The following is management's discussion and analysis of certain significant factors that have affected our financial condition and operating results during the periods included in the accompanying condensed consolidated financial statements. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this report, and with management's discussion and analysis of financial condition and results of operations and consolidated financial statements and notes thereto included in our 2007 Annual Report on Form 10-K.

General

We are a major manufacturer of recycled paperboard and converted paperboard products. We operate in four business segments. The paperboard segment manufactures 100% recycled uncoated and clay-coated paperboard and operates specialty converting operations. The recovered fiber segment collects and sells recycled paper and brokers recycled paper and other paper rolls. The tube and core segment produces spiral and convolute-wound tubes and cores and edge protectors. The folding carton segment produces printed and unprinted folding cartons and set-up boxes.

Our business is vertically integrated to a large extent. This means that our converting operations consume a large portion of our own paperboard production, approximately 51% in the first nine months of 2008. The remaining 49% of our paperboard production is sold to external customers in any of the four recycled paperboard end-use markets: tube and core; folding cartons; gypsum wallboard facing paper; and specialty paperboard products. As part of our strategy to optimize our operating efficiency, each of our mills can produce recycled paperboard for more than one end-use market. This allows us to shift production among mills in response to customer or market demands.

More recently, in light of the difficult operating climate we have faced, and in an effort to reduce costs and improve our business mix, capacity utilization, and profitability, restructuring activities have been an important element of our strategy. The previous sales of our interest in Standard Gypsum, our corrugated box plant, and our partition operations, as well as the recent sale of a coated recycled paperboard mill, our specialty packaging division, our composite container and plastics businesses and Premier Boxboard Limited LLC, are all part of our strategic transformation plan to reduce our debt and better position ourselves to compete and leverage our expertise in our core businesses.

Our substantial level of indebtedness, including our 7 3/8% Senior Notes, which are now classified as current liabilities and are due on June 1, 2009, increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on, or other amounts in respect of our indebtedness. We are attempting to refinance, restructure or raise sufficient capital to repay the $189.8 million balance outstanding on these Notes. We are pursuing various alternatives to meet that objective. We may not, however, be able to refinance or raise sufficient capital to repay the Senior Notes on terms acceptable to us, or at all. Our substantial indebtedness could have significant consequences to holders of our debt and equity securities.

At June 30, 2008, we had $125.3 million of recorded goodwill, which represented the excess purchase price over the fair value of the net tangible and intangible assets acquired in prior periods. Goodwill is reviewed at least annually or more frequently on the occurrence of events or circumstances which may indicate that fair values exceed carrying values. During the third quarter of 2008,

we determined that recorded amounts of goodwill were not supported by the fair values as calculated by several methods, including the impact of the decline in our share price during the quarter. Accordingly, a non-cash goodwill impairment loss of $125.3 million was recorded as of September 30, 2008. We have amortizable basis of approximately $43 million in goodwill for federal income tax purposes, which is available to offset future taxable income from operations or gains from sales of assets, subject to potential limitations under the Internal Revenue Code.

We are a holding company that operates our business through 22 subsidiaries as of September 30, 2008. Through July 24, 2008, we owned a 50% interest in a joint venture with Temple-Inland. We accounted for the interests in our joint venture under the equity method of accounting. See "-Liquidity and Capital Resources - Off-Balance Sheet Arrangements - Joint Venture Financings" below.

On July 24, 2008, we completed the sale of our 50% membership interest in Premier Boxboard LLC (PBL) to our joint venture partner, Temple-Inland, Inc. ("Temple"). On July 23, 2008, PBL made the final dividend distribution to us and Temple in the amount of $1.6 million. This final distribution was made in full and complete satisfaction of our right to receive any other distribution or payment from PBL.

Critical Accounting Policies

Our accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates that affect the amounts of revenues, expenses, assets, and liabilities reported. The critical accounting matters that are very important to the portrayal of our financial condition and results of operations and require some of management's most difficult, subjective, and complex judgments are described in detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission on March 14, 2008. The accounting for these matters involves forming estimates based on current facts, circumstances, and assumptions which, in management's judgment, could change in a manner that would materially affect management's future estimates with respect to such matters and, accordingly, could cause future reported financial condition and results of operations to differ materially from financial results reported based on management's current estimates.

