FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

ý x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2007 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Registration Number: 333-114032

BLUE RIDGE PAPER PRODUCTS INC.

(Exact name of registrant as specified in charter)

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

41 MAIN STREET CANTON, NORTH CAROLINA 28716

~~CANTON,~~(Address ~~NORTH~~of principal ~~CAROLINA~~executive ~~28716~~office)

~~(Address~~Registrant’s telephone ofnumber, ~~principal~~including ~~executive~~area ~~office)~~code: 828-454-0676

~~Registrant’s~~Indicate ~~telephone~~by ~~number~~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), ~~including~~and ~~area~~(2) has been subject to such filing ~~code: 828-454-0676~~requirements for the past 90 days.

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 report), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o

~~Yes~~Indicate ýby Nocheck mark owhether 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. (Check one):

IndicateLarge byAccelerated checkFiler marko whetherAccelerated theFiler registranto is an accelerated filer (as defined in Rule 12bNon-2Accelerated ofFiler the Exchange Act).x

~~Yes~~Indicate oby Nocheck ýmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of common shares outstanding at March 31, ~~2005~~2007 was 101,~~729,294~~000.

BLUE RIDGE PAPER PRODUCTS INC.

AND ~~SUBSIDIARY~~ SUBSIDIARIES

	~~INDEX~~	INDEX
PART 1.	~~FINANCIAL INFORMATION~~	FINANCIAL INFORMATION
	Item 1.	Financial Statements	~~Condensed Consolidated Balance Sheets, March 31, 2005 (unaudited) and December 31, 2004 (derived from audited financial statements)~~
			Condensed Consolidated Statements of Operations, Three Months Ended March 31, 2005 and 2004 (unaudited)
		Condensed Consolidated Balance Sheets, March 31, 2007 (unaudited) and December 31, 2006 (derived from audited financial statements)
			Condensed Consolidated Statements of Cash Flows, Three Months Ended March 31, 2005 and 2004 (unaudited)
		Condensed Consolidated Statements of Operations, Three Months Ended March 31, 2007 and 2006 (unaudited)
			Notes to Condensed Consolidated Financial Statements (unaudited)
		Condensed Consolidated Statements of Cash Flows, Three Months Ended March 31, 2007 and 2006 (unaudited)
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
		Notes to Condensed Consolidated Financial Statements (unaudited)
	Item 3.		Quantitative and Qualitative Disclosures About Market Risk
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 4.		Controls and Procedures
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
PART II.		OTHER INFORMATION
	Item 4.	Controls and Procedures
	Item 6.		Exhibits
PART II.		OTHER INFORMATION
	Item 1A.	Risk Factors
	Item 6.	Exhibits

PART 1. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS
	Blue Ridge Paper Products Inc. and Subsidiary
	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

BLUE RIDGE PAPER PRODUCTS INC.

Condensed Consolidated Balance Sheets

March 31, ~~2005~~2007 and December 31, ~~2004~~2006

(Dollars in thousands)

(unaudited)

	March 31, 2005			December 31, 2004
	March 31,			December 31,
	2007			2006
Assets
Current assets:
Cash	$	21,~~347~~192		$	21,~~466~~834
Accounts receivable, net of allowance for doubtful accounts and discounts of $1,023 and $1,820 in 2005 and 2004, respectively	56,372			45,814
Accounts receivable, net of allowance for doubtful accounts and discounts of $1,197 and $1,507 in 2007 and 2006, respectively	60,123			56,263
Inventories	5052,~~207~~125			4757,~~006~~469
Prepaid expenses	12,~~256~~338			12,~~715~~306
Insurance proceeds receivable	6,100			10,539
Deferred tax asset	4,489			4,385
Income tax receivable	55			76
Total current assets	120,267			122,257
Deferred tax asset	4,160			4,256
Property, plant, and equipment, net of accumulated depreciation of $124,094 and $120,202 in 2007 and 2006, respectively	190,897			190,792
Total current assets	120,497			111,872
Deferred financing costs, net	3,150			3,564
Property, plant, and equipment, net of accumulated depreciation of $92,857 and $88,517 in 2005 and 2004, respectively	185,016			187,336
Other assets	30			44
Deferred financing costs, net	6,160			6,491
Total assets	$	314,344		$	316,657
Other assets	184			55
Liabilities and Stockholder’s Deficit
Total assets	$	311,857		$	305,754
Liabilities and Stockholder’s Equity (Deficit)
Current liabilities:
Current portion of senior debt	$	4044		$	3943
Current portion of capital lease obligation	623			603
Current portion of capital lease obligations	789			965
Accounts payable	3332,~~857~~837			4443,~~521~~498
Accrued expenses and other current liabilities	31,~~074~~517			33,~~742~~383
Interest payable	5,~~390~~793			1,~~655~~884
Total current liabilities	70,~~984~~980			8079,~~560~~773
Senior debt, net of current portion	~~156~~162,~~939~~020			~~144~~159,~~075~~876
Parent Pay-In-Kind (PIK) Senior Subordinated Note	4048,~~681~~514			4048,~~681~~514
Capital lease obligations	1,327			1,484
Capital lease obligations, net of current portion	1,942			2,629
Pension and postretirement benefits	2123,~~854~~920			2124,~~211~~027
Deferred tax liability	4,~~160~~489			4,~~256~~385
Other liabilities	1,~~275~~243			1,~~271~~205
Total liabilities	~~297~~313,~~220~~108			~~293~~320,~~538~~409
Obligation to redeem ESOP shares	3629,~~885~~715			3529,~~257~~723
Obligation to redeem restricted stock units of Parent	21,~~195~~312			21,~~119~~235
Commitments and contingencies (See notes)
Stockholder’s equity (deficit):
Stockholder’s deficit:
Common stock (par value $0.01, 1000 shares authorized and outstanding in 2005 and 2004, respectively)	—			—
Common stock (par value $0.01, 1,000 shares authorized and outstanding in 2007 and 2006, respectively)	—			—
Additional paid-in capital	5164,~~666~~196			5164,~~400~~213
Accumulated deficit	(6481,~~657~~311		)	(6586,~~374~~255		)
Unearned compensation	(263		)	—
Accumulated other comprehensive loss	(3,299		)	(3,299		)
Accumulated other comprehensive loss	(4,524		)	(4,524		)
	(20,414		)	(25,341		)
	(17,778		)	(18,498		)
Receivable from Parent	(9,377		)	(9,369		)
Receivable from Parent	(6,665		)	(6,662		)
Total stockholder’s deficit	(29,791		)	(34,710		)
Total stockholder’s equity (deficit)	(24,443		)	(25,160		)
Total liabilities and stockholder’s deficit	$	314,344		$	316,657
Total liabilities and stockholder’s equity (deficit)	$	311,857		$	305,754

See accompanying notes to condensed consolidated financial statements.

BLUE RIDGE PAPER PRODUCTS INC.

Condensed Consolidated Statements of Operations

Three ~~months~~Months Ended ~~ended~~ March 31, ~~2005~~ 2007 and ~~2004~~2006

(Dollars in thousands)

(unaudited)

	2005			2004
	2007			2006
Net sales	$	~~128~~155,~~547~~011		$	~~120~~140,~~981~~107
Cost of goods sold:
Cost of goods sold, excluding depreciation and amortization, flood-related loss and, repairs and insurance recoveries	113,195			113,565
Cost of goods sold, excluding depreciation and amortization	133,673			127,801
Depreciation and amortization	3,~~904~~866			43,~~262~~604
Flood-related loss and repairs	848			—
Gross profit	17,472			8,702
Insurance recoveries	(100		)	—
Selling, general and administrative expenses	7,150			5,789
Gross profit	10,700			3,154
Depreciation and amortization	27			58
Selling, general and administrative expenses	5,147			6,577
ESOP expense	—			1,116
Depreciation and amortization	436			458
Profit-sharing expense	549			—
Insurance recoveries	(23		)	—
Operating profit	9,746			1,739
ESOP expense	1,631			1,800
Profit-sharing expense	80			—
Operating profit (loss)	3,429			(5,681		)
Other income (expense):
Interest expense, excluding amortization of deferred financing costs	(4,~~258~~386		)	(34,~~960~~475		)
Amortization of deferred financing costs	(~~332~~414		)	(~~289~~370		)
Government grant income	~~1,878~~—			—206
	(2,712		)	(4,249		)
Gain (loss) on equity method investment	(2		)	4
Profit (loss) before income taxes	717			(9,930		)
	(4,802		)	(4,635		)
Profit (loss) before income taxes	4,944			(2,896		)
Income tax	—			—
Net profit (loss)	$	717		$	(9,930	)
Net income (loss)	$	4,944		$	(2,896	)

See accompanying notes to condensed consolidated financial statements.

BLUE RIDGE PAPER PRODUCTS INC.

