SEC Filing | Packaging Corporation of America

View:

Download DOC

Download PDF

Download XLS

Form 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 15, 2013

Packaging Corporation of America

(Exact name of registrant as specified in its charter)

Delaware

1-15399

36-4277050

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

1955 West Field Court, Lake Forest, Illinois 60045

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (847) 482-3000

Former name or former address, if changed since last report: N/A

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 230.425)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01. Other Events

In connection with the proposed acquisition by Packaging Corporation of America (“PCA”) of Boise Inc. (“Boise”), PCA is filing unaudited pro forma condensed combined financial statements of PCA and certain audited and unaudited consolidated financial statements of Boise.

Pro Forma Financial Information

Attached hereto as Exhibit 99.1 and incorporated herein by reference is the unaudited pro forma condensed combined financial information of PCA that is based on the historical consolidated financial information of PCA and Boise, as adjusted to illustrate the estimated pro forma effects of the events that are directly attributable to the acquisition of Boise (the “Transactions”). The unaudited pro forma condensed combined balance sheet gives effect to the Transactions as if they had been completed as of June 30, 2013. The unaudited pro forma condensed combined income statement information gives effect to the Transactions as if they had occurred on January 1, 2012.

The unaudited pro forma adjustments are based upon currently available preliminary information and assumptions that PCA believes to be reasonable. The pro forma adjustments and related assumptions are described in Exhibit 99.1 hereto.

Historical Financial Statements of Boise

Attached hereto as Exhibit 99.2 and incorporated herein by reference are the audited consolidated balance sheets of Boise and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and the consolidated balance sheets of BZ Intermediate Holdings LLC and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2012, with the reports of KPMG LLP, an independent registered public accounting firm.

Attached hereto as Exhibit 99.3 and incorporated herein by reference are the unaudited consolidated balance sheets of Boise and its subsidiaries as of June 30, 2013 and December 31, 2012, and the related consolidated statements of operations, comprehensive income, and cash flows for the three and six month periods ended June 30, 2013 and 2012, and the unaudited consolidated balance sheets of BZ Intermediate Holdings LLC and its subsidiaries as of June 30, 2013 and December 31, 2012, and the related consolidated statements of operations, comprehensive income, and cash flows for the three and six month periods ended June 30, 2013 and 2012.

Item 9.01. Financial Statements and Exhibits


Number		Description
23.1		Consent of KPMG LLP, an independent registered public accounting firm.

99.1		Unaudited pro forma condensed combined financial statements of Packaging Corporation of America, including the unaudited pro forma condensed combined balance sheet as of June 30, 2013 and the unaudited pro forma condensed combined statements of income for the year ended December 31, 2012 and for the six months ended June 30, 2013.

99.2		Audited consolidated balance sheets of Boise Inc. and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and the consolidated balance sheets of BZ Intermediate Holdings LLC and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2012, with the reports of KPMG LLP, an independent registered public accounting firm.

99.3		Unaudited consolidated balance sheets of Boise Inc. and its subsidiaries as of June 30, 2013 and December 31, 2012, and the related consolidated statements of operations, comprehensive income, and cash flows for the three and the six month periods ended June 30, 2013 and 2012, and the unaudited consolidated balance sheets of BZ Intermediate Holdings LLC and its subsidiaries as of June 30, 2013 and December 31, 2012, and the related consolidated statements of operations, comprehensive income, and cash flows for the three and the six month periods ended June 30, 2013 and 2012.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	PACKAGING CORPORATION OF AMERICA

Dated: October 15, 2013	By:	/s/ Kent A. Pflederer

		Name: Kent A. Pflederer
		Title: Senior Vice President—Legal and Administration, General Counsel and Secretary

EXHIBIT INDEX


Number		Description
23.1		Consent of KPMG LLP, an independent registered public accounting firm.

99.1		Unaudited pro forma condensed combined financial statements of Packaging Corporation of America, including the unaudited pro forma condensed combined balance sheet as of June 30, 2013 and the unaudited pro forma condensed combined statement of income for the year ended December 31, 2012 and for the six months ended June 30, 2013.

99.2		Audited consolidated balance sheets of Boise Inc. and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and the consolidated balance sheets of BZ Intermediate Holdings LLC and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2012, with the reports of KPMG LLP, an independent registered public accounting firm.

99.3		Unaudited consolidated balance sheets of Boise Inc. and its subsidiaries as of June 30, 2013 and December 31, 2012, and the related consolidated statements of operations, comprehensive income, and cash flows for the three and six month periods ended June 30, 2013 and 2012, and the unaudited consolidated balance sheets of BZ Intermediate Holdings LLC and its subsidiaries as of June 30, 2013 and December 31, 2012, and the related consolidated statements of operations, comprehensive income, and cash flows for the three and six month periods ended June 30, 2013 and 2012.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Boise Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 333-179620, 333-159576, 333-188265, and 333-191713) on Forms S-8 and S-3 of Packaging Corporation of America of our reports dated February 26, 2013, with respect to the consolidated balance sheets of Boise Inc. as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and the consolidated balance sheets of BZ Intermediate Holdings LLC as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2012, which reports appear in the Form 8-K of Packaging Corporation of America dated October 15, 2013. Also, we consent to the reference to our firm under the heading “Experts” in the prospectus.

KPMG LLP

Boise, Idaho

October 15, 2013

EX-99.1

Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information is based on the historical consolidated financial information of Packaging Corporation of America (“PCA”) and Boise, Inc. (“Boise”), as adjusted to illustrate the estimated pro forma effects of the events that are directly attributable to the acquisition of Boise (the “Transactions”). The unaudited pro forma condensed combined balance sheet gives effect to the Transactions as if they had been completed as of June 30, 2013. The unaudited pro forma condensed combined income statement information gives effect to the Transactions as if they had occurred on January 1, 2012.

The unaudited pro forma condensed combined financial statements of PCA and Boise have been derived from:

•

The unaudited condensed consolidated financial statements of PCA and Boise as of and for the period ended June 30, 2013 and the related notes included in the respective company’s quarterly report on Form 10-Q;

•

The audited consolidated financial statements of PCA and Boise as of and for the year ended December 31, 2012 and the related notes included in the respective company’s annual report on Form 10-K;

The unaudited pro forma adjustments are based upon currently available preliminary information and assumptions that we believe to be reasonable. The pro forma adjustments and related assumptions are described in the accompanying notes presented on the following pages.

The unaudited pro forma condensed combined financial information is for informational purposes only and is not intended to represent or to be indicative of the consolidated results of operations or financial position that PCA and Boise would have reported had the Transactions been completed as of the dates set forth in this unaudited pro forma condensed combined financial information and should not be taken as indicative of PCA’s future consolidated results of operations or financial position. The actual results may differ significantly from those reflected in the unaudited pro forma condensed combined financial information for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the unaudited pro forma condensed combined financial information and actual amounts.

The unaudited pro forma condensed combined financial information has been prepared using the purchase method of accounting as if the Transactions had been completed as of January 1, 2012 for the purposes of the unaudited pro forma condensed combined income statements, and as of June 30, 2013 for the purposes of the unaudited pro forma condensed combined balance sheet. Under the purchase method of accounting, the purchase price is required to be allocated to the underlying tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair market values as of the date of the acquisition, with any excess purchase price allocated to goodwill. The allocation of the purchase price as reflected in the unaudited pro forma condensed combined financial information is based upon management’s internally developed preliminary estimates of the values of assets acquired and liabilities assumed as if the Transactions had been completed as of the above dates. This allocation of the purchase price depends upon certain estimates and assumptions, all of which are preliminary and in some instances are incomplete and have been made solely for the purpose of developing the unaudited pro forma condensed combined financial information. With respect to identifiable intangible assets and goodwill, the allocation of purchase price is preliminary. The final purchase price allocation may be different than that reflected in the pro forma purchase price allocation, and those differences may be material.

The unaudited pro forma condensed combined statements of income do not include (i) any revenue or cost saving synergies that may be achievable subsequent to the completion of the Transactions or (ii) the impact of non-recurring items directly related to the Transactions.

Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2013

($ in millions)


	Packaging Corporation of America			Boise Inc. (3)			Adjustments						Pro Forma Combined
	Packaging Corporation of America			Boise Inc. (3)			New Financing (1)			Acquisition (2)			Pro Forma Combined
ASSETS
Current assets:
Cash and cash equivalents	$	370		$	61		$	1,022	(a)	$	(1,328	)(i)	$	125
Accounts receivable, net		403			263			—			(5	)(o)		661
Inventories		263			289			—			26	(j)		578
Prepaid expenses and other current assets		38			14			—			18	(p)		70
Federal and state income taxes receivable		5			1			22	(g)		(8	)(j),(p)		20
Deferred income taxes		23			10			—			—			33

Total current assets		1,102			638			1,044			(1,297	)		1,487
Property, plant and equipment, net		1,364			1,238			—			187	(j)		2,789
Goodwill and other intangible assets		104			302			—			415	(j)		821
Other long-term assets		45			31			9	(b)		(22	)(j)		63

Total assets	$	2,615		$	2,209		$	1,053		$	(717	)	$	5,160

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	15		$	15		$	9	(c)	$	—		$	39
Capital lease obligations		1			—			—			—			1
Accounts payable		165			203			—			(5	)(o)		363
Dividends payable		39			—			—			—			39
Accrued interest		4			11			(11	)(e)		—			4
Accrued liabilities		121			90			—			—			211

Total current liabilities		345			319			(2	)		(5	)		657
Long-term liabilities:
Long-term debt		771			760			1,089	(d)		—			2,620
Capital lease obligations		24			—			—			—			24
Deferred income taxes		128			190			—			74	(j)		392
Pension and postretirement benefit plans		164			116			—			—			280
Cellulosic biofuel tax reserve		102			—			—			—			102
Other long-term liabilities		30			74			—			—			104

Total long-term liabilities		1,219			1,140			1,089			74			3,522
Stockholders’ equity:
Common stock		1			—			—			—			1
Additional paid in capital		392			871			—			(871	)(l)		392
Treasury stock		—			(121	)		—			121	(m)		—
Retained earnings		753			99			(34	)(f)		(135	)(k)		683
Total accumulated other comprehensive loss		(95	)		(99	)		—			99	(n)		(95	)

Total stockholders’ equity		1,051			750			(34	)		(786	)		981

Total liabilities and stockholders’ equity	$	2,615		$	2,209		$	1,053		$	(717	)	$	5,160

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.

Unaudited Pro Forma Condensed Combined Statement of Income for the Year Ended December 31, 2012

($ in millions, except per-share data)


	Packaging Corporation of America			Boise Inc. (3)			Adjustments						Pro Forma Combined
	Packaging Corporation of America			Boise Inc. (3)			New Financing (1)			Acquisition (2)			Pro Forma Combined
Statement of income:
Net sales	$	2,844		$	2,555		$	—		$	(20	)(o)	$	5,379
Cost of sales		(2,204	)		(2,195	)		—			8	(o),(q)		(4,391	)

Gross profit		640			360			—			(12	)		988
Selling, general and administrative expenses		(280	)		(183	)		—			—			(463	)
St. Helens charges		—			(28	)		—			—			(28	)
Alternative fuel mixture credits		96			—			—			—			96
Other expense, net		(12	)		(1	)		—			—			(13	)

Income (loss) from operations		444			148			—			(12	)		580
Interest expense, net		(63	)		(62	)		8	(h)		—			(117	)

Income (loss) before taxes		381			86			8			(12	)		463
(Provision) benefit for income taxes		(217	)		(34	)		(3	)(h)		5	(r)		(249	)

Net income (loss)	$	164		$	52		$	5		$	(7	)	$	214

Weighted average common shares outstanding:
Basic		96.4												96.4
Diluted		97.5												97.5
Net income per common share:
Basic	$	1.70											$	2.22

Diluted	$	1.68											$	2.19

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.

Unaudited Pro Forma Condensed Combined Statement of Income for the Six Months Ended June 30, 2013

($ in millions, except per-share data)


	Packaging Corporation of America			Boise Inc. (3)			Adjustments						Pro Forma Combined
	Packaging Corporation of America			Boise Inc. (3)			New Financing (1)			Acquisition (2)			Pro Forma Combined
Statement of income:
Net sales	$	1,555		$	1,229		$	—		$	(4	)(o)	$	2,780
Cost of sales		(1,181	)		(1,100	)		—			16	(o),(p),(q)		(2,265	)

Gross profit		374			129			—			12			515
Selling, general and administrative expenses		(149	)		(92	)		—			—			(241	)
Restructuring costs		—			(9	)		—			—			(9	)
Other expense, net		(15	)		(3	)		—			—			(18	)

Income from operations		210			25						12			247
Interest expense, net		(18	)		(31	)		3	(h)		—			(46	)

Income (loss) before taxes		192			(6	)		3			12			201
(Provision) benefit for income taxes		(67	)		3			(1	)(h)		(5	)(r)		(70	)

Net income (loss)	$	125		$	(3	)	$	2		$	7		$	131

Weighted average common shares outstanding:
Basic		96.4												96.4
Diluted		97.5												97.5
Net income per common share:
Basic	$	1.30											$	1.36

Diluted	$	1.28											$	1.34

See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION

(1) New Financing Arrangement

These pro forma financial statements reflect PCA’s acquisition of Boise, additional borrowings to consummate the acquisition and repayment of existing PCA and Boise debt through a combination of the issuance of $2.0 billion in term loans and senior notes. The amounts of the pro forma adjustments related to the issuance of term loans and senior notes at June 30, 2013 were based upon available cash and the capital structure as of the respective date.

(a)

Represents the net adjustment to cash as a result of the financing transactions, calculated as follows:


(Dollar amounts in millions)
Five-year term loan	$	650
Seven-year term loan		650
Ten-year senior notes		700

Gross proceeds from new borrowings		2,000
Repayment of Boise debt (i)		(841	)
Repayment of PCA existing senior credit facility		(127	)
Estimated financing fees		(10	)

Net adjustment to cash	$	1,022

(i)

Amount includes the following:


(Dollar amounts in millions)
9% notes due 2017	$	300
8% notes due 2020		300
Term loan due 2016		175
Estimated notes redemption premium		55
Accrued and unpaid interest		11

Total	$	841

(b)

Represents the estimated fees and expenses associated with the financing transactions, calculated as follows:


(Dollar amounts in millions)
Credit Facilities and notes	$	10
Unamortized financing fees written off on repayment of the existing PCA term loan		(1	)

Net adjustment to deferred financing fees	$	9

(c)

Represents the current portion of the five and seven-year term loans after the new financing, calculated as follows:


(Dollar amounts in millions)
Five-year term loan (i)	$	33
Seven-year term loan (ii)		6
Repayment of current portion of existing PCA and Boise debt		(30	)

Net adjustment to current maturities of long-term debt	$	9

(i)

Represents 5% of the $650 million five-year term loan.

(ii)

Represents 1% of the $650 million seven-year term loan.

(d)

Represents the net increase in long-term debt less current maturities, calculated as follows:


(Dollar amounts in millions)
Five-year term loan	$	617
Seven-year term loan		644
Ten-year senior notes		700
Repayment of the non-current portion of the existing Boise debt		(760	)
Repayment of the non-current portion of the existing PCA term loan		(112	)

Net adjustment to long-term debt, less current maturities	$	1,089

(e)

Represents the payment of accrued interest relating to Boise’s existing debt.

(f)

Represents the adjustment to retained earnings, comprising:


(Dollar amounts in millions)
Unamortized financing fees relating to existing PCA’s term loan	$	(1	)
Estimated Boise notes redemption premium		(55	)

Pre-tax adjustment to retained earnings		(56	)
Tax effect (at federal and state statutory tax rate of 39%)		22

Net adjustment to retained earnings	$	(34	)

(g)

Represents increase in deferred income tax assets associated with financing fees and redemption premium shown in Note f.

(h)

Represents the decrease to interest expense, net as if the Transactions had been completed as of January 1, 2012, as follows:


(Dollar amounts in millions)	For the Year Ended December 31, 2012			For the Six Months Ended June 30, 2013
Interest expense relating to new debt (i)	$	57		$	29
Less interest expense on existing Boise debt		(62	)		(31	)
Less interest expense on existing PCA term loan		(3	)		(1	)

Pro forma decrease to interest expense, net		(8	)		(3	)

Tax effect (ii)	$	3		$	1

(i)

Assumes a combined weighted average interest rate for the Credit Facilities and the notes of 2.9%. A 1/8% change in the interest rate would result in an increase or decrease in interest expense of $2.5 million for the twelve months ended December 31, 2012 and $1.3 million for the six months ended June 30, 2013, respectively.

(ii)

Assumes a federal and state statutory tax rate of 39%.

(2) Preliminary Fair Value and Other Adjustments for the Acquisition

This adjustment is comprised of:

•

the acquisition of Boise by PCA (the “Acquisition”);

•

preliminary fair value adjustments with respect to the Acquisition; and

•

the payment of estimated fees and expenses

(i)

Reflects the net adjustment to cash if the acquisition had occurred on June 30, 2013, calculated as follows:


(Dollar amounts in millions)
Purchase price at $12.55 per common share	$	(1,281	)
Estimated transaction costs		(47	)

Net adjustment to cash	$	(1,328	)

(j)

Represents the estimated purchase price in excess of the fair value of the assets acquired and liabilities assumed upon acquisition of Boise by PCA. The estimated purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on the estimated fair values with the excess of the purchase price over the fair value recorded to goodwill. The following table presents the calculation of preliminary goodwill arising from the Acquisition:


(Dollar amounts in millions)
Purchase price, net of assumed debt of $775 million (i)	$	1,281
Less: net book value of Boise net assets acquired (including historical goodwill):		(750	)

Excess consideration transferred over net book value of assets acquired		531
Less fair value adjustments related to (ii):
Inventory		26
Property, plant and equipment (iii)		187
Other assets		(22	)
Income tax receivable		(1	)
Deferred income taxes – long term		(74	)

Pro forma adjustment to goodwill		415
Boise historical goodwill included in net assets		160

Pro forma goodwill (iv)	$	575

(i)

Estimated purchase price of outstanding Boise shares of common stock at a price of $12.55 per share.

(ii)

PCA is in process of completing a fair value analysis of assets and liabilities to be acquired from Boise. The adjustments noted above only include preliminary adjustments related to the fair value of inventory, leases and property, plant and equipment. PCA is currently evaluating additional potential adjustments that include, but are not limited to, the following assets and liabilities to be acquired: intangible assets and pension liabilities. At this time, PCA does not have sufficient information to make a determination of the potential magnitude of the fair value adjustment.

(iii)

With respect to property, plant, and equipment, a preliminary analysis to assign fair market values has been prepared and has been reflected within the unaudited pro forma combined financial information.

(iv)

Intangible assets continue to be reported at their historical values in this unaudited pro forma condensed combined financial information. PCA believes that the historical intangibles assets are a reasonable approximation of fair value as they are the result of purchase accounting and recent fair value appraisals completed by Boise for recent acquisitions. PCA is currently re-evaluating the fair value of the intangible assets in connection with the acquisition of Boise. The final purchase price allocation may include necessary adjustments to allocate a portion of the purchase price to identifiable intangible assets as of the closing of the Transactions. While PCA’s analysis to assign preliminary fair market values has not been completed, the Company expects that identifiable intangible assets will include trade names, customer relationships and proprietary technology. The final valuation of identifiable intangible assets may differ materially from the information presented herein.

(k)

Represents the decrease to retained earnings for estimated acquisition-related expenses of $47 million expected to be incurred plus the elimination of historical Boise retained earnings of $99 million less an $11 million adjustment related to PCA’s planned major maintenance accounting policy as described in Note p. During the six months ended June 30, 2013, acquisition-related expenses incurred by PCA were immaterial.

(l)

Represents the elimination of Boise additional paid in capital.

(m)

Represents the elimination of Boise treasury stock.

(n)

Represents the elimination of Boise accumulated other comprehensive loss.

(o)

Represents elimination adjustments for sales between PCA and Boise, accounts receivable and accounts payable due from/to the respective companies.

