Business News

Boise Inc. Announces Financial Results for Third Quarter 2008

Tuesday 04. November 2008 - - Net income of $4.4 million or $0.06 per share, an increase of $22.5 million vs. net loss of $18.1 million or ($0.23) per share in second quarter 2008 - EBITDA of $77.9 million, excluding special items, up from $74.1 million in third quarter 2007 and $40.1 million in second quarter 2008

Boise Inc. (NYSE:BZ) today reported net income of $4.4 million or $0.06 per diluted share for third quarter 2008, an increase of $22.5 million over the net loss of $18.1 million or ($0.23) per diluted share in second quarter 2008. EBITDA was $77.9 million, excluding special items, for third quarter 2008, an increase of 5% over $74.1 million for the packaging and paper assets of Boise Cascade, L.L.C. (“the Predecessor”) for third quarter 2007. Special items include $11.3 million of non-cash mark-to-market expenses associated with natural gas hedging derivatives and $5.5 million in lost production and costs incurred in shutting down and restarting the DeRidder, Louisiana, mill as a result of Hurricanes Gustav and Ike.

FINANCIAL HIGHLIGHTS

Boise Inc. Predecessor Boise Inc.
($ in millions) 3Q 2008 3Q 2007 2Q 2008
Sales $633.1 $583.7 $618.4
Income from operations $30.1 $50.7 $7.6
Net income (loss) $4.4 $50.2 $(18.1)
Net income (loss) per share basic and
diluted $0.06 $- $(0.23)
EBITDA (a) $61.1 $74.3 $40.1
EBITDA excluding special items (b) $77.9 $74.1 $40.1

Interest expense $27.5 $- $26.1
Depreciation and amortization (c) $31.4 $23.0 $32.7
Net covenant debt (d) $1,018.1 N/A $1,026.8

(a) For reconciliation of net income (loss) to EBITDA, see “Summary Notes
to Consolidated Financial Statements and Segment Information.”

(b) For reconciliation of EBITDA excluding special items, see “Summary
Notes to Consolidated Financial Statements and Segment Information.”

(c) Predecessor period excludes $10.4 million of depreciation due to
classification of property as assets held for sale.

(d) Net covenant debt is calculated in accordance with credit agreements.
For reconciliation to total debt, see “Summary Notes to Consolidated
Financial Statements and Segment Information.”





“In the third quarter, we improved our earnings as we continued to execute on our strategy and realize previously announced price increases,” said Alexander Toeldte, President and Chief Executive Officer of Boise Inc. “We improved margins, generated positive cash flow, and made progress on paying down debt. We are pleased but not satisfied with these results and remain focused on our transformation to a packaging and office papers company as we navigate through a weakening economy and uncertain demand.”

Financial Highlights

Boise Inc. reported net income of $4.4 million or $0.06 per diluted share for third quarter 2008 compared to a net loss of $18.1 million or ($0.23) per diluted share in second quarter 2008. Predecessor net income for third quarter 2007, which does not include interest expense and depreciation for assets held for sale, was $50.2 million.

Operating income for third quarter 2008 was $30.1 million, an increase of $22.5 million over the $7.6 million in second quarter 2008. Predecessor operating income was $50.7 million in third quarter 2007, which excluded $10.4 million of depreciation. Third quarter 2008 net income and operating income were negatively impacted by the previously mentioned $16.8 million in special items.

EBITDA was $61.1 million for third quarter 2008, an increase of $21.0 million, or 52% over $40.1 million for second quarter 2008. Predecessor EBITDA was $74.3 million for third quarter 2007. Excluding special items, EBITDA for third quarter 2008 was $77.9 million, an increase of $37.8 million, or 94% over $40.1 million for second quarter 2008 and $3.8 million, or 5% over $74.1 million for third quarter 2007.

Total net debt for third quarter 2008 was $1,082.2 million, a decline of $6.3 million from second quarter 2008. Net debt, as defined for covenant calculations, was $1,018.1 million for third quarter 2008, a decline of $8.7 million from $1,026.8 million in second quarter 2008.

Sales

Sales for third quarter 2008 were $633.1 million, an increase of $49.4 million, or 8% compared to Predecessor sales of $583.7 million for third quarter 2007, and 2% over second quarter 2008 sales of $618.4 million. Paper segment sales increased 7% during third quarter 2008 compared to third quarter 2007, driven by higher prices partially offset by lower volumes. Packaging segment sales increased 10% during third quarter 2008 as compared to the third quarter of last year, driven by higher pricing and partially offset by lower corrugated sheet volume.

