UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended March 31, 2008
o
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from ____________ to ____________
Commission
File Number: 001-33541
Boise
Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
20-8356960
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
1111 West Jefferson Street, Suite 200
Boise, Idaho 83702-5388
(Address of principal
executive offices) (Zip Code)
(208) 384-7000
(Registrants telephone number, including area code)
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
o
Indicate by check mark if
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company (as defined by Rule 12b-2
of the Exchange Act):
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
Non-accelerated filer
x
|
|
Smaller reporting company
o
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
x
Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of the
latest practicable date.
Class
|
|
Shares Outstanding as of April 30, 2008
|
Common Stock, $.0001 Par Value
|
|
77,259,947
|
All reports we file
with the Securities and Exchange Commission (SEC) are available free of charge via
Electronic Data Gathering Analysis and Retrieval (EDGAR) through the SEC
website at www.sec.gov. We also provide copies of our SEC filings at no charge
upon request and make electronic copies of our reports available through our
website at www.boiseinc.com as soon as reasonably practicable after filing such
material with the SEC.
ii
PART 1FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED
FINANCIAL STATEMENTS
Boise Inc.
(Formerly Aldabra 2 Acquisition Corp., a
Corporation in the Development Stage)
Consolidated Statements of Income (Loss)
(unaudited, in thousands, except for share data)
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
February 1
(Inception)
Through
March 31,
2007
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
226,044
|
|
$
|
|
|
$
|
258,430
|
|
$
|
402,912
|
|
Related parties
|
|
1,944
|
|
|
|
101,490
|
|
175,789
|
|
|
|
227,988
|
|
|
|
359,920
|
|
578,701
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
Materials,
labor, and other operating expenses
|
|
195,429
|
|
|
|
313,931
|
|
487,954
|
|
Fiber costs from
related parties
|
|
18,629
|
|
|
|
7,662
|
|
11,027
|
|
Depreciation,
amortization, and depletion
|
|
12,747
|
|
|
|
477
|
|
30,771
|
|
Selling and
distribution expenses
|
|
5,943
|
|
|
|
9,097
|
|
14,322
|
|
General and
administrative expenses
|
|
4,549
|
|
1
|
|
6,606
|
|
9,450
|
|
Other (income)
expense, net
|
|
(28
|
)
|
|
|
(989
|
)
|
2,408
|
|
|
|
237,269
|
|
1
|
|
336,784
|
|
555,932
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
(9,281
|
)
|
(1
|
)
|
23,136
|
|
22,769
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
gain (loss)
|
|
(853
|
)
|
|
|
54
|
|
72
|
|
Interest expense
|
|
(11,435
|
)
|
|
|
(2
|
)
|
|
|
Interest income
|
|
1,821
|
|
|
|
161
|
|
128
|
|
|
|
(10,467
|
)
|
|
|
213
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
(19,748
|
)
|
(1
|
)
|
23,349
|
|
22,969
|
|
Income tax
(provision) benefit
|
|
3,377
|
|
|
|
(563
|
)
|
(978
|
)
|
Net
income (loss)
|
|
$
|
(16,371
|
)
|
$
|
(1
|
)
|
$
|
22,786
|
|
$
|
21,991
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
62,682,834
|
|
10,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.26
|
)
|
$
|
|
|
$
|
|
|
$
|
|
|
See accompanying notes to
unaudited quarterly consolidated financial statements.
1
Boise Inc.
(Formerly Aldabra 2 Acquisition Corp., a
Corporation in the Development Stage)
Consolidated Balance Sheets
(unaudited, in thousands)
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
March 31,
2008
|
|
December 31,
2007
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
24,961
|
|
$
|
186
|
|
$
|
8
|
|
Cash held in
trust
|
|
|
|
403,989
|
|
|
|
Receivables
|
|
|
|
|
|
|
|
Trade, less
allowances of $786, $0, and $1,063
|
|
205,574
|
|
|
|
181,799
|
|
Related parties
|
|
11,038
|
|
|
|
36,452
|
|
Other
|
|
12,215
|
|
|
|
10,224
|
|
Inventories
|
|
338,403
|
|
|
|
324,679
|
|
Other
|
|
14,612
|
|
144
|
|
6,936
|
|
|
|
606,803
|
|
404,319
|
|
560,098
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
|
|
|
|
|
Property and
equipment, net
|
|
1,293,258
|
|
|
|
1,192,344
|
|
Fiber farms and
deposits
|
|
11,383
|
|
|
|
17,843
|
|
|
|
1,304,641
|
|
|
|
1,210,187
|
|
|
|
|
|
|
|
|
|
Deferred
financing costs
|
|
81,091
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
42,218
|
|
Intangible
assets, net
|
|
22,839
|
|
|
|
23,967
|
|
Other
assets
|
|
7,209
|
|
3,293
|
|
9,242
|
|
Total
assets
|
|
$
|
2,022,583
|
|
$
|
407,612
|
|
$
|
1,845,712
|
|
See accompanying notes to
unaudited quarterly consolidated financial statements.
2
Boise Inc.
(Formerly Aldabra 2 Acquisition Corp., a
Corporation in the Development Stage)
Consolidated Balance Sheets (continued)
(unaudited, in thousands, except for share data)
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
March 31,
2008
|
|
December 31,
2007
|
|
December 31,
2007
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Current portion
of long-term debt
|
|
$
|
11,000
|
|
$
|
|
|
$
|
|
|
Income taxes
payable
|
|
172
|
|
1,280
|
|
306
|
|
Accounts payable
|
|
|
|
|
|
|
|
Trade
|
|
212,495
|
|
|
|
178,686
|
|
Related parties
|
|
12,954
|
|
|
|
299
|
|
Accrued
liabilities
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
39,380
|
|
|
|
53,573
|
|
Interest payable
|
|
1,132
|
|
|
|
|
|
Deferred
underwriting fee
|
|
|
|
12,420
|
|
|
|
Other
|
|
17,594
|
|
1,015
|
|
16,716
|
|
|
|
294,727
|
|
14,715
|
|
249,580
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
Long-term debt,
less current portion
|
|
1,019,700
|
|
|
|
|
|
Note payable to
related-party
|
|
58,793
|
|
|
|
|
|
|
|
1,078,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Deferred income
taxes
|
|
235
|
|
|
|
896
|
|
Compensation and
benefits
|
|
58,971
|
|
|
|
6,030
|
|
Other long-term
liabilities
|
|
28,974
|
|
|
|
29,427
|
|
|
|
88,180
|
|
|
|
36,353
|
|
|
|
|
|
|
|
|
|
Common
stock subject to possible conversion
|
|
|
|
|
|
|
|
(16,555,860
shares at conversion value at December 31, 2007)
|
|
|
|
159,760
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity
|
|
|
|
|
|
|
|
Business unit
equity
|
|
|
|
|
|
1,559,779
|
|
Preferred stock,
$.0001 par value per share: 1,000,000 shares authorized; none issued
|
|
|
|
|
|
|
|
Common stock,
$.0001 par value per share: 250,000,000
shares authorized; 77,259,947 shares and 51,750,000 shares issued and
outstanding (which included 16,555,860 shares subject to possible conversion
at December 31, 2007)
|
|
8
|
|
5
|
|
|
|
Additional
paid-in capital
|
|
572,054
|
|
227,640
|
|
|
|
Income
accumulated during development stage
|
|
|
|
5,492
|
|
|
|
Accumulated
deficit
|
|
(10,879
|
)
|
|
|
|
|
Total
stockholders equity
|
|
561,183
|
|
233,137
|
|
1,559,779
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders equity
|
|
$
|
2,022,583
|
|
$
|
407,612
|
|
$
|
1,845,712
|
|
See accompanying notes to
unaudited quarterly consolidated financial statements.
3
Boise Inc.
(Formerly Aldabra 2 Acquisition Corp., a
Corporation in the Development Stage)
Consolidated Statements of Cash Flows
(unaudited, in thousands)
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
February 1
(Inception)
Through
March 31,
2007
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used for) operations
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(16,371
|
)
|
$
|
(1
|
)
|
$
|
22,786
|
|
$
|
21,991
|
|
Items in net
income (loss) not using (providing) cash
|
|
|
|
|
|
|
|
|
|
Depreciation,
amortization, and depletion of deferred financing costs and other
|
|
13,554
|
|
|
|
477
|
|
30,771
|
|
Related-party
interest expense
|
|
986
|
|
|
|
|
|
|
|
Pension and
other postretirement benefit expense
|
|
1,237
|
|
|
|
1,826
|
|
3,163
|
|
Deferred income
taxes
|
|
(3,377
|
)
|
|
|
11
|
|
21
|
|
(Gain) loss on sales
of assets, net
|
|
(3
|
)
|
|
|
(943
|
)
|
1,026
|
|
Other
|
|
649
|
|
|
|
(91
|
)
|
349
|
|
Decrease
(increase) in working capital, net of acquisitions
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
23,485
|
|
|
|
(23,522
|
)
|
(6,515
|
)
|
Inventories
|
|
(5,158
|
)
|
|
|
5,343
|
|
(14,429
|
)
|
Prepaid expenses
|
|
(7,451
|
)
|
|
|
875
|
|
1,614
|
|
Accounts payable
and accrued liabilities
|
|
23,654
|
|
1
|
|
(10,718
|
)
|
(11,125
|
)
|
Current and
deferred income taxes
|
|
1,806
|
|
|
|
335
|
|
888
|
|
Pension and
other postretirement benefit payments
|
|
(47
|
)
|
|
|
(1,826
|
)
|
(3,163
|
)
|
Other
|
|
(1,155
|
)
|
|
|
2,326
|
|
3,197
|
|
Cash provided by
(used for) operations
|
|
31,809
|
|
|
|
(3,121
|
)
|
27,788
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used for) investment
|
|
|
|
|
|
|
|
|
|
Acquisition of
businesses and facilities
|
|
(1,219,421
|
)
|
|
|
|
|
|
|
Cash released
from trust
|
|
403,989
|
|
|
|
|
|
|
|
Expenditures for
property and equipment
|
|
(10,224
|
)
|
|
|
(10,168
|
)
|
(32,966
|
)
|
Sales of assets
|
|
|
|
|
|
17,662
|
|
3,284
|
|
Other
|
|
2,410
|
|
|
|
863
|
|
242
|
|
Cash provided by
(used for) investment
|
|
(823,246
|
)
|
|
|
8,357
|
|
(29,440
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used for) financing
|
|
|
|
|
|
|
|
|
|
Issuances of
long-term debt
|
|
1,065,700
|
|
|
|
|
|
|
|
Payments of
long-term debt
|
|
(35,000
|
)
|
|
|
|
|
|
|
Issuances of
short-term debt
|
|
|
|
100
|
|
|
|
|
|
Payments to
stockholders for exercise of conversion rights
|
|
(120,170
|
)
|
|
|
|
|
|
|
Payments of
deferred financing fees
|
|
(81,898
|
)
|
|
|
|
|
|
|
Payments of
deferred underwriters fees
|
|
(12,420
|
)
|
|
|
|
|
|
|
Proceeds from
sale of shares of common stock to initial stockholders
|
|
|
|
25
|
|
|
|
|
|
Net equity
transactions with related parties
|
|
|
|
|
|
(5,237
|
)
|
1,652
|
|
Other
|
|
|
|
(97
|
)
|
|
|
|
|
Cash provided by
(used for) financing
|
|
816,212
|
|
28
|
|
(5,237
|
)
|
1,652
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
24,775
|
|
28
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of the period
|
|
186
|
|
|
|
8
|
|
7
|
|
Balance
at end of the period
|
|
$
|
24,961
|
|
$
|
28
|
|
$
|
7
|
|
$
|
7
|
|
See accompanying notes to
unaudited quarterly consolidated financial statements.
4
Notes to Unaudited Quarterly Consolidated Financial Statements
1. Nature of
Operations and Basis of Presentation
Boise Inc. (formerly
Aldabra 2 Acquisition Corp.) or the Company, we, us, or our was a blank
check company, created on February 1, 2007 (inception), and organized for
the purpose of effecting a merger, capital stock exchange, asset acquisition,
or other similar business combination with an operating business. On February 22,
2008, Boise Inc. completed the acquisition (the Acquisition) of Boise White
Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade
Transportation Holdings Corp. (collectively, the Paper Group), and other assets
and liabilities related to the operation of the paper, packaging and newsprint,
and transportation businesses of the Paper Group and part of the headquarters
operations of Boise Cascade, L.L.C. (Boise Cascade). The business we acquired
is referred to in this report on Form 10-Q as the Predecessor. The
Acquisition was accomplished through the Companys acquisition of Boise Paper
Holdings, L.L.C. See Note 2, Acquisition of Boise Cascades Paper and Packaging
Operations, for more information related to the Acquisition.
The following sets forth
our corporate structure following the Acquisition:
Boise Inc. operates its
business in three reportable segments, Paper, Packaging, and Corporate and
Other (support services), and is headquartered in Boise, Idaho. Boise Inc.
manufactures packaging products and papers, including corrugated containers,
containerboard, label and release and flexible packaging papers, imaging papers
for the office and home, printing and converting papers, newsprint, and market
pulp.
The accompanying
consolidated statements of income (loss) and cash flows for the three months
ended March 31, 2008 include the activities of Aldabra 2 Acquisition Corp.
prior to the Acquisition and the operations of the acquired businesses from February 22,
2008, through March 31, 2008. For the period of January 1 through February 21,
2008, and for the three months ended March 31, 2007, the consolidated
statements of income and cash flows of the Predecessor are presented for
comparative purposes. The period of February 1 (inception) through March 31,
2007, represents the activities of Aldabra 2 Acquisition Corp.
5
The quarterly consolidated financial statements
presented have not been audited by an independent registered public accounting firm,
but, in the opinion of management, include all adjustments, consisting of
normal, recurring adjustments, necessary to present fairly the results for the
periods presented. The preparation of the consolidated financial statements
involves the use of estimates and accruals. Actual results may vary from those
estimates. Quarterly results are not necessarily indicative of results that may
be expected for the full year. These condensed notes to unaudited consolidated
financial statements should be read in conjunction with our 2007 Annual Report
on Form 10-K and the audited consolidated financial statements and
footnotes included in Boise Inc.s Current Report on Form 8-K filed with
the Securities and Exchange Commission (SEC) on February 28, 2008, which
includes the accounting policies of the Predecessor which we adopted in
conjunction with the Acquisition.
For the Predecessor
periods presented, the consolidated financial statements include accounts
specifically attributed to the Paper Group and a portion of Boise Cascades
shared corporate general and administrative expenses. These shared services
include, but are not limited to, finance, accounting, legal, information
technology, and human resource functions. Some corporate costs related solely
to the Predecessor and were allocated totally to these operations. Shared
corporate general and administrative expenses not specifically identifiable to
the Paper Group were allocated primarily based on average sales, assets, and
labor costs. The Predecessor consolidated financial statements do not include
an allocation of Boise Cascades debt, interest, and deferred financing costs,
because none of these items were specifically identified as corporate advances
to, or borrowings by, the Predecessor. Boise Cascade used interest rate swaps
to hedge variable interest rate risk. Because debt and interest costs are not
allocated to the Predecessor, the effects of the interest rate swaps are not
included in the consolidated financial statements. During the Predecessor periods
presented, income taxes, where applicable, were calculated as if the
Predecessor were a separate taxable entity. For the period of January 1
through February 21, 2008, and the three months ended March 31, 2007,
the majority of the businesses and assets of the Predecessor were held and
operated by limited liability companies, which are not subject to entity-level
federal or state income taxation. In addition to the businesses and assets held
and operated by limited liability companies, the Predecessor had taxable
corporations subject to federal, state, and local income taxes for which taxes
were recorded. Information on the allocations and related-party transactions is
included in Note 4, Transactions With Related Parties.
2. Acquisition of Boise Cascades
Paper and Packaging Operations
On February 22,
2008, we acquired the paper, packaging, and most of the corporate and other
segments of Boise Cascade for cash and securities. We have five pulp and paper
mills, five corrugated container plants, a corrugated sheet plant, and two
paper distribution facilities located in the United States. Our corporate
headquarters office is in Boise, Idaho.
The Acquisition was
accounted for in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 141,
Business Combinations
.
Upon completion of the transaction, Boise Cascade owned 37.9 million, or
49%, of our outstanding shares. Subsequent to the transaction, Boise Cascade
transferred the shares to its parent company, Boise Cascade Holdings, L.L.C.
The purchase price was
paid with cash, the issuance of shares of our common stock, and a note payable.
These costs, including estimated direct transaction costs, are summarized as
follows:
6
|
|
(thousands)
|
|
|
|
|
|
Cash paid to
Boise Cascade
|
|
$
|
1,252,281
|
|
Cash paid to
Boise Cascade for financing and other fees
|
|
24,915
|
|
Less: cash
contributed by Boise Cascade
|
|
(38,000
|
)
|
Net cash
|
|
1,239,196
|
|
|
|
|
|
Equity at $9.15
average price per share
|
|
346,395
|
|
Lack of
marketability discount
|
|
(41,567
|
)
|
Total equity
|
|
304,828
|
|
|
|
|
|
Note payable to
Boise Cascade at closing
|
|
41,000
|
|
Working capital
adjustment
|
|
16,807
|
|
Total note
payable to Boise Cascade
|
|
57,807
|
|
|
|
|
|
Fees and
expenses
|
|
62,123
|
|
|
|
|
|
Total purchase
price
|
|
$
|
1,663,954
|
|
Cash
Upon closing, we paid
Boise Cascade $1,252.3 million in cash related to the base purchase price plus
$24.9 million incurred by Boise Cascade for transaction financing costs
and fees. Immediately prior to the Acquisition, Boise Cascade contributed
$38.0 million of cash to the acquired businesses.
Equity
The number of shares
issued to Boise Cascade totaled 37,857,374. The equity price per share was
calculated based on the average per-share closing price of our common stock for
the 20 trading days ending on the third trading day immediately prior to the
consummation of the Acquisition. Since that average price was below the $9.54
floor provided in the purchase agreement, we determined a new measurement date
in accordance with Issue No. 2 of Emerging Issues Task Force (EITF) 99-12,
Determination of the Measurement Date for the
Market Price of Acquirer Securities Issued in a Purchase Business Combination
.
We calculated a $9.15 average price per share based on two days before and
after the Acquisition measurement date, which was February 14, 2008. The
value of stock consideration paid to Boise Cascade was reduced by a 12%
discount for a lack of marketability, since the stock delivered as
consideration was not registered for resale.
Note payable
In connection with the
transaction, Boise Inc. entered into a note payable with Boise Cascade for
$41.0 million. Subsequently, Boise Cascade transferred the note payable to
its parent company, Boise Cascade Holdings, L.L.C. After the transaction, and
pursuant to the purchase agreement, the note increased by $16.8 million
for estimated working capital adjustments, the amount by which the working
capital of the acquired paper and packaging businesses exceeded
$329.0 million. Final working capital adjustments will be made in the
second quarter of 2008, and are expected to increase the note by approximately
$0.5 million. See Note 4, Transactions With Related Parties, and Note 13,
Debt, for further information on the note payable.
Fees and expenses
primarily consist of debt issuance fees and direct costs of the transaction.
The purchase price
allocation is preliminary. The final purchase price allocation will be based on
the fair value of assets acquired and liabilities assumed. The purchase price
allocation will remain preliminary until we complete a third-party valuation.
Once fair values are finalized, we may have changes to the amounts we have
included in our preliminary allocation below. We may also have adjustments to
our depreciation and amortization expense, which will be made prospectively.
The following table
7
summarizes the preliminary fair value allocation of the assets acquired
and liabilities assumed at the date of the Acquisition:
|
|
February 22,
2008
Fair Value
|
|
|
|
(thousands)
|
|
|
|
|
|
Current assets
|
|
$
|
590,538
|
|
Property and
equipment
|
|
1,292,198
|
|
Fiber farms and
deposits
|
|
10,972
|
|
Intangible
assets:
|
|
|
|
Trademark and
trade name
|
|
6,800
|
|
Customer list
|
|
11,400
|
|
Technology
|
|
5,040
|
|
Deferred
financing costs
|
|
81,898
|
|
Other long-term
assets
|
|
4,446
|
|
Current
liabilities
|
|
(251,518
|
)
|
Long-term
liabilities
|
|
(87,820
|
)
|
Total purchase
price
|
|
$
|
1,663,954
|
|
The following pro forma
results are based on the individual historical results of Boise Inc. and the
Predecessor (prior to the Acquisition on February 22, 2008) with
adjustments to give effect to the combined operations as if the Acquisition had
been consummated on January 1, 2007. The pro forma results are intended
for information purposes only and do not purport to represent what the combined
companies results of operations would actually have been had the transaction
in fact occurred on January 1, 2007.
|
|
Pro Forma
Three Months
Ended
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
(thousands,
except per-share amounts)
|
|
|
|
|
|
|
|
Sales
|
|
$
|
587,908
|
|
$
|
578,701
|
|
Net loss
|
|
(27,022
|
)
|
(6,515
|
)
|
Net loss per
sharebasic and diluted
|
|
(0.35
|
)
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
3.
Net
Income (Loss) Per Common Share
For the three months ended March 31, 2008, when
Boise Inc. had publicly traded shares outstanding, net income (loss) per common
share is computed by dividing net income (loss) by the weighted average number
of shares of common stock outstanding during the period. Diluted net income
(loss) per share reflects the potential dilution assuming common shares were
issued for the exercise of outstanding in-the-money warrants and assuming the
proceeds thereof were used to purchase common shares at the average market
price during the period such warrants were outstanding. Basic and diluted net
income (loss) per-share is calculated as follows (in thousands, except
per-share amounts):
8
|
|
Boise Inc.
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
|
|
|
|
Net loss
|
|
$
|
(16,371
|
)
|
Weighted average
number of common shares for basic net loss per share
|
|
62,683
|
|
Incremental
effect of dilutive common stock equivalents:
|
|
|
|
Common stock
warrants (a)
|
|
|
|
Weighted average
number of shares for diluted net loss per share
|
|
62,683
|
|
|
|
|
|
Net loss per
sharebasic and diluted (a)
|
|
$
|
(0.26
|
)
|
(a)
Warrants to purchase 44.4 million shares of common stock were not
included in the computation of diluted net income (loss) per share because the
trading price of the stock was below the exercise price of the warrants.
4.
