In our ~~Paper~~Packaging segment, we manufacture and sell ~~three general categories of products: (1) communication-based papers; (2) packaging-demand-driven papers;~~linerboard, containerboard, corrugated containers and (3) market pulp. These 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~~

~~Imaging papers for the office and home, also known as cut-size office papers.~~

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

~~Packaging-Demand-Driven Papers~~

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

~~Flexible packaging papers: coated and uncoated papers sold to customers that create flexible~~sheets, protective packaging products, ~~for food~~ and ~~nonfood applications.~~

newsprint.

~~Corrugating medium: unbleached~~Packaging Products

Linerboard: paperboard, which when ~~corrugated and~~ combined with ~~linerboard, forms corrugated board — the key raw material~~corrugating medium is used in the manufacture of corrugated sheets and containers. ~~Corrugating~~The term containerboard is used to describe linerboard, corrugating medium, ~~is also part~~or a combination of ~~a broader category of products called containerboard.~~

~~Market Pulp~~

~~Market pulp: pulp sold to customers in~~ the ~~open market for use~~two. When combined, containerboard forms the base material used in the manufacture and production of corrugated sheets and containers.

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

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

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

Newsprint: paper ~~products.~~

commonly used for printing newspapers, other publications, and advertising material.

~~We are~~

During the third-largest manufacturer of uncoated freesheet papers in North America. Cut-size office papers, printing and converting papers, label and release, and flexible packaging products are a subset of a larger product category called uncoated freesheet papers. Our cut-size office papers account foryear ended December 31, 2012, our Packaging segment produced approximately ~~57% of segment sales. Total Paper segment capacity, including corrugating medium and market pulp, was approximately 1.5 million~~613,000 short tons (a short ton is equal to 2,000 pounds) ~~at December 31, 2010.~~

~~Our strategy in~~of linerboard, and our Paper segment isproduced approximately 135,000 short tons of corrugating medium.

We operate our Packaging segment to ~~focus~~maximize profitability through integration of our ~~two largest paper machines on cut-size commodity office paper. Our long-term supply agreement with OfficeMax allows us~~containerboard and converting operations and through operational improvements in our facilities to ~~focus~~lower costs and improve efficiency. In 2012, our ~~largest paper machines on long, high-volume~~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, ~~runs,~~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 ~~improve~~be profitable in the ~~capacity utilization~~southern and southwestern United States.

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



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

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

____________


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


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


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

(d)

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

(e)

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

Facilities

We manufacture linerboard and newsprint on two machines at our ~~largest paper machines, to achieve supply chain efficiencies,~~mill in DeRidder, Louisiana. We also manufacture corrugated containers and ~~to develop~~sheets and ~~test product~~protective packaging products at 26plants located in North America 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 cut-size office papers 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, the use of business forms has declined significantly, while cut-size 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 and flexible packaging papers, are not as sensitive to electronic substitution. Sales volumes of label and release, flexible packaging, and premium office papers grew 13%, during the year ended December 31, 2010, compared with the year ended December 31, 2009.

Europe.

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

   Boise Inc.       Predecessor
   Year Ended December 31       January 1
Through
February 21,
    2008        Year Ended December 31
       2010            2009            2008                  2007            2006

Capacity (a)

Uncoated freesheet
   1,263       1,265       1,300             1,484       1,547
Containerboard (medium)
   136       135       136             138       134
Market pulp
   142       145       136             229       224

   1,541       1,545       1,572             1,851       1,905



Production (b)

Uncoated freesheet
   1,229       1,198       1,204          208       1,458       1,520
Containerboard (medium)
   127       126       118          19       134       132
Market pulp
   142       114       187          31       221       187

   1,498       1,438       1,509          258       1,813       1,839



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

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

____________


(a)	Capacity numbers are shown ~~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.


(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 before interest~~

Our corrugated products are generally manufactured to meet specific customer needs, and ~~taxes; depreciation, amortization,~~as a result, production can vary between years. See sales volumes for our corrugated containers 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       January 1
Through
February 21,
2008    Year Ended December 31
       2010            2009            2008                  2007            2006

Sales
   $ 1,458.3       $ 1,420.0       $ 1,403.7          $ 253.5       $ 1,596.2       $ 1,494.7

Segment income before interest and taxes
   $ 151.5       $ 262.7       $ 32.7          $ 20.7       $ 133.5       $ 63.3
Depreciation, amortization, and depletion
   87.4       85.2       71.7          0.3       45.0       62.3

EBITDA (a) (b)
   $ 238.9       $ 347.8       $ 104.3          $ 21.1       $ 178.5       $ 125.6

~~(a)~~

Segment EBITDA is calculated as segment income 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 $149.9 million of income from alternative fuel mixture credits.~~

~~Facilities~~

~~We have four paper mills~~sheets 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 papers as of December 31, 2010. 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 of manufacturing locations in our Paper segment as of December 31, 2010,~~"Sales, Marketing, 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       486       471
International Falls, Minnesota

Uncoated freesheet
   4       531       511
St. Helens, Oregon

Uncoated freesheet
   1       58       58
Wallula, Washington

Uncoated freesheet
   1       188       189
Containerboard (medium)
   1       136       127
Market pulp
   1       142       142

   10       1,541       1,498

~~(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.

Distribution" section below.

Raw Materials and Input Costs

~~Fiber is our principal raw material~~

Wood fiber, including purchased rollstock consumed in this segment. During the year ended December 31, 2010, fiber costs accounted for approximately 31% of materials, labor, and other operating expenses in this segment. The primary sources of fiber are timber and byproducts of timber. Most of our manufacturing facilities are located in close proximity to active wood markets. Because of the decline in the housing and construction markets, a significant number of building products manufacturers have 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. 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, we are a net consumer of pulp, purchasing approximately 80,000 to 110,000 short tons annually.

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

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, 2010, energy costs accounted for approximately 13% 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 contractually bound to provide us with all of our needs for a particular type of energy at a specific facility. Most of these contracts have pricing mechanisms that adjust or set prices based on current market prices. We also use derivative instruments such as three-way collars, 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 “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 a significant amount of chemicals in the production of paper. Important chemicals we use include starch, caustic, sodium chlorate, precipitated calcium carbonate, dyestuffs, and optical brighteners. During the year ended December 31, 2010, 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. These contracts are negotiated periodically at prevailing rates.

~~Sales, Marketing, and Distribution~~

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

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

   Boise Inc.       Predecessor
   Year Ended December 31       January 1
Through
February 21,
    2008        Year Ended December 31
       2010            2009            2008                  2007            2006

Commodity
   784       844       768          164       995       999
Premium and specialty
   449       407       432          72       480       498

Uncoated freesheet
   1,233       1,251       1,200          236       1,475       1,497

Containerboard (medium)
   127       127       118          19       134       132
Market pulp
   81       58       102          20       145       112

   1,441       1,436       1,420          275       1,754       1,741

~~Customers~~

Our largest customer in this segment is OfficeMax. During the year ended December 31, 2010, sales to OfficeMax accounted for $504.2 million of Paper segment sales. Sales to OfficeMax constitute 38% of total uncoated freesheet paper sales volume and 61% 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 ratably 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 up to 60 days.

In addition to OfficeMax, we have approximately 700 uncoated freesheet paper customers. Our customers include 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. In addition to the paper supply agreement with OfficeMax, we have long-term relationships with many other customers. No single customer, other than OfficeMax, exceeds 6% of segment sales.

~~Packaging~~

~~Products~~

~~In our Packaging segment, we manufacture and sell linerboard, which is used to manufacture corrugated sheets and containers. We also manufacture newsprint.~~

~~Packaging~~

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

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

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

During the year ended December 31, 2010, our Packaging segment produced approximately 602,000 short tons of linerboard and our Paper segment produced approximately 127,000 short tons of corrugating medium, both of which are used in the production of containerboard. During the year ended December 31, 2010, our corrugated container and sheet feeder plants consumed approximately 500,000 short tons of containerboard (including both linerboard and corrugating medium) or the equivalent of 69% of our containerboard production.

~~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. We plan to increase our integration levels through acquisitions and leverage our corrugated container position. We are a low-volume producer of newsprint, and we believe that our newsprint production has a low delivered cost to southern U.S. markets.

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

Boise Inc. Predecessor
Year Ended December 31 January 1
Through
February 21,
    2008     Year Ended December 31
    2010         2009         2008         2007         2006

Capacity (a)

Containerboard (linerboard)
610    610    600    575    559
Newsprint
225    225    410    425    426

835    835    1,010    1,000    985

Production (b)

Containerboard (linerboard)
602    544    446    83    573    554
Newsprint
229    188    331    59    409    415

831    732    777    142    982    969

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

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

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




Boise Inc. Predecessor
Year Ended December 31 January 1
Through
February 21,
    2008     Year Ended December 31
    2010         2009         2008         2007         2006

Sales
$ 671.9    $ 588.4    $ 703.7    $ 113.5    $ 783.1    $ 766.5

Segment income before interest and taxes
$ 65.0    $ 67.1    $ 21.1    $ 5.7    $ 40.1    $ 45.3
Depreciation, amortization, and depletion
38.6    42.2    35.1    0.1    37.7    50.8

EBITDA (a) (b)
$ 103.6    $ 109.3    $ 56.2    $ 5.7    $ 77.8    $ 96.1

~~(a)~~

~~(b)~~

~~The year ended December 31, 2009, includes approximately $61.6 million of income from alternative fuel mixture credits.~~

We manufactured approximately 229,000 short tons of newsprint during the year ended December 31, 2010, for use primarily in printing daily newspapers and other publications in North America. Demand for newsprint in North America has declined dramatically in the last several years and may continue to decline as newspapers are replaced with electronic media.

~~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, 2010. We also manufacture corrugated containers and sheets at seven plants, with an aggregate annual capacity of approximately 7,900~~million 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, 2010, 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       602
Newsprint
   1       225       229

   2       835       831

~~(a)~~

~~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, ~~2010,~~2012, wood fiber costs accounted for approximately ~~18%~~21% of materials, labor, and other operating expenses (excluding depreciation), in this segment. We generally purchase ~~raw materials~~wood fiber through market-based contracts orand on the open market from suppliers located in close proximity to ~~DeRidder.~~

DeRidder, Louisiana.

Our Packaging segment consumes substantial amounts of energy, such as electricity and natural gas. During the year ended December 31, ~~2010,~~2012, energy costs accounted for approximately ~~12%~~ 7%of materials, labor, and other operating expenses (excluding depreciation), in this segment. We purchase substantial portions of our natural gas and electricity under supply contracts. Under most of these contracts, the providers are contractually bound to supply us with all of our needs for a particular type of energy at a specific facility. Our natural gas contracts have pricing mechanisms based primarily on current market prices, and our electricity contracts have pricing mechanisms based primarily on published tariffs. We also use derivative instruments such as ~~three-way collars,~~ 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 ~~“Disclosures of~~Note 9, Financial ~~Market Risks”~~Instruments, in ~~“Part~~the Notes to Consolidated Financial Statements in "Part II, Item ~~7. Management’s Discussion~~8. Financial Statements and ~~Analysis of Financial Condition and Results of Operations”~~Supplementary Data" of this Form 10-K.

We consume chemicals in the ~~manufacturing~~manufacture of our Packaging segment products. Important chemicals we use include pulping and bleaching chemicals, such as caustic ~~starch,~~soda and sulfuric acid, and ~~other sulfur-based chemicals.~~starch. During the year ended December 31, ~~2010,~~2012, chemical costs accounted

for approximately 6% 5%of materials, labor, and other operating expenses (excluding depreciation), in this segment. ~~Many~~Most of our chemicals are purchased under contracts, which contain price adjustment mechanisms designed to provide ~~more~~greater pricing stability than open-market purchases. These contracts are negotiated periodically at prevailing rates.

Sales, Marketing, and Distribution

~~Our containerboard (linerboard), corrugated containers and sheets, and newsprint~~

The products manufactured in our Packaging segment are sold by our own sales personnel, ~~or brokers.~~

independent brokers, and distribution partners. The following table sets forth sales volumes of ~~containerboard (linerboard)~~linerboard and newsprint (in thousands of short tons) and corrugated containers and sheets (in millions of square feet) for the periods indicated:

   Boise Inc.    Predecessor
   Year Ended December 31    January 1
Through
February 21,
2008        Year Ended December 31
       2010            2009            2008               2007            2006

Containerboard (linerboard)
   225       253       194       36       239       266
Newsprint
   231       199       326       56       415       411

Corrugated containers and sheets
   6,735       5,963       5,337       914       6,609       6,599

Boise Inc. Predecessor
Year Ended December 31
January 1
Through
February 21,
2008

2012 2011 2010 2009 2008 (c)
Linerboard (a) 159
230
225
253
194
36
Newsprint 233
231
231
199
326
56
Corrugated containers and sheets (b) 10,079
8,720
6,735
5,963
5,337
914

____________


(a)	Excludes intercompany sales.


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


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

Customers

~~During~~

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 ~~year ended December 31, 2010,~~containerboard we produce. In 2012, we used approximately ~~37%~~84% of our containerboard production (both linerboard ~~volume was~~and corrugating medium) in our converting operations and sold the balance of linerboard in the domestic and international open ~~market, both domestically and internationally. The remaining volume was used in~~markets.

In 2012, our ~~operations. We consume virtually all~~plants sold approximately seven billion square feet of ~~the corrugating medium we produce. We sell our finished~~ corrugated containers ~~to approximately 1,100 active customers, including large~~(which excludes corrugated sheets and protective packaging products), over 50% of which went into agricultural ~~producers~~ and food and beverage ~~processors.~~ markets which have been resilient in economic downturns. We serve our packaging customers' needs in these markets from our multiple regional plants, and schedule operating runs to maximize productivity and optimize shipping distances to our customers. Our corrugated converting plants in other regions serve a diverse customer base in various industries, including paper, glass, ceramics, building products, electronics and medical device manufacturers. We also sell stock boxes, which are boxes manufactured to pre-set dimensions; our stock box program serves customers with over 1,600 types of boxes, many available for next-day delivery. These stock boxes are largely used by small manufacturers in industrial markets, and we are a leading supplier of stock boxes in the Western U.S.

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

We sell corrugated sheets to ~~over 200~~ converters, ~~who~~primarily in Texas and Mexico, which 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 containers. We service these less cyclical end markets with our strategically located corrugated container operations. 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 made us more resistant to economic downturns. 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.

5

Paper

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

Communication-Based Papers
Cut-size office papers: imaging papers for the office and home.
Printing and converting papers: papers used by commercial printers or converters to manufacture envelopes, forms, and other commercial paper products.
Packaging-Based Papers
Label and release papers: these papers include label facestocks, as well as release liners, which our customers combine and convert to labels for use on consumer and commercial packaged products.
Corrugating medium: unbleached paperboard, which when corrugated and combined with linerboard, forms corrugated board — the key raw material in the manufacture of corrugated sheets and containers. Corrugating medium is also part of a broader category of products called containerboard.
Market Pulp
Market pulp: pulp sold to customers in the open market for use in the manufacture of paper products.

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

The following table shows financial results for the Paper segment for the periods indicated (dollars in millions):
Boise Inc. Predecessor
Year Ended December 31
January 1
Through
February 21,
2008

2012
(a)

2011

2010

2009
(b)

2008
(c)

Sales $ 1,468.3
$ 1,496.5
$ 1,458.3
$ 1,420.0
$ 1,403.7
$ 253.5

Segment income before interest and taxes 73.9
112.1
151.5
262.7
32.7
20.7
Depreciation, amortization, and depletion 87.7
89.5
87.4
85.1
71.7
0.3
EBITDA (d) $ 161.6
$ 201.5
$ 238.9
$ 347.8
$ 104.3
$ 21.1
____________
(a)
The year ended December 31, 2012, includes pretax charges totaling $31.7 million related primarily to ceasing paper production on our one remaining paper machine at our St. Helens, Oregon, paper mill.
(b) The year ended December 31, 2009, includes approximately $149.9 million of income from alternative fuel mixture credits, $4.8 million of income related to the effect of energy hedges, and $5.8 million of expense associated with the

6

restructuring of the St. Helens, Oregon, mill.
(c) The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008, and includes $37.6 million of expense associated with the restructuring of the St. Helens, Oregon, mill, $7.4 million of expense due to the write-up of inventories in connection with the Acquisition, and $6.1 million of expense related to the impact of energy hedges.
(d) Segment EBITDA is calculated as segment income before interest (interest income and interest expense), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance and to decide how to allocate resources to segments. See "Part II, Item 6. Selected Financial Data" and "Note 17, Segment Information, of the Notes to Consolidated Financial Statements in Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K for a description of our reasons for using EBITDA, for a discussion of the limitations of such a measure, and for a reconciliation of our EBITDA to net income (loss).

Facilities

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

The following table sets forth the annual capacities as of and the production for the year ended December 31, 2012 (in thousands of short tons):
Location Number of Machines Capacity (a) Production
Jackson, Alabama
Uncoated freesheet 2
495
477
International Falls, Minnesota
Uncoated freesheet 4
533
535
Wallula, Washington
Uncoated freesheet (b) 1
191
180
Corrugating medium 1
137
135
Market pulp (c) 1
162
120
St. Helens, Oregon (d)
Uncoated freesheet 1
—
57
10
1,518
1,504
____________
(a) Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions.
(b)
During 2012, production of label and release papers accounted for 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.

7

The following table sets forth capacity and production by product for the periods indicated (in thousands of short tons):
Boise Inc. Predecessor
Year Ended December 31 January 1
Through
February 21, 2008
2012 2011 2010 2009 2008 (b)
Capacity (a)
Uncoated freesheet 1,219
1,269
1,263
1,265
1,300

Corrugating medium 137
138
136
135
136

Market pulp 162
160
142
145
136

1,518
1,567
1,541
1,545
1,572

Production
Uncoated freesheet 1,249
1,221
1,229
1,198
1,204
208
Corrugating medium 135
135
127
126
118
19
Market pulp (c) 120
152
142
114
187
31
1,504
1,508
1,498
1,438
1,509
258
____________
(a) Capacity numbers shown are as of December 31 for the year presented. Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions. Annual uncoated freesheet capacity at December 31, 2012, has been reduced by 60,000 tons due to the cessation of paper production at our St. Helens, Oregon, paper mill.
(b) The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008.
(c) In 2012, we reduced market pulp production to balance our production with the demand for our products and began utilizing more of our market pulp internally.

Raw Materials and Input Costs

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

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

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

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

8

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

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

The following table sets forth sales volumes of paper and paper products for the periods indicated (in thousands of short tons):
Boise Inc. Predecessor
Year Ended December 31 January 1
Through
February 21, 2008
2012 2011 2010 2009 2008
Commodity 786
771
784
844
768
164
Premium and specialty 468
459
449
407
432
72
Uncoated freesheet 1,254
1,230
1,233
1,251
1,200
236

Corrugating medium 135
135
127
127
118
19
Market pulp (a) 53
90
81
58
102
20
1,442
1,455
1,441
1,436
1,420
275
____________
(a) In 2012, we reduced market pulp production to balance our production with the demand for our products and began utilizing more of our market pulp internally.

Customers

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

9

Corporate and Other

Our Corporate and Other segment includes ~~primarily~~ corporate support services, related assets and liabilities, and foreign exchange gains and losses. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport our products from our manufacturing sites. We provide transportation services not only to our own facilities but also, on a limited basis, to third parties when geographic proximity and logistics are favorable. Rail cars and trucks are ~~generally~~typically leased. During the years ended December 31, ~~2010, 2009,~~2012, 2011, and ~~2008, and the Predecessor period of January 1 through February 21, 2008,~~2010, segment sales related primarily to our rail and truck business were ~~$65.4~~$68.9 million ~~$63.8~~, $68.3 million ~~$67.7~~, and $65.4 million ~~and $8.5 million,~~, respectively.

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

Boise Inc.    Predecessor
Year Ended December 31    January 1
Through
February 21,
2008 Year Ended December 31
    2010         2009         2008            2007         2006

Sales
$ 65.4    $ 63.8    $ 67.7       $ 8.5    $ 58.9    $ 61.4

Segment income (loss) before interest and taxes
$ (21.6 ) $ (21.5 ) $ (18.6 )    $ (3.2 ) $ (11.9 ) $ (14.9 )
Loss on extinguishment of debt
(22.2 ) (44.1 ) —       —    —    —
Depreciation, amortization, and depletion
3.9    4.1    3.2       0.1    1.9    3.3

EBITDA (a) (b)
$ (39.9 ) $ (61.5 ) $ (15.4 )    $ (3.1 ) $ (10.0 ) $ (11.6 )



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

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

____________


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


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


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

(d)

Segment EBITDA is calculated as segment ~~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 ~~makers~~maker 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 $3.9 million of expense from alternative fuel mixture credits.~~

Competition

~~The~~

All of the markets in which we operate are large and highly competitive. Our products and services compete with similar products manufactured and distributed by others both domestically and ~~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.

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

10

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 primarily in the domestic market, we do face competition from foreign producers, some of which have lower operating costs than we do. The level of this competition varies depending on domestic and foreign demand and foreign currency exchange rates. In general, paper production does not rely on proprietary processes or formulas, except in highly specialized or custom grades.

North American uncoated freesheet paper producers shipped ~~10.9~~10.1 millionshort tons in ~~2010,~~2012, and fourmajor manufacturers account for approximately ~~66%~~74% of capacity, according to ~~Resource Information Systems Inc. (RISI)~~RISI and our own estimates. As of December 31, ~~2010,~~2012, we believe ~~that~~ 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 closed or significantly curtailed capacity in response to lower demand in recent years. ~~In December 2008,~~During 2012, we ~~permanently closed the pulp mill and two~~took approximately 17,000short tons of ~~our three paper machines at our St. Helens, Oregon, facility. Our production curtailment in 2010 was significantly less than in 2009; however, we~~market-related downtime for uncoated freesheet, compared with approximately 8,000 short tons taken during 2011. We may choose to take additional downtime or slow production in the future if market conditions warrant.

~~Packaging~~. North American containerboard (corrugating medium and linerboard) manufacturers produced 36.2 million short tons in 2010, and five major manufacturers account for approximately 71% 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. Rock-Tenn Company recently announced its intent to acquire Smurfit-Stone Container Corporation. Containerboard (corrugating medium and linerboard) and newsprint are globally traded commodities with numerous worldwide manufacturers. Although price is the primary basis for competition in most of our packaging grades, quality and service are important competitive determinants. 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.

North American newsprint producers shipped 7.9 million metric tonnes (a metric tonne is equal to 2,205 pounds) in 2010, and three major manufacturers account for approximately 76% of capacity, according to RISI and our estimates. Our largest competitors include AbitibiBowater Inc., White Birch Paper Company, and Kruger Inc.

Demand for newsprint has declined dramatically in the last several years and may continue to decline as electronic media compete with newspapers. Major producers have closed significant capacity and taken substantial downtime as demand has fallen. In 2009, we announced that we had indefinitely idled the D2 newsprint machine at our mill in DeRidder, Louisiana. As of December 31, 2010, our remaining newsprint machine was running at full capacity. During 2010, our capacity and production were reduced only for scheduled maintenance.

Environmental Issues

Our discussion of environmental issues is presented under the caption ~~“Environmental”~~"Environmental" in ~~“Part~~"Part II, Item 7. ~~Management’s~~Management'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.

Capital Investment

Information concerning our capital expenditures is presented under the caption ~~“Investment Activities”~~"Investment Activities" in ~~“Part~~"Part II, Item 7. ~~Management’s~~Management'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

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

Acquisitions and Divestitures

~~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.

On February 21, 2011, our wholly owned subsidiary, Boise Paper Holdings, L.L.C., entered into a Stock Purchase Agreement (the Agreement) to purchase all of the outstanding stock of Tharco Packaging, Inc., for $200 million of cash consideration, subject to adjustments set forth in the Agreement. This acquisition, which closed on March 1, 2011, expands our presence in packaging markets; extends our geographical reach from the Pacific Northwest to California, Colorado, Arizona, and Georgia; and increases our containerboard integration to over 85% from approximately 70%. We obtained appropriate consents from our lenders to enable the acquisition under our Credit Facilities.

Employees

As of January 31, ~~2011,~~2013, we had approximately ~~4,100 employees. Approximately 57%~~ 5,300 employees and approximately 50%of these employees worked pursuant to collective bargaining agreements. ~~As of January 31, 2011, approximately 50%~~Approximately 4% of our employees ~~were working~~work pursuant to collective bargaining agreements that ~~have expired or~~ will expire within ~~one year. We do not expect material work interruptions or increases in our costs during~~ the course of the negotiations with our collective bargaining units. Nevertheless, if our expectations are not accurate, we could experience a material labor disruption or significantly increased labor costs at one or more of our facilities, any of which could prevent us from meeting customer demand or reduce our sales and profitability.

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, ~~51,~~53, President and Chief Executive Officer, Director— Mr. Toeldte has served as the ~~company’s~~company's president and chief executive officer and a director since February 2008. Mr. Toeldte joined Boise Cascade Holdings, L.L.C., in early October 2005 as president of the ~~company’s~~company's Packaging and Newsprint segment and, in late October 2005, became its executive vice president, Paper and Packaging and Newsprint segments. From 2004 to 2006, Mr. Toeldte was chair of Algonac Limited, a private management and consulting firm based in Auckland, New Zealand. Mr. ~~Toeldte’s~~Toeldte's previous experience ~~includes~~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,~~; 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.~~Group; and Mr. Toeldte ~~also~~ served as a partner at McKinsey & Company in Toronto, Brussels, Montreal, and Stockholm. ~~Mr. Toeldte is vice chairman of the board of directors of the American Forest & Paper Association (AF&PA).~~ Mr. Toeldte studied economics at the Albert-Ludwigs-Universität in Freiburg, Germany, and received an M.B.A. from McGill University in Montreal, Canada.

~~Robert A. Warren, 58,~~Judith M. Lassa, 54, Executive Vice President and Chief Operating Officer— ~~Mr. Warren~~ Ms. Lassa has served as ~~our~~ executive vice president and chief operating officer since ~~November 2010. From April 2008 to October 2010, he~~January 2013. Ms. Lassa served as senior vice president ~~and general manager~~ of our paper and specialty products operations ~~and supply chain management function.~~from November 2010 to December 2012. From February 2008 to ~~April 2008, Mr. Warren~~October 2010, Ms. Lassa served as ~~general manager~~vice president of our ~~supply chain management function.~~Packaging segment. From ~~2006~~October 2004 to February 2008, ~~Mr. Warren~~Ms. Lassa served as ~~general manager~~vice president, Packaging, of Boise Cascade, L.L.C.’s supply chain management function, and from October 2004 to 2005, he was the business leader for Boise Cascade, L.L.C.’s printing papers business. From 2003 to October 2004, Mr. Warren was a project leader for Boise Cascade Corporation. Prior to ~~joining~~2004, Ms. Lassa served in a number of capacities with Boise Cascade Corporation, ~~Mr. Warren was the~~including vice president, Packaging, and ~~chief executive officer for Strategy in Action Group, a private~~packaging business ~~consulting firm. Mr. Warren~~leader. Ms. Lassa received a B.S. in ~~General~~Paper Science and Engineering from ~~Oregon State~~the University ~~and an M.B.A. from Kellogg Graduate School~~ of ~~Management, Northwestern University.~~Wisconsin-Stevens Point.

Samuel K. Cotterell, ~~59,~~61, Senior Vice President and Chief Financial Officer— Mr. Cotterell has served as our senior vice president and chief financial officer since January 2011. From February 2008 to December 2010, Mr. Cotterell served as our vice president and controller. From October 2004 to February 2008, Mr. Cotterell served as vice president and controller of Boise Cascade, L.L.C. ~~From 1999~~Prior to ~~October~~ 2004, Mr. Cotterell served as director of financial reporting of Boise Cascade Corporation. Mr. Cotterell received a B.A. in Spanish from the University of Idaho, a B.S. in Accounting from Boise State University, and a Masters of International Business from the American Graduate School of International Management. Mr. Cotterell is a certified public accountant.

Karen E. Gowland, ~~52,~~54, Senior Vice President, General Counsel and Secretary— Ms. Gowland has served as our senior vice president, general counsel and secretary since August 2010. From February 2008 to July 2010, she served as our vice president, general counsel and secretary. From October 2004 to February 2008, Ms. Gowland served as vice president, general counsel and secretary of Boise Cascade, L.L.C. ~~From 1997~~Prior to ~~October~~ 2004, Ms. Gowland served asin a number of capacities with Boise Cascade Corporation, including vice president, corporate

secretary, ~~and~~ associate general counsel, ~~of Boise Cascade Corporation. From 1989 to 1997, Ms. Gowland was associate general counsel of Boise Cascade Corporation,~~ and ~~from 1984 to 1989, she was counsel of Boise Cascade Corporation.~~counsel. Ms. Gowland received a B.S. in Accounting and a J.D. from the University of Idaho.

~~Jeffrey P. Lane, 55,~~Robert E. Strenge, 58, Senior Vice President, ~~and General Manager, Packaging~~— Mr. Lane has served as senior vice president and general manager of our packaging operations since April 2008. Prior to joining the company, Mr. Lane was a partner at McKinsey & Company from 1989 to 1995 and from 1998 until 2008. From 2000 until 2008, Mr. Lane led McKinsey’s global packaging industry practice. Mr. Lane 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. From 1983 to 1989, Mr. Lane served as brand manager at The Procter & Gamble Company, a global consumer products company. Mr. Lane received a B.S. in Biology from Georgia Institute of Technology and ~~an M.B.A. from Kellogg Graduate School of Management, Northwestern University.~~Supply Chain —

~~Judith M. Lassa, 52, Senior Vice President, Paper and Specialty Products~~— Ms. Lassa has served as senior vice president and general manager of our paper and specialty products operations since November 2010. From February 2008 to October 2010, Ms. Lassa served as vice president of our Packaging segment. From October 2004 to February 2008, Ms. Lassa served as vice president, Packaging, of Boise Cascade, L.L.C. From 2000 to October 2004, Ms. Lassa served as vice president, Packaging, of Boise Cascade Corporation, and from 1997 to 2000, she served as packaging business leader of Boise Cascade Corporation. Ms. Lassa received a B.S. in Paper Science and Engineering from the University of Wisconsin-Stevens Point.

~~Robert E. Strenge, 56, Senior Vice President, Manufacturing —~~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 since April 2008.~~operations. From February 2008 to April 2008, Mr. Strenge served as vice president of our Newsprint segment. From October 2004 to February 2008, Mr. Strenge served as vice president of the Newsprint segment of Boise Cascade, L.L.C. ~~From 2003~~Prior to ~~October~~ 2004, Mr. Strenge served asin a number of capacities with Boise Cascade Corporation, including vice president of ~~Boise Cascade Corporation’s~~its DeRidder operations and ~~from 1997 to 2003, he served as~~paper mill ~~manager of Boise Cascade Corporation’s St. Helens, Oregon, paper mill.~~manager. Mr. Strenge received a B.S. in Pulp and Paper Technology from Syracuse University.

Bernadette M. Madarieta, ~~35,~~37, Corporate Vice President and Controller —Ms. Madarieta has served as our corporate vice president and controller since February 2011. From February 2008 to January 2011, Ms. Madarieta served as vice president and controller of Boise Cascade, L.L.C. From October 2004 to January 2008, Ms. Madarieta served as Boise Cascade, L.L.C.’s's director of financial reporting. ~~From 2002~~Prior to ~~October~~ 2004, Ms. Madarieta served as Boise Cascade Corporation's supervisor of external financial ~~reporting for Boise Cascade Corporation.~~reporting. Prior to joining Boise Cascade Corporation, Ms. Madarieta was an assurance and business advisory manager at KPMG and Arthur Andersen, where she was responsible for planning and supervising audit engagements for corporations and privately held companies. Ms. Madarieta received a B.B.A. in Accounting from Boise State University and is a certified public accountant.


ITEM 1A.	*RISK FACTORS*

Our financial and operating results are subject to a variety of risks and uncertainties, many of which could have significant, adverse effects on our business, our operating results, and our financial condition. In addition to the risks and uncertainties we discuss elsewhere in this Form 10-K (particularly in ~~“Part~~"Part II, Item 7. ~~Management’s~~Management'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 our actual results will be consistent with the forward-looking statements we make in this report, and we do not assume an obligation to update any forward-looking statement.~~

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

Risks Related to Industry Conditions

~~The paper industry experiences cyclicality; changes in the prices of our products could materially affect our financial condition, results of operations, and cash flows.~~Historically, macroeconomic conditions and fluctuations in industry capacity have created cyclical changes in prices, sales volumes, and margins for our 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~~Some 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 mills 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, our ability to achieve acceptable operating performance and margins is principally dependent on 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 our raw material costs increase, it could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

~~Some of our paper products are~~ vulnerable to ~~long-term~~ declines in demand due to competing technologies or materials.Our ~~uncoated freesheet papers and~~communication-based paper products, including newsprint, compete heavily with electronic data transmission and document storage ~~alternatives, and paper grades we do not produce.~~alternatives. Increasing shifts to these alternatives have had and ~~are likely to~~will continue to have an adverse effect on traditional print media and ~~paper usage.~~usage of communication-based papers. Neither the timing nor the extent of this shift can be predicted with ~~certainty. Because of these trends,~~certainty, but we expect demand for ~~paper~~these products to continue to decline over time and may ~~shift from one grade of paper to another or~~eventually be eliminated altogether.

We ~~face strong competition~~may not be able to grow our packaging business quickly enough to offset the demand decline we are experiencing in our ~~markets.~~~~The~~ paper and packaging and newsprint industries are highly competitive. We face competition from numerous competitors, domestic as well as foreign. Some of our competitors are large, vertically integrated companies that have greater financial and other resources, greater manufacturing economies of scale, greater energy self-business.

sufficiency, or lower operating costs, compared with our company. We may be unable to compete with other companies in the market during the various stages of the business cycle and particularly during any downturns. Some of the factors that may adversely affect our ability to compete in the markets in which we participate include the entry of new competitors (including foreign producers) into the markets we serve, our competitors’ pricing strategies, our failure to anticipate and respond to changing customer preferences, and our inability to maintain the cost-efficiency of our facilities.

