Edgar Filing: BOISE INC.

BZ 03.31.2012 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2012



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

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)



Commission File Number	Exact Name of Registrant as Specified in Its Charter	State or Other Jurisdiction of Incorporation or Organization	I.R.S. Employer Identification No.
001-33541	Boise Inc.	Delaware	20-8356960
333-166926-04	BZ Intermediate Holdings LLC	Delaware	27-1197223

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.



Boise Inc.	Yes x	No ¨
BZ Intermediate Holdings LLC	Yes x	No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Boise Inc.	Yes x	No ¨
BZ Intermediate Holdings LLC	Yes x	No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act:



Boise Inc.	Large accelerated filer	x	Accelerated filer	¨
	Non-accelerated filer	¨	Smaller reporting company	¨
	(Do not check if smaller reporting company)

BZ Intermediate Holdings LLC	Large accelerated filer	¨	Accelerated filer	¨
	Non-accelerated filer	x	Smaller reporting company	¨
	(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Boise Inc.	Yes ¨	No x
BZ Intermediate Holdings LLC	Yes ¨	No x

There were 100,489,857 common shares, $0.0001 per share par value, of Boise Inc. outstanding as of April 30, 2012.

This Form 10-Q is a combined quarterly report being filed separately by two registrants: Boise Inc. and BZ Intermediate Holdings LLC. BZ Intermediate Holdings LLC meets the conditions set forth in general instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. Unless the context indicates otherwise, any reference in this report to the "Company," "we," "us," "our," or "Boise" refers to Boise Inc. together with BZ Intermediate Holdings LLC and its consolidated subsidiaries.

Table of Contents



	PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Boise Inc. and Subsidiaries Consolidated Financial Statements	1
	BZ Intermediate Holdings LLC Consolidated Financial Statements	6
	Condensed Notes to Unaudited Quarterly Consolidated Financial Statements	11
	1. Nature of Operations and Basis of Presentation	11
	2. Acquisitions	12
	3. Net Income Per Common Share	12
	4. Income Taxes	12
	5. Segment Information	13
	6. Debt	15
	7. Financial Instruments	16
	8. Retirement and Benefit Plans	18
	9. Stockholders' Equity and Share-Based Compensation	18
	10. Goodwill and Intangible Assets	20
	11. Concentrations of Risk	20
	12. Inventories	21
	13. Property and Equipment	21
	14. Leases	21
	15. Transactions With Related Parties	21
	16. New and Recently Adopted Accounting Standards	22
	17. Commitments, Guarantees, and Legal Proceedings	22
	18. Consolidating Guarantor and Nonguarantor Financial Information	23

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
	Background	34
	Executive Summary	34
	Segment Highlights	37
	Factors That Affect Our Operating Results	38
	Our Operating Results	39
	Industry Activities	42
	Liquidity and Capital Resources	42
	Contractual Obligations	44
	Non-GAAP Measures	44
	Off-Balance-Sheet Activities	45
	Guarantees	45
	Inflationary and Seasonal Influences	45
	Working Capital	46
	Environmental	46
	Critical Accounting Estimates	46
	New and Recently Adopted Accounting Standards	46

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46



	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	48

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosures	48

Item 5.	Other Information	48

Item 6.	Exhibits	49

All reports we file with the Securities and Exchange Commission (SEC) are available free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on 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.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Boise Inc.

Consolidated Statements of Income

(unaudited, dollars and shares in thousands, except per-share data)



	Three Months Ended March 31
	2012			2011
Sales
Trade	$	633,528		$	560,320
Related parties	11,318			8,443
	644,846			568,763

Costs and expenses
Materials, labor, and other operating expenses	502,299			449,070
Fiber costs from related parties	4,946			4,440
Depreciation, amortization, and depletion	37,556			33,974
Selling and distribution expenses	30,642			19,373
General and administrative expenses	20,008			12,697
Other (income) expense, net	(300		)	1,077
	595,151			520,631

Income from operations	49,695			48,132

Foreign exchange gain	157			132
Interest expense	(15,365		)	(16,367		)
Interest income	44			78
	(15,164		)	(16,157		)

Income before income taxes	34,531			31,975
Income tax provision	(13,193		)	(13,281		)
Net income	$	21,338		$	18,694

Weighted average common shares outstanding:
Basic	99,052			80,964
Diluted	101,414			90,417

Net income per common share:
Basic	$	0.22		$	0.23
Diluted	$	0.21		$	0.21

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Boise Inc.

Consolidated Statements of Comprehensive Income

(unaudited, dollars in thousands)



	Three Months Ended March 31
	2012			2011
Net income	$	21,338		$	18,694
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	855			—
Cash flow hedges:
Change in fair value, net of tax of $1,388 and $0, respectively	(2,215		)	—
Loss included in net income, net of tax of $511 and $0, respectively	817			—
Amortization of actuarial loss and prior service cost for defined benefit pension plans, net of tax of $1,015 and $541, respectively	1,620			855
Other	—			(21		)
	1,077			834

Comprehensive income	$	22,415		$	19,528

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Boise Inc.

Consolidated Balance Sheets

(unaudited, dollars in thousands)



	March 31, 2012		December 31, 2011
ASSETS

Current
Cash and cash equivalents	$	54,649	$	96,996
Receivables
Trade, less allowances of $1,081 and $1,343	243,053		228,838
Other	5,642		7,622
Inventories	319,637		307,305
Deferred income taxes	5,024		20,379
Prepaid and other	12,456		6,944
	640,461		668,084

Property
Property and equipment, net	1,228,644		1,235,269
Fiber farms	21,291		21,193
	1,249,935		1,256,462

Deferred financing costs	30,054		30,956
Goodwill	162,069		161,691
Intangible assets, net	156,423		159,120
Other assets	8,633		9,757
Total assets	$	2,247,575	$	2,286,070

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Boise Inc.

