result of significantly higher recovered paper costs per ton of paperboard produced, higher freight costs and lower North American volumes more than offsetting higher sales prices
across all segments and higher volumes in our International segment.

Paperboard

Net sales in the Paperboard segment were $393.0 million for the nine months ended January 31, 2008, a $51.9 million, or 15% increase, over $341.1 million for the
same period of the prior year. The increase was predominantly driven by the realization of sales price increases on both recovered paper sold to third parties and our recycled paperboard, which rose 40% and 6%, respectively. These pricing gains were
partially offset by a 2% volume decrease in this segment.

Cost of sales for the nine months ended January 31, 2008 was $355.3 million, 23%, or $65.5
million, higher than the same nine-month period of the prior year. A 33% increase in the cost of recovered paper per ton of paperboard produced drove costs upward, along with a 4% increase in total freight costs, but were partially offset by a 2%
decrease in total energy costs. Non-routine reductions to costs of sales for the nine months ended January 31, 2008 and 2007 were $2.0 million from a state sales-tax related settlement and a $3.3 million gain from the sales of certain air
emission credits at one of our California locations, respectively.

Restructuring costs increased approximately $0.1 million to $0.5 million in the nine
months ended January 31, 2008 compared to $0.4 million in the nine months ended January 31, 2007. Charges in both years represent costs to exit previously shut down locations.

Our mill utilization rates dropped slightly in the nine months ended January 31, 2008 to 94% compared to 95% during the same period of the prior year.

SG&A costs in the nine months ended January 31, 2008 decreased $0.4 million, or 2%, to $23.8 million compared to $24.2 million in the nine months ended
January 31, 2007 due to environmental charges recorded in the prior year.



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Operating income for the Paperboard segment was $13.3 million for the nine months ended January 31, 2008, a 50%
decrease from the same period last year. The significant increase in the cost of recovered paper, along with decreased volumes and a $1.2 million decrease in non-recurring cost of sales reductions, more than offset the realization of price increases
on both recovered paper we sell to third parties and our recycled paperboard.

Converted Products

Net sales in the Converted Products segment were $219.7 million for the nine months ended January 31, 2008, $6.5 million, or 3%, higher than $213.2 million in the
nine months ended January 31, 2007. A 7% increase in average sales price more than offset a 5% decrease in volume.

Cost of sales increased $2.6
million, or 1%, to $204.1 million in the nine-month period ended January 31, 2008 compared to the same period of the prior year. Increases in per-ton freight and raw material paperboard costs of 6% and 3%, respectively, more than offset a 5%
decrease in volume.

There were minimal restructuring costs in the Converted Products segment during the nine months ended January 31, 2008, a 96%
drop from the same period in the prior year. There were $0.3 million of such charges in the nine months ended January 31, 2007, made up of net lease buy-out costs on a facility in Stockton, CA as well as costs to exit previously restructured
facilities.

SG&A costs were $14.8 million in the nine months ended January 31, 2008, a 3%, or $0.4 million decrease from $15.2 million in the
nine months ended January 31, 2007, the result of lower headcount in the current year as well as the absorption of strike-related costs in the prior year that did not occur in the nine months ended January 31, 2008.

The Converted Products segment reported operating income of $0.7 million in the nine months ended January 31, 2008 versus an operating loss of $3.7 million in the
nine-month period ended January 31, 2007. Increased sales prices, minimal current-year restructuring costs and lower SG&A costs more than offset lower volumes and higher per-ton freight and raw material paperboard costs.

International

Net sales in the International segment were
$157.3 million for the nine months ended January 31, 2008, a 23% increase compared to $127.6 million in the nine months ended January 31, 2007. Average mill sales price increased 15% compared to the prior year and volumes increased 2%. For
our converted products, average sales price increased 11% in the current nine-month period compared to the prior year and volumes were 10% higher. Excluding the 10% weakening of the US dollar versus the Euro between the nine-month periods ended
January 31, 2008 and 2007, the effects of which also pushed net sales higher, average mill sales prices increased 5% while average prices on our converted products increased 1%. The German mill we acquired in August 2007 accounted for $3.2
million of the overall sales increase.

Cost of sales in the International segment was $132.7 million for the nine months ended January 31, 2008, 24%
or $25.8 million higher than the same period of the prior year. Approximately $22.8 million of the increase arose in operations excluding the recently-acquired German mill, and was driven by a 44% increase in the cost of recovered paper per ton of
paperboard produced. Also contributing to the higher costs were increased volumes and a 16% increase in energy costs per ton of paperboard produced. Partially offsetting the above increases was a $1.8 million non-routine reduction to costs of sales
resulting from the receipt of insurance proceeds on equipment.

SG&A costs in the International segment were $12.8 million in the nine months ended
January 31, 2008, $2.1 million higher than the same period in the prior year. Approximately 34% of the increase is due to the additional costs associated with the recently-acquired German mill, while the remainder of the increase is due to
higher sales commissions, an increase in the provision for bad debts and the weaker US dollar versus the Euro.

