May 3, 2005 Outlook for Book Publishing Papers BMI Management Conference Presented by: John Maine, Vice President

2 RISI Growth Projections for 2004 Presented to BMI in May of 2004

3 Economic Outlook

4 GDP Outlook: U.S. Policy-Induced Growth Phase Nearing End  Low Interest Rates, Massive Federal Spending, Tax Cuts, and Weak $ Have Fueled the Economy, But are Now Reversing  Tighter Policy and High Energy Prices Threaten Expansion  Consumer Sector Is Vulnerable – Job Growth Disappointing; Debt Loads High  Declining Profits Will Dampen Investment  Expect Below-Trend Growth in 2 nd Half of 2005

5 Are Households Prepared for Rising Interest Rates?

6 The U.S. Recovery Will Fade in 2005 Potential GDP Growth Real GDP Growth, Annualized Percent Change

7 Canadian Dollar and Euro Rising to a Peak in 2005 US$ per CN$US$ per Euro

8 U.S. Economy Near-Term Outlook Real GDP % Ch Consumer Prices-% Ch Fed. Funds Int. Rate-%

9 End-Use Recovery In Magazines and Catalogs is Slowing, But Book Publishers Remain Strong

10 U.S. Magazine Ad Pages Peaked in 2004 and Will Show Little Growth in 2005/2006 seasonally adjusted monthly ad pages Index 1982=1 Source: RISI Index created from PIB data Feb, 2005

11 U.S. Catalog Circulation Drops in Response to Cost of Paper & Postage in 2006 Billions of Catalogs Mailed/quarter Data: RISI

12 U.S. Shipments of Printing and Writing Paper to Book Publishers Remains High (000 tons per month, seasonally adjusted) Source: AF&PA

13 U.S. Book Publishers Starting to See More Books Printed in Asia, Leading to Less Growth in Demand for Book Paper from U.S. Paper Mills

14 Asia Now Exports $1.2 Billion in Books to the U.S. Market Compared With $0.6 Bill. in 1995 Value of Books Imported into the U.S., Million $

15 China Becomes Dominant Exporter of Printed Books to the U.S. U.S. imports of printed books, millions of books

16 U.S. Imports of Printed Products from China Million Real 2004 Dollars

17 Outlook for Paper Demand Shows Decelerating Trend from Robust 2004

18 Demand Growth Waning in 2005/2006  Slowing economy  Rising costs for paper  Postal rate hikes  Loss of market share to Internet

19 N.A. Demand for Printing and Writing Papers (million short tons)

20 Grade Trends  Uncoated Freesheet – Declining Trend Since 1999  Coated Freesheet – Competition from Hi-Bright Mechanical and Asian Imported Sheets  Coated Mechanical – Good Demand Growth, Supply Shortage  Uncoated Mechanical – High Growth, SC Substituting for LWC and MF Hi-Bright Substituting for Uncoated Freesheet Offset

21 N.A. P&W Demand by Grade (Thousand Tons, % Change) Ctd. Free. 5,9886,0956,1546,261 %ch7%2%1%2% Ctd. Grwd.6,5616,5806,5806,616 %ch7%0%0%1% Unc. Free. 14,20314,28414,28814,587 %ch1%1%0%2% Unc. Grwd.6,6756,9136,9597,121 %ch7%4%1%2% Total33,42733,87133,98034,585 %ch4%1%0%2% U.S.Gdp %ch4.4%3.6%3.3%3.7%

22 Prolonged Miramichi Strike to Keep Publishing Markets Incredibly Tight in 2005

23 Impact of Miramichi Strike  495,000 tons of Capacity Likely to be Idle for 6-9 Months – 8% of North American Ctd. Mech. Capacity – 56% of UPM North American Ctd. Mech. Capacity – 12% of UPM Overall Ctd. Mech. Capacity – 3% of Combined Capacity for all North American and European Producers

24 How Will the Supply Shortage be Alleviated  Supply Shortage Measured at 350,000 tons – Assuming 9-month strike  More Imports From Europe – Shift supply to Rauma and others  Reduced Demand – Shift to other grades – Exacerbated by potentially higher prices  Temporary Supply Boost – Postpone downtime for maintenance/rebuilds – Shift swing machines from coated woodfree

25 U.S. Imports of LWC From Europe Surge in 2005 to Fill Supply Gap (000 short tons) U.S. Offshore Imports of Ctd. and Unct. Mechanical Paper

26 Major World Coated Mechanical Paper Capacity Changes in (tonnes) Figures are metric tonnes

27 Coated Mechanical Operating Rates (adjusted to exclude strike-idled capacity)

28 U.S. Imports of CFS From Asia About to Overtake Europe (000 short tons)

29 Major World Coated Freesheet Paper Capacity Changes in (More Than 100,000 tonnes) Figures are metric tonnes

30 Coated Freesheet Operating Rates

31 Major World UFS Capacity Changes in (More Than 100,000 Tonnes) Figures are metric tonnes

32 Uncoated Freesheet Operating Rates We continue to include 250,000 tons of temporarily idle capacity at IP in these numbers

33 Major World UGW Capacity Changes in (More Than 90,000 Tonnes) Figures are metric tonnes

34 Uncoated Mechanical Operating Rates

35 Average Profitability for U.S. vs. European Printing and Writing Paper Mills Profitability defined as (price-cost)/cost. Costs are total costs including depreciation, interest, SG&A, and delivery

36 Summary  Paper Demand Growth is Decelerating – And will stagnate in 2006 due in part to the high cost of paper and postage  Supply Shortage of Coated Mechanical in 2005 – Will get worse if strike is prolonged into the heart of the printing season – Imports from Europe will surge despite strong Euro to fill supply gap