Condensed Consolidated Statements of Cash Flows

Three Months ~~months~~Ended ~~ended~~ March 31, ~~2005~~2007 and ~~2004~~2006

(Dollars in thousands)

(unaudited)

	2005			2004
	2007			2006
Cash flows from operating activities:
Net profit (loss)	$	717		$	(9,930	)
Net income (loss)	$	4,944		$	(2,896	)
Adjustment to reconcile net loss to net cash used in operating activities:
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	43,~~340~~893			43,~~720~~662
Compensation expense for Parent restricted stock	76—			5913
Amortization of deferred financing costs	~~331~~414			~~289~~370
ESOP expense	~~1,631~~—			1,~~800~~116
Parent PIK Senior Subordinated Note for interest	~~915~~1,092			~~835~~1,000
Changes in operating assets and liabilities:
Accounts receivable, net	(103,~~558~~860		)	(2,~~748~~172		)
Inventories	(35,~~201~~344		)	32,~~406~~635
Prepaid expenses	~~459~~(32		)	(40261		)
Insurance proceeds receivable	4,439			—
Accounts payable	(6,106		)	(4,247		)
Income tax receivable	21			—
Accrued expenses and other current liabilities	(1,866		)	(5,373		)
Accounts payable	(10,664		)	(2,675		)
Interest payable	2,817			2,704
Accrued and other current liabilities	(2,668		)	534
Pension and postretirement benefits	(107		)	701
Interest payable	2,820			3,035
Other assets and liabilities	53			379
Pension and postretirement benefits	643			449
Net cash provided by (used in) operating activities	6,586			(2,369		)
Other assets and liabilities	(125		)	(283		)
Net cash used in operating activities	(10,824		)	(549		)
Cash flows used in investing activities:
Additions to property, plant, and equipment	(23,~~020~~998		)	(2,~~165~~134		)
Proceeds from sale of property, plant, and equipment	—			2
Net cash used in investing activities	(3,998		)	(2,134		)
Net cash used in investing activities	(2,020		)	(2,163		)
Cash flows from financing activities:
Repurchase of Parent common and preferred stock	(344		)	(~~276~~3		)
Payments on separation notes payable	—			(1,615		)
Proceeds from borrowings under line of credit	30,348			39,701
Proceeds from borrowings under line of credit	54,050			34,965
Repayment of borrowings under line of credit	(28,193		)	(36,926		)
Repayment of borrowings under line of credit	(41,175		)	(30,750		)
Repayments of long-term debt and capital lease obligations	(874		)	(171		)
Cash paid for refinancing credit facilities	—			(151		)
Other financing activities	(4,555		)	1,188
Repayments of long-term debt and capital lease obligations	(147		)	(126		)
Net cash provided by (used in) financing activities	(3,230		)	3,789
Net cash provided by financing activities	12,725			2,047
Net decrease in cash	(642		)	(714		)
Net decrease in cash	(119		)	(665		)
Cash, beginning of period	1,834			2,110
Cash, beginning of period	2,466			2,123
Cash, end of period	$	1,192		$	1,396
Cash, end of period	$	2,347		$	1,458
Supplemental disclosures of cash flow information:
Cash paid for interest, including capitalized interest	$	614		$	90
Cash paid for interest, including capitalized interest of $749 and $217 in 2007 and 2006, respectively	$	1,227		$	896
Noncash investing and financing activities:
Issuance of restricted stock units	339			—

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in in thousands)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated interim financial ~~statements~~ statements have been prepared in accordance with Regulation S-X related to ~~interim~~ interim period financial statements and, in the opinion of management, include ~~all~~ all adjustments (consisting only of normal recurring accruals) that are ~~necessary~~ necessary for the fair presentation of results for the interim periods. Results for the three months ended March 31, 2007 ~~2005~~ may not necessarily be indicative of full-year results. It is suggested that these condensed consolidated interim financial statements be read in conjunction with the audited consolidated financial statements of Blue Ridge ~~Paper~~ Paper Products Inc. (the “Company”) included in our annual report on Form 10-K for the year ended December 31, ~~2004~~ 2006.

The preparation of financial statements in conformity with ~~accounting~~U.S. ~~principles~~ generally accepted inaccounting ~~the~~principles ~~United States of America~~ requires management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(2) Liquidity

The Company’s working capital needs are satisfied through its ~~$50,000~~ revolving credit facility, which expires ~~matures~~ December 15, 2008. ~~The~~On September 15, 2004, the credit agreement was amended to increase the facility from $45,000 to $50,000 on a permanent basis. The credit agreement requires that the Company meet certain financial covenants, including a minimum borrowing availability threshold and a fixed ~~charge~~ charge coverage ratio. AtOn ~~certain~~August ~~times during~~5, ~~2004~~2005, the credit agreement was amended to ~~reduce~~include ~~the~~specified ~~minimum~~foreign ~~borrowing~~account ~~availability~~debtors ~~threshold~~as ~~from~~eligible ~~$15,000~~accounts toborrowing ~~$5,000~~base availability. On ~~December~~March 2115, ~~2004~~2006, the ~~revolving~~ credit agreement was amended ~~to reduce~~on ~~the~~a ~~amount~~permanent ~~subject~~basis to change the minimum borrowing availability threshold ~~restrictions~~ from $157,~~000~~ 500 to $75,~~500~~000. For further discussion, see the Company’s annual report on aForm ~~permanent~~10-K ~~basis~~for the year ended December 31, 2006. In addition, the Company must meet certain affirmative and negative operating covenants. In the event of default or if the outstanding balance of the revolving credit facility is greater than $25,000, ~~and~~ the borrowing availability falls below $75,~~500~~000 and the fixed charge coverage ratio is less than 1.1 to 1.0, the credit agreement provides for activation of controlled bank accounts to apply daily cash collections toward the outstanding revolving loan balance. Management believes the existing credit facility is adequate for the Company’s current cash flow needs ~~through the next 12 months~~. Continued compliance with debt covenants and sufficient liquidity is dependent upon business operations consistent with management’s plan for ~~2005~~the fiscal year ending December 31, 2007 (“fiscal year 2007”). However, uncertainties exist within the Company’s markets ~~which~~that include, but are not limited to, availability and pricing of raw materials, ~~unforeseen~~and energy, unforeseen disruption in plant operations, labor disputes, significant competition, relationships with large customers, product demand, environmental compliance, litigation, loss of key managers and exposures to interest rate changes.

~~The maximum and minimum borrowing availability at March 31, 2005 and December 31, 2004 are as follows:~~6

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

The borrowing availabilities at March 31, 2007 and December 31, 2006 are as follows:

	March 31,			December 31,
	2007			2006

Borrowing base	$	65,710		$	61,605
Credit agreement restriction	(5,000		)	(5,000		)
Suppressed availability (1)	(10,710		)	(6,605		)
Line availability not to exceed $50,000	50,000			50,000
Revolver balance	(36,390		)	(34,235		)
Letters of credit	(5,691		)	(5,691		)
Total availability	$	7,919		$	10,074

(31) The ~~Recent~~excess ~~Developments~~of the value of the assets collateralized over the maximum line of credit after subtracting the credit agreement restriction.

~~Flood losses related to Hurricanes Frances and Ivan~~(3) Inventories

OnComponents ~~September~~of 8,inventory ~~2004,~~at ~~Western North Carolina experienced a flood from~~March ~~Hurricane~~31, ~~Frances~~2007 ~~exceeding the Federal Emergency Management Association (FEMA) 100-year flood plain levels. This forced the shutdown of the Canton pulp~~ and ~~paper mill.~~December ~~The Company’s Corporate Headquarters building was also flooded. On September 17~~31, ~~2004,~~2006 ~~more~~are ~~serious~~as ~~flooding occurred from Hurricane Ivan. The combined downtime of the Canton mill in whole or in part from the two floods was 26 days.~~follows:

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

	March 31,		December 31,
	2007		2006

Raw materials	$	19,105	$	18,219
Work in progress	15,952		18,173
Finished goods:
Paper and paperboard	11,915		15,122
Cartons	5,153		5,955
Total	$	52,125	$	57,469

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

~~Parmalat~~9.5% ~~Bankruptcy~~Senior Secured Notes

On ~~February 24,~~December ~~2004~~17, ~~Parmalat~~2003, ~~USA~~the Company issued $125.0 million of senior secured notes (the “~~Parmalat~~Notes”), athrough ~~significant~~a ~~customer,~~private ~~filed~~placement ~~for~~offering ~~Chapter~~under 11Rule ~~bankruptcy protection~~144A. AtThe ~~that~~Notes ~~time,~~have ~~the~~a ~~Company~~term ~~had~~of ~~outstanding~~five ~~accounts~~years, ~~receivable~~are due on December 15, 2008 and bear interest at a stated rate of $19.5%,~~158~~ which is payable semi-annually in arrears on June 15 and December 15. InThe ~~addition,~~Notes ~~the~~are ~~Company~~collateralized ~~had~~by ~~received~~a ~~cash~~senior ~~payments~~secured ofinterest ~~$2,984~~in ~~related~~substantially toall ~~accounts~~of ~~receivable~~the ~~that~~Company’s ~~were~~tangible ~~potentially~~and ~~subject~~intangible toassets ~~“preferential~~and ~~payment”~~have ~~treatment~~a assubordinated secured ~~defined~~interest in ~~Chapter~~the 11outstanding ~~bankruptcy~~trade ~~laws~~accounts receivable and ~~regulations~~inventories. As The ofCompany ~~December~~has ~~31,~~the ~~2004,~~right to redeem the ~~Company~~Notes ~~assessed~~at 104.75% and 100.00%, plus ~~the~~accrued ~~potential~~interest ofon ~~collecting~~or ~~the~~after ~~outstanding~~December ~~receivables~~15, 2006 and ~~the~~December ~~likelihood~~15, ~~that~~2007, ~~cash~~respectively. Terms ~~payments~~of ~~deemed~~the asindenture ~~preferential~~under ~~would~~which bethe ~~unsuccessfully~~Notes ~~defended~~have ~~and recorded~~been aissued ~~valuation~~contain ~~allowance~~certain ~~of $1~~covenants,~~158~~ ~~related~~including tolimitations ~~this~~on ~~customer~~certain restricted payments and the incurrence of additional indebtedness.

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

On December 17, 2003, the Company entered into a revolving credit facility with a financial institution, which provided for maximum borrowings of $45,000, subject to a borrowing base calculated using eligible accounts receivable and inventories. On September 15, 2004, the credit agreement was amended to increase the maximum borrowings to $50,000 on a permanent basis. On August 5, 2005, the credit agreement was amended to include specified foreign account debtors as eligible accounts in determining borrowing base availability. On March 15, 2006, the credit agreement was amended on a permanent basis to change the minimum borrowing availability threshold from $7,500 to $5,000. The revolving credit facility is collateralized by a senior secured interest in the Company’s outstanding trade accounts receivable and inventories and by a subordinated secured interest in substantially all of the Company’s tangible and

~~(3) Recent Developments (continued)~~7

~~Restricted~~intangible ~~Stock~~assets. The revolving credit facility matures on December 15, 2008, and requires the Company to pay an annual fee of 0.375% on the unused facility amount. The Company had an outstanding balance of $36,390 and $34,235 at March 31, 2007 and December 31, 2006, respectively, and letters of credit outstanding as of March 31, 2007 and December 31, 2006 were $5,691. The maximum borrowing availability at March 31, 2007 was $7,919, subject to the availability restriction described in Note 2. The interest rate on the revolving credit facility at each of March 31, 2007 and December 31, 2006 was 7.53%. This is a blended rate of LIBOR contracts plus margin.

