8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

November 2, 2011

Date of Report (Date of earliest event reported)

KapStone Paper and Packaging Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware	001-33494	20-2699372
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1101 Skokie Boulevard, Suite 300
Northbrook, Illinois 60062

(Address of principal executive offices)

(847) 239-8800

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02               Results of Operations and Financial Condition.

On November 2, 2011, KapStone Paper and Packaging Corporation (“KapStone”) issued a press release reporting earnings for the third quarter ended September 30, 2011.

Item 7.01               Regulation FD Disclosure

On November 3, 2011, the management of KapStone will participate in a conference call discussing KapStone’s earnings for the third quarter ended September 30, 2011. A copy of the presentation materials used in the call is furnished as exhibit 99.2 of this report.

Item 9.01               Financial Statements and Exhibits

(d)Exhibits

Exhibit 99.1Third quarter 2011 Earnings Press Release dated November 2, 2011

Exhibit 99.2Slides of KapStone Paper and Packaging Corporation dated November 2, 2011

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SIGNATURE

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

Date:  November 2, 2011

KAPSTONE PAPER AND PACKAGING CORPORATION
By:	/s/ Andrea K. Tarbox
Name:	Andrea K. Tarbox
Title:	Vice President and Chief Financial Officer

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EX-99.1

Exhibit 99.1

FOR FURTHER INFORMATION:	FOR IMMEDIATE RELEASE
Andrea K. Tarbox	Wednesday, November 2, 2011
Vice President and Chief Financial Officer
847.239.8812

KAPSTONE REPORTS RECORD NET SALES

Third Quarter Operating Income Climbs over 13%

NORTHBROOK, IL — November 2, 2011 — KapStone Paper and Packaging Corporation (NYSE: KS) today reported results for the third quarter ended September 30, 2011.

·Record net sales of $216 million, up 4 percent versus 2010

·Adjusted EBITDA  of  $42.3 million, up $3.6 million versus 2010

·Diluted EPS of $0.35, down $0.47, or 57 percent versus 2010

·Adjusted diluted EPS of $0.39 equal to 2010

·Free cash flow of $0.79 per share, up $0.26 per share versus 2010

Roger W. Stone, Chairman and Chief Executive Officer, stated, “KapStone’s strong production in the third quarter of 2011 enabled us to achieve record net sales of $216 million and generate $38 million of free cash flow.  Our mills produced nearly 329,000 tons of paper, and we improved operating margins year-over-year with pricing and productivity improvements. We are  implementing a $50 per ton price increase for our kraft paper grades which will be fully realized in early 2012. Our order backlog remains strong.”

Third Quarter Operating Highlights

Net sales for the quarter ended September 30, 2011 were $215.8 million, an increase of 4.0 percent, when compared to third quarter of 2010 net sales of $207.5 million. The increase in net sales was attributable primarily to higher unit selling prices. Average revenue per ton increased to $639 in 2011 versus $614 during the third quarter of 2010 and accounted for $7.3 million of the improvement in sales. The higher average unit selling prices reflect full realization of price increases effective in 2010 and in the first half of 2011. Sales revenues in the third quarter of 2011 benefited by $1.5 million from favorable exchange rates. Offsetting the increase in net sales was $0.5 million due to Hurricane Irene in August 2011.

Operating income of $30.1 million for the 2011 quarter exceeded prior year’s results by $3.5 million. The primary reasons for the improved results were higher unit pricing and improved mix which contributed $7.9 million and productivity improvements of $1.7 million.  The stronger Euro, up 10 percent on the third quarter average, improved operating income by $1.5 million.

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However, operating income was negatively impacted by $5.1 million of inflation on input costs, mainly for caustic soda, higher wages, and freight-in for wood and $1.2 million for higher maintenance work at our Charleston mill.  In addition, KapStone incurred $1.1 million of expenses related to the USC acquisition.

Interest expense and amortization of debt issuance costs was $1.0 million for the third quarter of 2011, which decreased by $0.3 million versus the comparable quarter in 2010 as a result of year over year outstanding net debt reduction of $60.4 million. Net debt at September 30, 2011, is $18.3 million, and the interest rate on the majority of the Company’s debt is 1.74 percent.

