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 52% in the first six months of 2008. The remaining 48% 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. These integration statistics do not include volume produced or converted by our 50% owned, unconsolidated joint venture, Premier Boxboard Limited LLC. 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 and our composite container and plastics businesses, 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 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 our $189.8 million outstanding on the initial issuance of $200.0 million. We are pursuing various alternatives to meet that objective. We may not, however, be able to refinance the Senior Notes on terms acceptable to us, or at all. We may also incur additional long-term debt, increasing these risks. Our substantial indebtedness could have significant consequences to holders of our debt and equity securities.

We are a holding company that operates our business through 22 subsidiaries as of June 30, 2008. Through July 24, 2008 we owned a 50% interest in a joint venture with Temple-Inland. We account 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 Limited 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.

Please refer to Note 17. Subsequent Events in Notes to Consolidated Financial Statements in Part I, Item 1 for additional information.

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 June 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
                                                           June 30,                         %
                                                      2008         2007       Change      Change
Paperboard volume by end-use market (tons in
thousands):
Tube and core market
Volume shipped to internal converters                    61.8         66.9      (5.1 )      -7.6 %
Mill volume shipped to external customers                13.1         10.7       2.4        22.4 %

Total                                                    74.9         77.6      (2.7 )      -3.5 %

Folding carton market
Volume shipped to internal converters                    36.5         33.3       3.2         9.6 %
Mill volume shipped to external customers                22.9         23.5      (0.6 )      -2.6 %

Total                                                    59.4         56.8       2.6         4.6 %

Gypsum wallboard facing paper market
Mill volume shipped to external customers                17.2         17.9      (0.7 )      -3.9 %

Specialty paperboard products market
Volume shipped to internal converters                    25.1         26.5      (1.4 )      -5.3 %
Mill volume shipped to external customers                22.5         24.1      (1.6 )      -6.6 %

Total                                                    47.6         50.6      (3.0 )      -5.9 %

Total paperboard volume                                 199.1        202.9      (3.8 )      -1.9 %


Paperboard volume by reporting segment (tons in
thousands):
Paperboard segment                                       91.9         94.0      (2.1 )      -2.2 %
Tube and core segment                                    70.7         75.6      (4.9 )      -6.5 %
Folding carton segment                                   36.5         33.3       3.2         9.6 %

Total paperboard volume                                 199.1        202.9      (3.8 )      -1.9 %

Paperboard Volume. Total paperboard volume for the three months ended June 30, 2008, decreased 1.9% to 199.1 thousand tons from 202.9 thousand tons for the same period in 2007. Tons sold from paperboard mill production decreased 1.2% to 160.6 thousand tons for the three months ended June 30, 2008, compared to the same period in 2007. The total volume of paperboard converted decreased 2.6% for the three months ended June 30, 2008.

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

Sales. Our consolidated sales for the three months ended June 30, 2008 decreased 1.9% to $217.0 million from $221.2 million for the same period in 2007. The following table presents sales by business segment (in thousands):

                                  Three Months Ended
                                       June 30,             $           %
                                   2008        2007       Change      Change
              Paperboard        $   53,466   $  52,707   $    759        1.4 %
              Recovered fiber       29,721      38,138     (8,417 )    -22.1 %
              Tube and core         74,664      75,709     (1,045 )     -1.4 %
              Folding carton        59,175      54,694      4,481        8.2 %

              Total             $  217,026   $ 221,248   $ (4,222 )     -1.9 %

Paperboard Segment

Sales for the paperboard segment increased primarily due to higher selling prices which accounted for approximately $2.5 million. This increase was partially offset by lower volume which accounted for approximately $0.3 million and a decrease of approximately $1.5 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 which accounted for a decrease of approximately $7.3 million in addition to lower selling prices which accounted for an estimated decrease of $1.1 million.

Tube and Core Segment

Sales for the tube and core segment decreased primarily due to lower volume which accounted for a decrease of $2.7 million. This decrease was partially offset by higher tube and core selling prices which accounted for an estimated increase of $1.8 million in sales.

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 June 30, 2008 decreased $0.6 million from $191.4 million in 2007 to $190.8 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 $2.4 million in the paperboard segment related to the disposition of a facility during 2007.

• Lower direct material costs of $2.7 million in the tube and core segment primarily due to lower volume.

• Lower direct material and freight costs of approximately $7.3 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 $3.1 million in the paperboard segment primarily due to increased fiber prices.

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

• Higher freight costs of $0.8 million in the paperboard segment.

• Higher labor costs of approximately $0.8 million in the paperboard segment.

• Higher direct material costs of $4.0 million in the folding carton segment primarily due to increased volume.