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

~~Management~~Blue ~~Fees~~Ridge Holding Corp. (the “Parent”) partially financed the acquisition of the Canton System with a PIK Senior Subordinated Note payable to International Paper Corporation in the principal amount of $30,000, wherein interest would accrue on the unpaid principal balance at a rate of 9% per annum until May 14, 2007. On November 14, 2003, the Company entered into an agreement with International Paper to extend the maturity date of the Parent PIK Senior Subordinated Note to May 14, 2009 in return for a principal payment of $7,000. This payment was made on December 17, 2003 with proceeds from the sale of the Notes. On each semi-annual interest payment date (March 31 and September 30), the Parent records interest on this note by issuing “Secondary Notes,” which bear substantially the same terms as the original Parent PIK Senior Subordinated Notes. Payments of principal and interest under the Parent PIK Senior Subordinated Note are legal obligations of the Parent and have not been guaranteed in any way by the Company. In addition, under certain circumstances, primarily future Parent equity transactions transferring at least 50% of the common stock to a third party, payment by the Parent of the Parent PIK Senior Subordinated Note is triggered prior to its maturity. The Parent is dependent on the Company to service the debt in its entirety. The entire amount is due on May 14, 2009.

~~The Company accrued management fees to its Parent’s majority stockholder based upon a commitment made in 1999 equal to 0.~~(5~~% of consolidated gross revenues.~~) ~~Due~~Retirement to restrictions within debt covenants, no management fees were paid since September 2001, although such fees continued to be accrued. On October 1, 2003, the management fee agreement with the majority stockholder was amended to assign obligations related to the management fee to the Parent and to amend the termination date to October 1, 2013. On January 28, 2005, the management fee agreement was amended again to terminate the future obligations related to the management fee effective January 1, 2005. As of March 31, 2005 and December 31, 2004, the Company has recorded a liability of $6,736 for unpaid fees accrued under the agreement in other accrued expenses on the consolidated balance sheets. The Company is restricted from paying these accrued fees under the terms of its indenture governing the 9.5% Senior Secured Notes (the “Notes”) issued on December 17, 2003 and its working capital facility.Plans

~~(4)~~ Pension ~~Recent Accounting Developments~~Plan

InThe ~~December 2004,~~components ~~the FASB issued Statement~~ of ~~Financial~~net ~~Accounting~~periodic ~~Standards~~benefit ~~(“SFAS”) No.~~costs ~~123R,~~relating ~~“Share-Based Payment,” which requires the measurement of all employee share-based payments~~ to ~~employees, including grants of employee stock options, using a fair-value-based method and~~ the ~~recording of such expense in the~~ Company’s ~~consolidated~~pension ~~statements~~plan ~~of income. As~~are ~~amended~~as ~~by the SEC in April~~follows ~~2005,~~for the ~~accounting~~three-month ~~provisions of SFAS No. 123R for a calendar year registrant are effective for reporting~~ periods ~~beginning~~ended ~~after January 1~~March 31, ~~2006. The~~2007 ~~Company is required to adopt SFAS No. 123R in the first quarter of 2006~~ and ~~is currently evaluating the effect that the adoption of FASB No. 123R will have on its financial position and results of operation.~~2006:

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company will be required to apply FIN 46R to variable interests in variable interest entities (“VIEs”) created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any differences between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets,

	Three Months Ended
	March 31,
	2007			2006
Service cost	$	435		$	409
Interest cost	315			251
Expected return on assets	(319		)	(264		)
Amortization of prior service cost	(16		)	(16		)
Amortization of actuarial loss	123			118
Total net periodic benefits costs	$	538		$	498

8Management is primarily responsible for determining the cost of pension benefits for this plan. Management considered a number of factors, including consulting with an actuarial firm, when determining this cost. The Company estimates its benefits payments in fiscal year 2007 will be approximately $438. Benefits payments for the fiscal year ended December 31, 2006 (“fiscal year 2006”) were $382.

~~(4) Recent Accounting Developments (continued)~~8

~~liabilities and noncontrolling interest of the VIE. The adoption of~~Postretirement ~~FIN 46R~~Medical ~~did not have a material effect on the Company’s consolidated financial statements.~~Plan

~~(5)~~ The components of net ~~Long-Term~~periodic ~~and~~benefit ~~Short~~costs relating to the Company’s postretirement medical plan are as follows for the three-~~Term~~month ~~Debt~~periods ended March 31, 2007 and 2006:

In July 2003, the Company entered into a note payable with a bank for $819 due in 2010. The note bears interest at a fixed rate at 5.5%. Land and office buildings in Canton, North Carolina collateralize the note. The balance of the note payable was $754 at March 31, 2005.

	Three Months Ended
	March 31,
	2007			2006
Service cost	$	135		$	118
Interest cost	288			227
Amortization of prior service cost	(100		)	(100		)
Amortization of actuarial loss	20			—
Total net periodic benefits costs	$	343		$	245

OnManagement is ~~December 17,~~primarily ~~2003,~~responsible ~~the~~for ~~Company~~determining ~~sold~~the ~~$125,000~~cost of ~~the~~postretirement ~~Notes~~medical ~~through~~benefits afor ~~private~~this ~~offering under Rule 144A~~plan. ~~The~~Management ~~Notes~~considered ~~have~~ a ~~term~~number of ~~five years~~factors, ~~are due~~ onincluding ~~December 15,~~consulting ~~2008~~with ~~and~~an ~~bear~~actuarial ~~interest at a stated rate of 9.5%~~firm, ~~which~~when ~~is payable~~determining ~~semiannually~~this ~~in arrears on June 15 and December 15~~cost. The ~~Notes are collateralized by a senior secured interest in substantially all of the~~ Company’s ~~tangible~~estimates ~~and~~its ~~intangible assets~~benefits ~~and have a subordinated secured interest in the outstanding trade~~payments ~~accounts~~for ~~receivable~~fiscal ~~and~~year ~~inventories. The Company~~2007 ~~has~~will ~~the~~be ~~right~~approximately ~~to redeem the Notes at 104~~$644.~~75% and 100.00%, plus accrued interest on or after December 15, 2006 and December 15, 2007, respectively.~~ ~~Terms~~Benefits ~~of the indenture under which the Notes have been issued contain certain covenants, including limitations on certain restricted~~ payments ~~and~~for ~~the~~fiscal ~~incurrence~~year of2006 ~~additional~~were ~~indebtedness~~$428.

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

In June 2006, the FASB issued FAS Interpretation No. 48 (6FIN 48) “Accounting for Uncertainty in Income ~~Commitments~~Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes.” The accounting provisions of FIN 48 prescribe a recognition threshold and ~~Contingencies~~measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation establishes a consistent threshold for recognizing current and deferred taxes. The Company adopted the provisions of FIN 48 effective January 1, 2007. The adoption of FIN 48 did not have a material effect on the Company’s financial statements or results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (a“Statement 157”) , ~~Purchase~~“Fair ~~Commitments~~Value Measurements.” Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles and enhances disclosures about fair value measurements. Statement 157 applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. Statement 157 applies to interim reporting and will be effective for the Company in the first quarter of the fiscal year ending December 31, 2008. The Company is currently evaluating the effects of Statement 157 but does not anticipate that it will have a material effect on its consolidated financial statements.

~~The~~On ~~Company~~September ~~has~~8, an2006, ~~agreement~~the FASB ~~with~~released ~~International~~FASB ~~Paper~~Staff ~~for~~Position ~~supply~~(FSP ~~of wood~~AUG ~~chips. The agreement’s first five~~AIR-~~year~~1), ~~term~~“Accounting ~~expired~~for ~~in May 2004. The~~Planned ~~Company~~Major ~~has~~Maintenance ~~exercised~~Activities,” ~~its~~which ~~first~~prohibits ~~renewal~~the ~~option~~use ~~for~~of anthe ~~additional~~“accrue ~~five-year~~in ~~period~~advance” ~~through~~method ~~May~~of ~~2009~~accounting ~~and~~for ~~has~~planned amajor ~~second~~maintenance ~~five-year~~activities ~~option~~in annual atand ~~its discretion~~interim financial reporting periods. The ~~agreement~~guidance ~~requires minimum~~in ~~volume~~FSP ~~purchases~~AUG AIR-1 ~~and~~is ~~deliveries~~effective offor ~~815,000~~the ~~tons~~first offiscal ~~wood~~year ~~chips~~beginning ~~during each~~after ~~contract~~December ~~year~~15, 2006. ~~These~~The ~~chips~~Company ~~are supplied~~does bynot ~~two~~use ~~International~~the ~~Paper~~“accrue ~~facilities~~ in ~~South~~advance” ~~Carolina~~method ~~and Tennessee~~of ~~and~~accounting ~~account~~ for ~~approximately~~planned ~~41%~~major ofmaintenance; therefore, the ~~total~~provisions ~~mill requirements. As~~ of ~~March~~FSP ~~31, 2005, the Company has~~AUG ~~commitments~~AIR-1 tohave ~~purchase~~no ~~wood~~effect ~~chips~~on ~~of approximately $122,657 over~~ the ~~remaining terms~~Company’s offinancial ~~the agreements~~statements.

