SECURITIES AND EXCHANGE COMMISSION
x |
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| 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 |
For the fiscal year ended December 31, 2009
OR
or
¨ |
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| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission File Number: 001-33541
Boise Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 20-8356960For the transition period from
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(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) to |
1111 West Jefferson Street, Suite 200 (Address of principal executive offices) (Zip Code)
(
Registrant’sRegistrants' telephone number, including area code)
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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:Act
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Title of Each Class | | Name of Each Exchange On Which Registered |
Common Stock, $.0001$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 of 1933. Yes ¨ No xAct.
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| 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
Securities Exchange Act of 1934. Yes¨ No xAct.
|
| | | | | |
| Boise Inc. | | Yes ¨ | | No x |
| BZ Intermediate Holdings LLC | | Yes¨ | | No x |
Indicate by check mark whether the
registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨ |
| | | | | |
| Boise Inc. | | Yes x | | No¨ |
| BZ Intermediate Holdings LLC | | Yesx | | 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).
Yes ¨ No ¨ |
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| Boise Inc. | | Yesx | | No ¨ |
| BZ Intermediate Holdings LLC | | Yesx | | 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’sregistrant'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
nonacceleratednon-accelerated filer, or a smaller reporting company. See the definitions of
“large"large accelerated filer,
” “accelerated" "accelerated filer,
”" and
“smaller"smaller reporting
company”company" in Rule 12b-2 of the Exchange
Act.Large accelerated filer ¨ Accelerated filer x Nonaccelerated filer ¨ Smaller reporting company ¨
Act:
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| 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 Securities Exchange Act of 1934)Act).
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| Boise Inc. | | Yes ¨ | | No x |
| BZ Intermediate Holdings LLC | | Yes ¨ | | No x |
¨ No xAs of June 30, 2009,29, 2012, which was the last business day of the registrant’sregistrant's most recently completed second fiscal quarter, the aggregate market value of Boise Inc.’s's Common Stock, par value $.0001$0.0001 per share, held by non-affiliates was approximately $75,667,831$639,167,395 based upon the closing price of $1.72$6.58 per share as quoted on the New York Stock Exchange on that date.
As
There were 100,620,047 common shares, $0.0001 per share par value, of Boise Inc. outstanding as of January 29, 2010, 84,418,691 shares31, 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
Common Stock were outstanding.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
Certain information required for
Part III of this Annual Report on Form 10-K is incorporated by reference toincorporates portions of the Boise Inc. definitive Proxy Statement for its 2010Boise Inc.'s 2013 Annual Shareholders’ Meeting, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14AShareholders' Meeting.
Table of
the Securities Exchange Act of 1934, as amended, within 120 days of Boise Inc.’s year-end.
Contents
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| Item 9. | | |
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| Item 9A. | | |
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| Item 9B. | | |
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PART IIII |
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| Item 10. | | |
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| Item 11. | | |
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| Item 12. | | |
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| Item 13. | | |
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| Item 14. | | |
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| PART IV |
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| Item 15. | | |
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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
Web sitewebsite 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
Web sitewebsite at www.boiseinc.com as soon as reasonably practicable after
we filefiling such material with
or furnish such reports to 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.
In this filing, we use the terms “the Company,” “we,” “us,” or “our” to refer to Boise Inc., the registrant.
Boise Inc. is a large, diverse United States-based manufacturer of packaging products and papers,paper products, including corrugated containers and sheets, containerboard, label and release and flexibleprotective packaging papers,products, imaging papers for the office and home, printing and converting papers, label and release papers, newsprint and market pulp. We own pulp and paper mill operations in the following locations: Jackson, Alabama; International Falls, Minnesota; St. Helens, Oregon; and Wallula, Washington, all of which manufacture uncoated freesheet paper. We also own a mill in DeRidder, Louisiana, which produces containerboard (linerboard) and newsprint. In addition, we have a network of five corrugated container plants located in the Pacific Northwest, a corrugated sheet plant in Nevada, and a corrugated sheet feeder plant in Texas. We are headquartered in Boise, Idaho, and have approximately 4,1005,300 employees.On We operate largely in the United States but also have operations in Europe, Mexico, and Canada.
Below is a map of our locations:
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| Corporate Headquarters | | | | | | |
| Packaging | | | | | | |
| Paper | | | | | | |
Our operations began on February 22, 2008, Aldabra 2 Acquisition Corp. completedwhen we acquired the acquisition (the Acquisition) of Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp. (collectively, the Paper Group), and other assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and part of the headquarters operationspaper assets of Boise Cascade Holdings, L.L.C. (Boise Cascade) (the Acquisition). SubsequentIn this Form 10-K, we use the term "Predecessor" to reference periods before the Acquisition, Aldabra 2 Acquisition Corp. changed its name toincluding the period when our assets were operated by Boise Inc. Cascade.
Corporate Structure and Reporting Segments
The acquired business is referred to in this report on Form 10-K as the “Predecessor.”following sets forth our structure at
December 31, 2012: |
| | | | | | | | | | | | | |
| | | | | Boise Inc. | | | | | |
| | | | | | | | | | | | | |
| | | | | BZ Intermediate Holdings LLC | | | | | |
| | | | | | | | | | | | | |
| | | | | Boise Paper Holdings, L.L.C. | | | | | |
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| Packaging Segment | | Paper Segment | | Corporate and Other Segment |
We operate and report our business in three reportable segments: Packaging, Paper, Packaging, and Corporate and Other (support services). We present information pertaining toabout each of our three segments and the geographic areas in which they operate in Note 18,17, Segment Information, of the Notes to Consolidated Financial Statements in “Part"Part II, Item 8. Financial Statements and Supplementary Data”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 accompanying Consolidated Statementterm containerboard is used to describe linerboard, corrugating medium, or a combination of Income (Loss)the two. When combined, containerboard forms the base material used in the manufacture and Consolidated Statementproduction of Cash Flowscorrugated 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, 2008, include the activities of Aldabra 2 Acquisition Corp. prior to the Acquisition and the operations of the acquired businesses from February 22, 2008, through December 31, 2008. The Predecessor Consolidated Statements of Income (Loss) and Consolidated Statements of Cash Flows for the period of January 1 through February 21, 2008, and for the year ended December 31, 2007, are presented for comparative purposes. The period of February 1 (Inception) through December 31, 2007, represents the activities of Aldabra 2 Acquisition Corp.2012
Corporate StructureThe following chart summarizes, our corporate structure at December 31, 2009:
Paper
Products
We manufacture and sell a range of papers, including communication-based papers, packaging-demand-driven papers, and market pulp. We categorize these papers as shown in the table below:
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Communication-Based
Commodity and Premium Papers
| | Packaging-Demand-Driven
Papers
| | Other
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• Cut-Size Office Papers
| | • Label and Release
| | • Market Pulp
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• Printing and Converting Papers
| | • Corrugating Medium
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Ÿ Envelope
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Ÿ Forms
| | • Flexible Packaging
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Ÿ Commercial Printing
| | | | |
We are the third-largest manufacturer of uncoated freesheet in North America. We classify cut-size office papers, printing and converting papers, label and release, and flexible packaging products as uncoated freesheet. The majority of our communication-based paper sales are cut-size office papers, which account for approximately 63% of segment sales. Total Paper segment capacity including corrugating medium and market pulp wasproduced approximately 1.5 million613,000 short tons (a short ton is equal to 2,000 pounds) at December 31, 2009.
Our strategy inof 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):
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| | Boise Inc. | | | Predecessor |
| | Year Ended December 31 | | | January 1 Through February 21, 2008 |
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| | 2012
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| | 2011 (a) (b) | | 2010
| | 2009 (c) | | 2008 (d) | | |
| Sales | $ | 1,130.1 |
| | $ | 949.7 |
| | $ | 671.9 |
| | $ | 588.4 |
| | $ | 703.7 |
| | | $ | 113.5 |
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| Segment income before interest and taxes | 101.6 |
| | 105.0 |
| | 65.0 |
| | 67.1 |
| | 21.1 |
| | | 5.7 |
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| Depreciation, amortization, and depletion | 60.9 |
| | 50.5 |
| | 38.6 |
| | 42.2 |
| | 35.1 |
| | | 0.1 |
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| EBITDA (e) | $ | 162.5 |
| | $ | 155.5 |
| | $ | 103.6 |
| | $ | 109.3 |
| | $ | 56.2 |
| | | $ | 5.7 |
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| (a) | The table above includes financial results for Tharco and Hexacomb since the acquisitions on March 1 and December 1, 2011, respectively. |
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| (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. |
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| (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. |
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| (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. |
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| (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 26plants 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):
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| | Boise Inc. | | | Predecessor |
| | Year Ended December 31 | | | January 1 Through February 21, 2008 |
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| | 2012 | | 2011 | | 2010 | | 2009 | | 2008 | | |
| Capacity (a) | | | | | | | | | | | | |
| Linerboard | 608 |
| | 605 |
| | 610 |
| | 610 |
| | 600 |
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| Newsprint | 235 |
| | 230 |
| | 225 |
| | 225 |
| | 410 |
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| | 843 |
| | 835 |
| | 835 |
| | 835 |
| | 1,010 |
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| Production (b) | | | | | | | | | | | | |
| Linerboard | 613 |
| | 607 |
| | 602 |
| | 544 |
| | 446 |
| | | 83 |
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| Newsprint | 233 |
| | 229 |
| | 229 |
| | 188 |
| | 331 |
| | | 59 |
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| | 846 |
| | 836 |
| | 831 |
| | 732 |
| | 777 |
| | | 142 |
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| (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. |
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| (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 focusDeRidder, 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 two largestnatural 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:
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| | Boise Inc. | | | Predecessor |
| | Year Ended December 31 | | | January 1 Through February 21, 2008 |
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| | 2012 | | 2011 | | 2010 | | 2009 | | 2008 (c) | | |
| Linerboard (a) | 159 |
| | 230 |
| | 225 |
| | 253 |
| | 194 |
| | | 36 |
|
| Newsprint | 233 |
| | 231 |
| | 231 |
| | 199 |
| | 326 |
| | | 56 |
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| Corrugated containers and sheets (b) | 10,079 |
| | 8,720 |
| | 6,735 |
| | 5,963 |
| | 5,337 |
| | | 914 |
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| (a) | Excludes intercompany sales. |
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| (b) | Includes corrugated container and sheet volumes for Tharco and Hexacomb since the acquisitions on March 1 and December 1, 2011, respectively. |
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| (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, machinesglass, 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 cut-size commodity officeconsumer 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 while dedicatingproducts.
We are the third-largest manufacturer of uncoated freesheet papers in North America, according to RISI and our smaller machines to the production of premium papers, including 100% recycled, high-bright, and colored cut-sizeown estimates. Cut-size office papers, printing and packagingconverting papers, and label and release papers are a subset of the product category we call uncoated freesheet papers. Ourlong-term supply agreement with OfficeMax allows us to focus our largest paper machines on long, high-volume production runs, continue to improve the capacity utilization of our largest paper machines, achieve supply chain efficiencies, and develop and test product and packaging innovations. 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.
We focus our product mix on office and packaging-demand-driven papers to better align ourselves with changing end markets. Many traditional communication paper markets have declined as electronic document transmission and storage alternatives have developed. These declines have varied by specific products. For example,product. While U.S. industry uncoated freesheet purchases declined by 3.6% in 2012 according to the use of business forms has declined significantly, while cut-sizeAmerican Forest & Paper Association (AF&PA), our uncoated freesheet sales volumes, which include premium office paper consumption has declined more modestly over the past several years as increased printer placements in home and manufacturing environments have offset reductions in office consumption. Some paper markets, such as label and release papers, increased 2.0%. We have accomplished this, in part, through growth in our label and flexible packaging papers, are not as sensitiverelease papers. The market for these products continues to electronic substitution. During the year ended December 31, 2009, salesgrow 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 4%,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 combinedSt. 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):
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| | Boise Inc. | | | Predecessor |
| | Year Ended December 31 | | | January 1 Through February 21, 2008 |
|
| | 2012 (a) |
| | 2011
| | 2010
| | 2009 (b) |
| | 2008 (c) | | |
| 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 |
|
____________
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| (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, 2008.2012
(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 approximately87% 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,
2009 | | Year
Ended
December 31,
2008 | | January 1
Through
February 21,
2008 | | Year Ended December 31 |
| | | | | 2007 | | 2006 | | 2005 |
| | | | | | |
Capacity (a) | | | | | | | | | | | | |
Uncoated freesheet | | 1,265 | | 1,300 | | | | 1,484 | | 1,547 | | 1,550 |
Containerboard (medium) | | 135 | | 136 | | | | 138 | | 134 | | 130 |
Market pulp | | 145 | | 136 | | | | 229 | | 224 | | 228 |
| | | | | | | | | | | | |
| | 1,545 | | 1,572 | | | | 1,851 | | 1,905 | | 1,908 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | |
Production (b) | | | | | | | | | | | | |
Uncoated freesheet | | 1,198 | | 1,204 | | 208 | | 1,458 | | 1,520 | | 1,487 |
Containerboard (medium) | | 126 | | 118 | | 19 | | 134 | | 132 | | 128 |
Market pulp | | 114 | | 187 | | 31 | | 221 | | 187 | | 229 |
| | | | | | | | | | | | |
| | 1,438 | | 1,509 | | 258 | | 1,813 | | 1,839 | | 1,844 |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | | Predecessor |
| | Year Ended December 31 | | | January 1
Through
February 21, 2008 |
| | 2012 | | 2011 | | 2010 | | 2009 | | 2008 (b) | | |
| 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. |
The following table sets forth segment sales; segment income (loss) before interest and taxes; depreciation, amortization, and depletion; and earnings before interest, taxes, depreciation, and amortization (EBITDA) for the periods indicated (dollars, in millions):
| | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | Predecessor |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | January 1
Through
February 21,
2008 | | Year Ended December 31 |
| | | | | 2007 | | 2006 | | 2005 |
| | | | | | |
Sales | | $ | 1,420.0 | | $ | 1,403.7 | | $ | 253.5 | | $ | 1,596.2 | | $ | 1,494.7 | | $ | 1,415.2 |
Segment income (loss) before interest and taxes | | $ | 262.7 | | $ | 32.7 | | $ | 20.7 | | $ | 133.5 | | $ | 63.3 | | $ | 57.5 |
Depreciation, amortization, and depletion | | | 85.2 | | | 71.7 | | | 0.3 | | | 45.0 | | | 62.3 | | | 55.2 |
| | | | | | | | | | | | | | | | | | |
EBITDA (a) (b) | | $ | 347.8 | | $ | 104.3 | | $ | 21.1 | | $ | 178.5 | | $ | 125.6 | | $ | 112.6 |
| | | | | | | | | | | | | | | | | | |
(a) | Segment EBITDA is calculated as segment income (loss) before interest (interest income, interest expense, |
| (c) | In 2012, we reduced market pulp production to balance our production with the demand for our products and change in fair value of interest rate derivatives), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. See “Part II, Item 6. Selected Financial Data” of this Form 10-K for a descriptionbegan utilizing more 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).market pulp internally. |
(b) | The year ended December 31, 2009, includes approximately $149.9 million of income from alternative fuel mixture credits. |
Facilities
We have four paper mills in the Paper segment, all located in the United States. These mills had an annual capacity of 1.3 million short tons of uncoated freesheet as of December 31, 2009. These mills are supported by converting machines that, on a net basis, can produce approximately 0.8million short tons of cut-size papers annually.
The following table sets forth the annual capacities of manufacturing locations in our Paper segment as of December 31, 2009, and production for the year then ended (in thousands of short tons):
| | | | | | |
| | | Number of
Machines | | Capacity (a) | | Production |
| | | |
PULP AND PAPER MILLS | | | | | | |
Jackson, Alabama | | | | | | |
Uncoated freesheet | | 2 | | 480 | | 469 |
International Falls, Minnesota | | | | | | |
Uncoated freesheet | | 4 | | 530 | | 494 |
St. Helens, Oregon | | | | | | |
Uncoated freesheet | | 1 | | 55 | | 53 |
Wallula, Washington | | | | | | |
Uncoated freesheet | | 1 | | 200 | | 182 |
Containerboard (medium) | | 1 | | 135 | | 126 |
Market pulp | | 1 | | 145 | | 114 |
| | | | | | |
| | 10 | | 1,545 | | 1,438 |
| | | | | | |
(a) | Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. |
Raw Materials and Input Costs
Wood fiber
Fiber is our principal raw material in this segment. During the year ended December 31, 2009, wood2012, fiber costs accounted for approximately 27%28% of materials, labor, and other operating expenses (excluding depreciation) in this segment. The primary sources of wood fiber are timberwood and byproducts of timber. Most of our manufacturing facilities are located in close proximity to active wood markets. Because of the decline insuppression 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 except St. Helens, have on-site pulp production facilities. Some of our paper mills also purchase pulp from third parties pursuant to contractual arrangements.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. As we are currently configured and under normal operating conditions,After ceasing production at our St. Helens, Oregon, paper mill, we are a net consumer of pulp, producing and sellingpurchasing approximately 80,000 to 100,00060,000 short tons less pulp volume annually on the open marketmore than we consume.produce annually, subject to changes in product mix.
We
generally purchase
raw materialswood fiber through contracts
orand open-market purchases. Our contracts are generally with suppliers located in
closestclose proximity to the specific facility they supply, and they
generallycommonly 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, 2009,2012, energy costs accounted for approximately 12%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. In addition, weWe also use derivative instruments such as three-way collars, natural gas caps, call spreads, and swaps, or a combination of these instruments, to mitigate price risk for our energy requirements.We consume a significant amount of chemicals For more information about our derivative instruments, see Note
9, Financial Instruments, in the productionNotes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of paper. Important chemicals we use include starch, caustic, sodium chlorate, precipitated calcium carbonate, dyestuffs, and optical brighteners. During the year ended December 31, 2009, chemical costs accounted for approximately 15% of materials, labor, and other operating expenses in this segment. Many of our chemicals are purchased under contracts, which provide more stability than open-market purchases. However, many of these contracts are negotiated annually at prevailing rates. Higher prevailing rates may result in increases to overall chemical costs.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,
2009 | | Year
Ended
December 31,
2008 | | January 1
Through
February 21,
2008 | | Year Ended December 31 |
| | | | | 2007 | | 2006 | | 2005 |
| | | | | | |
Commodity | | 844 | | 768 | | 164 | | 995 | | 999 | | 1,080 |
Premium and specialty | | 407 | | 432 | | 72 | | 480 | | 498 | | 436 |
| | | | | | | | | | | | |
Uncoated freesheet | | 1,251 | | 1,200 | | 236 | | 1,475 | | 1,497 | | 1,516 |
| | | | | | |
Containerboard (medium) | | 127 | | 118 | | 19 | | 134 | | 132 | | 128 |
Market pulp | | 58 | | 102 | | 20 | | 145 | | 112 | | 142 |
| | | | | | | | | | | | |
| | 1,436 | | 1,420 | | 275 | | 1,754 | | 1,741 | | 1,786 |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | | Predecessor |
| | Year Ended December 31 | | | January 1
Through
February 21, 2008 |
| | 2012 | | 2011 | | 2010 | | 2009 | | 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
CustomersOur largest customer in this segment is OfficeMax. During the year ended December 31, 2009, sales to OfficeMax accounted for $545.4 million of Paper segment sales. Sales to OfficeMax constitute 41% of total uncoated freesheet sales volume and 63% of our office papers sales volume. Pursuant to a long-standing contractual agreement, OfficeMax has agreed to purchase its full North American requirements for cut-size office paper from Boise Inc. through December 2012. OfficeMax’s purchase obligations under the agreement will phase out ratablyWe have over a four-year period beginning one year after the delivery of notice of termination, but in no event will the purchase obligation be reduced prior to December 31, 2012. The price for paper sold under this supply agreement approximates market prices. However, due to the structure of the contract, price changes to OfficeMax lag the market by approximately 60 days.
In addition to OfficeMax, we have approximately 800600 uncoated freesheet paper customers. Our customers includeincluding 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 addition2012, our sales to theOfficeMax 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 weallows 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 long-term relationships with other customers.on the pricing and competition for office papers. No single customer, other than OfficeMax, exceeds 6% 10%of segment sales.
Packaging
Corporate and Other
ProductsOur 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 manufactureprovide transportation services not only to our own facilities but also, on a limited basis, to third parties when geographic proximity and sell corrugated containerslogistics are favorable. Rail cars and sheets as well as linerboardtrucks are typically leased. During the years ended December 31, 2012, 2011, and newsprint. Containerboard is used in the production of corrugated containers and sheets. Our corrugated containers are used in the packaging of fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. Corrugated sheets are sold2010, segment sales related primarily to converting operations, which finish the sheets into corrugated container products. During the year ended December 31, 2009, our Packaging segment produced approximately 544,000 short tons of linerboard,rail and our Paper segment produced approximately 126,000 short tons of corrugating medium, both of which are used in the production of corrugated containers. During the year ended December 31, 2009, our corrugated containertruck business were $68.9 million, $68.3 million, and sheet feeder plants consumed approximately 451,000 short tons of containerboard (including both linerboard and corrugating medium) or the equivalent of 67% of our containerboard production.
We operate our Packaging segment to maximize profitability through integration between our containerboard and converting operations and through operational improvements in our facilities to lower costs and improve efficiency. We plan to increase our integration levels and leverage our
corrugated box position in the agricultural and food markets. We are a low-volume producer of newsprint, and we believe that our newsprint production has a low delivered cost to the southern U.S. markets. In April 2009, we announced that we had indefinitely idled the #2 newsprint machine (D-2) at our mill in DeRidder, Louisiana. The idled machine has an annual capacity of 186,000 short tons of newsprint. We continue to operate the #3 newsprint machine (D-3).
$65.4 million, respectively.
The following table sets forth
capacitysegment sales; segment loss before interest and
production by producttaxes; loss on extinguishment of debt; depreciation, amortization, and depletion; and EBITDA for the periods indicated
(in thousands of short tons)(dollars in millions):
| | | | | | | | | | | | |
| | | Boise Inc. | | Predecessor |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | January 1
Through
February 21,
2008 | | Year Ended December 31 |
| | | | | 2007 | | 2006 | | 2005 |
Capacity (a) | | | | | | | | | | | | |
Containerboard (linerboard) | | 610 | | 600 | | | | 575 | | 559 | | 554 |
Newsprint | | 225 | | 410 | | | | 425 | | 426 | | 434 |
| | | | | | | | | | | | |
| | 835 | | 1,010 | | | | 1,000 | | 985 | | 988 |
| | | | | | | | | | | | |
Production (b) | | | | | | | | | | | | |
Containerboard (linerboard) | | 544 | | 446 | | 83 | | 573 | | 554 | | 533 |
Newsprint | | 188 | | 331 | | 59 | | 409 | | 415 | | 411 |
| | | | | | | | | | | | |
| | 732 | | 777 | | 142 | | 982 | | 969 | | 944 |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | | Predecessor |
| | Year Ended December 31 | | | January 1 Through February 21, 2008 |
|
| | 2012
| | 2011 (a) |
| | 2010
| | 2009 (b)
|
| | 2008 (c) | | |
| 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) | Capacity numbers are shown as ofThe year ended December 31, for the2011, 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 presented. Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements.ended December 31, 2009, includes approximately $3.9 million of expense related to alternative fuel mixture credits. |
(b) | |
| (c) | The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008.2008, and includes a $2.9 million gain on changes in supplemental pension plans. |
The following table sets forth segment sales; segment income (loss) before interest and taxes; depreciation, amortization, and depletion; and EBITDA for the periods indicated (dollars, in millions):
| | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | Predecessor |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | January 1
Through
February 21,
2008 | | Year Ended December 31 |
| | | | | 2007 | | 2006 | | 2005 |
| | | | | | |
Sales | | $ | 588.4 | | $ | 703.7 | | $ | 113.5 | | $ | 783.1 | | $ | 766.5 | | $ | 731.6 |
Segment income (loss) before interest and taxes | | $ | 67.1 | | $ | 21.1 | | $ | 5.7 | | $ | 40.1 | | $ | 45.3 | | $ | 23.8 |
Depreciation, amortization, and depletion | | | 42.2 | | | 35.1 | | | 0.1 | | | 37.7 | | | 50.8 | | | 37.2 |
| | | | | | | | | | | | | | | | | | |
EBITDA (a) (b) | | $ | 109.3 | | $ | 56.2 | | $ | 5.7 | | $ | 77.8 | | $ | 96.1 | | $ | 61.0 |
| | | | | | | | | | | | | | | | | | |
(a) | |
| (d) | Segment EBITDA is calculated as segment income (loss)loss before interest (interest income and interest expense, and change in fair value of interest rate derivatives)expense), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makersmaker to evaluate segment operating performance and to decide how to allocate resources to segments. See “Part"Part II, Item 6. Selected Financial Data”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). |
(b) | The year ended December 31, 2009, includes approximately $61.6 million of income from alternative fuel mixture credits. |
We manufactured approximately 188,000 short tons
Competition
All of
newsprint during the
year ended December 31, 2009, for use primarily in printing daily newspapers and other publications in North America. Demand for newsprint has declined dramatically in the last several years and may continue to decline as newspapers are replaced with electronic media. By idling the D-2 machine, we reduced operating and capital costs during this period of declining newsprint demand, while preserving the asset for potential future use. We may pursue future opportunities to convert the machine for packaging production. Should the need arise, we can restart the D-2 machine within a short period of time.Facilities
We manufacture containerboard (linerboard) and newsprint at our mill in DeRidder, Louisiana. This mill’s annual production capacity is approximately 835,000 short tons as of December 31, 2009. We also manufacture corrugated containers and sheets at five plants in the Northwest, a sheet plant in Nevada, and a sheet feeder plant in Texas, with an aggregate annual capacity of approximately 7.3 billion square feet (which assumes operating the plants five days a week, 24 hours a day).
The following table sets forth annual capacities of our containerboard (linerboard) and newsprint mill in DeRidder, Louisiana, as of December 31, 2009, and production for the year then ended (in thousands of short tons):
| | | | | | |
| | | Number
of
Machines | | Capacity (a) | | Production |
PULP AND PAPER MILL | | | | | | |
DeRidder, Louisiana | | | | | | |
Containerboard (linerboard) | | 1 | | 610 | | 544 |
Newsprint | | 1 | | 225 | | 188 |
| | | | | | |
| | 2 | | 835 | | 732 |
| | | | | | |
(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. |
Raw Materials and Input Costs
Wood fiber 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, 2009, wood fiber costs accounted for approximately 17% of material, labor, and other operating expenses in this segment. We generally purchase raw materials through market-based contracts or on the open market with suppliers located in close proximity to DeRidder. We obtain some of our wood residuals from Boise Cascade’s wood products plants in Louisiana, and the remainder of the wood residuals are purchased from outside sources.
Our Packaging segment consumes substantial amounts of energy, such as electricity and natural gas. During the year ended December 31, 2009, energy costs accounted for approximately 10% of materials, labor, and other operating expenses in this segment. We purchase substantial portions of our natural gas and electricity under supply contracts. Under most of these contracts, the providers are bound to supply us with all of our needs for a particular type of energy at a specific facility. Our 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 three-way collars, natural gas caps, call spreads, and swaps, or a combination of these instruments, to mitigate price risk. For more information about our derivative instruments, see “Disclosures of Financial Market Risks” in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K.
We consume chemicals in the manufacturing of our Packaging segment products. Important chemicals we use include pulping and bleaching chemicals such as caustic, starch, sulfuric acid, and sodium chlorate. During the year ended December 31, 2009, chemical costs accounted for approximately 7% of materials, labor, and other operating expenses in this segment. Many of our chemicals are purchased under long-term contracts, which provide more stability than open-market purchases. However, many of these contracts are negotiated at the end of each year at prevailing rates. Higher prevailing rates may result in increases to overall chemical costs.
Sales, Marketing, and Distribution
Our containerboard (linerboard) and corrugated containers and sheets are sold by our own sales personnel or brokers. Abitibi Consolidated Sales Corporation (ACSC) purchased all of our newsprint production until late February 2009, when we terminated the arrangement with ACSC. Since that time, we have sold newsprint through our own sales personnel.
The following table sets forth sales volumes of containerboard (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,
2009 | | Year
Ended
December 31,
2008 | | January 1
Through
February 21,
2008 | | Year Ended December 31 |
| | | | | 2007 | | 2006 | | 2005 |
| | | | | | |
Containerboard (linerboard) | | 253 | | 194 | | 36 | | 239 | | 266 | | 452 |
Newsprint | | 199 | | 326 | | 56 | | 415 | | 411 | | 408 |
| | | | | | |
Corrugated containers and sheets | | 5,963 | | 5,337 | | 914 | | 6,609 | | 6,599 | | 4,770 |
Customers
During the year ended December 31, 2009, approximately 47% of our linerboard volume was sold in the open market, both domestically and internationally. The remaining volume was used in our operations. We sell our finished corrugated containers to over 1,100 active customers, including large agricultural producers and food and beverage processors. We sell corrugated sheets to over 200 converters, who use the sheets to manufacture corrugated containers for a variety of customers.
We have a focused position in the agricultural and food markets for corrugated boxes. We service these less cyclical end markets with our five strategically located corrugated container plants, one sheet feeder plant, and one sheet plant. With our regional focus and footprint, we are able to service our customers’ needs from multiple plants, schedule operating runs to maximize productivity, and reduce waste and better utilize different paper roll sizes. We believe this position in favorable end markets has contributed to increases in our profitability and has made us more resistant to economic downturns. We sell to newspaper publishers located in regional markets near our DeRidder, Louisiana, manufacturing facility and to export markets primarily in South America.
Corporate and Other
Our Corporate and Other segment includes primarily corporate support services, related assets and liabilities, and foreign exchange gains and losses. During the Predecessor periods presented, the Corporate and Other segment included primarily an allocation of Boise Cascade corporate support services and related assets and liabilities. These support services included, but were not limited to, finance, accounting, legal, information technology, and human resource functions. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport our products from our manufacturing sites. Rail cars and trucks are generally leased. We provide transportation services not only to our own facilities but also, on a limited basis, to third parties when geographic proximity and logistics are favorable. During the year ended December 31, 2009, segment sales related primarily to our rail and truck business were $63.8 million. During the year ended December 31, 2008, and the Predecessor period of January 1 through February 21, 2008, and for the year ended December 31, 2007, these sales were $67.7 million, $8.5 million, and $58.9 million, respectively.
In connection with the Acquisition, we entered into a services agreement under which we provide a number of corporate staff services to Boise Cascade at our cost. These services include
information technology, accounting, and human resource services. The initial term of the agreement is for three years and will expire on February 22, 2011. It will automatically renew for one-year terms unless either party provides notice of termination to the other party at least 12 months in advance of the applicable term. For the year ended December 31, 2009 and 2008, we recorded $15.0 million and $12.1 million, respectively, in “Sales, Related parties.”
The following table sets forth segment sales; segment income (loss) before interest and taxes; depreciation, amortization, and depletion; and EBITDA for the periods indicated (dollars, in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | Predecessor | |
| | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | January 1
Through
February 21,
2008 | | | Year Ended December 31 | |
| | | | | 2007 | | | 2006 | | | 2005 | |
| | | | | | |
Sales | | $ | 63.8 | | | $ | 67.7 | | | $ | 8.5 | | | $ | 58.9 | | | $ | 61.4 | | | $ | 66.5 | |
Segment income (loss) before interest and taxes | | $ | (21.5 | ) | | $ | (18.6 | ) | | $ | (3.2 | ) | | $ | (11.9 | ) | | $ | (14.9 | ) | | $ | (7.7 | ) |
Loss on extinguishment of debt | | | (44.1 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Depreciation, amortization, and depletion | | | 4.1 | | | | 3.2 | | | | 0.1 | | | | 1.9 | | | | 3.3 | | | | 3.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
EBITDA (a) (b) | | $ | (61.5 | ) | | $ | (15.4 | ) | | $ | (3.1 | ) | | $ | (10.0 | ) | | $ | (11.6 | ) | | $ | (4.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Segment EBITDA is calculated as segment income (loss) before interest (interest income, interest expense, and change in fair value of interest rate derivatives), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. See “Part II, Item 6. Selected Financial 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). |
(b) | The year ended December 31, 2009, includes approximately $3.9 million of expense from alternative fuel mixture credits. |
Competition
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 globally.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.
Some
Within our operating segments, some of our competitors
in each of our segments 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.
Paper.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 fourmajor 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 fourmajor 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
largelyprimarily 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.
The
North American uncoated freesheet paper producers shipped 10.910.1 millionshort tons in 20092012, and has fourmajor manufacturers that account for approximately 74% of capacity, according to Resource Information Systems Inc. (RISI)RISI and our own estimates. As of December 31, 2009,2012, we believethat we are the
third-largest producer of uncoated freesheet paper in North America.America, according to RISI and our own estimates. Our largest competitors include Domtar Corporation, (the largest producer), 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 and increasing use of the Internet 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 including Boise Inc., have responded to declining demand by closingclosed or significantly curtailingcurtailed capacity in response to match lower demand. In December 2008,demand in recent years. During 2012, we permanently restructured our mill in St. Helens, Oregon, by permanently closing the pulp mill and twotook approximately 17,000short tons of our three paper machines at that facility. During 2009, we elected to take economicmarket-related downtime and slowed production on selected machines to balance productionfor uncoated freesheet, compared with demand.approximately 8,000 short tons taken during 2011. We may continuechoose to take additional downtime or slow production in the future if market conditions warrant.Packaging. The North American containerboard (corrugating medium and linerboard) manufacturers produced 33 million short tons in 2009, and five major manufacturers account for approximately 72% of capacity, according to RISI and our estimates. Our largest competitors include International Paper Company, Smurfit-Stone Container Corporation, Georgia-Pacific LLC, Temple-Inland, Inc., and Packaging Corporation of America. Containerboard (corrugating medium and linerboard) and newsprint are globally traded commodities with numerous worldwide manufacturers. These products compete primarily on the basis of price. The intensity of competition in these industries fluctuates based on demand and supply levels as well as prevailing foreign currency exchange rates. Our corrugated container operations in the Pacific Northwest have a leading regional market position and compete with several national and regional manufacturers. Our plant in Waco, Texas, known as Central Texas Corrugated, or CTC, produces corrugated sheets that are sold to sheet plants in the Southwest, where they are converted into corrugated containers for a variety of customers. Some of our competitors have lower operating costs and/or enjoy greater integration between their containerboard production and corrugated container production than we do.
The North American newsprint producers shipped 7.2 million metric tonnes (a metric tonne is equal to 2,205 pounds) in 2009 and has three major manufacturers that account for approximately 74% of capacity, according to RISI and our estimates. Our largest competitors include AbitibiBowater Inc., White Birch Paper, and Kruger. In April 2009, AbitibiBowater Inc., North America’s largest maker of newsprint, sought bankruptcy protection in the U.S. and Canada.
Demand for newsprint has declined dramatically in the last several years and may continue to decline as electronic media replaces newspapers. Major producers have closed capacity and taken downtime, including AbitibiBowater, which announced in December 2008 a total of approximately 1,070,000 metric tonnes of permanent and temporary curtailments for 2009. In April 2009, we announced that we had indefinitely idled the D-2 newsprint machine at our mill in DeRidder, Louisiana. Depending on demand and our ability to sell newsprint through our own sales personnel, we may be required to take economic downtime or slow production on our newsprint machine to balance production with demand, as market conditions warrant.
Our discussion of environmental issues is presented under the caption
“Environmental”"Environmental" in
“Part"Part II, Item 7.
Management’sManagement's Discussion and Analysis of Financial Condition and Results of
Operations”Operations" and
“Part"Part I, Item 3. Legal
Proceedings”Proceedings" of this Form 10-K.
Information concerning our capital expenditures is presented under the caption
“Investment Activities”"Investment Activities" in
“Part"Part II, Item 7.
Management’sManagement's Discussion and Analysis of Financial Condition and Results of
Operations”Operations" of this Form 10-K.
Seasonality
Our businesses
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
in the Pacific Northwest.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 levels fluctuate throughout the year and are affected by seasonality,
scheduled annual maintenance shutdowns, and changing sales patterns.
Typically, we buildIn 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
we build finished goods inventoryboth a hedge against winter weather disruptions within our supply chain and in
preparation for first quarteranticipation 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.
In our Packaging segment, agricultural demand influences working capital as finished good inventory levels are increased in preparation for the harvest season in third and fourth quarters. Changes in sales volumes
and the timing of collections can affect accounts receivable levels in both our
PaperPackaging and
PackagingPaper 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
We may
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.
For more information about our acquisitions and divestitures, see “Acquisition of Boise Cascade’s Paper and Packaging Operations” and “St. Helens Mill Restructuring and DeRidder Machine Idling,” in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K.
As of January 31, 2010,2013, we had approximately 4,100 employees.5,300 employees and approximately 50%of these employees worked pursuant to collective bargaining agreements. Approximately 60%4% of theseour employees work pursuant to collective bargaining agreements. As of January 31, 2010, approximately 33% of our employees were working pursuant to collective bargaining agreements that have expired or will expire within one year, including agreements at the following facility locations: Wallula, Washington; DeRidder, Louisiana; Jackson, Alabama; St. Helens, Oregon; and Nampa, Idaho. The labor contract at our paper mill in Wallula, Washington (332 employees represented by the Association of Western Pulp & Paper Workers, or AWPPW) expired in March 2009 and was terminated by the AWPPW on October 31, 2009. In early February 2010, the union employees at Wallula rejected a new collective bargaining agreement that union leadership had recommended unanimously. On February 22, 2010, the company declared an impasse in the bargaining process and implemented the terms of the last contract offer. Our potential inability to reach a mutually acceptable labor contract at Wallula, or at any of our other facilities, could result in, among other things, strikes or other work stoppages or slowdowns by the affected employees.next 12 months.
Executive Officers of
the Registrant
The following individuals are deemed our
“executive officers”"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, 50,53, President and Chief Executive Officer, Director— Mr. Toeldte has served as ourthe company's president and chief executive officer and a director since the Acquisition on February 22, 2008. Mr. Toeldte joined Boise Cascade Holdings, L.L.C., in early October 2005 as president of the Company’scompany'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’sToeldte'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 also served as a partner at McKinsey & Company in Toronto, Brussels, Montreal, and Stockholm. Mr. Toeldte studied economics at the Albert-Ludwigs-UniversitatAlbert-Ludwigs-Universität in Freiburg, Germany, and received an M.B.A. from McGill University in Montreal, Canada.
Jeffrey P. Lane,Judith M. Lassa, 54, SeniorExecutive Vice President and General Manager, PackagingChief Operating Officer — Mr. Lane joined the Company Ms. Lassa has served as executive vice president and was electedchief operating officer since January 2013. Ms. Lassa served as senior vice president and general manager of our packagingpaper and specialty products operations on April 30, 2008. Priorfrom November 2010 to joining the Company, Mr. Lane was a partner at McKinsey & Company from 1989December 2012. From February 2008 to 1995 and from 1998 until 2008. From 2000 until 2008, Mr. Lane led McKinsey’s global packaging industry practice. Mr. LaneOctober 2010, Ms. Lassa served as the president of MicroCoating Technologies, an advanced materials technology start-up during 1997 and served as the vice president of marketing and business development for Westinghouse Security Systems, a division of Westinghouse Electric Corporation, during 1996.our Packaging segment. From 1983October 2004 to 1989, Mr. LaneFebruary 2008, Ms. Lassa served as brand manager at The Procter & Gamble Company,vice president, Packaging, of Boise Cascade, L.L.C. Prior to 2004, Ms. Lassa served in a global consumer products company. Mr. Lanenumber of capacities with Boise Cascade Corporation, including vice president, Packaging, and packaging business leader. Ms. Lassa received a B.S. (Biology)in Paper Science and Engineering from Georgia Institutethe University of Technology and an M.B.A. from Kellogg Graduate School of Management, Northwestern University.Wisconsin-Stevens Point.
Robert M. McNutt, 49,Samuel K. Cotterell, 61, Senior Vice President and Chief Financial Officer— Mr. McNuttCotterell has served as our senior vice president and chief financial officer since the Acquisition onJanuary 2011. From February 22, 2008. Prior2008 to the Acquisition, and since June 2005,December 2010, Mr. McNutt served as Boise Cascade’s vice president, Investor Relations and Public Policy. From October 2004 to May 2005, Mr. McNutt served as Boise Cascade’s financial manager, Building Products, where he was the senior financial manager overseeing Boise Cascade’s Wood Products and Building Materials Distribution segments with responsibility for strategy, information systems, accounting, and credit functions. Mr. McNutt received a B.A. (Accounting and Finance) and an M.B.A. (Accounting) from Washington State University.Robert E. Strenge, 55, Senior Vice President, Manufacturing — Mr. Strenge was elected senior vice president of our paper manufacturing operations on April 30, 2008. Since the Acquisition, Mr. Strenge had served as vice president of the Company’s Newsprint segment, a position that he also held with Boise Cascade from October 29, 2004, to the date of the Acquisition. Mr. Strenge was Boise Cascade Corporation’s vice president, DeRidder Operations, from 2003 to 2004. From 1997 to
2003, Mr. Strenge served as mill manager of Boise Cascade Corporation’s St. Helens, Oregon, paper mill. Mr. Strenge received a B.S. (Pulp and Paper Technology) from Syracuse University.
Robert A. Warren, 57, Senior Vice President and General Manager, Paper and Supply Chain — Mr. Warren was elected senior vice president and general manager of our paper operations and supply chain management function on April 30, 2008. Since the Acquisition, Mr. Warren had served as general manager of the Company’s supply chain function, a position that he also held with Boise Cascade since 2006. From 2004 to 2005, Mr. Warren was the business leader for Boise Cascade’s printing papers business, and from 2003 to 2004, he was a project leader for Boise Cascade Corporation. Prior to joining Boise Cascade Corporation, Mr. Warren was the president and chief executive officer for Strategy in Action Group, a private business consulting firm. Mr. Warren received a B.S. (General Engineering) from Oregon State University and an M.B.A. from Kellogg Graduate School of Management, Northwestern University.
Samuel K. Cotterell 58, Vice President and Controller — Mr. Cotterell has served as our vice president and controller since the Acquisition oncontroller. From October 2004 to February 22, 2008. Prior to the Acquisition, and since October 2004,2008, Mr. Cotterell served as Boise Cascade’s vice president and controller. From 1999controller of Boise Cascade, L.L.C. Prior to October 2004, Mr. Cotterell served as director of financial reporting of Boise Cascade Corporation. Mr. Cotterell received a B.A. (Spanish)in Spanish from the University of Idaho, a B.S. (Accounting)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.
Judith M. Lassa, 51,Karen E. Gowland, 54, Senior Vice President, PackagingGeneral Counsel and Secretary— Ms. LassaGowland 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 Packaging segment since the Acquisition on February 22, 2008. Prior to the Acquisition, and sinceNewsprint segment. From October 2004 Ms. Lassa served as Boise Cascade’s vice president, Packaging. From 2000 to October 2004, Ms. LassaFebruary 2008, Mr. Strenge served as vice president Packaging,of the Newsprint segment of Boise Cascade, Corporation. From 1997L.L.C. Prior to 2000,2004, 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. LassaMadarieta has served as Packaging business leaderour 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, Corporation.L.L.C. From October 2004 to January 2008, Ms. LassaMadarieta 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.S. (Paper ScienceB.B.A. in Accounting from Boise State University and Engineering) from the Universityis a certified public accountant.
Our financial and operating results are subject to a variety of
Wisconsin-Stevens Point.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"Part II, Item 7. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations”Operations") or in our other filings with the SEC,Securities and Exchange Commission (SEC), the following are some important factors that could cause our actual results to differ materially from those we project in any forward-looking statement. We cannot guarantee that
Risks Related to Industry Conditions
Some of our actual resultsproducts 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 be consistent with the forward-looking statements we make in this report, and we do not assumecontinue to have an obligation to update any forward-looking statement.Adverse business and economic conditions may have a material 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 results of operations, and financial position.General economic conditions adversely affectquickly 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 productionenergy, could affect our profitability. We rely heavily on the availability of consumer goods, employment levels,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 credit,recycled fiber depends heavily on recycling rates and ultimately, the profitability of our business. High unemployment rates, lower family income, lower corporate earnings, lower business investment,domestic and lower consumer spending typically result in decreasedglobal demand for ourrecycled products. TheseOur 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, areand other factors beyond our controlcontrol.
The prices for all of these raw materials have fluctuated dramatically in the past and
mayare likely to continue to fluctuate in the future. Our operating results have
a significant impactbeen, 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
business, results of operations, cash flows,sales and
financial position.profitability.
Risks Related to Industry ConditionsThe paper industry experiences cyclicality; changesChanges in the prices of our products could materially affect our financial condition, results of operations, and cash flows.Historically, macroeconomicliquidity. Macroeconomic conditions and fluctuations in industry capacity have created cyclicalcreate 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, outside our control, and we have little influence over the timing and extent of price changes, which are often volatile. Market conditions beyond our control determine the prices for our commodity products, and as a result, the price for any one or more of these products may fall below our cash
production costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our manufacturing facilities. From time to time, we have taken downtime,
(or slowed
production) at some of our millsproduction, 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.
Some of our competitors may also close or reduce production at their operating facilities, some of which could reopen and increase production capacity. This potential supply and demand imbalance could cause prices to fall. Therefore, ourOur ability to achieve acceptable operating performance and margins
is principally dependent ondepends primarily upon managing our cost structure
managing changes in raw materials prices (which represent a large component of our operating costs and fluctuate based upon factors beyond our control), and general conditions in the paper market. If the prices for our products decline or if
we are unable to control our
raw material costs,
increase, it could have a material adverse effect on our
business, financial condition, results of operations,operating cash flows, profitability, and
cash flows.liquidity.
Some of ourThe paper productsand packaging industries are vulnerable to long-term declines in demand due to competing technologies or materials.Our uncoated freesheet papers and newsprint compete with electronic data transmission, document storage alternatives, and paper grades we do not produce. Increasing shifts to these alternatives have hadhighly competitive now and are likely to continue to have an adverse effect on traditional print mediabecome 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 usage. Neitherbusiness will compete for market share and sales in the timing norface 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 extent of this shift can be predicted with certainty. Because of these trends, demand for paper products may shift from one grade of paper to another or be eliminated altogether.Wefuture, we will face strong competition in our markets.The papermarkets from larger-scale competitors which have greater financial and packagingother 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 newsprint industries are highly competitive. We face competition from numerous competitors, domestic as well as foreign. Somemay lack the financial resources needed to compete effectively. Many of our competitors are large, vertically integrated companies thatwhich 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’competitors' pricing strategies, our failure to anticipate and respond to changing customer preferences, and our inability to maintain the cost-efficiency of our facilities.Increases in the cost of our raw materials, including wood fiber, chemicals, and energy could affect our profitability. We rely heavily on raw materials, including wood fiber and chemicals, and energy sources, including natural gas and electricity.
Risks Related to Our profitability has been, and will continue to be, affected by changes in the costs and availability of such raw materials. For most 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, weOperations
We may be unable to passattract and retain key management and other key employees.increases Our key managers are important to our success and may be difficult to replace because they have an average of 20years 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 costsresults, 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 customersbusiness 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 the short term. Any sustained increase
2012 and expect to spend about $7 million in raw material costs, coupled with our inability to increase prices, would reduce our operating margins and potentially2013 for capital environmental compliance requirements. Enactment of new environmental laws or regulations or changes in existing laws or regulations might require us to limit or cease operations of one or moresignificant additional expenditures.
We anticipate that governmental regulation of our machines 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 facilities.Wood fiber isinstallation of air pollution controls on power boilers (principally our principal raw material, accounting for approximately 27%biomass-fuel-fired boilers) at our pulp and 17%, respectively,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 aggregate amount of materials, labor, and other operating expenses, including fiber costs, for our Paper and Packaging segments forrules, which includes the year ended December 31, 2009. Wood fiber is a commodity, and prices have historically been cyclical.
$7 million we expect to spend in 2013, as discussed above. In addition,
wood fiber, including wood chips, sawdust,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
shavings, is a byproduct in the manufacture of building products, and the availability of wood fiber is often negatively affected if demandoperating expenditures for
building products declines. Severe or sustained shortages of fiber could cause us to curtail our own operations, resulting in material and adverse effects on our sales and profitability. Future domestic or foreign legislation and litigation concerning the use of timberlands, the protection of endangered species, and forest health can also affect log and fiber supply.Energy accounts for approximately 12% and 10%, respectively, of the aggregate amount of materials, labor, and other operating expenses, including fiber costs, for our Paper and Packaging segments for the year ended December 31, 2009. Energy prices, particularly for electricity, natural gas, and fuel oil, have been volatile in recent years. These fluctuationsenvironmental compliance may adversely affect our manufacturingability 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
can contribute significantlythird-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
earnings volatility.Other raw materialspredict, and, in some cases, liability may be imposed without regard to contribution or to whether we use include various chemical compounds, such as starch, caustic soda, precipitated calcium carbonate, sodium chlorate, and dyes. Purchasesknew of, chemicals accounted for approximately 15% and 7%, respectively,or caused, the release of the aggregate amount of materials, labor, and other operating expenses, including fiber costs, for our Paper and Packaging segments for the year ended December 31, 2009. The costs of these chemicals have been volatile historically and are influenced by capacity utilization, energy prices, and other factors beyond our control.
hazardous substances.
Risks Related to Our OperationsWe depend on OfficeMax forrepresents a significant portion of our business.Our largest customer, OfficeMax, accounted for approximately 28%19% and 21% of our total sales for the yearyears ended December 31, 2009. In October 2004,2012, and December 31, 2011, respectively. We have an agreement with OfficeMax agreedthat requires OfficeMax to purchase, from our Predecessor, its full North Americanbuy and us to supply at least 80% of OfficeMax's requirements for cut-sizeoffice 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 the extent Boise chooses to supply such paper to them, through December 2012. If this contract is not renewed expand our customer base and could potentially decrease our profitability if new customer sales required either a decrease in our pricing and/or not renewed on terms similar to the existing terms,an increase in our future business operations may be adversely affected. If OfficeMax were unable to pay, our financial performance could be affected significantly and negatively.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 its business that would affect itsthe willingness to continue to purchase our products could have a material adverse effect on our business, financial condition, results of operations, and cash flows.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.
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.
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.
Other operational problems.
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, 2010, we had2013, approximately 4,100 employees. Approximately 60%50% of theseour employees work pursuant to collective bargaining agreements. As of January 31, 2010, approximately 33% Approximately 4%of our total employees wereare working pursuant to collective bargaining agreements that have expired or will expire within one year, including agreements at the following facility locations: Wallula, Washington; DeRidder, Louisiana; Jackson, Alabama; St. Helens, Oregon; and Nampa, Idaho. The labor contract atnext 12 months.
When negotiating our
paper mill in Wallula, Washington (332 employees represented by the AWPPW) expired in March 2009 and was terminated by the AWPPW on October 31, 2009. In early February 2010, the union employees at Wallula rejected a new collective bargaining
agreement that union leadership had recommended unanimously. On February 22, 2010, the company declared an impasseagreements in the
bargaining process and implemented the terms of the last contract offer.Ourfuture, our potential inability to reach a mutually acceptable labor contract at Wallula, or at any of our other 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 contingency plans 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.
We are subjectCyber security risks related to significant environmental, health,security breaches of company, customer, employee, and safety lawsvendor information, as well as the technology that manages our operations and regulations, and the cost of complianceother 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 results of operation.We are subject to a wide range of general and industry-specific environmental, health, and safety laws and regulations. If we fail to comply with these laws and regulations, weglobal economic conditions 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 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, we may be affected if laws concerning
climate change are enacted 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.
During the year ended December 31, 2009, capital expenditures for environmental compliance were $2.2 million. We expect to spend approximately $1.4 million on environmental items in 2010. Enactment of new environmental laws or regulations or changes in existing laws or regulations might require significant additional expenditures. We may be unable to generate funds or other sources of liquidity and capital to fund unforeseen environmental liabilities or expenditures.
We may engage in future acquisitions that could materially affect our business, operating results, and financial condition.We may seek to acquire other businesses, products, or assets. However, we may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not strengthen our competitive position or achieve our goals. Acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses, and adversely affect our business, operating results, and financial condition. Future acquisitions may reduce our cash available for operations and other uses. There can be no assurance that we will be able to manage the integration of acquired businesses effectively or be able to retain and motivate key personnel from those businesses. Any difficulties we encounter in the integration process could increase our expenses and have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Economicoperations, liquidity, and Financial Factorsfinancial position.
We have substantial indebtedness, 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 ability to repaybusiness. High unemployment rates, lower family income, lower corporate earnings, lower business investment, and lower consumer spending typically result in decreased demand for our debt is dependent on our ability to generate cash from operations.As of December 31, 2009, our total indebtedness was $815.9 million. Our ability to repay our indebtedness and to fund planned capital expenditures depends on our ability to generate cash from future operations. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors thatproducts. These conditions are beyond our control. Our inability to generate sufficient cash flow to satisfy our debt obligations, to obtain additional debt, or to refinance our obligations on commercially reasonable terms wouldcontrol and may have a material adverse effectsignificant impact on our business, financial condition, and results of operations.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, 2009,2012, our total capital expenditures excluding acquisitions, were $77.1 million.$137.6 million. We expect to spend approximately $100 million on capital expenditures for 2010. We currently expect our capital expenditures, excluding acquisitions,investments in 2013 to be between $90$152 million and $120$162 million annually over the next five years., 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
cash flows.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 (Holdings)(BZ Intermediate) and its subsidiaries to maintain specified financial ratios and to satisfy certainspecified financial tests. These tests include, in the case of our credit facilities, an interest expense coverage ratio, test, a first liensenior secured leverage ratio, test, and a total leverage ratio test.ratio. In addition, our credit facilities restrict, and the indentureindentures governing the 8% and 9% senior notes restrict, among other things, the ability of HoldingsBZ Intermediate and its subsidiaries to create additional liens on assets, make investments orsome types of restricted payments, acquisitions, pay dividends, incur additional indebtedness, sell assets, includingand capital stock of subsidiaries, make capital expenditures, place restrictions onexpenditures. At December 31, 2012, the ability of such subsidiaries to make distributions, enter into transactions withavailable restricted payment amount under our affiliates, enter into new lines of business,8% senior notes indenture, which is more restrictive than our credit facilities and engage in consolidations, mergers, or sales of substantially all of our assets.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’lenders' interests may be different from our interests, and no assurance can be given that we will be able to obtain the lenders’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
indentureindentures 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.,
and 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.In December 2008, we enacted a freeze on our defined benefit pension plan for salaried employees (the Salaried Plan); however, we continue to maintain defined benefit pension plans for mostbenefits. Most of our union employees. Despite the freeze of the Salaried Plan,pension benefits plans are frozen; however, we will continue to have significant obligations for pension benefits. As of December 31, 2009,2012, 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 assets had a market value of $302plans. While we have no minimum required contribution in 2013, our 2014 minimum required contribution is approximately $3 million compared with $248 million at December 31, 2008. Assuming, assuming a return on plan assets of 7.25%6.75% in 2010 and 2011, we estimate we will be required to contribute approximately $2 million in 2010 and approximately $22 million in 2011. both years.The amount of required contributions will depend on, among other things, on 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 cash flows,liquidity, financial condition, and results of operations.Boise Cascade holds 21.7% of our common stock as of January 29, 2010, and may influence our affairs.As a result of its ownership, Boise Cascade has representation on our board of directors and may significantly influence our policies, business, and affairs. As long as the holders of Boise Registrable Securities (as such term is defined in the Investor Rights Agreement dated February 22, 2008, entered into by and among us, Boise Cascade, and other stockholders named therein (the Investor Rights Agreement) in connection with the Acquisition) control 33% or more of our common stock that was issued to Boise Cascade at the closing of the Acquisition, we will be subject to restrictions on our business activities pursuant to the terms of the Investor Rights Agreement. More specifically, for so long as the 33% ownership threshold is met or exceeded, the Investor Rights Agreement will restrict us from conducting specified activities or taking specified
actions without the affirmative written consent of the holders of a majority of the Boise Registrable Securities then outstanding. The restricted activities include, without limitation, making distributions on our equity securities; redemptions, purchases, or acquisitions of our equity securities; issuances or sales of equity securities or securities exchangeable for, or convertible to, equity securities; issuing debt or convertible/exchangeable debt securities; making loans, advances, or guarantees; mergers and acquisitions; asset sales; liquidations; recapitalizations; nonordinary business activities; making changes to our organizational documents; making changes to arrangements with our officers, directors, employees, and other related persons; incurrence of indebtedness for borrowed money or capital leases above specified thresholds; and consummating the sale of the Company. Additionally, pursuant to affirmative covenants under the Investor Rights Agreement (and subject to the same 33% ownership threshold), unless the holders of a majority of the Boise Registrable Securities then outstanding have otherwise consented in writing, we are required to perform specified activities, including, without limitation, preservation of our corporate existence and material licenses, authorizations and permits necessary to the conduct of our business, maintenance of our material properties, discharge of certain statutory liens, performance under material contracts, compliance with applicable laws and regulations, preservation of adequate insurance coverage, and maintenance of proper books of record and account.
If Boise Cascade disposes of a significant number of shares of our common stock, it could adversely affect the market price of our common stock or our ability to raise future capital. We have filed a registration statement with the SEC pursuant to which Boise Cascade may publicly sell all or a portion of the shares of our common stock that it holds. In November 2009, we completed a secondary offering of Boise Cascade’s common stock holding, thus reducing their ownership from 42.5% to 21.7%. Boise Cascade will continue to review its investment in Boise Inc. in light of current market conditions, its long-term investment objectives, and its financing needs and, based on its review of such factors, may determine to sell additional shares of our common stock owned by it through market or privately negotiated transactions. Such sales could be for a significant number of shares and could adversely affect the market price of our common stock or our ability to raise future capital. On December 15, 2009, Boise Cascade announced its intention to further reduce its holdings by an additional 8 million shares by entering into a trading plan under SEC rules. Sales under this trading plan commenced February 16, 2010.
ITEM | |
| Item 1B. | UNRESOLVED STAFF COMMENTS |
We have no unresolved
comments.comments from the Commission staff regarding our periodic or current reports.
We own substantially alland 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 and substantially all of the equipment used in our facilities. Information concerning encumbrances attached to the properties described in the table below areis presented in Note 12, Debt, of the Notes to Consolidated Financial Statements in “Part II,"Part I, Item 8. Financial Statements and Supplementary Data”1. Business" of this Form 10-K. Information concerning productionWe assess the condition and capacity and the utilization of our manufacturing facilities is presented in “Part I, Item 1. Business” of this Form 10-K.Following is a list of our facilities by segment as of January 31, 2010. We lease a portion of the corporate headquarters building in Boise, Idaho.
Paper
The following table summarizes our paper facilities:
| | | | |
Facility Type
| | Number of
Facilities | | Locations
|
Pulp and paper mills
| | 3 | | Alabama, Minnesota, and Washington
|
Paper mill
| | 1 | | Oregon
|
Distribution centers
| | 2 | | California and Illinois
|
Packaging
The following table summarizes our packaging facilities:
| | | | |
Facility Type
| | Number of
Facilities | | Locations
|
Pulp and paper mill
| | 1 | | Louisiana
|
Corrugated container, sheet feeder, and sheet plants
| | 7 | | Idaho (2), Nevada, Oregon, Texas, Utah, and Washington |
We assess 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. |
We are a party to routine
legal proceedings that arise in the
ordinary course of our business. We are not currently a party to any legal proceedings or environmental claims that we believe would have a material adverse effect on our
business, financial position,
or results of
operations.operations, or liquidity, either individually or in the aggregate.
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS |
No matters were submitted to a vote of our securityholders during the fourth quarter of the year ended December 31, 2009.
|
PART II
ITEM 4. | MINE SAFETY DISCLOSURE |
Not applicable.
PART II
| |
| ITEM 5. | MARKET FOR REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
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
prior to the Acquisition, the American Stock Exchange and the cash dividends declared per common share for the periods indicated:
| | | | | | | | | |
| | | Market Price | | Dividends
Declared |
Quarter | | High | | Low | |
2009 | | | | | | | | | |
Fourth | | $ | 6.29 | | $ | 4.71 | | $ | — |
Third | | | 5.40 | | | 1.41 | | | — |
Second | | | 2.47 | | | 0.51 | | | — |
First | | | 0.75 | | | 0.24 | | | — |
| | | | | | | | | |
Total | | | | | | | | $ | — |
| | | | | | | | | |
2008 | | | | | | | | | |
Fourth | | $ | 1.45 | | $ | 0.29 | | $ | — |
Third | | | 4.20 | | | 1.56 | | | — |
Second | | | 6.73 | | | 3.58 | | | — |
First (February 22 through March 31, 2008) | | | 8.50 | | | 6.19 | | | — |
First (January 1 through February 21, 2008) | | | 9.70 | | | 8.39 | | | — |
| | | | | | | | | |
Total | | | | | | | | $ | — |
| | | | | | | | | |
|
| | | | | | | | | | | |
| | Market Price | | Dividends Declared |
| Quarter | High | | Low | |
| 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
HoldersOn January 29, 2010,31, 2013, there were approximately 1541 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
DividendsWe did not declare or pay anypaid a special cash or stock dividends during 2009.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 iscontinues to be restricted by our senior secured credit facilities as well asdebt 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 will beare prohibited from paying dividends.
Common Stock Price Declined
Shares of our common stock are currently listed on the NYSE. The market price of our common stock has declined since the Acquisition. On the date of the Acquisition, February 22, 2008, the closing price of our common stock was $8.50 per share. As of January 29, 2010, the closing price of our common stock price was $5.16 per share, and our market capitalization was approximately $435.6 million.
The NYSE’s quantitative listing standards require NYSE-listed companies to have an average market capitalization of at least $75.0 million over any consecutive 30-trading-day period. In addition, the average closing price of any listed security must not fall below $1.00 per share for any consecutive 30-trading-day period. On November 5, 2008, we received written notice from the NYSE that we did not comply with these two continued listing standards.
As required by the NYSE, we submitted a business plan to demonstrate our ability to achieve compliance with the market capitalization requirement within 18 months from the receipt of the notice, and the NYSE accepted our plan.
On May 29, 2009, the NYSE notified us that our 30-day average share price was above $1.00, which meant that we had regained compliance with the minimum share price requirement for NYSE standards.
On October 2, 2009, the NYSE notified us that we had regained compliance with the NYSE’s quantitative continued listing standards. The notice stated that the decision resulted from our consistent, positive performance with respect to our original business plan submission, the achievement of compliance with the NYSE’s minimum share price requirement, and the achievement of compliance with the NYSE’s minimum market capitalization requirement.
Securities Authorized for Issuance Under Our Equity Compensation Plan
| | | | | | | |
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
(b) (2) | | Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c) |
Equity compensation plans approved by securityholders (1) | | 8,214,843 | | $ | N/A | | 8,326,464 |
| | | |
Equity compensation plans not approved by securityholders | | N/A | | | N/A | | N/A |
| | | | | | | |
Total | | 8,214,843 | | $ | N/A | | 8,326,464 |
| | | | | | | |
|
| | | | | | | | | |
| | 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 |
|
____________
(1) | Our shareholders approved |
| (a) | The reported amount includes the following outstanding awards that have been granted under the Boise Inc. Incentive and Performance Plan (BIPP) at a special shareholders meeting held on February 5, 2008. We have 17,175,000 sharesbut not yet earned as of the Company’s common stock reserved for issuance under the BIPP. Since the Acquisition, 13 officers, 51 other employees, and 6 nonemployee directors have received restricted stock or restricted stock unit awards under the BIPP. These awards are reflected in column (a) above.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.
(2) | Because there is no exercise price associated with |
| (b) | The reported amount assumes the restricted stock and restricted stockperformance units that were awarded underare adjusted to the BIPP, a weighted average exercise price calculation for the restricted stock and restricted stock units cannot be made.maximum value (200% of target). |
Issuer Purchases of Equity Securities
We did not purchase any
In 2011, we announced our intent to repurchase up to $150 million of our equity securities duringcommon stock through a variety of methods, including in the fourth quarter of our fiscalopen market, in privately negotiated transactions, or through structured share repurchases. During the year ended December 31, 2009.2011, 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.
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
New York Stock Exchange)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
AbitibiBowater Inc., Domtar Corp., Glatfelter,
Greif, Inc., International Paper
Co.,Company, KapStone Paper & Packaging, MeadWestvaco Corp., Neenah Paper Inc., Packaging Corp. of America,
Rock-Tenn Company, Sappi Ltd.
, Smurfit-Stone Container Corp., Stora Enso Corp.
, Temple-Inland Inc., UPM-Kymmene Corp., Verso Paper Corp., and Wausau Paper
Corp:
Because of the volatility ofCorp.
We omitted Temple-Inland Inc. from our stock over the last 12 months, we are also providing thepeer group this year, because International Paper Company acquired Temple-Inland Inc. in February 2012.
The following table
for informational purposes for the one-year period ofreflects each investment's value at December 31, 2008,
through December 31, 2009:2009, 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 |
|
| | | |
PERCENTAGE INCREASE
| |
| |
Boise Inc.
| | 1135 | % |
Peer Group
| | 65 | % |
S&P 500 Index
| | 26 | % |
| 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"Part II, Item 7. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations”Operations" and “Part"Part II, Item 8. Financial Statements and Supplementary Data”Data" of this Form 10-K (in(dollars in millions, except per-share data): | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | | Predecessor |
| | | Year
Ended
December 31,
2009 (a) | | Year
Ended
December 31,
2008 (b) | | | February 1
(Inception)
Through
December 31,
2007 | | | | January 1
Through
February 21,
2008 | | Year Ended December 31 |
| | | | | | | 2007 (c) | | 2006 (d) | | 2005 (e) |
Statement of Income (loss) data | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 1,978 | | $ | 2,071 | | | $ | — | | | | $ | 360 | | $ | 2,333 | | $ | 2,222 | | $ | 2,129 |
Income (loss) from operations | | | 306 | | | 40 | | | | — | | | | | 23 | | | 160 | | | 94 | | | 74 |
Net income (loss) | | | 154 | | | (46 | ) | | | 5 | | | | | 23 | | | 160 | | | 93 | | | 72 |
| | | | | | | | |
Net Income (loss) per common share: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 1.96 | | | (0.62 | ) | | | 0.16 | | | | | — | | | — | | | — | | | — |
Diluted | | | 1.85 | | | (0.62 | ) | | | 0.16 | | | | | — | | | — | | | — | | | — |
| | | | | | | | |
Earnings before interest, taxes, depreciation, and amortization
(EBITDA) (f) | | | 396 | | | 145 | | | | — | | | | | 24 | | | 246 | | | 210 | | | 169 |
| | | | | | | | |
Cash dividends declared per common share | | | — | | | — | | | | — | | | | | — | | | — | | | — | | | — |
| | | | | | | | |
Balance sheet data (at end
of year) | | | | | | | | | | | | | | | | | | | | | | | | |
Current assets | | $ | 586 | | $ | 596 | | | $ | 404 | | | | | | | $ | 560 | | $ | 572 | | $ | 509 |
Property and equipment, net | | | 1,223 | | | 1,277 | | | | — | | | | | | | | 1,210 | | | 1,144 | | | 1,142 |
Total assets | | | 1,896 | | | 1,988 | | | | 408 | | | | | | | | 1,846 | | | 1,759 | | | 1,678 |
Current liabilities | | | 303 | | | 269 | | | | 15 | | | | | | | | 250 | | | 241 | | | 217 |
Long-term debt, less current portion | | | 785 | | | 1,012 | | | | — | | | | | | | | — | | | — | | | — |
Notes payable | | | — | | | 67 | | | | — | | | | | | | | — | | | — | | | — |
Stockholders’ equity | | | 621 | | | 449 | | | | 233 | | | | | | | | 1,560 | | | 1,481 | | | 1,425 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | | Predecessor |
| | Year Ended December 31 | | | January 1 Through February 21, 2008 |
|
| | 2012 (a) | | 2011 (b) | | 2010 (c) | | 2009 (d) | | 2008 (e) |
| 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 AcquisitionAcquisition.
| |
| (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 February 21, 2008. The periodextinguishment of February 1 (Inception) through December 31, 2007, representsdebt recorded in the activitiesCorporate and Other segment.
Included $3.1 million of
Aldabra 2 Acquisition Corp.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. (a) | |
| (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
26, 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
as a result offor alternative fuel mixture credits.
(b) | |
| (e) | Included $37.6 million of expense associated with the restructuring of the St. Helens, Oregon, mill. |
Included a $2.9 million gain for changes in supplemental pension plans.
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
Hurricaneshurricanes 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.
(c) | Included approximately $21.7 million, $19.1 million, and $1.0 million of lower depreciation and amortization expense in the Paper, Packaging, and Corporate and Other segments, respectively, as a result of discontinuing depreciation and amortization on the assets recorded as held for sale. |
Included a
$4.4$2.9 million gain for changes in
retiree healthcare benefits.Included $8.7 million of expense related to the impact of energy hedges.
Included $4.0 million of expense related to the start-up of the reconfigured paper machine at the Wallula, Washington, mill.
supplemental pension plans.(d) | Included a $3.7 million gain for changes in retiree healthcare programs. |
Included $18.1 million of expense related to the impact of energy hedges.
Included $2.8 million of expense for special project costs.
Included $2.4 million of expense related to write-downs associated with the sale of the Vancouver, Washington, mill.
(e) | Included a $5.2 million gain for changes in retiree healthcare programs. |
| (f) | The following table reconciles net income (loss) to EBITDA for the periods indicated (dollars in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | | | Predecessor |
| | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | February 1
(Inception)
Through
December 31,
2007 | | | | | January 1
Through
February 21,
2008 | | Year Ended December 31 |
| | | | | | | | 2007 | | | 2006 | | | 2005 |
| | | | | | | | |
Net income (loss) | | $ | 154 | | | $ | (46 | ) | | $ | 5 | | | | | $ | 23 | | $ | 160 | | | $ | 93 | | | $ | 72 |
Change in fair value of interest rate derivatives | | | (1 | ) | | | — | | | | — | | | | | | — | | | — | | | | — | | | | — |
Interest expense | | | 83 | | | | 91 | | | | — | | | | | | — | | | — | | | | — | | | | — |
Interest income | | | — | | | | (2 | ) | | | (10 | ) | | | | | — | | | (1 | ) | | | (1 | ) | | | — |
Income tax provision (benefit) | | | 28 | | | | (9 | ) | | | 5 | | | | | | 1 | | | 3 | | | | 1 | | | | 2 |
Depreciation, amortization, and depletion | | | 132 | | | | 110 | | | | — | | | | | | — | | | 85 | | | | 116 | | | | 95 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
EBITDA | | $ | 396 | | | $ | 145 | | | $ | — | | | | | $ | 24 | | $ | 246 | | | $ | 210 | | | $ | 169 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | | Predecessor |
| | Year Ended December 31 | | | January 1 Through February 21, 2008 |
|
| | 2012 | | 2011 | | 2010 | | 2009 | | 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, and change in fair value of interest rate derivatives)income), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision
makersmaker to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of
companies with substantial financial leverage.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’smanagement'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,
change in fair value of interest rate derivatives, 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’SMANAGEMENT'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"Part I, Item 1A. Risk
Factors”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 anany 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.
Background
This section is provided with respect to Boise Inc. or “the Company,” “we,” “us,” or “our”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
United States-based manufacturer
and seller of packaging
products and papers, including corrugated containers, containerboard, label and release and flexible packaging papers, imaging papers for the office and home, printing and converting papers, newsprint, and market pulp. We own pulp and paper
millproducts. Our operations
in the following locations: Jackson, Alabama; International Falls, Minnesota; St. Helens, Oregon; and Wallula, Washington, all of which manufacture uncoated freesheet paper. We also own a mill in DeRidder, Louisiana, which produces containerboard (linerboard) and newsprint. In addition, we have a network of five corrugated container plants located in the Pacific Northwest, a corrugated sheet plant in Nevada, and a corrugated sheet feeder plant in Texas.Onbegan on February 22, 2008, Aldabra 2 Acquisition Corp. completedwhen we acquired the acquisition (the Acquisition) of Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp. (collectively, the Paper Group), and other assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and part of the headquarters operationspaper assets of Boise Cascade Holdings, L.L.C. (Boise Cascade). Subsequent toIn these consolidated financial statements, unless the Acquisition, Aldabra 2 Acquisition Corp. changed its namecontext indicates otherwise, the terms "the
Company," "we," "us," "our," or "Boise" refer to Boise Inc. The acquired business is referred toand its consolidated subsidiaries, including BZ Intermediate. We are headquartered in this Form 10-K asBoise, Idaho, and have approximately 5,300employees. We operate largely in the “Predecessor.” See Note 16, Acquisition of Boise Cascade’s PaperUnited States but also have operations in Europe, Mexico, and Packaging Operations, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial StatementsCanada.
We operate and Supplementary Data” of this Form 10-K for more information related to the Acquisition.The accompanying Consolidated Statements of Income (Loss) and Consolidated Statements of Cash Flows for the year ended December 31, 2009, include 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 Consolidated Statements of Income (Loss) and Consolidated Statements of Cash Flows for the period of January 1 through February 21, 2008, and for the year ended December 31, 2007, are presented for comparative purposes. The period of February 1 (Inception) through December 31, 2007, represents the activities of Aldabra 2 Acquisition Corp.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations at times refers to the combined activities of Boise Inc. and the Predecessor for each period specifically indicated, which we believe is the most useful comparison between periods. The Acquisition resulted in a new basis of accounting from those previously reported by the Predecessor. However, sales and most operating cost items are substantially consistent with those reported by the Predecessor. Finished goods inventories were revalued to estimated selling prices less costs of disposal and a reasonable profit on the disposal. Depreciation changed as a result of adjustments to the fair values
of property and equipment due to our purchase price allocation. These items, along with changes in interest expense and income taxes, are explained independently where appropriate.
We report our results in three reportable segments: Packaging, Paper, Packaging, and Corporate and Other (support services). See Note 18,
17, Segment Information, of the Notes to Consolidated Financial Statements in “Part"Part II, Item 8. Financial Statements and Supplementary Data”Data" of this Form 10-K for more information related to our segments.
Debt Issuance and RestructuringExecutive Summary
In 2012,On October 26, 2009, Boise Paper Holdings, L.L.C. (Boise Paper Holdings) and Boise Finance Company, twowe reported $52.2 million of our wholly owned indirect subsidiaries, issued a $300net income, compared with $75.2 million aggregate principal amount in 2011. We reported $300.0 million of 9% senior notes due on November 1, 2017 (the 9% Senior Notes) through a private placement that is exempt from the registration requirements of the Securities Act of 1933, as amended. The 9% Senior Notes pay interest semiannually in arrears on May 1 and November 1, commencing on May 1, 2010.
In connectionEBITDA, or $331.8 million excluding special items, compared with the issuance we also entered into amendments to our senior secured credit facilities. These amendments permitted us to incur $300.0$340.2 million of new senior unsecured notes, repurchase all of the second lien term loans, repurchase and retire notes payable, and modify certain of our financial covenants. The financial covenant modifications limit our total leverage ratio to 4.75:1:00, stepping down to 4.50:1.00 at September 30,EBITDA excluding special items in 2011. We also have a new first lien secured leverage ratiowere 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 3.25:1:00, stepping down to 3.00:1.00 at September 30, 2011.
The results of this debt issuance and restructuring, including the changes to our financial covenants, increase our financial flexibility, extend our debt maturity profile, simplify our capital structure, and reduce our total indebtedness.
Alternative Fuel Mixture Credits
The U.S. Internal Revenue Code allowed an excise tax credit for taxpayers using alternative fuels in the taxpayer’s trade or business.key raw materials. During the year, ended December 31, 2009, we recorded $207.6generated $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 “Alternative fuel mixture credits, net”some of our Packaging operations and declining prices in our Consolidated StatementsPaper business.
In our Packaging segment, corrugated product sales volumes increased 16%. Approximately 9% of Income (Loss). As of December 31, 2009, we recorded a receivable of $56.6 million in “Receivables, Other” on our Consolidated Balance Sheet for alternative fuel mixture credits. The credits expired on December 31, 2009. We are reasonably assured that the credit for the alternative fuel mixture used by us through December 31, 2009, has been earned and will be collected from the U.S. government.Acquisition of Boise Cascade’s Paper and Packaging Operations
On February 22, 2008, Aldabra 2 Acquisition Corp. completed the Acquisition of the Paper Group and other assets and liabilitiesthis increase related to our 2011 acquisitions and the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and part of the headquarters operations of Boise Cascade for cash and securities. Aldabra 2 Acquisition Corp. acquired four pulp and paper mills, one paper mill, five corrugated container plants, a corrugated sheet feeder plant, and two paper distribution facilities, all located in the U.S. Subsequent to the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc.
Upon completion of the transaction, Boise Cascade owned 37.9 million, or 49%, of our outstanding shares. Boise Cascade continues to hold a significant interest in us. At December 31, 2009, Boise Cascade owned 21.7% of our common stock. See Note 16, Acquisition of Boise Cascade’s Paper and Packaging Operations of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
St. Helens Mill Restructuring and DeRidder Machine Idling
In November 2008, we announced the restructuring of our paper mill in St. Helens, Oregon, permanently halting pulp production at the plant and reducing annual paper production capacity by approximately 200,000 short tons and market pulp capacity at the St. Helens and Wallula, Washington, mills. The restructuringremaining 7% was primarily the result of declining product demand coupled with continuing high costs. The restructuring was substantially complete in January 2009. We have permanently ceased paper production on machines #1 and #4 at the mill. Paper machine #2 at St. Helens continues to operate, manufacturing primarily printing papers and flexible packaging papers. The #3 machine, which is owned by Cascades Tissue Group, also continues to operate. The permanent capacity reductions resulted in the loss of approximately 330 jobs at the St. Helens mill and 36 jobs in related sales, marketing, and logistics functions elsewhere in the Company. Eligible salaried employees were offered severance packages and outplacement assistance. We will employ approximately 140 employees at the mill after restructuring. At December 31, 2009, we had terminated approximately 360 employees. For additional information related to the St. Helens Mill Restructuring, see Note 17, St. Helens Mill Restructuring, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
In April 2009, we announced that we had indefinitely idled the #2 newsprint machine (D-2) at our mill in DeRidder, Louisiana. The D-2 machine had been idled since February 9, 2009, due to lackincreased sales from our network of orders. We will continue to operate the #3 newsprint machine (D-3) and the #1 linerboard machine (D-1) at the DeRidder mill. The idled machine has an annual capacity of 186,000 short tons of newsprint. By idling the machine, we reduced operating and capital costs during this period of declining newsprint demand,box plants, while preserving the asset for potential future use. Should the need arise, we can restart the D-2 machine within a short period of time. We may also pursue options to convert the machine for packaging production at a later date. For additional information related to the D-2 newsprint machine indefinite idling, see Note 6, Other (Income) Expense, Net, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
Recent Trends and Operational Outlook
The U.S. economy began to improve in 2009, and real GDP in the U.S. grew in the second half of the year. However, U.S. unemployment remains high, at 9.7% in January 2010, and real incomes have not shown signs of significant growth to date. Economic downturns characterized by higher unemployment, 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, cash flows, ability to meet our debt service obligations, and financial position.