Operating income for the International
segment was $11.9 million for the nine months ended January 31, 2008, an 18% increase over the same period of the prior year. The increase was driven by higher sales prices on our mill and converted products and the weaker US dollar which more
than offset a large increase in the cost of recovered paper per ton of paperboard produced and increased per-ton energy costs.

Corporate

Unallocated corporate expense for the nine months ended January 31, 2008 increased by $1.3 million to $13.0 million, compared to $11.7 million for the
same period of the prior year due to higher compensation and relocation costs, along with increased professional fees.



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THE NEWARK GROUP, INC. AND SUBSIDIARIES



Other Income (Expense)

Interest expense increased to $21.1 million for the nine months ended January 31, 2008, up 3% from $20.5 million in the nine-month period ended January 31, 2007, primarily due to our average outstanding
borrowings increasing to $293.3 million in the current nine-month period compared to $276.4 million for the same nine-month period of the prior year.

Excluding Interest expense, Other incomenet was $1.9 million for the nine months ended January 31, 2008 compared to $2.2 million for the nine months ended January 31, 2007, a 17% decrease. Current year results include $0.8
million in interest received as part of a state sales-tax related settlement and also reflect a decrease in earnings from investments accounted for under the equity method.

Income Tax Expense (Benefit)

Our consolidated tax rate is computed using an annual effective rate for each
taxable jurisdiction. We record income tax expense related to foreign jurisdictions in which we have taxable income and for certain state taxes. When comparing the nine months ended January 31, 2008 and 2007, the European effective tax rate has
decreased from 35% to 34% due to an increase in a favorable, permanent difference. Pre-tax income from foreign jurisdictions has increased approximately $0.6 million to $9.3 million when comparing these two periods and income tax expense has
increased approximately $0.2 million. We do not provide for US federal income taxes due to our previous recording of a full valuation allowance against our net deferred tax assets  net operating losses.

Net Income

In summary, we reported a net loss of $9.6
million for the nine months ended January 31, 2008 compared to a loss of $0.2 million for the nine months ended January 31, 2007. The dramatic rise in the cost of recovered paper per ton of paperboard produced in both our North American
and International mills, along with lower North American volumes and higher energy costs in our overseas mills, were in excess of the benefits of higher prices across all segments. Also contributing to the decrease in net income were higher
corporate expenses and a $1.2 million decrease in non-recurring cost of sales reductions in our Paperboard segment.

Three Months Ended January 31,
2008 Compared to Three Months Ended January 31, 2007

Overview

Net Sales. Net sales for the quarter ended January 31, 2008 were $252.1 million, a 13% increase from $223.1 million in the same period of the prior year. Sales prices increased in all segments and volumes
increased in our International operations, though volumes decreased in our North American operations. Net sales also benefited from the translation of Euro-denominated transactions into US dollars as the US dollar has weakened approximately 13%
versus the Euro when comparing the three months ended January 31, 2008 to the same period a year earlier.

Cost of Sales. Cost of sales
increased $34.4 million from $199.2 million in the nine months ended January 31, 2007 to $233.6 million in the nine months ended January 31, 2008, a 17% increase. Substantially higher costs for recovered paper per ton of paperboard
produced in both our North American and International mills, increased North American freight costs and additional costs from the German mill we acquired in August 2007 more than offset lower North American volumes and lower total energy costs in
our North American mills. During the three months ended January 31, 2008, there was a $1.8 million non-routine reduction to cost of sales resulting from the receipt of insurance proceeds on equipment in our International segment.

Restructuring and Impairments. Restructuring charges remained flat at $0.2 million in each of the quarters ended January 31, 2008 and 2007, with charges in
both years comprised of costs to exit previously shut down locations.

SG&A.SG&A costs were $22.7 million in the quarter ended
January 31, 2008 compared to $20.7 million in the quarter ended January 31, 2007, an increase of 9%, due to higher reserves for bad debts in both North America and Europe, as well as increased relocation costs and professional fees. While
we feel our reserve for bad debts is adequate, additional reserves in both North America and Europe may be required due to the weakened economic conditions worldwide.

Operating Income. For the quarter ended January 31, 2008, we recorded an operating loss of $4.4 million compared to operating income of $3.0 million in the quarter ended January 31, 2007. A dramatic
escalation of recovered paper costs per ton of paperboard produced in both our domestic and European mills was the main reason for the swing from income to a loss, despite an increase in average sales prices across all segments. Lower volumes in our
North American operations also contributed to the loss.



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THE NEWARK GROUP, INC. AND SUBSIDIARIES



Paperboard

Net sales in the Paperboard segment for the three-month period ended January 31, 2008 were $128.9 million, $16.1 million, or 14%, higher than $112.7 million in the same three-month period of the prior year. Increases of 47% and 6% in
the sales prices of our recovered paper sold to third parties and our recycled paperboard products, respectively, pushed sales higher but were partially offset by volume decreases of 7% and 1% in sales of recovered paper to third parties and in our
mills, respectively.