On September 29, 2006, the FASB issued FASB Statement No. 158 (b“Statement 158”) , “Employers’ ~~Labor~~Accounting ~~Agreements~~for Defined Benefit Pension and Other Postretirement Plans—An Amendment of FASB Statements Nos. 87, 88, 106 and 132R.” This new standard requires an employer to: (a) recognize in its

The Company is committed to collective bargaining labor agreements with the Paper, Allied-Industrial, Chemical and Energy Workers International Union (PACE) and the Bellwood Printing Pressmen, Assistants and Specialty Workers Union. The PACE union contract is due for renewal in May 2006. As provided in the contract, the9

9statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after June 15, 2007, for entities with non-publicly traded equity securities as defined by Statement 158. The Company will adopt the provisions of Statement 158 in December 2007 and is currently evaluating the impact on its consolidated financial statements. Based on preliminary information from the Company’s actuaries, the Company expects the adoption of this new accounting guidance to increase stockholder’s deficit, net of tax, by approximately $3,000, to $4,000 as of December 31, 2007.

(67) Commitments and Contingencies ~~(continued)~~

~~Company has notified PACE that it desires to negotiate certain provisions of the labor contract before renewal, and negotiations are currently underway.~~(a) IfPurchase ~~no new agreement is reached between the parties, the existing contract remains in place until May 2006.~~Commitments

The Company has agreements with suppliers of wood pulp and wood chips. The terms of one of the agreements require minimum volume purchases of 815,000 tons of chips each contract year during the contract five-year period. This wood chip agreement is with International Paper, which supplies the wood chips through two of its subsidiaries (csee Note 14 to our consolidated financial statements included in our annual report for fiscal year 2006, for further discussion) . As of March 31, 2007, the ~~Litigation~~Company has minimal commitments to purchase wood chips of approximately $58,617 over ~~Claims~~the ~~and~~remaining ~~Assessments~~terms of the agreements.

On April 15, 2003, a lawsuit seeking class action certification was filed in the Circuit Court for Cocke County, Tennessee, in which the Company is a defendant. The lawsuit is being brought on behalf of approximately 300 residents owning property adjoining the Pigeon River upon which the Canton mill is located, and into which the Company has a permit to discharge. The plaintiffs are seeking damages for private nuisance in the period commencing June 1, 1999, and thereafter until present. The plaintiff in this action alleges that the discharge of colored water from the Canton mill has resulted in a diminution of property value, but does not contain any allegation relating to health or safety matters. The demand for damages is limited to a maximum of $74 (~~exclusive of interest and costs~~b) ~~per individual~~ ~~landowner. Management~~Labor ~~has not recorded a liability for any amount related to this lawsuit as of March 31, 2005.~~Agreements

The Company ismaintains collective ~~subject~~bargaining ~~to litigation~~labor ~~that~~agreements ~~may~~with ~~arise~~local inunions ~~the~~at ~~normal~~all ~~course~~manufacturing facilities. Approximately 74% of ~~business~~the Company’s employees are subject to the agreements. InA ~~the~~new ~~opinion~~Master ofLabor ~~management~~Agreement, ~~the~~accompanied ~~Company’s~~by ~~liability~~local supplements, ifwas ~~any~~negotiated with United Steel, ~~under~~Paper ~~any~~and ~~pending~~Forestry, Rubber, ~~litigation~~Manufacturing, ~~will~~Energy, ~~not~~Allied ~~materially~~Industrial ~~impact~~and ~~its~~Service Workers ~~financial~~International ~~condition~~Union or(USW) ~~operations~~and ratified in July 2006. The term of the labor agreement extends through May 13, 2009.

(dc) ~~Environmental~~ Litigation, ~~Liabilities~~Claims and Assessments

AsOn ~~part~~April of15, ~~its~~2003, ~~environmental~~a lawsuit ~~management~~seeking ~~program~~class action certification was filed in the Circuit Court for Cocke County, Tennessee, in which the Company ~~recognizes obligations~~is ~~for~~a ~~closure~~defendant. The lawsuit was brought on behalf of approximately ~~landfills~~300 inresidents ~~accordance~~owning ~~with~~property ~~SFAS~~adjoining Nothe Pigeon River upon which the Canton Mill is located, and into which the Company has a permit to discharge. ~~143~~ The ~~“Accounting~~plaintiffs sought damages for ~~Asset~~private ~~Retirement~~nuisance ~~Obligations~~for the period commencing June 1, 1999, and thereafter until the date of trial.” The plaintiffs ~~Company~~in ~~has~~this ~~currently~~action ~~accrued~~alleged ~~approximately~~that ~~$775~~the discharge of (colored) water from the Canton Mill resulted in a nuisance (diminution of property value), but did not contain any allegation relating to health or safety matters. The demand for ~~closure~~damages was limited to a maximum of ~~landfills~~$74 as(exclusive of ~~March~~ 31interest and costs) per individual landowner, ~~2005~~or collectively a total of $22,200.

~~(7)~~ On August 17, 2005, a ~~Segment~~Cocke ~~Information~~County Court jury ruled in favor of the Plaintiff class awarding $2,000 for nuisance damages with no punitive damages being awarded. In January 2007, the Tennessee Court of Appeals Eastern Section in Knoxville, Tennessee ruled in favor of the jury verdict. A petition to review the Court of Appeals ruling has been made to the Tennessee Supreme Court. In accordance with the requirements of Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” a reserve of $2,000 was established to recognize the potential liability and is included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

The Company’s management makes financial decisions and allocates resources based on sales and operating income of the paper and packaging segments. Although raw materials, the production processes, distribution methods and the regulatory environment are similar, management believes it is appropriate to separately disclose these segments. The Company does not allocate selling, research and administration expenses to each segment, but management uses operating income to measure the performance of the segments. The financial information attributed to these segments is included in the following table for the three months ended March 31, 2005 and 2004:10

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

On October 11, 2005, the Company was sued by the same plaintiff group in a lawsuit for the same cause of action in the Circuit Court for Cocke County, Tennessee, after which the Company removed the case to federal court. On September 19, 2006, the case was remanded back to Tennessee state court. The Company’s Tennessee counsel advises that it is unlikely this case will be tried until a final non-appealable decision is reached in the first lawsuit.

10On June 6, 2006, the Parent received notices of tax assessment for corporate and franchise tax for tax years 1999 through 2004 in the aggregate amount of $806. The Parent formally protested the tax assessment on July 5, 2006. On January 4, 2007, the Parent received revised assessments. The reassessed aggregate amount is $665, consisting of $361 in taxes, $87 in interest and $217 in penalties for the full six-year period. The Company has not recorded a liability for any amount related to this assessment because the ultimate loss, if any, associated with the assessment is not considered probable or estimable.

~~(8)~~The Company is subject to other litigation in the normal course of business. ~~Inventories~~In the opinion of management, the Company’s liability, if any, under this pending litigation will not materially impact its financial condition.

~~Components~~(d) Employment ~~of inventory at March 31, 2005 and December 31, 2004 are as follows:~~Contracts

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

The Company has employment and compensation agreements with certain executive officers and management personnel. The agreements generally have terms of three to five years, unless the employee is terminated for cause or the employee terminates employment for good reason, and provide for severance benefits in certain circumstances. The agreements also include a cash bonus, which is a formula bonus based on the Company meeting certain performance goals.

11(e) Environmental Liabilities

~~ITEM~~As 2part of its environmental management program, the Company has recognized obligations for closure of landfills by accruing the obligations for closure or removal in accordance with the requirements of SFAS No. ~~MANAGEMENT’S~~143, ~~DISCUSSION~~“Accounting ~~AND~~for Asset ~~ANALYSIS~~Retirement OFObligations.” The ~~FINANCIAL~~Company ~~CONDITION~~had accrued ~~AND~~approximately ~~RESULTS~~$1,243 OFand ~~OPERATIONS~~$1,205 for closure of landfills as of March 31, 2007 and December 31, 2006, respectively.

~~FORWARD-LOOKING~~The ~~STATEMENTS~~normal conduct of business subjects the Company to various federal, state and local laws and regulations. Although potential costs due to existing or new laws could be significant, management currently believes that the outcome of any such matters will not have a material adverse effect on the Company’s consolidated financial position.

~~This filing includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.~~(8) ~~Forward-looking~~Income statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. They may contain words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will” or words or phrases of similar meaning.Tax

~~These~~Effective ~~forward-looking~~January ~~statements are not guarantees of future~~1, ~~performance. Forward-looking~~2007, ~~statements are~~the ~~based~~Company onadopted ~~management’s~~the ~~expectations~~provisions ~~that~~of ~~involve~~FIN ~~risks~~48. The ~~and~~application ~~uncertainties, including,~~of ~~but~~FIN ~~not~~48 ~~limited~~resulted ~~to,~~in ~~economic, competitive, governmental and~~no ~~technological~~adjustment ~~factors~~or ~~outside~~recording of ~~our~~a ~~control,~~liability ~~that~~for ~~may~~unrecognized ~~cause~~income ~~actual results to~~tax ~~differ~~benefits. In ~~materially from trends~~addition, ~~plans~~future orchanges ~~expectations set forth~~ in ~~the~~ ~~forward-looking~~the ~~statements. Given~~unrecognized ~~these risks~~tax ~~and~~benefit ~~uncertainties,~~will ~~actual~~have ~~future~~no ~~results~~impact ~~may~~on bethe ~~materially~~effective ~~different~~tax ~~from~~rate due ~~what~~to weexistence ~~plan~~of orthe ~~expect~~valuation allowance. We (For ~~will~~more ~~not update~~information ~~these~~regarding ~~forward-looking~~the ~~statements~~valuation ~~even~~allowance, ifplease ~~our~~refer ~~situation~~to 2006 ~~changes~~Form in10-K ~~the future~~Footnote 9).