(p)

PCA’s policy is to defer the costs associated with planned major maintenance and recognize the expense ratably over the remainder of the fiscal year after incurred. As of June 30, 2013, Boise would have recognized a current asset with an increase in income of $18 million and corresponding tax impact of $7 million related to costs incurred that would have been recognized ratably over the remaining fiscal year in accordance with PCA policy.

PCA may identify additional differences between the accounting policies of the two companies that, when conformed, could have a material impact on the combined financial statements. At this time, PCA is not aware of any additional differences in accounting policies that would have a material impact on the combined financial statements that have not been adjusted for in the pro forma financial information. Accounting policy differences may be identified after completion of the acquisition.

(q)

Reflects the estimated impact on depreciation for the fair value adjustment for property, plant and equipment using a weighted average estimated useful remaining life of 15 years. PCA has based these adjustments on preliminary estimates of the fair values of Boise’s property, plant and equipment. The actual fair values assigned and the impact on depreciation expense may be materially different than the estimates provided herein.

(r)

Reflects the income tax effect of the pro forma adjustments based on an estimated statutory tax rate of 39% for the period ended June 30, 2013.

(3) Reclassifications

For the purpose of this unaudited pro forma information, certain amounts in Boise’s unaudited condensed consolidated balance sheet as of June 30, 2013, the consolidated statements of income for the six-month period then ended and the consolidated statements of income for the twelve-month period ended December 31, 2012 were reclassified to maintain consistency in presentation with PCA’s financial information. The significant amounts that were reclassified on the balance sheet at June 30, 2013 were: (1) $24 million from deferring financing costs to other assets; and (2) $65 million from compensation and benefits to other accrued liabilities. The significant amounts that were reclassified in the consolidated income statement for the twelve-month period ended December 31, 2012 were: (1) $149 million from depreciation and amortization to cost of sales, (2) $20 million of related party fiber costs to cost of sales; and (3) $21 million of freight costs included within selling and distribution expenses to cost of sales. The significant amounts that were reclassified in the consolidated income statement for the six-month period ended June 30, 2013 were: (1) $85 million from depreciation and amortization to cost of sales, (2) $11 million of related party fiber costs to cost of sales, and (3) $11 million of freight costs included within selling and distribution expenses to cost of sales.

EX-99.2

Exhibit 99.2

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, 2012 and 2011, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012. 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 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Boise Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Boise, Idaho

February 26, 2013

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 (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2012. 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 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, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Boise, Idaho

February 26, 2013

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			Accumulated Other Comprehensive			Retained
	Preferred Stock		Shares			Amount		Shares		Amount			Capital			Income (Loss)			Earnings			Total
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:

See Note 17, Segment Information, for additional information about our three reportable segments, Packaging, Paper, and Corporate and Other (support services).

The consolidated financial statements included herein are those of the following:

•

Boise Inc. and its wholly owned subsidiaries, including BZ Intermediate Holdings LLC (BZ Intermediate).

•

BZ Intermediate and its wholly owned subsidiaries, including Boise Paper Holdings, L.L.C. (Boise Paper Holdings).

In these consolidated financial statements, unless the context indicates otherwise, the terms “the Company,” “we,” “us,” “our,” or “Boise” refer to Boise Inc. and its consolidated subsidiaries, including BZ Intermediate. There are no significant differences between the results of operations, financial condition, and cash flows of Boise Inc. and those of BZ Intermediate other than income taxes and common stock activity. Some amounts in prior periods’ consolidated financial statements have been reclassified to conform with the current period’s presentation, none of which were considered material.

2. Summary of Significant Accounting Policies

Consolidation and Use of Estimates

The consolidated financial statements include the accounts of Boise Inc. and its subsidiaries after elimination of intercompany balances and transactions. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible assets, and asset retirement obligations; assumptions used in retirement benefit obligations; the recognition, measurement, and valuation of income taxes; the determination and allocation of the fair values of assets acquired and liabilities assumed in acquisitions; and assessment of the recoverability of long-lived assets. These estimates and

assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

Revenue Recognition

We recognize revenue when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, our price to the buyer is fixed or determinable, and collectibility is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. The timing of revenue recognition is dependent on shipping terms. Revenue is recorded at the time of shipment for terms designated freight on board (FOB) shipping point. For sales transactions designated FOB destination, revenue is recorded when the product is delivered to the customer’s delivery site. Fees for shipping and handling charged to customers for sales transactions are included in “Sales”. Costs related to shipping and handling are included in “Materials, labor, and other operating expenses (excluding depreciation)”. We present taxes collected from customers and remitted to governmental authorities on a net basis in our Consolidated Statements of Income.

Share-Based Compensation

We recognize compensation expense for awards granted under the Boise Inc. Incentive and Performance Plan (the Plan) based on the fair value on the grant date. We recognize the cost of the equity awards over the period the awards vest. See Note 11, Share-Based Compensation, for more information.

Advertising Costs

We expense advertising costs as incurred. These expenses are generally recorded in “Selling and distribution expenses” in our Consolidated Statements of Income. For the years ended December 31, 2012 and 2011, advertising costs were $3.8 million in both periods, compared with $3.0 million in 2010.

Foreign Currency

Local currencies are the functional currencies for our operations outside the United States. Assets and liabilities are remeasured into U.S. dollars using the exchange rates as of the Consolidated Balance Sheet date. Revenue and expense items are remeasured into U.S. dollars using an average exchange rate prevailing during the period. Any resulting translation adjustments are recorded in the Consolidated Statements of Comprehensive Income. The foreign exchange gain (loss) reported in the Consolidated Statements of Income resulted from remeasuring transactions into the functional currencies.

Cash and Cash Equivalents

We consider all highly liquid interest-earning investments, including time deposits and certificates of deposit, with a maturity of three months or less at the date of purchase to be cash equivalents. The fair value of these investments approximates their carrying value. Cash totaled $44.9 million and $21.9 million at December 31, 2012 and 2011, respectively. Included in the December 31, 2012 and 2011, amounts were $8.0 million and $4.3 million, respectively, of cash at our operations outside the United States. Cash equivalents totaled $4.8 million and $75.1 million, respectively, at December 31, 2012 and 2011.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are stated at the amount we expect to collect. Trade accounts receivable do not bear interest. The allowance for doubtful accounts is our best estimate of the losses we expect will result from the inability of our customers to make required payments. We determine the allowance based on a combination of actual historical loss experience and an analysis of specific customer accounts. We periodically review our allowance for doubtful accounts and adjustments to the valuation allowance are charged to income. Trade accounts receivable balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. We may, at times, insure or arrange for guarantees on our receivables.

Financial Instruments

Our financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, long-term debt, and energy hedges. The recorded values of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate fair values based on their short-term nature. Our long-term debt is recorded at the face value of those obligations. Our energy hedges are recorded at fair value.

We are exposed to market risks, including changes in interest rates, energy prices, and foreign currency exchange rates. We employ a variety of practices to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. Derivative instruments are used only for risk management purposes and not for speculation or trading. Derivatives are such that a specific debt instrument, contract, or anticipated purchase determines the amount, maturity, and other specifics of the hedge. If a derivative contract is entered into, we either determine that it is an economic hedge or we designate the derivative as a cash flow or fair value hedge. We formally document all relationships between hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking various hedged transactions. For those derivatives that are not designated as economic hedges, such as cash flow or fair value hedges, we formally assess, both at the derivatives’ 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. 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 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.

Fair Value Measurements

The Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) establishes a fair value hierarchy, which prioritizes the inputs of valuation techniques used to measure fair value into three levels. The fair value hierarchy gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). 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 monitor credit ratings of counterparties to the agreements, which are large financial institutions, to consider the impact, if any, on 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):


	December 31						General Range of Estimated Useful
	2012			2011			Lives in Years
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 27 years for buildings and improvements and 13 years for machinery and equipment. Machinery and equipment consists of the following categories of assets and the following estimated useful lives:


Computer hardware and software			3 - 10
Furniture and fixtures			3 - 10
Vehicles			3 - 7
Packaging and papermaking equipment			9 - 20

Depreciation expense for the years ended December 31, 2012, 2011, and 2010, was $134.0 million, $129.8 million, and $120.5 million, respectively.

Leases

We assess lease classification as either capital or operating at lease inception or upon modification. We lease some of our locations, as well as other property and equipment, under operating leases. For purposes of determining straight-line rent expense, the lease term is calculated from the date of possession of the facility, including any periods of free rent and any renewal option periods that are reasonably assured of being exercised.

Fiber Farms

Costs for activities related to the establishment of a new crop of trees, including planting, thinning, fertilization, pest control, herbicide application, irrigation, and land lease costs, are capitalized. The capitalized costs are accumulated by specifically identifiable farm or irrigation blocks. We charge capitalized costs, excluding land, to “Depreciation, amortization, and depletion” in the accompanying Consolidated Statements of Income at the time of harvest based on actual accumulated costs associated with the fiber cut. Costs for administration, harvesting, insurance, and property taxes are recognized in “Materials, labor and other operating expenses (excluding depreciation)” in the accompanying Consolidated Statements of Income at the time the associated fiber is utilized.

Long-Lived Asset Impairment

An impairment of long-lived assets exists when the carrying value of an asset is not recoverable through future undiscounted cash flows from operations and when the carrying value of an asset exceeds its fair value. We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.

Goodwill and Intangible Assets

We maintain two reporting units for purposes of our goodwill and intangible asset impairment testing, Packaging and Paper, which are the same as our operating segments discussed in Note 17, Segment Information. We test goodwill, recorded in our Packaging segment, and indefinite-lived intangible assets, recorded in our Paper segment, for impairment annually in the fourth quarter or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value. Additionally, we evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary. See Note 7, Goodwill and Intangible Assets, for additional information.

Deferred Software Costs

Internal-use software is software that is developed internally, developed or modified solely to meet our needs, and for which, during the software’s development or modification, a plan does not exist to market the software externally. We defer internal-use software costs that benefit future years. These costs are amortized using the straight-line method over the expected life of the software, typically three to five years. “Other assets” in the Consolidated Balance Sheets include $6.4 million of deferred software costs at both December 31, 2012 and 2011, respectively. We amortized $1.6 million, $0.9 million, and $0.8 million of deferred software costs for the years ended December 31, 2012, 2011, and 2010, respectively.

Pension Benefits

Several estimates and assumptions are required to record pension costs and liabilities, including discount rate, return on assets, and longevity and service lives of employees. We review and update these assumptions annually unless a plan curtailment or other event occurs, requiring we update the estimates on an interim basis. While we believe the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.

New and Recently Adopted Accounting Standards

In February 2013, the FASB issued Accounting Standards Update (ASU) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU requires entities to disclose additional information about changes in and significant items reclassified out of accumulated other comprehensive income. The guidance is effective for annual and interim reporting periods beginning after January 1, 2013. We do not believe the adoption of this update will have a material effect on our financial position and results of operations.

In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This ASU clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11. This guidance is effective for annual and interim reporting periods beginning January 1, 2013. We do not believe the adoption of this update will have a material effect on our financial position and results of operations.

In July 2012, the FASB issued ASU 2012-02, Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU gives entities testing indefinite-lived intangible assets for impairment the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, the entity is not required to take further action. However, if an entity concludes otherwise, a quantitative impairment test is required. This guidance is effective for our annual and interim impairment tests beginning January 1, 2013, with early adoption permitted. We do not believe the adoption of this update will have a material effect on our financial position and results of operations.

In September 2011, the FASB issued ASU 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU gives entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the goodwill impairment test. If entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. We adopted the provisions of this guidance on January 1, 2012, and it had no effect on our financial position and results of operations.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU increases the prominence of other comprehensive income in financial statements. Under this ASU, we have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The ASU eliminates the option to present the components of other comprehensive income as part of the statement of equity. We adopted the provisions of ASU 2011-05 on January 1, 2012. The adoption of this guidance resulted in adding the Consolidated Statements of Comprehensive Income to our Consolidated Financial Statements.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS). This ASU was issued to provide largely identical guidance about fair value measurement and disclosure requirements for entities that disclose the fair value of an asset, a liability, or an instrument classified in shareholders’ equity in their consolidated financial statements as that provided in the International Accounting Standards Board’s new IFRS 13, Fair Value Measurement. This ASU does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where it already is required or permitted under U.S. generally accepted accounting principles (GAAP). We adopted the provisions of ASU 2011-04 on January 1, 2012. The adoption of this guidance did not have a material effect on our financial statement disclosures.

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

3. St. Helens Charges

In December 2012, we ceased paper production on our one remaining paper machine at our St. Helens, Oregon, paper mill. The cessation is a result of the machine’s inability to compete in the marketplace over the long-term, due primarily to high fiber costs and declining product demand. This reduces our annual uncoated freesheet capacity by almost 60,000 tons and results in the loss of approximately 100 jobs, primarily at the mill. The remaining machine, which is owned by Cascades Tissue Group (Cascades), continues to operate on the site, and we continue to lease Cascades supporting assets.

During the year ended December 31, 2012, we recorded $31.7 million of pretax costs in our Paper segment, related primarily to ceasing paper production at the mill. In our Consolidated Statements of Income, we recorded $27.6 million of shutdown costs in “St. Helens charges” and $4.1 million in “Materials, labor, and other operating expenses (excluding depreciation)” related to inventory write-downs and other one-time costs incurred. At December 31, 2012, $4.3 million of costs were recorded in “Accrued liabilities, Compensation and benefits”, $0.7 million in “Accrued liabilities, Other”, and $10.3 million in “Other long-term liabilities” on our Consolidated Balance Sheet.

An analysis of the St. Helens costs is as follows (in thousands):


	Noncash			Cash (a)		Total Costs
Asset write-down	$	11,144	(b)	$	—	$	11,144
Inventory write-down		1,982			—		1,982
Employee-related costs		—			4,334		4,334
Pension curtailment loss		1,060			—		1,060
Increase in asset retirement obligations (Note 15)		—			10,256		10,256
Other		—			2,969		2,969

	$	14,186		$	17,559	$	31,745

(a)	We expect to pay approximately $7.3 million of the $17.6 million of cash costs in early 2013 and the remaining cash costs over a longer term.

(b)

During third quarter 2012, we assessed the St. Helens long-lived assets for impairment. Our assessment was based upon, among other things, our estimates of the amount of future net cash flows to be generated by the long-lived assets and our estimates of the current fair value of the assets (Level 3 inputs). Considerable management judgment is necessary to evaluate estimated future cash flows. The assumptions used in our impairment evaluations are consistent with our operating plans.

4. Acquisitions

On March 1, 2011, we acquired Tharco Packaging, Inc. and its subsidiaries (Tharco) for $201.3 million (Tharco Acquisition), and on December 1, 2011, we acquired Hexacomb Corporation and its affiliated companies and all of the honeycomb packaging-related assets of Pregis Mexico (Hexacomb) for $124.9 million (Hexacomb Acquisition). We acquired 100% of the outstanding stock and voting equity interests of both Tharco and Hexacomb. The financial results for Tharco and Hexacomb are included in our Packaging segment.

During the year ended December 31, 2012, we recorded approximately $1.8 million of purchase price adjustments that decreased goodwill. These adjustments related primarily to changes in deferred tax liabilities that resulted from further analysis of the tax basis of acquired assets and liabilities and other tax adjustments.

5. Net Income Per Common Share

Net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Net income per common share is not applicable to BZ Intermediate because it does not have common shares. Boise Inc.’s basic and diluted net income per share is calculated as follows (dollars and shares in thousands, except per-share data):


	Year Ended December 31
	2012		2011		2010
Net income	$	52,150	$	75,210	$	62,734
Weighted average number of common shares for basic net income per common share (a)		99,872		101,941		80,461
Incremental effect of dilutive common stock equivalents:
Restricted stock and restricted stock units		999		2,502		3,670
Performance units		268		87		—
Common stock warrants (b)		—		2,214		—
Stock options (c)		4		2		—

Weighted average number of common shares for diluted net income per common share		101,143		106,746		84,131

Net income per common share:
Basic	$	0.52	$	0.74	$	0.78

Diluted	$	0.52	$	0.70	$	0.75

(a)	During the year ended December 31, 2011, 40.3 million warrants were exercised, resulting in the issuance of 38.4 million additional common shares. For the year ended December 31, 2011, the exercise added 25.7 million to the number of weighted average shares included in basic net income per share.

During the year ended December 31, 2011, 21.2 million common shares were repurchased, resulting in a 5.1 million decrease in the number of weighted average shares included in basic and diluted net income per share.

(b)	For the year ended December 31, 2010, the warrants were not included in the computation of diluted net income per share because the exercise price exceeded the average market price of our common stock. The warrants were accounted for under the treasury stock method.

(c)	We excluded 0.8 million and 0.3 million of stock options from the computation of diluted net income per common share because they were antidilutive for the years ended December 31, 2012 and 2011, respectively. We had no stock options outstanding during 2010.

6. Income Taxes

A reconciliation of the statutory U.S. federal tax provision and the reported tax provision is as follows (dollars in thousands):


	Boise Inc.									BZ Intermediate
	Year Ended December 31
	2012			2011			2010			2012			2011			2010
Income before income taxes	$	86,134		$	125,341		$	108,106		$	86,134		$	125,341		$	108,106
Statutory U.S. income tax rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
Statutory tax provision	$	30,147		$	43,870		$	37,837		$	30,147		$	43,870		$	37,837
Foreign rate differential		(165	)		3			—			(165	)		3			—
State taxes		3,340			4,839			4,120			3,340			4,839			4,120
Valuation allowance		225			146			307			225			146			307
Nondeductible costs		985			1,476			652			985			1,476			652
Other		(548	)		(203	)		2,456			(548	)		(203	)		1,613

Income tax provision	$	33,984		$	50,131		$	45,372		$	33,984		$	50,131		$	44,529

Effective income tax provision rate		39.5	%		40.0	%		42.0	%		39.5	%		40.0	%		41.2	%

The income tax provision shown in the Consolidated Statements of Income includes the following (dollars in thousands):


	Boise Inc.									BZ Intermediate
	Year Ended December 31
	2012			2011			2010			2012			2011			2010
Current income tax provision (benefit)
Federal	$	(599	)	$	2,249		$	4,253		$	(599	)	$	2,047		$	4,454
State		832			3,472			2,236			832			3,529			2,194
Foreign		67			109			(1	)		67			109			(1	)

Total current	$	300		$	5,830		$	6,488		$	300		$	5,685		$	6,647

Deferred income tax provision (benefit)
Federal	$	29,985		$	40,778		$	34,061		$	29,985		$	40,980		$	33,151
State		3,705			3,524			4,831			3,705			3,467			4,739
Foreign		(6	)		(1	)		(8	)		(6	)		(1	)		(8	)

Total deferred	$	33,684		$	44,301		$	38,884		$	33,684		$	44,446		$	37,882

Income tax provision (a)	$	33,984		$	50,131		$	45,372		$	33,984		$	50,131		$	44,529

(a)

In January 2013, the U.S. President signed into law the American Taxpayer Relief Act of 2012, which extended many tax provisions that would have otherwise expired in 2012. Our income tax provision at December 31, 2012, does not include the effect of this law; however, the effect, if any, would not be significant. We will record the effect, if any, of the extended tax provisions in first quarter 2013.

During the year ended December 31, 2012, refunds received, net of cash paid for taxes, was $0.5 million. During the years ended December 31, 2011 and 2010, cash paid for taxes, net of refunds received, was $1.9 million and $0.7 million, respectively.

