Edgar Filing: BOISE INC.

BZ 12.31.2012 10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 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

Securities registered pursuant to Section 12(b) of the Act



Title of Each Class		Name of Each Exchange On Which Registered
Common Stock, $0.0001 par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.



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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.



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

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

As of June 29, 2012, which was the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of Boise Inc.'s Common Stock, par value $0.0001 per share, held by non-affiliates was approximately $639,167,395 based upon the closing price of $6.58 per share as quoted on the New York Stock Exchange on that date.

There were 100,620,047 common shares, $0.0001 per share par value, of Boise Inc. outstanding as of January 31, 2013.

This Form 10-K is a combined annual 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 I(1)(a) and (b) of Form 10-K 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.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates portions of the Proxy Statement for Boise Inc.'s 2013 Annual Shareholders' Meeting.

Table of Contents



	PART I

Item 1.	Business	1
	Corporate Structure and Reporting Segments	2
	Packaging	2
	Paper	6
	Corporate and Other	10
	Competition	10
	Environmental Issues	12
	Capital Investment	12
	Seasonality	12
	Working Capital	12
	Acquisitions and Divestitures	13
	Employees	13
	Executive Officers of the Registrant	13

Item 1A.	Risk Factors	15

Item 1B.	Unresolved Staff Comments	19

Item 2.	Properties	20

Item 3.	Legal Proceedings	22

Item 4.	Mine Safety Disclosure	22

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	23

Item 6.	Selected Financial Data	26

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	Background	27
	Executive Summary	28
	Segment Highlights	31
	Factors That Affect Our Operating Results	32
	Our Operating Results	33
	Liquidity and Capital Resources	38
	Commitments, Guarantees, and Legal Proceedings	42
	Off-Balance-Sheet Activities	43
	Inflationary and Seasonal Influences	43
	Disclosures of Financial Market Risks	43
	Environmental	45
	Critical Accounting Estimates	46
	New and Recently Adopted Accounting Standards	51

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	51

Item 8.	Financial Statements and Supplementary Data	52

	Boise Inc. and Subsidiaries Consolidated Financial Statements	52
	BZ Intermediate Holdings LLC Consolidated Financial Statements	58



	Notes to Consolidated Financial Statements	64
	1. Nature of Operations and Basis of Presentation	64
	2. Summary of Significant Accounting Policies	64
	3. St. Helens Charges	70
	4. Acquisitions	70
	5. Net Income Per Common Share	71
	6. Income Taxes	72
	7. Goodwill and Intangible Assets	76
	8. Debt	78
	9. Financial Instruments	80
	10. Retirement and Benefit Plans	81
	11. Share-Based Compensation	88
	12. Stockholders' Equity and Capital	90
	13. Concentrations of Risk	92
	14. Leases	93
	15. Asset Retirement Obligations	93
	16. Transactions With Related Parties	94
	17. Segment Information	95
	18. Commitments, Guarantees, Indemnifications, and Legal Proceedings	98
	19. Quarterly Results of Operations (unaudited)	99
	20. Consolidating Guarantor and Nonguarantor Financial Information	100

	Reports of Independent Registered Public Accounting Firm — KPMG LLP	113

Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	115

Item 9A.	Controls and Procedures	115

	Management's Report on Internal Control Over Financial Reporting	117

Item 9B.	Other Information	118

PART III

Item 10.	Directors, Executive Officers, and Corporate Governance	119

Item 11.	Executive Compensation	119

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	119

Item 13.	Certain Relationships and Related Transactions, and Director Independence	120

Item 14.	Principal Accounting Fees and Services	120

PART IV

Item 15.	Exhibits, Financial Statement Schedules	121

	Signatures	122

	Index to Exhibits	123

PART I

All of our filings with the Securities and Exchange Commission (SEC), which include this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Registration Statements, Current Reports on Form 8-K, and all related amendments 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. Attached as exhibits to this Form 10-K are certifications of our Chief Executive Officer and Chief Financial Officer required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.


ITEM 1.	BUSINESS

Boise Inc. is a large, diverse manufacturer of packaging and paper products, including corrugated containers and sheets, containerboard, protective packaging products, imaging papers for the office and home, printing and converting papers, label and release papers, newsprint and market pulp. We are headquartered in Boise, Idaho, and have approximately 5,300 employees. We operate largely in the United States but also have operations in Europe, Mexico, and Canada.

Below is a map of our locations:



	Corporate Headquarters
	Packaging
	Paper

Our operations began on February 22, 2008, when we acquired the packaging and paper assets of Boise Cascade Holdings, L.L.C. (Boise Cascade) (the Acquisition). In this Form 10-K, we use the term "Predecessor" to reference periods before the Acquisition, including the period when our assets were operated by Boise Cascade.

Corporate Structure and Reporting Segments

The following sets forth our structure at December 31, 2012:

Boise Inc.

BZ Intermediate Holdings LLC

Boise Paper Holdings, L.L.C.

Packaging Segment

Paper Segment

Corporate and Other Segment

We operate and report our business in three reportable segments: Packaging, Paper, and Corporate and Other (support services). We present information about each of our segments in Note 17, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

Packaging

In our Packaging segment, we manufacture and sell linerboard, containerboard, corrugated containers and sheets, protective packaging products, and newsprint.

Packaging Products


•	Linerboard: paperboard, which when combined with corrugating medium is used in the manufacture of corrugated sheets and containers. The term containerboard is used to describe linerboard, corrugating medium, or a combination of the two. When combined, containerboard forms the base material used in the manufacture and production of corrugated sheets and containers.


•	Corrugated sheets: containerboard sheets that are sold primarily to converters that produce a variety of corrugated products.


•	Corrugated containers: corrugated sheets that have been fed through converting machines to create containers, which are used in the packaging of fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. Stock boxes are corrugated containers manufactured to pre-set dimensions.


•	Protective packaging products: these products include multi-material customized packaging solutions, which may utilize kraft paper-based honeycomb corrugated packaging, foamed plastics, and air pocket packing materials.


•	Newsprint: paper commonly used for printing newspapers, other publications, and advertising material.

During the year ended December 31, 2012, our Packaging segment produced approximately 613,000 short tons (a short ton is equal to 2,000 pounds) of linerboard, and our Paper segment produced approximately 135,000 short tons of corrugating medium.

We operate our Packaging segment to maximize profitability through integration of our containerboard and converting operations and through operational improvements in our facilities to lower costs and improve efficiency. In 2012, our converting operations consumed approximately 631,000 short tons of containerboard (including both linerboard and corrugating medium), or the equivalent of 84% of our containerboard production, which we consider vertical integration, an increase from 71% in 2011.

We are a low-volume producer of newsprint. Demand for newsprint in North America has declined dramatically in the last several years. As electronic media continues to displace newsprint, we expect this decline to continue, but at a more moderate rate. Despite this decline, our low-cost newsprint machine has enabled our newsprint operations to be profitable in the southern and southwestern United States.

The following table shows financial results for the Packaging segment for the periods indicated (dollars in millions):



	Boise Inc.										Predecessor
	Year Ended December 31										January 1 Through February 21, 2008
	2012		2011 (a) (b)		2010		2009 (c)		2008 (d)		January 1 Through February 21, 2008
Sales	$	1,130.1	$	949.7	$	671.9	$	588.4	$	703.7	$	113.5

Segment income before interest and taxes	101.6		105.0		65.0		67.1		21.1		5.7
Depreciation, amortization, and depletion	60.9		50.5		38.6		42.2		35.1		0.1
EBITDA (e)	$	162.5	$	155.5	$	103.6	$	109.3	$	56.2	$	5.7

____________


(a)	The table above includes financial results for Tharco and Hexacomb since the acquisitions on March 1 and December 1, 2011, respectively.


(b)	The year ended December 31, 2011, includes $2.2 million of expense due to the write-up of inventories in connection with the Tharco purchase price allocation and $1.6 million of transaction-related costs. Transaction-related costs include expenses associated with transactions, whether consummated or not, and do not include integration costs.


(c)	The year ended December 31, 2009, includes approximately $61.6 million of income from alternative fuel mixture credits and $1.1 million of income related to the effect of energy hedges.

(d)

The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008. Results for the year include $19.8 million of charges for the planned cold outage and shoe press installation at our mill in DeRidder, Louisiana, $5.5 million of expense related to lost production and costs incurred as a result of Hurricanes Gustav and Ike, $2.8 million of expense due to the write-up of inventories in connection with the Acquisition, and $1.3 million of expense related to the effect of energy hedges.

(e)

Segment earnings before interest, taxes, depreciation, and amortization (EBITDA) is calculated as segment income before interest (interest income and interest expense), income tax provision (benefit), 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. See "Part II, Item 6. Selected Financial Data" and "Note 17, Segment Information, of the Notes to Consolidated Financial Statements in Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K for a description of our reasons for using EBITDA, for a discussion of the limitations of such a measure, and for a reconciliation of our EBITDA to net income (loss).

Facilities

We manufacture linerboard and newsprint on two machines at our mill in DeRidder, Louisiana. We also manufacture corrugated containers and sheets and protective packaging products at 26 plants located in North America and Europe.

The following table sets forth capacity and production at our mill in DeRidder, Louisiana, by product for the periods indicated (in thousands of short tons):



	Boise Inc.					Predecessor
	Year Ended December 31					January 1 Through February 21, 2008
	2012	2011	2010	2009	2008	January 1 Through February 21, 2008
Capacity (a)
Linerboard	608	605	610	610	600
Newsprint	235	230	225	225	410
	843	835	835	835	1,010

Production (b)
Linerboard	613	607	602	544	446	83
Newsprint	233	229	229	188	331	59
	846	836	831	732	777	142

____________


(a)	Capacity numbers are shown as of December 31 for the year presented. Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions.


(b)	The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008.

Our corrugated products are generally manufactured to meet specific customer needs, and as a result, production can vary between years. See sales volumes for our corrugated containers and sheets in the "Sales, Marketing, and Distribution" section below.

