Fellow Shareholders,

2005 was a year where we made considerable progress towards returning your company to profitability. Operating income in 2005 was $116 million (excluding asset sales and impairment charges) compared with $23 million (excluding asset sales) in 2004. We were unable, however, to offset the impact of the strong Canadian dollar, rising energy costs and continued declines in newsprint consumption; for the year, we reported a net loss of $121 million, or $2.10 per share.

This loss includes a write-off of $79 million or $1.38 per share, for the closure of the Thunder Bay, Ontario “A” kraft mill, most of which was non-cash.

As we enter 2006, we have a positive outlook for the year ahead. Pricing continues to improve; we expect to begin to realize the benefits of the $80 million cost reduction program we launched in October 2005; and we expect to see the positive impact of closing the “A” kraft mill at Thunder Bay by the end of the second quarter. The other kraft mill at this site is modern and will benefit from lower input costs.

Over the past few years we, and our industry, have faced significant challenges. With over 40% of our assets in Canada, we were unable to overcome the combination of the strong Canadian dollar and rising energy prices. While we made progress in 2005 in reconfiguring our asset base, and in achieving price increases and cost reductions, we did not return your company to profitability.

Nonetheless, we are confident that our strategy of optimizing our asset base by aggressively shifting our product mix towards coated and specialty grades, which enjoy higher margins and stronger demand growth than newsprint, has been proven to be well founded. An example is the success of our 2003 conversion of a large newsprint machine at Catawba, South Carolina to lightweight coated. This integrated mill, which we believe to be one of the lowest cost coated paper facilities in the world, demonstrates the opportunity to move forward with other, similar conversions. Both our Calhoun, Tennessee and Thunder Bay, Ontario mills offer additional platforms to implement cost-advantaged conversions to value-added grades.

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