The effective tax rate for the 2011 third quarter was 42.3 percent compared to negative 49.9 percent for the 2010 third quarter. The 2011 effective tax rate includes a $0.7 million discrete adjustment as 2010 income tax returns were filed during the quarter and a $0.6 million reduction in the expected benefit from the 2011 domestic manufacturing deduction. The 2010 effective tax rate included a $20.7 million benefit from the cellulosic biofuel producer’s credit. KapStone expects a 39.5 percent effective tax rate for the fourth quarter of 2011.

In August 2011, the Internal Revenue Service advised us that our tax returns for the years 2007 through 2009 have been forwarded to the Joint Committee on Taxation for final review and approval.

Cash Flow and Working Capital

Cash and cash equivalents increased by $17.5 million in the quarter ended September 30, 2011, reflecting $51.0 million provided by operating activities offset by $28.3 million used in investing activities and $5.1 million used in financing activities. Cash used for investing activities includes a $15.0 million deposit associated with the U.S. Corrugated Acquisition (“USC”) which was paid in conjunction with signing the definitive agreement on September 22, 2011.

Total net debt outstanding as of September 30, 2011, was $18.3 million and was reduced by $38.4 million during the third quarter of 2011.

At September 30, 2011, the Company had approximately $82.3 million of cash (including $15.0 million deposit for USC), $114.7 million of working capital and $91.7 million of revolver borrowing capacity.

USC Acquisition

In conjunction with our consummation of the USC acquisition on October 31, 2011, we entered into a new credit agreement with Bank of America. As we previously reported, the new credit agreement includes a $375.0 million five year, LIBOR based, term loan and a $150.0 million revolving credit facility. At closing, we retired our remaining $100.8 million due under our old credit agreement and paid $12.5 million in bank fees.

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Conclusion

Stone concluded, “Our legacy KapStone operations are performing very well, and we are now thoroughly engaged in welcoming and integrating U.S. Corrugated into the KapStone family.”

Conference Call

KapStone will host a conference call at 11 a.m. ET, Thursday, November 3, 2011, to discuss the Company’s financial results for the 2011 third quarter.  All interested parties are invited to listen and may do so by either accessing a simultaneous broadcast webcast on KapStone’s website, http://www.kapstonepaper.com, or for those unable to access the webcast, the following dial-in numbers are available:

Domestic: 800.591.6944

International: 617.614.4910

Participant Passcode: 88117705

A presentation to be viewed in conjunction with the call will also be available on our website, http://www.kapstonepaper.com, in the “Investors” section.

The webcast is also being distributed through the Thomson StreetEvents Network.  Individual investors can listen to the call at http://earnings.com, Thomson’s individual investor portal, powered by StreetEvents.  Institutional investors can access the call via Thomson StreetEvents (http://streetevents.com) a password-protected event management site.

Replay of the webcast will be available for 30 days on the Company’s website following the call.

About the Company

Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is a leading North American producer of unbleached kraft paper products, linerboard and shipping containers.   The Company is the parent company of KapStone Kraft Paper Corporation which includes paper mills in Roanoke Rapids, NC, North Charleston, SC, and Cowpens, SC, fourteen converting locations in the east and midwest, and a lumber mill in Summerville, SC. The business employs approximately 2,700 people.

Non-GAAP Financial Measures

In addition to our audited consolidated financial statements presented in accordance with U.S. GAAP, management uses certain non-GAAP measures, including “EBITDA”, “Adjusted EBITDA”, “Adjusted Net Income”, and “Adjusted Diluted EPS” to measure our operating performance.  Investors are cautioned that EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted EPS are not financial measures under U.S. GAAP.  Management uses these measures to focus on the on-going operations, and believes that they are useful to investors because they enable them to perform meaningful comparisons of past and present operating results. The Company believes that these non-GAAP measures provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency to key measures used to evaluate the performance and liquidity

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of the Company.  Management uses EBITDA for evaluating the Company’s performance against competitors and as a primary measure for employees’ incentive programs.  Reconciliations of net income to EBITDA, EBITDA to Adjusted EBITDA, net income to Adjusted Net Income, and diluted EPS to Adjusted Diluted EPS are included in the financial schedules contained in this press release.  In addition, these measures should not be construed as alternatives to any other measures of performance determined in accordance with GAAP.