Raw Materials and Input Costs

Wood fiber, including purchased rollstock consumed in our corrugated operations, is the principal raw material in this segment. The primary sources of wood fiber are timber and its byproducts, such as wood chips. During the year ended December 31, 2012, wood fiber costs accounted for approximately 21% of materials, labor, and other operating expenses (excluding depreciation), in this segment. We generally purchase wood fiber through market-based contracts and on the open market from suppliers located in close proximity to DeRidder, Louisiana.

Our Packaging segment consumes substantial amounts of energy, such as electricity and natural gas. During the year ended December 31, 2012, energy costs accounted for approximately 7% of materials, labor, and other operating expenses (excluding depreciation), in this segment. We purchase substantial portions of our natural gas and electricity under supply contracts. Under most of these contracts, the providers are contractually bound to supply us with all of our needs for a particular type of energy at a specific facility. Our natural gas contracts have pricing mechanisms based primarily on current market prices, and our electricity contracts have pricing mechanisms based primarily on published tariffs. We also use derivative instruments such as caps, call spreads, and swaps, or a combination of these instruments, to mitigate price risk for our energy requirements. For more information about our derivative instruments, see Note 9, Financial Instruments, in the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

We consume chemicals in the manufacture of our Packaging segment products. Important chemicals we use include pulping and bleaching chemicals, such as caustic soda and sulfuric acid, and starch. During the year ended December 31, 2012, chemical costs accounted for approximately 5% of materials, labor, and other operating expenses (excluding depreciation), in this segment. Most of our chemicals are purchased under contracts, which contain price adjustment mechanisms designed to provide greater pricing stability than open-market purchases. These contracts are negotiated periodically at prevailing rates.

Sales, Marketing, and Distribution

The products manufactured in our Packaging segment are sold by our own sales personnel, independent brokers, and distribution partners. The following table sets forth sales volumes of linerboard and newsprint (in thousands of short tons) and corrugated containers and sheets (in millions of square feet) for the periods indicated:



	Boise Inc.					Predecessor
	Year Ended December 31					January 1 Through February 21, 2008
	2012	2011	2010	2009	2008 (c)	January 1 Through February 21, 2008
Linerboard (a)	159	230	225	253	194	36
Newsprint	233	231	231	199	326	56
Corrugated containers and sheets (b)	10,079	8,720	6,735	5,963	5,337	914

____________


(a)	Excludes intercompany sales.


(b)	Includes corrugated container and sheet volumes for Tharco and Hexacomb since the acquisitions on March 1 and December 1, 2011, respectively.


(c)	The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008.

Customers

In our Packaging segment, we manufacture and sell five categories of products: (1) containerboard; (2) corrugated containers; (3) protective packaging; (4) corrugated sheets and (5) newsprint. We have over 5,000 customers in this segment, and no single customer of this segment exceeds 10% of segment sales.

We consume most of the containerboard we produce. In 2012, we used approximately 84% of our containerboard production (both linerboard and corrugating medium) in our converting operations and sold the balance of linerboard in the domestic and international open markets.

In 2012, our plants sold approximately seven billion square feet of corrugated containers (which excludes corrugated sheets and protective packaging products), over 50% of which went into agricultural and food and beverage markets which have been resilient in economic downturns. We serve our packaging customers' needs in these markets from our multiple regional plants, and schedule operating runs to maximize productivity and optimize shipping distances to our customers. Our corrugated converting plants in other regions serve a diverse customer base in various industries, including paper, glass, ceramics, building products, electronics and medical device manufacturers. We also sell stock boxes, which are boxes manufactured to pre-set dimensions; our stock box program serves customers with over 1,600 types of boxes, many available for next-day delivery. These stock boxes are largely used by small manufacturers in industrial markets, and we are a leading supplier of stock boxes in the Western U.S.

Our protective packaging products are used in a wide variety of manufacturing and shipping applications in North America and Europe and offer combined packaging solutions using corrugated containers combined with foam, corrugated and other interior packaging. These protective packaging products are used by a diverse customer base in North America and Europe that serves a wide variety of industries including electronics, medical equipment, automotive, glass, ceramics and building products. We also provide manufacturers and packaging suppliers with honeycomb protective packaging for internal packaging, blocking and bracing in transport applications, and advertising solutions such as point-of-purchase displays and interior signage. Honeycomb protective packaging is made from kraft linerboard formed into a pattern of hexagonal cells.

We sell corrugated sheets to converters, primarily in Texas and Mexico, which use the sheets to manufacture corrugated containers for a variety of customers. We sell our newsprint to newspaper publishers located in regional markets near our DeRidder, Louisiana, manufacturing facility and to a lesser extent to export markets, primarily in Latin America.

Paper

In our Paper segment, we manufacture and sell three general categories of products: (1) communication-based papers; (2) packaging-based papers; and (3) market pulp. Our paper products can be either commodity papers or papers with specialized or custom features, such as colors, coatings, high brightness, or recycled content, which make them specialty or premium products.

Communication-Based Papers


•	Cut-size office papers: imaging papers for the office and home.


•	Printing and converting papers: papers used by commercial printers or converters to manufacture envelopes, forms, and other commercial paper products.

Packaging-Based Papers


•	Label and release papers: these papers include label facestocks, as well as release liners, which our customers combine and convert to labels for use on consumer and commercial packaged products.


•	Corrugating medium: unbleached paperboard, which when corrugated and combined with linerboard, forms corrugated board — the key raw material in the manufacture of corrugated sheets and containers. Corrugating medium is also part of a broader category of products called containerboard.

Market Pulp


•	Market pulp: pulp sold to customers in the open market for use in the manufacture of paper products.

We are the third-largest manufacturer of uncoated freesheet papers in North America, according to RISI and our own estimates. Cut-size office papers, printing and converting papers, and label and release papers are a subset of the product category we call uncoated freesheet papers. Many traditional communication paper markets have declined as electronic document transmission and storage alternatives have developed. These declines have varied by specific product. While U.S. industry uncoated freesheet purchases declined by 3.6% in 2012 according to the American Forest & Paper Association (AF&PA), our uncoated freesheet sales volumes, which include premium office and label and release papers, increased 2.0%. We have accomplished this, in part, through growth in our label and release papers. The market for these products continues to grow at approximately 2-3% domestically and faster globally, according to our estimates. Sales volumes of our label and release, flexible packaging, and premium office papers grew 5% in 2012 compared with 2011. Our decision to cease paper production at our St. Helens, Oregon, paper mill will essentially eliminate future sales volumes of flexible packaging papers, as approximately half of our 60,000 ton capacity at the St. Helens facility produced flexible packaging papers, with the remaining capacity dedicated to printing and converting papers.

The following table shows financial results for the Paper segment for the periods indicated (dollars in millions):



	Boise Inc.										Predecessor
	Year Ended December 31										January 1 Through February 21, 2008
	2012 (a)		2011		2010		2009 (b)		2008 (c)		January 1 Through February 21, 2008
Sales	$	1,468.3	$	1,496.5	$	1,458.3	$	1,420.0	$	1,403.7	$	253.5

Segment income before interest and taxes	73.9		112.1		151.5		262.7		32.7		20.7
Depreciation, amortization, and depletion	87.7		89.5		87.4		85.1		71.7		0.3
EBITDA (d)	$	161.6	$	201.5	$	238.9	$	347.8	$	104.3	$	21.1

____________


(a)	The year ended December 31, 2012, includes pretax charges totaling $31.7 million related primarily to ceasing paper production on our one remaining paper machine at our St. Helens, Oregon, paper mill.


(b)	The year ended December 31, 2009, includes approximately $149.9 million of income from alternative fuel mixture credits, $4.8 million of income related to the effect of energy hedges, and $5.8 million of expense associated with the

restructuring of the St. Helens, Oregon, mill.


(c)	The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008, and includes $37.6 million of expense associated with the restructuring of the St. Helens, Oregon, mill, $7.4 million of expense due to the write-up of inventories in connection with the Acquisition, and $6.1 million of expense related to the impact of energy hedges.

(d)

Segment EBITDA is calculated as segment income before interest (interest income and interest expense), income tax provision (benefit), 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. See "Part II, Item 6. Selected Financial Data" and "Note 17, Segment Information, of the Notes to Consolidated Financial Statements in Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K for a description of our reasons for using EBITDA, for a discussion of the limitations of such a measure, and for a reconciliation of our EBITDA to net income (loss).

Facilities

We manufacture our Paper segment products at three mills, all located in the United States. These mills are supported by converting machines that, on a net basis, can produce approximately 0.8 million short tons of cut-size office papers annually.

The following table sets forth the annual capacities as of and the production for the year ended December 31, 2012 (in thousands of short tons):



Location	Number of Machines	Capacity (a)	Production
Jackson, Alabama
Uncoated freesheet	2	495	477
International Falls, Minnesota
Uncoated freesheet	4	533	535
Wallula, Washington
Uncoated freesheet (b)	1	191	180
Corrugating medium	1	137	135
Market pulp (c)	1	162	120
St. Helens, Oregon (d)
Uncoated freesheet	1	—	57
	10	1,518	1,504

____________


(a)	Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions.


(b)	During 2012, production of label and release papers accounted for approximately 87% of Wallula uncoated freesheet production, with office papers accounting for the remaining 13%.


(c)	In 2012, we reduced market pulp production to balance our production with the demand for our products and began utilizing more of our market pulp internally.


(d)	In December 2012, we ceased paper production on our one remaining paper machine at our St. Helens, Oregon, paper mill.

The following table sets forth capacity and production by product for the periods indicated (in thousands of short tons):



	Boise Inc.					Predecessor
	Year Ended December 31					January 1 Through February 21, 2008
	2012	2011	2010	2009	2008 (b)	January 1 Through February 21, 2008
Capacity (a)
Uncoated freesheet	1,219	1,269	1,263	1,265	1,300
Corrugating medium	137	138	136	135	136
Market pulp	162	160	142	145	136
	1,518	1,567	1,541	1,545	1,572

Production
Uncoated freesheet	1,249	1,221	1,229	1,198	1,204	208
Corrugating medium	135	135	127	126	118	19
Market pulp (c)	120	152	142	114	187	31
	1,504	1,508	1,498	1,438	1,509	258

____________

(a)

Capacity numbers shown are as of December 31 for the year presented. Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions. Annual uncoated freesheet capacity at December 31, 2012, has been reduced by 60,000 tons due to the cessation of paper production at our St. Helens, Oregon, paper mill.