Increases in the cost of our raw materials, including wood fiber, chemicals, and energy, could affect our profitability. We rely heavily on the availability of raw materials, including wood fiber, chemicals, energy, and ~~chemicals, and energy sources, including natural gas and electricity.~~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.~~materials and transportation services. For ~~most~~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, accounting for approximately 31% and 18%, respectively,~~material. We recognized $520.1 million 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, 2010. Wood fiber is a commodity, and prices have historically been cyclical. In addition,~~ wood fiber ~~including wood chips, sawdust, and shavings, is a byproduct~~ in ~~the manufacture of building products, and the availability~~2012. The market price of wood fiber is ~~often negatively affected if~~dependent largely upon its availability and source and can vary significantly between geographies. The availability and cost of recycled fiber depends heavily on recycling rates and the domestic and global demand for ~~building products declines.~~recycled products. Our other principal raw materials are chemicals (including starch and caustic soda) and energy (including natural gas and electricity). In 2012, we recognized costs of $253.6 million and $196.0 million for chemicals and energy, respectively. The cost of both chemicals and energy can be volatile and can be affected by alternative demands for these materials, weather conditions, and other factors beyond our control.

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

Changes in the prices of our products could materially affect our financial condition, results of operations, and liquidity. Macroeconomic conditions and fluctuations in industry capacity create changes in prices, sales volumes, and margins for most of our products, particularly commodity grades of paper and packaging products. Changing industry conditions can influence paper and packaging producers to idle or ~~foreign legislation and litigation concerning the use of timberlands, the protection of endangered species, and forest health~~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 ~~affect log~~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 ~~fiber supply.~~

~~Energy accounts~~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 ~~approximately 13%~~all of our products are driven by many factors, and ~~12%, respectively,~~we have little influence over the timing and extent of price changes, which are often volatile. Market conditions beyond our control determine the prices for our commodity products, and as a result, the price for any one or more of these products may fall below our cash

production costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our manufacturing facilities. From time to time, we have taken downtime, slowed production, or reduced operating capacity to balance our production with the market demand for our products, and we may continue to do so in the future. Our ability to achieve acceptable operating performance and margins depends primarily upon managing our cost structure and general conditions in the paper market. If the prices for our products decline or if we are unable to control our costs, it could have a material adverse effect on our operating cash flows, profitability, and liquidity.

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

We are significantly smaller than many of our national competitors and may lack the financial resources needed to compete effectively. Many of our competitors are large, vertically integrated companies which have greater financial and other resources, greater manufacturing economies of scale, greater energy self-sufficiency, or lower operating costs, compared with our company. We may be unable to compete with these companies and other companies in the market during the various stages of the ~~aggregate amount~~business cycle and particularly during any downturns. Some of ~~materials, labor, and other operating expenses, including fiber costs, for our Paper and Packaging segments for~~ the ~~year ended December 31, 2010. Energy prices, particularly for electricity and natural gas, have been volatile in recent years. These fluctuations~~factors that may adversely affect our ~~manufacturing costs~~ability to compete in the markets in which we participate include the entry of new competitors (including foreign producers) into the markets we serve, our competitors' pricing strategies, our failure to anticipate and ~~can contribute significantly~~respond to ~~earnings volatility.~~

~~Other raw materials we use include various chemical compounds, such as starch, caustic soda, precipitated calcium carbonate, sodium chlorate, dyestuffs,~~changing customer preferences, and ~~optical brighteners. Purchases~~our inability to maintain the cost-efficiency of ~~chemicals accounted for approximately 15% and 6%, 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, 2010. The costs of these chemicals have been volatile historically and are influenced by capacity utilization, energy prices, and other factors beyond our control.

facilities.

Risks Related to Our Operations

We ~~depend~~may be unable to attract and retain key management and other key employees. Our key managers are important to our success and may be difficult to replace because they have an average of 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 results, liquidity, and financial condition. There can be no assurance that we will be able to effectively manage the integration or separation required by any future transactions or be able to retain and motivate key personnel in connection with such transactions. In addition, difficulties encountered in any integration process could increase our expenses and have a material adverse effect on our financial condition, liquidity, and results of operations.

Expenditures related to the cost of compliance with environmental, health and safety laws and requirements could adversely affect our business and results of operations. Our operations are subject to laws and regulations relating to the environment, health, and safety. We have incurred, and expect that we will continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and regulations. There can be no assurance that future remediation requirements and compliance with existing and new laws, regulations and requirements will not require significant expenditures, or that existing reserves for specific matters will be adequate to cover future costs. If we fail to comply with these laws and regulations, we may face civil or criminal fines, penalties, or enforcement actions, including orders limiting our operations or requiring corrective measures, installation of pollution control equipment, or other remedial actions. We spent $2 million in

16

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

We anticipate that governmental regulation of our operations will continue to become more burdensome and that we will continue to incur significant capital and operating expenditures in order to maintain compliance with applicable laws. For example, on January 31, 2013, the U.S. Environmental Protection Agency (EPA) published its final emission standards for boiler and process heaters (Boiler MACT rules), with an effective date of April 1, 2013, and compliance mandatory by January 31, 2016. The final Boiler MACT rules require process modifications and/or installation of air pollution controls on power boilers (principally our biomass-fuel-fired boilers) at our pulp and paper mills. We have reviewed the final rules and our preliminary estimates indicate we will incur additional capital spending of $33 to $38 million to achieve compliance with the rules, which includes the $7 million we expect to spend in 2013, as discussed above.
In addition, we may be affected by the enactment of laws concerning climate change that regulate greenhouse gas (GHG) emissions. Such laws may require buying allowances for mill GHG emissions or capital expenditures to reduce GHG emissions. Because environmental regulations are not consistent worldwide, our capital and operating expenditures for environmental compliance may adversely affect our ability to compete.
We could also incur substantial fines or sanctions, enforcement actions (including orders limiting our operations or requiring corrective measures), cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws and regulations. The amount and timing of environmental expenditures is difficult to predict, and, in some cases, liability may be imposed without regard to contribution or to whether we knew of, or caused, the release of hazardous substances.

OfficeMax ~~for~~represents a significant portion of our business.Our largest customer, OfficeMax, accounted for approximately ~~24%~~19% and 21% of our total sales for the ~~year~~years ended December 31, ~~2010. In October 2004,~~2012, and December 31, 2011, respectively. We have an agreement with OfficeMax ~~agreed~~that requires OfficeMax to ~~purchase, from our Predecessor, its full North American~~buy and us to supply at least 80% of OfficeMax's requirements for ~~cut-size~~office papers through December 2017; however, there are circumstances that could cause the agreement to terminate before 2017. On February 20, 2013, OfficeMax announced it had signed a definitive merger agreement with its competitor, Office Depot. Our agreement with OfficeMax provides that it would survive the merger with respect to the office paper requirements of the legacy OfficeMax business. We cannot predict how the merger, if finalized, would affect the financial condition of the combined company, the paper requirements of the legacy OfficeMax business, or the effects the combined company would have on the pricing and competition for office papers. Significant reductions in paper purchases from OfficeMax (or the post-merger entity) would cause us to ~~the extent Boise chooses to supply such paper to them, through December 2012. OfficeMax’s purchase obligations under the agreement will phase out ratably over~~expand our customer base and could potentially decrease our profitability if new customer sales required either a ~~four-year period beginning one year after the delivery~~decrease in our pricing and/or an increase in our cost of notice of termination, but in no event will the purchase obligation be reduced prior to December 31, 2012. If this contract is not renewed or not renewed on terms similar to the existing terms, our future business operations may be adversely affected. If OfficeMax were unable to pay, our financial performance could be affected significantly and negatively.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 its~~the 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.

Equipment failure.

Disruption in the supply of raw materials, such as wood fiber, energy, or chemicals.

A chemical spill or release.

Closure because of environmental-related concerns.

Explosion of a boiler.

Labor difficulties.

Other operational problems.

The effect of a drought or reduced rainfall on our water supply.

Disruptions in the transportation infrastructure, including roads, bridges, railroad tracks, and tunnels.

Fires, floods, earthquakes, hurricanes, or other catastrophes.

Terrorism or threats of terrorism.

~~Labor difficulties.~~

~~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, ~~2011, we had~~2013, approximately ~~4,100 employees. Approximately 57%~~50% of ~~these~~our employees ~~worked~~work pursuant to collective bargaining agreements. ~~As of January 31, 2011, approximately 50%~~ Approximately 4%of our total employees ~~were~~are working pursuant to collective bargaining agreements that ~~have expired or~~ will expire within ~~one year, including agreements at~~ the ~~following facility locations: Wallula, Washington; Nampa, Idaho; DeRidder, Louisiana; Jackson, Alabama; and International Falls, Minnesota. The labor contract at~~next 12 months.

When negotiating 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 in October 2009. In February 2010, the union employees at Wallula rejected a new collective bargaining ~~agreement that union leadership had recommended unanimously, and we declared an impasse~~agreements in the ~~bargaining process and implemented the terms of the last contract offer. We are currently negotiating the labor contract at~~future, our ~~corrugated container plant in Nampa, Idaho (108 employees represented by the AWPPW), which expired on December 31, 2010. In February 2011, union employees represented by the United~~

Steelworkers at our mills in DeRidder, Louisiana (approximately 360 employees); Jackson, Alabama (approximately 400 employees); and International Falls, Minnesota (approximately 160 employees) ratified a new master labor contract. We have 60 days to negotiate local issues. The negotiations with the remaining unions at our paper mill in International Falls began in late February 2011.

~~Our~~ potential inability to reach a mutually acceptable labor contract at any of our facilities could result in, among other things, strikes or other work stoppages or slowdowns by the affected employees. While the company has contingency plans in place ~~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 subject~~Cyber security risks related to ~~significant environmental, health,~~security breaches of company, customer, employee, and ~~safety laws~~vendor information, as well as the technology that manages our operations and ~~regulations, and the cost of compliance~~other business processes, could adversely affect our ~~business~~business. We rely on various information technology systems to capture, process, store, and ~~results~~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 ~~operation.We are~~our third party providers, could become subject to ~~a wide range of general~~cyber attacks. Network, system, and industry-specific environmental, health, and safety laws and regulations. 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 anticipate that governmental regulation of our operations will continue to become more burdensome and that we will continue to incur significant capital and operating expenditures in order to maintain compliance with applicable laws. For example, on June 4, 2010, the U. S. Environmental Protection Agency (EPA) proposed National Emission Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial, and Institutional Boilers and Process Heaters (aka Boiler MACT rules). The recently released Boiler MACT rules will require process modifications and/or installation of air pollution controls on power boilers (principally our biomass-fuel-fired boilers) at our pulp and paper mills, and we are currently reviewing those rules to understand the effect they will have on our operations. The cost of compliance is likely to be significant. Our early estimates indicated compliancedata breaches could result in ~~additional capital spending~~misappropriation of upsensitive data or operational disruptions including interruption to ~~$90 million over a three-year period.~~

~~We may also be affected~~systems availability and denial of access to and misuse of applications required by ~~the enactment~~our customers to conduct business with us. Misuse of laws concerning climate change that regulate greenhouse gas (GHG) emissions. Such laws may require buying allowances for mill GHG emissions or capital expenditures to reduce GHG emissions. Because environmental regulations are not consistent worldwide, our capital and operating expenditures for environmental compliance may adversely affect our ability to compete.

~~We spent $4 million in 2010 and expect to spend about the same amount in 2011 for capital environmental compliance requirements. Enactment~~internal applications; theft 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~~intellectual property, trade secrets, or other ~~sources~~corporate assets; and inappropriate disclosure of ~~liquidity~~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 ~~capital~~negative publicity and could have a material adverse effect on our operations, financial condition, or cash flows.

Risks Related to ~~fund unforeseen environmental liabilities or expenditures.~~

~~We recently acquired Tharco Packaging, Inc.,~~Economic and ~~may engage in future acquisitions, which in each case could materially affect our~~Financial Factors

Adverse business ~~operating results,~~ and ~~financial condition.~~ ~~In addition to our recent acquisition, we~~global economic conditions may continue seeking to acquire other businesses, products, or assets. 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. Our recent acquisition and, assuming we complete them, additional acquisitions may not strengthen our competitive position or achieve our goals. Our recent acquisition and any future 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. Our recent

acquisition and future acquisitions may reduce our cash available for operations and other uses. There can be no assurance that we will be able to effectively manage the integration of our recently acquired business, or businesses we may acquire in the future, 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 Economic~~operations, liquidity, and ~~Financial Factors~~financial 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 repay~~business. 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, 2010, our total indebtedness was $781.8 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 would~~control and may have a ~~material adverse effect~~significant 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, ~~2010,~~2012, our total capital expenditures were $137.6 million. We expect capital investments in 2013 to be between $152 million and $162 million, excluding acquisitions ~~were $111.6 million. We expect to spend between $115 million~~ and ~~$125 million on~~major capital ~~investments during 2011.~~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 ~~certain~~specified financial tests. These tests include, in the case of our credit facilities, ~~a total leverage~~an interest expense coverage ratio, a senior secured leverage ratio, and a ~~minimum interest coverage~~total leverage ratio. In addition, our credit facilities restrict, and the ~~indenture~~indentures governing the 9%8% and 8%9% senior notes restrict, among other things, the ability of ~~Holdings~~BZ Intermediate and its subsidiaries to ~~create additional liens on assets,~~ make ~~investments or~~some types of restricted payments, acquisitions, ~~pay dividends, incur additional indebtedness, sell assets including~~and capital ~~stock of subsidiaries, make capital expenditures, place restrictions on~~expenditures. At December 31, 2012, the ~~ability of such subsidiaries to make distributions, enter into transactions with~~available 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 ~~indenture~~indentures governing the 9%8% and 8%9% senior notes, and other agreements containing cross-default provisions, which, if not cured or waived, could have a material adverse effect on our business, financial condition, liquidity, and

results of operations. A default would permit lenders or holders to accelerate the maturity of the debt under these agreements, to foreclose upon any collateral securing the debt, and to terminate any commitments to lend. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including the obligations of Boise Paper Holdings, L.L.C., Boise Finance Company, and Boise Co-Issuer Company under the 9%8% and 8%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 most~~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, ~~2010,~~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 $356~~plans. While we have no minimum required contribution in 2013, our 2014 minimum required contribution is approximately $3 million ~~compared with $302 million at December 31, 2009. Assuming~~, assuming a return on plan assets of ~~7.25%~~6.75% in ~~2011 and 2012, we estimate we will be required to contribute approximately $3 million in 2011 and approximately $32 million in 2012.~~ 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.

*~~ITEM~~*
Item 1B.	*UNRESOLVED STAFF COMMENTS*

We have no unresolved ~~comments.~~

comments from the Commission staff regarding our periodic or current reports.

*~~ITEM~~*
Item 2.	*PROPERTIES*

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

Information concerning capacity and utilization of our manufacturing and converting facilities ~~and substantially all of the equipment used in our facilities. Information concerning encumbrances attached to the properties described in the table below are~~is presented in ~~Note 11, 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 production~~We 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 map of our facilities by segment as of January 31, 2011. We lease a portion of the corporate headquarters building in Boise, Idaho:~~

~~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.***


ITEM 3.	*LEGAL PROCEEDINGS*

We are a party to routine proceedings that arise in the course of our business. We are not currently a party to any legal proceedings or environmental claims that we believe would have a material adverse effect on our financial position, results of operations, or liquidity, either individually or in the aggregate.

~~ITEM 4.~~

~~(REMOVED AND RESERVED)~~

~~PART II~~

ITEM 4.

MINE SAFETY DISCLOSURE

Not applicable.

PART II


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

Market Information

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

   Market Price    Dividends
Declared
Quarter
   High    Low
2010

Fourth
   $   8.10       $   6.40       $ 0.40
Third
   7.36       4.96       —
Second
   7.40       4.91       —
First
   6.13       4.60       —

Total
         $ 0.40

2009

Fourth
   $ 6.29       $ 4.71       $ —
Third
   5.40       1.41       —
Second
   2.47       0.51       —
First
   0.75       0.24       —

Total
         $ —



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

Holders

~~Holders~~

On January 31, ~~2011,~~2013, there were approximately ~~ten~~41 holders of record of our common stock, one of which was Cede & Co., which is the holder of record of shares held through the Depository Trust Company.

Dividends

~~Dividends~~

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

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)
   5,407,537       $ N/A       8,203,972
Equity compensation plans not approved by securityholders
   N/A       N/A       N/A

Total
   5,407,537       $ N/A       8,203,972



	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)~~	We
(a)	The reported amount includes the following outstanding awards that have ~~approximately 17 million shares of the Company’s common stock reserved for issuance~~been granted under the ~~BIPP. Since~~Boise Inc. Incentive and Performance Plan but not yet earned as of December 31, 2012:

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

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

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


(b)	The reported amount assumes the ~~Acquisition, 13 officers, 52 other employees, and 7 nonemployee directors have received restricted stock or restricted stock unit awards under~~performance units are adjusted to the ~~BIPP. These awards are reflected in column (a) above.~~maximum value (200% of target).

~~(2)~~

Because there is no exercise price associated with the restricted stock and restricted stock units that were awarded under the BIPP, a weighted average exercise price calculation for the restricted stock and restricted stock units cannot be made.

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 during~~common stock through a variety of methods, including in the ~~fourth quarter of our fiscal~~open market, in privately negotiated transactions, or through structured share repurchases. During the year ended December 31, ~~2010.~~

2011, we repurchased 21,150,692 common shares for an average price of $5.74 per common share. During the year ended December 31, 2012, we repurchased 441 common shares for an average price of $6.63 per common share. We did not repurchase any shares of common stock during the three months ended December 31, 2012. As of December 31, 2012, $28.6 million remained available for repurchase under the existing repurchase authorization limit.

Performance Graph

The following graph compares the return on a $100 investment in our common stock on February 25, 2008 (the day we first began trading on the ~~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 pre-~~

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

The following table reflects each investment's value at December 31, 2008, 2009, 2010, 2011 and post-bankruptcy returns are not comparable, the graph includes the returns for AbitibiBowater Inc. only through December 9, 2010, and returns for Smurfit-Stone Container Corp. only through June 30, 2010:

2012.



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


ITEM 6.	*SELECTED FINANCIAL DATA*

Except where otherwise indicated, this Selected Financial Data is provided with respect to Boise Inc., which has materially the same financial condition and results of operations as BZ Intermediate Holdings LLC (BZ Intermediate) except for income ~~taxes.~~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’s~~Management'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 (dollars in millions, except per-share data):

Boise Inc. Predecessor
Year Ended December 31 February 1
(Inception)
Through
December 31,
2007 January 1
Through
February 21,
2008 Year Ended December 31
2010 (a) 2009 (b) 2008 (c) 2007 (d) 2006 (e)

Statement of income (loss) data

Net sales
$ 2,094    $ 1,978    $ 2,071    $ —    $ 360    $ 2,333    $ 2,222
Income from operations
194    306    40    —    23    160    94
Net income (loss)
63    154    (46 ) 5    23    160    93
Net Income (loss) per common share:

Basic
0.78    1.96    (0.62 ) 0.16    —    —    —
Diluted
0.75    1.85    (0.62 ) 0.16    —    —    —

Earnings before interest, taxes, depreciation, and amortization (EBITDA) (f)
303    396    145    —    24    246    210

Cash dividends declared per common share
$ 0.40    $ —    $ —    $ —    $ —    $ —    $ —

Balance sheet data (at end of year)

Current assets
$ 653    $ 586    $ 596    $ 404    $ 560    $ 572
Property and equipment, net
1,217    1,223    1,277    —    1,210    1,144
Total assets
1,939    1,896    1,988    408    1,846    1,759
Current liabilities
304    303    269    15    250    241
Long-term debt, less current portion
738    785    1,012    —    —    —
Notes payable
—    —    67    —    —    —
Total liabilities
1,292    1,275    1,539    175    286    278
Stockholders’ equity
647    621    449    233    1,560    1,481



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

____________

Included in the selected financial data above are the activities of Aldabra 2 Acquisition Corp. prior to the Acquisition and the operations of the acquired businesses from February 22, 2008, through December 31, 2008. The Predecessor financial data is presented for the periods prior to the Acquisition. ~~The period of February 1 (Inception) through December 31, 2007, represents the activities of Aldabra 2 Acquisition Corp.~~


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


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

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

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


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

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

Included $5.9 million of income related to energy hedges.

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

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

~~Included $5.9 million of income related to energy hedges.~~

~~Included $207.6 million of income as a result of alternative fuel mixture credits.~~

~~(c)~~(e)

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

Included $7.4 million of expense related to energy hedges.

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

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

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

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

~~Included $7.4 million of expense related to energy hedges.~~

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

~~Included $10.2 million related to inventory purchase accounting adjustments.~~

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

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

~~(d)~~

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 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.~~

~~(e)~~

~~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.~~

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

   Boise Inc. Predecessor
   Year Ended December 31 February 1
(Inception)
Through
December 31,
2007 January 1
Through
February 21,
2008 Year Ended December 31
   2010    2009 2008 2007 2006

Net income (loss)
   $ 63       $ 154    $ (46 ) $ 5    $ 23    $ 160    $ 93
Change in fair value of interest rate derivatives
   —       (1 ) —    —    —    —    —
Interest expense
   65       83    91    —    —    —    —
Interest income
   —       —    (2 ) (10 ) —    (1 ) (1 )
Income tax provision (benefit)
   45       28    (9 ) 5    1    3    1
Depreciation, amortization, and depletion
   130       132    110    —    —    85    116

EBITDA
   $ 303       $ 396    $ 145    $ —    $ 24    $ 246    $ 210



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

____________

EBITDA represents income (loss) before interest (interest expense and interest ~~income, 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 ~~makers~~maker to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of ~~companies 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’s~~management's ability to assess and view the core operating trends in our segments. EBITDA, however, is not a measure of our liquidity or financial performance under generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income (loss), income (loss) from operations, or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of EBITDA instead of net income (loss) or segment income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest expense, interest income, ~~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’S~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*

This discussion and analysis includes statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other nonhistorical statements in the discussion, are forward-looking. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in ~~“Part~~"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.

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

Background

Boise Inc. is a large, diverse manufacturer and seller of packaging and paper products. Our operations began on February 22, 2008, when we acquired the packaging and paper assets of Boise Cascade Holdings, L.L.C. (Boise Cascade). In ~~this filing,~~these consolidated financial statements, unless the context indicates otherwise, the terms ~~“the~~ "the

Company,~~” “we,” “us,” “our,”~~" "we," "us," "our," or ~~“Boise”~~"Boise" refer to Boise Inc. and its consolidated subsidiaries, including BZ ~~Intermediate Holdings LLC (BZ Intermediate).~~Intermediate. We are headquartered in Boise, ~~Inc. is a large, diverse~~Idaho, and have approximately 5,300employees. We operate largely in the United ~~States-based manufacturer of paper~~States but also have operations in Europe, Mexico, and ~~packaging products.~~

~~Our operations began on February 22, 2008, when entities controlled by Boise Cascade Holdings, L.L.C. (Boise Cascade) sold their paper~~Canada.

We operate and packaging assets to Aldabra 2 Acquisition Corp. (the Acquisition). As part of the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. In this Form 10-K, we use the term “Predecessor” to reference the periods before the Acquisition, including the period when our assets were operated by Boise Cascade.

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 the 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.

~~Since the Acquisition, we have operated and reported~~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.

Executive Summary

In 2012,

we reported $52.2 million of net income, compared with $75.2 million in 2011. We reported ~~$2.1 billion~~$300.0 million of ~~sales in 2010,~~EBITDA, or $331.8 million excluding special items, compared with ~~$2.0 billion in 2009, which represented a 6% increase. Net income totaled $62.7~~$340.2 million ~~in 2010, compared with $153.8 million in 2009. Excluding the~~of EBITDA excluding special items ~~disclosed~~ in 2011. We were pleased with our overall 2012 operating results. Our mills and converting operations ran well and we reduced costs through productivity improvement by reducing usage of key raw materials. During the ~~table below, net income was $76.8~~year, we generated $97.4 million ~~compared with $20.4~~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 ~~2009. The~~some of our Packaging operations and declining prices in our Paper business.

In our Packaging segment, corrugated product sales volumes increased 16%. Approximately 9% of this increase ~~in net income before special items~~related to our 2011 acquisitions and the remaining 7% was due ~~primarily~~ to increased ~~net~~ sales ~~prices and sales volumes and, to a lesser extent, lower chemical costs in both the Paper and Packaging segments. During 2010, net selling prices~~from our network of uncoated freesheet papers and segment linerboard improved $23 and $64 per short ton, compared with 2009, as we benefited from two price increases implemented during the first half of the year. As a result of strong cash flows from operations, we increased cash and cash equivalents $97.4 million to $166.8 million in 2010, compared with $69.4 million in 2009. In addition, during 2010, we reduced long-term debt $34.1 million and paid a special dividend of $0.40 per common share, or $32.3 million.

box plants, while U.S. industry containerboard demand ~~for uncoated freesheet paper declined during 2010, compared with 2009. According~~increased a modest 0.6% according to the American Forest & Paper Association (AF&PA)~~, as~~. In Packaging, we experienced margin compression in some of December 2010, U.S. industry shipments were down 2.1%, compared with the same period in 2009. Year-to-date industry operating rates, measured as total uncoated freesheet paper shipments in the U.S. as a percentage of total capacity, were at 89%. Demand for commodity communication papers has been negatively affected by weak macroeconomic conditions and elevated unemployment and continues to be negatively affected by the secular shift to electronic media for communications. Despite recent demand increases, long-term demand for printing andour converting products has also been negatively affected by weak macroeconomic conditions and by the decline in direct-mail advertising. Declines in demand have been mitigated by significant reductions in uncoated freesheet paper industry capacity in 2008, 2009, and 2010. Compared with prior years, U.S. uncoated freesheet paper inventories remained very low at approximately 913,000 short tons in December 2010, compared with 941,000 short tons in December 2009.

U.S. industry containerboard demand improved in 2010, compared with 2009. Industry box shipments in the U.S. increased 3.5% through December 2010, compared with the same period in 2009, and year-to-date industry operating rates through December 2010, measured as total production in the U.S. as a percentage of total capacity, were at 95%, according to AF&PA. Total U.S. containerboard inventories were 2.3 million short tons in December 2010, an increase from 2.1 million short tons in December 2009.

~~Packaging demand~~operations, primarily in our ~~agriculture, food,~~California and ~~beverage~~Texas markets. We saw little benefit from the announced $50 per-ton linerboard price increase during the fourth quarter in our converting operations, but we expect to more fully benefit from the increase in first quarter 2013. As of January 31, 2013, we had implemented over 90%of the $50 price increase through our converting operations. We are making targeted capital investments in our converting operations to improve efficiency and keep pace with our sales growth. Our vertical integration rose from an average of 71% during 2011 to 84% in 2012 and we expect it to increase to approximately 90% in 2013 based on our current volumes. This integration reduces our exposure to linerboard export markets, which ~~has historically been~~experienced declines and fluctuations in selling prices during the year. During 2012, we sold 31% less ~~correlated~~linerboard to ~~broad economic activity, remained stable in 2010, compared with 2009. These markets constitute just over half of our corrugated product end-use~~external markets. ~~Demand in our industrial markets and containerboard export markets is more closely aligned with general economic activity and showed improvement during 2010, compared with 2009.~~

~~The majority of our fiber needs in~~

In our Paper segment, we faced declining prices for communication-grade papers throughout the year, particularly in the fourth quarter. Our average uncoated freesheet net sales price was $968 per-short-ton in 2012, a decrease from $990 per-short-ton in the prior year. The average price for uncoated freesheet in fourth quarter 2012 declined $27 per ton from the previous quarter and nearly all of our fiber needs in our Packaging segment are supplied by wood fiber, which exhibited stable pricing on a year-to-year basis. However, fiber costs in total increased in 2010, compared with 2009, driven primarily by higher purchased pulp prices, which began to decline in early thirddropped $45 per ton from fourth quarter ~~2010. Prices for some key commodity chemicals declined, compared with the prior-year period, but increased sequentially from third quarter 2010 and have~~2011, as industry supply continued to outpace demand. These dynamics factored heavily into our decision to cease paper production at our mill in St. Helens, Oregon, in December 2012, reducing our production capacity in 2013 by 60,000 tons. Paper segment results in 2012 include $31.7 million of charges recorded primarily in connection with our cessation of paper production in St. Helens. In 2012, we took 17,000 tons of market-related downtime in addition to the 19,000 tons of downtime from our planned annual maintenance outages. Despite these challenges, our uncoated freesheet sales volumes for the year increased 2%, due to a 5% increase in ~~2011. Prices for our fuel energy inputs declined, while electricity prices increased for 2010, compared with 2009. Total consumption~~sales of ~~energy increased sequentially for fourth quarter 2010, compared with third quarter 2010, primarily due to higher seasonal consumption as a result of colder winter weather.~~

During fourth quarter 2010, we performed a scheduled annual maintenance outage at our Jackson, Alabama, pulp and paper mill. We will have our scheduled annual maintenance outage at our DeRidder, Louisiana, mill during first quarter 2011.

~~Looking ahead, we continue to pursue growth opportunities in our Packaging segment to improve our competitive position. We expect continued growth in our premium office,~~ label and release and ~~flexible packaging~~premium office papers ~~offsetting declining demand~~and higher purchase volumes by our cut-size customers. In 2012, our Paper operations also benefited from lower energy costs and lower wood fiber costs due to reduced consumption and lower prices of purchased pulp.

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

Outlook

In ~~late 2010 and early 2011, we have seen indications of rising input costs, including increased prices for chemicals and energy, which~~our Packaging segment in 2013, we expect to ~~persist through 2011.~~continue growing our corrugated operations and to see margin improvement as we increase our vertical integration and more fully benefit from the $50-per-ton linerboard price increase announced in the fall of 2012. We ~~continue~~also plan to ~~monitor regulatory~~make targeted capital investments in our converting operations to improve efficiency and ~~competitive developments across~~keep pace with our sales growth. During first quarter 2013, we will also conduct a cold outage at our mill in DeRidder, Louisiana. Cold outages at this facility occur every five years and are more extensive and costly than our normal annual maintenance outages. We expect total maintenance outage

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

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

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

the pricing and competition for office papers.

Financial Results and Special Items

The following table sets forth our financial results for the years ended December 31, 2010, 2009, and 2008, the Predecessor period of January 1 through February 21, 2008, and the combined year ended December 31, 2008 both before and after special items (dollars in millions, except per-share data):

Boise Inc. Predecessor Combined
Year Ended December 31 January 1
Through
February 21,
2008 Year Ended
December 31,
2008
2010 2009 2008
Sales
$ 2,093.8    $ 1,978.2    $ 2,070.6    $ 359.9    $ 2,430.5
Net income (loss)
62.7    153.8    (45.5 ) 22.8    (22.7 )
Net income (loss) per diluted share
0.75    1.85    (0.62 ) —    —
Net income excluding special items
76.8    20.4    2.1    —    —
Net income excluding special items per diluted share
0.91    0.25    0.03    —    —
EBITDA
302.6    395.7    145.1    23.7    168.8
EBITDA excluding special items
325.6    232.1    222.8    24.4    247.1



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

Net income excluding special items, net income excluding special items per diluted share, EBITDA, and EBITDA excluding special items are not measures under U.S. generally accepted accounting principles (GAAP). EBITDA represents income (loss) before interest (changes in fair value of interest rate derivatives, interest expense, and interest income), income taxes, 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. EBITDA excluding special items and net income ~~(loss)~~ excluding special items represent EBITDA and net income ~~(loss)~~ 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 ~~(loss) to EBITDA, segment income (loss)~~ to EBITDA and EBITDA to EBITDA excluding special items ~~for the years ended December 31, 2010, 2009, and 2008, the Predecessor period of January 1 through February 21, 2008, and the combined year ended December 31, 2008~~ (dollars in millions):

   Boise Inc. Predecessor Combined
   Year Ended December 31 January 1
Through
February 21,
2008 Year Ended
December 31,
2008
   2010 2009 2008
Net income (loss)
   $ 62.7    $ 153.8    $ (45.5 ) $ 22.8    $ (22.7 )
Change in fair value of interest rate derivatives
   —    (0.6 ) 0.5    —    0.5
Interest expense
   64.8    83.3    91.2    —    91.2
Interest income
   (0.3 ) (0.4 ) (2.2 ) (0.2 ) (2.4 )
Income tax (provision) benefit
   45.4    28.0    (8.8 ) 0.6    (8.2 )
Depreciation, amortization, and depletion
   129.9    131.5    110.0    0.5    110.5

EBITDA
   $ 302.6    $ 395.7    $ 145.1    $ 23.7    $ 168.8

Paper

Segment income
   $ 151.5    $ 262.7    $ 32.7    $ 20.7    $ 53.4
Depreciation, amortization, and depletion
   87.4    85.2    71.7    0.3    72.0

EBITDA
   $ 238.9    $ 347.8    $ 104.3    $ 21.1    $ 125.4

Inventory revaluation expense
   —    —    7.4    —    7.4
St. Helens mill restructuring
   0.2    5.8    37.6    —    37.6
Change in fair value of energy hedges
   0.5    (4.8 ) 6.1    —    6.0
Alternative fuel mixture credits, net
   —    (149.9 ) —    —    —

EBITDA excluding special items
   $ 239.6    $ 198.9    $ 155.4    $ 21.0    $ 176.4

Packaging

Segment income
   $ 65.0    $ 67.1    $ 21.1    $ 5.7    $ 26.8
Depreciation, amortization, and depletion
   38.6    42.2    35.1    0.1    35.1

EBITDA
   $ 103.6    $ 109.3    $ 56.2    $ 5.7    $ 61.9

Inventory revaluation expense
   —    —    2.8    —    2.8
Impact of DeRidder outage
   —    —    19.8    0.7    20.5
Hurricane losses
   —    —    5.5    —    5.5
Change in fair value of energy hedges
   0.1    (1.1 ) 1.3    —    1.3
Alternative fuel mixture credits, net
   —    (61.6 ) —    —    —

EBITDA excluding special items
   $ 103.7    $ 46.6    $ 85.6    $ 6.5    $ 92.1

Corporate and Other

Segment loss
   $ (21.6 ) $ (21.5 ) $ (18.6 ) $ (3.2 ) $ (21.8 )
Depreciation, amortization, and depletion
   3.9    4.1    3.2    0.1    3.3
Loss on extinguishment of debt
   (22.2 ) (44.1 ) —    —    —

EBITDA
   $ (39.9 ) $ (61.4 ) $ (15.4 ) $ (3.1 ) $ (18.5 )

Gain on changes in supplemental pension plans
   —    —    (2.9 ) —    (2.9 )
Alternative fuel mixture credits, net
   —    3.9    —    —    —
Loss on extinguishment of debt
   22.2    44.1    —    —    —

EBITDA excluding special items
   $ (17.7 ) $ (13.4 ) $ (18.3 ) $ (3.1 ) $ (21.4 )

EBITDA
   $ 302.6    $ 395.7    $ 145.1    $ 23.7    $ 168.8

EBITDA excluding special items
   $   325.6    $   232.1    $   222.8    $ 24.4    $ 247.1



	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 ~~(loss)~~ to net income excluding special items and presents net income excluding special items per diluted share ~~for the years ended December 31, 2010, 2009, and 2008, when we had publicly traded shares outstanding~~ (dollars and shares in millions, except per-share data):

   Year Ended December 31
   2010 2009 2008
Net income (loss)
   $ 62.7    $ 153.8    $ (45.5 )
St. Helens mill restructuring
   0.2    5.8    37.6
Change in fair value of energy hedges
   0.6    (5.9 ) 7.4
Alternative fuel mixture credits, net
   —    (207.6 ) —
Loss on extinguishment of debt
   22.2    44.1    —
Hurricane losses
   —    —    5.5
Gain on changes in supplemental pension plans
   —    —    (2.9 )
Inventory revaluation expense
   —    —    10.2
Impact of DeRidder outage
   —    —    19.8
Tax benefit (provision) for special items (a)
   (8.9 ) 63.3    (30.0 )
Reversal of income tax valuation allowances
   —    (33.2 ) —

Net income excluding special items
   $ 76.8    $ 20.4    $ 2.1

Weighted average common shares outstanding: diluted
   84,131    83,081    73,636
Net income excluding special items per diluted share
   $ 0.91    $ 0.25    $ 0.03



	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 ~~affected~~effected in the aggregate at an assumed combined federal and state statutory rate ~~of 38.7%.~~in effect for the period.