U.S. industry containerboard demand for uncoated freesheet stabilized in fourth quarter 2009 and showed signs of improvement in December after declining throughout the previous months. Accordingincreased a modest 0.6% according to the American Forest & Paper Association (AF&PA), December 2009 U.S. industry shipments improved 1.9%, compared. 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 December 2008; overall U.S. shipments declined 11%our sales growth. Our vertical integration rose from an average of 71% during 2009, compared with 2008. Demand2011 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
commodity communicationcommunication-grade papers
has been negatively affected by weak macroeconomic conditions and bythroughout the
longer-term secular shift to electronic media for communications. Demand for printing and converting products has also been negatively affected by these factors and byyear, particularly in the
decline in direct-mail advertising. Despite soft demand, compared with prior years, U.S.fourth quarter. Our average uncoated freesheet
inventories remained low at approximately 940,000 short tonsnet 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
2009. We curtailed shifts2012 declined $27 per ton from the previous quarter and
slowed production on our uncoated freesheet machines to balance production with demand during 2009. Duringdropped $45 per ton from fourth quarter
we performed a scheduled maintenance outage2011, as industry supply continued to outpace demand. These dynamics factored heavily into our decision to cease paper production at our
Jackson, Alabama, pulp andmill 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
mill.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 softening demand and price erosion as a result of both secular and cyclical trends, sales prices forthese challenges, our uncoated freesheet papers improved in 2009, compared with 2008. The price improvement was led by cut-size office paper grades, which represented 65% of our 2009 uncoated freesheet sales volumes and by packaging-demand-driven products (includingfor the year increased 2%, due to a 5% increase in sales of label and release and flexible packaging grades). Net salespremium 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 forof 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 printingrevolving credit facility.
Outlook
In our Packaging segment in 2013, we expect to continue growing our corrugated operations and
converting grades, which include commercial printing, form bond,to see margin improvement as we increase our vertical integration and
envelope papers declined, compared withmore fully benefit from the
prior year.In fourth quarter 2009, we implemented a $40-per-short-ton$50-per-ton linerboard price increase for our uncoated freesheet, offset, and envelope grades and for some premium colored office papers. In early 2010, we announced a $40-per-short-ton price increase across most of our cut-size office papers, offset, and midweight opaque grades effective in February 2010. There is no assurance the announced price increase will be fully realized. Since a large portion of our cut-size office paper is sold to OfficeMax under a contract whereby the price OfficeMax pays is determined by a published index, changes in price for this product sold to OfficeMax tend to lag behind the general market by approximately 60 days.
Recent linerboard pricing trends have shown improvement after price erosion throughout 2009. Linerboard net sales prices to third parties increased sequentially from third quarter 2009 as export demand and pricing improved in fourth quarter. In January 2010, we announced a $50-per-short-ton and $70-per-short-ton price increase for domestic linerboard sales in the eastern and western U.S., respectively. These increases are currently being implemented; however, there is no assurance the announced price increase will be fully realized. On an annual basis, compared with 2008, corrugated product pricing improved in 2009, but declined sequentially from third quarter 2009 duefall of 2012. We also plan to seasonal box mix fluctuationsmake targeted capital investments in our agricultural end marketsconverting operations to improve efficiency and containerboard price declines earlier in the year. Packaging demand in agriculture, food, and beverage markets, which has historically been less correlated to broad economic activity, remained relatively stable throughout 2009. These markets constitute just over half ofkeep pace with our corrugated products end-use markets. Demand in our industrial markets and containerboard export markets, which is more closely aligned with general economic activity, was weak throughout 2009, although export markets showed improvement in late third and fourth quarters, compared with earlier in 2009.
Despite weak overall containerboard industry demand throughout 2009, total U.S. containerboard inventories declined to 2.1 million short tons in November 2009 from 2.5 million short tons in December 2008, according to AF&PA.sales growth. During the first half of 2009, we took production downtime to balance production with demand. In first quarter 2010,2013, we will havealso conduct a scheduled maintenancecold outage at our mill in DeRidder, Louisiana,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
mill.Pricesproducts 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 manufacturing inputs, includingour products. As for key input costs, we expect higher fiber and energy costs and chemicals, have declinedrelatively stable chemical costs in 2009, compared2013.
On February 20, 2013, OfficeMax announced it had signed a definitive merger agreement with 2008, driven by reduced demand as a resultits competitor, Office Depot. Our agreement with OfficeMax provides that it would survive the merger with respect to the office paper requirements of the weaklegacy 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. economy. Overall input costs were highergenerally 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 fourth quarter 2009, compared with third quarter 2009, primarily as a result of modestly highermillions):
|
| | | | | | | | | | | |
| | 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 a seasonal increasevolumes for our principal products, as well as some key financial information by segment (volumes in consumptionthousands of some inputs, such as energy, driven by colder winter weather. In 2010, we will begin experiencing higher fiber costs at our Jackson, Alabama, mill as a result of extremely wet weather conditionsshort tons and dollars per short ton, except corrugated containers and sheets, dollars in the region, which increases themillions): |
| | | | | | | | | | | |
| | 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
procure and deliver fiber. Higher prevailing pulp prices are also expected to increase contracted pulp rates in the region.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, electronic substitution, and relative currency values.employment.
The ability of our lenders, customers, and suppliers to continue to conduct their businesses.
Competing technologies that affect the demand for our products.
Labor and personnel relations.
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.
LegislativeLegislation 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.
Our customer concentration and the ability of our customers to pay.
The other factors described in “Part"Part I, Item 1A. Risk Factors”Factors" of this Form 10-K.
Demand
The overall level of demand for the products we make and distribute is affected by, among other things, electronic media substitution, manufacturing activity, employment, consumer spending, and currency exchange rates. Accordingly, we believe that our financial results depend in large part on general macroeconomic conditions in North America, as well as on regional economic conditions in the geographic markets in which we operate. The global financial and credit crisis led to a severe recession in the U.S. economy during 2009. While extended high unemployment levels or a second economic downturn could negatively affect overall demand, no single product line drives our overall financial performance, and individual product lines are influenced by conditions in their respective industries. For example:
Historically, demand for uncoated freesheet correlated positively with general economic activity. However, demand for communication paper grades, such as uncoated freesheet, imaging, and printing and forms paper, which we produce, has decreased as the use of electronic transmission and document storage alternatives has become more widespread and more efficient.
32
Demand for recycled-content papers is linked to an increased public awareness of environmental and sustainability issues and is less sensitive to general economic activity. We produce grades that contain from 10% to 100% recycled content.
Demand for our packaging products, including corrugated containers and sheets, containerboard, label and release, and flexible packaging papers, is driven by packaging demand. This demand is affected by macroeconomic conditions and is less susceptible to electronic media substitution.
A large share of the demand for corrugated containers and, therefore, containerboard is driven by unprocessed and processed food production and manufacturing, specifically the manufacture of nondurable goods. In addition, inventory stocking or liquidation of these goods has an impact, as do currency exchange rates that affect the cost-competitiveness of foreign manufacturers.
Supply
Industry supply of paper is affected by the number of operational or idled facilities, the building of new capacity, and the shutting down of existing capacity. Capacity also tends to increase gradually over time without significant capital expenditures as manufacturers improve production efficiencies. Generally, more capacity is added or employed when supply is tight and margins are relatively high, and capacity is idled or eliminated when capacity significantly exceeds demand and margins are poor.
Over the last five years, North American uncoated freesheet, containerboard, and newsprint capacities declined approximately 22%, 1%, and 32%, respectively, according to Resource Information Systems Inc. (RISI). In fourth quarter 2008 and into 2009, temporary and permanent curtailments accelerated and significantly reduced capacity across many grades. Further capacity closures have been announced for 2010. New capacity additions are constrained by the high capital investment and long lead times required to plan, obtain regulatory approvals for, and build a new mill.
Industry supply of paper is also influenced by the level of imports and by overseas production capacity, which has grown over the past decade. According to RISI, North American uncoated freesheet imports were flat in 2009, compared with 2008.
Operating Costs
The major costs of production are fiber, energy, chemicals, and labor. The relative size of these costs varies by segment. Given the significance of raw material and energy costs to total operating expenses and the limited ability to control these costs, compared with other operating costs, volatility in these costs can materially affect operating margins. In addition, the timing and degree of price cycles of raw materials and energy differ with respect to each type of raw material and energy used.
Fiber. The primary raw material is wood fiber, accounting for the following percentages of materials, labor, and other operating expenses, including fiber costs, for Boise Inc. and the Predecessor for each of the periods listed below:
| | | | | | | | | | |
| | | Boise Inc. | | Predecessor | | Combined | | Predecessor |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | January 1
Through
February 21,
2008 | | Year
Ended
December 31,
2008 | | Year
Ended
December 31,
2007 |
Paper | | 27% | | 29% | | 26% | | 29% | | 29% |
Packaging | | 17% | | 15% | | 17% | | 15% | | 17% |
The primary sources of logs and wood fiber are timber and byproducts of timber, such as wood chips, wood shavings, and sawdust. Substantially all fiber is acquired from outside sources. We convert logs and wood chips into pulp, which we use at our paper mills to produce paper. On an aggregate basis, operating at capacity, we are a net consumer of market pulp, producing and selling less market pulp on the open market than we purchase on the open market.
Logs and wood fiber are commodities, and prices for logs and wood fiber have historically been cyclical due to changing levels of supply and demand. Log and fiber supply may be limited by public policy or government regulation as well as fire, insect infestation, disease, ice storms, windstorms, hurricanes, flooding, other weather conditions, and other natural and man-made causes. Residual fiber supply may be limited due to a reduction in primary manufacturing at sawmills and plywood plants. Declines in log and fiber supply, driven primarily by changes in public policy and government regulation, have been severe enough to cause the closure of numerous facilities in some of the regions in which we operate. Any sustained undersupply and resulting increase in wood fiber prices could decrease our production volumes and/or increase our operating costs. Prices for our products might not reflect increases or decreases in log and wood fiber prices, and as a result, our operating margins could fluctuate. Delivered-fiber costs in all of our operating regions include the cost of diesel, which
declined in 2009, compared with 2008. Declining diesel costs reduce the cost to harvest and transport wood to the mills, favorably affecting fiber costs in all of our regions.
In Minnesota, our overall fiber costs decreased in 2009, compared with 2008, driven by lower prices for wood and purchased pulp and reduced consumption of purchased pulp as a result of reduced production and sales volumes. Wood fiber prices in the region declined, compared with 2008, primarily as a result of continued curtailment of oriented strand board production in the region.
In the Pacific Northwest, our fiber costs decreased in 2009, compared with 2008, due to reduced consumption as a result of the St. Helens mill downsizing and lower fiber prices. Residual fiber prices declined, compared with the prior year, as a result of reduced overall fiber demand in the region.
In the South, during 2009, fiber costs at our DeRidder mill decreased overall, compared with 2008, due to declining wood fiber prices and reduced fiber consumption as a result of the idling of our D-2 newsprint machine. In Alabama, fiber costs decreased in 2009, compared with 2008, driven by reduced prices for purchased pulp and recycled fiber, offset partially by higher consumption of purchased pulp.
Other Raw Materials and Energy Purchasing and Pricing. We purchase other raw materials and energy used to manufacture our products in both the open market and through long-term contracts. These contracts are generally with regional suppliers who agree to supply all of our needs for a certain raw material or energy at a single facility. These contracts frequently contain minimum purchase requirements and are for terms of various lengths. They also contain price adjustment mechanisms that take into account changes in market prices. Therefore, although our long-term contracts provide us with supplies of raw materials and energy that are more stable than open-market purchases, they may not, in many cases, alleviate fluctuations in market prices.
Our costs for raw materials are influenced by increases in energy costs. Specifically, some of our key chemicals, including pulping and bleaching chemicals consumed in our paper and packaging mills, are heavily influenced by energy costs. The relationship between industry supply and demand, rather than changes in the cost of raw materials, determines our ability to increase prices. Consequently, we may be unable to pass increases in our operating costs to our customers in the short term.
Energy. Energy prices, particularly for electricity, natural gas, and fuel oil, have been volatile in recent years. Currently, energy prices are favorable, compared with historical averages. In 2009, energy costs were lower, compared with 2008, due mainly to significantly lower prices and less consumption of electricity and natural gas. Consumption was reduced as a result of the restructuring of the St. Helens mill and the indefinite idling of our D-2 newsprint machine in DeRidder. Under normal operations, and assuming that D-2 is not operating, we expect to consume approximately 12 million mmBtu (millions of British thermal units) of natural gas annually. Energy costs represent the following percentages of materials, labor, and other operating expenses, including fiber costs, for Boise Inc. and the Predecessor in each of the periods listed below:
| | | | | | | | | | |
| | | Boise Inc. | | Predecessor | | Combined | | Predecessor |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | January 1
Through
February 21,
2008 | | Year
Ended
December 31,
2008 | | Year
Ended
December 31,
2007 |
Paper | | 12% | | 16% | | 15% | | 16% | | 15% |
Packaging | | 10% | | 15% | | 14% | | 15% | | 14% |
We enter into transactions to hedge the variable cash flow risk of natural gas purchases. As of December 31, 2009, we had entered into derivative instruments related to approximately 50% of our forecasted natural gas purchases for January 2010 through October 2010, approximately 16% of our forecasted natural gas purchases for November 2010 through March 2011, and approximately 6% of our forecasted natural gas purchases for April 2011 through October 2011. At December 31, 2009, these derivatives included three-way collars and call spreads.
We have elected to account for these instruments as economic hedges. At December 31, 2009, we recorded the fair value of the derivatives, or $1.4 million, in “Accrued liabilities, Other” on our Consolidated Balance Sheet. During the years ended December 31, 2009 and 2008, we recorded the change in fair value of the instruments, or $5.9 million of income and $7.4 million of expense, in “Materials, labor, and other operating expenses” in our Consolidated Statements of Income (Loss).
Chemicals. Important chemicals we use in the production of our products include starch, sodium chlorate, caustic, precipitated calcium carbonate, and dyestuffs and optical brighteners. Purchases of chemicals represent the following percentages of materials, labor, and other operating expenses, including fiber costs, for Boise Inc. and the Predecessor for each of the periods listed below:
| | | | | | | | | | |
| | | Boise Inc. | | Predecessor | | Combined | | Predecessor |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | January 1
Through
February 21,
2008 | | Year
Ended
December 31,
2008 | | Year
Ended
December 31,
2007 |
Paper | | 15% | | 15% | | 13% | | 15% | | 14% |
Packaging | | 7% | | 6% | | 6% | | 6% | | 5% |
Total chemical costs in 2009 were lower, compared with 2008, as a result of lower prices and reduced consumption due to the restructuring of the St. Helens mill. Many of our chemicals are purchased under long-term contracts, which provide more stability than open-market purchases. Many of these contracts are renegotiated annually.
Labor. Labor costs tend to increase steadily due to inflation in healthcare and wage costs. As of January 31, 2010, we had approximately 4,100 employees. Approximately 60% of these employees work pursuant to collective bargaining agreements. As of January 31, 2010, approximately 33% of our employees were working pursuant to collective bargaining agreements that have expired or will expire within one year, including agreements at the following facility locations: Wallula, Washington; DeRidder, Louisiana; Jackson, Alabama; St. Helens, Oregon; and Nampa, Idaho. The labor contract at our paper mill in Wallula, Washington (332 employees represented by the AWPPW) expired in March 2009 and was terminated by the AWPPW on October 31, 2009. In early February 2010, the union employees at Wallula rejected a new collective bargaining agreement that union leadership had recommended unanimously. On February 22, 2010, the company declared an impasse in the bargaining process and implemented the terms of the last contract offer. Our potential inability to reach a mutually acceptable labor contract at Wallula, or at any of our other facilities, could result in, among other things, strikes or other work stoppages or slowdowns by the affected employees.
The following table sets forth our operating results in dollars and as a percentage of sales for the years ended December 31, 2009 and 2008, the Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007 (in(dollars in millions, except percent-of-sales data): | | | | | | | | | | | | | | | | |
| | | Boise Inc. (a) | | | Predecessor | |
| | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | January 1
Through
February 21,
2008 | | | Year
Ended
December 31,
2007 | |
Sales | | | | | | | | | | | | | | | | |
Trade | | $ | 1,935.4 | | | $ | 1,990.2 | | | $ | 258.4 | | | $ | 1,636.6 | |
Related parties | | | 42.8 | | | | 80.4 | | | | 101.5 | | | | 696.0 | |
| | | | | | | | | | | | | | | | |
| | | 1,978.2 | | | | 2,070.6 | | | | 359.9 | | | | 2,332.6 | |
| | | | | | | | | | | | | | | | |
| | | | |
Costs and expenses | | | | | | | | | | | | | | | | |
Materials, labor, and other operating expenses | | | 1,596.2 | | | | 1,756.8 | | | | 313.9 | | | | 1,948.2 | |
Fiber costs from related parties | | | 36.9 | | | | 54.6 | | | | 7.7 | | | | 39.4 | |
Depreciation, amortization, and depletion | | | 131.5 | | | | 110.0 | | | | 0.5 | | | | 84.6 | |
Selling and distribution expenses | | | 55.5 | | | | 48.3 | | | | 9.1 | | | | 59.5 | |
General and administrative expenses | | | 50.3 | | | | 34.2 | | | | 6.6 | | | | 44.5 | |
St. Helens mill restructuring (b) | | | 5.8 | | | | 29.8 | | | | — | | | | — | |
Alternative fuel mixture credits, net | | | (207.6 | ) | | | — | | | | — | | | | — | |
Other (income) expense, net | | | 4.0 | | | | (3.0 | ) | | | (1.0 | ) | | | (4.1 | ) |
| | | | | | | | | | | | | | | | |
| | | 1,672.6 | | | | 2,030.7 | | | | 336.8 | | | | 2,172.1 | |
| | | | | | | | | | | | | | | | |
| | | | |
Income from operations | | $ | 305.6 | | | $ | 39.9 | | | $ | 23.1 | | | $ | 160.5 | |
| | | | | | | | | | | | | | | | |
| | | | |
Sales | | | | | | | | | | | | | | | | |
Trade | | | 97.8 | % | | | 96.1 | % | | | 71.8 | % | | | 70.2 | % |
Related parties | | | 2.2 | | | | 3.9 | | | | 28.2 | | | | 29.8 | |
| | | | | | | | | | | | | | | | |
| | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | | | | | | | | | |
| | | | |
Costs and expenses | | | | | | | | | | | | | | | | |
Materials, labor, and other operating expenses | | | 80.7 | % | | | 84.9 | % | | | 87.2 | % | | | 83.5 | % |
Fiber costs from related parties | | | 1.9 | | | | 2.6 | | | | 2.2 | | | | 1.7 | |
Depreciation, amortization, and depletion | | | 6.6 | | | | 5.3 | | | | 0.1 | | | | 3.6 | |
Selling and distribution expenses | | | 2.8 | | | | 2.3 | | | | 2.5 | | | | 2.6 | |
General and administrative expenses | | | 2.5 | | | | 1.7 | | | | 1.9 | | | | 1.9 | |
St. Helens mill restructuring | | | 0.3 | | | | 1.4 | | | | — | | | | — | |
Alternative fuel mixture credits, net | | | (10.5 | ) | | | — | | | | — | | | | — | |
Other (income) expense, net | | | 0.2 | | | | (0.1 | ) | | | (0.3 | ) | | | (0.2 | ) |
| | | | | | | | | | | | | | | | |
| | | 84.5 | % | | | 98.1 | % | | | 93.6 | % | | | 93.1 | % |
| | | | | | | | | | | | | | | | |
| | | | |
Income from operations | | | 15.5 | % | | | 1.9 | % | | | 6.4 | % | | | 6.9 | % |
| | | | | | | | | | | | | | | | |
(a) | We have not included information related to the period of February 1 (Inception) through December 31, 2007, which represents the activities of Aldabra 2 Acquisition Corp., as the operating results related to this period are insignificant. |
(b) | In November 2008, we announced the restructuring of our St. Helens, Oregon, paper mill. Of the $37.6 million restructuring charge recorded in 2008, $29.8 million is included in “St. Helens mill restructuring” and $7.8 million related to inventory write-downs is included in “Materials, labor, and other operating expenses.” |
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Sales | | | | | |
| Trade | $ | 2,495.1 |
| | $ | 2,364.0 |
| | $ | 2,058.1 |
|
| Related parties | 60.3 |
| | 40.1 |
| | 35.6 |
|
| | 2,555.4 |
| | 2,404.1 |
| | 2,093.8 |
|
| | | | | | |
| Costs and expenses | | | | | |
| Materials, labor, and other operating expenses (excluding depreciation) | 2,004.0 |
| | 1,880.3 |
| | 1,634.0 |
|
| Fiber costs from related parties | 19.8 |
| | 18.8 |
| | 25.3 |
|
| Depreciation, amortization, and depletion | 152.3 |
| | 143.8 |
| | 129.9 |
|
| Selling and distribution expenses | 121.8 |
| | 107.7 |
| | 58.1 |
|
| General and administrative expenses | 79.7 |
| | 60.6 |
| | 52.3 |
|
| St. Helens charges | 27.6 |
| | — |
| | — |
|
| Other (income) expense, net | 2.6 |
| | 2.0 |
| | 0.2 |
|
| | 2,407.8 |
| | 2,213.0 |
| | 1,899.8 |
|
| | | | | | |
| Income from operations | $ | 147.5 |
| | $ | 191.1 |
| | $ | 194.0 |
|
| | | | | | |
| Sales | | | | | |
| Trade | 97.6 | % | | 98.3 | % | | 98.3 | % |
| Related parties | 2.4 |
| | 1.7 |
| | 1.7 |
|
| | 100.0 | % | | 100.0 | % | | 100.0 | % |
| | | | | | |
| Costs and expenses | | | | | |
| Materials, labor, and other operating expenses (excluding depreciation) | 78.4 | % | | 78.2 | % | | 78.0 | % |
| Fiber costs from related parties | 0.8 |
| | 0.8 |
| | 1.2 |
|
| Depreciation, amortization, and depletion | 6.0 |
| | 6.0 |
| | 6.2 |
|
| Selling and distribution expenses | 4.8 |
| | 4.5 |
| | 2.8 |
|
| General and administrative expenses | 3.1 |
| | 2.5 |
| | 2.5 |
|
| St. Helens charges | 1.1 |
| | — |
| | — |
|
| Other (income) expense, net | 0.1 |
| | 0.1 |
| | — |
|
| | 94.2 | % | | 92.1 | % | | 90.7 | % |
| | | | | | |
| Income from operations | 5.8 | % | | 7.9 | % | | 9.3 | % |
Sales VolumesThe table above includes financial results for Tharco and PricesHexacomb since we acquired them on March 1 and December 1, 2011, respectively.Set forth below are
Operating Results
2012 Compared With 2011
Sales
In 2012, total sales increased $151.3 million, or 6%, to $2,555.4 million, compared with $2,404.1 million in 2011. The increase was primarily a result of increased sales from our segmentacquisitions of Tharco in March 2011 and Hexacomb in December 2011, and sales volume growth in our network of box plants which increased sales in our Packaging segment. The increase was offset partially by lower sales prices of uncoated freesheet papers and lower volumes and average net selling prices for market pulp in our principal products for the years ended December 31, 2009 and 2008, the Predecessor period of January 1 through February 21, 2008, the combined year ended December 31, 2008, and the Predecessor year ended December 31, 2007 (in thousands of short tons and dollars per short ton, except corrugated containers and sheets): | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | Predecessor | | Combined | | | Predecessor |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | | January 1
Through
February 21,
2008 | | Year
Ended
December 31,
2008 | | | Year
Ended
December 31,
2007 |
| | | | | |
Paper | | | | | | | | | | | | | | | | | |
Uncoated freesheet | | | 1,251 | | | 1,200 | (a) | | | 236 | | | 1,436 | (a) | | | 1,475 |
Containerboard (medium) | | | 127 | | | 118 | | | | 19 | | | 137 | | | | 134 |
Market pulp | | | 58 | | | 102 | (a) | | | 20 | | | 122 | (a) | | | 145 |
| | | | | | | | | | | | | | | | | |
| | | 1,436 | | | 1,420 | | | | 275 | | | 1,695 | | | | 1,754 |
| | | | | | | | | | | | | | | | | |
| | | | | |
Packaging | | | | | | | | | | | | | | | | | |
Containerboard (linerboard) | | | 253 | | | 194 | | | | 36 | | | 230 | | | | 239 |
Newsprint | | | 199 | | | 326 | | | | 56 | | | 382 | | | | 415 |
Corrugated containers and sheets (mmsf) | | | 5,963 | | | 5,337 | | | | 914 | | | 6,251 | | | | 6,609 |
| | | | | |
Paper | | | | | | | | | | | | | | | | | |
Uncoated freesheet | | $ | 954 | | $ | 942 | | | $ | 868 | | $ | 930 | | | $ | 864 |
Containerboard (medium) | | | 418 | | | 481 | | | | 454 | | | 477 | | | | 435 |
Market pulp | | | 429 | | | 512 | | | | 535 | | | 516 | | | | 538 |
| | | | | |
Packaging | | | | | | | | | | | | | | | | | |
Containerboard (linerboard) | | $ | 301 | | $ | 396 | | | $ | 399 | | $ | 397 | | | $ | 389 |
Newsprint | | | 459 | | | 584 | | | | 494 | | | 571 | | | | 489 |
Corrugated containers and sheets ($/msf) | | | 58 | | | 58 | | | | 55 | | | 57 | | | | 53 |
(a) | The year ended December 31, 2008, and the combined year ended December 31, 2008, included 177,000 and 206,000 short tons, respectively, of uncoated freesheet and 24,000 and 29,000 short tons, respectively, of market pulp from machines at the St. Helens paper mill that have been shut down. |
Paper segment.
Operating ResultsPackaging.The following presents a discussion of sales and costs Sales increased $180.4 million, or 19%, to $1,130.1 million, compared with $949.7 million for the year ended December 31, 2009,2011. Sales volumes of corrugated products increased 16% in 2012 compared with 2011. Approximately 9% of this increase related to growth from our 2011 acquisitions and the combined year ended December 31, 2008,remaining 7% was due to increased sales from our network of box plants. We continue to increase our vertical integration and for the combined year ended December 31, 2008,internal consumption of linerboard, reducing our exposure to export markets. Net sales prices and volumes of linerboard sold to third parties decreased 2% and 31%, respectively, during 2012, compared with the year ended December 31, 2007. The combined year ended December 31, 2008, represents the results of Boise Inc.2011.
Paper. Sales decreased $28.2 million, or 2%, to $1,468.3 million, compared with $1,496.5 million for the year ended December 31, 2008, and the results of the Predecessor for the period of January 1 through February 21, 2008. See “Background” and “Acquisition of Boise Cascade’s Paper and Packaging Operations” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information related to the Acquisition.Management believes this combined presentation of the Boise Inc. and Predecessor statement of operations is the most useful comparison between periods. The Acquisition resulted in a new
basis of accounting from that previously reported by the Predecessor. However, sales and most operating cost items are substantially consistent with those reflected by the Predecessor. Some inventories were revalued in accordance with purchase accounting rules. Depreciation changed as a result of adjustments to the fair values of property and equipment due to our purchase price allocation. These items, along with changes in interest expense and income taxes, are explained independently where appropriate.
Year Ended December 31, 2009, Compared With the Combined Year Ended December 31, 2008
Sales
For the year ended December 31, 2009, total sales decreased $452.4 million, or 19%, to $1,978.2 million from $2,430.6 million for the combined year ended December 31, 2008.2011. The decrease was driven primarily by a 14% decrease in Paper segment sales due to lower sales volumes, offset partially by higher sales prices, and a 28% decline in Packaging segment sales due primarily to lowera 2% decline in average sales prices of uncoated freesheet papers and declines in sales volumes and prices.
Paper.net selling prices for market pulp of 41% and 19%, respectively. Our average sales price of uncoated freesheet was $968 per short ton in 2012, down from an average of $990 per short ton in 2011. Sales decreased $237.2 million, or 14%, to $1,420.0 million for the year ended December 31, 2009, from $1,657.2 million for the combined year ended December 31, 2008. This decrease was driven primarily by a 13% declinevolumes of uncoated freesheet were up 2% in 2012, compared with 2011. The increase in our uncoated freesheet sales volumes due primarily to lower production capacity as a result of the St. Helens mill restructuring and to market downtime as a result of declining demand. Sales volumes for uncoated freesheet commodity grades declined 10% and premium and specialty grades declined 19%, compared with 2008, driven primarily by sharp reductions in printing and converting sales volumes. Sales volumes in our label and release, flexible packaging, and premium office grades grew 4%, compared with 2008, as we continued to convert commodity production to label and release at our Wallula, Washington, mill. Reduced volumes were offset partially by higher prices. Overall uncoated freesheet net sales prices increased 3%, compared with 2008, as both commodity and premium and specialty uncoated freesheet net sales prices increased.
Packaging. Sales decreased $228.8 million, or 28%, to $588.4 million for the year ended December 31, 2009, from $817.2 million for the year ended December 31, 2008. The decrease was driven by lower sales volumes for newsprint and corrugated products and lower net sales prices for newsprint and linerboard, offset partially by higher segment linerboard sales volumes and higher corrugated products sales prices. Sales volumes for newsprint declined 48% and for corrugated container and sheets declined 5%, while segment linerboard sales volumes increased 10%, compared with 2008. Net sales prices for segment linerboard declined 24%, newsprint net sales prices declined 20%, and corrugated products net sales prices increased 2% over the same time period. Demand for linerboard was weak early in 2009 but improved later in the year, particularly in export markets. Newsprint experienced a significant decline in demand during 2009, resulting in market downtime during the period to match production with demand. In April 2009, we indefinitely idled our D-2 newsprint machine in DeRidder, Louisiana.
Costs and Expenses
Materials, labor, and other operating expenses, including the cost of fiber from related parties, decreased $499.9 million, or 23%, to $1,633.1 million for the year ended December 31, 2009, from $2,133.0 million for the combined year ended December 31, 2008. The decrease was driven primarily by lower prices and lower consumption of inputs and by fixed cost reductions as a result of the St. Helens mill restructuring and the idling of our D-2 newsprint machine.
Fiber, energy, and chemical costs were $401.1 million, $188.9 million, and $210.3 million, respectively, for the year ended December 31, 2009, and $530.0 million, $340.2 million, and $262.6 million, respectively, for the combined year ended December 31, 2008. Combined, this
represents a cost decrease of $332.5 million in 2009, compared with 2008. This decrease was driven primarily by lower prices for energy, fiber, and chemicals and reduced consumption of inputsis due to lower production volumes.
Fiber costs decreased $100.9 million in our Paper segment and $28.0 million in our Packaging segment, compared with the combined year ended December 31, 2008, due primarily to lower prices for wood, purchased pulp, and recycled fiber and reduced overall consumption of fiber.
Compared with the combined year ended December 31, 2008, energy costs decreased $96.4 million in our Paper segment and $54.8 million in our Packaging segment, driven by lower prices for fuel and electricity and reduced consumption of energy.
Chemical costs decreased $40.7 million in our Paper segment and $11.6 million in our Packaging segment, compared with the combined year ended December 31, 2008, due primarily to lower consumption and lower prices for chemical inputs.
Depreciation, amortization, and depletion was $131.5 million for the year ended December 31, 2009, and $110.0 million for the year ended December 31, 2008. The year ended December 31, 2008, included depreciation, amortization, and depletion for the period of February 22, 2008, through December 31, 2008. For the Predecessor period of January 1 through February 21, 2008, depreciation, amortization, and depletion was $0.5 million due to the suspension of depreciation for the assets being held for sale as a result of the Acquisition.
Selling and distribution expenses decreased $1.9 million, or 3%, to $55.5 million for the year ended December 31, 2009, from $57.4 million for the combined year ended December 31, 2008. As a percentage of sales, selling and distribution expenses increased to 2.8% for the year ended December 31, 2009, compared with 2.4% for the combined year ended December 31, 2008, as these expenses declined less than sales.
General and administrative expenses increased $9.4 million, or 23%, to $50.3 million for the year ended December 31, 2009, from $40.9 million for the combined year ended December 31, 2008. As a percentage of sales, general and administrative expenses increased to 2.5% for the year ended December 31, 2009, compared with 1.7% for the combined year ended December 31, 2008, due primarily to increased employee compensation costs. Short-term incentive compensation was suspended for 2008.
St. Helens Mill Restructuring. The years ended December 31, 2009 and 2008, include $5.8 million and $37.6 million, respectively, of costs associated with the restructuring of our St. Helens paper mill. During 2008, $28.8 million of the costs related to noncash expenses. These costs are recorded in our Paper segment. The $5.8 million of costs recorded in 2009 related to decommissioning and other costs associated with the restructuring of the mill and are recorded in “St. Helens mill restructuring” in the Consolidated Statement of Income (Loss). Of the $37.6 million pretax loss recorded in 2008, $7.8 million related to the write-down of inventory and is recorded in “Materials, labor, and other operating expenses” in the Consolidated Statement of Income (Loss). We recorded the remaining $29.8 million of restructuring costs in “St. Helens mill restructuring” in the Consolidated Statement of Income (Loss). These costs included asset write-downs for plant and equipment at the St. Helens mill, employee-related severance costs, pension curtailment losses, and other miscellaneous costs related to the restructuring of the mill. For more information, see “St. Helens Mill Restructuring and DeRidder Machine Idling” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Alternative Fuel Mixture Credits. The year ended December 31, 2009, includes $207.6 million of alternative fuel mixture credits, of which $149.9 million is recorded in our Paper segment and $61.6 million is recorded in our Packaging segment. These amounts are net of fees and expenses and before taxes. We also recorded $3.9 million of expenses in our Corporate and Other segment
relating to alternative fuel mixture credits. For more information, see “Alternative Fuel Mixture Credits” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Other (Income) Expense, Net. “Other (income) expense, net” includes miscellaneous income and expense items. For the year ended December 31, 2009, we had $4.0 million of expense, compared with $4.0million of income in the combined prior year. In 2009, $4.0 million of expense consisted primarily of expenses related to the idling of our D-2 newsprint machine at our DeRidder mill. In 2008 the $4.0 million of income consisted primarily of a $2.9 million gain on changes in supplemental pension plans and a net gain on sales of assets of $1.0 million for the Predecessor period of January 1 through February 21, 2008.
Income From Operations. Income from operations for the year ended December 31, 2009, increased $242.6 million to $305.6 million, compared with $63.0 million for the combined year ended December 31, 2008. This increase was driven primarily by reduced input and fixed costs, alternative fuel mixture credits for our use of renewable biomass fuels, and the restructuring of our St. Helen’s mill in late 2008. This increase was offset partially by reduced depreciation in 2008 due to the suspension of depreciation for the assets being held for sale as a result of the Acquisition, reduced volumes, and lower net sales prices in our Packaging segment. Income for the combined year ended December 31, 2008, was negatively affected by approximately $20.5 million due to the DeRidder outage in the first quarter and by $10.2 million due to inventory purchase price adjustments.
Paper. Segment income increased $209.3 million, or 392%, to $262.7 million in 2009 from $53.4 million in the combined year ended December 31, 2008. The impact of the alternative fuel mixture credits was $149.9 million. The remainder of this increase was due primarily to reduced input and fixed costs, and the restructuring of our St. Helen’s mill in late 2008, offset partially by lower sales volumes and reduced depreciation due to the suspension of depreciation for the assets being held for sale as a result of the Acquisition. The combined year ended December 31, 2008, included $7.4 million of expense from inventory purchase accounting adjustments.
Packaging. Segment income increased $40.3 million, or 150%, to $67.1 million in 2009 from $26.8 million in the combined year ended December 31, 2008. The impact of the alternative fuel mixture credits was $61.6 million. The remainder of this increase was due primarily to reduced input and fixed costs (offset partially by lower net sales prices and sales volumes) and reduced depreciation due to the suspension of depreciation for the assets being held for sale as a result of the Acquisition. The combined year ended December 31, 2008, included $20.5 million in costs due to the planned DeRidder outage in the first quarter and $2.8 million of expense from inventory purchase accounting adjustments.
Other
Foreign Exchange Gain (Loss). For the year ended December 31, 2009, foreign exchange gain was $2.6 million, compared with a $4.6 million loss for the same period in the combined year ended December 31, 2008. This gain was driven primarily by weakening of the U.S. dollar, compared with other global currencies, particularly the Canadian dollar.
Loss on Extinguishment of Debt. For the year ended December 31, 2009, loss on extinguishment of debt was $44.1 million as a result of the October 2009 debt restructuring. For additional information, refer to our discussion under “Debt Issuance and Restructuring” and “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Interest Expense. For the year ended December 31, 2009, interest expense was $83.3 million, of which $56.9 million consisted of cash interest payments related to debt under our senior secured credit facilities. The remaining amount of interest expense consisted primarily of noncash items,
including the following: $9.0 million related to notes payable and $11.3 million for amortization of deferred financing fees. For the combined year ended December 31, 2008, interest expense was $91.2 million, of which $72.1 million consisted of cash interest payments related to debt under our senior secured credit facilities. The remaining amount of interest expense consisted primarily of noncash items, including the following: $8.3 million related to notes payable and $9.3 million for amortization of deferred financing fees. For additional information, refer to our discussion of debt under “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The debt of Boise Cascade was not allocated to the Predecessor in the financial statements included in this Form 10-K.
Interest Income. For the year ended December 31, 2009, interest income was $0.4 million, compared with $2.4 million for the combined year ended December 31, 2008. Interest income for the period prior to February 22, 2008, is attributable to income from interest earned on trust assets held by Aldabra 2 Acquisition Corp.
Income Taxes. For the year ended December 31, 2009, we recorded $28.0 million of income tax expense and had an effective tax rate of 15.4%. We increased our income tax expense in 2009 as a result of our uncertain tax position regarding alternative fuel mixture credits. This increase was offset by a $44.0 million tax benefit from the release of valuation allowances. For the year ended December 31, 2008, we recorded $8.8 million of income tax benefits related to losses incurred during the year. We did not recognize an additional $10.9 million of tax benefits from those losses because the realization of those benefits was not considered more likely than not.
Combined Year Ended December 31, 2008, Compared With the Year Ended December 31, 2007
Sales
For the combined year ended December 31, 2008, total sales increased $98.0 million, or 4%, to $2,430.6 million from $2,332.6 million for the year ended December 31, 2007. The increase was driven by a 4% increase in both Paper and Packaging segment sales, due primarily by higher sales prices for uncoated freesheet, offset partially by lower sales volumes.
Paper. Sales increased $61.0 million, or 4%, to $1,657.2 million for the combined year ended December 31, 2008, from $1,596.2 million for the year ended December 31, 2007. This increase was driven by improved pricing for uncoated freesheet and medium in 2008, offset partially by lower pulp pricing. Commodity uncoated freesheet sales prices increased 8%, compared with 2007, while premium and specialty prices increased 6%. Commodity uncoated freesheet volumes were down 6% from 2007 due primarily to declining demand across most grades, particularly more mature printing and converting grades, including envelope and offset grades. To balance production with demand, we took market downtime in the second half of 2008. Premium and specialty sales volumes were up 5%, compared with the prior year, driven by a 14% increase in sales of label and release and premium office papers and higher purchase volumes by our cut-size customers. Combined sales volumes of label and release and flexible packaging grades.
Packaging. Sales increased $34.1 million, or 4%, to $817.2 million for the combined year ended December 31, 2008, from $783.1 million for the year ended December 31, 2007. The increase was due primarily to higher prices for linerboard, corrugated containers and sheets, and newsprint, offset partially by lower sales volumes. Linerboard pricing to third parties was 2% higher in 2008, corrugated container and sheet pricing improved 8%, and newsprint pricing improved 17%. Overallpremium office papers represented 34% of our total uncoated freesheet sales volumes for linerboard to third parties and newsprint decreased 4% and 8%, respectively, primarily as a result of the planned DeRidder outage in first quarter 2008, downtime related to Hurricanes Gustav and Ike2012, up from 33% in the third quarter 2008, market-related downtime taken in the fourth quarter, and production of lower basis weight newsprint grades. Corrugated container and sheet volumes decreased 5% in 2008, compared with 2007, driven mainly by lower sales volumes from our sheet feeder plant in Texas as a result of slowing industrial markets and market disruption caused by Hurricane Ike.prior year.
Materials, labor, and other operating expenses, including the cost of fiber from related parties, increased $145.4$124.8 million or 7%, to $2,133.0$2,023.8 million for the combined year ended December 31, 2008, from $1,987.6 million for the year ended December 31, 2007. The increase was driven primarily by higher input costs and higher fixed costs, mainly maintenance, associated2012, compared with the planned DeRidder outage.Fiber, energy, and chemical costs were $530.0
$1,899.0 million $340.2 million, and $262.6 million, respectively, for the combined year ended December 31, 2008, and $505.3 million, $294.5 million, and $228.1 million, respectively, for the year ended December 31, 2007. Combined, this represented a cost increase of $104.9 million in 2008, compared with 2007. This increase was driven primarily by a sharp rise in these costs brought on by higher fossil fuel prices2011.In both 2012 and a reduction in supply of residual chips in 2008.Fiber costs increased $30.4 million in our Paper segment, due primarily to higher prices for wood, purchased pulp, and secondary fiber. In Packaging, fiber costs decreased $5.6 million, due primarily to reduced consumption during the planned DeRidder outage in the first quarter, offset partially by increased recycled fiber prices.
Compared with the year ended December 31, 2007, energy costs increased $36.8 million in our Paper segment, driven by higher fuel and electricity prices, and $8.9 million in our Packaging segment, driven by increased electricity and natural gas prices.
Chemical costs increased $24.7 million in our Paper segment and $9.8 million in our Packaging segment, driven by substantially higher prices for commodity chemical inputs.
Under purchase accounting rules, in connection with the Acquisition, we revalued our inventory to estimated selling prices less costs of disposal and a reasonable profit allowance for the selling effort. As a result of these purchase accounting adjustments, our2011, materials, labor and other operating expenses, including the cost of fiber from related parties, were 79% of sales. In our Packaging segment, the increased $10.2sales volumes described above led to increased fiber, chemical, labor, freight, supplies and other costs. In our Paper segment, lower wood fiber costs due to reduced prices and consumption of purchased pulp and lower energy costs were offset partially by higher chemical input and other costs.
The table below breaks out our most significant input costs: fiber (including purchased rollstock consumed in our corrugated operations), chemicals, and energy (dollars in millions):
|
| | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 |
| Fiber | $ | 520.1 |
| | $ | 534.0 |
|
| Chemicals | 253.6 |
| | 235.7 |
|
| Energy | 196.0 |
| | 209.1 |
|
| | $ | 969.6 |
| | $ | 978.8 |
|
Fiber. Costs for fiber, including purchased rollstock consumed in our corrugated operations, increased$20.0 million in our Packaging segment and decreased $34.0 million in our Paper segment, compared with the year ended December 31, 2011. Purchased rollstock costs in our Packaging segment increased due to our acquisitions. Fiber costs in our Paper segment decreased primarily due to lower prices and reduced consumption of purchased pulp.
In Minnesota and Alabama, our overall fiber costsdecreased due to improved pulp production, which reduced consumption of purchased pulp. In Minnesota, the decreases were offset partially by increased secondary
fiber costs and consumption, and higher wood fiber costs. In Alabama, the decreases were offset partially by increased wood prices and higher consumption of both wood fiber and secondary fiber. In Washington, fiber costs decreased as a result of decreased consumption of wood fiber, offset partially by increased consumption of both purchased pulp and secondary fiber and higher wood fiber prices.
Compared with 2011, total fiber costs at our DeRidder, Louisiana, mill increased as a result of higher prices and consumption of wood fiber due to increased linerboard production, offset partially by lower consumption and prices of secondary fiber.
Chemicals. Chemical costs increased$4.1 million in our Packaging segment and $13.8 million in our Paper segment. The increased costs were primarily a result of increased prices for chemicals, including caustic soda, starch, and precipitated calcium carbonate. Costs also increased as the result of increased production of label and release papers, which require more chemicals to produce.
Energy. Energy costs decreased$4.0 million in our Packaging segment and $9.1 million in our Paper segment. In our Packaging segment, the decrease was due to lower prices for electricity and natural gas, offset partially by a modest increase in consumption of fuel. In our Paper segment, the decrease was due to lower prices and consumption of fuel, offset partially by higher electricity prices.
Labor. Labor costs related to the production of our products recorded in "Materials, labor, and other operating expenses (excluding depreciation)" were $350.8 million in 2012, an increase of $33.3 million, or 10%, compared with the same period in 2011. Approximately79% of the increase is attributable to our acquisitions with the remaining increase primarily related to increased sales volumes. Labor costs are not as volatile as wood fiber costs and energy; however, they make up a significant component of our operating costs and tend to increase over time.
Selling and distribution expenses. In 2012, the increase in selling and distribution expenses related primarily to our acquisitions. The businesses we acquired serve a larger proportion of small customers with a more diverse range of products, compared with our historical packaging business, resulting in higher selling and distribution costs. Excluding the acquisitions, selling and distribution expenses were essentially flat as a percentage of sales in 2012, compared with 2011.
St. Helens charges. In 2012, we ceased paper production on our one remaining paper machine at our St. Helens, Oregon, paper mill. During the year ended December 31, 2008.Depreciation, amortization, and depletion for the year ended December 31, 2008, was $110.0 million. The year ended December 31, 2008, included depreciation, amortization, and depletion for the period2012, we recorded
$31.7 million of February 22, 2008, through December 31, 2008. For the Predecessor period of January 1 through February 21, 2008, depreciation, amortization, and depletion was $0.5 million due to the suspension of depreciation for the assets being held for sale as a result of the Acquisition. For the Predecessor year ended December 31, 2007, depreciation, amortization, and depletion was $84.6 million.Selling and distribution expenses decreased $2.1 million, or 4%, to $57.4 million for the combined year ended December 31, 2008, from $59.5 million for the year ended December 31, 2007. As a percentage of sales, selling and distribution expenses were reduced to 2.4% for the combined year ended December 31, 2008, compared with 2.6% in the prior year.
General and administrative expenses decreased $3.6 million, or 8%, to $40.9 million for the combined year ended December 31, 2008, from $44.5 million for the year ended December 31, 2007. The decrease was duepretax costs related primarily to ceasing paper operations at the elimination of annual incentive compensation payouts for 2008. As a percentage of sales, general and administrative expenses were reduced to 1.7% for the combined year ended December 31, 2008, compared with 1.9% in the prior year.
St. Helens Mill Restructuring. The year ended December 31, 2008, included $37.6 million in costs associated with the restructuring of our St. Helens paper mill; $28.8 million of these costs related to noncash expenses.mill. These costs are recorded in our Paper segment. OfThe $31.7 million of costs included approximately $14.2 million of non-cash charges related primarily to the $37.6impairment of property, plant and equipment, and inventory, and approximately $17.5 million $7.8of cash costs of which we expect to pay approximately $7.3 million of employee-related and other costs in early 2013 and the remaining amounts over a longer term. We recorded $27.6 million in "St. Helens charges" and $4.1 million related primarily to the write-down of inventory and was recorded in “Materials,"Materials, labor, and other operating expenses”expenses (excluding depreciation)" in theour Consolidated StatementStatements of Income (Loss). We recorded the remaining
$29.8 millionIncome. Our decision to cease paper production at our St. Helens, Oregon, paper mill will essentially eliminate future sales volumes of restructuring costs in “St. Helens mill restructuring” in the Consolidated Statementflexible packaging papers, as approximately half of Income (Loss). These costs included asset write-downs for plant and equipmentour 60,000 ton capacity at the St. Helens facility produced flexible packaging papers, with the remaining capacity dedicated to printing and converting papers.
Depreciation, amortization, and depletion and general and administrative expenses increased during 2012 due primarily to incremental expenses from our acquisitions. Compared with 2011, depreciation, amortization, and depletion was flat as a percentage of sales. General and administrative costs increased as a percentage of sales in 2012, compared with 2011. Approximately 67% of the increase related to our acquisitions, and the remaining increase related to higher employee-related costs.
Income From Operations
Income from operations for the year ended December 31, 2012, decreased $43.5 million to $147.5 million, compared with $191.1 million for the year ended December 31, 2011. As discussed above, 2012 income from operations included $31.7 million of pretax costs primarily related to ceasing paper production on our one remaining machine at our mill employee-related severancein St. Helens, Oregon. Before the St. Helens costs, pension curtailment losses,income from operations decreased $11.8 million. Income from operations also includes net costs from our Corporate and Other segment which increased slightly in 2012 compared with 2011.
Packaging. Segment income from operationsdecreased $3.4 million to $101.6 million in 2012, compared with $105.0 million for the year ended December 31, 2011. The decrease in segment income related to margin compression on the sale of our products at our converting operations, primarily in Texas and California, and increases in depreciation and amortization associated with our acquisition of Hexacomb on December 1, 2011, which were only partially offset by lower energy costs.
Paper. Segment income from operations decreased $38.1 million to $73.9 million in 2012, compared with $112.1 million for the year ended December 31, 2011. This decrease related to the $31.7 million of pretax costs recorded primarily in connection with ceasing paper production on our one remaining paper machine at our mill in St. Helens, Oregon, in December 2012. Additionally, the decrease related to lower sales prices for uncoated freesheet and market pulp, lower sales volumes of market pulp, and higher chemical costs, which were only partially offset by lower fiber and energy costs, lower maintenance outage costs and increased volumes of uncoated freesheet, primarily label and release and premium office paper grades.
Other
Income taxes. For the years ended December 31, 2012 and 2011, we recorded income tax expense of $34.0 million and $50.1 million, respectively, and had effective tax rates of 39.5% and 40.0%, respectively. In both periods, the primary reason for the difference from the federal statutory income tax rate of 35.0% was the effect of state income taxes.
Loss on extinguishment of debt. During the year ended December 31, 2011, we recognized $2.3 million in loss on extinguishment of debt. This amount consists primarily of previously unamortized deferred financing costs, which were expensed in connection with our financing activities. We did not recognize any of these costs in 2012.
2011 Compared With 2010
Sales
In 2011, total sales increased $310.3 million, or 15%, to $2,404.1 million, compared with $2,093.8 million in 2010. The increase was a result of increased sales from our acquisition of Tharco in first quarter 2011, which increased sales in our Packaging segment, as well as higher net selling prices for the products we manufacture.
Packaging. Sales increased $277.8 million, or 41%, to $949.7 million, compared with $671.9 million for the year ended December 31, 2010. The increase related primarily to our acquisition of Tharco, which drove higher sales volumes and prices for corrugated products and accounted for approximately 81% of the $277.8 million increase. Other drivers included a 16% increase in segment linerboard net selling prices and a 10% increase in newsprint net selling prices.
Paper. Sales increased $38.2 million, or 3%, to $1,496.5 million, compared with $1,458.3 million for the year ended December 31, 2010. The increase was due to a 1% increase in overall uncoated freesheet net sales prices, as commodity uncoated freesheet net sales prices decreased 1% and premium and specialty net sales prices increased 4%, compared with the prior-year period. Overall uncoated freesheet sales volumes were flat, compared with the prior-year period, as a 2% decline in commodity sales volumes was offset by a 4% increase in premium and specialty sales volumes. Sales volumes of premium office, label and release, and flexible packaging papers represented 33% of our total uncoated freesheet sales volumes for 2011.
Costs and Expenses
Materials, labor, and other miscellaneousoperating expenses, including the cost of fiber from related parties, increased $239.7 million to $1,899.0 million, for the year ended December 31, 2011, compared with $1,659.3 million for the year ended December 31, 2010. The increase related primarily to operating costs associated with Tharco, as well as higher overall input costs in our Paper segment.
The table below breaks out our most significant input costs: fiber (including purchased rollstock consumed in our corrugated operations), chemicals, and energy (dollars in millions):
|
| | | | | | | |
| | Year Ended December 31 |
| | 2011 | | 2010 |
| Fiber | $ | 534.0 |
| | $ | 461.8 |
|
| Chemicals | 235.7 |
| | 204.9 |
|
| Energy | 209.1 |
| | 211.7 |
|
| | $ | 978.8 |
| | $ | 878.4 |
|
Compared with 2010, total fiber, chemical, and energy costs increased $100.4 million in 2011. Thisincrease was driven primarily by fiber costs associated with Tharco, as well as higher chemical and fiber costs in our Paper segment.
Fiber. Costs for fiber, including purchased rollstock consumed in our corrugated operations, increased $59.4 million in our Packaging segment and $12.7 million in our Paper segment, compared with the year ended December 31, 2010. Delivered-fiber costs in all of our operating regions include the cost of diesel, which increased in 2011. Higher diesel costs increase the cost to harvest and transport wood to the mills, unfavorably affecting fiber costs in all of our regions.
In Minnesota, our overall fiber costs increased due to increased prices and consumption of purchased pulp as a result of increased production of paper. This was offset partially by reduced consumption of wood and recycled fiber.
In the Pacific Northwest, our fiber costs increased in 2011 as a result of higher prices for wood fiber, a greater mix of whole logs, and higher prices for purchased pulp at our St. Helens, Oregon, mill.
Compared with 2010, total fiber costs at our DeRidder, Louisiana, mill decreased due to lower prices and consumption of wood fiber, offset partially by increased consumption of recycled fiber. In Alabama, fiber costs decreased in 2011, driven by reduced consumption of purchased pulp and recycled fiber due to lower production tons at our Jackson mill and lower prices for wood fiber. Fiber costs in the region were negatively affected by wet weather in 2010.
Chemicals. Chemical costs increased $6.5 million in our Packaging segment and $24.3 million in our Paper segment. The increased costs were primarily a result of increased prices for commodity chemicals, including caustic soda and starch.
Energy. Energy costs decreased $0.6 million in our Packaging segment and $2.0 million in our Paper segment. In our Packaging segment, the decrease was due to lower fuel consumption coupled with lower electricity and natural gas prices. These decreases were offset partially by higher electricity consumption. In our Paper segment, this decrease was due to lower natural gas prices, offset in part by higher electricity prices.
Labor. Labor costs related to the restructuringproduction of our products recorded in "Materials, labor, and other operating expenses (excluding depreciation)" were $317.5 million in 2011, an increase of $45.0 million, or 17%, compared with the mill. Forsame period in 2010. Included in 2011 are additional labor costs from our first-quarter acquisition of Tharco.
Selling and distribution expenses. In 2011, the increase in selling and distribution expenses related primarily to the acquisition of Tharco. Compared with our historical packaging business, Tharco serves a larger proportion of small customers with a more information, see “St. Helens Mill Restructuringdiverse range of products, resulting in higher selling and DeRidder Machine Idling”distribution costs. Excluding the selling and distribution expenses related to Tharco, our selling and distribution expenses increased only 3.0% in this Management’s Discussion2011.
Depreciation, amortization, and
Analysis of Financial Conditiondepletion and
Results of Operations.general and administrative expenses increased during the year ended December 31, 2011, due primarily to incremental expenses from Tharco's operations. Excluding the expenses related to Tharco, these expenses increased only slightly.
Other (Income) Expense, Net. “Other(income) expense. "Other (income) expense, net”net" includes miscellaneous income and expense items. ForIn 2011, we recorded $3.1 million of costs incurred during the combined year ended December 31, 2008, we had $4.0initial evaluation of potential targeted acquisitions. The expenses related primarily to costs to analyze, negotiate, and consummate transactions as well as financial and legal due diligence activities. These costs were partially offset by approximately $1.1 million of other miscellaneous income compared with $4.1 million in the prior year. In 2008, the $4.0 million of income consisted primarily of a $2.9 million gain on changes in supplemental pension plans and a net gain on sales of assets of $1.0 million for the Predecessor period of January 1 through February 21, 2008. For the year ended December 31, 2007, the $4.1 million of income consisted primarily of a $4.4 million gain on changes in retiree healthcare programs.expenses.
Income (Loss) From Operations. Operations
Income from operations for the combined year ended December 31, 2008, decreased $97.5 million to $63.0 million, compared with $160.5 million for the year ended December 31, 2007.2011, decreased slightly to Paper$191.1 million, compared with $194.0 million for the year ended December 31, 2010. SegmentExcluding special items, income decreased $80.1 million, or 60%, to $53.4from operations increased $5.3 million in 20082011. Before special items, the increase related to a significant earnings growth in our Packaging segment, offset partially by decreased operating income in our Paper segment. Income from $133.5operations also includes net costs from our Corporate and Other segment.
Packaging. Segment income from operations increased $40.0 million to $105.0 million in 2007. Overall, our operating results2011, compared with $65.0 million for the year ended December 31, 2008,2010. This increase was driven by improved linerboard, newsprint, and corrugated products pricing and the acquisition of Tharco. These factors were affectedoffset partially by approximately $92.1 million in increased input costs (including fiber,higher chemical costs. During 2011, net selling prices of segment linerboard improved $57 per short ton, and energy costs), $37.6 million due to the St. Helens mill restructuring, $7.4 million from inventory purchase accounting adjustments, and $6.1 million from noncash mark-to-market energy hedge expenses. The Predecessor suspended depreciation from September 2007 through February 2008 for the assets being held for sale as a result of the Acquisition, which reduced depreciation and amortization during 2007 by approximately $21.7 million,newsprint prices improved $53 per short ton, compared with 2008.the same period in the prior year, as both markets improved in 2011.
Packaging.Paper. Segment income from operations decreased $13.3$39.4 million or 33%, to $26.8$112.1 million in 2008 from $40.12011, compared with $151.5 million in 2007. Overall, our operating results for the year ended December 31, 2008, were affected2010. This decrease was driven by $13.2 millionhigher input costs, continued declines in U.S. industry demand for uncoated freesheet, and higher maintenance costs during our annual shutdown at Wallula, Washington. The increased input costs (includingrelated primarily to increased prices for commodity chemicals, including caustic soda and starch, and to a lesser extent, higher fiber chemical,costs, offset partially by higher sales prices, lower energy costs, and energy costs), $20.5 million fromincreased sales volumes of medium and market pulp.
Other
Loss on extinguishment of debt. During the planned DeRidder outage in the first quarter, $2.8 million from inventory purchase accounting adjustments, $1.3 million from noncash mark-to-market energy hedge expenses, and approximately $5.5 million from lost production and costs as a result of Hurricanes Gustav and Ike. The Predecessor suspended depreciation from September 2007 through February 2008 for the assets being held for sale as a result of the Acquisition, which reduced depreciation and amortization during 2007 by approximately $19.1 million, compared with 2008.Other
Foreign Exchange Gain (Loss). For the combined yearyears ended December 31, 2008, foreign exchange2011 and 2010, we recognized $2.3 million and $22.2 million, respectively, in loss on extinguishment of debt. These amounts consist primarily of previously unamortized deferred financing costs, which were expensed in connection with our financing activities.
Income taxes. For the years ended December 31, 2011 and 2010, Boise Inc. recorded income tax expense of $50.1 million and $45.4 million, respectively, and had effective tax rates of 40.0% and 42.0%, respectively. For the years ended December 31, 2011 and 2010, BZ Intermediate recorded income tax expense of $50.1 million and $44.5 million, respectively, and had effective tax rates of 40.0% and 41.2%, respectively. The primary reason for the difference from the federal statutory income tax rate of 35.0% was $4.6 million,the effect of state income taxes and discrete tax items.
Balance Sheet Changes
The changes in our balance sheet, compared with December 31, 2010, relate primarily to the Tharco and Hexacomb acquisitions, the exercise of warrants, the repurchase of our common stock, and an increase in our pension obligations. We increased our assets approximately $423.4 million and our liabilities approximately $97.2 million in total for both acquisitions based on the fair values on the acquisition dates. During 2011, warrant holders exercised 40.3 million warrants, resulting in the issuance of 38.4 million additional common shares and we repurchased 21.2 million common shares. Compared with December 31, 2010, our pension obligation, which is recorded in long-term "Compensation and benefits" on our Consolidated Balance Sheets, increased approximately $83.4 million. The increase in our pension obligation related primarily to a $1.2 million gain fordecrease in the same period in 2007. This loss was driven primarily by a strengtheningdiscount rate from 5.50% at December 31, 2010 to 4.50% at December 31, 2011. See Note 4, Acquisitions, Note 10, Retirement and Benefit Plans, and Note 12, Stockholders' Equity and Capital, of the U.S. dollar against the Canadian dollar, which reduced the amount we collected on our Canadian-denominated accounts receivable.Interest Expense. For the combined year ended December 31, 2008, interest expense was $91.2 million,Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of which $72.1 million consisted of cash interest payments related to debt under our senior secured credit facilities. The remaining amount of interest expense consisted primarily of noncash items, including the following: $8.3 million related to notes payable and $9.3 million for amortization of deferred financing fees. For additional information, refer to our discussion of debt under “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The debt of Boise Cascade was not allocated to the Predecessor in the financial statements included in this Form 10-K.
Interest Income. For the combined year ended December 31, 2008, interest income was $2.4 million, compared with $11.1 million10-K for the year ended December 31, 2007. Interest income for the period prior to February 22, 2008, was attributable to income from interest earned on trust assets held by Aldabra 2 Acquisition Corp.
Income Taxes. For the year ended December 31, 2008, we recorded $8.8 million of income tax benefits related to losses incurred during the year. We did not recognize an additional $10.9 million of tax benefits from these losses, because the realization of these benefits was not considered more likely than not. The tax benefit we recognized was primarily the result of the ability to carry back some of our federal net operating loss to 2007 and to offset some of the net operating loss against the deferred tax liabilities recorded from our purchase price allocation. As a result of completing our purchase price allocation during the year ended December 31, 2008, we recorded $12.4 million of deferred tax liabilities and assumed $0.6 million of deferred tax liabilities from Boise Cascade. At December 31, 2008, our deferred tax liability, net of deferred tax assets, was $3.6 million.information.
Because of its pass-through tax structure, the Predecessor recorded tax expense related only to small subsidiaries that are taxed as corporations.
Liquidity and Capital Resources
In During 2009, our2012, we generated $97.4 million of operating cash flow, less capital expenditures, compared with $121.4 million in 2011. Almost 80% of the decrease in operating cash flow, less capital expenditures, in 2012
related to additional pension contributions and increased capital expenditures. For more information, see the discussion under "Operating Activities" and "Investing Activities" below. We ended the year with $49.7 million of cash and $487.7 million of aggregate liquidity position strengthened asfrom unused borrowing capacity under the revolving credit facility, net of letters of credit. Our cash equivalents are invested in bank deposits and money market funds that are invested in U.S. government debt and agency securities. At December 31, 2012, we restructured our balance sheet in October and reduced our totaldid not hold significant investments tied to debt by $288.1 million during the year. The debt restructuring resulted in changesof countries facing severe fiscal challenges.
Our foreign operations are not material to our financial covenants, increasedposition or results of operations. At December 31, 2012, we had $8.0 million of cash held in operations outside of the United States. We indefinitely reinvest our financial flexibility, extended our debt maturity profile, simplified our capital structure,earnings in operations outside the United States; however, if foreign earnings were repatriated at a future date, we would need to accrue and reduced our total indebtedness.pay taxes.
We believe that our cash,
flow from operations as well as our
cash flows from operations and the available borrowing capacity under our
$250.0 million revolving credit facility,
shouldwill be adequate to provide cash as required to support our ongoing operations,
capitalproperty and equipment expenditures,
pension contributions, and
our debt service obligations for
at least the next 12 months.
If a contractually committed lender fails to honor its commitment under the $250.0 million revolving credit facility, the other lenders would remain committed for their portion of the total facility. A total of 12 lenders participated in the revolving credit facility at December 31, 2009, and the largest single commitment under the revolving credit facility was $100.0 million. At December 31, 2009, we did not have any borrowings outstanding under the revolving credit facility. Thus, at December 31, 2009, our aggregate liquidity from unused borrowing capacity under the revolving credit facility totaled $227.8 million, net of outstanding letters of credit of $22.2 million. We cannot assure that our business will generate sufficient cash flow from operations or that future borrowings will be available for use under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness according to its terms or to fund our other liquidity needs.
Unless otherwise noted, this discussion of liquidity and capital resources with respect to 2008 refers to the combined activities of Boise Inc. and the Predecessor.
We
primarily generate cash from sales of our products and from
short-termshort- and long-term borrowings, as well as from
cash proceeds from the sale of nonstrategic assets.
In 2009, we generatedOur principal operating cash
from the alternative fuel mixture credits the U.S. Internal Revenue Code allowedexpenditures are for
taxpayers using alternative fuels in the taxpayer’s trade or business.fiber, compensation, chemicals, energy, and interest. In addition to paying for ongoing operating costs, we use cash to invest in our business,
return capital to shareholders, fund pension obligations, repay debt, and meet our contractual obligations and commercial commitments. Below is
a summary table of our cash flows, followed by a discussion of our sources and uses of cash through operating activities (including a sensitivity analysis related to our sources and uses of cash from/for operating activities), investing activities, and financing
activities.activities (dollars in millions):
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Cash provided by operations | $ | 235.0 |
| | $ | 250.2 |
| | $ | 289.8 |
|
| Cash used for investment | (136.2 | ) | | (443.3 | ) | | (109.3 | ) |
| Cash provided by (used for) financing | (146.1 | ) | | 123.3 |
| | (83.1 | ) |
Operating Activities
2012We operate in a cyclical industry, Compared With 2011
In 2012 and our operating cash flows vary accordingly. Our principal operating cash expenditures are for compensation, fiber, energy, and interest. In 2009, our2011, operating activities provided $458.7$235.0 million and $250.2 million of cash, respectively. Compared with 2011, cash provided by operations decreased $15.2 million due to a $9.8 million increase in cash contributions to our pension plans and a $1.9 million increase in working capital. In 2012, we contributed $35.2 million to our pension plans, compared with $104.6$25.4 million in 2008. As discussed under “Our Operating Results” above, income for2011.Working capital increased $19.0 million in 2012, compared with a $17.1 million increase in the year ended December 31, 2009, reflects $207.6 million of alternative fuel mixture credits, including fees and expenses and before taxes. In October 2009, we began filing for alternative fuel mixture credits as a refundable credit on our income tax return instead of as a refundable excise tax credit. This filing change will not affect the total amount we expect to ultimately receive but does delay receipt of fuel mixture credit payments until after we file our federal income tax return in first quarter 2010. At December 31, 2009, we had a $56.6 million receivable for alternative fuel mixture credits.In 2009, favorable changes in working capital provided $91.6 million of cash from operations, while unfavorable changes in working capital used $50.5 million of cash in 2008.prior year. Working capital is subject to cyclical operating needs, the timing of the collection of receivables, the payment of payables and expenses, and to a lesser extent, seasonal fluctuations in our operations. Relative to 2008, cash provided by operations was positively affected by higher net income forIn 2012, the year ended December 31, 2009, and favorable working capital changes.
In 2009, the $91.6 million of cash generated from favorable changesincrease in working capital items is attributablerelated primarily to a decrease in inventoriesdecreased payables and an increase in accounts payable and accrued liabilities, offset partially by increased receivables.
Inventoriesreceivable. Our payables decreased due to our reducing paper production on selected uncoated freesheet machines in the Paperfourth quarter to balance our production with lower demand for our products in an effort to maintain efficient inventory levels. Receivables increased in 2012 due to higher sales volumes and prices for our corrugated products.
2011 Compared With 2010
In 2011 and 2010, operating activities provided $250.2 million and $289.8 million of cash, respectively. Compared with 2010, the Packaging segments were down $59.1 million and $23.7 million, respectively, providing $83.0 milliondecrease in cash provided by operations related to a $17.1 million increase in working capital in 2011, compared with a $38.1 million reduction in working capital in the prior year. In 2011, the increase in working capital related primarily to increased inventory balances. Inventory increased due to the building of raw materials inventories in our business and a higher valuation of our finished goods inventories. Compared with 2010,
cash provided by operations also decreased due to a decline in income from operations
as we concentrated on inventory reduction.in 2011. The decline in
Paper segment inventories was due in part to the liquidation of St. Helens inventory related to the mill restructuring. The annual shutdown during December 2009 at our mill in Jackson, Alabama, reduced inventory levels at year-end as we sold inventory that we had on hand. Further declines in inventory within the Packaging segment resulted from operating one newsprint machine rather than the two we were operating at the end of 2008.Higher levels of accounts payable and accrued liabilities provided $25.7 million of cash from operations. We experienced higher accounts payable and accrued liabilities in the Paper and Corporate and Other segments. These increases were offset by decreases in the Packaging segment. We had higher incentive compensation accruals at December 31, 2009, than at December 31, 2008, as we did not pay any incentive compensation related to 2008. The increase in accounts payable and accrued liabilities in the Paper segment was due primarily to the annual mill shutdown at Jackson, offset by the reduction of payables and accrued liabilities as a result of the St. Helens mill restructuring. The decrease in accounts payable and accrued liabilities within the Packaging segment was due in part to reconfigured newsprint operations.
Higher levels of receivables used $18.6 million of cash from operations, which is attributable primarily to an increase in “Other” receivables relating to the alternative fuel mixture credits of $56.6 million, offset partially by a $35.5 million decrease in trade receivables. The decrease in trade receivables was due primarily to lower sales within each of our operating segments.
In 2008, the $50.5 million of cash usedincome from operations related to unfavorable changes in working capital items attributable primarily to increases in inventory and decreases in accounts payable and accrued liabilities. Increases in inventory levels in both the Paper and the Packaging segments used $23.6 million of cash from operations, which included the $7.8 million of noncash inventory write-down as a part of the St. Helens mill restructuring. The increase in Paper segment inventory levels was attributable to increases in finished goods inventory as well as fiber inventories. The increase in finished goods inventory levels was due partly to the sharper than expected
slowdown in demand during fourth quarter 2008. The increase in fiber inventories in the Pacific Northwest was driven primarily by increased log inventories to support our whole-log chipping operations and increased market pulp inventory. The increase in Packaging segment inventory levels was driven primarily by higher levels of containerboard roll stock inventories at our corrugated product and sheet feeder plants as demand for these products weakened in late 2008. Lower levels of accounts payable and accrued liabilities used $28.5 million of cash from operations, which was attributable primarily to decreased levels of trade payablesoperating income in theour Paper segment, as a result of lower raw material purchases near the end of 2008, compared with the same periodwhich was driven by higher input costs and continued declines in 2007. This decrease in purchases was primarily the result of lower production volumes due to slowed production and market downtime in fourth quarter 2008. To a lesser extent, decreased levels of accrued compensation and benefits, due primarily to the elimination of incentive bonuses, contributed to the unfavorable changeU.S. industry demand for uncoated freesheet. For more information, see "Our Operating Results" in this working capital item. Partially offsetting these increases in working capital were higher levelsManagement's Discussion and Analysis of trade payables in our PackagingFinancial Condition and Corporate and Other segments.
In 2007, operating activities provided $245.3 million. Working capital and other items used $2.3 million in 2007. The $2.3 million unfavorable change in 2007 consisted primarilyResults of $13.3 million of payments for pension and other postretirement benefit programs, offset partially by a decrease in working capital that provided $9.0 million. The decrease in working capital was attributable primarily to higher accounts payable and accrued liabilities in the Paper segment due largely to the timing of payments. As discussed under “Our Operating Results” above, the 2007 increase in income was primarily the result of higher income in the Paper segment due to higher product sales prices.
Operations.
Sensitivity Analysis Related to Sources and Uses of Cash From/For Our Operating Activities
Our operations can be affected by the following sensitivities (dollars in millions):
|
| | | |
| Sensitivity Analysis (a) | Estimated Annual Impact on Income Before Taxes |
| Packaging | |
| Corrugated containers and sheets ($1.00/msf change in price) | $ | 10 |
|
| Linerboard (External sales) ($10/short ton change in price) | 2 |
|
| Newsprint ($10/short ton change in price) | 2 |
|
| Paper | |
| Uncoated freesheet ($10/short ton change in price) | 12 |
|
| Interest rate (1% change in interest rate on our variable-rate debt) | 2 |
|
| Energy (b) | |
| Natural gas ($1.00/mmBtu change in price) | 11 |
|
| Electricity (1% change in cost) | 1 |
|
| Diesel ($0.50/gallon change in price) | 6 |
|
| Fiber (1% change in cost) | 5 |
|
| Chemicals (1% change in cost) | 3 |
|
____________
| |
| (a) | Based on 2012 operations and adjusted for ceasing paper production at St. Helens. |
| |
| (b) | The allocation between energy sources may vary during the year in order to take advantage of market conditions. The diesel sensitivity does not take into account any floors that may exist in rail or truck fuel surcharge formulas. |
Investment Activities
During 2012, we used $137.6 million of cash flows from operating activitiesOur primary source of cash is revenue generated by the sale of our packaging and paper products, including uncoated freesheet, linerboard, corrugated containers and sheets, and newsprint. Declines in workingfor capital also provide cash for operations, including declines in receivables from sales of our products, reductions in inventory levels, reductions in prepaid expenses, and increases in accounts payable and other accrued liabilities. The sensitivities described below are based on our 2009 operations and reflect the restructuring of our St. Helens mill and the indefinite idling of our D-2 newsprint machine.
In 2009, we sold 1.3 million short tons of uncoated freesheet, 253,000 short tons of linerboard to third parties, 6.0 billion square feet of corrugated products, 199,000 short tons of newsprint, and 58,000 short tons of market pulp. A $10-per-short-ton price change in uncoated freesheet would have affected our revenue by approximately $13 million annually. A $10-per-short-ton price change in linerboard sold to third parties would have affected revenue by approximately $3 million annually, and a $10-per-short-ton price change in newsprint would have affected our revenue by approximately $2 million. For corrugated sheets and containers, a $1-per-thousand-square-feet change in pricing affects sales revenue by approximately $6 million.
Selling prices for uncoated freesheet and corrugated containers and sheets improved, while selling prices for linerboard and newsprint declined in 2009, compared with 2008. Sales volumes for all product lines except linerboard decreased due to declines in product demand and market curtailments and capacity reductions across the industry. Average net selling prices for uncoated freesheet papers improved $24 per short ton, or 3%, to $954 per short ton in 2009, compared with $930 per short ton in 2008. During 2009, we took approximately 42,000 short tons of market-related downtime in uncoated freesheet production, compared with approximately 39,000short tons of market-related downtime in 2008. Corrugated container and sheet prices improved $1 per msf, or 2%, to $58 per msf in 2009, compared with $57 per msf during 2008. Linerboard net selling prices to
third parties declined $96 per short ton, or 24%, to $301 per short ton in 2009, compared with $397 per short ton in 2008, due primarily to weak market conditions. Newsprint prices decreased $112 per short ton, or 20%, to $459 per short ton during 2009, compared with 2008, due to lower demand. In 2009, we took approximately 44,000 short tons of market-related downtime in linerboard production and approximately 225,000 short tons of market-related downtime in newsprint production, compared with 5,000 short tons market-related downtime in linerboard production and approximately 16,500 short tons of market-related downtime in newsprint during the same period in 2008. The market-related downtime in newsprint in 2009 included the idled short tons related to the April 2009 D-2 machine idling. The idled machine has an annual capacity of 186,000 short tons.
Uses of cash flows for operating activities
Our primary uses of cash are for expenses related to the manufacture of packaging and paper products, including fiber, energy, chemicals, and labor. Other significant uses of cash are for interest expenses, pension contributions, taxes, and increases in working capital, including increases in receivables from sales of our products, increases in inventory, increases in prepaid expenses, and reductions in accounts payable and other accrued liabilities.
Fiber costs in 2009 were $401.1 million, a decrease of $128.9 million, or 24%, compared with costs of $530.0 million for 2008, due primarily to lower prices for wood and recycled fiber and reduced overall consumption as a result of lower production volumes. A 1% change in fiber costs affects our financial results by approximately $4 million annually.
Energy costs in 2009 were $188.9 million, a decrease of $151.3 million, or 44%, compared with costs of $340.2 million in 2008, due primarily to lower fuel and electricity prices and reduced consumption as a result of lower production volumes. Natural gas is a significant component of our energy costs. We consume approximately 12 million mmBtu annually. A $1-per-mmBtu change in our natural gas prices affects our financial results by approximately $12 million annually.
Chemical costs in 2009 were $210.3 million, a decrease of $52.3 million, or 20%, compared with costs of $262.6 million in 2008, due primarily to lower consumption of and lower prices for chemical inputs. A 1% change in chemical prices affects our financial results by approximately $2 million annually.
Labor costs related to the production of our products, recorded in “Materials, labor, and other operating expenses,” were $273.5 million in 2009, a decrease of $26.7 million, or 9%, from costs of $300.2 million in 2008. The change was due primarily to a reduction in the number of people employed at our mills, mainly at St. Helens and DeRidder, offset partially by increases in healthcare and wage costs. Labor costs are not as volatile as energy and wood fiber costs; however, they make up a significant component of our operating costs and tend to increase over time. While we believe we have good labor relations and have established staggered labor contracts for each of our five paper mills to minimize potential disruptions in the event of a labor dispute, we could experience a material labor disruption or significantly increased labor costs at one or more of our facilities, either in the course of negotiations of a labor agreement or otherwise.
The weak macroeconomic conditions, significant decline in global equity markets, and turmoil in credit markets caused our pension investment portfolio to suffer significant losses through the end of first quarter 2009. A rebound occurred in the financial markets during the remainder of the year, and as of December 31, 2009, our pension assets had increased to a market value of $302 million, compared with $248 million at December 31, 2008. While the Worker, Retiree, and Employee Recovery Act (WRERA) of 2008 provides some relief as to the timing of our required future cash contributions, we may make material contributions to our pension plans in future years. On April 15, 2009, we made a $5.5 million contribution, and on October 15, 2009, we made an additional contribution of $5.5 million to our qualified pension plans. Assuming a rate of return on plan assets of
7.25% in 2009 and 2010, and including the $11.0 million contributions made in 2009 and WRERA relief provisions, we estimate that we will be required to contribute approximately $2 million in 2010 and approximately $22 million in 2011. The amount of required contributions will depend, among other things, on 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 on the effect of these and other factors. Changes in the financial markets may require us to make larger than previously anticipated contributions to our pension plans. We may also elect to make additional voluntary contributions in any year, which could reduce the amount of required contributions in future years.
Investment Activities
2009
For the year ended December 31, 2009, investing activities consisted primarily of expenditures for property and equipment, and purchases and maturities of short-term investments. Cash investing activities used $84.5million for the year ended December 31, 2009, compared with $900.0$128.8 million in 2008 and $554.52011, an increase of $8.8 million, in 2007.
Cash capital expenditures for property, plant, and equipment for the year ended December 31, 2009, were $77.1 million. Cash investing activities for the year ended December 31, 2009, also included net $10.0 million for purchases of short-term investments, which consisted of fundsas we invested in certificates of deposit insured by the Federal Deposit Insurance Corporation (FDIC).
Detailsenhancements and efficiency improvements in our box plant system.
The details of cash capital expenditures for property plant, and equipment by segment for the year ended December 31, 2009,2012, are included in the table below (dollars in millions): | | | | | | | | | | | | |
| | | Year Ended December 31, 2009 |
| | | Acquisition/
Expansion | | Quality/
Efficiency (a) | | Replacement,
Environmental,
and Other | | Total |
| | | | |
Paper | | $ | — | | $ | 13.9 | | $ | 37.1 | | $ | 51.0 |
Packaging | | | 0.1 | | | 2.5 | | | 20.5 | | | 23.1 |
Corporate and Other | | | — | | | 0.4 | | | 2.6 | | | 3.0 |
| | | | | | | | | | | | |
| | $ | 0.1 | | $ | 16.8 | | $ | 60.2 | | $ | 77.1 |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2012 |
| | Acquisition/
Expansion | | Quality/
Efficiency (a) | | Replacement,
Environmental,
and Other | | Total |
| Packaging | $ | 2.0 |
| | $ | 11.6 |
| | $ | 47.7 |
| | $ | 61.3 |
|
| Paper | — |
| | 13.0 |
| | 58.1 |
| | 71.1 |
|
| Corporate and Other | — |
| | 1.1 |
| | 4.1 |
| | 5.2 |
|
| | $ | 2.0 |
| | $ | 25.7 |
| | $ | 109.9 |
| | $ | 137.6 |
|
____________
| |
| (a) | Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects. |
We expect capital investments in 20102013 to total approximately $100be between $152 million and $162 million, excluding acquisitions. acquisitions and major capital expansions. This level of capital investment represents an increase from prior years. The increase relates to cost-reduction and improvement projects in our corrugated operations. These expenditures could increase or decrease as a result of a number of factors, including our financial results, and future economic conditions. Our capital spending in 2010 will be for cost savings, business improvement, quality/efficiency projects, replacement projects,conditions, and ongoing environmental compliance. Our efficiency projects are focused on opportunities to improve our energy efficiency. During 2009,regulatory compliance requirements. Of the amount we spent $2.2 million for environmental compliance projects. We expect to spend for capital investments in 2013, approximately $1.4$7 million in 2010 for this purpose.2008On February 22, 2008, Aldabra 2 Acquisition Corp. completed relates to environmental compliance requirements. Our estimated environmental expenditures could vary significantly depending upon the Acquisitionenactment of the Paper Groupnew environmental laws and other assets and liabilitiesregulations, including those related to greenhouse gas emissions and industrial boilers. Our preliminary estimates indicate we will incur additional capital spending of $33 to $38 million for compliance with Boiler MACT rules at our paper mills, which includes the operation$7 million we expect to spend in 2013, as discussed above. For additional information, see "Environmental" in this Management's Discussion and Analysis of the paper, packagingFinancial Condition and newsprint, and transportation businessesResults of the Paper Group and part of the headquarters operations of Boise Cascade for a total purchase price of $1.7 billion, which included $1.3 billion of net cash and fees.