~~OVERVIEW~~The Company is subject to income tax in the United States and numerous state taxing jurisdictions. The Company is not currently under examination by any taxing jurisdiction and has not received notification of intent to audit. Federal and state income tax returns are generally open for examination for three years from the date of filing. The Company has not consented to an extension for the periods available for assessment

We recorded a profit of $0.7 million for the three months ended March 31, 2005 (the “2005 three-month period”), compared to a net loss of $9.9 million for the three months ended March 31, 2004 (the “2004 three-month period”). This is our second consecutive profitable three-month period.11

~~Our~~of ~~return~~income totax ~~profitability~~with ~~reflects the~~any ~~implementation~~taxing ofjurisdictions. The ~~our~~Company ~~cost~~did not ~~improvement~~record ~~initiatives,~~income ~~DairyPak~~tax ~~consolidation, improved~~expense ~~productivity~~for ~~and~~the ~~increased~~three-month ~~pricing~~period inended ~~all~~March ~~our~~31, ~~market~~2007 as ~~segments. Gains~~the inCompany ~~our~~continues ~~markets~~to ~~have~~maintain ~~been~~a ~~partially offset~~full byvaluation ~~the~~allowance ~~rising~~due ~~costs~~to a history of ~~raw~~net ~~materials, energy and polymers~~losses.

In January 2005, we received approximately $1.4 million from the U.S. Department of the Interior and related agencies to offset a portion of the uninsured repair expenses associated with the damages to our waste treatment plant that we incurred during the severe flooding in the third quarter of 2004.(9) ~~Our~~Segment waste treatment facility serves as the municipal waste treatment plant for the Town of Canton. In addition, on February 25, 2005, the Governor of North Carolina signed into law a Hurricane Relief Bill. We expect to be a recipient of $4.5 million of those funds through the Town of Canton for expenditures that will more permanently protect our shared wastewater facility and repair mill sewer infrastructure.Information

~~Looking~~The ~~forward, we anticipate that our paper segment~~Company’s ~~demand~~management makes ~~and~~financial ~~pricing~~decisions ~~will~~and ~~remain~~allocates ~~flat~~resources inbased ~~the~~on ~~three~~sales ~~months~~and ~~ending June~~operating ~~30,~~income ~~2005,~~of ~~while~~two ~~the~~segments: ~~packaging~~paper ~~segment~~and ~~will show modest improvement~~packaging. In The ~~the~~Company ~~three~~does ~~months~~not ~~ending~~allocate ~~June 30~~selling, ~~2005,~~research ~~the~~and administration ~~Canton~~expenses ~~mill~~to ~~will~~each ~~conduct~~segment, abut ~~planned~~management ~~annual~~uses ~~outage~~operating ofincome ~~its~~to ~~pine~~measure ~~pulp mill, which~~the ~~will~~performance ~~negatively~~of ~~impact~~the ~~costs approximately by $2~~segments.~~0 to $2.5 million.~~ AsThe financial ainformation ~~result,~~attributed weto ~~anticipate~~these ~~that~~segments ~~second quarter~~is ~~earnings~~included ~~will~~in bethe ~~less than first quarter earnings.~~following table:

	Three months ended March 31,
	2007			2006
Net sales:
Paper	$	62,529		$	57,175
Packaging	92,482			82,932
Corporate	—			—
Total	$	155,011		$	140,107
Operating income/(loss):
Paper	$	9,028		$	4,259
Packaging	8,444			4,443
Corporate	(7,726		)	(6,963		)
Total	$	9,746		$	1,739
Depreciation/amortization:
Paper	$	2,963		$	2,753
Packaging	903			851
Corporate	27			58
Total	$	3,893		$	3,662
Total assets:
Paper	$	209,287		$	203,589
Packaging	92,362			93,971
Corporate	12,695			13,057
Total	$	314,344		$	310,617
Capital expenditures:
Paper	$	2,746		$	1,844
Packaging	503			250
Corporate	749			40
Total	$	3,998		$	2,134

~~Results~~The accounting policies of ~~Operations~~the segments are the same as those described in the summary of significant accounting policies. The corporate segment includes all selling and administrative expenses.

The ~~following~~Company’s ~~table~~identifiable ~~sets~~product ~~forth~~lines ~~certain~~are ~~sales~~ packaging and ~~operating~~paper ~~data~~products. Packaging ~~for~~segment products ~~our~~include polymer-coated paperboard and converted packaging, including ~~business~~gable ~~segments~~top ~~for~~cartons and coated paperboard used in the ~~periods~~production ~~indicated:~~of ovenable food trays, paper cups and other coated packaging. Paper segment products include envelope paper, specialty paper, offset printing paper and uncoated paperboard. The Company’s manufacturing operations are all located in the United States.

~~(Dollars~~For the three months ended March 31, 2007, the Company’s gross sales by destination were concentrated in ~~millions~~the following geographic markets: North America, ~~except~~approximately 95.7%; ~~per~~Europe, ~~ton~~approximately ~~amounts)~~4.1%; and Asia, approximately 0.2%.

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

~~THREE~~(10) Stock-Based ~~MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004~~Compensation

~~Net~~The ~~Sales~~Company offers restricted share awards as stock-based compensation to select employees. Restricted stock awards are generally subject to forfeiture if an employee terminates employment prior to vesting. Outstanding blocks of restricted stock grants as of December 31, 2006 were all fully vested. In February 2007, awards totaling 245,000 shares were granted under the Blue Ridge Holding Corp. 2005 Employee Stock Unit Plan to select employees of the Company that will cliff-vest five years from the date of grant.

~~Net~~The ~~sales~~Company ~~for~~has classified the ~~2005~~awards ~~three-month~~as ~~period increased~~equity ~~$7.5~~awards ~~million~~under orthe ~~6.2%~~provisions toof ~~$128.5~~SFAS ~~million~~123(R) where ~~compared~~compensation toexpense ~~$121.0~~is ~~million~~adjusted for ~~the~~ ~~same~~estimated ~~period~~forfeitures inand ~~2004. Our overall~~is ~~improvement~~recognized inon ~~revenue~~a ~~was~~straight-line ~~attributable~~basis toover athe ~~$1.6~~requisite ~~million~~service ~~increase~~period inof ~~our~~the ~~packaging~~award. The ~~segment~~Company ~~sales~~estimated ~~and~~future forfeiture arates ~~$5.9~~based ~~million~~on ~~increase~~its inhistorical ~~net~~experience ~~sales~~during inthe ~~our~~preceding ~~paper~~fiscal ~~segment~~years.

~~Net~~The ~~sales~~value ~~for~~of ~~our packaging~~share-based ~~segment~~payment inawards ~~the~~was ~~2005~~determined ~~three-month~~using ~~period~~an ~~increased~~independent $1valuation.6 This ~~million~~valuation orconsidered ~~2.2%~~the toCompany’s ~~$74.6~~2006 ~~million~~performance ~~compared~~and toshare ~~$73.0~~value ~~million in 2004. The increase in packaging segment sales~~ was ~~primarily~~determined ~~attributable~~ to ~~an increase~~be in$6.49 ~~average revenue~~ per ~~ton~~share. For ~~sold~~the ofthree ~~6.7%~~months onended ~~non-converted~~March ~~coated~~31, ~~board~~2007, ~~sold~~the ~~out~~Company ofrecognized ~~our~~$53 ~~Waynesville~~in ~~facility~~stock-based ~~and 1~~compensation.~~4% on our carton business. Sales volume increased 1.5% for the packaging segment reflecting an~~

13The following table summarizes the changes in the number of shares of restricted stock for the three months ended March 31, 2007 (dollars in thousands):

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

		Aggregate
	Shares	fair value
Outstanding at December 31, 2006	190,356	$	1,235
Canceled and other	3,640	24
Outstanding at March 31, 2007	193,996	$	1,259
Add:
Accrued portion of unvested stock grant		53
Obligation to redeem restricted stock units of Parent at March 31, 2007	193,996	$	1,312

~~Net~~In ~~sales~~April for our paper segment for the 2005 three-month period increased $5.9 million or 12.3% to $53.9 million compared to $48.0 million for the same period in 2004. The increase is attributable to an increase in average revenue per ton shipped to $709 per ton in the 2005 three-month period compared to $592 per ton in the 2004 three-month period. Average pricing on our paper grades increased approximately $60 per ton over the fourth quarter of 2004 in the first three months of 2005 and over $110 per ton from the same three-month period in 2004. Total sales volume for the paper segment decreased by 52007,~~086~~ ~~tons in~~ the ~~2005~~Company ~~three-month~~repurchased ~~to 76~~108,~~073~~499 ~~tons~~restricted asshares ~~compared to 81,159 tons~~ for ~~the same period in 2004~~$704. The ~~volume~~shares ~~decline is primarily attributable to a reduction of 4,467 tons in uncoated board sales. Uncoated board sales volumes~~ were ~~reduced~~issued in ~~order~~ to2006 ~~increase~~as ~~transfers~~part toof ~~our packaging segment to facilitate increased~~a ~~sales~~block of ~~higher~~157,458 ~~value~~shares ~~products as well as to replenish coating rawstock inventories~~ that were ~~depleted~~granted ~~as a result of the flood downtime incurred~~ in ~~the~~ ~~third~~years ~~and~~1999 ~~fourth~~through ~~quarters of 2004~~2002.

OperatingITEM Profit2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

14This filing includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. They may contain words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will” or words or phrases of similar meaning.

~~The~~These ~~following~~forward-looking statements ~~table~~are ~~sets~~not guarantees of future performance. Forward-looking statements are based on ~~forth~~management’s ~~significant~~expectations ~~items~~that involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that ~~increased~~may ~~(decreased)~~cause ~~total~~actual ~~segments’~~results ~~operating~~to differ materially from ~~profit:~~trends, plans or expectations set forth in the forward-looking statements. Given these risks and uncertainties, actual future results may be materially different from what we plan or expect. We will not update these forward-looking statements even if our situation changes in the future.