(b)	The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008.


(c)	In 2012, we reduced market pulp production to balance our production with the demand for our products and began utilizing more of our market pulp internally.

Raw Materials and Input Costs

Fiber is our principal raw material in this segment. During the year ended December 31, 2012, fiber costs accounted for approximately 28% of materials, labor, and other operating expenses (excluding depreciation) in this segment. The primary sources of fiber are wood and byproducts of timber. Most of our manufacturing facilities are located in close proximity to active wood markets. Because of the suppression of the housing and construction markets, a significant number of building products manufacturers have previously curtailed or closed their facilities. These curtailments and closures affect the availability and price of wood chips, wood shavings, and other timber byproducts, particularly in the Pacific Northwest. As a result, we have increased our ability to manufacture wood chips from whole logs, which we purchase from third parties. At our mill in Jackson, Alabama, we also utilize recycled fiber to produce our line of recycled office papers.

All of our paper mills have on-site pulp production facilities. Some of our paper mills also purchase pulp from third parties pursuant to contractual arrangements or obtain pulp from our other pulp facilities. We negotiate these arrangements periodically, and terms can fluctuate based on prevailing pulp market conditions, including pricing and supply dynamics. After ceasing production at our St. Helens, Oregon, paper mill, we are a net consumer of pulp, purchasing approximately 60,000 short tons more than we produce annually, subject to changes in product mix.

We purchase wood fiber through contracts and open-market purchases. Our contracts are generally with suppliers located in close proximity to the specific facility they supply, and they commonly contain price adjustment mechanisms to account for market price and expense volatility.

We consume a significant amount of chemicals in the production of paper. Important chemicals we use include starch, caustic soda, sodium chlorate, precipitated calcium carbonate, dyestuffs, and optical brighteners. During the year ended December 31, 2012, chemical costs accounted for approximately 17% of materials, labor, and other operating expenses (excluding depreciation) in this segment. Most of our chemicals are purchased under contracts, which contain price adjustment mechanisms designed to provide greater pricing stability than open-market purchases. These contracts are negotiated periodically at prevailing rates.

Our Paper segment consumes substantial amounts of energy, such as electricity, natural gas, and a modest amount of fuel oil. During the year ended December 31, 2012, energy costs accounted for approximately 11% of materials, labor, and other operating expenses (excluding depreciation) in this segment. We purchase substantial portions of our natural gas and electricity under supply contracts. Under most of these contracts, the providers are contractually bound to provide us with all of our needs for a particular type of energy at a specific facility. Most of these contracts have pricing mechanisms that adjust or set prices based on current market prices. We also use derivative instruments such as caps, call spreads, and swaps, or a combination of these instruments, to mitigate price risk for our energy requirements. For more information about our derivative instruments, see Note 9, Financial Instruments, in the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

Sales, Marketing, and Distribution

Our uncoated freesheet paper is sold primarily by our own sales personnel. We ship to customers both directly from our mills and through distribution centers and a network of outside warehouses. This allows us to respond quickly to customer requirements.

The following table sets forth sales volumes of paper and paper products for the periods indicated (in thousands of short tons):



	Boise Inc.					Predecessor
	Year Ended December 31					January 1 Through February 21, 2008
	2012	2011	2010	2009	2008	January 1 Through February 21, 2008
Commodity	786	771	784	844	768	164
Premium and specialty	468	459	449	407	432	72
Uncoated freesheet	1,254	1,230	1,233	1,251	1,200	236

Corrugating medium	135	135	127	127	118	19
Market pulp (a)	53	90	81	58	102	20
	1,442	1,455	1,441	1,436	1,420	275

____________


(a)	In 2012, we reduced market pulp production to balance our production with the demand for our products and began utilizing more of our market pulp internally.

Customers

We have over 600 uncoated freesheet paper customers including paper merchants, commercial and financial printers, paper converters such as envelope and form manufacturers, and customers who use our paper for specialty applications such as label and release products. We have established long-term relationships with many of our customers, including our largest customer, OfficeMax Incorporated (OfficeMax). We have an agreement with OfficeMax that requires OfficeMax to buy and us to supply at least 80% of OfficeMax's requirements for commodity office papers through December 2017; however, there are circumstances that could cause the agreement to terminate before 2017. If this were to occur, OfficeMax's purchase obligations under the agreement would phase out over two years. In 2012, our sales to OfficeMax accounted for $493.9 million of Paper segment sales, 38% of total uncoated freesheet paper sales volume, and 63% of our office papers sales volume. The supply agreement with OfficeMax allows us to focus our largest paper machines on long, high-volume production runs and to continue to improve the capacity utilization of our largest paper machines. We leverage the expertise developed in this relationship to better serve our other customers and to develop new customers and products while pursuing productivity improvements and cost reductions. On February 20, 2013, OfficeMax announced it had signed a definitive merger agreement with its competitor, Office Depot. Our agreement with OfficeMax provides that it would survive the merger with respect to the office paper requirements of the legacy OfficeMax business. We cannot predict how the merger, if finalized, would affect the financial condition of the combined company, the paper requirements of the legacy OfficeMax business, or the effects the combined company would have on the pricing and competition for office papers. No single customer, other than OfficeMax, exceeds 10% of segment sales.

Corporate and Other

Our Corporate and Other segment includes corporate support services, related assets and liabilities, and foreign exchange gains and losses. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport our products from our manufacturing sites. 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. Rail cars and trucks are typically leased. During the years ended December 31, 2012, 2011, and 2010, segment sales related primarily to our rail and truck business were $68.9 million, $68.3 million, and $65.4 million, respectively.

The following table sets forth segment sales; segment loss before interest and taxes; loss on extinguishment of debt; depreciation, amortization, and depletion; and EBITDA for the periods indicated (dollars in millions):



	Boise Inc.															Predecessor
	Year Ended December 31															January 1 Through February 21, 2008
	2012			2011 (a)			2010			2009 (b)			2008 (c)			January 1 Through February 21, 2008
Sales	$	68.9		$	68.3		$	65.4		$	63.9		$	67.7		$	8.6

Segment loss before interest and taxes	(27.8		)	(25.9		)	(21.7		)	(21.5		)	(18.6		)	(3.2		)
Loss on extinguishment of debt	—			(2.3		)	(22.2		)	(44.1		)	—			—
Depreciation, amortization, and depletion	3.7			3.7			4.0			4.1			3.3			0.1
EBITDA (d)	$	(24.1	)	$	(24.4	)	$	(39.9	)	$	(61.4	)	$	(15.4	)	$	(3.1	)

____________


(a)	The year ended December 31, 2011, includes $1.5 million of transaction-related costs, which include expenses associated with transactions, whether consummated or not, and do not include integration costs.


(b)	The year ended December 31, 2009, includes approximately $3.9 million of expense related to alternative fuel mixture credits.


(c)	The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008, and includes a $2.9 million gain on changes in supplemental pension plans.

(d)

Segment EBITDA is calculated as segment loss before interest (interest income and interest expense), income tax provision (benefit), 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. See "Part II, Item 6. Selected Financial Data" and "Note 17, Segment Information, of the Notes to Consolidated Financial Statements in Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K for a description of our reasons for using EBITDA, for a discussion of the limitations of such a measure, and for a reconciliation of our EBITDA to net income (loss).

Competition

All of the markets in which we operate are large and highly competitive. Our products and services compete with similar products manufactured and distributed by others both domestically and internationally. Many factors influence our competitive position in each of our operating segments. Those factors include price, service, quality, product selection, and convenience of location as well as our manufacturing and overhead costs.

Within our operating segments, some of our competitors are larger than we are and have greater financial resources. These resources afford those competitors greater purchasing power, increased financial flexibility, and more capital resources for expansion and improvement, which may enable those competitors to compete more effectively than we can.

Packaging. Although price is the primary basis for competition for most of our packaging products, quality and service are important competitive determinants. The intensity of competition in this industry fluctuates based on demand and supply levels as well as prevailing foreign currency exchange rates. Some of our competitors have lower operating costs and/or enjoy greater integration between their containerboard production and corrugated

container production than we do.

Various types of corrugated products, including protective packaging products, comprise approximately 68% of our Packaging sales. Competition in our corrugated container operations tends to be regional, although we also face competition from large competitors with significant national account presence, and competition varies based on each type of corrugated container we sell.

In 2012, our plants sold approximately seven billion square feet of corrugated containers (which excludes corrugated sheets and protective packaging products), over 50% of which went into agricultural and food and beverage markets which have been resilient in economic downturns. We serve customers' needs in these markets from multiple plants, and schedule operating runs to maximize productivity and optimize shipping distances to our customers. Our corrugated container operations in the Pacific Northwest have a leading regional market position and supply standard shipping and point-of-purchase containers to a variety of agricultural, processed food and beverage, and industrial product manufacturers. Our primary competitors in this market are International Paper Company, Rock-Tenn Company, Georgia-Pacific LLC, Packaging Corporation of America, and Longview Fibre Paper and Packaging, Inc.

Our corrugated converting plants in other regions serve a diverse customer base in various industries, including paper, glass, ceramics, building products, electronics, and medical device manufacturers. Our primary competitors in these markets include International Paper Company, Rock-Tenn Company, Georgia-Pacific LLC, Packaging Corporation of America, and Green Bay Packaging Inc. We are a leading supplier of corrugated stock boxes in the Western U.S. These boxes can be delivered with short lead times and are largely used by small manufacturers in industrial markets. Uline is our primary competitor in this line of business.