Transactions
With Related Parties
During the Predecessor
periods of January 1 through February 21, 2008, and the three months
ended March 31, 2007, the Predecessor participated in Boise Cascades
centralized cash management system. Cash receipts attributable to the
Predecessors operations were collected by Boise Cascade, and cash
disbursements were funded by Boise Cascade. The net effect of these
transactions has been reflected as Net equity transactions with related
parties in the Consolidated Statements of Cash Flows. The following table
includes the components of these related-party transactions:
|
|
Predecessor
|
|
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
(thousands)
|
|
|
|
|
|
|
|
Cash collections
|
|
$
|
(354,222
|
)
|
$
|
(575,598
|
)
|
Payment of
accounts payable
|
|
336,605
|
|
540,857
|
|
Capital
expenditures and acquisitions
|
|
10,168
|
|
32,966
|
|
Income taxes
|
|
217
|
|
69
|
|
Corporate
general and administrative expense allocation
|
|
1,995
|
|
3,358
|
|
Net equity
transactions with related parties
|
|
$
|
(5,237
|
)
|
$
|
1,652
|
|
Related-Party Sales
During the Predecessor
periods of January 1 through February 21, 2008, and the three months
ended March 31, 2007, the Predecessor sold paper and paper products to
OfficeMax Incorporated (OfficeMax) at sales prices that were designed to
approximate market prices. For the Predecessor periods of January 1
through February 21, 2008, and the three months ended March 31, 2007,
sales to OfficeMax were $90.1 million and $157.8 million. During each
of these periods, sales to OfficeMax represented 25% and 27% of total sales,
respectively. These sales are included in Sales, Related parties in the
Consolidated Statements of Income (Loss). Subsequent to the Acquisition,
OfficeMax is no longer a related party.
During the three months ended March 31, 2008, sales to OfficeMax
were $63.2 million, or 28% of total sales.
Boise Inc. and the
Predecessor provided transportation services to Boise Cascade. For the three
months ended March 31, 2008, and the Predecessor periods of January 1
through February 21, 2008,
9
and the three months ended March 31, 2007, Boise
Inc. and the Predecessor recorded $0.4 million, $0.6 million, and
$1.1 million of sales for transportation services, respectively. The
Predecessor sold $10.8 million and $16.9 million of wood to Boise
Cascades building materials distribution and wood products businesses. These
sales are included in Sales, Related parties in the Consolidated Statements
of Income (Loss).
In connection with the
Acquisition, we entered into an outsourcing services agreement under which we
provide a number of corporate staff services to Boise Cascade at our cost.
These services include information technology, accounting, and human resource
services. The initial term of the agreement is for three years. It will
automatically renew for one-year terms unless either party provides notice of
termination to the other party at least 12 months in advance of the
applicable term. For the three months ended March 31, 2008, we recognized
$1.5 million in Sales, Related parties in our Consolidated Statement of
Income (Loss) related to this agreement.
Related-Party Costs and Expenses
Boise
Inc. and the Predecessor purchased fiber from related parties at prices that
approximated market prices. During the three months ended March 31, 2008,
and the Predecessor periods of January 1 through February 21, 2008,
and the three months ended March 31, 2007, fiber purchases from related
parties were $18.6 million, $7.7 million, and $11.0 million,
respectively. Most of these purchases related to chip and log purchases from
Boise Cascades wood products business and, subsequent to the Acquisition,
Louisiana Timber Procurement Company, L.L.C., an entity that is 50% owned by
Boise Cascade and 50% owned by us. All of the costs associated with these
purchases were recorded as Fiber costs from related parties in the
Consolidated Statements of Income (Loss).
During the Predecessor
periods, the Predecessor used services and administrative staff of Boise Cascade.
These services included, but were not limited to, finance, accounting, legal,
information technology, and human resource functions. The costs not
specifically identifiable to the Predecessor were allocated based primarily on
average sales, assets, and labor costs. These costs are included in General and
administrative expenses in the Consolidated Statements of Income (Loss). The
Predecessor believes the allocations are a reasonable reflection of its use of
the services. However, had the Predecessor operated on a stand-alone basis, it
estimates that its Corporate and Other segment would have reported
approximately $2.5 million and $4.5 million of segment expenses
before interest, taxes, depreciation, and amortization for the Predecessor
periods of January 1 through February 21, 2008, and the three months
ended March 31, 2007, respectively.
During the Predecessor periods, some of the
Predecessors employees participated in Boise Cascades noncontributory defined
benefit pension and contributory defined contribution savings plans. The
Predecessor treated its participants in the pension plans as participants in
multiemployer plans. Accordingly, the Predecessor has not reflected any assets
or liabilities related to the plans on the Consolidated Balance Sheet at December 31,
2007. The Predecessor, however, recorded costs associated with the employees
who participated in these plans in the Consolidated Statements of Income
(Loss). For the Predecessor periods of January 1 through February 21,
2008, and the three months ended March 31, 2007, the Statements of Income
(Loss) included $3.9 million and $5.5 million, respectively, of
expenses attributable to its participation in Boise Cascades defined benefit
and defined contribution plans.
During the Predecessor periods presented, the
Predecessors employees and former employees also participated in Boise Cascades
other postretirement healthcare benefit plans. All of the Predecessors
postretirement healthcare benefit plans were unfunded (see Note 16,
Retirement and Benefit Plans). In addition, some of the Predecessors employees
participated in equity compensation programs.
Note Payable
In connection with the
Acquisition, we issued a $41.0 million subordinated promissory note to
Boise Cascade. Subsequently, Boise Cascade transferred the note payable to its
parent company, Boise Cascade Holdings, L.L.C. After the Acquisition, and
pursuant to the purchase agreement, the note payable increased by
$16.8 million for estimated working capital adjustments. Final working
capital adjustments will be made in the second quarter of 2008, and are
expected to increase the note by
10
approximately
$0.5 million. The note bears interest at 15.75%, compounded quarterly. To
the extent that interest is not paid in cash, the interest is added to the
principal amount of the note. The note matures on August 21, 2015,
provided that if such date is more than 181 days after the scheduled
maturity date of the indebtedness under our credit agreements, then the
maturity date shall automatically be deemed to be 181 days after the
latest maturity date of any such indebtedness. We may prepay the note at any
time in whole or in part, subject to restrictions contained in our credit
agreements. During the three months ended March 31, 2008, we recorded
$1.0 million of related-party interest expense in our Consolidated
Statement of Loss and at March 31, 2008, we had $58.8 million
recorded in Note payable to related party on our Consolidated Balance Sheet.
5.
Other
(Income) Expense, Net
Other (income) expense, net includes miscellaneous
income and expense items. The components of Other (income) expense, net in
the Consolidated Statements of Income (Loss) are as follows (in thousands):
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
February 1
(Inception)
Through
March 31,
2007
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Sales of assets,
net
|
|
$
|
(3
|
)
|
$
|
|
|
$
|
(941
|
)
|
$
|
1,026
|
|
Project costs
|
|
|
|
|
|
|
|
157
|
|
Other, net
|
|
(25
|
)
|
|
|
(48
|
)
|
1,225
|
|
|
|
$
|
(28
|
)
|
$
|
|
|
$
|
(989
|
)
|
$
|
2,408
|
|
6.
Income
Taxes
During the Predecessor
periods of January 1 through February 21, 2008, and the three months
ended March 31, 2007, the majority of the Predecessor businesses and
assets were held and operated by limited liability companies, which are not
subject to entity-level federal or state income taxation. For the separate
Predecessor subsidiaries that are taxed as corporations, the effective tax
rates were 37.6% and 42.4%, respectively. The primary reason for the difference
in tax rates is the effect of state income taxes.
For the three months ended March 31,
2008, we recorded $3.4 million of income tax benefits related to losses
incurred during the quarter.
We have not recognized $4.1 million of
tax benefit from the losses resulting from our first-quarter operations,
because the realization of these benefits is not considered more likely than
not.
Because of its pass-through tax structure, the Predecessor recorded tax
expense related only to small subsidiaries that are taxed as corporations. Income
tax expense during the Predecessor periods of January 1 through February 21,
2008, and the three months ended March 31, 2007, was $0.6 million and
$1.0 million, respectively, consisting of federal and state income taxes.
During the three months
ended March 31, 2008, cash paid for taxes, net of refunds due, was
$1.5 million. During the Predecessor period of January 1 through February 21,
2008, the period of February 1, 2007 (inception) through March 31,
2007, and the Predecessor three months ended March 31, 2007, cash paid for
taxes, net of refunds due, was not material.
7. Leases
We lease our distribution
centers as well as other property and equipment under operating leases. During
the Predecessor periods presented, the Predecessor leased its distribution
centers as well as other property and equipment under operating leases. For
purposes of determining straight-line rent expense, the lease term is
calculated from the date of possession of the facility, including any periods
of free rent and any option periods that are reasonably assured of being
exercised. Straight-line rent expense is also adjusted to reflect any
allowances or reimbursements provided by the lessor. Rental expense for
operating leases and sublease rental income received was as follows (in
thousands):
11
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
February 1
(Inception)
Through
March 31,
2007
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Rental expenses
|
|
$
|
1,395
|
|
$
|
|
|
$
|
2,044
|
|
$
|
3,562
|
|
Sublease rental
income
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,395
|
|
$
|
|
|
$
|
2,044
|
|
$
|
3,562
|
|
For noncancelable
operating leases with remaining terms of more than one year, the minimum lease
payment requirements are $8.7 million for the remainder of 2008,
$10.7 million in 2009, $9.7 million in 2010, $7.9 million in
2011, $6.7 million in 2012, and $4.9 million in 2013, with total payments
thereafter of $17.5 million. These future minimum lease payment
requirements have not been reduced by sublease rentals due in the future under
noncancelable subleases. Minimum sublease income received in the future is not
expected to be material.
Substantially all lease
agreements have fixed payment terms based on the passage of time. Some lease
agreements provide us with the option to purchase the leased property.
Additionally, some agreements contain renewal options averaging
seven years, with fixed payment terms similar to those in the original
lease agreements.
8. Receivables
We have a large, diversified customer base. A large portion of our
uncoated free sheet and office paper sales volume is sold to OfficeMax. We (as
did the Predecessor) market our newsprint through a subsidiary of
Abitibi-Consolidated Inc. (Abitibi) pursuant to an arrangement whereby Abitibi
purchases all of the newsprint we produce at a price equal to the price at
which Abitibi sells newsprint produced at its mills located in the southern
United States, less associated expenses and a sales and marketing discount.
Sales to OfficeMax and Abitibi represent concentrations in the volumes of
business transacted and concentrations of credit risk. At March 31, 2008,
we had $46.0 million and $20.7 million of accounts receivable due
from OfficeMax and Abitibi, respectively.
9. Inventories
Inventories include the following (in thousands):
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
March 31,
2008
|
|
December 31,
2007
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
Finished goods
and work in process
|
|
$
|
166,748
|
|
$
|
|
|
$
|
163,554
|
|
Raw materials
|
|
82,928
|
|
|
|
72,712
|
|
Supplies and
other
|
|
88,727
|
|
|
|
88,413
|
|
|
|
$
|
338,403
|
|
$
|
|
|
$
|
324,679
|
|
12
10. Property and Equipment, Net
Property and equipment consisted
of the following asset classes (in thousands):
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
March 31,
2008
|
|
December 31,
2007
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
Land and land
improvements
|
|
$
|
31,875
|
|
$
|
|
|
$
|
31,592
|
|
Buildings and
improvements
|
|
249,049
|
|
|
|
185,509
|
|
Machinery and
equipment
|
|
961,631
|
|
|
|
1,212,425
|
|
Construction in
progress
|
|
62,717
|
|
|
|
36,535
|
|
|
|
1,305,272
|
|
|
|
1,466,061
|
|
Less accumulated
depreciation
|
|
(12,014
|
)
|
|
|
(273,717
|
)
|
|
|
$
|
1,293,258
|
|
$
|
|
|
$
|
1,192,344
|
|
Property and equipment acquired
in the Acquisition was recorded at estimated fair value on the date of the
Acquisition. The purchase price allocation is preliminary and will remain so
until we complete a third-party valuation. Once our purchase price allocation
is completed, we will have changes to the amounts shown above (see Note 2,
Acquisition of Boise Cascades Paper and Packaging Operations, for more
information).
11. Goodwill and Intangible Assets
Goodwill represents the excess of purchase price and
related costs over the value assigned to the net tangible and intangible assets
of businesses acquired. We account for goodwill in accordance with the
provisions of SFAS No. 142,
Goodwill
and Other Intangible Assets
, which requires us to assess our
acquired goodwill and intangible assets with indefinite lives for impairment at
least annually in the absence of an indicator of possible impairment and
immediately upon an indicator of possible impairment. We assess goodwill and
intangible assets with indefinite lives in the fourth quarter of each year
using a fair-value-based approach. We also evaluate the remaining useful lives
of our finite-lived purchased intangible assets to determine whether any
adjustments to the useful lives are necessary.
We account for
acquisitions using the purchase method of accounting. As a result, we allocate
the purchase price to the tangible and intangible assets acquired and
liabilities assumed based on their respective fair values as of the date of
acquisition. In accordance with SFAS No. 141,
Business Combinations
, we have one year from the purchase
date to finalize or receive information to determine changes in estimates of
the fair value of assets acquired and liabilities assumed.
We have not allocated any
amounts related to the Acquisition to goodwill pending completion of the
purchase price allocation valuations. Previously recorded goodwill of the
Predecessor of approximately $42.2 million at December 31, 2007, was
eliminated as part of the preliminary purchase price allocation.
Intangible assets
represent the preliminary values assigned to trade names and trademarks,
customer relationships, and technology in connection with the Acquisition.
Customer relationships will be amortized over ten years, and technology will be
amortized over five years. During the three months ended March 31, 2008,
the Predecessor periods of January 1 through February 21, 2008, and
the three months ended March 31, 2007, intangible asset amortization was
$0.4 million, $0, and $1.0 million, respectively. Our estimated amortization
expense is $1.4 million for the remainder of 2008, $2.1 million in
2009, 2010, 2011, and 2012, and $1.4 million in 2013. These estimates may
change based on the final purchase price allocation.
13
|
|
Three Months Ended March 31, 2008
|
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
|
|
(thousands)
|
|
Trade names and
trademarks
|
|
$
|
6,800
|
|
$
|
|
|
$
|
6,800
|
|
Customer
relationships
|
|
11,400
|
|
(249
|
)
|
11,151
|
|
Technology
|
|
5,040
|
|
(152
|
)
|
4,888
|
|
|
|
$
|
23,240
|
|
$
|
(401
|
)
|
$
|
22,839
|
|
Intangible assets of the
Predecessor totaling $24.0 million at December 31, 2007, were
eliminated as part of the preliminary purchase price allocations.
12. Asset Retirement Obligations
We account for asset retirement obligations in accordance with SFAS No. 143,
Accounting for Asset Retirement Obligations
,
and Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 47,
Accounting for Conditional Asset Retirement
Obligations an Interpretation of FASB Statement No. 143
.
We accrue for asset retirement obligations in the period in which they are
incurred if sufficient information is available to reasonably estimate the fair
value of the obligation. When we record the liability, we capitalize the cost
by increasing the carrying amount of the related long-lived asset. Over time,
the liability is accreted to its settlement value, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, we will recognize a gain or loss for any difference between the
settlement amount and the liability recorded.
At March 31, 2008, we had $13.8 million of asset retirement
obligations recorded on the Consolidated Balance Sheet. At December 31,
2007, the Predecessor had $13.3 million of asset retirement obligations
recorded on the Consolidated Balance Sheet. These liabilities related primarily
to landfill closure and closed-site monitoring costs. These liabilities are
based on the best estimate of current costs and are updated periodically to
reflect current technology, laws and regulations, inflation, and other economic
factors. No assets are legally restricted for purposes of settling asset
retirement obligations. The table below describes changes to the asset retirement
obligations for Boise Inc. for the three months ended March 31, 2008, and
the Predecessors year ended December 31, 2007 (in thousands):
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
March 31,
2008
|
|
December 31,
2007
|
|
|
|
|
|
|
|
Asset retirement
obligation at beginning of period
|
|
$
|
|
|
$
|
10,771
|
|
Asset retirement
liability recorded in preliminary purchase price allocation
|
|
13,655
|
|
|
|
Liabilities
incurred
|
|
|
|
|
|
Accretion
expense
|
|
113
|
|
869
|
|
Payments
|
|
(4
|
)
|
(37
|
)
|
Revisions in
estimated cash flows
|
|
|
|
1,700
|
|
Asset retirement
obligation at end of period
|
|
$
|
13,764
|
|
$
|
13,303
|
|
We have additional asset retirement obligations with indeterminate
settlement dates. The fair value of these asset retirement obligations cannot
be estimated due to the lack of sufficient information to estimate the
settlement dates of the obligations. These asset retirement obligations
include, for example, (i) removal and disposal of potentially hazardous
materials related to equipment and/or an operating facility if the equipment
and/or facilities were to undergo major maintenance, renovation, or demolition;
(ii) wastewater treatment ponds that may be required to be drained and/or
cleaned if the related operating facility is closed; and (iii) storage
sites or owned facilities for which removal and/or disposal of chemicals
14
and other related materials are required if the operating facility is
closed. We will recognize a liability in the period in which sufficient
information becomes available to reasonably estimate the fair value of these
obligations.
13. Debt
At March 31, 2008,
our short- and long-term debt was as follows:
|
|
Boise Inc.
|
|
|
|
March 31,
2008
|
|
|
|
(thousands)
|
|
|
|
|
|
Revolving credit
facility, due 2013
|
|
$
|
45,000
|
|
Tranche A Term
Loan, due 2013
|
|
250,000
|
|
Tranche B Term
Loan, due 2014
|
|
475,000
|
|
Second Lien Term
Loan, due 2015
|
|
260,700
|
|
Current portion
of long-term debt
|
|
(11,000
|
)
|
Long-term debt,
less current portion
|
|
1,019,700
|
|
Current portion
of long-term debt
|
|
11,000
|
|
|
|
1,030,700
|
|
|
|
|
|
15.75%
Related-party note, due 2015
|
|
58,793
|
|
|
|
$
|
1,089,493
|
|
Senior Secured Credit Facilities
Our new senior secured credit facilities consist of:
·
A
five-year nonamortizing $250.0 million senior secured revolving credit facility
with interest at either the London Interbank Offered Rate (LIBOR) plus 325
basis points or a calculated base rate plus 325 basis points (the Revolving
Credit Facility and, collectively with the Tranche A Term Loan Facility and the
Tranche B Term Loan Facility, the First Lien Facilities);
·
A
five-year amortizing $250.0 million senior secured Tranche A term loan facility
with interest at LIBOR plus 325 basis points or a calculated base rate plus 325
basis points (the Tranche A Term Loan Facility);
·
A six-year
amortizing $475.0 million senior secured Tranche B term loan facility with
interest at LIBOR plus 350 basis points (subject to a floor of 4.00%) or a
calculated base rate plus 250 basis points (the Tranche B Term Loan Facility);
and
·
A
seven-year nonamortizing $260.7 million second lien term loan facility with
interest at LIBOR plus 700 basis points (subject to a floor of 5.5%) or a
calculated base rate plus 600 basis points (the Second Lien Facility and
together with the First Lien Facilities, the Credit Facilities).
All borrowings under the Credit
Facilities bear interest at a rate per annum equal to an applicable margin plus
a customary base rate or Eurodollar rate. The base rate means, for any day, a
rate per annum equal to the greater of (i) the Prime Rate in effect on such day
and (ii) the Federal Funds Effective Rate in effect on such day plus ½ of 1%. In
addition to paying interest, the Company pays a commitment fee to the lenders
under the Revolving Credit Facility at a rate of 0.50% per annum (which shall
be reduced to 0.375% when the leverage ratio is less than 2.25:1.00) times the
daily average undrawn portion of the Revolving Credit Facility (reduced by the
amount of letters of credit issued and outstanding), which fee will accrue from
the Acquisition closing date and shall be payable quarterly in arrears. At March 31,
2008, we had $45.0 million of borrowings outstanding under the Revolving
Credit Facility. For the three months ended March 31, 2008, the average
interest rate for our borrowings under our Revolving Credit Facility was 6.3%.
The minimum and maximum borrowings under the Revolving Credit Facility were
zero and $80.0 million for the three months ended March 31, 2008. The
weighted average amount of borrowings outstanding under the Revolving Credit
Facility during the three months ended March 31, 2008, was
$73.7 million. At March 31, 2008, we had availability of
$196.0 million, which is net of outstanding letters of credit of
$9.0 million, above the amount we had borrowed.
15
The Companys obligations under its
Credit Facilities are guaranteed by each of Boise Paper Holdings, L.L.C.s (the
Borrower) existing and subsequently acquired domestic (and, to the extent no
material adverse tax consequences to BZ Intermediate Holdings LLC (Holdings) or
Borrower would result therefrom and as reasonably requested by the
administrative agent under each Credit Facility, foreign) subsidiaries and
Holdings (collectively, the Guarantors). The First Lien Facilities are secured
by a first-priority security interest in substantially all of the real,
personal, and mixed property of Borrower and the Guarantors, including a
first-priority security interest in 100% of the equity interests of Borrower
and each domestic subsidiary of Holdings, 65% of the equity interests of each
of Holdings foreign subsidiaries (other than Boise Hong Kong Limited so long
as Boise Hong Kong Limited does not account for more than $2,500,000 of
consolidated earnings before interest, taxes, depreciation, and amortization
(EBITDA) during any fiscal year of Borrower), and all intercompany debt. The
Second Lien Facility is secured by a second-priority security interest in
substantially all of the real, personal, and mixed property of Borrower and the
Guarantors, including a second-priority security interest in 100% of the equity
interests of Borrower and each domestic subsidiary of Holdings, 65% of the
equity interests of each of Holdings foreign subsidiaries (other than Boise
Hong Kong Limited so long as Boise Hong Kong Limited does not account for more
than $2,500,000 of consolidated EBITDA during any fiscal year of Borrower), and
all intercompany debt.
In the event all or any portion of
the Tranche B Term Loan Facility is repaid pursuant to any voluntary
prepayments or mandatory prepayments with respect to asset sale proceeds or
proceeds received from the issuance of debt prior to the second anniversary of
the Acquisition closing date, such repayments will be made at (a) 102.0%
of the amount repaid if such repayment occurs prior to the first anniversary of
the Acquisition closing date and (b) 101.0% of the amount repaid if such
repayment occurs on or after the first anniversary of the Acquisition closing
date and prior to the second anniversary of the Acquisition closing date.
Subject to the provisions of the
intercreditor agreement between the First Lien Facility and the Second Lien
Facility, in the event the Second Lien Facility is prepaid as a result of a
voluntary or mandatory prepayment (other than as a result of a mandatory
prepayment with respect to insurance/condemnation proceeds or excess cash flow)
at any time prior to the third anniversary of the Acquisition closing date,
Borrower shall pay a prepayment premium equal to the make-whole premium as
described below.
At any time after the third
anniversary of the Acquisition closing date and prior to the sixth anniversary
of the Acquisition closing date, subject to the provisions of the First Lien
Facilities, the Second Lien Facility may be prepaid in whole or in part subject
to the call premium as described below, provided that loans bearing interest
with reference to the reserve-adjusted Eurodollar rate will be prepayable only
on the last day of the related interest period unless Borrower pays any related
breakage costs.
The make-whole premium means,
with respect to a Second Lien Facility loan on any date of prepayment, the
present value of (a) all required interest payments due on such Second
Lien Facility loan from the date of prepayment through and including the
make-whole termination date, excluding accrued interest (assuming that the
interest rate applicable to all such interest is the swap rate at the close of
business on the third business day prior to the date of such prepayment with
the termination date nearest to the make-whole termination date plus 7.00%),
plus (b) the prepayment premium that would be due if such prepayment were
made on the day after the make-whole termination date, in each case discounted
to the date of prepayment on a quarterly basis (assuming a 360-day year and
actual days elapsed) at a rate equal to the sum of such swap rate plus 0.50%.