Consolidated Balance Sheets (continued)

(unaudited, dollars and shares in thousands, except per-share data)



	March 31, 2012			December 31, 2011
LIABILITIES AND STOCKHOLDERS' EQUITY

Current
Current portion of long-term debt	$	12,500		$	10,000
Income taxes payable	1,185			590
Accounts payable	197,054			201,994
Accrued liabilities
Compensation and benefits	50,759			64,907
Interest payable	23,278			10,528
Other	27,880			22,540
	312,656			310,559

Debt
Long-term debt, less current portion	785,000			790,000

Other
Deferred income taxes	159,890			161,260
Compensation and benefits	164,685			172,394
Other long-term liabilities	54,746			57,010
	379,321			390,664

Commitments and contingent liabilities

Stockholders' equity
Preferred stock, $0.0001 par value per share: 1,000 shares authorized; none issued	—			—
Common stock, $0.0001 par value per share: 250,000 shares authorized; 100,470 and 100,272 shares issued and outstanding	12			12
Treasury stock, 21,151 shares held	(121,421		)	(121,421		)
Additional paid-in capital	868,176			866,901
Accumulated other comprehensive income (loss)	(120,885		)	(121,962		)
Retained earnings	144,716			171,317
Total stockholders' equity	770,598			794,847

Total liabilities and stockholders' equity	$	2,247,575		$	2,286,070

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Boise Inc.

Consolidated Statements of Cash Flows

(unaudited, dollars in thousands)



	Three Months Ended March 31
	2012			2011
Cash provided by (used for) operations
Net income	$	21,338		$	18,694
Items in net income not using (providing) cash
Depreciation, depletion, and amortization of deferred financing costs and other	38,702			35,539
Share-based compensation expense	1,233			648
Pension expense	2,771			3,051
Deferred income taxes	8,838			11,420
Other	(429		)	1,165
Decrease (increase) in working capital, net of acquisitions
Receivables	(12,313		)	(8,361		)
Inventories	(12,467		)	2,379
Prepaid expenses	(21		)	(578		)
Accounts payable and accrued liabilities	(7,585		)	(5,481		)
Current and deferred income taxes	(684		)	1,634
Pension payments	(9,094		)	(3,251		)
Other	1,190			4,776
Cash provided by operations	31,479			61,635
Cash provided by (used for) investment
Acquisition of businesses and facilities, net of cash acquired	—			(201,120		)
Expenditures for property and equipment	(23,133		)	(24,650		)
Purchases of short-term investments	—			(3,514		)
Maturities of short-term investments	—			14,114
Other	590			310
Cash used for investment	(22,543		)	(214,860		)
Cash provided by (used for) financing
Issuances of long-term debt	—			75,000
Payments of long-term debt	(2,500		)	(26,250		)
Payments of special dividend	(47,483		)	—
Other	(1,300		)	(2,222		)
Cash provided by (used for) financing	(51,283		)	46,528
Decrease in cash and cash equivalents	(42,347		)	(106,697		)
Balance at beginning of the period	96,996			166,833
Balance at end of the period	$	54,649		$	60,136

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

BZ Intermediate Holdings LLC

Consolidated Statements of Income

(unaudited, dollars in thousands)



	Three Months Ended March 31
	2012			2011
Sales
Trade	$	633,528		$	560,320
Related parties	11,318			8,443
	644,846			568,763

Costs and expenses
Materials, labor, and other operating expenses	502,299			449,070
Fiber costs from related parties	4,946			4,440
Depreciation, amortization, and depletion	37,556			33,974
Selling and distribution expenses	30,642			19,373
General and administrative expenses	20,008			12,697
Other (income) expense, net	(300		)	1,077
	595,151			520,631

Income from operations	49,695			48,132

Foreign exchange gain	157			132
Interest expense	(15,365		)	(16,367		)
Interest income	44			78
	(15,164		)	(16,157		)

Income before income taxes	34,531			31,975
Income tax provision	(13,193		)	(13,281		)
Net income	$	21,338		$	18,694

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

BZ Intermediate Holdings LLC

Consolidated Statements of Comprehensive Income

(unaudited, dollars in thousands)



	Three Months Ended March 31
	2012			2011
Net income	$	21,338		$	18,694
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	855			—
Cash flow hedges:
Change in fair value, net of tax of $1,388 and $0, respectively	(2,215		)	—
Loss included in net income, net of tax of $511 and $0, respectively	817			—
Amortization of actuarial loss and prior service cost for defined benefit pension plans, net of tax of $1,015 and $541, respectively	1,620			855
Other	—			(21		)
	1,077			834

Comprehensive income	$	22,415		$	19,528

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

BZ Intermediate Holdings LLC

Consolidated Balance Sheets

(unaudited, dollars in thousands)



	March 31, 2012		December 31, 2011
ASSETS

Current
Cash and cash equivalents	$	54,649	$	96,996
Receivables
Trade, less allowances of $1,081 and $1,343	243,053		228,838
Other	5,642		7,622
Inventories	319,637		307,305
Deferred income taxes	5,024		20,379
Prepaid and other	12,456		6,944
	640,461		668,084

Property
Property and equipment, net	1,228,644		1,235,269
Fiber farms	21,291		21,193
	1,249,935		1,256,462

Deferred financing costs	30,054		30,956
Goodwill	162,069		161,691
Intangible assets, net	156,423		159,120
Other assets	8,633		9,757
Total assets	$	2,247,575	$	2,286,070

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

BZ Intermediate Holdings LLC

Consolidated Balance Sheets (continued)

(unaudited, dollars in thousands)



	March 31, 2012			December 31, 2011
LIABILITIES AND CAPITAL

Current
Current portion of long-term debt	$	12,500		$	10,000
Income taxes payable	1,185			590
Accounts payable	197,054			201,994
Accrued liabilities
Compensation and benefits	50,759			64,907
Interest payable	23,278			10,528
Other	27,880			22,540
	312,656			310,559