Our protective packaging products offer combined packaging solutions utilizing corrugated containers combined with foam and other interior packaging to ship high-value products requiring special handling and are used in a wide variety of manufacturing and shipping applications in North America and Europe. We also provide manufacturers and packaging suppliers with custom manufactured honeycomb used for internal packaging requirements, blocking and bracing in transport applications, and advertising solutions, such as point-of-purchase displays and interior signage. ITW Packaging Solutions and Cascades are our primary competitors in the protective packaging market.

We also sell excess linerboard (not utilized in our converting operations) in the domestic and international open markets, although in 2012 we used approximately 84% of our containerboard (both linerboard and corrugating medium) in our converting operations, leaving approximately 159,000 short tons of linerboard for open market sales. North American containerboard manufacturers produced 36.2 million short tons of containerboard in 2012, and four major manufacturers, including Boise Inc., accounted for approximately 71% of capacity, according to RISI and our own estimates. Our largest competitors include International Paper Company, Rock-Tenn Company, Georgia-Pacific LLC, and Packaging Corporation of America. Containerboard is a globally traded commodity with numerous worldwide manufacturers.

We also sell corrugated sheets to converters, primarily in Texas and Mexico, which use the sheets to manufacture corrugated containers for a variety of customers. Our primary competitors for this sheet business are International Paper Company, Georgia-Pacific LLC, KapStone Paper and Packaging Company, and TexCorr, L.P.

We sell our newsprint to newspaper publishers located in regional markets near our DeRidder, Louisiana, manufacturing facility and to a lesser extent to export markets, primarily in Latin America. North American newsprint producers shipped 6.8 million metric tonnes (a metric tonne is equal to 2,205 pounds) in 2012, and four major manufacturers accounted for approximately 72% of capacity, according to RISI and our own estimates. Our largest competitors in our operating region near our DeRidder facility include Resolute Forest Products (formerly AbitibiBowater Inc.) and SP Newsprint Co. Demand for newsprint has declined dramatically in the last several years, and we expect this decline to continue at a more moderate rate as electronic media competes with newspaper readership. Major producers have closed or significantly curtailed capacity as demand has fallen. Nevertheless, our low-cost newsprint machine has enabled our newsprint operations to be profitable in the southern and southwestern United States. During 2012, our newsprint capacity and production were only reduced for scheduled maintenance.

Paper. The markets in which our Paper segment competes are large and highly competitive. Commodity grades of uncoated freesheet paper are globally traded, with numerous worldwide manufacturers, and as a result,

these products compete primarily on the basis of price. All of our paper manufacturing facilities are located in the United States, and although we compete primarily in the domestic market, we do face competition from foreign producers, some of which have lower operating costs than we do. The level of this competition varies depending on domestic and foreign demand and foreign currency exchange rates. In general, paper production does not rely on proprietary processes or formulas, except in highly specialized or custom grades.

North American uncoated freesheet paper producers shipped 10.1 million short tons in 2012, and four major manufacturers account for approximately 74% of capacity, according to RISI and our own estimates. As of December 31, 2012, we believe we are the third-largest producer of uncoated freesheet paper in North America, according to RISI and our own estimates. Our largest competitors include Domtar Corporation, International Paper Company, and Georgia-Pacific LLC. Although price is the primary basis for competition in most of our paper grades, quality and service are important competitive determinants, especially in premium and specialty grades. Our uncoated freesheet papers compete with electronic data transmission, e-readers, electronic document storage alternatives, and paper grades we do not produce. Increasing shifts to these alternatives have had, and are likely to continue to have, an adverse effect on traditional print media and paper usage. These secular trends are in addition to the current demand decline driven by a weak economy and reduced white-collar employment.

Major uncoated freesheet paper producers have closed or significantly curtailed capacity in response to lower demand in recent years. During 2012, we took approximately 17,000 short tons of market-related downtime for uncoated freesheet, compared with approximately 8,000 short tons taken during 2011. We may choose to take additional downtime or slow production in the future if market conditions warrant.

Environmental Issues

Our discussion of environmental issues is presented under the caption "Environmental" in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part I, Item 3. Legal Proceedings" of this Form 10-K.

Capital Investment

Information concerning our capital expenditures is presented under the caption "Investment Activities" in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K.

Seasonality

We experience some seasonality, based primarily on buying patterns associated with particular products. For example, in the Pacific Northwest, the demand for our corrugated containers is influenced by changes in agricultural demand within that geographic region. In addition, seasonally cold weather increases costs, especially energy consumption, at all of our manufacturing facilities. Seasonality also affects working capital levels as described below.

Working Capital

Working capital levels fluctuate throughout the year and are affected by seasonality, scheduled annual maintenance shutdowns, and changing sales patterns. In our Packaging segment, agricultural demand influences working capital, as finished goods inventory levels are increased in preparation for the harvest season in the third quarter. In our Paper segment, we typically build finished goods inventories capital at the end of the fourth quarter as both a hedge against winter weather disruptions within our supply chain and in anticipation of first-quarter sales. Finished goods inventories are also increased prior to scheduled annual maintenance shutdowns to maintain sales volumes while production is stopped. Inventories for some raw materials, such as fiber, exhibit seasonal swings, as we increase log and chip inventories to ensure ample supply of fiber to our mills throughout the winter. Changes in sales volumes and the timing of collections can affect accounts receivable levels in both our Packaging and Paper segments, influencing overall working capital levels. We believe our management practices with respect to working capital conform to common business practices in the U.S.

Acquisitions and Divestitures

Although we had no material acquisition or divestiture activity in 2012, we engage in acquisition and divestiture discussions with other companies and make acquisitions and divestitures from time to time. We continue to evaluate both organic and acquisition growth opportunities that combine industrial and competitive logic with a reasonable price. We also review our operations and dispose of assets that fail to meet our criteria for return on investment or cease to warrant retention for other reasons.

Employees

As of January 31, 2013, we had approximately 5,300 employees and approximately 50% of these employees worked pursuant to collective bargaining agreements. Approximately 4% of our employees work pursuant to collective bargaining agreements that will expire within the next 12 months.

Executive Officers of the Registrant

The following individuals are deemed our "executive officers" pursuant to Section 16 of the Securities Exchange Act of 1934. Our executive officers are elected by our board of directors and hold office until their successors are elected and qualified or until their earlier resignation or removal. There are no arrangements or understandings between any of our executive officers and any other persons pursuant to which they were selected as officers. No family relationships exist among any of our executive officers.

Alexander Toeldte, 53, President and Chief Executive Officer, Director — Mr. Toeldte has served as the company's president and chief executive officer and a director since February 2008. Mr. Toeldte joined Boise Cascade Holdings, L.L.C., in early October 2005 as president of the company's Packaging and Newsprint segment and, in late October 2005, became its executive vice president, Paper and Packaging and Newsprint segments. From 2004 to 2006, Mr. Toeldte was chair of Algonac Limited, a private management and consulting firm based in Auckland, New Zealand. Mr. Toeldte's previous experience includes: serving as executive vice president of Fonterra Co-operative Group, Ltd., and chief executive officer of Fonterra Enterprises (Fonterra, based in New Zealand, is a global dairy company); previously, Mr. Toeldte served in various capacities with Fletcher Challenge Limited Group (formerly one of the largest companies in New Zealand with holdings in paper, forestry, building materials, and energy), including as chief executive officer of Fletcher Challenge Building and as chief executive officer of Fletcher Challenge Paper, both of which were publicly traded units of the Fletcher Challenge Limited Group; and Mr. Toeldte served as a partner at McKinsey & Company in Toronto, Brussels, Montreal, and Stockholm. Mr. Toeldte studied economics at the Albert-Ludwigs-Universität in Freiburg, Germany, and received an M.B.A. from McGill University in Montreal, Canada.

Judith M. Lassa, 54, Executive Vice President and Chief Operating Officer — Ms. Lassa has served as executive vice president and chief operating officer since January 2013. Ms. Lassa served as senior vice president of our paper and specialty products operations from November 2010 to December 2012. From February 2008 to October 2010, Ms. Lassa served as vice president of our Packaging segment. From October 2004 to February 2008, Ms. Lassa served as vice president, Packaging, of Boise Cascade, L.L.C. Prior to 2004, Ms. Lassa served in a number of capacities with Boise Cascade Corporation, including vice president, Packaging, and packaging business leader. Ms. Lassa received a B.S. in Paper Science and Engineering from the University of Wisconsin-Stevens Point.

Samuel K. Cotterell, 61, Senior Vice President and Chief Financial Officer — Mr. Cotterell has served as our senior vice president and chief financial officer since January 2011. From February 2008 to December 2010, Mr. Cotterell served as our vice president and controller. From October 2004 to February 2008, Mr. Cotterell served as vice president and controller of Boise Cascade, L.L.C. Prior to 2004, Mr. Cotterell served as director of financial reporting of Boise Cascade Corporation. Mr. Cotterell received a B.A. in Spanish from the University of Idaho, a B.S. in Accounting from Boise State University, and a Masters of International Business from the American Graduate School of International Management. Mr. Cotterell is a certified public accountant.

Karen E. Gowland, 54, Senior Vice President, General Counsel and Secretary — Ms. Gowland has served as our senior vice president, general counsel and secretary since August 2010. From February 2008 to July 2010, she served as our vice president, general counsel and secretary. From October 2004 to February 2008, Ms. Gowland served as vice president, general counsel and secretary of Boise Cascade, L.L.C. Prior to 2004, Ms. Gowland served in a number of capacities with Boise Cascade Corporation, including vice president, corporate

secretary, associate general counsel, and counsel. Ms. Gowland received a B.S. in Accounting and a J.D. from the University of Idaho.

Robert E. Strenge, 58, Senior Vice President, Technology and Supply Chain — Mr. Strenge has served as senior vice president of our technology and supply chain functions since March 2012. From April 2008 to February 2012, Mr. Strenge served as senior vice president of our paper manufacturing operations. From February 2008 to April 2008, Mr. Strenge served as vice president of our Newsprint segment. From October 2004 to February 2008, Mr. Strenge served as vice president of the Newsprint segment of Boise Cascade, L.L.C. Prior to 2004, Mr. Strenge served in a number of capacities with Boise Cascade Corporation, including vice president of its DeRidder operations and paper mill manager. Mr. Strenge received a B.S. in Pulp and Paper Technology from Syracuse University.