30

Segment Highlights

Set forth below are our average net selling prices and volumes for our principal products, as well as some key financial information by segment (volumes in thousands of short tons and dollars per short ton, except corrugated containers and sheets, dollars in millions):
Year Ended December 31
2012 2011 2010
Packaging
Sales Prices (a)
Linerboard, Total $ 467
$ 459
$ 434
Linerboard, External sales 415
422
365
Newsprint 540
541
493
Corrugated containers and sheets ($/msf) (b) 76
68
57
Sales volumes (thousands of short tons, except corrugated)
Linerboard, Total 611.1
606.5
601.6
Linerboard, External sales 158.9
230.2
225.2
Newsprint 233.4
230.8
230.7
Corrugated containers and sheets (mmsf) (b) 10,079
8,720
6,735
Input and outage costs
  Key input costs
     Fiber, including purchased rollstock $ 176.9
$ 156.9
$ 97.4
     Energy 61.2
65.2
65.8
     Chemicals 42.0
38.0
31.4
  Outage costs 10.9
9.9
9.0
EBITDA (c) 162.5
155.5
103.6
EBITDA excluding special items (c) 162.5
159.3
103.7
Assets 958.0
957.3
505.6
Paper
Sales Prices (a)
Uncoated freesheet (d) $ 968
$ 990
$ 977
Corrugating medium 509
481
467
Market pulp 458
565
549
Sales volumes
Uncoated freesheet (d) 1,253.8
1,229.8
1,233.0
Corrugating medium 135.3
135.3
126.5
Market pulp 52.9
90.2
81.2
Input and outage costs
  Key input costs
     Fiber $ 343.1
$ 377.1
$ 364.4
     Energy 134.8
143.9
145.9
     Chemicals 211.6
197.8
173.4
  Outage costs 14.8
21.5
14.0
EBITDA (c) 161.6
201.5
238.9
EBITDA excluding special items (c) 193.3
201.5
239.6
Assets 1,144.7
1,190.9
1,187.9
____________
(a)
Average net selling prices for our principal products represent sales less freight costs, discounts, and allowances. As reported in Note 17, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K, segment revenues include fees for shipping and handling charged to customers for sales transactions.
(b) Included corrugated container and sheet prices and volumes for Tharco and Hexacomb since their acquisitions on March 1 and

31

December 1, 2011, respectively. Increase in sales price during 2012 is primarily due to Hexacomb.
(c) For reconciliations of non-GAAP measures see "Non-GAAP Measures" of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
(d) Includes cut-size office papers, printing and converting papers, and label and release papers.

Factors That Affect Our Operating Results

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

~~Labor and personnel relations.~~

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.

~~Legislative or regulatory environments, requirements, or changes affecting the businesses in which we are engaged.~~

~~Competing technologies that affect the demand for our products.~~

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

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

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

Integration of our acquisitions.

Major equipment failure or significant operational setbacks.

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

Labor and personnel relations.

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

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

Pension funding requirements.

Credit or currency risks affecting our revenue and profitability.

~~Major equipment failure.~~

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

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

Our Operating Results

~~Demand~~

The following table sets forth our operating results in dollars and as a percentage of sales (dollars in millions, except percent-of-sales data):



	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		%

The table above includes financial results for Tharco and Hexacomb since we acquired them on March 1 and December 1, 2011, respectively.

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 acquisitions 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 prices for market pulp in our Paper segment.

Packaging. Sales increased $180.4 million, or 19%, to $1,130.1 million, compared with $949.7 million for the year ended December 31, 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 remaining 7% was due to increased sales from our network of box plants. We continue to increase our vertical integration and 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 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, 2011. The decrease was due primarily to a 2% decline in average sales prices of uncoated freesheet papers and declines in sales volumes and 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 volumes of uncoated freesheet were up 2% in 2012, compared with 2011. The increase in our uncoated freesheet sales volumes for the year is due to a 5% 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 premium office papers represented 34% of our total uncoated freesheet sales volumes for 2012, up from 33% in the prior year.

Costs and Expenses

Materials, labor, and other operating expenses, including the cost of fiber from related parties, increased $124.8 million to $2,023.8 million for the year ended December 31, 2012, compared with $1,899.0 million for the year ended December 31, 2011.In both 2012 and 2011, materials, labor and other operating expenses, including the cost of fiber from related parties, were 79% of sales. In our Packaging segment, the increased sales 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 ~~level~~fiber costsdecreased due to improved pulp production, which reduced consumption of ~~demand~~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, 2012, we recorded $31.7 million of pretax costs related primarily to ceasing paper operations at the mill. These costs are recorded in our Paper segment. The $31.7 million of costs included approximately $14.2 million of non-cash charges related primarily to the impairment of property, plant and equipment, and inventory, and approximately $17.5 million of 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 inventory in "Materials, labor, and other operating expenses (excluding depreciation)" in our Consolidated Statements of Income. Our decision to cease paper production at our St. Helens, Oregon, paper mill will essentially eliminate future sales volumes of flexible packaging papers, as approximately half of our 60,000 ton capacity at the St. Helens facility produced flexible packaging papers, with the remaining capacity dedicated to printing and converting papers.

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 in St. Helens, Oregon. Before the St. Helens costs, 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 ~~make~~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 ~~distribute is affected by, among other things, employment, electronic media substitution, manufacturing activity, consumer spending,~~prices for corrugated products and ~~currency exchange rates. Accordingly, we believe that our financial results depend~~accounted for approximately 81% of the $277.8 million increase. Other drivers included a 16% increase in ~~large part on general macroeconomic conditions~~segment linerboard net selling prices and a 10% increase in ~~North America, as well as on regional economic conditions~~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 ~~the geographic markets in which we operate. 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 ~~papers correlated positively~~net sales prices, as commodity uncoated freesheet net sales prices decreased 1% and premium and specialty net sales prices increased 4%, compared with ~~general economic activity. However, demand for communication paper grades, such~~the prior-year period. Overall uncoated freesheet sales volumes were flat, compared with the prior-year period, as ~~imaging~~a 2% decline in commodity sales volumes was offset by a 4% increase in premium and ~~printing and converting papers, which we produce, has decreased as the use~~specialty sales volumes. Sales volumes of ~~electronic transmission and document storage alternatives has become more widespread and more efficient.~~

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,~~premium office, 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~~represented 33% 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. Inventory levels and currency exchange rates also affect import and export volumes and influence demand for corrugated containers.

~~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.

~~From 2005 to 2010, North American~~our total uncoated freesheet ~~paper, containerboard,~~sales volumes for 2011.

Costs and newsprint capacities declined approximately 24%, 4%, and 39%, respectively, according to Resource Information Systems Inc. (RISI). 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, relative currency values, and overseas production capacity, which has grown over the past decade. According to RISI, U.S. uncoated freesheet paper imports increased in 2010, compared with 2009. U.S. exports also increased over the same time period, mitigating some of the impact of increased imports.

Expenses

~~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 in various forms, accounting for the following percentages of materials,~~Materials, labor, and other operating expenses, including ~~related-party~~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 ~~for Boise Inc. and the Predecessor for each of the periods listed below:~~

   Boise Inc. Predecessor    Combined
   Year Ended December 31 January 1
Through
February 21,
2008    Year
Ended
December 31,
2008
   2010 2009 2008
Paper
   31% 27% 29% 26%    29%
Packaging
   18% 17% 15% 17%    15%

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. The net market pulp consumed is a relatively small portion of our overall fiber needs.

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 wood fiber supply may be limited by public policy or government regulationassociated with Tharco, as well as ~~fire, insect infestation, disease, ice storms, windstorms, hurricanes, flooding, other weather conditions,~~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 ~~other natural~~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 ~~man-made causes. Residual~~energy costs increased $100.4 million in 2011. Thisincrease was driven primarily by fiber ~~supply may be limited due to a reduction~~costs associated with Tharco, as well as higher chemical and fiber costs in ~~primary manufacturing at sawmills~~our Paper segment.

Fiber. Costs for fiber, including purchased rollstock consumed in our corrugated operations, increased $59.4 million in our Packaging segment and ~~plywood plants. Declines~~$12.7 million in ~~log and wood fiber supplies have been severe enough to cause~~our Paper segment, compared with the closure of numerous facilities in some of the regions in which we operate. In addition, new or proposed regulations related to the production and use of biofuel may increase the competition for wood fiber in a number of operating regions. 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.year ended December 31, 2010. Delivered-fiber costs in all of our operating regions include the cost of diesel, which increased in ~~2010, compared with 2009.~~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 ~~in 2010, compared with 2009, driven by higher~~due to increased prices and ~~increased~~ consumption of purchased pulp as a result of increased production ~~and sales volumes.~~of paper. This was offset partially by ~~lower~~reduced consumption of wood ~~fiber prices, compared with 2009.~~

and recycled fiber.

In the Pacific Northwest, our fiber costs increased in ~~2010, compared with 2009,~~2011 as a result of higher prices and increased consumption of purchased pulp. The increased consumption of pulp was driven both by increased production and sales volumes and by increased purchases of pulp from third parties, compared with 2009. For 2010, increasedfor wood fiber, ~~costs also resulted from increased whole-log chipping~~a greater mix of whole logs, and ~~species mix changes.~~

~~In the South, during~~higher prices for purchased pulp at our St. Helens, Oregon, mill.

Compared with 2010, total fiber costs at our DeRidder, Louisiana, mill ~~increased overall, compared with 2009,~~decreased due to ~~higher~~lower prices and consumption ~~as a result~~ of wood fiber, offset partially by increased ~~production and sales.~~consumption of recycled fiber. In Alabama, fiber costs ~~increased~~decreased in ~~2010, compared with 2009,~~2011, driven by ~~increased prices for purchased pulp and recycled fiber, offset partially by lower~~reduced consumption of purchased pulp and recycled ~~fiber.~~

~~Other Raw Materials~~fiber due to lower production tons at our Jackson mill and ~~Energy Purchasing~~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 ~~Pricing.~~ ~~We purchase other raw materials and energy used to manufacture~~$24.3 million in our ~~products in both the open market and through long-term contracts. These contracts are generally with regional suppliers who agree to supply all~~Paper segment. The increased costs were primarily a result of ~~our needs~~increased prices 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~~commodity chemicals, including ~~pulping~~caustic soda and ~~bleaching chemicals consumed~~starch.

Energy. Energy costs decreased $0.6 million in our ~~paper~~Packaging segment 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$2.0 million in our ~~operating costs~~Paper segment. In our Packaging segment, the decrease was due to ~~our customers in the short term.~~

~~Energy.~~ ~~Energy prices, particularly for~~lower fuel consumption coupled with lower electricity and natural gas ~~and fuel oil, have been volatile in recent years. Currently, energy prices are favorable, compared with historical averages. In 2010, energy costs~~prices. These decreases were ~~higher, compared with 2009, due mainly to the increased consumption and price of electricity,~~ offset partially by higher electricity consumption. In our Paper segment, this decrease was due to lower natural gas ~~costs. Under normal operations, we expect~~prices, offset in part by higher electricity prices.

Labor. Labor costs related to ~~consume approximately 12 million mmBtu (millions~~the production of ~~British thermal units) of natural gas annually. Energy costs represent the following percentages of materials,~~our products recorded in "Materials, labor, and other operating expenses ~~including fiber costs from related parties, for Boise Inc. and the Predecessor~~(excluding depreciation)" were $317.5 million in ~~each~~2011, an increase of ~~the periods listed below:~~

   Boise Inc.    Predecessor    Combined
   Year Ended December 31    January 1
Through
February 21,
2008    Year
Ended
December 31,
2008
   2010    2009    2008
Paper
   13%    12%    16%    15%    16%
Packaging
   12%    10%    15%    14%    15%

We enter into transactions to hedge the variable cash flow risk of natural gas purchases. For more information about our energy derivative instruments, see “Disclosures of Financial Market Risks” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~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:$45.0 million

   Boise Inc.    Predecessor    Combined
   Year Ended December 31    January 1
Through
February 21,
2008    Year
Ended
December 31,
2008
   2010    2009    2008
Paper
   15%    15%    15%    13%    15%
Packaging
     6%      7%      6%      6%      6%

Total chemical costs for 2010 were lower, compared with 2009, as a result of a more favorable chemical mix, which reduced consumption of some higher-cost commodity chemicals. Many of our chemicals are purchased under contracts, which provide more stability than open-market purchases. These contracts are negotiated periodically at prevailing rates.

~~Labor~~. Labor costs tend to increase steadily due to inflation in healthcare and wage costs. As of January 31, 2011, we had approximately 4,100 employees. Approximately 57% of these employees worked pursuant to collective bargaining agreements, and approximately 50% are working pursuant to collective bargaining agreements that have expired, or ~~will expire within one year.~~

~~Our Operating Results~~17%

The following table sets forth operating results in dollars and as a percentage of sales for the years ended December 31, 2010, 2009, and 2008, and the Predecessor period of January 1 through February 21, 2008 (dollars in millions, except percent-of-sales data):

Boise Inc.    Predecessor
Year Ended December 31    January 1
Through
February 21,
2008
2010 2009 2008

Sales

Trade
$   2,058.1    $   1,935.4    $   1,990.2       $ 258.4
Related parties
35.7    42.8    80.4       101.5

2,093.8    1,978.2    2,070.6       359.9


Costs and expenses

Materials, labor, and other operating expenses
1,634.0    1,596.2    1,756.8       313.9
Fiber costs from related parties
25.3    36.9    54.6       7.7
Depreciation, amortization, and depletion
129.9    131.5    110.0       0.5
Selling and distribution expenses
58.1    55.5    48.3       9.1
General and administrative expenses
52.3    50.3    34.2       6.6
St. Helens mill restructuring
0.2    5.8    29.8       —
Alternative fuel mixture credits, net
—    (207.6 ) —       —
Other (income) expense, net
—    4.0    (3.0 )    (1.0 )

1,899.8    1,672.6    2,030.7       336.8


Income from operations
$ 194.0    $ 305.6    $ 39.9       $ 23.1

Sales

Trade
98.3 % 97.8 % 96.1 %    71.8 %
Related parties
1.7 2.2 3.9    28.2

100.0 % 100.0 % 100.0 %    100.0 %


Costs and expenses

Materials, labor, and other operating expenses
78.0 % 80.7 % 84.9 %    87.2 %
Fiber costs from related parties
1.2 1.9 2.6    2.2
Depreciation, amortization, and depletion
6.2 6.6 5.3    0.1
Selling and distribution expenses
2.8 2.8 2.3    2.5
General and administrative expenses
2.5 2.5 1.7    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 )

90.7 % 84.5 % 98.1 %    93.6 %


Income from operations
9.3 % 15.5 % 1.9 %    6.4 %

~~Sales Volumes and Prices~~

Set forth below are our segment sales volumes and average net selling prices for our principal products for the years ended December 31, 2010, 2009, and 2008, the Predecessor period of January 1 through February 21, 2008, and the combined year ended December 31, 2008 (in thousands of short tons and dollars per short ton, except corrugated containers and sheets, which are in millions of square feet or dollars per thousands of square feet):

   Boise Inc. Predecessor Combined
     Year Ended December 31   January 1
Through
February 21,
2008 Year Ended
December 31,
2008
   2010    2009    2008
Paper

Uncoated freesheet
   1,233       1,251       1,200 (a) 236    1,436 (a)
Containerboard (medium)
   127       127       118    19    137
Market pulp
   81       58       102 (a) 20    122 (a)

   1,441       1,436       1,420    275    1,695

Packaging

Containerboard (linerboard)
   225       253       194    36    230
Newsprint
   231       199       326    56    382
Corrugated containers and sheets (mmsf)
   6,735       5,963       5,337    914    6,251
Paper

Uncoated freesheet
   $ 977       $ 954       $ 942    $ 868    $ 930
Containerboard (medium)
   467       418       481    454    477
Market pulp
   549       429       512    535    516
Packaging

Containerboard (linerboard)
   $ 365       $ 301       $ 396    $ 399    $ 397
Newsprint
   493       459       584    494    571
Corrugated containers and sheets ($/msf)
   57       58       58    55    57

~~(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 papers and 24,000 and 29,000 short tons, respectively, of market pulp from machines at the St. Helens, Oregon, paper mill that have been shut down.

~~Operating Results~~

The following presents a discussion of sales and costs for the year ended December 31, 2010, compared with the year ended December 31, 2009, and for the year ended December 31, 2009, compared with the combined year ended December 31, 2008. The combined year ended December 31, 2008, represents the results of Boise Inc. 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” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information related to the Acquisition.

~~Year Ended December 31, 2010, Compared With the Year Ended December 31, 2009~~

~~Sales~~

For the year ended December 31, 2010, total sales increased $115.6 million, or 6%, to $2,093.8 million from $1,978.2 million for the year ended December 31, 2009. The increase was driven primarily by increased sales prices in both the Paper and Packaging segments and, to a lesser extent, by increased sales volumes in the Packaging segment.

~~Paper.~~ Sales increased $38.3 million, or 3%, to $1,458.3 million from $1,420.0 million for the year ended December 31, 2009. The increase was driven primarily by increased sales prices across the majority of our products. Overall uncoated freesheet net sales prices increased 2%, compared with the same period in ~~2009, as commodity uncoated freesheet net sales prices increased 2%~~2010. Included in 2011 are additional labor costs from our first-quarter acquisition of Tharco.

Selling and ~~premium and specialty net sales prices increased 3%, compared with~~distribution expenses. In 2011, the ~~prior year. Overall uncoated freesheet sales volumes were down 1%, compared with the prior year, driven by a 7% decline in sales volumes of commodity grades, offset by a 10%~~ increase in ~~sales volumes~~selling and distribution expenses related primarily to the acquisition of ~~premium~~Tharco. Compared with our historical packaging business, Tharco serves a larger proportion of small customers with a more diverse range of products, resulting in higher selling and ~~specialty grades. Increased premium~~distribution costs. Excluding the selling and ~~specialty sales volumes were driven primarily by 13% growth~~distribution expenses related to Tharco, our selling and distribution expenses increased only 3.0% in ~~combined sales volumes of premium office, label~~2011.

Depreciation, amortization, and ~~release,~~depletion and ~~flexible packaging papers, which represented 31% of our total 2010 uncoated freesheet sales volumes.~~

~~Packaging.~~ ~~Sales~~general and administrative expenses increased ~~$83.5 million, or 14%, to $671.9 million from $588.4 million for~~during the year ended December 31, 2009. The increase was driven by a 21% increase in segment linerboard net selling prices, a 7% increase in newsprint net selling prices coupled with a 16% increase in sales volumes, and a 13% increase in sales volumes of corrugated containers and sheets. The increase in corrugated containers and sheets was due to improved market conditions and increased sheet sales volumes from our sheet feeder plant in Texas. Corrugated products net sales price decreased 2%, as a result of an increased sales mix of lower-priced corrugated sheets relative to containers due to strong corrugated sheet demand. Partially offsetting these factors were 11% lower sales volumes of segment linerboard, driven by increased corrugated sheet sales volumes, which consumed more linerboard and resulted in a smaller proportion of linerboard available for sale to third parties.

~~Costs and Expenses~~

Materials, labor, and other operating expenses, including the cost of fiber from related parties, increased $26.2 million to $1,659.3 million for the year ended December 31, 2010, compared with $1,633.1 million for the year ended December 31, 2009. The increase was driven primarily by higher fiber and energy costs, compared with 2009.

Fiber, energy, and chemical costs were $461.8 million, $211.7 million, and $204.9 million, respectively, for the year ended December 31, 2010, and $401.1 million, $188.9 million, and $210.3 million, respectively, for the year ended December 31, 2009. This represents a cost increase of $78.1 million for the year ended December 31, 2010, compared with 2009. This increase was driven primarily by increased costs for fiber as a result of higher purchased pulp and recycled fiber prices and increased wood consumption. Increased consumption of fiber was driven primarily by higher production volumes. These costs were offset partially by lower prices for chemicals.

~~Fiber costs increased $48.0 million in our Paper segment and $12.8 million in our Packaging segment, compared with 2009,~~2011, due primarily to ~~increased purchased pulp prices, increased recycled fiber prices, and increased fiber consumption as a result of increased production volumes.~~

~~Compared with 2009, energy costs increased $8.3 million in our Paper segment and $14.5 million in our Packaging segment, due primarily~~incremental expenses from Tharco's operations. Excluding the expenses related to higher electrical rates in our Packaging segment and increased consumption in both our Packaging and Paper segments as a result of increased production. This was offset partially by lower natural gas prices.

Chemical costs decreased $2.0 million in our Paper segment and $3.4 million in our Packaging segment, compared with 2009, as a result of a more favorable chemical mix, which reduced consumption of some higher-cost commodity chemicals.

~~Selling and distribution~~Tharco, these expenses increased $2.6 million to $58.1 million for the year ended December 31, 2010, compared with $55.5 million for the year ended December 31, 2009. As a percentage of sales, selling and distribution expenses remained flat at 2.8%, compared with the prior year.

only slightly.

General and administrative expenses increased $2.0 million to $52.3 million for the year ended December 31, 2010, compared with $50.3 million for year ended December 31, 2009. While total general and administrative expenses increased, the costs remained flat as a percentage of sales, compared with the prior year.

~~St. Helens mill restructuring~~. The year ended December 31, 2010, included $0.2 million of costs associated with the restructuring of our St. Helens, Oregon, paper mill, compared with $5.8 million of costs for the year ended December 31, 2009. These costs are recorded in our Paper segment. These costs included decommissioning and other costs related to the restructuring of the mill.

~~Alternative fuel mixture credits~~. The year ended December 31, 2009, included $207.6 million of alternative fuel mixture credits, of which $149.9 million was recorded in our Paper segment and $61.6 million was 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. Eligibility for new credits expired on December 31, 2009.

Other (income) expense.~~“Other~~ "Other (income) expense, ~~net”~~net" includes miscellaneous income and expense items. ~~For~~In 2011, we recorded $3.1 million of costs incurred during the ~~year ended December 31, 2010, we had an immaterial amount~~initial evaluation of ~~other expense,~~potential targeted acquisitions. The expenses related primarily to costs to analyze, negotiate, and ~~for the year ended December 31, 2009, we had $4.0~~consummate transactions as well as financial and legal due diligence activities. These costs were partially offset by approximately $1.1 million of other ~~expense that consisted primarily of expenses related to the idling of our D2 newsprint machine at our DeRidder mill.~~miscellaneous income and expenses.

Income From Operations

Income from operations for the year ended December 31, ~~2010,~~2011, decreased ~~$111.6~~slightly to $191.1 million ~~to $194.0 million,~~, compared with ~~$305.6~~$194.0 million for the year ended December 31, ~~2009. This decrease was driven primarily by $207.6 million of income from alternative fuel mixture credits recognized for the year ended December 31, 2009.~~2010. Excluding ~~the $207.6 million of income from alternative fuel mixture credits,~~special items, income from operations increased ~~$96.0~~$5.3 million ~~compared with~~in 2011. Before special items, the ~~prior-year period. This~~ increase ~~was due primarily to overall increased net sales prices and sales volumes and,~~related to a ~~lesser extent, lower chemical costs~~significant earnings growth in ~~both the Paper and~~our Packaging ~~segments. These increases were~~segment, offset partially by ~~increased fiber and energy costs. Our~~decreased operating ~~segment results are discussed below.~~income in our Paper segment. Income from operations also includes net costs from our Corporate and Other segment.

~~Paper~~~~. Segment~~Packaging. Segment income from operations ~~decreased $111.2~~increased $40.0 million to ~~$151.5~~$105.0 million in 2011, compared with $65.0 million for the year ended December 31, ~~2010,~~2010. This increase was driven by improved linerboard, newsprint, and corrugated products pricing and the acquisition of Tharco. These factors were offset partially by higher chemical costs. During 2011, net selling prices of segment linerboard improved $57 per short ton, and newsprint prices improved $53 per short ton, compared with ~~$262.7~~the same period in the prior year, as both markets improved in 2011.

Paper. Segment income from operations decreased $39.4 million to $112.1 million in 2011, compared with $151.5 million for the year ended December 31, ~~2009.~~2010. This decrease was driven ~~primarily~~ by ~~$149.9 million of income from alternative fuel mixture credits recognized~~higher input costs, continued declines in U.S. industry demand for ~~the year ended December 31, 2009. Excluding the $149.9 million of income from alternative fuel mixture credits, income from operations~~uncoated freesheet, and higher maintenance costs during our annual shutdown at Wallula, Washington. The increased ~~$38.8 million, compared with the prior-year period. This increase was due~~input costs related primarily to increased ~~net sales~~ prices ~~across all major product categories~~for commodity chemicals, including caustic soda and starch, and to a lesser extent, ~~lower chemical prices. These increases were~~higher fiber costs, offset partially by ~~increased fiber costs due to increased purchased pulp and recycled fiber costs.~~

~~Packaging~~. Segment income from operations decreased $2.1 million to $65.0 million for the year ended December 31, 2010, compared with $67.1 million for the year ended December 31, 2009. Segment income for the year ended December 31, 2009, included $61.6 million of income from alternative fuel mixture credits. Excluding the $61.6 million of income from alternative fuel mixture credits, income from operations increased $59.5 million, compared with the prior-year period. This increase was due primarily to increased nethigher sales prices, ~~for linerboard~~lower energy costs, and ~~newsprint along with~~ increased sales volumes ~~for newsprint~~of medium and corrugated products and, to a lesser extent, lower chemical prices. This increase was offset partially by increased energy costs, as well as additional maintenance costs as a result of a more extensive outage at DeRidder in first quarter 2010, compared with 2009.market pulp.

Other

~~Other~~

Loss on extinguishment of debt. ~~For~~ During the ~~year~~years ended December 31, 2011 and 2010, we recognized $2.3 million and $22.2 million, respectively, in loss on extinguishment of ~~debt was $22.2 million. This amount consists~~debt. These amounts consist primarily of previously unamortized deferred financing costs, ~~for~~which were expensed in connection with our ~~Tranche B term loan facility, which was paid off as part of our March 2010 debt refinancing.~~ financing activities.

Income taxes. For the ~~year~~years ended December 31, ~~2009, loss on extinguishment~~2011 and 2010, Boise Inc. recorded income tax expense of ~~debt was $44.1~~$50.1 million ~~as a result~~ and $45.4 million, respectively, and had effective tax rates of ~~the October 2009 debt restructuring.~~40.0% and 42.0%, respectively. For the ~~year~~years ended December 31, ~~2009,~~2011 and 2010, BZ Intermediate ~~loss on extinguishment~~recorded income tax expense of ~~debt~~$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 ~~$66.8 million as a result~~the effect of ~~excluding~~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 ~~gain on~~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 ~~notes payable, which was held by,~~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 ~~therefore recognized by, Boise Inc. as part of the October 2009 debt restructuring.~~we repurchased

~~Interest expense.~~ ~~For the year ended~~21.2 million common shares. Compared with December 31, 2010, our pension obligation, which is recorded in long-term "Compensation and ~~2009, interest expense was $64.8 million and $83.3 million, respectively, which includes interest~~benefits" on our ~~debt obligations as well as~~Consolidated Balance Sheets, increased approximately $83.4 million. The increase in our pension obligation related primarily to a decrease in the amortization of deferred financing costs and other. Interest expense decreased period over period due to our reduced principal balances. Interest expense for BZ Intermediate was $74.3 million for the year ended December 31, 2009. This amount does not include the gain on repurchase of Boise Inc.’s notes payable, which were recognized by Boise Inc.

~~Income taxes~~~~. For the year ended~~discount rate from 5.50% at December 31, 2010 ~~Boise Inc. recorded $45.4million of income tax expense, and Boise Inc.’s effective tax rate was 42.0%. For the year ended~~to 4.50% at December 31, ~~2009, Boise Inc. recorded $28.0 million of income tax expense~~2011. See Note 4, Acquisitions, Note 10, Retirement and had an effective tax rate of 15.4%. In the prior year, Boise Inc. released valuation allowances recorded during 2008 because Boise Inc. expected to be able to utilize deferred tax assets to offset deferred tax liabilities. This resulted in a lower effective tax rate during 2009, relative to 2010.

~~For the year ended December 31, 2010, BZ Intermediate recorded $44.5 million of income tax expense~~Benefit Plans, and ~~had an effective tax rate of 41.2%. For the year ended December 31, 2009, BZ Intermediate recorded $20.4 million of income tax expense~~Note 12, Stockholders' Equity and had an effective tax rate of 12.1%. In the prior year, BZ Intermediate released valuation allowances recorded during 2008 because BZ Intermediate expected to be able to utilize deferred tax assets to offset deferred tax liabilities. This resulted in a lower effective tax rate during 2009, relative to 2010.

~~Year Ended December 31, 2009, Compared With the Combined Year Ended December 31, 2008~~

~~Management believes this combined presentation~~Capital, of the ~~Boise Inc.~~Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and ~~Predecessor statement~~Supplementary Data" of ~~operations is~~this Form 10-K for additional information.

Liquidity and Capital Resources

In 2012, we generated $97.4 million of operating cash flow, less capital expenditures, compared with $121.4 million in 2011. Almost 80% of 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.

~~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. 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~~operating cash flow, less capital expenditures, in ~~Packaging segment sales due primarily to lower sales volumes and prices.~~

2012

~~Paper.~~ 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% decline in uncoated freesheet paper 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 paper 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 paper net sales prices increased 3%, compared with 2008, as both commodity and premium and specialty uncoated freesheet paper 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 D2 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 D2 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 inputs 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, Oregon, paper mill. For 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~~additional pension contributions 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.

~~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.increased capital expenditures. For more information, see ~~“Alternative Fuel Mixture Credits” in this Management’s Discussion~~the discussion under "Operating Activities" and ~~Analysis of Financial Condition and Results of Operations.~~

~~Other (income) expense, net.~~ ~~“Other (income) expense, net” includes miscellaneous income and expense items. For~~"Investing Activities" below. We ended the year ~~ended December 31, 2009, we had $4.0~~with $49.7 million ~~of expense, compared with $4.0~~million of income in the combined prior year. In 2009, $4.0 million of expense consisted primarily of expenses related to the idling of our D2 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 $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, Boise Inc.’s loss on extinguishment of debt was $44.1 million as a result of the October 2009 debt restructuring, and the loss for BZ Intermediate was $66.8 million. BZ Intermediate’s loss was greater because it did not receive the gain on repurchase of notes payable, which were held by Boise Inc. For additional information, refer to our discussion under “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~~and $487.7 million 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 costs. 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 costs.

~~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, Boise Inc. recorded $28.0 million of income tax expense and had an effective tax rate of 15.4%. Boise Inc. increased its income tax expense in 2009 as a result of its uncertain tax position regarding alternative fuel mixture credits. This increase was offset by a $44.1 million tax benefit from the release of valuation allowances. For the year ended December 31, 2008, Boise Inc. recorded $8.8 million of income tax benefits related to losses incurred during the year and had an effective tax benefit rate of 16.2%.

For the year ended December 31, 2009, BZ Intermediate recorded $20.4 million of income tax expense and had an effective tax rate of 12.1%. BZ Intermediate increased its income tax expense in 2009 as a result of its uncertain tax position regarding alternative fuel mixture credits. This

increase was offset by a $45.7 million tax benefit from the release of valuation allowances. For the year ended December 31, 2008, BZ Intermediate recorded $5.8 million of income tax benefits related to losses incurred during the year and had an effective tax benefit rate of 12.3%.

~~Liquidity and Capital Resources~~

During 2010, we continued to improve our liquidity position. At December 31, 2010 and 2009, we had $177.5 million and $79.4 million, respectively, of cash, cash equivalents, and short-term investments and $781.8 million and $815.9 million of debt, respectively. In 2010, we generated higher operating cash flows from increased sales prices in both the Paper and Packaging segments and, to a lesser extent, increased sales volumes in the Packaging segment. During 2010, we paid a special dividend of $0.40 per common share, or $32.3 million, and we refinanced some of our variable-rate debt to fixed-rate debt, which reduced our exposure to future interest rate changes. At December 31, 2010, 42.0 million warrants and 2.3 million insider warrants for which we will receive no proceeds were outstanding. The warrants expire on June 18, 2011. If all outstanding warrants were exercised at the $7.50 exercise price, we would receive cash proceeds of approximately $315 million.