Debt
Long-term debt, less current portion	785,000			790,000

Other
Deferred income taxes	151,342			152,712
Compensation and benefits	164,685			172,394
Other long-term liabilities	54,797			57,061
	370,824			382,167

Commitments and contingent liabilities

Capital
Business unit equity	899,980			925,306
Accumulated other comprehensive income (loss)	(120,885		)	(121,962		)
	779,095			803,344

Total liabilities and capital	$	2,247,575		$	2,286,070

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

BZ Intermediate Holdings LLC

Consolidated Statements of Cash Flows

(unaudited, dollars in thousands)



	Three Months Ended March 31
	2012			2011
Cash provided by (used for) operations
Net income	$	21,338		$	18,694
Items in net income not using (providing) cash
Depreciation, depletion, and amortization of deferred financing costs and other	38,702			35,539
Share-based compensation expense	1,233			648
Pension expense	2,771			3,051
Deferred income taxes	8,838			11,420
Other	(429		)	1,165
Decrease (increase) in working capital, net of acquisitions
Receivables	(12,313		)	(8,361		)
Inventories	(12,467		)	2,379
Prepaid expenses	(21		)	(578		)
Accounts payable and accrued liabilities	(7,585		)	(5,481		)
Current and deferred income taxes	(684		)	1,634
Pension payments	(9,094		)	(3,251		)
Other	1,190			4,776
Cash provided by operations	31,479			61,635
Cash provided by (used for) investment
Acquisition of businesses and facilities, net of cash acquired	—			(201,120		)
Expenditures for property and equipment	(23,133		)	(24,650		)
Purchases of short-term investments	—			(3,514		)
Maturities of short-term investments	—			14,114
Other	590			310
Cash used for investment	(22,543		)	(214,860		)
Cash provided by (used for) financing
Issuances of long-term debt	—			75,000
Payments of long-term debt	(2,500		)	(26,250		)
Payments (to) from Boise Inc., net	(48,033		)	(62		)
Other	(750		)	(2,160		)
Cash provided by (used for) financing	(51,283		)	46,528
Decrease in cash and cash equivalents	(42,347		)	(106,697		)
Balance at beginning of the period	96,996			166,833
Balance at end of the period	$	54,649		$	60,136

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Condensed Notes to Unaudited Quarterly Consolidated Financial Statements

1. Nature of Operations and Basis of Presentation

Boise Inc. is a large, diverse manufacturer and seller of packaging and paper products. Our operations began in February 2008. We are headquartered in Boise, Idaho, and we operate largely in the United States but have recently expanded our operations into Europe, Mexico, and Canada. We manufacture and sell corrugated containers and sheets, protective packaging products and papers associated with packaging, including labeling papers and flexible papers used for food wrap, and newsprint. Additionally, we manufacture linerboard and corrugating medium, which are combined to make corrugated board, the base raw material in our corrugated sheets and containers. We are also the third-largest North American manufacturer of communication papers such as office papers, commercial printing papers, envelope papers, and forms.

Our organizational structure is noted below:

Boise Inc.

BZ Intermediate Holdings LLC

Boise Paper Holdings, L.L.C.

Packaging Segment

Paper Segment

Corporate Segment

See Note 5, Segment Information, for additional information about our three reportable segments, Packaging, Paper, and Corporate and Other (support services).

The unaudited quarterly consolidated financial statements included herein are those of the following:


•	Boise Inc. and its wholly owned subsidiaries, including BZ Intermediate Holdings LLC (BZ Intermediate).


•	BZ Intermediate and its wholly owned subsidiaries, parent company to Boise Paper Holdings, L.L.C. (Boise Paper Holdings).

In these unaudited quarterly consolidated financial statements, unless the context indicates otherwise, the terms "the Company," "we," "us," "our," or "Boise" refer to Boise Inc. and its consolidated subsidiaries, including BZ Intermediate. There are no significant differences between the results of operations, financial condition, and cash flows of Boise Inc. and those of BZ Intermediate other than income taxes and common stock activity. Some amounts in prior periods' consolidated financial statements have been reclassified to conform with the current period's presentation, none of which were considered material.

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 quarterly consolidated financial statements should be read in conjunction with our 2011 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and the other reports we file with the Securities and Exchange Commission (SEC).

2. Acquisitions

On March 1, 2011, we acquired Tharco Packaging, Inc., and its subsidiaries (Tharco) for $200 million (Tharco Acquisition), and on December 1, 2011, we acquired Hexacomb Corporation and its affiliated companies and all of the honeycomb packaging-related assets of Pregis Mexico (Hexacomb) for $125 million (Hexacomb Acquisition), subject to post-closing adjustments.

As of March 31, 2012 there have been no changes to the allocations of the purchase price to the assets acquired and liabilities assumed reported in Note 3, Acquisitions, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of our 2011 Form 10-K. The Tharco purchase price allocation is final, while the Hexacomb purchase price allocation is preliminary. When the Hexacomb allocation is finalized, we may have changes to our preliminary allocation.

3. Net Income Per Common Share

Net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Net income per common share is not applicable to BZ Intermediate, because it does not have common shares. For the three months ended March 31, 2012 and 2011, Boise Inc.'s basic and diluted net income per share is calculated as follows (dollars and shares in thousands, except per-share data):



	Three Months Ended March 31
	2012		2011
Net income	$	21,338	$	18,694
Weighted average number of common shares for basic net income per common share (a)	99,052		80,964
Incremental effect of dilutive common stock equivalents:
Restricted stock and restricted stock units	2,043		2,939
Performance units	319		—
Common stock warrants	—		6,504
Stock options (b)	—		10
Weighted average number of common shares for diluted net income per common share	101,414		90,417

Net income per common share:
Basic	$	0.22	$	0.23
Diluted	$	0.21	$	0.21

____________


(a)	The increase in the weighted average number of common shares is primarily related to 38.4 million additional common shares issued related to warrants exercised in June 2011, partially offset by 21.2 million common shares repurchased during the second half of 2011.