The following details the scheduled expiration dates of our tax effected net operating loss (NOL) and tax credit carryforwards at December 31, 2012 (dollars in thousands):


	Boise Inc.								BZ Intermediate
	2013 Through 2022		2023 Through 2032		Indefinite		Total		2013 Through 2022		2023 Through 2032		Indefinite		Total
U.S. federal and non-U.S. NOLs	$	4,432	$	35,820	$	—	$	40,252	$	4,432	$	35,920	$	—	$	40,352
State taxing jurisdiction NOLs		351		3,380		—		3,731		351		3,380		—		3,731
U.S. federal, non-U.S., and state tax credit carryforwards		196		589		4,053		4,838		196		589		4,053		4,838
U.S. federal capital loss carryforwards		1,232		—		—		1,232		1,232		—		—		1,232

Total	$	6,211	$	39,789	$	4,053	$	50,053	$	6,211	$	39,889	$	4,053	$	50,153

Internal Revenue Code Section 382 imposes limitations on our ability to use net operating losses if we experience “ownership changes.” In general terms, ownership change may result from transactions increasing the ownership of specified shareholders by greater than 50 percentage points over a three year period. We cannot give any assurance we will not undergo any ownership change at a time when these limitations would have a significant effect. To the extent we are not able to use net operating losses in any given year, the unused limitation amount may be carried over to later years. We believe it is more likely than not that our net operating losses will be fully realized before they expire.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The components of our net deferred tax assets and liabilities at December 31, 2012 and 2011, in the Consolidated Balance Sheets are as follows (dollars in thousands):


	Boise Inc.						BZ Intermediate
	December 31
	2012			2011			2012			2011
Deferred tax assets
Employee benefits (a)	$	68,375		$	84,453		$	68,375		$	84,453
Deferred financing costs		1,584			1,593			1,584			1,593
Intangible assets and other		310			122			310			122
Net operating loss carryforwards (b)		61,106			61,262			60,999			61,155
Alternative minimum tax		4,053			4,877			4,053			4,877
Asset retirement obligations		8,025			3,933			8,025			3,933
Inventories		7,752			11,875			7,752			11,875
State income tax adjustments		4,894			4,701			4,894			4,701
Other		9,130			10,000			9,130			10,000

Gross deferred tax assets		165,229			182,816			165,122			182,709
Valuation allowance (c)		(5,296	)		(5,340	)		(5,296	)		(5,340	)

Net deferred tax assets	$	159,933		$	177,476		$	159,826		$	177,369

Deferred tax liabilities
Property and equipment	$	266,120		$	244,230		$	266,120		$	244,230
Intangible assets and other		60,195			61,416			60,195			61,416
Deferred income		9,647			9,647			908			908
Other		4,386			3,064			4,471			3,148

Deferred tax liabilities	$	340,348		$	318,357		$	331,694		$	309,702

As reported on our Consolidated Balance Sheets
Current deferred tax assets, net	$	17,955		$	20,379		$	17,955		$	20,379
Noncurrent deferred tax liabilities		198,370			161,260			189,823			152,712

Total deferred tax liabilities, net (d)	$	180,415		$	140,881		$	171,868		$	132,333

(a)	The decrease relates to the tax effect of changes in recorded pension liabilities. See Note 10, Retirement and Benefit Plans, for more information.

(b)

At December 31, 2012 and 2011, net operating losses exclude $9.8 million and $4.4 million, respectively, of tax benefits that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. To the extent such net operating losses are utilized, stockholders’ equity will be increased.

(c)

Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. In 2012 and 2011, we recorded a $5.3 million valuation allowance. In 2012, $4.1 million of the valuation allowance relates to foreign net operating loss carryforwards, and the remaining $1.2 million relates to a valuation allowance recorded in full on deferred tax assets relating to capital losses. In 2011, $4.3 million of the valuation allowance relates to foreign net operating loss carryforwards and credits acquired as part of the Hexacomb acquisition. The remaining $1.0 million valuation allowance recorded during 2011 relates to a valuation allowance recorded in full on deferred tax assets relating to capital losses. We do not expect to generate capital gains before the losses expire. If or when recognized, the tax benefits relating to the reversal of any of or all of the valuation allowance will be recognized as a reduction of income tax expense.

(d)

As of December 31, 2012, we had not recognized U.S. deferred income taxes on our cumulative total of undistributed earnings for non-U.S. subsidiaries. Determining the unrecognized deferred tax liability related to investments in these non-U.S. subsidiaries that are indefinitely reinvested is not practicable. We currently intend to indefinitely reinvest those earnings in operations outside the United States.

Pretax income from domestic and foreign sources is as follows (dollars in thousands):


	Boise Inc.						BZ Intermediate
	Year Ended December 31
	2012		2011		2010		2012		2011		2010
Domestic	$	85,287	$	125,072	$	108,095	$	85,287	$	125,072	$	108,095
Foreign		847		269		11		847		269		11

Income before income taxes	$	86,134	$	125,341	$	108,106	$	86,134	$	125,341	$	108,106

Uncertain Income Tax Positions

A reconciliation of the unrecognized tax benefits is as follows (dollars in thousands):


	Boise Inc.									BZ Intermediate
	2012			2011			2010			2012			2011			2010
Beginning balance	$	90,989		$	87,585		$	87,838		$	90,968		$	87,564		$	87,820
Gross increases related to prior-period tax positions		189			409			169			189			409			166
Gross decreases related to prior-period tax positions		(2,284	)		(228	)		(529	)		(2,284	)		(228	)		(529	)
Gross increases related to current-period tax positions		—			3,223			107			—			3,223			107
Settlements		—			—			—			—			—			—

Ending balance (a)	$	88,894		$	90,989		$	87,585		$	88,873		$	90,968		$	87,564

(a)

The unrecognized tax benefit, net of federal benefit for state taxes of $4.1 million, was $84.8 million at December 31, 2012. If that amount were recognized it would decrease our annual effective tax rate. Of this amount, $56.6 million ($56.5 million for BZ Intermediate) is recorded as a credit to long-term deferred taxes to eliminate the benefit associated with the uncertain tax position. The remaining $28.3 million ($28.4 million for BZ Intermediate) is recorded in “Other long-term liabilities” on our Consolidated Balance Sheets. Included in the $84.8 million is a credit related to our use of alternative fuel mixture to produce energy to operate our business of $83.2 million. Additional information relating to the inclusion of the alternative fuel mixture credits in taxable income may become available in the next 12 months, which could cause us to change our unrecognized tax benefits from the amounts currently recorded. It is not reasonably possible to know to what extent the total amounts of unrecognized benefits will increase or decrease within the next 12 months.

BZ Intermediate is a wholly owned, consolidated entity of Boise Inc., and its tax return is filed under the consolidated tax return of Boise Inc. We file federal income tax returns in the U.S., state income tax returns in various state jurisdictions, and foreign income tax returns in various foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. Tax years beginning in 2009 are subject to examination by taxing authorities, although net operating loss and credit carryforwards from all years are subject to examinations and adjustments for at least three years following the year in which utilized. Some foreign tax jurisdictions are open for the 2008 tax year.

7. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At December 31, 2012, we had $160.1 million of goodwill recorded on our Consolidated Balance Sheet in our Packaging segment.

Changes in the carrying amount of our goodwill are as follows (dollars in thousands):


	Goodwill
Balance at January 1, 2011	$	—
Goodwill acquired		162,169
Foreign currency translation adjustments		(478	)

Balance at December 31, 2011		161,691
Additions (reductions) (a)		(1,799	)
Foreign currency translation adjustments		238

Balance at December 31, 2012	$	160,130

(a)	Represents purchase price adjustments related to the Tharco and Hexacomb acquisitions.

Intangible Assets

Intangible assets are comprised of customer relationships, trademarks and trade names, technology, and noncompete agreements. At December 31, 2012, the net carrying amount of intangible assets with indefinite lives, which represents trade names and trademarks, was $16.8 million, all of which is recorded in our Paper segment. All of our other intangible assets amortize based on their estimated useful lives. Foreign intangible assets are affected by foreign currency translation.

The gross carrying amount, accumulated amortization, net carrying amount, and weighted average useful life of our intangible assets were as follows (dollars in thousands):


	As of December 31, 2012
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Useful Life (in Years)
Customer relationships	$	120,077	$	(16,485	)	$	103,592		15
Trademarks and trade names		28,400		(2,634	)		25,766		15
Technology and other		7,760		(6,771	)		989		5
Noncompete agreements		835		(418	)		417		3

Total finite-lived intangible assets	$	157,072	$	(26,308	)		130,764		13

Indefinite-lived trademarks and trade names							16,800

Total intangible assets (excluding goodwill)						$	147,564


	As of December 31, 2011
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Useful Life (in Years)
Customer relationships	$	119,646	$	(8,275	)	$	111,371		15
Trademarks and trade names		28,400		(623	)		27,777		15
Technology and other		7,760		(5,265	)		2,495		5
Noncompete agreements		835		(158	)		677		3

Total finite-lived intangible assets	$	156,641	$	(14,321	)		142,320		13

Indefinite-lived trademarks and trade names							16,800

Total intangible assets (excluding goodwill)						$	159,120

The following table sets forth our intangible asset amortization (dollars in thousands):


	Year Ended December 31
	2012		2011		2010
Intangible asset amortization	$	11,952	$	6,533	$	2,754

Based on current intangibles subject to amortization, our estimated future intangible asset amortization expense is as follows (dollars in thousands):


	2013		2014		2015		2016		2017		2018 and After
Amortization expense	$	10,375	$	10,122	$	10,122	$	10,113	$	10,021	$	80,011

Impairment Testing

We maintain two reporting units for purposes of our goodwill and intangible asset impairment testing, Packaging and Paper, which are the same as our operating segments discussed in Note 17, Segment Information. We test the goodwill, recorded in our Packaging segment, and the indefinite-lived intangible assets, recorded in our Paper segment, for impairment annually in the fourth quarter or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value. Additionally, we evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary. We completed our test in fourth quarter, and there is no indication of goodwill or intangible asset impairment.

8. Debt

At December 31, 2012 and 2011, our long-term debt and the interest rates on that debt were as follows (dollars in thousands):


	December 31, 2012						December 31, 2011
	Amount			Interest Rate			Amount			Interest Rate
Revolving credit facility, due 2016	$	5,000			2.21	%	$	—			—	%
Tranche A term loan, due 2016		175,000			2.22			200,000			2.30
9% senior notes, due 2017		300,000			9.00			300,000			9.00
8% senior notes, due 2020		300,000			8.00			300,000			8.00

Long-term debt		780,000			7.05			800,000			6.95
Current portion of long-term debt		(10,000	)		2.22			(10,000	)		2.30

Long-term debt, less current portion	$	770,000			7.11	%	$	790,000			7.01	%

In 2011, Boise Paper Holdings, as borrower, and BZ Intermediate, as guarantor, entered into a $700 million five-year senior secured credit agreement (Credit Agreement) with a syndicate of lenders. The Credit Agreement consists of a five-year amortizing $200 million Tranche A term loan facility (the Term Loan Facility) and a five-year nonamortizing $500 million revolving credit facility (the Revolving Credit Facility and, together with the Term Loan Facility, the Credit Facilities).

As of December 31, 2012, our debt consisted of the following:

•

The Revolving Credit Facility: A five-year nonamortizing $500 million senior secured revolving credit facility with variable annual interest. In addition to paying interest, we pay an annual commitment fee for undrawn amounts at a rate of either 0.35% or 0.50% depending on our total leverage ratio.

•

The Tranche A Term Loan Facility: A five-year amortizing $200 million senior secured loan facility with variable annual interest.

•

The 9% Senior Notes: An eight-year nonamortizing $300 million senior unsecured debt obligation with fixed annual interest of 9%.

•

The 8% Senior Notes: A ten-year nonamortizing $300 million senior unsecured debt obligation with fixed annual interest of 8%.

Credit Facilities

Under our Credit Facilities we elect whether interest on our Term Loan and, separately, interest under any Revolving Credit Facility is based on an alternative base rate or the London Interbank Offered Rate (LIBOR), plus an applicable spread based on our total leverage ratio. Our total leverage ratio is essentially our total net debt divided by our four trailing quarters of Adjusted Consolidated EBITDA (as defined in the Credit Agreement). Based on our current one-month LIBOR election, at December 31, 2012, the interest rate on our Credit Facilities was LIBOR plus 200 basis points and we pay interest on the Credit Facilities monthly in arrears.

At December 31, 2012, we had $5.0 million of borrowings outstanding under our Revolving Credit Facility. No amounts were outstanding at December 31, 2011. During 2012, the maximum borrowings under the Revolving Credit Facility were $5.0 million, and the weighted average amount of borrowings outstanding during the year was $0.1 million. At December 31, 2012, we had availability of $487.7 million, which is net of outstanding letters of credit of $7.3 million. At December 31, 2012, the average interest rate for our outstanding borrowings under our Revolving Credit Facility was 2.21%.

We are required to maintain the following financial covenant ratios under the Credit Agreement:

•

Interest expense coverage ratio must be 2.50 or more based on four consecutive fiscal quarters.

•

Senior secured leverage ratio must be 2.75 or less as of the end of any fiscal quarter.

•

Total leverage ratio must be 4.50 or less as of the end of any fiscal quarter.

The Credit Facilities also contain representations and warranties, affirmative and negative covenants, events of default, and indemnifications customary for loan agreements for similar secured financings, including limits on the ability of Boise Paper Holdings and its subsidiaries to make restricted payments, acquisitions, and capital expenditures.

In the event of default, the lenders could terminate their commitments, declare the Credit Facilities, including interest and fees, due and payable, or enforce liens and security interests to collect outstanding amounts due under the Credit Facilities. In addition, the Credit Facilities require the proceeds from asset sales, subject to specified exceptions and casualty insurance, be used to pay down outstanding borrowings. At December 31, 2012, we were in compliance with these covenants. In third quarter 2012, we made $25.0 million of long-term debt payments on our Tranche A Term Loan Facility, $17.5 million of which were voluntary and eliminate our required principal payment obligations until December 31, 2013.

The obligations of Boise Paper Holdings under our Credit Facilities are guaranteed by each of BZ Intermediate’s and Boise Paper Holdings’ existing and subsequently acquired domestic and foreign subsidiaries, subject to materiality limitations (collectively, the Credit Facility Guarantors). The Credit Facilities are secured by all intercompany debt and a first-priority security interest in substantially all of the real, personal, and mixed property of Boise Paper Holdings and the Credit Facility Guarantors, including a first-priority security interest in 100% of the equity interests of Boise Paper Holdings and each domestic subsidiary of Boise Paper Holdings and, if requested by the administrative agent, 65% of the equity interests of our foreign subsidiaries.

8% and 9% Senior Notes

The 8% and 9% Senior Notes (together, the Senior Notes) are senior unsecured obligations and rank equally with all of our present and future senior indebtedness, senior to all of our future subordinated indebtedness and effectively subordinated to all of our present and future senior secured indebtedness (including all borrowings with respect to the Credit Facilities to the extent of the value of the assets securing such indebtedness). Interest on the Senior Notes is due semiannually.

The Senior Notes indenture agreements contain covenants which, subject to exceptions, limit the ability of the Senior Notes issuers and guarantors to, among other things, incur additional indebtedness, engage in some asset sales, make specified types of restricted payments, engage in transactions with affiliates, and create liens on assets of the Senior Notes issuers or guarantors. Upon a change of control, the Senior Notes issuers must offer to repurchase the Senior Notes at 101% of the principal amount, plus accrued and unpaid interest. If the Senior Notes issuers sell specified types of assets and do not use the proceeds from such sales for specified purposes, they must offer to repurchase the Senior Notes at 100% of the principal amount, plus accrued and unpaid interest.

Our 9% Senior Notes are callable at any time on or after November 1, 2013, at 104.5% of the principal amount, decreasing to par by November 1, 2015, plus accrued and unpaid interest.

Our 8% Senior Notes are callable at any time on or after April 1, 2015, at 104% of the principal amount, decreasing to par by April 1, 2018, plus accrued and unpaid interest.

The Senior Notes are jointly and severally guaranteed on a senior unsecured basis by BZ Intermediate and each existing and future subsidiary of BZ Intermediate (other than their respective issuers). The Senior Notes Guarantors do not include Louisiana Timber Procurement Company, L.L.C., or our foreign subsidiaries.

Other

As of December 31, 2012, required debt principal repayments were as follows (dollars in thousands):


	2013		2014		2015		2016		2017		Thereafter
Required debt principal repayments (a)	$	10,000	$	20,000	$	30,000	$	120,000	$	300,000	$	300,000

(a)	Debt maturities in 2013 include repayment of $5.0 million of borrowings under our Revolving Credit Facility based on our intent to repay in 2013.

At December 31, 2012 and 2011, we had $26.7 million and $31.0 million, respectively, of costs recorded in “Deferred financing costs” on our Consolidated Balance Sheet. When we entered into the Credit Agreement in November 2011, we capitalized $7.9 million of financing costs, which we recorded in “Deferred financing costs” on our Consolidated Balance Sheets. We record the amortization of deferred financing costs in interest expense using the effective interest method over the life of the loans. For the years ended December 31, 2012, 2011, and 2010, we recorded $4.5 million, $5.8 million, and $6.8 million, respectively, of amortization expense in “Interest expense” in our Consolidated Statements of Income.

During 2011 and 2010, we substantially modified our debt structures, and as a result, we expensed $2.3 million in 2011 and $22.2 million in 2010 in “Loss on extinguishment of debt” in our Consolidated Statements of Income.

For the years ended December 31, 2012, 2011, and 2010, cash payments for interest were $57.3 million, $58.1 million, and $51.6 million, respectively.

With the exception of the Credit Facilities, our debt is fixed-rate debt. At December 31, 2012, the book value of our fixed-rate debt was $600.0 million, and the fair value was estimated to be $660.5 million. The difference between the book value and fair value is due to the difference between the period-end market interest rate and the stated rate of our fixed-rate, long-term debt. We estimated the fair value of our fixed-rate debt using quoted market prices (Level 1 inputs), discussed further in Note 2, Summary of Significant Accounting Policies.

9. Financial Instruments

Our primary objective in holding derivative financial instruments is to manage cash flow risk. We do not use derivative instruments for speculative purposes.

Energy Risk

We enter into transactions to hedge the variable cash flow risk of natural gas purchases. At December 31, 2012, these derivatives included caps and call spreads, which we account for as economic hedges, and swaps, which are designated and accounted for as cash flow hedges. As of December 31, 2012, we had entered into derivative instruments related to the following approximate percentages of our forecasted natural gas purchases:


	January 2013 Through March 2013			April 2013 Through October 2013			November 2013 Through March 2014			April 2014 Through October 2014			November 2014 Through March 2015			April 2015 Through October 2015			November 2015 Through March 2016
Approximate percent hedged		87	%		75	%		53	%		48	%		43	%		37	%		13	%

Economic Hedges

For derivative instruments that are not designated as hedges for accounting purposes, the gain or loss on the derivatives is recognized in “Materials, labor, and other operating expenses (excluding depreciation)” in the Consolidated Statements of Income. During the years ended December 31, 2012, 2011 and 2010, we recognized an insignificant amount of expense and/or income related to natural gas contracts we account for as economic hedges.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheets and is recognized in “Materials, labor, and other operating expenses (excluding depreciation)” or “Interest expense” in our Consolidated Statements of Income in the period in which the hedged transaction affects earnings. Financial instruments designated as cash flow hedges are assessed both at inception and quarterly thereafter to ensure they are effective in offsetting changes in the cash flows of the related underlying exposures. The fair value of the instruments is reclassified out of accumulated other comprehensive income (loss) to earnings if the hedge ceases to be highly effective or if the hedged transaction is no longer probable. At December 31, 2012 and 2011, we had $1.2 million and $3.7 million of losses, respectively, net of tax recorded in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheets related to our natural gas contracts.

The effects of our cash flow hedging instruments on our Consolidated Balance Sheets and Consolidated Statements of Income were as follows (dollars in thousands):


	(Gain) Loss Recognized in Accumulated Other Comprehensive Income							Loss Reclassified From Accumulated Other Comprehensive Income Into Earnings
	Year Ended December 31
	2012 (a)			2011		2010		2012		2011		2010
Natural gas contracts	$	(1,384	)	$	6,776	$	—	$	2,637	$	754	$	—
Interest rate contracts		—			—		—		—		—		422

Total	$	(1,384	)	$	6,776	$	—	$	2,637	$	754	$	422

(a)	Based on December 31, 2012, pricing, the estimated loss, net of tax, to be recognized in earnings during the next 12 months is $1.2 million.

Fair Values of Derivative Instruments

At December 31, 2012 and 2011, the fair value of our financial instruments was determined based on New York Mercantile Exchange (NYMEX) price quotations under the terms of the contracts, using current market information as of the reporting date. The derivatives were valued by us using third-party valuations based on quoted prices for similar assets and liabilities. Accordingly, all of our fair value measurements use Level 2 inputs.