The call premium means that in
the event all or any portion of the Second Lien Facility is repaid as a result
of a voluntary prepayment or mandatory prepayment with respect to asset sale
proceeds or proceeds received from the issuance of debt after the third
anniversary of the Acquisition closing date and prior to the sixth anniversary
of the Acquisition closing date, such repayments will be made at (i) 105.0%
of the amount repaid if such repayment occurs on or after the third anniversary
of the Acquisition closing date and prior to the fourth anniversary of the
Acquisition closing date, (ii) 103.0% of the amount repaid if such
repayment occurs on or after the fourth anniversary of the Acquisition closing
date and prior to the fifth anniversary of the Acquisition closing date, and (iii) 101.0%
of the amount repaid if such repayment occurs on or after the fifth anniversary
of the Acquisition closing date, and prior to the sixth anniversary of the
Acquisition closing date.
16
Subject to specified exceptions,
the Credit Facilities require that the proceeds from certain asset sales,
casualty insurance, certain debt issuances, and 75% (subject to step-downs
based on certain leverage ratios) of the excess cash flow for each fiscal year
must be used to pay down outstanding borrowings.
Required debt principal
repayments, excluding those from excess cash flows, total $8.3 million for
the balance of 2008; $15.7 million in 2009; $26.6 million in 2010;
$48.5 million in 2011; $134.4 million in 2012; and
$797.2 million thereafter.
The loan documentation for the
Credit Facilities contains, among other terms, representations and warranties,
covenants, events of default and indemnification customary for loan agreements
for similar leveraged acquisition financings, and other representations and
warranties, covenants, and events of default deemed by the administrative agent
of the First Lien Facilities or the Second Lien Facility, as applicable, to be
appropriate for the specific transaction. The First Lien Facilities require
Holdings and its subsidiaries to maintain a minimum interest coverage ratio and
a maximum leverage ratio, the Second Lien Facility requires Holdings and its
subsidiaries to maintain a maximum leverage ratio, and the Credit Facilities
limit the ability of Holdings and its subsidiaries to make capital
expenditures.
In connection with the
Acquisition, Boise Inc. entered into a note (the Related-Party Note) with Boise
Cascade, as partial consideration. Subsequently, Boise Cascade transferred the
note payable to its parent company, Boise Cascade Holdings, L.L.C. With the
exception of the subsidiaries party to the Credit and Guaranty Agreement, dated
as of February 22, 2008, by and among Boise Paper Holdings, L.L.C., BZ
Intermediate Holding Sub LLC, the other subsidiaries of the Company party
thereto, the lenders and agents party thereto, Goldman Sachs Credit Partners
L.P., as joint lead arranger, administrative agent, and collateral agent, and
Lehman Brothers Inc., as joint lead arranger, each of the Companys current and
future domestic subsidiaries are joint and several obligors under this
Related-Party Note. On February 22, 2008, certain subsidiaries of the
Company entered into a Subordinated Guaranty Agreement, guaranteeing the
obligations of the Company to Boise Cascade under the Related-Party Note.
The Related-Party Note
bears interest at 15.75% per annum (computed on the basis of a 360-day year),
payable quarterly (each such quarterly payment date, an Interest Payment Date).
Interest will accrue on the Related-Party Note and be added to the principal
amount of the Related-Party Note on each Interest Payment Date. The
Related-Party Note matures on August 21, 2015, provided that if such date
is more than 181 days after the scheduled maturity date of the indebtedness
under the Credit Facilities, then the maturity date shall automatically be
deemed to be 181 days after the latest maturity date of any such indebtedness.
At maturity, the amount of the Related-Party Note will be approximately
$180.2 million.
The Company may prepay
the Related-Party Note at any time in whole or in part, without premium or penalty,
subject to any restrictions contained in the Companys senior credit
facilities. The Company must prepay the Related-Party Note upon the occurrence
of the following events: (i) a Change of Control (as defined in the Credit
Facilities); (ii) a sale or transfer of 50% or more of the Companys
assets; and (iii) Events of Default (as provided in the Related-Party
Note). The Company must use the proceeds from the sale of equity or debt
securities or borrowings to repay the Related-Party Note, subject to any
restrictions contained in the Companys senior credit facilities. Any
postclosing adjustments to the purchase price in connection with the
Acquisition resulting in a payment owed to the Company will be effected by
means of a reduction in the principal amount of the Related-Party Note.
The Predecessor had no short- or long-term debt outstanding at December 31,
2007.
Other
At March 31, 2008, we had $81.1 million of costs recorded in Deferred
financing costs on our Consolidated Balance Sheet related to the Acquisition.
The amortization of these costs is recorded in interest expense using the
effective interest method over the life of the loans. We recorded
$0.8 million of amortization expense for the three months ended March 31,
2008.
For the three months ended March 31, 2008, cash payments for interest,
net of interest capitalized, was $8.5 million.
17
14. Financial Instruments
We
are exposed to market risks including changes in interest rates, energy prices,
and foreign currency exchange rates. We employ a variety of practices to manage
these risks, including operating and financing activities and, where deemed
appropriate, the use of derivative instruments. Derivative instruments are used
only for risk management purposes and not for speculation or trading.
Derivatives are such that a specific debt instrument, contract, or anticipated
purchase determines the amount, maturity, and other specifics of the hedge. If
a derivative contract is entered into, we either determine that it is an
economic hedge or we designate the derivative as a cash flow or fair value
hedge. We formally document all relationships between hedging instruments and
the hedged items, as well as our risk management objectives and strategies for
undertaking various hedged transactions. For those derivatives designated as
cash flow or fair value hedges, we formally assess, both at the derivatives
inception and on an ongoing basis, whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in the hedged
items. The ineffective portion of hedging transactions is recognized in income
(loss).
In
accordance with SFAS No. 133,
Accounting
for Derivative Instruments and Hedging Activities
, as amended, we
record all derivative instruments as assets or liabilities on our Consolidated
Balance Sheets at fair value. The fair value of these instruments is determined
by third parties. Changes in the fair value of derivatives are recorded in
either Net income (loss) or Other comprehensive income, as appropriate. The
gain or loss on derivatives designated as cash flow hedges is included in Other
comprehensive income in the period in which changes in fair value occur and is
reclassified to income (loss) in the period in which the hedged item affects
income (loss), and any ineffectiveness is recognized currently in our
Consolidated Statements of Income (Loss). The gain or loss on derivatives
designated as fair value hedges and the offsetting gain or loss on the hedged
item attributable to the hedged risk are included in income (loss) in the
period in which changes in fair value occur. The gain or loss on derivatives
that have not been designated as hedging instruments is included in income
(loss) in the period in which changes in fair value occur.
Interest Rate Risk
With the exception of the Related-Party Note, our debt
is variable-rate debt. In late April 2008, we entered into interest rate
derivative financial instruments to hedge a portion of our exposure to changes
in interest rates.
Energy Risk
We
enter into natural gas swaps, options, or a combination of these instruments to
hedge the variable cash flow risk of natural gas purchases at index prices. As
of March 31, 2008, we had entered into derivative instruments related to
approximately 3% of our forecasted natural gas purchases from July 2008
through October 2008 and approximately 2% of our forecasted natural gas
purchases from November 2008 through March 2009. We have elected to
account for these instruments as economic hedges and record the changes in fair
value in Materials, labor, and operating expenses in our Consolidated
Statements of Income (Loss). In April 2008, we entered into derivative
instruments to hedge additional exposure related to natural gas prices.
Foreign Currency Risk
At March 31,
2008, we had no material foreign currency risk.
Predecessor
During the Predecessor periods presented, Boise Cascade occasionally used
interest rate swaps to hedge variable interest rate risk. Because debt and
interest costs were not allocated to the Predecessor, the effects of the
interest rate swaps were not included in the Predecessor consolidated financial
statements.
18
15. New and Recently Adopted Accounting Standards
In March 2008, the FASB issued SFAS No. 161,
Disclosures About Derivative Instruments and Hedging
Activities
. SFAS No. 161 requires enhanced disclosures about
derivative instruments and hedging activities to enable investors to better
understand their effects on financial position, financial performance, and cash
flows. These requirements include the disclosure of the fair values of
derivative instruments and their gains and losses in a tabular format. SFAS No. 161
is effective for fiscal years beginning after November 15, 2008, which
will require us to adopt these provisions in 2009. Early adoption of SFAS No. 161
is permitted. We are currently evaluating the impact SFAS No. 161
will have on our consolidated financial statement disclosures.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations,
and SFAS No. 160,
Accounting and Reporting of Noncontrolling
Interest in Consolidated Financial Statements, an Amendment of Accounting
Research Bulletin (ARB) No. 51.
These new standards will
significantly change the accounting for and reporting of business combination
transactions and noncontrolling (minority) interests in consolidated financial
statements. SFAS Nos. 141(R) and 160 are required to be adopted
simultaneously and are effective for the first annual reporting period
beginning on or after December 15, 2008. Thus, we are required to adopt
these standards on January 1, 2009. Earlier adoption is prohibited. The
impact of adopting these standards will be limited to business combinations
occurring on or after January 1, 2009.
In September 2006,
the FASB issued SFAS No. 157,
Fair
Value Measurements
. This statement defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. This statement applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having previously concluded
in those accounting pronouncements that fair value is the relevant measurement
attribute. Accordingly, this statement does not require any new fair value
measurements. We adopted this standard January 1, 2008, and the adoption
did not have an impact on our financial position or results of operations
.
In February 2008, the FASB issued Staff Position No. 157-2,
which provides a one-year delayed application of SFAS No. 157 for
nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). We must adopt these new requirements no later than our first
quarter of fiscal 2009.
16. Retirement and Benefit Plans
During the periods
presented, some of our employees participated in our retirement plans and some
of the Predecessors employees participated in Boise Cascades retirement
plans. These plans consist of noncontributory defined benefit pension plans,
contributory defined contribution savings plans, deferred compensation plans,
and postretirement healthcare benefit plans. Compensation expense was calculated
based on costs directly attributable to our employees and, in the case of the
Predecessor employees of the Paper Group, an allocation of expense related to
corporate employees that serviced all Boise Cascade business units.
Some of our employees participate
in noncontributory defined pension plans that were either transferred from or
spun off from Boise Cascade. The salaried defined benefit pension plan is
available only to employees who were formerly employed by OfficeMax before November 2003.
The pension benefit for salaried employees is based primarily on the employees
years of service and highest five-year average compensation. The benefit for
hourly employees is generally based on a fixed amount per year of service. The
Predecessor treated participants in these plans as participants in
multiemployer plans. Accordingly, the Predecessor did not reflect any assets or
liabilities related to the noncontributory defined benefit pension plans on its
Consolidated Balance Sheet. The Predecessor did, however, record costs
associated with the employees who participated in these plans in its
Consolidated Statements of Income (Loss). Expenses attributable to
participation in noncontributory defined benefit plans for the three months
ended March 31, 2008, and the Predecessor periods of January 1
through February 21, 2008, and the three months ended March 31, 2007,
were $1.2 million, $1.8 million, and $3.0 million, respectively.
Some of our and the
Predecessors employees participated in contributory defined contribution
savings plans, which covered most of our salaried and hourly employees.
Expenses related to matching contributions attributable to participation in
contributory defined contribution savings plans for the three
19
months ended March 31,
2008, and the Predecessor periods of January 1 through February 21,
2008, and the three months ended March 31, 2007, were $0.8 million,
$2.1 million, and $2.5 million, respectively. Employees that are not
eligible to participate in the noncontributory defined benefit pension plans
are eligible for additional discretionary company matching contributions based
on a percentage approved each plan year.
Some of our and the
Predecessors employees participated in deferred compensation plans, in which
key managers and nonaffiliated directors may irrevocably elect to defer a
portion of their base salary and bonus or directors fees until termination of
employment or beyond. A participants account is credited with imputed interest
at a rate equal to 130% of Moodys composite average of yields on corporate
bonds. In addition, participants other than directors may elect to receive
their company matching contributions in the deferred compensation plan in lieu
of any matching contribution in the contributory defined contribution savings
plan. The deferred compensation plans are unfunded; therefore, benefits are
paid from general assets of the company. At March 31, 2008, we had no
liabilities attributable to participation in our new deferred compensation
plan, which is effective on April 1, 2008, on our Consolidated Balance
Sheet. At December 31, 2007, the Predecessor had $3.8 million of
liabilities attributable to participation in Boise Cascades deferred
compensation plan recorded on the Predecessors Consolidated Balance Sheet.
This liability is not an obligation of Boise Inc. and is not recorded on our
Consolidated Balance Sheet at March 31, 2008.
Some of our and the
Predecessors employees participated in Boise Cascades postretirement
healthcare benefit plans. The type of retiree healthcare benefits and the
extent of coverage vary based on employee classification, date of retirement,
location, and other factors. All of the postretirement healthcare plans are
unfunded. The postretirement benefit plans have a December 31 measurement
date.
Obligations and Funded Status of
Postretirement Benefits and Pensions
The Predecessor treated
participants in its pension plans as participants in multiemployer plans;
accordingly, the Predecessor has not reflected any assets or liabilities
related to the noncontributory defined benefit pension plans on its
Consolidated Balance Sheet at December 31, 2007. In connection with the
Acquisition, we have treated the pension and postretirement benefit plans as
company-sponsored and have measured the benefit obligation and funded status as
of February 22, 2008. The funded status changes from period to period
based on the investment return from plan assets, contributions, benefit
payments, and the discount rate used to measure the obligation. The funded
status of the pension and postretirement plans recorded in connection with the
Acquisition is shown in the table below as of February 22, 2008 (in
thousands):
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
|
|
|
|
Projected
benefit obligation
|
|
$
|
(379,390
|
)
|
$
|
(2,723
|
)
|
Market value of
assets
|
|
323,640
|
|
|
|
Funded status
|
|
$
|
(55,750
|
)
|
$
|
(2,723
|
)
|
The accumulated benefit
obligation for pension benefits at February 22, 2008 was
$339.1 million.
20
Components
of Net Periodic Benefit Cost
The components of net
periodic benefit cost are as follows (in thousands):
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
Boise Inc.
|
|
Predecessor
|
|
Predecessor
|
|
Boise Inc.
|
|
Predecessor
|
|
Predecessor
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
Three
Months
Ended
March 31,
2008
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,134
|
|
$
|
1,566
|
|
$
|
2,998
|
|
$
|
|
|
$
|
|
|
$
|
53
|
|
Interest cost
|
|
2,572
|
|
3,458
|
|
5,667
|
|
5
|
|
18
|
|
103
|
|
Expected return
on plan assets
|
|
(2,517
|
)
|
(3,452
|
)
|
(5,855
|
)
|
|
|
|
|
|
|
Recognized
actuarial (gain) loss
|
|
|
|
(21
|
)
|
67
|
|
|
|
(12
|
)
|
|
|
Amortization of
prior service costs and other
|
|
|
|
194
|
|
176
|
|
|
|
|
|
|
|
Plan
settlement/curtailment (gain)
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
Company-sponsored
plans
|
|
1,189
|
|
1,745
|
|
3,007
|
|
5
|
|
6
|
|
156
|
|
Multiemployer
pension plans
|
|
43
|
|
75
|
|
|
|
|
|
|
|
|
|
Net periodic
benefit costs
|
|
$
|
1,232
|
|
$
|
1,820
|
|
$
|
3,007
|
|
$
|
5
|
|
$
|
6
|
|
$
|
156
|
|
Assumptions
The assumptions used in
accounting for the plans are estimates of factors that will determine, among
other things, the amount and timing of future benefit payments. The following
table presents the assumptions used in the measurement of our benefits
obligation:
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
Boise Inc.
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
February 22,
2008
|
|
February 22,
2008
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
6.50
|
%
|
5.50
|
%
|
5.75
|
%
|
Rate of compensation
increase
|
|
4.25
|
%
|
|
%
|
|
%
|
The following table
presents the assumptions used in the measurement of net periodic benefit cost:
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
Boise Inc.
|
|
Predecessor
|
|
Predecessor
|
|
Boise Inc.
|
|
Predecessor
|
|
Predecessor
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
Three
Months
Ended
March 31,
2008
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
6.50
|
%
|
6.40
|
%
|
5.90
|
%
|
4.70
|
%
|
5.50
|
%
|
5.75
|
%
|
Expected
long-term rate of return on plan assets
|
|
7.25
|
%
|
7.25
|
%
|
7.25
|
%
|
|
%
|
|
%
|
|
%
|
Rate of
compensation increase
|
|
4.25
|
%
|
4.25
|
%
|
4.25
|
%
|
|
%
|
|
%
|
|
%
|
Discount
Rate Assumption
. In all periods presented, the discount rate assumption
was determined using a spot rate yield curve constructed to replicate Aa-graded
corporate bonds. The plans projected cash flows were duration-matched to this
yield curve to develop an appropriate discount rate.
21
Asset
Return Assumption
. The expected long-term rate of return on
plan assets was based on a weighted average of the expected returns for the
major investment asset classes. Expected returns for the asset classes are
based on long-term historical returns, inflation expectations, forecasted gross
domestic product, earnings growth, and other economic factors. The weights
assigned to each asset class were based on the investment strategy.
Rate
of Compensation Increases.
This assumption reflects the
long-term actual experience, the near-term outlook, and assumed inflation.
The following table
presents our assumed healthcare cost trend rates at March 31, 2008, and
the Predecessors at December 31, 2007:
|
|
2008
|
|
2007
|
|
Weighted average
assumptions:
|
|
|
|
|
|
Healthcare cost
trend rate assumed for next year
|
|
9.50
|
%
|
9.50
|
%
|
Rate to which
the cost trend rate is assumed to decline (the ultimate trend rate)
|
|
5.00
|
%
|
5.00
|
%
|
Year that the
rate reaches the ultimate trend rate
|
|
2017
|
|
2017
|
|
Assumed healthcare cost
trend rates affect the amounts reported for the healthcare plans. At March 31,
2008, a one-percentage-point change in our assumed healthcare cost trend rate
would not significantly affect our total service or interest costs or our
postretirement benefit obligation.
During the remainder of
2008, we are not required to make minimum contributions to our pension plans.
17.
Stockholders Equity
Preferred Stock
The Company is authorized
to issue 1,000,000 shares of preferred stock with such designations, voting,
and other rights and preferences as may be determined from time to time by the
Board of Directors. No shares were issued or outstanding at March 31,
2008, and December 31, 2007.
Common Stock
We are authorized to
issue 250,000,000 shares of common stock, of which 77,259,947 shares were
issued and outstanding at March 31, 2008. At December 31, 2007, we
had 51,750,000 shares of common stock issued and outstanding, of which
16,555,860 shares were subject to possible conversion.
On February 5, 2008,
stockholders owning 12,543,778 shares exercised their conversion rights and
voted against the Acquisition of Boise Cascade. Such stockholders were entitled
to receive their per-share interest in the proceeds from our initial public
offering, which had been held in trust. At December 31, 2007, cash held in
trust was $403,989,389. In connection with the Acquisition, we paid
$120,169,890 from our cash held in trust to these stockholders. The remaining
cash held in trust was used to effect the Acquisition.
Warrants
In connection with our
public offering in June 2007, we issued 41,400,000 units (the Units). Each
Unit consists of one share of our common stock and one Redeemable Common Stock
Purchase Warrant (the Warrants). Each Warrant entitles the holder to purchase
one share of common stock at an exercise price of $7.50, commencing on the
later of the completion of a business combination and one year from the
effective date of the public offering and expiring four years from the
effective date of the public offering. We may redeem the Warrants, at a price
of $0.01 per Warrant, upon 30 days notice while the Warrants are exercisable,
only in the event that the last sale price of the common stock is at least
$14.25 per share for any 20 trading days within a 30 trading day period ending
on the third day prior to the date on which notice of redemption is given.
Simultaneously with the
consummation of the public offering, Aldabra 2 Acquisition Corp.s chairman and
chief executive officer purchased a total of 3,000,000 Warrants (the Insider
Warrants) at $1.00 per Warrant (for an aggregate purchase price of $3,000,000)
privately. The amount paid for the Warrants approximated fair value on the date
of issuance. All of the proceeds received from these
22
purchases were placed in
cash held in trust. The Insider Warrants purchased were identical to the
Warrants underlying the Units issued in the public offering except that the
Warrants may not be called for redemption and the Insider Warrants may be
exercisable on a cashless basis, at the holders option, so long as such
securities are held by such purchaser or his affiliates.
18.
Equity Compensation
During the Predecessor
periods presented, equity compensation was granted to the Predecessors
employees under Boise Cascades equity compensation plans. During the
Predecessor periods of January 1 through February 21, 2008, and the
three months ended March 31, 2007, the Predecessor recognized $0.2 million
and $0.4 million of compensation expense, most of which was recorded in General
and administrative expenses in the Consolidated Statements of Income (Loss).
During the three months
ended March 31, 2008, we made no equity compensation awards.
19.
Comprehensive
Income (Loss)
Comprehensive income
(loss) includes the following (in thousands):
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
February 1
(Inception)
Through
March 31,
2007
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(16,371
|
)
|
$
|
(1
|
)
|
$
|
22,786
|
|
$
|
21,991
|
|
Other
comprehensive income (loss) cash flow hedges
|
|
|
|
|
|
|
|
(9,376
|
)
|
Comprehensive
income (loss)
|
|
$
|
(16,371
|
)
|
$
|
(1
|
)
|
$
|
22,786
|
|
$
|
12,615
|
|
20.
Segment
Information
There are no
material differences in Boise Inc.s basis of segmentation or in Boise Inc.s
basis of measurement of segment profit or loss from those disclosed in the
Predecessors Note 15, Segment Information, of the Predecessors Notes to
Consolidated Financial Statements in Exhibit 99.2 of Boise Inc.s Current
Report on Form 8-K filed with the SEC on February 28, 2008. We have
not included segment information related to the period of February 1
(inception) through March 31, 2007, which represents the activities of
Aldabra 2 Acquisition Corp., as the segment results related to this period are
insignificant.