(b)	For the three months ended March 31, 2012, 0.8 million stock options were not included in the computation of diluted net income per share, because they were antidilutive.

4. Income Taxes

For the three months ended March 31, 2012 and 2011, we recorded $13.2 million and $13.3 million of income tax expense and had an effective tax rate of 38.2% and 41.5%, respectively. During the three months ended March 31, 2012, the primary reasons for the difference from the federal statutory income tax rate of 35% were the effect of state taxes. During the three months ended March 31, 2011, the primary reason for the difference from the federal statutory income tax rate of 35% was the effect of state income taxes and discrete tax items.

Uncertain Income Tax Positions

We recognize tax liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available or as new uncertainties occur. We recognize interest and penalties related to uncertain tax positions as income tax expense in the Consolidated Statements of Income. Interest expense and penalties relating to uncertain tax positions were nominal for the three months ended March 31, 2012 and 2011.

Other

Due to Internal Revenue Code Section 382, changes in our ownership limit the amount of net operating losses that we may utilize in any one year. To the extent the annual limitation is not used in any year, the unutilized limitation amount will carry over and add to the limitation in the subsequent tax year. However, we believe it is more likely than not that our net operating losses will be fully realized before they expire.

We file federal income tax returns in the U.S., state income tax returns in various state jurisdictions, and foreign income tax returns in various foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. BZ Intermediate is a wholly owned, consolidated entity of Boise Inc., and its tax return is filed under the consolidated tax return of Boise Inc. Open tax years for Boise Inc. are 2011, 2010, 2009, and 2008. Some foreign tax jurisdictions are also open for the tax year 2007.

As of March 31, 2012, we had not recognized U.S. deferred income taxes on our cumulative total of undistributed earnings for non-U.S. subsidiaries. Determining the unrecognized deferred tax liability related to investments in these non-U.S. subsidiaries that are indefinitely reinvested is not practicable. We currently intend to indefinitely reinvest those earnings in operations outside the United States.

During the three months ended March 31, 2012, refunds received, net of cash paid for taxes, were $2.0 million. Cash paid for taxes, net of refunds received, was $0.2 million during the three months ended March 31, 2011.

5. Segment Information

We operate and report our business in three reportable segments: Packaging, Paper, and Corporate and Other (support services). 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. There are no differences in our basis of segmentation or in our basis of measurement of segment profit or loss from those disclosed in Note 6, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" in our 2011 Form 10-K.

An analysis of operations by segment is as follows (dollars in millions):



	Sales										Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion		EBITDA (b)
Three Months Ended March 31, 2012	Trade		Related Parties		Inter- segment			Total			Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion		EBITDA (b)
Packaging	$	260.3	$	11.3	$	0.7		$	272.3		$	22.4		$	15.5	$	37.9
Paper	365.6		—		16.9			382.4			33.9			21.2		55.2
Corporate and Other	7.7		—		10.5			18.2			(6.5		)	0.9		(5.7		)
Intersegment eliminations	—		—		(28.0		)	(28.0		)	—			—		—
	$	633.5	$	11.3	$	—		$	644.8		49.9			$	37.6	$	87.4
Interest expense											(15.4		)
Interest income											—
											$	34.5



	Sales										Income (Loss) Before Income Taxes				Depreciation, Amortization, and Depletion		EBITDA (b)
Three Months Ended March 31, 2011	Trade		Related Parties		Inter- segment			Total			Income (Loss) Before Income Taxes				Depreciation, Amortization, and Depletion		EBITDA (b)
Packaging	$	194.5	$	8.4	$	0.5		$	203.4		$	13.6		(a)	$	11.0	$	24.6		(a)
Paper	358.7		—		16.5			375.2			41.0				22.1		63.0
Corporate and Other	7.2		—		8.9			16.1			(6.3		)		0.9		(5.4		)
Intersegment eliminations	—		—		(25.9		)	(25.9		)	—				—		—
	$	560.3	$	8.4	$	—		$	568.8		48.3				$	34.0	$	82.2
Interest expense											(16.4		)
Interest income											0.1
											$	32.0

____________


(a)	Included $2.2 million of expense in the Packaging segment related to the inventory purchase price adjustments that were recognized in March 2011 as part of our acquisition of Tharco.

(b)

EBITDA represents income before interest (interest expense and interest income), income tax provision, and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision maker 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. 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 management’s 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, income 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 or segment income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest expense, interest income, and associated significant cash requirements; and the exclusion of depreciation, amortization, and depletion, which represent significant and unavoidable operating costs, given 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 to EBITDA for both Boise Inc. and BZ Intermediate (dollars in millions):



	Three Months Ended March 31
	2012		2011
Net income	$	21.3	$	18.7
Interest expense	15.4		16.4
Interest income	—		(0.1		)
Income tax provision	13.2		13.3
Depreciation, amortization, and depletion	37.6		34.0
EBITDA	$	87.4	$	82.2

6. Debt

At March 31, 2012, and December 31, 2011, our long-term debt and the interest rates on that debt were as follows (dollars in thousands):



	March 31, 2012					December 31, 2011
	Amount			Interest Rate		Amount			Interest Rate
Tranche A term loan, due 2016	$	197,500		2.25	%	$	200,000		2.30	%
9% senior notes, due 2017	300,000			9.00		300,000			9.00
8% senior notes, due 2020	300,000			8.00		300,000			8.00
Long-term debt	797,500			6.95		800,000			6.95
Current portion of long-term debt	(12,500		)	2.25		(10,000		)	2.30
Long-term debt, less current portion	$	785,000		7.03	%	$	790,000		7.01	%

As of March 31, 2012, our debt consisted of the following:


•	The Revolving Credit Facility: A five-year nonamortizing $500 million senior secured revolving credit facility with variable annual interest. In addition to paying interest, we pay an annual commitment fee for undrawn amounts at a rate of either 0.35% or 0.50% depending on our total leverage ratio.