Forward-Looking Statements

Statements in this news release that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can often be identified by words such as  “may,” “will,” “should,” “would,’ “expect,” “project,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “potential,” “outlook,” or “continue,” the negative of these terms or other similar expressions.   These statements reflect management’s current views and are subject to risks, uncertainties and assumptions, many of which are beyond the Company’s control that could cause actual results to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ materially include, but are not limited to: (1) industry conditions, including changes in cost, competition, changes in the Company’s product mix and demand and pricing for the Company’s products; (2) market and economic factors, including changes in raw material and healthcare costs, exchange rates and interest rates; (3) results of legal proceedings and compliance costs, including unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations; (4) the ability to achieve and effectively manage growth; (5) the ability to pay the Company’s debt obligations;  (6) the ability to carry out the Company’s strategic initiatives and manage associated costs including the acquisition of U.S Corrugated; and (7) the tax impact of the federal incentive program for alternative fuel mixtures.  Further information on these and other risks and uncertainties is provided under Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 and elsewhere in reports that the Company files or furnishes with the SEC. These filings can be found on KapStone’s Web site at www.kapstonepaper.com and the SEC’s Web site at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and the Company disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances.

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KapStone Paper and Packaging Corporation

Consolidated Statements of Income

(In thousands, except share and per share amounts)

(unaudited)

							Fav / (Unfav)							Fav / (Unfav)
	Quarter Ended September 30,						Variance	Nine Months Ended September 30,						Variance
	2011			2010			%	2011			2010			%
Net sales	$	215,842		$	207,493		4.0%	$	637,366		$	583,111		9.3%
Cost and expenses:
Cost of sales, excluding depreciation and amortization	146,038			142,212			-2.7%	431,832			419,197			-3.0%
Depreciation and amortization	11,960			11,129			-7.5%	36,529			33,624			-8.6%
Freight and distribution expenses	19,319			20,161			4.2%	56,829			56,279			-1.0%
Selling, general and administrative expenses	8,720			7,631			-14.3%	26,892			23,672			-13.6%
Other operating income	292			250			16.8%	870			760			14.5%
Operating income	30,097			26,610			13.1%	86,154			51,099			68.6%
Foreign exchange gain / (loss)	(456		)	301			-251.5%	(121		)	(597		)	79.7%
Interest expense, net	617			772			20.1%	1,944			2,433			20.1%
Amortization of debt issuance costs	419			538			22.1%	1,266			1,797			29.5%
Income before provision for income taxes	28,605			25,601			11.7%	82,823			46,272			79.0%
Provision (benefit) for income taxes	12,110			(12,765		)	194.9%	33,038			(5,578		)	692.3%
Net income	$	16,495		$	38,366		-57.0%	$	49,785		$	51,850		-4.0%
Net income per share:
Basic	$	0.36		$	0.83			$	1.08		$	1.13
Diluted	$	0.35		$	0.82			$	1.05		$	1.11
Weighted-average number of shares outstanding:
Basic	46,379,537			45,984,422				46,241,251			45,795,023
Diluted	47,494,425			47,049,913				47,455,133			46,892,468
Effective tax rate	42.3		%	-49.9		%		39.9		%	-12.1		%

KapStone Paper and Packaging Corporation

Consolidated Balance Sheets

(In thousands)

	September 30,		December 31,
	2011		2010
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	67,342	$	67,358
Trade accounts receivable, net of allowances	78,676		66,640
Other receivables	4,112		2,780
Inventories	77,824		73,324
Prepaid income taxes	—		348
Prepaid expenses and other current assets	3,391		2,403
Deferred income taxes	2,377		9,394
Total current assets	233,722		222,247
Plant, property and equipment, net	457,813		466,019
Restricted cash	15,000		—
Other assets	2,142		3,996
Intangible assets, net	19,970		22,654
Goodwill	54,511		4,811
Total assets	$	783,158	$	719,727
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	18,835	$	18,835
Other current borrowings	623		—
Accounts payable	57,149		55,504
Accrued expenses	21,610		22,986
Accrued compensation costs	19,280		18,229
Accrued income taxes	1,525		—
Total current liabilities	119,022		115,554
Long-term debt, net of current portion	78,924		92,857
Accrued pension and post-retirement benefits	6,415		6,454
Deferred income taxes	41,283		17,917
Other liabilities	64,125		68,311
Total other liabilities	190,747		185,539
Stockholders’ equity:
Common stock $0.0001 par value	5		5
Additional paid-in capital	229,508		224,844
Retained earnings	243,872		194,087
Accumulated other comprehensive income (loss)	4		(302		)
Total stockholders’ equity	473,389		418,634
Total liabilities and stockholders’ equity	$	783,158	$	719,727