Subsequent to the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. Boise Inc. obtained $1.1 billion of financing in conjunction with the Acquisition, which is discussed below in “Financing Activities.”
Operations.
2011
For the year ended December 31, 2008,2011, investing activities included $1.2 billion in cash spent for the Acquisition, excluding deferred financing fees, as discussed above.Combined cash capital expenditures for property, plant, and equipment for the year ended December 31, 2008, were $100.8 million. This amount included $10.2used
$443.3 million spent by the Predecessor for the period of January 1, 2008, through February 21, 2008, and $90.6 million spent by us from February 22, 2008, through December 31, 2008. Of these amounts, $10.4 million related to the installation of a shoe press in our DeRidder mill in March to reduce the use of energy in producing linerboard. Total capital spending for this project was $22.4 million, part of which was spent in 2007.Details
of cash, capital expenditures for property, plant, and equipment by segment for the combined year ended December 31, 2008, are included in the table below (dollars, in millions): | | | | | | | | | | | | |
| | | Year Ended December 31, 2008 |
| | | Acquisition/
Expansion (a) | | Quality/
Efficiency (b) | | Replacement,
Environmental,
and Other | | Total |
| | | | |
Paper | | $ | 0.7 | | $ | 7.0 | | $ | 40.1 | | $ | 47.8 |
Packaging (c) | | | 11.1 | | | 4.2 | | | 33.4 | | | 48.7 |
Corporate and Other | | | 1.2 | | | 0.6 | | | 2.5 | | | 4.3 |
| | | | | | | | | | | | |
| | $ | 13.0 | | $ | 11.8 | | $ | 76.0 | | $ | 100.8 |
| | | | | | | | | | | | |
(a) | Acquisition and expansion does not include $1.2 billion of cash paid for acquisition of businesses and facilities as recorded on our Consolidated Statement of Cash Flows. |
(b) | Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects. |
(c) | Includes $10.4 million of spending related to the installation of a shoe press in our DeRidder, Louisiana, mill to reduce our use of energy in producing linerboard, which is included under “Acquisition/Expansion” in the table above. Total capital spending for this project was $22.4 million, part of which was spent in 2007. |
2007
Investing activities for the year ended December 31, 2007, included $393.6 millionwhich consisted of net cash held in trust related primarily to the net proceeds of the initial public offering. The $393.6 million of net cash held in trust included $399.5$326.2 million of cash deposited fromfor the initial public offering net of $5.9Tharco and Hexacomb acquisitions,
$128.8 million of cash used from the trust to pay initial business, legal, and accounting due diligence expenses on prospective business combinations, general and administrative expenses, and corporate income and franchise taxes. For the year ended December 31, 2007, investing activities also included $2.6 million of cash paid for acquisition costs.Investing activities in 2007 of the Predecessor also included $141.8 million of capital expenditures for property, plant, and equipment, while the remaining amount was used for environmental compliance and to improve energy efficiency. Approximately $45 million of the expenditures for property and equipment, related to the reconfigurationand
$3.5 million of the paper machine at our pulp and paper mill in Wallula to produce both pressure sensitive and label and release paper inaddition to commodity uncoated freesheet paper. Ascash for purchases of December 31, 2007, total spending on this project was approximately $80 million. Also included in this amount is $10short-term investments. We received
$14.1 million of spending related to the installation of a shoe press in our DeRidder, Louisiana, mill to reduce our use of energy in producing linerboard. Investing activities also included $14.2 million of proceeds from the salematurity of assets. Of this $14.2short-term investments. The short-term investments consisted of funds invested in certificates of deposit insured by the Federal Deposit Insurance Corporation (FDIC). During 2011, we liquidated our short-term investment portfolio.
2010
For the year ended December 31, 2010, investing activities used $109.3 million approximately $5.2 million (net of cash, costs paid to buyer) was from the salewhich consisted of the paper converting facility in Salem, Oregon,$111.6 million of expenditures for property and approximately $3.7equipment, $25.3 million for purchases of short-term investments, and $3.2$24.7 million of proceeds from the salematurities of a portion of the Wallula, Washington, fiber farm and Jackson, Alabama, sawmill, respectively.Investing activities in 2007 used $32.5 million of cash to pay amounts owed to OfficeMax under the Additional Consideration Agreement. As part of the Forest Products Acquisition, the Predecessor entered into an Additional Consideration Agreement with OfficeMax, pursuant to which it agreed to adjust the purchase price based on changes in paper prices over the six-year period following the Forest Products Acquisition. This agreement terminated as a result of the Acquisition, and consequently, we neither received payments from, nor made subsequent payments to, OfficeMax under this agreement.
short-term investments.
2012
Cash used for financing activities was $327.3$146.1 million for the year ended December 31, 2009, in 2012, compared with $817.7$123.3 million of cash provided by financing activities for the same period in 2008.2011. Financing activities forin 2012 included a $119.7 million outflow related to the year endedpayment of two special dividends, which totaled approximately $1.20 per common share, and $25.0 million of debt repayments.
During third quarter 2012, we made $17.5 million of voluntary payments on our Tranche A Term Loan, which eliminates our required principal payment obligations until December 31, 2009, reflect2013. Based on the issuance of $300 million of 9% Senior Notes due in 2017 obtained as a resultcurrent structure of our debt restructuring and repayment of approximately $510 million of existing debt plus costs to accomplish the restructuring.Ouragreements, our expected debt service obligation, assuming debt and interest rates stay at
December 31, 2009,2012, levels, is estimated to be approximately $83.0$64.9 million for 20102013 and $100.3$74.6 million for 2011,2014, consisting of cash payments for principal, interest, and fees. These amounts remain subject to change, and such changes may be material. For example, a 1% increase in interest rates would increase interest expense by approximately $5 million per year (based on debt levels and interest rates as of December 31, 2009).
We lease
some of our
distribution centers,locations, as well as other property and equipment, under operating leases. These operating leases are not included in debt; however, they represent a commitment. Obligations under operating leases are shown in
the “Contractual Obligations” section of"Contractual Obligations" in this
Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations.
For the year ended December 31, 2008, cash financing activities were $817.7 million and reflect approximately $1.1 billion of debt financing obtained in conjunction with the Acquisition, offset partially by $120.2 million paid to stockholders who exercised their conversion rights, $94.3 million of deferred financing costs and underwriting fees, and $88.3 million of debt repayments. Under our $250 million revolving credit facility, $163.6 million was available at December 31, 2008. Prior to the Acquisition, financing activities have historically consisted primarily of intercompany loans obtained by the Predecessor.For the year ended December 31, 2007, cash financing activities included $414.0 million of gross proceeds from the initial public offering on June 22, 2007, as well as $3.0 million related to the sale of insider warrants. In conjunction with the offering, we paid $16.6 million in underwriting discounts and commissions and incurred approximately $0.6 million in other costs related to the offering. As discussed above in “Investing Activities,” the net amount from the offering, or $399.5 million, was deposited in a trust account. These funds were released from the trust as a result of the Acquisition. Also included in this amount is $90.4 million of intercompany loans obtained by the Predecessor.
The following discussion describesmore information about our debt structure in more detail.
At December 31, 2009 and 2008, our long-term debt and the interest rates on that debt were as follows (dollars, in millions):
| | | | | | | | | | | | |
| | | December 31, 2009 | | December 31, 2008 |
| | | Amount | | | Interest Rate | | Amount | | | Interest Rate |
| | | | |
Revolving credit facility, due 2013 | | $ | — | | | —% | | $ | 60.0 | | | 4.33% |
Tranche A term loan, due 2013 | | | 203.7 | | | 3.25% | | | 245.3 | | | 4.75% |
Tranche B term loan, due 2014 | | | 312.2 | | | 5.75% | | | 471.4 | | | 5.75% |
Second lien term loan, due 2015 | | | — | | | —% | | | 260.7 | | | 9.25% |
9% Senior Notes, due 2017 | | | 300.0 | | | 9.00% | | | — | | | —% |
Current portion of long-term debt | | | (30.7 | ) | | 3.97% | | | (25.8 | ) | | 5.33% |
| | | | | | | | | | | | |
Long-term debt, less current portion | | | 785.2 | | | 6.41% | | | 1,011.6 | | | 6.34% |
Current portion of long-term debt | | | 30.7 | | | 3.97% | | | 25.8 | | | 5.33% |
| | | | | | | | | | | | |
| | | 815.9 | | | 6.32% | | | 1,037.5 | | | 6.31% |
15.75% notes payable, due 2015 | | | — | | | —% | | | 66.6 | | | 15.75% |
| | | | | | | | | | | | |
| | $ | 815.9 | | | | | $ | 1,104.1 | | | |
| | | | | | | | | | | | |
As of December 31, 2009, our debt consisted of the following:
The Revolving Credit Facility: A five-year nonamortizing $250.0 million senior secured revolving credit facility with interest at either the London Interbank Offered Rate (LIBOR) plus an applicable margin, which is currently 300 basis points, or a calculated base rate plus an applicable margin, which is currently 200 basis points (collectively with the Tranche A term loan facility and the Tranche B term loan facility, the Credit Facilities).
The Tranche A Term Loan Facility: A five-year amortizing loan facility with interest at LIBOR plus an applicable margin, which is currently 300 basis points, or a calculated base rate plus an applicable margin, which is currently 200 basis points. The Tranche A term loan facility was originally issued at $250.0 million.
The Tranche B Term Loan Facility: A six-year amortizing loan facility with interest at LIBOR (subject to a floor of 4%) plus 350 basis points or a calculated base rate plus 250 basis points. The Tranche B term loan facility was originally issued at $475.0 million.
The 9% Senior Notes: An eight-year nonamortizing $300.0 million senior unsecured debt obligation with annual interest at 9%.
The Credit Facilities are secured by a first-priority lien on all of the assets of our subsidiaries that guarantee or are borrowers, and in the event of default, the lenders generally would be entitled to seize the collateral. All borrowings under the Credit Facilities bear interest at a rate per annum equal to an applicable margin plus a calculated base rate or adjusted Eurodollar rate. The calculated base rate means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 0.50%. The adjusted Eurodollar rate means LIBOR rounded to the nearest 1/16 of 1.0% and adjusted for any applicable reserve requirements. In addition to paying interest, the Company pays a commitment fee to the lenders under the revolving credit facility at a rate of 0.50% per annum (which shall be reduced to 0.375% when the leverage ratio is less than 2.25:1.00) times the daily average undrawn portion of the revolving credit facility (reduced by the amount of letters of credit issued and outstanding), which fee is payable quarterly in arrears. The Company also pays letter of credit fees of 300 basis points
times the average daily maximum outstanding amount of the letters of credit and a fronting fee of 15 basis points to the issuing bank of outstanding letters of credit. These fees are payable quarterly in arrears.
At December 31, 2009 and 2008, we had zero and $60.0 million, respectively, of borrowings outstanding under the revolving credit facility. For the year ended December 31, 2009 and 2008, the average interest rates for our borrowings under our revolving credit facility were 3.7% and 6.0%, respectively. The minimum and maximum borrowings under the revolving credit facility were zero and $60.0 million for the year ended December 31, 2009. The minimum and maximum borrowings under the revolving credit facility were zero and $80.0 million for the year ended December 31, 2008. The weighted average amount of borrowings outstanding under the revolving credit facility during the year ended December 31, 2009, was $8.5 million. The weighted average amount of borrowings outstanding under the revolving credit facility during the year ended December 31, 2008, was $57.6 million. At December 31, 2009, we had availability of $227.8 million, which is net of outstanding letters of credit of $22.2 million.
Debt Restructuring
On October 26, 2009, Boise Paper Holdings, L.L.C. (Boise Paper Holdings) and Boise Finance Company (together, the Issuers), two of our wholly owned indirect subsidiaries, issued a $300 million aggregate principal amount of 9% senior notes due on November 1, 2017 (the 9% Senior Notes) through a private placement that is exempt from the registration requirements of the Securities Act of 1933, as amended. The 9% Senior Notes pay interest semiannually in arrears on May 1 and November 1, commencing on May 1, 2010.
Following the sale of the 9% Senior Notes, the Issuers used the net proceeds of the sale, as well as cash on hand, to retire a portion of the existing term loan indebtedness under Boise Paper Holdings’ Credit Facilities pursuant to the amendments of our Credit Facilities (Credit Agreement Amendments). The Credit Agreement Amendments became effective October 26, 2009, at which time Boise Paper Holdings repaid approximately $75 million of outstanding secured debt under its first lien term loan. In addition, pursuant to the Credit Agreement Amendments, Boise Paper Holdings used proceeds of the issuance to repurchase, in its entirety, the indebtedness outstanding under its second lien term loan. In consideration of the repurchase of indebtedness under the second lien term loan, Boise Paper Holdings paid a premium of 113% to the lender parties, plus accrued and unpaid interest. Upon the repurchase of all of the indebtedness outstanding under the second lien term loan, such debt was canceled and the second lien credit agreement was terminated.
On October 26, 2009, we also used cash on hand to repurchase, in its entirety, our outstanding 15.75% note payable due in 2015. Boise Inc. purchased the note payable at a price of 70% of the outstanding value of the note payable, plus accrued and unpaid interest. Following the purchase of the note payable, the note was canceled.
The issuance of the 9% Senior Notes and the repurchase of our second lien term loan represented a substantial modification to our debt structure. Therefore, we wrote off the unamortized deferred financing fees for the second lien and recognized various other costs and fees incurred in connection with these transactions in our Consolidated Statements of Income (Loss). We also recorded $13.2 million of deferred financing costs related to the debt restructuring. In addition, in December 2009, we made a voluntary prepayment of $100 million on our Tranche B term loan at 101%. We recognized $44.1 million in “Loss on extinguishment of debt,” which consisted of the following (dollars, in millions):
| | | | |
Write-off of second lien deferred financing fees | | $ | 27.1 | |
Premium paid to second lien holders | | | 33.9 | |
Gain on repurchase of notes payable | | | (22.7 | ) |
Other costs and fees | | | 5.8 | |
| | | | |
| | $ | 44.1 | |
| | | | |
In connection with the issuance of the 9% Senior Notes, the Issuers and BZ Intermediate Holdings LLC, (Holdings), a wholly owned consolidated entity of Boise Inc. and the parent company of Boise Paper Holdings and its restricted subsidiaries (together the 9% Senior Notes Guarantors) entered into the Registration Rights Agreement, dated as of October 26, 2009 (the Registration Rights Agreement). The Registration Rights Agreement requires the Company to register under the Securities Act the 9% Senior Notes due in 2017 (the Exchange Notes) having substantially identical terms to the 9% Senior Notes and to complete an exchange of the privately placed 9% Senior Notes for the publicly registered Exchange Notes or, in certain circumstances, to file and keep effective a shelf registration statement for resale of the privately placed 9% Senior Notes. If the Issuers fail to satisfy these obligations by October 26, 2010, the Issuers will pay additional interest up to 1% per annum to holders of the 9% Senior Notes.
The 9% Senior Notes are senior unsecured obligations and rank equally with all of the Issuers’ present and future senior indebtedness, senior to all of their future subordinated indebtedness, and effectively subordinated to all present and future senior secured indebtedness of the Issuers (including all borrowings with respect to the Credit Facilities to the extent of the value of the assets securing such indebtedness).
Covenants
The Credit Facilities require Holdings and its subsidiaries to maintain financial covenant ratios. In connection with the October 2009 debt restructuring, we also entered into the Credit Agreement Amendments that modified our financial covenants under the Credit Facilities. The financial covenant modifications limit our total leverage ratio to 4.75:1.00, stepping down to 4.50:1.00 at September 30, 2011. We have a new secured leverage ratio of 3.25:1.00, stepping down to 3.00:1.00 at September 30, 2011. The total leverage ratio is defined in our loan agreements at the end of any fiscal quarter as the ratio of (i) consolidated total net debt as defined in our Credit Facilities debt agreement as of such day to (ii) consolidated adjusted EBITDA for the four-fiscal-quarter period ending on such date. The Credit Facilities secured leverage ratio is defined in our First Amendment to our loan agreement as the ratio as of the last day of any fiscal quarter of (i) consolidated first lien secured total net debt as defined in our credit agreement amendments as of such day to (ii) consolidated adjusted EBITDA for the four-fiscal-quarter period ending on such date. The Credit Facilities also limit the ability of Holdings and its subsidiaries to make capital expenditures, generally to $150 million per year.
The 9% Senior Notes indenture contains covenants which, subject to certain exceptions, limit the ability of the Issuers and the 9% Senior Notes Guarantors to, among other things, incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments,
engage in transactions with affiliates, and create liens on assets of the Issuers or 9% Senior Notes Guarantors. Upon a change of control, the Issuers must offer to repurchase the 9% Senior Notes at 101% of the principal amount, plus accrued and unpaid interest. If the Issuers sell certain assets and the Issuers do not use the proceeds from such sale for specified purposes, they must offer to repurchase the 9% Senior Notes at 100% of the principal amount, plus accrued and unpaid interest.
Historical differences between our financial statements and Holdings’ financial statements are related primarily to notes payable held by Boise Inc. and the related interest expense on those notes, interest income, income taxes, and other miscellaneous expenses. With the cancellation of the notes payable, we expect our financial statements and Holdings’ financial statements to be substantially the same.
Guarantees
The Company’s obligations under its Credit Facilities are guaranteed by each of Boise Paper Holdings’ existing and subsequently acquired domestic subsidiaries (collectively, the Credit Facility Guarantors). The Credit Facilities are secured by a first-priority security interest in substantially all of the real, personal, and mixed property of Boise Paper Holdings and the Credit Facility Guarantors, including 100% of the equity interests of Boise Paper Holdings and each domestic subsidiary of Boise Paper Holdings, 65% of the equity interests of each of Boise Paper Holdings’ foreign subsidiaries (other than Boise Hong Kong Limited so long as Boise Hong Kong Limited does not account for more than $2.5 million of consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) during any fiscal year of Boise Paper Holdings), and all intercompany debt.
The 9% Senior Notes are jointly and severally guaranteed on a senior unsecured basis by Holdings and each existing and future subsidiary of Holdings (other than the Issuers). The 9% Senior Notes guarantors do not include Louisiana Timber Procurement Company, L.L.C., or foreign subsidiaries.
Prepayments
We may redeem all or a portion of the 9% Senior Notes at any time on or after November 1, 2013, at a premium decreasing to zero by November 1, 2015, plus accrued and unpaid interest. In addition, prior to November 1, 2012, the Issuers may redeem up to 35% of the aggregate principal amount of the 9% Senior Notes at a redemption price of 109% of the principal amount thereof with the net proceeds of one or more qualified equity offerings.
Other Provisions
Subject to specified exceptions, the Credit Facilities require that the proceeds from certain asset sales, casualty insurance, certain debt issuances, and 75% (subject to step-downs based on certain leverage ratios) of the excess cash flow for each fiscal year must be used to pay down outstanding borrowings. As of December 31, 2009, required debt principal repayments under the Credit Facilities, including those from excess cash flows, total $30.7 million in 2010. Of this amount, $16.1 million is from our scheduled repayments, and $14.6 million relates to excess cash flows. Our debt principal repayment requirements are $48.3 million in 2011, $134.3 million in 2012, $13.0 million in 2013, $289.6 million in 2014, and $300.0 million thereafter.
Other
At December 31, 2009 and 2008, we had $47.4 million and $72.6 million, respectively, of costs recorded in “Deferred financing costs” on our Consolidated Balance Sheet. As noted above, we canceled the second lien with the proceeds from the debt restructuring, and as a result, we expensed approximately $27.1 million of deferred financing costs. We recorded this charge in “Loss on extinguishment of debt” in our Consolidated Statement of Income (Loss). In addition, the
$13.2 million of financing costs related to the debt restructuring is included, net of amortization, in “Deferred financing costs” on our Consolidated Balance Sheet. The amortization of these costs is recorded in interest expense using the effective interest method over the life of the loans. We recorded $11.3 million and $9.3 million of amortization expense for the years ended December 31, 2009 and 2008, in “Interest expense” in our Consolidated Statements of Income (Loss).
In April 2008, we entered into interest rate derivative instruments to hedge a portion of our interest rate risk as required under the terms of the first and second lien facilities. At December 31, 2009, we had $515.9 million of variable-rate debt outstanding, all of which was hedged using interest rate derivatives. At December 31, 2009, our average effective interest rate was not affected by our interest rate derivatives, as the effective cap rates were above the interest rates on the hedged debt. For additional information on our interest rate derivatives,leases, see Note 13, Financial Instruments,
8, Debt, and Note 14, Leases of the Notes to Consolidated Financial Statements in “Part"Part II, Item 8. Financial Statements and Supplementary Data”Data" of this Form 10-K.For the years ended December 31, 2009 and 2008, cash payments10‑K.
2011
Cash provided by financing activities for interest, net of interest capitalized, were $56.9 million and $72.8 million, respectively. No payments were made during the period of February 1 (inception) through December 31, 2007, the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007.2011
, was $123.3 million and included $284.8 million of cash proceeds from the exercise of 40.3 million warrants and $18.2 million of proceeds from the net issuance of debt. During 2011, we replaced our revolving credit facility and entered into a new Tranche A Term Loan facility (the Credit Facilities), which extended our maturities and lowered our interest rates. These sources of cash were partially offset by $121.4 million of cash used to repurchase $21.2 million shares of our
common stock at an average price of $5.74, $47.9 million of cash used to pay our shareholders special dividends, and $8.6 million of cash used to pay financing costs incurred in connection with the new Credit Facilities discussed above.
2010
Cash used for financing activities for the year ended December 31, 2010, reflects $334.1 million of debt repayments, $300.0 million of debt issuances, $32.3 million for payment of a $0.40 per common share special dividend, and $12.0 million of cash paid for financing costs.
Commitments, Guarantees, and Legal Proceedings
In the table below, we set forth our enforceable and legally binding obligations as of December 31, 2009.2012. Some of the amounts included in the table are based on management’smanagement's estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, our actual payments may vary from those reflected in the table. Purchase orders made in the ordinary course of business are excluded from the table below. Any amounts for which we are liable under purchase orders are reflected on the Consolidated Balance Sheets as accounts payable and accrued liabilities (dollars in millions): | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| | | 2010 | | 2011-2012 | | 2013-2014 | | Thereafter | | Total |
| | | | | |
Long-term debt, including current portion (a) | | $ | 30.7 | | $ | 182.6 | | $ | 302.6 | | $ | 300.0 | | $ | 815.9 |
Interest (b) | | | 50.1 | | | 97.2 | | | 73.2 | | | 82.2 | | | 302.7 |
Operating leases (c) | | | 12.4 | | | 22.5 | | | 15.2 | | | 19.1 | | | 69.2 |
Purchase obligations | | | | | | | | | | | | | | | |
Raw materials and finished goods inventory (d) | | | 45.7 | | | 19.4 | | | 18.4 | | | — | | | 83.5 |
Utilities (e) | | | 23.2 | | | 11.3 | | | 2.2 | | | 0.1 | | | 36.8 |
Other | | | 5.3 | | | 0.8 | | | — | | | — | | | 6.1 |
Other long-term liabilities reflected on our Balance Sheet: | | | | | | | | | | | | | | | |
Compensation and benefits (f) | | | 2.2 | | | 60.4 | | | 57.3 | | | 4.3 | | | 124.2 |
Other (g) | | | 2.7 | | | 5.8 | | | 2.2 | | | 22.6 | | | 33.3 |
| | | | | | | | | | | | | | | |
| | $ | 172.3 | | $ | 400.0 | | $ | 471.1 | | $ | 428.3 | | $ | 1,471.7 |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
| | 2013 | | 2014-2015 | | 2016-2017 | | Thereafter | | Total |
| Long-term debt, including current portion (a) | $ | 10.0 |
| | $ | 50.0 |
| | $ | 420.0 |
| | $ | 300.0 |
| | $ | 780.0 |
|
| Interest (b) | 54.9 |
| | 108.7 |
| | 103.5 |
| | 60.0 |
| | 327.1 |
|
| Operating leases (c) | 22.7 |
| | 39.8 |
| | 25.3 |
| | 11.1 |
| | 98.9 |
|
| Purchase obligations: | | | | | | | | | |
| Raw materials and finished goods inventory (d) | 74.5 |
| | 15.4 |
| | — |
| | — |
| | 89.9 |
|
| Utilities (e) | 24.2 |
| | 2.9 |
| | 0.3 |
| | — |
| | 27.4 |
|
| Other (f) | 5.6 |
| | 4.8 |
| | 2.4 |
| | 1.6 |
| | 14.4 |
|
| Other long-term liabilities reflected on our Consolidated Balance Sheet (g): | | | | | | | | | |
| Compensation and benefits (h) | 0.6 |
| | 18.2 |
| | 23.8 |
| | 79.5 |
| | 122.1 |
|
| Other (i) (j) | 4.6 |
| | 8.0 |
| | 5.1 |
| | 28.9 |
| | 46.6 |
|
| | $ | 197.1 |
| | $ | 247.8 |
| | $ | 580.4 |
| | $ | 481.1 |
| | $ | 1,506.4 |
|
____________
| |
| (a) | These borrowings are further explained in “Financing Activities” under “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The table assumes our long-term debt is held to maturity and includes the current portion of long-term debt. Of the $30.7Debt maturities in 2013 include repayment of $5.0 million of total principal payments due in 2010, $16.1 million relatesborrowings under our Revolving Credit Facility, based on our intent to our scheduled repayments and $14.6 million relates to excess cash flows.repay. |
| |
| (b) | Amounts represent estimated interest payments as of December 31, 2009,2012, and assume our long-term debt is held to maturity. |
| |
| (c) | We enter into operating leases in the normal course of business. We lease some of our distribution centersoperating facilities, as well as other property and equipment, under operating leases. Some lease agreements provide us with the option to renew the lease or purchase the leased property. Our operating lease obligations would change if we exercised these renewal options and/or if we entered into additional operating lease agreements. For more information, see Note 8, Leases, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K. |
| |
| (d) | Included among our raw materials purchase obligations are contracts to purchase approximately $76.4$65.6 million of wood fiber. Purchase prices under most of these agreements are set quarterly or semiannually based on regional market prices, and the estimate is based on contract terms or first quarter 2013 pricing. Except for deposits required pursuant to wood supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect. Under most of these log and fiber supply agreements, we have the right to cancel or reduce our commitments in the event of a mill curtailment or shutdown. Future purchase prices under most of these agreements are set quarterly or semiannually based on regional market prices, and the estimate is based on contract terms or first quarter 2010 pricing. Our log and fiber obligations are subject to change based on, among other things, the effect of governmental laws and regulations, our manufacturing operations not operating in the normal course of business, log and fiber availability, and the status of environmental appeals. Except for deposits required pursuant to wood supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect. |
| |
| (e) | We enter into utility contracts for the purchase of electricity and natural gas. We also purchase these services under utility tariffs. The contractual and tariff arrangements include multiple-year commitments and minimum annual purchase requirements. Our payment obligations were based upon prices in effect on December 31, 2009,2012, or upon contract language, if available. Because we consume |
language, if available.
| |
| (f) | Consists primarily of information technology purchase obligations. |
| |
| (g) | Long-term deferred income taxes of $198.4 million and unrecognized tax benefits of $28.3 million are excluded from this table, because the energytiming of their future cash outflows are uncertain. Additional information relating to the inclusion of the credits in taxable income may become available in the manufacturenext 12 months, which could cause us to change our unrecognized tax benefits from the amounts currently recorded. It is not reasonably possible to know to what extent the total amounts of our products, these obligations representunrecognized benefits will increase or decrease within the face value of the contracts, not resale value.next 12 months. |
(f) | |
| (h) | Amounts consist primarily of pension and other postretirement benefit obligations, including current portion of $0.3 million.$0.4 million. Actuarially determined liabilities related to pension benefits are recorded based on estimates and assumptions. Key factors used in developing estimates of these liabilities include assumptions related to discount rates, retirement and mortality rates, expected contributions, and other factors. Changes in estimates and assumptions related to the measurement of funded status could have a material impact on the amount reported. In the table above, we allocated our pension obligations by year based on the future required minimum pension contributions, as determined by our actuaries. We have no minimum required contribution in 2013, and we will contribute at least the required minimum contribution, which we currently estimate to be approximately $3 million in 2014. |
(g) | |
| (i) | Includes current liabilities of $2.5 million.$4.6 million related primarily to the current portion of workers' compensation liability. |
In addition
| |
| (j) | We have excluded $1.4 million and $1.5 million of deferred lease costs and unfavorable lease liabilities, respectively, from the other long-term liabilities in the table above. These amounts have been excluded because deferred lease costs relate to operating leases which are already reflected in the operating lease category, above, and unfavorable lease liabilities do not represent a contractual obligation which will be settled in cash. |
Guarantees
At December 31, 2012, we are not aware of any material liabilities arising from any guarantee, indemnification, or financial assurance we have provided. For more information, please refer to Note 18, Commitments, Guarantees, Indemnifications, and Legal Proceedings, of the contractual obligations quantifiedNotes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10‑K.
Legal Proceedings
We are not currently a party to any legal proceedings or environmental claims we believe would have a material adverse effect on our financial position, results of operations, or liquidity, either individually or in the
table above, we have other obligations for goods and services and raw materials entered into in the normal course of business.aggregate.
Off-Balance-Sheet Activities
At December 31, 20092012 and 2008,2011, we had no off-balance-sheet arrangements with unconsolidated entities.
Guarantees
Note 12, Debt, and Note 19, Commitments and Guarantees, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” of this Form 10-K describe the nature of our guarantees, including the approximate terms of the guarantees, how the guarantees arose, the events or circumstances that would require us to perform under the guarantees, and the maximum potential undiscounted amounts of future payments we could be required to make.
Inflationary and Seasonal Influences
Our major costs of production are
labor, wood fiber,
compensation, energy, and chemicals. Pricing for these manufacturing inputs can be subject to both macroeconomic inflationary influences and regional supply and demand. For example, fiber prices are highly dependent on regional wood supply and demand trends. Pricing for natural gas, which constitutes a significant portion of our energy costs, tends to follow macroeconomic supply and demand trends and can fluctuate based on many factors, including weather and natural gas storage levels. Many of our chemicals are specialized, and pricing may not correlate with macroeconomic trends. Pricing for our manufactured end products is dependent on industry supply and demand trends, which in turn can be influenced by macroeconomic manufacturing activity, employment levels, and consumer spending.
We experience some seasonality, based primarily on buying patterns associated with particular products. For example,
within the Pacific Northwest, the demand for our corrugated containers is influenced by changes in agricultural demand
in the Pacific Northwest.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 in
“Seasonality”"Seasonality" in
“Part"Part I, Item 1.
Business”Business" of this Form
10-K.10‑K.
Disclosures of Financial Market Risks
We are exposed to market risks, including changes in interest rates, energy prices, and foreign currency exchange rates. See Note 8, Debt, and Note 9, Financial Instruments, of the Notes to Consolidated Financial
Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K for additional information. We employ a variety of practices to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. Derivative instruments are used only for risk management purposes and not for speculation or trading. Derivatives are such that a specific debt instrument, contract, or anticipated purchase determines the amount, maturity, and other specifics of the hedge. If a derivative contract is entered into, we either determine that it is an economic hedge or we designate the derivative as a cash flow or fair value hedge. We formally document all relationships between hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking various hedged transactions. For those derivatives that are not designated as economic hedges, such as cash flow or fair value hedges, we formally assess, both at the derivatives' inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the hedged items. The ineffective portion of hedging transactions is recognized in income (loss).
We record all derivative instruments as assets or liabilities on our Consolidated Balance Sheets at fair value. The fair value of these instruments is determined by us using third-party valuations based on quoted prices for similar assets and liabilities. Changes in the fair value of derivatives are recorded in either "Net income (loss)" or "Other comprehensive income (loss)" as appropriate. The gain or loss on derivatives designated as cash flow hedges is included in "Other comprehensive income (loss)" in the period in which changes in fair value occur and is reclassified to income (loss) in the period in which the hedged item affects income (loss), and any ineffectiveness is recognized currently in "Net income (loss)". The gain or loss on derivatives that have not been designated as hedging instruments is included in income (loss) in the period in which changes in fair value occur.
The table below provides a summary of our long-term debt obligations and energy derivatives as of December 31, 2012. Other instruments subject to market risk, such as obligations for pension plans, are not reflected in the table. For our long-term debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For obligations with variable interest rates, the table sets forth payout amounts based on current rates and does not attempt to project future rates. Changes in market rates of interest affect the fair value of our fixed-rate debt. For our energy derivatives, the table sets forth the estimated fair value based on current rates and does not attempt to project future rates (dollars in millions).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | There- after | | December 31, 2012 |
| Total | | Fair Value |
| Debt | | | | | | | | | | | | | | | |
| Long-term debt (a) | $ | 10.0 |
| | $ | 20.0 |
| | $ | 30.0 |
| | $ | 120.0 |
| | $ | 300.0 |
| | $ | 300.0 |
| | $ | 780.0 |
| | $ | 840.0 |
|
| Fixed-rate debt payments (b) | | | | | | | | | | | | | | | |
| 9% senior notes (c) | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 300.0 |
| | $ | — |
| | $ | 300.0 |
| | $ | 327.4 |
|
| 8% senior notes (c) | — |
| | — |
| | — |
| | — |
| | — |
| | 300.0 |
| | 300.0 |
| | 333.1 |
|
| Average interest rate (as percentage) | — |
| | — |
| | — |
| | — |
| | 9.0 |
| | 8.0 |
| | 8.5 |
| | — |
|
Variable-rate debt payments (b) | $ | 10.0 |
| | $ | 20.0 |
| | $ | 30.0 |
| | $ | 120.0 |
| | $ | — |
| | $ | — |
| | $ | 180.0 |
| | $ | 179.5 |
|
| Average interest rate (as percentage) | 2.2 |
| | 2.2 |
| | 2.2 |
| | 2.2 |
| | — |
| | — |
| | 2.2 |
| | — |
|
| Energy derivatives (d) | $ | 2.7 |
| | $ | 1.3 |
| | $ | 0.5 |
| | $ | 0.1 |
| | $ | — |
| | $ | — |
| | $ | 4.6 |
| | $ | 4.6 |
|
____________
| |
| (a) | Includes current portion of our long-term debt. Debt maturities in 2013 include repayment of $5.0 million of borrowings under our Revolving Credit Facility, based on our intent to repay in 2013. |
| |
| (b) | These obligations are further explained 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. |
| |
| (c) | The table assumes that accumulated interest is paid semiannually. |
| |
| (d) | These obligations are further explained in Note 9, Financial Instruments, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K. |
Environmental
Our businesses are subject to a wide range of general and industry-specific environmental laws and regulations, including laws and regulations covering air emissions, wastewater discharges, solid and hazardous waste management, and site remediation. Compliance with these laws and regulations is a significant factor in the operation of our businesses. We believe that we have created a strong corporate culture of compliance by taking a conservative approach to managing environmental issues in order to assure that we are operating well within the bounds of regulatory requirements. Despite our efforts, we are not able to guarantee compliance with all environmental requirements at all times, and current compliance is not a guarantee that fines and penalties will not occur in the future. In all periods presented, environmental spending for fines and penalties across all of our segments was immaterial.
We incur, and we expect to incur, substantial capital and operating expenditures to comply with federal, state, and local environmental laws and regulations. We spent $2 million in 2012 and expect to spend about $7 million in 2013 for capital environmental compliance requirements. Failure to comply with these laws and regulations could result in civil or criminal fines or penalties or in enforcement actions, and could also result in governmental or judicial orders that stop or interrupt our operations or require us to take corrective measures, install additional pollution control equipment, or take other remedial actions. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations, including those related to the pulp and paper sector and industrial boilers.
On December 20, 2012, the United States Environmental Protection Agency (EPA) signed its final Boiler MACT rules and companion rules covering commercial and industrial solid waste incinerators (CISWI rule) and non-hazardous secondary materials (NHSM) rules. The EPA published final Boiler MACT rules on January 31, 2013, with an effective date of April 1, 2013, and compliance mandatory by January 31, 2016. The preamble to the final rules allows states to grant individual sources four years to achieve compliance upon demonstration of need. While we still have concerns over certain rule details, regulatory interpretations, and the impacts to capital and operating costs, the final rules are technically achievable. We have reviewed the final rules and our preliminary estimates indicate we will incur additional capital spending of $33 to $38 million for compliance at our paper mills, which includes the $7 million we expect to spend in 2013, as discussed above.
Climate change, in its many dimensions (legislative, regulatory, market, and physical), has the potential to significantly affect our business. For example, 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.
Our manufacturing operations emit greenhouse gases (GHGs), which may contribute to global warming and climate change. We have been a voluntary member of the EPA Climate Leaders program and the Chicago Climate Exchange (CCX). Under these programs, we have established GHG emission inventories using established protocols, and in the case of CCX, the emissions have been third-party verified. The EPA discontinued the Climate Leaders program and disbanded CCX in 2011. In 2011, EPA implemented a new mandatory reporting program (eGGRT), and we began reporting GHGs under that new program. GHG emissions we report under the eGGRT program will differ from those we previously reported, because the eGGRT program requires us to use different calculation factors and methods. Since the new eGGRT program does not include smaller facility emissions, we will continue to provide a companywide emission inventory based on the Climate Leaders protocols. Based on the Climate Leaders protocols, in 2011 (the last reported year), our company emitted about 2.1 million metric tonnes (a metric tonne equals 2,205 pounds) of GHG carbon dioxide equivalents, comprising about 0.8 million metric tonnes of direct emissions and 1.3 million metric tonnes of indirect emissions from purchased electricity. The carbon dioxide from burning biomass, which is generally considered to be carbon neutral, is excluded from our GHG inventories.
Carbon tax legislative and regulatory activities that affect our operations generally focus on reducing GHG emissions through some combination of GHG limitations (such as cap and trade or emission standards) and a renewable electricity standard (RES). Although there currently is no national RES in effect, we have GHG-emitting facilities in a number of states that have passed RES statutes, namely California, Colorado, Connecticut, Illinois, Minnesota, North Carolina, Oregon, Texas, and Washington. We expect the financial impact of RES in these states to be manageable because of the emission levels from these facilities. The state RES statutes and any future national RES could increase our energy costs due to the higher cost of renewable electrical generation facilities, compared with those generating electricity from fossil fuel.
The prognosis for enacting national carbon tax legislation into law is uncertain. The effect of any carbon tax legislation on our operations is also uncertain. Furthermore, U.S. legislation and regulation may put our operations at a competitive disadvantage relative to foreign competition if competing countries have not enacted commensurate GHG reduction programs. In addition to possible direct impacts, future legislation and regulation could have indirect impacts on us, such as higher prices for transportation, energy, and other inputs, as well as more protracted air permitting processes, causing delays and higher costs to implement capital projects.
We believe these potential effects on our business are somewhat mitigated, however, since about 66% of our energy comes from renewable wood biomass after cessation of paper production at our St. Helens mill. The carbon dioxide emitted when burning biomass from sustainably managed sources for energy is generally considered to be carbon neutral (not contributing to climate change) because it is recycled in a closed loop, whereby the carbon is removed from the atmosphere by the biomass and then returned to the atmosphere when the biomass is burned. This results in no net increase of carbon dioxide in the atmosphere, and significant amounts of carbon are sequestered in forests and forest products. We are also a significant manufacturer of recycled paper. Recycling of paper reduces greenhouse gas emissions from landfills.
Increased interest in biomass as a renewable energy source could increase the demand and costs of wood, our principal raw material and energy source. On the other hand, as incentives for biofuels manufacturing increase, there may be opportunities to locate biorefineries at our mills to produce biofuels as a co-product.
As an owner and operator of real estate, we may be liable under environmental laws for the cleanup of past and present spills and releases of hazardous or toxic substances on or from our properties and operations. We can be found liable under these laws if we knew of or were responsible for the presence of such substances. In some cases, this liability may exceed the value of the property itself. OfficeMax generally indemnifies our operating subsidiaries, Boise White Paper, L.L.C., and Boise Packaging & Newsprint, L.L.C., for hazardous substance releases and other environmental violations that occurred prior to 2004 at the businesses, facilities, and other assets purchased from OfficeMax in 2004. However, OfficeMax may not have sufficient funds to fully satisfy its indemnification obligations when required, and in some cases, we may not be contractually entitled to indemnification by OfficeMax. OfficeMax retained responsibility for environmental liabilities that occurred with respect to businesses, facilities, and other assets not purchased from OfficeMax in 2004.
Critical Accounting Estimates
Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments, often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our board of directors. Our current critical accounting estimates are as follows:
Pensions
The calculation of pension expense and pension liabilities requires decisions about a number of key assumptions that can significantly affect expense and liability amounts, including discount rates, expected return on plan assets, expected rate of compensation increases, retirement rates, mortality rates, expected contributions, and other factors. The pension assumptions used to measure pension expense and liabilities were determined as follows:
Discount Rate Assumption. The discount rate reflects the current rate at which the pension obligations could be settled on the measurement date — December 31. At December 31, 2012, and for future periods, the discount rate assumption is determined using a hypothetical bond portfolio of AA-graded or better corporate bonds. Previously, the discount rate assumption was determined using a spot rate yield curve constructed to replicate Aa-graded corporate bonds. In all periods, the bonds included in the models reflect anticipated investments that would be made to match the expected monthly benefit payments over time. The plan's projected cash flows were duration-matched to these models to develop an appropriate discount rate. The discount rate we used to calculate our projected benefit obligation and the rate we will use in our calculation of 2013 net periodic benefit cost is 4.25%.
Asset Return Assumption. The expected long-term rate of return on plan assets was based on a weighted average of the expected returns for the major investment asset classes in which we invest, considering the effects of active portfolio management and expenses paid from plan assets. Expected returns for the asset classes are
based on long-term historical returns, inflation expectations, forecasted gross domestic product, earnings growth, and other economic factors. The weights assigned to each asset class were based on the investment strategy. The weighted average expected return on plan assets we will use in our calculation of 2013 net periodic benefit cost is 6.75%.
Rate of Compensation Increases. Pension benefits for all salaried employees and most hourly employees are frozen. There are currently no scheduled increases in pension benefit rates for hourly employees in plans that have not been frozen. The compensation increase assumption is not applicable for all plans.
Retirement and Mortality Rates. These rates were developed to reflect actual and projected plan experience.
Expected Contributions. Plan obligations and expenses are based on existing retirement plan provisions. No assumption is made for future changes to benefit provisions beyond those to which we are presently committed, for example, changes we might commit to in future labor contracts. We have no minimum required contribution in 2013, and we estimate we will contribute at least the required minimum contribution currently estimated to be approximately $3 million in 2014.
We recognize the funded status of our pension plans on our Consolidated Balance Sheet and recognize the actuarial and experience gains and losses and the prior service costs and credits as a component of "Accumulated other comprehensive income (loss)" in our Consolidated Statement of Stockholders' Equity for Boise Inc. or Consolidated Statements of Capital for BZ Intermediate. Actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. At December 31, 2012, we had approximately $99.6 million of actuarial losses recorded in "Accumulated other comprehensive income (loss)" on our Consolidated Balance Sheet. Accumulated losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of assets will be recognized on a straight-line basis over the average remaining service period of active employees, which is between seven to ten years, to the extent that losses are not offset by gains in subsequent years. While we believe that the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.
We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from period to period. As discussed above, the future effects of pension plans on our financial position and results of operations will depend on economic conditions, employee demographics, mortality rates, retirement rates, investment performance, and funding decisions, among other factors. The following table presents selected assumptions used and expected to be used in the measurement of pension expense in the following periods (dollars in millions):
|
| | | | | | | | | | | |
| | Year Ending December 31, 2013 | | Year Ended December 31 |
| | 2012 | | 2011 |
| Pension expense | $ | 5.4 |
| | $ | 11.3 |
| | $ | 10.9 |
|
| | | | | | |
| Assumptions | | | | | |
| Discount rate | 4.25 | % | | 4.50 | % | | 5.50 | % |
| Expected rate of return on plan assets | 6.75 | % | | 7.00 | % | | 7.25 | % |
A change of 0.25% in either direction to the discount rate or the expected rate of return on plan assets would have had the following effect on 2012 and 2013 pension expense (dollars in millions):
|
| | | | | | | | | | | |
| | Base Expense | | Increase (Decrease) in Pension Expense (a) |
| | 0.25% Increase | | 0.25% Decrease |
| 2012 Expense | | | | | |
| Discount rate | $ | 11.3 |
| | $ | (1.5 | ) | | $ | 1.5 |
|
| Expected rate of return on plan assets | 11.3 |
| | (1.0 | ) | | 1.0 |
|
| | | | | | |
| 2013 Expense | | | | | |
| Discount rate | $ | 5.4 |
| | $ | (1.4 | ) | | $ | 1.4 |
|
| Expected rate of return on plan assets | 5.4 |
| | (1.1 | ) | | 1.1 |
|
____________
| |
| (a) | The sensitivities shown above are specific to 2012 and 2013. The sensitivities may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown. |
For more information related to our pension plans, including the general nature of the plans, deferred gains and losses, funding obligations, and cash flows, see Note 10, Retirement and Benefit Plans, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.
Income Taxes
We account for income taxes and separately recognize deferred tax assets and deferred tax liabilities. We are subject to income taxes in both the U.S. and foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense and our tax basis in assets and liabilities. Our deferred tax assets and deferred tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse. We also recognize only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.
We make judgments and estimates in determining income tax expense for financial statement purposes. These judgments and estimates occur in the calculation of tax credits, benefits, and deductions and in the calculation of some deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to uncertain tax positions. Significant changes to these estimates may result in an increase or decrease in our tax provision in a subsequent period.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex U.S. and foreign tax regulations, exposures from not filing in some jurisdictions, and transfer pricing exposures from allocation of income between jurisdictions. It is inherently difficult and subjective to estimate uncertain tax positions, because we have to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
Approximately 98% of our unrecognized tax benefit at December 31, 2012, or $83.2 million, relates to a credit charged to income tax expense for book purposes, but included in our income tax return. The credit relates to our use of alternative fuel mixture to produce energy to operate our business. If the tax credit is recognized for book purposes in the future, as of December 31, 2012, it would reduce our tax expense $83.2 million, which is net of a federal benefit for state taxes. Additional information relating to the inclusion of the alternative fuel mixture credits in taxable income may become available in the next 12 months, which could cause us to change our unrecognized tax benefits from the amounts currently recorded. It is not reasonably possible to know to what extent the total amounts of unrecognized benefits will increase or decrease within the next 12 months.
Goodwill and Intangible Asset Impairment
Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At December 31, 2012, we had $160.1 million of goodwill recorded on our Consolidated Balance Sheet within our Packaging segment, all of which we recorded in connection with acquiring Tharco and Hexacomb in 2011. At December 31, 2012, the net carrying amount of intangible assets with indefinite lives, which represents the trade names and trademarks acquired from Boise Cascade, L.L.C., in 2008, was $16.8 million, all of which is recorded in our Paper segment. All of our other intangible assets are amortized over their estimated useful lives.
We maintain two reporting units for purposes of our goodwill and intangible asset impairment testing, Packaging and Paper, which are the same as our operating segments discussed in Note 17, Segment Information, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K. We test goodwill in our Packaging segment and indefinite-lived intangible assets in our Paper segment for impairment annually in the fourth quarter or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value.
In conducting our goodwill impairment analysis, we utilize the income approach, based on a discounted cash flow model (Level 3 measurement). The fair value was also calculated using the market approach based primarily on comparable company EBITDA multiples (Level 2 measurement) and was compared to and supported the fair value based upon the discounted cash flow approach. We believe that the discounted cash flow model captures our estimates regarding the results of our future prospects; however, we also considered the market's expectations based on observable market information. The discounted cash flow model estimates the projected future cash flows to be generated by our reporting units, discounted to present value using a discount rate for a potential market participant. The market approach estimates fair value based on multiples of EBITDA. For our trademark and trade name intangible asset impairment testing, we use a discounted cash flow approach based on a relief from royalty method (Level 3 measurement). This method assumes that, through ownership of trademarks and trade names, we avoid royalty expense associated with licensing, resulting in cost savings. An estimated royalty rate, determined as a percentage of net sales, is used to estimate the value of the intangible assets. Differences in assumptions used in projecting future cash flows and cost of funds could have a significant impact on the determination of the fair value of our reporting units and intangible assets. The following assumptions are key to our estimates of fair value:
Business Projections. The discounted cash flow model utilizes business projections based on three-year forecasts that are developed internally by management for use in managing the business and reviewed by the board of directors. These projections include significant assumptions such as estimates of future revenues, profits, working capital requirements, operating plans, and capital expenditures. Our forecasts take into consideration recent sales data for existing products, planned timing of capital projects, and key economic indicators to estimate future production volumes, selling prices, and key input costs for our manufactured products. Our pricing assumptions are estimated based upon an assessment of industry supply and demand dynamics for our major products.
Growth Rates. A growth rate is used to calculate the terminal value in the discounted cash flow model. The growth rate is the expected rate at which earnings or revenue is projected to grow beyond the three-year forecast period.
Discount Rates. Future cash flows are discounted at a rate that is consistent with a weighted average cost of capital for a potential market participant. The weighted average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise. The discount rates selected are based on existing conditions within our industry and reflect adjustments for potential risk premiums in those markets as well as weighting of the market cost of equity versus debt.
EBITDA Multiples. The market approach requires the use of a valuation multiple to calculate the estimated fair value of a reporting unit. We use an EBITDA multiple based on a selection of comparable companies and recent acquisition transactions within our industries.
Based on the results of the first step of the goodwill impairment test, we determined that the fair value of our Packaging reporting unit was substantially in excess of the carrying amount, and therefore, no goodwill
impairment existed. As a result, the second step of the goodwill impairment test was not required to be completed. In addition, based on the impairment tests of our intangible assets with indefinite lives, we determined that the fair value of our intangible assets exceeds their carrying value.
If management's estimates of future operating results materially change or if there are changes to other assumptions, the estimated fair value of our identifiable intangible assets and goodwill could change significantly. Such change could result in impairment charges in future periods, which could have a significant noncash impact on our operating results and financial condition. We cannot predict the occurrence of future events that might adversely affect the reported value of our goodwill and intangible assets. As additional information becomes known, we may change our estimates.
Long-Lived Asset Impairment
An impairment of a long-lived asset exists when the carrying value of an asset is not recoverable through future undiscounted cash flows from operations and when the carrying value of the asset exceeds its fair value. Long-lived asset impairment is a critical accounting estimate, as it is susceptible to change from period to period.
We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. For purposes of testing for impairment, we group our long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows from other assets and liabilities. Our asset groupings vary based on the related business in which the long-lived asset is employed and the interrelationship between those long-lived assets in producing net cash flows. Asset groupings could change in the future if changes in the operations of the business or business environment affect the way particular long-lived assets are employed or the interrelationships between assets. To estimate whether the carrying value of an asset or asset group is impaired, we estimate the undiscounted cash flows that could be generated under a range of possible outcomes. To measure future cash flows, we are required to make assumptions about future production volumes, future product pricing, and future expenses to be incurred. In addition, estimates of future cash flows may change based on the availability of fiber, environmental requirements, capital spending, and other strategic management decisions. We estimate the fair value of an asset or asset group based on quoted market prices for similar assets and liabilities or inputs that are observable either directly or indirectly (the amount for which the asset(s) could be bought or sold in a current transaction with a third party) when available (Level 2 measurement). When quoted market prices are not available, we use a discounted cash flow model to estimate fair value (Level 3 measurement).
In 2012, we recorded an $11.1 million asset impairment charge in connection with ceasing paper production on our one remaining paper machine in St. Helens, Oregon. While this impairment charge reflects our best estimates and assumptions about future asset utilization, we cannot predict the occurrence of future events that might adversely affect the remaining reported values of long-lived assets. The remaining machine, which is owned by Cascades Tissue Group (Cascades), continues to operate on the site, and we continue to lease supporting assets to Cascades. In conducting our recoverability analysis, we estimated future cash flows to be generated by the long-lived assets and utilized quoted market prices for similar assets, where available, in determining fair values. Differences in assumptions used in projecting future cash flows or changes in quoted market prices could have a significant impact on the determination of the fair value of our long-lived assets.
U.S. industry demand for uncoated freesheet paper declined 3.2% in 2012, according to AF&PA. We responded to these declines by reducing paper production on select uncoated freesheet machines in the fourth quarter, as well as ceasing paper production at our St. Helens, Oregon, paper mill. If the markets for our products deteriorate significantly or if we decide to invest capital differently and if other cash flow assumptions change, it is possible that we will be required to record noncash impairment charges that could have a material effect on our results of operations in the future. Due to the numerous variables associated with our judgments and assumptions relating to the valuation of assets and the effects of changes on these valuations, both the precision and reliability of our estimates are subject to uncertainty. As additional information becomes known, we may change our estimates.
We periodically assess the estimated useful lives of our assets. Changes in circumstances, such as changes to our operational or capital strategy, changes in regulation, or technological advances, may result in the actual useful lives differing from our estimates. Revisions to the estimated useful lives of assets requires judgment and constitutes a change in accounting estimate, which is accounted for prospectively by adjusting or accelerating depreciation and amortization rates.
New and Recently Adopted Accounting Standards
For a listing of our new and recently adopted accounting standards, see Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.
| |
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Information relating to quantitative and qualitative disclosures about market risk can be found under the caption "Disclosures of Financial Market Risks" in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10‑K.
See "Liquidity and Capital Resources, Operating Activities" in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10‑K for our disclosures about our sensitivities to changes in prices for our major products, production inputs, and interest rates.
| |
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Boise Inc.
Consolidated Statements of Income
(dollars and shares in thousands, except per-share data)
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Sales | | | | | |
| Trade | $ | 2,495,092 |
| | $ | 2,364,024 |
| | $ | 2,058,132 |
|
| Related parties | 60,271 |
| | 40,057 |
| | 35,645 |
|
| | 2,555,363 |
| | 2,404,081 |
| | 2,093,777 |
|
| | | | | | |
| Costs and expenses | | | | | |
| Materials, labor, and other operating expenses (excluding depreciation) | 2,004,044 |
| | 1,880,271 |
| | 1,634,039 |
|
| Fiber costs from related parties | 19,772 |
| | 18,763 |
| | 25,259 |
|
| Depreciation, amortization, and depletion | 152,306 |
| | 143,758 |
| | 129,926 |
|
| Selling and distribution expenses | 121,827 |
| | 107,654 |
| | 58,107 |
|
| General and administrative expenses | 79,748 |
| | 60,587 |
| | 52,273 |
|
| St. Helens charges | 27,559 |
| | — |
| | — |
|
| Other (income) expense, net | 2,572 |
| | 1,994 |
| | 213 |
|
| | 2,407,828 |
| | 2,213,027 |
| | 1,899,817 |
|
| | | | | | |
| Income from operations | 147,535 |
| | 191,054 |
| | 193,960 |
|
| | | | | | |
| Foreign exchange gain | 179 |
| | 135 |
| | 890 |
|
| Loss on extinguishment of debt | — |
| | (2,300 | ) | | (22,225 | ) |
| Interest expense | (61,740 | ) | | (63,817 | ) | | (64,825 | ) |
| Interest income | 160 |
| | 269 |
| | 306 |
|
| | (61,401 | ) | | (65,713 | ) | | (85,854 | ) |
| | | | | | |
| Income before income taxes | 86,134 |
| | 125,341 |
| | 108,106 |
|
| Income tax provision | (33,984 | ) | | (50,131 | ) | | (45,372 | ) |
| Net income | $ | 52,150 |
| | $ | 75,210 |
| | $ | 62,734 |
|
| | | | | | |
| Weighted average common shares outstanding: | | | | | |
| Basic | 99,872 |
| | 101,941 |
| | 80,461 |
|
| Diluted | 101,143 |
| | 106,746 |
| | 84,131 |
|
| | | | | | |
| Net income per common share: | | | | | |
| Basic | $ | 0.52 |
| | $ | 0.74 |
| | $ | 0.78 |
|
| Diluted | $ | 0.52 |
| | $ | 0.70 |
| | $ | 0.75 |
|
See accompanying notes to consolidated financial statements.
Boise Inc.
Consolidated Statements of Comprehensive Income
(dollars in thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Net income | $ | 52,150 |
| | $ | 75,210 |
| | $ | 62,734 |
|
| Other comprehensive income (loss), net of tax | | | | | |
| Foreign currency translation adjustment, net of tax of $76, $0, and $0, respectively | 50 |
| | (352 | ) | | — |
|
| Cash flow hedges: | | | | | |
Change in fair value, net of tax of $534, ($2,611), and $0, respectively | 850 |
| | (4,165 | ) | | — |
|
| Loss included in net income, net of tax of $1,015, $291, and $131, respectively | 1,622 |
| | 463 |
| | 553 |
|
| Actuarial gain (loss) and prior service cost (including related amortization) for defined benefit pension plans, net of tax of $11,303, ($24,540), and ($4,892), respectively | 18,033 |
| | (39,149 | ) | | (7,744 | ) |
| Other, net of tax of ($13), ($10), and ($53), respectively | 103 |
| | 63 |
| | (78 | ) |
| | 20,658 |
| | (43,140 | ) | | (7,269 | ) |
| | | | | | |
| Comprehensive income | $ | 72,808 |
| | $ | 32,070 |
| | $ | 55,465 |
|
See accompanying notes to consolidated financial statements.
Boise Inc.
Consolidated Balance Sheets
|
| | | | | | | |
| | December 31 |
| | 2012 | | 2011 |
| ASSETS | | | |
| | | | |
| Current | | | |
| Cash and cash equivalents | $ | 49,707 |
| | $ | 96,996 |
|
| Receivables | | | |
| Trade, less allowances of $1,382 and $1,343 | 240,459 |
| | 228,838 |
|
| Other | 8,267 |
| | 7,622 |
|
| Inventories | 294,484 |
| | 307,305 |
|
| Deferred income taxes | 17,955 |
| | 20,379 |
|
| Prepaid and other | 8,828 |
| | 6,944 |
|
| | 619,700 |
| | 668,084 |
|
| | | | |
| Property | | | |
| Property and equipment, net | 1,223,001 |
| | 1,235,269 |
|
| Fiber farms | 24,311 |
| | 21,193 |
|
| | 1,247,312 |
| | 1,256,462 |
|
| | | | |
| Deferred financing costs | 26,677 |
| | 30,956 |
|
| Goodwill | 160,130 |
| | 161,691 |
|
| Intangible assets, net | 147,564 |
| | 159,120 |
|
| Other assets | 7,029 |
| | 9,757 |
|
| Total assets | $ | 2,208,412 |
| | $ | 2,286,070 |
|
See accompanying notes to consolidated financial statements.
Boise Inc.
Consolidated Balance Sheets (continued)
(dollars and shares in thousands, except per-share data)
|
| | | | | | | |
| | December 31 |
| | 2012 | | 2011 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| | | | |
| Current | | | |
| Current portion of long-term debt | $ | 10,000 |
| | $ | 10,000 |
|
| Accounts payable | 185,078 |
| | 202,584 |
|
| Accrued liabilities | | | |
| Compensation and benefits | 70,950 |
| | 64,907 |
|
| Interest payable | 10,516 |
| | 10,528 |
|
| Other | 20,528 |
| | 22,540 |
|
| | 297,072 |
| | 310,559 |
|
| | | | |
| Debt | | | |
| Long-term debt, less current portion | 770,000 |
| | 790,000 |
|
| | | | |
| Other | | | |
| Deferred income taxes | 198,370 |
| | 161,260 |
|
| Compensation and benefits | 121,682 |
| | 172,394 |
|
| Other long-term liabilities | 73,102 |
| | 57,010 |
|
| | 393,154 |
| | 390,664 |
|
| | | | |
| Commitments and contingent liabilities |
| |
|
| | | | |
| Stockholders' equity | | | |
| Preferred stock, $0.0001 par value per share: 1,000 shares authorized; none issued | — |
| | — |
|
| Common stock, $0.0001 par value per share: 250,000 shares authorized; 100,503 and 100,272 shares issued and outstanding | 12 |
| | 12 |
|
| Treasury stock, 21,151 shares held | (121,423 | ) | | (121,421 | ) |
| Additional paid-in capital | 868,840 |
| | 866,901 |
|
| Accumulated other comprehensive income (loss) | (101,304 | ) | | (121,962 | ) |
| Retained earnings | 102,061 |
| | 171,317 |
|
| Total stockholders' equity | 748,186 |
| | 794,847 |
|
| | | | |
| Total liabilities and stockholders' equity | $ | 2,208,412 |
| | $ | 2,286,070 |
|
See accompanying notes to consolidated financial statements.
Boise Inc.
Consolidated Statements of Cash Flows
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Cash provided by (used for) operations | | | | | |
| Net income | $ | 52,150 |
| | $ | 75,210 |
| | $ | 62,734 |
|
| Items in net income not using (providing) cash | | | | | |
| Depreciation, depletion, and amortization of deferred financing costs and other | 157,040 |
| | 149,715 |
| | 137,495 |
|
| Share-based compensation expense | 5,983 |
| | 3,695 |
| | 3,733 |
|
| Pension expense | 11,279 |
| | 10,916 |
| | 9,241 |
|
| Deferred income taxes | 33,684 |
| | 44,301 |
| | 38,884 |
|
| St. Helens charges | 28,481 |
| | — |
| | — |
|
| Other | 1,868 |
| | 1,878 |
| | 95 |
|
| Loss on extinguishment of debt | — |
| | 2,300 |
| | 22,225 |
|
| Decrease (increase) in working capital, net of acquisitions | | | | | |
| Receivables | (9,803 | ) | | 1,624 |
| | 57,255 |
|
| Inventories | 8,136 |
| | (22,237 | ) | | (17,120 | ) |
| Prepaid expenses | (814 | ) | | (275 | ) | | 4,690 |
|
| Accounts payable and accrued liabilities | (16,505 | ) | | 3,803 |
| | (6,690 | ) |
| Current and deferred income taxes | (1,938 | ) | | 4,632 |
| | 5,585 |
|
| Pension payments | (35,205 | ) | | (25,414 | ) | | (25,174 | ) |
| Other | 674 |
| | 43 |
| | (3,172 | ) |
| Cash provided by operations | 235,030 |
| | 250,191 |
| | 289,781 |
|
| Cash provided by (used for) investment | | | | | |
| Acquisition of businesses and facilities, net of cash acquired | — |
| | (326,223 | ) | | — |
|
| Expenditures for property and equipment | (137,642 | ) | | (128,762 | ) | | (111,619 | ) |
| Purchases of short-term investments | — |
| | (3,494 | ) | | (25,336 | ) |
| Maturities of short-term investments | — |
| | 14,114 |
| | 24,744 |
|
| Other | 1,393 |
| | 1,048 |
| | 2,941 |
|
| Cash used for investment | (136,249 | ) | | (443,317 | ) | | (109,270 | ) |
| Cash provided by (used for) financing | | | | | |
| Issuances of long-term debt | 5,000 |
| | 275,000 |
| | 300,000 |
|
| Payments of long-term debt | (25,000 | ) | | (256,831 | ) | | (334,096 | ) |
| Payments of financing costs | (188 | ) | | (8,613 | ) | | (12,003 | ) |
| Repurchases of common stock | (2 | ) | | (121,421 | ) | | — |
|
| Proceeds from exercise of warrants | — |
| | 284,785 |
| | 638 |
|
| Payments of special dividends | (119,653 | ) | | (47,916 | ) | | (32,276 | ) |
| Tax withholdings on net settlements of share-based awards | (5,833 | ) | | (2,775 | ) | | (1,629 | ) |
| Other | (394 | ) | | 1,060 |
| | (3,705 | ) |
| Cash provided by (used for) financing | (146,070 | ) | | 123,289 |
| | (83,071 | ) |
| Increase (decrease) in cash and cash equivalents | (47,289 | ) | | (69,837 | ) | | 97,440 |
|
| Balance at beginning of the period | 96,996 |
| | 166,833 |
| | 69,393 |
|
| Balance at end of the period | $ | 49,707 |
| | $ | 96,996 |
| | $ | 166,833 |
|
See accompanying notes to consolidated financial statements.
Boise Inc. Consolidated Statements of Stockholders' Equity (dollars and shares in thousands) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders' Equity |
| | Preferred Stock | | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total |
| | | Shares | | Amount | | Shares | | Amount | | | | |
| Balance at December 31, 2009 | $ | — |
| | 84,419 |
| | $ | 8 |
| | — |
| | $ | — |
| | $ | 578,669 |
| | $ | (71,553 | ) | | $ | 113,811 |
| | $ | 620,935 |
|
| Net income | | | | | | | | | | | | | | | 62,734 |
| | 62,734 |
|
| Other comprehensive loss, net of tax | | | | | | | | | | | | | (7,269 | ) | | | | (7,269 | ) |
| Dividends declared | | | | | | | | | | | | | | | (32,338 | ) | | (32,338 | ) |
| Warrants exercised | | | 85 |
| | — |
| | | | | | 638 |
| | | | | | 638 |
|
| Share-based compensation awards | | | 562 |
| | — |
| | | | | | 3,733 |
| | | | | | 3,733 |
|
| Restricted stock withheld for taxes | | | (221 | ) | | — |
| | | | | | (1,629 | ) | | | | | | (1,629 | ) |
| Other | | | | | | | | | | | 31 |
| | | | | | 31 |
|
| Balance at December 31, 2010 | $ | — |
| | 84,845 |
| | $ | 8 |
| | — |
| | $ | — |
| | $ | 581,442 |
| | $ | (78,822 | ) | | $ | 144,207 |
| | $ | 646,835 |
|
| Net income | | | | | | | | | | | | | | | 75,210 |
| | 75,210 |
|
| Other comprehensive loss, net of tax | | | | | | | | | | | | | (43,140 | ) | | | | (43,140 | ) |
| Dividends declared | | | | | | | | | | | | | | | (48,100 | ) | | (48,100 | ) |
| Warrants exercised | | | 38,407 |
| | 4 |
| | | | | | 284,781 |
| | | | | | 284,785 |
|
| Repurchases of common stock | | | (21,151 | ) | | — |
| | 21,151 |
| | (121,421 | ) | | | | | | | | (121,421 | ) |
| Share-based compensation awards | | | (1,579 | ) | | — |
| | | | | | 3,695 |
| | | | | | 3,695 |
|
| Restricted stock withheld for taxes | | | (250 | ) | | — |
| | | | | | (2,775 | ) | | | | | | (2,775 | ) |
| Other | | | | | | | | | | | (242 | ) | | | | | | (242 | ) |
| Balance at December 31, 2011 | $ | — |
| | 100,272 |
| | $ | 12 |
| | 21,151 |
| | $ | (121,421 | ) | | $ | 866,901 |
| | $ | (121,962 | ) | | $ | 171,317 |
| | $ | 794,847 |
|
| Net income | | | | | | | | | | | | | | | 52,150 |
| | 52,150 |
|
| Other comprehensive income, net of tax | | | | | | | | | | | | | 20,658 |
| | | | 20,658 |
|
| Dividends declared | | | | | | | | | | | | | | | (121,406 | ) | | (121,406 | ) |
| Repurchases of common stock | | | — |
| | — |
| | — |
| | (2 | ) | | | | | | | | (2 | ) |
| Share-based compensation awards | | | 695 |
| | — |
| | | | | | 5,983 |
| | | | | | 5,983 |
|
| Restricted stock withheld for taxes | | | (464 | ) | | — |
| | | | | | (5,833 | ) | | | | | | (5,833 | ) |
| Dividends accrued on share-based awards | | | | | | | | | | | 1,125 |
| | | | | | 1,125 |
|
| Other | | | | | | | | | | | 664 |
| | | | | | 664 |
|
| Balance at December 31, 2012 | $ | — |
| | 100,503 |
| | $ | 12 |
| | 21,151 |
| | $ | (121,423 | ) | | $ | 868,840 |
| | $ | (101,304 | ) | | $ | 102,061 |
| | $ | 748,186 |
|
See accompanying notes to consolidated financial statements.
BZ Intermediate Holdings LLC
Consolidated Statements of Income
(dollars in thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Sales | | | | | |
| Trade | $ | 2,495,092 |
| | $ | 2,364,024 |
| | $ | 2,058,132 |
|
| Related parties | 60,271 |
| | 40,057 |
| | 35,645 |
|
| | 2,555,363 |
| | 2,404,081 |
| | 2,093,777 |
|
| | | | | | |
| Costs and expenses | | | | | |
| Materials, labor, and other operating expenses (excluding depreciation) | 2,004,044 |
| | 1,880,271 |
| | 1,634,039 |
|
| Fiber costs from related parties | 19,772 |
| | 18,763 |
| | 25,259 |
|
| Depreciation, amortization, and depletion | 152,306 |
| | 143,758 |
| | 129,926 |
|
| Selling and distribution expenses | 121,827 |
| | 107,654 |
| | 58,107 |
|
| General and administrative expenses | 79,748 |
| | 60,587 |
| | 52,273 |
|
| St. Helens charges | 27,559 |
| | — |
| | — |
|
| Other (income) expense, net | 2,572 |
| | 1,994 |
| | 213 |
|
| | 2,407,828 |
| | 2,213,027 |
| | 1,899,817 |
|
| | | | | | |
| Income from operations | 147,535 |
| | 191,054 |
| | 193,960 |
|
| | | | | | |
| Foreign exchange gain | 179 |
| | 135 |
| | 890 |
|
| Loss on extinguishment of debt | — |
| | (2,300 | ) | | (22,225 | ) |
| Interest expense | (61,740 | ) | | (63,817 | ) | | (64,825 | ) |
| Interest income | 160 |
| | 269 |
| | 306 |
|
| | (61,401 | ) | | (65,713 | ) | | (85,854 | ) |
| | | | | | |
| Income before income taxes | 86,134 |
| | 125,341 |
| | 108,106 |
|
| Income tax provision | (33,984 | ) | | (50,131 | ) | | (44,529 | ) |
| Net income | $ | 52,150 |
| | $ | 75,210 |
| | $ | 63,577 |
|
See accompanying notes to consolidated financial statements.
BZ Intermediate Holdings LLC
Consolidated Statements of Comprehensive Income
(dollars in thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Net income | $ | 52,150 |
| | $ | 75,210 |
| | $ | 63,577 |
|
| Other comprehensive income (loss), net of tax | | | | | |
| Foreign currency translation adjustment, net of tax of $76, $0, and $0, respectively | 50 |
| | (352 | ) | | — |
|
| Cash flow hedges: | | | | | |
Change in fair value, net of tax of $534, ($2,611), and $0, respectively | 850 |
| | (4,165 | ) | | — |
|
Loss included in net income, net of tax of $1,015, $291, and $131, respectively | 1,622 |
| | 463 |
| | 553 |
|
| Actuarial gain (loss) and prior service cost (including related amortization) for defined benefit pension plans, net of tax of $11,303, ($24,540), and ($4,892), respectively | 18,033 |
| | (39,149 | ) | | (7,744 | ) |
| Other, net of tax of ($13), ($10), and ($53), respectively | 103 |
| | 63 |
| | (78 | ) |
| | 20,658 |
| | (43,140 | ) | | (7,269 | ) |
| | | | | | |
| Comprehensive income | $ | 72,808 |
| | $ | 32,070 |
| | $ | 56,308 |
|
See accompanying notes to consolidated financial statements.
BZ Intermediate Holdings LLC
Consolidated Balance Sheets
(dollars in thousands)
|
| | | | | | | |
| | December 31 |
| | 2012 | | 2011 |
| ASSETS | | | |
| | | | |
| Current | | | |
| Cash and cash equivalents | $ | 49,707 |
| | $ | 96,996 |
|
| Receivables | | | |
Trade, less allowances of $1,382 and $1,343 | 240,459 |
| | 228,838 |
|
| Other | 8,267 |
| | 7,622 |
|
| Inventories | 294,484 |
| | 307,305 |
|
| Deferred income taxes | 17,955 |
| | 20,379 |
|
| Prepaid and other | 8,828 |
| | 6,944 |
|
| | 619,700 |
| | 668,084 |
|
| | | | |
| Property | | | |
| Property and equipment, net | 1,223,001 |
| | 1,235,269 |
|
| Fiber farms | 24,311 |
| | 21,193 |
|
| | 1,247,312 |
| | 1,256,462 |
|
| | | | |
| Deferred financing costs | 26,677 |
| | 30,956 |
|
| Goodwill | 160,130 |
| | 161,691 |
|
| Intangible assets, net | 147,564 |
| | 159,120 |
|
| Other assets | 7,029 |
| | 9,757 |
|
| Total assets | $ | 2,208,412 |
| | $ | 2,286,070 |
|
See accompanying notes to consolidated financial statements.
BZ Intermediate Holdings LLC
Consolidated Balance Sheets (continued)
(dollars in thousands)
|
| | | | | | | |
| | December 31 |
| | 2012 | | 2011 |
| LIABILITIES AND CAPITAL | | | |
| | | | |
| Current | | | |
| Current portion of long-term debt | $ | 10,000 |
| | $ | 10,000 |
|
| Accounts payable | 185,078 |
| | 202,584 |
|
| Accrued liabilities | | | |
| Compensation and benefits | 70,950 |
| | 64,907 |
|
| Interest payable | 10,516 |
| | 10,528 |
|
| Other | 20,528 |
| | 22,540 |
|
| | 297,072 |
| | 310,559 |
|
| | | | |
| Debt | | | |
| Long-term debt, less current portion | 770,000 |
| | 790,000 |
|
| | | | |
| Other | | | |
| Deferred income taxes | 189,823 |
| | 152,712 |
|
| Compensation and benefits | 121,682 |
| | 172,394 |
|
| Other long-term liabilities | 73,152 |
| | 57,061 |
|
| | 384,657 |
| | 382,167 |
|
| | | | |
| Commitments and contingent liabilities |
| |
|
| | | | |
| Capital | | | |
| Business unit equity | 857,987 |
| | 925,306 |
|
| Accumulated other comprehensive income (loss) | (101,304 | ) | | (121,962 | ) |
| | 756,683 |
| | 803,344 |
|
| | | | |
| Total liabilities and capital | $ | 2,208,412 |
| | $ | 2,286,070 |
|
See accompanying notes to consolidated financial statements.
BZ Intermediate Holdings LLC
Consolidated Statements of Cash Flows
(dollars in thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Cash provided by (used for) operations | | | | | |
| Net income | $ | 52,150 |
| | $ | 75,210 |
| | $ | 63,577 |
|
| Items in net income not using (providing) cash | | | | | |
| Depreciation, depletion, and amortization of deferred financing costs and other | 157,040 |
| | 149,715 |
| | 137,495 |
|
| Share-based compensation expense | 5,983 |
| | 3,695 |
| | 3,733 |
|
| Pension expense | 11,279 |
| | 10,916 |
| | 9,241 |
|
| Deferred income taxes | 33,684 |
| | 44,446 |
| | 37,882 |
|
| St. Helens charges | 28,481 |
| | — |
| | — |
|
| Other | 1,868 |
| | 1,878 |
| | 95 |
|
| Loss on extinguishment of debt | — |
| | 2,300 |
| | 22,225 |
|
| Decrease (increase) in working capital, net of acquisitions | | | | | |
| Receivables | (9,803 | ) | | 1,624 |
| | 57,255 |
|
| Inventories | 8,136 |
| | (22,237 | ) | | (17,120 | ) |
| Prepaid expenses | (814 | ) | | (275 | ) | | 4,690 |
|
| Accounts payable and accrued liabilities | (16,505 | ) | | 3,803 |
| | (6,690 | ) |
| Current and deferred income taxes | (1,938 | ) | | 4,487 |
| | 5,744 |
|
| Pension payments | (35,205 | ) | | (25,414 | ) | | (25,174 | ) |
| Other | 674 |
| | 43 |
| | (3,172 | ) |
| Cash provided by operations | 235,030 |
| | 250,191 |
| | 289,781 |
|
| Cash provided by (used for) investment | | | | | |
| Acquisition of businesses and facilities, net of cash acquired | — |
| | (326,223 | ) | | — |
|
| Expenditures for property and equipment | (137,642 | ) | | (128,762 | ) | | (111,619 | ) |
| Purchases of short-term investments | — |
| | (3,494 | ) | | (25,336 | ) |
| Maturities of short-term investments | — |
| | 14,114 |
| | 24,744 |
|
| Other | 1,393 |
| | 1,048 |
| | 2,941 |
|
| Cash used for investment | (136,249 | ) | | (443,317 | ) | | (109,270 | ) |
| Cash provided by (used for) financing | | | | | |
| Issuances of long-term debt | 5,000 |
| | 275,000 |
| | 300,000 |
|
| Payments of long-term debt | (25,000 | ) | | (256,831 | ) | | (334,096 | ) |
| Payments of financing costs | (188 | ) | | (8,613 | ) | | (12,003 | ) |
| Payments (to) from Boise Inc., net | (124,824 | ) | | 115,196 |
| | (31,639 | ) |
| Other | (1,058 | ) | | (1,463 | ) | | (5,333 | ) |
| Cash provided by (used for) financing | (146,070 | ) | | 123,289 |
| | (83,071 | ) |
| Increase (decrease) in cash and cash equivalents | (47,289 | ) | | (69,837 | ) | | 97,440 |
|
| Balance at beginning of the period | 96,996 |
| | 166,833 |
| | 69,393 |
|
| Balance at end of the period | $ | 49,707 |
| | $ | 96,996 |
| | $ | 166,833 |
|
See accompanying notes to consolidated financial statements.
BZ Intermediate Holdings LLC
Consolidated Statements of Capital
(dollars in thousands)
|
| | | | | | | | | | | |
| | Capital |
| | Business Unit Equity | | Accumulated Other Comprehensive Income (Loss) | | Total |
| Balance at December 31, 2009 | $ | 700,143 |
| | $ | (71,553 | ) | | $ | 628,590 |
|
| Net income | 63,577 |
| | | | 63,577 |
|
| Other comprehensive loss, net of tax | | | (7,269 | ) | | (7,269 | ) |
| Net equity transactions with Boise Inc. | (29,566 | ) | | | | (29,566 | ) |
| Balance at December 31, 2010 | $ | 734,154 |
| | $ | (78,822 | ) | | $ | 655,332 |
|
| Net income | 75,210 |
| | | | 75,210 |
|
| Other comprehensive loss, net of tax | | | (43,140 | ) | | (43,140 | ) |
| Net equity transactions with Boise Inc. | 115,942 |
| | | | 115,942 |
|
| Balance at December 31, 2011 | $ | 925,306 |
| | $ | (121,962 | ) | | $ | 803,344 |
|
| Net income | 52,150 |
| | | | 52,150 |
|
Other comprehensive income, net of tax | | | 20,658 |
| | 20,658 |
|
| Net equity transactions with Boise Inc. | (119,469 | ) | | | | (119,469 | ) |
| Balance at December 31, 2012 | $ | 857,987 |
| | $ | (101,304 | ) | | $ | 756,683 |
|
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
1. Nature of Operations and Basis of Presentation
Boise Inc. is a large, diverse manufacturer and seller of packaging and paper products. Our operations began on February 22, 2008, when we acquired the packaging and paper assets of Boise Cascade Holdings, L.L.C. (Boise Cascade). We are headquartered in Boise, Idaho, and we operate largely in the United States but also have operations in Europe, Mexico, and Canada. We manufacture and sell corrugated containers and sheets, protective packaging products and papers associated with packaging, such as label and release papers, and newsprint. Additionally, we manufacture linerboard, 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.