• Higher freight costs of $0.9 million in the tube and core segment.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended June 30, 2008 decreased $1.7 million from $26.0 million in 2007 to $24.3 million in 2008. The decrease was primarily due to the following factors:

• Lower bad debt expense of $233 thousand in the paperboard segment.

• Reduction of approximately $441 thousand of selling, general and administrative salaries and related employee expenses in the tube and core segment.

• Reduction of approximately $348 thousand of selling, general and administrative salaries and related employee expenses in the paperboard segment related to the disposition of a facility during 2007.

• Reduction of approximately $287 thousand of selling, general and administrative salaries and related employee expenses in the folding carton segment.

Restructuring and Impairment Costs. During the three months ended June 30, 2008, we incurred net charges totaling $5.8 million for restructuring and impairment costs. The total consisted of approximately $5.2 million for the impairment of assets, approximately $566 thousand for other exit costs and approximately $44 thousand for severance and other termination benefits. We made payments of $66 thousand in severance and other termination benefits and $602 thousand for other exit costs during the three months ended June 30, 2008, leaving an estimated liability of $4.7 million at June 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 June 30, 2008 was $3.9 million, a decrease of $4.1 million compared to income from operations of $0.2 million reported for the same period last year. The following table presents (loss) income from operations by business segment (in thousands):

                                  Three Months Ended
                                       June 30,                $            %
                                   2008          2007        Change       Change
            Paperboard          $   (3,897 )   $  1,928     $ (5,825 )     -302.1 %
            Recovered fiber            992        1,631         (639 )      -39.2 %
            Tube and core            2,796        1,845          951         51.5 %
            Folding carton           2,890        1,405        1,485        105.7 %
            Corporate expense       (6,710 )     (6,633 )        (77 )       -1.2 %

            Total               $   (3,929 )   $    176     $ (4,105 )   -2,332.4 %

Paperboard Segment

Income from operations decreased primarily due to the following factors:

• Higher restructuring costs of approximately $2.5 million.

• Lower margins between selling prices and fiber costs decreased income from operations by approximately $2.7 million.

Recovered Fiber Segment

Lower selling prices decreased income from operations by approximately $1.0 million which was partially offset by lower selling, general and administrative expenses of approximately $361 thousand.

Tube and Core Segment

Income from operations improved primarily due to the following factors:

• Higher selling prices increased income from operations by approximately $1.0 million.

• Lower selling, general and administrative expenses of approximately $432 thousand.

• Lower restructuring costs of approximately $215 thousand.

These improvements were partially offset by higher freight costs which decreased income from operations by approximately $892 thousand.

Folding Carton Segment

Income from operations improved primarily due to the following factors:

• Lower restructuring costs of approximately $390 thousand.

• Higher volume improved income from operations by approximately $775 thousand.

• Lower selling, general and administrative expenses of approximately $320 thousand.

Discontinued Operations. Income from discontinued operations for the three months ended June 30, 2007, was $214 thousand. See notes to the condensed consolidated financial statements for additional discussion of discontinued operations.

Other (Expense) Income. Interest expense for the three months ended June 30, 2008 and 2007 was approximately $4.2 million and $4.8 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 $1.1 million for the three months ended June 30, 2008, an increase of $0.7 million compared to the same period in 2007. This increase was primarily due to increased containerboard volume and margins which offset the decline in gypsum wallboard facing paper. 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 June 30, 2008 was a benefit of 48.0%, compared to a benefit of 39.6% 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 June 30, 2008 was $3.6 million, or $0.13 per common share, compared to a net loss of $2.3 million, or $0.08 net loss per common share, for the same period last year.

Results of Operations for the Six Months Ended June 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.



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

Tube and core market
Volume shipped to internal converters                     120.5       129.7     (9.2 )     -7.1 %
Mill volume shipped to external customers                  26.4        23.4      3.0       12.8 %

Total                                                     146.9       153.1     (6.2 )     -4.0 %

Folding carton market
Volume shipped to internal converters                      74.2        66.0      8.2       12.4 %
Mill volume shipped to external customers                  47.7        48.6     (0.9 )     -1.9 %

Total                                                     121.9       114.6      7.3        6.4 %

Gypsum wallboard facing paper market
Mill volume shipped to external customers                  36.9        34.5      2.4        7.0 %

Specialty paperboard products market
Volume shipped to internal converters                      47.9        52.3     (4.4 )     -8.4 %
Mill volume shipped to external customers                  45.9        51.4     (5.5 )    -10.7 %

Total                                                      93.8       103.7     (9.9 )     -9.5 %

Total paperboard volume                                   399.5       405.9     (6.4 )     -1.6 %


