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German Operations

Under German state environmental rules for effluent discharges, industrial users are required to pay wastewater fees based upon the amount of their effluent discharge. These rules also provide that an industrial user which undertakes environmental capital expenditures and lowers certain effluent discharges to prescribed levels may offset the amount of these expenditures against the wastewater fees that they would otherwise be required to pay. We expect that capital investment programs and other environmental initiatives at our German mills will mostly offset the wastewater fees that would have otherwise been payable.

Beginning in 2005, our German operations became subject to the European Union Emissions Trading Scheme and as such our German mills were granted emission allowances. Emission allowances are granted based upon production volumes and the types of fuels consumed by manufacturing facilities in Germany. Excess allowances, which are the result of variations in production volumes and the overall consumption of fuels, are available for sale.

In 2008, the German government passed an amendment to the country's Renewable Energy Resources Act which has provided Rosenthal and Stendal access to a green energy tariff that was previously only available to small green energy producers. We expect this change to give us better pricing for our green energy than would otherwise have been available in the "grey" energy market starting in 2009.

The Rosenthal mill has a relatively modern biological wastewater treatment and oxygen bleaching facility. We have significantly reduced our levels of absorbable organic halogen and chemical oxygen demand discharge at the Rosenthal mill and are in compliance with the standards currently mandated by the German government. In 2003, a strategic capital project to reconstruct the landfill at the Rosenthal mill was developed to increase its useable capacity for an additional 15 years. In 2009 new wash presses were installed which further increased the environmental performance of the mill.

Management believes that because the Stendal mill is a state-of-the-art facility, it will operate in compliance with the applicable environmental requirements.
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