•	The Tranche A Term Loan Facility: A five-year amortizing $200 million senior secured loan facility with variable annual interest.


•	The 9% Senior Notes: An eight-year nonamortizing $300 million senior unsecured debt obligation with fixed annual interest of 9%.


•	The 8% Senior Notes: A ten-year nonamortizing $300 million senior unsecured debt obligation with fixed annual interest of 8%.

Interest on our Credit Facilities is determined at our election and is based on an alternate base rate or the London Interbank Offered Rate (LIBOR), which is our current election, plus an applicable spread based on our total leverage ratio. Our total leverage ratio is essentially our total net debt divided by our four trailing quarters of Adjusted Consolidated EBITDA (as defined in the credit agreement). At March 31, 2012, the interest rate on our Credit Facilities is LIBOR plus 200 basis points. Based on our current election of one-month LIBOR, we pay interest on the Credit Facilities monthly and in arrears.

At March 31, 2012, and December 31, 2011, we had no borrowings outstanding under our Revolving Credit Facility. We had availability of $493.8 million, under our Revolving Credit facility at March 31, 2012, which is net of outstanding letters of credit of $6.2 million.

The Credit Facilities and senior note agreements contain certain restrictions relating to dividend payments, capital expenditures, financial ratios, guarantees, and the incurrence of additional indebtedness, which are discussed in Note 7, Debt, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" in our 2011 Form 10-K.

Other

Subject to specified exceptions, the Credit Facilities require that the proceeds from certain asset sales, casualty insurance, and certain debt issuances be used to pay down outstanding borrowings. As of March 31, 2012, required debt principal repayments were as follows (dollars in thousands):



	Remaining
	2012		2013		2014		2015		2016		Thereafter
Required debt principal repayments	$	7,500	$	20,000	$	20,000	$	30,000	$	120,000	$	600,000

At March 31, 2012, and December 31, 2011, we had $30.1 million and $31.0 million, respectively, of costs recorded in "Deferred financing costs" on our Consolidated Balance Sheets. We record the amortization of deferred financing costs in interest expense using the effective interest method over the life of the loans. For the three

months ended March 31, 2012 and 2011, we recorded $1.1 million and $1.5 million, respectively, of amortization expense in "Interest expense" in our Consolidated Statements of Income.

For the three months ended March 31, 2012 and 2011, cash payments for interest were $1.6 million and $2.1 million, respectively.

With the exception of the Credit Facilities, our debt is fixed-rate debt. At March 31, 2012, the book value of our fixed-rate debt was $600.0 million, and the fair value was estimated to be $712.9 million. The difference between the book value and fair value is due to the difference between the period-end market interest rate and the stated rate of our fixed-rate, long-term debt. We estimated the fair value of our fixed-rate debt using quoted market prices (Level 1) inputs from the fair value hierarchy, which is further discussed in Note 7, Financial Instruments.

7. Financial Instruments

Our primary objective in holding derivative financial instruments is to manage cash flow risk. We do not use derivative instruments for speculative purposes.

Energy Risk

We enter into transactions to hedge the variable cash flow risk of natural gas purchases. At March 31, 2012, these derivatives included caps and call spreads, which we account for as economic hedges, and swaps, which are accounted for as cash flow hedges. As of March 31, 2012, we had entered into derivative instruments related to the following approximate percentages of our forecasted natural gas purchases:



	April 2012 Through October 2012		November 2012 Through March 2013		April 2013 Through October 2013		November 2013 Through March 2014		April 2014 Through October 2014		November 2014 Through March 2015		April 2015 Through October 2015
Approximate percent hedged	83	%	67	%	60	%	46	%	42	%	37	%	32	%

Economic Hedges

For derivative instruments that are designated and qualify as economic hedges, the gain or loss on the derivatives is recognized in "Materials, labor, and other operating expenses" in the Consolidated Statements of Income. During the three months ended March 31, 2012 and 2011, we recognized $0.2 million and $0.7 million of expense related to natural gas contracts we account for as economic hedges.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of "Accumulated other comprehensive income (loss)" on our Consolidated Balance Sheets and is recognized in "Materials, labor, and other operating expenses" in our Consolidated Statements of Income in the period in which the hedged transaction affects earnings. Financial instruments designated as cash flow hedges are assessed both at inception and quarterly thereafter to ensure they are effective in offsetting changes in the cash flows of the related underlying exposures. The fair value of the instruments is reclassified out of accumulated other comprehensive income (loss) to earnings if the hedge ceases to be highly effective or if the hedged transaction is no longer probable. At March 31, 2012, and December 31, 2011, we had $5.1 million and $3.7 million of losses, net of tax, recorded in "Accumulated other comprehensive income (loss)" on our Consolidated Balance Sheets related to our natural gas contracts. The effects of our cash flow hedging instruments on our Consolidated Balance Sheets and Consolidated Statements of Income were as follows (dollars in thousands):



	Loss Recognized in Accumulated Other Comprehensive Income					Loss Reclassified From Accumulated Other Comprehensive Income Into Earnings
	Three Months Ended March 31
	2012			2011		2012		2011
Natural gas contracts	$	3,603	(a)	$	—	$	1,328	$	—

____________


(a)	Based on March 31, 2012, pricing, the estimated pretax loss to be recognized in earnings during the next 12 months is $6.4 million.

Fair Value Measurements

The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) establishes a fair value hierarchy, which prioritizes the inputs of valuation techniques used to measure fair value into three levels. The fair value hierarchy gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). Where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value (Level 1). If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly (Level 2). If quoted prices for identical or similar assets are not available or are unobservable, we may use internally developed valuation models, whose inputs include bid prices and third-party valuations utilizing underlying asset assumptions (Level 3). Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements. We monitor credit ratings of counterparties to the agreements, which are large financial institutions, to consider the impact, if any, on the determination of fair value. No significant adjustments were made in any periods presented.