At December 31, 2010, our cash was invested in high-quality, short-term investments, which we record in “Cash and cash equivalents.” The credit quality of our portfolio of short-term investments remains strong, with the majority of our cash and cash equivalents invested in money market funds that are broadly diversified in high-quality, short-duration securities, including commercial paper, certificates of deposit, U.S. government agency securities, and similar instruments.

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 (the Revolving Credit Facility) at December 31, 2010, and the largest single commitment under the Revolving Credit Facility was $100.0 million. At December 31, 2010, we did not have any borrowings outstanding under the Revolving Credit Facility. Thus, at December 31, 2010, our aggregate liquidity from unused borrowing capacity under the ~~Revolving Credit Facility totaled $245.4 million,~~revolving credit facility, net of ~~outstanding~~ letters of ~~credit~~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 did not hold significant investments tied to debt of ~~$4.6 million.~~

countries facing severe fiscal challenges.

Our foreign operations are not material to our financial position 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 earnings in operations outside the United States; however, if foreign earnings were repatriated at a future date, we would need to accrue and pay taxes.

We believe that our cash, as well as our cash flows from operations and the available borrowing capacity under our ~~$250.0 million Revolving Credit Facility~~revolving credit facility, will be adequate to provide cash as required to support our ongoing operations, property and equipment expenditures, pension contributions, and debt service obligations for at least the next 12 months.

Sources and Uses of Cash

We primarily generate cash from sales of our products and from short- and long-term borrowings, as well as from ~~cash proceeds from~~ the sale of nonstrategic assets. ~~In 2010~~Our principal operating cash expenditures are for fiber, compensation, chemicals, energy, and 2009, we received cash from the alternative fuel mixture credits the U.S. Internal Revenue Code allowed for taxpayers using alternative fuels in the taxpayer’s trade or business. Eligibility for new credits expired on December 31, 2009.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, ~~pay dividends,~~ 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

2012

We operate in a cyclical industry, and our operating cash flows vary accordingly. Our principal operating cash expenditures are for fiber, compensation, energy, chemicals, and interest. Operating activities provided cash in 2010, 2009, and 2008 as follows:

~~2010~~ Compared With ~~2009~~

2011

In ~~2010~~2012 and ~~2009, our~~2011, operating activities provided ~~$289.8~~$235.0 million and ~~$458.7~~$250.2 million of cash, respectively. Compared with ~~2009, the decrease in~~2011, cash provided by operations ~~relates primarily~~decreased $15.2 million due to ~~the following:~~

A $91.1 million decrease in net income. As discussed under “Operating Results” above, the lower net income in 2010 was due primarily to the cessation of the alternative fuel mixture credits that we received during 2009. We recorded $207.6 million of income from alternative fuel mixture credits, including fees and expenses and before taxes during 2009. The decrease in net income during 2010 was partially offset by a ~~$38.8 million and $59.5~~$9.8 million increase in ~~income, excluding alternative fuel mixture credits in~~cash contributions to our ~~Paper~~pension plans and ~~Packaging segments, respectively.~~

~~During 2010, decreases~~a $1.9 million increase in working ~~capital provided $38.1~~capital. In 2012, we contributed $35.2 million ~~in cash,~~ to our pension plans, compared with ~~$91.6~~$25.4 million in ~~2009.~~2011.Working capital increased $19.0 million in 2012, compared with a $17.1 million increase in the 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. ~~During 2010,~~In 2012, the ~~decreases~~increase in working capital related primarily ~~related~~ to ~~the collection of a $56.6 million receivable related to the alternative fuel mixture credits partially offset by a $17.1 million~~decreased payables and an increase in ~~inventories. The increase~~accounts receivable. Our payables decreased due to our reducing paper production on selected uncoated freesheet machines in ~~inventories is primarily~~the fourth 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 ~~linerboard prices. Additionally, we had slightly higher inventory at the end of 2010, compared with the end of 2009.~~

~~More cash contributions to~~sales volumes and prices for our ~~pension and other postretirement benefit plans. During 2010, we contributed $25.6 million to our pension and other postretirement benefit plans, compared with $13.0 million during 2009.~~

corrugated products.

~~2009~~2011 Compared With ~~2008~~

~~Unless otherwise noted, this discussion of liquidity~~2010

In 2011 and ~~capital resources with respect to 2008 refers to the combined activities of Boise Inc. and the Predecessor.~~

~~In 2009 and 2008, our~~2010, operating activities provided ~~$458.7~~$250.2 million and ~~$104.6~~$289.8 million of cash, respectively. Compared with ~~2008,~~2010, the ~~increase~~decrease in cash provided by operations related ~~primarily~~ to ~~the following:~~

~~A $176.6~~a $17.1 million increase in ~~net income. As discussed under “Operating Results” above, we recorded $207.6~~working capital in 2011, compared with a $38.1 million ~~of income from alternative fuel mixture credits, including fees and expenses and before taxes~~ reduction in ~~2009. Also contributing to~~working capital in the prior year. In 2011, the increase in ~~net~~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 ~~was increased~~from operations in 2011. The decline in income from operations related primarily to decreased operating income in our Paper segment, which ~~increased $59.4 million, excluding the impact of the alternative fuel mixture credits. These increases were partially offset~~was driven by ~~a $44.1 million (Boise Inc.) or $66.8 million (BZ Intermediate) loss on extinguishment of debt related to the write-off of previously unamortized deferred financing costs.~~

During 2009, we generated $91.6 million of cash through working capital reductions, compared with using $50.5 million of cash in 2008. During 2009, the working capital reduction primarily related to decreased inventories, increased accounts payablehigher input costs and ~~accrued liabilities, offset partially by increased receivables.~~

Inventories in the Paper and the Packaging segments were down $59.1 million and $23.7 million, respectively, providing $83.0 million in cash from operations as we concentrated on inventory reduction. 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. Furthercontinued declines in ~~inventory within the Packaging segment resulted from operating one newsprint machine rather than the two we were operating at the end~~U.S. industry demand for uncoated freesheet. For more information, see "Our Operating Results" in this Management's Discussion and Analysis of ~~2008.~~

~~Higher levels~~Financial Condition and Results 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 our Jackson mill, 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.

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.

The increase in cash provided by the items above was partially offset by more cash contributions to our pension and postretirement benefit plans in 2009. During 2009, we contributed $13.0 million to our pension and other postretirement benefit plans, compared with $2.5 million during 2008.

Sensitivity Analysis Related to Sources and Uses of Cash From/For Our Operating Activities

~~Sources and uses of cash flows from operating activities~~

Our primary source of cash is revenue generated by the sale of our packaging and paper products, including uncoated freesheet papers, linerboard, corrugated containers and sheets, and newsprint. Declines in working 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.

~~In 2010, we sold the following:~~

~~1.2 million short tons of uncoated freesheet paper.~~

~~225,000 short tons of linerboard to third parties.~~

~~6,735 million square feet of corrugated containers and sheets.~~

~~231,000 short tons of newsprint.~~

~~81,000 short tons of market pulp.~~

During 2010, selling prices for linerboard (sold to third parties), newsprint, and uncoated freesheet increased 21%, 7%, and 2%, respectively, while prices for corrugated containers and sheets declined 2%. Selling prices for linerboard (sold to third parties) and newsprint improved due to strengthening demand and improved market conditions. During 2009, we took 44,000 and 225,000 short tons of market related downtime for linerboard and newsprint, respectively, while we

did not take any during 2010. The newsprint downtime in 2009 included the idled short tons related to the April 2009 D2 newsprint machine idling. During 2010, we took 17,000 short tons of downtime in uncoated freesheet, compared with 42,000 short tons taken during 2009.

Our primary uses of cash are for expenses related to the manufacture of packaging and paper products, including fiber, compensation, energy, and chemicals. For further information pertaining to our expenses see “Our Operating Results” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~Sensitivity Analysis~~

Our operations can be affected by the following sensitivities ~~which are based on 2010 operations~~ (dollars in millions):

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
   $ 12
Packaging

Containerboard (linerboard)
   2
Newsprint
   2
Corrugated containers and sheets ($1.00/msf change in price)
   7
Interest rate (1% change in interest rate on our variable-rate debt before hedging)
   2
Energy(a)

Natural gas ($1.00/mmBtu change in price)
   12
Diesel ($0.50/gallon change in price)
   8
Fiber (1% change in cost of fiber)
   5
Chemicals (1% change in cost of chemicals)
   2



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 ~~2010 consumption levels.~~ 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

2012

~~2010~~

~~For the year ended December 31, 2010, investing activities consisted primarily~~

During 2012, we used $137.6 million of cash for capital expenditures for property and equipment, ~~and purchases and maturities~~compared with $128.8 million in 2011, an increase of ~~short-term investments. Cash investing activities used $109.3~~$8.8 million, ~~$84.5 million, and $900.0 million for the years ended December 31, 2010, 2009, and 2008, respectively.~~

Cash capital expenditures for property, plant, and equipment for the year ended December 31, 2010, were $111.6 million. Cash investing activities for the year ended December 31, 2010, also included $25.3 million for purchases of short-term investments and $24.7 million of maturities of short-term investments, which consisted of fundsas we invested in ~~certificates of deposit insured by the Federal Deposit Insurance Corporation (FDIC).~~

~~Details~~enhancements 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, ~~2010,~~2012, are included in the table below (dollars in millions):

   Year Ended December 31, 2010
   Acquisition/
Expansion    Quality/
Efficiency (a)    Replacement,
Environmental,
and Other    Total
Paper
   $ 0.1       $ 18.5       $ 49.2       $ 67.8
Packaging
   2.1       9.1       27.4       38.6
Corporate and Other
   —       1.2       4.0       5.2

   $ 2.2       $ 28.8       $ 80.6       $     111.6



	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 ~~2011~~2013 to be between ~~$115~~$152 million and ~~$125~~$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, future economic conditions, and our regulatory compliance requirements. Our capital spending in 2011 will be for cost savings, business improvement, quality/efficiency projects, replacement projects, and ongoing environmental compliance. Our performance improvement projects also focus on opportunities to improve our energy efficiency. We spent $4 million in 2010 andOf the amount we expect to spend ~~about the same amount~~for capital investments in ~~2011 for capital~~2013, approximately $7 million relates to environmental compliance requirements.

Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations, 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 ~~2009~~$7 million

we expect to spend in 2013, as discussed above. For additional information, see "Environmental" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

2011

For the year ended December 31, ~~2009,~~2011, investing activities used $443.3 million of cash, which consisted ~~primarily~~ of $326.2 million of cash for the Tharco and Hexacomb acquisitions, $128.8 million for capital expenditures for property and equipment, and ~~purchases and maturities~~$3.5 million of ~~short-term investments. Cash investing activities used $84.5million for the year ended December 31, 2009.~~

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 a net amount of $10.0 millioncash for purchases of short-term investments. We received $14.1 million of proceeds from the maturity of short-term investments. The short-term investments ~~which~~ consisted of funds invested in certificates of deposit insured by the ~~FDIC.~~

Federal Deposit Insurance Corporation (FDIC). During 2011, we liquidated our short-term investment portfolio.

~~2008~~2010

On February 22, 2008, Aldabra 2 Acquisition Corp. completed the Acquisition of 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 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.”

For the year ended December 31, ~~2008,~~2010, investing activities ~~included $1.2 billion in~~used $109.3 million of cash, ~~spent for the Acquisition, excluding deferred financing costs, as discussed above.~~

~~Combined cash capital~~which consisted of $111.6 million of expenditures for property ~~plant,~~ and equipment, $25.3 millionfor purchases of short-term investments, and $24.7 million of proceeds from the ~~year ended December 31, 2008, were $100.8 million. This amount included $10.2 million spent by the Predecessor for the period~~maturities 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.

short-term investments.

Financing Activities

2012

Cash used for financing activities was ~~$83.1~~$146.1 million ~~for~~ in 2012, compared with $123.3 million of cash provided by financing activities in 2011. Financing activities in 2012 included a $119.7 million outflow related to the ~~year ended~~payment 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, ~~2010, compared with $327.3 million of cash used for financing activities for~~2013. Based on the same period in 2009. Financing activities for the year ended December 31, 2010, reflect $334.1 million of long-term debt repayments, $300.0 million of debt issuances, $12.0 million of cash paid for deferred financing costs, and $32.3 million for payments of a special dividend of $0.40 per common share. Financing activities for the year ended December 31, 2009, reflect 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.~~

~~Our~~agreements, our expected debt service obligation, assuming debt ~~and~~ interest rates stay at December 31, ~~2010,~~2012, levels, is estimated to be approximately ~~$101~~$64.9 million for ~~2011~~2013 and ~~$185~~$74.6 million for ~~2012,~~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 $2 million per year (based on debt levels and interest rates as of December 31, 2010). Our sensitivity to increases in interest rates decreased in 2010 as a result of paying off our variable-rate debt and exchanging variable-rate debt for fixed-rate debt.

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”~~"Contractual Obligations" in this ~~Management’s~~Management'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.

For more information about our debt and leases, see Note ~~11,~~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.~~

10‑K.

2011

Cash provided by financing activities for the year ended December 31, 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

Contractual Obligations

In the table below, we set forth our enforceable and legally binding obligations as of December 31, ~~2010.~~2012. Some of the amounts included in the table are based on ~~management’s~~management'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
   2011    2012-2013    2014-2015    Thereafter    Total
Long-term debt, including current portion (a)
   $ 43.8       $ 138.0       $ —       $ 600.0       $ 781.8
Interest (b)
   56.1       105.1       102.0       162.0       425.2
Operating leases (c)
   11.7       19.3       13.8       12.8       57.6
Purchase obligations

Raw materials and finished goods inventory (d)
   54.7       24.8       8.6       —       88.1
Utilities (e)
   22.8       4.2       0.2       —       27.2
Other
   2.9       0.4       —       —       3.3
Other long-term liabilities reflected on our Balance Sheet (f):

Compensation and benefits (g)
   3.4       57.3       46.5       14.5       121.7
Other (h)
   3.5       3.8       2.5       34.0       43.8

   $   198.9       $ 352.9       $ 173.6       $ 823.3       $   1,548.7



	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)

The table assumes our long-term debt is held to maturity and includes the current portion of long-term debt. ~~For more information, see Note 11,~~ Debt maturities in 2013 include repayment of ~~the Notes~~$5.0 million of borrowings under our Revolving Credit Facility, based on our intent to ~~Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplemental Data” of this Form 10-K.~~repay.


(b)	Amounts represent estimated interest payments as of December 31, ~~2010,~~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 centers~~operating 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 7, 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 ~~$81~~$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 2011 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, ~~2010,~~2012, or upon contract ~~language, 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.~~

language, if available.


(f)	Consists primarily of information technology purchase obligations.

(g)

Long-term deferred income taxes of ~~$88.2~~$198.4 million and unrecognized tax benefits of $28.3 million are excluded from this table, because the timing of their future cash outflows are uncertain. Additional information relating to the inclusion of the 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.

~~(g)~~

(h)

Amounts consist primarily of pension ~~and other postretirement benefit~~ obligations, including current portion of ~~$0.4 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, ~~expected return on plan assets, expected rate of compensation increases,~~ 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.

~~(h)~~
(i)	Includes current liabilities of ~~$3.5~~$4.6 million related primarily ~~related~~ to the current portion of ~~workers’~~workers' compensation liability.

(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

~~Off-Balance-Sheet Activities~~

At December 31, ~~2010 and 2009,~~2012, we ~~had no off-balance-sheet arrangements with unconsolidated entities.~~

~~Guarantees~~

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 ~~11, Debt, and Note 19,~~18, Commitments, Guarantees, Indemnifications, and Legal Proceedings, of the Notes to Consolidated Financial Statements in ~~“Part~~"Part II, Item 8. Financial Statements and Supplementary ~~Data”~~Data" of this Form ~~10-K describe~~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 ~~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,~~aggregate.

Off-Balance-Sheet Activities

At December 31, 2012 and ~~the maximum potential undiscounted amounts of future payments~~2011, we ~~could be required to make.~~

had no off-balance-sheet arrangements with unconsolidated entities.

Inflationary and Seasonal Influences

Our major costs of production are fiber, compensation, ~~fiber,~~ 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
	2013		2014		2015		2016		2017		There- after		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
	Year Ending December 31, 2013			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)
	Base Expense		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

(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.

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

(dollars in thousands)



	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

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

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. ~~The~~Any 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.

Fair Value Measurements

The ~~table below provides a summary~~Fair Value Measurements and Disclosures Topic of our long-term debt obligations as of December 31, 2010. 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 (dollars in millions):

   2011    2012    2013    2014    2015    There-
after    December 31,
2010
                     Total    Fair
Value
Debt

Long-term debt (a)
   $ 43.8       $   129.6       $ 8.4       $ —       $ —       $   600.0       $   781.8       $   843.6
Fixed-rate debt payments (b)

9% senior notes (c)
   $ —       $ —       $ —       $ —       $ —       $ 300.0       $ 300.0       $ 337.9
8% senior notes (c)
   —       —       —       —       —       300.0       300.0       325.8
Average interest rate (as percentage)
   —       —       —       —       —       8.50       8.50       —
Variable-rate debt
payments (b)
   $   43.8       $ 129.6       $   8.4       $ —       $ —       $ —       $ 181.8       $ 179.9
Average interest rate (as percentage) (d)
   3.06       3.06       3.06       —       —       —       3.06       —

~~(a)~~

~~Includes current portion.~~

~~(b)~~

~~These obligations are further explained in Note 11, 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)~~

~~Does not include the effect of interest rate derivatives.~~

~~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 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. We spent $4 million in 2010 and expect to spend about the same amount in 2011 for capital environmental compliance requirements. Our estimated environmental expenditures could vary significantly depending upon the enactment of new environmental laws and regulations, including those related to greenhouse gas emissions and industrial boilers.

On June 4, 2010, the EPA proposed National Emission Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial, and Institutional Boilers and Process Heaters (aka Boiler MACT rules). The recently released Boiler MACT rules will require process modifications and/or installation of air pollution controls on power boilers (principally our biomass-fuel-fired boilers) at our pulp and paper mills, and we are currently reviewing those rules to understand the effect they will have on our operations. The cost of compliance is likely to be significant. Our early estimates indicated compliance could result in additional capital spending of up to $90 million over a three-year period.

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 67% 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 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 the CCX, the emissions have been third-party verified. In 2009 (the last reported year), our company emitted about 2.0 million metric tonnes of GHG carbon dioxide equivalents, comprising about 0.8 million metric tonnes of direct emissions and 1.2 million metric tonnes of indirect emissions from purchased electricity. A metric tonne is 2,205 pounds. 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 for calendar year 2010 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. 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.

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. 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 initiated the regulation of GHGs following its “endangerment finding” in December 2009. The EPA has issued final regulations (known as the Tailoring Rule) for GHGs from stationary sources under its Clean Air Act Title V permitting and Prevention of Significant Deterioration programs in 2010. These rules are to be phased in, but they begin taking effect on January 2, 2011. Such rules could lead to longer permitting times and additional costs to reduce GHG emissions at our pulp and paper mills.

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.

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.

~~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~~

We calculate pension expense and liabilities using actuarial assumptions, including discount rates, expected return on plan assets, expected rate of compensation increases, retirement rates, mortality rates, expected contributions, and other factors. We based the assumptions used in this analysis to calculate pension expense on the following factors:

~~Discount Rate Assumption.~~ The discount rate reflects the current rate at which the pension obligations could be settled on the measurement date—December 31. 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 2011 net periodic benefit cost is 7.25%. In 2010, 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.

~~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 estimate that we will be required to contribute approximately $3 million in 2011 and approximately $32 million in 2012.

We recognize the funded status of our pension and other postretirement benefit 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. 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 or the expected rate of return on plan assets would have had the following effect on 2010 and 2011 pension expense (dollars in millions). These sensitivities are specific to 2010 and 2011. The sensitivities may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.

   Base
Expense    Increase (Decrease)
in Pension Expense
      0.25 %
Increase 0.25%
Decrease
2010 Expense

Discount rate
   $ 9.7       $ (0.6 ) $ 0.6
Expected rate of return on plan assets
   9.7       (0.8 ) 0.8
2011 Expense

Discount rate
   $ 12.6       $ (1.5 ) $ 1.5
Expected rate of return on plan assets
   12.6       (0.8 ) 0.8

Year Ending
December 31,
2011 Year Ended December 31
2010 2009
Pension expense
$ 12.6 $ 9.7 $ 8.7
Discount rate
5.50 % 6.10 % 6.20 %
Expected rate of return on plan assets
7.25 % 7.25 % 7.25 %

The difference between our expected returns and our actual returns affects the amount of expense we recognize in future years. However, under pension accounting rules, this impact is recognized over time. In addition, we are required to adjust our equity in “Accumulated other comprehensive income (loss)” in our Consolidated Statement of Stockholders’ Equity for Boise Inc. or Consolidated Statements of Capital for BZ Intermediate to record minimum pension liabilities under accounting rules. In 2010, we recorded a $14.5 million pretax decrease in equity. The amount of expense and minimum pension liability we recognize depends on, among other things, actual returns on plan assets, changes in interest rates that 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, 2010, our pension assets had a market value of $356 million, compared with $302 million at December 31, 2009. 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 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.

~~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 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 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.

~~Both Boise Inc. and BZ Intermediate recognize interest and penalties related to uncertain tax positions as income tax expense in their Consolidated Statements of Income (Loss).~~

~~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. 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, 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, 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 (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.

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. 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.

~~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.

~~ITEM 7A.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

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.

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 (Loss)~~

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

Boise Inc. Predecessor
Year Ended December 31 January 1
Through
February 21,
2008
2010 2009 2008

Sales

Trade
$ 2,058,132    $ 1,935,410    $ 1,990,207    $ 258,430
Related parties
35,645    42,782    80,425    101,490

2,093,777    1,978,192    2,070,632    359,920

Costs and expenses

Materials, labor, and other operating expenses
1,634,039    1,596,214    1,756,826    313,931
Fiber costs from related parties
25,259    36,858    54,628    7,662
Depreciation, amortization, and depletion
129,926    131,500    109,988    477
Selling and distribution expenses
58,107    55,524    48,278    9,097
General and administrative expenses
52,273    50,250    34,258    6,606
St. Helens mill restructuring
180    5,805    29,780    —
Alternative fuel mixture credits, net
—    (207,607 ) —    —
Other (income) expense, net
33    4,005    (2,980 ) (989 )

1,899,817    1,672,549    2,030,778    336,784

Income from operations
193,960    305,643    39,854    23,136

Foreign exchange gain (loss)
890    2,639    (4,696 ) 54
Change in fair value of interest rate derivatives
(43 ) 568    (479 ) —
Loss on extinguishment of debt
(22,225 ) (44,102 ) —    —
Interest expense
(64,782 ) (83,263 ) (91,220 ) (2 )
Interest income
306    367    2,246    161

(85,854 ) (123,791 ) (94,149 ) 213

Income (loss) before income taxes
108,106    181,852    (54,295 ) 23,349
Income tax (provision) benefit
(45,372 ) (28,010 ) 8,772    (563 )

Net income (loss)
$ 62,734    $ 153,842    $ (45,523 ) $ 22,786

Weighted average common shares outstanding:

Basic
80,461    78,355    73,636    —
Diluted
84,131    83,081    73,636    —

Net income (loss) per common share:

Basic
$ 0.78    $ 1.96    $ (0.62 ) $ —
Diluted
0.75    1.85    (0.62 ) —

~~See accompanying notes to consolidated financial statements.~~

~~Boise Inc. Consolidated Balance Sheets~~

~~(dollars in thousands)~~

   December 31
   2010    2009
ASSETS

Current

Cash and cash equivalents
   $ 166,833       $ 69,393
Short-term investments
   10,621       10,023
Receivables

Trade, less allowances of $603 and $839
   188,588       185,110
Related parties
   1       2,056
Other
   3,839       62,410
Inventories
   261,471       252,173
Deferred income taxes
   16,658       —
Prepaid and other
   5,214       4,819

   653,225       585,984

Property

Property and equipment, net
   1,199,035       1,205,679
Fiber farms and deposits
   18,285       17,094

   1,217,320       1,222,773

Deferred financing costs
   30,396       47,369
Intangible assets, net
   29,605       32,358
Other assets
   8,444       7,306

Total assets
   $ 1,938,990       $ 1,895,790

~~See accompanying notes to consolidated financial statements.~~

~~Boise Inc. Consolidated Balance Sheets (continued)~~

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

   December 31
   2010 2009
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current

Current portion of long-term debt
   $ 43,750    $ 30,711
Income taxes payable
   82    240
Accounts payable

Trade
   178,923    172,518
Related parties
   291    2,598
Accrued liabilities

Compensation and benefits
   54,574    67,948
Interest payable
   10,535    4,946
Other
   16,123    23,735

   304,278    302,696

Debt

Long-term debt, less current portion
   738,081    785,216

Other

Deferred income taxes
   88,200    32,253
Compensation and benefits
   121,318    123,889
Other long-term liabilities
   40,278    30,801

   249,796    186,943

Commitments and contingent liabilities

Stockholders’ Equity

Preferred stock, $.0001 par value per share:
   —    —
1,000 shares authorized; none issued

Common stock, $.0001 par value per share:
   8    8
250,000 shares authorized;

84,845 shares and 84,419 shares issued and outstanding

Additional paid-in capital
   581,442    578,669
Accumulated other comprehensive income (loss)
   (78,822 ) (71,553 )
Retained earnings
   144,207    113,811

Total stockholders’ equity
   646,835    620,935

Total liabilities and stockholders’ equity
   $ 1,938,990    $ 1,895,790

~~See accompanying notes to consolidated financial statements.~~

~~Boise Inc. Consolidated Statements of Cash Flows~~

~~(dollars in thousands)~~

   Boise Inc. Predecessor
   Year Ended December 31 January 1
Through
February 21,
2008
   2010 2009 2008
Cash provided by (used for) operations

Net income (loss)
   $ 62,734    $ 153,842    $ (45,523 ) $ 22,786
Items in net income (loss) not using (providing) cash

Depreciation, depletion, and amortization of deferred financing costs and other
   137,495    144,079    119,933    477
Share-based compensation expense
   3,733    3,518    3,096    —
Related-party interest expense
   —    —    2,760    —
Notes payable interest expense
   —    9,000    5,512    —
Pension and other postretirement benefit expense
   9,537    7,376    8,388    1,826
Deferred income taxes
   38,884    27,709    (9,363 ) 11
Change in fair value of energy derivatives
   609    (5,877 ) 7,445    (37 )
Change in fair value of interest rate derivatives
   43    (568 ) 479    —
St. Helens mill restructuring
   —    —    35,998    —
(Gain) loss on sales of assets, net
   312    514    —    (943 )
Other
   (869 ) (2,639 ) 4,696    (54 )
Loss on extinguishment of debt
   22,225    44,102    —    —
Decrease (increase) in working capital, net of acquisitions

Receivables
   57,255    (18,579 ) 25,296    (23,522 )
Inventories
   (17,120 ) 83,037    (28,950 ) 5,343
Prepaid expenses
   4,690    1,470    (1,044 ) 875
Accounts payable and accrued liabilities
   (6,690 ) 25,710    (17,801 ) (10,718 )
Current and deferred income taxes
   5,585    (372 ) (1,057 ) 335
Pension and other postretirement benefit payments
   (25,637 ) (13,001 ) (636 ) (1,826 )
Other
   (3,005 ) (609 ) (1,483 ) 2,326

Cash provided by (used for) operations
   289,781    458,712    107,746    (3,121 )

Cash provided by (used for) investment

Acquisition of businesses and facilities
   —    (543 ) (1,216,459 ) —
Cash released from trust, net
   —    —    403,989    —
Expenditures for property and equipment
   (111,619 ) (77,145 ) (90,597 ) (10,168 )
Purchases of short-term investments
   (25,336 ) (21,643 ) —    —
Maturities of short-term investments
   24,744    11,615    —    —
Sales of assets
   717    1,031    394    17,662
Other
   2,224    2,168    (5,703 ) 863

Cash provided by (used for) investment
   (109,270 ) (84,517 ) (908,376 ) 8,357

Cash provided by (used for) financing

Issuances of long-term debt
   300,000    310,000    1,125,700    —
Payments of long-term debt
   (334,096 ) (531,523 ) (88,250 ) —
Extinguishment of debt
   —    �� (39,717 ) —    —
Payments of notes payable
   —    (52,924 ) —    —
Payments to stockholders for exercise of conversion rights
   —    —    (120,170 ) —
Payments of deferred financing costs
   (12,003 ) (13,156 ) (81,898 ) —
Payments of deferred underwriters fees
   —    —    (12,420 ) —
Net equity transactions with related parties
   —    —    —    (5,237 )
Exercises of warrants
   638    —    —    —
Payments of special dividend
   (32,276 ) —    —    —
Other
   (5,334 ) —    —    —

Cash provided by (used for) financing
   (83,071 ) (327,320 ) 822,962    (5,237 )

Increase (decrease) in cash and cash equivalents
   97,440    46,875    22,332    (1 )
Balance at beginning of the period
   69,393    22,518    186    8

Balance at end of the period
   $ 166,833    $ 69,393    $ 22,518    $ 7

~~See accompanying notes to consolidated financial statements.~~

~~Boise Inc.~~

~~Consolidated Statements of Stockholders’ Equity~~

~~(dollars and shares in thousands, except share data)~~

Common
Shares
Outstanding
Total
Stockholders’
Equity Preferred
Stock Common
Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss) Income
Accumulated
During
Development
Stage Retained
Earnings
(accumulated
deficit)

51,750    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
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    —    —    —
2,451    Restricted stock granted 3,096    —    —    3,096    —    —    —
(25)    Restricted stock forfeited —    —    —    —    —    —    —
30    Restricted stock vested —    —    —    —    —    —    —

Shares of common stock subject to possible conversion converted to permanent equity
159,760    —    —    159,760    —    —    —
(12,347)
Reclassify shares of common stock subject to possible conversion that were not redeemed to permanent equity
(120,170 ) —    (1 ) (120,169 ) —    —    —

79,716    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    Restricted stock granted 3,518    —    —    3,518    —    —    —
(81)    Restricted stock forfeited —    —    —    —    —    —    —
182    Restricted stock units vested, net —    —    —    —    —    —    —

84,419    Balance at December 31, 2009 $ 620,935    $ —    $ 8    $ 578,669    $ (71,553 ) $ —    $ 113,811

Comprehensive income:

Net income
62,734    —    —    —    —    —    62,734

Other comprehensive income (loss), net of tax

Cash flow hedges
553    —    —    —    553    —    —
Investment gains (losses) 6    —    —    —    6    —    —

Changes in unfunded accumulated benefit obligation (net of tax of $4,945)
(7,828 ) —    —    —    (7,828 ) —    —

Other comprehensive income (7,269 ) —    —    —    (7,269 ) —    —

Comprehensive income $ 55,465    —    —    —    —    —

Dividends declared (32,338 ) —    —    —    —    —    (32,338 )
Restricted stock excess tax 31    —    —    31    —    —    —
85    Warrants exercised 638    —    —    638    —    —    —
200    Restricted stock granted 3,733    —    —    3,733    —    —    —
(221)    Restricted stock withheld for taxes (1,629 ) —    —    (1,629 ) —    —    —
(42)    Restricted stock forfeited —    —    —    —    —    —    —
404    Restricted stock units vested, net —    —    —    —    —    —    —

84,845    Balance at December 31, 2010 $ 646,835    $ —    $ 8    $ 581,442    $ (78,822 ) $ —    $ 144,207

~~See accompanying notes to consolidated financial statements.~~

~~BZ Intermediate Holdings LLC~~

~~Consolidated Statements of Income (Loss)~~

~~(dollars in thousands)~~

   BZ Intermediate Holdings LLC Predecessor
   Year Ended December 31 January 1
Through
February 21,
2008
   2010 2009 2008
Sales

Trade
   $ 2,058,132    $ 1,935,410    $ 1,990,207    $ 258,430
Related parties
   35,645    42,782    80,425    101,490

   2,093,777    1,978,192    2,070,632    359,920


Costs and expenses

Materials, labor, and other operating
expenses
   1,634,039    1,596,214    1,756,826    313,931
Fiber costs from related parties
   25,259    36,858    54,628    7,662
Depreciation, amortization, and
depletion
   129,926    131,500    109,988    477
Selling and distribution expenses
   58,107    55,524    48,278    9,097
General and administrative expenses
   52,273    50,250    34,318    6,606
St. Helens mill restructuring
   180    5,805    29,780    —
Alternative fuel mixture credits, net
   —    (207,607 ) —    —
Other (income) expense, net
   33    4,005    (2,980 ) (989 )

   1,899,817    1,672,549    2,030,838    336,784


Income from operations
   193,960    305,643    39,794    23,136

Foreign exchange gain (loss)
   890    2,639    (4,696 ) 54
Change in fair value of interest rate
derivatives
   (43 ) 568    (479 ) —
Loss on extinguishment of debt
   (22,225 ) (66,784 ) —    —
Interest expense
   (64,782 ) (74,263 ) (82,945 ) (2 )
Interest income
   306    367    617    161

   (85,854 ) (137,473 ) (87,503 ) 213


Income (loss) before income taxes
   108,106    168,170    (47,709 ) 23,349
Income tax (provision) benefit
   (44,529 ) (20,356 ) 5,849    (563 )

Net income (loss)
   $ 63,577    $ 147,814    $ (41,860 ) $ 22,786

~~See accompanying notes to consolidated financial statements.~~

~~BZ Intermediate Holdings LLC~~

~~Consolidated Balance Sheets~~

~~(dollars in thousands)~~

~~See accompanying notes to consolidated financial statements.~~

~~BZ Intermediate Holdings LLC~~

~~Consolidated Balance Sheets (continued)~~

~~(dollars in thousands)~~

   December 31
   2010    2009
LIABILITIES AND CAPITAL

Current

Current portion of long-term debt
   $ 43,750       $ 30,711
Income taxes payable
   82       240
Accounts payable

Trade
   178,923       172,518
Related parties
   291       2,598
Accrued liabilities

Compensation and benefits
   54,574       67,948
Interest payable
   10,535       4,946
Other
   16,123       23,735

   304,278       302,696

Debt

Long-term debt, less current portion
   738,081       785,216

Other

Deferred income taxes
   79,451       24,563
Compensation and benefits
   121,318       123,889
Other long-term liabilities
   40,530       30,836