Prices and Volumes

The pricing environment for most uncoated freesheet grades during third quarter 2008 continued to be favorable. Average net selling prices of uncoated freesheet improved $79 per ton, or 9% to $955 per ton during third quarter 2008 compared to third quarter 2007 and improved 3% over second quarter 2008. Overall, uncoated freesheet volumes were 364,000 tons during the quarter, flat versus the prior year period. Year to date, volumes were 1.1 million tons in 2008, down 1% compared to the same period in 2007. Premium and specialty volumes increased 15% from the prior year third quarter, led by a 25% increase in combined sales of premium office papers, label and release, and flexible packaging grades. Premium and specialty volumes increased 6% over second quarter 2008.

Linerboard net selling prices improved 2% to $392 per ton in third quarter 2008 compared to third quarter 2007 due to increased market prices and declined 1% from second quarter 2008, due to changes in product and customer mix. Linerboard sales volumes increased 5% compared to the prior year period and were down 7% from second quarter 2008 due to lost production caused by Hurricanes Gustav and Ike.

Corrugated container and sheet prices improved 9% in third quarter 2008 over prices for these products during third quarter 2007 and 4% over second quarter 2008 prices. Sales volumes declined 4% versus third quarter 2007, due primarily to lower volumes from our sheet plant in Waco, Texas, as a result of slowing industrial markets in that region and market disruption caused by Hurricane Ike. Sales volumes in third quarter 2008 increased 3% over second quarter 2008.

Newsprint pricing continued to improve in third quarter 2008 as net selling prices increased by $126 per ton, or 27% to $594 per ton versus third quarter 2007 and 9% over second quarter 2008. All of the company’s newsprint production is marketed by AbitibiBowater. In August, AbitibiBowater announced an additional $60-per-ton price increase to be phased in during the fourth quarter 2008; however, there is no assurance that the announced price increase will be fully realized. Newsprint volumes were flat compared to third quarter 2007 and were down 8% from second quarter 2008 due to mill lost production caused by Hurricanes Gustav and Ike.

Input Costs

Total fiber, energy, and chemical costs for third quarter 2008 were $303.7 million, an increase of $49.1 million, or 19% over costs of $254.6 million for third quarter 2007. Excluding the $11.3 million impact of non-cash expense and income associated with natural gas hedging, total fiber, energy, and chemical costs were $292.4 million, an increase of $37.6 million, or 15% compared to $254.8 million in third quarter 2007, and declined $1.3 million from $293.7 million in second quarter 2008.

INPUT COST SUMMARY

Boise Inc. Predecessor Boise Inc.
($ in millions) 3Q 2008 3Q 2007 2Q 2008
Fiber $136.4 $127.5 $142.3
Energy (a) $95.6 $67.4 $84.3
Chemicals $71.7 $59.7 $63.4

Total $303.7 $254.6 $290.0
Energy excluding mark-to-market
expenses $84.3 $67.6 $88.0
Total excluding mark-to-market
expenses $292.4 $254.8 $293.7

(a) Includes $11.3 million expenses for non-cash mark-to-market expenses
in third quarter 2008 and $0.2 million and $3.7 million non-cash
mark-to-market income in third quarter 2007 and second quarter 2008,
respectively.





Total fiber costs during third quarter 2008 were $136.4 million, an increase of $8.9 million, or 7% over the $127.5 million incurred for fiber in third quarter 2007, driven primarily by increased residual chip prices in the Pacific Northwest and increased prices in pulp and recycled fiber. Fiber costs in third quarter 2008 declined $5.9 million, or 4% from $142.3 million for second quarter 2008, due to reduced purchased pulp consumption at our paper mill in International Falls, Minnesota, primarily as a result of the planned maintenance shutdown in second quarter. Energy costs in third quarter 2008 were $95.6 million, an increase of $28.2 million, or 42% compared to $67.4 million in the same quarter a year ago, driven primarily by non-cash expenses associated with natural gas hedging and higher prices for natural gas, electricity, and wood fuel. Energy costs in third quarter 2008 increased $11.3 million, or 13% compared to $84.3 million in second quarter 2008, due to non-cash expenses associated with natural gas hedging partially offset by lower realized natural gas prices. Chemical costs in third quarter 2008 were $71.7 million, an increase of $12.0 million, or 20% compared to $59.7 million in the prior year’s third quarter, and up $8.3 million, or 13% compared to $63.4 million in second quarter 2008, driven by higher prices for commodity chemicals.