Our organizational structure is noted below:
|
| | | | | | | | | | | | | |
| | | | | Boise Inc. | | | | | |
| | | | | | | | | | | | | |
| | | | | BZ Intermediate Holdings LLC | | | | | |
| | | | | | | | | | | | | |
| | | | | Boise Paper Holdings, L.L.C. | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Packaging Segment | | Paper Segment | | Corporate and Other Segment |
See Note 17, Segment Information, for additional information about our three reportable segments, Packaging, Paper, and Corporate and Other (support services).
The consolidated financial statements included herein are those of the following:
Boise Inc. and its wholly owned subsidiaries, including BZ Intermediate Holdings LLC (BZ Intermediate).
BZ Intermediate and its wholly owned subsidiaries, including Boise Paper Holdings, L.L.C. (Boise Paper Holdings).
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. There are no significant differences between the results of operations, financial condition, and cash flows of Boise Inc. and those of BZ Intermediate other than income taxes and common stock activity. Some amounts in prior periods' consolidated financial statements have been reclassified to conform with the current period's presentation, none of which were considered material.
2. Summary of Significant Accounting Policies
Consolidation and Use of Estimates
The consolidated financial statements include the accounts of Boise Inc. and its subsidiaries after elimination of intercompany balances and transactions. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible assets, and asset retirement obligations; assumptions used in retirement benefit obligations; the recognition, measurement,
and valuation of income taxes; the determination and allocation of the fair values of assets acquired and liabilities assumed in acquisitions; and assessment of the recoverability of long-lived assets. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Revenue Recognition
We recognize revenue when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, our price to the buyer is fixed or determinable, and collectibility is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. The timing of revenue recognition is dependent on shipping terms. Revenue is recorded at the time of shipment for terms designated freight on board (FOB) shipping point. For sales transactions designated FOB destination, revenue is recorded when the product is delivered to the customer's delivery site. Fees for shipping and handling charged to customers for sales transactions are included in "Sales". Costs related to shipping and handling are included in "Materials, labor, and other operating expenses (excluding depreciation)". We present taxes collected from customers and remitted to governmental authorities on a net basis in our Consolidated Statements of Income.
Share-Based Compensation
We recognize compensation expense for awards granted under the Boise Inc. Incentive and Performance Plan (the Plan) based on the fair value on the grant date. We recognize the cost of the equity awards over the period the awards vest. See Note 11, Share-Based Compensation, for more information.
Advertising Costs
We expense advertising costs as incurred. These expenses are generally recorded in "Selling and distribution expenses" in our Consolidated Statements of Income. For the years ended December 31, 2012 and 2011, advertising costs were $3.8 million in both periods, compared with $3.0 million in 2010.
Foreign Currency
Local currencies are the functional currencies for our operations outside the United States. Assets and liabilities are remeasured into U.S. dollars using the exchange rates as of the Consolidated Balance Sheet date. Revenue and expense items are remeasured into U.S. dollars using an average exchange rate prevailing during the period. Any resulting translation adjustments are recorded in the Consolidated Statements of Comprehensive Income. The foreign exchange gain (loss) reported in the Consolidated Statements of Income resulted from remeasuring transactions into the functional currencies.
Cash and Cash Equivalents
We consider all highly liquid interest-earning investments, including time deposits and certificates of deposit, with a maturity of three months or less at the date of purchase to be cash equivalents. The fair value of these investments approximates their carrying value. Cash totaled $44.9 million and $21.9 million at December 31, 2012 and 2011, respectively. Included in the December 31, 2012 and 2011, amounts were $8.0 million and $4.3 million, respectively, of cash at our operations outside the United States. Cash equivalents totaled $4.8 million and $75.1 million, respectively, at December 31, 2012 and 2011.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are stated at the amount we expect to collect. Trade accounts receivable do not bear interest. The allowance for doubtful accounts is our best estimate of the losses we expect will result from the inability of our customers to make required payments. We determine the allowance based on a combination of actual historical loss experience and an analysis of specific customer accounts. We periodically review our
allowance for doubtful accounts and adjustments to the valuation allowance are charged to income. Trade accounts receivable balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. We may, at times, insure or arrange for guarantees on our receivables.
Financial Instruments
Our financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, long-term debt, and energy hedges. The recorded values of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate fair values based on their short-term nature. Our long-term debt is recorded at the face value of those obligations. Our energy hedges are recorded at fair value.
We are exposed to market risks, including changes in interest rates, energy prices, and foreign currency exchange rates. We employ a variety of practices to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. Derivative instruments are used only for risk management purposes and not for speculation or trading. Derivatives are such that a specific debt instrument, contract, or anticipated purchase determines the amount, maturity, and other specifics of the hedge. If a derivative contract is entered into, we either determine that it is an economic hedge or we designate the derivative as a cash flow or fair value hedge. We formally document all relationships between hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking various hedged transactions. For those derivatives
that are not designated
as economic hedges, such as cash flow or fair value hedges, we formally assess, both at the
derivatives’derivatives' inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the hedged items.
TheAny ineffective portion of hedging transactions is recognized in income (loss).
We record all derivative instruments as assets or liabilities on our Consolidated Balance Sheets at fair value. The fair value of these instruments is determined by
third parties.us using third-party valuations based on quoted prices for similar assets and liabilities. Changes in the fair value of derivatives are recorded in either
“Net"Net income (loss)
”" or
“Other"Other comprehensive income (loss)
”" as appropriate. The gain or loss on derivatives designated as cash flow hedges is included in
“Other"Other comprehensive income (loss)
”" in the period in which changes in fair value occur and is reclassified to income (loss) in the period in which the hedged item affects income (loss), and any ineffectiveness is recognized currently in
our Consolidated Statements of Income (Loss). The fair value of the hedged exposure is presumed to be the market value of the hedging instrument when critical terms match. The gain or loss on derivatives designated as fair value hedges and the offsetting gain or loss on the hedged item attributable to the hedged risk are included in"Net income (loss)
in the period in which changes in fair value occur.". The gain or loss on derivatives that have not been designated as hedging instruments is included in income (loss) in the period in which changes in fair value occur.
Interest Rate Risk — Debt
With the exception
Fair Value Measurements
The Fair Value Measurements and Disclosures Topic of the
9% Senior Notes maturing in November 2017, our debt is variable-rate debt. At December 31, 2009,Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) establishes a fair value hierarchy, which prioritizes the
estimatedinputs of valuation techniques used to measure fair value
of the 9% Senior Notes, based on then-current interest rates for similar obligations with like maturities, was approximately $14.6 million more than the amount recorded on our Consolidated Balance Sheet. At December 31, 2009, the estimatedvalue of our variable-rate debt, based on then-current interest rates for similar obligations with like maturities, was approximately $32.5 million less than the amount recorded on our Consolidated Balance Sheet.
The table below provides a summary of our long-term debt obligations as of December 31, 2009. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. For obligations with variable interest rates, the table sets forth payout amounts based on current rates and does not attempt to project future rates.into three levels. The fair value of long-term debt is estimated based on quoted market prices for the same or similar issues or on the discounted value of the future cash flows expected to be paid using incremental rates of borrowing for similar liabilities. Changes in market rates of interest affect the fair value of our fixed-rate debt (dollars, in millions, except for percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | December 31,
2009 | |
| | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | There-
after | | | Total | | | Fair
Value | |
| | | | | | | | |
Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt (a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Fixed-rate debt payments (b) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
9% Senior Notes (c) | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 300.0 | | | $ | 300.0 | | | $ | 314.6 | |
Average interest rates | | | — | % | | | — | % | | | — | % | | | — | % | | | — | % | | | 9.0 | % | | | 9.0 | % | | | — | % |
| | | | | | | | |
Variable-rate debt payments (b) | | $ | 30.7 | | | $ | 48.3 | | | $ | 134.3 | | | $ | 13.0 | | | $ | 289.6 | | | $ | — | | | $ | 515.9 | | | $ | 483.5 | |
Average interest rates (d) | | | 4.0 | % | | | 3.5 | % | | | 3.3 | % | | | 4.1 | % | | | 5.8 | % | | | — | % | | | 4.8 | % | | | — | % |
(a) | Includes current portion. |
(b) | These obligations are further explained in “Financing Activities” under “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The table assumes our long-term debt is held to maturity. |
(c) | The table assumes that accumulated interest is paid semiannually. |
(d) | Does not include the effect of interest rate derivatives. |
In April 2008, we entered into interest rate derivative instruments to hedge a portion of our interest rate risk as required under the terms of the Credit Facilities. At December 31, 2009, we had $515.9 million of variable-rate debt outstanding, all of which was hedged using interest rate derivatives. We purchased interest rate caps with a term of three years and a cap rate of 5.50% on a notional amount of $260.0 million to hedge the interest rate on our second lien facility. These interest rate caps remain in place. We also purchased interest rate caps to hedge part of the interest rate risk on our Tranche B term loan facility with a LIBOR cap rate of 5.00% on a notional amount of $425.0 million for the period of April 21, 2008, through March 31, 2009; a notional amount of $350.0 million for the period of March 31, 2009, through March 31, 2010; and a notional amount of $300.0 million for the period of March 31, 2010, through March 31, 2011.
Credit Facilities. Effective December 31, 2008, we began utilizing the calculated base rate plus 250 basis points on the Tranche B term loan facility rather than the LIBOR plus 350 basis points (subject to a floor of 4.00%) used prior to December 31, 2008. As the interest rate on this debt no longer matched the rate on the interest rate derivatives used to hedge a portion of that debt, we account for them as economic hedges. The amounts recorded in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet will be amortized to interest expense over the remaining life of the interest rate derivatives. Changes in the fair value of these derivatives will be recorded in “Change in fair value of interest rate derivatives” in our Consolidated Statements of Income (Loss).
These derivatives have a cap rate of 5.00% on a notional amount of $425.0 million for the period of April 21, 2008, through March 31, 2009; a notional amount of $350.0 million for the period of March 31, 2009, through March 31, 2010; and a notional amount of $300.0 million for the period of March 31, 2010, through March 31, 2011. At December 31, 2009 and 2008, we recorded the fair value of the interest rate derivatives, or $0.1 million and $0.2 million, respectively, in “Other assets” on our Consolidated Balance Sheet. During the year ended December 31, 2009, we recorded the change in fair value of these derivatives, or a $0.4 million gain, in “Change in fair value of interest rate derivatives” in our Consolidated Statement of Income (Loss). During the year ended December 31, 2008, we recorded the change in fair value of these derivatives, or a $0.8 million loss, in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet. No amounts were reclassified to interest expense. During the years ended December 31, 2009 and 2008, we recorded $0.5 million and $0.4 million, respectively, in “Interest expense” for the amortization of the premiums paid for the interest rate derivatives. At December 31, 2008, there was no ineffectiveness related to these hedges.
Second Lien Facility. We account for the interest rate derivatives with a notional amount of $260.0 million that hedged our exposure to interest rate fluctuations on our second lien facility as economic hedges. At December 31, 2009 and 2008, we recorded the fair value of the interest rate derivatives, or $0.1 million, in “Other assets” on our Consolidated Balance Sheet. During the years ended December 31, 2009 and 2008, we recorded the change in fair value of these derivatives, or $0.2 million and $0.5 million, respectively, of expense, in “Change in fair value of interest rate derivatives” in our Consolidated Statement of Income (Loss). During each year ended December 31, 2009 and 2008, we recorded $0.2 million in “Interest expense” for the amortization of the premiums paid for the interest rate derivatives.
Interest Rate Risk — Investments
Our exposure to market risk for changes in interest rates also relates to our cash, cash equivalents, and short-term investments. As of December 31, 2009, our cash, cash equivalents, and short-term investments consisted primarily of funds invested in money market accounts and certificates of deposit insured by the Federal Deposit Insurance Corporation (FDIC). As the interest rates on a significant portion of our cash, cash equivalents, and short-term investments are variable, a change in interest rates earned would affect interest income along with cash flows but would not have a significant effect on the fair market value of the related underlying instruments.
The components of cash, cash equivalents, and short-term investments as of and for the year ended December 31, 2009, are as follows (dollars, in millions):
| | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2009 |
| | | Cost
Basis | | Accrued
Interest | | Unrealized
Gains
(Losses) | | Recorded
Basis | | Cash
and Cash
Equivalents | | Short-Term
Investments |
| | | | | | |
Cash | | $ | 4.3 | | $ | — | | $ | — | | $ | 4.3 | | $ | 4.3 | | $ | — |
Money market accounts | | | 65.1 | | | — | | | — | | | 65.1 | | | 65.1 | | | — |
Certificates of deposit | | | 10.0 | | | — | | | — | | | 10.0 | | | — | | | 10.0 |
| | | | | | | | | | | | | | | | | | |
Total | | $ | 79.4 | | $ | — | | $ | — | | $ | 79.4 | | $ | 69.4 | | $ | 10.0 |
| | | | | | | | | | | | | | | | | | |
During the year ended December 31, 2009, $11.6million of certificates of deposit matured, all of which we subsequently reinvested. At December 31, 2009, we did not have any investments in individual securities that had been in a continual unrealized loss position for more than 12 months.
At December 31, 2008, we had $22.5 million in cash and cash equivalents, consisting of $7.2 million in cash and $15.3 million in money market accounts.
Energy Risk
We enter into natural gas swaps, options, or a combination of these instruments to hedge the variable cash flow risk of natural gas purchases at index prices. As of December 31, 2009, we had entered into derivative instruments related to approximately 50% of our forecasted natural gas purchases for the period of January 2010 through October 2010, approximately 16% of our forecasted natural gas purchases from November 2010 through March 2011, and approximately 6% of our forecasted natural gas purchases from April 2011 through October 2011. These derivatives include three-way collars and call spreads.
A three-way collar is a combination of options: a written put, a purchased call, and a written call. The purchased call establishes a maximum price unless the market price exceeds the written call, at which point the maximum price would be New York Mercantile Exchange (NYMEX) price less the difference between the purchased call and the written call strike price. The written put establishes a minimum price (the floor) for the volumes under contract. This strategy enables us to decrease the floor and the ceiling price of the collar beyond the range of a traditional collar while offsetting the associated cost with the sale of the written call. The following tables summarize our position related to these instruments as of December 31, 2009 (in millions of British thermal units, or mmBtu, per day):
| | | | | | | | | | | | |
| | | Three-Way Collars | |
| | | January 2010
Through
March 2010 | |
| | | |
Volume hedged | | | 6,000 | | | | 8,500 | | | | 4,000 | |
| | | |
Strike price of call sold | | $ | 12.00 | | | $ | 12.00 | | | $ | 11.00 | |
Strike price of call bought | | | 9.00 | | | | 9.00 | | | | 8.00 | |
Strike price of put sold | | | 6.50 | | | | 5.35 | | | | 4.60 | |
Three-way collar premium | | | 0.17 | | | | — | | | | — | |
| | | |
Approximate percent hedged | | | 16 | % | | | 23 | % | | | 11 | % |
| | | | | | | | | | | | | | | | |
| | | Three-Way Collars | |
| | | April 2010
Through
October 2010 | | | November 2010
Through
March 2011 | | | April 2011
Through
October 2011 | |
| | | | |
Volume hedged | | | 5,500 | | | | 9,500 | | | | 4,000 | | | | 1,000 | |
| | | | |
Strike price of call sold | | $ | 12.00 | | | $ | 11.00 | | | $ | 11.00 | | | $ | 11.00 | |
Strike price of call bought | | | 9.00 | | | | 8.00 | | | | 8.00 | | | | 8.00 | |
Strike price of put sold | | | 5.90 | | | | 5.03 | | | | 5.66 | | | | 5.33 | |
Three-way collar premium | | | — | | | | — | | | | — | | | | — | |
| | | | |
Approximate percent hedged | | | 18 | % | | | 32 | % | | | 11 | % | | | 3 | % |
A call spread is a combination of a purchased call and a written call. The purchased call establishes a maximum price unless the market exceeds the written call, at which point the maximum price would be the NYMEX price less the difference between the purchased call and the written call strike price plus any applicable net premium associated with the two options. The following tables summarize our position related to these instruments as of December 31, 2009 (in mmBtu per day):
| | | | | | | | |
| | | Call Spreads | |
| | | November 2010
Through
March 2011 | | | April 2011
Through
October 2011 | |
| | |
Volume hedged | | | 2,000 | | | | 1,000 | |
| | |
Strike price of call sold | | $ | 11.00 | | | $ | 11.00 | |
Strike price of call bought | | | 8.00 | | | | 8.00 | |
Net cap premium | | | 0.54 | | | | 0.40 | |
| | |
Approximate percent hedged | | | 5 | % | | | 3 | % |
We have elected to account for these instruments as economic hedges. At December 31, 2009 and 2008, we recorded the fair value of the derivatives, or $1.4 million and $7.3 million, respectively, in “Accrued liabilities, Other” on our Consolidated Balance Sheet. During the years ended December 31, 2009 and 2008, we recorded the change in fair value of the instruments, or a $5.9 million gain and a $7.4 million loss, respectively, in “Materials, labor, and other operating expenses” in our Consolidated Statements of Income (Loss).
Foreign Currency Risk
While we are exposed to foreign currency risk in our operations, none of this risk was material to our financial position or results of operations as of December 31, 2009 and 2008.
Predecessor
During the Predecessor periods presented, Boise Cascade occasionally used interest rate swaps to hedge variable interest rate risk. Because debt and interest costs were not allocated to the Predecessor, the effects of the interest rate swaps were not included in the Predecessor consolidated financial statements.
Fair Value Measurements
We record our financial assets and liabilities, which consist of cash equivalents, short-term investments, and derivative financial instruments that are used to hedge exposures to interest rate and energy risks, at fair value. The fair value hierarchy under U.S. GAAP gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, and whereWhere applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value (Level 1). If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly (Level 2). If quoted prices for identical or similar assets are not available or are unobservable, we may use internally developed valuation models, whose inputs include bid prices and third-party valuations utilizing underlying asset assumptions (Level 3). Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements. We enter into these hedges withmonitor credit ratings of counterparties to the agreements, which are large financial institutions, and we monitor their credit ratings to determineconsider the impact, if any, adjustments toon the determination of fair value need to be made.value. No suchsignificant adjustments were made in any periodperiods presented.
Customer Rebates and Allowances
We provide rebates to our customers based on the volume of their purchases. We provide the rebates to increase the sell-through of our products. The rebates are recorded as a decrease in "Sales, Trade" in our Consolidated Statements of Income. At December 31, 2012 and 2011, we had $20.8 million and $14.5 million, respectively, of rebates payable recorded in "Accounts payable" on our Consolidated Balance Sheets.
Inventory Valuation
The majority of our inventories are valued at the lower of cost or market, where cost is based on the average cost method of inventory valuation. Manufactured inventories include costs for materials, labor, and factory overhead. Other inventories are valued at the lower of either standard cost, which approximates cost based on the actual first-in, first-out usage pattern, or market.
Inventories include the following (dollars in thousands):
|
| | | | | | | |
| | December 31 |
| | 2012 | | 2011 |
| Finished goods | $ | 150,496 |
| | $ | 155,588 |
|
| Work in process | 41,575 |
| | 41,172 |
|
| Fiber | 35,840 |
| | 38,469 |
|
| Other raw materials and supplies | 66,573 |
| | 72,076 |
|
| | $ | 294,484 |
| | $ | 307,305 |
|
Property and Equipment
Property and equipment are recorded at cost. Cost includes expenditures for major improvements and replacements and the amount of interest cost associated with significant capital additions. For the years ended December 31, 2012, 2011, and 2010, capitalized interest, if any, was immaterial. Repairs and maintenance costs are expensed as incurred. When property and equipment are retired, sold, or otherwise disposed of, the asset's carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in "Net income (loss)". In all periods presented, we used the straight-line method of depreciation. We periodically assess the estimated useful lives of our assets. Changes in circumstances, such as changes to our operational or capital strategy, changes in regulation, or technological advances, may result in the actual useful lives differing from our estimates. Revisions to the estimated useful lives of assets requires judgment and constitutes a change in accounting estimate, which is accounted for prospectively by adjusting or accelerating depreciation and amortization rates.
Property and equipment consisted of the following asset classes and the following general range of estimated useful lives (dollars in thousands):
|
| | | | | | | | | | | |
| | | | General Range of Estimated Useful Lives in Years |
| | December 31 | |
| | 2012 | | 2011 | |
| Land | $ | 28,899 |
| | $ | 34,735 |
| | | | |
| Buildings and improvements | 260,607 |
| | 248,174 |
| | 9 | - | 40 |
| Machinery and equipment | 1,479,212 |
| | 1,375,069 |
| | 3 | - | 20 |
| Construction in progress | 46,538 |
| | 44,563 |
| | | | |
| | 1,815,256 |
| | 1,702,541 |
| | | | |
| Less accumulated depreciation | (592,255 | ) | | (467,272 | ) | | | | |
| | $ | 1,223,001 |
| | $ | 1,235,269 |
| | | | |
Weighted average useful lives are approximately 27years for buildings and improvements and 13years for machinery and equipment. Machinery and equipment consists of the following categories of assets and the following estimated useful lives: |
| | | |
| Computer hardware and software | 3 | - | 10 |
| Furniture and fixtures | 3 | - | 10 |
| Vehicles | 3 | - | 7 |
| Packaging and papermaking equipment | 9 | - | 20 |
Depreciation expense for the years ended December 31, 2012, 2011, and 2010, was $134.0 million, $129.8 million, and $120.5 million, respectively.
Leases
We assess lease classification as either capital or operating at lease inception or upon modification. We lease some of our locations, as well as other property and equipment, under operating leases. For purposes of determining straight-line rent expense, the lease term is calculated from the date of possession of the facility, including any periods of free rent and any renewal option periods that are reasonably assured of being exercised.
Fiber Farms
Costs for activities related to the establishment of a new crop of trees, including planting, thinning, fertilization, pest control, herbicide application, irrigation, and land lease costs, are capitalized. The capitalized costs are accumulated by specifically identifiable farm or irrigation blocks. We charge capitalized costs, excluding land, to "Depreciation, amortization, and depletion" in the accompanying Consolidated Statements of Income at the time of harvest based on actual accumulated costs associated with the fiber cut. Costs for administration, harvesting, insurance, and property taxes are recognized in "Materials, labor and other operating expenses (excluding depreciation)" in the accompanying Consolidated Statements of Income at the time the associated fiber is utilized.
Long-Lived Asset Impairment
An impairment of long-lived assets exists when the carrying value of an asset is not recoverable through future undiscounted cash flows from operations and when the carrying value of an asset exceeds its fair value. We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.
Goodwill and Intangible Assets
We maintain two reporting units for purposes of our goodwill and intangible asset impairment testing, Packaging and Paper, which are the same as our operating segments discussed in Note 17, Segment Information. We test goodwill, recorded in our Packaging segment, and indefinite-lived intangible assets, recorded in our Paper segment, for impairment annually in the fourth quarter or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value. Additionally, we evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary. See Note 7, Goodwill and Intangible Assets, for additional information.
Deferred Software Costs
Internal-use software is software that is developed internally, developed or modified solely to meet our needs, and for which, during the software's development or modification, a plan does not exist to market the software externally. We defer internal-use software costs that benefit future years. These costs are amortized using the straight-line method over the expected life of the software, typically three to five years. "Other assets" in the Consolidated Balance Sheets include $6.4 million of deferred software costs at both December 31, 2012 and 2011, respectively. We amortized $1.6 million, $0.9 million, and $0.8 million of deferred software costs for the years ended December 31, 2012, 2011, and 2010, respectively.
Pension Benefits
Several estimates and assumptions are required to record pension costs and liabilities, including discount rate, return on assets, and longevity and service lives of employees. We review and update these assumptions annually unless a plan curtailment or other event occurs, requiring we update the estimates on an interim basis. While we believe the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.
New and Recently Adopted Accounting Standards
In February 2013, the FASB issued Accounting Standards Update (ASU) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU
requires entities to disclose additional information about changes in and significant items reclassified out of accumulated other comprehensive income. The guidance is effective for annual and interim reporting periods beginning after January 1, 2013. We do not believe the adoption of this update will have a material effect on our financial position and results of operations.
In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This ASU clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. This guidance is effective for annual and interim reporting periods beginning January 1, 2013. We do not believe the adoption of this update will have a material effect on our financial position and results of operations.
In July 2012, the FASB issued ASU 2012-02, Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU gives entities testing indefinite-lived intangible assets for impairment the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, the entity is not required to take further action. However, if an entity concludes otherwise, a quantitative impairment test is required. This guidance is effective for our annual and interim impairment tests beginning January 1, 2013, with early adoption permitted. We do not believe the adoption of this update will have a material effect on our financial position and results of operations.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This ASU improves reporting and transparency of offsetting (netting) assets and liabilities and the related effects on the financial statements. This guidance is effective for annual and interim reporting periods beginning January 1, 2013. We do not believe the adoption of this update will have a material effect on our financial position and results of operations.
In September 2011, the FASB issued ASU 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU gives entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test. If entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. We adopted the provisions of this guidance on January 1, 2012, and it had no effect on our financial position and results of operations.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU increases the prominence of other comprehensive income in financial statements. Under this ASU, we have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The ASU eliminates the option to present the components of other comprehensive income as part of the statement of equity.We adopted the provisions of ASU 2011-05 on January 1, 2012. The adoption of this guidance resulted in adding the Consolidated Statements of Comprehensive Income to our Consolidated Financial Statements.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS). This ASU was issued to provide largely identical guidance about fair value measurement and disclosure requirements for entities that disclose the fair value of an asset, a liability, or an instrument classified in shareholders' equity in their consolidated financial statements as that provided in the International Accounting Standards Board's new IFRS 13, Fair Value Measurement. This ASU does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where it already is required or permitted under U.S. generally accepted accounting principles (GAAP). We adopted the provisions of ASU 2011-04 on January 1, 2012. The adoption of this guidance did not have a material effect on our financial statement disclosures.
There were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
3. St. Helens Charges
In December 2012, we ceased paper production on our one remaining paper machine at our St. Helens, Oregon, paper mill. The cessation is a result of the machine's inability to compete in the marketplace over the long-term, due primarily to high fiber costs and declining product demand. This reduces our annual uncoated freesheet capacity by almost 60,000 tons and results in the loss of approximately 100 jobs, primarily at the mill. The remaining machine, which is owned by Cascades Tissue Group (Cascades), continues to operate on the site, and we continue to lease Cascades supporting assets.
During the year ended December 31, 2012, we recorded $31.7 million of pretax costs in our Paper segment, related primarily to ceasing paper production at the mill. In our Consolidated Statements of Income, we recorded $27.6 million of shutdown costs in "St. Helens charges" and $4.1 million in "Materials, labor, and other operating expenses (excluding depreciation)" related to inventory write-downs and other one-time costs incurred. At December 31, 2012, $4.3 million of costs were recorded in "Accrued liabilities, Compensation and benefits", $0.7 million in "Accrued liabilities, Other", and $10.3 million in "Other long-term liabilities" on our Consolidated Balance Sheet.
An analysis of the St. Helens costs is as follows (in thousands): |
| | | | | | | | | | | |
| | Noncash | | Cash (a) | | Total Costs |
| Asset write-down | $ | 11,144 |
| (b) | $ | — |
| | $ | 11,144 |
|
| Inventory write-down | 1,982 |
| | — |
| | 1,982 |
|
| Employee-related costs | — |
| | 4,334 |
| | 4,334 |
|
| Pension curtailment loss | 1,060 |
| | — |
| | 1,060 |
|
| Increase in asset retirement obligations (Note 15) | — |
| | 10,256 |
| | 10,256 |
|
| Other | — |
| | 2,969 |
| | 2,969 |
|
| | $ | 14,186 |
| | $ | 17,559 |
| | $ | 31,745 |
|
| |
| (a) | We expect to pay approximately $7.3 million of the $17.6 million of cash costs in early 2013 and the remaining cash costs over a longer term. |
| |
| (b) | During third quarter 2012, we assessed the St. Helens long-lived assets for impairment. Our assessment was based upon, among other things, our estimates of the amount of future net cash flows to be generated by the long-lived assets and our estimates of the current fair value of the assets (Level 3 inputs). Considerable management judgment is necessary to evaluate estimated future cash flows. The assumptions used in our impairment evaluations are consistent with our operating plans. |
4. Acquisitions
On March 1, 2011, we acquired Tharco Packaging, Inc. and its subsidiaries (Tharco) for $201.3 million (Tharco Acquisition), and on December 1, 2011, we acquired Hexacomb Corporation and its affiliated companies and all of the honeycomb packaging-related assets of Pregis Mexico (Hexacomb) for $124.9 million (Hexacomb Acquisition). We acquired 100% of the outstanding stock and voting equity interests of both Tharco and Hexacomb. The financial results for Tharco and Hexacomb are included in our Packaging segment.
During the year ended December 31, 2012, we recorded approximately $1.8 million of purchase price adjustments that decreased goodwill. These adjustments related primarily to changes in deferred tax liabilities that resulted from further analysis of the tax basis of acquired assets and liabilities and other tax adjustments.
5. Net Income Per Common Share
Net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Net income per common share is not applicable to BZ Intermediate because it does not have common shares. Boise Inc.'s basic and diluted net income per share is calculated as follows (dollars and shares in thousands, except per-share data):
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Net income | $ | 52,150 |
| | $ | 75,210 |
| | $ | 62,734 |
|
| Weighted average number of common shares for basic net income per common share (a) | 99,872 |
| | 101,941 |
| | 80,461 |
|
| Incremental effect of dilutive common stock equivalents: | | | | | |
| Restricted stock and restricted stock units | 999 |
| | 2,502 |
| | 3,670 |
|
| Performance units | 268 |
| | 87 |
| | — |
|
| Common stock warrants (b) | — |
| | 2,214 |
| | — |
|
| Stock options (c) | 4 |
| | 2 |
| | — |
|
| Weighted average number of common shares for diluted net income per common share | 101,143 |
| | 106,746 |
| | 84,131 |
|
| | | | | | |
| Net income per common share: | | | | | |
| Basic | $ | 0.52 |
| | $ | 0.74 |
| | $ | 0.78 |
|
| Diluted | $ | 0.52 |
| | $ | 0.70 |
| | $ | 0.75 |
|
____________
| |
| (a) | During the year ended December 31, 2011, 40.3 million warrants were exercised, resulting in the issuance of 38.4 million additional common shares. For the year ended December 31, 2011, the exercise added 25.7 million to the number of weighted average shares included in basic net income per share. |
During the year ended December 31, 2011, 21.2 million common shares were repurchased, resulting in a 5.1 million decrease in the number of weighted average shares included in basic and diluted net income per share.
| |
| (b) | For the year ended December 31, 2010, the warrants were not included in the computation of diluted net income per share because the exercise price exceeded the average market price of our common stock. The warrants were accounted for under the treasury stock method. |
| |
| (c) | We excluded 0.8 million and 0.3 million of stock options from the computation of diluted net income per common share because they were antidilutive for the years ended December 31, 2012 and 2011, respectively. We had no stock options outstanding during 2010. |
6. Income Taxes
A reconciliation of the statutory U.S. federal tax provision and the reported tax provision is as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | BZ Intermediate |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 | | 2012 | | 2011 | | 2010 |
| Income before income taxes | $ | 86,134 |
| | $ | 125,341 |
| | $ | 108,106 |
| | $ | 86,134 |
| | $ | 125,341 |
| | $ | 108,106 |
|
| Statutory U.S. income tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % |
| | | | | | | | | | | | |
| Statutory tax provision | $ | 30,147 |
| | $ | 43,870 |
| | $ | 37,837 |
| | $ | 30,147 |
| | $ | 43,870 |
| | $ | 37,837 |
|
| Foreign rate differential | (165 | ) | | 3 |
| | — |
| | (165 | ) | | 3 |
| | — |
|
| State taxes | 3,340 |
| | 4,839 |
| | 4,120 |
| | 3,340 |
| | 4,839 |
| | 4,120 |
|
| Valuation allowance | 225 |
| | 146 |
| | 307 |
| | 225 |
| | 146 |
| | 307 |
|
| Nondeductible costs | 985 |
| | 1,476 |
| | 652 |
| | 985 |
| | 1,476 |
| | 652 |
|
| Other | (548 | ) | | (203 | ) | | 2,456 |
| | (548 | ) | | (203 | ) | | 1,613 |
|
| Income tax provision | $ | 33,984 |
| | $ | 50,131 |
| | $ | 45,372 |
| | $ | 33,984 |
| | $ | 50,131 |
| | $ | 44,529 |
|
| | | | | | | | | | | | |
| Effective income tax provision rate | 39.5 | % | | 40.0 | % | | 42.0 | % | | 39.5 | % | | 40.0 | % | | 41.2 | % |
The income tax provision shown in the Consolidated Statements of Income includes the following (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | BZ Intermediate |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 | | 2012 | | 2011 | | 2010 |
| Current income tax provision (benefit) | | | | | | | | | | | |
| Federal | $ | (599 | ) | | $ | 2,249 |
| | $ | 4,253 |
| | $ | (599 | ) | | $ | 2,047 |
| | $ | 4,454 |
|
| State | 832 |
| | 3,472 |
| | 2,236 |
| | 832 |
| | 3,529 |
| | 2,194 |
|
| Foreign | 67 |
| | 109 |
| | (1 | ) | | 67 |
| | 109 |
| | (1 | ) |
| Total current | $ | 300 |
| | $ | 5,830 |
| | $ | 6,488 |
| | $ | 300 |
| | $ | 5,685 |
| | $ | 6,647 |
|
| | | | | | | | | | | | |
| Deferred income tax provision (benefit) | | | | | | | | | | | |
| Federal | $ | 29,985 |
| | $ | 40,778 |
| | $ | 34,061 |
| | $ | 29,985 |
| | $ | 40,980 |
| | $ | 33,151 |
|
| State | 3,705 |
| | 3,524 |
| | 4,831 |
| | 3,705 |
| | 3,467 |
| | 4,739 |
|
| Foreign | (6 | ) | | (1 | ) | | (8 | ) | | (6 | ) | | (1 | ) | | (8 | ) |
| Total deferred | $ | 33,684 |
| | $ | 44,301 |
| | $ | 38,884 |
| | $ | 33,684 |
| | $ | 44,446 |
| | $ | 37,882 |
|
| Income tax provision (a) | $ | 33,984 |
| | $ | 50,131 |
| | $ | 45,372 |
| | $ | 33,984 |
| | $ | 50,131 |
| | $ | 44,529 |
|
___________
| |
| (a) | In January 2013, the U.S. President signed into law the American Taxpayer Relief Act of 2012, which extended many tax provisions that would have otherwise expired in 2012. Our income tax provision at December 31, 2012, does not include the effect of this law; however, the effect, if any, would not be significant. We will record the effect, if any, of the extended tax provisions in first quarter 2013. |
During the year ended December 31, 2012, refunds received, net of cash paid for taxes, was $0.5 million. During the years ended December 31, 2011 and 2010, cash paid for taxes, net of refunds received, was $1.9 million and $0.7 million, respectively.
The following details the scheduled expiration dates of our tax effected net operating loss (NOL) and tax credit carryforwards at December 31, 2012 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | BZ Intermediate |
| | 2013 Through 2022 | | 2023 Through 2032 | | Indefinite | | Total | | 2013 Through 2022 | | 2023 Through 2032 | | Indefinite | | Total |
| U.S. federal and non-U.S. NOLs | $ | 4,432 |
| | $ | 35,820 |
| | $ | — |
| | $ | 40,252 |
| | $ | 4,432 |
| | $ | 35,920 |
| | $ | — |
| | $ | 40,352 |
|
| State taxing jurisdiction NOLs | 351 |
| | 3,380 |
| | — |
| | 3,731 |
| | 351 |
| | 3,380 |
| | — |
| | 3,731 |
|
| U.S. federal, non-U.S., and state tax credit carryforwards | 196 |
| | 589 |
| | 4,053 |
| | 4,838 |
| | 196 |
| | 589 |
| | 4,053 |
| | 4,838 |
|
| U.S. federal capital loss carryforwards | 1,232 |
| | — |
| | — |
| | 1,232 |
| | 1,232 |
| | — |
| | — |
| | 1,232 |
|
| Total | $ | 6,211 |
| | $ | 39,789 |
| | $ | 4,053 |
| | $ | 50,053 |
| | $ | 6,211 |
| | $ | 39,889 |
| | $ | 4,053 |
| | $ | 50,153 |
|
Internal Revenue Code Section 382 imposes limitations on our ability to use net operating losses if we experience "ownership changes." In general terms, ownership change may result from transactions increasing the ownership of specified shareholders by greater than 50 percentage points over a three year period. We cannot give any assurance we will not undergo any ownership change at a time when these limitations would have a significant effect. To the extent we are not able to use net operating losses in any given year, the unused limitation amount may be carried over to later years. We believe it is more likely than not that our net operating losses will be fully realized before they expire.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The components of our net deferred tax assets and liabilities at December 31, 2012 and 2011, in the Consolidated Balance Sheets are as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| | Boise Inc. | | BZ Intermediate |
| | December 31 |
| | 2012 | | 2011 | | 2012 | | 2011 |
| Deferred tax assets | | | | | | | |
| Employee benefits (a) | $ | 68,375 |
| | $ | 84,453 |
| | $ | 68,375 |
| | $ | 84,453 |
|
| Deferred financing costs | 1,584 |
| | 1,593 |
| | 1,584 |
| | 1,593 |
|
| Intangible assets and other | 310 |
| | 122 |
| | 310 |
| | 122 |
|
| Net operating loss carryforwards (b) | 61,106 |
| | 61,262 |
| | 60,999 |
| | 61,155 |
|
| Alternative minimum tax | 4,053 |
| | 4,877 |
| | 4,053 |
| | 4,877 |
|
| Asset retirement obligations | 8,025 |
| | 3,933 |
| | 8,025 |
| | 3,933 |
|
| Inventories | 7,752 |
| | 11,875 |
| | 7,752 |
| | 11,875 |
|
| State income tax adjustments | 4,894 |
| | 4,701 |
| | 4,894 |
| | 4,701 |
|
| Other | 9,130 |
| | 10,000 |
| | 9,130 |
| | 10,000 |
|
| Gross deferred tax assets | 165,229 |
| | 182,816 |
| | 165,122 |
| | 182,709 |
|
| Valuation allowance (c) | (5,296 | ) | | (5,340 | ) | | (5,296 | ) | | (5,340 | ) |
| Net deferred tax assets | $ | 159,933 |
| | $ | 177,476 |
| | $ | 159,826 |
| | $ | 177,369 |
|
| | | | | | | | |
| Deferred tax liabilities | | | | | | | |
| Property and equipment | $ | 266,120 |
| | $ | 244,230 |
| | $ | 266,120 |
| | $ | 244,230 |
|
| Intangible assets and other | 60,195 |
| | 61,416 |
| | 60,195 |
| | 61,416 |
|
| Deferred income | 9,647 |
| | 9,647 |
| | 908 |
| | 908 |
|
| Other | 4,386 |
| | 3,064 |
| | 4,471 |
| | 3,148 |
|
| Deferred tax liabilities | $ | 340,348 |
| | $ | 318,357 |
| | $ | 331,694 |
| | $ | 309,702 |
|
| | | | | | | | |
| As reported on our Consolidated Balance Sheets | | | | | | | |
| Current deferred tax assets, net | $ | 17,955 |
| | $ | 20,379 |
| | $ | 17,955 |
| | $ | 20,379 |
|
| Noncurrent deferred tax liabilities | 198,370 |
| | 161,260 |
| | 189,823 |
| | 152,712 |
|
| Total deferred tax liabilities, net (d) | $ | 180,415 |
| | $ | 140,881 |
| | $ | 171,868 |
| | $ | 132,333 |
|
___________
| |
| (a) | The decrease relates to the tax effect of changes in recorded pension liabilities. See Note 10, Retirement and Benefit Plans, for more information. |
| |
| (b) | At December 31, 2012 and 2011, net operating losses exclude $9.8 million and $4.4 million, respectively, of tax benefits that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. To the extent such net operating losses are utilized, stockholders' equity will be increased. |
| |
| (c) | Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. In 2012 and 2011, we recorded a $5.3 million valuation allowance. In 2012, $4.1 million of the valuation allowance relates to foreign net operating loss carryforwards, and the remaining $1.2 million relates to a valuation allowance recorded in full on deferred tax assets relating to capital losses. In 2011, $4.3 million of the valuation allowance relates to foreign net operating loss carryforwards and credits acquired as part of the Hexacomb acquisition. The remaining $1.0 million valuation allowance recorded during 2011 relates to a valuation allowance recorded in full on deferred tax assets relating to capital losses. We do not expect to generate capital gains before the losses expire. If or when recognized, the tax benefits relating to the reversal of any of or all of the valuation allowance will be recognized as a reduction of income tax expense. |
| |
| (d) | As of December 31, 2012, we had not recognized U.S. deferred income taxes on our cumulative total of undistributed earnings for non-U.S. subsidiaries. Determining the unrecognized deferred tax liability related to investments in these non-U.S. subsidiaries that are indefinitely reinvested is not practicable. We currently intend to indefinitely reinvest those earnings in operations outside the United States. |
Pretax income from domestic and foreign sources is as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | BZ Intermediate |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 | | 2012 | | 2011 | | 2010 |
| Domestic | $ | 85,287 |
| | $ | 125,072 |
| | $ | 108,095 |
| | $ | 85,287 |
| | $ | 125,072 |
| | $ | 108,095 |
|
| Foreign | 847 |
| | 269 |
| | 11 |
| | 847 |
| | 269 |
| | 11 |
|
| Income before income taxes | $ | 86,134 |
| | $ | 125,341 |
| | $ | 108,106 |
| | $ | 86,134 |
| | $ | 125,341 |
| | $ | 108,106 |
|
Uncertain Income Tax Positions
A reconciliation of the unrecognized tax benefits is as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | BZ Intermediate |
| | 2012 | | 2011 | | 2010 | | 2012 | | 2011 | | 2010 |
| Beginning balance | $ | 90,989 |
| | $ | 87,585 |
| | $ | 87,838 |
| | $ | 90,968 |
| | $ | 87,564 |
| | $ | 87,820 |
|
| Gross increases related to prior-period tax positions | 189 |
| | 409 |
| | 169 |
| | 189 |
| | 409 |
| | 166 |
|
| Gross decreases related to prior-period tax positions | (2,284 | ) | | (228 | ) | | (529 | ) | | (2,284 | ) | | (228 | ) | | (529 | ) |
| Gross increases related to current-period tax positions | — |
| | 3,223 |
| | 107 |
| | — |
| | 3,223 |
| | 107 |
|
| Settlements | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Ending balance (a) | $ | 88,894 |
| | $ | 90,989 |
| | $ | 87,585 |
| | $ | 88,873 |
| | $ | 90,968 |
| | $ | 87,564 |
|
___________
| |
| (a) | The unrecognized tax benefit, net of federal benefit for state taxes of $4.1 million, was $84.8 million at December 31, 2012. If that amount were recognized it would decrease our annual effective tax rate. Of this amount, $56.6 million ($56.5 million for BZ Intermediate) is recorded as a credit to long-term deferred taxes to eliminate the benefit associated with the uncertain tax position. The remaining $28.3 million ($28.4 million for BZ Intermediate) is recorded in "Other long-term liabilities" on our Consolidated Balance Sheets. Included in the $84.8 million is a credit related to our use of alternative fuel mixture to produce energy to operate our business of $83.2 million. Additional information relating to the inclusion of the alternative fuel mixture credits in taxable income may become available in the next 12 months, which could cause us to change our unrecognized tax benefits from the amounts currently recorded. It is not reasonably possible to know to what extent the total amounts of unrecognized benefits will increase or decrease within the next 12 months. |
We recognize tax liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available or as new uncertainties occur. We recognize interest and penalties related to uncertain tax positions as income tax expense in the Consolidated Statements of Income. Interest expense and penalties relating to uncertain tax positions were nominal for the years ended December 31, 2012, 2011, and 2010.
BZ Intermediate is a wholly owned, consolidated entity of Boise Inc., and its tax return is filed under the consolidated tax return of Boise Inc. We file federal income tax returns in the U.S., state income tax returns in various state jurisdictions, and foreign income tax returns in various foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. Tax years beginning in 2009 are subject to examination by taxing authorities, although net operating loss and credit carryforwards from all years are subject to examinations and adjustments for at least three years following the year in which utilized. Some foreign tax jurisdictions are open for the 2008 tax year.
7. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At December 31, 2012, we had $160.1 million of goodwill recorded on our Consolidated Balance Sheet in our Packaging segment.
Changes in the carrying amount of our goodwill are as follows (dollars in thousands):
|
| | | |
| | Goodwill |
| Balance at January 1, 2011 | $ | — |
|
| Goodwill acquired | 162,169 |
|
| Foreign currency translation adjustments | (478 | ) |
| Balance at December 31, 2011 | 161,691 |
|
| Additions (reductions) (a) | (1,799 | ) |
| Foreign currency translation adjustments | 238 |
|
| Balance at December 31, 2012 | $ | 160,130 |
|
___________
(a) Represents purchase price adjustments related to the Tharco and Hexacomb acquisitions.
Intangible Assets
Intangible assets are comprised of customer relationships, trademarks and trade names, technology, and noncompete agreements. At December 31, 2012, the net carrying amount of intangible assets with indefinite lives, which represents trade names and trademarks, was $16.8 million, all of which is recorded in our Paper segment. All of our other intangible assets amortize based on their estimated useful lives. Foreign intangible assets are affected by foreign currency translation.
The gross carrying amount, accumulated amortization, net carrying amount, and weighted average useful life of our intangible assets were as follows (dollars in thousands):
|
| | | | | | | | | | | | | |
| | As of December 31, 2012 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Useful Life (in Years) |
| Customer relationships | $ | 120,077 |
| | $ | (16,485 | ) | | $ | 103,592 |
| | 15 |
| Trademarks and trade names | 28,400 |
| | (2,634 | ) | | 25,766 |
| | 15 |
| Technology and other | 7,760 |
| | (6,771 | ) | | 989 |
| | 5 |
| Noncompete agreements | 835 |
| | (418 | ) | | 417 |
| | 3 |
| Total finite-lived intangible assets | $ | 157,072 |
| | $ | (26,308 | ) | | 130,764 |
| | 13 |
| Indefinite-lived trademarks and trade names | | | | | 16,800 |
| | |
| Total intangible assets (excluding goodwill) | | | | | $ | 147,564 |
| | |
| | | | | | | | |
| | As of December 31, 2011 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Weighted Average Useful Life (in Years) |
| Customer relationships | $ | 119,646 |
| | $ | (8,275 | ) | | $ | 111,371 |
| | 15 |
| Trademarks and trade names | 28,400 |
| | (623 | ) | | 27,777 |
| | 15 |
| Technology and other | 7,760 |
| | (5,265 | ) | | 2,495 |
| | 5 |
| Noncompete agreements | 835 |
| | (158 | ) | | 677 |
| | 3 |
| Total finite-lived intangible assets | $ | 156,641 |
| | $ | (14,321 | ) | | 142,320 |
| | 13 |
| Indefinite-lived trademarks and trade names | | | | | 16,800 |
| | |
| Total intangible assets (excluding goodwill) | | | | | $ | 159,120 |
| | |
The following table sets forth our intangible asset amortization (dollars in thousands):
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Intangible asset amortization | $ | 11,952 |
| | $ | 6,533 |
| | $ | 2,754 |
|
Based on current intangibles subject to amortization, our estimated future intangible asset amortization expense is as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 and After |
| Amortization expense | $ | 10,375 |
| | $ | 10,122 |
| | $ | 10,122 |
| | $ | 10,113 |
| | $ | 10,021 |
| | $ | 80,011 |
|
Impairment Testing
We maintain two reporting units for purposes of our goodwill and intangible asset impairment testing, Packaging and Paper, which are the same as our operating segments discussed in Note 17,Segment Information. We test the goodwill, recorded in our Packaging segment, and the indefinite-lived intangible assets, recorded in our Paper segment, for impairment annually in the fourth quarter or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value. Additionally, we evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary. We completed our test in fourth quarter, and there is no indication of goodwill or intangible asset impairment.
8. Debt
At December 31, 2012 and 2011, our long-term debt and the interest rates on that debt were as follows (dollars in thousands):
|
| | | | | | | | | | | | | |
| | December 31, 2012 | | December 31, 2011 |
| | Amount | | Interest Rate | | Amount | | Interest Rate |
| Revolving credit facility, due 2016 | $ | 5,000 |
| | 2.21 | % | | $ | — |
| | — | % |
| Tranche A term loan, due 2016 | 175,000 |
| | 2.22 |
| | 200,000 |
| | 2.30 |
|
| 9% senior notes, due 2017 | 300,000 |
| | 9.00 |
| | 300,000 |
| | 9.00 |
|
| 8% senior notes, due 2020 | 300,000 |
| | 8.00 |
| | 300,000 |
| | 8.00 |
|
| Long-term debt | 780,000 |
| | 7.05 |
| | 800,000 |
| | 6.95 |
|
| Current portion of long-term debt | (10,000 | ) | | 2.22 |
| | (10,000 | ) | | 2.30 |
|
| Long-term debt, less current portion | $ | 770,000 |
| | 7.11 | % | | $ | 790,000 |
| | 7.01 | % |
In 2011, Boise Paper Holdings, as borrower, and BZ Intermediate, as guarantor, entered into a $700 million five-year senior secured credit agreement (Credit Agreement) with a syndicate of lenders. The Credit Agreement consists of a five-year amortizing $200 million Tranche A term loan facility (the Term Loan Facility) and a five-year nonamortizing $500 million revolving credit facility (the Revolving Credit Facility and, together with the Term Loan Facility, the Credit Facilities).
As of December 31, 2012, our debt consisted of the following:
The Revolving Credit Facility: A five-year nonamortizing $500 million senior secured revolving credit facility with variable annual interest. In addition to paying interest, we pay an annual commitment fee for undrawn amounts at a rate of either 0.35% or 0.50% depending on our total leverage ratio.
The Tranche A Term Loan Facility: A five-year amortizing $200 million senior secured loan facility with variable annual interest.
The 9% Senior Notes: An eight-year nonamortizing $300 million senior unsecured debt obligation with fixed annual interest of 9%.
The 8% Senior Notes: A ten-year nonamortizing $300 million senior unsecured debt obligation with fixed annual interest of 8%.
Credit Facilities
Under our Credit Facilities we elect whether interest on our Term Loan and, separately, interest under any Revolving Credit Facility is based on an alternative base rate or the London Interbank Offered Rate (LIBOR), plus an applicable spread based on our total leverage ratio. Our total leverage ratio is essentially our total net debt divided by our four trailing quarters of Adjusted Consolidated EBITDA (as defined in the Credit Agreement). Based on our current one-month LIBOR election, at December 31, 2012, the interest rate on our Credit Facilities was LIBOR plus 200 basis points and we pay interest on the Credit Facilities monthly in arrears.
At December 31, 2012, we had $5.0 million of borrowings outstanding under our Revolving Credit Facility. No amounts were outstanding at December 31, 2011. During 2012, the maximum borrowings under the Revolving Credit Facility were $5.0 million, and the weighted average amount of borrowings outstanding during the year was $0.1 million. At December 31, 2012, we had availability of $487.7 million, which is net of outstanding letters of credit of $7.3 million. At December 31, 2012, the average interest rate for our outstanding borrowings under our Revolving Credit Facility was 2.21%.
We are required to maintain the following financial covenant ratios under the Credit Agreement:
•Interest expense coverage ratio must be 2.50 or more based on four consecutive fiscal quarters.
•Senior secured leverage ratio must be 2.75 or less as of the end of any fiscal quarter.
•Total leverage ratio must be 4.50 or less as of the end of any fiscal quarter.
The Credit Facilities also contain representations and warranties, affirmative and negative covenants,
events of default, and indemnifications customary for loan agreements for similar secured financings, including limits on the ability of Boise Paper Holdings and its subsidiaries to make restricted payments, acquisitions, and capital expenditures.
In the event of default, the lenders could terminate their commitments, declare the Credit Facilities, including interest and fees, due and payable, or enforce liens and security interests to collect outstanding amounts due under the Credit Facilities. In addition, the Credit Facilities require the proceeds from asset sales, subject to specified exceptions and casualty insurance, be used to pay down outstanding borrowings. At December 31, 2012, we were in compliance with these covenants. In third quarter 2012, we made $25.0 million of long-term debt payments on our Tranche A Term Loan Facility, $17.5 million of which were voluntary and eliminate our required principal payment obligations until December 31, 2013.
The obligations of Boise Paper Holdings under our Credit Facilities are guaranteed by each of BZ Intermediate's and Boise Paper Holdings' existing and subsequently acquired domestic and foreign subsidiaries, subject to materiality limitations (collectively, the Credit Facility Guarantors). The Credit Facilities are secured by all intercompany debt and a first-priority security interest in substantially all of the real, personal, and mixed property of Boise Paper Holdings and the Credit Facility Guarantors, including a first-priority security interest in 100% of the equity interests of Boise Paper Holdings and each domestic subsidiary of Boise Paper Holdings and, if requested by the administrative agent, 65% of the equity interests of our foreign subsidiaries.
8% and 9% Senior Notes
The 8% and 9% Senior Notes (together, the Senior Notes) are senior unsecured obligations and rank equally with all of our present and future senior indebtedness, senior to all of our future subordinated indebtedness and effectively subordinated to all of our present and future senior secured indebtedness (including all borrowings with respect to the Credit Facilities to the extent of the value of the assets securing such indebtedness). Interest on the Senior Notes is due semiannually.
The Senior Notes indenture agreements contain covenants which, subject to exceptions, limit the ability of the Senior Notes issuers and guarantors to, among other things, incur additional indebtedness, engage in some asset sales, make specified types of restricted payments, engage in transactions with affiliates, and create liens on assets of the Senior Notes issuers or guarantors. Upon a change of control, the Senior Notes issuers must offer to repurchase the Senior Notes at 101% of the principal amount, plus accrued and unpaid interest. If the Senior Notes issuers sell specified types of assets and do not use the proceeds from such sales for specified purposes, they must offer to repurchase the Senior Notes at 100% of the principal amount, plus accrued and unpaid interest.
Our 9% Senior Notes are callable at any time on or after November 1, 2013, at 104.5% of the principal amount, decreasing to par by November 1, 2015, plus accrued and unpaid interest.
Our 8% Senior Notes are callable at any time on or after April 1, 2015, at 104% of the principal amount, decreasing to par by April 1, 2018, plus accrued and unpaid interest.
The Senior Notes are jointly and severally guaranteed on a senior unsecured basis by BZ Intermediate and each existing and future subsidiary of BZ Intermediate (other than their respective issuers). The Senior Notes Guarantors do not include Louisiana Timber Procurement Company, L.L.C., or our foreign subsidiaries.
Other
As of December 31, 2012, required debt principal repayments were as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Thereafter |
| Required debt principal repayments (a) | $ | 10,000 |
| | $ | 20,000 |
| | $ | 30,000 |
| | $ | 120,000 |
| | $ | 300,000 |
| | $ | 300,000 |
|
____________
| |
| (a) | Debt maturities in 2013 include repayment of $5.0 million of borrowings under our Revolving Credit Facility based on our intent to repay in 2013. |
At December 31, 2012 and 2011, we had $26.7 million and $31.0 million, respectively, of costs recorded in "Deferred financing costs" on our Consolidated Balance Sheet. When we entered into the Credit Agreement in November 2011, we capitalized $7.9 million of financing costs, which we recorded in "Deferred financing costs" on our Consolidated Balance Sheets. We record the amortization of deferred financing costs in interest expense using the effective interest method over the life of the loans. For the years ended December 31, 2012, 2011, and 2010, we recorded $4.5 million, $5.8 million, and $6.8 million, respectively, of amortization expense in "Interest expense" in our Consolidated Statements of Income.
During 2011 and 2010, we substantially modified our debt structures, and as a result, we expensed $2.3 million in 2011 and $22.2 million in 2010 in "Loss on extinguishment of debt" in our Consolidated Statements of Income.
For the years ended December 31, 2012, 2011, and 2010, cash payments for interest were $57.3 million, $58.1 million, and $51.6 million, respectively.
With the exception of the Credit Facilities, our debt is fixed-rate debt. At December 31, 2012, the book value of our fixed-rate debt was $600.0 million, and the fair value was estimated to be $660.5 million. The difference between the book value and fair value is due to the difference between the period-end market interest rate and the stated rate of our fixed-rate, long-term debt. We estimated the fair value of our fixed-rate debt using quoted market prices (Level 1 inputs), discussed further in Note 2, Summary of Significant Accounting Policies.
9. Financial Instruments
Our primary objective in holding derivative financial instruments is to manage cash flow risk. We do not use derivative instruments for speculative purposes.
Energy Risk
We enter into transactions to hedge the variable cash flow risk of natural gas purchases. At December 31, 2012, these derivatives included caps and call spreads, which we account for as economic hedges, and swaps, which are designated and accounted for as cash flow hedges. As of December 31, 2012, we had entered into derivative instruments related to the following approximate percentages of our forecasted natural gas purchases:
|
| | | | | | | | | | | | | | | | | | | | |
| | January 2013
Through
March 2013 | | April 2013
Through
October 2013 | | November 2013
Through
March 2014 | | April 2014
Through
October 2014 | | November 2014
Through
March 2015 | | April 2015
Through
October 2015 | | November 2015
Through
March 2016 |
| Approximate percent hedged | 87 | % | | 75 | % | | 53 | % | | 48 | % | | 43 | % | | 37 | % | | 13 | % |
Economic Hedges
For derivative instruments that are not designated as hedges for accounting purposes, the gain or loss on the derivatives is recognized in "Materials, labor, and other operating expenses (excluding depreciation)" in the Consolidated Statements of Income. During the years ended December 31, 2012, 2011 and 2010, we recognized an insignificant amount of expense and/or income related to natural gas contracts we account for as economic hedges.
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of "Accumulated other comprehensive income (loss)" on our Consolidated Balance Sheets and is recognized in "Materials, labor, and other operating expenses (excluding depreciation)" or "Interest expense" in our Consolidated Statements of Income in the period in which the hedged transaction affects earnings. Financial instruments designated as cash flow hedges are assessed both at inception and quarterly thereafter to ensure they are effective in offsetting changes in the cash flows of the related underlying exposures. The fair value of the instruments is reclassified out of accumulated other comprehensive income (loss) to earnings if the hedge ceases to be highly effective or if the hedged transaction is no longer probable. At December 31, 2012 and 2011, we had $1.2 million and $3.7 million of losses, respectively, net of tax recorded in
"Accumulated other comprehensive income (loss)" on our Consolidated Balance Sheets related to our natural gas contracts.
The effects of our cash flow hedging instruments on our Consolidated Balance Sheets and Consolidated Statements of Income were as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | (Gain) Loss Recognized in Accumulated Other Comprehensive Income | | Loss Reclassified From Accumulated Other Comprehensive Income Into Earnings |
| | Year Ended December 31 |
| | 2012 (a) |
| | 2011 | | 2010 | | 2012 | | 2011 | | 2010 |
| Natural gas contracts | $ | (1,384 | ) | | $ | 6,776 |
| | $ | — |
| | $ | 2,637 |
| | $ | 754 |
| | $ | — |
|
| Interest rate contracts | — |
| | — |
| | — |
| | — |
| | — |
| | 422 |
|
| Total | $ | (1,384 | ) | | $ | 6,776 |
| | $ | — |
| | $ | 2,637 |
| | $ | 754 |
| | $ | 422 |
|
____________
| |
| (a) | Based on December 31, 2012, pricing, the estimated loss, net of tax, to be recognized in earnings during the next 12 months is $1.2 million. |
Fair Values of Derivative Instruments
At December 31, 2012 and 2011, the fair value of our financial instruments was determined based on applicable interest rates, such as LIBOR, interest rate curves, and NYMEXNew York Mercantile Exchange (NYMEX) price quotations under the terms of the contracts, using current market information as of the reporting date. The derivatives were valued by us using third-party valuations based on quoted prices for similar assets and liabilities. Accordingly, all of our fair value measurements use Level 2 inputs.
All of our derivative instruments are recorded in "Accrued liabilities, Other" and "Other long-term liabilities" on our Consolidated Balance Sheets. We offset asset and liability balances, by counterparty, where legal right of offset exists. The following table
provides a summary of our assets and liabilities measured at fair value on a recurring basis and the inputs used to develop these estimated fair values underpresents the fair value
hierarchy discussed aboveof these instruments (dollars in
millions)thousands):
| | | | | | | | | | | | |
| | | Fair Value Measurements at
December 31, 2009, Using: |
| | | Total | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| | | | |
Assets: | | | | | | | | | | | | |
Money market accounts (a) | | $ | 65.1 | | $ | 65.1 | | $ | — | | $ | — |
Certificates of deposit (b) | | | 10.0 | | | 10.0 | | | — | | | — |
Interest rate derivatives (c) | | | 0.2 | | | — | | | 0.2 | | | — |
| | | | | | | | | | | | |
| | $ | 75.3 | | $ | 75.1 | | $ | 0.2 | | $ | — |
| | | | | | | | | | | | |
| | | | |
Liabilities: | | | | | | | | | | | | |
Energy derivatives (d) | | $ | 1.4 | | $ | — | | $ | 1.4 | | $ | — |
| | | | | | | | | | | | |
| | $ | 1.4 | | $ | — | | $ | 1.4 | | $ | — |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Fair Value Measurements at
December 31, 2008, Using: |
| | | Total | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| | | | |
Assets: | | | | | | | | | | | | |
Interest rate derivatives (c) | | $ | 0.3 | | $ | — | | $ | 0.3 | | $ | — |
| | | | | | | | | | | | |
| | $ | 0.3 | | $ | — | | $ | 0.3 | | $ | — |
| | | | | | | | | | | | |
| | | | |
Liabilities: | | | | | | | | | | | | |
Energy derivatives (d) | | $ | 7.3 | | $ | — | | $ | 7.3 | | $ | — |
| | | | | | | | | | | | |
| | $ | 7.3 | | $ | — | | $ | 7.3 | | $ | — |
| | | | | | | | | | | | |
(a) | Recorded in “Cash and cash equivalents” on our Consolidated Balance Sheet. |
(b) | Recorded in “Short-term investments” on our Consolidated Balance Sheet. |
(c) | Recorded in “Other assets” on our Consolidated Balance Sheet. |
(d) | Recorded in “Accrued liabilities, Other” on our Consolidated Balance Sheet. |
As of
|
| | | | | | | |
| | Level 2: Significant Other Observable Inputs |
| | December 31 |
| | 2012 | | 2011 |
| Natural gas contracts | | | |
| Cash flow hedges | $ | 2,365 |
| | $ | 6,022 |
|
| Economic hedges | 2,197 |
| | 2,370 |
|
| Total | $ | 4,562 |
| | $ | 8,392 |
|
Derivative instruments in an asset position at December 31, 2009 and 2008, we2012, were not material. We did not have any fair value measurements using significant unobservable inputs (Level 3).Tabular Disclosure of the Fair Values of Derivative Instruments and the Effect of Those Instruments(dollars, in millions)
| | | | | | | | | | |
| | | Fair Values of Derivative Instruments |
| | | Asset Derivatives | | Liability Derivatives |
| | | December 31, 2009 |
| | | Balance
Sheet
Location | | Fair
Value | | Balance
Sheet
Location | | Fair
Value |
| | | | |
Derivatives designated as economic hedging instruments (a) | | | | | | | | | | |
Interest rate contracts | | Other assets | | $ | 0.2 | | Accrued liabilities | | $ | — |
Natural gas contracts | | Other assets | | | — | | Accrued liabilities | | | 1.4 |
| | | | | | | | | | |
Total derivatives designated as economic hedging instruments | | | | $ | 0.2 | | | | $ | 1.4 |
| | | | | | | | | | |
Total Derivatives | | | | $ | 0.2 | | | | $ | 1.4 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | Fair Values of Derivative Instruments |
| | | Asset Derivatives | | Liability Derivatives |
| | | December 31, 2008 |
| | | Balance
Sheet
Location | | Fair
Value | | Balance
Sheet
Location | | Fair
Value |
| | | | |
Derivatives designated as cash flow hedging instruments (b) | | | | | | | | | | |
Interest rate contracts | | Other assets | | $ | 0.2 | | Accrued liabilities | | $ | — |
| | | | | | | | | | |
Total derivatives designated as cash flow hedging instruments | | | | $ | 0.2 | | | | $ | — |
| | | | | | | | | | |
| | | | |
Derivatives designated as economic hedging instruments (a) | | | | | | | | | | |
Interest rate contracts | | Other assets | | $ | 0.1 | | Accrued liabilities | | $ | — |
Natural gas contracts | | Other assets | | | — | | Accrued liabilities | | | 7.3 |
| | | | | | | | | | |
Total derivatives designated as economic hedging instruments | | | | $ | 0.1 | | | | $ | 7.3 |
| | | | | | | | | | |
Total Derivatives | | | | $ | 0.3 | | | | $ | 7.3 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | |
The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Year Ended December 31, 2009 |
Derivatives
Designated as Cash Flow
Hedging
Instruments (b) | | Amount of Gain
or (Loss)
Recognized in
OCI on Derivative
(Effective Portion) | | Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
(Effective Portion) | | Amount of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
(Effective Portion) | | Derivatives
Designated
as Economic
Hedging
Instruments (a) | | Location of Gain or (Loss)
Recognized in
Income on
Derivative | | Amount of
Gain
or (Loss)
Recognized in
Income on
Derivative |
| | | | | | |
Interest rate contracts | | $ | — | | Interest income/expense | | $ | 0.3 | | Interest rate contracts | | Change in fair value of interest rate derivatives | | $ | 0.6 |
| | | | | | |
| | | | | | | | | | Natural gas contracts | | Materials, labor, and other operating expenses | | | 5.9 |
| | | | | | | | | | | | | | | |
| | $ | — | | | | $ | 0.3 | | | | | | $ | 6.5 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Year Ended December 31, 2008 | |
Derivatives
Designated as Cash Flow
Hedging
Instruments (b) | | Amount of Gain
or (Loss)
Recognized in
OCI on Derivative
(Effective Portion) | | | Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
(Effective Portion) | | Amount of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
(Effective Portion) | | Derivatives
Designated
as Economic
Hedging
Instruments (a) | | Location of Gain or (Loss)
Recognized in
Income on
Derivative | | Amount of
Gain
or (Loss)
Recognized in
Income on
Derivative | |
| | | | | | |
Interest rate contracts | | $ | (0.8 | ) | | Interest income/expense | | $ | — | | Interest rate contracts | | Change in fair value of interest rate derivatives | | $ | (0.5 | ) |
| | | | | | |
| | | | | | | | | | | Natural gas contracts | | Materials, labor, and other operating expenses | | | (7.4 | ) |
| | | | | | | | | | | | | | | | | |
| | $ | (0.8 | ) | | | | $ | — | | | | | | $ | (7.9 | ) |
| | | | | | | | | | | | | | | | | |
(a) | See discussion above for additional information on our purpose for entering into derivatives designated as economic hedges and our overall risk management strategies. |
(b) | As of January 1, 2009, we no longer have interest rate derivatives designated as cash flow hedges. The amounts recorded in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet are being amortized to interest over the remaining life of the interest rate derivatives. During the year ended December 31, 2009, these derivatives were accounted for as economic hedges. |
Environmental
Our businesses are subject to a wide range of general and industry-specific environmental laws and regulations. In particular, we are affected by laws and regulations covering air emissions, wastewater discharges, solid and hazardous waste management, and site remediation. Compliance with these laws and regulations is a significant factor in the operation of our businesses. We believe that we have created a corporate culture of strong compliance by taking a conservative approach to environmental issues in order to assure that we are operating well within the bounds of regulatory requirements. However, we cannot assure you that we will at all times be in full compliance with environmental requirements, and we cannot assure you that we will not incur fines and penalties in the future. In 2009, we made no payments for environmental fines and penalties across all of our segments. In all periods presented, environmental spending for fines and penalties across all of our segments was immaterial.
We incur, and we expect to incur, substantial capital and operating expenditures to comply with federal, state, and local environmental laws and regulations. Failure to comply with these laws and regulations could result in civil or criminal fines or penalties or in enforcement actions. Our failure to comply could also result in governmental or judicial orders that stop or interrupt our operations or require us to take corrective measures, install additional pollution control equipment, or take other remedial actions. During 2009, we spent $2.2 million on capital expenditures to comply with environmental requirements. We anticipate capital expenditures of approximately $1.4 million in 2010 to comply with environmental requirements and expect to spend similar or greater amounts on environmental capital expenditures in the years ahead.
As an owner and operator of real estate, we may be liable under environmental laws for the cleanup of past and present spills and releases of hazardous or toxic substances on or from our properties and operations. We can be found liable under these laws if we knew of or were responsible for the presence of such substances. In some cases, this liability may exceed the value of the property itself.
OfficeMax retained responsibility for environmental liabilities that occurred with respect to businesses, facilities, and other assets not purchased by Madison Dearborn from OfficeMax in the 2004 transaction. In addition, OfficeMax generally indemnifies our operating subsidiaries, Boise White Paper, L.L.C., and Boise Packaging & Newsprint, L.L.C., for hazardous substance releases and other environmental violations that occurred prior to the 2004 transaction at the businesses, facilities, and other assets purchased by such subsidiaries. However, OfficeMax may not have sufficient funds to fully satisfy its indemnification obligations when required, and in some cases, we may not be contractually entitled to indemnification by OfficeMax.
Climate change, in its many dimensions (legislative, regulatory, market, and physical), has the potential to significantly affect our business. Boise relies on a sustainably managed supply of woody biomass as our principal raw material and main energy source. About 65% of our energy comes from renewable woody biomass. The carbon dioxide emitted when burning biomass from sustainably managed sources for energy is generally considered to be carbon neutral (does not contribute to climate change) because it is recycled in a closed loop whereby the carbon is removed from the atmosphere by the biomass and then returned to the atmosphere when the biomass is burned, resulting in no net increase of carbon dioxide in the atmosphere. Significant amounts of carbon are permanently sequestered (stored) in forests and forest products.
Our manufacturing operations emit greenhouse gases (GHGs), which may contribute to global warming and climate change. We are a voluntary member of the United States Environmental Protection Agency (EPA) Climate Leaders program and the Chicago Climate Exchange (CCX). Under these programs, we have established GHG emission inventories using established protocols, and in the case of CCX, the emissions have been third-party verified. In 2008 (the last recorded year), our company emitted about 2.6 million metric tonnes of GHGs (1.0 million metric tonnes of direct emissions and 1.6 million metric tonnes of indirect emissions from purchased electricity). The carbon dioxide from burning biomass, which is generally considered to be carbon neutral, is excluded from our GHG inventories. In 2011, we will begin reporting GHGs under the EPA’s mandatory regulatory program.
Climate change legislative and regulatory activities that affect our operations generally focus on reducing GHG emissions through some combination of GHG limitations (such as cap and trade or emission standards) and a renewable electricity standard (RES). Three of the five states in which our primary GHG emitting facilities operate (Minnesota, Oregon, and Washington) have an RES. There is currently no national RES in effect, although legislation passed by the United States House of Representatives (House) in July 2009 does include such a standard. The RES could increase our energy cost due to the higher cost of renewable electrical generation facilities, compared with those generating electricity from fossil fuel.
Climate change legislation prescribing a cap and trade system was passed by the House in the July 2009 legislation. The U.S. Senate Environment and Public Works Committee proposed similar legislation, but the full Senate has not yet voted on the legislation. The prognosis for enacting national climate change legislation into law is uncertain. The effect of any climate change legislation on our operations is also uncertain. Under the current proposed legislation, our facilities may be largely insulated from higher costs for an initial period through 2025. Nevertheless, as the protective measures phase out from 2026 to 2035, our energy costs could increase substantially. Furthermore, U.S. legislation and regulation may put our operations at a competitive disadvantage relative to foreign competition if competing countries have not enacted commensurate GHG reduction programs.
The EPA has initiated the regulation of GHGs following its “endangerment finding” in December 2009. The EPA has proposed regulating GHGs under its Clean Air Act Title V permitting and Prevention of Significant Deterioration programs. There is considerable uncertainty whether or when these regulations will be enacted and what the regulations may require. Such rules could lead to longer permitting times and additional costs to reduce GHG emissions.
Increased interest in biomass as a renewable energy source could increase demand for and the cost of wood, our principal raw material. On the other hand, as incentives for biofuels manufacturing increase, there may be opportunities to locate biorefineries at our paper mills to produce biofuels as a coproduct. We are a significant manufacturer of recycled paper. Recycling of paper reduces greenhouse gas emissions from landfills.
There is considerable uncertainty concerning the physical risks that may be presented by climate change. Predictions range widely and can include more weather extremes (floods and drought), increased storm intensity, and rising sea levels. Climate change could also affect forests supplying our wood both positively and negatively. Increased carbon dioxide in the atmosphere and warmer temperatures could increase forest biomass production. Weather patterns and insects might affect forests either favorably or unfavorably. We cannot predict the effect of climate change on our operations with any degree of certainty until the legislative and regulatory landscape takes shape.
Critical Accounting Estimates
Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management’s most difficult, subjective, or complex judgments, often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our board of directors. Our current critical accounting estimates are as follows:
Income Taxes
We account for income taxes and separately recognize deferred tax assets and deferred tax liabilities. Such deferred tax assets and deferred tax liabilities represent the tax effect of temporary differences between financial reporting, and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse. We also recognize only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.
We make judgments and estimates in determining income tax expense for financial statement purposes. These judgments and estimates occur in the calculation of tax credits, benefits, and deductions and in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to uncertain tax positions. Significant changes to these estimates may resultderivative instruments in an increase or decrease in our tax provision in a subsequent period.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions. It is inherently difficult and subjective to estimate uncertain tax positions, because we have to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
For the year endedasset position at December 31, 2009, we increased the amount of our unrecognized tax benefit by $87.6 million, which was charged to income tax expense, as a result of excluding the alternative fuel mixture credits from income for tax purposes. If subsequently recognized, this unrecognized tax benefit would reduce our tax expense by $83.3 million. Exclusion of the alternative fuel mixture credits generates a deferred tax benefit of $82.9 million for the year ended December 31, 2009 (primarily a net operating loss carryforward).
A reconciliation of the unrecognized tax benefits is as follows (dollars, in millions):
| | | | | | |
| | | 2009 | | 2008 |
Unrecognized tax benefits, beginning of year | | $ | 0.3 | | $ | 0.2 |
Gross increases related to prior-period tax positions | | | — | | | — |
Gross decrease related to prior-period tax positions | | | — | | | — |
Gross increases related to current-period tax positions | | | 87.6 | | | — |
Settlements | | | — | | | — |
| | | | | | |
Unrecognized tax benefits, end of year | | $ | 87.8 | | $ | 0.3 |
| | | | | | |
The unrecognized tax benefit net of federal benefit for state taxes is $83.3 million. We have determined that there is a filing position to exclude the alternative fuel mixture credits from taxable income. Accordingly, $82.9 million of the $83.3 million is recorded as a credit to our long-term deferred taxes to eliminate the benefit associated with the uncertain tax position. The remaining $0.4 million is recorded in “Other long-term liabilities” on our Consolidated Balance Sheet. Additional guidance may be issued by the Internal Revenue Service (IRS) in the next 12 months, which could cause us to change our unrecognized tax benefits from the amounts currently recorded. It is not reasonably possible to know to what extent the total amounts of unrecognized benefits will increase or decrease within the next 12 months.
We recognize interest2011.
10. Retirement and
penalties related to uncertain tax positions as income tax expense in our Consolidated Statement of Income (Loss). Interest expense related to our uncertain tax positions was immaterial for both of the years ended December 31, 2009 and 2008, and also for the Predecessor year ended December 31, 2007. We did not record any penalties associated with the uncertain tax positions during the years ended December 31, 2009 and 2008, or during the Predecessor year ended December 31, 2007.Pensions
Benefit Plans
Some of our employees participate in noncontributory defined benefit pension plans, that were either transferred from or spun off from Boise Cascade. contributory defined contribution savings plans, and deferred compensation plans.
Defined Benefit Plans
The salariedmajority of our pension benefit plans are frozen; however, approximately 400 hourly employees continue to accrue benefits under our defined benefit pension plan is available only to employees who were formerly employed by OfficeMax before November 2003. Theplans. When frozen, the pension benefit for salaried employees iswas based primarily on the employees’employees' years of service and highest five-year average compensation. The benefit for hourly employees is generally based on a fixed amount per year of service. The Predecessor treated participants in these plans as participants in multiemployer plans. Accordingly, the Predecessor did not reflect any assets or liabilities related to the noncontributory defined benefit pension plans on its Consolidated Balance Sheet. ThePredecessor did, however, record costs associated with the employees who participated in these plans in its Consolidated Statements of Income (Loss). Expenses attributable to participation in noncontributory defined benefit plans for the years ended
December 31, 20092012, 2011, and 2008,2010, were $11.3 million, $10.9 million, and $9.2 million, respectively.
Defined Contribution Plans
Some of our employees participate in contributory defined contribution savings plans, which cover most of our salaried and hourly employees. Expenses related to matching contributions attributable to participation in contributory defined contribution savings plans for the Predecessor periodyears ended December 31, 2012, 2011, and 2010, were $17.7 million, $14.3 million, and $12.0 million, respectively. The company contributions for eligible salaried employees consist of January 1 through February 21, 2008,a nondiscretionary, nonmatching base contribution, plus a matching contribution. We may also make additional discretionary matching and/or nonmatching contributions each year. The company contribution structure for hourly employees varies according to location and union arrangements.
Deferred Compensation Plans
Some of our employees participate in deferred compensation plans, in which key managers and nonaffiliated directors may irrevocably elect to defer a portion of their base salary and bonus or director's fees until termination of employment or beyond. Participants other than directors may elect to receive their company contributions in the deferred compensation plan in lieu of any company contribution in the defined contribution savings plan. The deferred compensation plans are unfunded; therefore, benefits are paid from our general assets. At December 31, 2012 and 2011, we had $5.9 million and $3.7 million, respectively, of liabilities attributable to participation in our deferred compensation plan on our Consolidated Balance Sheets.
Obligations and Funded Status of Defined Benefit Pension Plans
The funded status of our plans change from year to year based on the plan asset investment return, contributions, benefit payments, and the discount rate used to measure the liability. The following table, which includes only company-sponsored defined benefit plans, reconciles the beginning and ending balances of the projected benefit obligation and the fair value of plan assets. We recognize the unfunded status of our defined benefit pension plans on our Consolidated Balance Sheets, and we recognize changes in funded status in the year ended changes occur through our Consolidated Statements of Comprehensive Income (dollars in thousands): |
| | | | | | | |
| | December 31 |
| | 2012 | | 2011 |
| Projected benefit obligation at beginning of year | $ | 558,416 |
| | $ | 475,044 |
|
| Service cost | 2,732 |
| | 3,969 |
|
| Interest cost | 24,596 |
| | 25,582 |
|
| Actuarial loss (a) | 14,162 |
| | 69,768 |
|
| Closure and curtailment loss | 1,060 |
| | — |
|
| Benefits paid and settlements | (26,965 | ) | | (15,947 | ) |
| Projected benefit obligation at end of year | $ | 574,001 |
| | $ | 558,416 |
|
| | | | |
| Change in fair value of plan assets | | | |
| Fair value of plan assets at beginning of year | $ | 390,082 |
| | $ | 355,901 |
|
| Actual return on plan assets | 60,613 |
| | 24,714 |
|
| Employer contributions | 35,205 |
| | 25,414 |
|
| Benefits paid | (18,551 | ) | | (15,947 | ) |
| Settlements | (8,414 | ) | | — |
|
| Fair value of plan assets at end of year | $ | 458,935 |
| | $ | 390,082 |
|
| | | | |
| Underfunded status | $ | 115,066 |
| | $ | 168,334 |
|
| | | | |
| Amounts recognized on our consolidated balance sheets | | | |
| Current liabilities | $ | 309 |
| | $ | 294 |
|
| Noncurrent liabilities | 114,757 |
| | 168,040 |
|
| Net amount recognized | $ | 115,066 |
| | $ | 168,334 |
|
| | | | |
| Amounts recognized in accumulated other comprehensive income (loss) | | | |
| Actuarial net loss | $ | 109,796 |
| | $ | 139,061 |
|
| Prior service cost | — |
| | 71 |
|
| Net loss recognized | $ | 109,796 |
| | $ | 139,132 |
|
____________
| |
| (a) | The actuarial loss in 2012 is due primarily to a decrease in the weighted average discount rate from 4.50% to 4.25%, compared with a decrease from 5.50% to 4.50% in 2011. |
The accumulated benefit obligation for all defined benefit pension plans was $574.0 million and $558.4 million as of December 31, 2007, were $8.7 million, $8.3 million, $1.8 million,2012 and $13.1 million,2011, respectively.We calculate All of our defined benefit pension expenseplans have accumulated benefit obligations in excess of plan assets.