Fair Values of Derivative Instruments

At March 31, 2012, and December 31, 2011, the fair value of our financial instruments was determined based on New York Mercantile Exchange (NYMEX) price quotations under the terms of the contracts, using current market information as of the reporting date. The derivatives were valued by us using third-party valuations based on quoted prices for similar assets and liabilities. Accordingly, all of our fair value measurements use Level 2 inputs.

All of our derivative instruments are recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets. The following table presents the fair value of these instruments at March 31, 2012, and December 31, 2011 (dollars in thousands):



	Level 2: Significant Other Observable Inputs
	March 31, 2012		December 31, 2011
Natural gas contracts
Cash flow hedges	$	8,297	$	6,022
Economic hedges	2,220		2,370
Total	$	10,517	$	8,392

We did not have any derivative instruments in an asset position at March 31, 2012, or December 31, 2011.

8. Retirement and Benefit Plans

The components of net periodic benefit cost are as follows (dollars in thousands):



	Three Months Ended March 31
	2012			2011
Service cost	$	735		$	1,338
Interest cost	6,168			6,409
Expected return on plan assets	(6,776		)	(6,098		)
Amortization of actuarial loss	2,641			1,389
Amortization of prior service costs and other	3			13
Net periodic benefit cost	$	2,771		$	3,051

Our funding practice for our pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that we determine to be appropriate considering the funded status of the plan, tax deductibility, our cash flows from operations, and other factors. During the three months ended March 31, 2012, we contributed $9.1 million to our pension plans. During 2012, we expect to contribute at least the minimum required contributions of approximately $20 million to our plans.

9. Stockholders' Equity and Share-Based Compensation

Special Dividend

On March 21, 2012, we paid a special cash dividend of $0.48 per common share to Boise Inc. shareholders of record at the close of business on March 9, 2012. The dividend payment was $47.5 million.

Share-Based Compensation

Under the Boise Inc. Incentive and Performance Plan (the Plan), the compensation committee of our board of directors has the ability to authorize the grant of restricted stock, restricted stock units, performance awards payable in stock upon the attainment of specified performance goals, stock options, and other stock- and cash-based awards. Awards granted under the Plan vest and expire in accordance with terms established at the time of grant. Shares issued pursuant to awards under the Plan are from our authorized but unissued shares or from treasury shares. Share-based compensation costs in BZ Intermediate's financial statements represent expenses for restricted stock, restricted stock units, stock options, and performance units of Boise Inc., which have been pushed down to BZ Intermediate for accounting purposes.

Restricted Stock and Performance Unit Awards. In first quarter 2012, we granted approximately 264,000 shares of restricted stock and approximately 150,000 restricted stock units (collectively restricted stock), the majority of which are subject to an EBITDA (earnings before interest, taxes, and depreciation, amortization, and depletion) performance-based goal and all of which are subject to time-based vesting restrictions. For members of management, one-third of the awards vest in each of the years 2013, 2014, and 2015, respectively, subject to the provisions of the award agreements. For elected non-employee directors, the awards will vest at the end of 2012.

The fair values of these awards were based on the closing market price of our common stock on the date of grant, and compensation expense is recorded over the awards' vesting periods. These awards are eligible to participate in dividend payments, if any, which we accrue to be paid upon the vesting of those awards.

In March 2012, we also granted members of management approximately 270,000 performance units, subject to adjustment based on the achievement of defined percentages of the two-year average return on net operating assets (RONOA). Because the RONOA component contains a performance condition, we record compensation expense, net of estimated forfeitures, over the requisite service period based on the most probable number of awards expected to vest. If the RONOA performance criteria are met, 50% of the performance units will vest in 2014, and the remaining will vest in 2015. Any shares not vested on or before March 16, 2015, will be forfeited. We based the fair value of these awards on the closing market price of our common stock on the grant date, and we record compensation expense over the awards' vesting periods. These awards are eligible to participate in dividend payments, if any, which we accrue to be paid upon the vesting of those awards.

Stock Option Awards. In March 2012, we granted approximately 494,000 nonqualified stock options to members of management, of which one-third of the option awards vest and become exercisable in each of the years 2013, 2014, and 2015, respectively. The stock options have a contractual term of ten years. These awards are eligible to participate in dividend payments, if any, which we accrue to be paid upon the vesting of those awards.

The weighted average fair value of the stock options granted was $3.98 per share. We recognize compensation expense over the awards' vesting period. We calculated the fair value using a Black-Scholes-Merton option-pricing model based on the market price of our common stock at the grant date and the assumptions specific to the underlying options. We based the expected volatility assumption on our historic stock performance and the volatility of related industry stocks. We did not have sufficient historical data to provide a reasonable basis upon which to estimate expected life; therefore, we used the "simplified method" to determine the expected life assumption for the options. We based the risk-free interest rate upon yields of U.S. Treasury issues with terms similar to the expected life of the options.

The following table presents the assumptions used to calculate the fair value of stock options:



Black-Scholes-Merton assumptions:
Exercise price	$	8.24
Expected volatility	50.10		%
Expected life (years)	6.00
Risk-free interest rate	1.39		%
Expected dividend yield	—

Compensation expense. Most of our share-based compensation expense was recorded in "General and administrative expenses" in our Consolidated Statements of Income. Total recognized share-based compensation expense related to restricted stock, performance units, and stock options, net of estimated forfeitures, for the three months ended March 31, 2012 and 2011, is as follows (dollars in thousands):



	Three Months Ended March 31
	2012		2011
Restricted stock awards and performance units	$	1,075	$	608
Stock options	158		40
Total share-based compensation expense	$	1,233	$	648

The unrecognized compensation expense for all share-based awards at March 31, 2012, is as follows (dollars in thousands):



	Unrecognized Compensation Expense		Remaining Weighted Average Recognition Period (in Years)
Restricted stock awards and performance units	$	7,113	2.0
Stock options	2,540		2.6
Total unrecognized share-based compensation expense	$	9,653	2.1

10. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. All of our goodwill is recorded in our Packaging segment.

