Feb 10, 2006. /Lesprom Network/. Fraser Papers Inc. announced its financial results for the fourth quarter and year ended December 31, 2005 and reported continued progress toward achieving its asset repositioning initiatives in a challenging industry environment. HIGHLIGHTS In the fourth quarter and during the year ended December 31, 2005 Fraser Papers: - Announced the monetization of timberlands in New Brunswick for estimated net pre-tax proceeds of $125 million consisting of net pre-tax cash proceeds of $94 million and a $31 million investment in the Acadian Timber Income Fund; - Sold timberlands in Maine generating net pre-tax cash proceeds of $78 million; - Completed the sale of the Midwest operations resulting in a more geographically concentrated portfolio of assets and streamlined costs; - Divested of non-core paperboard assets while generating sufficient cash proceeds to cover the costs of exiting this business; - Achieved margin improvements of $11 million in the fourth quarter and $15 million during 2005; - Increased shipments of technical specialty papers by 15% from 180,000 tons in 2004 to 207,000 tons in 2005; - Issued $150 million of 8.75% senior, unsecured notes due March 2015 and repaid $75 million of short term debt; - Reduced the amount of outstanding guarantees to Norbord Inc. from $84 million at December 31, 2004 to $13 million at December 31, 2005; - Repurchased 602,100 common shares resulting in a $4 million contributed surplus; and - Completed reorganization of senior management including the appointment of a new Chief Financial Officer and two Senior Vice Presidents of Operations. For the year ended December 31, 2005, Fraser Papers generated EBITDA of $4 million and a net loss of $29 million or $(0.98) per share. In the prior year ended December 31, 2004, Fraser Papers generated EBITDA of $20 million and a net loss of $43 million or $(1.43) per share. The year over year performance represents the impact of a moderate improvement in paper pricing combined with a decline in lumber pricing and rising costs for fibre and energy as well as the impact of a higher Canadian dollar. Fraser Papers generated a loss of $22 million or $(0.75) per common share for the quarter ended December 31, 2005 compared with a loss of $21 million or $(0.70) per share in the same quarter in 2004. A non-cash restructuring charge of $8 million was recorded in the fourth quarter of 2005 related to the sale of our Paperboard operations. A non-cash restructuring charge of $7 million was recorded in the fourth quarter of 2004 relating to a number of productivity initiatives at the Thurso pulp mill and the Edmundston/Madawaska pulp and paper mill. "The past year was challenging for Fraser Papers and for the paper industry in general. Operating results were disappointing as the full impact of rising costs could not be passed on in the markets for our products. In this difficult environment, we made significant progress on our asset repositioning initiatives and surfaced value from our timberland assets, exited non core operations and strengthened our balance sheet. We believe that our low net debt level positions us well in 2006 to continue to execute our strategy of repositioning Fraser's asset base and cost structure for the long term benefit of our shareholders," commented Dominic Gammiero, President and CEO of Fraser Papers. VALUE CREATING INITIATIVES Asset Repositioning On December 19, 2005, Fraser Papers announced the formation of the Acadian Timber Income Fund (the "Fund"). On January 31, 2006 the Fund closed an initial offering of units on the Toronto Stock Exchange and used the proceeds from the offering and the issuance of debt to acquire, among other assets, Fraser Papers' 765,000 acres of freehold timberlands in New Brunswick. In this transaction, Fraser Papers surfaced value from its remaining timberlands asset base at an attractive value and secured access to the fibre from these lands with a long term fibre supply agreement. Fraser Papers received $94 million of net pre-tax cash proceeds and $31 million of units of the Fund. Fraser Papers' units represent a fully diluted ownership of 22% of the Fund. On October 14, 2005, Fraser Papers announced that it sold certain assets of its paperboard operations located in Edmundston, New Brunswick to Cascades Inc. While Fraser Papers recorded a non-cash charge in the fourth quarter of 2005 of approximately $8 million relating to this sale, net cash proceeds of $5 million covered the related closure costs. This transaction maximized value for shareholders from a non-core operation whose small market share and a challenging competitive environment were impacting its ability to generate sustainable profitability. Fraser Papers manufactured approximately 50,000 tons per year of paperboard at its facility in Edmundston. Cost Reductions Fraser Papers achieved $11 million in margin improvement ("MIP") during the quarter and $15 million for the year ended December 31, 2005. The MIP program measures improvements in EBITDA over the previous calendar period that result from higher volumes, improved product mix and cost reductions at constant exchange rates and commodity prices. The $15 million improvement for the year was short of the stated goal for 2005 of $50 million. Progress on operating initiatives at East Papers was negatively impacted by a number of factors including a lengthy maintenance shutdown at the cogen facility. In addition, sales and marketing initiatives did not result in anticipated margin gains reflecting difficult market conditions. In 2005, the combined negative effect on EBITDA of the strengthening Canadian dollar and higher fibre and energy costs when compared to the prior year was $50 million. This impact is incremental to a $57 million negative impact in 2004 relative to 2003. The margin improvement initiatives that the company achieved served to only partially offset these cost increases. Product Development Fraser Papers' product development activities have been focused on increasing sales of the company's technical specialty papers from its Madawaska mill where 12% of the product mix is made up of products developed within the last two years. In 2005, Fraser Papers developed 36 new specialty paper products including new applications for consumer product bags, thermal papers, grease proof papers, food containers and flame retardant papers. Fraser Papers increased shipments of technical specialty papers by 15% from 180,000 tons in 2004 to 207,000 tons in 2005. While cost inflation did not allow Fraser to realize the full potential of these new products in 2005, the ongoing investments in product development provide the company with a well positioned product mix. OUTLOOK In 2006, Fraser Papers expects to achieve an improvement in operating earnings as a result of its cost reduction and asset repositioning activities, even assuming no material paper or pulp price increases. The pace of capacity closures in the pulp and paper industry accelerated in 2005 and the balance of supply and demand in the industry has improved. Volumes and pricing in our core technical specialty and lightweight opaque business are expected to improve despite a neutral outlook for uncoated freesheet papers in general. We believe that our groundwood paper business will experience relatively stable market pricing as capacity in the industry remains in balance. Fraser remains focused on reducing its exposure to underperforming commodity grades of paper. Lumber markets have shown some recovery early in the first quarter of 2006 but remain at risk should U.S. housing starts drop from the strong levels that were achieved in recent years. For 2006, Fraser Papers expects to offset any potential decline in product pricing and continuing trends in rising input costs with further margin improvement initiatives. The target for margin improvement in 2006 is $30 million. During 2005, Fraser Papers completed several changes in the senior management of the company, which included the appointment in the fourth quarter of Peter Gordon as Fraser Papers' Chief Financial Officer. Peter joins Fraser Papers from Brookfield Asset Management where he was a Managing Partner with over 20 years of operating and financial experience with various Brookfield operating entities.