In recent years, uncoated free sheet accounted for approximately 12% of all paper and paperboard production in North America. Uncoated free sheet is uncoated white paper primarily produced from bleached hardwood chemical pulp. End uses for uncoated free sheet include cut-size office paper, commercial printing paper, business forms and envelopes and a wide range of value-added grades. Value-added grades include bright and colored cut-size office papers and specialty papers including label and release, security and other custom applications.

North America is the world's largest consumer of uncoated free sheet and had annual production capacity of approximately 15.7 million tons in 2003. In recent years, demand for uncoated free sheet has been negatively impacted by the global economic downturn and the increased use of electronic transmission and document storage alternatives. In response, North American uncoated free sheet capacity declined from 2000 through 2003 by approximately 1.2 million tons. Consolidation has played a major role in capacity rationalization, enabling companies to reallocate production more efficiently by closing higher-cost facilities. The four largest producers of uncoated free sheet in North America comprised approximately 68% of the North American uncoated free sheet market in 2003, compared to approximately 44% in 1997.

Consumption of wood products and other building materials is influenced by new housing starts, the size of new homes built, light commercial construction and repair and remodeling activity. Resource Information Systems, Inc., or RISI, projects that annual new housing starts will average 1.7 million units from 2005 to 2009, fueled primarily by favorable demographic trends. This exceeds average annual new housing starts of 1.4 million in the 1990s and 1.7 million from 2000 to 2003. According to RISI, the average size of new homes is also increasing, with new homes built in 2003 more than 12% larger than homes constructed in 1990 in terms of average square footage.

The Company manufactures and sells uncoated free sheet, including commodity and value-added papers, as well as market pulp and corrugating medium. The Company’s uncoated free sheet products include cut-size office paper, commercial printing paper, business forms and envelopes, as well as value-added papers. The Company’s value-added grades include bright and colored cut-size office papers and specialty papers that are custom-developed for various uses, including label and release, security and food wrap applications. The Company’s larger paper machines produce primarily commodity grades in long, high-volume production runs that achieve economies of scale. On the Company’s smaller paper machines, its cost competitively manufactured value-added grades are displacing the production of commodity grades. Value-added grades tend to require shorter production runs, generate higher and more stable prices and higher margins.

The Company manufactures and sells containerboard and corrugated containers, as well as newsprint. Containerboard is used in the production of corrugated containers. The Company’s corrugated containers are used in the packaging of fresh fruit and vegetables, processed food, beverages and other industrial and consumer products. The Company manufactures primarily for use in the printing of daily newspapers and other publications in North America.

The Company is a producer of engineered wood products, or EWP, comprised of laminated veneer lumber, or LVL, a high-strength engineered lumber often used in beams and rafters, and I-joists, a structural support typically used in floors and roofs. Over the past 10 years, the Company has shifted its product focus from commodity products such as plywood and lumber to more stable, higher-margin EWP. The Company also produces plywood, dimension lumber and high-quality ponderosa pine lumber, a premium lumber grade sold primarily to manufacturers of specialty wood windows, moldings and doors. The Company’s wood products are used in new residential and light commercial construction and in residential repair and remodeling.

The Company is a national inventory-carrying wholesale distributor of building materials. The Company distributes a broad line of building materials, most of which it purchases from third parties, such as EWP, oriented strand board, plywood, lumber, siding and general line items such as framing accessories, composite decking, roofing and insulation.

Materials, labor and other operating expenses increased $751.4 million, or 25%, to $3.7 billion in the nine months ended September 30, 2004 from $3.0 billion for the nine months ended September 30, 2003.

Selling and distribution expenses increased $27.2 million, or 17%, to $190.8 million in the nine months ended September 30, 2004 from $163.7 million for the nine months ended September 30, 2003.

Equity in net income of affiliates increased by $1.9 million to $6.3 million for the nine months ended September 30, 2004 from $4.4 million for the nine months ended September 30, 2003.

Income from operations increased $195.4 million to $202.7 million in the nine months ended September 30, 2004 compared with $7.3 million during the nine months ended September 30, 2003.