   241,299       179,288

Commitments and contingent liabilities

Capital

Business unit equity
   655,332       628,590

Total liabilities and capital
   $   1,938,990       $   1,895,790

~~See accompanying notes to consolidated financial statements.~~

~~BZ Intermediate Holdings LLC~~

~~Consolidated Statements of Cash Flows~~

~~(dollars in thousands)~~

   BZ Intermediate Holdings LLC Predecessor
   Year Ended December 31 January 1
Through
February 21,
2008
   2010 2009 2008

Cash provided by (used for) operations

Net income (loss)
   $ 63,577    $ 147,814    $ (41,860 ) $ 22,786
Items in net income (loss) not using (providing) cash

Depreciation, depletion, and amortization of deferred financing costs and other
   137,495    144,079    119,933    477
Share-based compensation expense
   3,733    3,518    3,096    —
Pension and other postretirement benefit expense
   9,537    7,376    8,388    1,826
Deferred income taxes
   37,882    20,020    (6,439 ) 11
Change in fair value of energy derivatives
   609    (5,877 ) 7,445    (37 )
Change in fair value of interest rate derivatives
   43    (568 ) 479    —
St. Helens mill restructuring
   —    —    35,998    —
(Gain) loss on sales of assets, net
   312    514    —    (943 )
Other
   (869 ) (2,639 ) 4,696    (54 )
Loss on extinguishment of debt
   22,225    66,784    —    —
Decrease (increase) in working capital, net of
acquisitions

Receivables
   57,255    (21,503 ) 25,296    (23,522 )
Inventories
   (17,120 ) 83,037    (28,950 ) 5,343
Prepaid expenses
   4,690    1,470    (1,103 ) 875
Accounts payable and accrued liabilities
   (6,690 ) 25,710    (16,785 ) (10,718 )
Current and deferred income taxes
   5,744    (422 ) 222    335
Pension and other postretirement benefit payments
   (25,637 ) (13,001 ) (636 ) (1,826 )
Other
   (3,005 ) (609 ) (1,848 ) 2,326

Cash provided by (used for) operations
   289,781    455,703    107,932    (3,121 )

Cash provided by (used for) investment

Acquisition of businesses and facilities
   —    (543 ) (1,216,459 ) —
Expenditures for property and equipment
   (111,619 ) (77,145 ) (90,597 ) (10,168 )
Purchases of short-term investments
   (25,336 ) (21,643 ) —    —
Maturities of short-term investments
   24,744    11,615    —    —
Sales of assets
   717    1,031    394    17,662
Other
   2,224    2,168    (5,703 ) 863

Cash provided by (used for) investment
   (109,270 ) (84,517 ) (1,312,365 ) 8,357

Cash provided by (used for) financing

Issuances of long-term debt
   300,000    310,000    1,125,700    —
Payments of long-term debt
   (334,096 ) (531,523 ) (88,250 ) —
Extinguishment of debt
   —    (39,717 ) —    —
Payments (to) from Boise Inc., net
   (31,639 ) (49,915 ) 271,399    —
Payments of deferred financing costs
   (12,003 ) (13,156 ) (81,898 ) —
Net equity transactions with related parties
   —    —    —    (5,237 )
Other
   (5,333 ) —    —    —

Cash provided by (used for) financing
   (83,071 ) (324,311 ) 1,226,951    (5,237 )

Increase (decrease) in cash and cash equivalents
   97,440    46,875    22,518    (1 )
Balance at beginning of the period
   69,393    22,518    —    8

Balance at end of the period
   $ 166,833    $ 69,393    $ 22,518    $ 7

~~See accompanying notes to consolidated financial statements.~~

~~BZ Intermediate Holdings LLC~~

~~Consolidated Statements of Capital~~

~~(dollars in thousands)~~

   Total Capital Business
Unit Equity Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 18, 2008 (Inception)
   $ —    $ —    $ —
Issuance of 1,000 common units
       638,761    638,761    —
Comprehensive loss:

Net loss
   (41,860 ) (41,860 ) —
Other comprehensive income loss, net of tax

Cash flow hedges
   (760 ) —    (760 )
Unfunded accumulated benefit obligations
   (84,922 ) —    (84,922 )

Other comprehensive loss:
   (85,682 ) —    (85,682 )

Comprehensive loss
   $ (127,542 )

Net equity transactions with Boise Inc.
   1,825    1,825    —

Balance at December 31, 2008
   $ 513,044    $ 598,726    $ (85,682 )

Comprehensive income:

Net income
   147,814    147,814    —
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
   $ 161,943

Net equity transactions with Boise Inc.
   (46,397 ) (46,397 ) —

Balance at December 31, 2009
   $ 628,590    $ 700,143    $ (71,553 )

Comprehensive income:

Net income
   63,577    63,577    —
Other comprehensive income (loss), net of tax

Cash flow hedges
   553    —    553
Investment gains (losses)
   6    —    6 ��
Changes in unfunded accumulated benefit obligation (net of tax of $4,945)
   (7,828 ) —    (7,828 )

Other comprehensive income
   (7,269 ) —    (7,269 )

Comprehensive income
   $ 56,308

Net equity transactions with Boise Inc.
   (29,566 ) (29,566 ) —

Balance at December 31, 2010
   $ 655,332    $     734,154    $ (78,822 )

~~See accompanying notes to consolidated financial statements.~~

~~Notes to Consolidated Financial Statements~~

~~1. Nature of Operations and Basis of Presentation~~

In this filing, 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 Holdings LLC (BZ Intermediate). Boise Inc. is a large, diverse United States-based manufacturer of paper and packaging products.

~~Paper Products~~

~~Communication-Based Papers~~

~~Imaging papers for the office and home, also known as cut-size office papers.~~

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

~~Packaging-Demand-Driven Papers~~

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

~~Flexible packaging papers: coated and uncoated papers sold to customers that create flexible packaging products for food and nonfood applications.~~

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

~~Market Pulp~~

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

~~Packaging Products~~

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

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

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

We own paper mills in the following locations: Jackson, Alabama; International Falls, Minnesota; St. Helens, Oregon; and Wallula, Washington, all of which manufacture imaging, printing, and converting papers. These products are a subset of a larger product category called uncoated freesheet papers. We also classify label and release and flexible packaging products as uncoated freesheet papers. All of these mills, except St. Helens, also manufacture pulp, which is either sold on the market or used in our own operations to manufacture paper.

We also own a mill in DeRidder, Louisiana, which produces linerboard and newsprint. Additionally, we own seven plants that manufacture corrugated packaging products. Our plants in Burley, Idaho; Nampa, Idaho; Sparks, Nevada; Salem, Oregon; Salt Lake City, Utah; and Wallula, Washington, all manufacture corrugated containers. Our plant in Waco, Texas, manufactures corrugated sheets.

~~Labor~~

As of December 31, 2010, we had approximately 4,100 employees. Approximately 57% of these employees worked pursuant to collective bargaining agreements. As of December 31, 2010, approximately 50% of our employees were working pursuant to collective bargaining agreements that have expired or will expire within one year.

Our operations began on February 22, 2008, when entities controlled by Boise Cascade Holdings, L.L.C. (Boise Cascade) sold their paper and packaging assets to Aldabra 2 Acquisition Corp. (the Acquisition). As part of the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. In this Form 10-K, we use the term “Predecessor” to reference the periods before the Acquisition, including the period when our assets were operated by Boise Cascade. See Note 17, Acquisition of Boise Cascade’s Paper and Packaging Operations, for more information related to the Acquisition.

~~The following sets forth our operating structure at December 31, 2010:~~

~~Boise Inc., headquartered in Boise, Idaho, operates and reports 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 Statement of Income (Loss) and Consolidated Statement of Cash Flows of the Predecessor for the period of January 1 through February 21, 2008, are presented for comparative purposes.

For the Predecessor period 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 period 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, 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 4, 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 valuation of accounts receivable, inventories, intangible assets, and asset retirement obligations; assumptions used in retirement; the recognition, measurement, and valuation of income taxes; the determination and allocation of the fair values of assets acquired and liabilities assumed in an acquisition; 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. Volatile credit, 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 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.”

~~Share-Based Compensation~~

We accrue compensation expense for the restricted stock and restricted stock units (collectively restricted stock) granted under the Boise Inc. Incentive and Performance Plan (the Plan) based on the fair value on the date of the grant. 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. During the years ended December 31, 2010, 2009, and 2008, we recognized $3.7 million, $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 14, Stockholders’ Equity and Capital, for a discussion of the Plan and the method we use to calculate compensation expense.

During the Predecessor period 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, the Predecessor recognized $0.2 million of compensation expense, most of which was recorded in “General and administrative expenses” in the Consolidated Statement of Income (Loss).

~~Research and Development Costs~~

We expense research and development costs as incurred, and they were immaterial for all periods presented. These expenses are generally recorded in “Materials, labor, and other operating expenses” in our Consolidated Statements of Income (Loss).

~~Advertising Costs~~

We expense advertising costs as incurred. For the years ended December 31, 2010, 2009, and 2008, advertising costs were $3.0 million, $2.7 million, and $2.3 million, respectively. For the Predecessor period of January 1 through February 21, 2008, advertising costs were $1.0 million. These expenses are generally recorded in “Selling and distribution expenses” in our Consolidated Statements of Income (Loss).

~~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 unless designated as available for sale and classified as an investment. The fair value of these investments approximates their carrying value. Cash equivalents totaled $156.5 million and $65.1 million, respectively, at December 31, 2010 and 2009.

~~Short-Term Investments~~

Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Our 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 determined to be other than temporary are recorded in our Consolidated Statement of Income (Loss). The cost of marketable securities sold is determined based on the specific identification method.

~~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 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.

~~Financial Instruments~~

We are exposed to market risks, including changes in interest rates and energy prices. 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 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). 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 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 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 (Loss). At December 31, 2010 and 2009, we had $13.7 million and $16.1 million, respectively, of rebates payable recorded on our Consolidated Balance Sheets.

~~Inventory Valuation~~

Inventories are valued at the lower of cost or market. Cost is based on the average cost method of inventory valuation. Manufactured inventories include costs for materials, labor, and factory overhead.

~~Inventories include the following (dollars in thousands):~~

   December 31
   2010    2009
Finished goods
   $ 123,329       $ 120,817
Work in process
   34,906       22,677
Fiber
   36,166       34,557
Other raw materials and supplies
   67,070       74,122

   $ 261,471       $ 252,173

~~Property and Equipment~~

Property and equipment acquired in the Acquisition were recorded at estimated fair value on the date of the Acquisition. Property and equipment acquired subsequent to the Acquisition 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 year ended December 31, 2010, we recognized an immaterial amount of capitalized interest, and for the year ended December 31, 2009, we did not recognize any capitalized interest. During the Predecessor period of January 1 through February 21, 2008, the Predecessor recognized $0.1 million 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, we used the straight-line method of depreciation.

~~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
   2010 2009
Land
   $ 31,875    $ 31,875    NA
Buildings and improvements
   219,345    199,086    9-40
Machinery and equipment
   1,260,265    1,176,494    3-20
Construction in progress
   27,667    18,992    NA

   1,539,152    1,426,447
Less accumulated depreciation
   (340,117 ) (220,768 ) NA

   $ 1,199,035    $ 1,205,679

~~Depreciation expense for the years ended December 31, 2010, 2009, and 2008, was $120.5 million, $120.9 million, and $102.0 million, respectively.~~

~~Fiber Farms and Deposits~~

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 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 (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, 2010 and 2009, our total obligation for log and fiber purchases under contracts with third parties was approximately $81.2 million and $76.4 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. Under most of the 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 2011 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.

~~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.

~~Intangible Assets~~

Our policy is to assess intangible assets with indefinite lives for impairment 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 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 $5.3 million and $4.1 million of deferred software costs at December 31, 2010 and 2009, respectively. We amortized $0.8 million, $1.4 million, and $0.7 million, respectively, of deferred software costs for the years ended December 31, 2010, 2009, and 2008. For the Predecessor period of January 1 through February 21, 2008, amortization of deferred software costs totaled $0.1 million.

~~Pension Benefits~~

Several estimates and assumptions are required to record pension costs and liabilities, including discount rate, return on assets, salary increases, 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 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 January 2010,~~ the Financial Accounting Standards Board (FASB) ~~issued Accounting Standards Update (ASU) 2010-06,~~~~Improving Disclosures about Fair Value Measurements~~~~. This ASU amends FASB~~ Accounting Standards Codification (ASC) ~~820, Fair Value Measurements and Disclosures, to require reporting entities to make new disclosures about recurring or nonrecurring~~establishes a fair value ~~measurements, including significant transfers into and out~~hierarchy, which prioritizes the inputs of ~~Level 1 and Level 2~~valuation techniques used to measure fair value measurements and information about purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The ASU also clarifies existing fair value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques. 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. The detailed Level 3 roll-forward disclosures are effective for fiscal years beginning after December 15, 2010. We do not expect the adoption of the Level 3 roll-forward disclosures to have a material impact on our financial position or results of operation.

~~In June 2009, the FASB issued ASU 2009-17 (Statement of Financial Accounting Standards No. 167),~~~~Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities~~, 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. During first quarter 2010, we reassessed our primary beneficiary assertion relating to Louisiana Timber Procurement, L.L.C., our only VIE, after Boise Cascade sold all of its remaining interest in us. This

~~analysis, or any since first quarter 2010, did not change our assertions or have a material impact on our financial position or results of operations.~~

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

~~3. Net Income (Loss) Per Common Share~~

For the years ended December 31, 2010, 2009, and 2008, when we had publicly traded shares outstanding, net income (loss) per common share 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 and shares in thousands, except per-share data):

   Year Ended December 31
   2010    2009    2008
Net income (loss)
   $     62,734       $     153,842       $     (45,523 )
Weighted average number of common shares for basic net income (loss) per share
   80,461       78,355       73,636
Incremental effect of dilutive common stock equivalents:

Common stock warrants (a)
   —       —       —
Restricted stock and restricted stock units (b)
   3,670       4,726       —

Weighted average number of shares for diluted net income (loss) per share
   84,131       83,081       73,636

Net income (loss) per share

Basic
   $ 0.78       $ 1.96       $ (0.62 )

Diluted (a) (b)
   $ 0.75       $ 1.85       $ (0.62 )

~~(a)~~

For the years ended December 31, 2010, 2009, and 2008, warrants to purchase 44.3 million, 44.4 million, and 44.4 million shares of common stock, respectively, 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)~~

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.

~~Net income (loss) per common share is not applicable to BZ Intermediate, because it does not have common shares.~~

~~4. Transactions With Related Parties~~

From February 22, 2008, through early March 2010, Boise Cascade held a significant interest in us, and our transactions with Boise Cascade were related-party transactions. In early March 2010, Boise Cascade sold all of its remaining investment in us, and accordingly, it is no longer a related party.

The transportation and other outsourcing services revenues described below were earned during January and February 2010. After March 2010, no transactions between Boise Cascade and us are considered related-party transactions, except those concerning Louisiana Timber Procurement Company, L.L.C. (LTP) described below.

~~Related-Party Sales~~

We provide transportation services to Boise Cascade. For the years ended December 31, 2010, 2009, and 2008, we recorded $0.3 million, $2.3 million, and $3.4 million, respectively, of sales for transportation services in “Sales, Related parties” in the Consolidated Statements of Income (Loss). For the period of January 1 through February 21, 2008, the Predecessor recorded $0.6 million of sales for transportation services to Boise Cascade.

We are party to an outsourcing 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 agreement, as extended, expires on February 22, 2013. 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 expiration date. For the years ended December 31, 2010, 2009, and 2008, we recognized $2.3 million, $15.0 million, and $12.1 million, respectively, in “Sales, Related parties” in the Consolidated Statements of Income (Loss) and the same amounts in “Costs and expenses” in our Consolidated Statements of Income (Loss) related to this agreement within our Corporate and Other segment.

LTP, a variable-interest entity that is 50% owned by Boise Inc. and 50% owned by Boise Cascade, sells 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 have 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. We reassess this relationship quarterly to ensure that we remain the primary beneficiary of LTP. Although Boise Cascade is no longer a related party to our operations, Boise Cascade continues to be a related party to LTP; therefore, sales between Boise Cascade and LTP are related-party sales in our consolidated financial statements.

As of December 31, 2010, the carrying amounts of LTP’s assets and liabilities on our Consolidated Balance Sheet were both $2.1 million and related primarily to noninventory working capital. During the years ended December 31, 2010 and 2009, we recorded $33.0million and $25.5 million, respectively, of LTP 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. The Predecessor sold $10.8 million of wood to Boise Cascade’s wood products business during the period of January 1 through February 21, 2008. These sales are included in “Sales, Related parties” in the Consolidated Statements of Income (Loss) in our Packaging segment.

During the Predecessor period of January 1 through February 21, 2008, the Predecessor sold paper and paper products to OfficeMax Incorporated (OfficeMax) at sales prices that were designed to approximate market prices. Subsequent to the Acquisition, OfficeMax is no longer a related party. For additional information concerning related-party sales to OfficeMax during the Predecessor period, see Note 8, Concentrations of Risk.

~~Related-Party Costs and Expenses~~

During the years ended December 31, 2010, 2009, and 2008, fiber purchases from related parties were $25.3 million, $36.9 million, and $54.6 million, respectively. During the Predecessor period of January 1 through February 21, 2008, fiber purchases from related parties were $7.7 million. 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). Beginning in March 2010,

“Fiber costs from related parties” represents only LTP’s purchases from Boise Cascade. Fiber purchases from Boise Cascade by Boise Inc. subsequent to February 2010 are recorded as “Materials, labor, and other operating expenses” in the Consolidated Statements of Income (Loss).

During the Predecessor period, 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 segment would have reported approximately $2.5 million of segment expenses before interest, taxes, depreciation, and amortization for the Predecessor period of January 1 through February 21, 2008.

During the Predecessor period, 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. The Predecessor recorded costs associated with the employees who participated in these plans in the Consolidated Statements of Income (Loss). For the Predecessor period of January 1 through February 21, 2008, the Statements of Income (Loss) included $3.9 million of expenses attributable to its participation in Boise Cascade’s defined benefit and defined contribution plans.

During the Predecessor period 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 13, 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. This note was repaid as part of our October 2009 debt restructuring. For additional information on the debt restructuring, see Note 11, Debt.

~~5. Other (Income) Expense~~

“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 January 1
Through
February 21,
2008
   2010 2009    2008

Changes in supplemental pension plans
   $ —    $ —       $ (2,914 ) $ —
Sales of assets, net
   312    514       —    (941 )
Other, net (a)
     (279 ) 3,491       (66 ) (48 )

   $ 33    $   4,005       $   (2,980 ) $ (989 )

~~(a)~~

The year ended December 31, 2009, included $3.5 million of expense related to the indefinite idling of the D2 newsprint machine at our mill in DeRidder, Louisiana, which was recorded in our Packaging segment.

~~6. Income Taxes~~

For the year ended December 31, 2010, Boise Inc.’s effective tax provision rate was 42.0%. The primary reason for the difference from the federal statutory income tax rate of 35.0% was the effect of state income taxes. For the year ended December 31, 2009, Boise Inc.’s effective tax provision rate was 15.4%. The primary reason for the difference from the federal statutory income tax rate of 35.0% was the release of valuation allowances and the effect of state income taxes. During fourth quarter 2009, Boise Inc. determined that it was more likely than not that its deferred tax assets would be realized due to current-year income from continuing operations and that it would be able to utilize deferred tax assets to offset deferred tax liabilities. Therefore, Boise Inc. recognized the reversal of its entire valuation allowance as an income tax benefit from continuing operations. For the year ended December 31, 2008, Boise Inc.’s effective tax benefit rate was 16.2%. The primary reason for the difference from the federal statutory income tax rate of 35.0% was the valuation allowance recorded during 2008.

For the year ended December 31, 2010, BZ Intermediate’s effective tax provision rate was 41.2%. The primary reason for the difference from the federal statutory income tax rate of 35.0% was the effect of state income taxes. For the year ended December 31, 2009, BZ Intermediate’s effective tax provision rate was 12.1%. The primary reason for the difference from the federal statutory income tax rate of 35.0% was the release of valuation allowances and the effect of state income taxes. During fourth quarter 2009, BZ Intermediate determined that it was more likely than not that its deferred tax assets would be realized due to current-year income from continuing operations and that it would be able to utilize deferred tax assets to offset deferred tax liabilities. Therefore, BZ Intermediate recognized the reversal of its entire valuation allowance as an income tax benefit from continuing operations. For the year ended December 31, 2008, BZ Intermediate’s effective tax benefit rate was 12.3%. The primary reason for the difference from the federal statutory income tax rate of 35.0% was the valuation allowance recorded during 2008.

During the Predecessor period of January 1 through February 21, 2008, the majority of the Predecessor businesses and assets were held and operated by limited liability companies, which were not subject to entity-level federal or state income taxation. For the separate Predecessor subsidiaries that were taxed as corporations, the effective tax rate was 37.6%. During this period, 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
   2010 2009 2008
Income (loss) before income taxes
   $   108,106    $   181,852    $   (54,295 )
Statutory U.S. income tax rate
   35.0 % 35.0 % 35.0 %
Statutory tax benefit (provision)
   $ (37,837 ) $ (63,648 ) $ 19,003
State taxes
   (4,120 ) (7,432 ) 1,845
Nondeductible interest on applicable high-yield discount obligations
   —    (594 ) (1,167 )
Valuation allowance
   (307 ) 44,063    (10,884 )
Nondeductible costs
   (652 ) (561 ) (423 )
Other
   (2,456 ) 162    398

Reported tax benefit (provision)
   $ (45,372 ) $ (28,010 ) $ 8,772

Effective income tax benefit (provision) rate
   (42.0 )% (15.4 )% 16.2 %

   BZ Intermediate Holdings LLC
   Year Ended December 31
   2010 2009 2008
Income (loss) before income taxes
   $   108,106    $   168,170    $   (47,709 )
Statutory U.S. income tax rate
   35.0 % 35.0 % 35.0 %
Statutory tax benefit (provision)
   $ (37,837 ) $ (58,859 ) $ 16,698
State taxes
   (4,120 ) (6,858 ) 1,724
Valuation allowance
   (307 ) 45,719    (12,540 )
Nondeductible costs
   (652 ) (561 ) (423 )
Other
   (1,613 ) 203    390

Reported tax benefit (provision)
   $ (44,529 ) $ (20,356 ) $ 5,849

Effective income tax benefit (provision) rate
   (41.2 )% (12.1 )% 12.3 %

~~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
   2010 2009 2008
Current income tax (provision) benefit

Federal
   $ (4,253 ) $ 274    $ (578 )
State
   (2,236 ) (563 ) 2
Foreign
   1    (12 ) (15 )

Total current
   (6,488 ) (301 ) (591 )

Deferred income tax (provision) benefit

Federal
   (34,061 ) (21,282 ) 8,778
State
   (4,831 ) (6,427 ) 585
Foreign
   8    —    —

Total deferred
   (38,884 ) (27,709 ) 9,363

Total (provision) benefit for income taxes
   $   (45,372 ) $   (28,010 ) $   8,772

   BZ Intermediate Holdings LLC
   Year Ended December 31
   2010 2009 2008
Current income tax (provision) benefit

Federal
   $ (4,455 ) $ 274    $ (589 )
State
   (2,194 ) (599 ) 13
Foreign
   1    (12 ) (14 )

Total current
   (6,648 ) (337 ) (590 )

Deferred income tax (provision) benefit

Federal
   (33,150 ) (14,567 )   5,854
State
   (4,739 ) (5,452 ) 585
Foreign
   8    —    —

Total deferred
   (37,881 ) (20,019 ) 6,439

Total (provision) benefit for income taxes
   $   (44,529 ) $   (20,356 ) $ 5,849

During the year ended December 31, 2010, Boise Inc.’s cash paid for taxes, net of refunds received, was $0.7 million. During the year ended December 31, 2009, Boise Inc.’s cash received for taxes, net of payments made, was $3.1 million. During the year ended December 31, 2008, Boise Inc.’s cash paid for taxes, net of refunds received, was $1.4 million.

During the year ended December 31, 2010, BZ Intermediate’s cash paid for taxes, net of refunds received, was $0.7 million. During the year ended December 31, 2009, BZ Intermediate’s cash received for taxes, net of payments made, was $0.2 million. During the year ended December 31, 2008, BZ Intermediate’s cash paid for taxes, net of refunds received, was $32,000.

~~During the Predecessor period of January 1 through February 21, 2008, cash paid for taxes, net of refunds received, was immaterial.~~

At December 31, 2010, Boise Inc. had federal net operating losses of $132.8 million, which expire in 2028 and 2029, with a tax value of $46.5 million. At December 31, 2010, Boise Inc. had state net operating loss carryovers, which expire between 2013 and 2029, with a tax value of $4.9 million. At December 31, 2010, Boise Inc. had capital losses of $2.3 million, which will expire between 2013 and 2015, and $4.6 million of alternative minimum tax credits that carry over indefinitely.

At December 31, 2010, BZ Intermediate had federal net operating losses of $133.5 million, which expire in 2028 and 2029, with a tax value of $46.7 million. At December 31, 2010, BZ Intermediate had state net operating loss carryovers, which expire between 2013 and 2029, with a tax value of $4.3 million. At December 31, 2010, BZ Intermediate had capital losses of $2.3 million, which will expire between 2013 and 2015, and $4.8 million of alternative minimum tax credits that carry over indefinitely.

Due to Internal Revenue Code Section 382, changes in our ownership limit the amount of net operating losses that we may utilize in any one year. However, we believe it is more likely than not that our net operating losses will be fully realizable before they expire in 2028 and 2029.

~~The components of the net deferred tax liability/asset in the Consolidated Balance Sheets are as follows (dollars in thousands):~~

   Boise Inc.
   December 31
   2010    2009
   Assets Liabilities    Assets    Liabilities
Employee benefits
   $ 62,215    $ 517       $ 61,863       $ 477
Property and equipment
   —    194,572       —       132,413
Deferred financing costs
   1,682    140       1,906       2,989
Intangible assets and other
   321    12,957       224       13,522
Net operating loss
   57,157    —       58,564       —
Alternative minimum tax
   4,645    —       —       —
Reserves
   4,027    —       4,011       —
Inventories
   10,488    —       4,163       —
Deferred income
   —    8,779       —       6,773
Unearned income
   —    —       —       21,860
State income tax adjustments
   3,265    213       2,344       213
Valuation allowance
   (890 ) —       —       —
Other
   4,521    1,795       3,168       1,788

   $ 147,431    $ 218,973       $   136,243       $ 180,035

   BZ Intermediate Holdings LLC
   December 31
   2010    2009
   Assets Liabilities    Assets    Liabilities
Employee benefits
   $ 62,215    $ 517       $ 61,863       $ 477
Property and equipment
   —    194,572       —       132,413
Deferred financing costs
   1,682    140       1,906       2,989
Intangible assets and other
   321    12,957       224       13,522
Net operating loss
   56,897    —       59,456       —
Alternative minimum tax
   4,847    —       —       —
Reserves
   4,027    —       4,011       —
Inventories
   10,488    —       4,163       —
Unearned income
   —    —       —       21,860
State income tax adjustments
   3,265    213       2,344       213
Valuation allowance
   (890 ) —       —       —
Other
   4,521    1,767       3,168       1,763

   $   147,373    $   210,166       $   137,135       $ 173,237

~~At December 31, 2010 and 2009, we had the following deferred tax balances on the Consolidated Balance Sheets (dollars in thousands):~~

   Boise Inc.
   As of December 31
   2010 2009
Current deferred tax assets (liabilities), net
   $ 16,658    $ (11,539 )
Noncurrent deferred tax liabilities, net
   (88,200 ) (32,253 )

Total deferred tax liabilities, net
   $   (71,542 ) $   (43,792 )

     BZ Intermediate Holdings LLC
     As of December 31
     2010    2009
Current deferred tax assets (liabilities), net
     $ 16,658       $ (11,539 )
Noncurrent deferred tax liabilities, net
     (79,451 )    (24,563 )

Total deferred tax liabilities, net
     $ (62,793 )    $ (36,102 )

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, 2010, Boise Inc. recorded a full valuation allowance on $0.9 million of deferred tax assets related to capital losses, because we do not expect to generate capital gains before these losses expire. During the year ended December 31, 2009, Boise Inc. released $44.1 million of valuation allowances recorded during the year ended December 31, 2008. During fourth quarter 2009, Boise Inc. determined that it was more likely than not that its deferred tax assets would be realized due to current-year income from continuing operations and that it would be able to utilize deferred tax assets to offset deferred tax liabilities. Therefore, Boise Inc. recognized the reversal of its entire valuation allowance as an income tax benefit from continuing operations. At December 31, 2008, Boise Inc. recorded $10.9 million of valuation allowances against income from continuing operations and $32.9 million and $0.3 million to “Accumulated other comprehensive income (loss)” on its Consolidated Statement of Stockholders’ Equity against its pension liability and cash flow hedges, respectively.

During the year ended December 31, 2010, BZ Intermediate recorded a full valuation allowance on $0.9 million of deferred tax assets related to capital losses, because we do not expect to generate capital gains before these losses expire. During the year ended December 31, 2009, BZ Intermediate released $45.7 million of valuation allowances recorded during the year ended December 31, 2008. During fourth quarter 2009, BZ Intermediate determined that it was more likely than not that its deferred tax assets would be realized due to current-year income from continuing operations and that it would be able to utilize deferred tax assets to offset deferred tax liabilities. Therefore, BZ Intermediate recognized the reversal of its entire valuation allowance as an income tax benefit from continuing operations. At December 31, 2008, BZ Intermediate recorded $12.5 million of valuation allowance against income from continuing operations and $32.9 million and $0.3 million to accumulated other comprehensive income (loss), which was included in “Business unit equity” on its Consolidated Balance Sheets, against its 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
   2010    2009    2008
Domestic
   $ 108,095       $ 181,843       $ (54,306 )
Foreign
   11       9       11

Pretax income (loss)
   $   108,106       $   181,852       $   (54,295 )

   BZ Intermediate Holdings LLC
   Year Ended December 31
   2010    2009    2008
Domestic
   $ 108,095       $ 168,161       $ (47,720 )
Foreign
   11       9       11

Pretax income (loss)
   $   108,106       $   168,170       $   (47,709 )

~~At December 31, 2010 and 2009, our foreign subsidiaries had no undistributed earnings that had been indefinitely reinvested.~~

~~Uncertain Income Tax Positions~~

Both Boise Inc. and BZ Intermediate recognize tax liabilities and adjust these liabilities when their 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, Boise Inc. and BZ Intermediate increased their unrecognized tax benefit by $87.6 million, which was charged to income tax expense, by excluding the alternative fuel mixture credits from income for tax purposes. If subsequently recognized, this unrecognized tax benefit would reduce Boise Inc. and BZ Intermediate tax expense $83.3 million and $83.2 million, respectively, for the year ended December 31, 2009.

Exclusion of the alternative fuel mixture credits increased our deferred tax liabilities $11.8 million for Boise Inc., or $12.0 million for BZ Intermediate, for the year ended December 31, 2010, and related primarily to the timing of our recognition of the credit. Exclusion of the alternative fuel mixture credits generated a deferred tax benefit of $82.9 million for Boise Inc., or $82.8 million for BZ Intermediate, 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):~~

   Boise Inc.
   2010 2009
Unrecognized tax benefits, beginning of year
   $ 87,838    $ 256
Gross increases related to prior-period tax positions
   169    11
Gross decrease related to prior-period tax positions
   (529 ) —
Gross increases related to current-period tax positions
   107    87,571
Settlements
   —    —

Unrecognized tax benefits, end of year
   $ 87,585    $ 87,838

   BZ Intermediate Holdings LLC
   2010 2009
Unrecognized tax benefits, beginning of year
   $ 87,820    $ 256
Gross increases related to prior-period tax positions
   166    11
Gross decrease related to prior-period tax positions
   (529 ) —
Gross increases related to current-period tax positions
   107    87,553
Settlements
   —    —

Unrecognized tax benefits, end of year
   $ 87,564    $ 87,820

The December 31, 2010, unrecognized tax benefit net of federal benefit for state taxes for Boise Inc. is $83.5 million. Of this amount, $71.2 million is recorded as a credit to long-term deferred taxes to eliminate the benefit associated with the uncertain tax position. The remaining $12.3 million is recorded in “Other long-term liabilities” on our Consolidated Balance Sheet.

The December 31, 2010, unrecognized tax benefit net of federal benefit for state taxes for BZ Intermediate is $83.4 million. Of this amount, $70.8 million is recorded as a credit to long-term deferred taxes to eliminate the benefit associated with the uncertain tax position. The remaining $12.6 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 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.

Both Boise Inc. and BZ Intermediate recognize interest and penalties related to uncertain tax positions as income tax expense in their Consolidated Statements of Income (Loss). Interest expense related to uncertain tax positions was nominal for the years ended December 31, 2010, 2009, and 2008. We did not record any penalties associated with our uncertain tax positions during the years ended December 31, 2010, 2009, and 2008 for Boise Inc. and BZ Intermediate.

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

~~7. Leases~~

We lease our distribution centers, as well as other property and equipment, under operating leases. During the Predecessor period presented, the Predecessor leased its distribution centers, as well as other property and equipment, under operating leases. For purposes of determining straight-line rent expense, the lease term is calculated from the date of possession of the facility, including any periods of free rent and any renewal option periods that are reasonably assured of being exercised. Straight-line rent expense is also adjusted to reflect any allowances or reimbursements provided by the lessor. We do not have any sublease rental income for the 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):

   Boise Inc.    Predecessor
   Year Ended December 31    January 1
Through
February 21,
2008
   2010    2009    2008

Rental expense
   $   15,267       $   16,357       $   13,523       $ 2,044

~~For noncancelable operating leases with remaining terms of more than one year, the minimum lease payment requirements are as follows (dollars in thousands):~~

2011 2012 2013 2014 2015 2016 &
Thereafter
Minimum payment
$ 11,656 $ 10,860 $ 8,460 $ 6,992 $ 6,771 $ 12,813

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 six years, with fixed payment terms similar to those in the original lease agreements.