KapStone Paper and Packaging Corporation

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

	Quarter Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Operating activities:
Net income	$	16,495		$	38,366		$	49,785		$	51,850
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	11,960			11,129			36,529			33,624
Stock-based compensation expense	705			676			3,226			2,833
Excess tax benefits from stock-based compensation	(423		)	(59		)	(1,181		)	(447		)
Amortization of debt issuance costs	418			538			1,266			1,797
Loss on disposal of fixed assets	441			168			623			628
Deferred income taxes	15,924			(25,385		)	30,215			(18,730		)
Changes in operating assets and liabilities	5,432			7,707			(16,419		)	19,581
Net cash provided by operating activities	$	50,952		$	33,140		$	104,044		$	91,136
Investing activities:
KPB acquisition earn-out payment	$	—		$	—		$	(49,700	)	$	—
CKD acquisition	—			—			—			638
Restricted cash	(15,000		)	2,500			(15,000		)	2,500
Capital expenditures	(13,348		)	(8,325		)	(26,262		)	(23,829		)
Net cash used in investing activities	$	(28,348	)	$	(5,825	)	$	(90,962	)	$	(20,691	)
Financing activities:
Proceeds from revolving credit facility	$	—		$	—		$	7,600		$	76,700
Repayments on revolving credit facility	—			—			(7,600		)	(84,100		)
Repayments of long-term debt	(4,709		)	(7,307		)	(14,127		)	(25,293		)
Proceeds from other current borrowings	—			—			2,273			2,564
Repayments on other current borrowings	(415		)	(641		)	(1,650		)	(1,920		)
Loan amendment costs	—			—			(244		)	—
Debt issuance costs for new credit facility	(788		)	—			(788		)	—
Payment of withholding taxes on vested restricted stock awards	(86		)	—			(952		)	(624		)
Proceeds from exercises of stock options	396			233			1,017			777
Excess tax benefits from stock-based compensation	423			59			1,181			447
Proceeds from issuance of shares to ESPP	95			70			192			70
Other	—			—			—			111
Net cash used in financing activities	$	(5,084	)	$	(7,586	)	$	(13,098	)	$	(31,268	)
Net increase / (decrease) in cash and cash equivalents	17,520			19,729			(16		)	39,177
Cash and cash equivalents-beginning of period	49,822			21,888			67,358			2,440
Cash and cash equivalents-end of period	$	67,342		$	41,617		$	67,342		$	41,617

KapStone Paper and Packaging Corporation

Supplemental Information

GAAP to Non-GAAP Reconciliations

($ in thousands, except share and per share amounts)

(unaudited)

	Quarter Ended September 30,					Nine Months Ended September 30,
	2011		2010			2011		2010
Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP):
Net income (GAAP)	$	16,495	$	38,366		$	49,785	$	51,850
Interest expense, net	617		772			1,944		2,433
Amortization of debt issuance costs	419		538			1,266		1,797
Provision for income taxes	12,110		(12,765		)	33,038		(5,578		)
Depreciation and amortization	11,960		11,129			36,529		33,624
EBITDA (Non-GAAP)	$	41,601	$	38,040		$	122,562	$	84,126
Alternative fuel mixture tax credits	—		—			—		(22,195		)
Stock-based compensation expense	705		676			3,226		2,833
Adjusted EBITDA (Non-GAAP)	$	42,306	$	38,716		$	125,788	$	64,764
Net Income (GAAP) to Adjusted Net Income (Non-GAAP):
Net income (GAAP)	$	16,495	$	38,366		$	49,785	$	51,850
Income tax adjustments	1,262		—			1,262		—
Cellulosic Biofuel tax credit	—		(20,660		)	—		(20,660		)
Alternative fuel mixture tax credits	—		—			—		(14,737		)
Stock-based compensation expense	407		449			1,939		1,881
Adjusted Net Income (Non-GAAP)	$	18,164	$	18,155		$	52,986	$	18,334
Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP):
Basic EPS (GAAP)	$	0.36	$	0.83		$	1.08	$	1.13
Income tax adjustments	0.03		—			0.03		—
Cellulosic Biofuel tax credit	—		(0.45		)	—		(0.45		)
Alternative fuel mixture tax credits	—		—			—		(0.32		)
Stock-based compensation expense	0.01		0.01			0.04		0.04
Adjusted Basic EPS (Non-GAAP)	$	0.40	$	0.39		$	1.15	$	0.40
Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP):
Diluted earnings per share (GAAP)	$	0.35	$	0.82		$	1.05	$	1.11
Income tax adjustments	0.03		—			0.03		—
Cellulosic Biofuel tax credit	—		(0.44		)	—		(0.44		)
Alternative fuel mixture tax credits	—		—			—		(0.31		)
Stock-based compensation expense	0.01		0.01			0.04		0.04
Adjusted Diluted EPS (Non-GAAP)	$	0.39	$	0.39		$	1.12	$	0.40