Bernadette M. Madarieta, 37, Corporate Vice President and Controller — Ms. Madarieta has served as our corporate vice president and controller since February 2011. From February 2008 to January 2011, Ms. Madarieta served as vice president and controller of Boise Cascade, L.L.C. From October 2004 to January 2008, Ms. Madarieta served as Boise Cascade, L.L.C.'s director of financial reporting. Prior to 2004, Ms. Madarieta served as Boise Cascade Corporation's supervisor of external financial reporting. Prior to joining Boise Cascade Corporation, Ms. Madarieta was an assurance and business advisory manager at KPMG and Arthur Andersen, where she was responsible for planning and supervising audit engagements for corporations and privately held companies. Ms. Madarieta received a B.B.A. in Accounting from Boise State University and is a certified public accountant.


ITEM 1A.	RISK FACTORS

Our financial and operating results are subject to a variety of risks and uncertainties, many of which could have significant, adverse effects on our business, our operating results, and our financial condition. In addition to the risks and uncertainties we discuss elsewhere in this Form 10-K (particularly in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations") or in our other filings with the Securities and Exchange Commission (SEC), the following are important factors that could cause our actual results to differ materially from those we project in any forward-looking statement.

Risks Related to Industry Conditions

Some of our products are vulnerable to declines in demand due to competing technologies or materials. Our communication-based paper products, including newsprint, compete heavily with electronic data transmission and document storage alternatives. Increasing shifts to these alternatives have had and will continue to have an adverse effect on traditional print media and usage of communication-based papers. Neither the timing nor the extent of this shift can be predicted with certainty, but we expect demand for these products to continue to decline over time and may eventually be eliminated altogether. We may not be able to grow our packaging business quickly enough to offset the demand decline we are experiencing in our paper business.

Increases in the cost of our raw materials, including wood fiber, chemicals, and energy, could affect our profitability. We rely heavily on the availability of raw materials, including wood fiber, chemicals, energy, and the transportation services that deliver these materials to our manufacturing locations. Our profitability has been, and will continue to be, affected by changes in the costs and availability of such raw materials and transportation services. For many of 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 on to our customers in the short term. Any sustained increase in raw material costs, coupled with our inability to increase prices, would reduce our operating margins and potentially require us to limit or cease operations of one or more of our machines or facilities.

Wood fiber, including recycled fiber, is our principal raw material. We recognized $520.1 million of costs for wood fiber in 2012. The market price of wood fiber is dependent largely upon its availability and source and can vary significantly between geographies. The availability and cost of recycled fiber depends heavily on recycling rates and the domestic and global demand for recycled products. Our other principal raw materials are chemicals (including starch and caustic soda) and energy (including natural gas and electricity). In 2012, we recognized costs of $253.6 million and $196.0 million for chemicals and energy, respectively. The cost of both chemicals and energy can be volatile and can be affected by alternative demands for these materials, weather conditions, and other factors beyond our control.

The prices for all of these raw materials have fluctuated dramatically in the past and are likely to continue to fluctuate in the future. Our operating results have been, and will continue to be, affected by changes in the cost and availability of raw materials. Severe or sustained shortages of any of these raw materials could cause us to curtail our operations, resulting in material and adverse effects on our sales and profitability.

Changes in the prices of our products could materially affect our financial condition, results of operations, and liquidity. Macroeconomic conditions and fluctuations in industry capacity create changes in prices, sales volumes, and margins for most of our products, particularly commodity grades of paper and packaging products. Changing industry conditions can influence paper and packaging 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 is also influenced by overseas production capacity, which has grown in recent years and is expected to continue to grow. A weak U.S. dollar tends to mitigate the levels of imports, while a strong U.S. dollar tends to increase imports of commodity paper products from overseas, putting downward pressure on prices.

Prices for all of our products are driven by many factors, 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. From time to time, we have taken downtime, slowed production, or reduced operating capacity to balance our production with the market demand for our products, and we may continue to do so in the future. Our ability to achieve acceptable operating performance and margins depends primarily upon managing our cost structure and general conditions in the paper market. If the prices for our products decline or if we are unable to control our costs, it could have a material adverse effect on our operating cash flows, profitability, and liquidity.

The paper and packaging industries are highly competitive now and are likely to become more competitive in the future. The North American communication-based paper industry is highly consolidated and is in secular decline, meaning in the future our paper business will compete for market share and sales in the face of declining numbers of customers and market demand. The North American corrugated packaging industry has been consolidating, with a number of large corrugated producers merging or acquiring other smaller packaging operations, and we believe this consolidation will continue; as a result, now and likely in the future, we will face competition in our markets from larger-scale competitors which have greater financial and other resources, greater manufacturing economies of scale, greater self-sufficiency, or lower operating costs, compared with our company.

We are significantly smaller than many of our national competitors and may lack the financial resources needed to compete effectively. Many of our competitors are large, vertically integrated companies which have greater financial and other resources, greater manufacturing economies of scale, greater energy self-sufficiency, or lower operating costs, compared with our company. We may be unable to compete with these companies and other companies in the market during the various stages of the business cycle and particularly during any downturns. Some of the factors that may adversely affect our ability to compete in the markets in which we participate include the entry of new competitors (including foreign producers) into the markets we serve, our competitors' pricing strategies, our failure to anticipate and respond to changing customer preferences, and our inability to maintain the cost-efficiency of our facilities.

Risks Related to Our Operations

We may be unable to attract and retain key management and other key employees. Our key managers are important to our success and may be difficult to replace because they have an average of 20 years of experience in packaging and paper products manufacturing and distribution. While our senior management team has considerable experience, certain members of our management team are nearing or have reached normal retirement age. The failure to successfully implement succession plans could result in inadequate depth of institutional knowledge or inadequate skill sets, which could adversely affect our business.

We may engage in acquisitions and other strategic transactions, any of which could materially affect our business, operating results, and financial condition. Our stated goal is to expand our packaging business, and to this end, we have acquired packaging businesses over the last two years. We may continue seeking to acquire other businesses, products, or assets and may engage in other strategic transactions to the extent we believe they improve our competitive position or achieve our goals. However, we may not be able to find other suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable terms, if at all, which may impede the growth of our business. Any future acquisitions may not strengthen our competitive position or achieve our goals and may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses, and adversely affect our operating results, liquidity, and financial condition. There can be no assurance that we will be able to effectively manage the integration or separation required by any future transactions or be able to retain and motivate key personnel in connection with such transactions. In addition, difficulties encountered in any integration process could increase our expenses and have a material adverse effect on our financial condition, liquidity, and results of operations.

Expenditures related to the cost of compliance with environmental, health and safety laws and requirements could adversely affect our business and results of operations. Our operations are subject to laws and regulations relating to the environment, health, and safety. We have incurred, and expect that we will continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and regulations. There can be no assurance that future remediation requirements and compliance with existing and new laws, regulations and requirements will not require significant expenditures, or that existing reserves for specific matters will be adequate to cover future costs. If we fail to comply with these 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. We spent $2 million in

2012 and expect to spend about $7 million in 2013 for capital environmental compliance requirements. Enactment of new environmental laws or regulations or changes in existing laws or regulations might require significant additional expenditures.

We anticipate that governmental regulation of our operations will continue to become more burdensome and that we will continue to incur significant capital and operating expenditures in order to maintain compliance with applicable laws. For example, on January 31, 2013, the U.S. Environmental Protection Agency (EPA) published its final emission standards for boiler and process heaters (Boiler MACT rules), with an effective date of April 1, 2013, and compliance mandatory by January 31, 2016. The final Boiler MACT rules require process modifications and/or installation of air pollution controls on power boilers (principally our biomass-fuel-fired boilers) at our pulp and paper mills. We have reviewed the final rules and our preliminary estimates indicate we will incur additional capital spending of $33 to $38 million to achieve compliance with the rules, which includes the $7 million we expect to spend in 2013, as discussed above.

In addition, we may be affected by the enactment of laws concerning climate change that regulate greenhouse gas (GHG) emissions. Such laws may require buying allowances for mill GHG emissions or capital expenditures to reduce GHG emissions. Because environmental regulations are not consistent worldwide, our capital and operating expenditures for environmental compliance may adversely affect our ability to compete.

We could also incur substantial fines or sanctions, enforcement actions (including orders limiting our operations or requiring corrective measures), cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws and regulations. The amount and timing of environmental expenditures is difficult to predict, and, in some cases, liability may be imposed without regard to contribution or to whether we knew of, or caused, the release of hazardous substances.

OfficeMax represents a significant portion of our business. Our largest customer, OfficeMax, accounted for approximately 19% and 21% of our total sales for the years ended December 31, 2012, and December 31, 2011, respectively. We have an agreement with OfficeMax that requires OfficeMax to buy and us to supply at least 80% of OfficeMax's requirements for office papers through December 2017; however, there are circumstances that could cause the agreement to terminate before 2017. On February 20, 2013, OfficeMax announced it had signed a definitive merger agreement with its competitor, Office Depot. Our agreement with OfficeMax provides that it would survive the merger with respect to the office paper requirements of the legacy OfficeMax business. We cannot predict how the merger, if finalized, would affect the financial condition of the combined company, the paper requirements of the legacy OfficeMax business, or the effects the combined company would have on the pricing and competition for office papers. Significant reductions in paper purchases from OfficeMax (or the post-merger entity) would cause us to expand our customer base and could potentially decrease our profitability if new customer sales required either a decrease in our pricing and/or an increase in our cost of sales. Any significant deterioration in the financial condition of OfficeMax (or the post-merger entity) affecting the ability to pay or causing a significant change in the willingness to continue to purchase our products could have a material adverse effect on our business, financial condition, results of operations, and liquidity.