Cost of sales in the three months ended January 31, 2008 was $122.8 million, an increase of $23.5 million compared to the same
period in the prior year, primarily due to the 41% increase in the cost of recovered paper per ton of paperboard produced. Also contributing to the increase was a 4% rise in total freight costs which, when combined with the increase in recovered
paper, was slightly offset by a 4% decrease in total energy costs.

Restructuring costs were flat at $0.2 million for each of the quarters ended
January 31, 2008 and 2007.

Our mill utilization rates were 88% during the three months ended January 31, 2008 compared to 92% for the three
months ended January 31, 2007. This decrease is due to general economic slowdown and lower production volumes relating to a decision to stop selling to a large customer due to margin and credit issues.

SG&A costs remained essentially flat at $7.9 million for the three months ended January 31, 2008 compared to $7.8 million during the same period of the prior
year.

The Paperboard segment incurred an operating loss of $2.0 million in the quarter ended January 31, 2008 compared to an operating gain of $5.5
million in the same period of the prior year. The primary reason for the decrease was the surge in the cost of recovered paper per ton of paperboard produced. Also negatively affecting results were an increase in total freight costs and lower
volumes, partially offset by increased sales prices and lower energy costs.

Converted Products

For the quarter ended January 31, 2008, net sales in the Converted Products segment were $67.5 million, 3% higher than $65.5 million in the quarter ended
January 31, 2007, the result of a 10% increase in average sales price more than offsetting a 7% decrease in volume.

Cost of sales was $64.5 million
for the quarter ended January 31, 2008, a 3% increase compared to $62.7 million in the same three months of the prior year. A 10% rise in per-ton raw material paperboard costs more than offset an 8% decrease in total freight costs and the lower
volumes.

Restructuring costs were minimal in each of the three-month periods ended January 31, 2008 and 2007.

SG&A costs remained essentially flat at $4.8 million for the there months ended January 31, 2008 and $4.9 million for the there months ended January 31,
2007.

The Converted Products segment reported an operating loss of $1.8 million in the quarter ended January 31, 2008 compared to an operating loss
of $2.1 million in the same period of the prior year, a 15% improvement. Higher average sales prices more than offset increases in per-ton raw material paperboard.

International

Net sales in the International segment for the quarter ended January 31, 2008 increased 24%, or $10.8 million, to
$55.7 million compared to $44.9 million in the quarter ended January 31, 2007. The German mill we acquired in August 2007 accounted for $1.5 million of this increase, with the remainder coming from price increases on our mill and converted
products of 16% and 8%, respectively. Additionally, volumes in our converting and mill operations, excluding the acquired German mill, increased 12% and 4%, respectively, and the US dollar weakened 13% versus the Euro when comparing the same
periods. Excluding the effects of foreign currency exchange, net sales prices increased 4% and 3% on our converted and mill products, respectively.

Cost
of sales in the International segment was $46.3 million in the quarter ended January 31, 2008, 24% higher than $37.3 million for the same quarter of the prior year. Approximately $1.4 million of this increase is attributable to the operations
of the acquired German mill referred to above, while the remainder of the increase was driven by 41% and 16% increases in the per-ton costs of recovered paper and energy, respectively; per-ton freight costs decreased 6%. The weaker US dollar in
relation to the Euro, as well as the higher volumes noted above, also contributed to the rise in cost of sales.



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Somewhat offsetting the above increases was a $1.8 million non-routine reduction to costs of sales resulting from the receipt of insurance proceeds on
equipment.

SG&A costs increased $1.1 million to $5.0 million for the quarter ended January 31, 2008 compared to $3.9 million for the quarter
ended January 31, 2007. Approximately $0.4 million of the increase is attributable to the operations of the German mill acquired in August 2007 while the remainder is due to an increase in the reserve for bad debts and changes in foreign
currency exchange rates.

Operating income in the International segment increased 18%, or $0.7 million, to $4.4 million from $3.7 million for the quarters
ended January 31, 2008 and 2007, respectively. Higher volumes and sales prices for both our converted and mill products more than offset significant increases in the costs of recovered paper and energy per ton of paperboard produced as well as
an increased reserve for bad debts.

Corporate

Unallocated corporate expense increased $0.9 million in the current quarter to $5.0 million from $4.1 million in the same quarter of the prior year due to higher relocation costs, professional fees and an increase in the provision for bad
debts.

Other (Expense) Income

Interest expense
increased from $6.7 million in the quarter ended January 31, 2007 to $7.0 million in the quarter ended January 31, 2008 due to an increase in average outstanding borrowings, which were $293.8 million in the quarter ended January 31,
2008 compared to $270.6 million for the same quarter of last year.

Excluding interest expense, Other incomenet decreased from income of $0.7 million
in the quarter ended January 31, 2007 to expense of $0.5 million in the same quarter of 2008 due to a decrease in earnings in affiliates and the effects of exchange rate changes.

