The market for coated paper, which is comprised of coated groundwood paper and coated freesheet paper, is one of the most attractive segments of the paper industry due to its prospects for volume growth, continued improvement in pricing and the high value-added nature of its products. Coated paper is used primarily in media and marketing applications including catalogs, magazines and commercial printing applications, which include high-end advertising brochures, annual reports and direct mail advertising.

Based on 2007 sales, the size of the global coated paper industry is estimated to be approximately $49 billion, or 54 million tons of coated paper shipments, including approximately $12 billion in North America, or 13 million tons of coated paper demand.

The North American coated paper industry is cyclical, and like other cyclical industries, it is largely affected by the interplay of demand and supply. However, unlike in other cyclical industries, volume is substantially less cyclical than price in the North American coated paper industry. Current demand and supply factors affecting the coated paper industry and their trends are discussed below.

Coated paper demand is primarily driven by advertising and print media usage. North American customers purchased approximately 13.2 million tons of coated paper in 2007. North American coated paper demand has increased 2.0% per annum since 2001, as the number of pages in advertising material and catalog circulation have increased. Since the end of 2003, demand has increased for many of the principal end-uses of coated paper.

In addition to coated paper, the Company has a presence in supercalendered paper, which is primarily used for retail inserts. The Company also produces and sells market pulp, which is used in the manufacture of printing and writing paper grades and tissue products.

The Company manufactures three main grades of paper: coated groundwood paper, coated freesheet paper and supercalendered paper. These paper grades are differentiated primarily by their respective brightness, weight, print quality, bulk, opacity and strength. The Company also produces Northern Bleached Hardwood Kraft, or “NBHK,” pulp.

The Company is also one of the largest rotogravure lightweight coated paper manufacturers in North America.

Coated groundwood paper includes a fiber component produced through a mechanical pulping process. The use of such fiber results in a bulkier and more opaque paper that is better suited for applications where lighter weights and/or higher stiffness are required, such as catalogs and magazines. In addition to mechanical pulp, coated groundwood paper typically includes a kraft pulp component to improve brightness and print quality.

Coated freesheet paper is made from bleached kraft pulp, which is produced using a chemical process to break apart wood fibers and dissolve impurities such as lignin. The use of kraft pulp results in a bright, heavier-weight paper with excellent print qualities, which is well-suited for high-end commercial applications and premium magazines. Coated freesheet contains primarily kraft pulp, with less than 10% mechanical pulp in its composition.

Supercalendered paper consists of groundwood fibers and a very high filler content but does not receive a separate surface coating. Instead, the paper is passed through a supercalendering process in which alternating steel and filled rolls “iron” the paper, giving it a gloss and smoothness that makes it resemble coated paper. Supercalendered papers are primarily used for retail inserts, due to their relatively low price point.

The Company produces and sells NBHK pulp. NBHK pulp is produced through the chemical kraft process using hardwoods. Hardwoods typically have shorter length fibers than softwoods and are used to smooth paper.

Cost of sales increased 17.8% to $407.6 million in first quarter 2008 compared to $345.9 million for the same period in 2007.

Gross margin, excluding depreciation and amortization, was 17.3% for first quarter 2008, compared to 12.1% for first quarter 2007.

Depreciation and amortization expense was $32.2 million in first quarter 2008 compared to $29.6 million in 2007.

Interest expense was $33.7 million in first quarter 2008, the same amount as the interest expense for the same period in 2007.