A material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales, or negatively affect 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 the following:


•	Maintenance outages.


•	Prolonged power failures.


•	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.


•	Labor difficulties.


•	Other operational problems.


•	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.

Events such as those listed above have resulted in operating losses in the past. For example, in 2005 a mechanical failure of one of the digesters at our Wallula, Washington, facility interrupted production, resulting in a reduction in operating income of approximately $2.0 million. Also, in 2008, we incurred $5.5 million of expense related to lost production and costs incurred as a result of hurricanes Gustav and Ike. Future events may cause similar or more severe interruptions or shutdowns, which may result in additional downtime or cause additional damage to our facilities.

Any such downtime or facility damage could prevent us from meeting customer demand for our products 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 having a negative effect on our financial results.

Labor disruptions or increased labor costs could materially adversely affect our business. While we believe we have good labor relations, we could experience a material labor disruption, strike, 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 demands or result in increased costs, thereby reducing our sales and profitability. As of January 31, 2013, approximately 50% of our employees work pursuant to collective bargaining agreements. Approximately 4% of our total employees are working pursuant to collective bargaining agreements that will expire within the next 12 months.

When negotiating our collective bargaining agreements in the future, our potential inability to reach a mutually acceptable labor contract at any of our facilities could result in, among other things, strikes or other work stoppages or slowdowns by the affected employees. While the company has contingency plans in place to address labor disturbances, we could experience disruption to our operations that could have a material adverse effect on our results of operations, financial condition, and liquidity. Future labor agreements could increase our costs of healthcare, retirement benefits, wages, and other employee benefits. Additionally, labor issues that affect our suppliers could also have a material adverse effect on us if those issues interfere with our ability to obtain raw materials on a cost-effective and timely basis.

Cyber security risks related to security breaches of company, customer, employee, and vendor information, as well as the technology that manages our operations and other business processes, could adversely affect our business. We rely on various information technology systems to capture, process, store, and report data and interact with customers, vendors, and employees. Despite careful security and controls design, implementation, updating, and internal and independent third-party assessments, our information technology systems, and those of our third party providers, could become subject to cyber attacks. Network, system, and data breaches could result in misappropriation of sensitive data or operational disruptions including interruption to systems availability and denial of access to and misuse of applications required by our customers to conduct business with us. Misuse of internal applications; theft of intellectual property, trade secrets, or other corporate assets; and inappropriate disclosure of confidential information could stem from such incidents. Delayed sales, slowed production, or other repercussions resulting from these disruptions could result in lost sales, business delays, and negative publicity and could have a material adverse effect on our operations, financial condition, or cash flows.

Risks Related to Economic and Financial Factors

Adverse business and global economic conditions may have a material adverse effect on our business, results of operations, liquidity, and financial position. General global economic conditions adversely affect the demand and production of consumer goods, employment levels, the availability and cost of credit, and ultimately, the profitability of our business. High unemployment rates, lower family income, lower corporate earnings, lower business investment, and lower consumer spending typically result in decreased demand for our products. These conditions are beyond our control and may have a significant impact on our business, results of operations, liquidity, and financial position.

Our operations require substantial capital, and we may not have adequate capital resources to provide for all of our capital requirements. Our businesses are capital-intensive, and we regularly incur capital expenditures to maintain our equipment, increase our operating efficiency, and comply with environmental laws. In addition, significant amounts of capital are required to modify our equipment to produce alternative or additional products or to make significant improvements in the characteristics of our current products. During the year ended

December 31, 2012, our total capital expenditures were $137.6 million. We expect capital investments in 2013 to be between $152 million and $162 million, excluding acquisitions and major capital expansions.

If we require funds for operating needs and capital expenditures beyond those generated from operations and we are unable to access our revolving credit facility, we may not be able to obtain them on favorable terms or at all. In addition, our debt service obligations will reduce our available liquidity. If we cannot maintain or upgrade our equipment as necessary for our continued operations or as needed to 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 ability to repay our debt is dependent on our ability to generate cash from operations. As of December 31, 2012, our total indebtedness was $780.0 million. Our ability to repay our indebtedness and to fund planned capital expenditures depends on our ability to generate cash from future operations. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. Our inability to generate sufficient cash flow to satisfy our debt obligations or to obtain additional debt would have a material adverse effect on our business, financial condition, liquidity, and results of operations.

Our indebtedness imposes restrictive covenants on us, and a default under our debt agreements could have a material adverse effect on our business and financial condition. Our credit facilities require BZ Intermediate Holdings LLC (BZ Intermediate) and its subsidiaries to maintain specified financial ratios and to satisfy specified financial tests. These tests include, in the case of our credit facilities, an interest expense coverage ratio, a senior secured leverage ratio, and a total leverage ratio. In addition, our credit facilities restrict, and the indentures governing the 8% and 9% senior notes restrict, among other things, the ability of BZ Intermediate and its subsidiaries to make some types of restricted payments, acquisitions, and capital expenditures. At December 31, 2012, the available restricted payment amount under our 8% senior notes indenture, which is more restrictive than our credit facilities and our 9% senior notes indenture, was approximately $106.9 million. We will need to seek permission from the lenders under our indebtedness to engage in specified corporate actions. The lenders' interests may be different from our interests, and no assurance can be given that we will be able to obtain the lenders' permission when needed.

Various risks, uncertainties, and events beyond our control could affect our ability to comply with these covenants. Failure to comply with these covenants (or similar covenants contained in future financing agreements) could result in a default under the credit facilities, the indentures governing the 8% and 9% senior notes, and other agreements containing cross-default provisions, which, if not cured or waived, could have a material adverse effect on our business, financial condition, liquidity, and results of operations. A default would permit lenders or holders to accelerate the maturity of the debt under these agreements, to foreclose upon any collateral securing the debt, and to terminate any commitments to lend. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including the obligations of Boise Paper Holdings, L.L.C., Boise Finance Company, and Boise Co-Issuer Company under the 8% and 9% senior notes. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing.

We anticipate significant future funding obligations for pension benefits. Most of our pension benefits plans are frozen; however, we will continue to have significant obligations for pension benefits. As of December 31, 2012, our liability, net of plan assets, was $115.1 million, compared with $168.3 million at December 31, 2011. During the year ended December 31, 2012, we contributed $35.2 million to our pension plans. While we have no minimum required contribution in 2013, our 2014 minimum required contribution is approximately $3 million, assuming a return on plan assets of 6.75% in both years. The amount of required contributions will depend on, among other things, actual returns on plan assets, changes in interest rates that affect our discount rate assumptions, changes in pension funding requirement laws, and modifications to our plans. Our estimates may change materially depending upon the impact of these and other factors, and the amount of our contributions may adversely affect our liquidity, financial condition, and results of operations.


Item 1B.	UNRESOLVED STAFF COMMENTS

We have no unresolved comments from the Commission staff regarding our periodic or current reports.


Item 2.	PROPERTIES

We own and lease properties in our business. All of our leases are noncancelable and accounted for as operating leases. These leases are not subject to early termination except for standard nonperformance clauses.

Information concerning capacity and utilization of our manufacturing and converting facilities is presented in "Part I, Item 1. Business" of this Form 10-K. We assess the condition and capacity of our manufacturing, distribution, and other facilities needed to meet our operating requirements. Our properties have been generally well maintained and are in good operating condition. In general, our facilities have sufficient capacity and are adequate for our production and distribution requirements. Information concerning encumbrances attached to our properties is presented in Note 8, Debt, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

The following is a list of our facilities by segment as of January 31, 2013.



Packaging	Owned or Leased	Paper	Owned or Leased

Converting Operations		Manufacturing
Corrugated Containers		International Falls, MN	Owned
Burley, ID	Owned	Jackson, AL	Owned
Denver, CO	Leased	St. Helens, OR (a)	Owned
Nampa, ID	Owned	Wallula, WA	Owned
Salem, OR	Owned	Distribution
Salt Lake City, UT	Owned	Bensenville, IL	Leased
San Lorenzo, CA	Leased	Pico Rivera, CA	Leased
Santa Fe Springs, CA	Leased
Wallula, WA	Owned	Corporate
Corrugated Sheet Feeder		Boise, ID	Leased
Waco, TX	Owned
Corrugated Sheet Plants
Atlanta, GA	Leased
Seattle, WA	Leased
Sparks, NV	Leased
Protective Packaging
Amboise, France	Owned
Aoiz, Spain	Owned
Arlington, TX	Leased
Auburn, WA	Leased
Austin, TX	Leased
Ermelo, Netherlands	Owned/Leased
Fairfield, CA	Leased
Farmville, NC	Leased
Kalamazoo, MI	Leased
Monterrey, Mexico	Leased
North Haven, CT (b)	Leased
Santa Fe Springs, CA	Leased
Tillsonburg, ON, Canada	Leased
Trenton, IL	Owned
Linerboard and Newsprint
DeRidder, LA	Owned
Distribution
Dallas, TX	Leased
Phoenix, AZ	Leased
Portland, OR	Leased
Salt Lake City, UT	Leased

____________


(a)	In December 2012, we ceased paper production on our one remaining paper machine at our St. Helens, Oregon, paper mill.


(b)	In the next 12 months, lease will be up for renewal.


ITEM 3.	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.


ITEM 4.	MINE SAFETY DISCLOSURE

Not applicable.

PART II


ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The New York Stock Exchange (NYSE) is the principal market in which our common stock is traded. The following table indicates the last reported high and low closing prices of our common stock as reported by the NYSE and the cash dividends declared per common share for the periods indicated:



	Market Price				Dividends Declared
Quarter	High		Low		Dividends Declared
2012
Fourth	$	9.06	$	7.63	$	0.72
Third	8.93		6.86		—
Second	8.21		6.48		—
First	8.49		7.25		0.48
Total					$	1.20
2011
Fourth	$	7.12	$	4.71	$	—
Third	8.12		4.42		—
Second	9.82		6.75		0.40
First	9.55		8.10		—
Total					$	0.40

Holders

On January 31, 2013, there were approximately 41 holders of record of our common stock, one of which was Cede & Co., which is the holder of record of shares held through the Depository Trust Company.