Changes in the carrying amount of our goodwill are as follows (dollars in thousands):



	Goodwill
Balance at January 1, 2011	$	—
Goodwill acquired (a)	162,169
Foreign currency translation adjustments	(478		)
Balance at December 31, 2011	161,691
Foreign currency translation adjustments	378
Balance at March 31, 2012	$	162,069

____________


(a)	For further information regarding the Tharco and Hexacomb acquisitions, see Note 2, Acquisitions.

Intangible Assets

Intangible assets represent primarily the values assigned to customer relationships, trademarks and trade names, technology, and noncompete agreements. We had $156.4 million and $159.1 million of intangible assets at March 31, 2012 and December 31, 2011, net of $17.6 million, and $14.3 million of accumulated amortization, respectively. During the three months ended March 31, 2012 and 2011, we recorded intangible asset amortization of $3.3 million and $1.1 million, respectively. Foreign intangible assets are impacted by foreign currency translation.

11. Concentrations of Risk

Business

Sales to OfficeMax Incorporated (OfficeMax) represent a concentration in the volume of business transacted and in revenue generated from those transactions. Sales to OfficeMax were $130.0 million and $126.4 million, respectively, during the three months ended March 31, 2012 and 2011, representing 20% and 22% of total sales for those periods. At March 31, 2012, and December 31, 2011, we had $36.5 million and $35.3 million, respectively, of accounts receivable due from OfficeMax. We expect OfficeMax to continue to represent a concentration of our revenues and transacted business. Any significant change in the willingness of OfficeMax to purchase our products or a significant deterioration in the financial condition of OfficeMax that affects their ability to pay could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Labor

As of March 31, 2012, we had approximately 5,400 employees. Approximately 51% of these employees worked pursuant to collective bargaining agreements. Approximately 8% work pursuant to collective bargaining agreements that will expire within one year.

12. Inventories

The majority of our inventories are valued at the lower of cost or market, where cost is based on the average cost method of inventory valuation. Manufactured inventories include costs for materials, labor, and factory overhead. Other inventories are valued at the lower of either standard cost, which approximates cost based on the actual first-in, first-out usage pattern, or market.

Inventories include the following (dollars in thousands):



	March 31, 2012		December 31, 2011
Finished goods	$	153,455	$	155,588
Work in process	40,076		41,172
Fiber	52,632		38,469
Other raw materials and supplies	73,474		72,076
	$	319,637	$	307,305

13. Property and Equipment

Property and equipment consisted of the following asset classes (dollars in thousands):



	March 31, 2012			December 31, 2011
Land	$	34,566		$	34,735
Buildings and improvements	249,673			248,174
Machinery and equipment	1,385,350			1,375,069
Construction in progress	58,846			44,563
	1,728,435			1,702,541
Less accumulated depreciation	(499,791		)	(467,272		)
	$	1,228,644		$	1,235,269

Depreciation expense for the three months ended March 31, 2012 and 2011, was $32.7 million and $31.2 million, respectively.

14. Leases

We lease our 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 renewal 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 was $7.0 million and $4.6 million for the three months ended March 31, 2012 and 2011, respectively. Sublease rental income was not material in any of the periods presented.

15. Transactions With Related Parties

Related-Party Sales

Louisiana Timber Procurement Company, L.L.C. (LTP) is a variable-interest entity that is 50% owned by Boise Inc. and 50% owned by Boise Cascade Holdings, L.L.C. (Boise Cascade). LTP procures saw timber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of Boise Inc. and Boise Cascade in Louisiana. We are the primary beneficiary of LTP, as we have the power to direct the activities that most significantly affect the economic performance of LTP. Therefore, we consolidate LTP in our financial statements in our Packaging segment. At March 31, 2012, and December 31, 2011, the carrying amounts of LTP's assets and liabilities on our Consolidated Balance Sheets were $3.9 million and $3.3 million, which related primarily to noninventory working capital items. During the three months ended March 31, 2012 and 2011, we recorded $11.3 million and $8.4 million, respectively, of LTP sales to Boise Cascade in "Sales, Related parties" in the Consolidated Statements of Income and approximately the same amount of expenses in "Materials, labor, and other operating

expenses." The sales were at prices designed to approximate market prices.

Related-Party Costs and Expenses

During the three months ended March 31, 2012 and 2011, fiber purchases from related parties were $4.9 million, and $4.4 million, respectively. Most of these purchases related to log and chip purchases by LTP from Boise Cascade's wood products business. Costs associated with these purchases were recorded as "Fiber costs from related parties" in the Consolidated Statements of Income.

16. New and Recently Adopted Accounting Standards

In June 2011, the FASB issued Accounting Standards Update (ASU) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which amends current comprehensive income guidance. This ASU increases the prominence of other comprehensive income in financial statements. Under this ASU, we have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The ASU eliminates the option to present the components of other comprehensive income as part of the statement of equity. In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This ASU indefinitely defers ASU 2011-05's provision to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented (for both interim and annual financial statements). This requirement will be further deliberated by the FASB at a future date. We adopted the provisions of this guidance January 1, 2012. The adoption of this guidance resulted in adding the Consolidated Statements of Comprehensive Income to our Consolidated Financial Statements.

In September 2011, the FASB issued ASU 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU gives entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test. If entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. We adopted the provisions of this guidance January 1, 2012, and it had no effect on our financial position and results of operations.

There were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.

17. Commitments, Guarantees, and Legal Proceedings

Commitments

We have financial commitments for long-term debt and lease payments, and we are a party to a number of long-term log and fiber supply agreements that are discussed in Note 7, Debt, Note 14, Leases, and Note 19, Commitments, Guarantees, and Legal Proceedings, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" in our 2011 Form 10-K. In addition, we have other financial obligations that we enter into in the normal course of our business to purchase goods and services and to make capital improvements to our facilities. At March 31, 2012, there have been no material changes to commitments outside the normal course of business.