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

QUARTERLY OVERVIEW; COMPARISON TO IMMEDIATELY PRECEDING QUARTER

Operating profit for our packaging segment decreased $0.6 million or 12.8% in the 2005 three-month period to $4.1 million or 5.5% of packaging segment sales, compared to $4.7 million or 6.4% of packaging segment sales for the 2004 three-month period. The decrease in operating profit for our packaging segment was due primarily to: (i) increased pricing for one of our key raw materials, plastic/resin, at the Waynesville facility of $2.5 million; (ii) decreased carton production volume impacting results by approximately $1.1 million and reflecting above-average orders in the 2004 three-month period; (iii) increased costs for outbound freight of $1.1 million; and (iv) increased transfer cost of rawstock paperboard of $0.8 million. The decrease in operating profit in the 2005 three-month period was partially offset by: (a) an increase in the average revenue per ton shipped in an aggregate amount of $2.2 million due to improved pricing on both our converted cartons and non-converted coated board business; (b) a decline of approximately $1.0 million in payroll and benefits costs reflecting the impact from consolidation of capacity in fiscal years 2003 and 2004; (c) severance payments of $0.9 million related to capacity consolidation incurred in the 2004 three-month period; (d) increased inventory capitalization of $0.6 million reflecting increased costs for raw materials and energy; and (e) other miscellaneous and offsetting variances of $0.2 million.13

~~Operating~~We ~~profit~~reported ~~for~~a ~~our~~net ~~paper~~profit of ~~segment increased~~ $84.19 million infor the ~~2005~~ ~~three-month~~first ~~period~~quarter toended ~~$6.6~~March ~~million~~31, ~~or 12~~2007.2% This ~~of paper segment sales,~~ compared to ana ~~operating~~net ~~loss~~profit of $12.52 million ~~or (3.1)% of paper segment sales~~ for the ~~2004~~fourth ~~three-month~~quarter ~~period. Operationally,~~ended ~~our~~December ~~Canton~~31, ~~facility~~2006 ~~returned~~and toa ~~pre-flood~~net ~~production levels,~~loss ~~achieving~~of ~~production~~$2.9 ~~and~~million for ~~shipment~~the ~~volumes~~first ~~during~~quarter ~~the~~ended ~~2005~~March ~~three-month~~31, 2006. ~~period~~Total ~~that~~net ~~were~~sales ~~comparable~~for to the ~~levels~~first ~~achieved~~quarter ~~during~~ended ~~the~~March ~~same~~31, ~~three-month period~~2007 inwere ~~2004~~$155. ~~The increase in~~0 ~~operating~~million ~~profit~~compared ~~for~~to ~~our~~$140.4 ~~paper~~million ~~segment~~and ~~was~~$140.1 ~~due~~million ~~primarily~~in ~~to:~~the ~~(i)~~fourth ~~an increase in~~quarter ~~the~~ended ~~average~~December ~~revenue~~31, ~~per~~2006 ~~ton~~and ~~shipped~~first inquarter anended ~~aggregate~~March ~~amount~~31, of2006, $8respectively.~~5 million; (ii) a~~

15Our turnaround continued to gain momentum and, as a result, we recorded our most profitable quarter in seven years. Continued strong productivity, record shipments and moderating input costs all contributed to our improved profitability.

~~decline~~Uncoated ofpaper ~~approximately~~shipments totaled ~~$1.1~~73,108 ~~million~~tons in ~~payroll~~the ~~and~~first ~~benefits~~quarter ~~costs reflecting~~ended ~~the~~March ~~impact~~31, of2007 ~~headcount~~compared ~~reductions~~to 69,150 ~~completed~~tons in ~~fiscal~~the ~~year~~fourth ~~2004; (iii)~~quarter ~~severance~~ended ~~payments~~December of31, $12006.1 Average ~~million~~pricing ~~related to mill headcount reduction incurred~~ in the ~~2004~~first ~~three-month~~quarter ~~period;~~ended March ~~(iv)~~31, ~~increased~~2007 ~~transfer~~decreased ~~revenue~~1.8% ~~for the~~compared ~~rawstock sent~~ to ~~our~~the ~~Waynesville~~fourth ~~facility~~quarter ofended ~~$0.9~~December ~~million; (v) increased~~31, ~~inventory~~2006 ~~capitalization of $0.4 million~~ reflecting ~~increased~~slightly ~~costs~~lower ~~for~~backlogs; ~~raw materials~~however, ~~and~~announced ~~energy:~~reductions ~~and (vi) miscellaneous and offsetting variances totaling~~in ~~$0.4~~industry ~~million. The~~capacity ~~increase~~should inhelp ~~operating profit in~~ the ~~2005~~market ~~three-month~~to ~~period~~tighten ~~was~~somewhat ~~partially~~over ~~offset~~the ~~by:~~next ~~(a) continuation~~few ~~of flood-related property damage repair and recovery costs of $0~~months.8 Average ~~million;~~pricing ~~(b) price~~increased ~~increases in (i) our primary fuels of approximately $2~~7.~~5 million and (ii)~~9% ~~certain~~when ofcompared ~~our~~to ~~major~~the ~~chemicals~~first ~~used~~quarter asended ~~raw~~March ~~materials~~31, ~~of approximately $0~~2006.~~7 million; and (c) increased costs for outbound freight of $0.3 million.~~

~~Selling~~Packaging segment shipments for the first quarter ended March 31, ~~General~~2007 increased 8.0% when compared to the fourth quarter ended December 31, 2006 and ~~Administrative~~increased ~~Expenses~~3.2% when compared to the first quarter ended March 31, 2006. Pricing for the packaging segment for the first quarter ended March 31, 2007 increased 4.2% over the fourth quarter ended December 31, 2006. On January 15, 2007, we announced a price increase of $40 to $60 per ton (depending on the grade) for our coated board products. On February 26, 2007, we announced a price increase of 8% to 10% (depending on the grade) for our gable top carton products. The effective dates for each of these increases will be determined by our contractual obligations.

~~Total~~Raw ~~selling,~~material ~~general and administrative expenses decreased $1.5~~costs ~~million~~increased orin ~~22.7%~~the tofirst ~~$5.1~~quarter ~~million~~ended inMarch ~~the~~31, ~~2005~~2007 ~~three-month period~~ compared to ~~$6.6~~ ~~million for~~ the ~~same period in 2004.~~ fourth ~~The~~quarter ~~decrease~~ended inDecember ~~selling~~31, ~~general~~2006 ~~and~~by ~~administrative~~approximately ~~expenses for the 2005 period was primarily attributable to: (i)~~ $01.2 million ~~of severance costs incurred in the 2004 three-month period; (ii) recording of $0~~.5 This ~~million~~increase ~~change in~~was ~~estimate~~primarily ~~for~~due ~~expected recovery from a former significant customer currently undergoing bankruptcy proceedings (see Note 3~~ to ~~our consolidated financial~~increases ~~statements included elsewhere~~ in ~~this Quarterly Report on Form 10-Q); (iii) a savings of $0.6 million as a result of~~ the ~~termination~~costs of awood ~~management~~chips ~~fee under the Management Services Agreement by~~ and ~~between our parent~~chemicals, ~~Blue~~partially ~~Ridge Holding~~offset ~~Corp.,~~by ~~and~~a ~~KPS~~decrease ~~Management, LLC~~ in ~~January 2005; and (iv) other~~the ~~miscellaneous~~cost ~~offsetting~~of ~~variances totaling a favorable $0~~polyethylene.~~2 million.~~

~~Interest~~On March 26, 2007, we announced that we are engaged in preliminary discussions with the Rank Group pursuant to a non-binding letter of intent regarding a potential transaction involving the sale of Blue Ridge Paper Products Inc. The Rank Group is the owner of Carter Holt Harvey Ltd. group of companies, headquartered in New Zealand, and ~~Amortization~~Evergreen Packaging ~~Expense~~Inc. (formerly the Beverage Packaging Division of International Paper). In the first quarter ended March 31, 2007, we incurred legal and professional fees of $0.3 million associated with this potential transaction.

~~Interest~~Profit ~~and~~sharing ~~amortization~~totaling approximately ~~expenses increased~~ $0.45 million towas ~~$4.6 million~~earned ~~for~~by ~~the~~our ~~2005~~qualified ~~three-month~~employees ~~period~~in ~~compared to $4.2 million for~~ the ~~same~~first ~~period~~quarter inended ~~2004. This~~March ~~was~~31, ~~due to an increase in the balance for our revolving line of credit as well as an increase in interest rates~~2007.

~~Government~~We ~~Grant~~conducted ~~Income~~an extended pulp mill outage at the Canton mill in April. We anticipate that increased maintenance and purchased fiber costs associated with this 14-day outage will likely result in a small loss in the 2007 second quarter.

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

~~LIQUIDITY~~The ~~AND~~following ~~CAPITAL~~table ~~RESOURCES~~sets forth certain sales and operating data for our business segments for the periods indicated:

We entered into a $45.0 million revolving credit facility in December, 2003. On September 15, 2004, the credit agreement was amended to increase the facility from $45.0 million to $50.0 million on a permanent basis. The maximum borrowing availability at December 31, 2004 and March 31, 2005 was $17.4 million and $13.7 million, respectively. The revolving credit facility contains covenant restrictions, which require covenant availability to exceed $7.5 million (as amended December 21, 2004). If the covenant availability does not meet the required minimum, a fixed charge coverage ratio covenant is triggered. We do not believe that we will be subject to the14

16(Dollars in millions, except per ton amounts)

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

	Three-Month Period
	Ended March 31.
	2007			2006

Net sales:
Packaging	$	92.5		$	82.9
Paper	62.5			57.2
Total	$	155.0		$	140.1

Segments’ operating profit:
Packaging	$	8.4		$	4.4
Paper	9.0			4.3
Total segments operating profit, excluding corporate expenses	17.4			8.7

Corporate expense	7.7			7.0
Total operating profit	$	9.7		$	1.7

Percentage of net sales:
Packaging	59.7		%	59.2		%
Paper	40.3		%	40.8		%
Total	100.0		%	100.0		%

Segments’ operating margin:
Packaging	9.1		%	5.3		%
Paper	14.4		%	7.5		%
Total	11.2		%	6.2		%

Shipments (tons):
Packaging	70,771			68,596
Paper	79,229			77,897
Total	150,000			146,493

Average price ($ per ton):
Packaging	$	1,307		$	1,209
Paper	789			734
Average price	$	1,033		$	956