~~8. Concentrations of Risk~~

Sales to OfficeMax represent a concentration in the volume of business transacted and in revenue generated from these transactions. Sales to OfficeMax were $504.2 million, $545.4 million, and $494.6 million during the years ended December 31, 2010, 2009, and 2008, representing 24%,

28%, and 24% of total sales for those periods. For the period of January 1 through February 21, 2008, the Predecessor sales to OfficeMax were $90.1 million and are included in “Sales, Related parties” in the Consolidated Statements of Income (Loss). During the Predecessor period, sales to OfficeMax represented 25% of sales. At December 31, 2010 and 2009, we had $30.3 million and $34.7 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.

~~9. Intangible Assets~~

Intangible assets represent primarily the values assigned to trademarks and trade names, customer relationships, and technology. Customer relationships are amortized over approximately ten years, and technology is amortized over approximately five years. Trademarks and trade names are not amortized.

~~The gross carrying amount, accumulated amortization, and net carrying amount as of December 31, 2010 and 2009, were as follows (dollars in thousands):~~

   Year Ended December 31, 2010
   Gross Carrying
Amount    Accumulated
Amortization Net Carrying
Amount
Trademarks and trade names
   $ 16,800       $ —    $ 16,800
Customer relationships
   13,700       (3,882 ) 9,818
Technology and other
   6,895       (3,908 ) 2,987

   $ 37,395       $ (7,790 ) $ 29,605

   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

The following table sets forth our intangible asset amortization for the years ended December 31, 2010, 2009, and 2008, and for the Predecessor period of January 1 through February 21, 2008 (dollars in thousands):

   Boise Inc. Predecessor
   2010    2009 2008 January 1
Through
February 21,
2008
Intangible asset amortization
   $   2,754       $   2,752    $   2,285    $ —

~~Our estimated future intangible asset amortization expense is as follows (dollars in thousands):~~

2011 2012 2013 2014 2015 2016
Amortization expense
$ 2,754 $ 2,744 $ 1,599 $ 1,370 $ 1,370 $ 1,370

We did not have any triggering events during 2010; therefore, we performed our annual impairment assessment for our indefinite-lived assets for all of our segments during fourth quarter 2010. Based on the results of our testing, we have concluded that our indefinite-lived intangible

assets were not impaired. We also performed an undiscounted cash flow analysis during fourth quarter 2010 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.

~~10. 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. 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 both December 31, 2010 and 2009, we had $10.4 million of asset retirement obligations recorded primarily in “Other long-term liabilities” on the Consolidated Balance Sheets. These liabilities related primarily to landfill closure and closed-site monitoring costs. These liabilities are based on the best estimate of 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, 2010 and 2009 (dollars in thousands):

   December 31
   2010 2009
Asset retirement obligation at beginning of period
   $   10,362    $   14,283
Liabilities incurred
   172    —
Accretion expense
   754    1,165
Payments
   (12 ) (122 )
Revisions in estimated cash flows
   (873 ) (4,964 )

Asset retirement obligation at end of period
   $ 10,403    $ 10,362

~~We have additional asset retirement obligations with indeterminate settlement dates.~~into three levels. 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; (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.

~~11. Debt~~

~~At December 31, 2010 and 2009, our long-term debt and the interest rates on that debt were as follows (dollars in thousands):~~

   December 31, 2010 December 31, 2009
   Amount Interest Rate Amount Interest Rate
Revolving credit facility, due 2013
   $ —    — % $ —    — %
Tranche A term loan, due 2013
   181,831    3.06 203,706    3.25
Tranche B term loan, due 2014
   —    —    312,221    5.75
9% senior notes, due 2017
   300,000    9.00 300,000    9.00
8% senior notes, due 2020
   300,000    8.00 —    —
Current portion of long-term debt
   (43,750 ) 3.06 (30,711 ) 3.97

Long-term debt, less current portion
   738,081    7.48 785,216    6.41
Current portion of long-term debt
   43,750    3.06 30,711    3.97

   $ 781,831    7.24 % $ 815,927    6.32 %

~~As of December 31, 2010, Boise Inc. and BZ Intermediate’s 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 275 basis points, or a calculated base rate plus an applicable margin, which is currently 175 basis points (collectively with the Tranche A term loan facility, the Credit Facilities).

•

~~The Tranche A Term Loan Facility~~: A five-year amortizing senior secured loan facility with interest at LIBOR plus an applicable margin, which is currently 275 basis points, or a calculated base rate plus an applicable margin, which is currently 175 basis points. The Tranche A term loan facility was originally issued at $250.0 million. At December 31, 2009, our LIBOR applicable margin was 300 basis points, and our calculated base rate applicable margin was 200 basis points.

•

~~The 9% Senior Notes~~~~: An eight-year nonamortizing $300.0 million senior unsecured debt obligation with annual interest at 9%.~~

•

~~The 8% Senior Notes~~~~: A ten-year nonamortizing $300.0 million senior unsecured debt obligation with annual interest at 8%.~~

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 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. 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, we pay a commitment fee to the lenders under the Revolving Credit Facility at a rate of 0.375% per annum 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. We also pay letter of credit fees of 275 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, 2010, and December 31, 2009, we had no borrowings outstanding under the Revolving Credit Facility. For the years ended December 31, 2010 and 2009, the average interest rates for our borrowings under our Revolving Credit Facility were zero and 3.7%, respectively. The minimum and maximum borrowings under the Revolving Credit Facility were zero for the year ended December 31, 2010, and zero and $60.0 million for the year ended December 31, 2009. The weighted average amount of borrowings outstanding under the Revolving Credit Facility during the years ended December 31, 2010 and 2009, were zero and $8.5 million, respectively. At December 31, 2010, we had availability of $245.4 million, which is net of outstanding letters of credit of $4.6 million. At December 31, 2009, we had availability of $227.8 million, which was net of outstanding letters of credit of $22.2 million.

~~Debt Refinancing Activities~~

~~2010~~

~~On October~~20, 2010, we entered into a Second Amendment to Credit and Guaranty Agreement, which amended various terms of our Credit Facilities. This amendment allows us to make various types of restricted payments, including the payment of dividends, the repurchase of our stock and warrants, and the repayment or repurchase of our senior notes. We paid a special dividend of $0.40 per common share on December 3, 2010, to shareholders of record at the close of business on November 17, 2010. See Note 14, Stockholders’ Equity and Capital, for further information. These restricted payments are limited to a permitted restricted payment amount, which is calculated as the sum of 50% of our net income for distributions together with other amounts, all as described in the amendment. In addition, the amendment eliminates any ongoing requirement that we use our excess cash flow to repay debt.

On March 19, 2010, Boise Paper Holdings and Boise Co-Issuer Company (together, the 8% Senior Notes Issuers), two of our wholly owned indirect subsidiaries, issued a $300 million aggregate principal amount of 8% senior notes due on April 1, 2020 (the 8% Senior Notes) through a private placement that was exempt from the registration requirements of the Securities Act of 1933, as amended.

In connection with the issuance of the 8% Senior Notes, the 8% Senior Notes Issuers and BZ Intermediate, a wholly owned consolidated entity of Boise Inc. and the parent company of Boise Paper Holdings and its restricted subsidiaries (together the 8% Senior Notes Guarantors) entered into the 8% Senior Notes Registration Rights Agreement, dated as of March 19, 2010. The 8% Senior Notes Registration Rights Agreement required us to register under the Securities Act the 8% Senior Notes due in 2020 (the 8% Exchange Notes) having substantially identical terms to the 8% Senior Notes and to complete an exchange of the privately placed 8% Senior Notes for the publicly registered 8% Exchange Notes. We completed the public registration of the 8% Exchange Notes in June 2010, and in July 2010, we completed an exchange of the privately placed 8% Senior Notes for the publicly registered 8% Exchange Notes having substantially identical terms.

Following the sale of the 8% Senior Notes in March 2010, we used the net proceeds of the sale, as well as cash on hand, to repay the Tranche B term loan facility plus accrued and unpaid interest at par. Upon the repayment of all of the indebtedness outstanding under the Tranche B term loan facility, such debt was canceled.

The issuance of the 8% Senior Notes and the repayment of our Tranche B term loan facility represented a substantial modification to our debt structure. Therefore, we wrote off $22.2 million of previously unamortized deferred financing costs for the Tranche B term loan facility in “Loss on extinguishment of debt” in our Consolidated Statements of Income (Loss). We recorded $12.0 million of new deferred financing costs related to the March 2010 debt refinancing.

~~The 8% 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 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). The 8% Senior Notes pay interest semiannually in arrears on April 1 and October 1, commencing on October 1, 2010.

~~2009~~

On October 26, 2009, Boise Paper Holdings and Boise Finance Company (together, the 9% Senior Notes 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 was exempt from the registration requirements of the Securities Act of 1933, as amended.

In connection with the issuance of the 9% Senior Notes, the 9% Senior Notes Issuers and BZ Intermediate, 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 9% Senior Notes Registration Rights Agreement, dated as of October 26, 2009. The 9% Senior Notes Registration Rights Agreement required us to register under the Securities Act the 9% Senior Notes due in 2017 (the 9% 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 9% Exchange Notes. We completed the public registration of the 9% Exchange Notes in June 2010, and in July 2010, we completed an exchange of the privately placed 9% Senior Notes for the publicly registered 9% Exchange Notes having substantially identical terms.

Following the sale of the 9% Senior Notes, the 9% Senior Notes 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. 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, Boise Inc. also used cash on hand to repurchase, in its entirety, the outstanding 15.75% note payable due in 2015 that was held by it and not by BZ Intermediate. 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 costs 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.

We recognized $44.1 million for Boise Inc. and $66.8 million for BZ Intermediate in “Loss on extinguishment of debt,” which consisted of a $27.1 million write-off of second lien deferred financing costs, a $33.9 million premium paid to second lien holders, $5.8 million of other costs and fees, and for Boise Inc., a $22.7 million gain on the repurchase of the notes payable.

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 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). The 9% Senior Notes pay interest semiannually in arrears on May 1 and November 1, commencing on May 1, 2010.

~~Covenants~~

The Credit Facilities require BZ Intermediate and its subsidiaries to maintain financial covenant ratios. We are required to have a total leverage ratio of less than 4.75:1.00, stepping down to 4.50:1.00 at September 30, 2011, and a secured leverage ratio of 3.25:1.00, stepping down to 3.00:1.00 at September 30, 2011, and we are required to maintain a minimum interest coverage ratio of 2.50:1.00. The total leverage ratio is defined in our loan agreement 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 earnings before interest, taxes, depreciation, and amortization (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 interest coverage ratio is defined in our loan agreement at the end of any fiscal quarter as the ratio of (i) consolidated adjusted EBITDA for the four-fiscal-quarter period then ended to (ii) consolidated interest expense payable in cash for such four-fiscal-quarter period. The Credit Facilities also limit the ability of BZ Intermediate and its subsidiaries to make capital expenditures, generally to $150 million per year.

The 9% and 8% Senior Notes indenture agreements contain covenants which, subject to certain exceptions, limit the ability of the 9% and 8% Senior Notes Issuers and the 9% and 8% 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 9% and 8% Senior Notes Issuers or 9% and 8% Senior Notes Guarantors. Upon a change of control, the 9% and 8% Senior Notes Issuers must offer to repurchase the 9% and 8% Senior Notes at 101% of the principal amount, plus accrued and unpaid interest. If the 9% and 8% Senior Notes Issuers sell certain assets and do not use the proceeds from such sales for specified purposes, they must offer to repurchase the 9% and 8% Senior Notes at 100% of the principal amount, plus accrued and unpaid interest.

~~Guarantees~~

Our obligations under our 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 EBITDA during any fiscal year of Boise Paper Holdings), and all intercompany debt.

The 9% and 8% 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 9% and 8% 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 9% Senior Notes 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.

We may redeem all or a portion of the 8% Senior Notes at any time on or after April 1, 2015, at a premium decreasing to zero by April 1, 2018, plus accrued and unpaid interest. In addition, prior to April 1, 2013, the 8% Senior Notes Issuers may redeem up to 35% of the aggregate principal amount of the 8% Senior Notes at a redemption price of 108% 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, and certain debt issuances must be used to pay down outstanding borrowings. As of December 31, 2010, required debt principal repayments total as follows (dollars in thousands):

2011 2012 2013 2014 2015-2016 Thereafter
Required debt principal repayments
$ 43,750 $ 129,688 $ 8,393 $ — $ — $ 600,000

~~Other~~

At December 31, 2010 and 2009, we had $30.4 million and $47.4 million, respectively, of costs recorded in “Deferred financing costs” on our Consolidated Balance Sheet. As noted above, we repaid the Tranche B term loan facility with the proceeds from the March 2010 debt refinancing, and as a result, we expensed approximately $22.2 million of previously unamortized deferred financing costs. We recorded this charge in “Loss on extinguishment of debt” in our Consolidated Statement of Income (Loss). In addition, $12.0 million of new deferred financing costs related to the debt refinancing are 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. In “Interest expense” in our Consolidated Statements of Income (Loss), we recorded $6.8 million and $11.3 million of amortization expense for the years ended December 31, 2010 and 2009, respectively.

~~For the years ended December 31, 2010 and 2009, cash payments for interest were $51.6 million and $56.9 million, respectively.~~

~~12. Financial Instruments~~

~~We are exposed to market risks, including changes in interest rates and energy prices.~~

~~Interest Rate Risk — Debt~~

With the exception of the Credit Facilities, our debt is fixed-rate debt. At December 31, 2010, the estimated value of our fixed- and variable-rate debt was approximately $63.6 million more than and $1.9 million less than the amount recorded on our Consolidated Balance Sheet, respectively. The fair value of long-term debt is estimated based on quoted market prices for our debt and the discounted value of our expected future cash payments.

We use interest rate derivative instruments to hedge a portion of our interest rate risk. We have derivatives in place with a cap rate of 5% on a notional amount of $300 million through the period ending March 31, 2011. Initially, some of our derivatives were designated and qualified as cash flow hedging instruments utilizing critical terms match. Effective December 31, 2008, we changed our interest rate election from utilizing LIBOR to utilizing the calculated base rate. As the interest rate on our debt no longer matched the rate on the interest rate derivatives used to hedge a portion of our

debt, we began accounting for the interest rate derivative instruments as economic hedges. The amounts recorded in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet at December 31, 2008, have been amortized to interest expense. Changes in the fair value of these derivatives have been recorded in “Change in fair value of interest rate derivatives” in our Consolidated Statements of Income (Loss). The table below summarizes the impact on the Consolidated Statements of Income (Loss) of the instruments for the years ended December 31, 2010, 2009, and 2008 (dollars in thousands):

   Year Ending December 31
   2010 2009    2008
Change in fair value of interest rate derivatives (a)
   $     (43 ) $     568       $     (479 )
Amortization of premiums paid pertaining to interest rate derivatives (b)
   120    746       617
Amortization of amounts within accumulated other comprehensive income (loss) related to interest rate derivatives (b)
   422    338       —

~~(a)~~

~~Recorded in “Change in fair value of interest rate derivatives” in our Consolidated Statements of Income (Loss).~~

~~(b)~~

~~Recorded as part of “Interest expense” in our Consolidated Statements of Income (Loss).~~

~~At December 31, 2010 and 2009, the fair value of the interest rate derivatives was nominal.~~

~~Energy Risk~~

We enter into transactions to hedge the variable cash flow risk of natural gas purchases. At December 31, 2010, these derivatives included three-way collars, call spreads, and swaps. As of December 31, 2010, we had entered into derivative instruments related to the following approximate percentages of our forecasted natural gas purchases:

January 2011
Through
March 2011 April 2011
Through
October 2011 November 2011
Through
March 2012 April 2012
Through
October 2012 November 2012
Through
March 2013
Approximate percent hedged
82% 45% 26% 22% 5%

~~We have elected to account for these instruments as economic hedges. At December 31, 2010 and 2009, we recorded the fair value of the derivatives, or $2.1~~million and $1.4 million, respectively, in “Accrued liabilities, Other” on our Consolidated Balance Sheet. During the years ended December 31, 2010, 2009, and 2008, we recorded the change in fair value of the instruments, or $0.6~~million of expense, $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).~~

~~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 certain of our financial assets and liabilities, which consist of 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. generally accepted accounting principles (GAAP)~~ gives the highest priority to quoted market prices (Level 1) and the lowest priority to

unobservable inputs (Level 3). ~~In general, and where~~Where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value (Level 1). If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly (Level 2). If quoted prices for identical or similar assets are not available or are unobservable, we may use internally developed valuation models, whose inputs include bid prices and third-party valuations utilizing underlying asset assumptions (Level 3). Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements. We ~~enter into our hedges with~~monitor credit ratings of counterparties to the agreements, which are large financial institutions, ~~and we monitor credit ratings~~ to consider the impact, if any, toon the determination of fair value. No significant adjustments were made in any periods 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

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, ~~2010~~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

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 NYMEX~~New York Mercantile Exchange (NYMEX) price quotations under the terms of the contracts, using current market information as of the reporting date. ~~Our certificates of deposit, interest rate~~The derivatives ~~and energy derivatives are~~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 under~~presents the fair value ~~hierarchy discussed above~~of these instruments (dollars in thousands):

   Fair Value Measurements at
December 31, 2010, Using:
   Total    Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)    Significant
Other
Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)
Assets:
Certificates of deposit (a)
   $ 10,621       $ —       $ 10,621       $ —
Interest rate derivatives (b)
   —       —       —       —

   $ 10,621       $ —       $ 10,621       $ —

Liabilities:


Energy derivatives (c)
   $ 2,056       $ —       $ 2,056       $ —

   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:
Certificates of deposit (a)
   $ 10,023       $ —       $ 10,023       $ —
Interest rate derivatives (b)
   163       —       163       —

   $ 10,186       $ —       $ 10,186       $ —

Liabilities:


Energy derivatives (c)
   $ 1,447       $ —       $ 1,447       $ —

~~(a)~~

~~Recorded in “Short-term investments” on our Consolidated Balance Sheet.~~

~~(b)~~

~~Recorded in “Other assets” on our Consolidated Balance Sheet.~~

~~(c)~~

~~Recorded in “Accrued liabilities, Other” on our Consolidated Balance Sheet.~~



	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

~~Tabular Disclosure of the Fair Values of~~ Derivative ~~Instruments and the Effect of Those Instruments~~~~(dollars~~instruments in ~~thousands)~~an asset position at

   Fair Values of Derivative Instruments
   Asset Derivatives    Liability Derivatives
   December 31, 2010
   Balance
Sheet
Location    Fair
Value    Balance
Sheet
Location    Fair
Value
Derivatives designated as economic hedging instruments (a)

Natural gas contracts
   Other assets       $ —       Accrued liabilities       $ 2,056

Total derivatives
      $ —          $   2,056

   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
      $   163          $   1,447

The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Year Ended
December 31, 2010

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 expense
$ (422 )
Interest rate contracts

Change in fair value of interest rate derivatives
$ (43 )

Natural gas contracts

Materials, labor, and other operating expenses
(609 )

$ — $ (422 ) $ (652 )

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 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 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 have been amortized to interest expense. During the year ended December 31, 2010 and 2009, these derivatives were accounted for as economic hedges.

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

~~13.~~

10. Retirement and Benefit Plans

Some of our employees participate in noncontributory defined benefit pension plans, contributory defined contribution savings plans, and deferred compensation ~~plans, and postretirement healthcare benefit~~ plans.

Defined Benefit Plans

~~Some~~

The majority of our pension benefit plans are frozen; however, approximately 400 hourly employees ~~participate in noncontributory~~continue to accrue benefits under our 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~~plans. When frozen, the ~~time as Boise Cascade Corporation) before November 2003. 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. Expenses attributable to

participation in noncontributory defined benefit plans for the years ended December 31, ~~2010, 2009,~~2012, 2011, and ~~2008,~~2010, were $11.3 million, $10.9 million, and ~~the Predecessor period of January 1 through February 21, 2008, were $9.7~~$9.2 million ~~$8.7 million, $8.3 million, and $1.8 million,~~, respectively.

In December 2008, we amended our defined benefit pension plan for salaried employees (the Salaried Plan). This amendment froze the accumulation of benefits and years of service for participants of the Salaried Plan effective April 15, 2009. This amendment also froze benefits in the Boise Inc. Supplemental Plan (SUPP) and the Boise Inc. Supplemental Early Retirement Plan for Executive Officers (SERP). Because the Salaried Plan had unrecognized losses, the curtailment gain associated with this amendment was applied to partially offset those losses. However, we recognized a $2.9 million gain on our SUPP and SERP plans, because the curtailment gain exceeded our existing unrecognized losses. This gain was 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 cover 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, ~~2010, 2009,~~2012, 2011, and ~~2008,~~2010, were $17.7 million, $14.3 million, and ~~the Predecessor period of January 1 through February 21, 2008, were $12.0~~$12.0 million ~~$10.0 million, $8.4 million, and $2.1 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, theThe company contributions for eligible salaried employees ~~consisted~~consist of a nondiscretionary, nonmatching base contribution, ~~of 3% of eligible compensation~~ plus a matching contribution. ~~In addition, the Company~~We may also make additional discretionary matching and/or nonmatching contributions each year. The company contribution structure for hourly employees ~~varies.~~

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~~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~~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 our general ~~assets of the Company.~~assets. At December 31, ~~2010~~2012 and ~~2009,~~2011, we had ~~$1.8~~$5.9 million and ~~$0.9~~$3.7 million, respectively, of liabilities attributable to participation in our deferred compensation plan on our Consolidated Balance ~~Sheet.~~

Sheets.

~~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. The postretirement benefit plans have a December 31 measurement date.

Obligations and Funded Status of ~~Postretirement Benefits and Pensions~~Defined Benefit Pension Plans

The following table, which includes only company-sponsored plans, reconciles the beginning and ending balances of our projected benefit obligations for our pension benefits and the accumulated postretirement benefit obligation for our other benefits. It also shows the fair value of plan assets and aggregate funded status of our ~~plans. The funded status changes~~plans change from year to year based on the plan asset investment return, ~~from plan assets,~~ contributions, ~~and~~ benefit payments, and the discount rate used to measure the ~~liability~~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 changes occur through our Consolidated Statements of Comprehensive Income (dollars in thousands):

   Pension Benefits Other Benefits
   2010 2009 2010 2009
Change in benefit obligation

Benefit obligation at beginning of year
   $ 423,962    $ 396,692    $ 772    $ 2,490
Service cost
   5,041    6,891    3    4
Interest cost
   25,272    24,314    32    47
Amendments
   —    145    —    —
Actuarial (gain) loss
   34,636    9,138    (69 ) (1,725 )
Closure and curtailment gain
   345    —    —    —
Liabilities transferred
   —    —    (63 ) —
Benefits paid
   (14,212 ) (13,218 ) (1 ) (44 )

Benefit obligation at end of year
   $     475,044    $     423,962    $     674    $ 772

Change in plan assets

Fair value of plan assets at beginning of year
   $ 301,522    $ 248,084    $ —    $ —
Actual return on plan assets
   43,417    54,358    —    —
Employer contributions
   25,174    12,298    —    —
Benefits paid
   (14,212 ) (13,218 ) —    —

Fair value of plan assets at end of year
   $ 355,901    $ 301,522    $ —    $ —

Over (under) funded status
   $ (119,143 ) $ (122,440 ) $ (674 ) $ (772 )

Amounts recognized on our Consolidated Balance Sheet

Current liabilities
   $ (254 ) $ (143 ) $ (142 ) $ (182 )
Noncurrent liabilities
   (118,889 ) (122,297 ) (532 ) (590 )

Net amount recognized
   $ (119,143 ) $ (122,440 ) $ (674 ) $ (772 )

Amounts recognized in “Accumulated other comprehensive income (loss)” (pretax) in Boise Inc.’s Consolidated Statement of Stockholders’ Equity or BZ Intermediate’s Consolidated Statement of Capital consist of the following (dollars in thousands):

   Pension Benefits    Other Benefits
   2010    2009    2010 2009
Net (gain) loss
   $ 75,021       $ 62,334       $ (275 ) $ (413 )
Prior service cost
   422       473       —    —

Net amount recognized
   $ 75,443       $ 62,807       $ (275 ) $ (413 )



	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 ~~$475.0~~$574.0 million and ~~$423.8~~$558.4 million as of December 31, ~~2010~~2012 and ~~2009.~~2011, respectively. 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 January 1
Through
February 21,
2008 Year Ended
December 31 January 1
Through
February 21,
2008
2010 2009 2008 2010 2009 2008
Service cost
$ 5,041    $ 6,891    $ 9,226    $ 1,566    $ 3    $ 4    $ 3    $ —
Interest cost
25,272    24,314    20,881    3,458    32    47    98    18
Expected return on plan assets
(23,242 ) (23,269 ) (20,398 ) (3,452 ) —    —    —    —
Amortization of actuarial (gain) loss
1,774    315    —    (21 ) (150 ) (1,344 ) —    (12 )
Amortization of prior service costs and other
51    36    —    194    —    —    —    —
Plan settlement curtailment (gain) loss
345    —    (1,749 ) —    —    —    —    —

Company-sponsored plans
9,241    8,287    7,960    1,745    (115 ) (1,293 ) 101    6
Multiemployer plans
411    382    327    75    —    —    —    —

Net periodic benefit costs
$ 9,652    $ 8,669    $ 8,287    $ 1,820    $   (115 ) $ (1,293 ) $   101    $ 6

Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss

Net (gain) loss
$ 14,461    $ (21,951 ) $ 84,600    $ —    $ (12 ) $ (1,715 ) $ (42 ) $ —
Prior service cost
—    145    364    —    —    —    —    —
Amortization of actuarial gain (loss)
(1,774 ) (315 ) —    —    —    —    —    —
Amortization of prior service cost
(51 ) (36 ) —    —    150    1,344    —    —

Total recognized in other comprehensive (income) loss
12,636    (22,157 ) 84,964    —    138    (371 ) (42 ) —

Total recognized in net periodic benefit cost and other comprehensive (income) loss
$ 22,288    $   (13,488 ) $ 93,251    $ 1,820    $ 23    $   (1,664 ) $ 59    $ 6

~~In 2011, we~~



	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 estimate net periodic ~~pension expense~~benefit cost to be recognized in 2013 will be ~~$12.6 million. The 2011 net periodic pension expense will include $5.6~~$5.4 million of net loss and $0.1 million of prior service cost that will be amortized from “Accumulated other comprehensive income (loss)” on Boise Inc.’s Consolidated Statement of Stockholders’ Equity or BZ Intermediate’s Consolidated Statement of Capital.

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 February 22,
2008 December 31 February 22,
2008
   2010 2009 2008 2010 2009 2008
Weighted average:

Discount rate
   5.50 % 6.10 % 6.20 % 6.50 % 4.20 % 4.60 % 5.70 % 5.50 %
Rate of compensation increase
   — % — % 4.25 % 4.25 % — % — % — % — %



	December 31
	2012		2011
Weighted average:
Discount rate	4.25	%	4.50	%
Rate of compensation increase	—	%	—	%

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 January 1
Through
February 21,
2008 Year Ended
December 31 January 1
Through
February 21,
2008
   2010 2009 2008 2010 2009 2008
Weighted average assumptions as of the last day in the presented period:

Discount rate
   6.10 % 6.20 % 6.50 % 6.40 % 4.60 % 5.70 % 5.70 % 5.50 %
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 % — % — % — % — %



	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. The discount rate reflects the current rate at which the pension obligations could be settled on the measurement ~~date —~~date: December 31. ~~In all periods presented,~~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-graded~~In all periods, the bonds included in the ~~yield curve~~models 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’s~~plan's projected cash flows were duration-matched to ~~this yield curve~~these 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 ~~2011~~2013 net periodic benefit cost is ~~7.25%~~6.75%. In ~~2010,~~2012, plan assets performed ~~well above~~better 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 the~~benefit rates for hourly employees in plans that have not been frozen. The compensation increase assumption is not ~~applicable. Negotiated compensation increases are reflected in the projected benefit obligation~~applicable for ~~certain hourly employees with salary-related benefits. Historically, this assumption reflected long-term actual experience, the near-term outlook, and assumed inflation.~~all plans.

~~The following table presents our assumed healthcare cost trend rates at December 31, 2010 and 2009:~~

   2010 2009
Weighted average assumptions:

Healthcare cost trend rate assumed for next year
   8.10 % 8.50 %
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
   6.50 % 6.50 %
Year that the rate reaches the ultimate trend rate
   2025 2025

Assumed healthcare cost trend rates affect the amounts reported for the healthcare plans. At December 31, 2010, 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, ~~2010, 51%~~2012, 24% of our pension plan assets were invested in U.S. equity securities, ~~48%~~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 1%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 ~~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~~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 ~~in order~~ to achieve broad diversification in a cost-effective manner. At December 31, ~~2010,~~2012, our investment policy governing our relationship with Russell allocated ~~48%~~28% to long-duration fixed-income securities, ~~33%~~20% to intermediate-duration fixed-income securities, 24% to U.S. equity securities, ~~14%~~and 28% to international ~~equity securities, and 5% to private~~ equity securities. Our arrangement with Russell ~~requires~~allows 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~~some 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 a ~~commingled~~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 ~~table sets~~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, ~~2010~~2012 and ~~2009~~2011 (dollars in thousands):

   December 31, 2010
   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)
   $ —       $ 112,602       $ —       $ 112,602
Small- and mid-cap U.S. equity securities (c)
   —       21,021       —       21,021
International equity securities (d)
   —       49,172       —       49,172
Fixed-income securities (e)
   —       169,992       —       169,992
Private equity securities (f)
   —       —       2,225       2,225

Total securities at fair value
   —       352,787       2,225       355,012

Receivables and accruals, net
            889

Total fair value of plan assets
            $ 355,901

   December 31, 2009
   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

~~100~~



	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 ~~common stocks that rank among the largest 1,000 companies~~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 ~~the smaller capitalization~~mid- and small-capitalization stocks of the U.S. stock market.

(d)

~~Our~~At December 31, 2012 and 2011, our investments in this category ~~are invested in~~included the Russell International Fund with Active ~~Currency at December 31, 2010, and were invested in~~Currency. The fund benchmarks against the Russell ~~International Fund in 2009. Both funds benchmark against the MSCI European, Australasia,~~Developed ex-U.S. Large Cap Index Net and ~~Far East (EAFE) Index~~seeks favorable total returns and ~~seek high, long-term returns comparable to the broad international stock market by investing~~additional diversification through investment in non-U.S. ~~companies from the developed countries around the world.~~equity securities and active currency management. The ~~funds participate~~fund participates primarily in the stock markets of Europe and the Pacific ~~Rim. The Russell International Fund with Active Currency places additional emphasis on~~Rim and seeks to opportunistically ~~adding~~add value through active investment in foreign currencies.

~~(e)~~

~~Our~~ 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 ~~invested~~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) ~~and Russell Long Credit Fixed Income Fund (Long Credit Fund). The 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. ~~The~~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. ~~Both funds~~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~~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 ~~plan’s~~plans' Level 3 assets for the ~~period~~years ended December 31, ~~2010~~2012 and 2011 (dollars in thousands):

   Year Ended
December 31,
2010
Balance, beginning of year
   $ —
Purchases
   2,205
Unrealized gain
   20

Balance, end of year
   $ 2,225

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

~~As of December 31, 2010 and 2009,~~

We fund our pension ~~assets had a market value~~plans with amounts sufficient to meet legal funding requirements, plus any additional amounts we may determine to be appropriate considering the funded status of ~~$356~~the plans, tax deductibility, cash flow from operations, and other factors. In 2012, we contributed $35.2 million to our plans, which exceeded our 2012 minimum pension contribution requirements. We have no required minimum contribution in 2013 and ~~$302 million, respectively. Assuming a rate of return on plan assets of 7.25% in 2011 and 2012, we estimate that~~ we will contribute at least the required minimum currently estimated to be approximately $3 million in 2014. The required ~~to contribute approximately $3 million in 2011 and approximately $32 million in 2012. The amount of required contributions will depend,~~minimum contribution depends 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~~effect of these and other factors. ~~Changes in the financial markets~~

~~101~~

~~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, 2010, we made $25.0 million of cash contributions to our qualified pension plans. Additionally, we made certain benefit payments to our nonqualified pension plans and other postretirement benefit plans totaling $0.6 million.

The following benefit payments ~~(dollars in thousands), which~~ reflect expected future service, as appropriate, and are expected to be ~~paid.~~paid to plan participants (dollars in thousands). 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
2011
   $ 16,840       $ 125
2012
   19,299       88
2013
   21,554       76
2014
   23,919       71
2015
   26,012       56
Years 2016-2020
   158,784       138

Pension Benefits
2013 $ 21,787
2014 24,145
2015 26,204
2016 28,046
2017 29,998
Years 2018-2022 172,273

~~14. Stockholders’ Equity and Capital~~

~~Boise Inc.~~

~~Preferred Stock.~~ We are authorized to issue 1.0 million 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, 2010 and 2009.

~~Common Stock~~. We are authorized to issue 250.0 million shares of common stock, of which 84.8 million shares were issued and outstanding at December 31, 2010. Of these shares outstanding, 4.2 million shares were restricted stock (discussed below). At December 31, 2009, we had 84.4 million shares of common stock issued and outstanding, of which 6.5 million shares were restricted stock. The common stock outstanding does not include restricted stock units.

On February 5, 2008, stockholders owning 12.5 million 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 12.5 million shares, 12.3 million 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 41.4 million units (the Units). Each Unit consists of one share of our common stock and one Redeemable Common Stock Purchase Warrant (the Warrants). Each Warrant entitled 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 our public offering, our then chairman and our chief executive officer each privately purchased 1.5 million warrants for an aggregate total of 3.0 million warrants (the Insider Warrants) at $1.00 per warrant (for an aggregate purchase price of $3.0 million). 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

~~102~~

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, 2010 and 2009, 44.3 million and 44.4 million warrants were outstanding. At December 31, 2010, 2.3 million of the original Insider Warrants continued to be held by insiders. If all outstanding warrants were exercised at the $7.50 exercise price, we would receive cash proceeds of approximately $315 million.

~~Restricted Stock and Restricted Stock Units.~~ ~~We evaluate share-based compensation for awards granted under~~

11. Share-Based Compensation

Our shareholders have approved the Boise Inc. Incentive and Performance Plan (the Plan), which authorizes awards of share-based compensation, such as restricted stock, restricted stock units, performance units payable in stock, and stock options. These awards are at the discretion of the Compensation Committee of our board of directors, and they vest and expire in accordance with terms established at the time of grant. 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 awards 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 17.2 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 BZ Intermediate for accounting purposes.