Components of Net Periodic Benefit Cost and liabilities using actuarial assumptions, including discount rates, expected return on plan assets, expected rateOther Comprehensive (Income) Loss
The components of compensation increases, retirement rates, mortality rates, expected contributions,net periodic benefit cost and other factors. comprehensive (income) loss (pretax) are as follows (dollars in thousands): |
| | | | | | | | | | | |
| | Year Ended December 31 |
| 2012 | | 2011 | | 2010 |
| Service cost | $ | 2,732 |
| | $ | 3,969 |
| | $ | 5,041 |
|
| Interest cost | 24,596 |
| | 25,582 |
| | 25,272 |
|
| Expected return on plan assets | (27,286 | ) | | (24,581 | ) | | (23,242 | ) |
| Amortization of actuarial loss | 10,107 |
| | 5,595 |
| | 1,774 |
|
| Amortization of prior service cost | 5 |
| | 51 |
| | 51 |
|
| Plan settlement curtailment loss | 1,125 |
| | 300 |
| | 345 |
|
| Net periodic benefit cost | $ | 11,279 |
| | $ | 10,916 |
| | $ | 9,241 |
|
| | | | | | |
| Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss | | | | | |
| Actuarial net (gain) loss | $ | (19,158 | ) | | $ | 69,635 |
| | $ | 14,461 |
|
| Prior service credit | (66 | ) | | (300 | ) | | — |
|
| Amortization of actuarial loss | (10,107 | ) | | (5,595 | ) | | (1,774 | ) |
| Amortization of prior service cost | (5 | ) | | (51 | ) | | (51 | ) |
| Total recognized in other comprehensive (income) loss | (29,336 | ) | | 63,689 |
| | 12,636 |
|
| Total recognized in net periodic benefit cost and other comprehensive (income) loss | $ | (18,057 | ) | | $ | 74,605 |
| | $ | 21,877 |
|
We basedestimate net periodic benefit cost to be recognized in 2013 will be$5.4 million.
Assumptions
The following table presents the assumptions used in this analysis to calculate pension expense on the measurement of our benefits obligation: |
| | | | | |
| | December 31 |
| | 2012 | | 2011 |
| Weighted average: | | | |
| Discount rate | 4.25 | % | | 4.50 | % |
| Rate of compensation increase | — | % | | — | % |
The following factors:table presents the assumptions used in the measurement of net periodic benefit cost:
|
| | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Weighted average assumptions as of the last day in the presented period: | | | | | |
| Discount rate | 4.50 | % | | 5.50 | % | | 6.10 | % |
| Expected long-term rate of return on plan assets | 7.00 | % | | 7.25 | % | | 7.25 | % |
| Rate of compensation increase | — | % | | — | % | | — | % |
Discount Rate Assumption.Assumption. The discount rate reflects the current rate at which the pension obligations could be settled on the measurement date: December 31. At December 31, 2012, the discount rate assumption used to calculate the benefit obligation was determined using a hypothetical bond portfolio of AA-graded or better corporate bonds. At December 31, 2011, and for the periods ended December 31, 2012, 2011, and 2010, the discount rate assumption used to calculate the benefit obligation and the net periodic benefit cost was determined using a spot rate yield curve constructed to replicate Aa-graded corporate bonds. The Aa-gradedIn all periods, the bonds included in the yield curvemodels reflect anticipated investments that would be made to match the expected monthly benefit payments over time and do not include all Aa-graded corporate bonds.time. The plan’splan's projected cash flows were duration-matched to this yield curvethese models to develop an appropriate discount rate. The discount rate we will use in our calculation of 2013 net periodic benefit cost is 4.25%.
Asset Return Assumption. The expected long-term rate of return on plan assets was based on a weighted average of the expected returns for the major investment asset classes.classes in which we invest, considering the effects of active portfolio management and expenses paid from plan assets. Expected returns for the asset classes are based on long-term historical returns, inflation expectations, forecasted gross domestic product, earnings growth, and other economic factors. The weights assigned to each asset class were based on the investment strategy. The weighted average expected return on plan assets we will use in our calculation of 20102013 net periodic benefit cost is 7.25%6.75%. In 2009,2012, plan assets performed well abovebetter than the long-term return assumption.assumption due to improved equity and debt market conditions.
Rate of Compensation Increases. Salaried Pension benefits for all salaried employees and most hourly employees are frozen. There are currently no scheduled increases in pension benefits are frozen, so thebenefit rates for hourly employees in plans that have not been frozen. The compensation increase assumption is not applicable. Negotiated compensation increasesapplicable for all plans.
Investment Policies and Strategies
At December 31, 2012, 24% of our pension plan assets were invested in U.S. equity securities, 27% were invested in international equity securities, 27% were invested in long-duration fixed-income securities, 20% were invested in intermediate-duration fixed-income securities, and 2% were invested in private equity, cash, and other. The general investment objective for all of our plan assets is to optimize growth of the pension plan trust assets, while minimizing the risk of significant losses to enable the plans to satisfy their benefit payment obligations over time. The objectives take into account the long-term nature of the benefit obligations, the liquidity needs of the plans, and the expected risk/return trade-offs of the asset classes in which the plans may choose to invest. Our Retirement Funds Investment Committee is responsible for establishing and overseeing the implementation of our investment policy. Russell Investments (Russell) oversees the active management of our pension investments to achieve broad diversification in a cost-effective manner. At December 31, 2012, our investment policy governing our relationship with Russell allocated 28% to long-duration fixed-income securities, 20% to intermediate-duration fixed-income securities, 24% to U.S. equity securities, and 28% to international equity securities. Our arrangement with Russell allows monthly rebalancing to the policy targets noted above.
Investment securities, in general, are reflectedexposed to various risks, such as interest rate, credit, and overall market volatility risk, all of which are subject to change. Due to the level of risk associated with some investment securities, it is reasonably possible that changes in the projectedvalues of investment securities will occur in the near term, and such changes could materially affect the reported amounts.
Fair Value Measurements of Plan Assets
The defined benefit obligationplans hold an interest in the Boise Paper Holdings, L.L.C., Master Pension Trust (Master Trust). The assets in the Master Trust are invested in a common and collective trust whose funds are invested in U.S. equities, international equities, and fixed-income securities managed by Russell Trust Company. The Master Trust also invests in private equity securities managed by Pantheon Ventures Inc.
The following tables set forth, by level within the fair value hierarchy, discussed in Note 2, Summary of Significant Accounting Policies, the pension plan assets, by major asset category, at fair value at December 31, 2012 and 2011 (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| | December 31, 2012 |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) (a) | | Significant Unobservable Inputs (Level 3) | | Total |
| Cash equivalents | $ | — |
| | $ | 225 |
| | $ | — |
| | $ | 225 |
|
| Equity securities: | | | | | | | |
| Large-cap U.S. equity securities (b) | — |
| | 90,024 |
| | — |
| | 90,024 |
|
| Small- and mid-cap U.S. equity securities (c) | — |
| | 17,998 |
| | — |
| | 17,998 |
|
| International equity securities (d) | — |
| | 126,010 |
| | — |
| | 126,010 |
|
| Fixed-income securities (e) | — |
| | 217,456 |
| | — |
| | 217,456 |
|
| Private equity securities (f) | — |
| | — |
| | 6,346 |
| | 6,346 |
|
| Total securities at fair value | — |
| | 451,713 |
| | 6,346 |
| | 458,059 |
|
| Receivables and accrued expenses | | | | | | | 876 |
|
| Total fair value of plan assets | | | | | | | $ | 458,935 |
|
|
| | | | | | | | | | | | | | | |
| | December 31, 2011 |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) (a) | | Significant Unobservable Inputs (Level 3) | | Total |
| Equity securities: | | | | | | | |
| Large-cap U.S. equity securities (b) | $ | — |
| | $ | 112,609 |
| | $ | — |
| | $ | 112,609 |
|
| Small- and mid-cap U.S. equity securities (c) | — |
| | 19,426 |
| | — |
| | 19,426 |
|
| International equity securities (d) | — |
| | 65,265 |
| | — |
| | 65,265 |
|
| Fixed-income securities (e) | — |
| | 188,287 |
| | — |
| | 188,287 |
|
| Private equity securities (f) | — |
| | — |
| | 3,531 |
| | 3,531 |
|
| Total securities at fair value | — |
| | 385,587 |
| | 3,531 |
| | 389,118 |
|
| Receivables and accrued expenses | | | | | | | 964 |
|
| Total fair value of plan assets | | | | | | | $ | 390,082 |
|
____________
| |
| (a) | Investments are mutual funds managed by Russell Trust Company. The funds are valued at the net asset value (NAV) provided by Russell Trust Company, the administrator of the funds. We use NAV as a practical expedient for fair value. The NAV is based on the value of the assets owned by the fund, less liabilities at year-end. While the underlying assets are actively traded on an exchange, the funds are not. We have the ability to redeem these funds with a one-day notice, except as disclosed below in note (e). |
| |
| (b) | Our investments in this category are invested in the Russell Equity I Fund. The fund seeks higher long-term returns that exceed the Russell 1000 Index by investing in large-capitalization stock in the U.S. stock market. |
| |
| (c) | Our investments in this category are invested in the Russell Equity II Fund. The fund seeks high, long-term returns that exceed the Russell 2500 Index by investing in mid- and small-capitalization stocks of the U.S. stock market. |
| |
| (d) | At December 31, 2012 and 2011, our investments in this category included the Russell International Fund with Active Currency. The fund benchmarks against the Russell Developed ex-U.S. Large Cap Index Net and seeks favorable total returns and additional diversification through investment in non-U.S. equity securities and active currency management. The fund participates primarily in the stock markets of Europe and the Pacific Rim and seeks to opportunistically add value through active investment in foreign currencies. In addition, at December 31, 2012, our investments in this category included the Russell World Equity and the Russell Emerging Markets Funds. The Russell World Equity Fund benchmarks against the Russell Developed Large Cap Index and seeks higher returns through access to the large-cap segment of both U.S. and international developed equities. The Russell Emerging Markets Fund benchmarks against the Russell Emerging Markets Index and is designed to maintain a broadly diversified exposure to emerging market countries. |
| |
| (e) | In 2012, the Russell Long Credit Fixed income Fund (Long Credit Fund) was converted to a fund of funds structure and offers six Liability Driven Investment (LDI) fixed-income funds with horizons ranging from six to 16 years. Our investments at December 31, 2012, included the six LDI funds, which are designed to reduce defined benefit plan funded status volatility by more closely matching the interest rate sensitivity of plan liabilities. At December 31, 2012 and 2011, our investments in this category included the Russell Long Duration Fixed Income Fund (Long Duration Fund), which seeks to achieve above-average consistency in performance relative to the Barclays Capital U.S. Long Government/Credit Bond Index by combining manager styles and strategies with different payoffs over various phases of an investment cycle. At December 31, 2011, our investments included the Long Credit Fund, which seeks to achieve above-average consistency in performance relative to the Barclays Capital Long Credit Index and is used with other bond funds, such as the Long Duration Fund, to gain additional credit exposure to asset portfolios. Funds in this category are designed to provide maximum total return through diversified strategies, including sector rotation, modest interest rate timing, security selection, and tactical use of high-yield and emerging markets bonds. Investments in this category may be redeemed monthly with four days' notice. |
| |
| (f) | Our investments in this category are invested in the Pantheon Global Secondary Fund IV, LP. The fund specializes in investments in the private equity secondary market and occasionally directly in private companies to maximize capital growth. Fund investments are carried at fair value as determined quarterly using the market approach to estimate the fair value of private investments. The market approach utilizes prices and other relevant information generated by market transactions, type of security, size of the position, degree of liquidity, restrictions on the disposition, latest round of financing data, current financial position, and operating results, among other factors. In circumstances where fair values are not provided with respect to any of the company's fund investments, the investment advisor will seek to determine the fair value of such investments based on information provided by the general partners or managers of such funds or from other sources. Notwithstanding the above, the variety of valuation bases adopted and quality of management data of the ultimate underlying investee companies means that there are inherent difficulties in determining the value of the investments. Amounts realized on the sale of these investments may differ from the calculated values. |
The following table sets forth a summary of changes in the fair value of the pension plans' Level 3 assets for certain hourly employeesthe years ended December 31, 2012 and 2011 (dollars in thousands):
|
| | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 |
| Balance, beginning of year | $ | 3,531 |
| | $ | 2,225 |
|
| Purchases | 2,400 |
| | 720 |
|
| Sales | (375 | ) | | — |
|
| Unrealized gain | 790 |
| | 586 |
|
| Balance, end of year | $ | 6,346 |
| | $ | 3,531 |
|
Funding and Cash Flows
We fund our pension plans with salary-related benefits. Historically, this assumption reflected long-term actual experience, the near-term outlook, and assumed inflation.Retirement and Mortality Rates. These rates were developedamounts sufficient to reflect actual and projected plan experience.
Expected Contributions. Plan obligations and expenses are based on existing retirement plan provisions. No assumption is made for future changesmeet legal funding requirements, plus any additional amounts we may determine to benefit provisions beyond those to which we are presently committed, for example, changes we might commit to in future labor contracts. We estimate that we would be required to contribute approximately $2 million in 2010 and approximately $22 million in 2011.
We recognizeappropriate considering the funded status of our pensionthe plans, tax deductibility, cash flow from operations, and other postretirement benefitfactors. In 2012, we contributed $35.2 million to our plans, onwhich exceeded our Consolidated Balance Sheet2012 minimum pension contribution requirements. We have no required minimum contribution in 2013 and recognizewe will contribute at least the actuarial and experience gains and losses and the prior service costs and credits as a component of “Accumulated other comprehensive income (loss)” in our Consolidated Statement of Stockholders’ Equity. Actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. While we believe that the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.
A change of 0.25% in either direction to the discount rate, the expected rate of return on plan assets, or the rate of compensation increases would have had the following effect on 2009 and 2010 pension expense (dollars, in millions). These sensitivities are specific to 2009 and 2010. The sensitivities may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.
| | | | | | | | | | |
| | | | | Increase (Decrease)
in Pension Expense |
| | | Base
Expense | | 0.25%
Increase | | | 0.25%
Decrease |
2009 Expense | | | | | | | | | | |
Discount rate | | $ | 8.7 | | $ | (0.4 | ) | | $ | 0.7 |
Expected rate of return on plan assets | | | 8.7 | | | (0.8 | ) | | | 0.8 |
| | | |
2010 Expense | | | | | | | | | | |
Discount rate | | $ | 10.2 | | $ | (0.7 | ) | | $ | 0.7 |
Expected rate of return on plan assets | | | 10.2 | | | (0.8 | ) | | | 0.8 |
We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from period to period. As discussed above, the future effects of pension plans on our financial position and results of operations will depend on economic conditions, employee demographics, mortality rates, retirement rates, investment performance, and funding decisions, among other factors. The following table presents selected assumptions used and expectedrequired minimum currently estimated to be usedapproximately $3 million in the measurement of pension expense in the following periods (dollars, in millions):
| | | | | | | | | | | | |
| | | Year Ending
December 31,
2010 | | | Boise Inc. | |
| | | Year Ended December 31 | |
| | | | 2009 | | | 2008 | |
| | | |
Pension expense | | $ | 10.2 | | | $ | 8.7 | | | $ | 8.3 | |
Discount rate | | | 6.10 | % | | | 6.20 | % | | | 6.50 | % |
Expected rate of return on plan assets | | | 7.25 | % | | | 7.25 | % | | | 7.25 | % |
Rate of compensation increases | | | — | % | | | — | % | | | 4.25 | % |
Changes in our actual asset returns affect the amount of expense we recognize in future years. However, under pension accounting rules, this impact is recognized over time. In addition, we are2014. The required to adjust our equity in “Accumulated other comprehensive income (loss)” in our Consolidated Statement of Stockholders’ Equity to record minimum pension liabilities under accounting rules. In 2009, we recorded an approximately $22 million pretax increase in equity. The amount of expense and minimum pension liability we recognizecontribution depends on, among other things, actual returns on plan assets, changes in interest rates which affect our discount rate assumptions, and modifications to our plans.
Pension funding requirements depend in part on returns on plan assets. As of December 31, 2009, our pension assets had a market value of $302 million, compared with $248 million at December 31, 2008. The amount of required contributions will depend, among other things, on actual returns on plan assets, changes in our plan asset return assumptions, 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 impacteffect of these and other factors. Changes in the financial marketsWe may require usalso elect to make larger than previously anticipatedadditional voluntary contributions to our pension plans.
Long-Lived Asset Impairment
An impairment of a long-lived asset exists whenin any year, which could reduce the carrying value of an asset exceeds its fair value and when the carrying value is not recoverable through future undiscounted cash flows from operations. We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.
Long-lived asset impairment is a critical accounting estimate,required contributions in future years.
The following benefit payments reflect expected future service, as it is susceptible to change from period to period. To estimate whether the carrying value of an asset or asset group is impaired, we estimate the undiscounted cash flows that could be generated under a range of possible outcomes. To measure future cash flows, weappropriate, and are required to make assumptions about future production volumes, future product pricing, and future expensesexpected to be incurred. In addition, estimatespaid to plan participants (dollars in thousands). Qualified pension benefit payments are paid from plan assets, while nonqualified pension benefit payments are paid by the Company.
|
| | | |
| | Pension Benefits |
| 2013 | $ | 21,787 |
|
| 2014 | 24,145 |
|
| 2015 | 26,204 |
|
| 2016 | 28,046 |
|
| 2017 | 29,998 |
|
| Years 2018-2022 | 172,273 |
|
11. Share-Based Compensation
Our shareholders have approved the Boise Inc. Incentive and Performance Plan (the Plan), which authorizes awards of
future cash flows may change based onshare-based compensation, such as restricted stock, restricted stock units, performance units payable in stock, and stock options. These awards are at the
availabilitydiscretion of
logs and fiber, environmental requirements, capital spending, and other strategic management decisions. We estimate the
fair value of an asset or asset group based on quoted market prices (the amount for which the asset(s) could be bought or sold in a current transaction with a third party) when available. When quoted market prices are not available, we use a discounted cash flow model to estimate fair value. We acquired allCompensation Committee of our
long-lived assets in February 2008 as partboard of
the Acquisition. As a result, most of our long-lived assets are valued at relatively current amounts.We believe we have adequate support for the carrying value of all of our assets based on anticipated cash flows that will result from our estimates of future demand, pricing,directors, and production costs, assuming certain levels of capital expenditures. However, if the markets for our products deteriorate significantly or if we decide to invest capital differentlythey vest and if other cash flow assumptions change, it is possible that we will be required to record noncash impairment charges that could have a material affect on our results of operations. Due to the numerous variables associated with our judgments and assumptions relating to the valuation of assets and the effects of changes on these valuations, both the precision and reliability of our estimates are subject to uncertainty. As additional information becomes known, we may change our estimates.
We performed our annual impairment assessment for our indefinite-lived intangible assets for all of our segments during fourth quarter 2009. Based on the results of our testing, we have concluded that our indefinite-lived intangible assets were not impaired. We have also performed an undiscounted cash flow analysis as of fourth quarter 2009 and determined that the value of our long-lived assets was not impaired. We also evaluated the remaining useful lives of our customer relationships and technology and determined that no adjustments to the useful lives were necessary.
Acquisitions — Purchase Price Allocation
As part of the Acquisition, we assigned to all identifiable assets acquired (including intangible assets), and to all identifiable liabilities assumed, a portion of the cost of the acquired company equal to the estimated fair value of such assets and liabilities at the date of the acquisition. Based on the values assigned to all of the assets and liabilities in the purchase price allocation, no goodwill was recorded in the Acquisition valuation.
The Acquisition purchase price allocation required management’s estimates of such things as the new replacement value of property and equipment, obsolescence factors, royalty rates, future sales prices, input costs, and capital spending to estimate future cash flows, discount rates, and the cost of acquiring customers, among others. These estimates affect, in turn, the amount and timing of the recognition of depreciation and amortization expense, cost of goods sold, income and other tax expense, the carrying amounts of inventory, long-lived and intangible assets, and liabilities assumed. We engaged valuation experts to assist us with this purchase price allocation. The following discussion describes the purchase price allocation.
The comparative sales method was used in valuing the finished goods inventory. We used estimates of expected sales prices for the inventory items. Disposal costs already incurred by the Predecessor were derived from the accounting records of the Predecessor. Costs to be incurred by us were based on our forecasted selling expenses, distribution expenses, and general and administrative expenses. Costs yet to be incurred were subtracted from the estimated sales proceeds. Pretax profit was calculated based on our expected margins. The total pretax profit to be generated from the inventory was then allocated to the Predecessor based on costs already incurred by them and estimated costs to be incurred by us. Holding costs were estimated based on a pretax working capital rate and expected inventory turnover.
Raw materials, including logs and supplies, were assumed to have a fair value equal to the net book value of the Predecessor, unless they were identified for disposal in other than the normal manufacturing process. The net book value was judged to approximate current replacement cost. Items to be disposed of in other than the normal manufacturing process were valued at their estimated net disposal value. Work-in-process inventory was not significant and was assumed to have fair value equal to its net book value.
The value of property and equipment reflects assumptions that would be made by market participants if they were to buy or sell each identified asset on an individual basis. They were valued at their highest and best use, which was assumed to be for their continued current uses. The sales comparison approach was used to value acquired land. Under this approach, land sales in each of the Company’s geographic areas were obtained and compared to the acquired property, focusing most heavily on recent sales of similar size, location, and zonings. The fair value of buildings and improvements and machinery and equipment was estimated using the cost approach. Under this method, the cost to replace the asset was estimated assuming the cost of constructing or buying a similar asset of equivalent utility at current price. This current replacement cost was reduced for estimated depreciation of the asset, including physical deterioration, functional obsolescence, and economic obsolescence.
We assigned value to various intangible assets. We concluded that the trademark and trade name had value. To determine that value, a relief from royalty method was used. This method assumes that through ownership of the trademark and trade name, the acquirer avoids the royalty expense associated with licensing, resulting in cost savings. The primary variable in this method is the selection of an appropriate royalty rate. This royalty rate can then be used in a discounted cash flow analysis to determine the values of the intangible assets. Royalty rates are usually determined as a percentage of net sales. Because many of the products manufactured by the paper industry are commodities, we concluded that name recognition is less important to customers than other factors such as price. As a result, a minimal royalty rate was used in the valuation.
If an entity establishes relationships with its customers through contracts such as purchase orders, those customer contracts and the related customer relationships are intangible assets that must be valued in a purchase price allocation. Because customers in our industry are more price-driven than relationship-driven, the customer relationships were valued utilizing a cost approach, which looks at the cost to replace the existing customer relationships. Using historical cost data for sales and distribution employees, we calculated employee costs, to which we added additional estimated costs such as travel and entertainment, promotional, information technology, telecommunication, and training. The sum of these costs, adjusted for economic obsolescence, represented our estimate of the fair value of the customer-related intangible assets.
We determined that technology-based intangible assets existed in the acquired business. These assets relate to innovations or technological advances. In estimating the fair value of this technology, the relief from royalty method was employed. Again, this method is based on the assumption that in lieu of ownership, an entity would be willing to pay a royalty in order to exploit the related benefits of technology assets. We identified various specific technologies that should be valued, and then,
based on estimated product margins for the associated products and industry data, a royalty rate for each technology was established. These rates were used in a discounted cash flow analysis to determine the values of the technology-based intangible assets.
We also considered the valuation of other intangible assets such as favorable contracts, including leases, order backlogs, and internally developed software, and concluded that the values to be assigned to these assets, if any, were minimal.
Liabilities were recorded at the historical book value of the Predecessor in most instances. We did establish liabilities for the obligations for the defined benefit plans assumed in the transactions. These obligations were not previously recorded by the Predecessor. For further information, see “Pensions” in this discussion of Critical Accounting Estimates. We also recorded deferred tax liabilities to recognize the book and tax basis differences of assets and liabilities recorded in the purchase price allocation.
New and Recently Adopted Accounting Standards
For a listing of our new and recently adopted accounting standards, see Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in this Form 10-K.
Non-GAAP Financial Measures
EBITDA represents income (loss) before interest (interest expense, interest income, and change in fair value of interest rate derivatives), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of companies with substantial financial leverage. We believe EBITDA is a meaningful measure because it presents a transparent view of our recurring operating performance and allows management to readily view operating trends, perform analytical comparisons, and identify strategies to improve operating performance. For example, we believe that the inclusion of items such as taxes, interest expense, and interest income distorts 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 derivedexpire 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, change in fair value of interest rate derivatives, 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.
For a reconciliation of net income (loss) to EBITDA, see “Part II, Item 6. Selected Financial Data” of this Form 10-K. The following is a reconciliation of historical income (loss) from operations to EBITDA and the effects of items included in EBITDA for the years ended December 31, 2009 and 2008, the period of February 1 (Inception) through December 31, 2007, the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007 (dollars, in millions):
| | | | | | | | | | | | | | |
| | | Boise Inc. | |
| | | Year Ended December 31, 2009 | |
| | | Paper | | Packaging | | Corporate
and Other | | | Total | |
| | | | |
Income (loss) from operations | | $ | 262.7 | | $ | 67.1 | | $ | (24.1 | ) | | $ | 305.7 | |
Foreign exchange gain (loss) | | | — | | | — | | | 2.6 | | | | 2.6 | |
| | | | | | | | | | | | | | |
Segment income (loss) | | | 262.7 | | | 67.1 | | | (21.5 | ) | | | 308.3 | |
Loss on extinguishment of debt | | | — | | | — | | | (44.1 | ) | | | (44.1 | ) |
Depreciation, amortization, and depletion | | | 85.2 | | | 42.2 | | | 4.1 | | | | 131.5 | |
| | | | | | | | | | | | | | |
EBITDA | | $ | 347.8 | | $ | 109.3 | | $ | (61.5 | ) | | $ | 395.7 | |
| | | | | | | | | | | | | | |
The following table reconciles EBITDA to EBITDA excluding special items for the year ended December 31, 2009 (dollars, in millions):
| | | | | | | | | | | | | | | | |
| | | Boise Inc. | |
| | | Year Ended December 31, 2009 | |
| | | Paper | | | Packaging | | | Corporate
and Other | | | Total | |
| | | | |
EBITDA | | $ | 347.8 | | | $ | 109.3 | | | $ | (61.5 | ) | | $ | 395.7 | |
St. Helens mill restructuring (a) | | | 5.8 | | | | — | | | | — | | | | 5.8 | |
Impact of energy derivatives (b) | | | (4.8 | ) | | | (1.1 | ) | | | — | | | | (5.9 | ) |
Alternative fuel mixture credits (c) | | | (149.9 | ) | | | (61.6 | ) | | | 3.9 | | | | (207.6 | ) |
Loss on extinguishment of debt (d) | | | — | | | | — | | | | 44.1 | | | | 44.1 | |
| | | | | | | | | | | | | | | | |
EBITDA excluding special items | | $ | 199.0 | | | $ | 46.6 | | | $ | (13.5 | ) | | $ | 232.1 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | |
| | | Year Ended
December 31, 2008 | | | February 1 (Inception) Through
December 31, 2007 | |
| | | Paper | | Packaging | | Corporate
and Other | | | Total | | | Paper | | Packaging | | Corporate
and Other | | | Total | |
| | | | | | | | |
Income (loss) from operations | | $ | 32.7 | | $ | 21.1 | | $ | (13.9 | ) | | $ | 39.9 | | | $ | — | | $ | — | | $ | (0.3 | ) | | $ | (0.3 | ) |
Foreign exchange gain (loss) | | | — | | | — | | | (4.7 | ) | | | (4.7 | ) | | | — | | | — | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment income (loss) | | | 32.7 | | | 21.1 | | | (18.6 | ) | | | 35.2 | | | | — | | | — | | | (0.3 | ) | | | (0.3 | ) |
Depreciation, amortization, and depletion | | | 71.7 | | | 35.1 | | | 3.2 | | | | 110.0 | | | | — | | | — | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
EBITDA | | $ | 104.3 | | $ | 56.2 | | $ | (15.4 | ) | | $ | 145.1 | | | $ | — | | $ | — | | $ | (0.3 | ) | | $ | (0.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table reconciles EBITDA to EBITDA excluding special items for the year ended December 31, 2008, and the period of February 1 (Inception) through December 31, 2007 (dollars, in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | |
| | | Year Ended
December 31, 2008 | | | February 1 (Inception) Through
December 31, 2007 | |
| | | Paper | | Packaging | | Corporate
and Other | | | Total | | | Paper | | Packaging | | Corporate
and Other | | | Total | |
| | | | | | | | |
EBITDA | | $ | 104.3 | | $ | 56.2 | | $ | (15.4 | ) | | $ | 145.1 | | | $ | — | | $ | — | | $ | (0.3 | ) | | $ | (0.3 | ) |
St. Helens mill restructuring (a) | | | 37.6 | | | — | | | — | | | | 37.6 | | | | — | | | — | | | — | | | | — | |
Impact of energy derivatives (b) | | | 6.1 | | | 1.3 | | | — | | | | 7.4 | | | | — | | | — | | | — | | | | — | |
Gain on changes in supplemental pension plans | | | — | | | — | | | (2.9 | ) | | | (2.9 | ) | | | — | | | — | | | — | | | | — | |
Inventory purchase accounting expense | | | 7.4 | | | 2.8 | | | — | | | | 10.2 | | | | — | | | — | | | — | | | | — | |
Hurricane losses | | | — | | | 5.5 | | | — | | | | 5.5 | | | | — | | | — | | | — | | | | — | |
Impact of DeRidder outage | | | — | | | 19.8 | | | — | | | | 19.8 | | | | — | | | — | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
EBITDA excluding special items | | $ | 155.4 | | $ | 85.6 | | $ | (18.3 | ) | | $ | 222.8 | | | $ | — | | $ | — | | $ | (0.3 | ) | | $ | (0.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor |
| | | January 1 Through
February 21, 2008 | | Year Ended
December 31, 2007 |
| | | Paper | | Packaging | | Corporate
and Other | | | Total | | Paper | | Packaging | | Corporate
and Other | | | Total |
| | | | | | | | |
Income (loss) from operations | | $ | 20.7 | | $ | 5.7 | | $ | (3.3 | ) | | $ | 23.1 | | $ | 132.3 | | $ | 40.1 | | $ | (11.9 | ) | | $ | 160.5 |
Foreign exchange gain (loss) | | | — | | | — | | | 0.1 | | | | 0.1 | | | 1.2 | | | — | | | — | | | | 1.2 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment income (loss) | | | 20.7 | | | 5.7 | | | (3.2 | ) | | | 23.2 | | | 133.5 | | | 40.1 | | | (11.9 | ) | | | 161.7 |
Depreciation, amortization, and depletion (e) | | | 0.3 | | | 0.1 | | | 0.1 | | | | 0.5 | | | 45.0 | | | 37.7 | | | 1.9 | | | | 84.6 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
EBITDA | | $ | 21.1 | | $ | 5.7 | | $ | (3.1 | ) | | $ | 23.7 | | $ | 178.5 | | $ | 77.8 | | $ | (10.0 | ) | | $ | 246.3 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
The following table reconciles EBITDA to EBITDA excluding special items for the period of January 1 through February 21, 2008, and for the year ended December 31, 2007 (dollars, in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | |
| | | January 1 Through
February 21, 2008 | | Year Ended
December 31, 2007 | |
| | | Paper | | Packaging | | Corporate
and Other | | | Total | | Paper | | Packaging | | Corporate
and Other | | | Total | |
| | | | | | | | |
EBITDA | | $ | 21.1 | | $ | 5.7 | | $ | (3.1 | ) | | $ | 23.7 | | $ | 178.5 | | $ | 77.8 | | $ | (10.0 | ) | | $ | 246.3 | |
Gain on changes in retiree healthcare programs | | | — | | | — | | | — | | | | — | | | — | | | — | | | (4.4 | ) | | | (4.4 | ) |
Impact of energy derivatives (f) | | | — | | | — | | | — | | | | — | | | 7.3 | | | 1.4 | | | — | | | | 8.7 | |
Wallula start-up | | | — | | | — | | | — | | | | — | | | 4.0 | | | — | | | — | | | | 4.0 | |
Impact of DeRidder outage | | | — | | | 0.7 | | | — | | | | 0.7 | | | — | | | — | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
EBITDA excluding special items | | $ | 21.1 | | $ | 6.4 | | $ | (3.1 | ) | | $ | 24.4 | | $ | 189.8 | | $ | 79.2 | | $ | (14.4 | ) | | $ | 254.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | In November 2008, we announced the restructuring of our St. Helens, Oregon, paper mill. In 2009, we recorded $5.8 million of restructuring charges in “St. Helens mill restructuring” in our Consolidated Statements of Income (Loss). During 2008, we recorded total restructuring-related charges of $37.6 million, of which $29.8 million is included in “St. Helens mill restructuring” and $7.8 million related to inventory write-downs is included in “Materials, labor, and other operating expenses.” |
(b) | We have elected to account for these energy derivatives as economic hedges and record changes in fair value of the instruments in “Materials, labor, and other operating expenses” in our Consolidated Statements of Income (Loss). These instruments consist of natural gas swaps, options, or a combination of these instruments and are entered into for the purpose of hedging the variable cash flow risk of natural gas purchases at index. |
(c) | During the year ended December 31, 2009, we recorded $149.9 million of income in the Paper segment, $61.6 million of income in the Packaging segment, and $3.9 million of expenses in the Corporate and Other segment. We recorded these amounts in “Alternative fuel mixture credits, net” in our Consolidated Statement of Income (Loss). |
(d) | In October 2009, two of our wholly owned indirect subsidiaries issued a $300 million aggregate principal amount of 9% senior notes due on November 1, 2017 (the 9% Senior Notes). The issuance of the 9% Senior Notes and the repurchase of our second lien term loan represented a substantial modification to our debt structure. Therefore, we wrote off the unamortized deferred financing fees for the second lien and have recognized various other costs and fees incurred in connection with these transactions. For the year ended December 31, 2009, we recorded $44.1 million in “Loss on extinguishment of debt” in our Consolidated Statement of Income (Loss). |
(e) | The year ended December 31, 2007, included approximately $21.7 million, $19.1 million, and $1.0 million of lower depreciation and amortization expense in our Paper, Packaging, and Corporate and Other segments as a result of discontinuing depreciation and amortization on the assets recorded as held for sale. |
(f) | At this time, we elected to account for these energy derivatives as cash flow hedges and record changes in fair value of these instruments in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheets and reclassify amounts realized during the period in “Materials, labor, and other operating expenses” in our Consolidated Statements of Income (Loss) as natural gas is consumed. These instruments consist of natural gas swaps and are entered into for the purpose of hedging the variable cash flow risk of natural gas purchases at index. |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
In addition to the sensitivity analysis provided below, information concerning quantitative and qualitative disclosures about market risk can be found under the caption “Disclosures of Financial Market Risks” in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K.
Our operations can be affected by the following sensitivities (dollars, in millions). These sensitivities are based on our 2009 operations and have been adjusted to reflect the restructuring of our St. Helens mill and the indefinite idling of the #2 newsprint machine (D-2) at our mill in DeRidder:
| | | |
Sensitivity Analysis | | Estimated
Annual Impact on
Income
Before Taxes |
| |
| |
Each $10/short ton change in the selling price of the following products
(except for corrugated containers and sheets): | | | |
| |
| Paper | | | |
Uncoated freesheet | | $ | 13 |
| |
| Packaging | | | |
Containerboard (linerboard) | | | 3 |
Newsprint | | | 2 |
Corrugated containers and sheets ($1.00/msf change in price) | | | 6 |
| |
| Interest rate (1% change in interest rate on our variable-rate debt before hedging) | | | 5 |
| |
Energy (a) | | | |
Natural gas ($1.00/mmBtu change in price before hedging) | | | 12 |
Diesel ($0.50/gallon change in price before hedging) | | | 10 |
| |
Fiber (1% change in cost of fiber) | | | 4 |
| |
Chemicals (1% change in cost of chemicals) | | | 2 |
(a) | Based on 2009 consumption levels. The allocation between energy sources may vary during the year in order to take advantage of market conditions. The diesel sensitivity does not take into account any floors that may exist in rail or truck fuel surcharge formulas. |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Boise Inc.
Consolidated Statements of Income (Loss)
(dollars, in thousands, except share and per-share data)
| | | | | | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | | | Predecessor | |
| | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | February 1
(Inception)
Through
December 31,
2007 | | | | | January 1
Through
February 21,
2008 | | | Year
Ended
December 31,
2007 | |
Sales | | | | | | | | | | | | | | | | | | | | | | |
Trade | | $ | 1,935,410 | | | $ | 1,990,207 | | | $ | — | | | | | $ | 258,430 | | | $ | 1,636,605 | |
Related parties | | | 42,782 | | | | 80,425 | | | | — | | | | | | 101,490 | | | | 695,998 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 1,978,192 | | | | 2,070,632 | | | | — | | | | | | 359,920 | | | | 2,332,603 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | | | | | | | |
Materials, labor, and other operating expenses | | | 1,596,214 | | | | 1,756,826 | | | | — | | | | | | 313,931 | | | | 1,948,230 | |
Fiber costs from related parties | | | 36,858 | | | | 54,628 | | | | — | | | | | | 7,662 | | | | 39,352 | |
Depreciation, amortization, and depletion | | | 131,500 | | | | 109,988 | | | | — | | | | | | 477 | | | | 84,649 | |
Selling and distribution expenses | | | 55,524 | | | | 48,278 | | | | — | | | | | | 9,097 | | | | 59,488 | |
General and administrative expenses | | | 50,250 | | | | 34,258 | | | | 334 | | | | | | 6,606 | | | | 44,549 | |
St. Helens mill restructuring | | | 5,805 | | | | 29,780 | | | | — | | | | | | — | | | | — | |
Alternative fuel mixture credits, net | | | (207,607 | ) | | | — | | | | — | | | | | | — | | | | — | |
Other (income) expense, net | | | 4,005 | | | | (2,980 | ) | | | — | | | | | | (989 | ) | | | (4,142 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 1,672,549 | | | | 2,030,778 | | | | 334 | | | | | | 336,784 | | | | 2,172,126 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Income (loss) from operations | | | 305,643 | | | | 39,854 | | | | (334 | ) | | | | | 23,136 | | | | 160,477 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Foreign exchange gain (loss) | | | 2,639 | | | | (4,696 | ) | | | — | | | | | | 54 | | | | 1,184 | |
Change in fair value of interest rate derivatives | | | 568 | | | | (479 | ) | | | — | | | | | | — | | | | — | |
Loss on extinguishment of debt | | | (44,102 | ) | | | — | | | | — | | | | | | — | | | | — | |
Interest expense | | | (83,263 | ) | | | (91,220 | ) | | | (6 | ) | | | | | (2 | ) | | | — | |
Interest income | | | 367 | | | | 2,246 | | | | 10,422 | | | | | | 161 | | | | 697 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | (123,791 | ) | | | (94,149 | ) | | | 10,416 | | | | | | 213 | | | | 1,881 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Income (loss) before income taxes | | | 181,852 | | | | (54,295 | ) | | | 10,082 | | | | | | 23,349 | | | | 162,358 | |
Income tax (provision) benefit | | | (28,010 | ) | | | 8,772 | | | | (4,590 | ) | | | | | (563 | ) | | | (2,767 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 153,842 | | | $ | (45,523 | ) | | $ | 5,492 | | | | | $ | 22,786 | | | $ | 159,591 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Weighted average common shares outstanding: | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 78,354,946 | | | | 73,635,665 | | | | 34,272,754 | | | | | | — | | | | — | |
Diluted | | | 83,080,979 | | | | 73,635,665 | | | | 34,272,754 | | | | | | — | | | | — | |
| | | | | | |
Net income (loss) per common share: | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 1.96 | | | $ | (0.62 | ) | | $ | 0.16 | | | | | $ | — | | | $ | — | |
Diluted | | | 1.85 | | | | (0.62 | ) | | | 0.16 | | | | | | — | | | | — | |
See accompanying notes to consolidated financial statements.
Boise Inc.
Consolidated Balance Sheets
(dollars, in thousands)
| | | | | | |
| | | Boise Inc. |
| | | December 31,
2009 | | December 31,
2008 |
ASSETS | | | | | | |
| | |
Current | | | | | | |
Cash and cash equivalents | | $ | 69,393 | | $ | 22,518 |
Short-term investments | | | 10,023 | | | — |
Receivables | | | | | | |
Trade, less allowances of $839 and $961 | | | 185,110 | | | 220,204 |
Related parties | | | 2,056 | | | 1,796 |
Other | | | 62,410 | | | 4,937 |
Inventories | | | 252,173 | | | 335,004 |
Deferred income taxes | | | — | | | 5,318 |
Prepaid and other | | | 4,819 | | | 6,289 |
| | | | | | |
| | | 585,984 | | | 596,066 |
| | | | | | |
| | |
Property | | | | | | |
Property and equipment, net | | | 1,205,679 | | | 1,262,810 |
Fiber farms and deposits | | | 17,094 | | | 14,651 |
| | | | | | |
| | | 1,222,773 | | | 1,277,461 |
| | | | | | |
| | |
Deferred financing costs | | | 47,369 | | | 72,570 |
Intangible assets, net | | | 32,358 | | | 35,075 |
Other assets | | | 7,306 | | | 7,114 |
| | | | | | |
Total assets | | $ | 1,895,790 | | $ | 1,988,286 |
| | | | | | |
See accompanying notes to consolidated financial statements.
Boise Inc.
Consolidated Balance Sheets (continued)
(dollars, in thousands, except share data)
| | | | | | | | |
| | | Boise Inc. | |
| | | December 31,
2009 | | | December 31,
2008 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | |
Current | | | | | | | | |
Current portion of long-term debt | | $ | 30,711 | | | $ | 25,822 | |
Income taxes payable | | | 240 | | | | 841 | |
Accounts payable | | | | | | | | |
Trade | | | 172,518 | | | | 177,157 | |
Related parties | | | 2,598 | | | | 3,107 | |
Accrued liabilities | | | | | | | | |
Compensation and benefits | | | 67,948 | | | | 44,488 | |
Interest payable | | | 4,946 | | | | 184 | |
Other | | | 23,735 | | | | 17,402 | |
| | | | | | | | |
| | | 302,696 | | | | 269,001 | |
| | | | | | | | |
| | |
Debt | | | | | | | | |
Long-term debt, less current portion | | | 785,216 | | | | 1,011,628 | |
Notes payable | | | — | | | | 66,606 | |
| | | | | | | | |
| | | 785,216 | | | | 1,078,234 | |
| | | | | | | | |
| | |
Other | | | | | | | | |
Deferred income taxes | | | 32,253 | | | | 8,907 | |
Compensation and benefits | | | 123,889 | | | | 149,691 | |
Other long-term liabilities | | | 30,801 | | | | 33,007 | |
| | | | | | | | |
| | | 186,943 | | | | 191,605 | |
| | | | | | | | |
| | |
Commitments and contingent liabilities | | | | | | | | |
| | |
Stockholders’ Equity | | | | | | | | |
Preferred stock, $.0001 par value per share: | | | — | | | | — | |
1,000,000 shares authorized; none issued | | | | | | | | |
Common stock, $.0001 par value per share: | | | 8 | | | | 8 | |
250,000,000 shares authorized; 84,418,691 shares and 79,716,130 shares issued and outstanding | | | | | | | | |
Additional paid-in capital | | | 578,669 | | | | 575,151 | |
Accumulated other comprehensive income (loss) | | | (71,553 | ) | | | (85,682 | ) |
Retained earnings (accumulated deficit) | | | 113,811 | | | | (40,031 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 620,935 | | | | 449,446 | |
| | | | | | | | |
| | |
Total liabilities and stockholders’ equity | | $ | 1,895,790 | | | $ | 1,988,286 | |
| | | | | | | | |
See accompanying notes to consolidated financial statements.
Boise Inc.
Consolidated Statements of Cash Flows
(dollars, in thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | | | Predecessor | |
| | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | February 1
(Inception)
Through
December 31,
2007 | | | | | January 1
Through
February 21,
2008 | | | Year
Ended
December 31,
2007 | |
Cash provided by (used for) operations | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 153,842 | | | $ | (45,523 | ) | | $ | 5,492 | | | | | $ | 22,786 | | | $ | 159,591 | |
Items in net income (loss) not using (providing) cash | | | | | | | | | | | | | | | | | | | | | | |
Depreciation, depletion, and amortization of deferred financing costs and other | | | 144,079 | | | | 119,933 | | | | — | | | | | | 477 | | | | 84,649 | |
Share-based compensation expense | | | 3,518 | | | | 3,096 | | | | — | | | | | | — | | | | — | |
Related-party interest expense | | | — | | | | 2,760 | | | | — | | | | | | — | | | | — | |
Notes payable interest expense | | | 9,000 | | | | 5,512 | | | | — | | | | | | — | | | | — | |
Interest income on cash held in trust | | | — | | | | — | | | | (10,414 | ) | | | | | — | | | | — | |
Pension and other postretirement benefit expense | | | 7,376 | | | | 8,388 | | | | — | | | | | | 1,826 | | | | 13,334 | |
Deferred income taxes | | | 27,709 | | | | (9,363 | ) | | | — | | | | | | 11 | | | | 253 | |
Change in fair value of energy derivatives | | | (5,877 | ) | | | 7,445 | | | | — | | | | | | (37 | ) | | | 432 | |
Change in fair value of interest rate derivatives | | | (568 | ) | | | 479 | | | | — | | | | | | — | | | | — | |
St. Helens mill restructuring | | | — | | | | 35,998 | | | | — | | | | | | — | | | | — | |
Gain on changes in retiree healthcare programs | | | — | | | | — | | | | — | | | | | | — | | | | (4,367 | ) |
(Gain) loss on sales of assets, net | | | 514 | | | | — | | | | — | | | | | | (943 | ) | | | (112 | ) |
Other | | | (2,639 | ) | | | 4,696 | | | | — | | | | | | (54 | ) | | | (1,184 | ) |
Loss on extinguishment of debt | | | 44,102 | | | | — | | | | — | | | | | | — | | | | — | |
Decrease (increase) in working capital, net of acquisitions | | | | | | | | | | | | | | | | | | | | | | |
Receivables | | | (18,579 | ) | | | 25,296 | | | | — | | | | | | (23,522 | ) | | | (4,357 | ) |
Inventories | | | 83,037 | | | | (28,950 | ) | | | — | | | | | | 5,343 | | | | (4,402 | ) |
Prepaid expenses | | | 1,470 | | | | (1,044 | ) | | | (59 | ) | | | | | 875 | | | | (833 | ) |
Accounts payable and accrued liabilities | | | 25,710 | | | | (17,801 | ) | | | 257 | | | | | | (10,718 | ) | | | 18,414 | |
Current and deferred income taxes | | | (372 | ) | | | (1,057 | ) | | | 1,284 | | | | | | 335 | | | | 509 | |
Pension and other postretirement benefit payments | | | (13,001 | ) | | | (636 | ) | | | — | | | | | | (1,826 | ) | | | (13,334 | ) |
Other | | | (609 | ) | | | (1,483 | ) | | | — | | | | | | 2,326 | | | | 178 | |
| | | | | | | | | | | | | | | | | | | | | | |
Cash provided by (used for) operations | | | 458,712 | | | | 107,746 | | | | (3,440 | ) | | | | | (3,121 | ) | | | 248,771 | |
| | | | | | | | | | | | | | | | | | | | | | |
Cash provided by (used for) investment | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of businesses and facilities | | | (543 | ) | | | (1,216,459 | ) | | | (2,624 | ) | | | | | — | | | | — | |
Cash released from (held in) trust, net | | | — | | | | 403,989 | | | | (393,575 | ) | | | | | — | | | | — | |
Expenditures for property and equipment | | | (77,145 | ) | | | (90,597 | ) | | | — | | | | | | (10,168 | ) | | | (141,801 | ) |
Purchases of short-term investments | | | (21,643 | ) | | | — | | | | — | | | | | | — | | | | — | |
Maturities of short-term investments | | | 11,615 | | | | — | | | | — | | | | | | — | | | | — | |
Sales of assets | | | 1,031 | | | | 394 | | | | — | | | | | | 17,662 | | | | 14,224 | |
Additional Consideration Agreement payment | | | — | | | | — | | | | — | | | | | | — | | | | (32,542 | ) |
Other | | | 2,168 | | | | (5,703 | ) | | | — | | | | | | 863 | | | | 1,769 | |
| | | | | | | | | | | | | | | | | | | | | | |
Cash provided by (used for) investment | | | (84,517 | ) | | | (908,376 | ) | | | (396,199 | ) | | | | | 8,357 | | | | (158,350 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Cash provided by (used for) financing | | | | | | | | | | | | | | | | | | | | | | |
Issuances of long-term debt | | | 310,000 | | | | 1,125,700 | | | | — | | | | | | — | | | | — | |
Payments of long-term debt | | | (531,523 | ) | | | (88,250 | ) | | | — | | | | | | — | | | | — | |
Cash used for extinguishment of debt | | | (39,717 | ) | | | — | | | | — | | | | | | — | | | | — | |
Payments of notes payable | | | (52,924 | ) | | | — | | | | — | | | | | | — | | | | — | |
Issuances of short-term debt | | | — | | | | — | | | | 137 | | | | | | — | | | | — | |
Payments of short-term debt | | | — | | | | — | | | | (137 | ) | | | | | — | | | | — | |
Payments to stockholders for exercise of conversion rights | | | — | | | | (120,170 | ) | | | — | | | | | | — | | | | — | |
Payments of deferred financing fees | | | (13,156 | ) | | | (81,898 | ) | | | — | | | | | | — | | | | — | |
Payments of deferred underwriters fees | | | — | | | | (12,420 | ) | | | (16,560 | ) | | | | | — | | | | — | |
Proceeds from sale of shares of common stock to initial stockholders | | | — | | | | — | | | | 25 | | | | | | — | | | | — | |
Proceeds from public offering | | | — | | | | — | | | | 414,000 | | | | | | — | | | | — | |
Proceeds from issuance of insider warrants | | | — | | | | — | | | | 3,000 | | | | | | — | | | | — | |
Net equity transactions with related parties | | | — | | | | — | | | | — | | | | | | (5,237 | ) | | | (90,420 | ) |
Other | | | — | | | | — | | | | (640 | ) | | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Cash provided by (used for) financing | | | (327,320 | ) | | | 822,962 | | | | 399,825 | | | | | | (5,237 | ) | | | (90,420 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 46,875 | | | | 22,332 | | | | 186 | | | | | | (1 | ) | | | 1 | |
Balance at beginning of the period | | | 22,518 | | | | 186 | | | | — | | | | | | 8 | | | | 7 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at end of the period | | $ | 69,393 | | | $ | 22,518 | | | $ | 186 | | | | | $ | 7 | | | $ | 8 | |
| | �� | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Boise Inc.
Consolidated Statements of Stockholders’ Equity
(dollars, in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common Shares Outstanding | | | | | Total
Stockholders’
Equity | | | Business
Unit
Equity | | | Preferred
Stock | | Common
Stock | | | Additional
Paid-In
Capital | | | Accumulated
Other
Comprehensive
Income (Loss) | | | Income
Accumulated
During
Development
Stage | | | Retained
Earnings
(accumulated
deficit) | |
| | | Predecessor | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| — | | | Balance at December 31, 2006 | | $ | 1,481,232 | | | $ | 1,490,608 | | | $ | — | | $ | — | | | $ | — | | | $ | (9,376 | ) | | $ | — | | | $ | — | |
| | | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net income | | | 159,591 | | | | 159,591 | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | Other comprehensive income, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash flow hedges | | | 9,376 | | | | — | | | | — | | | — | | | | — | | | | 9,376 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive income: | | $ | 168,967 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| — | | | Net equity transactions with related parties | | | (90,420 | ) | | | (90,420 | ) | | | — | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| — | | | Balance at December 31, 2007 | | $ | 1,559,779 | | | $ | 1,559,779 | | | $ | — | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| — | | | Balance at February 1, 2007 (Inception) | | $ | — | | | $ | — | | | $ | — | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net income | | | 5,492 | | | | — | | | | — | | | — | | | | — | | | | — | | | | 5,492 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive income | | $ | 5,492 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 10,350,000 | | | Issuance of common stock to initial stockholders on February 1, 2007 (Inception) at $.002 per share | | | 25 | | | | — | | | | — | | | 1 | | | | 24 | | | | — | | | | — | | | | — | |
| | | Proceeds of issuance of warrants | | | 3,000 | | | | — | | | | — | | | — | | | | 3,000 | | | | — | | | | — | | | | — | |
| 41,400,000 | | | Sale of 41,400,000 units through public offering net of underwriter’s discount and offering expenses (which includes 16,555,860 shares subject to conversion) | | | 384,380 | | | | — | | | | — | | | 4 | | | | 384,376 | | | | — | | | | — | | | | — | |
| | | Less 16,555,860 shares of common stock subject to possible conversion | | | (159,760 | ) | | | — | | | | — | | | — | | | | (159,760 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 51,750,000 | | | Balance at December 31, 2007 | | $ | 233,137 | | | $ | — | | | $ | — | | $ | 5 | | | $ | 227,640 | | | $ | — | | | $ | 5,492 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net loss | | | (45,523 | ) | | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | (45,523 | ) |
| | | Other comprehensive loss, net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash flow hedges | | | (760 | ) | | | — | | | | — | | | — | | | | — | | | | (760 | ) | | | — | | | | — | |
| | | Unfunded accumulated benefit obligation | | | (84,922 | ) | | | — | | | | — | | | — | | | | — | | | | (84,922 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Other comprehensive loss | | | (85,682 | ) | | | — | | | | — | | | — | | | | — | | | | (85,682 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive loss | | $ | (131,205 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Reclassification of income accumulated during development stage | | | — | | | | — | | | | — | | | — | | | | — | | | | — | | | | (5,492 | ) | | | 5,492 | |
| 37,857,374 | | | Issuance of common stock for acquisition at $9.15 per share (net of a 12% discount for lack of marketability) | | | 304,828 | | | | — | | | | — | | | 4 | | | | 304,824 | | | | — | | | | — | | | | — | |
| 2,450,617 | | | Restricted stock | | | 3,096 | | | | — | | | | — | | | — | | | | 3,096 | | | | — | | | | — | | | | — | |
| (24,517 | ) | | Restricted stock forfeited | | | — | | | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | |
| 30,083 | | | Restricted stock vested | | | — | | | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | Shares of common stock subject to possible conversion converted to permanent equity | | | 159,760 | | | | — | | | | — | | | — | | | | 159,760 | | | | — | | | | — | | | | — | |
| (12,347,427 | ) | | Reclassify shares of common stock subject to possible conversion that were not redeemed to permanent equity | | | (120,170 | ) | | | — | | | | — | | | (1 | ) | | | (120,169 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 79,716,130 | | | Balance at December 31, 2008 | | $ | 449,446 | | | $ | — | | | $ | — | | $ | 8 | | | $ | 575,151 | | | $ | (85,682 | ) | | $ | — | | | $ | (40,031 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net income | | | 153,842 | | | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | 153,842 | |
| | | Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash flow hedges | | | 207 | | | | — | | | | — | | | — | | | | — | | | | 207 | | | | — | | | | — | |
| | | Investment gains (losses) | | | (5 | ) | | | — | | | | — | | | — | | | | — | | | | (5 | ) | | | — | | | | — | |
| | | Changes in unfunded accumulated benefit obligation (net of tax of $8,600) | | | 13,927 | | | | — | | | | — | | | — | | | | — | | | | 13,927 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Other comprehensive income | | | 14,129 | | | | — | | | | — | | | — | | | | — | | | | 14,129 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Comprehensive income | | $ | 167,971 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 4,602,185 | | | Restricted stock | | | 3,518 | | | | — | | | | — | | | — | | | | 3,518 | | | | — | | | | — | | | | — | |
| (81,367 | ) | | Restricted stock forfeited | | | — | | | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | |
| 181,743 | | | Restricted stock units vested, net | | | — | | | | — | | | | — | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 84,418,691 | | | Balance at December 31, 2009 | | $ | 620,935 | | | $ | — | | | $ | — | | $ | 8 | | | $ | 578,669 | | | $ | (71,553 | ) | | $ | — | | | $ | 113,811 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
1. Nature of Operations and Basis of Presentation
Boise Inc. or “the Company,” “we,” “us,” or “our” is a large, diverse United States-based manufacturer of packaging products and papers, including corrugated containers, containerboard, label and release and flexible packaging papers, imaging papers for the office and home, printing and converting papers, newsprint, and market pulp. We own pulp and paper mill operations in the following locations: Jackson, Alabama; International Falls, Minnesota; St. Helens, Oregon; and Wallula, Washington, all of which manufacture uncoated freesheet paper. We also own a mill in DeRidder, Louisiana, which produces containerboard (linerboard) as well as newsprint. We also have a network of five corrugated container plants located in the Pacific Northwest, a corrugated sheet plant in Nevada, and a corrugated sheet feeder plant in Texas.
On February 22, 2008, Aldabra 2 Acquisition Corp. completed the acquisition (the Acquisition) of Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp. (collectively, the Paper Group), and other assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and part of the headquarters operations of Boise Cascade, L.L.C. (Boise Cascade). Subsequent to the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. The acquired business is referred to in this Form 10-K as the “Predecessor.” See Note 16, Acquisition of Boise Cascade’s Paper and Packaging Operations, for more information related to the Acquisition.
The following sets forth our corporate structure at December 31, 2009:
Boise Inc., headquartered in Boise, Idaho, operates its business in three reportable segments: Paper, Packaging, and Corporate and Other (support services).
The accompanying Consolidated Statement of Income (Loss) and Consolidated Statement of Cash Flows for the year ended December 31, 2008, include the activities of Aldabra 2 Acquisition
Corp. prior to the Acquisition and the operations of the acquired businesses from February 22, 2008, through December 31, 2008. The Consolidated Statements of Income (Loss) and Consolidated Statements of Cash Flows for the period of January 1 through February 21, 2008, and for the year ended December 31, 2007, of the Predecessor are presented for comparative purposes. The period of February 1 (Inception) through December 31, 2007, represents the activities of Aldabra 2 Acquisition Corp.
For the Predecessor periods presented, the consolidated financial statements include accounts attributed specifically to the Paper Group and a portion of Boise Cascade’s shared corporate general and administrative expenses. These shared services include, but are not limited to, finance, accounting, legal, information technology, and human resource functions. Some corporate costs related solely to the Predecessor and were allocated totally to these operations. Shared corporate general and administrative expenses not specifically identifiable to the Paper Group were allocated primarily based on average sales, assets, and labor costs. The Predecessor consolidated financial statements do not include an allocation of Boise Cascade’s debt, interest, and deferred financing costs, because none of these items were specifically identified as corporate advances to, or borrowings by, the Predecessor. Boise Cascade used interest rate swaps to hedge variable interest rate risk. Because debt and interest costs are not allocated to the Predecessor, the effects of the interest rate swaps are not included in the consolidated financial statements. During the Predecessor periods presented, income taxes, where applicable, were calculated as if the Predecessor were a separate taxable entity. For the period of January 1 through February 21, 2008, and the year ended December 31, 2007, the majority of the businesses and assets of the Predecessor were held and operated by limited liability companies, which are not subject to entity-level federal or state income taxation. In addition to the businesses and assets held and operated by limited liability companies, the Predecessor had taxable corporations subject to federal, state, and local income taxes for which taxes were recorded. Information on the allocations and related-party transactions is included in Note 5, Transactions With Related Parties.
2. Summary of Significant Accounting Policies
Consolidation and Use of Estimates
The consolidated financial statements include the accounts of Boise Inc. and its subsidiaries after elimination of intercompany balances and transactions. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the determination and allocation of the fair values of assets acquired and liabilities assumed in an acquisition; the assessment of the recoverability of long-lived assets; the recognition, measurement, and valuation of current and deferred income taxes; valuation and recognition of pension expense and liabilities; and valuation of accounts receivable, inventories, and asset retirement obligations, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets; volatile equity, foreign currency, and energy markets; and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Revenue Recognition
We recognize revenue when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, our price to the buyer is fixed or determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. The timing of revenue recognition is dependent on shipping terms. Revenue is recordedterms established at the time of shipment for terms designated freight on board (f.o.b) shipping point. For sales transactions designated f.o.b destination, revenue is recordedgrant. All awards under the Plan are eligible to participate in dividend or dividend equivalent payments, if any, which we accrue to be paid when the productawards vest.
Shares issued pursuant to awards under the Plan are from our authorized but unissued shares or from treasury shares. The maximum number of shares approved for grant under the Plan is delivered17.2 million shares. As of December 31, 2012, 9.0 millionshares remained available for future issuance under the Plan. Share-based compensation costs in BZ Intermediate's financial statements represent expenses for restricted stock, restricted stock units, stock options, and performance units of Boise Inc., which have been pushed down to the customer’s delivery site. FeesBZ Intermediate for shippingaccounting purposes.
Restricted Stock and handling charged to customers for sales transactions are included in “Sales.” Costs related to shippingPerformance Units
Members of management and
handling are included in “Materials, labor, and other operating expenses.”Equity Compensation
We accrue compensation expense for theour directors have been granted restricted stock and restricted stock units (collectively restricted stock) granted under, the Boise Inc. Incentivemajority of which are subject to an EBITDA (earnings before interest, taxes, and Performance Plan (the Plan)depreciation, amortization, and depletion) goal and all of which are subject to service-based vesting restrictions. These awards generally vest over a three-year period. The fair values of our restricted stock awards were based on the fair valueclosing market price of our common stock on the date of the grant. Compensationgrant, and compensation expense is recognized ratablyrecorded over each award's vesting period.
In 2012 and 2011, pursuant to the
vesting period for the restricted stock grants that vest over time and ratably over the award period for the restricted stock grants that vestPlan, we also granted performance units to members of management. The number of performance units awarded is subject to adjustment based on the
closing price of Boise Inc. stock. Duringtwo-year average return on net operating assets (RONOA). Because the
years ended December 31, 2009 and 2008,RONOA component contains a performance condition, we
recognized $3.5 million and $3.1 million, respectively, of compensation expense. Most of these costs were recorded in “General and administrative expenses” in our Consolidated Statements of Income (Loss). See Note 15, Stockholders’ Equity, for a discussion of the Plan and the method we use to calculate compensation expense.During the Predecessor periods presented, equity compensation was granted to the Predecessor’s employees under Boise Cascade’s equity compensation plans. These equity compensation plans were accounted for in the same manner we account for our current plans. During the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor recognized $0.2 million and $1.7 million, respectively, ofrecord compensation expense, net of estimated forfeitures, over the requisite service period based on the most probable number of which was recorded in “General and administrative expenses” inshares expected to vest. Any shares not vested are forfeited. We based the Consolidated Statements of Income (Loss).
Research and Development Costs
We expense research and development costs as incurred, and they were immaterial for all periods presented.
Advertising Costs
We expense the cost of advertising as incurred, and it was immaterial for all periods presented. These expenses are generally recorded in “Selling and distribution expenses” in our Consolidated Statements of Income (Loss).
Foreign Currency Translation
The functional currency for any operations and transactions outside the United States is the U.S. dollar. Nonmonetary assets and liabilities and related depreciation and amortization for these foreign operations and transactions are remeasured into U.S. dollars using historical exchange rates. Monetary assets and liabilities are remeasured into U.S. dollars using the exchange rates as of the Consolidated Balance Sheet date. Revenue and expense items are remeasured into U.S. dollars using an average exchange rate prevailing during the year. The foreign exchange gains (losses) reported in the Consolidated Statements of Income (Loss) resulted from the remeasurements into the U.S. dollar.
Cash and Cash Equivalents
In general, we consider all highly liquid interest-earning investments, including time deposits and certificates of deposit, with a maturity of three months or less at the date of purchase to be cash equivalents unless designated as available for sale and classified as an investment. The fair value of these investments approximates their carrying value. Cash equivalents totaled $65.1 millionawards on the closing market price of our common stock on the grant date, and $15.3 million, respectively,we record compensation expense over the awards' vesting period.
The following summarizes the activity of our outstanding service- and market-condition restricted stock awards and performance units awarded under the Plan as of December 31, 2012, 2011, and 2010, and changes during the years ended December 31, 2012, 2011, and 2010 (number of shares in thousands):
|
| | | | | | | | | | | | | |
| | Service-Condition Vesting Awards (Restricted Stock Awards and Performance Units) | | Market-Condition Vesting Awards |
| | Number of Shares | | Weighted Average Grant-Date Fair Value | | Number of Shares | | Weighted Average Grant-Date Fair Value |
| Outstanding at January 1, 2010 (a) | 6,331 |
| | $ | 0.74 |
| | 1,884 |
| | $ | 1.75 |
|
| Granted | 250 |
| | 5.81 |
| | — |
| | — |
|
| Vested (b) | (3,009 | ) | | 0.77 |
| | (4 | ) | | 1.75 |
|
| Forfeited | (43 | ) | | 4.26 |
| | (2 | ) | | 1.75 |
|
| Outstanding at December 31, 2010 (a) | 3,529 |
| | $ | 1.04 |
| | 1,878 |
| | $ | 1.75 |
|
| Granted | 658 |
| | 8.52 |
| | — |
| | — |
|
| Vested (b) | (1,128 | ) | | 1.94 |
| | — |
| | — |
|
| Forfeited | (535 | ) | | 1.19 |
| | (1,878 | ) | | 1.75 |
|
| Outstanding at December 31, 2011 (a) | 2,524 |
| | $ | 2.55 |
| | — |
| | $ | — |
|
| Granted | 760 |
| | 8.04 |
| | — |
| | — |
|
| Vested (b) | (2,133 | ) | | 1.46 |
| | — |
| | — |
|
| Forfeited | (26 | ) | | 5.51 |
| | — |
| | — |
|
| Outstanding at December 31, 2012 (a) | 1,125 |
| | $ | 7.20 |
| | — |
| | $ | — |
|
____________
| |
| (a) | Outstanding awards included all nonvested and nonforfeited awards. |
| |
| (b) | Total fair value of awards upon vesting for the years ended December 31, 2012, 2011, and 2010, was $17.5 million, $9.7 million, and $16.3 million, respectively. |
Stock Options
In 2012 and 2011, we granted approximately 508,000 and 363,000 nonqualified stock options to members of management. The stock options generally vest and become exercisable over three years. Our stock options generally have a contractual term of ten years, meaning the option must be exercised by the holder before the tenth anniversary of the grant date.No options were vested and exercisable at December 31, 2009 and 2008.Short-term Investments2012.
In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. All cash equivalents and short-term investments are classified as available for sale and are recorded at market value. Changes in market value are reflected in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet. Unrealized losses not considered other than temporary and unrealized gains are included in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet. Unrealized losses determined to be other than temporary are recorded in our Consolidated Statement of Income (Loss).
The
cost of marketable securities soldfollowing is
determined based on the specific identification method. Short-term investments totaled $10.0 million at December 31, 2009. We did not have any short-term investments in 2008.Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are stated at the amount we expect to collect. Trade accounts receivable do not bear interest. The allowance for doubtful accounts is our best estimate of the losses we expect will result from the inabilitya summary of our customers to make required payments. We generally determine the allowance based on a combinationstock option activity (number of actual historical write-off experience and an analysis of specific customer accounts. We periodically review our allowance for doubtful accounts, and adjustments to the valuation allowance are charged to income. Trade accounts receivable balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. We may, at times, insure or arrange for guarantees on our receivables.
options in thousands):
|
| | | | | | | | | | | | |
| | Number of Options | | Weighted Average Exercise Price | | Weighted Average Remaining Life (in years) | | Aggregate Intrinsic Value |
| Outstanding at December 31, 2010 | — |
| | $ | — |
| | | | |
| Granted | 363 |
| | 8.53 |
| | | | |
| Forfeited | (30 | ) | | 8.55 |
| | | | |
| Outstanding at December 31, 2011 | 333 |
| | $ | 8.53 |
| | 9.2 | | $ | — |
|
| Granted | 508 |
| | 8.22 |
| | | | |
| Forfeited | — |
| | — |
| | | | |
| Outstanding at December 31, 2012 | 841 |
| | $ | 8.34 |
| | 8.8 | | $ | — |
|
Financial InstrumentsOur financial instruments are cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and long-term debt. The recorded values of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate fair values based on their short-term nature. Our long-term debt is recorded at the face value of those obligations.
We are exposed to market risks, including changes in interest rates, energy prices, and foreign currency exchange rates. We employ a variety of practices to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. Derivative instruments are used only for risk management purposes and not for speculation or trading. Derivatives are such that a specific debt instrument, contract, or anticipated purchase determines the amount, maturity, and other specifics of the hedge. If a derivative contract is entered into, we either determine that it is an economic hedge or we designate the derivative as a cash flow or fair value hedge. We formally document all relationships between hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking various hedged transactions. For those derivatives designated as cash flow or fair value hedges, we formally assess, both at the derivatives’ inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the hedged items. The ineffective portion of hedging transactions is recognized in income (loss).
We record all derivative instruments as assets or liabilities on our Consolidated Balance Sheets at fair value. The fair value of these instruments is determined by third parties. Changes in the fair value of derivatives are recorded in either “Net income (loss)” or “Other comprehensive income (loss)” as appropriate. The gain or loss on derivatives designated as cash flow hedges is included in “Other comprehensive income (loss)” in the period in which changes in fair value occur and is reclassified to income (loss) in the period in which the hedged item affects income (loss), and any ineffectiveness is recognized currently in our Consolidated Statements of Income (Loss). Theweighted average fair value of the hedged exposure is presumed to bestock options granted during 2012 and 2011 was $3.97 and $4.20, respectively. We recognize compensation expense over each award's vesting period. We calculated the market value of the hedging instrument when critical terms match. The gain or loss on derivatives designated as fair value hedges and the offsetting gain or loss on the hedged item attributable to the hedged risk are included in income (loss) in the period in which changes in fair value occur. The gain or loss on derivatives that have not been designated as hedging instruments is included in income (loss) in the period in which changes in fair value occur.
Customer Rebates and Allowances
We provide rebates to our customersusing a Black-Scholes-Merton option-pricing model based on the volume of their purchases. We provide the rebates to increase the sell-throughmarket price of our products. The rebates are recorded as a decrease in “Sales, Trade” in our Consolidated Statements of Income (Loss).
Inventory Valuation
Inventories are valuedcommon stock at the lower of cost or market. Cost is based ongrant date and the average or first-in, first-out (FIFO) method of inventory valuation. Manufactured inventories include costs for materials, labor, and factory overhead.
Inventories include the following (dollars, in thousands):
| | | | | | |
| | | Boise Inc. |
| | | December 31 |
| | | 2009 | | 2008 |
| | |
Finished goods | | $ | 120,817 | | $ | 173,029 |
Work in process | | | 22,677 | | | 37,582 |
Fiber | | | 34,557 | | | 41,241 |
Other raw materials and supplies | | | 74,122 | | | 83,152 |
| | | | | | |
| | $ | 252,173 | | $ | 335,004 |
| | | | | | |
Property and Equipment, Net
Property and equipment acquired in the Acquisition were recorded at estimated fair value on the date of the Acquisition. Property and equipment acquired subsequentassumptions specific to the Acquisition are recorded at cost. Cost includes expenditures for major improvements and replacementsunderlying options. We based the expected volatility assumption on our historic stock performance and the amountvolatility of interest cost associated with significant capital additions. Forrelated industry stocks. As the years ended December 31, 20092011 grantswere our first issuances of stock options and 2008,our equity shares have been traded for a relatively short period of time, we recognized zero and $0.1 million, respectively, of capitalized interest. Duringdid not have sufficient
historical data to provide a reasonable basis upon which to estimate the
Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor recognized $0.1 million and $1.7 million, respectively, of capitalized interest. We expense all repair and maintenance costs as incurred.When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in income (loss). In all periods presented,expected life. Therefore, we used the
straight-linesimplified method
of depreciation.Property and equipment consisted of the following asset classes and the following general range of estimated useful lives (dollars, in thousands):
| | | | | | | | | | |
| | | Boise Inc. | | | General Range of
Estimated Useful
Lives in Years |
| | | December 31 | | |
| | | 2009 | | | 2008 | | |
| | | |
Land and land improvements | | $ | 31,875 | | | $ | 31,875 | | | 17-20 |
Buildings and improvements | | | 199,086 | | | | 187,892 | | | 9-40 |
Machinery and equipment | | | 1,176,494 | | | | 1,113,572 | | | 3-20 |
Construction in progress | | | 18,992 | | | | 29,833 | | | N/A |
| | | | | | | | | | |
| | | 1,426,447 | | | | 1,363,172 | | | |
Less accumulated depreciation | | | (220,768 | ) | | | (100,362 | ) | | N/A |
| | | | | | | | | | |
| | $ | 1,205,679 | | | $ | 1,262,810 | | | |
| | | | | | | | | | |
Fiber Farms and Deposits
The consolidated financial statements include the cottonwood fiber farm operations in our Paper segment. Our cottonwood fiber farm has multiple locations near our mill in Wallula, Washington. They are short-rotation fiber farms that have a growing cycle averaging six to eight years.
Costs for activities related to the establishment of a new crop of trees, including planting, thinning, fertilization, pest control, herbicide application, irrigation, and land lease costs, are capitalized, while costs for administration, harvesting, insurance, and property taxes are expensed. The capitalized costs are accumulatedas allowed by specifically identifiable farm or irrigation blocks. We charge capitalized costs, excluding land, to “Depreciation, amortization, and depletion” in the accompanying Consolidated Statements of Income (Loss) at the time the fiber is harvested based on actual accumulated costs associated with fiber cut.
We are a party to a number of long-term log and fiber supply agreements. At December 31, 2009 and 2008, our total obligation for log and fiber purchases under contracts with third parties was approximately $76.4 million and $168.7 million, respectively. Except for deposits required pursuant to wood supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect. The obligations are subject to change based on, among other things, the effect of governmental laws and regulations, our manufacturing operations not operating in the normal course of business, log and fiber availability, and the status of environmental appeals.
Long-Lived Asset Impairment
An impairment of long-lived assets exists when the carrying value of an asset exceeds its fair value and when the carrying value is not recoverable through future undiscounted cash flows from operations. We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.
Intangible Assets
Our policy is to assess intangible assets with indefinite lives in the fourth quarter of each year, and immediately if an indicator of possible impairment exists, using a fair-value-based approach. We also evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary.
Deferred Software Costs
We defer internal-use software costs that benefit future years. These costs are amortized using the straight-line method over the expected life of the software, typically three to five years. “Other assets” in the Consolidated Balance Sheets include $4.1 million and $3.9 million of deferred software costs at December 31, 2009 and 2008, respectively. We amortized $1.4 million and $0.7 million, respectively, of deferred software costs for the years ended December 31, 2009 and 2008. For the Predecessor period of January 1 through February 21, 2008, and for the year ended December 31, 2007, amortization of deferred software costs totaled $0.1 million and $0.6 million, respectively.
Asset Retirement Obligations
We accrue for asset retirement obligations in the period in which they are incurred if sufficient information is available to reasonably estimate the fair value of the obligation. When we record the liability, we capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, we will recognize a gain or loss for any difference between the settlement amount and the liability recorded.
Pension and Postretirement Benefits
Several estimates and assumptions are required to record pension and postretirement net periodic benefit cost and liabilities, including discount rate, return on assets, salary increases, and longevity and service lives of employees. Generally, we review and update these assumptions annually unless a plan curtailment or other event occurs requiring we update the estimates on an interim basis. While we believe that the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.
Taxes Collected
We present taxes collected from customers and remitted to governmental authorities on a net basis in our Consolidated Statement of Income (Loss).
New and Recently Adopted Accounting Standards
In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-12,Fair Value Measurements and Disclosures: Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)(FASB ASC 820). This ASU allows investors to use net asset value (NAV) as a practical expedient to estimate fair value of investments in investment companies that do not have readily determinable fair values. The ASU also sets forth disclosure requirements for investments within its scope. We adopted ASU 2009-12 in December 2009, and the adoption did not have a material impact on our financial position or results of operations.
In August 2009, the FASB issued ASU 2009-05,Measuring Liabilities at Fair Value. This update provides amendments to FASB Accounting Standards Board (ASC) 820,Fair Value Measurements and Disclosure, for the fair value measurement of liabilities when a quoted price in an active market is not available. We adopted ASU 2009-05 on October 1, 2009, and the adoption did not have a material impact on our financial position or results of operations.
In June 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 168 (ASU 2009-01),The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles,approving the FASB Accounting Standards Codification (Codification), which states that the Codification is the exclusive authoritative reference for U.S.
generally accepted accounting principles (GAAP). The Codification does not change U.S. GAAP. We adopted ASU 2009-01 on September 15, 2009, and the adoption did not have a material impact on our financial position or results of operations.
In June 2009, the FASB issued SFAS No. 167,Amendments to FASB Interpretation No. 46(R) (FASB ASC 810), which amends the consolidation guidance applicable to variable-interest entities (VIEs). This guidance requires that entities evaluate former qualified special-purpose entities for consolidation, changes the approach to determining a VIE’s primary beneficiary from a quantitative assessment to a qualitative assessment, and increases the frequency of required reassessment to determine whether a company is the primary beneficiary of a VIE. It also requires additional year-end and interim disclosures. We adopted this guidance on January 1, 2010, and the adoption did not have a material impact on our financial position or results of operations.
In December 2008, the FASB issued FASB Staff Position (FSP) FAS 132(R)-1,Employer’s Disclosures About Postretirement Benefit Plan Assets (FASB ASC 715). This FSP amends SFAS No. 132 (revised 2003),Employers’ Disclosures About Pensions and Other Postretirement Benefits,to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. We have incorporated the required disclosures in this Form 10-K. The adoption affected our disclosures only and had no impact on our financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (FASB ASC 805),and SFAS No. 160,Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin No. 51 (FASB ASC 810). These new standards significantly changed the accounting for and reporting of business combination transactions and noncontrolling (minority) interests in consolidated financial statements. We adopted SFAS No. 141(R) and SFAS No 160 on January 1, 2009.
There were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
Subsequent Events
We have evaluated events and transactions subsequent to December 31, 2009, through February 25, 2010, the date these consolidated financial statements and notes were included in this Form 10-K and filed with the Securities and Exchange Commission (SEC). We have not identified any events that would require recognition or disclosurebased the risk-free interest rate upon yields of U.S. Treasury issues with terms similar to the expected life of the options.
The following table presents the range of assumptions used to calculate the fair value of stock options:
|
| | | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | | 2011 |
| Black-Scholes-Merton assumptions: | | | | | | | | | | | | |
| Expected volatility | 50.00% | | - | | 50.10% | | | 47.50% | | - | | 47.85% |
| Expected life (years) | 5.91 | | - | | 6.00 | | | 5.88 | | - | | 6.25 |
| Risk-free interest rate | 1.08% | | - | | 1.39% | | | 1.66% | | - | | 2.48% |
| Expected dividend yield | | | | | — | | | | | | | — |
Compensation expense
Most of our share-based compensation expense was recorded in "General and administrative expenses" in our Consolidated Statements of Income. Total recognized share-based compensation expense related to restricted stock, performance units, and stock options, net of estimated forfeitures, is as follows (dollars in thousands):
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Service-condition restricted stock awards and performance units | $ | 5,039 |
| | $ | 3,415 |
| | $ | 2,663 |
|
| Market-condition restricted stock awards | — |
| | (98 | ) | | 1,070 |
|
| Stock options | 944 |
| | 378 |
| | — |
|
| Total share-based compensation expense | $ | 5,983 |
| | $ | 3,695 |
| | $ | 3,733 |
|
The unrecognized compensation expense for all share-based awards is as follows (dollars in thousands):
|
| | | | | |
| | As of December 31, 2012 |
| | Unrecognized Compensation Expense | | Remaining Weighted Average Recognition Period (in years) |
| Service-condition restricted stock awards and performance units | $ | 4,528 |
| | 1.5 |
| Stock options | 1,752 |
| | 1.9 |
| Total unrecognized share-based compensation expense | $ | 6,280 |
| | 1.6 |
We evaluate share-based compensation expense for awards granted under the Plan on a quarterly basis based on our estimate of expected forfeitures, review of recent forfeiture activity, and expected future turnover. We recognize the effect of adjusting the forfeiture rate for all expense amortization in the consolidated financial statementsperiod that we change the forfeiture estimate. The effect of forfeiture adjustments was insignificant in all periods presented.
