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CLIFFORD PAPER INC.

AMERICAN BUSINESS MEDIA Production, Manufacturing & Technology Committee Meeting June 14, 2006 TOPIC: Changes in the Paper Market From a Paper “Merchant’s” Perspective. CLIFFORD PAPER INC. How a Paper Distributor Provides Value. Purchasing Options Direct Limited service resources

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CLIFFORD PAPER INC.

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  1. AMERICAN BUSINESS MEDIA Production, Manufacturing & Technology Committee Meeting June 14, 2006 TOPIC: Changes in the Paper Market From a Paper “Merchant’s” Perspective CLIFFORD PAPER INC.

  2. How a Paper Distributor Provides Value • Purchasing Options • Direct • Limited service resources • Limited product offerings • Motivation to sell their product at best return to their company • Assumed value – “eliminate the middle man” (i.e., GEICO) • Printer Supply • Not primary business • Service for profit / low paper margin compared to print /distribution • Quality Consistency – paper qualities do vary mill to mill • Usage calculated mathematically to contract /not actual usage • Paper Distributor • Expert in paper • If not right price, right product, all the time publisher will switch supply • Purchasing leverage /strong relationship with mills • Wide range of global mill / grade / product offerings • Strong relationship / trust / mutual goals • Visibility to paper market trends / prices • One-stop shopping /unbiased view of market

  3. How a Paper Distributor Provides Value • Purchasing Options (cont’d) • Cooperative • No mill relationships • Must up-charge product above mill / merchant / distributor price • No paper expertise • Limited product offerings • Less volume to leverage • Less market exposure

  4. PAPER DISTRIBUTOR’S VALUE PROPOSITION • Clifford Paper Inc.: Objective • Be a dedicated, long-term, value-added business partner with our clients and suppliers • Assure our customers’ economic success and viability • Example as Distributor of Paper / Clifford Paper • Volume – 700,000 tons enables purchasing leverage and strong supplier relationships • Market Exposure • Represent 46 paper companies (hundreds of paper machines globally) • Work with 409 active customers • As Service Provider / Available Resources • Publishing Services Group • Expert Sales / Customer Service Team • Technology / Systems Support

  5. TRENDS • 1990’s • Consolidation • Reduce market fragmentation • Followed examples: automotive / airline industries • Goals: • Increase market share • Reduce operating cost / closures • Influence market • Foreign Ownership in North America

  6. EXAMPLES OF CONSOLIDATIONS SINCE 1990 Champion (St. Regis) Federal Paperboard Union Camp Blandin Repap Kymmene Finnpap Consolidated Niagra of Wisconsin Lake Superior Stora Enso St. Mary’s West Linn (Simpson) Pasadena Mead (Coated) Boise IP UPM STORA ENSO BELGRAVIA NEW PAGE

  7. Success? Not in All Market Sectors • Cost to purchase too high / ton • i.e., Mills sold today are a fraction of price 10 years ago • Sale History: • Champion 2 mm tons (coated, gwd, FS) $6.2 billion $2,000 /ton • 1.1 mm tons (uncoated FS) • Total: 3.1 mm tons • CMP Holdings 1.8 mm tons $1.4 million $777 /ton • Closures / efficiences not realized • % Market share gain did not result in market control • Consolidation across grade categories not effective. Examples: • IP (uncoated FS, coated FS, coated gwd, SBS board) • -Champion (uncoated FS, coated FS, coated gwd, SCA) • -Union Camp (uncoated FS, SBS board) • -Federal (SBS board) • UPM-Kymmene: • -UPM / (uncoated FS, coated FS, coated gwd, newsprint, specialties, SBS board, and others) • -Blandin / coated groundwood • -Repap / coated groundwood

  8. TRENDS IN THE NEW MILLINEUM EXAMPLE: One Coated Mill’s Cost History 2001 to 2005

  9. Where is the Paper Market Today? • Newsprint • NA Capacity: 15 million tons • Imports: approximately 2% of US consumption • Trends – • Decline in readership and a migration of advertising dollars to the internet • Pricing close to peak / Canadian mills still losing money • Shut highest cost machines (or) shift to value-added grades • Market Consolidation – Bowater and Abitibi now have 52% of market share in NA • Closures – capacity down 10% over past 2 years • Abitibi – Kenora – 265,000 tons • Abitibi – Stephenville – 215,000 tons • Abitibi – Chandler, Quebec – 110,000 tons • Abitibi – Iroquois Falls – 50,000 tons • Abitibi – Sheldon, TX – 472,000 tons • Abitibi – Grand Falls – 70,000 tons • Abitibi – Port Alfred – 400,000 tons • Abitibi – Tacoma, WA – 45,000 tons • Abitibi – Alma Conversion to value-added – 170,000 tons • Bowater – thunder Bay – 140,000 tons • Bowater – Calhoun Conversion to value added – 100,000 tons • Catalyst – Port Alberni – 170,000 tons • Enron – Garfield, NJ – 225,000 tons Capacity Reduction Total: 2,432,000 tons