AtTHREE MONTHS ~~March~~ENDED MARCH 31, ~~2005,~~2007 weCOMPARED ~~had~~TO ~~covenant~~THREE ~~availability~~MONTHS ofENDED ~~$13.7~~MARCH ~~million~~31, ~~which is $6.2 million in excess of the required minimum.~~2006

Net ~~cash used in operations was $10~~ Sales.8 Net ~~million~~sales for the ~~2005~~ three-month period ~~compared~~ended toMarch ~~net~~31, ~~cash~~2007, ~~used~~or inthe ~~operations~~2007 ofthree-month period, increased $014.59 million ~~during~~or ~~the same period in 2004~~10. ~~The~~6% ~~change in cash used in operations is due~~ to ~~a profit in the 2005 three-month period of~~ $0155.70 million compared to ~~a loss of~~ $9140.91 million for the ~~same~~three-month period inended ~~2004. This~~March ~~was~~31, ~~offset~~2006, ~~by:~~or ~~(i)~~the ~~accounts~~2006 ~~receivables~~three-month ~~increase of $10~~period.~~6 million; (ii) accounts payable decrease of $10.7 million; and (iii) other working capital changes of $0.2 million.~~

Net ~~cash~~sales ~~used~~for inour packaging ~~investing~~segment ~~activities~~for ~~was~~the 2007 three-month period increased $9.6 million or 11.6% to $292.05 million ~~and~~compared to $282.29 million for the ~~2005~~2006 ~~and 2004~~ three-month ~~periods,~~ ~~respectively~~period. ~~Capital~~For ~~spending for~~ the ~~2005~~ 2007 three-month period, our ~~totaled~~packaging ~~$2.0~~segment ~~million~~sold 70,771 ~~which~~tons ~~included~~of ~~expenditures~~coated ~~for environmental~~and ~~projects~~converted ofpaperboard products ~~approximately~~at ~~$0.2~~an ~~million~~average ~~and~~price of $~~0.3~~1,307 ~~million~~per ~~for~~ton, ~~flood prevention~~compared ~~funded~~to by68,596 atons ~~grant~~sold for ~~from~~ the ~~State~~2006 ofthree-month ~~North~~period ~~Carolina. We~~at ~~currently~~an ~~estimate~~average ~~that~~price ~~our~~of ~~capital spending~~$1,209 ~~will~~per beton. The ~~approximately~~increase ~~$22.5~~in ~~million~~packaging ~~for~~segment ~~fiscal~~sales ~~year~~is attributable ~~2005,~~to ofa ~~which $4~~3.52% ~~million~~increase ~~will~~in bevolume ~~funded~~shipped byand a ~~grant~~8.1% ~~from~~increase ~~the~~in ~~State~~average revenue ofper ~~North~~ton ~~Carolina for flood prevention~~shipped.

Net ~~cash~~sales ~~provided~~for byour ~~financing~~paper segment ~~activities was $12.7 million~~ for the ~~2005~~ 2007 three-month period ~~compared~~increased ~~to net cash provided by financing activities of~~ $25.03 million ~~for~~or ~~the~~9.3% ~~same~~to ~~period in 2004~~$62. 5 ~~The~~million ~~net~~compared ~~change~~to in$57.2 ~~net~~million ~~cash provided by financing activities~~ in the ~~2005~~ 2006 three-month period ~~was primarily due to a $12~~.9 Net ~~million~~sales ~~increase~~volume in ~~borrowings under~~ our ~~working~~paper ~~capital~~segment ~~facility. This~~increased ~~increase~~1,332 intons ~~borrowings was primarily used~~ to ~~fund~~79,229 ~~our~~tons ~~change~~shipped in ~~working~~the ~~capital and~~2007 tothree-month ~~provide~~period ~~funding~~as ~~for~~compared ~~capital~~to 77,897 ~~expenditures.~~tons

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~15

Weshipped ~~are~~in ~~exposed~~the to2006 three-month ~~certain~~period. Approximately ~~market~~81.1% or ~~risks,~~$4.3 ~~including~~million ~~interest~~of ~~rate~~the net sales increase in the 2007 three-month period ~~risk~~reflects improved pricing for our products. ~~Risk~~ The ~~exposure~~remaining ~~relating~~increase toin ~~this~~net sales reflects increased sales of uncoated ~~market~~paper ~~risk~~produced isat ~~summarized~~our ~~below~~Canton, North Carolina facility. ~~This information~~Average ~~should~~pricing bein ~~read~~our inpaper ~~connection~~segment ~~with~~improved to ~~the~~$789 ~~condensed~~per ~~consolidated financial~~ton ~~statements~~shipped ~~and~~in the ~~related~~2007 ~~notes~~three-month ~~thereto~~period ~~included~~as ~~elsewhere~~compared into ~~this~~$734 per ~~Quarterly~~ton ~~Report~~shipped onin ~~Form~~the 102006 three-Qmonth period.

~~Interest~~Operating Profit. Total ~~Rate~~segment operating ~~Risk~~profit increased $8.7 million to $17.4 million in the 2007 three-month period compared to an operating profit of $8.7 million for the 2006 three-month period. As a percentage of sales, total segments operating profit increased to 11.2% in the 2007 three-month period from 6.2% in the 2006 three-month period.

WeThe ~~manage~~following ~~interest~~table ~~cost using a combination of fixed and variable rate~~sets ~~debt. As~~forth ofsignificant ~~March~~items ~~31,~~that ~~2005,~~increased we(decreased) ~~have $125.0~~total ~~million~~segments’ ~~of 9.50% senior secured notes due 2008 and a $50.0 million~~operating ~~working~~profit capital credit facility at variable rates of interest. As of March 31, 2005, approximately $31.2 million was outstanding under our working capital credit facility. Our working capital facility offers two options for interest rates: Applicable Revolver Libor Margin ranging from 2.5% - 3.0% or Applicable Revolver Index Margin ranging from .75% - 1.25%. The rate is based on revolver availability. During the 2005 three-month period, we used the highest percent (in ~~each option. In addition, as of March 31, 2005, we have a $0.8 million mortgage note with a maximum interest rate of 5.5% and a remaining duration of five years.~~millions):

ITEM 4. CONTROLS AND PROCEDURES

Segments’ Operating Profit	Three-Month Period Ended March 31, 2007		Three-Month Period Ended March 31, 2006		Change
	$	17.4	$	8.7	$	8.7
Product pricing improvement					$	9.0

Productivity improvements					0.9

Major raw material cost improvements					0.9

Increased wage and benefit costs					(2.4		)

Increased by-product sales					1.2

Other miscellaneous and offsetting items					(0.9		)

Total					$	8.7

Operating profit for our packaging segment increased $4.0 million or 93.2% in the 2007 three-month period to $8.4 million or 9.1% of packaging segment sales, compared to $4.4 million or 5.3% of packaging segment sales for the 2006 three-month period. The increase in operating profit for our packaging segment was due primarily to (Ai) ~~Evaluation~~a $4.7 million improvement in pricing for our products sold; (ii) improved productivity of ~~Disclosure~~approximately $1.3 ~~Controls~~million; (iii) a $1.7 million decrease in purchase costs of plastic/resin, our primary raw material used at our Waynesville converting facility; (iv) a $0.2 million decrease in other major raw material costs for the division; and (v) ~~Procedures~~a $0.7 million increase in sales of scrap and waste sold as a by-product. The increase in packaging segment operating profit in the 2007 three-month period was partially offset by (a) an increase of $1.6 million in costs incurred for wages and benefits; (b) a $2.2 million increase in costs of internally produced board received from the Canton mill and passed on to the packaging division through interdivisional transfer costs; and (c) other miscellaneous and offsetting variances totaling $0.6 million.

~~Our~~Operating ~~Chief~~profit for ~~Executive~~our ~~Officer~~paper ~~and~~segment ~~Chief Financial~~increased ~~Officer~~$4.7 ~~have~~million ~~evaluated~~in the ~~effectiveness~~2007 ofthree-month ~~our~~period ~~disclosure controls~~to ~~and~~$9.0 ~~procedures~~million ~~(as~~or ~~defined~~14.4% inof ~~Rule~~paper ~~13a-15(e)~~segment ~~and~~sales, ~~15d-15(e))~~compared ~~under~~to ~~the~~an operating profit ~~Securities~~of ~~Exchange~~$4.3 ~~Act~~million ofor ~~1934~~7. ~~Based on~~5% ~~their~~of ~~evaluation,~~paper ~~our~~segment ~~Chief~~sales ~~Executive~~for ~~Officer~~the ~~and~~2006 ~~Chief~~three-month period. The ~~Financial~~increase ~~Officer~~in operating profit ~~have~~for ~~concluded~~our ~~that,~~paper assegment ofwas ~~March~~due ~~31,~~primarily ~~2005,~~to ~~our~~(i) ~~disclosure~~increased ~~controls~~pricing ~~and~~on uncoated ~~procedures~~paper ~~were~~sales ~~effective~~of in$4.3 ~~ensuring~~million; ~~that~~(ii) ~~material~~a ~~information~~$2.2 ~~was~~million ~~properly disclosed~~decrease in ~~our~~costs ~~filings~~of internally ~~with~~produced board and passed on to the ~~Securities~~packaging ~~and~~division ~~Exchange~~through interdivisional ~~Commission.~~transfer costs;

~~(B) Changes in Internal Controls Over Financial Reporting~~16

~~There~~and ~~have~~(iii) ~~been~~improved revenue nofrom ~~significant~~the ~~changes~~sale inof our primary by-products produced at our Canton, North ~~internal~~Carolina ~~controls~~facility, ~~over~~tall ~~financial~~oil ~~reporting~~and ~~during~~turpentine, of approximately $0.5 million. The increase in paper segment operating profit in the 2007 three-month ~~months~~period ~~ended~~was ~~March~~partially offset by (a) cost 31increases of approximately $1.0 million on many of our primary raw materials including wood chips, ~~2005~~purchased ~~that~~pulp ~~have~~and ~~materially~~chemicals; ~~affected~~(b) orreduced ~~are~~productivity ~~reasonably~~in the ~~likely~~2007 three-month period of $0.4 million reflecting reduced paper production as compared to ~~materially~~the 2006 three-month period; (c) an increase of $0.8 million in ~~affect~~costs ~~our~~incurred ~~internal~~for ~~control~~wages ~~over~~and ~~financial~~benefits; ~~reporting~~and (d) other miscellaneous and offsetting variances totaling $0.1 million.