Dividends

We paid a special cash dividend of $0.72, $0.48, $0.40, and $0.40 per common share on December 12, 2012, March 21, 2012, May 13, 2011, and December 3, 2010, to shareholders of record at the close of business on November 28, 2012, March 9, 2012, May 4, 2011, and November 17, 2010, respectively. The total dividend payouts were approximately $119.7 million, $47.9 million, and $32.3 million, in 2012, 2011, and 2010, respectively. Our ability to pay dividends continues to be restricted by our debt covenants and by Delaware law and state regulatory authorities. Under Delaware law, our board of directors may not authorize payment of a dividend unless it is either paid out of our capital surplus, as calculated in accordance with the Delaware General Corporation Law, or if we do not have a surplus, it is paid out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. To the extent we do not have adequate surplus or net profits, we are prohibited from paying dividends.

Securities Authorized for Issuance Under Our Equity Compensation Plan



	Column
	A	B		C
Plan Category	Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (a)	Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A) (b)
Equity compensation plans approved by securityholders	1,965,280	$	8.34	8,950,800
Equity compensation plans not approved by securityholders	N/A	N/A		N/A
Total	1,965,280	$	8.34	8,950,800

____________


(a)	The reported amount includes the following outstanding awards that have been granted under the Boise Inc. Incentive and Performance Plan but not yet earned as of December 31, 2012:

661,746 shares issuable upon the vesting of service-condition vesting restricted stock and restricted stock units.

840,065 shares issuable upon the vesting and exercise of nonqualified stock options.

463,469 shares issuable upon the vesting of performance units (at target). The number of shares to be issued will be based on our return on net operating assets (RONOA) over two two-year performance periods from January 1, 2011, to December 31, 2012, and January 1, 2012, to December 31, 2013. The actual number of shares issued may be adjusted from 0% to 200% of the performance units awarded, based on our actual RONOA performance during the performance period.


(b)	The reported amount assumes the performance units are adjusted to the maximum value (200% of target).

Issuer Purchases of Equity Securities

In 2011, we announced our intent to repurchase up to $150 million of our common stock through a variety of methods, including in the open market, in privately negotiated transactions, or through structured share repurchases. During the year ended December 31, 2011, we repurchased 21,150,692 common shares for an average price of $5.74 per common share. During the year ended December 31, 2012, we repurchased 441 common shares for an average price of $6.63 per common share. We did not repurchase any shares of common stock during the three months ended December 31, 2012. As of December 31, 2012, $28.6 million remained available for repurchase under the existing repurchase authorization limit.

Performance Graph

The following graph compares the return on a $100 investment in our common stock on February 25, 2008 (the day we first began trading on the NYSE as Boise Inc.) with a $100 investment also made on February 25, 2008, in the S&P 500 Index and our peer group. The companies included in our peer group are Domtar Corp., Glatfelter, Greif, Inc., International Paper Company, KapStone Paper & Packaging, MeadWestvaco Corp., Neenah Paper Inc., Packaging Corp. of America, Rock-Tenn Company, Sappi Ltd., Stora Enso Corp., UPM-Kymmene Corp., Verso Paper Corp., and Wausau Paper Corp.

We omitted Temple-Inland Inc. from our peer group this year, because International Paper Company acquired Temple-Inland Inc. in February 2012.

The following table reflects each investment's value at December 31, 2008, 2009, 2010, 2011 and 2012.



	December 31
	2008		2009		2010		2011		2012
Boise Inc.	$	5	$	62	$	98	$	93	$	119
S&P 500 Index	$	67	$	85	$	98	$	100	$	116
Peer Group	$	53	$	84	$	101	$	91	$	115


ITEM 6.	SELECTED FINANCIAL DATA

Except where otherwise indicated, this Selected Financial Data is provided with respect to Boise Inc., which has materially the same financial condition and results of operations as BZ Intermediate Holdings LLC (BZ Intermediate) except for income taxes and common stock activity. Historical differences between the two entities resulted primarily from the effect of income taxes, the notes payable at Boise Inc. that were repurchased and canceled in October 2009, and the associated interest expense on those notes. The following table sets forth selected financial data for the periods indicated and should be read in conjunction with the disclosures in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K (dollars in millions, except per-share data):



	Boise Inc.											Predecessor
	Year Ended December 31											January 1 Through February 21, 2008
	2012 (a)		2011 (b)		2010 (c)		2009 (d)		2008 (e)			January 1 Through February 21, 2008
Statement of income (loss) data
Sales	$	2,555	$	2,404	$	2,094	$	1,978	$	2,071		$	360
Income from operations	148		191		194		306		40			23
Net income (loss)	52		75		63		154		(46		)	23
Net Income (loss) per common share:
Basic	0.52		0.74		0.78		1.96		(0.62		)	—
Diluted	0.52		0.70		0.75		1.85		(0.62		)	—
Earnings before interest, taxes, depreciation, and amortization (EBITDA) (f)	300		333		303		396		145			24
Cash dividends declared per common share	1.20		0.40		0.40		—		—			—
Balance sheet data (at end of year)
Current assets	$	620	$	668	$	653	$	586	$	596
Property	1,247		1,256		1,217		1,223		1,277
Total assets	2,208		2,286		1,939		1,896		1,988
Current liabilities	297		311		304		303		269
Long-term debt, less current portion	770		790		738		785		1,012
Notes payable	—		—		—		—		67
Total liabilities	1,460		1,491		1,292		1,275		1,539
Stockholders' equity	748		795		647		621		449

____________

Included in the selected financial data above are the activities of Aldabra 2 Acquisition Corp. prior to the Acquisition and the operations of the acquired businesses from February 22, 2008, through December 31, 2008. The Predecessor financial data is presented for the periods prior to the Acquisition.


(a)	Included $31.7 million of charges related primarily to ceasing paper production on our one remaining paper machine at our St. Helens, Oregon, paper mill.


(b)	Included $2.2 million of expense recorded in our Packaging segment related to the inventory purchase price adjustments.

Included a $2.3 million loss on extinguishment of debt recorded in the Corporate and Other segment.

Included $3.1 million of transaction-related costs, of which $1.6 million was recorded in our Packaging segment and $1.5 million was recorded in our Corporate and Other segment. Transaction-related costs include expenses associated with transactions, whether consummated or not, and do not include integration costs.


(c)	Included a $22.2 million of loss on extinguishment of debt recorded in the Corporate and Other segment.


(d)	Included $5.8 million of expense associated with the restructuring of the St. Helens, Oregon, mill.

Included $5.9 million of income related to energy hedges.

Included $44.1 million of loss on extinguishment of debt for Boise Inc., or $66.8 million of loss on extinguishment of debt for BZ Intermediate, as a result of the October 2009 debt restructuring. The difference is due to the gain recognized by Boise Inc. related to the notes payable, which were held by Boise Inc.

Included $207.6 million of income for alternative fuel mixture credits.


(e)	Included $37.6 million of expense associated with the restructuring of the St. Helens, Oregon, mill.

Included $7.4 million of expense related to energy hedges.

Included $5.5 million of expense related to lost production and costs incurred as a result of hurricanes Gustav and Ike.

Included $10.2 million of expense related to inventory purchase accounting adjustments.

Included $19.8 million of expense related to the cold outage at the DeRidder, Louisiana, mill.

Included a $2.9 million gain for changes in supplemental pension plans.


(f)	The following table reconciles net income (loss) to EBITDA for the periods indicated (dollars in millions):



	Boise Inc.											Predecessor
	Year Ended December 31											January 1 Through February 21, 2008
	2012		2011		2010		2009		2008			January 1 Through February 21, 2008
Net income (loss)	$	52	$	75	$	63	$	154	$	(46	)	$	23
Interest expense	62		64		65		83		91			—
Interest income	—		—		—		—		(2		)	—
Income tax provision (benefit)	34		50		45		28		(9		)	1
Depreciation, amortization, and depletion	152		144		130		132		110			—
EBITDA	$	300	$	333	$	303	$	396	$	145		$	24

____________

EBITDA represents income (loss) before interest (interest expense and interest income), income tax provision (benefit), 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 (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 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 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.


ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 I, Item 1A. Risk Factors" of this Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission (SEC). We do not assume any 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-K.

This section is provided with respect to Boise Inc. Unless indicated otherwise, BZ Intermediate Holdings LLC (BZ Intermediate) has materially the same financial condition and results of operations as those presented here.

Background

Boise Inc. is a large, diverse manufacturer and seller of packaging and paper products. Our operations began on February 22, 2008, when we acquired the packaging and paper assets of Boise Cascade Holdings, L.L.C. (Boise Cascade). In these 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. We are headquartered in Boise, Idaho, and have approximately 5,300 employees. We operate largely in the United States but also have operations in Europe, Mexico, and Canada.

We operate and report our results in three reportable segments: Packaging, Paper, and Corporate and Other (support services). See Note 17, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K for more information related to our segments.

Executive Summary

In 2012, we reported $52.2 million of net income, compared with $75.2 million in 2011. We reported $300.0 million of EBITDA, or $331.8 million excluding special items, compared with $340.2 million of EBITDA excluding special items in 2011. We were pleased with our overall 2012 operating results. Our mills and converting operations ran well and we reduced costs through productivity improvement by reducing usage of key raw materials. During the year, we generated $97.4 million of operating cash flow, less capital expenditures, and returned $119.7 million of capital to our shareholders through the payment of two special dividends totaling $1.20 per common share. Despite these achievements, our 2012 results were affected adversely by margin compression in some of our Packaging operations and declining prices in our Paper business.