  10. NEWSPRINT Note: Imports approx. 2% of US Apparent Consumption Source: RISI

  11. NEWSPRINT $720 $680 $662 $600 $544 $493 Source: RISI

  12. Where is the Paper Market Today? • Uncoated Freesheet • NA Capacity: 13.5 million tons • Imports: 13.2% of US Apparent Consumption (source: RISI) • Trends • Lowest level since 1991 • Down 9% from 2004 to 2005 • 625,000 tons out in 2006 • Down 15% over past 5 years • Continued reduction of 5% per year expected by 2008 • Surface enhanced paper: alternative 570,m000 tons • New Product Competition • Abitibi: 235,000 tons • Bowater: 165,000 tons • Market Consolidation • IP, Weyerhaeuser, GP, Boise, Domtar –all re-evaluation strategies

  13. Where is the Paper Market Today? • Uncoated Freesheet (cont’d) • Closures • IP- Bastrop, LA: 480,000 tons • IP – Pensacola, FL – 150,000 tons • IP – Jay, ME – 100,000 tons • Domtar- Cornwall, Ontario: 265,000 tons • Domtar – New Westminster, BC – 50,000 tons • Eastern – Brewer & Lincoln, ME – 115,000 tons • Georgia Pacific – Camas, WA – 65,000 tons • Glatfelter – Neenah, WI – 124,000 tons • Riverside Paper – Applewon, WI – 58,000 tons • Smart Papers – Park Falls, WI – 120,000 tons • Weyerhaeuser- Prince Albert, Sask: 280,000 tons • Weyerhaeuser- Dryden Ontario: 155,00 tons • Capacity / Price Capacity Reduction Total: 1,962,000 tons

  14. UNCOATED FREESHEET Note: Imports approx. 13.2% of US Apparent Consumption Source: RISI

  15. UNCOATED FREESHEET $901 $813 $799 $709 $658 $622 Source: RISI

  16. Where is the Paper Market Today? • Uncoated Groundwood • NA Capacity: 5 million tons • Imports: not available. Reports merge (uncoated groundwood & SCA) • Trends • Demand for uncoated groundwood specialty category up 10% ytd. • Capacity is increasing 8.2% since 2003 • Katahdin re-start idle machine: 185,000 tons • Mills converting newsprint machines to hi-brite • New product developments in “surface enhanced” paper • New Products: 570,000 tons • Abitibi: 335,000 tons / Alma conversion from newsprint = 255,000 tons • Bowater: 165,000 tons / Calhoun conversion from newsprint = 100,000 tons • Weyerhaeuser (Norpac): 85,000 • Market Consolidation – Bowater, Abitibi market share has influence • Closures • Abitibi – Lufkin, TX – 265,000 tons • Beckorp (Newstech) – Deferiet, NY – 65,000 tons • Tembec: St. Leonard-de-Portneuf: 75,000 tons

  17. UNCOATED GROUNDWOOD (Groundwood Specialty) Note: Imports approx. ___% of US Apparent Consumption Source: RISI

  18. UNCOATED GROUNDWOOD (Groundwood Specialty) $884 $877 $794 $771 $765 $714 Source: RISI

  19. Where is the Paper Market Today? • SCA • NA Capacity: 2.7 million tons • Imports: 16% of NA demand (source: PPPC) • Trends • Market Consolidation • Closures • Port Hawkesbury (temporary/lockout) 570,000 tons • Capacity / Price

  20. SUPERCALENDERED Note: Imports approx. 16% of US Apparent Consumption Source: PPPC

  21. SUPERCALENDERED $845 $788 $769 $713 $675 Source: PPPC

  22. Where is the Paper Market Today? • Coated Groundwood • NA Capacity: 5 million tons • Imports: 28% of US Apparent Consumption (source: RISI) • Trends • Market Consolidation • Closures • Blandin (#3 & #4 machines) – 135,000 tons • Bowater – Benton Harbor – 47,000 tons • Cascades – Thunder Bay – 40,000 tons • IP Hudson / Corinth – 59,000 tons • Stora – Wisconsin Rapids – 60,000 tons • Tembec – St. Raymond – 75,000 tons • Extended shut-downs: UPM Miramichi – 450,000 tons • Capacity / Price • Closures /European Tons Close/Shift • UPM Voikka, Finland 44,000 Q3 2006 • Stora Corbehem, France 275,000 Q3 2006 • UPM Jamsankoski, Finland 120,000 2007