The net income tax benefit associated with share-based payment awards was $2.6 million, $2.0 million, and $0.8 million for the years ended December 31, 2012, 2011, and 2010, respectively.
12. Stockholders' Equity and Capital
Common Stock and Preferred Stock
We are authorized to issue 250.0 million shares of common stock, of which 100.5 million shares were issued and outstanding at December 31, 2012. At December 31, 2011, we had 100.3 million shares of common stock issued and outstanding, of which 1.5 million shares were restricted stock. The common stock outstanding does not include restricted stock units, performance units, or stock options under our share-based compensation plans. For additional information see Note 11, Share-Based Compensation.
We are also authorized to issue 1.0 million shares of preferred stock, with such rights and preferences as our board of directors may determine, without further shareholder action. No preferred shares were issued or outstanding at December 31, 2012 or 2011.
Share Repurchase Plan
In 2011, we announced our intent to repurchase up to $150 million of our common stock through a variety of methods, including in the notes toopen market, privately negotiated transactions, or through structured share repurchases. In 2011, we repurchased 21.2 million common shares for an average price of $5.74 per common share. We recorded the financial statements.3. Alternative Fuel Mixture Credits, Net
The U.S. Internal Revenue Code allowed an excise tax credit for taxpayers using alternative fuelsshare repurchases in "Treasury stock" on Boise Inc.'s Consolidated Balance Sheets and "Repurchases of common stock" on the taxpayer’s trade or business.Consolidated Statement of Cash Flows. During the year ended December 31, 2009,2012, we recorded $207.6repurchased
441 common shares for an average price of $6.63 per common share. Our board of directors reserves the right, in its sole discretion, to terminate or suspend the share repurchase plan at any time.
Dividends
In 2012, 2011, and 2010, we paid special cash dividends of $1.20, $0.40, and $0.40 per common share, or total dividends of $119.7 million, $47.9 million, and $32.3 million, respectively.
Any decision to declare and pay dividends in “Alternative fuel mixture credits, net”the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, and other factors our board of directors may deem relevant. In addition, our ability to pay dividends is restricted by our Credit Facilities, the indentures governing our Senior Notes, and 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 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. Under our Credit Facilities and the indentures governing our Senior Notes, a dividend may be paid if it does not exceed our permitted restricted payment amount, which is calculated as the sum of 50% of our net income for distributions, together with other amounts as specified in our Consolidated StatementsCredit Facilities. At December 31, 2012, the available restricted payment amount under our 8% Senior Notes indenture, which is more restrictive than our Credit Agreement and our 9% Senior Notes indenture, was approximately $106.9 million. To the extent we do not have adequate surplus or net profits, or available restricted payment amounts, we will be prohibited from paying dividends.
Warrants
In 2011, warrant holders exercised 40.3 million warrants, resulting in the issuance of38.4 million additional common shares and cash proceeds of approximately $284.8 million. There are no further warrants outstanding or exercisable.
Accumulated Other Comprehensive Income (Loss)
An analysis of the changes in accumulated other comprehensive income (loss) and the related tax effects follows (dollars in thousands). AsSee Note 9, Financial Instruments, and Note 10, Retirement and Benefit Plans, for additional information regarding the amounts recorded in accumulated other comprehensive income (loss).
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Benefit Plans | | |
| | Investment Gains (Losses) | | Foreign Currency Translation | | Cash Flow Hedges | | Actuarial Loss (a) | | Prior Service Cost | | Accumulated Other Comprehensive Income (Loss) |
| | | | | | | | | | | | |
| Balance at December 31, 2009, net of taxes | $ | (5 | ) | | $ | — |
| | $ | (553 | ) | | $ | (70,578 | ) | | $ | (417 | ) | | $ | (71,553 | ) |
| | | | | | | | | | | | |
| Current-period changes, before taxes | 6 |
| | — |
| | — |
| | (14,449 | ) | | — |
| | (14,443 | ) |
| Reclassifications to earnings, before taxes | — |
| | — |
| | 422 |
| | 1,625 |
| | 51 |
| | 2,098 |
|
| Income taxes | — |
| | — |
| | 131 |
| | 4,964 |
| | (19 | ) | | 5,076 |
|
| Balance at December 31, 2010, net of taxes | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | (78,438 | ) | | $ | (385 | ) | | $ | (78,822 | ) |
| | | | | | | | | | | | |
| Current-period changes, before taxes | (1 | ) | | (352 | ) | | (6,776 | ) | | (69,555 | ) | | 300 |
| | (76,384 | ) |
| Reclassifications to earnings, before taxes | — |
| | — |
| | 754 |
| | 5,569 |
| | 51 |
| | 6,374 |
|
| Income taxes | — |
| | — |
| | 2,320 |
| | 24,685 |
| | (135 | ) | | 26,870 |
|
| Balance at December 31, 2011, net of taxes | $ | — |
| | $ | (352 | ) | | $ | (3,702 | ) | | $ | (117,739 | ) | | $ | (169 | ) | | $ | (121,962 | ) |
| | | | | | | | | | | | |
| Current-period changes, before taxes | — |
| | 126 |
| | 1,384 |
| | 19,281 |
| | 61 |
| | 20,852 |
|
| Reclassifications to earnings, before taxes | — |
| | — |
| | 2,637 |
| | 10,074 |
| | 10 |
| | 12,721 |
|
| Income taxes | — |
| | (76 | ) | | (1,549 | ) | | (11,262 | ) | | (28 | ) | | (12,915 | ) |
| Balance at December 31, 2012, net of taxes | $ | — |
| | $ | (302 | ) | | $ | (1,230 | ) | | $ | (99,646 | ) | | $ | (126 | ) | | $ | (101,304 | ) |
____________
| |
| (a) | Accumulated losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of assets will be recognized on a straight-line basis over the average remaining service period of active employees, which is between seven to ten years, to the extent that losses are not offset by gains in subsequent years. The estimated net loss and prior service cost that will be amortized from "Accumulated other comprehensive income (loss)" into pension expense in 2013 is $8.6 million. |
BZ Intermediate Holdings LLC
BZ Intermediate has authorized 1,000 voting common units, all of which were issued and outstanding at December 31, 2009, we recorded2012 and 2011, with a receivablepar value of $56.6 million in “Receivables, Other”$0.01. All of these units have been issued to Boise Inc. BZ Intermediate refers to its capital as "Business unit equity" on ourits Consolidated Balance Sheet for alternative fuel mixture credits. The credits expired on December 31, 2009. We are reasonably assured that the credit for the alternative fuel mixture used by us through December 31, 2009, has been earnedSheets, and will be collected from the U.S. government.4. Net Income (Loss) Per Common Share
For the years ended December 31, 2009 and 2008, and the period of February 1 (Inception) through December 31, 2007, when we had publicly traded shares outstanding,this represents its equity transactions with Boise Inc., net income (loss) per common sharefrom the operations of its subsidiaries, the effect of changes in other comprehensive income, and stock-based compensation.
13. Concentrations of Risk
Business
Our largest customer is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Basic and diluted net income (loss) per share is calculated as follows (dollars, in thousands, except per-share data): | | | | | | | | | | |
| | | Boise Inc. |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | | February 1
(Inception)
Through
December 31,
2007 |
| | | |
Net income (loss) | | $ | 153,842 | | $ | (45,523 | ) | | $ | 5,492 |
| | | |
Weighted average number of common shares for basic net income (loss) per share | | | 78,355 | | | 73,636 | | | | 34,273 |
Incremental effect of dilutive common stock equivalents: | | | | | | | | | | |
Common stock warrants (a) (b) | | | — | | | — | | | | — |
Restricted stock and restricted stock units (c) | | | 4,726 | | | — | | | | — |
| | | | | | | | | | |
Weighted average number of shares for diluted net income (loss) per share | | | 83,081 | | | 73,636 | | | | 34,273 |
| | | | | | | | | | |
Net income (loss) per share | | | | | | | | | | |
Basic | | $ | 1.96 | | $ | (0.62 | ) | | $ | 0.16 |
| | | | | | | | | | |
Diluted (a) (b) (c) | | $ | 1.85 | | $ | (0.62 | ) | | $ | 0.16 |
| | | | | | | | | | |
(a) | Warrants to purchase 44.4 million shares of common stock for the years ended December 31, 2009 and 2008, were not included in the computation of diluted net income (loss) per share because the exercise price exceeded the average market price of our common stock. |
(b) | Warrants to purchase 44.4 million shares of common stock for the period of February 1 (Inception) through December 31, 2007, were not included in the computation of diluted net income per share because the warrants were contingently exercisable. |
(c) | Restricted stock and restricted stock units for the year ended December 31, 2008, were not included in the computation of diluted net loss per share because inclusion of these amounts would be antidilutive. |
5. Transactions With Related Parties
Related-Party Sales
Boise Inc. and the Predecessor provided transportation services to Boise Cascade. For the years ended December 31, 2009 and 2008, Boise Inc. recorded $2.3 million and $3.4 million, respectively, of sales for transportation services. For the period of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor recorded $0.6 million and $5.0 million, respectively, of sales for transportation services to Boise Cascade.
The Predecessor sold $10.8 million and $75.3 million, respectively, of wood to Boise Cascade’s wood products business during the period of January 1 through February 21, 2008, and the year ended December 31, 2007. These sales are included in “Sales, Related parties” in the Consolidated
Statements of Income (Loss). Subsequent to the Acquisition, Louisiana Timber Procurement Company, L.L.C. (LTP), a variable-interest entity (VIE) that is 50% owned by Boise Inc. and 50% owned by Boise Cascade, began selling wood to Boise Cascade and Boise Inc. at prices designed to approximate market prices. LTP procures saw timber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of Boise Inc. and Boise Cascade. We are the primary beneficiary of LTP, as we are the entity most closely associated with this VIE; therefore, we fully consolidate LTP in our financial statements. During the year ended December 31, 2009, we recorded $25.5 million of sales to Boise Cascade in “Sales, Related parties” in the Consolidated Statements of Income (Loss) and approximately the same amount of expenses in “Materials, labor, and other operating expenses.” During the year ended December 31, 2008, we recorded $64.9 million of sales to Boise Cascade.
In connection with the Acquisition, we entered into a services agreement under which we provide a number of corporate staff services to Boise Cascade at our cost. These services include information technology, accounting, and human resource services. The initial term of the agreement is for three years and will expire on February 22, 2011. It will automatically renew for one-year terms unless either party provides notice of termination to the other party at least 12 months in advance of the applicable term. For the years ended December 31, 2009 and 2008, we recognized $15.0 million and $12.1 million, respectively, in “Sales, Related parties” and the same amounts in “Costs and expenses” in our Consolidated Statements of Income (Loss) related to this agreement.
During the Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor sold paper and paper products to OfficeMax Incorporated (OfficeMax) at sales prices that were designed. Although we expect our long-term business relationship with OfficeMax to approximate market prices. Subsequentcontinue, the relationship exposes us to the Acquisition, OfficeMax is no longer a related party. For additional information concerning related-partysignificant concentration of business and financial risk. In 2012, our sales to OfficeMax duringwere
$493.9 million, which represents 19% of our total annual sales revenue and 35% of the Predecessor periods, see Note 18, Segment Information.annual sales revenue in our Paper segment. Approximately
Related-Party Costs and Expenses38%Boise Inc. and the Predecessor of our total uncoated freesheet sales volume was purchased fiber from related parties at prices that approximated market prices. For the years ended by OfficeMax in 2012. At December 31, 20092012 and 2008, Boise Inc. recorded $36.92011, we had $39.5 million and $54.6$35.3 million, respectively, of fiberaccounts receivable due from OfficeMax, which represents 16% and 15%, respectively, of our total company receivables.
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
related parties. DuringOfficeMax (or the
Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007, fiber purchases from related parties were $7.7 million and $39.4 million, respectively. Most of these purchases related to chip and log purchases from Boise Cascade’s wood products business. All of the costs associated with these purchases were recorded as “Fiber costs from related parties” in the Consolidated Statements of Income (Loss).During the Predecessor periods, the Predecessor used services and administrative staff of Boise Cascade. These services included, but were not limited to, finance, accounting, legal, information technology, and human resource functions. The costs not specifically identifiable to the Predecessor were allocated based primarily on average sales, assets, and labor costs. These costs are included in “General and administrative expenses” in the Consolidated Statements of Income (Loss). The Predecessor believes the allocations are a reasonable reflection of its use of the services. However, had the Predecessor operated on a stand-alone basis, it estimates that its Corporate and Other segmentpost-merger entity) would have reported approximately $2.5 million and $18.0 million, respectively, of segment expenses before interest, taxes, depreciation, and amortization for the Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007.
During the Predecessor periods, some of the Predecessor’s employees participated in Boise Cascade’s noncontributory defined benefit pension and contributory defined contribution savings plans. The Predecessor treated its participants in the pension plans as participants in multiemployer plans. Accordingly, the Predecessor has not reflected any assets or liabilities related to the plans on
the Consolidated Balance Sheet at December 31, 2007. The Predecessor, however, recorded costs associated with the employees who participated in these plans in the Consolidated Statements of Income (Loss). For the Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007, the Statements of Income (Loss) included $3.9 million and $22.4 million, respectively, of expenses attributable to its participation in Boise Cascade’s defined benefit and defined contribution plans.
During the Predecessor periods presented, the Predecessor’s employees and former employees also participated in Boise Cascade’s other postretirement healthcare benefit plans. All of the Predecessor’s postretirement healthcare benefit plans were unfunded (see Note 14, Retirement and Benefit Plans). In addition, some of the Predecessor’s employees participated in equity compensation programs.
During the year ended December 31, 2008, we recorded $2.8 million of related-party interest expense in “Interest expense” in our Consolidated Statements of Income (Loss). This expense is related to the subordinated promissory note we issued to Boise Cascade in connection with the Acquisition. After the Acquisition, the note was transferred to parties unrelated to Boise Cascade or to us. Accordingly, we no longer record the note as a related-party note on our Consolidated Balance Sheet. At December 31, 2009 and 2008, we had zero and $66.6 million, respectively, recorded in “Notes payable” on our Consolidated Balance Sheets, as this note was repaid as part of our October 2009 debt restructuring. For additional information on the debt restructuring, see Note 12, Debt.
Predecessor
During the Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor participated in Boise Cascade’s centralized cash management system. Cash receipts attributable to the Predecessor’s operations were collected by Boise Cascade, and cash disbursements were funded by Boise Cascade. The net effect of these transactions has been reflected as “Net equity transactions with related parties” in the Consolidated Statements of Cash Flows and Consolidated Statements of Stockholders’ Equity. The following table includes the components of these related-party transactions (dollars, in thousands):
| | | | | | | | |
| | | Predecessor | |
| | | January 1
Through
February 21,
2008 | | | Year
Ended
December 31,
2007 | |
| | |
Cash collections | | $ | (354,222 | ) | | $ | (2,343,598 | ) |
Payment of accounts payable | | | 336,605 | | | | 2,094,226 | |
Capital expenditures and acquisitions | | | 10,168 | | | | 141,801 | |
Income taxes | | | 217 | | | | 1,990 | |
Corporate general and administrative expense allocation | | | 1,995 | | | | 15,161 | |
| | | | | | | | |
Net equity transactions with related parties | | $ | (5,237 | ) | | $ | (90,420 | ) |
| | | | | | | | |
6. Other (Income) Expense, Net
“Other (income) expense, net” includes miscellaneous income and expense items. The components of “Other (income) expense, net” in the Consolidated Statements of Income (Loss) are as follows (dollars, in thousands):
| | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | | | Predecessor | |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | | | | January 1
Through
February 21,
2008 | | | Year
Ended
December 31,
2007 | |
Changes in supplemental pension plans | | $ | — | | $ | (2,914 | ) | | | | $ | — | | | $ | — | |
Changes in retiree healthcare programs | | | — | | | — | | | | | | — | | | | (4,367 | ) |
Sales of assets, net | | | 514 | | | — | | | | | | (941 | ) | | | (231 | ) |
Closure costs | | | — | | | — | | | | | | — | | | | 119 | |
Project costs | | | 676 | | | 248 | | | | | | — | | | | 276 | |
Other, net | | | 2,815 | | | (314 | ) | | | | | (48 | ) | | | 61 | |
| | | | | | | | | | | | | | | | | |
| | $ | 4,005 | | $ | (2,980 | ) | | | | $ | (989 | ) | | $ | (4,142 | ) |
| | | | | | | | | | | | | | | | | |
The year ended December 31, 2009, included $3.5 million of expense related to the indefinite idling of the #2 newsprint machine at our mill in DeRidder, Louisiana, which was recorded in our Packaging segment. These charges included severance costs, preservation and maintenance costs, and other miscellaneous costs related to the machine idling. The machine idling resulted in the termination of 17 salaried employees at the DeRidder mill, as well as 95 hourly employees, some of whom have filled other positions within the Company, while the remaining are on layoff status as of December 31, 2009. We employ approximately 425 employees at the mill after the machine idling. At December 31, 2009, we had $0.1 million of severance liabilities recorded in “Accrued liabilities, Compensation and benefits” on the Consolidated Balance Sheet. We expect to pay the remainder of these severance costs by first quarter 2010.
During the period of February 1 (Inception) through December 31, 2007, “Other (income) expense, net” was zero.
7. Income Taxes
For the year ended December 31, 2009, our effective tax provision rate was 15.4%. The primary reason for the difference from the federal statutory income tax rate of 35.0% is the release of valuation allowances and the effect of state income taxes. We have released the valuation allowances recorded in the prior year because we expect to be able to utilize our deferred tax assets to offset deferred tax liabilities. For the year ended December 31, 2008, our effective tax benefit rate was 16.2%. The primary reason for the difference from the federal statutory income tax rate is the valuation allowance we recorded during 2008. The effective tax rate for the period of February 1 (Inception) through December 31, 2007, was 45.5%. The primary reason for the difference from the federal statutory income tax rate is the effect of state and local income taxes.
During the Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007, the majority of the Predecessor businesses and assets were held and operated by limited liability companies, which are not subject to entity-level federal or state income taxation. For the separate Predecessor subsidiaries that are taxed as corporations, the effective tax rates were 37.6% and 44.1%, respectively. During these periods, the primary reason for the difference in tax rates was the effect of state income taxes.
A reconciliation of the statutory U.S. federal tax benefit (provision) and the reported tax benefit (provision) is as follows (dollars, in thousands):
| | | | | | | | | | | | |
| | | Boise Inc. | |
| | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | February 1
(Inception)
Through
December 31,
2007 | |
| | | |
Income (loss) before income taxes | | $ | 181,852 | | | $ | (54,295 | ) | | $ | 10,082 | |
Statutory U.S. income tax rate | | | 35.0 | % | | | 35.0 | % | | | 34.0 | % |
| | | |
Statutory tax benefit (provision) | | $ | (63,648 | ) | | $ | 19,003 | | | $ | (3,428 | ) |
State taxes | | | (7,432 | ) | | | 1,845 | | | | (1,162 | ) |
Nondeductible interest on applicable high-yield discount obligations | | | (594 | ) | | | (1,167 | ) | | | — | |
Valuation allowance | | | 44,063 | | | | (10,884 | ) | | | — | |
Other | | | (400 | ) | | | (25 | ) | | | — | |
| | | | | | | | | | | | |
Reported tax benefit (provision) | | $ | (28,011 | ) | | $ | 8,772 | | | $ | (4,590 | ) |
| | | | | | | | | | | | |
Effective income tax benefit (provision) rate | | | (15.4 | %) | | | 16.2 | % | | | (45.5 | %) |
| | | | | | | | | | | | |
The income tax (provision) benefit shown in the Consolidated Statements of Income (Loss) includes the following (dollars, in thousands):
| | | | | | | | | | | | |
| | | Boise Inc. | |
| | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | February 1
(Inception)
Through
December 31,
2007 | |
Current income tax (provision) benefit | | | | | | | | | | | | |
Federal | | $ | 274 | | | $ | (578 | ) | | $ | (2,913 | ) |
State | | | (563 | ) | | | 2 | | | | (1,762 | ) |
Foreign | | | (13 | ) | | | (15 | ) | | | — | |
| | | | | | | | | | | | |
Total current | | | (302 | ) | | | (591 | ) | | | (4,675 | ) |
| | | | | | | | | | | | |
Deferred income tax (provision) benefit | | | | | | | | | | | | |
Federal | | | (21,282 | ) | | | 8,778 | | | | 85 | |
State | | | (6,427 | ) | | | 585 | | | | — | |
Foreign | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Total deferred | | | (27,709 | ) | | | 9,363 | | | | 85 | |
| | | | | | | | | | | | |
Total (provision) benefit for income taxes | | $ | (28,011 | ) | | $ | 8,772 | | | $ | (4,590 | ) |
| | | | | | | | | | | | |
During the year ended December 31, 2009, cash received for taxes, net of payments made, was $3.1 million. During the year ended December 31, 2008, cash paid for taxes, net of refunds received, was $1.4 million. During the period of February 1 (Inception) through December 31, 2007, we made $3.4 million of tax payments. During the Predecessor period of January 1 through February 21, 2008, cash paid for taxes, net of refunds received, was immaterial. Cash paid for taxes, net of refunds received, was $2.3 million during the Predecessor year ended December 31, 2007.
At December 31, 2009, we had federal net operating losses of $150.9 million, which expire in 2028 and 2029, with a tax value of $52.8 million. At December 31, 2009, we had state net operating loss carryovers, which expire between 2013 and 2029, with a tax value of $5.8 million.
The components of the net deferred tax liability/asset in the Consolidated Balance Sheets are as follows (dollars, in thousands):
| | | | | | | | | | | | | |
| | | Boise Inc. |
| | | December 31 |
| | | 2009 | | 2008 |
| | | Assets | | Liabilities | | Assets | | | Liabilities |
| | | | |
Employee benefits | | $ | 61,863 | | $ | 477 | | $ | 73,241 | | | $ | 31 |
Property and equipment | | | — | | | 132,413 | | | — | | | | 48,989 |
Deferred financing costs | | | 1,906 | | | 2,989 | | | — | | | | — |
Intangible assets and other | | | 224 | | | 13,522 | | | 395 | | | | 13,576 |
Net operating loss | | | 58,564 | | | — | | | 13,523 | | | | — |
Alternative minimum tax | | | — | | | — | | | 843 | | | | — |
Reserves | | | 4,011 | | | — | | | 5,528 | | | | — |
Inventories | | | 4,163 | | | — | | | 7,249 | | | | — |
Deferred income | | | — | | | 6,773 | | | — | | | | — |
Unearned income | | | — | | | 21,860 | | | — | | | | — |
State income tax adjustments | | | 2,344 | | | 213 | | | — | | | | — |
Interest on applicable high-yield discount obligations | | | — | | | — | | | 1,912 | | | | — |
Other | | | 3,168 | | | 1,788 | | | 2,280 | | | | 1,901 |
Valuation allowance | | | — | | | — | | | (44,063 | ) | | | — |
| | | | | | | | | | | | | |
| | $ | 136,243 | | $ | 180,035 | | $ | 60,908 | | | $ | 64,497 |
| | | | | | | | | | | | | |
At December 31, 2009 and 2008, we had the following deferred tax balances on the Consolidated Balance Sheets (dollars, in thousands):
| | | | | | | | |
| | | Boise Inc. | |
| | | Years Ended December 31 | |
| | | 2009 | | | 2008 | |
| | |
Current deferred tax assets (liabilities), net | | $ | (11,539 | ) | | $ | 5,318 | |
Noncurrent deferred tax liabilities, net | | | (32,253 | ) | | | (8,907 | ) |
| | | | | | | | |
Total deferred tax liabilities, net | | $ | (43,792 | ) | | $ | (3,589 | ) |
| | | | | | | | |
Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. During the year ended December 31, 2009, we released $44.0 million of valuation allowances recorded during the year ended December 31, 2008. During the fourth quarter of 2009, we determined that it was more likely than not that our deferred tax assets would be realized because of current year income from continuing operations. Therefore, we recognized our entire valuation allowance as an income tax benefit from continuing operations. At December 31, 2008, we recorded $10.9 million of valuation allowances to income from continuing operations and $32.9 million and $0.3 million to “Accumulated other comprehensive income (loss)” on our Consolidated Statement of Stockholders’ Equity against our pension liability and cash flow hedges, respectively.
Pretax income (loss) from domestic and foreign sources is as follows (dollars, in thousands):
| | | | | | | | | | |
| | | Boise Inc. |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | | February 1
(Inception)
Through
December 31,
2007 |
| | | |
Domestic | | $ | 181,843 | | $ | (54,306 | ) | | $ | 10,082 |
Foreign | | | 9 | | | 11 | | | | — |
| | | | | | | | | | |
Pretax income (loss) | | $ | 181,852 | | $ | (54,295 | ) | | $ | 10,082 |
| | | | | | | | | | |
At December 31, 2009 and 2008, our foreign subsidiaries had no undistributed earnings that had been indefinitely reinvested.
Uncertain Income Tax Positions
We recognize tax liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available or as new uncertainties occur. For the year ended December 31, 2009, we increased the amount of our unrecognized tax benefit by $87.6 million, which was charged to income tax expense, as a result of excluding the alternative fuel mixture credits from income for tax purposes. If subsequently recognized, this unrecognized tax benefit would reduce our tax expense by $83.3 million. Exclusion of the alternative fuel mixture credits generated a deferred tax benefit of $82.9 million for the year ended December 31, 2009, (primarily a net operating loss carryforward).
A reconciliation of the unrecognized tax benefits is as follows (dollars, in thousands):
| | | | | | |
| | | 2009 | | 2008 |
| | |
Unrecognized tax benefits, beginning of year | | $ | 256 | | $ | 235 |
Gross increases related to prior-period tax positions | | | 11 | | | 21 |
Gross decrease related to prior-period tax positions | | | — | | | — |
Gross increases related to current-period tax positions | | | 87,571 | | | — |
Settlements | | | — | | | — |
| | | | | | |
Unrecognized tax benefits, end of year | | $ | 87,838 | | $ | 256 |
| | | | | | |
The unrecognized tax benefit net of federal benefit for state taxes is $83.3 million. We have determined that there is a filing position to exclude the alternative fuel mixture credits from taxable income. Accordingly, $82.9 million of the $83.3 million is recorded as a credit to our long-term deferred taxes to eliminate the benefit associated with the uncertain tax position. The remaining $0.4 million is recorded in “Other long-term liabilities” on our Consolidated Balance Sheet. Additional guidance may be issued by the IRS in the next 12 months, which could 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 unrecognized tax benefits from the amounts currently recorded. It is not reasonably possibleproducts could have a material adverse effect on our business, financial condition, results of operations, and liquidity.
OfficeMax was our only customer that accounted for more than 10% of our total revenues, sales volumes, or accounts receivable in 2012.
Labor
At December 31, 2012, we had approximately 5,400 employees and approximately 50% of these employees worked pursuant to knowcollective bargaining agreements. Approximately 4% of our employees work pursuant to what extent the total amounts of unrecognized benefitscollective bargaining agreements that will increase or decreaseexpire within the next 12twelve months.We recognize interest and penalties related to uncertain tax positions as income tax expense in our Consolidated Statement of Income (Loss). Interest expense related to uncertain tax positions was immaterial for both of the years ended December 31, 2009 and 2008, and also for the Predecessor year ended December 31, 2007. We did not record any penalties associated with our uncertain tax positions during the years ended December 31, 2009 and 2008, or during the Predecessor year ended December 31, 2007.
We file federal income tax returns in the U.S. and various state income tax returns in the major state jurisdictions of Alabama, Idaho, California, Georgia, Louisiana, Minnesota, and Oregon. In the normal course of business, we are subject to examination by taxing authorities. Boise Inc.’s open tax years are 2009, 2008, and 2007.
As part of the purchase price of the Acquisition, we acquired two corporate entities. These corporations are wholly owned, consolidated entities of Boise Inc. These entities are subject to audit by taxing authorities for the year 2006 and the years that follow. The statute of limitations for 2005 expired this year. We are responsible for any tax adjustments resulting from such audits. One of these entities, Boise Cascade Transportation Holdings Corp., has completed an examination for the 2006 tax year without any proposed adjustments.
8.
We lease
some of our
distribution centers, as well as other property and equipment, under operating leases. During the Predecessor periods presented, the Predecessor leased its distribution centers,locations, as well as other property and equipment, under operating leases. For purposes of determining straight-line rent expense, the lease term is calculated from the date of possession of the facility, including any periods of free rent and any
renewal option periods that are reasonably assured of being exercised. Straight-line rent expense is also adjusted to reflect any allowances or reimbursements provided by the lessor.
Rental expense and sublease income for operating leases were as follows (dollars, in thousands): | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | | Predecessor |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | February 1
(Inception)
Through
December 31,
2007 | | | | January 1
Through
February 21,
2008 | | Year Ended
December 31,
2007 |
| | | | | | |
Rental expense | | $ | 16,357 | | $ | 13,523 | | $ | — | | | | $ | 2,044 | | $ | 13,314 |
Sublease rental income | | | — | | | — | | | — | | | | | — | | | 5 |
For noncancelable operating leases with remaining termsWe had an insignificant amount of more than one year, the minimum lease payment requirements are $12.4 million in 2010, $11.7 million in 2011, $10.8 million in 2012, $8.3 million in 2013, $6.9 million in 2014, and $6.6 million in 2015, with total payments thereafter of $12.5 million. We do not expect sublease rental income in the future to be material.periods presented below. Accordingly, our future minimum lease payment requirements have not been reduced by sublease rental income.
Rental expense for operating leases is as follows (dollars in thousands):
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 |
| Rental expense | $ | 29,367 |
| | $ | 23,855 |
| | $ | 15,267 |
|
For noncancelable operating leases with remaining terms of more than one year, minimum lease payment requirements are as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 & Thereafter |
| Minimum payment | $ | 22,680 |
| | $ | 21,688 |
| | $ | 18,092 |
| | $ | 15,037 |
| | $ | 10,228 |
| | $ | 11,065 |
|
Substantially all lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to purchase the leased property. Additionally, some agreements contain renewal options averaging sixapproximately five years, with fixed payment terms similar to those in the original lease agreements.
9. Concentrations of Risk
Business
Sales to OfficeMax represent a concentration in the volume of business transacted and revenue generated from these transactions. Sales to OfficeMax were $545.4 million and $494.6 million during the years ended December 31, 2009 and 2008, representing 28% and 24% of total sales for those periods. For the period of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor’s sales to OfficeMax were $90.1 million and $615.7 million, respectively. These sales are included in “Sales, Related parties” in the Consolidated Statements of Income (Loss). During the Predecessor periods, sales to OfficeMax represented 25% and 26% of sales. At December 31, 2009 and 2008, we had $34.7 million and $30.3 million, respectively, of accounts receivable due from OfficeMax. No other single customer accounted for 10% or more of consolidated trade sales or of total sales.
Labor
As of December 31, 2010, we had approximately 4,100 employees. Approximately 60% of these employees work pursuant to collective bargaining agreements. As of December 31, 2009, approximately 33% of our employees were working pursuant to collective bargaining agreements that have expired or will expire within one year, including agreements at the following facility locations: Wallula, Washington; DeRidder, Louisiana; Jackson, Alabama; St. Helens, Oregon; and Nampa, Idaho. The labor contract at our paper mill in Wallula, Washington (332 employees represented by the Association of Western Pulp & Paper Workers, or AWPPW) expired in March 2009 and was terminated by the AWPPW on October 31, 2009. In early February 2010, the union employees at Wallula rejected a new collective bargaining agreement that union leadership had recommended unanimously. On February 22, 2010, the company declared an impasse in the bargaining process and implemented the terms of the last contract offer.
10. Intangible Assets
Intangible assets represent primarily the values assigned to trademarks and trade names, customer relationships, and technology in connection with the Acquisition. Customer relationships are amortized over approximately ten years, and technology is amortized over five years. Trademarks and trade names are not amortized. During the years ended December 31, 2009 and 2008, intangible asset amortization was $2.8 million and $2.3 million, respectively. During the Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007, intangible asset amortization was zero and $3.5 million, respectively. Our estimated amortization expense is $2.8 million in both 2010 and 2011, $2.7 million in 2012, $1.6 million in 2013, and $1.4 million in both 2014 and 2015. The gross carrying amount, accumulated amortization, and net carrying amount as of December 31, 2009 and 2008, were as follows (dollars, in thousands):
| | | | | | | | | | |
| | | Boise Inc. |
| | | Year Ended December 31, 2009 |
| | | Gross Carrying
Amount | | Accumulated
Amortization | | | Net Carrying
Amount |
| | | |
Trademarks and trade names | | $ | 16,800 | | $ | — | | | $ | 16,800 |
Customer relationships | | | 13,700 | | | (2,512 | ) | | | 11,188 |
Technology and other | | | 6,895 | | | (2,525 | ) | | | 4,370 |
| | | | | | | | | | |
| | $ | 37,395 | | $ | (5,037 | ) | | $ | 32,358 |
| | | | | | | | | | |
| |
| | | Boise Inc. |
| | | Year Ended December 31, 2008 |
| | | Gross Carrying
Amount | | Accumulated
Amortization | | | Net Carrying
Amount |
| | | |
Trademarks and trade names | | $ | 16,800 | | $ | — | | | $ | 16,800 |
Customer relationships | | | 13,700 | | | (1,142 | ) | | | 12,558 |
Technology and other | | | 6,860 | | | (1,143 | ) | | | 5,717 |
| | | | | | | | | | |
| | $ | 37,360 | | $ | (2,285 | ) | | $ | 35,075 |
| | | | | | | | | | |
We did not have any triggering events during 2009; therefore, we performed our annual impairment assessment for our indefinite-lived assets for all of our segments during fourth quarter
2009. Based on the results of our testing, we have concluded that our indefinite-lived intangible assets were not impaired. We have also performed an undiscounted cash flow analysis as of fourth quarter 2009 and determined that the value of our long-lived assets was not impaired. We also evaluated the remaining useful lives of our customer relationships and technology and determined that no adjustments to the useful lives were necessary.
11.15. Asset Retirement Obligations
We accrue for asset retirement obligations in the period in which they are incurred if sufficient information is available to reasonably estimate the fair value of the obligation.
Fair value estimates are determined using Level 3 inputs in the fair value hierarchy. The fair value of our asset retirement obligations is measured using expected future cash outflows discounted using the company's credit-adjusted risk-free interest rate. When we record the liability, we capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value, and the capitalized cost is depreciated over the useful life of the related asset. Occasionally, we become aware of events or circumstances that require us to revise our future estimated cash flows. When revisions become necessary, we recalculate our obligation and adjust our asset and liability accounts utilizing appropriate discount rates. Upon settlement of the liability, we will recognize a gain or loss for any difference between the settlement amount and the liability recorded.
At December 31, 20092012 and 2008, we had $10.4 million and $14.3 million, respectively, of2011, asset retirement obligations related predominantly to landfill closure, wastewater treatment pond dredging, and closed-site monitoring costs and were recorded primarily in "Other long-term liabilities" on the Consolidated Balance Sheet. These liabilities related primarily to landfill closure and closed-site monitoring costs.Sheets. These liabilities are based on the best estimate of current costs and are updated periodically to reflect current technology, laws and regulations, inflation, and other economic factors. During 2009, our estimated future cash flows for retirement obligations relating to items at two of our mills were reduced as a result of discussions with third-party organizations. These changes reduced our expected asset retirement obligations. No assets are legally restricted for purposes of settling asset retirement obligations. The table below describes changes to the asset retirement obligations for the years ended December 31, 2009 and 2008 (dollars in thousands): | | | | | | | | |
| | | Boise Inc. | |
| | | December 31,
2009 | | | December 31,
2008 | |
| | |
Asset retirement obligation at beginning of period | | $ | 14,283 | | | $ | — | |
| | |
Asset retirement liability recorded in the purchase price allocation | | | — | | | | 13,655 | |
Liabilities incurred | | | — | | | | 58 | |
Accretion expense | | | 1,165 | | | | 921 | |
Payments | | | (122 | ) | | | (542 | ) |
Revisions in estimated cash flows | | | (4,964 | ) | | | 191 | |
| | | | | | | | |
Asset retirement obligation at end of period | | $ | 10,362 | | | $ | 14,283 | |
| | | | | | | | |
|
| | | | | | | |
| | Year Ended December 31 |
| | 2012 | | 2011 |
| Asset retirement obligation at beginning of period | $ | 10,041 |
| | $ | 10,403 |
|
| Liabilities incurred (Note 3) | 10,256 |
| | — |
|
| Accretion expense | 387 |
| | 812 |
|
| Payments | (30 | ) | | (29 | ) |
| Revisions in estimated cash flows | 41 |
| | (1,145 | ) |
| Asset retirement obligation at end of period | $ | 20,695 |
| | $ | 10,041 |
|
We have additional asset retirement obligations with indeterminate settlement dates. The fair value of these asset retirement obligations cannot be estimated due to the lack of sufficient information to estimate the settlement dates of the obligations. These asset retirement obligations include, for example, (i) removal and disposal of potentially hazardous materials related to equipment and/or an operating facility if the equipment and/or facilities were to undergo major maintenance, renovation, or
demolition;demolition and (ii)
wastewater treatment ponds that may be required to be drained and/or cleaned if the related operating facility is closed; and (iii) storage sites or owned facilities for which removal and/or disposal of chemicals and other related materials are required if the operating facility is closed. We will recognize a liability in the period in which sufficient information becomes available to reasonably estimate the fair value of these obligations.
12. Debt16. Transactions With Related Parties
For the period of February 22, 2008, through March 2010, Boise Cascade held a significant equity interest in us, and our transactions with Boise Cascade were recorded as related-party transactions. In March 2010, Boise Cascade sold all of its remaining investment in us, and accordingly, it is no longer a related party. As a result, beginning in March 2010, transactions (discussed below) of Louisiana Timber Procurement Company, L.L.C. (LTP) represent the only significant related-party activity recorded in our Consolidated Financial Statements.
Related-Party Sales
LTP is a variable-interest entity that is 50% owned by Boise Inc. and 50% owned by Boise Cascade. LTP procures sawtimber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of Boise Inc. and Boise Cascade in Louisiana. We are the primary beneficiary of LTP, as we have the power to direct the activities that most significantly affect the economic performance of LTP. Therefore, we consolidate LTP in our financial statements in our Packaging segment. The carrying amounts of LTP's assets and liabilities (which relate primarily to noninventory working capital items) on our Consolidated Balance Sheets were At $4.0 million at December 31, 20092012, and 2008, our long-term debt and the interest rates on that debt were as follows (dollars, in thousands):
| | | | | | | | | | | | |
| | | December 31, 2009 | | December 31, 2008 |
| | | Amount | | | Interest Rate | | Amount | | | Interest Rate |
| | | | |
Revolving credit facility, due 2013 | | $ | — | | | —% | | $ | 60,000 | | | 4.33% |
Tranche A term loan, due 2013 | | | 203,706 | | | 3.25% | | | 245,313 | | | 4.75% |
Tranche B term loan, due 2014 | | | 312,221 | | | 5.75% | | | 471,437 | | | 5.75% |
Second lien term loan, due 2015 | | | — | | | —% | | | 260,700 | | | 9.25% |
9% Senior notes, due 2017 | | | 300,000 | | | 9.00% | | | — | | | —% |
Current portion of long-term debt | | | (30,711 | ) | | 3.97% | | | (25,822 | ) | | 5.33% |
| | | | | | | | | | | | |
Long-term debt, less current portion | | | 785,216 | | | 6.41% | | | 1,011,628 | | | 6.34% |
Current portion of long-term debt | | | 30,711 | | | 3.97% | | | 25,822 | | | 5.33% |
| | | | | | | | | | | | |
| | | 815,927 | | | 6.32% | | | 1,037,450 | | | 6.31% |
15.75% notes payable, due 2015 | | | — | | | —% | | | 66,606 | | | 15.75% |
| | | | | | | | | | | | |
| | $ | 815,927 | | | | | $ | 1,104,056 | | | |
| | | | | | | | | | | | |
As of $3.3 million at December 31, 2009, our debt consisted of the following:
The Revolving Credit Facility: A five-year nonamortizing $250.0 million senior secured revolving credit facility with interest at either the London Interbank Offered Rate (LIBOR) plus an applicable margin, which is currently 300 basis points, or a calculated base rate plus an applicable margin, which is currently 200 basis points (collectively with the Tranche A term loan facility and the Tranche B term loan facility, the Credit Facilities).
The Tranche A Term Loan Facility: A five-year loan facility with interest at LIBOR plus an applicable margin, which is currently 300 basis points, or a calculated base rate plus an applicable margin, which is currently 200 basis points. The Tranche A term loan facility was originally issued at $250.0 million.
The Tranche B Term Loan Facility: A six-year amortizing loan facility with interest at LIBOR (subject to a floor of 4%) plus 350 basis points or a calculated base rate plus 250 basis points. The Tranche B term loan facility was originally issued at $475.0 million.
The 9% Senior Notes: An eight-year nonamortizing $300.0 million senior unsecured debt obligation with annual interest at 9%.
The Credit Facilities are secured by a first-priority lien on all of the assets of our subsidiaries that guarantee or are borrowers, and in the event of default, the lenders generally would be entitled to seize the collateral. All borrowings under the Credit Facilities bear interest at a rate per annum equal to an applicable margin plus a calculated base rate or adjusted Eurodollar rate. The calculated base rate means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 0.50%2011. The adjusted Eurodollar rate means LIBOR rounded to the nearest 1/16 of 1.0% and adjusted for any applicable reserve requirements. In addition to paying interest, the Company pays a commitment fee to the lenders under the revolving credit facility at a rate of 0.50% per annum (which shall be reduced to 0.375% when the leverage ratio is less than 2.25:1.00) times the daily average undrawn portion of the revolving credit facility (reduced by the amount of letters of credit issued and outstanding), which fee is payable quarterly in arrears. The Company also pays letter of credit fees of 300 basis points times the average daily maximum outstanding amount of the letters of credit and a fronting fee of 15 basis points to the issuing bank of outstanding letters of credit. These fees are payable quarterly and in arrears.
At December 31, 2009 and 2008, we had zero and $60.0 million, respectively, of borrowings outstanding under the revolving credit facility. ForDuring the years ended December 31, 20092012, 2011, and 2008,2010, we recorded $60.3 million, $40.1 million, and $33.0 million, respectively, of LTP sales to Boise Cascade in "Sales, Related parties" in the average interest rates for our borrowings under our revolving credit facility were 3.7% and 6.0%, respectively. The minimum and maximum borrowings under the revolving credit facility were zero and $60.0 million for the year ended December 31, 2009. The minimum and maximum borrowings under the Revolving Credit Facility were zero and $80.0 million for the year ended December 31, 2008. The weighted average amount of borrowings outstanding under the revolving credit facility during the year ended December 31, 2009, was $8.5 million. The weighted average amount of borrowings outstanding under the revolving credit facility during the year ended December 31, 2008, was $57.6 million. At December 31, 2009, we had availability of $227.8 million, which is net of outstanding letters of credit of $22.2 million.
Debt Restructuring
On October 26, 2009, Boise Paper Holdings, L.L.C. (Boise Paper Holdings) and Boise Finance Company (together, the Issuers), two of our wholly owned indirect subsidiaries, issued a $300 million aggregate principal amount of 9% senior notes due on November 1, 2017 (the 9% Senior Notes) through a private placement that is exempt from the registration requirements of the Securities Act of 1933, as amended. The 9% Senior Notes pay interest semiannually in arrears on May 1 and November 1, commencing on May 1, 2010.
Following the sale of the 9% Senior Notes, the Issuers used the net proceeds of the sale, as well as cash on hand, to retire a portion of the existing term loan indebtedness under Boise Paper Holdings’ Credit Facilities pursuant to the amendments of our Credit Facilities (Credit Agreement Amendments). The Credit Agreement Amendments became effective October 26, 2009, at which time Boise Paper Holdings repaid approximately $75 million of outstanding secured debt under its first lien term loan. In addition, pursuant to the Credit Agreement Amendments, Boise Paper Holdings used proceeds of the issuance to repurchase, in its entirety, the indebtedness outstanding under its second lien term loan. In consideration of the repurchase of indebtedness under the second lien term loan, Boise Paper Holdings paid a premium of 113% to the lender parties, plus accrued and unpaid interest. Upon the repurchase of all of the indebtedness outstanding under the second lien term loan, such debt was canceled and the second lien credit agreement was terminated.
On October 26, 2009, we also used cash on hand to repurchase, in its entirety, our outstanding 15.75% note payable due in 2015. Boise Inc. purchased the note payable at a purchase price of 70% of the outstanding value of the note payable, plus accrued and unpaid interest. Following the purchase of the note payable, the note was canceled.
The issuance of the 9% Senior Notes and the repurchase of our second lien term loan represented a substantial modification to our debt structure. Therefore, we wrote off the unamortized deferred financing fees for the second lien and recognized various other costs and fees incurred in connection with these transactions in our Consolidated Statements of Income (Loss)and approximately the same amount of expenses in "Materials, labor, and other operating expenses (excluding depreciation)." The sales were at prices designed to approximate market prices.
We also recorded $13.2 millionhave an outsourcing services agreement under which we provide a number of deferred financing costs relatedcorporate staff services to Boise Cascade at our cost. The agreement, as extended, expires on February 22, 2014. It will automatically renew for one-year terms unless either party provides notice of termination to the debt restructuring. In addition,other party at least 12 months in December 2009, we made a voluntary prepayment of $100 million on our Tranche B term loan at 101%. We recognized $44.1 million in “Loss on extinguishment of debt,” which consistedadvance of the following (dollars, in thousands): | | | | |
Write-off of second lien deferred financing fees | | $ | 27,067 | |
Premium paid to second lien holders | | | 33,891 | |
Gain on repurchase of notes payable | | | (22,682 | ) |
Other costs and fees | | | 5,826 | |
| | | | |
| | $ | 44,102 | |
| | | | |
In connection with the issuance of the 9% Senior Notes, the Issuers and BZ Intermediate Holdings LLC, (Holdings), a wholly owned consolidated entity of Boise Inc. and the parent company of Boise Paper Holdings and its restricted subsidiaries (together the 9% Senior Notes Guarantors) entered into the Registration Rights Agreement, dated as of October 26, 2009 (the Registration Rights Agreement). The Registration Rights Agreement requires the Company to register under the Securities Act the 9% Senior Notes due in 2017 (the Exchange Notes) having substantially identical terms to the 9% Senior Notes and to complete an exchange of the privately placed 9% Senior Notes for the publicly registered Exchange Notes or, in certain circumstances, to file and keep effective a shelf registration statement for resale of the privately placed 9% Senior Notes. If the Issuers fail to satisfy these obligations by October 26, 2010, the Issuers will pay additional interest up to 1% per annum to holders of the 9% Senior Notes.
The 9% Senior Notes are senior unsecured obligations and rank equally with all of the Issuers’ present and future senior indebtedness, senior to all of their future subordinated indebtedness, and effectively subordinated to all present and future senior secured indebtedness of the Issuers (including all borrowings with respect to the Credit Facilities to the extent of the value of the assets securing such indebtedness).
Covenants
The Credit Facilities require Holdings and its subsidiaries to maintain financial covenant ratios. In connection with the October 2009 debt restructuring, we also entered into the Credit Agreement Amendments that modified our financial covenants under the Credit Facilities. The financial covenant modifications limit our total leverage ratio to 4.75:1.00, stepping down to 4.50:1.00 at September 30, 2011. We have a new secured leverage ratio of 3.25:1.00, stepping down to 3.00:1.00 at September 30, 2011. The total leverage ratio is defined in our loan agreements at the end of any fiscal quarter as the ratio of (i) consolidated total net debt as defined in our Credit Facilities debt agreement as of such day to (ii) consolidated adjusted EBITDA for the four-fiscal-quarter period ending on suchexpiration date. The Credit Facilities secured leverage ratio is defined in our First Amendment to our loan agreement as the ratio as of the last day of any fiscal quarter of (i) consolidated first lien secured total net debt as defined in our credit agreement amendments as of such day to (ii) consolidated adjusted EBITDA for the four-fiscal-quarter period ending on such date. The Credit Facilities also limit the ability of Holdings and its subsidiaries to make capital expenditures, generally to $150 million per year.
The 9% Senior Notes indenture contains covenants which, subject to certain exceptions, limit the ability of the Issuers and the 9% Senior Notes Guarantors to, among other things, incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with affiliates, and create liens on assets of the Issuers or 9% Senior Notes Guarantors. Upon a change of control, the Issuers must offer to repurchase the 9% Senior Notes at 101% of the principal amount, plus accrued and unpaid interest. If the Issuers sell certain assets and the Issuers do not use the proceeds from such sale for specified purposes, they must offer to repurchase the 9% Senior Notes at 100% of the principal amount, plus accrued and unpaid interest.
Guarantees
The Company’s obligations under its Credit Facilities are guaranteed by each of Boise Paper Holdings’ existing and subsequently acquired domestic subsidiaries (collectively, the Credit Facility Guarantors). The Credit Facilities are secured by a first-priority security interest in substantially all of the real, personal, and mixed property of Boise Paper Holdings and the Credit Facility Guarantors, including 100% of the equity interests of Boise Paper Holdings and each domestic subsidiary of Boise Paper Holdings, 65% of the equity interests of each of Boise Paper Holdings’ foreign subsidiaries (other than Boise Hong Kong Limited so long as Boise Hong Kong Limited does not
account for more than $2.5 million of consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) during any fiscal year of Boise Paper Holdings), and all intercompany debt.
The 9% Senior Notes are jointly and severally guaranteed on a senior unsecured basis by Holdings and each existing and future subsidiary of Holdings (other than the Issuers). The 9% Senior Notes guarantors do not include Louisiana Timber Procurement Company, L.L.C., or foreign subsidiaries.
Prepayments
We may redeem all or a portion of the 9% Senior Notes at any time on or after November 1, 2013, at a premium decreasing to zero by November 1, 2015, plus accrued and unpaid interest. In addition, prior to November 1, 2012, the Issuers may redeem up to 35% of the aggregate principal amount of the 9% Senior Notes at a redemption price of 109% of the principal amount thereof with the net proceeds of one or more qualified equity offerings.
Other Provisions
Subject to specified exceptions, the Credit Facilities require that the proceeds from certain asset sales, casualty insurance, certain debt issuances, and 75% (subject to step-downs based on certain leverage ratios) of the excess cash flow for each fiscal year must be used to pay down outstanding borrowings. As of December 31, 2009, required debt principal repayments under the Credit Facilities, including those from excess cash flows, total $30.7 million in 2010. Of this amount, $16.1 million is from our scheduled repayments, and $14.6 million relates to excess cash flows. Our debt principal repayment requirements are $48.3 million in 2011, $134.3 million in 2012, $13.0 million in 2013, $289.6 million in 2014, and $300.0 million thereafter.
Other
At December 31, 2009 and 2008, we had $47.4 million and $72.6 million, respectively, of costs recorded in “Deferred financing costs” on our Consolidated Balance Sheet. As noted above, we canceled the second lien with the proceeds from the debt restructuring, and as a result, we expensed approximately $27.1 million of deferred financing costs. We recorded this charge in “Loss on extinguishment of debt” in our Consolidated Statement of Income (Loss). In addition, the $13.2 million of financing costs related to the debt restructuring is included, net of amortization, in “Deferred financing costs” on our Consolidated Balance Sheet. The amortization of these costs is recorded in interest expense using the effective interest method over the life of the loans. We recorded $11.3 million and $9.3 million of amortization expense for the years ended December 31, 2009 and 2008, in “Interest expense” in our Consolidated Statements of Income (Loss).
In April 2008, we entered into interest rate derivative instruments to hedge a portion of our interest rate risk as required under the terms of the first and second lien facilities. At December 31, 2009, we had $515.9 million of variable-rate debt outstanding, all of which was hedged using interest rate derivatives. At December 31, 2009, our average effective interest rate was not affected by our interest rate derivatives, as the effective cap rates were above the interest rates on the hedged debt. For additional information on our interest rate derivatives, see Note 13, Financial Instruments.
For the years ended December 31, 2009 and 2008, cash payments for interest, net of interest capitalized, were $56.9 million and $72.8 million, respectively. No payments were made during the period of February 1 (Inception) through December 31, 2007, the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007.
13. Financial Instruments
We are exposed to market risks, including changes in interest rates, energy prices, and foreign currency exchange rates.
Interest Rate Risk — Debt
With the exception of the 9% Senior Notes maturing in November 2017, our debt is variable-rate debt. At December 31, 2009, the estimated value of the 9% Senior Notes, based on then-current interest rates for similar obligations with like maturities, was approximately $14.6 million more than the amount recorded on our Consolidated Balance Sheet. At December 31, 2009, the estimated value of our variable-rate debt, based on then-current interest rates for similar obligations with like maturities, was approximately $32.5 million less than the amount recorded on our Consolidated Balance Sheet. The fair value of long-term debt is estimated based on quoted market prices for the same or similar issues or on the discounted value of the future cash flows expected to be paid using incremental rates of borrowing for similar liabilities.
In April 2008, we entered into interest rate derivative instruments to hedge a portion of our interest rate risk as required under the terms of the Credit Facilities. At December 31, 2009, we had $515.9 million of variable-rate debt outstanding, all of which was hedged using interest rate derivatives. We purchased interest rate caps with a term of three years and a cap rate of 5.50% on a notional amount of $260.0 million to hedge the interest rate on our second lien facility. These interest rate caps remain in place. We also purchased interest rate caps to hedge part of the interest rate risk on our Tranche B term loan facility with a LIBOR cap rate of 5.00% on a notional amount of $425.0 million for the period of April 21, 2008, through March 31, 2009; a notional amount of $350.0 million for the period of March 31, 2009, through March 31, 2010; and a notional amount of $300.0 million for the period of March 31, 2010, through March 31, 2011.
Credit Facilities. Effective December 31, 2008, we began utilizing the calculated base rate plus 250 basis points on the Tranche B term loan facility rather than the LIBOR plus 350 basis points (subject to a floor of 4%) used prior to December 31, 2008. As the interest rate on this debt no longer matched the rate on the interest rate derivatives used to hedge a portion of that debt, we account for them as economic hedges. The amounts recorded in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet will be amortized to interest expense over the remaining life of the interest rate derivatives. Changes in the fair value of these derivatives will be recorded in “Change in fair value of interest rate derivatives” in our Consolidated Statements of Income (Loss).
These derivatives have a cap rate of 5.00% on a notional amount of $425.0 million for the period of April 21, 2008, through March 31, 2009; a notional amount of $350.0 million for the period of March 31, 2009, through March 31, 2010; and a notional amount of $300.0 million for the period of March 31, 2010, through March 31, 2011. At December 31, 2009 and 2008, we recorded the fair value of the interest rate derivatives, or $0.1 million and $0.2 million, respectively, in “Other assets” on our Consolidated Balance Sheet. During the year ended December 31, 2009,2010, we recorded the charge
$2.4 million of revenues in fair value of these derivatives, or a $0.4 million gain, in “Changes in fair value of interest rate derivatives” in our Consolidated Statement of Income (Loss). During the year ended December 31, 2008, we recorded the change in fair value of these derivatives, or a $0.8 million loss, in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet. No amounts were reclassified to interest expense. During the years ended December 31, 2009 and 2008, we recorded $0.5 million and $0.4 million, respectively, in “Interest expense” for the amortization of the premiums paid for the interest rate derivatives. At December 31, 2008, there was no ineffectiveness related to these hedges.Second Lien Facility. We account for the interest rate derivatives with a notional amount of $260.0 million that hedged our exposure to interest rate fluctuations on our second lien facility as economic hedges. At December 31, 2009 and 2008, we recorded the fair value of the interest rate derivatives, or $0.1 million, in “Other assets” on our Consolidated Balance Sheet. During the years ended December 31, 2009 and 2008, we recorded the change in fair value of these derivatives, or $0.2 million and $0.5 million, respectively, of expense, in “Change in fair value of interest rate derivatives” in our Consolidated Statement of Income (Loss). During each year ended December 31, 2009 and 2008, we recorded $0.2 million in “Interest expense” for the amortization of the premiums paid for the interest rate derivatives.
Interest Rate Risk — Investments
Our exposure to market risk for changes in interest rates also relates to our cash, cash equivalents, and short-term investments. As of December 31, 2009, our cash, cash equivalents, and short-term investments consisted primarily of funds invested in money market accounts and certificates of deposit insured by the Federal Deposit Insurance Corporation (FDIC). As the interest rates on a significant portion of our cash, cash equivalents, and short-term investments are variable, a change in interest rates earned would affect interest income along with cash flows but would not have a significant impact on the fair market value of the related underlying instruments.
The components of cash, cash equivalents, and short-term investments as of and for the year ended December 31, 2009, are as follows (dollars, in thousands):
| | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2009 |
| | | Cost Basis | | Accrued
Interest | | Unrealized
Gains
(Losses) | | | Recorded
Basis | | Cash and
Cash
Equivalents | | Short-Term
Investments |
| | | | | | |
Cash | | $ | 4,268 | | $ | — | | $ | — | | | $ | 4,268 | | $ | 4,268 | | $ | — |
Money market accounts | | | 65,125 | | | — | | | — | | | | 65,125 | | | 65,125 | | | — |
Certificates of deposit | | | 10,000 | | | 28 | | | (5 | ) | | | 10,023 | | | — | | | 10,023 |
| | | | | | | | | | | | | | | | | | | |
Total | | $ | 79,393 | | $ | 28 | | $ | (5 | ) | | $ | 79,416 | | $ | 69,393 | | $ | 10,023 |
| | | | | | | | | | | | | | | | | | | |
At December 31, 2009, net unrealized losses of $5,000 are included in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet. During the year ended December 31, 2009, $11.6 million of certificates of deposit matured, all of which we subsequently reinvested. At December 31, 2009, we did not have any investments in individual securities that had been in a continual unrealized loss position for more than 12 months. The unrealized losses at December 31, 2009, represent a temporary condition due to the high quality of the investment securities, and we expect to recover the par value of these investments.
At December 31, 2008, we had $22.5 million in cash and cash equivalents, consisting of $7.2 million in cash and $15.3 million in money market accounts. We did not have any short-term investments as of or during the year ended December 31, 2008.
Energy Risk
We enter into natural gas swaps, options, or a combination of these instruments to hedge the variable cash flow risk of natural gas purchases at index prices. As of December 31, 2009, we had entered into derivative instruments related to approximately 50% of our forecasted natural gas purchases for the period of January 2010 through October 2010, approximately 16% of our forecasted natural gas purchases from November 2010 through March 2011, and approximately 6% of our forecasted natural gas purchases from April 2011 through October 2011. These derivatives include three-way collars and call spreads.
A three-way collar is a combination of options: a written put, a purchased call, and a written call. The purchased call establishes a maximum price unless the market price exceeds the written call, at which point the maximum price would be New York Mercantile Exchange (NYMEX) price less the difference between the purchased call and the written call strike price. The written put establishes a minimum price (the floor) for the volumes under contract. This strategy enables us to decrease the floor and the ceiling price of the collar beyond the range of a traditional collar while offsetting the associated cost with the sale of the written call. The following tables summarize our position related to these instruments as of December 31, 2009 (in millions of British thermal units, or mmBtu, per day):
| | | | | | | | | | | | |
| | | Three-Way Collars | |
| | | January 2010
Through
March 2010 | |
| | | |
Volume hedged | | | 6,000 | | | | 8,500 | | | | 4,000 | |
| | | |
Strike price of call sold | | $ | 12.00 | | | $ | 12.00 | | | $ | 11.00 | |
Strike price of call bought | | | 9.00 | | | | 9.00 | | | | 8.00 | |
Strike price of put sold | | | 6.50 | | | | 5.35 | | | | 4.60 | |
Three-way collar premium | | | 0.17 | | | | — | | | | — | |
| | | |
Approximate percent hedged | | | 16 | % | | | 23 | % | | | 11 | % |
| | | | | | | | | | | | | | | | |
| | | Three-Way Collars | |
| | | April 2010
Through
October 2010 | | | November 2010
Through
March 2011 | | | April 2011
Through
October 2011 | |
| | | | |
Volume hedged | | | 5,500 | | | | 9,500 | | | | 4,000 | | | | 1,000 | |
| | | | |
Strike price of call sold | | $ | 12.00 | | | $ | 11.00 | | | $ | 11.00 | | | $ | 11.00 | |
Strike price of call bought | | | 9.00 | | | | 8.00 | | | | 8.00 | | | | 8.00 | |
Strike price of put sold | | | 5.90 | | | | 5.03 | | | | 5.66 | | | | 5.33 | |
Three-way collar premium | | | — | | | | — | | | | — | | | | — | |
| | | | |
Approximate percent hedged | | | 18 | % | | | 32 | % | | | 11 | % | | | 3 | % |
A call spread is a combination of a purchased call and a written call. The purchased call establishes a maximum price unless the market exceeds the written call, at which point the maximum price would be the NYMEX price less the difference between the purchased call and the written call strike price plus any applicable net premium associated with the two options. The following tables summarize our position related to these instruments as of December 31, 2009 (in mmBtu per day):
| | | | | | | | |
| | | Call Spreads | |
| | | November 2010
Through
March 2011 | | | April 2011
Through
October 2011 | |
| | |
Volume hedged | | | 2,000 | | | | 1,000 | |
| | |
Strike price of call sold | | $ | 11.00 | | | $ | 11.00 | |
Strike price of call bought | | | 8.00 | | | | 8.00 | |
Net cap premium | | | 0.54 | | | | 0.40 | |
| | |
Approximate percent hedged | | | 5 | % | | | 3 | % |
We have elected to account for these instruments as economic hedges. At December 31, 2009 and 2008, we recorded the fair value of the derivatives, or $1.4 million and $7.3 million, respectively, in “Accrued liabilities, Other” on our Consolidated Balance Sheet. During the years ended
December 31, 2009 and 2008, we recorded the change in fair value of the instruments, or a $5.9 million gain and a $7.4 million loss, respectively, in “Materials, labor, and other operating expenses”"Sales, Related parties" in our Consolidated Statements of Income (Loss).
Foreign Currency Risk
WhileIncome. Services we are exposedprovide to foreign currency risk in our operations, none of this risk was material to our financial position or results of operations as of December 31, 2009 and 2008.
Predecessor
During the Predecessor periods presented, Boise Cascade occasionally used interest rate swaps to hedge variable interest rate risk. Because debtunder this agreement include transportation, information technology, accounting, and interest costs were not allocated to the Predecessor, the effects of the interest rate swaps were not included in the Predecessor consolidated financial statements.
Fair Value Measurementshuman resource services.
We record our financial assets
Related-Party Costs and
liabilities, which consist of cash equivalents, short-term investments, and derivative financial instruments that are used to hedge exposures to interest rate and energy risks, at fair value. The fair value hierarchy under U.S. GAAP gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value (Level 1). In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value (Level 1). If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly (Level 2). If quoted prices for identical or similar assets are not available or are unobservable, we may use internally developed valuation models, whose inputs include bid prices and third-party valuations utilizing underlying asset assumptions (Level 3). We enter into these hedges with large financial institutions, and we monitor their credit ratings to determine if any adjustments to fair value need to be made. No such adjustments were made in any period presented.At December 31, 2009, fair value for these financial instruments was determined based on applicable interest rates, such as LIBOR, interest rate curves, and NYMEX price quotations under the terms of the contracts, using current market information as of the reporting date. The following table provides a summary of our assets and liabilities measured at fair value on a recurring basis and the inputs used to develop these estimated fair values under the fair value hierarchy discussed above (dollars, in thousands):
| | | | | | | | | | | | |
| | | Fair Value Measurements at
December 31, 2009, Using: |
| | | Total | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| | | | |
Assets: | | | | | | | | | | | | |
Money market accounts (a) | | $ | 65,125 | | $ | 65,125 | | $ | — | | $ | — |
Certificates of deposit (b) | | | 10,023 | | | 10,023 | | | — | | | — |
Interest rate derivatives (c) | | | 163 | | | — | | | 163 | | | — |
| | | | | | | | | | | | |
| | $ | 75,311 | | $ | 75,148 | | $ | 163 | | $ | — |
| | | | | | | | | | | | |
| | | | |
Liabilities: | | | | | | | | | | | | |
Energy derivatives (d) | | $ | 1,447 | | $ | — | | $ | 1,447 | | $ | — |
| | | | | | | | | | | | |
| | $ | 1,447 | | $ | — | | $ | 1,447 | | $ | — |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | Fair Value Measurements at
December 31, 2008, Using: |
| | | Total | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| | | | |
Assets: | | | | | | | | | | | | |
Interest rate derivatives (c) | | $ | 341 | | $ | — | | $ | 341 | | $ | — |
| | | | | | | | | | | | |
| | $ | 341 | | $ | — | | $ | 341 | | $ | — |
| | | | | | | | | | | | |
| | | | |
Liabilities: | | | | | | | | | | | | |
Energy derivatives (d) | | $ | 7,324 | | $ | — | | $ | 7,324 | | $ | — |
| | | | | | | | | | | | |
| | $ | 7,324 | | $ | — | | $ | 7,324 | | $ | — |
| | | | | | | | | | | | |
(a) | Recorded in “Cash and cash equivalents” on our Consolidated Balance Sheet. |
(b) | Recorded in “Short-term investments” on our Consolidated Balance Sheet. |
(c) | Recorded in “Other assets” on our Consolidated Balance Sheet. |
(d) | Recorded in “Accrued liabilities, Other” on our Consolidated Balance Sheet. |
As of December 31, 2009 and 2008, we did not have any fair value measurements using significant unobservable inputs (Level 3).
Expenses
Tabular Disclosure of the Fair Values of Derivative Instruments and the Effect of Those Instruments(dollars, in thousands) | | | | | | | | | | |
| | | Fair Values of Derivative Instruments |
| | | Asset Derivatives | | Liability Derivatives |
| | | December 31, 2009 |
| | | Balance
Sheet
Location | | Fair
Value | | Balance
Sheet
Location | | Fair
Value |
| | | | |
Derivatives designated as economic hedging instruments (a) | | | | | | | | | | |
Interest rate contracts | | Other assets | | $ | 163 | | Accrued liabilities | | $ | — |
Natural gas contracts | | Other assets | | | — | | Accrued liabilities | | | 1,447 |
| | | | | | | | | | |
Total derivatives designated as economic hedging instruments | | | | $ | 163 | | | | $ | 1,447 |
| | | | | | | | | | |
| | | | |
Total derivatives | | | | $ | 163 | | | | $ | 1,447 |
| | | | | | | | | | |
| |
| | | Fair Values of Derivative Instruments |
| | | Asset Derivatives | | Liability Derivatives |
| | | December 31, 2008 |
| | | Balance
Sheet
Location | | Fair
Value | | Balance
Sheet
Location | | Fair
Value |
| | | | |
Derivatives designated as cash flow hedging instruments (b) | | | | | | | | | | |
Interest rate contracts | | Other assets | | $ | 250 | | Accrued liabilities | | $ | — |
| | | | | | | | | | |
Total derivatives designated as cash flow hedging instruments | | | | $ | 250 | | | | $ | — |
| | | | | | | | | | |
| | | | |
Derivatives designated as economic hedging instruments (a) | | | | | | | | | | |
Interest rate contracts | | Other assets | | $ | 91 | | Accrued liabilities | | $ | — |
Natural gas contracts | | Other assets | | | — | | Accrued liabilities | | | 7,324 |
| | | | | | | | | | |
Total derivatives designated as economic hedging instruments | | | | $ | 91 | | | | $ | 7,324 |
| | | | | | | | | | |
| | | | |
Total derivatives | | | | $ | 341 | | | | $ | 7,324 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Year Ended December 31, 2009 | |
Derivatives
Designated
as Cash Flow
Hedging
Instruments (b) | | Amount of Gain
or (Loss)
Recognized in
OCI on Derivative
(Effective Portion) | | | Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
(Effective Portion) | | Amount of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
(Effective Portion) | | Derivatives
Designated
as Economic
Hedging
Instruments (a) | | Location of Gain
or (Loss)
Recognized in
Income on
Derivative | | Amount of Gain
or (Loss)
Recognized in
Income on
Derivative | |
| | | | | | |
Interest rate contracts | | $ | — | | | Interest income/expense | | $ | 338 | | Interest rate contracts | | Change in fair value of interest rate derivatives | | $ | 568 | |
| | | | | | |
| | | | | | | | | | | Natural gas contracts | | Materials, labor, and other operating expenses | | | 5,877 | |
| | | | | | | | | | | | | | | | | |
| | $ | — | | | | | $ | 338 | | | | | | $ | 6,445 | |
| | | | | | | | | | | | | | | | | |
|
The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Year Ended December 31, 2008 | |
Derivatives
Designated
as Cash Flow
Hedging
Instruments (b) | | Amount of Gain
or (Loss)
Recognized in
OCI on Derivative
(Effective Portion) | | | Location of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
(Effective Portion) | | Amount of Gain
or (Loss)
Reclassified from
Accumulated OCI
Into Income
(Effective Portion) | | Derivatives
Designated
as Economic
Hedging
Instruments (a) | | Location of Gain or (Loss)
Recognized in
Income on
Derivative | | Amount of Gain
or (Loss)
Recognized in
Income on
Derivative | |
| | | | | | |
Interest rate contracts | | $ | (760 | ) | | Interest income/expense | | $ | — | | Interest rate contracts | | Change in fair value of interest rate derivatives | | $ | (479 | ) |
| | | | | | |
| | | | | | | | | | | Natural gas contracts | | Materials, labor, and other operating expenses | | | (7,445 | ) |
| | | | | | | | | | | | | | | | | |
| | $ | (760 | ) | | | | $ | — | | | | | | $ | (7,924 | ) |
| | | | | | | | | | | | | | | | | |
(a) | See discussion above for additional information on our purpose for entering into derivatives designated as economic hedges and our overall risk management strategies. |
(b) | As of January 1, 2009, we no longer have interest rate derivatives designated as cash flow hedges. The amounts recorded in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet are being amortized to interest over the remaining life of the interest rate derivatives. During the year ended December 31, 2009, these derivatives were accounted for as economic hedges. |
14. Retirement and Benefit Plans
During all of the periods presented, some of our employees participated in our retirement plans, and some of the Predecessor’s employees participated in Boise Cascade’s retirement plans. These plans consist of noncontributory defined benefit pension plans, contributory defined contribution savings plans, deferred compensation plans, and postretirement healthcare benefit plans. Compensation expense was calculated based on costs directly attributable to our employees and, in the case of the Predecessor employees of the Paper Group, an allocation of expense related to corporate employees that serviced all Boise Cascade business units.
Defined Benefit Plans
Some of our employees participate in noncontributory defined benefit pension plans that were either transferred to us or spun off from Boise Cascade. The salaried defined benefit pension plan is available only to employees who were formerly employed by OfficeMax (known at the time as Boise
Cascade Corporation) before November 2003. The pension benefit for salaried employees is based primarily on the employees’ years of service and highest five-year average compensation. The benefit for hourly employees is generally based on a fixed amount per year of service. The Predecessor treated participants in these plans as participants in multiemployer plans. Accordingly, the Predecessor did not reflect any assets or liabilities related to the noncontributory defined benefit pension plans on its Consolidated Balance Sheet. The Predecessor did, however, record costs associated with the employees who participated in these plans in its Consolidated Statements of Income (Loss). Expenses attributable to participation in noncontributory defined benefit plans for the years ended December 31, 2009 and 2008, and the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, were $8.7 million, $8.3 million, $1.8 million, and $13.1 million, respectively.
In December 2008, we amended our defined benefit pension plan for salaried employees (Salaried Plan). This amendment freezes the accumulation of benefits and years of service for participants of the Salaried Plan effective April 15, 2009. This amendment also freezes benefits in the Boise Inc. Supplemental Plan (SUPP) and the Boise Inc. Supplemental Early Retirement Plan for Executive Officers (SERP). Because the Salaried Plan has unrecognized losses, the curtailment gain associated with this amendment was applied to partially offset those losses. However, we have recognized a $2.9 million gain on our SUPP and SERP plans because the curtailment gain exceeded our existing unrecognized losses. This gain is recognized in “Other (income) expense, net” in our Consolidated Statements of Income (Loss) for the year ended December 31, 2008.
Defined Contribution Plans
Some of our employees participate in contributory defined contribution savings plans, which covered most of our salaried and hourly employees. Expenses related to matching contributions attributable to participation in contributory defined contribution savings plans for the years ended December 31, 2009 and 2008, and the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, were $10.0 million, $8.4 million, $2.1 million, and $9.3 million, respectively. Salaried employees hired after October 31, 2003, who are otherwise eligible to participate in these plans are eligible for additional discretionary company matching contributions based on a percentage approved each plan year. Beginning April 16, 2009, the company contributions for eligible salaried employees consisted of a nondiscretionary, nonmatching base contribution of 3% of eligible compensation plus a matching contribution. In addition, the Company may make additional discretionary nonmatching contributions each year. The company contribution structure for hourly employees varies.
Deferred Compensation Plans
Some of our employees participate in deferred compensation plans, in which key managers and nonaffiliated directors may irrevocably elect to defer a portion of their base salary and bonus or director’s fees until termination of employment or beyond. A participant’s account is credited with imputed interest at a rate equal to 130% of Moody’s composite average of yields on corporate bonds. In addition, participants other than directors may elect to receive their company contributions in the deferred compensation plan in lieu of any company contribution in the contributory defined contribution savings plan. The deferred compensation plans are unfunded; therefore, benefits are paid from general assets of the Company. At December 31, 2009 and 2008, we had $0.9 million and $0.6 million, respectively, of liabilities attributable to participation in our deferred compensation plan on our Consolidated Balance Sheet.
Postretirement Benefit Plans
Some of our and the Predecessor’s employees participated in Boise Cascade’s postretirement healthcare benefit plans. The type of retiree healthcare benefits and the extent of coverage vary based on employee classification, date of retirement, location, and other factors. All of the postretirement healthcare plans are unfunded. In 2007 and 2006, the Predecessor communicated to employees changes to the retiree healthcare programs. The Predecessor discontinued healthcare coverage for most of the post-65 retirees. In addition, the Predecessor eliminated the company subsidy for some of the pre-65 hourly retirees. This change shifts retiree medical costs to the plan participants. As a result of this change, the Predecessor recorded a $4.4 million gain in the Consolidated Statement of Income (Loss) for the year ended December 31, 2007. The postretirement benefit plans have a December 31 measurement date.
Obligations and Funded Status of Postretirement Benefits and Pensions
The following table, which includes only company-sponsored plans, reconciles the beginning (February 22, 2008, for 2008 plan year) and ending balances of our benefit obligation. It also shows the fair value of plan assets and aggregate funded status of our plans. The funded status changes from year to year based on the investment return from plan assets, contributions, and benefit payments and the discount rate used to measure the liability (dollars, in thousands):
| | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Other Benefits | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
Change in benefit obligation | | | | | | | | | | | | | | | | |
Benefit obligation at beginning of year
(February 22, 2008, for 2008 plan year) | | $ | 396,692 | | | $ | 379,390 | | | $ | 2,490 | | | $ | 2,723 | |
Service cost | | | 6,891 | | | | 9,226 | | | | 4 | | | | 3 | |
Interest cost | | | 24,314 | | | | 20,881 | | | | 47 | | | | 98 | |
Amendments | | | 145 | | | | 364 | | | | — | | | | (77 | ) |
Actuarial (gain) loss | | | 9,138 | | | | 31,715 | | | | (1,725 | ) | | | — | |
Closure and curtailment gain | | | — | | | | (37,473 | ) | | | — | | | | — | |
Benefits paid | | | (13,218 | ) | | | (7,411 | ) | | | (44 | ) | | | (257 | ) |
| | | | | | | | | | | | | | | | |
Benefit obligation at end of year | | $ | 423,962 | | | $ | 396,692 | | | $ | 772 | | | $ | 2,490 | |
| | | | | | | | | | | | | | | | |
Change in plan assets | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year
(February 22, 2008, for 2008 plan year) | | $ | 248,084 | | | $ | 323,640 | | | $ | — | | | $ | — | |
Actual return on plan assets | | | 54,358 | | | | (68,210 | ) | | | — | | | | — | |
Employer contributions | | | 12,298 | | | | 65 | | | | — | | | | — | |
Benefits paid | | | (13,218 | ) | | | (7,411 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Fair value of plan assets at end of year | | $ | 301,522 | | | $ | 248,084 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
| | | | |
Over (under) funded status | | $ | (122,440 | ) | | $ | (148,608 | ) | | $ | (772 | ) | | $ | (2,490 | ) |
| | | | | | | | | | | | | | | | |
Amounts recognized on our Consolidated Balance Sheet | | | | | | | | | | | | | | | | |
Current liabilities | | $ | (143 | ) | | $ | (1,317 | ) | | $ | (182 | ) | | $ | (670 | ) |
Noncurrent liabilities | | | (122,297 | ) | | | (147,291 | ) | | | (590 | ) | | | (1,820 | ) |
| | | | | | | | | | | | | | | | |
Net amount recognized | | $ | (122,440 | ) | | $ | (148,608 | ) | | $ | (772 | ) | | $ | (2,490 | ) |
| | | | | | | | | | | | | | | | |
Amounts recognized in Accumulated Other Comprehensive (Income) Loss (pretax) in our Consolidated Statement of Stockholders’ Equity consist of (dollars, in thousands):
| | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits | |
| | | 2009 | | 2008 | | 2009 | | | 2008 | |
| | | | |
Net (gain) loss | | $ | 62,334 | | $ | 84,600 | | $ | (413 | ) | | $ | (42 | ) |
Prior service cost | | | 473 | | | 364 | | | — | | | | — | |
| | | | | | | | | | | | | | |
Net amount recognized | | $ | 62,807 | | $ | 84,964 | | $ | (413 | ) | | $ | (42 | ) |
| | | | | | | | | | | | | | |
The accumulated benefit obligation for all defined benefit pension plans was $423.8 million and $393.2 million as of December 31, 2009 and 2008. All of our defined benefit pension plans have accumulated benefit obligations in excess of plan assets.