All of our derivative instruments are recorded in “Accrued liabilities, Other” and “Other long-term liabilities” on our Consolidated Balance Sheets. We offset asset and liability balances, by counterparty, where legal right of offset exists. The following table presents the fair value of these instruments (dollars in thousands):


	Level 2: Significant Other Observable Inputs
	December 31
	2012		2011
Natural gas contracts
Cash flow hedges	$	2,365	$	6,022
Economic hedges		2,197		2,370

Total	$	4,562	$	8,392

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

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.

Defined Benefit Plans

The majority of our pension benefit plans are frozen; however, approximately 400 hourly employees continue to accrue benefits under our defined benefit pension plans. When frozen, the pension benefit for salaried employees was based primarily on the employees’ years of service and highest five-year average compensation. The benefit for hourly employees is generally based on a fixed amount per year of service. Expenses attributable to participation in noncontributory defined benefit plans for the years ended December 31, 2012, 2011, and 2010, were $11.3 million, $10.9 million, and $9.2 million, respectively.

Defined Contribution Plans

Some of our employees participate in contributory defined contribution savings plans, which cover most of our salaried and hourly employees. Expenses related to matching contributions attributable to participation in contributory defined contribution savings plans for the years ended December 31, 2012, 2011, and 2010, were $17.7 million, $14.3 million, and $12.0 million, respectively. The company contributions for eligible salaried employees consist of a nondiscretionary, nonmatching base contribution, plus a matching contribution. We may also make additional discretionary matching and/or nonmatching contributions each year. The company contribution structure for hourly employees varies according to location and union arrangements.

Deferred Compensation Plans

Some of our employees participate in deferred compensation plans, in which key managers and nonaffiliated directors may irrevocably elect to defer a portion of their base salary and bonus or director’s fees until termination of employment or beyond. Participants other than directors may elect to receive their company contributions in the deferred compensation plan in lieu of any company contribution in the defined contribution savings plan. The deferred compensation plans are unfunded; therefore, benefits are paid from our general assets. At December 31, 2012 and 2011, we had $5.9 million and $3.7 million, respectively, of liabilities attributable to participation in our deferred compensation plan on our Consolidated Balance Sheets.

Obligations and Funded Status of Defined Benefit Pension Plans

The funded status of our plans change from year to year based on the plan asset investment return, contributions, benefit payments, and the discount rate used to measure the liability. The following table, which includes only company-sponsored defined benefit plans, reconciles the beginning and ending balances of the projected benefit obligation and the fair value of plan assets. We recognize the unfunded status of our defined benefit pension plans on our Consolidated Balance Sheets, and we recognize changes in funded status in the year changes occur through our Consolidated Statements of Comprehensive Income (dollars in thousands):


	December 31
	2012			2011
Projected benefit obligation at beginning of year	$	558,416		$	475,044
Service cost		2,732			3,969
Interest cost		24,596			25,582
Actuarial loss (a)		14,162			69,768
Closure and curtailment loss		1,060			—
Benefits paid and settlements		(26,965	)		(15,947	)

Projected benefit obligation at end of year	$	574,001		$	558,416

Change in fair value of plan assets
Fair value of plan assets at beginning of year	$	390,082		$	355,901
Actual return on plan assets		60,613			24,714
Employer contributions		35,205			25,414
Benefits paid		(18,551	)		(15,947	)
Settlements		(8,414	)		—

Fair value of plan assets at end of year	$	458,935		$	390,082

Underfunded status	$	115,066		$	168,334

Amounts recognized on our consolidated balance sheets
Current liabilities	$	309		$	294
Noncurrent liabilities		114,757			168,040

Net amount recognized	$	115,066		$	168,334

Amounts recognized in accumulated other comprehensive income (loss)
Actuarial net loss	$	109,796		$	139,061
Prior service cost		—			71

Net loss recognized	$	109,796		$	139,132

(a)	The actuarial loss in 2012 is due primarily to a decrease in the weighted average discount rate from 4.50% to 4.25%, compared with a decrease from 5.50% to 4.50% in 2011.

The accumulated benefit obligation for all defined benefit pension plans was $574.0 million and $558.4 million as of December 31, 2012 and 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):


	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 benefit cost to be recognized in 2013 will be $5.4 million.

Assumptions

The following table presents the assumptions used in the measurement of our benefits obligation:


	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:


	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: December 31. At December 31, 2012, the discount rate assumption used to calculate the benefit obligation was determined using a hypothetical bond portfolio of AA-graded or better corporate bonds. At December 31, 2011, and for the periods ended December 31, 2012, 2011, and 2010, the discount rate assumption used to calculate the benefit obligation and the net periodic benefit cost was determined using a spot rate yield curve constructed to replicate Aa-graded corporate bonds. 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 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%. In 2012, plan assets performed better than the long-term return assumption due to improved equity and debt market conditions.

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.

Investment Policies and Strategies

At December 31, 2012, 24% of our pension plan assets were invested in U.S. equity securities, 27% were invested in international equity securities, 27% were invested in long-duration fixed-income securities, 20% were invested in intermediate-duration fixed-income securities, and 2% were invested in private equity, cash, and other. The general investment objective for all of our plan assets is to optimize growth of the pension plan trust assets, while minimizing the risk of significant losses to enable the plans to satisfy their benefit payment obligations over time. The objectives take into account the long-term nature of the benefit obligations, the liquidity needs of the plans, and the expected risk/return trade-offs of the asset classes in which the plans may choose to invest. Our Retirement Funds Investment Committee is responsible for establishing and overseeing the implementation of our investment policy. Russell Investments (Russell) oversees the active management of our pension investments to achieve broad diversification in a cost-effective manner. At December 31, 2012, our investment policy governing our relationship with Russell allocated 28% to long-duration fixed-income securities, 20% to intermediate-duration fixed-income securities, 24% to U.S. equity securities, and 28% to international equity securities. Our arrangement with Russell allows monthly rebalancing to the policy targets noted above.

Investment securities, in general, are 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 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 common and collective trust whose funds are invested in U.S. equities, international equities, and fixed-income securities managed by Russell Trust Company. The Master Trust also invests in private equity securities managed by Pantheon Ventures Inc.

The following tables set forth, by level within the fair value hierarchy, discussed in Note 2, Summary of Significant Accounting Policies, the pension plan assets, by major asset category, at fair value at December 31, 2012 and 2011 (dollars in thousands):


	December 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3)		Total
Cash equivalents	$	—	$	225	$	—	$	225
Equity securities:
Large-cap U.S. equity securities (b)		—		90,024		—		90,024
Small- and mid-cap U.S. equity securities (c)		—		17,998		—		17,998
International equity securities (d)		—		126,010		—		126,010
Fixed-income securities (e)		—		217,456		—		217,456
Private equity securities (f)		—		—		6,346		6,346

Total securities at fair value		—		451,713		6,346		458,059

Receivables and accrued expenses								876

Total fair value of plan assets							$	458,935


	December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3)		Total
Equity securities:
Large-cap U.S. equity securities (b)	$	—	$	112,609	$	—	$	112,609
Small- and mid-cap U.S. equity securities (c)		—		19,426		—		19,426
International equity securities (d)		—		65,265		—		65,265
Fixed-income securities (e)		—		188,287		—		188,287
Private equity securities (f)		—		—		3,531		3,531

Total securities at fair value		—		385,587		3,531		389,118

Receivables and accrued expenses								964

Total fair value of plan assets							$	390,082

(a)

Investments are mutual funds managed by Russell Trust Company. The funds are valued at the net asset value (NAV) provided by Russell Trust Company, the administrator of the funds. We use NAV as a practical expedient for fair value. The NAV is based on the value of the assets owned by the fund, less liabilities at year-end. While the underlying assets are actively traded on an exchange, the funds are not. We have the ability to redeem these funds with a one-day notice, except as disclosed below in note (e).

(b)	Our investments in this category are invested in the Russell Equity I Fund. The fund seeks higher long-term returns that exceed the Russell 1000 Index by investing in large-capitalization stock in the U.S. stock market.

(c)	Our investments in this category are invested in the Russell Equity II Fund. The fund seeks high, long-term returns that exceed the Russell 2500 Index by investing in mid- and small-capitalization stocks of the U.S. stock market.

(d)

At December 31, 2012 and 2011, our investments in this category included the Russell International Fund with Active Currency. The fund benchmarks against the Russell Developed ex-U.S. Large Cap Index Net and seeks favorable total returns and additional diversification through investment in non-U.S. equity securities and active currency management. The fund participates primarily in the stock markets of Europe and the Pacific Rim and seeks to opportunistically add value through active investment in foreign currencies. In addition, at December 31, 2012, our investments in this category included the Russell World Equity and the Russell Emerging Markets Funds. The Russell World Equity Fund benchmarks against the Russell Developed Large Cap Index and seeks higher returns through access to the large-cap segment of both U.S. and international developed equities. The Russell Emerging Markets Fund benchmarks against the Russell Emerging Markets Index and is designed to maintain a broadly diversified exposure to emerging market countries.

(e)

In 2012, the Russell Long Credit Fixed income Fund (Long Credit Fund) was converted to a fund of funds structure and offers six Liability Driven Investment (LDI) fixed-income funds with horizons ranging from six to 16 years. Our investments at December 31, 2012, included the six LDI funds, which are designed to reduce defined benefit plan funded status volatility by more closely matching the interest rate sensitivity of plan liabilities. At December 31, 2012 and 2011, our investments in this category included the Russell Long Duration Fixed Income Fund (Long Duration Fund), which seeks to achieve above-average consistency in performance relative to the Barclays Capital U.S. Long Government/Credit Bond Index by combining manager styles and strategies with different payoffs over various phases of an investment cycle. At December 31, 2011, our investments included the Long Credit Fund, which seeks to achieve above-average consistency in performance relative to the Barclays Capital Long Credit Index and is used with other bond funds, such as the Long Duration Fund, to gain additional credit exposure to asset portfolios. Funds in this category are designed to provide maximum total return through diversified strategies, including sector rotation, modest interest rate timing, security selection, and tactical use of high-yield and emerging markets bonds. Investments in this category may be redeemed monthly with four days’ notice.

(f)

Our investments in this category are invested in the Pantheon Global Secondary Fund IV, LP. The fund specializes in investments in the private equity secondary market and occasionally directly in private companies to maximize capital growth. Fund investments are carried at fair value as determined quarterly using the market approach to estimate the fair value of private investments. The market approach utilizes prices and other relevant information generated by market transactions, type of security, size of the position, degree of liquidity, restrictions on the disposition, latest round of financing data, current financial position, and operating results, among other factors. In circumstances where fair values are not provided with respect to any of the company’s fund investments, the investment advisor will seek to determine the fair value of such investments based on information provided by the general partners or managers of such funds or from other sources. Notwithstanding the above, the variety of valuation bases adopted and quality of management data of the ultimate underlying investee companies means that there are inherent difficulties in determining the value of the investments. Amounts realized on the sale of these investments may differ from the calculated values.

The following table sets forth a summary of changes in the fair value of the pension plans’ Level 3 assets for the years ended December 31, 2012 and 2011 (dollars in thousands):


	Year Ended December 31
	2012			2011
Balance, beginning of year	$	3,531		$	2,225
Purchases		2,400			720
Sales		(375	)		—
Unrealized gain		790			586

Balance, end of year	$	6,346		$	3,531

Funding and Cash Flows

We fund our pension plans with amounts sufficient to meet legal funding requirements, plus any additional amounts we may determine to be appropriate considering the funded status of 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 we will contribute at least the required minimum currently estimated to be approximately $3 million in 2014. The required minimum contribution depends on, among other things, actual returns on plan assets, changes in interest rates that affect our discount rate assumptions, changes in pension funding requirement laws, and modifications to our plans. Our estimates may change materially depending upon the effect of these and other factors. We may also elect to make additional voluntary contributions in any year, which could reduce the amount of required contributions in future years.

The following benefit payments reflect expected future service, as appropriate, and are expected to be paid to plan participants (dollars in thousands). Qualified pension benefit payments are paid from plan assets, while nonqualified pension benefit payments are paid by the Company.


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

11. Share-Based Compensation

Our shareholders have approved the Boise Inc. Incentive and Performance Plan (the Plan), which authorizes awards of 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 million shares 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 grants were 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 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 was insignificant in all periods presented.

The net income tax benefit associated with share-based payment awards was $2.6 million, $2.0 million, and $0.8 million for the years ended December 31, 2012, 2011, and 2010, respectively.

12. Stockholders’ Equity and Capital

Common Stock and Preferred Stock

We are authorized to issue 250.0 million shares of common stock, of which 100.5 million shares were issued and outstanding at December 31, 2012. At December 31, 2011, we had 100.3 million shares of common stock issued and outstanding, of which 1.5 million shares were restricted stock. The common stock outstanding does not include restricted stock units, performance units, or stock options under our share-based compensation plans. For additional information see Note 11, Share-Based Compensation.

We are also authorized to issue 1.0 million shares of preferred stock, with such rights and preferences as our board of directors may determine, without further shareholder action. No preferred shares were issued or outstanding at December 31, 2012 or 2011.

Share Repurchase Plan

In 2011, we announced our intent to repurchase up to $150 million of our common stock through a variety of methods, including in the 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, we paid special cash dividends of $1.20, $0.40, and $0.40 per common share, or total dividends of $119.7 million, $47.9 million, and $32.3 million, respectively.

Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, and other factors our board of directors may deem relevant. In addition, our ability to pay dividends is restricted by our Credit Facilities, the indentures governing our Senior Notes, and Delaware law and state regulatory authorities. Under Delaware law, our board of directors may not authorize payment of a dividend unless it is either paid out of our capital surplus, as calculated in accordance with Delaware General Corporation Law, or if we do not have a surplus, it is paid out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Under our Credit Facilities and the indentures governing our Senior Notes, a dividend may be paid if it does not exceed our permitted restricted payment amount, which is calculated as the sum of 50% of our net income for distributions, together with other amounts as specified in our 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 40.3 million warrants, resulting in the issuance of 38.4 million additional common shares and cash proceeds of approximately $284.8 million. There are no further warrants outstanding or exercisable.

Accumulated Other Comprehensive Income (Loss)

An analysis of the changes in accumulated other comprehensive income (loss) and the related tax effects follows (dollars in thousands). 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 estimated net loss and prior service cost that will be amortized from “Accumulated other comprehensive income (loss)” into pension expense in 2013 is $8.6 million.

BZ Intermediate Holdings LLC

BZ Intermediate has authorized 1,000 voting common units, all of which were issued and outstanding at December 31, 2012 and 2011, with a par value of $0.01. All of these units have been issued to Boise Inc. BZ Intermediate refers to its capital as “Business unit 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 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 risk. In 2012, our sales to OfficeMax were $493.9 million, which represents 19% of our total annual sales revenue and 35% of the annual sales revenue in our Paper segment. Approximately 38% of our total uncoated freesheet sales volume was purchased by OfficeMax in 2012. At December 31, 2012 and 2011, we had $39.5 million and $35.3 million, respectively, of accounts receivable due from OfficeMax, which represents 16% and 15%, respectively, of our total company receivables.

On February 20, 2013, OfficeMax announced it had signed a definitive merger agreement with its competitor, Office Depot. Our agreement with OfficeMax provides that it would survive the merger with respect to the office paper requirements of the legacy OfficeMax business. We cannot predict how the merger, if finalized, would affect the financial condition of the combined company, the paper requirements of the legacy OfficeMax business, or the effects the combined company would have on the pricing and competition for office papers. Significant reductions in paper purchases from OfficeMax (or the post-merger entity) would cause us to expand our customer base and could potentially decrease our profitability if new customer sales required either a decrease in our pricing and/or an increase in our cost of sales. Any significant deterioration in the financial condition of OfficeMax (or the post-merger entity) affecting the ability to pay or causing a significant change in the willingness to continue to purchase our products could have a material adverse effect on our business, financial condition, results of operations, and liquidity.

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.

14. Leases

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. Straight-line rent expense is also adjusted to reflect any allowances or reimbursements provided by the lessor. We had an insignificant amount of sublease rental income in 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):


	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 of the obligation. Fair value estimates are determined using Level 3 inputs in the fair value hierarchy. The fair value of our asset retirement obligations is measured using expected future cash outflows discounted using the company’s credit-adjusted risk-free interest rate. When we record the liability, we capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value, and the capitalized cost is depreciated over the useful life of the related asset. Occasionally, we become aware of events or circumstances that require us to revise our future estimated

cash flows. When revisions become necessary, we recalculate our obligation and adjust our asset and liability accounts utilizing appropriate discount rates. Upon settlement of the liability, we will recognize a gain or loss for any difference between the settlement amount and the liability recorded.

At December 31, 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):


	Year Ended December 31
	2012			2011
Asset retirement obligation at beginning of period	$	10,041		$	10,403
Liabilities incurred (Note 3)		10,256			—
Accretion expense		387			812
Payments		(30	)		(29	)
Revisions in estimated cash flows		41			(1,145	)

Asset retirement obligation at end of period	$	20,695		$	10,041

We have additional asset retirement obligations with indeterminate settlement dates. The fair value of these asset retirement obligations cannot be estimated due to the lack of sufficient information to estimate the settlement dates of the obligations. These asset retirement obligations include, for example, (i) removal and disposal of potentially hazardous materials related to equipment and/or an operating facility if the equipment and/or facilities were to undergo major maintenance, renovation, or demolition 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 held a significant equity interest in us, and our transactions with Boise Cascade were recorded as related-party transactions. In March 2010, Boise Cascade sold all of its remaining investment in us, and accordingly, it is no longer a related party. As a result, beginning in March 2010, transactions (discussed below) of Louisiana Timber Procurement Company, L.L.C. (LTP) represent the only significant related-party activity recorded in our Consolidated Financial Statements.

Related-Party Sales

LTP is a variable-interest entity that is 50% owned by Boise Inc. and 50% owned by Boise Cascade. LTP procures sawtimber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of Boise Inc. and Boise Cascade in Louisiana. We are the primary beneficiary of LTP, as we have the power to direct the activities that most significantly affect the economic performance of LTP. Therefore, we consolidate LTP in our financial statements in our Packaging segment. The carrying amounts of LTP’s assets and liabilities (which relate primarily to noninventory working capital items) on our Consolidated Balance Sheets were $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.

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.

17. Segment Information

We operate and report our business in three reportable segments: Packaging, Paper, and Corporate and Other (support services). These segments represent distinct businesses that are managed separately because of differing products and services. Each of these businesses requires distinct operating and marketing strategies. Management reviews the performance of the Company based on these segments. The segments follow the accounting principles described in Note 2, Summary of Significant Accounting Policies.

Packaging. We manufacture and sell linerboard, corrugated containers and sheets, protective packaging products, and newsprint. We sell these products using our own sales personnel, independent brokers, and distribution partners. Our newsprint is sold primarily to newspaper publishers in the southern and southwestern U.S.

Paper. We manufacture and sell a range of papers, including communication-based papers, packaging-based papers, and 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. We ship to customers both directly from our mills and through distribution centers. In 2012, approximately 38% of our uncoated freesheet paper sales volume, including approximately 63% of our office papers sales volume, was sold to OfficeMax, our largest customer.

Corporate and Other. Our Corporate and Other segment includes corporate support services, related assets and liabilities, and foreign exchange gains and losses. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport our products from our manufacturing sites. We provide transportation services not only to our own facilities but also, on a limited basis, to third parties when geographic proximity and logistics are favorable. Rail cars and trucks are generally leased. Sales in this segment relate primarily to our rail and truck business.

Each segments’ profits and losses are measured on operating profits before 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. Segment operating results for Boise Inc. and BZ Intermediate are identical for all periods presented, except for insignificant differences in income tax provisions.

