EMPLOYEE BENEFITS

12 Months Ended

Dec. 31, 2012

EMPLOYEE BENEFITS DISCLOSURE

EMPLOYEE BENEFITS

EMPLOYEE BENEFITS:

Pension Plans and Postretirement Benefits

The Company has a qualified defined benefit pension plan that covers certain employees and former employees in the United States (the “Forest Pension Plan”). The Company also has a non-qualified unfunded supplementary retirement plan (the “SERP”) that provides certain retired executives with defined retirement benefits in excess of qualified plan limits imposed by federal tax law. The Forest Pension Plan and the SERP were curtailed and all benefit accruals under both plans were suspended effective May 31, 1991. In addition, as a result of The Wiser Oil Company acquisition in 2004, Forest assumed a noncontributory defined benefit pension plan (the “Wiser Pension Plan,” and together with the “Forest Pension Plan,” the “Pension Plans”). The Wiser Pension Plan was curtailed and all benefit accruals were suspended effective December 11, 1998. The Forest Pension Plan, the Wiser Pension Plan, and the SERP are hereinafter collectively referred to as the “Plans.”

In addition to the Plans described above, Forest also provides postretirement benefits to certain employees in the U.S. hired on or prior to January 1, 2009, their beneficiaries, and covered dependents. These benefits, which consist primarily of medical benefits payable on behalf of retirees in the U.S., are referred to as the “Postretirement Benefits Plan” throughout this Note.

Expected Benefit Payments

As of December 31, 2012, it is anticipated that the Company will be required to provide benefit payments from the Forest Pension Plan trust and the Wiser Pension Plan trust and fund benefit payments directly for the SERP and the Postretirement Benefits Plan in 2013 through 2017 and in the aggregate for the years 2018 through 2022 in the following amounts:

	2013		2014		2015		2016		2017		2018- 2022
	(In Thousands)
Forest Pension Plan(1)	$	2,399	$	2,318	$	2,267	$	2,196	$	2,145	$	9,770
Wiser Pension Plan(1)	852		840		829		820		809		3,845
SERP	130		127		123		119		114		496
Postretirement Benefits Plan	710		704		684		659		675		3,607

____________________________________________

(1) Benefit payments expected to be made to participants in the Forest Pension Plan and Wiser Pension Plan are expected to be paid out of funds held in trusts established for each plan.

Forest anticipates that it will make contributions in 2013 totaling $1.6 million to the Plans and $.6 million to the Postretirement Benefits Plan, net of retiree contributions, as applicable.

Benefit Obligations

The following table sets forth the estimated benefit obligations associated with the Company’s Pension Plans and Postretirement Benefits Plan.

	Year Ended December 31,
	Pension Plans						Postretirement Benefits Plan
	2012			2011			2012			2011
	(In Thousands)
Benefit obligation at the beginning of the year	$	44,755		$	42,213		$	13,498		$	9,212
Service cost	—			—			1,131			825
Interest cost	1,554			1,836			547			529
Actuarial loss	2,902			3,931			2,613			3,645
Benefits paid	(3,194		)	(3,225		)	(619		)	(779		)
Retiree contributions	—			—			57			66
Benefit obligation at the end of the year	$	46,017		$	44,755		$	17,227		$	13,498

Fair Value of Plan Assets

The Company’s Pension Plans’ assets measured at fair value on a recurring basis are set forth by level within the fair value hierarchy in the table below as of the dates indicated (see Note 8 for information on the fair value hierarchy). There were no changes to the valuation techniques used during the period. There are no assets set aside under the SERP and the Postretirement Benefits Plan. During 2012, the amount of contributions in the case of the Postretirement Benefit Plan, equals the amount of benefits paid.