Components of Net Periodic Benefit Cost and Other Comprehensive (Income) Loss
The components of net periodic benefit cost and other comprehensive (income) loss (pretax) are as follows (dollars, in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Other Benefits | |
| | | Boise Inc. | | | Predecessor | | | Boise Inc. | | | Predecessor | |
| | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | January 1
Through
February 21,
2008 | | | Year
Ended
December 31,
2007 | | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | January 1
Through
February 21,
2008 | | | Year
Ended
December 31,
2007 | |
| | | | | | | | |
Service cost | | $ | 6,891 | | | $ | 9,226 | | | $ | 1,566 | | | $ | 12,103 | | | $ | 4 | | | $ | 3 | | | $ | — | | | $ | 75 | |
Interest cost | | | 24,314 | | | | 20,881 | | | | 3,458 | | | | 22,718 | | | | 47 | | | | 98 | | | | 18 | | | | 230 | |
Expected return on plan assets | | | (23,269 | ) | | | (20,398 | ) | | | (3,452 | ) | | | (23,173 | ) | | | — | | | | — | | | | — | | | | — | |
Amortization of actuarial (gain) loss | | | 315 | | | | — | | | | (21 | ) | | | 271 | | | | (1,344 | ) | | | — | | | | (12 | ) | | | (34 | ) |
Amortization of prior service costs and other | | | 36 | | | | — | | | | 194 | | | | 1,190 | | | | — | | | | — | | | | — | | | | — | |
Plan settlement curtailment (gain) loss | | | — | | | | (1,749 | ) | | | — | | | | (46 | ) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Company-sponsored plans | | | 8,287 | | | | 7,960 | | | | 1,745 | | | | 13,063 | | | | (1,293 | ) | | | 101 | | | | 6 | | | | 271 | |
Multiemployer plans | | | 382 | | | | 327 | | | | 75 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic benefit costs | | $ | 8,669 | | | $ | 8,287 | | | $ | 1,820 | | | $ | 13,063 | | | $ | (1,293 | ) | | $ | 101 | | | $ | 6 | | | $ | 271 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (gain) loss | | $ | (21,951 | ) | | $ | 84,600 | | | $ | — | | | $ | — | | | $ | (1,715 | ) | | $ | (42 | ) | | $ | — | | | $ | — | |
Prior service cost | | | 145 | | | | 364 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Amortization of actuarial gain (loss) | | | (315 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Amortization of prior service cost | | | (36 | ) | | | — | | | | — | | | | — | | | | 1,344 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total recognized in other compre-hensive (income) loss | | | (22,157 | ) | | | 84,964 | | | | — | | | | — | | | | (371 | ) | | | (42 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total recognized in net periodic benefit cost and other comprehensive (income) loss | | $ | (13,488 | ) | | $ | 93,251 | | | $ | 1,820 | | | $ | 13,063 | | | $ | (1,664 | ) | | $ | 59 | | | $ | 6 | | | $ | 271 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In 2010, we estimate net periodic pension expense will be $10.2million. The 2010 net periodic pension expense will include $1.8million of net loss and $0.1 million of prior service cost that will be amortized from “Accumulated other comprehensive income (loss)” on our Consolidated Statement of Stockholders’ Equity.
Assumptions
The assumptions used in accounting for the plans are estimates of factors that will determine, among other things, the amount and timing of future benefit payments. The following table presents the assumptions used in the measurement of our benefits obligation:
| | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Other Benefits | |
| | | December 31,
2009 | | | December 31,
2008 | | | February 22,
2008 | | | December 31,
2009 | | | December 31,
2008 | | | February 22,
2008 | |
Weighted average | | | | | | | | | | | | | | | | | | |
Discount rate | | 6.10 | % | | 6.20 | % | | 6.50 | % | | 4.60 | % | | 5.70 | % | | 5.50 | % |
Rate of compensation increase | | — | % | | 4.25 | % | | 4.25 | % | | — | % | | — | % | | — | % |
The following table presents the assumptions used in the measurement of net periodic benefit cost:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | | Other Benefits | |
| | | Boise Inc. | | | Predecessor | | | Boise Inc. | | | Predecessor | |
| | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | January 1
Through
February 21,
2008 | | | Year
Ended
December 31,
2007 | | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | January 1
Through
February 21,
2008 | | | Year
Ended
December 31,
2007 | |
Weighted average assumptions as of the last day in the presented period | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | 6.20 | % | | 6.50 | % | | 6.40 | % | | 5.90 | % | | 5.70 | % | | 5.70 | % | | 5.50 | % | | 5.75 | % |
Expected long-term rate of return on plan assets | | 7.25 | % | | 7.25 | % | | 7.25 | % | | 7.25 | % | | — | % | | — | % | | — | % | | — | % |
Rate of compensation Increase | | — | % | | 4.25 | % | | 4.25 | % | | 4.25 | % | | — | % | | — | % | | — | % | | — | % |
Discount Rate Assumption. In all periods presented, the discount rate assumption was determined using a spot rate yield curve constructed to replicate Aa-graded corporate bonds. The Aa-graded bonds included in the yield curve reflect anticipated investments that would be made to match the expected monthly benefit payments over time and do not include all Aa-graded corporate bonds. The plan’s projected cash flows were duration-matched to this yield curve to develop an appropriate discount rate.
Asset Return Assumption. The expected long-term rate of return on plan assets was based on a weighted average of the expected returns for the major investment asset classes. Expected returns for the asset classes are based on long-term historical returns, inflation expectations, forecasted gross domestic product, earnings growth, and other economic factors. The weights assigned to each asset class were based on the investment strategy. The weighted average expected return on plan assets we will use in our calculation of 2010 net periodic benefit cost is 7.25%. In 2009, plan assets performed well above the long-term return assumption.
Rate of Compensation Increases. Salaried pension benefits are frozen, so the compensation increase assumption is not applicable. Negotiated compensation increases are reflected in the projected benefit obligation for certain hourly employees with salary-related benefits. Historically, this assumption reflected long-term actual experience, the near-term outlook, and assumed inflation.
The following table presents our assumed healthcare cost trend rates at December 31, 2009 and 2008:
| | | | | | |
| | | 2009 | | | 2008 | |
Weighted average assumptions: | | | | | | |
Healthcare cost trend rate assumed for next year | | 8.50 | % | | 9.00 | % |
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | | 6.50 | % | | 5.00 | % |
| | |
Year that the rate reaches the ultimate trend rate | | 2025 | | | 2017 | |
Assumed healthcare cost trend rates affect the amounts reported for the healthcare plans. At December 31, 2009, a one-percentage-point change in our assumed healthcare cost trend rate would not significantly affect our total service or interest costs or our postretirement benefit obligation.
Investment Policies and Strategies
At December 31, 2009, 52% of our pension plan assets were invested in equity securities, and 48% were invested in fixed-income securities. The general investment objective for all of our plan assets is to optimize growth of the pension plan trust assets, while minimizing the risk of significant losses in order to enable the plans to satisfy their benefit payment obligations over time. The objectives take into account the long-term nature of the benefit obligations, the liquidity needs of the plans, and the expected risk/return trade-offs of the asset classes in which the plans may choose to invest. The Retirement Funds Investment Committee is responsible for establishing and overseeing the implementation of our investment policy. Russell Investments (Russell) oversees the active management of our pension investments in order to achieve broad diversification in a cost-effective manner. At December 31, 2009, our investment policy governing our relationship with Russell allocated 48% to long-duration fixed-income securities, 33% to large-capitalization U.S. equity securities, 12% to international equity securities, and 7% to small- and mid-capitalization U.S. equity securities. Our arrangement with Russell requires monthly rebalancing to the policy targets noted above.
Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk, all of which are subject to change. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term, and such changes could materially affect the reported amounts.
Fair Value Measurements of Plan Assets
The defined benefit plans hold an interest in the Boise Paper Holdings, L.L.C., Master Pension Trust (Master Trust). The assets in the Master Trust are invested in common and collective trusts that hold several mutual funds invested in U.S. equities, international equities, and fixed-income securities managed by Russell Trust Company.
The following table sets forth by level, within the fair value hierarchy, the pension plan assets, by major asset category, at fair value at December 31, 2009 (dollars, in thousands):
| | | | | | | | | | | | |
| | | Quoted Prices
in Active
Market for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) (a) | | Significant
Unobservable
Inputs
(Level 3) | | Total |
| | | | |
Equity securities: | | | | | | | | | | | | |
Large cap U.S. equity securities (b) | | $ | — | | $ | 99,614 | | $ | — | | $ | 99,614 |
Small- and mid-cap U.S. equity securities (c) | | | — | | | 21,262 | | | — | | | 21,262 |
International equity securities (d) | | | — | | | 35,861 | | | — | | | 35,861 |
Fixed-income securities (e) | | | — | | | 144,011 | | | — | | | 144,011 |
| | | | | | | | | | | | |
Total securities at fair value | | | — | | | 300,748 | | | — | | | 300,748 |
| | | | | | | | | | | | |
Receivables and accruals, net | | | | | | | | | | | | 774 |
| | | | | | | | | | | | |
Total fair value of plan assets | | | | | | | | | | | $ | 301,522 |
| | | | | | | | | | | | |
(a) | Investments are mutual funds managed by Russell Trust Company. The funds are valued at the net asset value (NAV) provided by Russell Trust Company, the administrator of the funds. The NAV is based on the value of the assets owned by the fund, less liabilities at year-end. While the underlying assets are actively traded on an exchange, the funds are not. |
(b) | Our investments in this category are invested in the Russell Equity I Fund. The fund seeks higher long-term returns that exceed the Russell 1000 Index by investing in common stocks that rank among the largest 1,000 companies in the U.S. stock market. |
(c) | Our investments in this category are invested in the Russell Equity II Fund. The fund seeks high, long-term returns that exceed the Russell 2500 Index by investing in the smaller capitalization stocks of the U.S. stock market. |
(d) | Our investments in this category are invested in the Russell International Fund. The fund benchmarks against the MSCI European, Australian, and Far East (EAFE) Index and seeks high, long-term returns comparable to the broad international stock market by investing in non-U.S. companies from the developed countries around the world. The fund participates primarily in the stock markets of Europe and the Pacific Rim. |
(e) | Our investments in this category are invested in the Russell Long Duration Fixed Income Fund (Long Duration Fund) and Russell Long Credit Fixed Income Fund (Long Credit Fund). The Long Duration Fund seeks to achieve above-average consistency in performance relative to the Barclays Capital U.S. Long Government/Credit Bond Index by combining manager styles and strategies with different payoffs over various phases of an investment cycle. The Long Credit Fund seeks to achieve above-average consistency in performance relative to the Barclays Capital Long Credit Index and is generally used with other bond funds, such as the Long Duration Fund, to gain additional credit exposure to asset portfolios. Both funds are designed to provide maximum total return through diversified strategies, including sector rotation, modest interest rate timing, security selection, and tactical use of high-yield and emerging markets bonds. |
Cash Flows
In connection with the Acquisition, Boise Cascade transferred sufficient assets to fund Boise Inc.’s accumulated benefit obligation at a 6.5% discount rate, and as a result, we were not required to and did not make contributions to the qualified pension plans during 2008. Pension funding
requirements depend in part on returns on plan assets. As of December 31, 2009 and 2008, our pension assets had a market value of $302 million and $248 million, respectively. Assuming a rate of return on plan assets of 7.25% in 2010 and 2011, we estimate that we would be required to contribute approximately $2 million in 2010 and approximately $22 million in 2011. The amount of required contributions will depend, among other things, on 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. Changes in the financial markets may require us to make larger than previously anticipated contributions to our pension plans. We may also elect to make additional voluntary contributions in any year, which could reduce the amount of required contributions in future years. For the year ended December 31, 2009, we made $11 million of cash contributions to our qualified pension plans. Additionally, we made cash contributions and certain benefit payments to our nonqualified pension plans and other postretirement benefit plans totaling $2.0 million.
The following benefit payments (dollars, in thousands), which reflect expected future service as appropriate, are expected to be paid. Qualified pension benefit payments are paid from plan assets, while nonqualified pension and other benefit payments are paid by the Company.
| | | | | | |
| | | Pension Benefits | | Other Benefits |
| | |
2010 | | $ | 14,536 | | $ | 183 |
2011 | | | 16,879 | | | 142 |
2012 | | | 19,451 | | | 117 |
2013 | | | 21,842 | | | 100 |
2014 | | | 24,284 | | | 71 |
Years 2015-2019 | | | 152,493 | | | 174 |
15. Stockholders’ Equity
Preferred Stock
We are authorized to issue 1,000,000 shares of preferred stock with such designations, voting, and other rights and preferences as may be determined from time to time by the board of directors. No shares were issued or outstanding at December 31, 2009 and 2008.
Common Stock
We are authorized to issue 250,000,000 shares of common stock, of which 84,418,691 shares were issued and outstanding at December 31, 2009. Of these shares outstanding, 6,525,052 shares were restricted stock (discussed below). At December 31, 2008, we had 79,716,130 shares of common stock issued and outstanding, of which 2,426,100 shares were restricted stock. The common stock outstanding does not include restricted stock units.
On February 5, 2008, stockholders owning 12,543,778 shares exercised their conversion rights and voted against the Acquisition. Such stockholders were entitled to receive their per-share interest in the proceeds from our initial public offering, which had been held in trust. Of these 12,543,778 shares, 12,347,427 shares were presented for conversion. The remaining shares not presented remain outstanding. In connection with the Acquisition, we paid $120.2 million from our cash held in trust to these stockholders. The remaining cash held in trust was used to effect the Acquisition.
Warrants
In connection with our public offering in June 2007, we issued 41,400,000 units (the Units). Each Unit consists of one share of our common stock and one Redeemable Common Stock Purchase Warrant (the Warrants). Each Warrant entitles the holder to purchase one share of common stock at
an exercise price of $7.50 and expires on June 18, 2011. We may redeem the Warrants, at a price of $0.01 per Warrant, upon 30 days’ notice while the Warrants are exercisable, only in the event that the last sale price of the common stock is at least $14.25 per share for any 20 trading days within a 30-trading-day period ending on the third day prior to the date on which notice of redemption is given.
Simultaneously with the consummation of the public offering, Aldabra 2 Acquisition Corp.’s chairman and chief executive officer privately purchased a total of 3,000,000 warrants (the Insider Warrants) at $1.00 per warrant (for an aggregate purchase price of $3,000,000). The amount paid for the Insider Warrants approximated fair value on the date of issuance. All of the proceeds received from these purchases were placed in cash held in trust. The Insider Warrants purchased were identical to the Warrants underlying the Units issued in the public offering except that the Insider Warrants may not be called for redemption and may be exercisable on a “cashless basis,” at the holder’s option, so long as such securities are held by such purchaser or his affiliates. At December 31, 2009 and 2008, 44,400,000 warrants were outstanding, including 3,000,000 Insider Warrants.
Restricted Stock and Restricted Stock Units
In our consolidated financial statements, we evaluate share-based compensation for awards granted under the Boise Inc. Incentive and Performance Plan (the Plan) on a quarterly basis based on our estimate of expected restricted stock forfeiture, review of recent forfeiture activity, and expected future turnover. We recognize the effect of adjusting the forfeiture rate for all expense amortization in the period that we change the forfeiture estimate. The effect of forfeiture adjustments during the years ended December 31, 2009 and 2008, was zero.
On April 23, 2009, our stockholders approved a Plan Amendment that increased the number of shares available for issuance under the Plan from 5,175,000 to 17,175,000.
Service-Condition Vesting Awards
In March 2009, pursuant to the Plan, we granted to directors and members of management 4.6 million shares of restricted stock and 1.2 million restricted stock units (collectively restricted stock) subject to stockholder approval of the Plan Amendment described above. The 2.0 million shares of restricted stock granted to the directors are earned on a pro rata basis through March 15, 2010, and vest upon the earlier of (i) their departure from the board (vesting pro rata based on time served) or (ii) March 15, 2010 (full vesting). The grants to members of management vest as follows: one-fifth on March 15, 2010, one-fifth on March 15, 2011, and three-fifths on March 15, 2012, subject to EBITDA goals. Any shares not vested on or before March 15, 2012, will be forfeited.
In May 2008, directors and members of management were granted awards of 0.4 million and 0.8 million shares, respectively, of restricted stock subject to service-condition vesting. The restricted stock granted to directors vested on March 2, 2009. Additionally, one-third of the management grants subject to service-condition vesting restrictions also vested on March 2, 2009. The remaining grants subject to service-condition vesting restrictions vest equally on February 28, 2010, and February 28, 2011, subject to EBITDA goals. Any shares not vested on or before February 28, 2011, will be forfeited.
Market-Condition Vesting Awards
In May 2008, members of management were granted 1.9 million shares of restricted stock, subject to market-based vesting restrictions. Of this 1.9 million, 0.7 million will vest on February 28, 2011, if the closing price of Boise Inc. stock has been at least $10 per share for at least 20 trading days in any period of 30 consecutive trading days between the grant date and February 28, 2011.
The weighted average grant-date fair value of these awards was $2.03 per share. The remaining 1.2 million shares of the restricted stock grants will vest on February 28, 2011, if the closing price of Boise Inc. stock has been at least $12.50 per share for at least 20 trading days in any period of 30 consecutive trading days between the grant date and February 28, 2011. The weighted average grant-date fair value of these awards was $1.57 per share. Any shares not vested on February 28, 2011, will be forfeited.
Compensation Expense
We recognize compensation expense for the restricted stock based on the fair value on the date of the grant, as described below. Compensation expense is recognized ratably over the vesting period for the restricted stock grants that vest over time and ratably over the award period for the restricted stock grants that vest based on the closing price of Boise Inc. stock, as discussed above. During the years ended December 31, 20092012, 2011, and 2008, we recognized $3.52010, fiber purchases from related parties were $19.8 million, $18.8 million, and $3.1$25.3 million respectively, of compensation expense. Most, respectively. In 2012 and 2011, most of these purchases related to chip and log purchases by LTP from Boise Cascade's wood products business. In 2010, the purchases included both direct chip and log purchases from Boise Cascade while they were a related party and LTP's purchases from Boise Cascade. All of the costs associated with these purchases were recorded in “General and administrative expenses” in our Consolidated Statement of Income (Loss).
Fair Value Measurement
The fair value of service-condition restricted stock is determined based on the number of shares or units granted and the quoted price of our stock at the date of grant and is expensed on a straight-line basis over the vesting period. The fair value on the date of grant was $0.43 per share for the 2009 restricted stock grants and $4.16 per share for the 2008 grants. Compensation expense is adjusted if the service condition is not met.
The equity grants that vest based on the stock price of Boise Inc. are market-condition grants. Because the market-based restrictions represent a more difficult threshold to meet before payout, with greater uncertainty that the market condition will be satisfied, these awards have a lower fair value than those that vest based primarily on the passage of time. However, compensation expense is required to be recognized for an award regardless of when, if ever, the market condition is satisfied. We determined the fair value on the date of grant of the market-condition awards that vest based on the stock price of Boise Inc. at $10 per share and $12.50 per share to be approximately $2.03 per share and $1.57 per share, respectively. The fair value of market-condition restricted stock or units is estimated at the grant date using a Monte Carlo simulation. We assumed a risk-free rate of 2.59%, an expected stock volatility of 58.60%, and a stock price for Boise Inc.’s common shares of $4.16 per share. The $4.16-per-share value is based on Boise Inc.’s closing stock price on the date of grant. Expense is recognized on a straight-line basis over the service period.
The following summarizes the activity of our outstanding service- and market-condition restricted stock and units awarded under the Plan as of December 31, 2009 and 2008, and changes during the years ended December 31, 2009 and 2008 (number of shares and aggregate fair value, in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | Service-Condition Vesting Awards | | | Market-Condition Vesting Awards | |
| | | Number of
Shares | | | Weighted
Average
Grant-Date
Fair Value | | Aggregate
Fair Value | | | Number of
Shares | | | Weighted
Average
Grant-Date
Fair Value | | Aggregate
Fair Value | |
| | | | | | |
Outstanding at January 1, 2008 | | — | | | $ | — | | $ | — | | | — | | | $ | — | | $ | — | |
| | | | | | |
Granted | | 1,185 | | | | 4.16 | | | 4,927 | | | 1,929 | | | | 1.75 | | | 3,368 | |
Vested (a) | | (30 | ) | | | 4.16 | | | (125 | ) | | — | | | | — | | | — | |
Forfeited | | (12 | ) | | | 4.16 | | | (48 | ) | | (13 | ) | | | 1.75 | | | (23 | ) |
| | | | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2008 (b) | | 1,143 | | | $ | 4.16 | | $ | 4,754 | | | 1,916 | | | $ | 1.75 | | $ | 3,345 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
Granted | | 5,841 | | | | 0.43 | | | 2,512 | | | — | | | | — | | | — | |
Vested (a) | | (604 | ) | | | 4.16 | | | (2,511 | ) | | — | | | | — | | | — | |
Forfeited | | (49 | ) | | | 1.27 | | | (63 | ) | | (32 | ) | | | 1.75 | | | (56 | ) |
| | | | | | | | | | | | | | | | | | | | |
Outstanding at December 31,
2009 (b) (c) | | 6,331 | | | $ | 0.74 | | $ | 4,692 | | | 1,884 | | | $ | 1.75 | | $ | 3,289 | |
| | | | | | | | | | | | | | | | | | | | |
(a) | We repurchase for cash any fractional shares as they vest. During the years ended December 31, 2009 and 2008, we repurchased 24.33 shares and no shares, respectively. |
(b) | Outstanding awards included all nonvested and nonforfeited awards |
(c) | The remaining weighted average contractual term is approximately 1.6 years for the service-condition awards and 1.3 years for the market-condition awards. |
At December 31, 2009, we had approximately $2.6 million and $1.3 million of total unrecognized compensation cost"Fiber costs from related to the nonvested service-condition and market-condition restricted stock grants, respectively, under the Plan. The cost is expected to be recognized generally over a weighted average period of 2.3 years and 3.0 years for the service-condition and market-condition awards, respectively. Unrecognized compensation expense is calculated net of estimated forfeitures of $0.1 million. During the year ended December 31, 2009, we recognized $3.5 million of compensation expense, of which $2.4 million related to the grant-date fair value of service-condition awards vested through December 31, 2009, and $1.1 million related to the market-condition awards that generally vest on February 28, 2011. During the year ended December 31, 2008, we recognized $3.1 million of compensation expense, of which $2.2 million related to the grant-date fair value of service-condition awards vested through December 31, 2008, and $0.9 million related to the market-condition awards that generally vest on February 28, 2011. The net income tax benefit associated with restricted stock awards was $0.3 million and $0.4 million for the years ended December 31, 2009 and 2008, respectively.
Dividends
Our ability to pay dividends is restricted by our senior secured credit facilities as well as 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 will be prohibited from paying dividends. We have not paid any cash dividends on our common stock to date.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes the following (dollars, in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | Investment
Gains
(Losses) | | | Cash
Flow
Hedges | | | Unfunded Accumulated
Benefit Obligation | | | Accumulated
Other
Comprehensive
Income (Loss) | |
| | | | Actuarial
Loss (a) | | | Prior Service
Cost (a) | | |
| | | | | |
Balance at December 31, 2007, net of taxes | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Current-period changes, before taxes | | | — | | | | (760 | ) | | | (84,558 | ) | | | (364 | ) | | | (85,682 | ) |
Reclassifications to earnings, before taxes | | | — | | | | — | | | | — | | | | — | | | | — | |
Income taxes | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008, net of taxes | | $ | — | | | $ | (760 | ) | | $ | (84,558 | ) | | $ | (364 | ) | | $ | (85,682 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Current-period changes, before taxes | | | (5 | ) | | | — | | | | 23,665 | | | | (145 | ) | | | 23,515 | |
Reclassifications to earnings, before taxes | | | — | | | | 338 | | | | (1,029 | ) | | | 36 | | | | (655 | ) |
Income taxes | | | — | | | | (131 | ) | | | (8,656 | ) | | | 56 | | | | (8,731 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2009, net of taxes | | $ | (5 | ) | | $ | (553 | ) | | $ | (70,578 | ) | | $ | (417 | ) | | $ | (71,553 | ) |
| | | | | | | | | | | | | | | | | | | | |
(a) | The 2010 net periodic pension expense will include $1.8million of net loss and $0.1 million of prior service cost that will be amortized from “Accumulated other comprehensive income (loss)” on Our Consolidated Statement of Stockholders’ Equity. |
Predecessor
During the Predecessor periods presented, equity compensation was granted to the Predecessor’s employees under Boise Cascade’s equity compensation plans. During the Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor recognized $0.2 million and $1.7 million, respectively, of compensation expense, most of which was recorded in “General and administrative expenses”parties" in the Consolidated Statements of Income (Loss).
16. Acquisition ofIncome. Fiber purchases from Boise Cascade’s Paper and Packaging Operations
OnCascade subsequent to February 22, 2008, Aldabra 2 Acquisition Corp. completed the Acquisition the Paper Group2010 are recorded as "Materials, labor, and other assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and part of the headquarters operations of Boise Cascade for cash and securities. Aldabra 2 Acquisition Corp. acquired four pulp and paper mills, one paper mill, five corrugated container plants, a corrugated sheet feeder plant, and two paper distribution facilities, all located in the U.S. Subsequent to the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc.
The purchase price was paid with cash, the issuance of shares of our common stock, and a note payable. These costs, including direct transaction costs and purchase price adjustments, are summarized as follows (dollars, in thousands):
| | | | |
| | | February 22,
2008 | |
| |
Cash paid to Boise Cascade | | $ | 1,252,281 | |
Cash paid to Boise Cascade for financing and other fees | | | 24,915 | |
Less: cash contributed by Boise Cascade | | | (38,000 | ) |
| | | | |
Net cash | | | 1,239,196 | |
| | | | |
| |
Equity at $9.15 average price per share | | | 346,395 | |
Lack of marketability discount | | | (41,567 | ) |
| | | | |
Total equity | | | 304,828 | |
| | | | |
| |
Note payable to Boise Cascade at closing | | | 41,000 | |
Working capital adjustment | | | 17,334 | |
| | | | |
Total note payable to Boise Cascade | | | 58,334 | |
| | | | |
| |
Fees and expenses | | | 61,785 | |
| | | | |
| |
Total purchase price | | $ | 1,664,143 | |
| | | | |
The following table summarizes the fair value allocation of the assets acquired and liabilities assumed in the Acquisition as adjusted (dollars, in thousands):
| | | | |
| | | February 22,
2008,
Fair Value | |
| |
Current assets | | $ | 571,936 | |
Property and equipment | | | 1,306,070 | |
Fiber farms and deposits | | | 11,006 | |
Intangible assets: | | | | |
Trademarks and trade names | | | 16,800 | |
Customer list | | | 13,700 | |
Technology | | | 6,860 | |
Deferred financing costs | | | 81,898 | |
Other long-term assets | | | 4,465 | |
Current liabilities | | | (246,928 | ) |
Long-term liabilities | | | (101,664 | ) |
| | | | |
Total purchase price | | $ | 1,664,143 | |
| | | | |
Upon completion of the transaction, Boise Cascade owned 37.9 million, or 49%, of our outstanding shares. Boise Cascade continues to hold a significant interest in us. At December 31, 2009, Boise Cascade owned 21.7% of our common stock. On December 15, 2009, Boise Cascade announced its intention to further reduce its holdings by an additional 8 million shares by entering into a trading plan under SEC rules. Sales under this trading plan commenced February 16, 2010.
17. St. Helens Mill Restructuring
In November 2008, we announced the restructuring of our paper mill in St. Helens, Oregon, permanently halting pulp production at the plant and reducing annual paper production capacity by approximately 200,000 short tons and market pulp capacity at the St. Helens and Wallula, Washington, mills. The restructuring was primarily the result of declining product demand coupled with continuing high costs. The restructuring was substantially complete in January 2009. We have permanently ceased paper production on machines #1 and #4 at the mill. Paper machine #2 at St. Helens continues to operate, manufacturing primarily printing papers and flexible packaging papers. The #3 machine, which is owned by Cascades Tissue Group, also continues to operate. The permanent capacity reductions resulted in the loss of approximately 330 jobs at the St. Helens mill and 36 jobs in related sales, marketing, and logistics functions elsewhere in the Company. Eligible salaried employees were offered severance packages and outplacement assistance. We will employ approximately 140 employees at the mill after restructuring. At December 31, 2009, we had terminated approximately 360 employees.
For the years ended December 31, 2009 and 2008, we recorded a pretax charge of $5.8 million and $37.6 million, respectively, associated with the restructuring in “St. Helens mill restructuring”operating expenses (excluding depreciation)" in the Consolidated Statements of Income (Loss). These costs are recorded in our Paper segment. For the year ended December 31, 2009, these charges included decommissioning costs and other miscellaneous costs related to the restructuring of the mill. For the year ended December 31, 2008, $28.8 million related to noncash expenses. Of the $37.6 million of expense in 2008, $7.8 million related to the write-down of inventory and was recorded in “Materials, labor, and other operating expenses” in the Consolidated Statement of Income (Loss). We recorded the remaining $29.8 million of restructuring costs in “St. Helens mill restructuring” in the Consolidated Statement of Income (Loss). For the year ended December 31, 2008, the costs included asset write-downs for plant and equipment at the St. Helens mill, employee-related severance costs, pension curtailment losses, and other miscellaneous costs related to the restructuring of the mill. At December 31, 2009, we had $0.5 million of severance liabilities included in “Accrued liabilities, Compensation and benefits” on the Consolidated Balance Sheet.
An analysis of total restructuring-related activity as of December 31, 2009, is as follows (dollars, in thousands):
| | | | | | | | | |
| | | Noncash Expense | | Cash Expense | | Total Expenses |
| | | |
Inventory write-down | | $ | 7,788 | | $ | — | | $ | 7,788 |
Asset write-down | | | 19,825 | | | — | | | 19,825 |
Employee-related costs | | | — | | | 8,433 | | | 8,433 |
Pension curtailment loss | | | 1,165 | | | — | | | 1,165 |
Other | | | — | | | 357 | | | 357 |
| | | | | | | | | |
December 31, 2008 | | | 28,778 | | | 8,790 | | | 37,568 |
| | | | | | | | | |
| | | |
Decommissioning costs | | | — | | | 5,490 | | | 5,490 |
Other | | | — | | | 315 | | | 315 |
| | | | | | | | | |
December 31, 2009 | | | — | | | 5,805 | | | 5,805 |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total activity as of December 31, 2009 | | $ | 28,778 | | $ | 14,595 | | $ | 43,373 |
| | | | | | | | | |
We expect to spend approximately $1.6 million during 2010 and $1.0 million in 2011 in decommissioning and other costs. During the year ended December 31, 2009, we spent $5.8 million for these costs, which are recorded in “St. Helens mill restructuring” in our Consolidated Statements of Income (Loss). These expenses are recorded when the liability is incurred.
Income.
18.17. Segment Information
Boise Inc., headquartered in Boise, Idaho, operates its
We operate and report our business in three reportable segments: Packaging, Paper, Packaging, and Corporate and Other (support services). These segments represent distinct businesses that are managed separately because of differing products and services. Each of these businesses requires distinct operating and marketing strategies. Management reviews the performance of the Company based on these segments. The segments follow the accounting principles described in Note
2, Summary of Significant Accounting Policies. Packaging. We manufacture and sell linerboard, corrugated containers and sheets, protective packaging products, and newsprint. We sell these products using our own sales personnel, independent brokers, and distribution partners. Our newsprint is sold primarily to newspaper publishers in the southern and southwestern U.S.
Paper. Our Paper segment manufacturesWe manufacture and sells uncoated freesheet paper (including commodity and premium cut-size office papers);sell a range of packaging papers, (including label and releaseincluding communication-based papers, flexible packagingpackaging-based papers, and corrugating medium); commodity and premium printing and converting papers (including commercial printing papers, envelope papers, and form-related products); and market pulp. Many of these paperThese products arecan be either commodity products, while others havepapers or papers with specialized or custom features, thatsuch as colors, coatings, high brightness, or recycled content, which make these productsthem specialty or premium and specialty grades. Our premium grades include 100% recycled, high-bright, and colored cut-size office papers, and our specialty grades include custom-developed papers for such uses as label and release and flexible food packaging.products. We ship to customers both directly from our mills and through distribution centers. In 2009,2012, approximately 41%38% of our uncoated freesheet paper sales volume, including approximately 63% of our office papers sales volume, was sold to OfficeMax.Packaging. Our Packaging segment manufactures and sells containerboard (linerboard) and newsprint atOfficeMax, our mill in DeRidder, Louisiana. We also operate five corrugated container plants in the Northwest, a sheet plant in Reno, Nevada, and a sheet feeder plant in Waco, Texas. Our corrugated containers are used primarily in the packaging of fresh fruit and vegetables, processed food, and beverages, as well as industrial and consumer products. Our Waco, Texas, plant, known as Central Texas Corrugated, or CTC, produces corrugated sheets that are sold to sheet plants in the Southwest, where they are converted into corrugated containers for a variety of customers. Our containerboard and corrugated products are sold by our own sales personnel and by brokers.largest customer.
Until late February 2009, we marketed our newsprint through Abitibi Consolidated Sales Corporation (ACSC), an indirect subsidiary of AbitibiBowater Inc. (AbitibiBowater), pursuant to an arrangement whereby ACSC purchased all of the newsprint we produce. ACSC sold our newsprint primarily in regional markets near our DeRidder, Louisiana, manufacturing facility. In late February 2009, we terminated our arrangement with ACSC and since that time have sold our newsprint production through our own sales personnel primarily to newspaper publishers in the southern U.S.
Corporate and Other. Other. Our Corporate and Other segment includes primarily corporate support services, related assets and liabilities, and foreign exchange gains and losses. During the Predecessor periods presented, the Corporate and Other segment included primarily an allocation of Boise Cascade corporate support services and related assets and liabilities. These support services included, but were not limited to, finance, accounting, legal, information technology, and human resource functions. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport our products from our manufacturing sites. Rail cars and trucks are generally leased. We provide transportation services not only to our own facilities but also, on a limited basis, to third parties when geographic proximity and logistics are favorable. During the years ended December 31, 2009Rail cars and 2008,trucks are generally leased. Sales in this segment sales relatedrelate primarily to our rail and truck business were $63.8 million and $67.7 million, respectively. During the Predecessor period of January 1 through February 21, 2008, and for the year ended December 31, 2007, these sales were $8.5 million and $58.9 million, respectively.business.In connection with the Acquisition, we entered into a services agreement under which we provide a number of corporate staff services to Boise Cascade at our cost. These services include information technology, accounting, and human resource services. The initial term of the agreement is for three years and will expire on February 22, 2011. It will automatically renew for one-year terms
unless either party provides notice of termination to the other party at least 12 months in advance of the applicable term. For the years ended December 31, 2009 and 2008, we recorded $15.0 million and $12.1 million, respectively, in “Sales, Related parties.”
The segments’
Each segments' profits and losses are measured on operating profits before
change in fair value of interest rate derivatives, interest expense and interest income. Specified
operating expenses
are accounted for in the Corporate and Other segment and are allocated to the segments. For many of these allocated expenses, the related assets and liabilities remain in the Corporate and Other segment.
The segments follow the accounting principles described in Note 2, Summary of Significant Accounting Policies.
Export sales to foreign unaffiliated customers were $180.3 million in 2009, $212.8 million in 2008, Segment operating results for Boise Inc. and $40.8 million and $222.1 million during the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, respectively. InBZ Intermediate are identical for all periods presented, net sales were generated domestically, and long-lived assets were held by domestic operations.
except for insignificant differences in income tax provisions.
Segment sales to external customers by product line are as follows (dollars in millions):
| | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | | Predecessor |
| | | Year
Ended
December 31,
2009 | | Year
Ended
December 31,
2008 | | February 1
(Inception)
Through
December 31,
2007 | | | | January 1
Through
February 21,
2008 | | Year
Ended
December 31,
2007 |
Paper | | | | | | | | | | | | | | | | | |
Uncoated freesheet | | $ | 1,289.8 | | $ | 1,240.9 | | $ | — | | | | $ | 224.2 | | $ | 1,392.1 |
Containerboard (medium) | | | 0.1 | | | 0.2 | | | — | | | | | 0.1 | | | 1.5 |
Market pulp and other | | | 73.5 | | | 101.9 | | | — | | | | | 20.1 | | | 139.3 |
| | | | | | | | | | | | | | | | | |
| | | 1,363.4 | | | 1,343.0 | | | — | | | | | 244.4 | | | 1,532.9 |
| | | | | | | | | | | | | | | | | |
Packaging | | | | | | | | | | | | | | | | | |
Containerboard (linerboard) | | | 88.6 | | | 88.6 | | | — | | | | | 16.5 | | | 104.3 |
Newsprint | | | 98.4 | | | 203.2 | | | — | | | | | 29.8 | | | 217.1 |
Corrugated containers and sheets | | | 347.7 | | | 324.3 | | | — | | | | | 53.1 | | | 364.5 |
Other | | | 51.2 | | | 84.3 | | | — | | | | | 13.7 | | | 94.5 |
| | | | | | | | | | | | | | | | | |
| | | 585.9 | | | 700.4 | | | — | | | | | 113.1 | | | 780.4 |
| | | | | | | | | | | | | | | | | |
| | | | | | |
Corporate and Other | | | 28.9 | | | 27.2 | | | — | | | | | 2.4 | | | 19.3 |
| | | | | | | | | | | | | | | | | |
| | $ | 1,978.2 | | $ | 2,070.6 | | $ | — | | | | $ | 359.9 | | $ | 2,332.6 |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31 |
| 2012 | | 2011 | | 2010 |
| Packaging | | | | | |
| Linerboard | $ | 76.6 |
| | $ | 110.2 |
| | $ | 94.2 |
|
| Newsprint | 134.3 |
| | 132.7 |
| | 121.7 |
|
| Corrugated containers and sheets | 833.9 |
| | 627.0 |
| | 388.0 |
|
| Other | 82.6 |
| | 76.3 |
| | 65.3 |
|
| | 1,127.5 |
| | 946.2 |
| | 669.2 |
|
| Paper | | | | | |
| Uncoated freesheet | 1,334.3 |
| | 1,334.5 |
| | 1,309.8 |
|
| Corrugating medium | 1.0 |
| | 0.3 |
| | 0.1 |
|
| Market pulp and other | 60.4 |
| | 91.8 |
| | 84.7 |
|
| | 1,395.6 |
| | 1,426.5 |
| | 1,394.6 |
|
| | | | | | |
| Corporate and Other | 32.3 |
| | 31.4 |
| | 30.0 |
|
| | $ | 2,555.4 |
| | $ | 2,404.1 |
| | $ | 2,093.8 |
|
Sales to foreign unaffiliated customers during the years ended December 31, 2012, 2011, and 2010, were$260.8 million,$242.1 million, and $212.2 million, respectively.At December 31, 2012 and 2011, the net carrying value of long-lived assets held by foreign operations were $11.7 million and $12.1 million, respectively.
An analysis of our operations by segment is as follows (dollars in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Boise Inc. | |
| | | | | | |
| | | Sales | | | Income
(Loss)
Before
Taxes | | | Depre-
ciation,
Amorti-
zation,
and
Depletion | | EBITDA (e) | | | Capital
Expendi-
tures | | Assets | |
| | | Trade | | Related
Parties | | Inter-
segment | | | Total | | | | | | |
| | | | | | | | | |
Year Ended December 31, 2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paper | | $ | 1,363.4 | | $ | — | | $ | 56.6 | | | $ | 1,420.0 | | | $ | 262.7 | (a) | | $ | 85.2 | | $ | 347.8 | (a) | | $ | 51.0 | | $ | 1,249.8 | |
Packaging | | | 560.4 | | | 25.5 | | | 2.5 | | | | 588.4 | | | | 67.1 | (a) | | | 42.2 | | | 109.3 | (a) | | | 23.1 | | | 497.9 | |
Corporate and Other | | | 11.6 | | | 17.3 | | | 34.9 | | | | 63.8 | | | | (21.5 | )(a) | | | 4.1 | | | (17.3 | )(a) | | | 3.0 | | | 239.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,935.4 | | | 42.8 | | | 94.0 | | | | 2,072.2 | | | | 308.3 | | | | 131.5 | | | 439.8 | | | | 77.1 | | | 1,987.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intersegment eliminations | | | — | | | — | | | (94.0 | ) | | | (94.0 | ) | | | — | | | | — | | | — | | | | — | | | (91.4 | ) |
Change in fair value of interest rate derivatives | | | — | | | — | | | — | | | | — | | | | 0.6 | | | | — | | | — | | | | — | | | — | |
Loss on extinguishment of debt | | | — | | | — | | | — | | | | — | | | | (44.1 | ) | | | — | | | (44.1 | ) | | | — | | | — | |
Interest expense | | | — | | | — | | | — | | | | — | | | | (83.3 | ) | | | — | | | — | | | | — | | | — | |
Interest income | | | — | | | — | | | — | | | | — | | | | 0.4 | | | | — | | | — | | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 1,935.4 | | $ | 42.8 | | $ | — | | | $ | 1,978.2 | | | $ | 181.9 | | | $ | 131.5 | | $ | 395.7 | | | $ | 77.1 | | $ | 1,895.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Boise Inc. | |
| | | | | | |
| | | Sales | | | Income
(Loss)
Before
Taxes | | | Depre-
ciation,
Amorti-
zation,
and
Depletion | | EBITDA (e) | | | Capital
Expendi-
tures | | Assets | |
| | | Trade | | Related
Parties | | Inter-
segment | | | Total | | | | | | |
| | | | | | | | | |
Year Ended December 31, 2008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paper | | $ | 1,343.0 | | $ | — | | $ | 60.7 | | | $ | 1,403.7 | | | $ | 32.7 | (b) | | $ | 71.7 | | $ | 104.3 | (b) | | $ | 42.8 | | $ | 1,310.4 | |
Packaging | | | 635.5 | | | 64.9 | | | 3.3 | | | | 703.7 | | | | 21.1 | (b) | | | 35.1 | | | 56.2 | (b) | | | 43.5 | | | 558.3 | |
Corporate and Other | | | 11.7 | | | 15.5 | | | 40.5 | | | | 67.7 | | | | (18.6 | )(b) | | | 3.2 | | | (15.4 | )(b) | | | 4.3 | | | 156.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,990.2 | | | 80.4 | | | 104.5 | | | | 2,175.1 | | | | 35.2 | | | | 110.0 | | | 145.1 | | | | 90.6 | | | 2,025.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intersegment eliminations | | | — | | | — | | | (104.5 | ) | | | (104.5 | ) | | | — | | | | — | | | — | | | | — | | | (36.8 | ) |
Change in fair value of interest rate derivatives | | | — | | | — | | | — | | | | — | | | | (0.5 | ) | | | — | | | — | | | | — | | | — | |
Interest expense | | | — | | | — | | | — | | | | — | | | | (91.2 | ) | | | — | | | — | | | | — | | | — | |
Interest income | | | — | | | — | | | — | | | | — | | | | 2.2 | | | | — | | | — | | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 1,990.2 | | $ | 80.4 | | $ | — | | | $ | 2,070.6 | | | $ | (54.3 | ) | | $ | 110.0 | | $ | 145.1 | | | $ | 90.6 | | $ | 1,988.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
February 1 (Inception) Through December 31, 2007 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paper | | $ | — | | $ | — | | $ | — | | | $ | — | | | $ | — | | | $ | — | | $ | — | | | $ | — | | $ | — | |
Packaging | | | — | | | — | | | — | | | | — | | | | — | | | | — | | | — | | | | — | | | — | |
Corporate and Other | | | — | | | — | | | — | | | | — | | | | (0.3 | ) | | | — | | | (0.3 | ) | | | — | | | 407.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | — | | | — | | | — | | | | — | | | | (0.3 | ) | | | — | | | (0.3 | ) | | | — | | | 407.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intersegment eliminations | | | — | | | — | | | — | | | | — | | | | — | | | | — | | | — | | | | — | | | — | |
Interest income | | | — | | | — | | | — | | | | — | | | | 10.4 | | | | — | | | — | | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | — | | $ | — | | $ | — | | | $ | — | | | $ | 10.1 | | | $ | — | | $ | (0.3 | ) | | $ | — | | $ | 407.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Predecessor | |
| | | | | | |
| | | Sales | | | Income
(Loss)
Before
Taxes | | | Depre-
ciation,
Amorti-
zation,
and
Depletion | | | EBITDA (e) | | | Capital
Expendi-
tures | | Assets | |
| | | Trade | | Related
Parties | | Inter-
segment | | | Total | | | | | | |
| | | | | | | | | |
January 1 Through February 21, 2008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paper | | $ | 154.4 | | $ | 90.0 | | $ | 9.1 | | | $ | 253.5 | | | $ | 20.7 | | | $ | 0.3 | | | $ | 21.1 | | | $ | 5.0 | | | | |
Packaging | | | 102.2 | | | 10.9 | | | 0.4 | | | | 113.5 | | | | 5.7 | | | | 0.1 | | | | 5.7 | | | | 5.2 | | | | |
Corporate and Other | | | 1.8 | | | 0.6 | | | 6.1 | | | | 8.5 | | | | (3.2 | ) | | | 0.1 | | | | (3.1 | ) | | | — | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 258.4 | | | 101.5 | | | 15.6 | | | | 375.5 | | | | 23.2 | | | | 0.5 | | | | 23.7 | | | | 10.2 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intersegment eliminations | | | — | | | — | | | (15.6 | ) | | | (15.6 | ) | | | — | | | | — | | | | — | | | | — | | | | |
Interest income | | | — | | | — | | | — | | | | — | | | | 0.2 | | | | — | | | | — | | | | — | | | | |
| | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | |
| | $ | 258.4 | | $ | 101.5 | | $ | — | | | $ | 359.9 | | | $ | 23.4 | | | $ | 0.5 | | | $ | 23.7 | | | $ | 10.2 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
Year Ended December 31, 2007 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Paper | | $ | 917.2 | | $ | 615.7 | | $ | 63.3 | | | $ | 1,596.2 | | | $ | 133.5 | (d) | | $ | 45.0 | (c) | | $ | 178.5 | (d) | | $ | 103.4 | | $ | 1,265.6 | |
Packaging | | | 705.1 | | | 75.3 | | | 2.7 | | | | 783.1 | | | | 40.1 | (d) | | | 37.7 | (c) | | | 77.8 | (d) | | | 38.2 | | | 579.1 | |
Corporate and Other | | | 14.3 | | | 5.0 | | | 39.6 | | | | 58.9 | | | | (11.9 | )(d) | | | 1.9 | (c) | | | (10.0 | )(d) | | | 0.2 | | | 12.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1,636.6 | | | 696.0 | | | 105.6 | | | | 2,438.2 | | | | 161.7 | | | | 84.6 | | | | 246.3 | | | | 141.8 | | | 1,857.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intersegment eliminations | | | — | | | — | | | (105.6 | ) | | | (105.6 | ) | | | — | | | | — | | | | — | | | | — | | | (11.4 | ) |
Interest income | | | — | | | — | | | — | | | | — | | | | 0.7 | | | | — | | | | — | | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 1,636.6 | | $ | 696.0 | | $ | — | | | $ | 2,332.6 | | | $ | 162.4 | | | $ | 84.6 | | | $ | 246.3 | | | $ | 141.8 | | $ | 1,845.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Sales | | Income (Loss) Before Income Taxes | | Depreciation, Amortization, and Depletion | | EBITDA (c) | | Capital Expenditures (d) | | Assets |
| Year Ended December 31, 2012 | | Trade | | Related Parties | | Inter- segment | | Total | | | | | |
| Packaging | | $ | 1,067.2 |
| | $ | 60.3 |
| | $ | 2.6 |
| | $ | 1,130.1 |
| | $ | 101.6 |
| | $ | 60.9 |
| | $ | 162.5 |
| | $ | 61.3 |
| | $ | 958.0 |
|
| Paper | | 1,395.6 |
| | — |
| | 72.7 |
| | 1,468.3 |
| | 73.9 |
| (a) | 87.7 |
| | 161.6 |
| (a) | 71.1 |
| | 1,144.7 |
|
| Corporate and Other | | 32.3 |
| | — |
| | 36.6 |
| | 68.9 |
| | (27.8 | ) | | 3.7 |
| | (24.1 | ) | | 5.3 |
| | 105.7 |
|
| Intersegment eliminations | | — |
| | — |
| | (112.0 | ) | | (112.0 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| | | $ | 2,495.1 |
| | $ | 60.3 |
| | $ | — |
| | $ | 2,555.4 |
| | 147.7 |
| | $ | 152.3 |
| | 300.0 |
| | $ | 137.6 |
| | $ | 2,208.4 |
|
| Interest expense | | | | | | | | | | (61.7 | ) | | | | | | | | |
| Interest income | | | | | | | | | | 0.2 |
| | | | | | | | |
| | | | | | | | | | | $ | 86.1 |
| | | | $ | 300.0 |
| | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Sales | | Income (Loss) Before Income Taxes | | Depreciation, Amortization, and Depletion | | EBITDA (c) | | Capital Expenditures (d) | | Assets |
| Year Ended December 31, 2011 | | Trade | | Related Parties | | Inter- segment | | Total | | | | | |
| Packaging | | $ | 906.2 |
| | $ | 40.1 |
| | $ | 3.5 |
| | $ | 949.7 |
| | $ | 105.0 |
| (b) | $ | 50.5 |
| | $ | 155.5 |
| (b) | $ | 49.2 |
| | $ | 957.3 |
|
| Paper | | 1,426.5 |
| | — |
| | 70.0 |
| | 1,496.5 |
| | 112.1 |
| | 89.5 |
| | 201.5 |
| | 74.2 |
| | 1,190.9 |
|
| Corporate and Other | | 31.4 |
| | — |
| | 36.9 |
| | 68.3 |
| | (25.9 | ) | (b) | 3.7 |
| | (22.1 | ) | (b) | 5.3 |
| | 138.0 |
|
| Intersegment eliminations | | — |
| | — |
| | (110.4 | ) | | (110.4 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| | | $ | 2,364.0 |
| | $ | 40.1 |
| | $ | — |
| | $ | 2,404.1 |
| | 191.2 |
| | $ | 143.8 |
| | 334.9 |
| | $ | 128.8 |
| | $ | 2,286.1 |
|
| Loss on extinguishment of debt | | | | | | | | | | (2.3 | ) | | | | (2.3 | ) | | | | |
| Interest expense | | | | | | | | | | (63.8 | ) | | | | | | | | |
| Interest income | | | | | | | | | | 0.3 |
| | | | | | | | |
| | | | | | | | | | | $ | 125.3 |
| | | | $ | 332.6 |
| | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Sales | | Income (Loss) Before Income Taxes | | Depreciation, Amortization, and Depletion | | EBITDA (c) | | Capital Expenditures (d) | | Assets |
| Year Ended December 31, 2010 | | Trade | | Related Parties | | Inter- segment | | Total | | | | | |
| Packaging | | $ | 636.2 |
| | $ | 33.0 |
| | $ | 2.7 |
| | $ | 671.9 |
| | $ | 65.0 |
| | $ | 38.6 |
| | $ | 103.6 |
| | $ | 38.6 |
| | $ | 505.6 |
|
| Paper | | 1,394.6 |
| | — |
| | 63.8 |
| | 1,458.3 |
| | 151.5 |
| | 87.4 |
| | 238.9 |
| | 67.8 |
| | 1,187.9 |
|
| Corporate and Other | | 27.4 |
| | 2.7 |
| | 35.3 |
| | 65.4 |
| | (21.7 | ) |
| 4.0 |
| | (17.7 | ) |
| 5.1 |
| | 245.4 |
|
| Intersegment eliminations | | — |
| | — |
| | (101.8 | ) | | (101.8 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| | | $ | 2,058.1 |
| | $ | 35.6 |
| | $ | — |
| | $ | 2,093.8 |
| | 194.9 |
| | $ | 129.9 |
| | 324.8 |
| | $ | 111.6 |
| | $ | 1,939.0 |
|
| Loss on extinguishment of debt | | | | | | | | | | (22.2 | ) | | | | (22.2 | ) | | | | |
| Interest expense | | | | | | | | | | (64.8 | ) | | | | | | | | |
| Interest income | | | | | | | | | | 0.3 |
| | | | | | | | |
| | | | | | | | | | | $ | 108.1 |
| | | | $ | 302.6 |
| | | | |
____________
| |
| (a) | Included $5.8$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 the Paper segment associated with the restructuring of the St. Helens mill. |
| Included $5.9 million of income related to the impact of energy hedges, of which $4.8 million was recorded in the Paper segment and $1.1 million was recorded in the Packaging segment. |
| Included $149.9 million of income recorded in the Paper segment, $61.6 million of income recorded in the Packaging segment, and $3.9 million of expenses recorded in the Corporate and Other segment relating to alternative fuel mixture credits. These amounts are net of fees and expenses and before taxes. |
| Included $44.1 million of income recorded in the Corporate and Other segment associated with the restructuring of our debt. |
(b) | Included $37.6 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens mill. |
| Included $7.4 million of expense related to the impact of energy hedges, of which $6.1 million was recorded in the Paper segment and $1.3 million was recorded in the Packaging segment. |
| Included $5.5 million of expense recorded in the Packaging segment related to lost production and costs incurred as a result of Hurricanes Gustav and Ike. |
| Included $10.2 million related to inventory purchase accounting adjustments, of which $7.4 million was recorded in the Paper segment and $2.8 million was recorded in the Packaging segment. |
| Included $19.8 million of expense recorded in the Packaging segment related to the outage at the DeRidder, Louisiana, mill.inventory purchase price adjustments. |
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.
| Included a $2.9 million gain on changes in supplemental pension plans recorded in the Corporate and Other segment. |
| (c) | Included approximately $21.7 million, $19.1 million, and $1.0 million of lower depreciation and amortization expense in the Paper, Packaging, and Corporate and Other segments as a result of discontinuing depreciation and amortization on the assets recorded as held for sale. |
(d) | Included a $4.4 million gain for changes in retiree healthcare programs recorded in the Corporate and Other segment. |
| Included $8.7 million of expense related to the impact of energy hedges. Of the $8.7 million, $7.3 million was recorded in the Paper segment and $1.4 million was recorded in the Packaging segment. |
| Included $4.0 million of expense recorded in the Paper segment related to the start-up of the reconfigured paper machine at the Wallula, Washington, mill. |
(e) | EBITDA represents income (loss) before interest (interest expense and interest income, and change in fair value of interest rate derivatives)income), income tax provision, (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makersmaker to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of companies with substantial financial leverage.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’smanagement'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, change in fair value of interest rate derivatives, and associated significant cash requirements; and the exclusion of depreciation, amortization, and depletion, which represent significant and unavoidable operating costs, given the level of our indebtedness and the capital expenditures needed to maintain our businesses. Management compensates for these limitations by relying on our GAAP results. Our measures of EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation. |
The following is a reconciliation of net income to EBITDA (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Boise Inc. | | | | | Predecessor | |
| | | Year
Ended
December 31,
2009 | | | Year
Ended
December 31,
2008 | | | February 1
(Inception)
Through
December 31,
2007 | | | | | January 1
Through
February 22,
2008 | | | Year
Ended
December 31,
2007 | |
| | | | | | |
Net income (loss) | | $ | 153.8 | | | $ | (45.5 | ) | | $ | 5.5 | | | | | $ | 22.8 | | | $ | 159.6 | |
Change in fair value of interest rate derivatives | | | (0.6 | ) | | | 0.5 | | | | — | | | | | | — | | | | — | |
Interest expense | | | 83.3 | | | | 91.2 | | | | — | | | | | | — | | | | — | |
Interest income | | | (0.4 | ) | | | (2.2 | ) | | | (10.4 | ) | | | | | (0.2 | ) | | | (0.7 | ) |
Income tax provision (benefit) | | | 28.0 | | | | (8.8 | ) | | | 4.6 | | | | | | 0.6 | | | | 2.8 | |
Depreciation, amortization, and depletion | | | 131.5 | | | | 110.0 | | | | — | | | | | | 0.5 | | | | 84.6 | |
| | | | | | | | | | | | | | | | | | | | | | |
EBITDA | | $ | 395.7 | | | $ | 145.1 | | | $ | (0.3 | ) | | | | $ | 23.7 | | | $ | 246.3 | |
| | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Boise Inc. | | BZ Intermediate |
| | Year Ended December 31 |
| | 2012 | | 2011 | | 2010 | | 2012 | | 2011 | | 2010 |
| Net income | $ | 52.2 |
| | $ | 75.2 |
| | $ | 62.7 |
| | $ | 52.2 |
| | $ | 75.2 |
| | $ | 63.6 |
|
| Interest expense | 61.7 |
| | 63.8 |
| | 64.8 |
| | 61.7 |
| | 63.8 |
| | 64.8 |
|
| Interest income | (0.2 | ) | | (0.3 | ) | | (0.3 | ) | | (0.2 | ) | | (0.3 | ) | | (0.3 | ) |
| Income tax provision | 34.0 |
| | 50.1 |
| | 45.4 |
| | 34.0 |
| | 50.1 |
| | 44.5 |
|
| Depreciation, amortization, and depletion | 152.3 |
| | 143.8 |
| | 129.9 |
| | 152.3 |
| | 143.8 |
| | 129.9 |
|
| EBITDA | $ | 300.0 |
| | $ | 332.6 |
| | $ | 302.6 |
| | $ | 300.0 |
| | $ | 332.6 |
| | $ | 302.6 |
|
| |
| (d) | This figure represents "Expenditures for property and equipment" and excludes cash used for "Acquisition of businesses and facilities, net of cash acquired" as reported on our Consolidated Statements of Cash Flows. |
19.
18. Commitments,
Guarantees, Indemnifications, and
GuaranteesLegal Proceedings
Commitments
CommitmentsWe have financial commitments for lease payments and for the purchase of logs, wood fiber, and utilities. In addition, we have other financial obligations that we enter intoarise in the normalordinary course of our businessbusiness. These include long-term debt, lease payments,and derivative instruments (discussed in Note 8, Debt, Note 9, Financial Instruments, and Note 14, Leases) and obligations to purchase goods and services and to make capital improvements to our facilities.
Our lease commitments are discussed further in Note 8, Leases.
(discussed below).
We are a party to a number of long-term log and fiber supply agreements. At December 31, 20092012 and 2008,2011, our total estimated obligation for log and fiber purchases under contracts with third parties was approximately $76.4$65.6 million and $168.7$75.5 million, respectively. Under most of the log and fiber supply agreements, we have the right to cancelThe estimate is based on contract terms or reduce our commitments in the event of a mill curtailment or shutdown. Future purchasefirst quarter 2013 pricing.Purchase prices under most of these agreements are set quarterly or semiannually based on regional market prices, and the estimate is based on contract terms or first quarter 2010 pricing. Our log and fiber obligations are subject to change based on, among other things, the effect of governmental laws and regulations, our manufacturing operations not operatingin the normal course of business, and log and fiber availability.prices. Except for deposits required pursuant to wood supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect.
Under most of the log and fiber supply agreements, we have the right to cancel or reduce our commitments if our requirements decrease.
We enter into utility contracts for thehave financial obligations to purchase of electricity and natural gas. We also purchase these services under utility tariffs. The contractual and tariff arrangementsgas for our manufacturing locations. These obligations include multiple-year purchase commitments and minimum annual purchase requirements. At December 31, 20092012 and 2008,2011, we had approximately $36.8$27.4 million and $24.0$26.5 million, respectively, of utility purchase commitments. These payment obligationscommitments were valuedestimated at prices in effect on December 31, 20092012 or 2008,2011, respectively, or determined pursuant to contractual terms, if available. Because we consume the energy in the manufacture of our products, these obligations represent the face value of the contracts, not resale value.
Guarantees and Indemnifications
GuaranteesWe provide guarantees, indemnifications, and other assurances to othersthird parties in the normal course of our business. See Note 12, Debt,These include tort indemnifications, environmental assurances, and representations and warranties in merger and acquisition agreements. At December 31, 2012, we are not aware of any material liabilities arising from any guarantee, indemnification, or financial assurance we have provided. If we determined such a liability was probable and subject to reasonable determination, we would accrue for a description of the guarantees, including the approximate terms of the guarantees, how the guarantees arose, the events or circumstancesit at that would require us to perform under the guarantees, and the maximum potential undiscounted amounts of future payments we could be required to make.
20. time.
Legal Proceedings
and Contingencies
We are a party to routine proceedings that arise in the course of our
business. Webusiness; however, we are not currently a party to any legal proceedings or environmental claims
that we believe would have a material adverse effect on our financial position, results of operations, or
cash flows.liquidity, either individually or in the aggregate.
21.
19. Quarterly Results of Operations (unaudited,
dollars in millions, except per-share and stock price information)
| | | | | | | | | | | | | |
| | | Boise Inc. |
| | | 2009 |
| | | First
Quarter (a) | | | Second
Quarter (b) | | Third
Quarter (c) | | Fourth
Quarter (d) |
| | | | |
Net sales | | $ | 500.3 | | | $ | 479.4 | | $ | 508.3 | | $ | 490.3 |
Income (loss) from operations | | | 21.4 | | | | 96.6 | | | 93.5 | | | 94.2 |
Net income (loss) | | | (0.9 | ) | | | 50.9 | | | 48.2 | | | 55.7 |
| | | | |
Net income (loss) per common share | | | | | | | | | | | | | |
Basic | | | (0.01 | ) | | | 0.65 | | | 0.61 | | | 0.70 |
Diluted | | | (0.01 | ) | | | 0.60 | | | 0.57 | | | 0.66 |
| | | | |
Common stock dividends per share | | | — | | | | — | | | — | | | — |
| | | | |
Common stock prices (i) | | | | | | | | | | | | | |
High | | | 0.75 | | | | 2.47 | | | 5.40 | | | 6.29 |
Low | | | 0.24 | | | | 0.51 | | | 1.41 | | | 4.71 |
| | | | | | | | | | | | | | | | | | |
| | | Predecessor | | Boise Inc. | |
| | | January 1
Through
February 21,
2008 | | 2008 | |
| | | | First
Quarter (e) | | | Second
Quarter (f) | | | Third
Quarter (g) | | Fourth
Quarter (h) | |
| | | | | |
Net Sales | | $ | 359.9 | | $ | 228.0 | | | $ | 618.4 | | | $ | 633.1 | | $ | 591.1 | |
Income (loss) from operations | | | 23.1 | | | (9.3 | ) | | | 7.6 | | | | 30.1 | | | 11.4 | |
Net income (loss) | | | 22.8 | | | (16.4 | ) | | | (18.1 | ) | | | 4.4 | | | (15.5 | ) |
| | | | | |
Net income (loss) per common share | | | | | | | | | | | | | | | | | | |
Basic | | | — | | | (0.26 | ) | | | (0.23 | ) | | | 0.06 | | | (0.20 | ) |
Diluted | | | — | | | (0.26 | ) | | | (0.23 | ) | | | 0.06 | | | (0.20 | ) |
| | | | | |
Common stock dividends per share | | | — | | | — | | | | — | | | | — | | | — | |
| | | | | |
Common stock prices (i) | | | | | | | | | | | | | | | | | | |
High | | | — | | | 9.70 | | | | 6.73 | | | | 4.20 | | | 1.45 | |
Low | | | — | | | 6.19 | | | | 3.58 | | | | 1.56 | | | 0.29 | |
|
| | | | | | | | | | | | | | | |
| | 2012 |
| | First Quarter | | Second Quarter | | Third Quarter (a) | | Fourth Quarter (a) |
| Net sales | $ | 644.8 |
| | $ | 637.8 |
| | $ | 645.2 |
| | $ | 627.5 |
|
| Income from operations | 49.7 |
| | 37.7 |
| | 21.3 |
| | 38.8 |
|
| Net income | 21.3 |
| | 13.7 |
| | 3.6 |
| | 13.5 |
|
| Net income per common share: | | | | | | | |
| Basic | 0.22 |
| | 0.14 |
| | 0.04 |
| | 0.14 |
|
| Diluted | 0.21 |
| | 0.14 |
| | 0.04 |
| | 0.13 |
|
| Common stock dividends per share | 0.48 |
| | — |
| | — |
| | 0.72 |
|
| Common stock prices (d) | | | | | | | |
| High | 8.49 |
| | 8.21 |
| | 8.93 |
| | 9.06 |
|
| Low | 7.25 |
| | 6.48 |
| | 6.86 |
| | 7.63 |
|
| | | | | | | | |
| | 2011 |
| | First Quarter (b) | | Second Quarter | | Third Quarter | | Fourth Quarter (c) |
| Net sales | $ | 568.8 |
| | $ | 603.1 |
| | $ | 631.7 |
| | $ | 600.4 |
|
| Income from operations | 48.1 |
| | 34.4 |
| | 62.6 |
| | 45.9 |
|
| Net income | 18.7 |
| | 11.9 |
| | 28.4 |
| | 16.3 |
|
| Net income per common share: | | | | | | | |
| Basic | 0.23 |
| | 0.11 |
| | 0.25 |
| | 0.16 |
|
| Diluted | 0.21 |
| | 0.11 |
| | 0.24 |
| | 0.15 |
|
| Common stock dividends per share | — |
| | 0.40 |
| | — |
| | — |
|
| Common stock prices (d) | | | | | | | |
| High | 9.55 |
| | 9.82 |
| | 8.12 |
| | 7.12 |
|
| Low | 8.10 |
| | 6.75 |
| | 4.42 |
| | 4.71 |
|
____________
| |
| (a) | Third quarter and fourth quarter 2012 included $31.3 million and $0.5 million, respectively, of charges related primarily to ceasing paper production on our one remaining paper machine at our St. Helens, Oregon, paper mill. |
| |
| (b) | First quarter 20092011 included $3.6$2.2 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens mill. |
| First quarter 2009 included $2.2 million of expense related to the impact of energy hedges, $1.8 million of which was recorded in the Paper segment and $0.4 million in the Packaging segment.inventory purchase price accounting adjustments. |
(b) | Second quarter 2009 included $57.0 million of income recorded in the Paper segment, $19.9 million of income recorded in the Packaging segment, and $1.6 million of expenses recorded in the Corporate and Other segment relating to alternative fuel mixture credits. These amounts are net of fees and expenses and before taxes. |
| Second quarter 2009 included $1.1 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens mill. |
| Second quarter 2009 included $3.5 million of income related to the impact of energy hedges, $2.8 million of which was recorded in the Paper segment and $0.7 million in the Packaging segment. |
| (c) | Third quarter 2009 included $42.9 million of income recorded in the Paper segment, $19.4 million of income recorded in the Packaging segment, and $2.7 million of expenses recorded in the Corporate and Other segment relating to alternative fuel mixture credits. These amounts are net of fees and expenses and before taxes. |
| Third quarter 2009 included $1.4 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens mill. |
| Third quarter 2009 included $3.6 million of income related to the impact of energy hedges, $2.9 million of which was recorded in the Paper segment and $0.7 million in the Packaging segment. |
(d) | Fourth quarter 20092011 included $50.1$2.3 million of income recorded in the Paper segment, $22.2 million of income recorded in the Packaging segment, and $0.4 million of income recorded in the Corporate and Other segment relating to alternative fuel mixture credits. These amounts are net of fees and expenses and before taxes. |
| Fourth quarter 2009 included $44.1 million of expense recorded in the Corporate and Other segment associated with the restructuring of our debt.entering into a new credit agreement. |
Fourth quarter 2011 included $1.4 million of transaction-related costs that were recorded in our Packaging segment. Transaction-related costs include expenses associated with transactions, whether consummated or not, and do not include integration costs.
| Fourth quarter 2009 included $1.0 million of income related to the impact of energy hedges, $0.9 million of which was recorded in the Paper segment and $0.1 million in the Packaging segment. |
(e) | First quarter 2008 included $19.8 million of expense related to the outage at the DeRidder, Louisiana, mill. |
| First quarter 2008 included $6.5 million of expense related to inventory purchase accounting adjustments. |
(f) | Second quarter 2008 included $3.7 million of expense related to inventory purchase accounting adjustments. |
| Second quarter 2008 included $3.7 million of income related to the impact of energy hedges, $3.0 million of which was recorded in the Paper segment and $0.7 million in the Packaging segment. |
(g) | Third quarter 2008 included $11.3 million of expense related to the impact of energy hedges, $9.5 million of which was recorded in the Paper segment and $1.8 million in the Packaging segment. |
| Third quarter 2008 included $5.5 million of expense related to lost production and costs incurred as a result of Hurricanes Gustav and Ike. |
(h) | Fourth quarter 2008 included $37.6 million of expenses related to the restructuring of our pulp and paper mill in St. Helens, Oregon, which we announced in November 2008. |
| Fourth quarter 2008 included a $2.9 million gain for changes in supplemental pension plans. |
(i)(d) | Our common stock began trading on February 22, 2008,trades on the New York Stock Exchange (NYSE) under the symbol BZ and, as of December 31, 2009, traded under the symbol BZ. From June 29, 2007, through February 21, 2008, Aldabra 2 Acquisition Corp.’s common stock was traded on the American Stock Exchange (AMEX) under the symbol AII. In connection with the Acquisition on February 22, 2008, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. The Predecessor had no common stock and was not traded on an exchange. Common stock prices are based on daily closing prices. |
The net sales, income from operations, and net income for BZ Intermediate are substantially the same as the quarterly results for Boise Inc. included above.
20. Consolidating Guarantor and Nonguarantor Financial Information
Our 9% and 8% senior notes (Senior Notes) were issued by Boise Paper Holdings and co-issuers (Boise Co-Issuer Company and Boise Finance Company). The Senior Notes are jointly and severally guaranteed on a senior unsecured basis byBZ Intermediate and each of its existing and, to the extent they become guarantors under the Credit Facilities, future subsidiaries (other than: (i) Boise Paper Holdings and the co-issuers; (ii) Louisiana Timber Procurement Company, L.L.C.; and (iii) our foreign subsidiaries, including those acquired as part of the Hexacomb Acquisition). Each of the co-issuers of the senior subordinated notes and each of the subsidiaries of BZ Intermediate that is a guarantor thereof is 100% owned, directly or indirectly by Boise Paper Holdings.
The following consolidating financial statements present the results of operations, comprehensive income, financial position, and cash flows of (i) BZ Intermediate Holdings LLC (parent); (ii) Boise Paper Holdings and co-issuers; (iii) guarantor subsidiaries; (iv) nonguarantor subsidiaries; and (v) eliminations to arrive at the information on a consolidated basis. Other than these consolidated financial statements and footnotes for Boise Inc. and BZ Intermediate, financial statements and other disclosures concerning the guarantors have not been presented. Management believes that such information is not material to investors and because the cancellation provisions of the guarantor subsidiaries guarantees are customary and do not permit a guarantor subsidiary to opt out of the obligation prior to or during the term of the debt. Under these cancellation provisions, each guarantor subsidiary is automatically released from its obligations as a guarantor upon the sale of the subsidiary or substantially all of its assets to a third party, the designation of the subsidiary as an unrestricted subsidiary for the purposes of the covenants included in the indentures, the release of the indebtedness under the indentures, or if the issuers exercise their legal defeasance option or discharge their obligations in accordance with the indentures.