Segment sales to external customers by product line are as follows (dollars in millions):


	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 operations by segment is as follows (dollars in millions):


	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


	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 $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 $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)

EBITDA represents income before interest (interest expense and interest income), income tax provision, and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of companies. We believe EBITDA is a meaningful measure because it presents a transparent view of our recurring operating performance and allows management to readily view operating trends, perform analytical comparisons, and identify strategies to

improve operating performance. For example, we believe that the inclusion of items such as taxes, interest expense, and interest income distorts management’s ability to assess and view the core operating trends in our segments. EBITDA, however, is not a measure of our liquidity or financial performance under generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income, income 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 or segment income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest expense, interest income, and associated significant cash requirements; and the exclusion of depreciation, amortization, and depletion, which represent significant and unavoidable operating costs, given the level of our indebtedness and the capital expenditures needed to maintain our businesses. Management compensates for these limitations by relying on our GAAP results. Our measures of EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.

The following is a reconciliation of net income to EBITDA (dollars in millions):


	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.

18. Commitments, Guarantees, Indemnifications, and Legal Proceedings

Commitments

We have financial commitments and obligations that arise in the ordinary course of our 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 (discussed below).

We are a party to 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 set quarterly or semiannually based on regional market prices. Except for deposits required pursuant to wood supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect. Under most of the log and fiber supply agreements, we have the right to cancel or reduce our commitments if our requirements decrease.

We have financial obligations to purchase electricity and natural gas for our manufacturing locations. These obligations include multiple-year purchase commitments and minimum annual purchase requirements. At December 31, 2012 and 2011, we had approximately $27.4 million and $26.5 million, respectively, of utility purchase commitments. These commitments were estimated at prices in effect on December 31, 2012 or 2011, respectively, or determined pursuant to contractual terms, if available.

Guarantees and Indemnifications

We provide guarantees, indemnifications, and other assurances to third parties in the normal course of our business. 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 it at that time.

Legal Proceedings

We are a party to routine proceedings that arise in the course of our business; however, 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 aggregate.

19. Quarterly Results of Operations (unaudited, dollars in millions, except per-share and stock price information)


	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 2011 included $2.2 million of expense related to inventory purchase price accounting adjustments.

(c)	Fourth quarter 2011 included $2.3 million of expense recorded in the Corporate and Other segment associated with 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.

(d)	Our common stock trades on the New York Stock Exchange under the symbol BZ. Common stock prices are based on daily closing prices.

The net sales, income from operations, and net income for BZ Intermediate are substantially the same as the quarterly results for Boise Inc. included above.

20. Consolidating Guarantor and Nonguarantor Financial Information

Our 9% and 8% senior notes (Senior Notes) were issued by Boise Paper Holdings and co-issuers (Boise Co-Issuer Company and Boise Finance Company). The Senior Notes are jointly and severally guaranteed on a senior unsecured basis by BZ Intermediate and each of its existing and, to the extent they become guarantors under the Credit Facilities, future subsidiaries (other than: (i) Boise Paper Holdings and the co-issuers; (ii) Louisiana Timber Procurement Company, L.L.C.; and (iii) our foreign subsidiaries, including those acquired as part of the Hexacomb Acquisition). Each of the co-issuers of the senior subordinated notes and each of the subsidiaries of BZ Intermediate that is a guarantor thereof is 100% owned, directly or indirectly by Boise Paper Holdings.

The following consolidating financial statements present the results of operations, comprehensive income, financial position, and cash flows of (i) BZ Intermediate Holdings LLC (parent); (ii) Boise Paper Holdings and co-issuers; (iii) guarantor subsidiaries; (iv) nonguarantor subsidiaries; and (v) eliminations to arrive at the information on a consolidated basis. Other than these consolidated financial statements and footnotes for Boise Inc. and BZ Intermediate, financial statements and other disclosures concerning the guarantors have not been presented. Management believes that such information is not material to investors and because the cancellation provisions of the guarantor subsidiaries guarantees are customary and do not permit a guarantor subsidiary to opt out of the obligation prior to or during the term of the debt. Under these cancellation provisions, each guarantor subsidiary is automatically released from its obligations as a guarantor upon the sale of the subsidiary or substantially all of its assets to a third party, the designation of the subsidiary as an unrestricted subsidiary for the purposes of the covenants included in the indentures, the release of the indebtedness under the indentures, or if the issuers exercise their legal defeasance option or discharge their obligations in accordance with the indentures.

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Income

For the Year Ended December 31, 2012

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Sales
Trade	$	—	$	14,956		$	2,431,516		$	48,620		$	—		$	2,495,092
Intercompany		—		—			5,213			113,566			(118,779	)		—
Related parties		—		—			—			60,271			—			60,271

		—		14,956			2,436,729			222,457			(118,779	)		2,555,363

Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)		—		13,817			1,916,907			192,099			(118,779	)		2,004,044
Fiber costs from related parties		—		—			—			19,772			—			19,772
Depreciation, amortization, and depletion		—		2,978			146,449			2,879			—			152,306
Selling and distribution expenses		—		—			120,845			982			—			121,827
General and administrative expenses		—		28,313			45,971			5,464			—			79,748
St. Helens charges		—		—			27,559			—			—			27,559
Other (income) expense, net		—		1,136			1,049			387			—			2,572

		—		46,244			2,258,780			221,583			(118,779	)		2,407,828

Income (loss) from operations		—		(31,288	)		177,949			874			—			147,535

Foreign exchange gain		—		145			10			24			—			179
Interest expense		—		(61,693	)		—			(47	)		—			(61,740	)
Interest expense—intercompany		—		(191	)		—			(55	)		246			—
Interest income		—		48			60			52			—			160
Interest income—intercompany		—		55			191			—			(246	)		—

		—		(61,636	)		261			(26	)		—			(61,401	)

Income (loss) before income taxes and equity in net income of affiliates		—		(92,924	)		178,210			848			—			86,134
Income tax provision		—		(32,431	)		(1,500	)		(53	)		—			(33,984	)

Income (loss) before equity in net income of affiliates		—		(125,355	)		176,710			795			—			52,150
Equity in net income of affiliates		52,150		177,505			—			—			(229,655	)		—

Net income	$	52,150	$	52,150		$	176,710		$	795		$	(229,655	)	$	52,150

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Income

For the Year Ended December 31, 2011

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Sales
Trade	$	—	$	14,657		$	2,340,570		$	8,797		$	—		$	2,364,024
Intercompany		—		—			40			100,536			(100,576	)		—
Related parties		—		—			—			40,057			—			40,057

		—		14,657			2,340,610			149,390			(100,576	)		2,404,081

Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)		—		13,835			1,837,170			129,842			(100,576	)		1,880,271
Fiber costs from related parties		—		—			—			18,763			—			18,763
Depreciation, amortization, and depletion		—		3,091			140,563			104			—			143,758
Selling and distribution expenses		—		—			107,302			352			—			107,654
General and administrative expenses		—		25,452			34,688			447			—			60,587
Other (income) expense, net		—		1,600			730			(336	)		—			1,994

		—		43,978			2,120,453			149,172			(100,576	)		2,213,027

Income (loss) from operations		—		(29,321	)		220,157			218			—			191,054

Foreign exchange gain (loss)		—		(390	)		453			72			—			135
Loss on extinguishment of debt		—		(2,300	)		—			—			—			(2,300	)
Interest expense		—		(63,814	)		—			(6	)		3			(63,817	)
Interest expense—intercompany		—		(188	)		—			(15	)		203			—
Interest income		—		260			9			—			—			269
Interest income—intercompany		—		18			188			—			(206	)		—

		—		(66,414	)		650			51			—			(65,713	)

Income (loss) before income taxes and equity in net income of affiliates		—		(95,735	)		220,807			269			—			125,341
Income tax provision		—		(48,372	)		(1,662	)		(97	)		—			(50,131	)

Income (loss) before equity in net income of affiliates		—		(144,107	)		219,145			172			—			75,210
Equity in net income of affiliates		75,210		219,317			—			—			(294,527	)		—

Net income	$	75,210	$	75,210		$	219,145		$	172		$	(294,527	)	$	75,210

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Income

For the Year Ended December 31, 2010

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Sales
Trade	$	—	$	11,994		$	2,039,308		$	6,830		$	—		$	2,058,132
Intercompany		—		—			—			110,619			(110,619	)		—
Related parties		—		2,364			333			32,948			—			35,645

		—		14,358			2,039,641			150,397			(110,619	)		2,093,777

Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)		—		14,039			1,605,480			125,139			(110,619	)		1,634,039
Fiber costs from related parties		—		—						25,259			—			25,259
Depreciation, amortization, and depletion		—		3,454			126,472			—			—			129,926
Selling and distribution expenses		—		—			57,873			234			—			58,107
General and administrative expenses		—		21,949			30,324			—			—			52,273
Other (income) expense, net		—		225			249			(261	)		—			213

		—		39,667			1,820,398			150,371			(110,619	)		1,899,817

Income (loss) from operations		—		(25,309	)		219,243			26			—			193,960

Foreign exchange gain		—		871			19			—			—			890
Loss on extinguishment of debt		—		(22,225	)		—			—			—			(22,225	)
Interest expense		—		(64,825	)		—			—			—			(64,825	)
Interest expense—intercompany		—		(212	)		—			(16	)		228			—
Interest income		—		299			7			—			—			306
Interest income—intercompany		—		16			212			—			(228	)		—

		—		(86,076	)		238			(16	)		—			(85,854	)

Income (loss) before income taxes and equity in net income of affiliates		—		(111,385	)		219,481			10			—			108,106
Income tax (provision) benefit		—		(43,187	)		(1,350	)		8			—			(44,529	)

Income (loss) before equity in net income of affiliates		—		(154,572	)		218,131			18			—			63,577
Equity in net income of affiliates		63,577		218,149			—			—			(281,726	)		—

Net income	$	63,577	$	63,577		$	218,131		$	18		$	(281,726	)	$	63,577

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Comprehensive Income

For the Year Ended December 31, 2012

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated
Net income	$	52,150	$	52,150	$	176,710	$	795	$	(229,655	)	$	52,150
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment		—		—		—		50		—			50
Cash flow hedges:
Change in fair value		—		850		—		—		—			850
Loss included in net income		—		1,622		—		—		—			1,622
Actuarial gain and prior service cost (including related amortization) for defined benefit pension plans		—		18,033		—		—		—			18,033
Other		—		103		—		—		—			103
Equity in other comprehensive income of affiliates		20,658		50		—		—		(20,708	)		—

		20,658		20,658		—		50		(20,708	)		20,658

Comprehensive income	$	72,808	$	72,808	$	176,710	$	845	$	(250,363	)	$	72,808

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Comprehensive Income

For the Year Ended December 31, 2011

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
Net income	$	75,210		$	75,210		$	219,145	$	172		$	(294,527	)	$	75,210
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment		—			—			—		(352	)		—			(352	)
Cash flow hedges:
Change in fair value		—			(4,165	)		—		—			—			(4,165	)
Loss included in net income		—			463			—		—			—			463
Actuarial loss and prior service cost (including related amortization) for defined benefit pension plans		—			(39,149	)		—		—			—			(39,149	)
Other		—			63			—		—			—			63
Equity in other comprehensive loss of affiliates		(43,140	)		(352	)		—		—			43,492			—

		(43,140	)		(43,140	)		—		(352	)		43,492			(43,140	)

Comprehensive income (loss)	$	32,070		$	32,070		$	219,145	$	(180	)	$	(251,035	)	$	32,070

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Comprehensive Income

For the Year Ended December 31, 2010

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated
Net income	$	63,577		$	63,577		$	218,131	$	18	$	(281,726	)	$	63,577
Other comprehensive income (loss), net of tax
Cash flow hedges:
Loss included in net income		—			553			—		—		—			553
Actuarial loss and prior service cost (including related amortization) for defined benefit pension plans		—			(7,744	)		—		—		—			(7,744	)
Other		—			(78	)		—		—		—			(78	)
Equity in other comprehensive loss of affiliates		(7,269	)		—			—		—		7,269			—

		(7,269	)		(7,269	)		—		—		7,269			(7,269	)

Comprehensive income	$	56,308		$	56,308		$	218,131	$	18	$	(274,457	)	$	56,308

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Balance Sheets at December 31, 2012

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current
Cash and cash equivalents	$	—	$	40,801	$	516	$	8,390	$	—		$	49,707
Receivables
Trade, less allowances		—		1,458		230,178		8,823		—			240,459
Intercompany		—		2,234		1,580		2,670		(6,484	)		—
Other		—		2,880		4,266		1,121		—			8,267
Inventories		—		3		291,065		3,416		—			294,484
Deferred income taxes		—		17,955		—		—		—			17,955
Prepaid and other		—		6,952		1,021		855		—			8,828

		—		72,283		528,626		25,275		(6,484	)		619,700

Property
Property and equipment, net		—		7,930		1,203,384		11,687		—			1,223,001
Fiber farms		—		—		24,311		—		—			24,311

		—		7,930		1,227,695		11,687		—			1,247,312

Deferred financing costs		—		26,677		—		—		—			26,677
Goodwill		—		—		153,576		6,554		—			160,130
Intangible assets, net		—		—		133,115		14,449		—			147,564
Investments in affiliates		756,683		1,778,531		—		—		(2,535,214	)		—
Intercompany notes receivable		—		3,400		1,524		—		(4,924	)		—
Other assets		—		5,992		902		135		—			7,029

Total assets	$	756,683	$	1,894,813	$	2,045,438	$	58,100	$	(2,546,622	)	$	2,208,412

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Balance Sheets at December 31, 2012 (continued)

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
LIABILITIES AND CAPITAL
Current
Current portion of long-term debt	$	—		$	10,000		$	—	$	—		$	—		$	10,000
Accounts payable
Trade		—			18,547			160,152		6,379			—			185,078
Intercompany		—			571			2,090		3,842			(6,503	)		—
Accrued liabilities
Compensation and benefits		—			22,206			47,605		1,139			—			70,950
Interest payable		—			10,516			—		—			—			10,516
Other		—			3,773			14,033		2,703			19			20,528

		—			65,613			223,880		14,063			(6,484	)		297,072

Debt
Long-term debt, less current portion		—			770,000			—		—			—			770,000
Intercompany notes payable		—			—			—		4,924			(4,924	)		—

		—			770,000			—		4,924			(4,924	)		770,000

Other
Deferred income taxes		—			132,841			53,497		3,485			—			189,823
Compensation and benefits		—			121,606			76		—			—			121,682
Other long-term liabilities		—			48,070			24,932		150			—			73,152

		—			302,517			78,505		3,635			—			384,657

Commitments and contingent liabilities
Capital
Business unit equity		857,987			857,987			1,743,053		35,779			(2,636,819	)		857,987
Accumulated other comprehensive loss		(101,304	)		(101,304	)		—		(301	)		101,605			(101,304	)

		756,683			756,683			1,743,053		35,478			(2,535,214	)		756,683

Total liabilities and capital	$	756,683		$	1,894,813		$	2,045,438	$	58,100		$	(2,546,622	)	$	2,208,412

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Balance Sheets at December 31, 2011

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers		Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current
Cash and cash equivalents	$	—	$	82,532	$	9,737	$	4,727		$	—		$	96,996
Receivables
Trade, less allowances		—		1,183		220,621		7,034			—			228,838
Intercompany		—		40		21		2,099			(2,160	)		—
Other		—		2,477		5,064		81			—			7,622
Inventories		—		3		304,490		2,812			—			307,305
Deferred income taxes		—		20,379		—		—			—			20,379
Prepaid and other		—		4,467		2,588		(111	)		—			6,944

		—		111,081		542,521		16,642			(2,160	)		668,084

Property
Property and equipment, net		—		5,652		1,217,520		12,097			—			1,235,269
Fiber farms		—		—		21,193		—			—			21,193

		—		5,652		1,238,713		12,097			—			1,256,462

Deferred financing costs		—		30,956		—		—			—			30,956
Goodwill		—		—		156,305		5,386			—			161,691
Intangible assets, net		—		—		143,986		15,134			—			159,120
Investments in affiliates		803,344		1,817,537		—		—			(2,620,881	)		—
Intercompany notes receivable		—		3,400		—		—			(3,400	)		—
Other assets		—		5,805		3,948		4			—			9,757

Total assets	$	803,344	$	1,974,431	$	2,085,473	$	49,263		$	(2,626,441	)	$	2,286,070

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Balance Sheets at December 31, 2011 (continued)

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
LIABILITIES AND CAPITAL
Current
Current portion of long-term debt	$	—		$	10,000		$	—	$	—		$	—		$	10,000
Accounts payable
Trade		—			19,566			176,575		6,443			—			202,584
Intercompany		—			—			2,119		1			(2,120	)		—
Accrued liabilities
Compensation and benefits		—			24,581			39,457		869			—			64,907
Interest payable		—			10,528			—		—			—			10,528
Other		—			8,626			13,769		185			(40	)		22,540

		—			73,301			231,920		7,498			(2,160	)		310,559

Debt
Long-term debt, less current portion		—			790,000			—		—			—			790,000
Intercompany notes payable		—			—			—		3,400			(3,400	)		—

		—			790,000			—		3,400			(3,400	)		790,000

Other
Deferred income taxes		—			94,822			53,365		4,525			—			152,712
Compensation and benefits		—			172,305			89		—			—			172,394
Other long-term liabilities		—			40,659			16,261		141			—			57,061

		—			307,786			69,715		4,666			—			382,167

Commitments and contingent liabilities
Capital
Business unit equity		925,306			925,306			1,783,838		34,051			(2,743,195	)		925,306
Accumulated other comprehensive loss		(121,962	)		(121,962	)		—		(352	)		122,314			(121,962	)

		803,344			803,344			1,783,838		33,699			(2,620,881	)		803,344

Total liabilities and capital	$	803,344		$	1,974,431		$	2,085,473	$	49,263		$	(2,626,441	)	$	2,286,070

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Cash Flows

For the Year Ended December 31, 2012

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Cash provided by (used for) operations
Net income	$	52,150		$	52,150		$	176,710		$	795		$	(229,655	)	$	52,150
Items in net income not using (providing) cash
Equity in net income of affiliates		(52,150	)		(177,505	)		—			—			229,655			—
Depreciation, depletion, and amortization of deferred financing costs and other		—			7,712			146,449			2,879			—			157,040
Share-based compensation expense		—			5,983			—			—			—			5,983
Pension expense		—			10,219			1,060			—			—			11,279
Deferred income taxes		—			33,581			108			(5	)		—			33,684
St. Helens charges		—			—			28,481			—			—			28,481
Other		—			224			1,640			4			—			1,868
Decrease (increase) in working capital
Receivables		—			(1,973	)		(9,297	)		(2,857	)		4,324			(9,803	)
Inventories		—			—			8,896			(760	)		—			8,136
Prepaid expenses		—			(1,966	)		1,567			(415	)		—			(814	)
Accounts payable and accrued liabilities		—			(3,579	)		(11,964	)		3,362			(4,324	)		(16,505	)
Current and deferred income taxes		—			(1,650	)		—			(288	)		—			(1,938	)
Pension payments		—			(35,205	)		—			—			—			(35,205	)
Other		—			3,510			(4,368	)		1,532			—			674

Cash provided by (used for) operations		—			(108,499	)		339,282			4,247			—			235,030

Cash provided by (used for) investment
Expenditures for property and equipment		—			(4,677	)		(132,190	)		(775	)		—			(137,642	)
Other		—			146			1,182			65			—			1,393

Cash used for investment		—			(4,531	)		(131,008	)		(710	)		—			(136,249	)

Cash provided by (used for) financing
Issuances of long-term debt		—			5,000			—			—			—			5,000
Payments of long-term debt		—			(25,000	)		—			—			—			(25,000	)
Payments of financing costs		—			(188	)		—			—			—			(188	)
Payments (to) from Boise Inc., net		(124,824	)		—			—			—			—			(124,824	)
Due to (from) affiliates		124,824			91,737			(217,495	)		934			—			—
Other		—			(250	)		—			(808	)		—			(1,058	)

Cash provided by (used for) financing		—			71,299			(217,495	)		126			—			(146,070	)

Increase (decrease) in cash and cash equivalents		—			(41,731	)		(9,221	)		3,663			—			(47,289	)
Balance at beginning of the period		—			82,532			9,737			4,727			—			96,996

