Forest Resources LLC – Q2 Review 2011

Larry Richard, President and Chief Executive

Forest Resources LLC (“Forest”), which includes our majority interest in CanAmPac, had one lost-time incident and four total recordable incidents during Q2 2011. Forest’s TRR (Total Recordable Rate) for the 12 months ended Q2 2011 was 2.8 compared to the 3.2 industry average rate. Boehmer Box achieved 46 consecutive months without a lost-time injury as of the end of Q2 2011.

Forest experienced weather-related power interruptions, resultant equipment failures and the continuing market challenges driven by higher fiber costs in Q2. Fiber costs remain well above 2010 levels and increased again in July 2011 due to low domestic generation of wastepaper and strong overseas demand for fiber.

Sales at CanAmPac (Strathcona Paper and Boehmer Box) remained strong. However, CanAmPac is under the same fiber cost pressures as the Mill Division. The coated recycled board market in Canada is sensitive to the strong Canadian dollar, which increases the competitiveness of U.S. manufacturers.

Margins remained below “cycle average” levels during the first half of 2011, and this trend is expected to continue forward into Q3. Consolidations and permanent mill closures are continuing as the market adjusts to the slowly recovering overall economy. Waste reduction initiatives and improved production efficiency initiatives remain the top priorities.