  23. COATED GROUNDWOOD Note: Imports approx. 28% of US Apparent Consumption Source: RISI

  24. COATED GROUNDWOOD $1,070 $1,072 * $1,020 $986 $824 $826 * Note: Based upon 34# prices Source: RISI

  25. Where is the Paper Market Today? • Coated Freesheet • NA Capacity: 5.2 million tons • Imports: 27% of US Apparent Consumption (source: RISI) • Trends • Market Consolidation • Closures • Sappi - Muskegon, MI: 116,000 tons • Pasadena - Pasadena, TX: 190,000 tons • Domtar - Vancouver, BC: 160,000 tons • Cascades - Thunder Bay, Ontario: 165,000 tons • Capacity / Price

  26. FREESHEET COATED Note: Imports approx. 27% of US Apparent Consumption Source: RISI

  27. FREESHEET COATED $996 $996 $944 $944 $913 $913 $868 $868 $778 $778 $749 $749 Source: RISI

  28. What Trends are Expected for Future? • Unprecedented corporate strategic Review • Divestitures • Sale to private equity

  29. UNPRECEDENTED NEW STRATEGIES • IP “Break Up” – divest of non-core assets and focus on strengths • Coated & SC Printing Paper Division • Sold to CMP Holdings (Apollo) • Beverage Packaging Division • To be sold • Pine Bluff coated to stay • “New IP” • Uncoated Freesheet (26% market share) • SBS Board (31% market share) • GP – realign to towel and tissue and building materials • Sold 4 mills (Ashetown, AK; Neekoosa, WI; Port Edwards, WI, Woodland, ME) to Domtar • Company purchased by private firm, Koch, March 2004 • Weyerhaeuser“Under Review” – • Rumors: IP / Domtar / Boise

  30. OTHER TRENDS • Divestiture / Reduce Debt • Land Sales: • IP sold 5.1 million acres for $6.5 billion • -85% of land holdings • -”Increase focused business & improve return to shareholdings” • Private Equity • St. Mary’s / West Linn / Pasadena = Belgravia • Boise Cascade (coated) / Mead (coated) = New Page (Cerberus) • St. Regis / Champion (coated) / IP (coated) = CMP Holding (Apollo)

  31. GLOBAL PERSPECTIVE • U.S. • Foreign investment stopped • Sappi / Stora Enso / UPM • Cost of operations • Machine efficiency / freight / logistics • Divestitures • Land / non-core components • Cord Realignment • GP/ IP • Asia • Continued growth in capacity • Foreign investment continues to enter partnerships • Stora Enso / Metso / Sappi / UPM • Pulp / fiber challenges • World scrutiny / subsidies

  32. GLOBAL PERSPECTIVE • Canada • Currency concerns to US dollar • Labor • Cost of Operation • Domtar / ChenMing (SBS)

  33. Supply Side / Cost Drivers / Currency * Source: Oanda.com * Note: W/O 6/12/06 CAD

  34. GLOBAL PERSPECTIVE • Europe • Currency concerns to US dollar • Continued closures • Investments in Asia • Reevaluate NA ownership / operation

  35. Supply Side / Cost Drivers / Currency * Source: Oanda.com * Note: W/O 6/12/06 Euro

  36. CLIFFORD PAPER PERSPECTIVE • Customer demand will remain “okay” • Supply will be reduced & in places change dramatically • Costs will stay high; therefore, price increase pressure remains • Postal / distribution cost will increase • Global influences will be greater

  37. Next Steps to Better Manage Your Paper Future • Keep aware of paper market changes • Plan on reduced supply capacity and pricing pressures • Evaluate supply channel options – pros /cons /trust & comfort • Select supplier that best delivers on an everyday basis: • Logical and thorough analysis of supply options • Alternatives • Sweet Spot Analysis • Logistics • Confidence & Trust • Appropriate customer service support • Financial stability • Industry integrity • Right product, right place, right time, right price • If you need any more information on how to go about finding the best channel to procure paper, don’t hesitate to email me at cclifford@cliffordpaper.com or call me at 201-934-5115 or visit our website at www.CliffordPaper.com.

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