Income Tax Expense (Benefit)

Our consolidated tax rate is computed using an annual effective rate for each
taxable jurisdiction. We record income tax expense related to foreign jurisdictions in which we have taxable income and for certain state taxes. Pre-tax income from foreign jurisdictions has remained relatively flat when comparing the quarters ended
January 31, 2008 and 2007. Our income tax expense increased approximately $0.3 million during the same period. This increase is primarily due to the fact that during the prior years quarter, we booked the effect of a rate change in Spain,
where a significant portion of our international operations are located. We do not provide for US federal income taxes due to our previous recording of a full valuation allowance against our net deferred tax assets  net operating losses.

Net Income

In summary, during the quarter
ended January 31, 2008, we recorded a net loss of $12.9 million compared to a loss of $3.9 million in the quarter ended January 31, 2007. Increased sales prices across all segments could not overcome a substantial rise in the cost of
recovered paper per ton of paperboard produced, along with lower volumes in North America.

Liquidity Requirements

Operations. Our current cash requirements for operations consist primarily of expenditures to maintain our mills and plants, purchase inventory, meet
operating lease obligations, meet obligations to our lenders and finance working capital requirements, as well as other operating activities. We fund our current cash requirements with cash provided by operations and borrowings under our asset-based
and credit-linked facilities. We believe that these sources will be sufficient to meet the current and anticipated cash requirements of our operations for the next twelve months.

Capital Expenditures. Our total capital expenditures were $17.3 million and $15.6 million in the nine months ended January 31, 2008 and 2007, respectively. We expect fiscal 2008 capital expenditures
to be under $25.0 million.



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THE NEWARK GROUP, INC. AND SUBSIDIARIES



Borrowings

At January 31, 2008, total debt (consisting of current maturities of debt, our senior credit facility, and other long-term debt, as reported on our condensed consolidated balance sheets) was as follows (in millions):



|                                          |  |                  |      
|----------------------------------------- |  | ---------------- | -----
|                                          |  | October 31, 2007
|9.75 % Senior Subordinated Notes due 2014 |  | $                | 175.0
|Asset-based credit facility               |  |                  | 23.0 
|Term loan                                 |  |                  | 15.0 
|Industrial Revenue Bonds                  |  |                  | 65.3 
|Other (1)                                 |  |                  | 18.1 
|                                          |  |                  |      
|Total debt                                |  | $                | 296.4
|                                          |  |                  |      



|(1) | See Note 5 to the accompanying condensed consolidated financial statements for the components of this total.
|--- | ------------------------------------------------------------------------------------------------------------

In July 2007, our international subsidiary entered into a new five-year loan in the amount of 5.0 million. Borrowings under this loan bear a variable interest rate
of EURIBOR plus 0.75%. Principal and interest payments are required every six months at which point the variable interest rate is reset.

On March 9,
2007, (i) we entered into a five-year asset-based senior secured revolving credit facility whereby the lenders agreed to provide to us a revolving line of credit in the aggregate principal amount of up to $85.0 million (depending on our
borrowing base), up to $25.0 million of which may be used for loans directly to our International subsidiary and up to $15.0 million of which may be used for letters of credit, and other financial accommodations, and (ii) we and our domestic
subsidiaries entered into a six-year credit-linked facility whereby the credit-linked lenders provided to us a $15.0 million term loan, a $75.0 million credit-linked letter of credit facility, and other financial accommodations. Under the agreement
referred to in (i) above, we (a) granted the lenders a first priority lien on all of our accounts receivable and inventory (the ABL Priority Collateral) and a second priority lien on substantially all of our other assets,
including certain real property, and (b) guaranteed the obligations, under this facility, of an international subsidiary. Under the agreement referred to in (ii) above, we granted the lenders a first priority lien on substantially all of
our assets, including certain real property (excluding accounts receivable and inventory), and a second priority lien to the lenders on all ABL Priority Collateral. Borrowings under the asset-based facility bear interest at a rate of prime or the
Eurodollar rate plus a credit spread determined based on availability under the facility. The term loan under the credit-linked facility bears interest at a rate of prime plus 1% or the Eurodollar rate plus a credit spread of 2.25%. Letters of
Credit are issued under the credit-linked facility primarily to enhance the Companys multiple IRB issues with the credit spread being the same as the term loan. Subject to meeting certain conditions, we have a one-time option, prior to
March 9, 2010, to increase the revolving credit facility by an amount of up to $15.0 million. Likewise, subject to meeting certain conditions, we have a one-time option, prior to March 9, 2010, to increase the credit-linked facility
by an amount of up to $10.0 million.

The facilities include financial covenants as follows: (a) if, during any quarter, Excess Availability, as
defined under the revolving credit facility, falls below $10.0 million, we must achieve a Fixed Charge Coverage Ratio, as defined in that agreement, of not less than 1.0 to 1.0. and (b) the Senior Leverage Ratio, as defined, for each
twelve-month period ending as of each fiscal quarter end shall be less than or equal to 3.0 to 1.0. At January 31, 2008, the Company was in compliance with all financial covenants.