Restricted Stock and Performance Units

Members of management and our directors have been granted restricted stock and restricted stock units (collectively restricted stock), the majority of which are subject to an EBITDA (earnings before interest, taxes, and 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 closing market price of our common stock on the date of grant, and compensation expense is recorded over each award's vesting period.

In 2012 and 2011, pursuant to the Plan, we also granted performance units to members of management. The number of performance units awarded is subject to adjustment based on the two-year average return on net operating assets (RONOA). Because the RONOA component contains a performance condition, we record compensation expense, net of estimated forfeitures, over the requisite service period based on the most probable number of shares expected to vest. Any shares not vested are forfeited. We based the fair value of these awards on the closing market price of our common stock on the grant date, and we record compensation expense over the awards' vesting 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, 2012.

The following is a summary of our stock option activity (number of 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	$	—

The weighted average fair value of the stock 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 fair value using a Black-Scholes-Merton option-pricing model based on the market price of our common stock at the grant date and the assumptions specific to the underlying options. We based the expected volatility assumption on our historic stock performance and the volatility of related industry stocks. As the 2011 grantswere our first issuances of stock options and our equity shares have been traded for a relatively short period of time, we did not have sufficient

historical data to provide a reasonable basis upon which to estimate the expected life. Therefore, we used the simplified method as allowed by the Securities and Exchange Commission (SEC). We based the risk-free interest rate upon yields of U.S. Treasury issues with terms similar to the expected life of the options.

The following table presents the 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 ~~restricted stock forfeiture,~~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 period that we change the forfeiture estimate. The effect of forfeiture adjustments ~~during the years ended December 31, 2010, 2009, and 2008,~~ was ~~zero.~~

~~In April 2009, our stockholders approved a Plan Amendment that increased the number of shares available for issuance under the Plan from 5.2 million to 17.2 million.~~

~~Service-Condition Vesting Awards.~~ In March 2010, pursuant to the Plan, we granted 0.2 million shares of restricted stock to our nonemployee directors. The shares will vest fully on March 15, 2011. Any shares not vested on or before March 15, 2011, will be forfeited.

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). The 2.0 million shares of restricted stock granted to the directors vested on March 15, 2010. The grants to members of management vested or will vest as follows: one-fifth on March 15, 2010, one-fifth on March 15, 2011, and three-fifths on March 15, 2012. 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 vested equally on February 28, 2010, and February 28, 2011. Any shares not vested on or before February 28, 2011, were forfeited.

~~Market-Condition Vesting Awards.~~ ~~In May 2008, members of management were granted restricted stock subject to market-based vesting restrictions tied to our stock price. These shares did not vest and were forfeited on March 1, 2011.~~

~~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, 2010, 2009, and 2008, we recognized $3.7 million, $3.5 million, and $3.1 million, respectively, of compensation expense. Most of these costs were recordedinsignificant in ~~“General and administrative expenses” in our Consolidated Statement of Income (Loss).~~

all periods presented.

~~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 $5.46 per share for the 2010 restricted stock grant, $0.43 per share for the 2009 restricted stock grant, and $4.16 per share for the 2008 grant. Compensation expense is adjusted if the service condition is not met.

~~103~~

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 these awards 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 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 was 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 was based on Boise Inc.’s closing stock price on the date of grant. Expense was 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, 2010, 2009, and 2008, and changes during the years ended December 31, 2010, 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)
6,331    $ 0.74    $ 4,692    1,884    $ 1.75       $ 3,289

Granted
250    5.81    1,450    —    —       —
Vested (a)
(3,009 ) 0.77    (2,304 ) (4 ) 1.75       (7 )
Forfeited
(43 ) 4.26    (180 ) (2 ) 1.75       (3 )

Outstanding at December 31, 2010 (b) (c)
3,529    $ 1.04    $ 3,658    1,878    $ 1.75       $ 3,279

~~(a)~~

~~We repurchase for cash any fractional shares as they vest. During the years ended December 31, 2010, 2009, and 2008, we repurchased 25.22 shares, 24.33 shares, and no shares, respectively.~~

~~(b)~~

~~Outstanding awards included all nonvested and nonforfeited awards~~

~~(c)~~

~~The weighted average remaining contractual term is approximately 1.3 years for the service-condition awards and 0.3 years for the market-condition awards as of December 31, 2010.~~

~~104~~

At December 31, 2010, we had approximately $1.4 million and $0.2 million of total unrecognized compensation expense related to the nonvested service- and market-condition restricted stock grants, respectively, under the Plan. The total compensation cost for the grants is expected to be recognized over a weighted average period of 2.7 years and 3.0 years for the service- and market-condition awards, respectively, based on the original grant date. Unrecognized compensation expense is calculated net of estimated forfeitures. The table below shows compensation expense recognized during the years ended December 31, 2010, 2009, and 2008, both in total and broken out between service- and market-condition awards (dollars in thousands):

   Year Ended December 31
   2010    2009    2008
Total compensation expense
   $     3,733       $     3,517       $     3,096
Relates to grant-date fair value of service-condition awards vested through period end
   2,663       2,440       2,198
Relates to market-condition awards
   1,070       1,077       898

The net income tax benefit associated with ~~restricted stock~~share-based payment awards was ~~$0.8~~$2.6 million ~~$0.3~~, $2.0 million, and ~~$0.4~~$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 open 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 share repurchases in "Treasury stock" on Boise Inc.'s Consolidated Balance Sheets and "Repurchases of common stock" on the Consolidated Statement of Cash Flows. During the year ended December 31, 2012, we repurchased 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, ~~2009,~~we paid special cash dividends of $1.20, $0.40, and ~~2008,~~$0.40 per common share, or total dividends of $119.7 million, $47.9 million, and $32.3 million, respectively.

~~Dividends~~~~. Our~~

Any decision to declare and pay dividends in 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 ~~continues to be~~is restricted by our Credit Facilities, ~~as amended,~~the indentures governing our Senior Notes, 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. Under our Credit Facilities ~~as amended,~~and the indentures governing our Senior Notes, a dividend may ~~now~~ 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 ~~the amended~~our Credit 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

~~We paid a special~~40.3 million warrants, resulting in the issuance of 38.4 million additional common shares and cash ~~dividend~~proceeds of ~~$0.40 per common share on December 3, 2010, to shareholders of record at the close of business on November 17, 2010. The total dividend payout was~~ approximately ~~$32.3 million.~~

~~105~~

$284.8 million. There are no further warrants outstanding or exercisable.

Accumulated Other Comprehensive Income (Loss)

~~Accumulated~~

An analysis of the changes in accumulated other comprehensive income (loss) ~~includes~~and the ~~following~~related tax effects follows (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 )

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 )

. See 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 ~~2011 net periodic pension expense will include $5.6 million of~~estimated net loss and ~~$0.1 million of~~ prior service cost that will be amortized from ~~“Accumulated~~"Accumulated other comprehensive income (loss)~~” on Boise Inc.’s Consolidated Statement of Stockholders’ Equity or BZ Intermediate’s Consolidated Statement of Capital.~~" 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, ~~2010, 2009,~~2012 and ~~2008,~~2011, with a par value of ~~$0.01.~~$0.01. All of these units have been issued to Boise Inc. BZ Intermediate refers to its capital as ~~“Business~~"Business unit ~~equity”~~equity" on its Consolidated Balance Sheets, and this represents its equity transactions with Boise Inc., net income (loss) from the operations of its subsidiaries, the effect of changes in other comprehensive income, and ~~restricted stock. Share-based compensation costs in BZ Intermediate’s~~stock-based compensation.

13. Concentrations of Risk

Business

Our largest customer is OfficeMax Incorporated (OfficeMax). Although we expect our long-term business relationship with OfficeMax to continue, the relationship exposes us to a significant concentration of business and financial ~~statements represent expenses for restricted stock of Boise Inc.~~risk. In 2012, our sales to OfficeMax were $493.9 million, which ~~have been pushed down to BZ Intermediate for accounting purposes and are explained in more detail above.~~

represents ~~Predecessor~~19%

During the Predecessor period presented, equity compensation was granted to the Predecessor’s employees under Boise Cascade’s equity compensation plans. During the Predecessor period of January 1 through February 21, 2008, the Predecessor recognized $0.2 million of compensation expense, most of which was recorded in “General and administrative expenses” in the Consolidated Statements of Income (Loss).

~~15. Alternative Fuel Mixture Credits, Net~~

The U.S. Internal Revenue Code allowed an excise tax credit for taxpayers using alternative fuels in the taxpayer’s trade or business. During the year ended December 31, 2009, we recorded $207.6 million in “Alternative fuel mixture credits, net” in our Consolidated Statement of Income (Loss). As of December 31, 2009, we recorded a receivable of $56.6 million in “Receivables, Other”

~~106~~

on our Consolidated Balance Sheet for alternative fuel mixture credits. We received this credit in March 2010 after we filed our 2009 federal income tax return. Eligibility for new credits expired on December 31, 2009.

In mid October 2010, the Internal Revenue Service Office of Chief Counsel released a memo providing further clarification on the cellulosic biofuel producer credit (CBPC). This guidance clarifies that companies may elect to apply for the $1.01-per-gallon CBPC for any black liquor that was produced in 2009 and not claimed as alternative fuel mixture credits. We became eligible for the alternative fuel mixture credit at our mills at varying dates throughout first quarter 2009 and would be eligible to claim the CBPC credit for black liquor produced prior to becoming eligible for the alternative fuel mixture credits. However, this credit is taxable, may only be used to offset a portion of taxable income, and has a relatively short carry-forward period. We continue to evaluate the impact of filing for the CBPC on our specific tax situation.

~~16. St. Helens Mill Restructuring~~

~~In November 2008, we announced the restructuring~~ of our ~~paper mill in St. Helens, Oregon. The restructuring was primarily~~total annual sales revenue and 35% of the ~~result of declining product demand coupled with continuing high costs.~~

For the years ended December 31, 2010, 2009, and 2008, we recorded a pretax charge of $0.2 million, $5.8 million, and $29.8 million, respectively, associated with the restructuring in “St. Helens mill restructuring” in the Consolidated Statements of Income (Loss). Additionally in 2008, we recognized $7.8 million related to the write-down of inventory, which was recorded in “Materials, labor, and other operating expenses” in the Consolidated Statements of Income (Loss). All of these costs are recordedannual sales revenue in our Paper segment. ~~In the future, net cash expenditures~~Approximately 38% of our total uncoated freesheet sales volume was purchased by OfficeMax in ~~decommissioning and other costs are not expected to be material.~~2012. At December 31, ~~2010~~2012 and ~~2009,~~2011, we had ~~$0.1~~$39.5 million and ~~$0.5~~$35.3 million, respectively, of ~~severance liabilities included~~accounts receivable due from OfficeMax, which represents 16% and 15%, respectively, of our total company receivables.

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 ~~“Accrued liabilities, Compensation~~paper purchases from OfficeMax (or the post-merger entity) would cause us to expand our customer base and ~~benefits”~~could potentially decrease our profitability if new customer sales required either a decrease in our pricing and/or an increase in our cost of sales. Any significant deterioration in the financial condition of OfficeMax (or the post-merger entity) affecting the ability to pay or causing a significant change in the willingness to continue to purchase our products could have a material adverse effect on our ~~Consolidated Balance Sheets.~~

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 collective bargaining agreements. Approximately 4% of our employees work pursuant to collective bargaining agreements that will expire within the next twelve months.

~~17. Acquisition~~
14. Leases

We lease some of ~~Boise Cascade’s Paper~~our locations, as well as other property and ~~Packaging Operations~~

~~On February 22, 2008, Aldabra 2 Acquisition Corp. completed~~equipment, under operating leases. For purposes of determining straight-line rent expense, the ~~Acquisition~~lease term is calculated from the date of possession of the ~~Paper Group~~facility, including any periods of free rent and ~~other assets and liabilities related~~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 ~~operation~~lessor. We had an insignificant amount 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 locatedsublease rental income in the ~~U.S. Subsequent to the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc.~~

~~107~~

~~The purchase price was paid with cash, the issuance of shares of~~periods presented below. Accordingly, our ~~common stock, and a note payable. These costs, including direct transaction costs and purchase price adjustments, are summarized~~future minimum lease payment requirements have not been reduced by sublease rental income. Rental expense for operating leases is 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~~



	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 approximately five years, with fixed payment terms similar to those in the original lease agreements.

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 ~~allocation~~ of the ~~assets acquired and liabilities assumed~~obligation. Fair value estimates are determined using Level 3 inputs in the ~~Acquisition as adjusted~~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, 2012 and 2011, 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 Sheets. These liabilities are based on the best estimate of costs and are updated periodically to reflect current technology, laws and regulations, inflation, and other economic factors. No assets are legally restricted for purposes of settling asset retirement obligations. The table below describes changes to the asset retirement obligations (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~~



	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 ~~transaction,~~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 and (ii) 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.

16. Transactions With Related Parties

For the period of February 22, 2008, through March 2010, Boise Cascade ~~owned 37.9 million, or 49%, of~~held a significant equity interest in us, and our ~~outstanding shares.~~transactions with Boise Cascade were recorded as related-party transactions. In ~~early~~ March 2010, Boise Cascade sold all of its remaining ~~interest~~investment in ~~us.~~

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 $4.0 million at December 31, 2012, and $3.3 million at December 31, 2011. During the years ended December 31, 2012, 2011, and 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 Consolidated Statements of Income 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 have an outsourcing services agreement under which we provide a number of corporate 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 other party at least 12 months in advance of the expiration date. During the year ended December 31, 2010, we recorded $2.4 million of revenues in "Sales, Related parties" in our Consolidated Statements of Income. Services we provide to Boise Cascade under this agreement include transportation, information technology, accounting, and human resource services.

94

Related-Party Costs and Expenses

During the years ended December 31, 2012, 2011, and 2010, fiber purchases from related parties were $19.8 million, $18.8 million, and $25.3 million, 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 as "Fiber costs from related parties" in the Consolidated Statements of Income. Fiber purchases from Boise Cascade subsequent to February 2010 are recorded as "Materials, labor, and other operating expenses (excluding depreciation)" in the Consolidated Statements of Income.

~~18.~~

17. Segment Information

~~Boise Inc., headquartered in Boise, Idaho, operates~~

We operate and ~~reports its~~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.

~~108~~

The segments follow the accounting principles described in Note ~~Paper~~. 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. We manufacture and sell a range of papers, including communication-based papers, ~~packaging-demand-driven~~packaging-based papers, and market pulp. ~~Many of these paper~~These products ~~are~~can be either commodity ~~products, while others have~~papers or papers with specialized or custom features, ~~that~~such as colors, coatings, high brightness, or recycled content, which make ~~these products~~them 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 papers used for food wrap and other applications.products. We ship to customers both directly from our mills and through distribution centers. In ~~2010,~~2012, approximately 38% of our uncoated freesheet paper sales volume, including approximately ~~61%~~63% of our office papers sales volume, was sold to ~~OfficeMax.~~

~~Packaging~~~~. Our Packaging segment manufactures and sells corrugated packaging products, linerboard, and newsprint. Our containerboard and corrugated products are sold by~~OfficeMax, our ~~own sales personnel and by brokers. Our newsprint is sold by our own sales personnel primarily to newspaper publishers in the southern U.S.~~largest customer.

Corporate and ~~Other~~. Other. Our Corporate and Other segment includes ~~primarily~~ corporate support services, related assets and liabilities, and foreign exchange gains and losses. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport our products from our manufacturing sites. We provide transportation services not only to our own facilities but also, on a limited basis, to third parties when geographic proximity and logistics are favorable. Rail cars and trucks are generally leased. ~~During the years ended December 31, 2010, 2009, and 2008, and the Predecessor period of January 1 through February 21, 2008,~~Sales in this segment ~~sales related~~relate primarily to our rail and truck ~~business were $65.4 million, $63.8 million, $67.7 million, and $8.5 million, respectively.~~business.

~~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 $212.2 million in 2010, $180.3 million in 2009, $212.8 million in 2008,~~ Segment operating results for Boise Inc. and ~~$40.8 million during the Predecessor period of January 1 through February 21, 2008, respectively. In~~BZ 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 January 1
Through
February 21,
2008
   2010    2009    2008
Paper

Uncoated freesheet
   $   1,309.8       $   1,289.8       $   1,240.9    $ 224.2
Containerboard (medium)
   0.1       0.1       0.2    0.1
Market pulp and other
   84.7       73.5       101.9    20.1

   1,394.6       1,363.4       1,343.0    244.4


Packaging

Containerboard (linerboard)
   94.2       88.6       88.6    16.5
Newsprint
   121.7       98.4       203.2    29.8
Corrugated containers and sheets
   388.0       347.7       324.3    53.1
Other
   65.3       51.2       84.3    13.7

   669.2       585.9       700.4    113.1


Corporate and Other
   30.0       28.9       27.2    2.4

   $ 2,093.8       $ 1,978.2       $ 2,070.6    $ 359.9

~~109~~



	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 (d) Capital
Expendi-
tures Assets
Trade Related
Parties Inter-
segment Total
Year Ended December 31, 2010

Paper
$ 1,394.6    $ —    $ 63.7    $ 1,458.3    $ 151.5    $ 87.4    $ 238.9    $ 67.8    $ 1,187.9
Packaging
636.2    33.0    2.7    671.9    65.0    38.6    103.6    38.6    505.6
Corporate and Other
27.3    2.7    35.4    65.4    (21.6 )(a) 3.9    (17.7 )(a) 5.2    245.5

2,058.1    35.7    101.8    2,195.6    194.9    129.9    324.8    111.6    1,939.0

Intersegment eliminations
—    —    (101.8 ) (101.8 ) —    —    —    —    —
Change in fair value of interest rate derivatives
—    —    —    —    —    —    —    —    —
Loss on extinguishment of debt
—    —    —    —    (22.2 )(a) —    (22.2 )(a) —    —
Interest expense
—    —    —    —    (64.8 ) —    —    —    —
Interest income
—    —    —    —    0.3    —    —    —    —

$   2,058.1    $ 35.7    $ —    $   2,093.8    $ 108.1    $ 129.9    $ 302.6    $ 111.6    $   1,939.0

Sales Income
(Loss)
Before
Taxes Depre-
ciation,
Amorti-
zation,
and
Depletion EBITDA (d) 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 (b) $ 85.2    $ 347.8 (b) $ 51.0    $   1,249.8
Packaging
560.4    25.5    2.5    588.4    67.1 (b) 42.2    109.3 (b) 23.1    497.9
Corporate and Other
11.6    17.3    34.9    63.8    (21.5 )(b) 4.1    (17.3 )(b) 3.0    148.1

1,935.4    42.8    94.0    2,072.2    308.3    131.5    439.8    77.1    1,895.8

Intersegment eliminations
—    —    (94.0 ) (94.0 ) —    —    —    —    —
Change in fair value of interest rate derivatives
—    —    —    —    0.6    —    —    —    —
Loss on extinguishment of debt
—    —    —    —    (44.1 )(b) —    (44.1 )(b) —    —
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

Year Ended December 31, 2008

Paper
$ 1,343.0    $ —    $ 60.7    $ 1,403.7    $ 32.7 (c) $ 71.7    $ 104.3 (c) $ 42.8    $ 1,310.4
Packaging
635.5    64.9    3.3    703.7    21.1 (c) 35.1    56.2 (c) 43.5    558.3
Corporate and Other
11.7    15.5    40.5    67.7    (18.6 )(c) 3.2    (15.4 )(c) 4.3    119.6

1,990.2    80.4    104.5    2,175.1    35.2    110.0    145.1    90.6    1,988.3

Intersegment eliminations
—    —    (104.5 ) (104.5 ) —    —    —    —    —
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

~~110~~



	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			Income (Loss) Before Income Taxes				Depreciation, Amortization, and Depletion		EBITDA (c)				Capital Expenditures (d)		Assets
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			Income (Loss) Before Income Taxes				Depreciation, Amortization, and Depletion		EBITDA (c)				Capital Expenditures (d)		Assets
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

Predecessor
   Sales Income
(Loss)
Before
Taxes Depre-
ciation,
Amorti-
zation,
and
Depletion    EBITDA (d) Capital
Expendi-
tures
   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



	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			Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion		EBITDA (c)			Capital Expenditures (d)		Assets
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 ~~$22.2~~$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 Corporate and Other segment associated with the refinancing of~~ our ~~debt.~~

~~(b)~~

~~Included $5.8 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens, Oregon, 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 expense recorded in the Corporate and Other segment associated with the restructuring of our debt for Boise Inc. or $66.8 million of expense recorded in the Corporate and Other segment associated with the restructuring of our debt for BZ Intermediate. The difference is due to the gain recognized by Boise Inc. related to the notes payable, which were held by Boise Inc.

~~(c)~~

~~Included $37.6 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens, Oregon, 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 a $2.9 million gain on changes in supplemental pension plans recorded in the Corporate and Other segment.~~

~~(d)~~(c)

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 ~~makers~~maker to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of ~~companies 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’s~~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

~~111~~

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 ~~(loss)~~ to EBITDA (dollars in millions):

   Boise Inc. Predecessor
   Year Ended December 31 January 1
Through
February 22,
2008
   2010 2009 2008

Net income (loss)
   $ 62.7    $ 153.8    $ (45.5 ) $ 22.8
Change in fair value of interest rate derivatives
   —    (0.6 ) 0.5    —
Interest expense
   64.8    83.3    91.2    —
Interest income
   (0.3 ) (0.4 ) (2.2 ) (0.2 )
Income tax provision (benefit)
   45.4    28.0    (8.8 ) 0.6
Depreciation, amortization, and depletion
   129.9    131.5    110.0    0.5

EBITDA
   $ 302.6    $ 395.7    $ 145.1    $ 23.7

   BZ Intermediate Holdings LLC Predecessor
   Year Ended December 31 January 1
Through
February 22,
2008
     2010     2009     2008

Net income (loss)
   $ 63.6    $ 147.8    $ (41.9 ) $ 22.8
Change in fair value of interest rate derivatives
   —    (0.6 ) 0.5    —
Interest expense
   64.8    74.3    82.9    —
Interest income
   (0.3 ) (0.4 ) (0.6 ) (0.2 )
Income tax provision (benefit)
   44.5    20.4    (5.8 ) 0.6
Depreciation, amortization, and depletion
   129.9    131.5    110.0    0.5

EBITDA
   $ 302.6    $ 373.0    $ 145.1    $ 23.7

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.

97
~~19.~~

18. Commitments, Guarantees, Indemnifications, and Legal Proceedings

Commitments

~~Commitments~~

We have financial commitments ~~for lease payments~~ and ~~for the purchase of wood fiber and utilities. In addition, we have other financial~~ obligations that ~~we enter into~~arise in the ~~normal~~ordinary course of our ~~business~~business. 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~~(discussed below).

We are a party to ~~make capital improvements to our facilities.~~

~~Our~~a number of long-term log and fiber supply agreements. At December 31, 2012 and 2011, our total estimated obligation for log and fiber purchases under contracts with third parties was approximately$65.6 million and $75.5 million, respectively. The estimate is based on contract terms or first quarter 2013 pricing.Purchase prices under most of these agreements are ~~discussed further in Note 2, Summary of Significant Accounting Policies, our lease commitments are discussed further in Note 7, Leases, and our long-term debt~~set quarterly or semiannually based on regional market prices. Except for deposits required pursuant to wood supply contracts, these obligations are ~~discussed further~~not recorded in ~~Note 11, Debt.~~

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 the~~have financial obligations to purchase of electricity and natural ~~gas. We also purchase these services under utility tariffs. The contractual and tariff arrangements~~gas for our manufacturing locations. These obligations include multiple-year purchase commitments and minimum annual purchase requirements. At December 31, ~~2010~~2012 and ~~2009,~~2011, we had approximately ~~$27.2~~$27.4 million and ~~$36.8~~$26.5 million, respectively, of utility purchase commitments. These ~~payment obligations~~commitments were ~~valued~~estimated at prices in effect on December 31, ~~2010~~2012 or ~~2009,~~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.~~

~~112~~

Guarantees and Indemnifications

~~Guarantees~~

We provide guarantees, indemnifications, and other assurances to ~~others~~third parties in the normal course of our business. ~~See Note 11, 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 circumstances~~it 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.~~

time.

Legal Proceedings

We are a party to routine proceedings that arise in the course of our ~~business. We~~business; 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 liquidity, either individually or in the aggregate.

98
~~20.~~

19. Quarterly Results of Operations (unaudited, dollars in millions, except per-share and stock price information)

   Boise Inc.
   2010
   First
Quarter (a) Second
Quarter    Third
Quarter    Fourth
Quarter
Net sales
   $ 494.1    $ 521.6       $ 554.1       $ 524.0
Income from operations
   18.6    38.2       77.0       60.2
Net income (loss)
   (12.7 ) 13.3       35.9       26.2
Net income (loss) per common share:

Basic
   (0.16 ) 0.17       0.45       0.32
Diluted
   (0.16 ) 0.16       0.43       0.31
Common stock dividends per share
   —    —       —       0.40
Common stock prices (f)
   6.13    7.40       7.36       8.10
High
   4.60    4.91       4.96       6.40
Low

   Boise Inc.
   2009
   First
Quarter (b) Second
Quarter (c)    Third
Quarter (d)    Fourth
Quarter (e)
Net sales
   $ 500.3    $ 479.4       $ 508.3       $ 490.3
Income 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 (f)

High
   0.75    2.47       5.40       6.29
Low
   0.24    0.51       1.41       4.71

~~113~~

   BZ Intermediate Holdings
   2010
   First
Quarter (a) Second
Quarter    Third
Quarter    Fourth
Quarter
Net sales
   $ 494.1    $ 521.6       $ 554.1       $ 524.0
Income from operations
   18.6    38.2       77.0       60.2
Net income (loss)
   (11.8 ) 13.3       36.0       26.1
   BZ Intermediate Holdings
   2009
   First
Quarter (b) Second
Quarter (c)    Third
Quarter (d)    Fourth
Quarter (e)
Net sales
   $ 500.3    $ 479.4       $ 508.3       $ 490.3
Income from operations
   21.4    96.6       93.5       94.2
Net income
   1.4    54.2       50.2       42.1



	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 ~~2010~~2011 included ~~$3.3~~$2.2 million of expense related to ~~the impact of energy hedges, $2.8 million of which was recorded in the Paper segment and $0.5 million in the Packaging segment.~~inventory purchase price accounting adjustments.

	~~First~~
(c)	Fourth quarter ~~2010~~2011 included ~~$22.2~~$2.3 million of expense recorded in the Corporate and Other segment associated with ~~the refinancing 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.

~~(b)~~

~~First quarter 2009 included $3.6 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens, Oregon, 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.~~

~~(c)~~

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, Oregon, 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.~~

(d)

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, Oregon, 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.~~

~~(e)~~

Fourth quarter 2009 included $50.1 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 loss on extinguishment of debt for Boise Inc., or $66.8 million of loss on extinguishment of debt for BZ Intermediate, as a result of the October 2009 debt restructuring. The difference is due to the gain recognized by Boise Inc. related to the notes payable, which were held by Boise Inc.

~~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.~~

~~(f)~~

Our common stock ~~began trading on February 25, 2008,~~trades on the New York Stock Exchange ~~(NYSE)~~ under the symbol BZ. Common stock prices are based on daily closing prices.

~~114~~

~~21. Subsequent Events~~

On February 21, 2011, our wholly owned subsidiary, Boise Paper Holdings, L.L.C., entered into a Stock Purchase Agreement (the Agreement) to purchase all of the outstanding stock of Tharco Packaging, Inc. (Tharco) for $200 million of cash consideration, subject to adjustments set forth in the Agreement. This acquisition, which closed on March 1, 2011, expands our presence in packaging markets; extends our geographical reach from the Pacific Northwest to California, Colorado, Arizona, and Georgia; and increases our containerboard integration to over 85% from approximately 70%. We obtained appropriate consents from our lenders to enable the acquisition under our Credit Facilities.

~~For the fiscal year ended September 30, 2010, Tharco had total revenue of $261 million and~~

The net sales, income from operations, ~~of $18 million. The remaining disclosures required by GAAP~~and net income for ~~business combinations have not been made~~BZ Intermediate are substantially the same as the quarterly results for ~~the Tharco acquisition because the initial accounting for the acquisition has not been completed.~~

Boise Inc. included above.

99
~~22.~~

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) ~~the co-issuers,~~ Boise Paper Holdings ~~Boise Co-Issuer Company,~~ and ~~Boise Finance Company;~~the co-issuers; (ii) Louisiana Timber Procurement Company, L.L.C.; and (iii) our foreign ~~subsidiaries)~~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.

~~115~~

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.

100

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Income ~~(Loss)~~

For the Year Ended December 31, ~~2010~~2012

(dollars in thousands)

BZ
Intermediate
Holdings LLC
(Parent) 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
—    14,039    1,580,221    150,398    (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
St. Helens mill restructuring
—    —    180    —    —    180
Other (income) expense, net
—    225    69    (261 ) —    33

—    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 (loss)
—    871    19    —    —    890
Change in fair value of interest rate derivatives
—    (43 ) —    —    —    (43 )
Loss on extinguishment of debt
—    (22,225 ) —    —    —    (22,225 )
Interest expense
—    (64,782 ) —    —    —    (64,782 )
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 (loss) 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 (loss) of affiliates
—    (154,572 ) 218,131    18    —    63,577
Equity in net income (loss) of affiliates
63,577    218,149    —    —    (281,726 ) —

Net income (loss)
$ 63,577    $ 63,577    $ 218,131    $ 18    $ (281,726 ) $ 63,577

~~116~~



	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

101

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Income ~~(Loss)~~

For the Year Ended December 31, ~~2009~~2011

(dollars in thousands)

BZ
Intermediate
Holdings LLC
(Parent) Co-issuers Guarantor
Subsidiaries Non-
guarantor
Subsidiaries Eliminations Consolidated
Sales

Trade
$ —    $ —    $ 1,930,526    $ 4,884    $ —    $ 1,935,410
Intercompany
—    —    5    90,906    (90,911 ) —
Related parties
—    14,966    2,317    25,499    —    42,782

—    14,966    1,932,848    121,289    (90,911 ) 1,978,192

Costs and expenses

Materials, labor, and other operating expenses
—    14,080    1,551,756    121,289    (90,911 ) 1,596,214
Fiber costs from related parties
—    —    36,858    —    —    36,858
Depreciation, amortization, and depletion
—    3,583    127,917    —    —    131,500
Selling and distribution expenses
—    —    55,318    206    —    55,524
General and administrative expenses
—    18,286    31,964    —    —    50,250
St. Helens mill restructuring
—    —    5,805    —    —    5,805
Alternative fuel mixture credits, net
—    3,933    (211,540 ) —    —    (207,607 )
Other (income) expense, net
—    695    3,540    (230 ) —    4,005

—    40,577    1,601,618    121,265    (90,911 ) 1,672,549

Income (loss) from operations
—    (25,611 ) 331,230    24    —    305,643

Foreign exchange gain (loss)
—    1,529    1,110    —    —    2,639
Change in fair value of interest rate derivatives
—    568    —    —    —    568
Loss on extinguishment of debt
—    (66,784 ) —    —    —    (66,784 )
Interest expense
—    (74,263 ) —    —    —    (74,263 )
Interest expense — tercompany
—    (171 ) —    (15 ) 186    —
Interest income
—    364    3    —    —    367
Interest income — intercompany
—    15    171    —    (186 ) —

—    (138,742 ) 1,284    (15 ) —    (137,473 )

Income (loss) before income taxes
—    (164,353 ) 332,514    9    —    168,170
Income tax (provision) benefit
—    (19,546 ) (810 ) —    —    (20,356 )

Income (loss) before equity in net income (loss) of affiliates
—    (183,899 ) 331,704    9    —    147,814
Equity in net income (loss) of affiliates
147,814    331,713    —    —    (479,527 ) —

Net income (loss)
$ 147,814    $ 147,814    $ 331,704    $ 9    $ (479,527 ) $ 147,814

~~117~~



	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

102

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Income ~~(Loss)~~

For the Year Ended December 31, ~~2008~~2010

(dollars in thousands)

BZ
Intermediate
Holdings LLC
(Parent) Co-issuers Guarantor
Subsidiaries Non-
guarantor
Subsidiaries Eliminations Consolidated
Sales

Trade
$ —    $ —    $ 1,979,955    $ 10,252    $ —    $ 1,990,207
Intercompany
—    —    1    102,006    (102,007 ) —
Related parties
—    12,092    3,450    64,883    —    80,425

—    12,092    1,983,406    177,141    (102,007 ) 2,070,632

Costs and expenses

Materials, labor, and other operating expenses
—    11,166    1,670,526    177,141    (102,007 ) 1,756,826
Fiber costs from related parties
—    —    54,628    —    —    54,628
Depreciation, amortization, and depletion
—    2,707    107,281    —    —    109,988
Selling and distribution expenses
—    —    48,032    246    —    48,278
General and administrative expenses
—    18,450    15,868    —    —    34,318
St. Helens mill restructuring
—    —    29,780    —    —    29,780
Other (income) expense, net
—    (2,666 ) (36 ) (278 ) —    (2,980 )

—    29,657    1,926,079    177,109    (102,007 ) 2,030,838

Income (loss) from operations
—    (17,565 ) 57,327    32    —    39,794

Foreign exchange gain (loss)
—    (3,187 ) (1,509 ) —    —    (4,696 )
Change in fair value of interest rate derivatives
—    (479 ) —    —    —    (479 )
Interest expense
—    (82,945 ) —    —    —    (82,945 )
Interest expense — intercompany
—    (136 ) —    (21 ) 157    —
Interest income
—    611    6    —    —    617
Interest income — intercompany
—    21    136    —    (157 ) —

—    (86,115 ) (1,367 ) (21 ) —    (87,503 )

Income (loss) before income taxes
—    (103,680 ) 55,960    11    —    (47,709 )
Income tax (provision) benefit
—    7,393    (1,542 ) (2 ) —    5,849

Income (loss) before equity in net income (loss) of affiliates
—    (96,287 ) 54,418    9    —    (41,860 )
Equity in net income (loss) of affiliates
(41,860 ) 54,427    —    —    (12,567 ) —

Net income (loss)
$ (41,860 ) $ (41,860 ) $ 54,418    $ 9    $ (12,567 ) $ (41,860 )

~~118~~



	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

103

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating ~~Balance Sheets at~~ Statements of Comprehensive Income