KapStone Paper and Packaging Corporation

Supplemental Information

Net Debt and Debt to Equity Ratio

(In thousands)

(unaudited)

	Quarter Ended
	9/30/2011			6/30/2011			3/31/2011			12/31/2010			9/30/2010
Calculation of Net Debt
Current portion of LT debt	$	18,835		$	18,835		$	18,835		$	18,835		$	18,835
Other borrowings	623			1,038			1,656			—			644
Borrowings on revolving line of credit	—			—			—			—			—
Long term debt, net	78,924			84,030			88,331			92,857			97,157
Unamortized debt issuance costs	2,221			2,612			3,020			3,203			3,612
	100,603			106,515			111,842			114,895			120,248
Less cash and restricted cash	(82,342		)	(49,822		)	(22,478		)	(67,358		)	(41,617		)
Total Net Debt (non GAAP)	$	18,261		$	56,693		$	89,364		$	47,537		$	78,631
Decrease (increase) during the quarter	$	38,432		$	32,671		$	(41,827	)	$	31,094		$	27,677
Debt to Equity ratio calculation
Net debt	$	18,261		$	56,693		$	89,364		$	47,537		$	78,631
Equity	$	473,389		$	455,257		$	435,967		$	418,634		$	403,062
Ratio	3.9		%	12.5		%	20.5		%	11.4		%	19.5		%

KapStone Paper and Packaging Corporation

Supplemental Information

Cash Flow From Operations and Adjusted Free Cash Flow

(In thousands)

(unaudited)

	2011			2011			2011			2010			2010
	30-Sep			30-Jun			31-Mar			31-Dec			30-Sep
Cash flow from operations (GAAP)	$	50,952		$	40,638		$	12,454		$	44,940		$	33,140
Less capital expenditures	(13,348		)	(8,236		)	(4,678		)	(14,489		)	(8,325		)
Adjusted free cash flow (Non-GAAP)	$	37,604		$	32,402		$	7,776		$	30,451		$	24,815
Average diluted shares outstanding	47,494,425			47,416,400			47,454,574			47,238,832			47,049,913
Adjusted free cash flow per share	$	0.79		$	0.68		$	0.16		$	0.64		$	0.53

EX-99.2

Exhibit 99.2

Third Quarter 2011 Financial Highlights Roger W. Stone Chairman and Chief Executive Officer Andrea K. Tarbox Vice President and Chief Financial Officer November 2, 2011

Forward Looking Statements The information in this presentation and statements made during this presentation may contain certain forward-looking statements within the meaning of federal securities laws. These statements reflect management’s expectations regarding future events and operating performance. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to differ materially from those expressed in, or underlying, any forward-looking statements can be found in the Company’s filings with the Securities and Exchange Commission, such as its annual and quarterly reports. The Company disclaims any obligation to revise or update such statements to reflect the occurrence of events after the date of this presentation. This presentation refers to non-U.S. GAAP financial information. For a reconciliation to U.S. GAAP financial measures, please refer to the appendix. Forward-Looking Statements Non-GAAP Financial Measures Risk Factors 2

3 Net Debt* Significantly Reduced -See appendix for reconciliations- KapStone: Powerful Free Cash Flow Generator $ in Millions Free Cash Flow of $38 million in third quarter of 2011, or $0.79 per diluted share Free Cash Flow for trailing 12 months of $108 million, or $2.27 per diluted share 3rd Quarter Delivers Substantial Cash Flow Down $430 over 4 years *Net debt excludes $50 million earn-out obligation to IP paid in January 2011

Third Quarter Financial Results *Adjusted to exclude non-cash stock compensation (2010 and 2011) **Adjusted to exclude cellulosic biofuel tax credit (2010) , income tax adjustments (2011) and non-cash stock compensation (2010 and 2011) -See appendix for reconciliations- 4