	December 31, 2012								December 31, 2011
	Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Using Significant Other Observable Inputs (Level 2)		Using Significant Unobservable Inputs (Level 3)		Total		Using Quoted Prices in Active Markets for Identical Assets (Level 1)		Using Significant Other Observable Inputs (Level 2)		Using Significant Unobservable Inputs (Level 3)		Total
	(In Thousands)
Investment funds—equities:
Research equity portfolio(1)	$	—	$	10,379	$	—	$	10,379	$	—	$	9,681	$	—	$	9,681
International stock funds(2)	10,479		—		—		10,479		10,363		—		—		10,363
Investment funds—fixed income:
Short-term fund(3)	1,994		—		—		1,994		1,549		—		—		1,549
Bond fund(4)	4,801		—		—		4,801		4,166		—		—		4,166
Oil and gas royalty interests(5)	—		—		138		138		—		—		198		198
	$	17,274	$	10,379	$	138	$	27,791	$	16,078	$	9,681	$	198	$	25,957

____________________________________________

(1) This investment fund’s assets are primarily large capitalization U.S. equities. The investment approach of this fund, which typically holds 110 - 130 securities, focuses on diversifying the investment portfolio by delegating the equity selection process to research analysts with expertise in their respective industries. Industry weights are kept similar to those of the S&P 500 Index. As of December 31, 2012, the sector weighting of this fund was comprised of the following: information technology (18%), financials (16%), consumer discretionary (14%), health care (13%), energy (11%), consumer staples (11%), and other (17%). The fair value of this investment fund was determined based on the net asset value per unit provided by the investee. Forest performs procedures to validate the net asset value per unit provided by the investee. Such procedures include verifying a sample of the net asset values of the underlying securities, which are directly observable in the marketplace.

(2) These three investment funds seek long-term growth of principal and income by investing primarily in diversified portfolios of equity securities issued by foreign, medium-to-large companies in international markets including emerging markets. The first fund typically holds 50 - 100 securities and seeks to invest in solid, well-established global leaders with emphasis on strong corporate governance, positive future growth opportunities, and growing return on capital. As of December 31, 2012, the sector weighting of this fund, which seeks diversification across regions, countries, and market sectors, was comprised of the following: financials (25%), health care (16%), consumer discretionary (13%), information technology (12%), and other (34%). The second fund seeks to obtain growth through long-term appreciation of its holdings, selecting investments based upon their current fundamentals. As of December 31, 2012, the sector weighting of this fund, which invests in Asian (excluding Japanese) growth equities with a focus on domestic demand growth rather than an export orientation, was comprised of the following: financials (32%), information technology (15%), consumer staples (14%), consumer discretionary (12%), and other (27%). The third fund seeks to deliver equity-like returns with significantly less volatility by investing in emerging markets equity securities. As of December 31, 2012, the sector weighting of this fund, which holds approximately 80 positions across the portfolio, with country allocations not exceeding 25%, was comprised of the following: information technology (19%), financials (18%), energy (17%), materials (15%), and other (31%). The fair value of these investment funds was determined based on the funds’ net asset values per unit, which are directly observable in the marketplace.

(3) This investment fund’s assets are high-quality money market instruments and short-term fixed income securities. This fund is actively managed as an enhanced cash strategy, seeking to derive excess returns versus money market fund indices by capturing term, transactional liquidity, credit, and volatility premiums. As of December 31, 2012, the sector weighting of this fund was comprised of the following: government related (33%), investment grade (29%), mortgage (13%), and other (25%). The fair value of this investment fund was determined based on the fund’s net asset value per unit, which is directly observable in the marketplace.

(4) These two investment funds consist of diversified portfolios of bonds. The first fund’s main investments are intermediate maturity fixed income securities with a duration between three and six years, with a maximum of 10% of the portfolio being invested in securities below Baa grade, and up to 30% of the portfolio being invested in non-U.S. dollar denominated securities. As of December 31, 2012, the sector weighting of this fund was comprised of the following: mortgage (40%), government-related (25%), non-U.S. dollar developed market (11%), investment grade (10%), and other (14%). The second fund seeks to deliver equity-like returns with significantly less volatility by investing in emerging markets debt securities. As of December 31, 2012, the sector weighting of this fund, which holds approximately 80 positions across the portfolio, with country allocations not exceeding 25%, was comprised of the following: sovereign-local (41%), inflation linked (30%), corporates (22%), and sovereign U.S. dollar denominated (7%). The fair value of these investment funds was determined based on the funds’ net asset values per unit, which are directly observable in the marketplace.