In March 2004, we completed an offering of $175.0 million of 9.75% senior subordinated notes (the Notes) with a maturity date of March 12, 2014. We pay interest semi-annually on March 15 and
September 15 of each year, and we cannot redeem the Notes before March 15, 2009, except as described below. On or after that date, we may redeem them at specified prices. The Notes rank junior in right of payment to all of our existing and
future senior debt and equal in right of payment with all of our existing and future senior subordinated debt. The Notes are not guaranteed by any of our subsidiaries, and therefore are effectively subordinated to all liabilities of our
subsidiaries. If we experience certain changes of control, we must offer to purchase the Notes at 101% of their face amount, plus accrued interest.



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Aggregate annual principal payments applicable to debt for the next five years and thereafter will be as follows (in
millions):



|                      |  |       |      
|--------------------- |  | ----- | -----
|Year Ending April 30, |  | Total
|2008(1)               |  | $     | 0.2  
|2009                  |  |       | 6.8  
|2010                  |  |       | 4.6  
|2011                  |  |       | 4.7  
|2012(2)               |  |       | 27.9 
|Thereafter(3)         |  |       | 252.2
|                      |  |       |      
|                      |  | $     | 296.4
|                      |  |       |      



|(1) | Represents remaining obligations for the fiscal year ended April 30, 2008.
|--- | --------------------------------------------------------------------------

|(2) | Includes $23.0 million due under the asset-based credit facility.
|--- | -----------------------------------------------------------------

|(3) | Includes $15.0 million due under the term loan.
|--- | -----------------------------------------------

We are party to a series of cross-currency interest rate swap agreements (the 2001 Swaps) with a member of our bank group that had been designated as a cash
flow hedge against an existing intercompany loan to our European subsidiary. Effective May 1, 2007, we de-designated the 2001 Swaps as hedges. With this de-designation, the amount in other comprehensive income at that point, $0.2 million, will
be reclassified into earnings over the life of the original agreements, which are scheduled to terminate in September 2009. At January 31, 2008 and April 30, 2007, the fair value of the 2001 Swaps represented a liability of $12.0 million
and $14.8 million, respectively. During the quarter ended July 31, 2007, in relation to a second intercompany loan with our European subsidiary, we entered into another swap agreement, that was not designated as a hedge, which represented a
liability of $2.6 million as of January 31, 2008.

Additionally, in our effort to manage costs, we, at varying times, utilize energy and raw material
price hedges. At January 31, 2008, the fair value of these hedges was a liability of approximately $0.6 million, which was entirely energy related.

Cash Flow

Net cash provided by operating activities

During the nine-month period ended January 31, 2008, we generated $23.8 million of cash from operations, $6.6 million less than $30.4 million we generated in the same nine-month period of the prior year. This
decrease is the result of the following: (i) a $9.4 million negative change in net earnings, (ii) $1.3 million less in dividends received from equity investments in affiliates and (iii) $1.4 million of additional prepaid insurance and
other costs offset by (i) the current year receipt of $1.9 million from the surrender of a life insurance policy and (ii) $3.6 million less paid out on the settlement of natural gas hedging contracts.

Net cash used in investing activities

In the nine months ended
January 31, 2008 and 2007, we used $17.3 million and $16.5 million of cash, respectively, in investing activities. This increase in the current year was primarily the result of $1.7 million of additional capital expenditures, primarily made in
our International segment and $0.5 million of additional costs related to the acquisition of a German mill in August 2007, partially offset by the receipt of $1.9 million of insurance proceeds on equipment and less proceeds from the sale of
property, plant and equipment.

Net cash used in financing activities

In the nine months ended January 31, 2008, financing activities provided a minimal amount of funds, whereas in the nine months ended January 31, 2007, we used cash in financing activities of $11.1 million.
The current nine-month period includes an $11.5 million increase in net debt borrowings compared to the prior year partially offset by a $0.4 million change in cash overdrafts.

Seasonality

Certain of our products are used by customers in the packaging of food products, primarily fruits
and vegetables. Due principally to the seasonal nature of certain of these products, sales of our products to these customers have varied from quarter to quarter. In addition, poor weather conditions that reduce crop yields of packaged food products
and adversely affect customer demand for food containers can adversely affect our revenues and our operating results. The sales



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volumes of certain of our converted products can also vary from quarter to quarter, partly due to the increased production of textbooks and binders before
the beginning of the school year, as well as the production of board games and other products before the start of the Christmas season. Our overall level of sales and operating profit have historically been lower in our third quarter, ended
January 31, due in part to the cyclicality of the demand for our products as well as closures by us and our customers for the Thanksgiving, Christmas and New Years holidays.

Inflation

Increases in raw material and energy prices have had, and continue to have, a material negative
effect on our operations. We do not believe that general economic inflation is a significant determinant of our raw material price increases or that it has a material effect on our operations.

Critical Accounting Policies

Our accompanying condensed
consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial information, which require management to make estimates that affect the amounts of revenues,
expenses, assets and liabilities reported. The following are critical accounting matters which are both very important to the portrayal of our financial condition and results and which require some of managements most difficult, subjective and
complex judgments. The accounting for these matters involves the making of estimates based on current facts, circumstances and assumptions which, in managements judgment, could change in a manner that would materially affect managements
future estimates with respect to such matters and, accordingly, could cause future reported financial condition and results to differ materially from the financial condition and results reported based on managements current estimates. Changes
in these estimates are recorded when better information is known. There have been no material changes in our critical accounting policies during the nine-month period ended January 31, 2008.