Net Sales Q3 2011 Versus Q3 2010 Q3 2011 net sales up $9 million, or 4%, to $216 million Higher prices - $7 million Record average revenue of $639 per ton, up $25 per ton since Q3 2010 Favorable FX impact - $2 million Higher Average Prices and Favorable FX 5 Average Revenue Per Ton Unit Sales by Product Line

Adjusted EBITDA* Q3 2011 Versus Q3 2010 *See appendix for reconciliation of adjusted EBITDA to net income Adjusted EBITDA of $42 million for Q3 2011 improved $4 million over Q3 2010 Improved pricing on all products Increased productivity Favorable FX impact due to a stronger Euro Partially offset by: Inflation primarily on caustic soda, wages, and freight-in for wood Higher maintenance due to planned outages at the CHS mill Costs incurred related to USC acquisition Adjusted EBITDA margin for Q3 2011 was 19.6% Price Drives 11% Improvement in Adjusted EBITDA* 6 $38 $7 $3 $1 $5 $1 $1 $42 $ in Millions

Sequential Quarter Comparison -See appendix for reconciliations- *Adjusted to exclude non-cash stock compensation **Adjusted to exclude income tax adjustments and non-cash stock compensation 7

Net Sales Q3 2011 Versus Q2 2011 Q3 2011 net sales up $1 million to $216 million Higher prices - $2 million Up $6 per ton since Q2 2011 Improved product mix - $1 million Higher percentage of DuraSorb® sales Lower volume - $2 million Partly due to impact of Hurricane Irene Improved Mix and Higher Average Prices 8 Tons Sold (in thousands) Unit Sales by Product Line

Adjusted EBITDA* Q3 2011 Versus Q2 2011 *See appendix for reconciliation of adjusted EBITDA to net income Adjusted EBITDA* Decreases to $42 Million Adjusted EBITDA decreased $2 million in Q3 2011 to $42 million Higher maintenance costs due to planned outages at Charleston Inflation on caustic soda and energy costs Currency transaction losses due to a stronger US Dollar USC acquisition costs Partially offset by higher prices and improved mix 9 $1 $1 $1 $44 $2 $1 $2 $42 2Q 11 Price Mix Maintenance Inflation FX USC Costs 3Q 11 $ in Millions

Income tax provision for Q3 2011 was $12.1 million Based on a full year estimated rate of 39.9% versus a credit of 12.1% a year ago 2010 rate included a $20.7 million benefit related to the Cellulosic Biofuel credit Lower expected benefit from the domestic manufacturing deduction and discrete item related to filing 2010 tax returns Federal cash tax rate expected to be less than 1% for 2011 September 30, 2011 balance sheet includes $69 million accrued for taxes and interest on AFTC KS has been advised and doesn’t believe AFTC is taxable as it is similar to an excise tax refund IRS audit of 2009 tax year is expected to be completed in Q1 2012 Tax Notes 10

Summary of Key Assumptions for Q4 2011 Inclusion of USC operations for two months including related transaction, and start-up costs and purchase accounting adjustments Cash interest expense expected to be $1 million higher than Q3 2011 due to acquisition debt Minimal benefit in Q4 from $50 per ton price increase for kraft paper effective September 12, 2011 Fully realized in Q1 2012 Input costs expected to be relatively stable 11

Summary of Key Assumptions for Q4 2011 Planned outages Approximately $5 million higher maintenance expense over Q3 2011 Lost production of about 12,000 tons Capex for 2011 estimated to be $41 million Approximately $25 million is maintenance related Remainder of Capex spending for strategic or cost reduction projects Effective tax rate expected to be approximately 39.5% 12