Guarantees and Indemnifications

We provide guarantees and assurances to others in the normal course of our business. We also enter into a wide range of indemnification arrangements in the ordinary course of business. These include tort indemnifications, tax indemnifications, financing transactions, indemnifications against third-party claims arising out of arrangements to provide services to us, and indemnifications in merger and acquisition agreements. At March 31, 2012, we are not aware of any material liabilities arising from these indemnifications, and we are unable to estimate the maximum potential liability.

Legal Proceedings

We are a party to routine 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 liquidity, either individually or in the aggregate.

18. Consolidating Guarantor and Nonguarantor Financial Information

Our 9% and 8% senior notes (Senior Notes) were issued by Boise Paper Holdings and co-issuers (Boise Co-Issuer Company and Boise Finance Company). The Senior Notes are jointly and severally guaranteed on a senior unsecured basis by BZ Intermediate and each of its existing and, to the extent they become guarantors under the Credit Facilities, future subsidiaries (other than: (i) Boise Paper Holdings and the co-issuers; (ii) Louisiana Timber Procurement Company, L.L.C.; and (iii) our foreign subsidiaries, including those recently acquired as part of the Hexacomb Acquisition).

The following consolidating financial statements present the results of operations, comprehensive income, financial position, and cash flows of (i) BZ Intermediate Holdings LLC (parent); (ii) co-issuers; (iii) guarantor subsidiaries; (iv) nonguarantor subsidiaries; and (v) eliminations to arrive at the information on a consolidated basis. Other than these consolidated financial statements and footnotes for Boise Inc. and BZ Intermediate, financial statements and other disclosures concerning the guarantors have not been presented because management believes that such information is not material to investors. Furthermore, the cancellation provisions of the guarantor subsidiaries are customary, and they do not include an arrangement that permits a guarantor subsidiary to opt out of the obligation prior to or during the term of the debt. Each guarantor subsidiary is automatically released from its obligations as a guarantor upon the sale of the subsidiary or substantially all of its assets to a third party, the designation of the subsidiary as an unrestricted subsidiary for the purposes of the covenants included in the indentures, the release of the indebtedness under the indentures, or if the issuers exercise their legal defeasance option or discharge their obligations in accordance with the indentures.

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Income

For the Three Months Ended March 31, 2012

(unaudited, dollars in thousands)



	BZ Intermediate Holdings LLC (Parent)		Co-issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Sales
Trade	$	—	$	3,671		$	618,415		$	11,442		$	—		$	633,528
Intercompany	—		—			227			25,741			(25,968		)	—
Related parties	—		—			—			11,318			—			11,318
	—		3,671			618,642			48,501			(25,968		)	644,846

Costs and expenses
Materials, labor, and other operating expenses	—		3,513			479,084			45,670			(25,968		)	502,299
Fiber costs from related parties	—		—			4,946			—			—			4,946
Depreciation, amortization, and depletion	—		663			36,183			710			—			37,556
Selling and distribution expenses	—		—			30,220			422			—			30,642
General and administrative expenses	—		7,286			11,354			1,368			—			20,008
Other (income) expense, net	—		54			(160		)	(194		)	—			(300		)
	—		11,516			561,627			47,976			(25,968		)	595,151

Income (loss) from operations	—		(7,845		)	57,015			525			—			49,695

Foreign exchange gain (loss)	—		189			43			(75		)	—			157
Interest expense	—		(15,358		)	—			(7		)	—			(15,365		)
Interest expense—intercompany	—		(47		)	—			(14		)	61			—
Interest income	—		34			10			—			—			44
Interest income—intercompany	—		14			47			—			(61		)	—
	—		(15,168		)	100			(96		)	—			(15,164		)

Income (loss) before income taxes and equity in net income (loss) of affiliates	—		(23,013		)	57,115			429			—			34,531
Income tax provision	—		(13,141		)	(32		)	(20		)	—			(13,193		)

Income (loss) before equity in net income (loss) of affiliates	—		(36,154		)	57,083			409			—			21,338
Equity in net income of affiliates	21,338		57,492			—			—			(78,830		)	—
Net income	$	21,338	$	21,338		$	57,083		$	409		$	(78,830	)	$	21,338

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Income

For the Three Months Ended March 31, 2011

(unaudited, dollars in thousands)



	BZ Intermediate Holdings LLC (Parent)		Co-issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Sales
Trade	$	—	$	3,581		$	555,457		$	1,282		$	—		$	560,320
Intercompany	—		—			—			22,339			(22,339		)	—
Related parties	—		—			—			8,443			—			8,443
	—		3,581			555,457			32,064			(22,339		)	568,763

Costs and expenses
Materials, labor, and other operating expenses	—		3,408			435,936			32,065			(22,339		)	449,070
Fiber costs from related parties	—		—			4,440			—			—			4,440
Depreciation, amortization, and depletion	—		803			33,171			—			—			33,974
Selling and distribution expenses	—		—			19,270			103			—			19,373
General and administrative expenses	—		5,494			7,203			—			—			12,697
Other (income) expense, net	—		885			302			(110		)	—			1,077
	—		10,590			500,322			32,058			(22,339		)	520,631

Income (loss) from operations	—		(7,009		)	55,135			6			—			48,132

Foreign exchange gain (loss)	—		140			(8		)	—			—			132
Interest expense	—		(16,310		)	(57		)	—			—			(16,367		)
Interest expense—intercompany	—		(44		)	—			(3		)	47			—
Interest income	—		76			2			—			—			78
Interest income—intercompany	—		3			44			—			(47		)	—
	—		(16,135		)	(19		)	(3		)	—			(16,157		)

Income (loss) before income taxes and equity in net income (loss) of affiliates	—		(23,144		)	55,116			3			—			31,975
Income tax provision	—		(13,233		)	(48		)	—			—			(13,281		)

Income (loss) before equ