Pension

Our defined benefit pension plans are accounted for
in accordance with FAS No. 87, Employers Accounting for Pensions. The determination of pension obligations and expense is dependent upon our selection of certain assumptions, the most significant of which are the discount
rates used to discount plan liabilities, the expected long-term rate of return on plan assets and the level of compensation increases. Our assumptions are described in Note 14 to our Annual Report on Form 10-K for the year ended April 30, 2007.
At April 30, 2007, the discount rate was lowered to 6.0% from 6.3%. A 1.0% change in this discount rate would create an impact to the statement of operations of approximately $1.2 million. The discount rate is based upon the demographics of the
plan participants as well as benchmarking a certain index, e.g. Citigroup Pension Liability Index. To determine our expected long-term rate of return on plan assets, we evaluate criteria such as asset allocation, historical returns by asset class,
historical returns of our current pension portfolio managers and managements expectation of the economic environment. Based upon this methodology, the expected long-term rate of return on assets was 8.8% as of April 30, 2007. A 1% change
in the long-term rate of return on plan assets would create an impact to the statement of operations of approximately $0.9 million. The level of compensation increase is established by management, and has the smallest direct impact of the three
assumptions on the statement of operations. A 0.5% change in this compensation rate would create an impact to the statement of operations of approximately $0.3 million. Pension expense was $4.7 million in 2006, $3.0 million in 2007 and is expected
to be approximately $2.0 million in 2008.

Goodwill

The Company conducted an impairment test based on the estimated fair value of the underlying business as of November 1, 2007 and determined that there was no impairment. See Note 1 to our Annual Report on Form 10-K for the year ended
April 30, 2007 for additional information regarding our goodwill accounting. Our judgments regarding the existence of impairment indicators are based on a number of factors including market conditions and operational performance of our
businesses. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our businesses is impaired. Evaluating the impairment of goodwill also requires us to estimate future operating results and cash
flows, which also require judgment by management. Any resulting impairment loss could have a material adverse effect on our financial condition and results of operations.

Accounts Receivable

Our policy with respect to trade and notes receivables is to maintain an adequate
allowance or reserve for doubtful accounts for estimated losses from the inability of our customers to make required payments. For specific accounts on which we have information that the customer may be unable to meet its financial obligation, (e.g.
bankruptcy), a provision is recorded at time of occurrence. For all other accounts in our International Segment, customer invoices are specifically



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reserved once the invoice remains unpaid at 180 days past due date. For all other accounts domestically, percentages are applied to all receivables
based up the age of the specific invoices. The older invoices (e.g., all amounts greater than 90 days) receive a larger percentage of allowance, based upon managements best estimate. Another percentage, based upon managements best
estimate, is applied to the remaining receivable balance. A total reserve is calculated in this manner and is compared to historical experience. If collections were to slow by seven days, there would be an increase in this reserve of $0.3
million. If the financial condition of our customers were to deteriorate and result in an inability for them to make their payments, additional allowances may be required.

Environmental Matters

We are subject to extensive federal, state and local environmental laws and
regulations, including those that relate to air emissions, wastewater discharges, solid and hazardous waste management and disposal and site remediation. Concerning environmental claims, we record any liabilities and disclose the required
information in accordance with FAS 5, Accounting for Contingencies, Statement of Position 96-1, Environmental Remediation Liabilities and FAS 143, Accounting for Asset Retirement Obligations. Additionally, from
time to time, we may be identified, along with other entities, as being among parties potentially responsible for contribution to costs associated with the investigation, correction and remediation of environmental conditions at disposal sites
subject to federal and/or analogous state laws. Costs associated with environmental obligations are accrued when such costs are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change.
Estimates of costs for future environmental compliance and remediation are necessarily imprecise due to such factors as the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology, the
identification of currently unknown remediation sites and the allocation of costs among the potentially responsible parties under applicable statutes. Costs of future expenditures for environmental remediation obligations are discounted to their
present value when the amount and timing of expected cash payments are reliably determinable.

Income Taxes

Pursuant to FAS 109 Accounting for Income Taxes (FAS 109), we provide for income taxes using the asset and liability method. Under this method,
deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates
applicable to the periods in which the differences are expected to reverse.

We assess the need to record a valuation allowance, which is determined
through the process of projecting our net deferred tax assets while factoring in tax planning strategies, based upon a computation of normalized earnings and the resultant expected utilization of those net deferred tax assets. Under FAS 109, a
valuation allowance is required when it is more likely than not that some portion of the net deferred tax assets will not be realized. Realization is dependant upon, among other things, the generation of future taxable income and tax management
strategies.