Results of Operations for the Three Months Ended September 30, 2008 and 2007

The volume information shown below includes shipments of paperboard products
made or purchased by us (excluding volume shipped by our unconsolidated joint
venture) combined and presented by end-use market lines as well as by reporting
segments. It is important to note, however, that portions of our sales do not
have related paperboard volume, such as sales of recovered fiber.



                                                        Three Months Ended
                                                          September 30,                     %
                                                        2008         2007      Change     Change
Paperboard volume by end-use market (tons in
thousands):
Tube and core market
Volume shipped to internal converters                      64.2         64.2      0.0        0.0 %
Mill volume shipped to external customers                  13.1         13.2     (0.1 )     -0.8 %

Total                                                      77.3         77.4     (0.1 )     -0.1 %

Folding carton market
Volume shipped to internal converters                      38.8         33.6      5.2       15.5 %
Mill volume shipped to external customers                  24.7         21.8      2.9       13.3 %

Total                                                      63.5         55.4      8.1       14.6 %

Gypsum wallboard facing paper market
Mill volume shipped to external customers                  15.3         17.6     (2.3 )    -13.1 %

Specialty paperboard products market
Volume shipped to internal converters                      24.8         24.5      0.3        1.2 %
Mill volume shipped to external customers                  27.1         23.8      3.3       13.9 %

Total                                                      51.9         48.3      3.6        7.5 %

Total paperboard volume                                   208.0        198.7      9.3        4.7 %


Paperboard volume by reporting segment (tons in
thousands):
Paperboard segment                                         95.5         91.6      3.9        4.3 %
Tube and core segment                                      73.7         73.4      0.3        0.4 %
Folding carton segment                                     38.8         33.7      5.1       15.1 %

Total paperboard volume                                   208.0        198.7      9.3        4.7 %

Paperboard Volume. Total paperboard volume for the three months ended September 30, 2008, increased 4.7% to 208.0 thousand tons from 198.7 thousand tons for the same period in 2007. Tons sold from paperboard mill production increased 1.8% to 163.0 thousand tons for the three months ended September 30, 2008, compared to the same period in 2007. The total volume of paperboard converted increased 4.5% for the three months ended September 30, 2008.

Total paperboard volume increased primarily due to an increase in sales of converted and unconverted paperboard to the folding carton end-use market, and an increase in sales of unconverted paperboard to the specialty paperboard end use markets.

Sales. Our consolidated sales for the three months ended September 30, 2008 increased 2.3% to $214.5 million from $209.6 million for the same period in 2007. The following table presents sales by business segment (in thousands):

                                  Three Months Ended
                                    September 30,           $           %
                                   2008        2007       Change      Change
              Paperboard        $   57,163   $  51,125   $  6,038       11.8 %
              Recovered fiber       24,553      32,075     (7,522 )    -23.5 %
              Tube and core         73,653      74,084       (431 )     -0.6 %
              Folding carton        59,085      52,347      6,738       12.9 %

              Total             $  214,454   $ 209,631   $  4,823        2.3 %

Paperboard Segment

Sales for the paperboard segment increased due to higher selling prices and higher volume which accounted for approximately $3.3 million and for approximately $2.9 million, respectively. This increase was partially offset by a decrease of approximately $147 thousand in sales related to the disposition of a converting facility during 2007.

Recovered Fiber Segment

Sales for the recovered fiber segment decreased due to lower volume and lower selling prices which accounted for approximately $1.8 million and for approximately $5.7 million respectively.

Tube and Core Segment

Sales for the tube and core segment decreased due to lower volume which accounted for approximately $1.4 million which decrease was partially offset by an increase in selling prices which accounted for approximately $900 thousand.

Folding Carton Segment

Sales for the folding carton segment increased primarily due to higher volume.

