Business News

Boise Inc. Announces Financial Results for Second Quarter 2008

Thursday 07. August 2008 - - Sales increased 5% to $618.4 million vs. combined first quarter 2008(1) - Income from operations of $7.6 million, net loss of $18.1 million ($0.23 per share) - EBITDA(2) of $40.1 million, up from $26.3 million in combined first quarter 2008

Boise Inc. (NYSE:BZ) today reported financial results for second quarter 2008. Sales for second quarter 2008 were $618.4 million, an increase of $35.8 million, or 6% above sales of $582.6 million for the packaging and paper assets of Boise Cascade, L.L.C. (“the Predecessor”) for second quarter 2007(3), and 5% over combined first quarter 2008 sales of $587.9 million. The company reported a net loss of $18.1 million ($0.23 per diluted share) for second quarter 2008 compared to Predecessor net income of $16.5 million for second quarter 2007, which did not include interest expense. EBITDA was $40.1 million for second quarter 2008, an increase of 53% over $26.3 million for combined first quarter 2008.

FINANCIAL HIGHLIGHTS

($ in
millions) Boise Inc. Predecessor Combined Boise Inc. Predecessor
2Q 2008 2Q 2007 1Q 2008 1Q 2008 1Q 2008(a)

Sales $618.4 $582.6 $587.9 $228.0 $359.9
Income (loss)
from
operations $7.6 $16.6 $(9.3) $23.1
Net income
(loss) $(18.1) $16.5 $(16.4) $22.8
EBITDA(b) $40.1 $47.9 $26.3 $2.6 $23.7
Net income
(loss) per
share basic
and diluted $(0.23) $- $(0.26) $-

Interest
expense $(26.1) $- $(11.4) $(11.4) $-
Inventory
revaluation
expense(c) $(3.7) $- $(6.5) $(6.5) $-
Impact of
DeRidder
outage(d) $(20.5) $(20.5) $-
Depreciation
and
amortization(e) $32.7 $30.8 $12.7 $0.5

(a) For the period January 1 – February 21, 2008.
(b) For reconciliation of net income (loss) to EBITDA, see “Segment
Information” in the financial section.
(c) Impact of inventory purchase accounting adjustments to materials,
labor, and other operating expenses associated with transaction.
(d) Includes estimated lost contribution from lower production and
higher costs of maintenance and energy during outage and startup.
(e) Depreciation for certain Predecessor periods was suspended due to
classification of property as assets held for sale.





“We experienced improved pricing in most of our markets, along with continuing rapid and significant cost increases in fiber, energy, and chemicals that offset the benefits of the price improvements,” said Alexander Toeldte, President and Chief Executive Officer of Boise Inc. “We are aggressively addressing cost pressures by focusing on input usage, effectively implementing price increases, and where appropriate, managing production.”

Financial Highlights

EBITDA was $40.1 million for second quarter 2008, an increase of 53% over $26.3 million for first quarter 2008. This compares with EBITDA of $47.9 million for the Predecessor in second quarter 2007. Second quarter 2008 results were negatively impacted by a transaction-related inventory revaluation of $3.7 million associated with the acquisition of Boise Cascade, L.L.C.’s packaging and paper manufacturing businesses.

Boise Inc. reported a net loss of $18.1 million ($0.23 per diluted share) for second quarter 2008 compared to Predecessor net income of $16.5 million for second quarter 2007. Results for the Predecessor period do not include interest expense. Interest expense for second quarter 2008 was $26.1 million.

Operating income for second quarter 2008 was $7.6 million compared to Predecessor operating income of $16.6 million in second quarter 2007 and was negatively impacted by the previously mentioned $3.7 million transaction- related inventory revaluation.

Sales

Sales for second quarter 2008 were $618.4 million, an increase of $35.8 million, or 6% compared to Predecessor sales of $582.6 million for second quarter 2007, and 5% over combined first quarter 2008 sales of $587.9 million. Paper segment sales increased 2% during second quarter 2008 compared to second quarter 2007, driven by higher prices partially offset by lower volumes. Packaging segment sales increased 13% during second quarter 2008 as compared to the second quarter of last year, driven by higher pricing and partially offset by lower corrugated sheet volume.

Prices and Volumes

Boise Inc. implemented price increases for most uncoated freesheet grades during second quarter 2008 as the pricing environment continued to be strong. Average net selling prices of uncoated freesheet improved $70 per ton, or 8% to $925 per ton during second quarter 2008 compared to second quarter 2007 and improved 5% over first quarter 2008. In late May 2008, we announced an additional $60-per-ton price increase on most freesheet papers, which has been implemented on shipments starting in July. Overall, uncoated freesheet volumes were down 7% to 350,000 tons versus the prior year quarter and down 2% year to date compared to 2007. Premium and specialty volumes increased 8% from the prior year second quarter, led by a 20% increase in combined sales of premium office papers, label and release, and flexible packaging grades over second quarter 2007, and increased 1% from first quarter 2008.

During the second quarter, the company’s mills in International Falls, Minnesota, and Wallula, Washington, were shut down for annual planned maintenance. There are no significant planned maintenance shutdowns in third quarter 2008.

Linerboard net selling prices improved 4% to $394 per ton in second quarter 2008 compared to second quarter 2007 and declined 1% over first quarter 2008, due to changes in product and customer mix. In June, we announced a $55-per-ton increase, which is currently being implemented. Volumes increased 13% compared to the prior year period and increased 38% from first quarter 2008, which had fewer operating days due to the planned outage at our mill in DeRidder, Louisiana.

Corrugated container and sheet prices improved 10% in second quarter 2008 compared to second quarter 2007 and improved 2% over first quarter 2008. Volumes declined 6% versus second quarter 2007, due mainly to lower volumes of sheet products as a result of slowing industrial markets. Volumes increased 1% over first quarter 2008.

Newsprint pricing also continued to improve in second quarter 2008. Newsprint net selling prices increased to $544 per ton, a 10% increase versus second quarter 2007, and 9% over first quarter 2008. All of our newsprint production is sold through AbitibiBowater. In May, AbitibiBowater announced an additional $60-per-ton price increase, to be phased in during the third quarter 2008. Newsprint volumes increased 3% over second quarter 2007 and 23% over first quarter 2008, due mainly to fewer operating days in first quarter 2008 as a result of the DeRidder mill outage.

Input Costs

Financial results for the quarter benefited from higher sales and an improved pricing environment but were negatively impacted by increased fiber, energy, and chemical costs. Total fiber costs during second quarter 2008 were $142.3 million, an increase of $23.1 million, or 19% compared to $119.2 million for second quarter 2007 and 12% over $127.3 million for first quarter 2008. The fiber cost increases were driven primarily by increased purchased pulp costs due to the planned maintenance shutdown at our International Falls mill in May and increased residual chip prices in the Pacific Northwest. Energy costs in second quarter 2008 were $84.3 million, an increase of $11.3 million, or 16% compared to $73.0 million in the same quarter a year ago, driven mainly by higher natural gas and electricity prices, and increased 2% compared to $82.8 million in first quarter 2008. Chemical costs in the second quarter 2008 were $63.4 million, an increase of $8.2 million, or 15% compared to $55.2 million in the prior year’s second quarter, and 2% compared to $62.0 million in first quarter 2008, driven by higher prices for commodity chemicals. Total fiber, energy, and chemical costs for second quarter 2008 were $289.9 million, an increase of $42.5 million, or 17% compared to $247.4 million for second quarter 2007.