As of January 31, 2008, we had a full valuation allowance on our deferred tax assets for US federal and state income tax purposes. We
also have full valuation allowances against net assets of certain foreign jurisdictions. We will maintain such allowance until positive earnings are recorded in several consecutive reporting periods. We will continue to evaluate our valuation
allowance on a quarterly basis.

As of May 1, 2007, we adopted FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes: an
interpretation of FASB Statement 109 (FIN 48). This interpretation provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if it is more likely than not that the position
would be sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Upon
adoption there was no adjustment to opening retained earnings. The Company accounts for interest costs and penalties related to income taxes as income tax expense in the Companys condensed consolidated financial statements.

Impairment of Long-Lived Assets

We periodically evaluate
long-lived assets, including property, plant and equipment and definite lived intangible assets whenever events or changes in conditions may indicate that the carrying value may not be recoverable. Factors that management considers important that
could initiate an impairment review include the following:



| |  |  | Significant operating losses;
| | - |  | -----------------------------



| |  |  | Significant declines in demand for a product where an asset is only able to produce that product;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Assets that are idled; and
| | - |  | --------------------------



| |  |  | Assets that are likely to be divested.
| | - |  | --------------------------------------



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The impairment review requires management to estimate future undiscounted cash flows associated with an asset or
asset group expected to result from the use and eventual disposition of the asset or asset group. Estimating future cash flows requires management to make judgments regarding future economic conditions, product demand and pricing. Although we
believe our estimates are appropriate, significant differences in the actual performance of the asset or asset group may materially affect our asset values and results of operations. An impairment loss shall be recognized if the carrying amount of
the long-lived asset or asset group exceeds fair value as determined by the sum of the undiscounted cash flows. For additional information, see Note 10 to our Annual Report on Form 10-K for the year ended April 30, 2007.



|Item 3. | Quantitative And Qualitative Disclosure About Market Risk
|------- | ---------------------------------------------------------

We are
exposed to market risk from changes in foreign exchange rates, interest rates and the costs of raw materials used in our production processes. To reduce such risks, we selectively use financial instruments.

The following risk management discussion and the estimated amounts generated from the sensitivity analyses are forward-looking statements of market risks, assuming that
certain adverse market conditions occur. Actual results in the future may differ materially from those projected results due to actual developments in the global financial markets. The analysis used to assess and mitigate risks discussed below
should not be considered projections of future events or losses.

Commodity Prices: The markets for our recovered paper products, particularly
Old Corrugated Containers (OCC), are highly cyclical and affected by such factors as global economic conditions, demand for paper, municipal recycling programs, changes in industry production capacity and inventory levels. These factors
all have a significant impact on selling prices and our profitability. We estimate that a 10% increase in the price of recovered paper, with no corresponding increase in the prices of finished products, would have approximately an $18.8 million
negative effect on our operating income on an annual basis, although this would be slightly mitigated by our sale of recovered paper to third party customers.

Energy prices are also highly cyclical. We estimate that a 10% increase in our energy costs with no corresponding increase in the prices of finished products would have approximately a $10.7 million negative effect on our operating income
on an annual basis. We attempt to partially hedge our energy price risk by buying forward contracts for some of our future energy requirements.

Interest Rates/Cross-Currency Interest Rate Swaps: We are party to a series of cross-currency interest rate swap agreements (the 2001 Swaps) with a member of our bank group that had been designated as a cash flow
hedge against an existing intercompany loan to our European subsidiary. Effective May 1, 2007, we de-designated the 2001 Swaps as hedges. With this de-designation, the amount in other comprehensive income, $0.2 million, will be reclassified
into earnings over the life of the original agreements, which are scheduled to terminate in September 2009. Despite this accounting-based de-designation, economic coverage of the exposure to changes in the Euro to US dollar exchange rates remains as
the interest rate derivative instruments remain in effect, only hedge accounting ceases. At January 31, 2008, the fair value of the 2001 Swaps represented a liability of $12.0 million. During the first quarter of fiscal 2008, in relation to a
second intercompany loan with our European subsidiary, we entered into another swap agreement that was not designated as a hedge, which represented a liability of $2.6 million as of January 31, 2008. As a result of derivative activities during
the nine months ended January 31, 2008, we recognized a loss of $0.9 million; in the same period of 2007, we recognized a loss of $0.1 million.

We
could be exposed to future changes in interest rates. Our senior secured revolving credit facility bears interest at a variable rate, as do our industrial revenue bonds. Interest rate changes impact the amount of our interest payments and,
therefore, our future earnings and cash flows, assuming other factors are held constant. We estimate that if interest rates were to increase by 10%, or approximately 50 basis points, it would have approximately a $0.6 million negative effect on net
earnings on an annual basis.

We do not otherwise have any involvement with derivative financial instruments and do not use them for trading purposes.



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|Item 4. | Controls and Procedures.
|------- | ------------------------

(a) Disclosure controls and procedures.

As of January 31, 2008, our management, including the principal executive officer and principal financial officer, evaluated our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) related to the recording, processing, summarization and reporting of information in our reports that we file with the SEC. These disclosure
controls and procedures have been designed to ensure that material information relating to us, including our subsidiaries, is made known to our management, including these officers, by other of our employees, and that this information is recorded,
processed, summarized, evaluated and reported, as applicable, within the time periods specified in the SECs rules and forms. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

Based on their evaluation as of January 31, 2008, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) are effective to reasonably ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms.