Cost of Sales. Cost of sales for the three months ended September 30, 2008 increased $2.0 million from $180.6 million in 2007 to $182.6 million in 2008. This increase was primarily due to the following factors:

• Higher direct material costs of $1.9 million in the paperboard segment primarily due to increased volume.

• Higher energy and fuel costs of $1.9 million in the paperboard segment due to increased fuel prices.

• Higher depreciation expense and other manufacturing costs of $0.6 million in the paperboard segment.

• Higher freight costs of $2.0 million in the paperboard, carton and tube and core segments.

• Higher direct material costs of $3.4 million in the folding carton segment primarily due to increased volume.

These factors were partially offset by the following increased expenses:

• Lower direct material costs of $2.4 million in the tube and core segment primarily due to lower volume.

• Lower direct material costs of approximately $6.7 million in the recovered fiber segment due to lower prices and volume.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended September 30, 2008 increased $2.1 million from $22.8 million in 2007 to $24.9 million in 2008. The increase was primarily due to the following factors:

• Increased selling, general and administrative expense due to the cessation of management and commission fees of approximately $621 thousand related to our participation in Premier Boxboard Limited venture, which fees were shown as a reduction of selling, general and administrative expense.

• Selling, general and administrative expenses in 2007 included a rebate of approximately $222 thousand related to property insurance.

• Increased depreciation expense of approximately $269 thousand related to ERP modules placed into service in Corporate.

• Increased bad debt expense of approximately $239 thousand in the tube and core segment.

• Increased professional services expense related to property appraisal fees of approximately $430 thousand in Corporate.

• Selling, general and administrative expenses in 2007 included a reduction of key employee incentive compensation expense of approximately $735 thousand.

Restructuring and Impairment Costs. During the three months ended September 30, 2008, we incurred net charges totaling $124.4 million for restructuring and impairment costs. The total consisted of approximately $125.3 million for the impairment of goodwill, a $1.9 million gain on the disposal of assets, approximately $356 thousand for other exit costs and approximately $751 thousand for severance and other termination benefits. We made payments of $552 thousand in severance and other termination benefits and

$936 thousand for other exit costs during the three months ended September 30, 2008, leaving an estimated liability of $4.4 million at September 30, 2008.

See the notes to the condensed consolidated financial statements for additional information regarding our restructuring plans.

(Loss) Income From Operations. Loss from operations for the three months ended September 30, 2008 was $117.5 million, a decrease of $123.6 million compared to income from operations of $6.1 million reported for the same period last year. The following table presents (loss) income from operations by business segment (in thousands):

                                 Three Months Ended
                                    September 30,              $             %
                                  2008          2007         Change        Change
           Paperboard          $  (62,536 )   $  3,295     $  (65,831 )    -1997.9 %
           Recovered fiber         (2,237 )      2,029         (4,266 )     -210.3 %
           Tube and core          (49,562 )      5,124        (54,686 )    -1067.3 %
           Folding carton           4,711        1,437          3,274        227.8 %
           Corporate expense       (7,835 )     (5,826 )       (2,009 )      -34.5 %

           Total               $ (117,459 )   $  6,059     $ (123,518 )   -2,038.6 %

Paperboard Segment

Income from operations decreased primarily due to expense of approximately $68.4 million related to the impairment of goodwill, which was partially offset by lower restructuring costs of approximately $3.0 million.

Recovered Fiber Segment

Income from operations decreased primarily due to the following factors:

• Expense of approximately $3.8 million related to the impairment of goodwill.

• Lower selling prices decreased income from operations by approximately $719 thousand.

Tube and Core Segment

Income from operations decreased primarily due to the following factors:

• Expense of approximately $53.1 million related to the impairment of goodwill.

• Higher restructuring costs of $2.2 million.

These reductions were partially offset by higher selling prices which increased income from operations by approximately $2.4 million.

Folding Carton Segment

Income from operations improved primarily due to the following factors:

• Higher volume improved income from operations by approximately $2.9 million.

• Lower restructuring costs of approximately $237 thousand.