23
An analysis of operations
by segment is as follows:
|
|
|
|
|
|
|
|
|
|
Income
|
|
Depreciation,
|
|
|
|
|
|
Sales
|
|
(Loss)
|
|
Amortization,
|
|
|
|
|
|
|
|
Related
|
|
Inter-
|
|
|
|
Before
|
|
and
|
|
EBITDA
|
|
|
|
Trade
|
|
Parties
|
|
segment
|
|
Total
|
|
Taxes
|
|
Depletion
|
|
(a)
|
|
|
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper
|
|
$
|
165.1
|
|
$
|
|
|
$
|
7.1
|
|
$
|
172.2
|
|
$
|
11.8
|
|
$
|
7.1
|
|
$
|
19.0
|
|
Packaging
|
|
59.5
|
|
|
|
0.4
|
|
59.9
|
|
(19.8
|
)
|
5.2
|
|
(14.5
|
)
|
Corporate and
Other
|
|
1.5
|
|
1.9
|
|
4.7
|
|
8.1
|
|
(2.1
|
)
|
0.4
|
|
(1.9
|
)
|
|
|
226.1
|
|
1.9
|
|
12.2
|
|
240.2
|
|
(10.1
|
)
|
12.7
|
|
2.6
|
|
Intersegment
eliminations
|
|
|
|
|
|
(12.2
|
)
|
(12.2
|
)
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
(11.4
|
)
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
$
|
226.1
|
|
$
|
1.9
|
|
$
|
|
|
$
|
228.0
|
|
$
|
(19.7
|
)
|
$
|
12.7
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
Depreciation,
|
|
|
|
|
|
Sales
|
|
(Loss)
|
|
Amortization,
|
|
|
|
|
|
|
|
Related
|
|
Inter-
|
|
|
|
Before
|
|
and
|
|
EBITDA
|
|
|
|
Trade
|
|
Parties
|
|
segment
|
|
Total
|
|
Taxes
|
|
Depletion
|
|
(a)
|
|
|
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
|
|
January 1
Through February 21, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper
|
|
$
|
154.4
|
|
$
|
90.0
|
|
$
|
9.1
|
|
$
|
253.5
|
|
$
|
20.7
|
|
$
|
0.3
|
|
$
|
21.1
|
|
Packaging
|
|
102.2
|
|
10.9
|
|
0.4
|
|
113.5
|
|
5.7
|
|
0.1
|
|
5.7
|
|
Corporate and
Other
|
|
1.8
|
|
0.6
|
|
6.1
|
|
8.5
|
|
(3.2
|
)
|
0.1
|
|
(3.1
|
)
|
|
|
258.4
|
|
101.5
|
|
15.6
|
|
375.5
|
|
23.2
|
|
0.5
|
|
23.7
|
|
Intersegment
eliminations
|
|
|
|
|
|
(15.6
|
)
|
(15.6
|
)
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
$
|
258.4
|
|
$
|
101.5
|
|
$
|
|
|
$
|
359.9
|
|
$
|
23.4
|
|
$
|
0.5
|
|
$
|
23.7
|
|
24
|
|
|
|
|
|
|
|
|
|
Income
|
|
Depreciation,
|
|
|
|
|
|
Sales
|
|
(Loss)
|
|
Amortization,
|
|
|
|
|
|
Trade
|
|
Related
Parties
|
|
Inter-
segment
|
|
Total
|
|
Before
Taxes
|
|
and
Depletion
|
|
EBITDA
(a)
|
|
|
|
(millions)
|
|
Three
Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper
|
|
$
|
222.9
|
|
$
|
157.8
|
|
$
|
14.3
|
|
$
|
395.0
|
|
$
|
18.1
|
|
$
|
16.6
|
|
$
|
34.7
|
|
Packaging
|
|
176.7
|
|
16.9
|
|
0.4
|
|
194.0
|
|
8.1
|
|
13.4
|
|
21.5
|
|
Corporate and
Other
|
|
3.3
|
|
1.1
|
|
9.5
|
|
13.9
|
|
(3.4
|
)
|
0.8
|
|
(2.6
|
)
|
|
|
402.9
|
|
175.8
|
|
24.2
|
|
602.9
|
|
22.8
|
|
30.8
|
|
53.6
|
|
Intersegment
eliminations
|
|
|
|
|
|
(24.2
|
)
|
(24.2
|
)
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
$
|
402.9
|
|
$
|
175.8
|
|
$
|
|
|
$
|
578.7
|
|
$
|
23.0
|
|
$
|
30.8
|
|
$
|
53.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
EBITDA represents income (loss) before
interest, income tax provision (benefit), and depreciation, amortization, and
depletion. EBITDA is the primary measure used by our chief operating decision
makers to evaluate segment operating performance and to decide how to allocate
resources to segments. We believe EBITDA is useful to investors because it
provides a means to evaluate the operating performance of our segments and our
company on an ongoing basis using criteria that are used by our internal decision
makers and because it is frequently used by investors and other interested
parties in the evaluation of companies with substantial financial leverage. We
believe EBITDA is a meaningful measure because it presents a transparent view
of our recurring operating performance and allows management to readily view
operating trends, perform analytical comparisons, and identify strategies to
improve operating performance. For example, we believe that the inclusion of
items such as taxes, interest expense, and interest income distorts managements
ability to assess and view the core operating trends in our segments. EBITDA,
however, is not a measure of our liquidity or financial performance under
generally accepted accounting principles (GAAP) and should not be considered as
an alternative to net income (loss), income (loss) from operations, or any
other performance measure derived in accordance with GAAP or as an alternative
to cash flow from operating activities as a measure of our liquidity. The use
of EBITDA instead of net income (loss) or segment income (loss) has limitations
as an analytical tool, including the inability to determine profitability; the
exclusion of interest and associated significant cash requirements; and the
exclusion of depreciation, amortization, and depletion, which represent
significant and unavoidable operating costs, given the level of our
indebtedness and the capital expenditures needed to maintain our businesses.
Management compensates for these limitations by relying on our GAAP results.
Our measures of EBITDA are not necessarily comparable to other similarly titled
captions of other companies due to potential inconsistencies in the methods of
calculation.
The following is a
reconciliation of net income (loss) to EBITDA (in millions):
|
|
Three
Months
Ended
March 31,
2008
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(16.4
|
)
|
$
|
22.8
|
|
$
|
22.0
|
|
Interest expense
|
|
11.4
|
|
|
|
|
|
Interest income
|
|
(1.8
|
)
|
(0.2
|
)
|
(0.1
|
)
|
Income tax
provision (benefit)
|
|
(3.4
|
)
|
0.6
|
|
1.0
|
|
Depreciation,
amortization, and depletion
|
|
12.7
|
|
0.5
|
|
30.8
|
|
EBITDA
|
|
$
|
2.6
|
|
$
|
23.7
|
|
$
|
53.6
|
|
25
21.
Commitments
and Guarantees
Commitments
We have commitments for fiber, leases, and utilities.
Our lease commitments are discussed further in Note 7, Leases. In
addition, we have purchase obligations for goods and services, capital
expenditures, and raw materials entered into in the normal course of business.
We are a party to a number of long-term log and fiber
supply agreements. At March 31, 2008, our total obligation for log and
fiber purchases under contracts with third parties was approximately $185.6 million.
Under most of the log and fiber supply agreements, we have the right to cancel
or reduce our commitments in the event of a mill curtailment or shutdown. The
prices under most of these agreements is set quarterly or semiannually based on
regional market prices, and the estimate is based on contract terms or current
quarter pricing. Our log and fiber obligations are subject to change based on,
among other things, the effect of governmental laws and regulations, our
manufacturing operations not operating in the normal course of business, log
and fiber availability, and the status of environmental appeals. Except for
deposits required pursuant to wood supply contracts, these obligations are not
recorded in our consolidated financial statements until contract payment terms
take effect.
We enter into utility contracts for the purchase of
electricity and natural gas. We also purchase these services under utility
tariffs. The contractual and tariff arrangements include multiple-year
commitments and minimum annual purchase requirements. At March 31, 2008,
we had approximately $30.5 million of utility purchase commitments. These
payment obligations were valued at prices in effect on December 31, 2007,
or contract language, if available. Because we consume the energy in the
manufacture of our products, these obligations represent the face value of the
contracts, not resale value.
Guarantees
We provide guarantees,
indemnifications, and assurances to others, which constitute guarantees as
defined under FIN No. 45,
Guarantors Accounting and
Disclosure Requirements for Guarantees
,
Including
Indirect Guarantees of Indebtedness of Others
. See Note 13, Debt,
included in this Form 10-Q for a description of guarantees, including the
approximate terms of the guarantees, how the guarantees arose, the events or
circumstances that would require us to perform under the guarantees, and the
maximum potential undiscounted amounts of future payments we could to required
to make.
22.
Legal Proceedings and
Contingencies
We are a party to routine legal
proceedings that arise in the course of our business. We are not currently a
party to any legal proceedings or environmental claims that we believe would
have a material adverse effect on our financial position, results of
operations, or cash flows.
ITEM
2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
Understanding Our Financial Information
The following discussion and analysis provides information management
believes to be relevant to understanding our financial condition and results of
operations.
We begin this discussion
and analysis with some general background related to our company followed by an
overview of the effects of the Acquisition of Boise Cascades Paper and
Packaging Operations and a discussion of our operating segments. Recent
Trends and Operational Outlook and Factors That Affect Operating Results are
intended to give the reader an overview of the
goals and challenges and the direction of our business and changes
affecting our products.
The analysis
then reviews our Operating Results followed by a discussion of
relevant merger activity in our industry in Industry
Mergers and Acquisitions.
We
then discuss our balance sheet and cash flows and our financial commitments in
the
section entitled Liquidity and
Capital Resources.
The analysis
then addresses our Contractual Obligations and
26
is
followed by a discussion of the Critical Accounting Estimates that our
management believes are important to understanding the assumptions and
judgments incorporated in our reported financial results.
This discussion and analysis includes statements regarding our expectations
with respect to our future performance, liquidity, and capital resources. Such
statements, along with any other nonhistorical statements in the discussion,
are forward-looking. These forward-looking statements are subject to numerous
risks and uncertainties, including, but not limited to, the risks and
uncertainties described in Part II-Item 1A. Risk Factors of this Form 10-Q, as well as
those factors listed in other documents we file with the Securities and
Exchange Commission (SEC).
We do not assume an obligation to update any forward-looking statement. Our
actual results may differ materially from those contained in or implied by any
of the forward-looking statements in this Form 10-Q.
Background and Executive Overview
Boise Inc. (formerly Aldabra 2 Acquisition Corp.) or the
Company, we, us, or our was a blank check company, created on February 1,
2007 (inception) and organized for the purpose of effecting a merger, capital
stock exchange, asset acquisition, or other similar business combination with
an operating business. On February 22, 2008, Boise Inc. completed the
acquisition (the Acquisition) of Boise White Paper, L.L.C., Boise Packaging &
Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp. (collectively,
the Paper Group), and other assets and liabilities related to the operation of
the paper, packaging and newsprint, and transportation businesses of the Paper
Group and part of the headquarters operations of Boise Cascade, L.L.C. (Boise
Cascade). The business we acquired is referred to in this report on Form 10-Q
as the Predecessor. The Acquisition was accomplished through the Companys
acquisition of Boise Paper Holdings, L.L.C. See Acquisition of Boise Cascades
Paper and Packaging Operations below for more information related to the
Acquisition.
The accompanying
consolidated statements of income (loss) and cash flows for the three months
ended March 31, 2008 include the activities of Aldabra 2 Acquisition Corp.
prior to the Acquisition and the operations of the acquired businesses from February 22,
2008, through March 31, 2008. For the period of January 1 through February 21,
2008, and for the three months ended March 31, 2007, the consolidated
statements of income and cash flows of the Predecessor are presented for
comparative purposes. The period of February 1 (inception) through March 31,
2007, represents the activities of Aldabra 2 Acquisition Corp.
Unless otherwise noted, this Managements
Discussion and Analysis of Financial Condition and Results of Operations
refers to the combined activities of Boise Inc. and the Predecessor for each
period presented, which we believe is
the
most useful comparison between periods. The Acquisition was accounted for in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations,
resulting in a
new basis of accounting from those previously reported by the Predecessor.
However, sales and most operating cost items are substantially consistent with
those reflected by the Predecessor. Finished goods inventories were revalued to
estimated selling prices less costs of disposal and a reasonable profit on the
disposal. Depreciation changed as a result of adjustments to the fair values of
property and equipment due to our preliminary purchase price allocation. These
items, along with changes in interest expense and income taxes, are explained
independently where appropriate.
Acquisition
of Boise Cascades Paper and
Packaging Operations
On February 22,
2008, we acquired the paper, packaging, and most of the corporate and other
segments of Boise Cascade for cash and securities. We have five pulp and paper
mills, five corrugated container plants, a corrugated sheet plant, and two
paper distribution facilities located in the United States. Our corporate
headquarters office is in Boise, Idaho.
The Acquisition was
accounted for in accordance with the provisions SFAS No. 141,
Business Combinations
. Upon completion of the transaction,
Boise Cascade owned 37.9 million, or 49%, of our outstanding shares. Subsequent
to the transaction, Boise Cascade transferred the shares to its parent company,
Boise Cascade Holdings, L.L.C.
27
The purchase price was
paid with cash, the issuance of shares of our common stock, and a note payable.
These costs, including estimated direct transaction costs, are summarized as
follows:
|
|
(millions)
|
|
|
|
|
|
Cash paid to
Boise Cascade
|
|
$
|
1,252.3
|
|
Cash paid to
Boise Cascade for financing and other fees
|
|
24.9
|
|
Less: cash
contributed by Boise Cascade
|
|
(38.0
|
)
|
Net cash
|
|
1,239.2
|
|
|
|
|
|
Equity at $9.15
average price per share
|
|
346.4
|
|
Lack of marketability
discount
|
|
(41.6
|
)
|
Total equity
|
|
304.8
|
|
|
|
|
|
Note payable to
Boise Cascade at closing
|
|
41.0
|
|
Working capital
adjustment
|
|
16.8
|
|
Total note
payable to Boise Cascade
|
|
57.8
|
|
|
|
|
|
Fees and
expenses
|
|
62.2
|
|
|
|
|
|
Total purchase
price
|
|
$
|
1,664.0
|
|
Cash
Upon closing, we paid
Boise Cascade $1,252.3 million in cash related to the base purchase price
plus $24.9 million incurred by Boise Cascade for transaction financing costs
and fees. Immediately prior to the Acquisition, Boise Cascade contributed
$38.0 million of cash to the acquired businesses.
Equity
The number of shares
issued to Boise Cascade totaled 37,857,374. The equity price per share was
calculated based on the average per-share closing price of our common stock for
the 20 trading days ending on the third trading day immediately prior to the
consummation of the Acquisition. Since that average price was below the $9.54
floor provided in the purchase agreement, we determined a new measurement date
in accordance with Issue No. 2 of Emerging Issues Task Force (EITF) 99-12,
Determination of the Measurement Date for the
Market Price of Acquirer Securities Issued in a Purchase Business Combination
.
We calculated a $9.15 average price per share based on two days before and
after the Acquisition measurement date, which was February 14, 2008. The
value of stock consideration paid to Boise Cascade was reduced by a 12%
discount for a lack of marketability since the stock delivered as consideration
was not registered for resale.
Note payable
In connection with the
transaction, Boise Inc. issued a note payable to Boise Cascade for
$41.0 million. Subsequently, Boise Cascade transferred the note payable to
its parent company, Boise Cascade Holdings, L.L.C. After the transaction, and
pursuant to the purchase agreement, the note increased by $16.8 million for
estimated working capital adjustments, the amount by which the working capital
of the acquired paper and packaging businesses exceeded $329.0 million. Final
working capital adjustments will be made in second quarter of 2008 and are
expected to increase the note by approximately $0.5 million. See Note 4,
Transactions With Related Parties, and Note 13, Debt, of the Notes to Unaudited
Quarterly Consolidated Financial Statements in Item 1. Consolidated Financial
Statements of this Form 10-Q for further information on the note payable.
Fees and expenses
primarily consist of debt issuance fees and direct costs of the transaction.
The purchase price
allocation is preliminary. The final purchase price allocation will be based on
the fair value of assets acquired and liabilities assumed. The purchase price
allocation will remain
28
preliminary until we
complete a third-party valuation. Once fair values are finalized, we may have
changes to the amounts we have included in our preliminary allocation below. We
may also have adjustments to our depreciation and amortization expense, which
will be made prospectively. The following table summarizes the preliminary fair
value allocation of the assets acquired and liabilities assumed at the date of
the Acquisition:
|
|
February 22,
2008
Fair Value
|
|
|
|
(millions)
|
|
|
|
|
|
|
Current assets
|
|
$
|
590.5
|
|
Property and
equipment
|
|
1,292.2
|
|
Fiber farms and
deposits
|
|
11.0
|
|
Intangible
assets:
|
|
|
|
Trademark and
trade name
|
|
6.8
|
|
Customer list
|
|
11.4
|
|
Technology
|
|
5.0
|
|
Deferred
financing costs
|
|
81.9
|
|
Other long-term
assets
|
|
4.5
|
|
Current
liabilities
|
|
(251.5
|
)
|
Long-term
liabilities
|
|
(87.8
|
)
|
Total purchase
price
|
|
$
|
1,664.0
|
|
The following pro forma
results are based on the individual historical results of Boise Inc. and the
Predecessor (prior to the Acquisition on February 22, 2008) with
adjustments to give effect to the combined operations as if the Acquisition had
been consummated on January 1, 2007. The pro forma results are intended
for information purposes only and do not purport to represent what the combined
companies results of operations would actually have been had the transaction
in fact occurred on January 1, 2007.
|
|
Pro Forma
Three Months
Ended
March 31
|
|
|
|
2008
|
|
2007
|
|
|
|
(millions, except per-share amounts)
|
|
|
|
|
|
|
|
Sales
|
|
$
|
587.9
|
|
$
|
578.7
|
|
Net loss
|
|
(27.0
|
)
|
(6.5
|
)
|
Net loss per
sharebasic and diluted
|
|
(0.35
|
)
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
Our Segments
Boise Inc. operates its
business in three reportable segments, Paper, Packaging, and Corporate and
Other (support services), and is headquartered in Boise, Idaho. These segments
represent distinct businesses that are managed separately because of differing
products and services. Each of these businesses requires distinct operating and
marketing strategies. Management reviews the performance of the Company based
on these segments.
Paper.
Our Paper segment
manufactures and sells uncoated free sheet (including commodity and premium
cut-size office papers); a range of packaging papers (including corrugating
medium, label and release papers, and flexible packaging papers); commodity and
premium printing and converting papers (including commercial printing papers,
envelope papers, and form-related products); and market pulp. Many of these
paper products are commodity products, while others have specialized features
that make these products premium and specialty grades. Our premium grades
include 100% recycled and colored cut-size office papers, and our specialty
grades include custom-developed papers for such uses as label and release and
flexible food packaging. In 2007, the $80 million conversion of the #3 machine
in Wallula, Washington, to Significantly grow label and release capacity was
completed. We ship to
29
customers both directly
from our mills and through distribution centers. In the combined first quarter
of 2008, approximately 40% of uncoated free sheet paper sales volume, including
approximately 72% of the office papers sales volume, was sold to OfficeMax
Incorporated (OfficeMax).
Packaging
. Our
Packaging segment manufactures and sells containerboard (linerboard) and
newsprint at our mill in DeRidder, Louisiana. In March of this year, the
$23 million linerboard expansion project, which added 50,000 tons of linerboard
capacity that will reduce fuel use and increase product capabilities, was
completed.
We also operate five corrugated container
plants in the Northwest and a sheet feeder plant in Texas. Our corrugated
containers are used primarily in the packaging of fresh fruit and vegetables,
processed food, beverages, and other industrial and consumer products. Our
Texas plant, known as Central Texas Corrugated, or CTC, produces corrugated
sheets that are sold to sheet plants in the Southwest, where they are converted
into corrugated containers for a variety of customers. Our containerboard and
corrugated products are sold by our own sales personnel and by brokers.
We market our newsprint through a
subsidiary of Abitibi Consolidated Inc. (Abitibi) pursuant to an arrangement
whereby Abitibi purchases all of the newsprint we produce at a price equal to
the price at which Abitibi sells newsprint produced at its mills located in the
southern United States, less associated expenses and a sales and marketing discount.
The newsprint price is verified through a third-party review.
Corporate
and Other
. Our Corporate and Other segment primarily includes
corporate support services, related assets and liabilities, and foreign
exchange gains and losses. During the Predecessor periods presented, the
Corporate and Other segment primarily included an allocation of Boise Cascade
corporate support services and related assets and liabilities. These support
services included, but were not limited to, finance, accounting, legal,
information technology, and human resource functions. This segment also
includes transportation assets, such as rail cars and trucks, that we use to
transport our products from our manufacturing sites. Rail cars and trucks are
generally leased. We provide transportation services not only to our own
facilities but also, on a limited basis, to third parties when geographic
proximity and logistics are favorable.
In
connection with the Acquisition, we entered into an outsourcing services
agreement under which we provide a number of corporate staff services to Boise
Cascade at our cost. These services include information technology, accounting,
and human resource services. The initial term of the agreement is for three
years. It will automatically renew for one-year terms unless either party
provides notice of termination to the other party at least 12 months in
advance of the applicable term. For the three months ended March 31, 2008,
we recorded $1.5 million in Sales, Related parties in our Consolidated Statement
of Income (Loss) related to this agreement.
Recent Trends and Operational Outlook
North American demand for packaging and
communications paper products is heavily influenced by the level of general
economic activity. Over time, packaging paper demand has been growing, while
growth in most communications paper grades has been negatively affected by
electronic substitution.
Containerboard pricing
continued to be stable in the first quarter of 2008. Demand in agriculture,
food, and beverage markets, which constitute about half of our packaging
product end use markets has remained relatively strong, while industrial
markets have shown signs of easing as slower economic growth has reduced demand
for packaging papers in the U.S.
The impact of weaker domestic demand has
been somewhat offset by a relatively weak U.S. dollar, which continues to help
make export markets attractive for U.S. producers and U.S. markets less
attractive for overseas producers. Many producers announced price increases in
early March. However, it does not appear those increased prices will be
realized in the near term, if at all.
The uncoated
freesheet pricing environment was strong in the first quarter of 2008. We
announced a $60-per-ton price increase for cut-size copy paper that became
effective in mid-February and a $60-per-ton price increase for most
printing and converting grades, which is still being implemented. There is no
assurance that the announced price increase will be fully realized. Since most
of our cut-size office paper is sold to OfficeMax under a contract whereby the
price OfficeMax pays is
30
determined
by a published index, changes in price for this product sold to OfficeMax tend
to lag behind the general market by approximately 60 days.
Demand for our targeted label and release,
flexible packaging, and premium office papers (such as colored and 100%
recycled-content cut-size papers) has been growing. Demand for commodity
communications papers in North America has continued to decline as electronic
media substitutes for traditional paper media. According to
Resource
Information Systems, Inc. (
RISI), during the first quarter of 2008,
uncoated freesheet demand declined 1.7% compared with the same period in 2007, while
demand for commodity cut-size office papers declined 1.0%. Demand for uncoated
free sheet printing and converting papers also continues to be heavily affected
by the shift to electronic media for communications.
Two factors have
allowed producers to raise prices in the face of decreasing demand: first,
producers have closed or converted capacity to offset demand reductions, and
second, the decreased value of the U.S. dollar, relative to other currencies,
has allowed U.S. producers to export profitably while making U.S. markets less
attractive to offshore producers. As a result, industry inventories are low
relative to historical standards, and most producers have announced price
increases.
North American newsprint demand has
continued to trend downward. In December 2007, AbitibiBowater Inc.
