NEWSPRINT

Our newsprint operations faced strong headwinds in 2006 from declining newsprint consumption in the United States. Unfavorable energy costs and currency exchange rates in Canada, as well as increasing global competition, were also factors affecting our results. North American newsprint demand declined 6% during the year. The main drivers of the decrease in tonnage were reductions in basis weights and declining newspaper advertising and circulation.

While North American demand declined in 2006, worldwide newsprint demand increased by about 1% during the year. Excluding the decline in North America, global demand grew by over 900,000 metric tons. In response, we increased export shipments during the year, and we will continue to look for opportunities abroad, with specific focus on areas where currency exchange rates are favorable.

Further declines in North American newsprint consumption are anticipated. Since the fall-off of North American newsprint demand began in 2001, we have closed or converted to other grades over one million metric tons of newsprint production and increased our percentage of export sales. By planning for reduced demand while striving to operate our newsprint assets profitably, we are positioning ourselves for long-term success. We are committed to managing our newsprint business to respond to changes in demand conditions.