Discontinued Operations. Income from discontinued operations for the three months ended September 30, 2007, was $7.6 million. See notes to the condensed consolidated financial statements for additional discussion of discontinued operations.

Other (Expense) Income. Interest expense for the three months ended September 30, 2008 and 2007 was approximately $4.0 million and $4.9 million, respectively. See "-Liquidity and Capital Resources" for additional information regarding our debt, interest expense, and interest rate swap agreements.

Equity in Income from Unconsolidated Affiliates. Equity in income from unconsolidated affiliates was $611 thousand for the three months ended September 30, 2008, an increase of $181 thousand compared to the same period in 2007. As previously indicated, on July 24, 2008, we sold our 50% interest in PBL and will not recognize equity in income from this unconsolidated affiliate after that date.

Benefit for Income Taxes. The effective rate of income tax for continuing operations for the three months ended September 30, 2008 was a benefit of 24.9%, compared to an expense of 37.0% for the same period last year. The effective rates are different from the statutory rates due to permanent tax adjustments, the inability of the Company to record the tax benefits of losses in certain state and foreign jurisdictions, the write-off of goodwill with no tax basis, and changes in the estimated state income tax rates.

Net Loss. Due to the factors discussed above, net loss for the three months ended September 30, 2008 was $72.6 million, or $2.53 per diluted common share, compared to a net loss of $6.5 million, or $0.22 net loss per diluted common share, for the same period last year.

Results of Operations for the Nine Months Ended September 30, 2008 and 2007

The volume information shown below includes shipments of paperboard products
made or purchased by us (excluding volume shipped by our unconsolidated joint
venture) combined and presented by end-use market lines as well as by reporting
segments. It is important to note, however, that portions of our sales do not
have related paperboard volume, such as sales of recovered fiber.



                                                        Nine Months Ended
                                                          September 30,                    %
                                                         2008        2007     Change     Change
Paperboard volume by end-use market (tons in
thousands):

Tube and core market
Volume shipped to internal converters                     184.8       193.9     (9.1 )     -4.7 %
Mill volume shipped to external customers                  39.5        36.7      2.8        7.6 %

Total                                                     224.3       230.6     (6.3 )     -2.7 %

Folding carton market
Volume shipped to internal converters                     113.0        99.6     13.4       13.5 %
Mill volume shipped to external customers                  72.4        70.4      2.0        2.8 %

Total                                                     185.4       170.0     15.4        9.1 %

Gypsum wallboard facing paper market
Mill volume shipped to external customers                  52.2        52.1      0.1        0.2 %

Specialty paperboard products market
Volume shipped to internal converters                      72.7        76.7     (4.0 )     -5.2 %
Mill volume shipped to external customers                  73.0        75.2     (2.2 )     -2.9 %

Total                                                     145.7       151.9     (6.2 )     -4.1 %

Total paperboard volume                                   607.6       604.6      3.0        0.5 %


Paperboard volume by reporting segment (tons in
thousands):
Paperboard segment                                        283.7       284.6     (0.9 )     -0.3 %
Tube and core segment                                     210.9       220.4     (9.5 )     -4.3 %
Folding carton segment                                    113.0        99.6     13.4       13.5 %

Total paperboard volume                                   607.6       604.6      3.0        0.5 %

Paperboard Volume. Total paperboard volume for the nine months ended September 30, 2008, increased 0.5% to 607.6 thousand tons from 604.6 thousand tons for the same period in 2007. Tons sold from paperboard mill production decreased 0.6% to 486.9 thousand tons for the nine months ended September 30, 2008, compared to the same period in 2007. The total volume of paperboard converted was essentially unchanged for the nine months ended September 30, 2008.

Total paperboard volume increased primarily due to increased sales of converted paperboard to the folding carton end use market. These increases were partially offset by a decrease in sales of converted paperboard to the tube and core end-use markets and a decrease in sales of converted and unconverted paperboard to the specialty paperboard end use markets, primarily due to overall lower industry demand.