(5) The oil and gas royalty interests are valued at their estimated discounted future cash flows, which approximate fair value.

The following table sets forth a rollforward of the fair value of the plan assets.

	Year Ended December 31,
	Pension Plans						Postretirement Benefits Plan
	2012			2011			2012			2011
	(In Thousands)
Fair value of plan assets at beginning of the year	$	25,957		$	29,609		$	—		$	—
Actual return on plan assets	4,048			(1,566		)	—			—
Retiree contributions	—			—			57			66
Employer contribution	980			1,139			562			713
Benefits paid	(3,194		)	(3,225		)	(619		)	(779		)
Fair value of plan assets at the end of the year	$	27,791		$	25,957		$	—		$	—

The following table presents a reconciliation of the beginning and ending balances of the Company’s Pension Plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

	Year Ended December 31,
	2012			2011
	Oil and Gas Royalty Interests
	(In Thousands)
Balance at beginning of period	$	198		$	161
Actual return on plan assets	119			66
Purchases, sales, and settlements (net)	(179		)	(29		)
Transfers in and/or out of Level 3	—			—
Balance at end of period	$	138		$	198

Investments of the Plans

The Pension Plans’ assets are invested with a view toward the long term in order to fulfill the obligations promised to participants as well as to control future funding levels. The Company continually reviews the levels of funding and investment strategy for the Pension Plans. Generally, the strategy includes allocating the Pension Plans’ assets between equity securities and fixed income securities, depending on economic conditions and funding needs, although the strategy does not define any specified minimum exposure for any point in time. The equity and fixed income asset allocation levels in place from time to time are intended to achieve an appropriate balance between capital appreciation, preservation of capital, and current income.

The overall investment goal for the Pension Plans’ assets is to achieve an investment return that allows the assets to achieve the assumed actuarial interest rate and to exceed the rate of inflation. In order to manage risk, in terms of volatility, the portfolios are designed with the intent of avoiding a loss of 20% during any single year and expressing no more volatility than experienced by the S&P 500 Index. The Pension Plans’ investment allocation target is up to 75% equity, with discretion to vary the mix temporarily, in response to market conditions.

The weighted average asset allocations of the Forest Pension Plan and Wiser Pension Plan are set forth in the following table as of the dates indicated:

	December 31,
	Forest Pension Plan				Wiser Pension Plan
	2012		2011		2012		2011
Fixed income securities	24	%	22	%	25	%	21	%
Equity securities	75	%	76	%	74	%	78	%
Other	1	%	2	%	1	%	1	%
	100	%	100	%	100	%	100	%

Funded Status

The following table sets forth the funded status of the Company’s Pension Plans and Postretirement Benefits Plan.

	December 31,
	Pension Plans						Postretirement Benefits Plan
	2012			2011			2012			2011
	(In Thousands)
Excess of benefit obligation over plan assets	$	(18,225	)	$	(18,798	)	$	(17,227	)	$	(13,498	)
Unrecognized actuarial loss	24,811			25,192			5,633			3,214
Net amount recognized	$	6,586		$	6,394		$	(11,594	)	$	(10,284	)
Amounts recognized in the balance sheet consist of:
Accrued benefit liability—noncurrent	$	(18,225	)	$	(18,798	)	$	(17,227	)	$	(13,498	)
Accumulated other comprehensive income—net actuarial loss	24,811			25,192			5,633			3,214
Net amount recognized	$	6,586		$	6,394		$	(11,594	)	$	(10,284	)

The following table sets forth the projected and accumulated benefit obligations for the Pension Plans compared to the fair value of the plan assets for the periods indicated.