In our Packaging segment, corrugated product sales volumes increased 16%. Approximately 9% of this increase related to our 2011 acquisitions and the remaining 7% was due to increased sales from our network of box plants, while U.S. industry containerboard demand increased a modest 0.6% according to the American Forest & Paper Association (AF&PA). In Packaging, we experienced margin compression in some of our converting operations, primarily in our California and Texas markets. We saw little benefit from the announced $50 per-ton linerboard price increase during the fourth quarter in our converting operations, but we expect to more fully benefit from the increase in first quarter 2013. As of January 31, 2013, we had implemented over 90% of the $50 price increase through our converting operations. We are making targeted capital investments in our converting operations to improve efficiency and keep pace with our sales growth. Our vertical integration rose from an average of 71% during 2011 to 84% in 2012 and we expect it to increase to approximately 90% in 2013 based on our current volumes. This integration reduces our exposure to linerboard export markets, which experienced declines and fluctuations in selling prices during the year. During 2012, we sold 31% less linerboard to external markets.

In our Paper segment, we faced declining prices for communication-grade papers throughout the year, particularly in the fourth quarter. Our average uncoated freesheet net sales price was $968 per-short-ton in 2012, a decrease from $990 per-short-ton in the prior year. The average price for uncoated freesheet in fourth quarter 2012 declined $27 per ton from the previous quarter and dropped $45 per ton from fourth quarter 2011, as industry supply continued to outpace demand. These dynamics factored heavily into our decision to cease paper production at our mill in St. Helens, Oregon, in December 2012, reducing our production capacity in 2013 by 60,000 tons. Paper segment results in 2012 include $31.7 million of charges recorded primarily in connection with our cessation of paper production in St. Helens. In 2012, we took 17,000 tons of market-related downtime in addition to the 19,000 tons of downtime from our planned annual maintenance outages. Despite these challenges, our uncoated freesheet sales volumes for the year increased 2%, due to a 5% increase in sales of label and release and premium office papers and higher purchase volumes by our cut-size customers. In 2012, our Paper operations also benefited from lower energy costs and lower wood fiber costs due to reduced consumption and lower prices of purchased pulp.

Our financial position remains strong. At December 31, 2012, we had $49.7 million of cash and cash equivalents, $780.0 million in total debt, and $487.7 million of unused borrowing capacity under our revolving credit facility.

Outlook

In our Packaging segment in 2013, we expect to continue growing our corrugated operations and to see margin improvement as we increase our vertical integration and more fully benefit from the $50-per-ton linerboard price increase announced in the fall of 2012. We also plan to make targeted capital investments in our converting operations to improve efficiency and keep pace with our sales growth. During first quarter 2013, we will also conduct a cold outage at our mill in DeRidder, Louisiana. Cold outages at this facility occur every five years and are more extensive and costly than our normal annual maintenance outages. We expect total maintenance outage

costs for our Packaging segment in 2013 to be approximately $23 million, an increase of approximately $12 million from 2012, with $20 million expected in first quarter 2013 relative to $2 million in first quarter 2012, with the remaining $3 million expected in third quarter 2013.

In our Paper segment, according to Resource Information Systems Inc. (RISI), U.S. uncoated freesheet industry shipments are expected to decrease 3.2% in 2013. As demand for paper products continues to decline, we will aggressively manage our costs and evaluate the optimal configuration of our white paper assets, to balance our production with the demand for our products. As for key input costs, we expect higher fiber and energy costs and relatively stable chemical costs in 2013.

On February 20, 2013, OfficeMax announced it had signed a definitive merger agreement with its competitor, Office Depot. Our agreement with OfficeMax provides that it would survive the merger with respect to the office paper requirements of the legacy OfficeMax business. We cannot predict how the merger, if finalized, would affect the financial condition of the combined company, the paper requirements of the legacy OfficeMax business, or the effects the combined company would have on the pricing and competition for office papers.

Financial Results and Special Items

The following table sets forth our financial results (dollars in millions, except per-share data):



	Year Ended December 31
	2012		2011		2010
Sales	$	2,555.4	$	2,404.1	$	2,093.8
Net income	52.2		75.2		62.7
Net income per diluted share	0.52		0.70		0.75
Net income excluding special items	71.6		79.9		76.8
Net income excluding special items per diluted share	0.71		0.75		0.91
EBITDA	300.0		332.6		302.6
EBITDA excluding special items	331.8		340.2		325.6

Net income excluding special items, net income excluding special items per diluted share, EBITDA, and EBITDA excluding special items are not measures under U.S. generally accepted accounting principles (GAAP). EBITDA excluding special items and net income excluding special items represent EBITDA and net income adjusted by eliminating items that we believe are not consistent with our ongoing operations. The Company uses these measures to focus on ongoing operations and believes they are useful to investors because these measures enable meaningful comparisons of past and present operating results.

The Company believes that using this information, along with their comparable GAAP measures, provides for a more complete analysis of the results of operations. The following table provides a reconciliation of net income to EBITDA and EBITDA to EBITDA excluding special items (dollars in millions):



	Year Ended December 31
	2012			2011			2010
Net income	$	52.2		$	75.2		$	62.7
Interest expense	61.7			63.8			64.8
Interest income	(0.2		)	(0.3		)	(0.3		)
Income tax provision	34.0			50.1			45.4
Depreciation, amortization, and depletion	152.3			143.8			129.9
EBITDA	$	300.0		$	332.6		$	302.6

St. Helens charges	$	31.7		$	—		$	—
Inventory purchase accounting expense	—			2.2			—
Loss on extinguishment of debt	—			2.3			22.2
Transaction-related costs	—			3.1			—
Change in fair value of energy hedges	—			—			0.6
St. Helens mill restructuring	—			—			0.2
EBITDA excluding special items	$	331.8		$	340.2		$	325.6

The following table reconciles net income to net income excluding special items and presents net income excluding special items per diluted share (dollars and shares in millions, except per-share data):



	Year Ended December 31
	2012			2011			2010
Net income	$	52.2		$	75.2		$	62.7
St. Helens charges	31.7			—			—
Inventory purchase accounting expense	—			2.2			—
Loss on extinguishment of debt	—			2.3			22.2
Transaction-related costs	—			3.1			—
Change in fair value of energy hedges	—			—			0.6
St. Helens mill restructuring	—			—			0.2
Tax provision for special items (a)	(12.3		)	(2.9		)	(8.9		)
Net income excluding special items	$	71.6		$	79.9		$	76.8
Weighted average common shares outstanding: diluted	101.1			106.7			84.1
Net income excluding special items per diluted share	$	0.71		$	0.75		$	0.91

____________


(a)	Special items are tax effected in the aggregate at an assumed combined federal and state statutory rate in effect for the period.

Segment Highlights

Set forth below are our average net selling prices and volumes for our principal products, as well as some key financial information by segment (volumes in thousands of short tons and dollars per short ton, except corrugated containers and sheets, dollars in millions):



	Year Ended December 31
	2012		2011		2010
Packaging
Sales Prices (a)
Linerboard, Total	$	467	$	459	$	434
Linerboard, External sales	415		422		365
Newsprint	540		541		493
Corrugated containers and sheets ($/msf) (b)	76		68		57
Sales volumes (thousands of short tons, except corrugated)
Linerboard, Total	611.1		606.5		601.6
Linerboard, External sales	158.9		230.2		225.2
Newsprint	233.4		230.8		230.7
Corrugated containers and sheets (mmsf) (b)	10,079		8,720		6,735
Input and outage costs
Key input costs
Fiber, including purchased rollstock	$	176.9	$	156.9	$	97.4
Energy	61.2		65.2		65.8
Chemicals	42.0		38.0		31.4
Outage costs	10.9		9.9		9.0
EBITDA (c)	162.5		155.5		103.6
EBITDA excluding special items (c)	162.5		159.3		103.7
Assets	958.0		957.3		505.6
Paper
Sales Prices (a)
Uncoated freesheet (d)	$	968	$	990	$	977
Corrugating medium	509		481		467
Market pulp	458		565		549
Sales volumes
Uncoated freesheet (d)	1,253.8		1,229.8		1,233.0
Corrugating medium	135.3		135.3		126.5
Market pulp	52.9		90.2		81.2
Input and outage costs
Key input costs
Fiber	$	343.1	$	377.1	$	364.4
Energy	134.8		143.9		145.9
Chemicals	211.6		197.8		173.4
Outage costs	14.8		21.5		14.0
EBITDA (c)	161.6		201.5		238.9
EBITDA excluding special items (c)	193.3		201.5		239.6
Assets	1,144.7		1,190.9		1,187.9

____________


(a)	Average net selling prices for our principal products represent sales less freight costs, discounts, and allowances. As reported in Note 17, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K, segment revenues include fees for shipping and handling charged to customers for sales transactions.


(b)	Included corrugated container and sheet prices and volumes for Tharco and Hexacomb since their acquisitions on March 1 and

December 1, 2011, respectively. Increase in sales price during 2012 is primarily due to Hexacomb.


(c)	For reconciliations of non-GAAP measures see "Non-GAAP Measures" of this Management's Discussion and Analysis of Financial Condition and Results of Operations.


(d)	Includes cut-size office papers, printing and converting papers, and label and release papers.

Factors That Affect Our Operating Results

Our results of operations and financial performance are influenced by a variety of factors, including the following:


•	Competing technologies, including electronic substitution, that affect the demand for our products.


•	General global economic conditions, including, but not limited to, durable and nondurable goods production and white-collar employment.


•	The commodity nature of our products and their price movements, which are driven largely by supply and demand.


•	Availability and affordability of raw materials, including wood fiber, energy, and chemicals.


•	Legislation or regulatory environments, requirements, or changes affecting the businesses in which we are engaged.


•	Integration of our acquisitions.


•	Major equipment failure or significant operational setbacks.


•	Our customer concentration and the ability of our customers to pay.


•	Labor and personnel relations.


•	The ability of our lenders, customers, and suppliers to continue to conduct their businesses.


•	Pension funding requirements.


•	Credit or currency risks affecting our revenue and profitability.


•	Severe weather phenomena such as drought, hurricanes and significant rainfall, tornadoes, and fire.


•	The other factors described in "Part I, Item 1A. Risk Factors" of this Form 10-K.