17Selling, General and Administrative Expenses. Total selling, general and administrative expenses increased $1.4 million or 24.1% to $7.2 million in the 2007 three-month period compared to $5.8 million for the 2006 three-month period. The increase in selling, general and administrative expenses was primarily attributable to (i) a $0.3 million increase in corporate wages and benefits cost in the 2007 three-month period as compared to the 2006 three-month period; (ii) $0.3 million in due diligence expenses related to the potential sale of the company; and (iii) other miscellaneous and offsetting variances totaling $0.8 million.

~~PART~~Depreciation and IIAmortization Expense (non-operations). Depreciation ~~OTHER~~and ~~INFORMATION~~amortization expenses unrelated to operations was less than $0.1 million for both the 2007 three-month and 2006 three-month periods.

~~ITEM~~ESOP Expense. ESOP 6expense decreased $1.1 ~~EXHIBITS~~million or 100.0% to $0.0 million in 2007 compared to $1.1 million in 2006. The decrease in the 2007 three-month period reflects the completion of the seven-year share distribution into the ESOP, which began in May 1999 and ended in May 2006. Going forward, ESOP expense will no longer be incurred. Future events, such as our obligation to repurchase certain shares of common stock held by retirees and former employees when put to us have already been expensed.

~~(a)~~Profit Sharing ~~Exhibits~~Expense. Profit ~~required~~sharing byexpense ~~Item~~increased ~~601~~to $0.5 million in the 2007 three-month period compared to $0.0 million in the 2006 three-month period. Profit sharing expense reflects the distribution of ~~Regulation~~10% Sof our pre-Ktax net income to our ESOP employees and is distributed based on quarterly results. All ESOP employees, both hourly and salaried, share equally in the distribution. This expense is only payable to our employees when there is a year-to-date as well as a current quarter net income. In the 2006 three-month period, this expense was not applicable.

31Interest and Amortization Expenses.1 Interest and ~~Certification~~amortization expenses remained unchanged at $4.8 million for the 2007 three-month period compared to $4.8 million for 2006 three-month period. The 2007 three-month period includes a correction of ~~CEO~~a ~~pursuant~~prior period uncorrected misstatement related to ~~Section~~capitalization of ~~302~~interest under SFAS 34. Management evaluated the prior period uncorrected misstatement using the dual method as prescribed in SAB 108 evaluating materiality under the guidance provided in SAB 99 and concluded that the correction of ~~Sarbanes-Oxley~~the ~~Act~~prior period uncorrected misstatement was clearly immaterial to prior years and to current year consolidated financial statements. The decrease in interest expense as a result of ~~2002~~this adjustment was offset by an increase in interest cost incurred on the revolving credit facility and the PIK Senior Subordinated Note.

31.2LIQUIDITY CertificationAND ofCAPITAL CFO pursuant to Section 302 of Sarbanes-Oxley Act of 2002RESOURCES

~~32.1~~Our ~~Certification~~principal ofliquidity requirements ~~CEO~~are to service our debt and ~~CFO~~fund ~~pursuant~~our operations and capital expenditure needs. Our total senior debt, defined as total debt less the Parent PIK Senior Subordinated Note, at March 31, 2007 was approximately $164.8 million. Subject to ~~Section~~our ~~906~~performance, which if adversely affected could affect the availability of funds, we expect to be able ~~Sarbanes-Oxley~~to ~~Act~~meet our liquidity requirements for the remainder of ~~2002~~fiscal 2007 through cash provided by operations and through borrowings available under our working capital facility. We cannot assure you, however, that this will be the case. We entered into a $45.0 million

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~~SIGNATURES~~revolving credit facility in December 2003. On September 15, 2004, the credit agreement was amended to increase the facility from $45.0 million to $50.0 million on a permanent basis. On August 5, 2005, the credit agreement was amended to include specified foreign account debtors as eligible accounts in determining borrowing base availability. On March 15, 2006, the revolving credit agreement was amended on a permanent basis to change the minimum borrowing availability threshold from $7.5 million to $5.0 million. The maximum borrowing availability at March 31, 2007 and December 31, 2006 was $7.9 million and $10.1 million, respectively. The revolving credit facility contains covenant restrictions, which require covenant availability to exceed $5.0 million (as amended March 15, 2006). If the covenant availability does not meet the required minimum availability, a fixed charge coverage ratio covenant of 1.1 to 1.0 will be triggered. As of March 31, 2007, we had a covenant availability of $23.6 million, which is $18.6 million in excess of the required minimum.

~~Pursuant~~Summary ~~to the requirements~~ of ~~the~~Cash ~~Securities Exchange~~Flow ~~Act of 1934, the registrant has duly caused this report to be signed~~($ onin ~~its behalf by the undersigned thereunto duly authorized.~~millions):

BLUE RIDGE PAPER PRODUCTS INC.

	Three Months Ended March 31,
	2007			2006
Net cash provided by (used in) operating activities	$	6.6		$	(2.4	)
Net cash used in investing activities	(4.0		)	(2.1		)
Net cash provided by (used in) financing activities	(3.2		)	3.8
Net decrease in cash	$	(0.6	)	$	(0.7	)

Cash balance	$	1.2		$	1.4

Date: May 16, 2005
	/S/ JOHN B. WADSWORTH
	John B. Wadsworth
	Chief Financial Officer
	(On behalf of the Registrant and as Principal Financial Officer)

The cash provided by operations was $6.6 million for the 2007 three-month period. The cash provided by operations was primarily attributable to a net income of $4.9 million for the 2007 three-month period and changes in working capital.

19The cash used in investing activities for the 2007 three-month period was $4.0 million. Capital spending for the 2007 three-month period was $4.0 million, which included $0.2 million for capitalized interest and $1.4 million for environmental projects. For the fiscal year ending December 31, 2007, we currently estimate that our capital spending will be approximately $22.4 million.

~~EXHIBIT~~Net ~~INDEX~~cash used in financing activities was $3.2 million for the 2007 three-month period, which is primarily attributable to a reduction in outstanding checks within other financing activities in the statement of cash flows.

TOITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~FORM~~We are exposed to certain market risks, including interest rate risk. Risk exposure relating to this market risk is summarized below. This information should be read in connection with the condensed consolidated financial statements and the related notes thereto included elsewhere in this quarterly report on Form 10-Q. We manage interest cost using a combination of fixed and variable rate debt. As of March 31, 2007, we have $125.0 million of Notes outstanding at a 9.5% fixed rate of interest and a $50.0 million working capital credit facility at variable rates of interest. As of March 31, 2007, approximately $36.4 million was outstanding under our working capital credit facility consisting of short-term interest rates of 0.25% over Applicable Revolver Index Margin and 2.00% over Applicable Revolver Libor Margin, as defined. Our working capital facility, as amended June 9, 2006, offers two options for interest rates: Applicable Revolver Libor margin ranging from 1.50% - 2.00% or Applicable Revolver Index Margin ranging from 0.00% - 0.25%. The rate is based on revolver availability. At the end of March 2007, we were approximately at the

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~~BLUE~~high-point ~~RIDGE~~of ~~PAPER~~the interest ~~PRODUCTS~~rate ~~INC~~grid for Libor and Index Margins. In addition, as of March 31, 2007, we have a $0.7 million mortgage note with a maximum interest rate of 5.5% and a remaining duration of four years.

FORITEM THE4. QUARTERLYCONTROLS PERIODAND ENDED MARCH 31, 2005PROCEDURES

~~Pursuant to Section 102~~(dA) Evaluation of Disclosure ~~Regulation~~Controls ~~S-T~~and Procedures

Our chief executive officer and chief financial officer have evaluated the effectiveness of our disclosure controls and procedures (17as Cdefined in Rule 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report.~~F.R.~~ Our ~~Section~~chief ~~232~~executive officer and chief financial officer have concluded that all material information required to be disclosed by us in this quarterly report on Form 10-Q was recorded, processed, summarized, reported and properly disclosed in the time periods specified in the rules and regulations of the Securities and Exchange Commission, and that such information was accumulated and communicated to our management (including our chief executive officer and chief financial officer) to allow timely decisions regarding required disclosure.~~102~~ Based on their evaluation, our chief executive officer and chief financial officer have concluded that, as of March 31, 2007, we are in compliance with Rule 139-15(de)) of the Exchange Act.

~~The~~(B) ~~following~~Changes ~~exhibits~~in Internal ~~are~~Controls ~~filed~~Over asFinancial ~~part of this report:~~Reporting

There have been no significant changes in our internal controls over financial reporting during the three months ended March 31~~.1 Certification~~, of2007 ~~CEO~~that have materially affected or are ~~pursuant~~reasonably likely to ~~Section~~materially ~~302~~affect ofour ~~Sarbanes-Oxley~~internal ~~Act~~control ofover ~~2002~~financial reporting.

31PART II.~~2 Certification~~ OTHER ~~of CFO pursuant to Section 302 of Sarbanes-Oxley Act of 2002~~INFORMATION

32ITEM 1A.1 Certification ofRISK CEO and CFO pursuant to Section 906 of Sarbanes-Oxley Act of 2002FACTORS

20The risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 have not materially changed.

ITEM 6. EXHIBITS

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

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

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

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.

BLUE RIDGE PAPER PRODUCTS INC.

Date: May 10, 2007

	/S/ JOHN B. WADSWORTH
	John B. Wadsworth
	Chief Financial Officer

	(On behalf of the Registrant and as
	Principal Financial Officer)

EXHIBIT INDEX

FORM 10-Q

BLUE RIDGE PAPER PRODUCTS INC.

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

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

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

The following exhibits are filed as part of this report:

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

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

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