Balance at end of the period	$	—		$	40,801		$	516		$	8,390		$	—		$	49,707

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Cash Flows

For the Year Ended December 31, 2011

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Cash provided by (used for) operations
Net income	$	75,210		$	75,210		$	219,145		$	172		$	(294,527	)	$	75,210
Items in net income not using (providing) cash
Equity in net income of affiliates		(75,210	)		(219,317	)		—			—			294,527			—
Depreciation, depletion, and amortization of deferred financing costs and other		—			9,048			140,563			104			—			149,715
Share-based compensation expense		—			3,695			—			—			—			3,695
Pension expense		—			10,916			—			—			—			10,916
Deferred income taxes		—			43,904			542			—			—			44,446
Other		—			408			1,542			(72	)		—			1,878
Loss on extinguishment of debt		—			2,300			—			—			—			2,300
Decrease (increase) in working capital, net of acquisitions
Receivables		—			(884	)		3,471			(1,487	)		524			1,624
Inventories		—			12			(22,346	)		97			—			(22,237	)
Prepaid expenses		—			233			(437	)		(71	)		—			(275	)
Accounts payable and accrued liabilities		—			6,724			(3,744	)		1,347			(524	)		3,803
Current and deferred income taxes		—			2,920			1,250			317			—			4,487
Pension payments		—			(25,414	)		—			—			—			(25,414	)
Other		—			(3,660	)		281			3,422			—			43

Cash provided by (used for) operations		—			(93,905	)		340,267			3,829			—			250,191

Cash provided by (used for) investment
Acquisitions of business and facilities, net of cash acquired		—			—			(292,600	)		(33,623	)		—			(326,223	)
Expenditures for property and equipment		—			(3,633	)		(125,129	)		—			—			(128,762	)
Purchases of short-term investments		—			(3,494	)		—			—			—			(3,494	)
Maturities of short-term investments		—			14,114			—			—			—			14,114
Other		—			(390	)		1,743			(305	)		—			1,048

Cash provided by (used for) investment		—			6,597			(415,986	)		(33,928	)		—			(443,317	)

Cash provided by (used for) financing
Issuances of long-term debt		—			275,000			—			—			—			275,000
Payments of long-term debt		—			(256,831	)		—			—			—			(256,831	)
Payments of financing costs		—			(8,613	)		—			—			—			(8,613	)
Payments (to) from Boise Inc., net		115,196			—			—			—			—			115,196
Due to (from) affiliates		(115,196	)		(3,771	)		85,450			33,517			—			—
Other		—			(2,355	)		—			892			—			(1,463	)

Cash provided by financing		—			3,430			85,450			34,409			—			123,289

Increase (decrease) in cash and cash equivalents		—			(83,878	)		9,731			4,310			—			(69,837	)
Balance at beginning of the period		—			166,410			6			417			—			166,833

Balance at end of the period	$	—		$	82,532		$	9,737		$	4,727		$	—		$	96,996

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Cash Flows

For the Year Ended December 31, 2010

(dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Cash provided by (used for) operations
Net income	$	63,577		$	63,577		$	218,131		$	18		$	(281,726	)	$	63,577
Items in net income not using (providing) cash
Equity in net income of affiliates		(63,577	)		(218,149	)		—			—			281,726			—
Depreciation, depletion, and amortization of deferred financing costs and other		—			11,023			126,472			—			—			137,495
Share-based compensation expense		—			3,733			—			—			—			3,733
Pension expense		—			9,241			—			—			—			9,241
Deferred income taxes		—			37,677			213			(8	)		—			37,882
Other		—			(805	)		900			—			—			95
Loss on extinguishment of debt		—			22,225			—			—			—			22,225
Decrease (increase) in working capital
Receivables		—			1,225			55,662			(12	)		380			57,255
Inventories		—			3			(17,123	)		—			—			(17,120	)
Prepaid expenses		—			4,437			253			—			—			4,690
Accounts payable and accrued liabilities		—			6,760			(13,208	)		138			(380	)		(6,690	)
Current and deferred income taxes		—			7,142			(1,398	)		—			—			5,744
Pension payments		—			(25,174	)		—			—			—			(25,174	)
Other		—			(773	)		(2,399	)		—			—			(3,172	)

Cash provided by (used for) operations		—			(77,858	)		367,503			136			—			289,781

Cash provided by (used for) investment
Acquisitions of businesses and facilities		—			—			—			—			—			—
Expenditures for property and equipment		—			(3,711	)		(107,908	)		—			—			(111,619	)
Purchases of short-term investments		—			(25,336	)		—			—			—			(25,336	)
Maturities of short-term investments		—			24,744			—			—			—			24,744
Other		—			868			2,073			—			—			2,941

Cash used for investment		—			(3,435	)		(105,835	)		—			—			(109,270	)

Cash provided by (used for) financing
Issuances of long-term debt		—			300,000			—			—			—			300,000
Payments of long-term debt		—			(334,096	)		—			—			—			(334,096	)
Payments of financing costs		—			(12,003	)		—			—			—			(12,003	)
Payments (to) from Boise Inc., net		(31,639	)		—			—			—			—			(31,639	)
Due to (from) affiliates		31,639			230,064			(261,695	)		(8	)		—			—
Other		—			(5,333	)		—			—			—			(5,333	)

Cash provided by (used for) financing		—			178,632			(261,695	)		(8	)		—			(83,071	)

Increase (decrease) in cash and cash equivalents		—			97,339			(27	)		128			—			97,440
Balance at beginning of the period		—			69,071			33			289			—			69,393

Balance at end of the period	$	—		$	166,410		$	6		$	417		$	—		$	166,833

EX-99.3

Exhibit 99.3

Boise Inc.

Consolidated Statements of Operations

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


	Three Months Ended June 30						Six Months Ended June 30
	2013			2012			2013			2012
Sales
Trade	$	604,821		$	618,585		$	1,196,142		$	1,252,113
Related party		16,843			19,255			32,540			30,573

		621,664			637,840			1,228,682			1,282,686

Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)		495,689			507,343			991,958			1,009,642
Fiber costs from related party		5,319			4,466			11,465			9,412
Depreciation, amortization, and depletion		43,891			37,303			87,319			74,859
Selling and distribution expenses		33,764			30,568			62,613			61,210
General and administrative expenses		19,693			20,035			38,616			40,043
Restructuring costs		9,011			—			9,474			—
Other (income) expense, net		1,930			381			1,798			81

		609,297			600,096			1,203,243			1,195,247

Income from operations		12,367			37,744			25,439			87,439

Foreign exchange gain (loss)		(415	)		102			(756	)		259
Interest expense		(15,456	)		(15,433	)		(30,875	)		(30,798	)
Interest income		7			54			34			98

		(15,864	)		(15,277	)		(31,597	)		(30,441	)

Income (loss) before income taxes		(3,497	)		22,467			(6,158	)		56,998
Income tax (provision) benefit		1,289			(8,805	)		2,725			(21,998	)

Net income (loss)	$	(2,208	)	$	13,662		$	(3,433	)	$	35,000

Weighted average common shares outstanding:
Basic		100,531			100,116			100,387			99,584
Diluted		100,531			101,008			100,387			101,182
Net income (loss) per common share:
Basic	$	(0.02	)	$	0.14		$	(0.03	)	$	0.35
Diluted	$	(0.02	)	$	0.14		$	(0.03	)	$	0.35

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Boise Inc.

Consolidated Statements of Comprehensive Income

(unaudited, dollars in thousands)


	Three Months Ended June 30						Six Months Ended June 30
	2013			2012			2013			2012
Net income (loss)	$	(2,208	)	$	13,662		$	(3,433	)	$	35,000
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of tax of $69, $0, $29, and $0, respectively		(195	)		(2,307	)		(423	)		(1,452	)
Cash flow hedges:
Change in fair value, net of tax of ($671), $913, $367, and ($475), respectively		(1,069	)		1,459			587			(756	)
(Gain) loss included in net income, net of tax of $64, $380, $2, and $891, respectively		101			604			3			1,421
Amortization of actuarial loss and prior service cost for defined benefit pension plans, net of tax of $845, $993, $1,670, and $2,012, respectively		1,349			1,585			2,665			3,210
Other, net of tax of ($14), ($2), ($29), and ($6), respectively		(24	)		(5	)		(48	)		(10	)

		162			1,336			2,784			2,413

Comprehensive income (loss)	$	(2,046	)	$	14,998		$	(649	)	$	37,413

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Boise Inc.

Consolidated Balance Sheets

(unaudited, dollars in thousands)


	June 30, 2013		December 31, 2012
ASSETS
Current
Cash and cash equivalents	$	61,086	$	49,707
Receivables
Trade, less allowances of $1,349 and $1,382		254,348		240,459
Other		9,861		8,267
Inventories		288,707		294,484
Deferred income taxes		10,068		17,955
Prepaid and other		14,139		8,828

		638,209		619,700

Property
Property and equipment, net		1,212,663		1,223,001
Fiber farms		25,113		24,311

		1,237,776		1,247,312

Deferred financing costs		24,380		26,677
Goodwill		160,132		160,130
Intangible assets, net		142,018		147,564
Other assets		6,629		7,029

Total assets	$	2,209,144	$	2,208,412

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Boise Inc.

Consolidated Balance Sheets (continued)

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


	June 30, 2013			December 31, 2012
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current
Current portion of long-term debt	$	15,000		$	10,000
Accounts payable		203,202			185,078
Accrued liabilities
Compensation and benefits		65,386			70,950
Interest payable		10,529			10,516
Other		25,158			20,528

		319,275			297,072

Debt
Long-term debt, less current portion		760,000			770,000

Other
Deferred income taxes		189,918			198,370
Compensation and benefits		116,153			121,682
Other long-term liabilities		73,990			73,102

		380,061			393,154

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; 100,884 and 100,503 shares issued and outstanding		12			12
Treasury stock, 21,151 shares held		(121,423	)		(121,423	)
Additional paid-in capital		871,065			868,840
Accumulated other comprehensive income (loss)		(98,520	)		(101,304	)
Retained earnings		98,674			102,061

Total stockholders’ equity		749,808			748,186

Total liabilities and stockholders’ equity	$	2,209,144		$	2,208,412

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Boise Inc.

Consolidated Statements of Cash Flows

(unaudited, dollars in thousands)


	Six Months Ended June 30
	2013			2012
Cash provided by (used for) operations
Net income (loss)	$	(3,433	)	$	35,000
Items in net income (loss) not using (providing) cash
Depreciation, depletion, and amortization of deferred financing costs and other		89,793			77,190
Share-based compensation expense		3,076			2,729
Pension expense		3,020			5,474
Deferred income taxes		(2,624	)		12,610
Restructuring costs		9,992			—
Other		1,400			(43	)
Decrease (increase) in working capital
Receivables		(15,731	)		(12,050	)
Inventories		2,566			(20,224	)
Prepaid expenses		(2,127	)		(4,869	)
Accounts payable and accrued liabilities		1,040			(14,061	)
Current and deferred income taxes		(689	)		7,452
Pension payments		(5,091	)		(18,191	)
Other		404			2,110

Cash provided by operations		81,596			73,127

Cash provided by (used for) investment
Expenditures for property and equipment		(64,595	)		(52,457	)
Other		690			586

Cash used for investment		(63,905	)		(51,871	)

Cash provided by (used for) financing
Payments of long-term debt		(5,000	)		(5,000	)
Payments of special dividend		—			(47,483	)
Other		(1,312	)		(6,267	)

Cash used for financing		(6,312	)		(58,750	)

Increase (decrease) in cash and cash equivalents		11,379			(37,494	)
Balance at beginning of the period		49,707			96,996

Balance at end of the period	$	61,086		$	59,502

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

BZ Intermediate Holdings LLC

Consolidated Statements of Operations

(unaudited, dollars in thousands)


	Three Months Ended June 30						Six Months Ended June 30
	2013			2012			2013			2012
Sales
Trade	$	604,821		$	618,585		$	1,196,142		$	1,252,113
Related party		16,843			19,255			32,540			30,573

		621,664			637,840			1,228,682			1,282,686

Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)		495,689			507,343			991,958			1,009,642
Fiber costs from related party		5,319			4,466			11,465			9,412
Depreciation, amortization, and depletion		43,891			37,303			87,319			74,859
Selling and distribution expenses		33,764			30,568			62,613			61,210
General and administrative expenses		19,693			20,035			38,616			40,043
Restructuring costs		9,011			—			9,474			—
Other (income) expense, net		1,930			381			1,798			81

		609,297			600,096			1,203,243			1,195,247

Income from operations		12,367			37,744			25,439			87,439

Foreign exchange gain (loss)		(415	)		102			(756	)		259
Interest expense		(15,456	)		(15,433	)		(30,875	)		(30,798	)
Interest income		7			54			34			98

		(15,864	)		(15,277	)		(31,597	)		(30,441	)

Income (loss) before income taxes		(3,497	)		22,467			(6,158	)		56,998
Income tax (provision) benefit		1,289			(8,805	)		2,725			(21,998	)

Net income (loss)	$	(2,208	)	$	13,662		$	(3,433	)	$	35,000

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

BZ Intermediate Holdings LLC

Consolidated Statements of Comprehensive Income

(unaudited, dollars in thousands)


	Three Months Ended June 30						Six Months Ended June 30
	2013			2012			2013			2012
Net income (loss)	$	(2,208	)	$	13,662		$	(3,433	)	$	35,000
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of tax of $69, $0, $29, and $0, respectively		(195	)		(2,307	)		(423	)		(1,452	)
Cash flow hedges:
Change in fair value, net of tax of ($671), $913, $367, and ($475), respectively		(1,069	)		1,459			587			(756	)
(Gain) loss included in net income, net of tax of $64, $380, $2, and $891, respectively		101			604			3			1,421
Amortization of actuarial loss and prior service cost for defined benefit pension plans, net of tax of $845, $993, $1,670, and $2,012, respectively		1,349			1,585			2,665			3,210
Other, net of tax of ($14), ($2), ($29), and ($6), respectively		(24	)		(5	)		(48	)		(10	)

		162			1,336			2,784			2,413

Comprehensive income (loss)	$	(2,046	)	$	14,998		$	(649	)	$	37,413

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

BZ Intermediate Holdings LLC

Consolidated Balance Sheets

(unaudited, dollars in thousands)


	June 30, 2013		December 31, 2012
ASSETS
Current
Cash and cash equivalents	$	61,086	$	49,707
Receivables
Trade, less allowances of $1,349 and $1,382		254,348		240,459
Other		9,861		8,267
Inventories		288,707		294,484
Deferred income taxes		11,997		17,955
Prepaid and other		14,139		8,828

		640,138		619,700

Property
Property and equipment, net		1,212,663		1,223,001
Fiber farms		25,113		24,311

		1,237,776		1,247,312

Deferred financing costs		24,380		26,677
Goodwill		160,132		160,130
Intangible assets, net		142,018		147,564
Other assets		6,629		7,029

Total assets	$	2,211,073	$	2,208,412

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

BZ Intermediate Holdings LLC

Consolidated Balance Sheets (continued)

(unaudited, dollars in thousands)


	June 30, 2013			December 31, 2012
LIABILITIES AND CAPITAL
Current
Current portion of long-term debt	$	15,000		$	10,000
Accounts payable		203,202			185,078
Accrued liabilities
Compensation and benefits		65,386			70,950
Interest payable		10,529			10,516
Other		25,158			20,528

		319,275			297,072

Debt
Long-term debt, less current portion		760,000			770,000

Other
Deferred income taxes		183,300			189,823
Compensation and benefits		116,153			121,682
Other long-term liabilities		74,040			73,152

		373,493			384,657

Commitments and contingent liabilities
Capital
Business unit equity		856,825			857,987
Accumulated other comprehensive income (loss)		(98,520	)		(101,304	)

		758,305			756,683

Total liabilities and capital	$	2,211,073		$	2,208,412

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

BZ Intermediate Holdings LLC

Consolidated Statements of Cash Flows

(unaudited, dollars in thousands)


	Six Months Ended June 30
	2013			2012
Cash provided by (used for) operations
Net income (loss)	$	(3,433	)	$	35,000
Items in net income (loss) not using (providing) cash
Depreciation, depletion, and amortization of deferred financing costs and other		89,793			77,190
Share-based compensation expense		3,076			2,729
Pension expense		3,020			5,474
Deferred income taxes		(2,624	)		12,610
Restructuring costs		9,992			—
Other		1,400			(43	)
Decrease (increase) in working capital
Receivables		(15,731	)		(12,050	)
Inventories		2,566			(20,224	)
Prepaid expenses		(2,127	)		(4,869	)
Accounts payable and accrued liabilities		1,040			(14,061	)
Current and deferred income taxes		(689	)		7,452
Pension payments		(5,091	)		(18,191	)
Other		404			2,110

Cash provided by operations		81,596			73,127

Cash provided by (used for) investment
Expenditures for property and equipment		(64,595	)		(52,457	)
Other		690			586

Cash used for investment		(63,905	)		(51,871	)

Cash provided by (used for) financing
Payments of long-term debt		(5,000	)		(5,000	)
Payments (to) from Boise Inc., net		(1,100	)		(52,440	)
Other		(212	)		(1,310	)

Cash used for financing		(6,312	)		(58,750	)

Increase (decrease) in cash and cash equivalents		11,379			(37,494	)
Balance at beginning of the period		49,707			96,996

Balance at end of the period	$	61,086		$	59,502

See accompanying condensed notes to unaudited quarterly consolidated financial statements.

Condensed Notes to Unaudited Quarterly 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 in February 2008. 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. 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. We also manufacture communication papers such as office papers, commercial printing papers, envelopes, and forms.

Our organizational structure is noted below:

See Note 16, Segment Information, for additional information about our three reportable segments, Packaging, Paper, and Corporate and Other (support services).

The unaudited quarterly 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 unaudited quarterly 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.

The quarterly consolidated financial statements presented have not been audited by an independent registered public accounting firm but, in the opinion of management, include all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the results for the periods presented. The preparation of the consolidated financial statements involves the use of estimates and accruals. Actual results may vary from those estimates. Quarterly results are not necessarily indicative of results that may be expected for the full year. These condensed notes to unaudited quarterly consolidated financial statements should be read in conjunction with our 2012 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and the other reports we file with the Securities and Exchange Commission (SEC).

2. Restructuring Costs

2013 Restructuring Costs

In May 2013, we announced our decision to shut down two paper machines and an off-machine coater at our mill in International Falls, Minnesota. These closures, which we expect to occur in early fourth quarter 2013, will reduce our annual uncoated freesheet capacity by approximately 115,000 tons, or 9%. This decision will result in the loss of approximately 300 jobs. During the three months ended June 30, 2013, we recorded $13.3 million of pretax restructuring costs, of which $12.3 million was recorded in our Paper segment and related primarily to this decision. We recorded $1.0 million of costs in our Packaging segment related to restructuring activities in connection with our recently announced project to convert a machine at our DeRidder, Louisiana, mill to produce lightweight linerboard and corrugating medium. In addition to the amounts recorded in “Restructuring costs” on our Consolidated Statements of Operations, we recorded $4.0 million of other restructuring costs that related primarily to inventory write-downs in “Materials, labor, and other operating expenses (excluding depreciation)”, during the three and six months ended June 30, 2013.

An analysis of the restructuring costs for the three and six months ended June 30, 2013, is as follows (in thousands):


	Noncash		Cash (a)		Total Costs
Employee-related and other costs	$	—	$	7,023	$	7,023
Inventory write-down		3,960		—		3,960
Asset write-down		2,016		—		2,016
Pension curtailment loss		271		—		271

	$	6,247	$	7,023	$	13,270

(a)

These costs were recorded in “Accrued liabilities, Compensation and benefits” on our Consolidated Balance Sheet. We expect to pay most of these costs in the second half of 2013 and the remainder in the first half of 2014. In addition to the restructuring costs, above, we expect to incur approximately $0.9 million of additional employee-related and other costs in 2013 and 2014 that will be recognized as a period expense when incurred.