Sales. Our consolidated sales for the nine months ended September 30, 2008 decreased 0.4% to $648.0 million from $650.3 million for the same period in 2007. The following table presents sales by business segment (in thousands):

                                  Nine Months Ended
                                    September 30,           $           %
                                  2008        2007       Change       Change
              Paperboard        $ 165,578   $ 156,718   $   8,860        5.7 %
              Recovered fiber      86,264     108,311     (22,047 )    -20.4 %
              Tube and core       220,846     221,816        (970 )     -0.4 %
              Folding carton      175,294     163,459      11,835        7.2 %

              Total             $ 647,982   $ 650,304   $  (2,322 )     -0.4 %

Paperboard Segment

Sales for the paperboard segment increased primarily due to higher selling prices and higher volume which accounted for approximately $9.7 million and approximately $2.2 million respectively. These increases were partially offset by a decrease of approximately $2.9 million in sales related to the disposition of a converting facility during 2007.

Recovered Fiber Segment

Sales for the recovered fiber segment decreased due to lower volume and lower selling prices which accounted for decreases of approximately $14.4 million and approximately $7.7 million.

Tube and Core Segment

Sales for the tube and core segment decreased due to lower volume which accounted for approximately $5.6 million which was partially offset by an increase in selling prices which accounted for approximately $4.8 million.

Folding Carton Segment

Sales for the folding carton segment increased primarily due to higher volume.

Cost of Sales. Cost of sales for the nine months ended September 30, 2008 decreased $3.5 million from $565.3 million in 2007 to $561.8 million in 2008. This decrease was primarily due to the following factors:

• Lower direct material costs, labor costs, freight costs, and other manufacturing costs of approximately $3.9 million in the paperboard segment related to the disposition of a facility during 2007.

• Lower direct material costs of $3.8 million in the tube and core segment primarily due to lower volume.

• Lower direct material and freight costs of approximately $20.4 million in the recovered fiber segment due to lower volume.

These factors were partially offset by the following increased expenses:

• Higher direct material costs of $6.0 million in the paperboard segment primarily due to increased fiber prices.

• Higher energy and fuel costs of $4.6 million in the paperboard segment due to increased fuel prices.

• Higher freight costs of $2.2 million in the paperboard segment.

• Higher labor costs of approximately $1.5 million in the paperboard segment.

• Higher direct material costs of $7.7 million in the folding carton segment primarily due to increased volume.

• Higher freight costs of $1.7 million in the tube and core segment.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2008 decreased $3.7 million from $77.3 million in 2007 to $73.6 million in 2008. The decrease was primarily due to the following factors:

• Reduction of approximately $1.3 million of employee related expenses in the paperboard segment.

• Reduction of approximately $1.3 million of selling, general and administrative salaries and related employee expenses in the folding carton segment.

• Reduction of approximately $500 thousand of selling, general and administrative salaries and related employee expenses in the tube and core segment.

• Reduction of approximately $444 thousand of selling, general and administrative salaries and related employee expenses in the recovered fiber segment.

• Lower bad debt expense of $924 thousand in the recovered fiber segment.

Selling, general and administrative expenses in 2007 included a reduction of key employee incentive compensation expense of approximately $1.2 million.

Restructuring and Impairment Costs. During the nine months ended September 30, 2008, we incurred net charges totaling $131.0 million for restructuring and impairment costs. The total consisted of approximately $125.3 for the impairment of goodwill, approximately $3.9 million for the impairment of assets, approximately $1.5 million for other exit costs and approximately $387 thousand for severance and other termination benefits. We made payments of $872 thousand in severance and other termination benefits and $2.2 million for other exit costs during the nine months ended September 30, 2008, leaving an estimated liability of $4.4 million at September 30, 2008.

See the notes to the condensed consolidated financial statements for additional information regarding our restructuring plans.

(Loss) Income From Operations. Loss from operations for the nine months ended September 30, 2008 was $118.4 million compared to loss from operations of $2.0 million reported for the same period last year. The following table presents
(loss) income from operations by business segment (in thousands):

. . .