APPENDIX

14 Supplemental Information 2011 2010 2011 2010 Net Income (GAAP) to EBITDA (Non-GAAP) to Adjusted EBITDA (Non-GAAP): Net income (GAAP) 16,495 $ 38,366 $ 49,785 $ 51,850 $ Interest expense, net 617 772 1,944 2,433 Amortization of debt issuance costs 419 538 1,266 1,797 Provision for income taxes 12,110 (12,765) 33,038 (5,578) Depreciation and amortization 11,960 11,129 36,529 33,624 EBITDA (Non-GAAP) 41,601 $ 38,040 $ 122,562 $ 84,126 $ Alternative fuel mixture tax credits – – – (22,195) Stock-based compensation expense 705 676 3,226 2,833 Adjusted EBITDA (Non-GAAP) 42,306 $ 38,716 $ 125,788 $ 64,764 $ Net Income (GAAP) to Adjusted Net Income (Non-GAAP): Net income (GAAP) 16,495 $ 38,366 $ 49,785 $ 51,850 $ Income tax adjustments 1,262 – 1,262 – Cellulosic Biofuel tax credit – (20,660) – (20,660) Alternative fuel mixture tax credits – - – (14,737) Stock-based compensation expense 407 449 1,939 1,881 Adjusted Net Income (Non-GAAP) 18,164 $ 18,155 $ 52,986 $ 18,334 $ Nine Months Ended September 30, GAAP to Non-GAAP Reconciliations ($ in thousands, except share and per share amounts) (unaudited) Quarter Ended September 30,

15 Supplemental Information 2011 2010 2011 2010 Basic EPS (GAAP) to Adjusted Basic EPS (Non-GAAP): Basic EPS (GAAP) 0.36 $ 0.83 $ 1.08 $ 1.13 $ Income tax adjustments 0.03 – 0.03 – Cellulosic Biofuel tax credit – ( 0.45) – ( 0.45) Alternative fuel mixture tax credits – – – ( 0.32) Stock-based compensation expense 0.01 0.01 0.04 0.04 Adjusted Basic EPS (Non-GAAP) 0.40 $ 0.39 $ 1.15 $ 0.40 $ Diluted EPS (GAAP) to Adjusted Diluted EPS (Non-GAAP): Diluted earnings per share (GAAP) 0.35 $ 0.82 $ 1.05 $ 1.11 $ Income tax adjustments 0.03 – 0.03 – Cellulosic Biofuel tax credit – ( 0.44) – ( 0.44) Alternative fuel mixture tax credits – – – ( 0.31) Stock-based compensation expense 0.01 0.01 0.04 0.04 Adjusted Diluted EPS (Non-GAAP) 0.39 $ 0.39 $ 1.12 $ 0.40 $ Nine Months Ended September 30, GAAP to Non-GAAP Reconciliations ($ in thousands, except share and per share amounts) (unaudited) Quarter Ended September 30,

16 Supplemental Information Calculation of Net Debt 9/30/2011 6/30/2011 3/31/2011 12/31/2010 9/30/2010 Current portion of LT debt 18,835 $ 18,835 $ 18,835 $ 18,835 $ 18,835 $ Other borrowings 623 1,038 1,656 - 644 Borrowings on revolving line of credit – – – – - Long term debt, net 78,924 84,030 88,331 92,857 97,157 Unamortized debt issuance costs 2,221 2,612 3,020 3,203 3,612 100,603 106,515 111,842 114,895 120,248 Less cash and restricted cash (82,342) (49,822) (22,478) (67,358) (41,617) Total Net Debt (non GAAP) 18,261 $ 56,693 $ 89,364 $ 47,537 $ 78,631 $ Decrease (increase) during the quarter 38,432 $ 32,671 $ (41,827) $ 31,094 $ 27,677 $ Debt to Equity ratio calculation Net debt 18,261 $ 56,693 $ 89,364 $ 47,537 $ 78,631 $ Equity 473,389 $ 455,257 $ 435,967 $ 418,634 $ 403,062 $ Ratio 3.9% 12.5% 20.5% 11.4% 19.5% Quarter Ended Net Debt and Debt to Equity Ratio (unaudited) (In thousands)

17 Supplemental Information 2011 2011 2011 2010 2010 30-Sep 30-Jun 31-Mar 31-Dec 30-Sep Cash flow from operations (GAAP) 50,952 $ 40,638 $ 12,454 $ 44,940 $ 33,140 $ Less capital expenditures (13,348) (8,236) (4,678) (14,489) (8,325) Adjusted free cash flow (Non-GAAP) 37,604 $ 32,402 $ 7,776 $ 30,451 $ 24,815 $ Average diluted shares outstanding 47,494,425 47,416,400 47,454,574 47,238,832 47,049,913 Adjusted free cash flow per share 0.79 $ 0.68 $ 0.16 $ 0.64 $ 0.53 $ Cash Flow From Operations and Adjusted Free Cash Flow (In thousands) (unaudited)