2012 Restructuring Costs

In December 2012, we ceased paper production on our one remaining paper machine at our St. Helens, Oregon, paper mill. This reduced our annual uncoated freesheet capacity by almost 60,000 tons and resulted in the loss of approximately 100 jobs, primarily at the mill. During the three and six months ended June 30, 2012, St. Helens sales were $17.5 million and $35.6 million, respectively. The St. Helens operations had an insignificant impact on income during those periods. Accrued severance costs at January 1, 2013, were approximately $5.1 million, and we have paid all but an insignificant amount as of June 30, 2013. For more information, see Note 3, St. Helens Charges, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in our 2012 Form 10-K.

3. Net Income (Loss) Per Common Share

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. Net income (loss) per common share is not applicable to BZ Intermediate because it does not have common shares. Boise Inc.’s basic and diluted net income (loss) per share is calculated as follows (dollars and shares in thousands, except per-share data):


	Three Months Ended June 30					Six Months Ended June 30
	2013			2012		2013			2012
Net income (loss)	$	(2,208	)	$	13,662	$	(3,433	)	$	35,000
Weighted average number of common shares for basic net income (loss) per common share		100,531			100,116		100,387			99,584
Incremental effect of dilutive common stock equivalents (a):
Restricted stock and restricted stock units		—			680		—			1,362
RONOA performance awards		—			211		—			235
Total Stockholder Return (TSR) market-condition awards		—			—		—			—
Stock options		—			1		—			1

Weighted average number of common shares for diluted net income (loss) per common share		100,531			101,008		100,387			101,182

Net income (loss) per common share:
Basic	$	(0.02	)	$	0.14	$	(0.03	)	$	0.35

Diluted	$	(0.02	)	$	0.14	$	(0.03	)	$	0.35

(a)

During the three and six months ended June 30, 2013, we excluded a weighted average 0.8 million and 1.0 million potentially dilutive shares, respectively, from the diluted net income (loss) per share calculation as they would have been antidilutive or were out-of-the-money. During the three and six months ended June 30, 2012, we excluded 0.8 million and 0.3 million potentially dilutive shares, respectively, as they would have been antidilutive or were out-of-the-money.

4. Income Taxes

For the three and six months ended June 30, 2013, we recorded $1.3 million and $2.7 million of income tax benefit and had an effective tax rate of 36.9% and 44.3%, respectively. During the three and six months ended June 30, 2013, the primary reason for the difference from the federal statutory income tax rate of 35% was the effect of lower income from operations, discrete items, and the effect of state taxes.

For the three and six months ended June 30, 2012, we recorded $8.8 million and $22.0 million of income tax expense and had an effective tax rate of 39.2% and 38.6%, respectively. During the three and six months ended June 30, 2012, the primary reason for the difference from the federal statutory income tax rate of 35% was the effect of state taxes.

Uncertain Income Tax Positions

We recognize tax liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available or as new uncertainties occur. We recognize interest and penalties related to uncertain tax positions as income tax expense in the Consolidated Statements of Operations. Interest expense and penalties relating to uncertain tax positions were nominal for all periods presented. During the three and six months ended June 30, 2013, there were no significant changes to our uncertain tax positions. For more information, see Note 6, Income Taxes, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in our 2012 Form 10-K.

As of June 30, 2013, 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.

During the six months ended June 30, 2013, cash paid for taxes, net of refunds received, was $0.2 million. Refunds received, net of cash paid for taxes, were $0.7 million during the six months ended June 30, 2012.

5. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. All of our goodwill is recorded in our Packaging segment. At both June 30, 2013, and December 31, 2012, the carrying amount of goodwill was $160.1 million. Goodwill is affected by foreign currency translation.

Intangible Assets

Intangible assets consist of customer relationships, trademarks and trade names, technology, and noncompete agreements. We had $142.0 million and $147.6 million of intangible assets at June 30, 2013, and December 31, 2012, net of $30.8 million and $26.3 million of accumulated amortization, respectively. During the three months ended June 30, 2013 and 2012, we recorded intangible asset amortization of $2.5 million and $3.0 million, respectively. During the six months ended June 30, 2013 and 2012, we recorded intangible asset amortization of $5.3 million and $6.3 million, respectively. Foreign intangible assets are affected by foreign currency translation.

6. Debt

At June 30, 2013, and December 31, 2012, our long-term debt and the interest rates on that debt were as follows (dollars in thousands):


	June 30, 2013						December 31, 2012
	Amount			Interest Rate			Amount			Interest Rate
Revolving credit facility, due 2016	$	—			—	%	$	5,000			2.21	%
Tranche A term loan, due 2016		175,000			2.20			175,000			2.22
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		775,000			7.08			780,000			7.05
Current portion of long-term debt		(15,000	)		2.20			(10,000	)		2.22

Long-term debt, less current portion	$	760,000			7.17	%	$	770,000			7.11	%

As of June 30, 2013, our debt consisted of the following:

•

The Tranche A Term Loan Facility (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%.

Under our Credit Facilities (the Revolving Credit Facility together with the Term Loan Facility) 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 trailing four quarters of Adjusted Consolidated EBITDA (as defined in the Credit Agreement). Based on our current one-month LIBOR election, at June 30, 2013, 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 June 30, 2013, we had no borrowings outstanding under our Revolving Credit Facility and had availability of $493.0 million, which is net of outstanding letters of credit of $7.0 million. The maximum borrowings under our Revolving Credit Facility for the six months ended June 30, 2013, was $5.0 million, and the weighted average was $0.7 million. For the six months ended June 30, 2013, the average interest rate for our outstanding borrowings under our Revolving Credit Facility was 2.21%.

The Credit Facilities and Senior Note indentures contain certain restrictions relating to dividend payments, capital expenditures, financial ratios, guarantees, and the incurrence of additional indebtedness, which are discussed in Note 8, Debt, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in our 2012 Form 10-K. Under our Credit Facilities and the indentures governing our Senior Notes, a dividend may be paid if it does not exceed our permitted restricted payment amount, which is calculated as the sum of 50% of our net income for distributions, together with other amounts as specified in the Credit Facilities and indentures. At June 30, 2013, 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 $108.3 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.

The Credit Facilities require the proceeds from asset sales, subject to specified exceptions and casualty insurance, be used to pay down outstanding borrowings.

As of June 30, 2013, required debt principal repayments were as follows (dollars in thousands):


	Remaining
	2013		2014		2015		2016		2017		Thereafter
Required debt principal repayments	$	5,000	$	20,000	$	30,000	$	120,000	$	300,000	$	300,000

For the six months ended June 30, 2013 and 2012, cash payments for interest were $28.4 million and $28.7 million, respectively.

With the exception of the Credit Facilities, our debt is fixed-rate debt. At June 30, 2013, the book value of our fixed-rate debt was $600.0 million, and the fair value was estimated to be $637.9 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 7, Financial Instruments.

7. 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.

We enter into transactions to hedge the variable cash flow risk of natural gas purchases. At June 30, 2013, 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 June 30, 2013, we had entered into derivative instruments related to the following approximate percentages of our forecasted natural gas purchases:


	July 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			April 2016 Through October 2016
Approximate percent hedged		79	%		58	%		50	%		43	%		37	%		15	%		21	%

Economic Hedges

For derivative instruments that are not designated as cash flow 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 Operations. During the three and six months ended June 30, 2013 and 2012, 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)” in our Consolidated Statements of Operations 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 June 30, 2013, and December 31, 2012, we had $0.6 million and $1.2 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 Operations were as follows (dollars in thousands):


	(Gain) Loss Recognized in Accumulated Other Comprehensive Income										Loss Reclassified From Accumulated Other Comprehensive Income Into Earnings
	Three Months Ended June 30					Six Months Ended June 30					Three Months Ended June 30				Six Months Ended June 30
	2013 (a)		2012			2013			2012		2013		2012		2013		2012
Natural gas contracts	$	1,740	$	(2,372	)	$	(954	)	$	1,231	$	165	$	984	$	5	$	2,312

(a)	Based on June 30, 2013, pricing, the estimated income, net of tax, to be recognized in earnings during the next 12 months is $0.6 million.

Fair Value Measurements

The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) establishes a fair value hierarchy, which prioritizes the inputs of valuation techniques used to measure fair value into three levels. The fair value hierarchy gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). 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 monitor credit ratings of counterparties to the agreements, which are large financial institutions, to consider the impact, if any, on the determination of fair value. No significant adjustments were made in any periods presented.

Fair Values of Derivative Instruments

At June 30, 2013, and December 31, 2012, the fair value of our financial instruments was determined based on New York Mercantile Exchange (NYMEX) price quotations under the terms of the contracts, using current market information as of the reporting date. The derivatives were valued by us using third-party valuations based on quoted prices for similar assets and liabilities. Accordingly, all of our fair value measurements use Level 2 inputs.

We offset asset and liability balances, by counterparty, where legal right of offset exists. Our derivative contracts provide for netting of like transactions in the event a counterparty defaults or upon termination. No collateral was received or pledged in connection with these agreements. The following table presents the fair value of these instruments at June 30, 2013, and December 31, 2012 (dollars in thousands):


	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets
	June 30, 2013
Instruments in a net liability position, by counterparty (a)
Cash flow hedges	$	(1,510	)	$	103	$	(1,407	)
Economic hedges		(2,457	)		352		(2,105	)

Total	$	(3,967	)	$	455	$	(3,512	)


	December 31, 2012
Instruments in a net liability position, by counterparty (a)
Cash flow hedges	$	(2,568	)	$	203	$	(2,365	)
Economic hedges		(2,582	)		385		(2,197	)

Total	$	(5,150	)	$	588	$	(4,562	)

(a)	At June 30, 2013, $1.9 million was recorded in “Accrued liabilities, Other” and $1.6 million was recorded in “Other long-term liabilities.” At December 31, 2012, amounts were $4.1 million and $0.5 million, respectively.

8. Retirement and Benefit Plans

The components of net periodic benefit cost are as follows (dollars in thousands):


	Three Months Ended June 30						Six Months Ended June 30
	2013			2012			2013			2012
Service cost	$	558		$	705		$	1,131		$	1,440
Interest cost		5,957			6,157			11,936			12,325
Expected return on plan assets		(7,308	)		(6,803	)		(14,653	)		(13,579	)
Amortization of actuarial loss		2,194			2,576			4,335			5,217
Amortization of prior service costs and other		—			2			—			5
Curtailment loss		271			66			271			66

Net periodic benefit cost	$	1,672		$	2,703		$	3,020		$	5,474

Our funding practice for our pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that we determine to be appropriate considering the funded status of the plans, tax deductibility, our cash flows from operations, and other factors.

9. 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. Most 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 June 30, 2013, 7.8 million shares 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. Additional information regarding the Plan and awards can be found in Note 11, Share-Based Compensation, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in our 2012 Form 10-K.

Restricted Stock and Performance Units

Members of management have been granted performance units, with some measured based on our return on net operating assets (RONOA) and others based on our comparative total stockholder return (TSR awards). The number of RONOA performance units awarded is subject to adjustment based on the two-year average 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 awards expected to vest. Any shares not vested are forfeited. The fair values of the RONOA performance units were based on the closing market price of our common stock on the date of grant, and compensation expense is recorded over the awards’ vesting period.

Market-condition awards, or TSR awards, have been granted to members of management. Each TSR award reflects a target number of shares that may be issued to the award recipient. The actual number of shares the recipient receives is determined at the end of a three-year performance period based on total stockholder return relative to a set of comparator companies. Market-condition awards represent a more difficult threshold to meet before payout, with greater uncertainty that the market condition will be satisfied; therefore, these awards have a lower fair value than those that vest based primarily on the passage of time. Compensation expense is required to be recognized for these awards regardless of when, if ever, the market condition is satisfied. Compensation expense is recorded over the awards’ vesting period.

The following table presents the range of assumptions used to calculate, using a Monte Carlo simulation, the fair value of the TSR awards granted during the six months ended June 30, 2013:


Expected volatility			43.79% - 44.62%
Stock price on grant date			$8.63 - $8.87
Risk-free interest rate			0.37% - 0.39%
Expected term (years)			2.5 - 2.8
Expected dividend yield			—% - —%

The following table presents restricted stock, RONOA performance award, and TSR award activity for the six months ended June 30, 2013 (shares in thousands):


	Restricted Stock					RONOA Performance Awards					TSR Market-Condition Awards
	Nonvested Shares			Weighted Average Grant-Date Fair Value		Nonvested Shares			Weighted Average Grant-Date Fair Value		Nonvested Shares		Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2012 (a)		636		$	6.66		489		$	7.90		—	$	—
Granted		422			8.61		264			8.69		236		8.54
Vested		(231	)		8.52		(93	)		8.53		—		—
Forfeited		(8	)		8.48		(4	)		8.50		—		—

Outstanding at June 30, 2013 (a)		819		$	7.12		656		$	8.13		236	$	8.54

(a)	Outstanding awards include all nonvested and nonforfeited awards.

Stock Options

In 2012 and 2011, we granted 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 granted during the six months ended June 30, 2013.

The following is a summary of our stock option activity (number of options and aggregate intrinsic value in thousands):


	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2012		841	$	8.34
Exercised		—		—
Forfeited		—		—

Outstanding at June 30, 2013		841	$	8.34		8.3	$	169

Exercisable at June 30, 2013		335	$	8.37		8.2	$	57

Vested and expected to vest at June 30, 2013		825	$	8.34		8.3	$	165

Compensation Expense

Most of our share-based compensation expense was recorded in “General and administrative expenses” in our Consolidated Statements of Operations. Total recognized share-based compensation expense, net of estimated forfeitures, is as follows (dollars in thousands):


	Three Months Ended June 30				Six Months Ended June 30
	2013		2012		2013		2012
Restricted stock	$	828	$	771	$	1,277	$	1,604
RONOA performance awards		500		462		972		705
TSR market-condition awards		153		—		180		—
Stock options		271		262		647		420

Total share-based compensation expense	$	1,752	$	1,495	$	3,076	$	2,729

The unrecognized compensation expense for all share-based awards at June 30, 2013, is as follows (dollars in thousands):


	Unrecognized Compensation Expense		Remaining Weighted Average Recognition Period (in years)
Restricted stock	$	4,306		2.0
RONOA performance awards		3,140		1.8
TSR market-condition awards		1,685		2.7
Stock options		1,394		1.5

Total unrecognized share-based compensation expense	$	10,525		2.0

10. Stockholders’ Equity

The following tables detail the changes in accumulated other comprehensive income (loss), net of tax, for the three and six months ended June 30, 2013 and 2012, respectively.



	Changes in Accumulated Other Comprehensive Income (Loss)
	Three Months Ended June 30, 2013
	Foreign Currency Translation Adjustments			Effective Portion of Cash Flow Hedges			Pension Benefits			Other			Total
Beginning balance	$	(530	)	$	328		$	(98,792	)	$	312		$	(98,682	)
Other comprehensive income (loss) before reclassification, net of tax		(195	)		(1,069	)		—			—			(1,264	)
Amounts reclassified from accumulated other comprehensive income, net of tax		—			101			1,349			(24	)		1,426

Ending balance	$	(725	)	$	(640	)	$	(97,443	)	$	288		$	(98,520	)


	Changes in Accumulated Other Comprehensive Income (Loss)
	Three Months Ended June 30, 2012
	Foreign Currency Translation Adjustments			Effective Portion of Cash Flow Hedges			Pension Benefits			Other			Total
Beginning balance	$	503		$	(5,100	)	$	(116,516	)	$	228		$	(120,885	)
Other comprehensive income (loss) before reclassification, net of tax		(2,307	)		1,459			—			—			(848	)
Amounts reclassified from accumulated other comprehensive income, net of tax		—			604			1,585			(5	)		2,184

Ending balance	$	(1,804	)	$	(3,037	)	$	(114,931	)	$	223		$	(119,549	)


	Changes in Accumulated Other Comprehensive Income (Loss)
	Six Months Ended June 30, 2013
	Foreign Currency Translation Adjustments			Effective Portion of Cash Flow Hedges			Pension Benefits			Other			Total
Beginning balance	$	(302	)	$	(1,230	)	$	(100,108	)	$	336		$	(101,304	)
Other comprehensive income (loss) before reclassification, net of tax		(423	)		587			—			—			164
Amounts reclassified from accumulated other comprehensive income, net of tax		—			3			2,665			(48	)		2,620

Ending balance	$	(725	)	$	(640	)	$	(97,443	)	$	288		$	(98,520	)


	Changes in Accumulated Other Comprehensive Income (Loss)
	Six Months Ended June 30, 2012
	Foreign Currency Translation Adjustments			Effective Portion of Cash Flow Hedges			Pension Benefits			Other			Total
Beginning balance	$	(352	)	$	(3,702	)	$	(118,141	)	$	233		$	(121,962	)
Other comprehensive income (loss) before reclassification, net of tax		(1,452	)		(756	)		—			—			(2,208	)
Amounts reclassified from accumulated other comprehensive income, net of tax		—			1,421			3,210			(10	)		4,621

Ending balance	$	(1,804	)	$	(3,037	)	$	(114,931	)	$	223		$	(119,549	)


	Reclassifications Out of Accumulated Other Comprehensive Income
	Three Months Ended June 30						Six Months Ended June 30
	2013			2012			2013			2012
(Gains) losses on cash flow hedges
Natural gas contracts (a)	$	165		$	984		$	5		$	2,312
Tax benefit		(64	)		(380	)		(2	)		(891	)

Net of tax	$	101		$	604		$	3		$	1,421

Pension benefits
Amortization of prior service cost	$	—		$	2		$	—		$	5
Amortization of actuarial loss		2,194			2,576			4,335			5,217

Total before tax (b)		2,194			2,578			4,335			5,222
Tax benefit		(845	)		(993	)		(1,670	)		(2,012	)

Net of tax	$	1,349		$	1,585		$	2,665		$	3,210

Other	$	(38	)	$	(7	)	$	(77	)	$	(16	)
Tax expense		14			2			29			6

Net of tax	$	(24	)	$	(5	)	$	(48	)	$	(10	)

(a)	Amounts are recorded in “Materials, labor and other operating expenses (excluding depreciation)” in our Consolidated Statements of Operations.

(b)	Amounts are included in the computation of net periodic pension cost. For additional information, see Note 8, Retirement and Benefit Plans.

11. Inventories

Inventories included the following (dollars in thousands):


	June 30, 2013		December 31, 2012
Finished goods	$	152,829	$	150,496
Work in process		43,096		41,575
Fiber		27,600		35,840
Other raw materials and supplies		65,182		66,573

	$	288,707	$	294,484

12. Property and Equipment

Property and equipment consisted of the following asset classes (dollars in thousands):


	June 30, 2013			December 31, 2012
Land	$	28,842		$	28,899
Buildings and improvements		266,628			260,607
Machinery and equipment		1,515,468			1,479,212
Construction in progress		68,430			46,538

		1,879,368			1,815,256
Less accumulated depreciation		(666,705	)		(592,255	)

	$	1,212,663		$	1,223,001

Depreciation expense for the three months ended June 30, 2013 and 2012, was $39.5 million and $32.8 million, respectively. During the six months ended June 30, 2013 and 2012, depreciation expense was $78.1 million and $65.4 million, respectively. We periodically assess the estimated useful lives of our assets. Changes in circumstances, such as changes to our operational or capital strategy, changes in regulations, 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. During the three and six months ended June 30, 2013, we recognized $5.5 million and $10.8 million, respectively, of incremental depreciation expense related to shortening the useful lives of some of our assets, primarily at International Falls, Minnesota. See Note 2, Restructuring Costs, for more information.

At June 30, 2013 and December 31, 2012, purchases of property and equipment included in accounts payable were $20.2 million and $10.8 million, respectively.

13. Leases

We lease some of our facilities, as well as other property and equipment, under operating leases. For purposes of determining straight-line rent expense, the lease term is calculated from the date of possession of the facility, including any periods of free rent and any renewal option periods that are reasonably assured of being exercised. Straight-line rent expense is also adjusted to reflect any allowances or reimbursements provided by the lessor. Rental expense for operating leases was $7.3 million and $7.7 million for the three months ended June 30, 2013 and 2012, respectively. During the six months ended June 30, 2013 and 2012, rental expense was $14.2 million and $14.7 million, respectively. Sublease rental income was not material in any of the periods presented.