(b) Changes in internal controls over financial reporting.

The Company continually seeks ways to improve the effectiveness and efficiency of its internal controls over financial reporting, resulting in frequent process
refinement. However, there have been no changes in our internal control over financial reporting that occurred during our last fiscal period to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We are party to various claims, legal actions,
complaints and administrative proceedings, including workers compensation and environmental claims, arising in the ordinary course of business. Although in managements opinion the ultimate disposition of these matters will not have a
material effect on our financial condition, results of operations or cash flows, in the event of one or more adverse determinations related to these issues, the impact on our results of operations could be material to any specific period.

The Massachusetts Attorney Generals Office has asserted that we, at one or more of our Massachusetts mills, exceeded permitted air emissions, failed
to accurately report certain emissions, and failed to submit certain required monitoring and compliance reports. In September 2007, we executed an agreement to settle these allegations by paying $600 and agreeing to certain injunctive relief. The
$600, which was paid on November 7, 2007, had been accrued by April 30, 2007, with such amounts being recorded in the Selling, general and administrative line on the condensed consolidated statements of operations.

By letters dated February 14, 2006 and June 2, 2006, the United States Environment Protection Agency (EPA) notified us of its potential liability
relating to the Lower Passaic River Study Area (LPRSA), which is part of the Diamond Alkali Superfund Site, under Section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. We are one of at
least 70 potentially responsible parties (PRPs) identified thus far. The EPA alleges that hazardous substances were released from our now-closed Newark, NJ paperboard mill into the Lower Passaic River. The EPA informed us that we may be
potentially liable for response costs that the government may incur relating to the study of the LPRSA and for unspecified natural resource damages. The EPA demanded that we pay $2,830 in unreimbursed past response costs on a joint and several
liability basis. Alternatively, the EPA gave us the opportunity to obtain a release from these past response costs by joining the Cooperating Parties Group (the Group) and agreeing to fund an environmental study by the EPA; we
subsequently joined the Group. In 2006, the EPA notified the Group that the cost of the study would exceed its initial estimates and offered the Group the opportunity to conduct the study by itself rather than reimburse the government for the
additional costs incurred. The Group engaged in discussions with the EPA and the Group agreed to assume responsibility for the study pursuant to an Administrative Order on Consent. Cumulatively, as of January 31, 2008 and based upon
the most recent estimates for the study, we have expensed $688 (none of which was expensed in the nine months ended January 31, 2008), of which $365 remains accrued.



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Additionally, by letter dated August 2, 2007, the National Oceanic and Atmospheric Administration
(NOAA) of the United States Department of Commerce sent a letter to us and other companies identified as PRPs notifying them that it intended to perform an assessment of injuries to natural resources in connection with the release of
hazardous substances at or from the Diamond Alkali Superfund Site. In this letter, the NOAA invited all of the identified PRPs, including us, to participate in the development and performance of this assessment. The Cooperating Parties Group,
collectively, decided not to participate. Some of the members of the Cooperating Parties Group, including the Company, have been seeking additional information from the NOAA to determine whether cooperation is possible and whether or not the
Cooperating Party Group should reconsider its decision not to participate.

Due to uncertainties inherent in these matters, management is unable to
estimate our potential exposure, including possible remediation or other environmental responsibilities that may result from these matters at this time; such information is not expected to be known for a number of years. These uncertainties
primarily include the completion and outcome of the environmental studies and the percentage of contamination/ natural resource damage, if any, ultimately determined to be attributable to us and other parties. It is possible that our ultimate
liability resulting from these issues could be material.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

No changes



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

Not applicable



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

(a) None

(b) None



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None



|ITEM 6. | EXHIBITS AND REPORTS
|------- | --------------------



|31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------



|31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------



|32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------



|32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------



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SIGNATURES

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



|      |  |                        |  |     |  |                                             
|----- |  | ---------------------- |  | --- |  | --------------------------------------------
|      |  | THE NEWARK GROUP, INC.
|      |  |                        | 
|Date: |  | March 14, 2008         |  |     |  |                                             
|      |  |                        | 
|      |  |                        |  | By: |  | /s/ Robert H. Mullen                        
|      |  |                        |  |     |  | Robert H. Mullen                            
|      |  |                        |  |     |  | Chief Executive Officer, President and      
|      |  |                        |  |     |  | Chairman of the Board                       
|      |  |                        |  |     |  | (Principal Executive Officer)               
|      |  |                        | 
|Date: |  | March 14, 2008         |  |     |  |                                             
|      |  |                        | 
|      |  |                        |  | By: |  | /s/ Joseph E. Byrne                         
|      |  |                        |  |     |  | Joseph E. Byrne                             
|      |  |                        |  |     |  | Chief Financial Officer                     
|      |  |                        |  |     |  | (Principal Financial and Accounting Officer)



31