CLIFFORD PAPER INC.

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AMERICAN BUSINESS MEDIA Production, Manufacturing
Technology Committee Meeting June 14,
2006 TOPIC Changes in the Paper Market From a
Paper Merchants Perspective
CLIFFORD PAPER INC.
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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

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How a Paper Distributor Provides Value

• Purchasing Options (contd)
• 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

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PAPER DISTRIBUTORS 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

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

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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.
Marys West Linn (Simpson) Pasadena Mead
(Coated) Boise
IP
UPM
STORA ENSO
BELGRAVIA
NEW PAGE
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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

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TRENDS IN THE NEW MILLINEUM
EXAMPLE One Coated Mills Cost History 2001 to
2005
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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

Capacity Reduction Total 2,432,000 tons
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NEWSPRINT
Source RISI
Note Imports approx. 2 of US Apparent
Consumption
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NEWSPRINT
720
680
662
600
544
493
Source RISI
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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

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Where is the Paper Market Today?

• Uncoated Freesheet (contd)
• 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
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UNCOATED FREESHEET
Source RISI
Note Imports approx. 13.2 of US Apparent
Consumption
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UNCOATED FREESHEET
901
813
799
709
658
622
Source RISI
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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

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UNCOATED GROUNDWOOD (Groundwood Specialty)
Source RISI
Note Imports approx. ___ of US Apparent
Consumption
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UNCOATED GROUNDWOOD (Groundwood Specialty)
884
877
794
771
765
714
Source RISI
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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

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SUPERCALENDERED
Source PPPC
Note Imports approx. 16 of US Apparent
Consumption
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SUPERCALENDERED
845
788
769
713
675
Source PPPC
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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

• 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

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COATED GROUNDWOOD
Source RISI
Note Imports approx. 28 of US Apparent
Consumption
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COATED GROUNDWOOD
1,070
1,072
1,020
986
824
826
Note Based upon 34 prices
Source RISI
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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

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FREESHEET COATED
Source RISI
Note Imports approx. 27 of US Apparent
Consumption
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FREESHEET COATED
996
996
944
944
913
913
868
868
778
778
749
749
Source RISI
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What Trends are Expected for Future?

• Unprecedented corporate strategic Review
• Divestitures
• Sale to private equity

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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

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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. Marys / West Linn / Pasadena Belgravia
• Boise Cascade (coated) / Mead (coated) New
  Page (Cerberus)
• St. Regis / Champion (coated) / IP (coated)
  CMP Holding (Apollo)

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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

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GLOBAL PERSPECTIVE

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

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Supply Side / Cost Drivers / Currency

Source Oanda.com
Note W/O 6/12/06 CAD
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GLOBAL PERSPECTIVE

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

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Supply Side / Cost Drivers / Currency

Source Oanda.com
Note W/O 6/12/06 Euro
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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

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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,
  dont hesitate to email me at cclifford_at_cliffordpa
  per.com or call me at 201-934-5115 or visit our
  website at www.CliffordPaper.com.