For the Year Ended December 31, ~~2010~~2012

(dollars in thousands)

BZ
Intermediate
Holdings LLC
(Parent) Co-issuers Guarantor
Subsidiaries Nonguarantor
Subsidiaries Eliminations Consolidated
ASSETS

Current

Cash and cash equivalents
$ —    $ 166,410    $ 6    $ 417    $ —    $ 166,833
Short-term investments
—    10,621    —    —    —    10,621
Receivables

Trade, less allowances
—    1,004    187,502    82    —    188,588
Intercompany
—    —    2    1,634    (1,636 ) —
Related parties
—    —    —    1    —    1
Other
—    331    3,504    4    —    3,839
Inventories
—    15    261,456    —    —    261,471
Deferred income taxes
—    16,651    —    7    —    16,658
Prepaid and other
—    4,697    517    —    —    5,214

—    199,729    452,987    2,145    (1,636 ) 653,225

Property

Property and equipment, net
—    5,952    1,193,083    —    —    1,199,035
Fiber farms and deposits
—    —    18,285    —    —    18,285

—    5,952    1,211,368    —    —    1,217,320

Deferred financing costs
—    30,396    —    —    —    30,396
Intangible assets, net
—    —    29,605    —    —    29,605
Investments in affiliates
655,332    1,479,253    —    —    (2,134,585 ) —
Other assets
—    5,175    3,269    —    —    8,444

Total assets
$ 655,332    $   1,720,505    $   1,697,229    $ 2,145    $   (2,136,221 ) $   1,938,990

~~119~~



	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 ~~Balance Sheets at~~ Statements of Comprehensive Income

For the Year Ended December 31, ~~2010 (continued)~~2011

(dollars in thousands)

BZ
Intermediate
Holdings LLC
(Parent) Co-issuers Guarantor
Subsidiaries Nonguarantor
Subsidiaries Eliminations Consolidated
LIABILITIES AND CAPITAL


Current

Current portion of long-term debt
$ —    $ 43,750    $ —    $ —    $ —    $ 43,750
Income taxes payable
—    (818 ) 898    2    —    82
Accounts payable

Trade
—    13,513    163,710    1,700    —    178,923
Intercompany
—    2    1,634    —    (1,636 ) —
Related parties
—    —    —    291    —    291
Accrued liabilities

Compensation and benefits
—    23,081    31,493    —    —    54,574
Interest payable
—    10,535    —    —    —    10,535
Other
—    5,336    10,645    142    —    16,123

—    95,399    208,380    2,135    (1,636 ) 304,278

Debt

Long-term debt, less current portion
—    738,081    —    —    —    738,081

Other

Deferred income taxes
—    78,959    492    —    —    79,451
Compensation and benefits
—    121,318    —    —    —    121,318
Other long-term liabilities
—    31,416    9,114    —    —    40,530

—    231,693    9,606    —    —    241,299

Commitments and contingent liabilities


Capital

Business unit equity
655,332    655,332    1,479,243    10    (2,134,585 ) 655,332

Total liabilities and capital
$ 655,332    $ 1,720,505    $ 1,697,229    $ 2,145    $   (2,136,221 ) $   1,938,990

~~120~~



	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

104

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating ~~Balance Sheets at~~ Statements of Comprehensive Income

For the Year Ended December 31, ~~2009~~2010

(dollars in thousands)

BZ
Intermediate
Holdings LLC
(Parent) Co-issuers Guarantor
Subsidiaries Nonguarantor
Subsidiaries Eliminations Consolidated
ASSETS

Current

Cash and cash equivalents
$ —    $ 69,071    $ 33    $ 289    $ —    $ 69,393
Short-term investments
—    10,023    —    —    —    10,023
Receivables

Trade, less allowances
—    —    185,087    23    —    185,110
Intercompany
—    —    —    1,254    (1,254 ) —
Related parties
—    1,626    —    430    —    2,056
Other
—    828    61,581    1    —    62,410
Inventories
—    18    252,155    —    —    252,173
Prepaid and other
—    4,049    770    —    —    4,819

—    85,615    499,626    1,997    (1,254 ) 585,984

Property

Property and equipment, net
—    6,408    1,199,271    —    —    1,205,679
Fiber farms and deposits
—    —    17,094    —    —    17,094

—    6,408    1,216,365    —    —    1,222,773

Deferred financing costs
—    47,369    —    —    —    47,369
Intangible assets, net
—    —    32,358    —    —    32,358
Investments in affiliates
628,590    1,522,807    —    —    (2,151,397 ) —
Other assets
—    4,106    3,200    —    —    7,306

Total assets
$ 628,590    $   1,666,305    $   1,751,549    $ 1,997    $   (2,152,651 ) $   1,895,790

~~121~~



	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

105

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Balance Sheets at December 31, ~~2009 (continued)~~2012

(dollars in thousands)

BZ
Intermediate
Holdings LLC
(Parent) Co-issuers Guarantor
Subsidiaries Nonguarantor
Subsidiaries Eliminations Consolidated
LIABILITIES AND CAPITAL


Current

Current portion of long-term debt
$ —    $ 30,711    $ —    $ —    $ —    $ 30,711
Income taxes payable
—    (2,058 ) 2,296    2    —    240
Accounts payable

Trade
—    11,983    158,795    1,740    —    172,518
Intercompany
—    —    1,254    —    (1,254 ) —
Related parties
—    17    2,445    136    —    2,598
Accrued liabilities

Compensation and benefits
—    23,789    44,159    —    —    67,948
Interest payable
—    4,946    —    —    —    4,946
Other
—    13,558    10,058    119    —    23,735

—    82,946    219,007    1,997    (1,254 ) 302,696

Debt

Long-term debt, less current portion
—    785,216    —    —    —    785,216

Other

Deferred income taxes
—    24,283    280    —    —    24,563
Compensation and benefits
—    123,889    —    —    —    123,889
Other long-term liabilities
—    21,381    9,455    —    —    30,836

—    169,553    9,735    —    —    179,288

Commitments and contingent liabilities


Capital

Business unit equity
628,590    628,590    1,522,807    —    (2,151,397 ) 628,590

Total liabilities and capital
$ 628,590    $   1,666,305    $   1,751,549    $ 1,997    $   (2,152,651 ) $   1,895,790

~~122~~



	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

106

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating ~~Statements of Cash Flows~~Balance Sheets at

~~For the Year Ended~~ December 31, ~~2010~~2012

(continued)

(dollars in thousands)

BZ
Intermediate
Holdings LLC
(Parent) Co-issuers Guarantor
Subsidiaries Nonguarantor
Subsidiaries Eliminations Consolidated
Cash provided by (used for) operations

Net income (loss)
$ 63,577    $ 63,577    $ 218,131    $ 18    $ (281,726 ) $ 63,577
Items in net income (loss) not using (providing) cash

Equity in net (income) loss 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 and other postretirement benefit expense
—    9,537    —    —    —    9,537
Deferred income taxes
—    37,677    213    (8 ) —    37,882
Change in fair value of energy derivatives
—    —    609    —    —    609
Change in fair value of interest rate derivatives
—    43    —    —    —    43
(Gain) loss on sales of assets, net
—    2    310    —    —    312
Other
—    (850 ) (19 ) —    —    (869 )
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 and other postretirement benefit payments
—    (25,637 ) —    —    —    (25,637 )
Other
—    (606 ) (2,399 ) —    —    (3,005 )

Cash provided by (used for) operations
—    (77,858 ) 367,503    136    —    289,781

Cash provided by (used for) investment

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
Sales of assets
—    —    717    —    —    717
Other
—    868    1,356    —    —    2,224

Cash provided by (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 deferred 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

~~123~~



	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

107

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating ~~Statements of Cash Flows~~Balance Sheets at

~~For the Year Ended~~ December 31, ~~2009~~2011

(dollars in thousands)

BZ
Intermediate
Holdings LLC
(Parent) Co-issuers Guarantor
Subsidiaries Non-
guarantor
Subsidiaries Eliminations Consolidated
Cash provided by (used for) operations

Net income (loss)
$ 147,814    $ 147,814    $ 331,704    $ 9    $ (479,527 ) $ 147,814
Items in net income (loss) not using (providing) cash

Equity in net (income) loss of affiliates
(147,814 ) (331,713 ) —    —    479,527    —
Depreciation, depletion, and amortization of deferred financing costs and other
—    16,162    127,917    —    —    144,079
Share-based compensation expense
—    3,518    —    —    —    3,518
Pension and other postretirement benefit expense
—    7,376    —    —    —    7,376
Deferred income taxes
—    19,863    157    —    —    20,020
Change in fair value of energy derivatives
—    —    (5,877 ) —    —    (5,877 )
Change in fair value of interest rate derivatives
—    (568 ) —    —    —    (568 )
(Gain) loss on sales of assets, net
—    19    495    —    —    514
Other
—    (1,529 ) (1,110 ) —    —    (2,639 )
Loss on extinguishment of debt
—    66,784    —    —    —    66,784
Decrease (increase) in working capital, net of aquisitions

Receivables
—    1,800    (24,744 ) 978    463    (21,503 )
Inventories
—    4    83,033    —    —    83,037
Prepaid expenses
—    (1,340 ) 2,040    770    —    1,470
Accounts payable and accrued liabilities
—    13,723    13,435    (985 ) (463 ) 25,710
Current and deferred income taxes
—    (395 ) (27 ) —    —    (422 )
Pension and other postretirement benefit payments
—    (13,001 ) —    —    —    (13,001 )
Other
—    754    (1,363 ) —    —    (609 )

Cash provided by (used for) operations
—    (70,729 ) 525,660    772    —    455,703

Cash provided by (used for) investment

Acquisition of businesses and facilities
—    —    (543 ) —    —    (543 )
Expenditures for property and equipment
—    (2,789 ) (74,356 ) —    —    (77,145 )
Purchases of short-term investments
—    (21,643 ) —    —    —    (21,643 )
Maturities of short-term investments
—    11,615    —    —    —    11,615
Sales of assets
—    1    1,030    —    —    1,031
Other
—    1,357    811    —    —    2,168

Cash provided by (used for) investment
—    (11,459 ) (73,058 ) —    —    (84,517 )

Cash provided by (used for) financing

Issuances of long-term debt
—    310,000    —    —    —    310,000
Payments of long-term debt
—    (531,523 ) —    —    —    (531,523 )
Extinguishment of debt
—    (39,717 ) —    —    —    (39,717 )
Payments (to) from Boise Inc., net
(49,915 ) —    —    —    —    (49,915 )
Payments of deferred financing costs
—    (13,156 ) —    —    —    (13,156 )
Due to (from) affiliates
49,915    405,789    (452,576 ) (3,128 ) —    —

Cash provided by (used for) financing
—    131,393    (452,576 ) (3,128 ) —    (324,311 )

Increase (decrease) in cash and cash equivalents
—    49,205    26    (2,356 ) —    46,875
Balance at beginning of the period
—    19,866    7    2,645    —    22,518

Balance at end of the period
$ —    $ 69,071    $ 33    $ 289    $ —    $ 69,393

~~124~~



	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

108

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

109

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Cash Flows

For the Year Ended December 31, ~~2008~~2012

(dollars in thousands)

BZ
Intermediate
Holdings LLC
(Parent) Co-issuers Guarantor
Subsidiaries Non-
guarantor
Subsidiaries Eliminations Consolidated
Cash provided by (used for) operations

Net income (loss)
$ (41,860 ) $ (41,860 ) $ 54,418    $ 9    $ (12,567 ) $ (41,860 )
Items in net income (loss) not using (providing) cash

Equity in net (income) loss of affiliates
41,860    (54,427 ) —    —    12,567    —
Depreciation, depletion, and amortization of deferred financing costs and other
—    12,652    107,281    —    —    119,933
Share-based compensation expense
—    3,096    —    —    —    3,096
Pension and other postretirement benefit expense
—    8,388    —    —    —    8,388
Deferred income taxes
—    (6,289 ) (150 ) —    —    (6,439 )
Change in fair value of energy derivatives
—    —    7,445    —    —    7,445
Change in fair value of interest rate derivatives
—    479    —    —    —    479
St. Helens mill restructuring
—    —    35,998    —    —    35,998
Other
—    3,187    1,509    —    —    4,696
Decrease (increase) in working capital, net of aquisitions

Receivables
—    6,201    20,991    (2,686 ) 790    25,296
Inventories
—    (2 ) (28,948 ) —    —    (28,950 )
Prepaid expenses
—    8    (346 ) (765 ) —    (1,103 )
Accounts payable and accrued liabilities
—    8,958    (27,933 ) 2,980    (790 ) (16,785 )
Current and deferred income taxes
—    (1,409 ) 1,629    2    —    222
Pension and other postretirement benefit payments
—    (636 ) —    —    —    (636 )
Other
—    (426 ) (1,422 ) —    —    (1,848 )

Cash provided by (used for) operations
—    (62,080 ) 170,472    (460 ) —    107,932

Cash provided by (used for) investment

Acquisition of businesses and facilities
—    100,152    (1,316,606 ) (5 ) —    (1,216,459 )
Expenditures for property and equipment
—    (4,200 ) (86,397 ) —    —    (90,597 )
Sales of assets
—    —    394    —    —    394
Other
—    (3,099 ) (2,604 ) —    —    (5,703 )

Cash provided by (used for) investment
—    92,853    (1,405,213 ) (5 ) —    (1,312,365 )

Cash provided by (used for) financing

Issuances of long-term debt
—    1,125,700    —    —    —    1,125,700
Payments of long-term debt
—    (88,250 ) —    —    —    (88,250 )
Payments (to) from Boise Inc., net
271,399    —    —    —    —    271,399
Payments of deferred financing costs
—    (81,898 ) —    —    —    (81,898 )
Due to (from) affiliates
(271,399 ) (966,459 ) 1,234,748    3,110    —    —

Cash provided by (used for) financing
—    (10,907 ) 1,234,748    3,110    —    1,226,951

Increase (decrease) in cash and cash equivalents
—    19,866    7    2,645    —    22,518
Balance at beginning of the period
—    —    —    —    —    —

Balance at end of the period
$ —    $ 19,866    $ 7    $ 2,645    $ —    $ 22,518

~~125~~



	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

110

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

111

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

112

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Boise Inc.:

We have audited the accompanying consolidated balance sheets of Boise Inc. and subsidiaries (the Company) as of December 31, ~~2010~~2012 and ~~2009,~~2011, and the related consolidated statements of income, ~~(loss), stockholders’~~comprehensive income, stockholders' equity, and cash flows for each of the years in the ~~three-year~~three‑year period ended December 31, ~~2010.~~2012. We also have audited Boise Inc.~~’s.~~'s internal control over financial reporting as of December 31, ~~2010,~~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 accompanying~~Management’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’s~~Company'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 audit 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’s~~company'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’s~~company'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’s~~company'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.

~~126~~

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, ~~2010~~2012 and ~~2009,~~2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2010,~~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, ~~2010,~~2012, based on criteria established inInternal Control —- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ KPMG LLP

Boise, Idaho

~~March 2, 2011~~

~~127~~

February 26, 2013

113

Report of Independent Registered Public Accounting Firm

The Board of Directors

Boise Inc.:

We have audited the accompanying consolidated balance sheets of BZ Intermediate Holdings LLC and subsidiaries ~~(formerly known as Aldabra Holding Sub LLC)~~(the Company) as of December 31, ~~2010~~2012 and ~~2009,~~2011, and the related consolidated statements of income, ~~(loss),~~comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, ~~2010 and December 31, 2009 and for the period from January 18, 2008 (inception) through December 31, 2008.~~2012. These consolidated financial statements are the responsibility of the ~~Company’s~~Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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, ~~2010~~2012 and ~~2009,~~2011, and the results of their operations and their cash flows for each of the years in the three‑year period ended December 31, ~~2010 and December 31, 2009 and for the period from January 18, 2008 (inception) through December 31, 2008,~~2012, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Boise, Idaho

~~March 2, 2011~~

~~128~~

February 26, 2013

114

~~Independent Auditors’ Report~~

~~The Board of Directors~~

~~of Boise Inc.:~~

We have audited the accompanying consolidated statements of income and cash flows for the period from January 1, 2008 through February 21, 2008, of Boise Paper Products and subsidiaries. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit 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 audit provides 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, in conformity with U.S. generally accepted accounting principles.

~~/s/ KPMG LLP~~

~~Boise, Idaho~~

~~February 23, 2009~~

~~129~~


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 ~~our~~in 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.

Introduction

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’s~~SEC'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’s~~company's CEO and CFO, and effected by the ~~company’s~~company'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 ~~transaction~~transactions 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 ~~the~~our 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/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. 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.

~~130~~

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.

115

Changes in Internal Control Over Financial Reporting

~~We had~~

There have been no changes toin our internal ~~controls~~control over financial reporting ~~or other factors~~ during the quarter and year ~~and quarter~~ ended December 31, ~~2010,~~2012, that have materially affected, ~~materially,~~ or are reasonably likely to materially affect, ~~materially,~~ our internal ~~controls.~~

~~Management’s~~control 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’s~~LLP'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.~~

~~131~~

10‑K.

116

~~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, ~~2010.~~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, ~~2010.~~

2012.

The effectiveness of the ~~Company’s~~Company's internal control over financial reporting as of December 31, ~~2010,~~2012, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report, which is included herein.

~~132~~

117

~~ITEM 9B.~~

~~OTHER INFORMATION~~

~~None.~~

~~133~~

~~PART III~~

ITEM 9B.

OTHER INFORMATION

None.

118

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 statement~~Proxy Statement entitled ~~“Proposals~~"Proposals to Be 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, 2010.~~

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 statement~~Proxy 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, 2010.~~

"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 statement~~Proxy 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, 2010.~~

"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 website at www.boiseinc.com and selecting~~Investors~~About 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 website 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 statement~~Proxy 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, 2010.~~

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 statement~~Proxy 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, 2010.~~

~~134~~

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 statement~~Proxy 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, 2010.~~

"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 ~~are~~is incorporated into this Form 10-K by reference to the sections of our ~~definitive proxy statement~~Proxy 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, 2010.~~

"Equity Compensation Plan Information."

119


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 statement~~Proxy 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, 2010.~~

"Corporate Governance — Related-Person Transactions."


ITEM 14.	*PRINCIPAL ACCOUNTING FEES AND SERVICES*

Information ~~with respect to~~concerning 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 statement~~Proxy 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, 2010.~~

~~135~~

PART IV

~~PART IV~~

ITEM 15.

EXHIBITS, 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, ~~2010~~2012 and ~~2009.~~

2011.

Boise Inc. Consolidated Statements of Income (Loss) for the years ended December 31, 2010, 2009, and 2008, and the Predecessor Consolidated Statement of Income (Loss) for the period of January 1 through February 21, 2008.

Boise Inc. Consolidated Statements of Cash Flows for the years ended December 31, ~~2010, 2009,~~2012, 2011, and ~~2008, and the Predecessor Consolidated Statement of Cash Flows for the period of January 1 through February 21, 2008.~~

2010.

¨

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



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



Title of Each Class		Name of Each Exchange On Which Registered
Common Stock, ~~$.0001~~$0.0001 par value		New York Stock Exchange

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

Item 9A.	Controls and Procedures	115

	Management's Report on Internal Control Over Financial Reporting	117

Item 9B.	Other Information	118

PART I III

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

Item 11.	Executive Compensation	119

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

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

Item 14.	Principal Accounting Fees and Services	120

PART IV

Item 15.	Exhibits, Financial Statement Schedules	121

	Signatures	122

	Index to Exhibits	123

x

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



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

Item 1A.	Risk Factors	~~Corporate Structure~~15

2Item 1B.	Unresolved Staff Comments	19

Item 2.	Properties	~~Paper~~20

2Item 3.	Legal Proceedings	22

Item 4.	Mine Safety Disclosure	22

~~Packaging~~ PART II
			6
		~~Corporate and Other~~		9
		~~Competition~~		10
		~~Environmental Issues~~		11
		~~Capital Investment~~		11
		~~Seasonality~~		12
		~~Working Capital~~		12
		~~Acquisitions and Divestitures~~		12
		~~Employees~~		12
		~~Executive Officers of Registrant~~		12

~~Item 1A.~~		~~Risk Factors~~		14

~~Item 1B.~~		~~Unresolved Staff Comments~~		20

~~Item 2.~~		~~Properties~~		20
~~Item 3.~~		~~Legal Proceedings~~		21

~~Item 4.~~		~~(Removed and Reserved)~~		21

~~PART II~~

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

22Item 6.	Selected Financial Data	26


~~Item 6.~~		~~Selected Financial Data~~		24

Item 7.		~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	Background	26	27
		~~Background~~		26
		Executive Summary	28
	Segment Highlights	26	31
		Factors That Affect Our Operating Results	32
		30
		Our Operating Results	33
		34
		Liquidity and Capital Resources	38
	Commitments, Guarantees, and Legal Proceedings	42
		~~Contractual Obligations~~		48
		Off-Balance-Sheet Activities	43
		49
		~~Guarantees~~		49
		Inflationary and Seasonal Influences	43
		49
		Disclosures of Financial Market Risks	43
	Environmental	49	45
		~~Environmental~~		50
		Critical Accounting Estimates	46
		52
		New and Recently Adopted Accounting Standards	51
			56

Item 7A.		Quantitative and Qualitative Disclosures About Market Risk	51
			56

Item 8.		Financial Statements and Supplementary Data	52
			57

		Boise Inc. and Subsidiaries Consolidated Financial Statements	52
		57
		BZ Intermediate Holdings LLC Consolidated Financial Statements	58

62


	3.	Net Income (Loss) Per Common Share	75
	4.	Transactions With Related Parties	75
	5.	Other (Income) Expense	77
	6.	Income Taxes	78
	7.	Leases	84
	8.	Concentrations of Risk	84
	9.	Intangible Assets	85
	10.	Asset Retirement Obligations	86
	11.	Debt	87
	12.	Financial Instruments	91
	13.	Retirement and Benefit Plans	95
	14.	Stockholders’ Equity and Capital	102
	15.	Alternative Fuel Mixture Credits, Net	106
	16.	St. Helens Mill Restructuring	107
	17.	Acquisition of Boise Cascade’s Paper and Packaging Operations	107
	18.	Segment Information	108
	19.	Commitments, Guarantees, and Legal Proceedings	112
	20.	Quarterly Results of Operations (unaudited)	113
	21.	Subsequent Events	115
	22.	Consolidating Guarantor and Nonguarantor Financial Information	115

	Reports of Independent Registered Public Accounting Firm — KPMG LLP		126
	Independent Auditors’ Report — KPMG LLP		129

Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure		130

Item 9A.	Controls and Procedures		130

	Management’s Report on Internal Control Over Financial Reporting		132

Item 9B.	Other Information		133

PART III

Item 10.	Directors, Executive Officers, and Corporate Governance		134

Item 11.	Executive Compensation		135

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		135

Item 13.	Certain Relationships and Related Transactions, and Director Independence		135

Item 14.	Principal Accounting Fees and Services		135

PART IV

Item 15.	Exhibits, Financial Statement Schedules		136

	Signatures		137

	Index to Exhibits		138


	Number of Machines		Capacity (a)		Production

PULP AND PAPER MILLS
Jackson, Alabama
Uncoated freesheet		2		486		471
International Falls, Minnesota
Uncoated freesheet		4		531		511
St. Helens, Oregon
Uncoated freesheet		1		58		58
Wallula, Washington
Uncoated freesheet		1		188		189
Containerboard (medium)		1		136		127
Market pulp		1		142		142

		10		1,541		1,498


(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.



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


(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.


	Boise Inc.							Predecessor		Combined
	Year Ended December 31							January 1 Through February 21, 2008		Year Ended December 31, 2008
	2010		2009		2008			January 1 Through February 21, 2008		Year Ended December 31, 2008

Sales	$	2,093.8	$	1,978.2	$	2,070.6		$	359.9	$	2,430.5
Net income (loss)		62.7		153.8		(45.5	)		22.8		(22.7	)
Net income (loss) per diluted share		0.75		1.85		(0.62	)		—		—
Net income excluding special items		76.8		20.4		2.1			—		—
Net income excluding special items per diluted share		0.91		0.25		0.03			—		—
EBITDA		302.6		395.7		145.1			23.7		168.8
EBITDA excluding special items		325.6		232.1		222.8			24.4		247.1


(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.


ITEM 1.	*BUSINESS*


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


(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.


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	$	12

Packaging
Containerboard (linerboard)		2
Newsprint		2
Corrugated containers and sheets ($1.00/msf change in price)		7

Interest rate (1% change in interest rate on our variable-rate debt before hedging)		2

Energy(a)
Natural gas ($1.00/mmBtu change in price)		12
Diesel ($0.50/gallon change in price)		8

Fiber (1% change in cost of fiber)		5

Chemicals (1% change in cost of chemicals)		2


	Payments Due by Period
	2011		2012-2013		2014-2015		Thereafter		Total

Long-term debt, including current portion (a)	$	43.8	$	138.0	$	—	$	600.0	$	781.8
Interest (b)		56.1		105.1		102.0		162.0		425.2
Operating leases (c)		11.7		19.3		13.8		12.8		57.6
Purchase obligations
Raw materials and finished goods inventory (d)		54.7		24.8		8.6		—		88.1
Utilities (e)		22.8		4.2		0.2		—		27.2
Other		2.9		0.4		—		—		3.3
Other long-term liabilities reflected on our Balance Sheet (f):
Compensation and benefits (g)		3.4		57.3		46.5		14.5		121.7
Other (h)		3.5		3.8		2.5		34.0		43.8

	$	198.9	$	352.9	$	173.6	$	823.3	$	1,548.7


	Base Expense		Increase (Decrease) in Pension Expense
	Base Expense		0.25 % Increase			0.25% Decrease
2010 Expense
Discount rate	$	9.7	$	(0.6	)	$	0.6
Expected rate of return on plan assets		9.7		(0.8	)		0.8

2011 Expense
Discount rate	$	12.6	$	(1.5	)	$	1.5
Expected rate of return on plan assets		12.6		(0.8	)		0.8


	Year Ending December 31, 2011			Year Ended December 31
	Year Ending December 31, 2011			2010			2009

Pension expense	$	12.6		$	9.7		$	8.7

Discount rate		5.50	%		6.10	%		6.20	%
Expected rate of return on plan assets		7.25	%		7.25	%		7.25	%


Common Shares Outstanding			Total Stockholders’ Equity			Preferred Stock		Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Income Accumulated During Development Stage			Retained Earnings (accumulated deficit)

	51,750	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	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			—			—			—
	2,451	Restricted stock granted		3,096			—		—			3,096			—			—			—
	(25)	Restricted stock forfeited		—			—		—			—			—			—			—
	30	Restricted stock vested		—			—		—			—			—			—			—
		Shares of common stock subject to possible conversion converted to permanent equity		159,760			—		—			159,760			—			—			—
	(12,347)	Reclassify shares of common stock subject to possible conversion that were not redeemed to permanent equity		(120,170	)		—		(1	)		(120,169	)		—			—			—

	79,716	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	Restricted stock granted		3,518			—		—			3,518			—			—			—
	(81)	Restricted stock forfeited		—			—		—			—			—			—			—
	182	Restricted stock units vested, net		—			—		—			—			—			—			—

	84,419	Balance at December 31, 2009	$	620,935		$	—	$	8		$	578,669		$	(71,553	)	$	—		$	113,811

		Comprehensive income:
		Net income		62,734			—		—			—			—			—			62,734
		Other comprehensive income (loss), net of tax
		Cash flow hedges		553			—		—			—			553			—			—
		Investment gains (losses)		6			—		—			—			6			—			—
		Changes in unfunded accumulated benefit obligation (net of tax of $4,945)		(7,828	)		—		—			—			(7,828	)		—			—

		Other comprehensive income		(7,269	)		—		—			—			(7,269	)		—			—

		Comprehensive income	$	55,465			—		—			—			—			—


		Dividends declared		(32,338	)		—		—			—			—			—			(32,338	)
		Restricted stock excess tax		31			—		—			31			—			—			—
	85	Warrants exercised		638			—		—			638			—			—			—
	200	Restricted stock granted		3,733			—		—			3,733			—			—			—
	(221)	Restricted stock withheld for taxes		(1,629	)		—		—			(1,629	)		—			—			—
	(42)	Restricted stock forfeited		—			—		—			—			—			—			—
	404	Restricted stock units vested, net		—			—		—			—			—			—			—

	84,845	Balance at December 31, 2010	$	646,835		$	—	$	8		$	581,442		$	(78,822	)	$	—		$	144,207


	Total Capital			Business Unit Equity			Accumulated Other Comprehensive Income (Loss)

Balance at January 18, 2008 (Inception)	$	—		$	—		$	—
Issuance of 1,000 common units		638,761			638,761			—
Comprehensive loss:
Net loss		(41,860	)		(41,860	)		—
Other comprehensive income loss, net of tax
Cash flow hedges		(760	)		—			(760	)
Unfunded accumulated benefit obligations		(84,922	)		—			(84,922	)

Other comprehensive loss:		(85,682	)		—			(85,682	)

Comprehensive loss	$	(127,542	)

Net equity transactions with Boise Inc.		1,825			1,825			—

Balance at December 31, 2008	$	513,044		$	598,726		$	(85,682	)

Comprehensive income:
Net income		147,814			147,814			—
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	$	161,943

Net equity transactions with Boise Inc.		(46,397	)		(46,397	)		—

Balance at December 31, 2009	$	628,590		$	700,143		$	(71,553	)

Comprehensive income:
Net income		63,577			63,577			—
Other comprehensive income (loss), net of tax
Cash flow hedges		553			—			553
Investment gains (losses)		6			—			6	��
Changes in unfunded accumulated benefit obligation (net of tax of $4,945)		(7,828	)		—			(7,828	)

Other comprehensive income		(7,269	)		—			(7,269	)

Comprehensive income	$	56,308

Net equity transactions with Boise Inc.		(29,566	)		(29,566	)		—

Balance at December 31, 2010	$	655,332		$	734,154		$	(78,822	)


	Boise Inc.
	As of December 31
	2010			2009

Current deferred tax assets (liabilities), net	$	16,658		$	(11,539	)
Noncurrent deferred tax liabilities, net		(88,200	)		(32,253	)

Total deferred tax liabilities, net	$	(71,542	)	$	(43,792	)


	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


	December 31, 2010						December 31, 2009
	Amount			Interest Rate			Amount			Interest Rate

Revolving credit facility, due 2013	$	—			—	%	$	—			—	%
Tranche A term loan, due 2013		181,831			3.06			203,706			3.25
Tranche B term loan, due 2014		—			—			312,221			5.75
9% senior notes, due 2017		300,000			9.00			300,000			9.00
8% senior notes, due 2020		300,000			8.00			—			—
Current portion of long-term debt		(43,750	)		3.06			(30,711	)		3.97

Long-term debt, less current portion		738,081			7.48			785,216			6.41
Current portion of long-term debt		43,750			3.06			30,711			3.97

	$	781,831			7.24	%	$	815,927			6.32	%


	Year Ending December 31
	2010			2009		2008
Change in fair value of interest rate derivatives (a)	$	(43	)	$	568	$	(479	)
Amortization of premiums paid pertaining to interest rate derivatives (b)		120			746		617
Amortization of amounts within accumulated other comprehensive income (loss) related to interest rate derivatives (b)		422			338		—


	January 2011 Through March 2011	April 2011 Through October 2011	November 2011 Through March 2012	April 2012 Through October 2012	November 2012 Through March 2013
Approximate percent hedged	82%	45%	26%	22%	5%


	Fair Value Measurements at December 31, 2010, Using:
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Assets:
Certificates of deposit (a)	$	10,621	$	—	$	10,621	$	—
Interest rate derivatives (b)		—		—		—		—

	$	10,621	$	—	$	10,621	$	—

Liabilities:

Energy derivatives (c)	$	2,056	$	—	$	2,056	$	—


The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Year Ended December 31, 2010
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 expense	$	(422	)	Interest rate contracts	Change in fair value of interest rate derivatives	$	(43	)

							Natural gas contracts	Materials, labor, and other operating expenses		(609	)

	$	—		$	(422	)			$	(652	)


	Pension Benefits						Other Benefits
	2010			2009			2010			2009
Change in benefit obligation
Benefit obligation at beginning of year	$	423,962		$	396,692		$	772		$	2,490
Service cost		5,041			6,891			3			4
Interest cost		25,272			24,314			32			47
Amendments		—			145			—			—
Actuarial (gain) loss		34,636			9,138			(69	)		(1,725	)
Closure and curtailment gain		345			—			—			—
Liabilities transferred		—			—			(63	)		—
Benefits paid		(14,212	)		(13,218	)		(1	)		(44	)

Benefit obligation at end of year	$	475,044		$	423,962		$	674		$	772

Change in plan assets
Fair value of plan assets at beginning of year	$	301,522		$	248,084		$	—		$	—
Actual return on plan assets		43,417			54,358			—			—
Employer contributions		25,174			12,298			—			—
Benefits paid		(14,212	)		(13,218	)		—			—

Fair value of plan assets at end of year	$	355,901		$	301,522		$	—		$	—

Over (under) funded status	$	(119,143	)	$	(122,440	)	$	(674	)	$	(772	)

Amounts recognized on our Consolidated Balance Sheet
Current liabilities	$	(254	)	$	(143	)	$	(142	)	$	(182	)
Noncurrent liabilities		(118,889	)		(122,297	)		(532	)		(590	)

Net amount recognized	$	(119,143	)	$	(122,440	)	$	(674	)	$	(772	)


	2010			2009
Weighted average assumptions:
Healthcare cost trend rate assumed for next year		8.10	%		8.50	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		6.50	%		6.50	%

Year that the rate reaches the ultimate trend rate		2025			2025


	December 31, 2010
	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)	$	—	$	112,602	$	—	$	112,602
Small- and mid-cap U.S. equity securities (c)		—		21,021		—		21,021
International equity securities (d)		—		49,172		—		49,172
Fixed-income securities (e)		—		169,992		—		169,992
Private equity securities (f)		—		—		2,225		2,225

Total securities at fair value		—		352,787		2,225		355,012

Receivables and accruals, net								889

Total fair value of plan assets							$	355,901


	Year Ended December 31, 2010

Balance, beginning of year	$	—
Purchases		2,205
Unrealized gain		20

Balance, end of year	$	2,225