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Income
For the Year Ended December 31, 2012
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| Sales | | | | | | | | | | | |
| Trade | $ | — |
| | $ | 14,956 |
| | $ | 2,431,516 |
| | $ | 48,620 |
| | $ | — |
| | $ | 2,495,092 |
|
| Intercompany | — |
| | — |
| | 5,213 |
| | 113,566 |
| | (118,779 | ) | | — |
|
| Related parties | — |
| | — |
| | — |
| | 60,271 |
| | — |
| | 60,271 |
|
| | — |
| | 14,956 |
| | 2,436,729 |
| | 222,457 |
| | (118,779 | ) | | 2,555,363 |
|
| | | | | | | | | | | | |
| Costs and expenses | | | | | | | | | | | |
| Materials, labor, and other operating expenses (excluding depreciation) | — |
| | 13,817 |
| | 1,916,907 |
| | 192,099 |
| | (118,779 | ) | | 2,004,044 |
|
| Fiber costs from related parties | — |
| | — |
| | — |
| | 19,772 |
| | — |
| | 19,772 |
|
| Depreciation, amortization, and depletion | — |
| | 2,978 |
| | 146,449 |
| | 2,879 |
| | — |
| | 152,306 |
|
| Selling and distribution expenses | — |
| | — |
| | 120,845 |
| | 982 |
| | — |
| | 121,827 |
|
| General and administrative expenses | — |
| | 28,313 |
| | 45,971 |
| | 5,464 |
| | — |
| | 79,748 |
|
| St. Helens charges | — |
| | — |
| | 27,559 |
| | — |
| | — |
| | 27,559 |
|
| Other (income) expense, net | — |
| | 1,136 |
| | 1,049 |
| | 387 |
| | — |
| | 2,572 |
|
| | — |
| | 46,244 |
| | 2,258,780 |
| | 221,583 |
| | (118,779 | ) | | 2,407,828 |
|
| | | | | | | | | | | | |
| Income (loss) from operations | — |
| | (31,288 | ) | | 177,949 |
| | 874 |
| | — |
| | 147,535 |
|
| | | | | | | | | | | | |
| Foreign exchange gain | — |
| | 145 |
| | 10 |
| | 24 |
| | — |
| | 179 |
|
| Interest expense | — |
| | (61,693 | ) | | — |
| | (47 | ) | | — |
| | (61,740 | ) |
| Interest expense—intercompany | — |
| | (191 | ) | | — |
| | (55 | ) | | 246 |
| | — |
|
| Interest income | — |
| | 48 |
| | 60 |
| | 52 |
| | — |
| | 160 |
|
| Interest income—intercompany | — |
| | 55 |
| | 191 |
| | — |
| | (246 | ) | | — |
|
| | — |
| | (61,636 | ) | | 261 |
| | (26 | ) | | — |
| | (61,401 | ) |
| | | | | | | | | | | | |
| Income (loss) before income taxes and equity in net income of affiliates | — |
| | (92,924 | ) | | 178,210 |
| | 848 |
| | — |
| | 86,134 |
|
| Income tax provision | — |
| | (32,431 | ) | | (1,500 | ) | | (53 | ) | | — |
| | (33,984 | ) |
| | | | | | | | | | | | |
| Income (loss) before equity in net income of affiliates | — |
| | (125,355 | ) | | 176,710 |
| | 795 |
| | — |
| | 52,150 |
|
| Equity in net income of affiliates | 52,150 |
| | 177,505 |
| | — |
| | — |
| | (229,655 | ) | | — |
|
| Net income | $ | 52,150 |
| | $ | 52,150 |
| | $ | 176,710 |
| | $ | 795 |
| | $ | (229,655 | ) | | $ | 52,150 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Income
For the Year Ended December 31, 2011
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| Sales | | | | | | | | | | | |
| Trade | $ | — |
| | $ | 14,657 |
| | $ | 2,340,570 |
| | $ | 8,797 |
| | $ | — |
| | $ | 2,364,024 |
|
| Intercompany | — |
| | — |
| | 40 |
| | 100,536 |
| | (100,576 | ) | | — |
|
| Related parties | — |
| | — |
| | — |
| | 40,057 |
| | — |
| | 40,057 |
|
| | — |
| | 14,657 |
| | 2,340,610 |
| | 149,390 |
| | (100,576 | ) | | 2,404,081 |
|
| | | | | | | | | | | | |
| Costs and expenses | | | | | | | | | | | |
| Materials, labor, and other operating expenses (excluding depreciation) | — |
| | 13,835 |
| | 1,837,170 |
| | 129,842 |
| | (100,576 | ) | | 1,880,271 |
|
| Fiber costs from related parties | — |
| | — |
| | — |
| | 18,763 |
| | — |
| | 18,763 |
|
| Depreciation, amortization, and depletion | — |
| | 3,091 |
| | 140,563 |
| | 104 |
| | — |
| | 143,758 |
|
| Selling and distribution expenses | — |
| | — |
| | 107,302 |
| | 352 |
| | — |
| | 107,654 |
|
| General and administrative expenses | — |
| | 25,452 |
| | 34,688 |
| | 447 |
| | — |
| | 60,587 |
|
| Other (income) expense, net | — |
| | 1,600 |
| | 730 |
| | (336 | ) | | — |
| | 1,994 |
|
| | — |
| | 43,978 |
| | 2,120,453 |
| | 149,172 |
| | (100,576 | ) | | 2,213,027 |
|
| | | | | | | | | | | | |
| Income (loss) from operations | — |
| | (29,321 | ) | | 220,157 |
| | 218 |
| | — |
| | 191,054 |
|
| | | | | | | | | | | | |
| Foreign exchange gain (loss) | — |
| | (390 | ) | | 453 |
| | 72 |
| | — |
| | 135 |
|
| Loss on extinguishment of debt | — |
| | (2,300 | ) | | — |
| | — |
| | — |
| | (2,300 | ) |
| Interest expense | — |
| | (63,814 | ) | | — |
| | (6 | ) | | 3 |
| | (63,817 | ) |
| Interest expense—intercompany | — |
| | (188 | ) | | — |
| | (15 | ) | | 203 |
| | — |
|
| Interest income | — |
| | 260 |
| | 9 |
| | — |
| | — |
| | 269 |
|
| Interest income—intercompany | — |
| | 18 |
| | 188 |
| | — |
| | (206 | ) | | — |
|
| | — |
| | (66,414 | ) | | 650 |
| | 51 |
| | — |
| | (65,713 | ) |
| | | | | | | | | | | | |
| Income (loss) before income taxes and equity in net income of affiliates | — |
| | (95,735 | ) | | 220,807 |
| | 269 |
| | — |
| | 125,341 |
|
| Income tax provision | — |
| | (48,372 | ) | | (1,662 | ) | | (97 | ) | | — |
| | (50,131 | ) |
| | | | | | | | | | | | |
| Income (loss) before equity in net income of affiliates | — |
| | (144,107 | ) | | 219,145 |
| | 172 |
| | — |
| | 75,210 |
|
| Equity in net income of affiliates | 75,210 |
| | 219,317 |
| | — |
| | — |
| | (294,527 | ) | | — |
|
| Net income | $ | 75,210 |
| | $ | 75,210 |
| | $ | 219,145 |
| | $ | 172 |
| | $ | (294,527 | ) | | $ | 75,210 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Income
For the Year Ended December 31, 2010
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| Sales | | | | | | | | | | | |
| Trade | $ | — |
| | $ | 11,994 |
| | $ | 2,039,308 |
| | $ | 6,830 |
| | $ | — |
| | $ | 2,058,132 |
|
| Intercompany | — |
| | — |
| | — |
| | 110,619 |
| | (110,619 | ) | | — |
|
| Related parties | — |
| | 2,364 |
| | 333 |
| | 32,948 |
| | — |
| | 35,645 |
|
| | — |
| | 14,358 |
| | 2,039,641 |
| | 150,397 |
| | (110,619 | ) | | 2,093,777 |
|
| | | | | | | | | | | | |
| Costs and expenses | | | | | | | | | | | |
| Materials, labor, and other operating expenses (excluding depreciation) | — |
| | 14,039 |
| | 1,605,480 |
| | 125,139 |
| | (110,619 | ) | | 1,634,039 |
|
| Fiber costs from related parties | — |
| | — |
| |
|
| | 25,259 |
| | — |
| | 25,259 |
|
| Depreciation, amortization, and depletion | — |
| | 3,454 |
| | 126,472 |
| | — |
| | — |
| | 129,926 |
|
| Selling and distribution expenses | — |
| | — |
| | 57,873 |
| | 234 |
| | — |
| | 58,107 |
|
| General and administrative expenses | — |
| | 21,949 |
| | 30,324 |
| | — |
| | — |
| | 52,273 |
|
| Other (income) expense, net | — |
| | 225 |
| | 249 |
| | (261 | ) | | — |
| | 213 |
|
| | — |
| | 39,667 |
| | 1,820,398 |
| | 150,371 |
| | (110,619 | ) | | 1,899,817 |
|
| | | | | | | | | | | | |
| Income (loss) from operations | — |
| | (25,309 | ) | | 219,243 |
| | 26 |
| | — |
| | 193,960 |
|
| | | | | | | | | | | | |
| Foreign exchange gain | — |
| | 871 |
| | 19 |
| | — |
| | — |
| | 890 |
|
| Loss on extinguishment of debt | — |
| | (22,225 | ) | | — |
| | — |
| | — |
| | (22,225 | ) |
| Interest expense | — |
| | (64,825 | ) | | — |
| | — |
| | — |
| | (64,825 | ) |
| Interest expense—intercompany | — |
| | (212 | ) | | — |
| | (16 | ) | | 228 |
| | — |
|
| Interest income | — |
| | 299 |
| | 7 |
| | — |
| | — |
| | 306 |
|
| Interest income—intercompany | — |
| | 16 |
| | 212 |
| | — |
| | (228 | ) | | — |
|
| | — |
| | (86,076 | ) | | 238 |
| | (16 | ) | | — |
| | (85,854 | ) |
| | | | | | | | | | | | |
| Income (loss) before income taxes and equity in net income of affiliates | — |
| | (111,385 | ) | | 219,481 |
| | 10 |
| | — |
| | 108,106 |
|
| Income tax (provision) benefit | — |
| | (43,187 | ) | | (1,350 | ) | | 8 |
| | — |
| | (44,529 | ) |
| | | | | | | | | | | | |
| Income (loss) before equity in net income of affiliates | — |
| | (154,572 | ) | | 218,131 |
| | 18 |
| | — |
| | 63,577 |
|
| Equity in net income of affiliates | 63,577 |
| | 218,149 |
| | — |
| | — |
| | (281,726 | ) | | — |
|
| Net income | $ | 63,577 |
| | $ | 63,577 |
| | $ | 218,131 |
| | $ | 18 |
| | $ | (281,726 | ) | | $ | 63,577 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Comprehensive Income
For the Year Ended December 31, 2012
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| Net income | $ | 52,150 |
| | $ | 52,150 |
| | $ | 176,710 |
| | $ | 795 |
| | $ | (229,655 | ) | | $ | 52,150 |
|
| Other comprehensive income (loss), net of tax | | | | | | | | | | | |
| Foreign currency translation adjustment | — |
| | — |
| | — |
| | 50 |
| | — |
| | 50 |
|
| Cash flow hedges: | | | | | | | | | | | |
| Change in fair value | — |
| | 850 |
| | — |
| | — |
| | — |
| | 850 |
|
| Loss included in net income | — |
| | 1,622 |
| | — |
| | — |
| | — |
| | 1,622 |
|
| Actuarial gain and prior service cost (including related amortization) for defined benefit pension plans | — |
| | 18,033 |
| | — |
| | — |
| | — |
| | 18,033 |
|
| Other | — |
| | 103 |
| | — |
| | — |
| | — |
| | 103 |
|
| Equity in other comprehensive income of affiliates | 20,658 |
| | 50 |
| | — |
| | — |
| | (20,708 | ) | | — |
|
| | 20,658 |
| | 20,658 |
| | — |
| | 50 |
| | (20,708 | ) | | 20,658 |
|
| | | | | | | | | | | | |
| Comprehensive income | $ | 72,808 |
| | $ | 72,808 |
| | $ | 176,710 |
| | $ | 845 |
| | $ | (250,363 | ) | | $ | 72,808 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Comprehensive Income
For the Year Ended December 31, 2011
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| Net income | $ | 75,210 |
| | $ | 75,210 |
| | $ | 219,145 |
| | $ | 172 |
| | $ | (294,527 | ) | | $ | 75,210 |
|
| Other comprehensive income (loss), net of tax | | | | | | | | | | | |
| Foreign currency translation adjustment | — |
| | — |
| | — |
| | (352 | ) | | — |
| | (352 | ) |
| Cash flow hedges: | | | | | | | | | | | |
| Change in fair value | — |
| | (4,165 | ) | | — |
| | — |
| | — |
| | (4,165 | ) |
| Loss included in net income | — |
| | 463 |
| | — |
| | — |
| | — |
| | 463 |
|
| Actuarial loss and prior service cost (including related amortization) for defined benefit pension plans | — |
| | (39,149 | ) | | — |
| | — |
| | — |
| | (39,149 | ) |
| Other | — |
| | 63 |
| | — |
| | — |
| | — |
| | 63 |
|
| Equity in other comprehensive loss of affiliates | (43,140 | ) | | (352 | ) | | — |
| | — |
| | 43,492 |
| | — |
|
| | (43,140 | ) | | (43,140 | ) | | — |
| | (352 | ) | | 43,492 |
| | (43,140 | ) |
| | | | | | | | | | | | |
| Comprehensive income (loss) | $ | 32,070 |
| | $ | 32,070 |
| | $ | 219,145 |
| | $ | (180 | ) | | $ | (251,035 | ) | | $ | 32,070 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Comprehensive Income
For the Year Ended December 31, 2010
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| Net income | $ | 63,577 |
| | $ | 63,577 |
| | $ | 218,131 |
| | $ | 18 |
| | $ | (281,726 | ) | | $ | 63,577 |
|
| Other comprehensive income (loss), net of tax | | | | | | | | | | | |
| Cash flow hedges: | | | | | | | | | | | |
| Loss included in net income | — |
| | 553 |
| | — |
| | — |
| | — |
| | 553 |
|
| Actuarial loss and prior service cost (including related amortization) for defined benefit pension plans | — |
| | (7,744 | ) | | — |
| | — |
| | — |
| | (7,744 | ) |
| Other | — |
| | (78 | ) | | — |
| | — |
| | — |
| | (78 | ) |
| Equity in other comprehensive loss of affiliates | (7,269 | ) | | — |
| | — |
| | — |
| | 7,269 |
| | — |
|
| | (7,269 | ) | | (7,269 | ) | | — |
| | — |
| | 7,269 |
| | (7,269 | ) |
| | | | | | | | | | | | |
| Comprehensive income | $ | 56,308 |
| | $ | 56,308 |
| | $ | 218,131 |
| | $ | 18 |
| | $ | (274,457 | ) | | $ | 56,308 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Balance Sheets at December 31, 2012
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| ASSETS | | | | | | | | | | | |
| | | | | | | | | | | | |
| Current | | | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | 40,801 |
| | $ | 516 |
| | $ | 8,390 |
| | $ | — |
| | $ | 49,707 |
|
| Receivables | | | | | | | | | | | |
| Trade, less allowances | — |
| | 1,458 |
| | 230,178 |
| | 8,823 |
| | — |
| | 240,459 |
|
| Intercompany | — |
| | 2,234 |
| | 1,580 |
| | 2,670 |
| | (6,484 | ) | | — |
|
| Other | — |
| | 2,880 |
| | 4,266 |
| | 1,121 |
| | — |
| | 8,267 |
|
| Inventories | — |
| | 3 |
| | 291,065 |
| | 3,416 |
| | — |
| | 294,484 |
|
| Deferred income taxes | — |
| | 17,955 |
| | — |
| | — |
| | — |
| | 17,955 |
|
| Prepaid and other | — |
| | 6,952 |
| | 1,021 |
| | 855 |
| | — |
| | 8,828 |
|
| | — |
| | 72,283 |
| | 528,626 |
| | 25,275 |
| | (6,484 | ) | | 619,700 |
|
| | | | | | | | | | | | |
| Property | | | | | | | | | | | |
| Property and equipment, net | — |
| | 7,930 |
| | 1,203,384 |
| | 11,687 |
| | — |
| | 1,223,001 |
|
| Fiber farms | — |
| | — |
| | 24,311 |
| | — |
| | — |
| | 24,311 |
|
| | — |
| | 7,930 |
| | 1,227,695 |
| | 11,687 |
| | — |
| | 1,247,312 |
|
| | | | | | | | | | | | |
| Deferred financing costs | — |
| | 26,677 |
| | — |
| | — |
| | — |
| | 26,677 |
|
| Goodwill | — |
| | — |
| | 153,576 |
| | 6,554 |
| | — |
| | 160,130 |
|
| Intangible assets, net | — |
| | — |
| | 133,115 |
| | 14,449 |
| | — |
| | 147,564 |
|
| Investments in affiliates | 756,683 |
| | 1,778,531 |
| | — |
| | — |
| | (2,535,214 | ) | | — |
|
| Intercompany notes receivable | — |
| | 3,400 |
| | 1,524 |
| | — |
| | (4,924 | ) | | — |
|
| Other assets | — |
| | 5,992 |
| | 902 |
| | 135 |
| | — |
| | 7,029 |
|
| Total assets | $ | 756,683 |
| | $ | 1,894,813 |
| | $ | 2,045,438 |
| | $ | 58,100 |
| | $ | (2,546,622 | ) | | $ | 2,208,412 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Balance Sheets at December 31, 2012 (continued)
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| LIABILITIES AND CAPITAL | | | | | | | | | | | |
| | | | | | | | | | | | |
| Current | | | | | | | | | | | |
| Current portion of long-term debt | $ | — |
| | $ | 10,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,000 |
|
| Accounts payable | | | | | | | | | | | |
| Trade | — |
| | 18,547 |
| | 160,152 |
| | 6,379 |
| | — |
| | 185,078 |
|
| Intercompany | — |
| | 571 |
| | 2,090 |
| | 3,842 |
| | (6,503 | ) | | — |
|
| Accrued liabilities | | | | | | | | | | | |
| Compensation and benefits | — |
| | 22,206 |
| | 47,605 |
| | 1,139 |
| | — |
| | 70,950 |
|
| Interest payable | — |
| | 10,516 |
| | — |
| | — |
| | — |
| | 10,516 |
|
| Other | — |
| | 3,773 |
| | 14,033 |
| | 2,703 |
| | 19 |
| | 20,528 |
|
| | — |
| | 65,613 |
| | 223,880 |
| | 14,063 |
| | (6,484 | ) | | 297,072 |
|
| | | | | | | | | | | | |
| Debt | | | | | | | | | | | |
| Long-term debt, less current portion | — |
| | 770,000 |
| | — |
| | — |
| | — |
| | 770,000 |
|
| Intercompany notes payable | — |
| | — |
| | — |
| | 4,924 |
| | (4,924 | ) | | — |
|
| | — |
| | 770,000 |
| | — |
| | 4,924 |
| | (4,924 | ) | | 770,000 |
|
| | | | | | | | | | | | |
| Other | | | | | | | | | | | |
| Deferred income taxes | — |
| | 132,841 |
| | 53,497 |
| | 3,485 |
| | — |
| | 189,823 |
|
| Compensation and benefits | — |
| | 121,606 |
| | 76 |
| | — |
| | — |
| | 121,682 |
|
| Other long-term liabilities | — |
| | 48,070 |
| | 24,932 |
| | 150 |
| | — |
| | 73,152 |
|
| | — |
| | 302,517 |
| | 78,505 |
| | 3,635 |
| | — |
| | 384,657 |
|
| | | | | | | | | | | | |
| Commitments and contingent liabilities |
| |
| |
| |
| |
| |
|
| | | | | | | | | | | | |
| Capital | | | | | | | | | | | |
| Business unit equity | 857,987 |
| | 857,987 |
| | 1,743,053 |
| | 35,779 |
| | (2,636,819 | ) | | 857,987 |
|
| Accumulated other comprehensive loss | (101,304 | ) | | (101,304 | ) | | — |
| | (301 | ) | | 101,605 |
| | (101,304 | ) |
| | 756,683 |
| | 756,683 |
| | 1,743,053 |
| | 35,478 |
| | (2,535,214 | ) | | 756,683 |
|
| | | | | | | | | | | | |
| Total liabilities and capital | $ | 756,683 |
| | $ | 1,894,813 |
| | $ | 2,045,438 |
| | $ | 58,100 |
| | $ | (2,546,622 | ) | | $ | 2,208,412 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Balance Sheets at December 31, 2011
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| ASSETS | | | | | | | | | | | |
| | | | | | | | | | | | |
| Current | | | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | 82,532 |
| | $ | 9,737 |
| | $ | 4,727 |
| | $ | — |
| | $ | 96,996 |
|
| Receivables | | | | | | | | | | | |
| Trade, less allowances | — |
| | 1,183 |
| | 220,621 |
| | 7,034 |
| | — |
| | 228,838 |
|
| Intercompany | — |
| | 40 |
| | 21 |
| | 2,099 |
| | (2,160 | ) | | — |
|
| Other | — |
| | 2,477 |
| | 5,064 |
| | 81 |
| | — |
| | 7,622 |
|
| Inventories | — |
| | 3 |
| | 304,490 |
| | 2,812 |
| | — |
| | 307,305 |
|
| Deferred income taxes | — |
| | 20,379 |
| | — |
| | — |
| | — |
| | 20,379 |
|
| Prepaid and other | — |
| | 4,467 |
| | 2,588 |
| | (111 | ) | | — |
| | 6,944 |
|
| | — |
| | 111,081 |
| | 542,521 |
| | 16,642 |
| | (2,160 | ) | | 668,084 |
|
| | | | | | | | | | | | |
| Property | | | | | | | | | | | |
| Property and equipment, net | — |
| | 5,652 |
| | 1,217,520 |
| | 12,097 |
| | — |
| | 1,235,269 |
|
| Fiber farms | — |
| | — |
| | 21,193 |
| | — |
| | — |
| | 21,193 |
|
| | — |
| | 5,652 |
| | 1,238,713 |
| | 12,097 |
| | — |
| | 1,256,462 |
|
| | | | | | | | | | | | |
| Deferred financing costs | — |
| | 30,956 |
| | — |
| | — |
| | — |
| | 30,956 |
|
| Goodwill | — |
| | — |
| | 156,305 |
| | 5,386 |
| | — |
| | 161,691 |
|
| Intangible assets, net | — |
| | — |
| | 143,986 |
| | 15,134 |
| | — |
| | 159,120 |
|
| Investments in affiliates | 803,344 |
| | 1,817,537 |
| | — |
| | — |
| | (2,620,881 | ) | | — |
|
| Intercompany notes receivable | — |
| | 3,400 |
| | — |
| | — |
| | (3,400 | ) | | — |
|
| Other assets | — |
| | 5,805 |
| | 3,948 |
| | 4 |
| | — |
| | 9,757 |
|
| Total assets | $ | 803,344 |
| | $ | 1,974,431 |
| | $ | 2,085,473 |
| | $ | 49,263 |
| | $ | (2,626,441 | ) | | $ | 2,286,070 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Balance Sheets at December 31, 2011 (continued)
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| LIABILITIES AND CAPITAL | | | | | | | | | | | |
| | | | | | | | | | | | |
| Current | | | | | | | | | | | |
| Current portion of long-term debt | $ | — |
| | $ | 10,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,000 |
|
| Accounts payable | | | | | | | | | | | |
| Trade | — |
| | 19,566 |
| | 176,575 |
| | 6,443 |
| | — |
| | 202,584 |
|
| Intercompany | — |
| | — |
| | 2,119 |
| | 1 |
| | (2,120 | ) | | — |
|
| Accrued liabilities | | | | | | | | | | | |
| Compensation and benefits | — |
| | 24,581 |
| | 39,457 |
| | 869 |
| | — |
| | 64,907 |
|
| Interest payable | — |
| | 10,528 |
| | — |
| | — |
| | — |
| | 10,528 |
|
| Other | — |
| | 8,626 |
| | 13,769 |
| | 185 |
| | (40 | ) | | 22,540 |
|
| | — |
| | 73,301 |
| | 231,920 |
| | 7,498 |
| | (2,160 | ) | | 310,559 |
|
| | | | | | | | | | | | |
| Debt | | | | | | | | | | | |
| Long-term debt, less current portion | — |
| | 790,000 |
| | — |
| | — |
| | — |
| | 790,000 |
|
| Intercompany notes payable | — |
| | — |
| | — |
| | 3,400 |
| | (3,400 | ) | | — |
|
| | — |
| | 790,000 |
| | — |
| | 3,400 |
| | (3,400 | ) | | 790,000 |
|
| | | | | | | | | | | | |
| Other | | | | | | | | | | | |
| Deferred income taxes | — |
| | 94,822 |
| | 53,365 |
| | 4,525 |
| | — |
| | 152,712 |
|
| Compensation and benefits | — |
| | 172,305 |
| | 89 |
| | — |
| | — |
| | 172,394 |
|
| Other long-term liabilities | — |
| | 40,659 |
| | 16,261 |
| | 141 |
| | — |
| | 57,061 |
|
| | — |
| | 307,786 |
| | 69,715 |
| | 4,666 |
| | — |
| | 382,167 |
|
| | | | | | | | | | | | |
| Commitments and contingent liabilities |
| |
| |
| |
| |
| |
|
| | | | | | | | | | | | |
| Capital | | | | | | | | | | | |
| Business unit equity | 925,306 |
| | 925,306 |
| | 1,783,838 |
| | 34,051 |
| | (2,743,195 | ) | | 925,306 |
|
| Accumulated other comprehensive loss | (121,962 | ) | | (121,962 | ) | | — |
| | (352 | ) | | 122,314 |
| | (121,962 | ) |
| | 803,344 |
| | 803,344 |
| | 1,783,838 |
| | 33,699 |
| | (2,620,881 | ) | | 803,344 |
|
| | | | | | | | | | | | |
| Total liabilities and capital | $ | 803,344 |
| | $ | 1,974,431 |
| | $ | 2,085,473 |
| | $ | 49,263 |
| | $ | (2,626,441 | ) | | $ | 2,286,070 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Cash Flows
For the Year Ended December 31, 2012
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| Cash provided by (used for) operations | | | | | | | | | | | |
| Net income | $ | 52,150 |
| | $ | 52,150 |
| | $ | 176,710 |
| | $ | 795 |
| | $ | (229,655 | ) | | $ | 52,150 |
|
Items in net income not using (providing) cash | | | | | | | | | | | |
| Equity in net income of affiliates | (52,150 | ) | | (177,505 | ) | | — |
| | — |
| | 229,655 |
| | — |
|
| Depreciation, depletion, and amortization of deferred financing costs and other | — |
| | 7,712 |
| | 146,449 |
| | 2,879 |
| | — |
| | 157,040 |
|
| Share-based compensation expense | — |
| | 5,983 |
| | — |
| | — |
| | — |
| | 5,983 |
|
| Pension expense | — |
| | 10,219 |
| | 1,060 |
| | — |
| | — |
| | 11,279 |
|
| Deferred income taxes | — |
| | 33,581 |
| | 108 |
| | (5 | ) | | — |
| | 33,684 |
|
| St. Helens charges | — |
| | — |
| | 28,481 |
| | — |
| | — |
| | 28,481 |
|
| Other | — |
| | 224 |
| | 1,640 |
| | 4 |
| | — |
| | 1,868 |
|
| Decrease (increase) in working capital | | | | | | | | | | | |
| Receivables | — |
| | (1,973 | ) | | (9,297 | ) | | (2,857 | ) | | 4,324 |
| | (9,803 | ) |
| Inventories | — |
| | — |
| | 8,896 |
| | (760 | ) | | — |
| | 8,136 |
|
| Prepaid expenses | — |
| | (1,966 | ) | | 1,567 |
| | (415 | ) | | — |
| | (814 | ) |
| Accounts payable and accrued liabilities | — |
| | (3,579 | ) | | (11,964 | ) | | 3,362 |
| | (4,324 | ) | | (16,505 | ) |
| Current and deferred income taxes | — |
| | (1,650 | ) | | — |
| | (288 | ) | | — |
| | (1,938 | ) |
| Pension payments | — |
| | (35,205 | ) | | — |
| | — |
| | — |
| | (35,205 | ) |
| Other | — |
| | 3,510 |
| | (4,368 | ) | | 1,532 |
| | — |
| | 674 |
|
| Cash provided by (used for) operations | — |
| | (108,499 | ) | | 339,282 |
| | 4,247 |
| | — |
| | 235,030 |
|
| Cash provided by (used for) investment | | | | | | | | | | | |
| Expenditures for property and equipment | — |
| | (4,677 | ) | | (132,190 | ) | | (775 | ) | | — |
| | (137,642 | ) |
| Other | — |
| | 146 |
| | 1,182 |
| | 65 |
| | — |
| | 1,393 |
|
| Cash used for investment | — |
| | (4,531 | ) | | (131,008 | ) | | (710 | ) | | — |
| | (136,249 | ) |
| Cash provided by (used for) financing | | | | | | | | | | | |
| Issuances of long-term debt | — |
| | 5,000 |
| | — |
| | — |
| | — |
| | 5,000 |
|
| Payments of long-term debt | — |
| | (25,000 | ) | | — |
| | — |
| | — |
| | (25,000 | ) |
| Payments of financing costs | — |
| | (188 | ) | | — |
| | — |
| | — |
| | (188 | ) |
| Payments (to) from Boise Inc., net | (124,824 | ) | | — |
| | — |
| | — |
| | — |
| | (124,824 | ) |
| Due to (from) affiliates | 124,824 |
| | 91,737 |
| | (217,495 | ) | | 934 |
| | — |
| | — |
|
| Other | — |
| | (250 | ) | | — |
| | (808 | ) | | — |
| | (1,058 | ) |
| Cash provided by (used for) financing | — |
| | 71,299 |
| | (217,495 | ) | | 126 |
| | — |
| | (146,070 | ) |
| Increase (decrease) in cash and cash equivalents | — |
| | (41,731 | ) | | (9,221 | ) | | 3,663 |
| | — |
| | (47,289 | ) |
| Balance at beginning of the period | — |
| | 82,532 |
| | 9,737 |
| | 4,727 |
| | — |
| | 96,996 |
|
| Balance at end of the period | $ | — |
| | $ | 40,801 |
| | $ | 516 |
| | $ | 8,390 |
| | $ | — |
| | $ | 49,707 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Cash Flows
For the Year Ended December 31, 2011
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| Cash provided by (used for) operations | | | | | | | | | | | |
| Net income | $ | 75,210 |
| | $ | 75,210 |
| | $ | 219,145 |
| | $ | 172 |
| | $ | (294,527 | ) | | $ | 75,210 |
|
Items in net income not using (providing) cash | | | | | | | | | | | |
| Equity in net income of affiliates | (75,210 | ) | | (219,317 | ) | | — |
| | — |
| | 294,527 |
| | — |
|
| Depreciation, depletion, and amortization of deferred financing costs and other | — |
| | 9,048 |
| | 140,563 |
| | 104 |
| | — |
| | 149,715 |
|
| Share-based compensation expense | — |
| | 3,695 |
| | — |
| | — |
| | — |
| | 3,695 |
|
| Pension expense | — |
| | 10,916 |
| | — |
| | — |
| | — |
| | 10,916 |
|
| Deferred income taxes | — |
| | 43,904 |
| | 542 |
| | — |
| | — |
| | 44,446 |
|
| Other | — |
| | 408 |
| | 1,542 |
| | (72 | ) | | — |
| | 1,878 |
|
| Loss on extinguishment of debt | — |
| | 2,300 |
| | — |
| | — |
| | — |
| | 2,300 |
|
| Decrease (increase) in working capital, net of acquisitions | | | | | | | | | | | |
| Receivables | — |
| | (884 | ) | | 3,471 |
| | (1,487 | ) | | 524 |
| | 1,624 |
|
| Inventories | — |
| | 12 |
| | (22,346 | ) | | 97 |
| | — |
| | (22,237 | ) |
| Prepaid expenses | — |
| | 233 |
| | (437 | ) | | (71 | ) | | — |
| | (275 | ) |
| Accounts payable and accrued liabilities | — |
| | 6,724 |
| | (3,744 | ) | | 1,347 |
| | (524 | ) | | 3,803 |
|
| Current and deferred income taxes | — |
| | 2,920 |
| | 1,250 |
| | 317 |
| | — |
| | 4,487 |
|
| Pension payments | — |
| | (25,414 | ) | | — |
| | — |
| | — |
| | (25,414 | ) |
| Other | — |
| | (3,660 | ) | | 281 |
| | 3,422 |
| | — |
| | 43 |
|
| Cash provided by (used for) operations | — |
| | (93,905 | ) | | 340,267 |
| | 3,829 |
| | — |
| | 250,191 |
|
| Cash provided by (used for) investment | | | | | | | | | | | |
| Acquisitions of business and facilities, net of cash acquired | — |
| | — |
| | (292,600 | ) | | (33,623 | ) | | — |
| | (326,223 | ) |
| Expenditures for property and equipment | — |
| | (3,633 | ) | | (125,129 | ) | | — |
| | — |
| | (128,762 | ) |
| Purchases of short-term investments | — |
| | (3,494 | ) | | — |
| | — |
| | — |
| | (3,494 | ) |
| Maturities of short-term investments | — |
| | 14,114 |
| | — |
| | — |
| | — |
| | 14,114 |
|
| Other | — |
| | (390 | ) | | 1,743 |
| | (305 | ) | | — |
| | 1,048 |
|
| Cash provided by (used for) investment | — |
| | 6,597 |
| | (415,986 | ) | | (33,928 | ) | | — |
| | (443,317 | ) |
| Cash provided by (used for) financing | | | | | | | | | | | |
| Issuances of long-term debt | — |
| | 275,000 |
| | — |
| | — |
| | — |
| | 275,000 |
|
| Payments of long-term debt | — |
| | (256,831 | ) | | — |
| | — |
| | — |
| | (256,831 | ) |
| Payments of financing costs | — |
| | (8,613 | ) | | — |
| | — |
| | — |
| | (8,613 | ) |
| Payments (to) from Boise Inc., net | 115,196 |
| | — |
| | — |
| | — |
| | — |
| | 115,196 |
|
| Due to (from) affiliates | (115,196 | ) | | (3,771 | ) | | 85,450 |
| | 33,517 |
| | — |
| | — |
|
| Other | — |
| | (2,355 | ) | | — |
| | 892 |
| | — |
| | (1,463 | ) |
| Cash provided by financing | — |
| | 3,430 |
| | 85,450 |
| | 34,409 |
| | — |
| | 123,289 |
|
| Increase (decrease) in cash and cash equivalents | — |
| | (83,878 | ) | | 9,731 |
| | 4,310 |
| | — |
| | (69,837 | ) |
| Balance at beginning of the period | — |
| | 166,410 |
| | 6 |
| | 417 |
| | — |
| | 166,833 |
|
| Balance at end of the period | $ | — |
| | $ | 82,532 |
| | $ | 9,737 |
| | $ | 4,727 |
| | $ | — |
| | $ | 96,996 |
|
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Cash Flows
For the Year Ended December 31, 2010
(dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | BZ Intermediate Holdings LLC (Parent) | | Boise Paper Holdings and Co-issuers | | Guarantor Subsidiaries | | Nonguarantor Subsidiaries | | Eliminations | | Consolidated |
| Cash provided by (used for) operations | | | | | | | | | | | |
| Net income | $ | 63,577 |
| | $ | 63,577 |
| | $ | 218,131 |
| | $ | 18 |
| | $ | (281,726 | ) | | $ | 63,577 |
|
Items in net income not using (providing) cash | | | | | | | | | | | |
| Equity in net income of affiliates | (63,577 | ) | | (218,149 | ) | | — |
| | — |
| | 281,726 |
| | — |
|
| Depreciation, depletion, and amortization of deferred financing costs and other | — |
| | 11,023 |
| | 126,472 |
| | — |
| | — |
| | 137,495 |
|
| Share-based compensation expense | — |
| | 3,733 |
| | — |
| | — |
| | — |
| | 3,733 |
|
| Pension expense | — |
| | 9,241 |
| | — |
| | — |
| | — |
| | 9,241 |
|
| Deferred income taxes | — |
| | 37,677 |
| | 213 |
| | (8 | ) | | — |
| | 37,882 |
|
| Other | — |
| | (805 | ) | | 900 |
| | — |
| | — |
| | 95 |
|
| Loss on extinguishment of debt | — |
| | 22,225 |
| | — |
| | — |
| | — |
| | 22,225 |
|
| Decrease (increase) in working capital | | | | | | | | | | | |
| Receivables | — |
| | 1,225 |
| | 55,662 |
| | (12 | ) | | 380 |
| | 57,255 |
|
| Inventories | — |
| | 3 |
| | (17,123 | ) | | — |
| | — |
| | (17,120 | ) |
| Prepaid expenses | — |
| | 4,437 |
| | 253 |
| | — |
| | — |
| | 4,690 |
|
| Accounts payable and accrued liabilities | — |
| | 6,760 |
| | (13,208 | ) | | 138 |
| | (380 | ) | | (6,690 | ) |
| Current and deferred income taxes | — |
| | 7,142 |
| | (1,398 | ) | | — |
| | — |
| | 5,744 |
|
| Pension payments | — |
| | (25,174 | ) | | — |
| | — |
| | — |
| | (25,174 | ) |
| Other | — |
| | (773 | ) | | (2,399 | ) | | — |
| | — |
| | (3,172 | ) |
| Cash provided by (used for) operations | — |
| | (77,858 | ) | | 367,503 |
| | 136 |
| | — |
| | 289,781 |
|
| Cash provided by (used for) investment | | | | | | | | | | | |
| Acquisitions of businesses and facilities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Expenditures for property and equipment | — |
| | (3,711 | ) | | (107,908 | ) | | — |
| | — |
| | (111,619 | ) |
| Purchases of short-term investments | — |
| | (25,336 | ) | | — |
| | — |
| | — |
| | (25,336 | ) |
| Maturities of short-term investments | — |
| | 24,744 |
| | — |
| | — |
| | — |
| | 24,744 |
|
| Other | — |
| | 868 |
| | 2,073 |
| | — |
| | — |
| | 2,941 |
|
| Cash used for investment | — |
| | (3,435 | ) | | (105,835 | ) | | — |
| | — |
| | (109,270 | ) |
| Cash provided by (used for) financing | | | | | | | | | | | |
| Issuances of long-term debt | — |
| | 300,000 |
| | — |
| | — |
| | — |
| | 300,000 |
|
| Payments of long-term debt | — |
| | (334,096 | ) | | — |
| | — |
| | — |
| | (334,096 | ) |
| Payments of financing costs | — |
| | (12,003 | ) | | — |
| | — |
| | — |
| | (12,003 | ) |
| Payments (to) from Boise Inc., net | (31,639 | ) | | — |
| | — |
| | — |
| | — |
| | (31,639 | ) |
| Due to (from) affiliates | 31,639 |
| | 230,064 |
| | (261,695 | ) | | (8 | ) | | — |
| | — |
|
| Other | — |
| | (5,333 | ) | | — |
| | — |
| | — |
| | (5,333 | ) |
| Cash provided by (used for) financing | — |
| | 178,632 |
| | (261,695 | ) | | (8 | ) | | — |
| | (83,071 | ) |
| Increase (decrease) in cash and cash equivalents | — |
| | 97,339 |
| | (27 | ) | | 128 |
| | — |
| | 97,440 |
|
| Balance at beginning of the period | — |
| | 69,071 |
| | 33 |
| | 289 |
| | — |
| | 69,393 |
|
| Balance at end of the period | $ | — |
| | $ | 166,410 |
| | $ | 6 |
| | $ | 417 |
| | $ | — |
| | $ | 166,833 |
|
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
We have audited the accompanying consolidated balance sheets of Boise Inc. and subsidiaries (the Company) as of December 31, 20092012 and 2008,2011, and the related consolidated statements of income, (loss), stockholders’comprehensive income, stockholders' equity, and cash flows for each of the years in the two-yearthree‑year period ended December 31, 2009.2012. We also have audited Boise Inc.’s.'s internal control over financial reporting as of December 31, 2009,2012, based on criteria established inInternal Control —- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Boise Inc.’s's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Management's Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’sCompany's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our
auditsaudit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A
company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Boise Inc. and subsidiaries as of December 31, 20092012 and 2008,2011, and the results of their operations and their cash flows for each of the years in the two-yearthree-year period ended December 31, 2009,2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Boise Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2012, based on criteria established inInternal Control –- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
February
25, 201026, 2013
Report of Independent
Auditors’ ReportRegistered Public Accounting Firm
We have audited the accompanying consolidated
statementbalance sheets of
BZ Intermediate Holdings LLC and subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, capital, and cash
flowflows for
each of the
period from January 1, 2008 through February 21, 2008, and foryears in the
yearthree-year period ended December 31,
2007, of Boise Paper Products and subsidiaries.2012. These consolidated financial statements are the responsibility of the
Company’sCompany's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits
in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of Boise Paper Products and subsidiaries operations and their cash flows for the period from January 1, 2008 through February 21, 2008, and for the year ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boise, Idaho
February 23, 2009
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Aldabra 2 Acquisition Corp.:
We have audited the accompanying consolidated statements of income, stockholders’ equity and cash flows for the period from February 1, 2007 (inception) to December 31, 2007 of Aldabra 2 Acquisition Corp. (a corporation in the development stage) and subsidiary (the “Company”). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of BZ Intermediate Holdings LLC and subsidiaries as of December 31, 2012 and 2011, and the results of
their operations
of Aldabra 2 Acquisition Corp. and subsidiary and their cash flows for
each of the
years in the three‑year period
from February 1, 2007 (date of inception) toended December 31,
2007,2012, in conformity with U.S. generally accepted accounting principles.
/s/
McGladrey & Pullen,KPMG LLP
McGLADREY & PULLEN, LLP
New York, New York
Boise, Idaho
February
21, 200826, 2013
| |
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
We have had no disagreements with our independent accountants regarding accounting or financial disclosure matters.
| |
| ITEM 9A. | CONTROLS AND PROCEDURES |
We have attached the certifications of our chief executive officer and chief financial officer with this Form 10-K. Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, require that we include these certifications with this report. This section includes information concerning the disclosure controls and procedures referred to in the certifications and
ourin management's report on internal control over financial reporting. You should read this section in conjunction with the certifications for a more complete understanding of the topics presented.
We maintain
“disclosure"disclosure controls and procedures,
”" as the Securities and Exchange Commission (SEC) defines such term. We have designed these controls and procedures to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Form
10-K,10‑K, is recorded, processed, summarized, and reported within the periods specified in the
SEC’sSEC's rules and forms. We have also designed our disclosure controls to provide reasonable assurance that such information is accumulated and communicated to our senior management, including the chief executive officer (CEO) and chief financial officer (CFO), as appropriate, to allow them to make timely decisions regarding our required disclosures.
We also maintain
“internal"internal control over financial reporting.
”" The SEC defines such internal control as a process designed by, or under the supervision of, a public
company’scompany's CEO and CFO, and effected by the
company’scompany's board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, or U.S. GAAP. This control includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactiontransactions and disposition of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on
theour financial statements.
Limitation on the Effectiveness of Controls and Procedures
Our management, including the CEO and CFO, does not expect that our disclosure controls
and and/or internal controls will prevent or detect all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the limitations in all control systems, no evaluation of controls can provide absolute assurance that we have detected all control issues and instances of fraud, if any, within our
company.Company. Further, the design of any control system is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of this inherent limitation in a cost-effective control system, misstatements due to error or fraud may occur and not be detected even when effective disclosure controls and internal controls are in place.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal year covered by this Form
10-K.10‑K. Based on that evaluation, the CEO and CFO have concluded that, as of such date, our disclosure controls and procedures were effective in meeting the objectives for which they were designed and were operating at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
We had
There have been no changes toin our internal controlscontrol over financial reporting or other factors during the quarter and year and quarter ended December 31, 2009,2012, that have materially affected, materially, or are reasonably likely to materially affect, materially, our internal controls.Management’scontrol over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Management’s
Management's Report on Internal Control Over Financial Reporting is located on the following page of this Form
10-K,10‑K, and KPMG
LLP’sLLP's Report of Independent Registered Public Accounting Firm on internal control over financial reporting is located in
“Part"Part II, Item 8. Financial Statements and Supplementary
Data”Data" of this Form
10-K.10‑K.
Management’s
Management's Report on Internal Control Over Financial Reporting
The management of Boise Inc. is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Management assessed our internal control over financial reporting as of December 31, 2009.2012. Management based its assessment on criteria established inInternal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based upon this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2009.2012
.
The effectiveness of the Company’sCompany's internal control over financial reporting as of December 31, 2009,2012, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report, which is included herein.
ITEM 9B. | OTHER INFORMATION |
None.
|
PART III
ITEM 9B. | OTHER INFORMATION |
None.
PART III
Part III of this Form 10-K incorporates portions of the Proxy Statement for our 2013 Annual Shareholders' meeting. We will file our definitive proxy statement with the SEC no later than 120 days after December 31, 2012.
| |
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
Information concerning our directors is incorporated into this Form 10-K by reference to the section of our
definitive proxy statementProxy Statement entitled
“Proposals"Proposals to
beBe Voted
on,On, Proposal No. 1 — Election of Directors.
” We will file our definitive proxy statement with the Securities and Exchange Commission (SEC) no later than 120 days after December 31, 2009."
Information concerning our executive officers is set forth in
“Part"Part I, Item 1.
Business”Business" of this Form 10-K under the caption
“Executive"Executive Officers of
the Registrant.
”"
Information concerning family relationships between our directors or executive officers is incorporated into this Form 10-K by reference to the section of our
definitive proxy statementProxy Statement entitled
“Transactions With Related Persons, Promoters, and Certain Control Persons.” We will file our definitive proxy statement with the SEC no later than 120 days after December 31, 2009."Corporate Governance —Related-Person Transactions."
Information concerning compliance with Section 16(a) of the Securities and Exchange Act and our corporate governance is incorporated into this Form 10-K by reference to the sections of our
definitive proxy statementProxy Statement entitled
“Section 16(a) Beneficial Ownership Reporting Compliance”"Stock Ownership" and
“Corporate Governance Principles and Board Matters.” We will file our definitive proxy statement with the SEC no later than 120 days after December 31, 2009."Corporate Governance."
Our board of directors adopted a Code of Ethics that applies not only to our directors but also to all of our employees, including our chief executive officer, chief financial officer, and principal accounting officer. A copy of our Code of Ethics is available, free of charge, by visiting our Web sitewebsite at www.boiseinc.com and selectingInvestorsAbout Boise Inc.,Corporate Governance, and thenCode of Ethics.If we amend or grant a waiver of one or more of the provisions of our Code of Ethics, we intend to disclose the amendment or waiver by posting the required information on our Web sitewebsite within four business days following such amendment or waiver. No waivers of our Code of Ethics have been granted to date.
Information concerning material changes to the procedures by which our securityholders may recommend nominees to our board of directors is incorporated into this Form 10-K by reference to the section of our
definitive proxy statementProxy Statement entitled
“Solicitation of Proxies"Information About Our Annual Shareholders' Meeting and Voting.
” We will file our definitive proxy statement with the SEC no later than 120 days after December 31, 2009."
Mr. Berger, our Audit Committee chair, is a financial expert as that term is defined in Regulation S-K, Item 407(d)(5). Further information concerning our Audit Committee is incorporated into this Form 10-K by reference to the sections of our
definitive proxy statementProxy Statement entitled
“Corporate Governance Principles"Board Structure" and
Board Matters” and “Audit"Audit Committee
Matters.” We will file our definitive proxy statement with the SEC no later than 120 days after December 31, 2009.Report."
| |
| ITEM 11. | EXECUTIVE COMPENSATION |
Information concerning compensation of our executive officers and directors is incorporated into this Form 10-K by reference to the sections of our
definitive proxy statementProxy Statement entitled
“Executive Compensation”"Executive Compensation" and
“Corporate Governance Principles and Board Matters.” We will file our definitive proxy statement with the SEC no later than 120 days after December 31, 2009."Board Compensation."
| |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
A description of
Information concerning the security ownership of certain beneficial owners and management and equity compensation plan information
areis incorporated into this Form 10-K by reference to the sections of our
definitive proxy statementProxy Statement entitled
“Security Ownership”"Stock Ownership" and
“Executive Compensation.” We will file our definitive proxy statement with the SEC no later than 120 days after December 31, 2009."Equity Compensation Plan Information."
| |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
A description of
Information concerning certain relationships and related transactions is incorporated into this Form 10-K by reference to the section of our
definitive proxy statementProxy Statement entitled
“Transactions With Related Persons, Promoters, and Certain Control Persons.” We will file our definitive proxy statement with the SEC no later than 120 days after December 31, 2009."Corporate Governance — Related-Person Transactions."
| |
| ITEM 14. | PRINCIPAL ACCOUNTANTACCOUNTING FEES AND SERVICES |
Information with respect toconcerning fees paid to, and services rendered by, our principal accountant and our policies and procedures for preapproving those services is incorporated into this Form 10-K by reference to the section of our definitive proxy statementProxy Statement entitled “Audit"Audit Committee Matters.” We will file our definitive proxy statement with the SEC no later than Report."
120
days after December 31, 2009.
PART IV
| ITEM 15. | EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES |
| |
| (a) | The following documents are filed as a part of this Form 10-K: |
| |
| (1) | Consolidated Financial Statements |
The Consolidated Financial Statements, the Notes to Consolidated Financial Statements, and the Reports of Independent Registered Public Accounting Firms are presented in
“Part"Part II, Item 8. Financial Statements and Supplementary
Data”Data" of this Form 10-K.
Boise Inc. Consolidated Statements of Income for the years ended December 31, 2012, 2011, and 2010.
Boise Inc. Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011, and 2010.
Boise Inc. Consolidated Balance Sheets as of December 31, 20092012 and 2008.2011.
Boise Inc. Consolidated Statements of Income (Loss) for the years ended December 31, 2009 and 2008, and the period of February 1 (Inception) through December 31, 2007, and the Predecessor Consolidated Statements of Income (Loss) for the period of January 1 through February 21, 2008, and the year ended December 31, 2007.
Boise Inc. Consolidated Statements of Cash Flows for the years ended December 31, 20092012, 2011, and 2008, and2010.
Boise Inc. Consolidated Statements of Stockholders' Equity for the period of February 1 (Inception) through years ended December 31, 2007,2012, 2011, and 2010.
BZ Intermediate Holdings LLC Consolidated Statements of Income for the Predecessoryears ended December 31, 2012, 2011, and 2010.
BZ Intermediate Holdings LLC Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011, and 2010.
BZ Intermediate Holdings LLC Consolidated Balance Sheets as of December 31, 2012 and 2011.
BZ Intermediate Holdings LLC Consolidated Statements of Cash Flows for the period of January 1 through February 21, 2008, and for the yearyears ended December 31, 2007.2012, 2011, and 2010.
Boise Inc.
BZ Intermediate Holdings LLC Consolidated Statements of Stockholders’ EquityCapital for the years ended December 31, 20092012, 2011, and 2008, and the period ended December 31, 2007, and the Predecessor Consolidated Statements of Stockholders’ Equity for the year ended December 31, 2007.2010.
Notes to Consolidated Financial Statements.
ReportReports of Independent Registered Public Accounting Firm — KPMG LLP.
Independent Auditors’ Report — KPMG LLP.
Report of Independent Registered Public Accounting Firm — McGladrey & Pullen, LLP.
Management’sManagement's Report on Internal Control Over Financial Reporting.
| |
| (2) | Financial Statement Schedules |
All financial statement schedules have been omitted because they are inapplicable, not required, or shown in the consolidated financial statements and notes in
“Part"Part II, Item 8. Financial Statements and Supplementary
Data”Data" of this Form 10-K.
A list of the exhibits required to be filed
or furnished as part of this
reportForm 10-K is set forth in the Index to Exhibits and is incorporated by reference.
| |
| (b) | See Index to Exhibits. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant hasregistrants have duly caused this report to be signed on
itstheir behalf by the undersigned, thereunto duly authorized.
|
| | |
Boise Inc. |
| |
ByBOISE INC. | | /s/ Alexander ToeldteBZ INTERMEDIATE HOLDINGS LLC |
| |
/s/ BERNADETTE M. MADARIETA | | Alexander Toeldte/s/ BERNADETTE M. MADARIETA |
| Bernadette M. Madarieta | | Bernadette M. Madarieta |
| Vice President and Controller | | Vice President and Controller |
(As Duly Authorized Officer and Chief ExecutiveAccounting Officer) | | (As Duly Authorized Officer and Chief Accounting Officer) |
Dated:
Date: February 25, 201026, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 25, 2010,26, 2013, by the following persons on behalf of the registrantregistrants and in the capacities indicated. | |
| | | | |
| | | Signature | | Capacity |
| | | | Capacity
|
(i) | | Principal Executive Officer: | | |
| | | | |
| | | |
| | /s/ Alexander Toeldte | | ALEXANDER TOELDTE | | Chief Executive Officer |
| | ________________________________ | | |
| | Alexander Toeldte | | |
| | |
| | | |
(ii)
| | |
| (ii) | | Principal Financial Officer: | | |
| | | | |
| | | |
| | /s/ Robert M. McNutt | | SAMUEL K. COTTERELL | | Senior Vice President and Chief Financial Officer |
| | Robert M. McNutt________________________________ | | |
| | |
| | | |
(iii)
| | Principal Accounting Officer: | | | | |
| | | |
| | /s/ Samuel K. Cotterell | | |
| | | | |
| (iii) | | Principal Accounting Officer: | | |
| | | | |
| | /s/ BERNADETTE M. MADARIETA | | Vice President and Controller |
| | Samuel K. Cotterell________________________________ | | |
| | |
| | | |
(iv)
Bernadette M. Madarieta | | Directors: |
| | | | |
| (iv) | | Directors: | | |
| | | | |
| | /s/ CarlCARL A. Albert | | ALBERT | | /s/ HeinrichHEINRICH R. LenzLENZ |
| | ________________________________ | | ________________________________ |
| | Carl A. Albert | | Heinrich R. Lenz |
| | Heinrich R. Lenz
| | |
| | | |
| | /s/ Stanley R. Bell | | JONATHAN W. BERGER | | /s/ W. Thomas StephensALEXANDER TOELDTE |
| | Stanley R. Bell________________________________ | | | | W. Thomas Stephens________________________________ |
| | | |
| | /s/ Jonathan W. Berger | | | | /s/ Alexander Toeldte |
| | Jonathan W. Berger | | | | Alexander Toeldte |
| | | | |
| | /s/ Jack Goldman | | JACK GOLDMAN | | /s/ JasonJASON G. WeissWEISS |
| | ________________________________ | | ________________________________ |
| | Jack Goldman | | | | Jason G. Weiss |
| | | |
| | /s/ Nathan D. Leight | | | | |
| | Nathan D. Leight | | | | |
BZ INTERMEDIATE HOLDINGS LLC
Filed or Furnished With the Annual Report on Form 10-K for the Year Ended December 31, 2009. | | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Incorporated by Reference | | Filed
Herewith |
| | | Form | | Exhibit
Number | | Filing
Date | |
| 2.1 | | Purchase and Sale Agreement dated September 7, 2007, between Boise Cascade, L.L.C., Boise Paper Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2 Acquisition Corp., and Aldabra Sub LLC | | DEFM14A | | | | 1/23/08 | | |
| | | | | |
| 2.2 | | Amendment No. 1 to Purchase and Sale Agreement dated October 8, 2007, between Boise Cascade, L.L.C., Boise Paper Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2 Acquisition Corp., and Aldabra Sub LLC | | DEFM14A | | | | 1/23/08 | | |
| | | | | |
| 2.3 | | Amendment No. 2 to Purchase and Sale Agreement dated February 22, 2008, between Boise Cascade, L.L.C., Boise Paper Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2 Acquisition Corp., and Aldabra Sub LLC | | 8-K | | 10.2 | | 2/28/08 | | |
| | | | | |
| 3.1 | | Second Amended and Restated Certificate of Incorporation of Boise Inc. | | 8-K | | 3.1 | | 2/28/08 | | |
| | | | | |
| 3.2 | | Bylaws of Boise Inc., Amended and Restated Effective as of July 11, 2008 | | 8-K | | 3.1 | | 7/14/08 | | |
| | | | | |
| 4.1 | | Specimen Unit Certificate | | S-1 | | 4.1 | | 3/19/07 | | |
| | | | | |
| 4.2 | | Specimen Common Stock Certificate | | S-1
POS AM
No. 1 | | 4.2 | | 6/13/08 | | |
| | | | | |
| 4.3 | | Specimen Warrant Certificate | | S-1
POS AM No. 1 | | 4.3 | | 6/13/08 | | |
| | | | | |
| 4.4 | | Form of Warrant Agreement between Continental Stock Transfer & Trust Company and Aldabra 2 Acquisition Corp. | | S-1
Amend. No. 3 | | 4.4 | | 6/13/07 | | |
| | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Incorporated by Reference | | Filed
Herewith |
| | | Form | | Exhibit
Number | | Filing
Date | |
| 4.5 | | Investor Rights Agreement dated February 22, 2008, between Aldabra 2 Acquisition Corp. (now Boise Inc.), Boise Cascade, L.L.C., Boise Cascade Holdings, L.L.C., certain directors and officers of Aldabra 2 Acquisition Corp., the Aldabra Shareholders, and each other Person who becomes a party to this Agreement after February 22, 2008 | | 8-K | | 4.1 | | 2/28/08 | | |
| | | | | |
| 4.6 | | Indenture dated October 26, 2009, between Boise Paper Holdings, L.L.C., Boise Finance Company, the Guarantors set forth therein, and Wells Fargo Bank, National Association, as Trustee | | 8-K | | 4.1 | | 10/28/09 | | |
| | | | | |
| 4.7 | | Form of 9% Senior Note due 2017 | | 8-K | | 4.1 | | 10/28/09 | | |
| | | | | |
| 9 | | None | | | | | | | | |
| | | | | |
| 10.1 | | Form of Promissory (PIK) Note dated February 22, 2008, issued in connection with the Acquisition | | 8-K | | 10.3 | | 2/28/08 | | |
| | | | | |
| 10.2 | | Letter Agreement dated May 22, 2008, adjusting amount of Promissory (PIK) Note dated February 22, 2008 | | 8-K | | 99.1 | | 5/29/08 | | |
| | | | | |
| 10.3 | | Securities Purchase Agreement dated August 4, 2009, between certain Affiliated Funds and Boise Inc. | | 8-K/A | | 99.3 | | 9/1/09 | | |
| | | | | |
| 10.4 | | Form of Subscription Agreements between Aldabra 2 Acquisition Corp., Graubard Miller, and each of Nathan D. Leight and Jason G. Weiss | | S-1 | | 10.11 | | 3/19/07 | | |
| | | | | |
| 10.5 (a) | | Amended and Restated Paper Purchase Agreement dated April 28, 2004, between Boise White Paper, L.L.C. and Boise Cascade Corporation (now OfficeMax Incorporated), together with the Assignment Assumption and Consent Agreement dated October 29, 2004, between Boise Cascade Corporation (now OfficeMax Incorporated), Boise White Paper, L.L.C., OfficeMax Contract, Inc., and OfficeMax North America, Inc. | | 8-K | | 10.1 | | 2/28/08 | | |
| | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Incorporated by Reference | | Filed
Herewith |
| | | Form | | Exhibit
Number | | Filing
Date | |
| 10.6 | | Registration Rights Agreement dated October 26, 2009, between Boise Paper Holdings, L.L.C., Boise Finance Company, the Guarantors set forth therein, and J.P. Morgan Securities Inc. | | 8-K | | 99.1 | | 10/28/09 | | |
| | | | | |
| 10.7 | | Credit and Guaranty Agreement dated February 22, 2008, between Aldabra Sub LLC (subsequently merged with and into Boise Paper Holdings, L.L.C.), Aldabra Holding Sub LLC, certain subsidiaries of Aldabra Sub LLC (as Guarantors), Various Lenders, Goldman Sachs Credit Partners L.P. (as Joint Lead Arranger, Joint Bookrunner, Administrative Agent and Collateral Agent), Toronto Dominion (Texas) LLC (as Syndication Agent), Bank of America, N.A. and Cobank, ACB (as Co-Documentation Agents), and Lehman Brothers Inc. (as Joint Lead Arranger and Joint Bookrunner) - $975,000,000 Senior Secured First Priority Credit Facilities | | 8-K | | 10.5 | | 2/28/08 | | |
| | | | | |
| 10.8 | | First Amendment to Credit and Guaranty Agreement dated October 13, 2009, between the Company, the Guarantors set forth therein, Goldman Sachs Credit Partners L.P., as Administrative and Collateral Agent, and J.P. Morgan Securities Inc. | | 8-K | | 99.2 | | 10/28/09 | | |
| | | | | |
| 10.9 | | Second Lien Credit and Guaranty Agreement dated February 22, 2008, between Aldabra Sub LLC (subsequently merged with and into Boise Paper Holdings, L.L.C.), Aldabra Holding Sub LLC, certain subsidiaries of Aldabra Sub LLC (as Guarantors), Various Lenders, Lehman Commercial Paper Inc. (as Administrative Agent and Collateral Agent), Goldman Sachs Credit Partners L.P. (as Joint Lead Arranger, Joint Bookrunner and Syndication Agent), and Lehman Brothers Inc. (as Joint Lead Arranger, Joint Bookrunner and Documentation Agent) - $260,700,000 Senior Secured Second Priority Credit Facility | | 8-K | | 10.6 | | 2/28/08 | | |
| | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Incorporated by Reference | | Filed
Herewith |
| | | Form | | Exhibit
Number | | Filing
Date | |
| 10.10 | | First Amendment to Second Lien Credit and Guaranty Agreement dated October 13, 2009, between the Company, the Guarantors set forth therein, Lehman Commercial Paper Inc., as Administrative and Collateral Agent, Barclays Bank PLC, and J.P. Morgan Securities Inc. | | 8-K | | 99.3 | | 10/28/09 | | |
| | | | | |
| 10.11 | | Pledge and Security Agreement (First Lien) dated February 22, 2008, between each of the Grantors party thereto and Goldman Sachs Credit Partners L.P. (as Collateral Agent) | | 8-K | | 10.7 | | 2/28/08 | | |
| | | | | |
| 10.12 | | Pledge and Security Agreement (Second Lien) dated February 22, 2008, between each of the Grantors party thereto and Lehman Commercial Paper Inc. (as Collateral Agent) | | 8-K | | 10.8 | | 2/28/08 | | |
| | | | | |
| 10.13 | | Trademark Security Agreement (First Lien) dated February 22, 2008, between Aldabra Sub LLC (subsequently merged with and into Boise Paper Holdings, L.L.C.), Aldabra Holding Sub LLC, certain subsidiaries of Aldabra Sub LLC (as Guarantors), and Goldman Sachs Credit Partners L.P. (as Collateral Agent) | | 8-K | | 10.9 | | 2/28/08 | | |
| | | | | |
| 10.14 | | Trademark Security Agreement (Second Lien) dated February 22, 2008, between Aldabra Sub LLC (subsequently merged with and into Boise Paper Holdings, L.L.C.), Aldabra Holding Sub LLC, certain subsidiaries of Aldabra Sub LLC (as Guarantors), and Lehman Commercial Paper Inc. (as Collateral Agent) | | 8-K | | 10.10 | | 2/28/08 | | |
| | | | | |
| 10.15 | | Patent Security Agreement (First Lien) dated February 22, 2008, between Aldabra Sub LLC (subsequently merged with and into Boise Paper Holdings, L.L.C.), Aldabra Holding Sub LLC, certain subsidiaries of Aldabra Sub LLC (as Guarantors), and Goldman Sachs Credit Partners L.P. (as Collateral Agent) | | 8-K | | 10.11 | | 2/28/08 | | |
| | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Incorporated by Reference | | Filed
Herewith |
| | | Form | | Exhibit
Number | | Filing
Date | |
| 10.16 | | Patent Security Agreement (Second Lien) dated February 22, 2008, between Aldabra Sub LLC (subsequently merged with and into Boise Paper Holdings, L.L.C.), Aldabra Holding Sub LLC, certain subsidiaries of Aldabra Sub LLC (as Guarantors), and Lehman Commercial Paper Inc. (as Collateral Agent) | | 8-K | | 10.12 | | 2/28/08 | | |
| | | | | |
| 10.17 | | Tranche A Term Loan Note dated February 22, 2008, issued to The Bank of Nova Scotia in the amount of $12,500,000 | | 8-K | | 10.13 | | 2/28/08 | | |
| | | | | |
| 10.18 | | Tranche A Term Loan Note dated February 22, 2008, issued to RZB Finance LLC in the amount of $2,500,000 | | 8-K | | 10.14 | | 2/28/08 | | |
| | | | | |
| 10.19 | | Revolving Loan Note dated February 22, 2008, issued to The Bank of Nova Scotia in the amount of $12,500,000 | | 8-K | | 10.15 | | 2/28/08 | | |
| | | | | |
| 10.20 | | Revolving Loan Note dated February 22, 2008, issued to RZB Finance LLC in the amount of $2,500,000 | | 8-K | | 10.16 | | 2/28/08 | | |
| | | | | |
| 10.21 | | Outsourcing Services Agreement dated February 22, 2008, between Boise Cascade, L.L.C. and Boise Paper Holdings, L.L.C. | | 8-K | | 10.17 | | 2/28/08 | | |
| | | | | |
| 10.22 | | Intellectual Property License Agreement dated February 22, 2008, between Boise Cascade, L.L.C. and Boise Paper Holdings, L.L.C. | | 8-K | | 10.18 | | 2/28/08 | | |
| | | | | |
| 10.23 * | | Form of Severance Agreement dated February 18, 2010, between Boise Paper Holdings, L.L.C. and Alexander Toeldte | | 8-K | | 99.1 | | 2/22/10 | | |
| | | | | |
| 10.24 * | | Form of Officer Severance Agreement dated February 18, 2010 | | 8-K | | 99.2 | | 2/22/10 | | |
| | | | | |
| 10.25 * | | Boise Inc. Directors Deferred Compensation Plan effective April 4, 2008 | | 10-Q | | 10 | | 5/5/08 | | |
| | | | | |
| 10.26 * | | Boise Paper Holdings, L.L.C. 2008 Deferred Compensation Plan (As Amended through October 27, 2009) | | | | | | | | X |
2012
. |
| | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Incorporated by Reference | | Filed or Furnished Herewith |
| | | Form | | Exhibit Number | | Filing Date | |
| | | | | | |
| 2.1 | | Purchase and Sale Agreement dated September 7, 2007, between Boise Cascade, L.L.C., Boise Paper Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2 Acquisition Corp., and Aldabra Sub LLC
| | DEFM14A | | | | 1/23/2008 | | |
| | | | | | |
| 2.2 | | Amendment No. 1 to Purchase and Sale Agreement dated October 18, 2007, between Boise Cascade, L.L.C., Boise Paper Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2 Acquisition Corp., and Aldabra Sub LLC | | DEFM14A | | | | 1/23/2008 | | |
| | | | | | |
| 2.3 | | Amendment No. 2 to Purchase and Sale Agreement dated February 22, 2008, between Boise Cascade, L.L.C., Boise Paper Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2 Acquisition Corp., and Aldabra Sub LLC | | 8-K | | 10.2 | | 2/28/2008 | | |
| | | | | | | | | | | |
| 2.4 | | Stock Purchase Agreement dated February 21, 2011, among Boise Paper Holdings, L.L.C., the Sellers party thereto, Tricor (Tharco) Equity Holdings, Inc., as the Seller Representative, and Tharco Packaging, Inc. | | 10-Q | | 2 | | 5/2/2011 | | |
| | | | | | |
| 2.5 | | Purchase Agreement dated October 2, 2011, between Boise Paper Holdings, L.L.C., and Pregis Corporation (For the purchase of Pregis Corporation's Hexacomb protective packaging business) | | 10-K | | 2.5 | | 2/28/2012 | | |
| | | | | | |
| 3.1 | | Boise Inc. - Second Amended and Restated Certificate of Incorporation | | 8-K | | 3.1 | | 2/28/2008 | | |
| | | | | | |
| 3.2 | | Boise Inc. - Bylaws, amended and restated effective as of July 11, 2008 | | 8-K | | 3.1 | | 7/14/2008 | | |
| | | | | | | | | | | |
| 3.3 | | BZ Intermediate Holdings LLC (formerly Aldabra Holding Sub LLC) - Certificate of Formation and amendment | | S-4 (Reg. No. 333-166926) | | 3.3 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.4 | | BZ Intermediate Holdings LLC (formerly Aldabra Holding Sub LLC) - Limited Liability Company Agreement effective as of February 12, 2008, and amendment | | S-4 (Reg. No. 333-166926) | | 3.4 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.5 | | Boise Paper Holdings, L.L.C. - Certificate of Formation and amendment | | S-4 (Reg. No. 333-166926) | | 3.5 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.6 | | Boise Paper Holdings, L.L.C. - Limited Liability Company Agreement effective February 22, 2008, and amendment | | S-4 (Reg. No. 333-166926) | | 3.6 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.7 | | Boise Finance Company - Certificate of Incorporation | | S-4 (Reg. No. 333-166926) | | 3.7 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.8 | | Boise Finance Company - Bylaws | | S-4 (Reg. No. 333-166926) | | 3.8 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.9 | | Boise Co-Issuer Company - Certificate of Incorporation | | S-4 (Reg. No. 333-166926) | | 3.9 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.10 | | Boise Co-Issuer Company - Bylaws | | S-4 (Reg. No. 333-166926) | | 3.10 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.11 | | Boise Packaging & Newsprint, L.L.C. - Certificate of Formation and amendment | | S-4 (Reg. No. 333-166926) | | 3.11 | | 5/18/2010 | | |
|
| | | | | | | | | | |
| | | | | | | | | | | |
| 3.12 | | Boise Packaging & Newsprint, L.L.C. - Operating Agreement effective as of September 20, 2004, and amendment | | S-4 (Reg. No. 333-166926) | | 3.12 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.13 | | Boise White Paper, L.L.C. - Certificate of Formation and amendment | | S-4 (Reg. No. 333-166926) | | 3.13 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.14 | | Boise White Paper, L.L.C. - Operating Agreement effective as of September 20, 2004, and amendment | | S-4 (Reg. No. 333-166926) | | 3.14 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.15 | | Boise White Paper Sales Corp. (formerly Birch Creek Funding Corporation) - Certificate of Incorporation and amendment | | S-4 (Reg. No. 333-166926) | | 3.15 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.16 | | Boise White Paper Sales Corp. - Bylaws | | S-4 (Reg. No. 333-166926) | | 3.16 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.17 | | Boise White Paper Holdings Corp. (formerly Boise Cascade Transportation, Inc.) - Certificate of Incorporation and amendments | | S-4 (Reg. No. 333-166926) | | 3.17 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.18 | | Boise White Paper Holdings Corp. - Bylaws | | S-4 (Reg. No. 333-166926) | | 3.18 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.19 | | International Falls Power Company - Amended and Restated Certificate of Incorporation and amendment | | S-4 (Reg. No. 333-166926) | | 3.19 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.20 | | International Falls Power Company - Amended and Restated Bylaws | | S-4 (Reg. No. 333-166926) | | 3.20 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.21 | | Minnesota, Dakota & Western Railway Company - Amended and Restated Articles of Incorporation | | S-4 (Reg. No. 333-166926) | | 3.21 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.22 | | Minnesota, Dakota & Western Railway Company - Amended and Restated Bylaws | | S-4 (Reg. No. 333-166926) | | 3.22 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.23 | | Bemis Corporation - Certificate of Incorporation | | S-4 (Reg. No. 333-166926) | | 3.23 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.24 | | Bemis Corporation - Bylaws | | S-4 (Reg. No. 333-166926) | | 3.24 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.25 | | B C T, Inc. - Amended and Restated Certificate of Incorporation and amendment | | S-4 (Reg. No. 333-166926) | | 3.25 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.26 | | B C T, Inc. - Amended and Restated Bylaws | | S-4 (Reg. No. 333-166926) | | 3.26 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.27 | | Boise Cascade Transportation Holdings Corp. - Certificate of Incorporation | | S-4 (Reg. No. 333-166926) | | 3.27 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.28 | | Boise Cascade Transportation Holdings Corp. - Bylaws | | S-4 (Reg. No. 333-166926) | | 3.28 | | 5/18/2010 | | |
| | | | | | | | | | | |
| 3.29 | | Tharco Packaging, Inc. - Fourth Amended and Restated Certificate of Incorporation | | 10-Q | | 3.1 | | 5/2/2011 | | |
| | | | | | | | | | | |
| 3.30 | | Tharco Packaging, Inc. - Bylaws, amended as of March 1, 2011 | | 10-Q | | 3.2 | | 5/2/2011 | | |
| | | | | | | | | | | |
| 3.31 | | Tharco Containers, Inc. - Third Amended and Restated Articles of Incorporation | | 10-Q | | 3.3 | | 5/2/2011 | | |
| | | | | | | | | | | |
| 3.32 | | Tharco Containers, Inc. - Amended and Restated Bylaws, amended as of March 1, 2011 | | 10-Q | | 3.4 | | 5/2/2011 | | |
| | | | | | | | | | | |
| 3.33 | | Tharco Containers Texas, Inc. - Second Amended and Restated Certificate of Incorporation | | 10-Q | | 3.5 | | 5/2/2011 | | |
| | | | | | | | | | | |
| 3.34 | | Tharco Containers Texas, Inc. - Bylaws, amended as of March 1, 2011 | | 10-Q | | 3.6 | | 5/2/2011 | | |
| | | | | | | | | | | |
|
| | | | | | | | | | |
| 3.35 | | Design Packaging, Inc. - Third Amended and Restated Articles of Incorporation | | 10-Q | | 3.7 | | 5/2/2011 | | |
| | | | | | | | | | | |
| 3.36 | | Design Packaging, Inc. - Bylaws | | 10-Q | | 3.8 | | 5/2/2011 | | |
| | | | | | | | | | | |
| 3.37 | | Boise Packaging Holdings Corp. - Certificate of Incorporation | | 10-K | | 3.37 | | 2/28/2012 | | |
| | | | | | | | | | | |
| 3.38 | | Boise Packaging Holdings Corp. - Bylaws | | 10-K | | 3.38 | | 2/28/2012 | | |
| | | | | | | | | | | |
| 3.39 | | Hexacomb Corporation - Restated Articles of Incorporation | | 10-K | | 3.39 | | 2/28/2012 | | |
| | | | | | | | | | | |
| 3.40 | | Hexacomb Corporation - Bylaws | | 10-K | | 3.40 | | 2/28/2012 | | |
| | | | | | | | | | | |
| 4.1 | | Specimen Common Stock Certificate | | S-1 POS AM No. 1 | | 4.2 | | 6/13/2008 | | |
| | | | | | | | | | | |
| 4.2 | | Investor Rights Agreement dated February 22, 2008, between Aldabra 2 Acquisition Corp. (now Boise Inc.), Boise Cascade, L.L.C., Boise Cascade Holdings, L.L.C., certain directors and officers of Aldabra 2 Acquisition Corp., the Aldabra Shareholders, and each other Person who becomes a party to this Agreement after February 22, 2008 | | 8-K | | 4.1 | | 2/28/2008 | | |
| | | | | | | | | | | |
| 4.3 | | Indenture (9% Senior Notes due 2017) dated October 26, 2009, between Boise Paper Holdings, L.L.C., Boise Finance Company, the Guarantors set forth therein, and Wells Fargo Bank, National Association, as Trustee - Together with First Supplemental Indenture dated March 19, 2010, Second Supplemental Indenture dated March 8, 2011, Third Supplemental Indenture dated November 30, 2011, and Fourth Supplemental Indenture dated January 17, 2012 | | 10-K | | 4.6 | | 2/28/2012 | | |
| | | | | | | | | | | |
| 4.4 | | Form of 9% Senior Note due 2017 | | 8-K | | 4.1 | | 10/28/2009 | | |
| | | | | | | | | | | |
| 4.5 | | Indenture (8% Senior Notes due 2020) dated March 19, 2010, between Boise Paper Holdings, L.L.C., Boise Co-Issuer Company, the Guarantors set forth therein, and Wells Fargo Bank, National Association, as Trustee - Together with First Supplemental Indenture dated March 8, 2011, Second Supplemental Indenture dated November 30, 2011, and Third Supplemental Indenture dated January 17, 2012
| | 10-K | | 4.8 | | 2/28/2012 | | |
| | | | | | | | | | | |
| 4.6 | | Form of 8% Senior Note due 2020 | | 8-K | | 4.1 | | 3/22/2010 | | |
| | | | | | | | | | | |
| 9 | | None | | | | | | | | |
| | | | | | | | | | | |
| 10.1 (a) | | Paper Purchase Agreement dated June 25, 2011, between Boise White Paper, L.L.C., and OfficeMax Incorporated | | 10-Q/A | | 10 | | 10/24/2011 | | |
| | | | | | | | | | | |
| 10.2 | | Credit Agreement dated as of November 4, 2011, among BZ Intermediate Holdings LLC, as guarantor, Boise Paper Holdings, L.L.C., as borrower, and a syndicate of lenders including JPMorgan Chase Bank, N.A., individually and as administrative agent | | 10-K | | 10.11 | | 2/28/2012 | | |
| | | | | | | | | | | |
| 10.3 | | Guarantee and Collateral Agreement dated as of November 4, 2011, among BZ Intermediate Holdings LLC, Boise Paper Holdings, L.L.C., the subsidiaries of Boise Paper Holdings, L.L.C. party thereto, and JPMorgan Chase Bank. N.A., as administrative agent - Together with Supplement No. 1 dated November 30, 2011, and Supplement No. 2 dated January 17, 2012 | | 10-K | | 10.12 | | 2/28/2012 | | |
| | | | | | | | | | | |
| 10.4 | | Outsourcing Services Agreement dated February 22, 2008, between Boise Cascade, L.L.C. and Boise Paper Holdings, L.L.C. | | 10-K | | 10.20 | | 3/2/2011 | | |
| | | | | | | | | | | |
| 10.5 | | Intellectual Property License Agreement dated February 22, 2008, between Boise Cascade, L.L.C. and Boise Paper Holdings, L.L.C. | | 8-K | | 10.18 | | 2/28/2008 | | |
| | | | | | | | | | | |
| 10.6 | | Form of Indemnification Agreement between Boise Inc. and its Directors and Elected Officers | | 8-K | | 99.1 | | 11/2/2010 | | |
| | | | | | | | | | | |
| 10.7 * | | Severance Agreement dated December 9, 2010, between Boise Paper Holdings, L.L.C. and Alexander Toeldte | | 8-K | | 99.1 | | 12/14/2010 | | |
| | | | | | | | | | | |
| 10.8 * | | Form of 2010 Officer Severance Agreement | | 10-K | | 10.24 | | 3/2/2011 | | |
| | | | | | | | | | | |
| 10.9 * | | Boise Inc. Directors Deferred Compensation Plan effective April 4, 2008 | | 10-Q | | 10 | | 5/5/2008 | | |
| | | | | | | | | | | |
| 10.10 * | | Boise Paper Holdings, L.L.C. Deferred Compensation Plan effective February 22, 2008, amended as of October 27, 2009 | | 10-K | | 10.26 | | 2/25/2010 | | |
| | | | | | | | | | | |
| 10.11 * | | Boise Paper Holdings, L.L.C. Supplemental Life Plan effective February 22, 2008 | | 10-K | | 10.35 | | 2/24/2009 | | |
| | | | | | | | | | | |
|
| | | | | | | | | | |
Exhibit
Number | | Exhibit Description
| | Incorporated by Reference | | Filed
Herewith |
| | Form | | Exhibit
Number | | Filing
Date | |
10.27 * | | Boise Paper Holdings, L.L.C. Supplemental Life Plan effective February 22, 2008 | | 10-K | | 10.35 | | 2/24/09 | | |
| | | | | |
10.28 * | | Boise Paper Holdings, L.L.C. Financial Counseling Program effective February 22, 2008 | | 10-K | | 10.36 | | 2/24/09 | | |
| | | | | |
10.2910.12 * | | Boise Paper Holdings, L.L.C. Supplemental Pension Plan (SUPP) effective February 22, 2008 | | 10-K | | 10.37 | | 2/24/092009 | | |
| | | | | | | | | | |
10.3010.13 * | | Boise Paper Holdings, L.L.C. Supplemental Early Retirement Plan (SERP) for Certain Elected Officers effective February 22, 2008 | | 10-K | | 10.38 | | 2/24/092009 | | |
| | | | | | | | | | |
10.3110.14 * | | Boise Inc. Incentive and Performance Plan effective February 22, 2008, amended as of April 23, 2009 | | 8-K | | 99.1 | | 4/24/09 | | |
| | | | | |
10.32 * | | Form of 2008 Restricted Stock Award Agreement (Officers)29, 2010 | | 8-K | | 99.1 | | 5/6/083/2010 | | |
| | | | | |
10.33 * | | Form of 2008 Restricted Stock Unit Award Agreement (Officers) | | 8-K | | 99.2 | | 5/6/08 | | |
| | | | | |
10.34 * | | Form of 2008 Restricted Stock Award Agreement (Nonemployee Directors) | | 10-Q | | 10.2 | | 8/6/08 | | |
| | | | | |
10.35 * | | Form of 2008 Restricted Stock Unit Award Agreement (Nonemployee Directors) | | 10-Q | | 10.3 | | 8/6/08 | | |
| | | | | |
10.3610.15 * | | Form of 2009 Restricted Stock Award Agreement (Officers) | | 8-K | | 99.2 | | 4/24/092009 | | |
| | | | | | | | | | |
10.3710.16 * | | Form of 2009 Restricted Stock Unit Award Agreement (Officers) | | 8-K | | 99.3 | | 4/24/092009 | | |
| | | | | | | | | | |
10.3810.17 * | | Form of 20092010 Restricted Stock Award Agreement (Nonemployee Directors) | | 10-Q | | 10.410.3 | | 5/5/094/2010 | | |
| | | | | | | | | | |
10.3910.18 * | | Restricted Stock Unit Award Agreement dated November 1, 2010, with Robert A. Warren (Special award upon Mr. Warren's election as executive vice president and chief operating officer) | | 8-K | | 99.2 | | 11/2/2010 | | |
| | | | | | | | | | |
| 10.19 * | | Form of 20092011 Restricted Stock Unit Award Agreement (Nonemployee Directors) | | 10-Q | | 10.5 | | 5/5/092/2011 | | |
| | | | | | | | | | |
| 10.20 * | | Restricted Stock Unit Award Agreement dated January 1, 2011, with Samuel K. Cotterell (Special award upon Mr. Cotterell's election as senior vice president and chief financial officer) | | 10-K | | 10.40 | | 3/2/2011 | | |
| | | | | | | | | | |
| 10.21 * | | Form of 2011 Restricted Stock Award Agreement (2011 Supplemental Award to Officers) | | 8-K | | 99.1 | | 3/1/2011 | | |
| | | | | | | | | | |
| 10.22 * | | Form of 2011 Restricted Stock Unit Award Agreement (2011 Supplemental Award to Officers) | | 8-K | | 99.2 | | 3/1/2011 | | |
| | | | | | | | | | |
| 10.23 * | | Form of 2011 Restricted Stock Award Agreement (2011 Regular Award to Officers) | | 8-K | | 99.1 | | 3/18/2011 | | |
| | | | | | | | | | |
| 10.24 * | | Form of 2011 Restricted Stock Unit Award Agreement (2011 Regular Award to Officers) | | 8-K | | 99.2 | | 3/18/2011 | | |
| | | | | | | | | | |
| 10.25 * | | Form of 2011 Nonqualified Stock Option Award Agreement (2011 Regular Award to Officers) | | 8-K | | 99.3 | | 3/18/2011 | | |
| | | | | | | | | | |
| 10.26 * | | Form of 2011 Performance Unit Award Agreement (2011 Regular Award to Officers) | | 8-K | | 99.4 | | 3/18/2011 | | |
| | | | | | | | | | |
| 10.27 * | | Form of 2012 Restricted Stock Award Agreement (Nonemployee Directors) | | 10-K | | 10.39 | | 2/28/2012 | | |
| | | | | | | | | | |
| 10.28 * | | Form of 2012 Restricted Stock Award Agreement (Officers) | | 8-K | | 99.1 | | 2/21/2012 | | |
| | | | | | | | | | |
| 10.29 * | | Form of 2012 Restricted Stock Unit Award Agreement (Officers) | | 8-K | | 99.2 | | 2/21/2012 | | |
| | | | | | | | | | |
| 10.30 * | | Form of 2012 Nonqualified Stock Option Award Agreement (Officers) | | 8-K | | 99.3 | | 2/21/2012 | | |
| | | | | | | | | | |
| 10.31 * | | Form of 2012 Performance Unit Award Agreement (Officers) | | 8-K | | 99.4 | | 2/21/2012 | | |
| | | | | | | | | | |
| 10.32 * | | Restricted Stock Unit Award Agreement dated December 17, 2012, with Judith M. Lassa (Special award upon Ms. Lassa's election as executive vice president and chief operating officer) | | | | | | | | X |
| | | | | | | | | | |
| 10.33 * | | Form of 2013 Restricted Stock Award Agreement (Nonemployee Directors) | | | | | | | | X |
| | | | | | | | | | |
| 10.34 * | | Form of 2013 Restricted Stock Unit Award Agreement (Officers) | | 8-K | | 99.1 | | 2/25/2013 | | |
| | | | | | | | | | |
| 10.35 * | | Form of 2013 RONOA Performance Unit Award Agreement (Officers) | | 8-K | | 99.2 | | 2/25/2013 | | |
| | | | | | | | | | |
| 10.36 * | | Form of 2013 Total Stockholder Return Performance Unit Award Agreement (Officers) | | 8-K | | 99.3 | | 2/25/2013 | | |
| | | | | | | | | | |
| 11 | | Presented in Footnote 4, Net Income (Loss) Per Common Share, to Consolidated Financial Statements | | | | | | | | |
| | | | | | | | | | |
| 12 | | InapplicableBZ Intermediate Holdings LLC Ratio of Earnings to Fixed Charges | | | | | | | | X |
| | | | | | | | | | |
| 13 | | None | | | | | | | | |
| | | | | | | | | | |
| 14 (b) | | Boise Inc. Code of Ethics | | | | | | | | |
| | | | | | | | | | |
| 16 | | Inapplicable | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Exhibit
Number | | Exhibit Description | | Incorporated by Reference | | Filed
Herewith |
| | | Form | | Exhibit
Number | | Filing
Date | |
| 16.1 | | Letter dated January 25, 2008, regarding change in certifying accountant from Goldstein Golub Kessler LLP to McGladrey & Pullen, LLP effective January 25, 2008 | | 8-K | | 99.1 | | 1/25/08 | | |
| | | | | |
| 16.2 | | Letter dated February 28, 2008, regarding change in certifying accountant from McGladrey & Pullen, LLP to KPMG LLP effective February 22, 2008 | | 8-K | | 16.1 | | 2/28/08 | | |
| | | | | |
| 18 | | None | | | | | | | | |
| | | | | |
| 21 | | List of Subsidiaries | | | | | | | | X |
| | | | | |
| 22 | | None | | | | | | | | |
| | | | | |
| 23.1 | | Consent of Independent Registered Public Accounting Firm – KPMG LLP | | | | | | | | X |
| | | | | |
| 23.2 | | Consent of Independent Auditor – KPMG LLP | | | | | | | | X |
| | | | | |
| 23.3 | | Consent of Independent Registered Public Accounting Firm – McGladrey & Pullen, LLP | | | | | | | | X |
| | | | | |
| 24 | | Inapplicable | | | | | | | | |
| | | | | |
| 31.1 | | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | X |
| | | | | |
| 31.2 | | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | X |
| | | | | |
| 32 | | Section 906 Certifications of Chief Executive Officer and Chief Financial Officer of Boise Inc. | | | | | | | | X |
| | | | | |
| 33 | | Inapplicable | | | | | | | | |
| | | | | |
| 34 | | Inapplicable | | | | | | | | |
| | | | | |
| 35 | | Inapplicable | | | | | | | | |
| | | | | |
| 99 | | None | | | | | | | | |
| | | | | |
| 100 | | None | | | | | | | | |
|
| | | | | | | | | | |
| 18 | | None | | | | | | | | |
| | | | | | | | | | |
| 21 | | List of Subsidiaries | | | | | | | | X |
| | | | | | | | | | |
| 22 | | None | | | | | | | | |
| | | | | | | | | | |
| 23 | | Consent of Independent Registered Public Accounting Firm for Boise Inc. and BZ Intermediate Holdings LLC - KPMG LLP | | | | | | | | X |
| | | | | | | | | | |
| 24 | | Inapplicable | | | | | | | | |
| | | | | | | | | | |
| 31.1 | | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Boise Inc. and BZ Intermediate Holdings LLC | | | | | | | | X |
| | | | | | | | | | |
| 31.2 | | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Boise Inc. and BZ Intermediate Holdings LLC | | | | | | | | X |
| | | | | | | | | | |
| 32 | | Section 906 Certifications of Chief Executive Officer and Chief Financial Officer of Boise Inc. and BZ Intermediate Holdings LLC | | | | | | | | X |
| | | | | | | | | | |
| 33 | | Inapplicable | | | | | | | | |
| | | | | | | | | | |
| 34 | | Inapplicable | | | | | | | | |
| | | | | | | | | | |
| 35 | | Inapplicable | | | | | | | | |
| | | | | | | | | | |
| 99 | | Inapplicable | | | | | | | | |
| | | | | | | | | | |
| 100 | | None | | | | | | | | |
| | | | | | | | | | |
| 101 | | Financial Statements in XBRL Format | | | | | | | | X |
| |
| * | Indicates exhibits that constitute management contracts or compensatory plans or arrangements. |
| |
| (a) | Confidential information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 406 of the Securities Act of 1933, as amended. |
| |
| (b) | Our Code of Ethics can be found on our Web sitewebsite at www.boiseinc.com by selectingInvestorsAbout Boise Inc.,Corporate Governance, and thenCode of Ethics. |
149