Paperboard volume by reporting segment (tons in
thousands):
Paperboard segment                                        188.1       193.0     (4.9 )     -2.5 %
Tube and core segment                                     137.2       146.9     (9.7 )     -6.6 %
Folding carton segment                                     74.2        66.0      8.2       12.4 %

Total paperboard volume                                   399.5       405.9     (6.4 )     -1.6 %

Paperboard Volume. Total paperboard volume for the six months ended June 30, 2008, decreased 1.6% to 399.5 thousand tons from 405.9 thousand tons for the same period in 2007. Tons sold from paperboard mill production decreased 0.1% to 323.7 thousand tons for the six months ended June 30, 2008, compared to the same period in 2007. The total volume of paperboard converted decreased 2.2% for the six months ended June 30, 2008.

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

Sales. Our consolidated sales for the six months ended June 30, 2008 decreased 1.6% to $433.5 million from $440.7 million for the same period in 2007. The following table presents sales by business segment (in thousands):

                                  Six Months Ended
                                      June 30,              $           %
                                  2008        2007       Change       Change
              Paperboard        $ 108,415   $ 105,593   $   2,822        2.7 %
              Recovered fiber      61,711      76,236     (14,525 )    -19.1 %
              Tube and core       147,193     147,732        (539 )     -0.4 %
              Folding carton      116,209     111,112       5,097        4.6 %

              Total             $ 433,528   $ 440,673   $  (7,145 )     -1.6 %

Paperboard Segment

Sales for the paperboard segment increased primarily due to higher selling prices which accounted for approximately $6.3 million. This increase was partially offset by lower volume which accounted for approximately $0.6 million and a decrease of approximately $2.8 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 which accounted for a decrease of approximately $15.1 million which was partially offset by higher selling prices which accounted for an estimated increase of $0.6 million.

Tube and Core Segment

Sales for the tube and core segment decreased primarily due to lower volume which accounted for a decrease of $4.2 million. This decrease was partially offset by higher tube and core selling prices which accounted for an estimated increase of $3.9 million in sales.

Folding Carton Segment

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

Cost of Sales. Cost of sales for the six months ended June 30, 2008 decreased $5.5 million from $384.7 million in 2007 to $379.2 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 $3.8 million in the paperboard segment related to the disposition of a facility during 2007.

• Lower direct material costs of $1.4 million in the tube and core segment primarily due to lower volume.

• Lower repairs and maintenance costs of $0.6 million in the folding carton segment.

• Lower direct material and freight costs of approximately $13.9 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 $4.2 million in the paperboard segment primarily due to increased fiber prices.

• Higher energy and fuel costs of $2.8 million in the paperboard segment due to increased fuel prices.

• Higher freight costs of $0.9 million in the paperboard segment.

• Higher labor costs of approximately $1.2 million in the paperboard segment.

• Higher direct material costs of $4.2 million in the folding carton segment primarily due to increased volume.

• Higher freight costs of $1.0 million in the tube and core segment.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the six months ended June 30, 2008 decreased $5.9 million from $54.6 million in 2007 to $48.7 million in 2008. The decrease was primarily due to the following factors:

• Reduction of approximately $1.0 million of selling, general and administrative salaries and related employee expenses in the paperboard segment.

• Reduction of approximately $1.2 million of selling, general and administrative salaries and related employee expenses in the folding carton segment.

• Reduction of approximately $1.1 million of selling, general and administrative salaries and related employee expenses in the tube and core segment.

• Reduction of approximately $0.3 million of selling, general and administrative salaries and related employee expenses in the recovered fiber segment.

• Lower bad debt expense of $0.9 million in the recovered fiber segment.

Restructuring and Impairment Costs. During the six months ended June 30, 2008, we incurred net charges totaling $6.6 million for restructuring and impairment costs. The total consisted of approximately $5.8 million for the impairment of assets, approximately $1.1 million for other exit costs and a reduction due to a credit to severance and other termination benefits of $364 thousand. We made payments of $320 thousand in severance and other termination benefits and $1.2 million for other exit costs during the six months ended June 30, 2008, leaving an estimated liability of $4.7 million at June 30, 2008.

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

Income (Loss) From Operations. Loss from operations for the six months ended June 30, 2008 was $1.0 million, an improvement of $7.1 million compared to loss from operations of $8.1 million reported for the same period last year. The following table presents income (loss) from operations by business segment (in thousands):

                                    Six Months Ended
                                        June 30,                $          %
                                   2008          2007        Change      Change
             Paperboard          $     682     $     564     $   118       20.9 %
             Recovered fiber         4,040         3,047         993       32.6 %
. . .