(AbitibiBowater), the largest producer of newsprint in North America, announced
the permanent closure of manufacturing facilities with approximately 1 million
tons of annual capacity of groundwood printing and newsprint papers. At the
same time, AbitibiBowater announced price increases of $60-per-ton, which were
phased in during the first quarter of 2008. AbitibiBowater has recently
announced a second round of $60-per-ton price increases, which are expected to
be phased in during the second quarter. There is no assurance that the
announced price increases will be realized.
Our financial results are being negatively
affected by significant cost increases. Fiber markets in the Pacific Northwest
are high by historical standards and modestly higher than early 2007 levels. According
to the North American Wood Fiber Review published in March, residual chip
prices in the Northwest increased over $40 a bone-dry unit compared with the
prior quarter, as wood products capacity curtailments put pressure on residual
chip availability and prices in this region. These higher wood fiber costs are
having a significant negative impact on the financial results of our St.
Helens, Oregon, and Wallula, Washington, pulp and paper mills. As a result, we may choose
to change our operating configuration at those facilities, including
potentially closing some or all of the St. Helens mill if we cannot operate it
profitably. We will continue to evaluate its ongoing financial performance. Our
St. Helens pulp and paper mill and Wallula pulp and paper mill combined consume
approximately 1 million
bone-dry
units (bdu)
of fiber in the Pacific Northwest annually under
normal operations. We have expanded our whole-log chipping capacity and we are
currently pursuing alternative sources of fiber.
Energy costs, particularly natural gas,
are also high relative to historical standards and increased in first quarter
2008. Boise Inc.s pulp and paper operations consume approximately 14
million
British thermal units (mmBtu) of natural gas annually under normal
operations.
In late 2007 and into 2008, many of Boise
Inc.s chemical suppliers have increased their prices to us as contracts have
allowed.
In first quarter 2008, downtime was taken
at the DeRidder, Louisiana, pulp and paper mill to conduct long-term
maintenance and to install a shoe press on our linerboard machine. The total
project was completed in 31 days, and the DeRidder mill lost approximately 19
days of linerboard production and 12 days of newsprint production during the
outage. The shoe press will add approximately 50,000 tons of linerboard
capacity annually, reduce fuel consumption, and increase our product
capabilities. The outage had an approximately $20.5 million negative impact on
the DeRidder mills operating income in the first quarter. This includes $9.1
million in estimated lost contribution from lower production with the balance
due primarily to higher costs of maintenance and energy during the outage and startup.
Under purchase accounting
rules, in connection with the Acquisition we revalued our finished goods
inventory to estimated selling prices less costs of disposal and a reasonable
profit allowance for the selling effort, and we eliminated previously
established profit in inventory reserves. As a result of these purchase
accounting adjustments, our materials, labor, and other operating expenses will
increase approximately $11.5 million, of which $6.5 million was recognized
during the three months ended March 31, 2008, with the balance to be
recognized during the second quarter of 2008.
31
Factors That Affect Operating Results
Our
results of operations and financial performance are influenced by a variety of
factors, including the following:
General
economic conditions, including but not limited to durable and nondurable goods
production, white-collar employment, electronic substitution, and relative
currency values;
Volatility in
raw material costs, energy prices, and currency values;
The commodity
nature of our products and their price movements, which are driven largely by
supply and demand;
Industry
cycles and capacity utilization rates;
The cost and
ability to obtain necessary financing;
Continued
compliance with government regulations;
Legislative or
regulatory environments, requirements, or changes affecting the businesses in
which we are engaged;
Labor and
personnel relations;
Credit or
currency risks affecting our revenue and profitability;
Major equipment
failure;
Severe weather
phenomena such as drought, hurricanes and significant rainfall, tornadoes, and
fire;
Our customer
concentration;
Our ability to
implement our strategies;
Actions
of suppliers, customers, and competitors;
The
ability to secure skilled technical personnel and staffing; and
The
other factors described in Part II-Item 1A. Risk Factors in this Form 10-Q.
Commodity
and Premium and Specialty Products
Many
of the products we manufacture and distribute are commodities widely available
and can be readily produced by our competitors. Because commodity products have
few distinguishing qualities from producer to producer, competition for these
products is primarily based on price, which is determined by supply relative to
demand. Generally, market conditions beyond our control determine the price for
our commodity products, and the price for any one or more of these products may fall
below our cash production costs. Therefore, our profitability with respect to
these products depends on managing our manufacturing efficiency and cost
structure, particularly raw material and energy costs, which also exhibit commodity
characteristics
.
Premium
and specialty grades include our imaging papers and packaging papers, including
label and release and flexible packaging products, and our printing and
converting papers, including commercial printing papers, envelope papers, and
form-related products. Our premium and specialty papers are differentiated from
competing products based on quality and product design, as well as related
customer service. We are generally able to influence price based on the
strength of differentiation and levels of customer service and are generally
able to sell these products at higher margins than our commodity products.
Demand for specialty and premium products is affected by overall levels of economic
activity and, in the case of our packaging papers, is not significantly
impacted by electronic
32
media substitution. In order to reduce our sensitivity to price
cyclicality and electronic media substitution and improve our margins, a
fundamental component of our strategy is to increase production of premium and
specialty papers as a percent of our total Paper segment sales. We believe
these products are less susceptible to commodity pricing dynamics.
In our
Paper segment, sales volumes of our target grades of label and release,
flexible packaging, and premium office grades grew by 6%, compared with first
quarter 2007. Sales volume of premium and specialty papers was approximately
32% of uncoated free sheet tons sold during the three months ended March 31,
2008, compared with 34% for the same period in 2007. The project to convert our
W-3 paper machine in Wallula, Washington to enable it to produce label and
release grades was a key step in providing us with the capacity to increase
production of premium and specialty paper grades. This project came online
during second quarter 2007. During the second half of 2007, we identified
performance issues relating to equipment installed during the machine rebuild.
These issues were resolved in the fourth quarter, enabling us to resume our
production ramp-up.
Demand
The
overall level of demand for the products we make and distribute is affected by,
among other things, manufacturing activity, employment, consumer spending, and
currency exchange rates. Accordingly, we believe that our financial results
depend in large part on general macroeconomic conditions in North America,
as well as on regional economic conditions in the geographic markets in which
we operate. While no single product line drives our overall financial
performance, individual product lines are influenced by conditions in their
respective industries. For example:
Historically,
demand for uncoated free sheet correlated positively with general economic activity. However,
demand for communications paper grades, such as uncoated free sheet printing
and forms paper, which we produce, has decreased as the use of electronic
transmission and document storage alternatives has become more widespread and
more efficient.
Demand
for recycled content papers is linked to an increased public awareness of
environmental and sustainability issues and is less sensitive to general
economic activity. We produce grades that contain from 10% to 100% recycled
content.
A large
share of the demand for corrugated containers, and therefore, containerboard,
is driven by unprocessed and processed food production and manufacturing, specifically
the manufacture of nondurable goods. In addition, inventory stocking or
liquidation of these goods has an impact, as do currency exchange rates that
affect the cost-competitiveness of foreign manufacturers. The weakening U.S.
dollar has made U.S. producers more attractive relative to overseas
competitors.
Demand
for newsprint depends upon prevailing levels of newspaper advertising and
circulation. Demand for newsprint in North America declined approximately 22%
between 2003 and 2007, according to RISI, due in part to the growth of
online media
.
Supply
Industry
supply of paper is affected by the number of operational or idled facilities,
the building of new capacity, and the shutting down of existing capacity.
Capacity also tends to increase gradually over time without significant capital
expenditures, as manufacturers improve production efficiencies. Generally, more
capacity is added or employed when supply is tight and margins are relatively
high, and capacity is idled or eliminated when capacity significantly exceeds
demand and margins are poor.
No new uncoated free sheet or linerboard machines have
been built in North America since 1995. In addition, from 2003 to 2007, North
American uncoated free sheet, containerboard, and newsprint capacities declined
10%, 2%, and 19%, respectively, according to RISI. New capacity additions are
constrained by the high capital investment and long lead times required to
plan, obtain regulatory approvals for, and build a new mill. A favorable
pricing environment may prompt manufacturers to initiate expansion
projects.
33
Industry
supply of paper is also influenced by the level of imports and overseas
production capacity, which has grown in recent years. The weakening of the U.S.
dollar has mitigated the level of imports in recent years.
Operating
Costs
The
major costs of production are wood fiber, energy, chemicals, and labor. The
relative size of these costs varies by segment. Given the significance of raw material
and energy costs to total operating expenses and with limited ability to
control these costs, compared with other operating costs, volatility in these
costs can materially affect operating margins. In addition, the timing and
degree of price cycles of raw materials and energy differ with respect to each
type of raw material and energy used.
Wood
fiber.
The primary raw material is wood fiber,
accounting for the following percentages of materials, labor, and other
operating expenses, including fiber costs, for Boise Inc. and the Predecessor
for each of the periods listed below:
|
|
Boise Inc.
|
|
Predecessor
|
|
Combined
|
|
Predecessor
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Paper
|
|
30
|
%
|
26
|
%
|
27
|
%
|
28
|
%
|
Packaging
|
|
11
|
%
|
17
|
%
|
15
|
%
|
18
|
%
|
The
primary sources of logs and wood fiber are timber and byproducts of timber,
such as wood chips, wood shavings, and sawdust. Substantially all fiber is
acquired from outside sources. We convert logs and wood chips into pulp, which
we use at our paper mills to produce paper. On an aggregate basis, operating at
capacity, we are able to produce volume equal to all of our pulp needs,
purchasing and selling similar amounts on the open market
.
Recent
developments in the Pacific Northwest, if extended, may limit our ability
to produce and profitably sell market pulp. Extended lower pulp sales could
change Boise Inc.s aggregate structural pulp balance from pulp neutral to one
in which we are a net consumer of pulp.
Logs
and wood fiber are commodities, and prices for logs and wood fiber have
historically been cyclical due to changing levels of demand. Log and fiber
supply may be limited by public policy or government regulation as well as
fire, insect infestation, disease, ice storms, windstorms, hurricanes,
flooding, other weather conditions, and other natural and man-made causes.
Residual fiber supply may be limited due to a reduction in primary
manufacturing at sawmills and plywood plants. Declines in log and fiber supply,
driven primarily by changes in public policy and government regulation, have
been severe enough to cause the closure of numerous facilities in some of the
regions in which we operate. Any sustained undersupply and resulting increase
in wood fiber prices could decrease our production volumes and/or increase our
operating costs. Prices for our products might not reflect increases or
decreases in log and wood fiber prices, and as a result, our operating margins
could fluctuate. In Minnesota, wood fiber prices declined
in
the first quarter of 2008, compared with the first quarter of 2007, as oriented
stand board plants in the region curtailed operations, resulting in less demand
pressure. In the Northwest, residual fiber costs increased sharply during the
second half of the first quarter of 2008 and continue to be high by historical
standards. Because residual fiber for our paper mills in the Northwest comes
predominantly from sawmills and plywood plants, curtailments in these mills, as
a result of decreased demand for these products related to the housing
slowdown, will continue to impact the availability of residual fiber for our
Northwest pulp and paper operations. After declining throughout 2007, residual
fiber prices in the Pacific Northwest began to increase during the first
quarter of 2008, as continued and additional curtailments of wood products
facilities put pressure on fiber markets. Relative to historical standards,
fiber costs were high in Louisiana in 2007 due to unusually high and persistent
rainfall, which limited access to many harvest areas and limited supply
availability. Recently, standing timber prices in Louisiana have decreased, as
weather patterns have allowed better access to
34
timberlands. However, delivered cost of fiber is also impacted by
diesel fuel costs. Recent increases in diesel prices have negatively affected
delivered fiber costs.
Other raw
materials and energy purchasing and pricing.
We purchase
other raw materials and energy used to manufacture our products in both the
open market and through long-term contracts. These contracts are generally with
regional suppliers who agree to supply all of our needs for a certain raw material
or energy at one of our facilities. These contracts normally contain minimum
purchase requirements and are for terms of various lengths. They also contain
price adjustment mechanisms that take into account changes in market prices.
Therefore, although our long-term contracts provide us with supplies of raw
materials and energy that are more stable than open-market purchases, in many
cases, they may not alleviate fluctuations in market prices.
Our costs for raw materials are influenced
by increases in energy costs. Specifically, some of our key chemicals,
including pulping and bleaching chemicals consumed in our paper and packaging
mills, are heavily influenced by energy costs. A number of our major suppliers
have increased prices. Relationship between industry supply and demand, rather
than changes in the cost of raw materials, determines our ability to increase
prices. Consequently, we may be unable to pass increases in our operating
costs to our customers in the short term.
Energy.
Energy
prices, particularly for electricity, natural gas, and fuel oil, have been
volatile in recent years and currently exceed historical averages. In addition,
we have limited flexibility to switch between fuel sources in the short term;
accordingly, we have significant exposure to natural gas price changes. In the
first quarter of 2008, natural gas prices increased sharply. In normal
operations, Boise Inc. pulp and paper operations consume approximately 14 million
mmBtu of natural gas annually
.
Energy costs
represent the following percentages of materials, labor, and other operating
expenses, including fiber costs, for Boise Inc. and the Predecessor in each of
the periods listed below:
|
|
Boise Inc.
|
|
Predecessor
|
|
Combined
|
|
Predecessor
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Paper
|
|
17
|
%
|
15
|
%
|
16
|
%
|
17
|
%
|
Packaging
|
|
14
|
%
|
14
|
%
|
14
|
%
|
15
|
%
|
We may enter
into natural gas swaps, options, or a combination of these instruments to hedge
the variable cash flow risk of natural gas purchases. As of March 31,
2008, we had entered into derivative instruments related to approximately 3% of
our forecasted natural gas purchases from July 2008 through October 2008,
and approximately 2% of our forecasted natural gas purchases from November 2008
through March 2009. These derivatives form a three-way collar,
which is a combination of options: a written put, a purchased call, and a
written call. The purchased call establishes a maximum price unless the market
price exceeds the written call, at which point the maximum price would be New
York Mercantile Exchange (NYMEX) price less the difference between the
purchased call and the written call strike price. The written put establishes a
minimum price (the floor) the Company will pay for the volumes under contract.
The following table summarizes our natural gas hedged positions as of March 31,
2008:
35
|
|
Three-Way Cashless Collar
|
|
|
|
July 2008
Through
October 2008
|
|
November 2008
Through
March 2009
|
|
|
|
|
|
|
|
Volume hedged
|
|
1,000 mmBtu/day
|
|
1,000 mmBtu/day
|
|
|
|
|
|
|
|
Strike price of
call sold
|
|
$
|
13.00
|
|
$
|
14.00
|
|
Strike price of
call bought
|
|
10.00
|
|
11.00
|
|
Strike price of
put sold
|
|
6.00
|
|
6.38
|
|
|
|
|
|
|
|
Approximate
percent hedged
|
|
3
|
%
|
2
|
%
|
|
|
|
|
|
|
|
|
Subsequent
to March 31, 2008, and as of April 30, 2008, we have entered into
natural gas price caps related to approximately 21% of our forecasted natural
gas purchases from May 2008 through August 2008. We have elected to account for
these instruments as economic hedges and record the changes in fair value in Materials,
labor, and operating expenses in our Consolidated Statements of Income (Loss).
We may enter into additional derivative instruments to hedge variable cash flow
risk of natural gas purchases.
Chemicals.
Important
chemicals we use in the production of our products include starch, sodium
chlorate, precipitated calcium carbonate, sodium hydroxide, and dyestuffs and
optical brighteners. Purchases of chemicals represent the following percentages
of materials, labor, and other operating expenses, including fiber costs, for
Boise Inc. and the Predecessor for each of the periods listed below:
|
|
Boise Inc.
|
|
Predecessor
|
|
Combined
|
|
Predecessor
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2008
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Paper
|
|
15
|
%
|
13
|
%
|
14
|
%
|
14
|
%
|
Packaging
|
|
5
|
%
|
6
|
%
|
6
|
%
|
4
|
%
|
We experienced higher chemical costs
during first quarter 2008, compared with first quarter 2007, due primarily to
higher chemical prices. Chemical consumption was reduced at DeRidder due to the
outage.
Labor.
Labor
costs tend to increase steadily due to inflation in healthcare and wage costs.
Labor costs are not as volatile as energy and wood fiber costs. As of March 31,
2008, we had approximately 4,600 employees. Approximately 2,750, or 60%, of
these employees work pursuant to collective bargaining agreements. We are
currently in negotiations for our Wallula packaging facility (126 employees
represented by the United Steelworkers). This year, labor contracts will expire
at our converting facility in Jackson, Alabama (106 employees represented by
the United Steelworkers) in June and at our packaging plant in Salem,
Oregon (92 employees represented by the Association of Western Pulp &
Paper Workers) in December. We do not expect material work interruptions or
increases in our costs during the course of the negotiations with our collective
bargaining units. Nevertheless, if our expectations are not accurate, we could
experience a material labor disruption or significantly increased labor costs
at one or more of our facilities, any of which could prevent us from meeting
customer demand or reduce our sales and profitability.
Inflationary
and seasonal influences.
Our major costs of production are labor, wood fiber, energy, and
chemicals. Fiber costs in the Pacific Northwest are relatively high by
historical standards. Energy costs, particularly for electricity, natural gas,
and fuel oil, have been volatile in recent years and currently exceed
historical standards. We have also seen higher chemical costs in the current
year, compared with historical standards. We experience some seasonality, based
primarily on buying patterns associated with particular products. For example,
the demand for our corrugated containers is influenced by agricultural
36
demand in the Pacific Northwest. In
addition, seasonally cold weather increases costs, especially energy
consumption, at all of our manufacturing facilities.
Operating Results
The
following table sets forth operating results in dollars and as a percentage of
sales for the three months ended March 31, 2008, the period of February 1
(inception) through March 31, 2007, and the Predecessor periods of January 1
through February 21, 2008, and the three months ended March 31, 2007
(in millions, except for percent of sales data):
|
|
Boise Inc.
|
|
Predecessor
|
|
|
|
Three Months
Ended
March 31,
2008
|
|
February 1
(Inception)
Through
March 31,
2007
|
|
January 1
Through
February 21,
2008
|
|
Three Months
Ended
March 31,
2007
|
|
Sales
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$
|
226.1
|
|
$
|
|
|
$
|
258.4
|
|
$
|
402.9
|
|
Related parties
|
|
1.9
|
|
|
|
101.5
|
|
175.8
|
|
|
|
228.0
|
|
|
|
359.9
|
|
578.7
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
Materials,
labor, and other operating expenses
|
|
195.4
|
|
|
|
313.9
|
|
488.0
|
|
Fiber costs from
related parties
|
|
18.6
|
|
|
|
7.7
|
|
11.0
|
|
Depreciation,
amortization, and depletion
|
|
12.7
|
|
|
|
0.5
|
|
30.8
|
|
Selling and
distribution expenses
|
|
6.0
|
|
|
|
9.1
|
|
14.3
|
|
General and
administrative expenses
|
|
4.6
|
|
|
|
6.6
|
|
9.4
|
|
Other (income)
expense, net
|
|
|
|
|
|
(1.0
|
)
|
2.4
|
|
|
|
237.3
|
|
|
|
336.8
|
|
555.9
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
$
|
(9.3
|
)
|
$
|
|
|
$
|
23.1
|
|
$
|
22.8
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
Trade
|
|
99.1
|
%
|
|
%
|
71.8
|
%
|
69.6
|
%
|
Related parties
|
|
0.9
|
|
|
|
28.2
|
|
30.4
|
|
|
|
100.0
|
%
|
|
%
|
100.0
|
%
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
Materials,
labor, and other operating expenses
|
|
85.7
|
%
|
|
%
|
87.2
|
%
|
84.3
|
%
|
Fiber costs from
related parties
|
|
8.2
|
|
|
|
2.2
|
|
1.9
|
|
Depreciation,
amortization, and depletion
|
|
5.6
|
|
|
|
0.1
|
|
5.3
|
|
Selling and
distribution expenses
|
|
2.6
|
|
|
|
2.5
|
|
2.5
|
|
General and
administrative expenses
|
|
2.0
|
|
|
|
1.9
|
|
1.7
|
|
Other (income)
expense, net
|
|
|
|
|
|
(0.3
|
)
|
0.4
|
|
|
|
104.1
|
%
|
|
%
|
93.6
|
%
|
96.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
(4.1
|
)%
|
|
%
|
6.4
|
%
|
3.9
|
%
|
37
Sales Volumes and Prices
Set forth below are segment sales volumes and average net
selling prices for our principal products for the three months ended March 31,
2008, the Predecessor period of January 1 through February 21, 2008,
the combined three months ended March 31, 2008, the period of February 1
(inception) through March 31, 2007, the Predecessor three months ended March 31,
2007, and the combined three months ended March 31, 2007:
|
|
Boise Inc.
|
|
Predecessor
|
|
Combined
|
|
Boise Inc.
|
|
Predecessor
|
|
Combined
|
|
|
|
Three
Months
Ended
March 31,
2008
|
|
January 1
Through
February 21,
2008
|
|
Three
Months
Ended
March 31,
2008
|
|
February 1
(Inception)
Through
March 31,
2007
|
|
Three
Months
Ended
March 31,
2007
|
|
Three
Months
Ended
March 31,
2007
|
|
|
|
|
|
|
|
(thousands of short
tons, except corrugated containers and sheets)
|
|
Paper
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncoated free
sheet
|
|
154
|
|
236
|
|
390
|
|
|
|
380
|
|
380
|
|
Containerboard
(medium)
|
|
15
|
|
19
|
|
34
|
|
|
|
32
|
|
32
|
|
Market pulp
|
|
13
|
|
20
|
|
33
|
|
|
|
23
|
|
23
|
|
|
|
182
|
|
275
|
|
457
|
|
|
|
435
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Containerboard
(linerboard)
|
|
12
|
|
36
|
|
48
|
|
|
|
65
|
|
65
|
|
Newsprint
|
|
29
|
|
56
|
|
85
|
|
|
|
107
|
|
107
|
|
Corrugated
containers and sheets (mmsf)
|
|
640
|
|
914
|
|
1,554
|
|
|
|
1,634
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars per short ton,
except corrugated containers and sheets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncoated free
sheet
|
|
$
|
890
|
|
$
|
868
|
|
$
|
877
|
|
$
|
|
|
$
|
846
|
|
$
|
846
|
|
Containerboard
(medium)
|
|
454
|
|
454
|
|
454
|
|
|
|
423
|
|
423
|
|
Market pulp
|
|
568
|
|
535
|
|
548
|
|
|
|
516
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Containerboard
(linerboard)
|
|
$
|
386
|
|
$
|
399
|
|
$
|
396
|
|
$
|
|
|
$
|
375
|
|
$
|
375
|
|
Newsprint
|
|
512
|
|
494
|
|
500
|
|
|
|
524
|
|
524
|
|
Corrugated
containers and sheets ($/mmsf)
|
|
56
|
|
55
|
|
55
|
|
|
|
51
|
|
51
|
|
Sales
and Costs for the Combined Three Months Ended March 31, 2008, Compared
With the Three Months Ended March 31, 2007
The
following presents a discussion of sales and costs for the combined three
months ended March 31, 2008, compared with the same period in 2007. The
combined three months ended March 31, 2008, represent the results of Boise
Inc. for the three months ended March 31, 2008, and the results of the
Predecessor for the period from January 1 through February 21, 2008.