	December 31,
	2012		2011
	(In Thousands)
Projected benefit obligation	$	46,017	$	44,755
Accumulated benefit obligation	46,017		44,755
Fair value of plan assets	27,791		25,957

Annual Periodic Expense and Actuarial Assumptions

The following tables set forth the components of the net periodic cost and the underlying weighted average actuarial assumptions.

	Year Ended December 31,
	Pension Plans									Postretirement Benefits Plan
	2012			2011			2010			2012		2011		2010
	(Dollar Amounts In Thousands)
Service cost	$	—		$	—		$	—		$	1,131	$	825	$	668
Interest cost	1,554			1,836			2,005			547		529		430
Expected return on plan assets	(1,744		)	(2,014		)	(1,952		)	—		—		—
Recognized actuarial loss (gain)	979			651			606			194		—		(40		)
Total net periodic expense	$	789		$	473		$	659		$	1,872	$	1,354	$	1,058
Assumptions used to determine net periodic expense:
Discount rate	3.58%			4.50%			5.04%			4.14%		5.15%		5.55%
Expected return on plan assets	7%			7%			7%			n/a		n/a		n/a
Assumptions used to determine benefit obligations:
Discount rate	2.98%			3.58%			4.50%			3.68%		4.14%		5.15%

The discount rates used to determine benefit obligations were determined by adjusting composite AA bond yields to reflect the difference between the duration of the future estimated cash flows of the Plans and the Postretirement Benefits Plan obligations and the duration of the composite AA bond yields. The expected rate of return on plan assets was determined based on historical returns.

The Company estimates that net periodic expense for the year ended December 31, 2013 for the Pension Plans and for the Postretirement Benefits Plan will include expense of $.9 million and $.2 million, respectively, resulting from the amortization of the related accumulated actuarial loss included in accumulated other comprehensive income at December 31, 2012.

The assumed health care cost trend rate for the next year and thereafter that was used to measure the expected cost of benefits covered by the Postretirement Benefits Plan was 5.5%. Assumed health care cost trend rates can have a significant effect on the amounts reported for the Postretirement Benefits Plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	Year Ended December 31, 2012
	Postretirement Benefits Plan
	1% Increase		1% Decrease
	(In Thousands)
Effect on service and interest cost components	$	471	$	(344	)
Effect on postretirement benefit obligation	3,839		(2,914		)

Other Employee Benefit Plans

Forest sponsors various defined contribution plans under which the Company contributed matching contributions equal to $3.7 million in 2012, $3.7 million in 2011, and $3.3 million in 2010.

Forest also provides life insurance benefits for certain retirees and former executives under split dollar life insurance plans. Under the life insurance plans, the Company is assigned a portion of the benefits. No current employees are covered by these plans. The Company has recognized a liability for the estimated cost of maintaining the insurance policies during the postretirement periods of the retirees and former executives, with such liability accreted each period to its present value. The Company’s estimate of costs expected to be paid in 2013 to maintain these life insurance policies is $1.0 million. Forest recognized accretion expense related to the split dollar life insurance obligations of $.9 million, $1.0 million, and $1.0 million for the years ended December 31, 2012, 2011, and 2010, respectively. The discount rates used to determine the accretion expense were 3.19%, 4.08%, and 4.01% for the years ended December 31, 2012, 2011, and 2010, respectively. The split dollar life insurance obligation recognized in the Consolidated Balance Sheets was $7.3 million as of December 31, 2012 and 2011. The discount rates used to determine the obligations were 2.57% and 3.19% as of December 31, 2012 and 2011, respectively. The cash surrender value of the split dollar life insurance policies recognized in the Consolidated Balance Sheets was $3.6 million as of December 31, 2012 and 2011.