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Papiers Stadacona Quarterly Report to Executive Committee and Board of Directors Q3 2001

Comprehensive financial report for Papiers Stadacona, including revenue, profit, cash flow, cost per tonne, income statement, cash flow statement, and balance sheet.

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Papiers Stadacona Quarterly Report to Executive Committee and Board of Directors Q3 2001

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  1. Papiers Stadacona Quarterly Report to Executive Committee andBoard of Directors Q3 2001

  2. Quebec Mill Revenue Q3 2001 April - December 2001 Forecast$C 327.9 M Q3 2001$C 108.3 M 2

  3. Quebec Mill Operating Profit Q3 2001 April - December 2001 Forecast$C 67.3 M Q3 2001$C 26.3 M 3

  4. Papiers Stadacona Revenue $C million 4

  5. Papiers Stadacona Profit $C million 5

  6. Papiers Stadacona Cash Flow $C million 6

  7. Papiers Stadacona Revenue Q3 2001 $C million April-December 2001 Forecast $C million 7

  8. Papiers Stadacona Profit Q3 2001 $C million April-December 2001 Forecast $C million 8

  9. Papiers Stadacona Cash Flow Q3 2001 $C million April-December 2001 Forecast $C million 9

  10. Papiers Stadacona Cost Per Tonne Newsprint 48.82gms/m2 * $709 $680 $659 $653 $656 $647 $638 $637 $629 $621 $610 10 * 65% of total production

  11. Papiers Stadacona Cost Per Tonne Directory 36.0gms/m2 $957 $890 $879 $880 $871 $859 $859 $861 $860 $809 $821 11

  12. Papiers Stadacona Income Statement Q3 2001 Actual ($C million) April – December 2001 Forecast ($C million) Revenue $113.5 COGS $-74.0 Depreciation & Amortization $-12.2SG&A $-.6EBIT $26.7 Current tax $-10.3Deferred tax $2.7NET INCOME $19.1 Revenue $342.2 COGS $-230.2 Depreciation & Amortization $-39SG&A $-13.4EBIT $59.6 Current tax $-27.2Deferred tax $8.1NET INCOME $40.5 12

  13. Papiers Stadacona Cash Flow Statement Q3 2001 Actual ($C million) April – December 2001 Forecast ($C million) Net Income $19.0 Depreciation & Amortization $12.2 Other Non-Cash Items $-4.9 Change in Working Capital $-3.8 Purchase/Sale of Assets $0.2 Financing Activities $0.0Capital Expenditures $-4.6NET CASH FLOW $18.1 Net Income $40.5 Depreciation & Amortization $39.0 Other Non-Cash Items $-11.3 Change in Working Capital $15.4 Purchase/Sale of Assets $0.2 Financing Activities $0.0Capital Expenditures $-15.9NET CASH FLOW $67.9 Note: Cash flow values are preliminary and will be revised once capital expenditure and working capital data are available. 13

  14. Papiers Stadacona Balance Sheet Q3 2001 Actual $C million December 31, 2001 Forecast $C million ASSETS Current Assets $151.8 Fixed Assets $241.7 Intangible Assets $44.3Total Assets $437.8 LIABILITIES & EQUITY Current Liabilities $44.0 Long-Term Liabilities $0.0 Future Income Tax $66.8 Equity $327.0Total Liabilities & Equity $437.8 ASSETS Current Assets $165.0 Fixed Assets $266.1 Intangible Assets $41.0Total Assets $472.1 LIABILITIES & EQUITY Current Liabilities $52.5 Long-Term Liabilities $0.0 Future Income Tax $63.3 Equity $356.3Total Liabilities & Equity $472.1 14

  15. Papiers Stadacona Legal Issues Q3 2001 • Working Capital Adjustment Dispute: Daishowa North America Corporation (“DNAC”), the seller of the CPS, has disputed EIM’s calculation of the amount of the working capital adjustment to be paid to DNAC. EIM calculated the working capital adjustment amount to be C$10,400,000, whereas DNAC asserts that the correct amount is approximately C$14,000,000. In discussions with DNAC and their accountants, we have learned that DNAC takes the position that (i) there does not need to be consistency in the manner in which the pro forma June 30, 1999 financial statements were prepared (for which the working capital amount was determined) and closing balance sheet and (ii) Enron was incorrect in their preparation of the closing date balance sheet on a GAAP basis consistent with the prior unaudited interim and audited annual financial statements because each of the items were, individually, immaterial. EIM takes a view that (i) accounting standards are required to be applied on a consistent basis in the preparation of the financial statements of a company, and (ii) it is incorrect to assert that the consistent application of accounting standards relates only to individually material items. DNAC has rejected EIM’s proposal to settle the matter for C$12,000,000,and the matter is currently being referred to a neutral third party accountant for resolution as provided in the Purchase Agreement. • b. Lignotech Claim: CPS was presented with a claim for reimbursement by Lignotech (U.S.) Inc. (“Lignotech”) in the amount of $15,000 for groundwater testing expenses relating to a Daishowa Chemicals Inc., a company sold by Daishowa Inc., CPS’s predecessor-in-interest in November 30, 1990. Apparently, Daishowa Inc. had been paying such expenses continuously since 1990 (totaling approximately $100,000) even though the indemnification provision of the relevant purchase agreement requires claims to be presented within five years of closing. The alleged groundwater problem relates to a gasoline spill caused in the removal of an underground storage tank shortly before the closing. The position we have taken with Lignotech is that the claim was not made within the required 5-year indemnification period. Lignotech have replied that the claim for current reimbursement is part of the same claim made during the indemnification period and have demanded payment.  • The position taken with Lignotech was intended to preserve a position in case Lignotech made a future claim for remediation costs against CPS, alleging that the claim for remediation costs relates back to the earlier claims for reimbursement for groundwater testing. Neither the purchase agreement with Lignotech nor the potential contingent liability to Lignotech was disclosed to EIM during due diligence. The indemnification provision in the purchase agreement with Daishowa contains a $3.6 million deductible. 15

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