See Background and Executive Overview and Acquisition of Boise Cascades
Paper and Packaging Operations in this Managements Discussion and Analysis
for more information related to the Acquisition.
Management
believes this combined presentation of the Boise Inc. and Predecessor statement
of operations is the most useful comparison between periods. The Acquisition
was accounted for in accordance with SFAS No. 141,
Business
Combinations,
resulting in a new basis of accounting from those
previously reported by the Predecessor. However, sales and most operating cost
items are substantially consistent with those reflected by the Predecessor.
Some inventories were revalued in accordance with purchase accounting rules.
Depreciation changed as a result of adjustments to the fair values of property
and equipment due to our preliminary purchase allocation. These items, along
with changes in interest expense and income taxes, are explained independently
where appropriate.
38
Sales
For
the combined three months ended March 31, 2008, total sales increased
$9.2 million, or 2%, to $587.9 million from $578.7 million during the
three months ended March 31, 2007. The increase was primarily driven by an
8% increase in Paper segment sales resulting from both higher prices and higher
volumes, offset by an 11% decline in Packaging segment sales driven mainly by
reduced sales volumes as a result of completely shutting down the DeRidder mill
for planned maintenance. The shutdown resulted in 19 days of lost linerboard
production and 12 days of lost newsprint production.
Paper.
Sales
increased $30.7 million, or
8%, to $425.7 million for
the combined three months ended March 31, 2008, from $395.0 million
for the three months ended March 31, 2007. This increase was driven by
continued strong demand and favorable market conditions in the first quarter of
2008. Commodity paper sales volumes increased 6%, compared with first quarter
2007. Total premium and specialty volumes declined 4% due to declining sales in
mature printing and converting market segments such as lightweight opaque, card
stock, and certain envelope grades. The sales volume of our target grades of
label and release, flexible packaging, and premium office grades grew 6%,
compared with first quarter 2007. Net sales prices increased across all major
paper grades, including a 4% increase for our commodity products and a 3%
increase on label and release, flexible packaging, and premium office grades.
Packaging.
Sales
decreased $20.6 million, or
11%, to $173.4 million for
the combined three months ended March 31, 2008, from $194.0 million
for the three months ended March 31, 2007. The decrease was largely driven by a 26% reduction in linerboard sales
volume and a 20% reduction in newsprint sales volume due to the DeRidder outage
and 5% lower newsprint pricing, compared with first quarter 2007.
Containerboard demand was stable and pricing favorable as linerboard pricing
improved 6% and corrugated container and sheet pricing improved 8%. Newsprint
pricing, although lower than first quarter 2007 levels, has improved in the
first quarter of 2008, compared with fourth quarter of 2007, in conjunction
with accelerated capacity reductions across the industry.
Costs
and Expenses
Materials, labor, and
other operating expenses, including the cost of fiber from related parties,
increased $36.6 million, or
7%, to $535.6 million for
the combined three months ended March 31, 2008, from $499.0 million
during the three months ended March 31, 2007. The increase was driven
primarily by increased fixed costs, mainly maintenance, associated with the
DeRidder outage and higher fiber, energy, and chemical prices, partially offset
by lower usage due to the outage.
Fiber, energy, and
chemical costs were $127.3 million, $82.8 million, and $62.0 million,
respectively, for the combined three months ended March 31, 2008, and
$127.1 million, $82.8 million, and $53.5 million, respectively, for the
three months ended March 31, 2007. Fiber costs increased $4.3 million in
our Paper segment,
primarily due
to rapidly increasing chip prices in the Pacific Northwest during the second
half of the first quarter as a result of a reduced supply of residual chips,
increased waste paper costs, primarily at our Jackson, Alabama, recycling
plant, and increased prices of wood in our Alabama operating region. In
Packaging, fiber costs decreased $4.1 million due to reduced consumption as a
result of the outage and lower costs to access timber stands. Overall wood
prices were higher, however, driven in part by increased diesel costs to
harvest and transport logs.
Compared with the three
months ended March 31, 2007, energy costs increased $1.1 million in our
Paper segment, driven by higher costs for fuel and electricity, and decreased
$1.1 million in our Packaging segment, driven by reduced usage during the
outage, partially offset by higher natural gas pricing.
Chemical costs increased
$5.3 million in our Paper segment and $3.2 million in our Packaging segment,
driven mainly by substantial price increases for commodity chemical inputs.
Under purchase accounting
rules, in connection with the Acquisition we revalued our finished goods
inventory to estimated selling prices less costs of disposal and a reasonable
profit allowance for the selling effort, and we eliminated previously
established profit in inventory reserves. As a result of these purchase
accounting adjustments, our materials, labor, and other operating expenses will
increase approximately $11.5 million, of which
39
$6.5 million was
recognized during the three months ended March 31, 2008, with the balance
to be recognized during the second quarter of 2008.
Depreciation,
amortization, and depletion for the three months ended March 31, 2008, was
$12.7 million, which includes depreciation, amortization, and depletion
for the period from February 22, 2008, through March 31, 2008. This
amount is based on our preliminary purchase price allocation, which may change
as we complete our final allocation. For the Predecessor period of
January 1 through February 21, 2008,
depreciation, amortization, and depletion was $0.5 million due to the
suspension of depreciation for the assets being held for sale as a result of
the Acquisition. For the Predecessor three months ended March 31, 2007,
depreciation, amortization, and depletion was $30.8 million.
Selling and distribution
expenses increased
$0.8 million, or 5%, to
$15.1 million for the combined three months ended March 31, 2008,
from $14.3 million during the three months ended March 31, 2007. As a
percentage of sales, selling and distribution expenses remained flat.
General and
administrative expenses increased $1.8 million,
or 18%, to $11.2 million for
combined three months ended March 31, 2008, from $9.4 million during
the three months ended March 31, 2007. Relative to the three months ended March 31,
2007, the increase related primarily to higher professional fees and
information technology costs as we implemented a new information technology system
in our Paper segment.
Other (income)
expense, net.
Other (income) expense net, includes
miscellaneous income and expense items. During the three months ended March 31,
2008, we had $28,000 of other income, which represented primarily miscellaneous
income items. The components of Other (income) expense, net include income from
a net gain on sales of assets of $1.0 million for the Predecessor period January 1
through February 21, 2008, and $2.4 million of expense that consists
of a net loss on sales of assets of $1.0 million, project costs of $0.2
million, and other nonoperating expenses of $1.2 million for the three months
ended March 31, 2007.
Income (loss) from
operations.
Overall, we estimate that
our operating results for the three months ended March 31, 2008, were
negatively affected by approximately $20.5 million due to the DeRidder outage
and by $6.5 million from inventory purchase price adjustments.
Other
Interest income.
For the combined
three months ended March 31, 2008, interest income was $2.0 million,
compared with $0.1 million for the three months ended March 31, 2007.
Interest income is primarily attributable to income from interest earned on
trust assets held by Aldabra 2 Acquisition Corp. prior to the Acquisition.
Interest expense.
For the
three months ended March 31, 2008, interest expense was
$11.4 million, of which $9.6 million was for unrelated third-party
debt, $1.0 million was for related-party debt, and $0.8 million was
for amortization of deferred financing fees. Interest expense is attributable
to our new long-term debt and amortization of deferred financing costs incurred
in connection with that debt. At March 31, 2008, our long-term debt,
excluding related-party debt, was $1,019.7 million, and our net debt,
defined as long-term and short-term debt owed to unrelated third parties plus
current portion of long-term debt less cash and cash equivalents, was
$1,005.7 million. Compared with February 22, 2008, net debt decreased
$22.0 million from $1,027.7 million. For additional information, refer to our
discussion of debt under Liquidity and Capital Resources in this Managements
Discussion and Analysis of Financial Condition and Results of Operations. The
debt of Boise Cascade was not allocated to the Predecessor in the financial
statements included in this Form 10-Q.
Income taxes
. For the
three months ended March 31, 2008, we recorded $3.4 million of income
tax benefits related to losses incurred during the quarter. We have not
recognized $4.1 million of tax benefit from the losses resulting from our
first-quarter operations, because the realization of these benefits is not
considered more likely than not. Because of its pass-through tax structure, the
Predecessor recorded tax expense related only to small subsidiaries that are
taxed as corporations.
40
Industry Mergers and Acquisitions
In March 2008,
two of Boise Inc.s major competitors announced their intention to combine
their packaging businesses when International Paper agreed to acquire
Weyerhaeusers containerboard operations. This combination, if it is realized, would
create a larger and potentially much stronger competitor. The impact of this
merger on our operations and results is uncertain at this time.
Liquidity and Capital Resources
We
believe that funds generated from operations and available borrowing capacity
will be adequate to fund debt service requirements, capital expenditures, and
working capital requirements for the next 12 months. Our ability to continue to
fund these items may be affected by general economic, financial,
competitive, legislative, and regulatory factors. We cannot assure that our
business will generate sufficient cash flow from operations or that future
borrowings will be available for use under our revolving credit facility in an
amount sufficient to enable us to pay our indebtedness or to fund our other
liquidity needs.
Unless otherwise
noted, this discussion of liquidity and capital resources refers to the
combined activities of Boise Inc. and the Predecessor for each period
presented.
Operating
Activities
We operate in a cyclical industry, and our
operating cash flows vary accordingly. Our principal operating cash
expenditures are for compensation, fiber, energy, and interest. For the three
months ended March 31, 2008 and 2007, operating activities provided $28.7
million and $27.8 million of cash, respectively.
Relative to 2007, cash provided by
operations was negatively affected by lower combined net income for the three
months ended March 31, 2008. As discussed under Operating Results above,
the lower net income in first quarter 2008 reflects the impact of the DeRidder
outage, as well as higher interest expense and inventory purchase price
adjustments.
Offsetting the decrease in net income was
a favorable change in working capital, compared with the first quarter of 2007.
In the first quarter of 2008, favorable changes in working capital contributed
$6.5 million of cash to operations, while unfavorable changes in working
capital used $30.4 million of cash in the first quarter of 2007. Working
capital is subject to cyclical operating needs, the timing of the collection of
receivables, the payment of payables and expenses, and to a lesser extent,
seasonal fluctuations in our operations.
In first quarter 2008,
changes in working capital primarily reflect an increase in accounts payable
and accrued expenses, the net effect of which was partially offset by an
increase in prepaid corporate expenses. The higher levels of accounts payable
and accrued expenses reflect higher trade accounts payable in the Packaging
segment, due in large part to increased costs associated with the DeRidder
outage. In addition, the Packaging segment had a significant increase in
accounts payable to related parties for fiber purchases, which have
historically been sourced internally. Accounts receivable for the Packaging
segment decreased, which reflects a lower level of sales for March 2008,
compared with December 31, 2007, as March sales were impacted by lost
production during the DeRidder outage. To a lesser extent, also contributing to
the favorable change in working capital was an increase in trade payables for
the Paper segment, which reflected an increase in fiber costs.
In addition to the
increase in prepaid corporate expenses, these favorable changes in working
capital were also partially offset by lower levels of accrued compensation,
which reflect bonus payouts by the Predecessor across all segments in first
quarter 2008. Accounts receivable increased for the Paper segment and the Corporate
and Other segment. Increased receivables in the Paper segment reflect a higher
level of sales for March 2008, compared with December 31, 2007. The
increase in accounts receivable for the Corporate segment reflects
related-party receivables for the trucking business.
41
Investment
Activities
Acquisition
On February 22,
2008, Boise Inc. acquired the Paper, Packaging, and most of the Corporate and
Other segments of Boise Cascade for a total purchase price of $1.7 billion,
which included $1.3 billion of net cash and fees. Boise Inc. obtained $1.1
billion of financing in conjunction with the Acquisition, which is discussed
below in Financing Activities.
Combined investing activities of Boise Inc. and Predecessor
Cash investing activities
used $814.9 million for the
three months ended March 31, 2008, compared with $
29.4 million
during the same period in 2007. For the three months ended March 31, 2008,
investing activities included $1.2 billion in cash spent for the Acquisition,
excluding deferred financing fees, as discussed above.
Combined cash capital
expenditures for property, plant, and equipment for the three months ended March 31,
2008, was $20.4 million. This amount includes $10.2 million spent by
the Predecessor for the period from January 1, 2008, through February 21,
2008, and $10.2 million spent by us from February 22, 2008, through March 31,
2008. Of these amounts, $7.1 million relates to the installation of a shoe
press in our DeRidder, Louisiana mill to reduce the use of energy in producing
linerboard. We estimate
total capital
spending of $23 million for the project. As of March 31, 2008, cumulative
cash spending on this project totaled $19.1 million, with the balance to
be paid in 2008.
For the three months ended March 31,
2007, cash investing activities included $33.0 million of capital expenditures
for the purchase of property, plant, and equipment. Approximately
$17 million of these expenditures relate to the reconfiguration of the
paper machine at our pulp and paper mill in Wallula, Washington, to produce
both pressure sensitive paper and commodity uncoated free sheet.
We
expect capital investments in 2008 to total approximately $110 million to
$120 million, excluding acquisitions. This level of capital expenditures
could increase or decrease as a result of a number of factors, including our
financial results and future economic conditions. Our capital spending in 2008
will be for expansion, business improvement, and quality/efficiency projects,
replacement projects, and ongoing environmental compliance.
Financing
Activities
Cash provided by
financing activities was $811.0 million for the three months ended March 31,
2008, which reflects approximately $1.1 billion of debt financing obtained in
conjunction with the Acquisition, partially offset by $120.2 million paid to
stockholders who exercised their conversion rights, $94.3 million of
deferred financing costs and underwriting fees, and $35.0 million of debt
repayments. Under our $250 million revolving credit facility, there was $196.0
million of availability at March 31, 2008. Prior to the Acquisition,
financing activities have historically consisted primarily of intercompany
loans obtained by the Predecessor
Our expected debt
service obligation, assuming interest rates stay at March 31, 2008 levels,
is estimated to be approximately $71.0 million for 2008 and $98.6 million for
2009, consisting of cash payments for principal, interest, and fees. These
amounts remain subject to change, and such changes may be material. For
example, a 1% increase in interest rates would increase interest expense by
approximately $5.6 million per year (based on debt levels and interest
rates as of March 31, 2008).
42
At March 31,
2008, our short- and long-term debt was as follows:
|
|
Boise Inc.
|
|
|
|
March 31,
2008
|
|
|
|
(millions)
|
|
|
|
|
|
Revolving credit
facility, due 2013
|
|
$
|
45.0
|
|
Tranche A Term
Loan, due 2013
|
|
250.0
|
|
Tranche B Term
Loan, due 2014
|
|
475.0
|
|
Second Lien Term
Loan, due 2015
|
|
260.7
|
|
Current portion
of long-term debt
|
|
(11.0
|
)
|
Long-term debt,
less current portion
|
|
1,019.7
|
|
Current portion
of long-term debt
|
|
11.0
|
|
|
|
1,030.7
|
|
|
|
|
|
15.75%
Related-party note, due 2015
|
|
58.8
|
|
|
|
$
|
1,089.5
|
|
Senior Secured Credit Facilities
Our new senior secured
credit facilities consist of:
A
five-year nonamortizing $250.0 million senior secured revolving credit facility
with interest at either the London Interbank Offered Rate (LIBOR) plus 325
basis points or a calculated base rate plus 325 basis points (the Revolving
Credit Facility and collectively with the Tranche A Term Loan Facility and the
Tranche B Term Loan Facility, the First Lien Facilities);
A
five-year amortizing $250.0 million senior secured Tranche A term loan facility
with interest at LIBOR plus 325 basis points or a calculated base rate plus 325
basis points (the Tranche A Term Loan Facility);
A six-year
amortizing $475.0 million senior secured Tranche B term loan facility with interest
at LIBOR plus 350 basis points (subject to a floor of 4.00%) or a calculated
base rate plus 250 basis points (the Tranche B Term Loan Facility); and
A
seven-year nonamortizing $260.7 million second lien term loan facility with
interest at LIBOR plus 700 basis points (subject to a floor of 5.5%) or a
calculated base rate plus 600 basis points (the Second Lien Facility and
together with the First Lien Facilities, the Credit Facilities).
All
borrowings under the Credit Facilities bear interest at a rate per annum equal
to an applicable margin plus a customary base rate or Eurodollar rate. The base
rate means, for any day, a rate per annum equal to the greater of (i) the Prime
Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect
on such day plus
1
/
2
of 1%. In addition to paying interest, the
Company pays a commitment fee to the lenders under the Revolving Credit
Facility at a rate of 0.50% per annum (which shall be reduced to 0.375% when
the leverage ratio is less than 2.25:1.00) times the daily average undrawn
portion of the Revolving Credit Facility (reduced by the amount of letters of
credit issued and outstanding), which fee will accrue from the Acquisition
closing date and shall be payable quarterly in arrears. At March 31, 2008,
we had $45.0 million of borrowings outstanding under the Revolving Credit
Facility. For the three months ended March 31, 2008, the average interest
rate for our borrowings under our Revolving Credit Facility was 6.3%. The
minimum and maximum borrowings under the Revolving Credit Facility were zero
and $80.0 million for the three months ended March 31, 2008. The
weighted average amount of borrowings outstanding under the Revolving Credit
Facility during the three months ended March 31, 2008, was $73.7 million.
At March 31, 2008, we had availability of $196.0 million, which is
net of outstanding letters of credit of $9.0 million, above the amount we
had borrowed.
The Companys
obligations under its Credit Facilities are guaranteed by each of Boise Paper
Holdings, L.L.C.s (the Borrower) existing and subsequently acquired domestic
(and, to the extent no material adverse tax consequences to BZ Intermediate
Holdings LLC (Holdings) or Borrower would result therefrom and as reasonably
requested by the administrative agent under each Credit Facility, foreign)
subsidiaries and Holdings (collectively, the Guarantors). The First Lien
Facilities are secured by a first-priority security interest in substantially
all of the real, personal, and mixed property of Borrower and the
43
Guarantors, including a first-priority security interest in 100% of the
equity interests of Borrower and each domestic subsidiary of Holdings, 65% of
the equity interests of each of Holdings foreign subsidiaries (other than
Boise Hong Kong Limited so long as Boise Hong Kong Limited does not account for
more than $2,500,000 of consolidated EBITDA during any fiscal year of
Borrower), and all intercompany debt. The Second Lien Facility is secured by a
second-priority security interest in substantially all of the real, personal,
and mixed property of Borrower and the Guarantors, including a second-priority
security interest in 100% of the equity interests of Borrower and each domestic
subsidiary of Holdings, 65% of the equity interests of each of Holdings
foreign subsidiaries (other than Boise Hong Kong Limited so long as Boise Hong
Kong Limited does not account for more than $2,500,000 of consolidated EBITDA
during any fiscal year of Borrower), and all intercompany debt.
In the
event all or any portion of the Tranche B Term Loan Facility is repaid pursuant
to any voluntary prepayments or mandatory prepayments with respect to asset
sale proceeds or proceeds received from the issuance of debt prior to the
second anniversary of the Acquisition closing date, such repayments will be
made at (a) 102.0% of the amount repaid if such repayment occurs prior to
the first anniversary of the Acquisition closing date and (b) 101.0% of
the amount repaid if such repayment occurs on or after the first anniversary of
the Acquisition closing date and prior to the second anniversary of the
Acquisition closing date.
Subject to
the provisions of the intercreditor agreement between the First Lien Facility
and the Second Lien Facility, in the event the Second Lien Facility is prepaid
as a result of a voluntary or mandatory prepayment (other than as a result of a
mandatory prepayment with respect to insurance/condemnation proceeds or excess
cash flow) at any time prior to the third anniversary of the Acquisition
closing date, Borrower shall pay a prepayment premium equal to the make-whole
premium as described below.
At any time
after the third anniversary of the Acquisition closing date and prior to the
sixth anniversary of the Acquisition closing date, subject to the provisions of
the First Lien Facilities, the Second Lien Facility may be prepaid in
whole or in part subject to the call premium as described below,
provided that loans bearing interest with reference to the reserve-adjusted
Eurodollar rate will be prepayable only on the last day of the related interest
period unless Borrower pays any related breakage costs.
The make-whole
premium means, with respect to a Second Lien Facility loan on any date of
prepayment, the present value of (a) all required interest payments due on
such Second Lien Facility loan from the date of prepayment through and
including the make-whole termination date, excluding accrued interest (assuming
that the interest rate applicable to all such interest is the swap rate at the
close of business on the third business day prior to the date of such
prepayment with the termination date nearest to the make-whole termination date
plus 7.00%), plus (b) the prepayment premium that would be due if such
prepayment were made on the day after the make-whole termination date, in each
case discounted to the date of prepayment on a quarterly basis (assuming a
360-day year and actual days elapsed) at a rate equal to the sum of such swap
rate plus 0.50%.
The call
premium means that in the event all or any portion of the Second Lien Facility
is repaid as a result of a voluntary prepayment or mandatory prepayment with
respect to asset sale proceeds or proceeds received from the issuance of debt
after the third anniversary of the Acquisition closing date and prior to the
sixth anniversary of the Acquisition closing date, such repayments will be made
at (i) 105.0% of the amount repaid if such repayment occurs on or after
the third anniversary of the Acquisition closing date and prior to the fourth
anniversary of the Acquisition closing date, (ii) 103.0% of the amount
repaid if such repayment occurs on or after the fourth anniversary of the
Acquisition closing date and prior to the fifth anniversary of the Acquisition
closing date, and (iii) 101.0% of the amount repaid if such repayment
occurs on or after the fifth anniversary of the Acquisition closing date and
prior to the sixth anniversary of the Acquisition closing date.
Subject to
specified exceptions, the Credit Facilities require that the proceeds from
certain asset sales, casualty insurance, certain debt issuances, and 75%
(subject to step-downs based on certain leverage ratios) of the excess cash
flow for each fiscal year must be used to pay down outstanding borrowings.
Required
debt principal repayments, excluding those from excess cash flows, total
$8.3 million for the balance of 2008; $15.7 million in 2009;
$26.6 million in 2010; $48.5 million in 2011; $134.4 million in
2012; and $797.2 million thereafter.
44
The loan
documentation for the Credit Facilities contains, among other terms,
representations and warranties, covenants, events of default and
indemnification customary for loan agreements for similar leveraged acquisition
financings, and other representations and warranties, covenants, and events of
default deemed by the administrative agent of the First Lien Facilities or the
Second Lien Facility, as applicable, to be appropriate for the specific transaction.
The First Lien Facilities require Holdings and its subsidiaries to maintain a
minimum interest coverage ratio and a maximum leverage ratio, the Second Lien
Facility requires Holdings and its subsidiaries to maintain a maximum leverage
ratio, and the Credit Facilities limit the ability of Holdings and its
subsidiaries to make capital expenditures.
In
connection with the Acquisition, Boise Inc. entered into a note (the
Related-Party Note) with Boise Cascade as partial consideration. Subsequently,
Boise Cascade transferred the note payable to its parent company, Boise Cascade
Holdings, L.L.C. With the exception of the subsidiaries party to the Credit and
Guaranty Agreement, dated as of February 22, 2008, by and among Boise
Paper Holdings, L.L.C., BZ Intermediate Holding Sub LLC, the other subsidiaries
of the Company party thereto, the lenders and agents party thereto, Goldman
Sachs Credit Partners L.P., as joint lead arranger, administrative agent, and
collateral agent, and Lehman Brothers Inc., as joint lead arranger, each of the
Companys current and future domestic subsidiaries are joint and several
obligors under this Related-Party Note. On February 22, 2008, certain
subsidiaries of the Company entered into a Subordinated Guaranty Agreement, guaranteeing
the obligations of the Company to Boise Cascade under the Related-Party Note.
The
Related-Party Note bears interest at 15.75% per annum (computed on the basis of
a 360-day year), payable quarterly (each such quarterly payment date, an
Interest Payment Date). Interest will accrue on the Related-Party Note and be
added to the principal amount of the Related-Party Note on each Interest
Payment Date. The Related-Party Note matures on August 21, 2015, provided
that if such date is more than 181 days after the scheduled maturity date of
the indebtedness under the Credit Facilities, then the maturity date shall
automatically be deemed to be 181 days after the latest maturity date of any
such indebtedness. At maturity, the amount of the Related-Party Note will be
approximately $180.2 million.
The
Company may prepay the Related-Party Note at any time in whole or in part,
without premium or penalty, subject to any restrictions contained in the
Companys senior credit facilities. The Company must prepay the Related-Party
Note upon the occurrence of the following events: (i) a Change of Control
(as defined in the Credit Facilities); (ii) a sale or transfer of 50% or
more of the Companys assets; and (iii) Events of Default (as provided in
the Related-Party Note). The Company must use the proceeds from the sale of
equity or debt securities or borrowings to repay the Related-Party Note,
subject to any restrictions contained in the Companys senior credit
facilities. Any postclosing adjustments to the purchase price in connection
with the Acquisition resulting in a payment owed to the Company will be
effected by means of a reduction in the principal amount of the Related-Party
Note.
The
Predecessor had no short- or long-term debt outstanding at December 31,
2007.
Other
At March 31, 2008, we had $81.1 million
of costs recorded in Deferred financing costs on our Consolidated Balance
Sheet related to the Acquisition. The amortization of these costs is recorded
in interest expense using the effective interest method over the life of the
loans. We recorded $0.8 million of amortization expense for the three
months ended March 31, 2008.
For the three months ended March 31,
2008, cash payments for interest, net of interest capitalized, was
$8.5 million.
In April 2008,
we entered into interest rate derivative instruments to hedge a portion of our
interest rate risk as required under the terms of the First Lien Facilities. We
purchased interest rate caps with a term of 3 years and a cap rate of 5.50% on
a notional amount of $260.0 million to hedge the interest rate on our Second
Lien Facility. We also purchased interest rate caps to hedge part of the
interest rate risk on our Tranche B Term Loan Facility with a cap rate of 5.00%
on a notional amount of $425 million for the period April 21, 2008,
through March 31, 2009; a notional amount of $350 million for the period March 31,
2009, through March 31, 2010; and
45
a notional amount of $300 million for the period March 31, 2010,
through March 31, 2011.
Contractual Obligations
In the table below, we
set forth our enforceable and legally binding obligations as of March 31,
2008. Some of the amounts included in the table are based on managements
estimates and assumptions about these obligations, including their duration,
the possibility of renewal, anticipated actions by third parties, and other
factors. Because these estimates and assumptions are necessarily subjective,
our actual payments may vary from those reflected in the table. Purchase
orders made in the ordinary course of business are excluded from the table
below. Any amounts for which we are liable under purchase orders are reflected
on the Consolidated Balance Sheets as accounts payable and accrued liabilities.
|
|
Payments Due by Period
|
|
|
|
Remainder
of 2008
|
|
2009-2010
|
|
2011-2012
|
|
Thereafter
|
|
Total
|
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt,
including current portion (a)
|
|
$
|
8.3
|
|
$
|
42.3
|
|
$
|
182.9
|
|
$
|
797.2
|
|
$
|
1,030.7
|
|
Interest (b)
|
|
62.7
|
|
164.5
|
|
154.9
|
|
112.9
|
|
495.0
|
|
Note payable to
related-party (c)
|
|
|
|
|
|
|
|
180.2
|
|
180.2
|
|
Operating leases
(d)
|
|
8.7
|
|
20.4
|
|
14.6
|
|
22.4
|
|
66.1
|
|
Purchase
obligations
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
and finished goods inventory (e)
|
|
73.0
|
|
75.9
|
|
20.5
|
|
19.5
|
|
188.9
|
|
Utilities (f)
|
|
18.0
|
|
11.5
|
|
0.6
|
|
0.4
|
|
30.5
|
|
Capital spending
|
|
0.4
|
|
|
|
|
|
|
|
0.4
|
|
Other
|
|
8.9
|
|
6.7
|
|
0.1
|
|
|
|
15.7
|
|
Other long-term
liabilities reflected on our Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits (g)
|
|
0.6
|
|
31.0
|
|
27.7
|
|
0.3
|
|
59.6
|
|
Other
|
|
3.0
|
|
6.2
|
|
6.4
|
|
17.8
|
|
33.4
|
|
|
|
$
|
183.6
|
|
$
|
358.5
|
|
$
|
407.7
|
|
$
|
1,150.7
|
|
$
|
2,100.5
|
|
(a)
These borrowings are further explained in Financing
Activities under Liquidity and Capital Resources in this Managements
Discussion and Analysis of Financial Condition and Results of Operations. The
table assumes our long-term debt is held to maturity and includes the current
portion of long-term debt.
(b)
Amounts represent estimated interest payments
as of March 31, 2008, and assume our long-term debt is held to maturity.
(c)
In connection with the Acquisition, Boise Inc.
issued a $41.0 million subordinated 15.75% Related-Party Note Payable that
compounds quarterly and matures in 2015 to Boise Cascade. Subsequently, Boise
Cascade transferred the note to its parent company, Boise Cascade Holdings,
L.L.C. The interest on the Related-Party Note is not paid in cash, but
accumulates and is added to the principal amount outstanding on the
Related-Party Note. The table above assumes that the accumulated interest is
paid in 2015 with the principle balance of the note. Subsequent to the
Acquisition, the Related-Party Note increased by $16.8 million for
estimated working capital adjustments, the amount by which the working capital
of the acquired paper and packaging businesses exceeded $329.0 million.
Final working capital adjustments will be made in the second quarter of 2008,
and are expected to increase the note by approximately $0.5 million.
(d)
We enter into operating leases in the normal
course of business. We lease our distribution centers as well as other property
and equipment under operating leases. Some lease agreements provide us with the
option to renew the lease or purchase the leased property. Our operating lease
obligations would change if we exercised these renewal options and/or we
entered into additional operating lease agreements. For more information, see
Note 7, Leases, of the Notes to Unaudited Quarterly Consolidated Financial
Statements in Part I-Item 1. Consolidated Financial Statements of this Form 10-Q.
(e)
Included among our raw materials purchase
obligations are contracts to purchase approximately $185.6 million of wood
fiber. Under most of these log and fiber supply agreements, we have the right
to cancel or reduce our commitments in the event of a mill curtailment or
shutdown. The prices under most of these agreements are set quarterly or
semiannually based on regional market prices, and the estimate is based on
contract terms or current quarter pricing. Our log and fiber obligations are
subject to change based on, among other things, the effect of governmental laws
and regulations, our manufacturing operations not operating in the normal
course of business, log and fiber availability, and the status of
46
environmental appeals. Except for deposits required
pursuant to wood supply contracts, these obligations are not recorded in our
consolidated financial statements until contract payment terms take effect.
(f)
We enter into utility contracts for the
purchase of electricity and natural gas. We also purchase these services under
utility tariffs. The contractual and tariff arrangements include multiple-year
commitments and minimum annual purchase requirements. Our payment obligations
were based upon prices in effect on December 31, 2007, or upon contract
language, if available. Because we consume the energy in the manufacture of our
products, these obligations represent the face value of the contracts, not
resale value.
(g)
Amounts consist primarily of pension and other
postretirement benefit obligations, including current portion.
Off-Balance-Sheet Activities
At March 31,
2008, and December 31, 2007, we had no material off-balance-sheet
arrangements with unconsolidated entities. The Predecessor had no
off-balance-sheet arrangements with unconsolidated entities at December 31,
2007.
Guarantees
Note 21, Commitments and Guarantees,
and Note 13, Debt, of the Notes to Unaudited Quarterly Consolidated Financial
Statements in Item 1. Consolidated Financial Statements of this Form 10-Q
describe the nature of our guarantees, including the approximate terms of the
guarantees, how the guarantees arose, the events or circumstances that would
require us to perform under the guarantees, and the maximum potential
undiscounted amounts of future payments we could be required to make.
Environmental
For
information on environmental issues, see Boise Inc.s Current Report on Form 8-K
filed with the SEC on February 28, 2008. There have been no material
changes to Boise Inc.s environmental information from that disclosed for the
Predecessor in the Current Report on Form 8-K filed with the SEC on February 28,
2008.
Critical Accounting Estimates
Critical
accounting estimates are those that are most important to the portrayal of our
financial condition and results. These estimates require managements most
difficult, subjective, or complex judgments, often as a result of the need to
estimate matters that are inherently uncertain. We review the development,
selection, and disclosure of our critical accounting estimates with the Audit
Committee of our board of directors. For information about critical accounting
estimates, see Critical Accounting Estimates in Managements Discussion and
Analysis of Financial Condition and Results of Operations in Boise Inc.s
Current Report on Form 8-K filed with the SEC on February 28, 2008. Except
as disclosed below, as of March 31, 2008, there have been no changes in
Boise Inc.s critical accounting estimates from those the Predecessor disclosed
in Boise Inc.s Current Report on Form 8-K filed with the SEC on February 28,
2008.
Acquisitions Purchase Price Allocation
We
account for acquisitions in accordance with the provisions of SFAS No. 141,
Business Combinations
. We assign to all
identifiable assets acquired (including intangible assets), and to all
identifiable liabilities assumed, a portion of the cost of the acquired company
equal to the estimated fair value of such assets and liabilities at the date of
acquisition. We record the excess of the cost of the acquired company over the
sum of the amounts assigned to identifiable assets acquired less liabilities
assumed, if any, as goodwill.
We
have made a preliminary purchase price allocation in connection with our
Acquisition of the Paper, Packaging, and most of the Corporate and Other
segments of Boise Cascade. This purchase price allocation is preliminary and
will remain so until we complete a third-party valuation and have obtained all
the necessary information to make fair value determinations. Once our purchase
price allocation is completed, we may have changes to the amounts recorded
in our preliminary allocation. If necessary, we have up to one year after the
closing date of our Acquisition to finish these fair value determinations and
finalize the purchase price allocation.
47
New and Recently
Adopted Accounting Standards
In March 2008, the Financial
Accounting Standards Board (FASB) issued SFAS No. 161,
Disclosures About Derivative Instruments and Hedging
Activities
. SFAS No. 161 requires enhanced disclosures about
derivative instruments and hedging activities to enable investors to better
understand their effects on financial position, financial performance, and cash
flows. These requirements include the disclosure of the fair values of
derivative instruments and their gains and losses in a tabular format. SFAS No. 161
is effective for fiscal years beginning after November 15, 2008, which
will require us to adopt these provisions in 2009. Early adoption of SFAS No. 161
is permitted. We are currently evaluating the impact SFAS No. 161
will have on our consolidated financial statement disclosures.
In December 2007, the FASB issued
SFAS No. 141(R),
Business Combinations,
and SFAS No. 160,
Accounting
and Reporting of Noncontrolling Interest in Consolidated Financial Statements,
an Amendment of Accounting Research Bulletin (ARB) No. 51.
These new standards will significantly change the accounting for and reporting
of business combination transactions and noncontrolling (minority) interests in
consolidated financial statements. SFAS Nos. 141(R) and 160 are required
to be adopted simultaneously and are effective for the first annual reporting
period beginning on or after December 15, 2008. Thus, we are required to
adopt these standards on January 1, 2009. Earlier adoption is prohibited.
We are currently evaluating the impact of adopting SFAS Nos. 141(R) and
160 on our consolidated financial statements. However, their impact will be
limited to business combinations occurring on or after January 1, 2009.
In September 2006,
the FASB issued SFAS No. 157,
Fair
Value Measurements
. This statement defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. This statement applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having previously concluded
in those accounting pronouncements that fair value is the relevant measurement
attribute. Accordingly, this statement does not require any new fair value
measurements. We adopted this standard January 1, 2008, and the adoption
did not have an impact on our financial position or results of operations. In February 2008,
the FASB issued Staff Position No. 157-2, which provides a one-year
delayed application of SFAS No. 157 for nonfinancial assets and
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). We must
adopt these new requirements no later than our first quarter of fiscal 2009.
ITEM
3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks,
including changes in interest rates, energy prices, and foreign currency
exchange rates. We employ a variety of practices to manage these risks,
including operating and financing activities and, where deemed appropriate, the
use of derivative instruments. Derivative instruments are used only for risk
management purposes and not for speculation or trading. Derivatives are such
that a specific debt instrument, contract, or anticipated purchase determines
the amount, maturity, and other specifics of the hedge. If a derivative
contract is entered into, we either determine that it is an economic hedge or
we designate the derivative as a cash flow or fair value hedge. We formally
document all relationships between hedging instruments and the hedged items, as
well as our risk management objectives and strategies for undertaking various
hedged transactions. For those derivatives designated as cash flow or fair
value hedges, we formally assess, both at the derivatives inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in the hedged items. The ineffective
portion of hedging transactions is recognized in income (loss).
In accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities
, as amended, we record all derivative instruments as
assets or liabilities on our Consolidated Balance Sheets at fair value. The
fair value of these instruments is determined by third parties. Changes in the
fair value of derivatives are recorded in either Net income (loss) or Other
comprehensive income, as appropriate. The gain or loss on derivatives
designated as cash flow hedges is included in Other comprehensive income in
the period in which changes in fair value occur and is reclassified to income
(loss) in the period in which the hedged item affects income (loss), and any
ineffectiveness is recognized currently in our Consolidated Statements of
Income (Loss). The gain or loss on derivatives designated as
48
fair value hedges and the offsetting gain or loss on the hedged item
attributable to the hedged risk are included in income (loss) in the period in
which changes in fair value occur. The gain or loss on derivatives that have
not been designated as hedging instruments is included in income (loss) in the
period in which changes in fair value occur.
Interest Rate Risk
With the exception of the Related-Party
Note, our debt is variable-rate debt. As described in Item 2. Managements
Discussion and Analysis of Financial Conditions and Results of Operation in
this Form 10-Q, in late April 2008, we entered into interest rate
derivative financial instruments to hedge a portion of our exposure to changes
in interest rates.
Energy Risk
We enter into natural gas swaps,
options, or a combination of these instruments to hedge the variable cash flow
risk of natural gas purchases at index prices. As of March 31, 2008, we
had entered into derivative instruments related to approximately 3% of our
forecasted natural gas purchases from July 2008 through October 2008
and approximately 2% of our forecasted natural gas purchases from November 2008
through March 2009. We have elected to account for these instruments as
economic hedges and record the changes in fair value in Materials, labor, and
operating expenses in our Consolidated Statements of Income (Loss). In April 2008,
we entered into derivative instruments to hedge additional exposure related to
natural gas prices.
Foreign Currency Risk
At March 31, 2008, we had no
material foreign currency risk.
Predecessor
During the Predecessor periods presented,
Boise Cascade occasionally used interest rate swaps to hedge variable interest
rate risk. Because debt and interest costs were not allocated to the
Predecessor, the effects of the interest rate swaps were not included in the
Predecessor consolidated financial statements.
ITEM
4T. CONTROLS AND PROCEDURES
Attached as exhibits to this Form 10-Q
are certifications of our chief executive officer and chief financial officer. Rule 13a-14
of the Securities Exchange Act of 1934, as amended, requires that we include
these certifications with this report. This Controls and Procedures section includes
information concerning the disclosure controls and procedures referred to in the
certifications. You should read this section in conjunction with the
certifications.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and
procedures as Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended, defines such term. We have designed these controls and
procedures to reasonably assure that information required to be disclosed in
our reports filed under the Exchange Act, such as this Form 10-Q, is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. We have also
designed our disclosure controls to provide reasonable assurance that such
information is accumulated and communicated to our senior management, including
the chief executive officer (CEO) and chief financial officer (CFO), as
appropriate, to allow them to make timely decisions regarding our required
disclosures.
We evaluate the effectiveness of our
disclosure controls and procedures on at least a quarterly basis. A number of
key components in our internal control system assist us in these evaluations.
Since the Acquisition, we have had a disclosure committee. The committee meets
regularly and receives input from our senior management, general counsel, internal
audit staff, and independent accountants. This committee is charged with
considering and evaluating the materiality of information and reviewing the
companys disclosure obligations on a timely basis. Our internal audit
department also evaluates components of our internal controls on an ongoing
basis. To assist in its evaluations, the internal audit staff identifies,
documents, and tests our disclosure controls and procedures. Our intent is to
maintain
49
disclosure controls and procedures as dynamic processes that
change as our business and working environments change.
Our management, with the participation of
our CEO and CFO, has evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the quarter covered by
the quarterly report on this Form 10-Q. Based on that evaluation, the CEO
and CFO have concluded that, as of such date, our disclosure controls and
procedures were effective in meeting the objectives for which they were
designed and were operating at a reasonable assurance level.
As a result of managements
evaluation of the design and operation of our disclosure controls and
procedures, we have identified a number of changes during the first quarter of
2008 that materially affected, or would be reasonably likely to materially
affect, the companys internal control over financial reporting. All of these
changes related to the Acquisition of the packaging and paper assets of Boise
Cascade. Specifically, as a result of the Acquisition, our existing financial
reporting processes were all expanded and or modified. To accommodate the
Acquisition of our operating assets, we implemented significant disclosure
controls and procedures related to financial reporting, revenue and
receivables, purchasing and payables, property and equipment, treasury,
inventory, payroll, employee benefits, non-recurring transactions, information
technology, and other control functions. The vast majority of these controls
and procedures had been implemented previously by Boise Cascade.
In
addition, and also in conjunction with the Acquisition, we have enhanced our
governance framework through the formation of new board committees
(compensation, governance, and executive committees) and the adoption and
implementation of a new code of ethics, governance guidelines, disclosure
committee and procedures, and standing board resolutions that govern the
authority delegated to management. This governance framework is intended to ensure
that information and communication flows are effective and to monitor
performance, including performance of internal control procedures.
Limitations on the Effectiveness of Controls and
Procedures
In designing and evaluating our disclosure
controls and procedures, we recognized that disclosure controls and procedures,
no matter how well-conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and
procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. We have also designed our disclosure controls and procedures based
in part upon assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions.
50
PART IIOTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
We are a party to routine legal proceedings that arise
in the ordinary course of our business. We are not currently a party to any
legal proceedings or environmental claims that we believe would have a material
adverse effect on our financial position, results of operations, or cash flows.
This quarterly report on Form 10-Q
contains forward-looking statements. Statements that are not historical or
current facts, including statements about our expectations, anticipated
financial results, projected capital expenditures, and future business
prospects, are forward-looking statements. You can identify these statements by
our use of words such as may, will, expect, believe, should, plan, anticipate,
and other similar expressions. You can find examples of these statements
throughout this report, including the Recent Trends and Operational Outlook section
of Managements Discussion and Analysis of Financial Condition and Results of
Operations. We cannot guarantee that our actual results will be consistent
with the forward-looking statements we make in this report. You should review
carefully the risk factors listed below, as well as those factors listed in
other documents we file with the Securities and Exchange Commission (SEC). We
do not assume an obligation to update any forward-looking statements.
Unless otherwise noted, this discussion of
Risk Factors refers to the combined activities of Boise Inc. and the
Predecessor.
The paper industry is cyclical. Fluctuations in the prices
of and the demand for our products could result in smaller profit margins and
lower sales volumes.
Historically, economic and market
shifts, fluctuations in capacity, and changes in foreign currency exchange
rates have created cyclical changes in prices, sales volumes, and margins for
our products. The length and magnitude of industry cycles have varied over time
and by product but generally reflect changes in macroeconomic conditions and
levels of industry capacity. Most of our paper products, including our cut-size
office paper, containerboard, and newsprint, are commodities that are widely
available from other producers. Even our noncommodity products, such as premium
papers, are impacted by commodity prices since the prices of these grades are
often tied to commodity prices. Commodity products have few distinguishing
qualities from producer to producer, and as a result, competition for these
products is based primarily on price, which is determined by supply relative to
demand.
The overall levels of
demand for the commodity products we make and distribute, and consequently our
sales and profitability, reflect fluctuations in levels of end-user demand,
which depend in large part on general macroeconomic conditions in North America
and regional economic conditions in our markets, as well as foreign currency
exchange rates. For example, demand for our paper products fluctuates with
levels of employment, the state of durable and nondurable goods industries, and
prevailing levels of advertising and print circulation. In recent years,
particularly since 2000, demand for some grades of paper has decreased as
electronic transmission and document storage alternatives have become more
prevalent. Newsprint demand in North America has been in decline for decades as
electronic media has increasingly displaced paper as a medium for information
and communication.
Industry supply of
commodity paper products is also subject to fluctuation, as changing industry
conditions can influence producers to idle or permanently close individual
machines or entire mills. In addition, to avoid substantial cash costs in
connection with idling or closing a mill, some producers will choose to
continue to operate at a loss, sometimes even a cash loss, which could prolong
weak pricing environments due to oversupply. Oversupply in these markets can
also result from producers introducing new capacity in response to favorable
short-term pricing trends.
Industry supply of
commodity paper products is also influenced by overseas production capacity,
which has grown in recent years and is expected to continue to grow. While the
weakness of the U.S. dollar has mitigated the levels of imports in recent
years, a strengthening of the U.S. dollar is likely to increase imports of
commodity paper products from overseas, putting downward pressure on prices.
51
Prices for all of our
products are driven by many factors outside our control, and we have little
influence over the timing and extent of price changes, which are often
volatile. Market conditions beyond our control determine the prices for our
commodity products, and as a result, the price for any one or more of these
products may fall below our cash production costs, requiring us to either incur
short-term losses on product sales or cease production at one or more of our
manufacturing facilities. Therefore, our profitability with respect to these
products depends on managing our cost structure, particularly raw materials and
energy prices, which represent the largest components of our operating costs
and can fluctuate based upon factors beyond our control, as described below. If
the prices of our products decline, or if our raw materials or energy costs
increase, or both, then our sales and profitability could be materially and
adversely affected.
We face strong competition in our markets.
The paper and packaging and newsprint industry is highly competitive, and we
face competition from numerous competitors, domestic as well as foreign. Some
of our competitors are large, vertically integrated companies that have greater
financial and other resources, greater manufacturing economies of scale,
greater energy self-sufficiency, and/or lower operating costs, compared with
our company. Because of ongoing consolidation in our industry, many of our
competitors have become larger, and this trend may continue in the future. Some
of our competitors have less indebtedness than we do, and therefore, more of
their cash will be available for business purposes other than debt service. As
a result, we may be unable to compete with other companies in the market during
the various stages of the business cycle and particularly during any downturns.
Our manufacturing businesses may have difficulty obtaining
logs and fiber at favorable prices or at all.
Wood fiber
is our principal raw material, accounting for approximately 27% and 15% of the
aggregate amount of materials, labor, and other operating expenses, including
fiber costs, for our Paper and Packaging segments, respectively, for the three
months ended March 31, 2008. Wood fiber is a commodity, and prices have
historically been cyclical. In addition, availability of wood fiber is often
negatively affected if demand for building products declines, since wood fiber,
including wood chips, sawdust, and shavings, is a byproduct in the manufacture
of building products. Wood fiber for our paper mills in the Northwest comes
predominantly from building products manufacturing plants. Because of the
decline in the housing markets and new construction, a number of building
products manufacturing plants have been curtailed and closed in the Northwest.
These curtailments affect the availability and price of wood fiber in the region
and, in turn, affect the operating and financial performance of our Northwest
paper mills. In many cases, we may be unable to increase product prices in
response to increased wood fiber costs, depending on other factors affecting
the demand or supply of paper. Further, severe or sustained shortages of fiber
could cause us to curtail our own operations, resulting in material and adverse
affects on our sales and profitability.
Future domestic or
foreign legislation and litigation concerning the use of timberlands, the
protection of endangered species, the promotion of forest health, and the
response to, and prevention of, catastrophic wildfires can also affect log and
fiber supply. Availability of harvested logs and fiber may be further limited
by fire, insect infestation, disease, ice storms, windstorms, hurricanes,
flooding, and other natural and man-made causes, thereby reducing supply and
increasing prices. In addition, since a number of our manufacturing facilities
use wood-based biomass as an alternative energy source, an increase in wood
fiber costs or a reduction in availability can increase the price of, or reduce
the total usage of biomass, which could result in higher energy costs.
Further increases in the cost of our purchased energy or
chemicals would lead to higher manufacturing costs, thereby reducing our
margins.
Energy is one of our most significant costs, and
it accounted for approximately 16% and 14% of the aggregate amount of
materials, labor, and other operating expenses, including fiber costs, for our
Paper and Packaging segments, respectively, for the three months ended March 31,
2008. Energy prices, particularly for electricity, natural gas, and fuel oil,
have been volatile in recent years and currently exceed historical averages. These
fluctuations impact our manufacturing costs and contribute to earnings
volatility. We have some flexibility to switch between fuel sources; however,
we have significant exposure to natural gas, fuel oil, and biomass (hog fuel)
price increases. Increased demand for these fuels (which could be driven by
cold weather) or further supply constraints could drive prices higher. The
electricity rates charged to us are impacted by the increase in natural gas
prices, although the degree of impact depends on each utilitys mix of energy
resources and the relevant regulatory situation.
Other raw materials we
use include various chemical compounds, such as precipitated calcium carbonate,
sodium chlorate, sodium hydroxide, and dyes. Purchases of chemicals accounted
for approximately 14% and 6% of the aggregate amount of materials, labor, and
other operating expenses,
52
including fiber costs, for our Paper and Packaging segments,
respectively, for the three months ended March 31, 2008. The costs of
these chemicals have been volatile historically and are influenced by capacity
utilization, energy prices, and other factors beyond our control.
For our products, the
relationship between industry supply and demand, rather than changes in the
cost of raw materials, determines our ability to increase prices. Consequently,
we may be unable to pass increases in our operating costs to our customers in
the short term. Any sustained increase in chemical or energy prices would reduce
our operating margins and potentially require us to limit or cease operations
of one or more of our machines or facilities.
Some of our paper products are vulnerable to long-term
declines in demand due to competing technologies or materials.
Our uncoated free sheet paper and newsprint compete with electronic
transmission, document storage alternatives, and paper grades we do not
produce. As the use of these alternatives grows, demand for paper products may
shift from one grade of paper to another or be eliminated altogether. For
example, demand for newsprint has declined and may continue to decline as
newspapers are replaced with electronic media, and demand for our uncoated free
sheet paper for use in preprinted forms has declined and may continue to decline
as the use of desktop publishing and on-demand printing continues to displace
traditional forms. Demand for our containerboard may decline as corrugated
paper packaging may be replaced with other packaging materials. Any substantial
shift in demand from our products to competing technologies or materials could
result in a material decrease in sales of our products. The increase in imports
also has negatively influenced demand for domestic containerboard, as more
products are manufactured and packaged offshore.
A material disruption at one of our manufacturing facilities
could prevent us from meeting customer demand, reduce our sales, and/or
negatively impact our net income.
Any of our
manufacturing facilities, or any of our machines within an otherwise
operational facility, could cease operations unexpectedly due to a number of
events, including:
·
Maintenance outages;
·
Prolonged power failures;
·
An equipment failure;
·
Disruption in the supply of
raw materials, such as wood fiber, energy, or chemicals;
·
A chemical spill or release;
·
Closure because of
environmental-related concerns;
·
Explosion of a boiler;
·
The effect of a drought or
reduced rainfall on our water supply;
·
Disruptions in the
transportation infrastructure, including roads, bridges, railroad tracks, and
tunnels;
·
Fires, floods, earthquakes,
hurricanes, or other catastrophes;
·
Terrorism or threats of
terrorism;
·
Labor difficulties; or
·
Other operational problems.
Future events may cause
shutdowns, which may result in downtime and/or cause damage to our facilities.
Any such downtime or facility damage could prevent us from meeting customer
demand for our products and/or require us to make unplanned capital
expenditures. If our machines or facilities were to incur significant downtime,
our ability to meet our production capacity targets and satisfy customer
requirements would be impaired, resulting in lower sales and net income.
53
Our operations require substantial capital, and we may not
have adequate capital resources to provide for all of our capital requirements.
Our manufacturing businesses are capital-intensive, and we regularly incur
capital expenditures to expand our operations, maintain our equipment, increase
our operating efficiency, and comply with environmental laws. On a combined
basis, during the three months ended March 31, 2008, our total capital
expenditures, excluding acquisitions, were approximately $20.4 million. We
expect to spend approximately $110 million to $120 million on capital
expenditures for 2008. Our capital expenditures are expected to be between
$110 million and $130 million annually over the next five years,
excluding acquisitions or major capital expenditures.
If we require funds for operating
needs and capital expenditures beyond those generated from operations, we may
not be able to obtain them on favorable terms, or at all. In addition, our debt
service obligations will reduce our available cash flows. If we cannot maintain
or upgrade our equipment as we require or ensure environmental compliance, we
could be required to cease or curtail some of our manufacturing operations or
we may become unable to manufacture products that can compete effectively in
one or more of our markets.
Our operations are affected by our relationship with
OfficeMax Incorporated (OfficeMax).
Pursuant to a 2004
paper supply contract that remained in place after the Acquisition, OfficeMax
is required to purchase its North American requirements for certain grades of
paper from us. We anticipate that OfficeMax will continue to be our largest
customer and that we will continue to depend on OfficeMaxs distribution
network for a substantial portion of our uncoated free sheet sales in the
future. Any significant deterioration in OfficeMaxs financial condition or our
relationship with OfficeMax, or a significant change in OfficeMaxs business
strategy, could result in OfficeMax ceasing to be our customer, or failing to
satisfy its contractual obligations to us, or simply result in lower uncoated
free sheet (cut size) paper sales through OfficeMax, which in turn could reduce
our sales.
We are subject to significant environmental regulation and
environmental compliance expenditures, as well as other potential environmental
liabilities.
We are subject to a wide range of general
and industry-specific environmental laws and regulations, particularly with
respect to air emissions, wastewater discharges, solid and hazardous waste
management, and site remediation. We expect to incur approximately
$1 million of capital expenditures for environmental compliance for 2008.
We expect to continue to incur significant capital and operating expenditures
in order to maintain compliance with applicable environmental laws and regulations.
If we fail to comply with applicable environmental laws and regulations, we may
face civil or criminal fines, penalties, or enforcement actions, including
orders limiting our operations or requiring corrective measures, installation
of pollution control equipment, or other remedial actions.
As an owner and operator
of real estate, we may be liable under environmental laws for cleanup and other
damages, including tort liability, resulting from releases of hazardous
substances on or from our properties. We may have liability under these laws
whether or not we knew of, or were responsible for, the presence of these
substances on our property, and in some cases, our liability may not be limited
to the value of the property.
The purchase and sale
agreement governing the 2004 transaction with OfficeMax (2004 Transaction)
contained customary representations, warranties, covenants, and indemnification
rights in favor of Boise Cascades parent entity (as the purchaser thereunder)
and Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C.,
and Boise Cascade Transportation Holdings Corp.; therefore, after the
Acquisition was consummated, the Paper Group continues to have unlimited
indemnification rights against OfficeMax for certain preclosing liabilities, including
for hazardous substance releases and other environmental violations that
occurred prior to the 2004 Transaction or that arose out of pre-2004 operations
at the businesses, facilities, and other assets purchased by Boise Cascade.
However, OfficeMax may not have sufficient funds to fully satisfy its
indemnification obligations when required. Furthermore, we are not entitled to
indemnification for liabilities incurred due to releases and violations of
environmental laws occurring after the 2004 Transaction.
Enactment of new
environmental laws or regulations or changes in existing laws or regulations
might require significant expenditures. We may be unable to generate funds or
other sources of liquidity and capital to fund unforeseen environmental liabilities
or expenditures. In addition, we may be impacted if laws concerning climate
change are enacted that regulate greenhouse gas (GHG) emissions. Such laws
require buying allowances for mill GHG emissions or cause expenditure of
capital to reduce GHG emissions.
54
Labor disruptions or increased labor costs could adversely
affect our business.
While we believe we have good labor
relations and have established staggered labor contracts for each of our five paper
mills to minimize potential disruptions in the event of a labor dispute, we
could experience a material labor disruption or significantly increased labor
costs at one or more of our facilities, either in the course of negotiations of
a labor agreement or otherwise. Either of these situations could prevent us
from meeting customer demand or increased costs, thereby reducing our sales and
profitability. As of March 31, 2008, we had approximately 4,600 employees. Approximately
2,750, or 60%, of these employees work pursuant to collective bargaining
agreements. We are currently in negotiations at our Wallula, Washington,
packaging facility (126 employees represented by the United Steelworkers). This
year, labor contracts will expire at our Jackson, Alabama, converting facility
(106 employees represented by the United Steelworkers) in June and at our packaging
plant in Salem, Oregon (92 employees represented by the Association of Western
Pulp & Paper Workers) in December. We do not expect material work interruptions
or increases in our costs during the course of the negotiations with our
collective bargaining units. Nevertheless, if our expectations are not
accurate, we could experience a material labor disruption or significantly
increased labor costs at one or more of our facilities, any of which could
prevent us from meeting customer demand or reduce our sales and profitability.
If the Acquisitions benefits do not meet the expectations
of the marketplace, investors, financial analysts, or industry analysts, the
market price of our common stock may decline.
The market
price of our common stock may decline as a result of the Acquisition if we do
not perform as expected or if we do not otherwise achieve the perceived
benefits of the Acquisition as rapidly as, or to the extent anticipated by, the
marketplace, investors, financial analysts, or industry analysts. Accordingly,
investors may experience a loss as a result of a decreasing stock price, and we
may not be able to raise future capital, if necessary, in the equity markets.
Our stock ownership is highly concentrated, and as a result,
Boise Cascade Holdings, L.L.C., will influence our affairs significantly.
Boise
Cascade Holdings, L.L.C., owns approximately 49% of our common stock. As a
result, Boise Cascade Holdings, L.L.C., will have significant representation on
our board of directors and will have the voting power to significantly
influence our policies, business, and affairs and will also have the ability to
influence the outcome of any corporate transaction or other matter, including
mergers, consolidations, and the sale of all or substantially all of our
assets. This concentration may have the effect of delaying, deterring, or
preventing a change of control that otherwise could result in a premium in the
price of our common stock.
Our indebtedness could adversely affect our financial
condition and impair our ability to operate.
We have
approximately $1,090 million of outstanding indebtedness (consisting of
approximately $1,031 million under the new credit facilities and
approximately $59 million under a related-party note). The level of
indebtedness incurred in connection with the Acquisition could have important
consequences for our business, financial condition, and operating results,
including the following:
·
It
may limit our ability to borrow money or sell stock to fund our working
capital, capital expenditures, acquisitions, debt service requirements, and
other financing needs;
·
Our
interest expense would increase if interest rates generally rise, because a
substantial portion of our indebtedness, including all of our indebtedness
under our new credit facilities, bears interest at floating rates;
·
It
may limit our flexibility in planning for, or reacting to, changes in our
business and future business opportunities;
·
We
will be subject to debt covenants that may restrict managements ability to
make certain business decisions;
·
We
may be more highly leveraged than some of our competitors, which may place us
at a competitive disadvantage;
·
It
may make us more vulnerable to a downturn in our business, our industry, or the
economy in general;
55
·
A
substantial portion of our cash flow from operations will be dedicated to the
repayment of indebtedness, including indebtedness we may incur in the future,
and will not be available for other business purposes; and
·
There would be a
material adverse effect on our business and financial condition if we were
unable to service our indebtedness or obtain additional financing as needed.
Our operations may not be able to generate sufficient cash
flows to meet our debt service obligations.
Our ability
to make payments on and to refinance our indebtedness and to fund planned
capital expenditures depends on our ability to generate cash from future
operations. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory, and other factors that are
beyond our control. As a result, it is possible that we may not generate
sufficient cash flow from our operations to enable us to repay our
indebtedness, make interest payments, and to fund other liquidity needs. To the
extent we do not generate sufficient cash flow to meet these requirements, it
would impact our ability to operate as a going concern.
The indebtedness incurred
by us under the new credit facilities bears interest at variable rates, in
which case increases in interest rates would cause our debt service
requirements to increase. In such a case, we might need to refinance or
restructure all or a portion of our indebtedness on or before maturity.
However, we may not be able to refinance any of our indebtedness, including the
new credit facilities, on commercially reasonable terms, or at all. Our
expected debt service obligation, assuming interest rates stay at March 31,
2008, levels, is estimated to be approximately $83.8 million in cash
interest payments and fees per annum, which amount will be reduced each year in
accordance with scheduled debt amortization payments, if made. In addition,
debt service requirements will also include scheduled principal payments totaling
at $8.3 million for 2008 and rising to a maximum of
$447.7 million for 2014.
A default under our indebtedness may have a material adverse
effect on our business and financial condition.
In the
event of a default under our new credit facilities, the lenders generally would
be able to declare all such indebtedness, together with interest, to be due and
payable. In addition, borrowings under the new credit facilities are secured by
first- and second-priority liens, as applicable, on all of our assets and our
subsidiaries assets, and in the event of a default under those facilities, the
lenders generally would be entitled to seize the collateral. Moreover, upon the
occurrence of an event of default, the commitment of the lenders to make any
further loans would be terminated. Accordingly, a default under any debt
instrument, unless cured or waived, would likely have a material adverse effect
on our overall business, the results of our operations, and our financial
condition.
Servicing debt could limit funds available for other
purposes.
We will use cash from operations to pay the
principal and interest on our debt. These payments will limit funds available
for other purposes, including expansion of our operations through acquisitions,
funding future capital expenditures, and the payment of dividends.
Our new credit facilities contain restrictive covenants that
will limit our overall liquidity and corporate activities
.
The new credit facilities impose operating and financial restrictions that will
limit our ability to:
·
Create additional liens on
our assets;
·
Make investments or
acquisitions;
·
Pay dividends;
·
Incur additional
indebtedness or enter into sale/leaseback transactions;
·
Sell assets, including
capital stock of subsidiaries;
·
Enable our subsidiaries to
make distributions;
·
Enter into transactions with
our affiliates;
·
Enter into new lines of
business; and
56
·
Engage in consolidations,
mergers, or sales of substantially all of our assets.
We will need to seek
permission from the lenders in order to engage in certain corporate actions.
The lenders interests may be different from ours, and no assurance can be
given that we will be able to obtain the lenders permission when needed. This
may prevent us from taking actions that are in our stockholders best interest.
The new credit facilities
also require us to achieve specified financial and operating results and
maintain compliance with specified financial ratios. Our ability to comply with
these ratios may be affected by events beyond our control, and these types of
restrictions could:
·
Limit
our ability to plan for, or react to, market conditions or meet capital needs
or otherwise restrict our activities or business plans; and
·
Adversely
affect our ability to finance our operations, strategic acquisitions,
investments, alliances, and other capital needs or to engage in other business
activities that would be in our best interest.
If we fail to maintain effective systems for disclosure and
internal controls over financial reporting, we may be unable to comply with the
requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner.
Section 404
of the Sarbanes-Oxley Act will require us to document and test the
effectiveness of our internal controls over financial reporting in accordance
with an established internal control framework and to report on our conclusion
as to the effectiveness of the internal controls. It will also require an
independent registered public accounting firm to test our internal controls
over financial reporting and report on the effectiveness of such controls for
our fiscal year ending December 31, 2008, and subsequent years. It may
cost us more than we expect to comply with these controls and procedure-related
requirements. If we discover areas of internal controls that need improvement,
we cannot be certain that any remedial measures taken will ensure that we
implement and maintain adequate internal controls over financial processes and
reporting in the future. Any failure to implement requirements for new or
improved controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our reporting
obligations.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
Information regarding the issuance of securities to
Boise Cascade in connection with the Acquisition is set forth in Item 3.02,
Unregistered Sales of Equity Securities in our Report on Form 8-K filed
with the SEC on February 28, 2008, and is incorporated by reference.
In February 2008, in
connection with the Acquisition, holders of 12,347,427 shares of our common
stock issued in Aldabra 2 Acquisition Corp.s initial public offering elected
to exercise conversion rights, reducing the number of shares outstanding to
77,259,947. Each shareholder who
properly exercised conversion rights received $9.7323831 per share. All shares that were converted as part of the
Acquisition were retired. No additional
shares may be converted.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4
|
SUBMISSION OF MATTERS TO A VOTE OF
SECURITYHOLDERS
|
On February 5, 2008, Aldabra 2 Acquisition Corp.
(Aldabra 2) held a special meeting of Stockholders (the Special Meeting) at
10:00 a.m., Eastern Standard Time, at the offices of Kramer Levin Naftalis &
Frankel LLP, 1177 Avenue of the Americas, New York, New York 10036. At the
Special Meeting, the stockholders voted upon and approved the six proposals set
forth below. A total of 41,400,000 shares issued in Aldabra 2s initial public
offering were eligible to vote at the meeting.
57
Proposal
|
|
Votes
For
|
|
Votes Against
or Withheld
|
|
Abstentions
|
|
Not Voted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
|
Adoption of the Purchase and Sale Agreement dated as
of September 7, 2007, by and among Boise Cascade, L.L.C., Boise Paper
Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging &
Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2,
and Aldabra Sub LLC, as amended by Amendment No. 1 to Purchase and Sale
Agreement dated October 18, 2007, by and among such persons, and to
approve the transactions contemplated by the purchase agreement (the
Acquisition Proposal).
|
|
24,264,669
|
|
12,543,778
|
|
1,669,206
|
|
2,922,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
|
Adoption of a certificate of amendment to Aldabra
2s existing amended and restated certificate of incorporation to increase
the number of authorized shares of common stock from 100 million to 250
million (the Closing Charter Amendment Proposal).
|
|
28,225,279
|
|
9,583,012
|
|
669,362
|
|
2,922,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
|
Adoption of an amended and restated charter
immediately following the closing of the Acquisition to, among other things,
change Aldabra 2s name to Boise Inc., delete certain provisions relating
to Aldabra 2 as a blank check company, and create perpetual corporate
existence (the Amended and Restated Charter Proposal).
|
|
28,241,144
|
|
9,566,877
|
|
669,632
|
|
2,922,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
|
Election of the following nine members of the board
of directors to serve on the Boise Inc. board of directors from the
completion of the Acquisition until their successors are duly elected and
qualified:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl A. Albert
|
|
30,577,046
|
|
8,193,784
|
|
|
|
2,629,170
|
|
|
|
Zaid F. Alsikafi
|
|
31,414,428
|
|
7,356,402
|
|
|
|
2,629,170
|
|
|
|
Jonathan W.
Berger
|
|
30,581,746
|
|
8,189,084
|
|
|
|
2,629,170
|
|
|
|
Jack Goldman
|
|
31,418,128
|
|
7,352,702
|
|
|
|
2,629,170
|
|
|
|
Nathan D. Leight
|
|
31,405,131
|
|
7,365,699
|
|
|
|
2,629,170
|
|
|
|
Thomas S.
Souleles
|
|
31,407,028
|
|
7,363,802
|
|
|
|
2,629,170
|
|
58
|
|
W. Thomas
Stephens
|
|
31,404,831
|
|
7,365,999
|
|
|
|
2,629,170
|
|
|
|
Alexander
Toeldte
|
|
31,405,131
|
|
7,365,699
|
|
|
|
2,629,170
|
|
|
|
Jason G. Weiss
|
|
31,409,556
|
|
7,361,274
|
|
|
|
2,629,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
|
Adoption of the 2008 Boise Inc. Incentive and
Performance Plan (the Incentive Plan Proposal).
|
|
28,207,306
|
|
9,600,985
|
|
669,362
|
|
2,922,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
|
Adoption of an adjournment proposal to authorize the
adjournment of the Special Meeting to a later date or dates, if necessary, to
permit further solicitation and vote of proxies in the event there were
insufficient votes at the time of the Special Meeting to adopt the
Acquisition Proposal, the Closing Charter Amendment Proposal, the Amended and
Restated Charter Proposal, and/or the Incentive Plan Proposal.
|
|
28,069,020
|
|
9,739,271
|
|
669,362
|
|
2,922,347
|
|
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
Required exhibits are
listed in the Index to Exhibits and are incorporated by reference.
59
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
BOISE
INC.
|
|
|
|
|
|
|
|
|
/s/ Samuel K. Cotterell
|
|
|
Samuel K. Cotterell
|
|
|
Vice President and
Controller
|
|
|
(As Duly Authorized
Officer and Chief
|
|
|
Accounting Officer)
|
Date: May 5, 2008
60
BOISE
INC.
INDEX TO EXHIBITS
Filed With the
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2008
Number
|
|
Description
|
|
|
|
10
|
|
Boise Inc. Directors
Deferred Compensation Plan, Effective April 4, 2008
|
|
|
|
31.1
|
|
CEO Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
CFO Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32
|
|
Section 906
Certifications of Chief Executive Officer and Chief Financial Officer of
Boise Inc.
|
61
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