14. 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 risk. Sales to OfficeMax were $117.3 million and $121.9 million, respectively, during the three months ended June 30, 2013 and 2012, representing 19% of total sales for both periods. Sales to OfficeMax were $235.1 million and $251.9 million, respectively, during the six months ended June 30, 2013 and 2012, representing 19% and 20% of total sales for those periods. At June 30, 2013, and December 31, 2012, we had $38.8 million and $39.5 million, respectively, of accounts receivable due from OfficeMax, which represented 15% and 16%, respectively, of our total company receivables.

In July 2013, OfficeMax and Office Depot shareholders voted in favor of merging the two companies. Our paper purchase agreement with OfficeMax provides that it would survive the merger with respect to the office paper requirements of the legacy OfficeMax business. We cannot predict how the merger, if finalized, would affect the financial condition of the combined company, the paper requirements of the legacy OfficeMax business, or the effects the combined company would have on the pricing and competition for office papers. Significant reductions in paper purchases from OfficeMax (or the post-merger entity) would cause us to expand our customer base and could potentially decrease our profitability if new customer sales required either a decrease in our pricing and/or an increase in our cost of sales. Any significant deterioration in the financial condition of OfficeMax (or the post-merger entity) affecting the ability to pay or causing a significant change in the willingness to purchase our products or a significant deterioration in the financial condition of OfficeMax that affects their ability to pay could have a material adverse effect on our business, financial condition, results of operations, and liquidity.

Labor

At June 30, 2013, we had approximately 5,200 employees, and approximately 50% of these employees worked pursuant to collective bargaining agreements. Approximately 1% of our employees work pursuant to collective bargaining agreements that will expire within the next 12 months.

15. Transactions With Related Party

Related-Party Sales

Louisiana Timber Procurement Company, L.L.C. (LTP) is a variable-interest entity that is 50% owned by Boise Inc. and 50% owned by Boise Cascade Holdings, L.L.C. (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 $3.9 million and $4.0 million at June 30, 2013, and December 31, 2012, respectively. During the three months ended June 30, 2013 and 2012, we recorded $16.8 million and $19.3 million, respectively, and during the six months ended June 30, 2013 and 2012, we recorded $32.5 million and $30.6 million, respectively, of LTP sales to Boise Cascade in “Sales, Related party” in the Consolidated Statements of Operations 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.

Related-Party Costs and Expenses

During the three months ended June 30, 2013 and 2012, fiber purchases from a related party were $5.3 million and $4.5 million, respectively, and during the six months ended June 30, 2013 and 2012, fiber purchases from a related party were $11.5 million and $9.4 million, respectively. Most of these purchases related to log and chip purchases by LTP from Boise Cascade’s wood products business. Costs associated with these purchases were recorded as “Fiber costs from related party” in the Consolidated Statements of Operations.

16. Segment Information

We operate and report our business in three reportable segments: Packaging, Paper, 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. There are no differences in our basis of segmentation or in our basis of measurement of segment profit or loss from those disclosed in Note 17, Segment Information, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in our 2012 Form 10-K.

An analysis of operations by segment is as follows (dollars in millions):


	Sales										Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion (c)		EBITDA (d)
Three Months Ended June 30, 2013	Trade		Related Party		Inter- segment			Total			Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion (c)		EBITDA (d)
Packaging (a)	$	283.0	$	16.8	$	0.8		$	300.6		$	31.3		$	16.8	$	48.1
Paper (a)		313.8		—		21.0			334.8			(9.9	)		25.9		15.9
Corporate and Other (b)		8.1		—		7.7			15.7			(9.4	)		1.2		(8.1	)
Intersegment eliminations		—		—		(29.5	)		(29.5	)		—			—		—

	$	604.8	$	16.8	$	—		$	621.7			12.0		$	43.9	$	55.8

Interest expense												(15.5	)
Interest income												—

											$	(3.5	)


	Sales										Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion		EBITDA (d)
Three Months Ended June 30, 2012	Trade		Related Party		Inter- segment			Total			Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion		EBITDA (d)
Packaging	$	264.9	$	19.3	$	0.6		$	284.8		$	24.8		$	15.1	$	40.0
Paper		345.5		—		17.7			363.3			19.6			21.3		40.9
Corporate and Other		8.2		—		9.0			17.2			(6.6	)		0.8		(5.7	)
Intersegment eliminations		—		—		(27.4	)		(27.4	)		—			—		—

	$	618.6	$	19.3	$	—		$	637.8			37.8		$	37.3	$	75.1

Interest expense												(15.4	)
Interest income												0.1

											$	22.5


	Sales										Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion (c)		EBITDA (d)
Six Months Ended June 30, 2013	Trade		Related Party		Inter- segment			Total			Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion (c)		EBITDA (d)
Packaging (a)	$	553.6	$	32.5	$	1.4		$	587.6		$	32.2		$	33.1	$	65.3
Paper (a)		626.7		—		40.9			667.6			9.7			51.8		61.5
Corporate and Other (b)		15.8		—		16.2			32.0			(17.2	)		2.4		(14.8	)
Intersegment eliminations		—		—		(58.5	)		(58.5	)		—			—		—

	$	1,196.1	$	32.5	$	—		$	1,228.7			24.7		$	87.3	$	112.0

Interest expense												(30.9	)
Interest income												—

											$	(6.2	)


	Sales										Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion		EBITDA (d)
Six Months Ended June 30, 2012	Trade		Related Party		Inter- segment			Total			Income (Loss) Before Income Taxes			Depreciation, Amortization, and Depletion		EBITDA (d)
Packaging	$	525.1	$	30.6	$	1.4		$	557.1		$	47.3		$	30.6	$	77.9
Paper		711.1		—		34.6			745.7			53.5			42.5		96.0
Corporate and Other		15.9		—		19.5			35.3			(13.1	)		1.7		(11.4	)
Intersegment eliminations		—		—		(55.4	)		(55.4	)		—			—		—

	$	1,252.1	$	30.6	$	—		$	1,282.7			87.7		$	74.9	$	162.6

Interest expense												(30.8	)
Interest income												0.1

											$	57.0

(a)

During the three months ended June 30, 2013, we recorded $13.3 million of pretax restructuring costs, of which $12.3 million was recorded in our Paper segment, and related primarily to our plan to shut down two paper machines and an off-machine coater at our mill in International Falls, Minnesota, in early fourth quarter 2013. We recorded $1.0 million of costs in our Packaging segment related to restructuring activities due to the conversion of a machine at our mill in DeRidder, Louisiana.

(b)

During the three months ended June 30, 2013, we recorded $2.0 million of transaction-related costs in our Corporate and Other segment. Transaction-related costs include expenses associated with transactions, whether consummated or not. We explore strategic transactions to the extent we believe they may improve our competitive position or enhance shareholder value.

(c)

During the three and six months ended June 30, 2013, we recognized $5.5 million and $10.8 million, respectively, of incremental depreciation expense related to shortening the useful lives of some of our assets, primarily at International Falls, Minnesota. We recognized $3.8 million and $7.6 million of incremental depreciation expense in our Paper segment during the three and six months ended June 30, 2013, respectively, and $1.7 million and $3.2 million of incremental depreciation expense, respectively, in our Packaging segment.

(d)

EBITDA represents income (loss) before interest (interest expense and interest income), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of companies. We believe EBITDA is a meaningful measure because it presents a transparent view of our recurring operating performance and allows management to readily view operating trends, perform analytical comparisons, and identify strategies to improve operating performance. For example, we believe that the inclusion of items such as taxes, interest expense, and interest income distorts management’s ability to assess and view the core operating trends in our segments. EBITDA, however, is not a measure of our liquidity or financial performance under generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income, income from operations, or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of EBITDA instead of net income (loss) or segment income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest expense, interest income, and associated significant cash requirements; and the exclusion of depreciation, amortization, and depletion, which represent significant and unavoidable operating costs given the 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 for Boise Inc. and BZ Intermediate (dollars in millions):


	Three Months Ended June 30						Six Months Ended June 30
	2013			2012			2013			2012
Net income (loss)	$	(2.2	)	$	13.7		$	(3.4	)	$	35.0
Interest expense		15.5			15.4			30.9			30.8
Interest income		—			(0.1	)		—			(0.1	)
Income tax provision (benefit)		(1.3	)		8.8			(2.7	)		22.0
Depreciation, amortization, and depletion (c)		43.9			37.3			87.3			74.9

EBITDA	$	55.8		$	75.1		$	112.0		$	162.6

17. New and Recently Adopted Accounting Standards

In July 2013, the FASB issued Accounting Standards Update (ASU) 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (Topic 740). This ASU requires that liabilities related to unrecognized tax benefits offset deferred tax assets for net operating loss carry forwards, a similar tax loss or a tax credit carry forward (Carryforward), if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations in which a Carryforward cannot be used or the deferred tax asset is not intended to be used for such purpose, the unrecognized tax benefit should be recorded as a liability and should not offset deferred tax assets. We plan to adopt this ASU in our financial statements for the year ended December 31, 2013. We continue to evaluate the impact of the ASU, but expect the adoption to decrease “Other long-term liabilities” and increase the “Deferred income taxes” liability recorded on our Consolidated Balance Sheets. This ASU will have no effect on our financial position and results of operations.

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. We have adopted the provisions of this guidance, and it had no effect on our financial position and results of operations. See Note 10, Stockholders’ Equity, for the additional required disclosures.

In July 2012, the FASB issued Accounting Standards Update (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. We will consider the provisions of this guidance when we test our indefinite-lived intangible assets for impairment in the fourth quarter. This ASU will have no 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. 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. We adopted the provisions of this guidance on January 1, 2013, and it had no effect on our financial position and results of operations. See Note 7, Financial Instruments, for the additional required 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.

18. Commitments, Guarantees, Indemnifications, and Legal Proceedings

Commitments

We have financial commitments and obligations that arise in the ordinary course of our business. These include long-term debt, lease payments, derivative instruments, and obligations to purchase goods and services that are discussed in Note 8, Debt; Note 9, Financial Instruments; Note 14, Leases; and Note 18, Commitments, Guarantees, Indemnifications, and Legal Proceedings, of the Notes to Consolidated Financial Statements in “Part II, Item 8. Financial Statements and Supplementary Data” in our 2012 Form 10-K. At June 30, 2013, there have been no material changes to commitments outside the normal course of business.

Guarantees and Indemnifications

We provide guarantees, indemnifications, and other assurances to third parties in the normal course of our business. These include tort indemnifications, environmental assurances, and representations and warranties in merger and acquisition agreements. At June 30, 2013, we are not aware of any material liabilities arising from any guarantee, indemnification, or financial assurance we have provided. If we determined such liability was probable and subject to reasonable determination, we would accrue for it at that time.

Legal Proceedings

19. Consolidating Guarantor and Nonguarantor Financial Information

Our 9% and 8% Senior Notes were issued by Boise Paper Holdings and co-issuers Boise Co-Issuer Company and Boise Finance Company, respectively. The Senior Notes are jointly and severally guaranteed on a senior unsecured basis by BZ Intermediate and each of its existing and, to the extent they become guarantors under the Credit Facilities, future subsidiaries other than: (i) Boise Paper Holdings and the co-issuers; (ii) Louisiana Timber Procurement Company, L.L.C.; and (iii) our foreign subsidiaries, including those acquired as part of the Hexacomb Acquisition. Each of the co-issuers of the Senior Notes and each of the subsidiaries of BZ Intermediate that is a guarantor thereof is 100% owned, directly or indirectly, by Boise Paper Holdings.

The following consolidating financial statements present the results of operations, comprehensive income, financial position, and cash flows of (i) BZ Intermediate Holdings LLC (parent); (ii) Boise Paper Holdings and co-issuers; (iii) guarantor subsidiaries; (iv) nonguarantor subsidiaries; and (v) eliminations to arrive at the information on a consolidated basis. Other than these consolidated financial statements and footnotes for Boise Inc. and BZ Intermediate, financial statements and other disclosures concerning the guarantors have not been presented. Management believes that such information is not material to investors and because the cancellation provisions of the guarantor subsidiaries’ guarantees are customary and do not permit a guarantor subsidiary to opt out of the obligation prior to or during the term of the debt. Under these cancellation provisions, each guarantor subsidiary is automatically released from its obligations as a guarantor upon the sale of the subsidiary or substantially all of its assets to a third party, the designation of the subsidiary as an unrestricted subsidiary for the purposes of the covenants included in the Senior Notes 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.

In the following consolidating financial statements, the reclassifications to net income (loss) from accumulated other comprehensive income are recorded primarily in our guarantor subsidiaries. See Note 10, Stockholders’ Equity, for additional information related to reclassifications out of accumulated other comprehensive income.

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Operations

For the Three Months Ended June 30, 2013

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Sales
Trade	$	—		$	3,998		$	588,133		$	12,690		$	—		$	604,821
Intercompany		—			—			2,319			27,417			(29,736	)		—
Related party		—			—			—			16,843			—			16,843

		—			3,998			590,452			56,950			(29,736	)		621,664

Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)		—			3,751			472,833			48,841			(29,736	)		495,689
Fiber costs from related party		—			—			—			5,319			—			5,319
Depreciation, amortization, and depletion		—			1,030			42,176			685			—			43,891
Selling and distribution expenses		—			—			33,179			585			—			33,764
General and administrative expenses		—			6,780			11,620			1,293			—			19,693
Restructuring costs		—			—			9,011			—			—			9,011
Other (income) expense, net		—			2,046			(246	)		130			—			1,930

		—			13,607			568,573			56,853			(29,736	)		609,297

Income (loss) from operations		—			(9,609	)		21,879			97			—			12,367


Foreign exchange loss		—			(270	)		(32	)		(113	)		—			(415	)
Interest expense		—			(15,435	)		—			(21	)		—			(15,456	)
Interest expense—intercompany		—			(56	)		—			(20	)		76			—
Interest income		—			1			6			—			—			7
Interest income—intercompany		—			13			63			—			(76	)		—

		—			(15,747	)		37			(154	)		—			(15,864	)

Income (loss) before income taxes and equity in net income (loss) of affiliates		—			(25,356	)		21,916			(57	)		—			(3,497	)
Income tax (provision) benefit		—			1,313			(5	)		(19	)		—			1,289

Income (loss) before equity in net income (loss) of affiliates		—			(24,043	)		21,911			(76	)		—			(2,208	)
Equity in net income (loss) of affiliates		(2,208	)		21,835			—			—			(19,627	)		—

Net income (loss)	$	(2,208	)	$	(2,208	)	$	21,911		$	(76	)	$	(19,627	)	$	(2,208	)

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Operations

For the Three Months Ended June 30, 2012

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
Sales
Trade	$	—	$	3,629		$	602,193	$	12,763		$	—		$	618,585
Intercompany		—		—			749		26,293			(27,042	)		—
Related party		—		—			—		19,255			—			19,255

		—		3,629			602,942		58,311			(27,042	)		637,840

Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)		—		3,544			479,689		51,152			(27,042	)		507,343
Fiber costs from related party		—		—			—		4,466			—			4,466
Depreciation, amortization, and depletion		—		659			35,976		668			—			37,303
Selling and distribution expenses		—		—			30,627		(59	)		—			30,568
General and administrative expenses		—		6,955			11,423		1,657			—			20,035
Other (income) expense, net		—		98			349		(66	)		—			381

		—		11,256			558,064		57,818			(27,042	)		600,096

Income (loss) from operations		—		(7,627	)		44,878		493			—			37,744

Foreign exchange gain (loss)		—		(186	)		33		255			—			102
Interest expense		—		(15,440	)		—		7			—			(15,433	)
Interest expense—intercompany		—		(48	)		—		(14	)		62			—
Interest income		—		14			40		—			—			54
Interest income—intercompany		—		14			48		—			(62	)		—

		—		(15,646	)		121		248			—			(15,277	)

Income (loss) before income taxes and equity in net income (loss) of affiliates		—		(23,273	)		44,999		741			—			22,467
Income tax provision		—		(8,488	)		9		(326	)		—			(8,805	)

Income (loss) before equity in net income (loss) of affiliates		—		(31,761	)		45,008		415			—			13,662
Equity in net income of affiliates		13,662		45,423			—		—			(59,085	)		—

Net income	$	13,662	$	13,662		$	45,008	$	415		$	(59,085	)	$	13,662

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Operations

For the Six Months Ended June 30, 2013

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Sales
Trade	$	—		$	7,864		$	1,162,844		$	25,434		$	—		$	1,196,142
Intercompany		—			—			4,712			55,407			(60,119	)		—
Related party		—			—			—			32,540			—			32,540

		—			7,864			1,167,556			113,381			(60,119	)		1,228,682

Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)		—			7,487			948,153			96,437			(60,119	)		991,958
Fiber costs from related party		—			—			—			11,465			—			11,465
Depreciation, amortization, and depletion		—			1,980			83,993			1,346			—			87,319
Selling and distribution expenses		—			—			61,775			838			—			62,613
General and administrative expenses		—			13,994			22,044			2,578			—			38,616
Restructuring costs		—			—			9,474			—			—			9,474
Other (income) expense, net		—			2,076			(318	)		40			—			1,798

		—			25,537			1,125,121			112,704			(60,119	)		1,203,243

Income (loss) from operations		—			(17,673	)		42,435			677			—			25,439

Foreign exchange loss		—			(434	)		(48	)		(274	)		—			(756	)
Interest expense		—			(30,862	)		—			(13	)		—			(30,875	)
Interest expense—intercompany		—			(103	)		—			(39	)		142			—
Interest income		—			1			13			20			—			34
Interest income—intercompany		—			27			115			—			(142	)		—

		—			(31,371	)		80			(306	)		—			(31,597	)

Income (loss) before income taxes and equity in net income (loss) of affiliates		—			(49,044	)		42,515			371			—			(6,158	)
Income tax (provision) benefit		—			2,947			(33	)		(189	)		—			2,725

Income (loss) before equity in net income (loss) of affiliates		—			(46,097	)		42,482			182			—			(3,433	)
Equity in net income (loss) of affiliates		(3,433	)		42,664			—			—			(39,231	)		—

Net income (loss)	$	(3,433	)	$	(3,433	)	$	42,482		$	182		$	(39,231	)	$	(3,433	)

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Operations

For the Six Months Ended June 30, 2012

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Sales
Trade	$	—	$	7,300		$	1,220,608		$	24,205		$	—		$	1,252,113
Intercompany		—		—			976			52,034			(53,010	)		—
Related party		—		—			—			30,573			—			30,573

		—		7,300			1,221,584			106,812			(53,010	)		1,282,686

Costs and expenses
Materials, labor, and other operating expenses (excluding depreciation)		—		7,057			963,719			91,876			(53,010	)		1,009,642
Fiber costs from related party		—		—			—			9,412			—			9,412
Depreciation, amortization, and depletion		—		1,322			72,159			1,378			—			74,859
Selling and distribution expenses		—		—			60,847			363			—			61,210
General and administrative expenses		—		14,241			22,777			3,025			—			40,043
Other (income) expense, net		—		152			189			(260	)		—			81

		—		22,772			1,119,691			105,794			(53,010	)		1,195,247

Income (loss) from operations		—		(15,472	)		101,893			1,018			—			87,439

Foreign exchange gain (loss)		—		3			76			180			—			259
Interest expense		—		(30,798	)		—			—			—			(30,798	)
Interest expense—intercompany		—		(95	)		—			(28	)		123			—
Interest income		—		48			50			—			—			98
Interest income—intercompany		—		28			95			—			(123	)		—

		—		(30,814	)		221			152			—			(30,441	)

Income (loss) before income taxes and equity in net income (loss) of affiliates		—		(46,286	)		102,114			1,170			—			56,998
Income tax provision		—		(21,629	)		(23	)		(346	)		—			(21,998	)

Income (loss) before equity in net income (loss) of affiliates		—		(67,915	)		102,091			824			—			35,000
Equity in net income of affiliates		35,000		102,915			—			—			(137,915	)		—

Net income	$	35,000	$	35,000		$	102,091		$	824		$	(137,915	)	$	35,000

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Comprehensive Income

For the Three Months Ended June 30, 2013

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	(2,208	)	$	(2,208	)	$	21,911	$	(76	)	$	(19,627	)	$	(2,208	)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment		—			—			—		(195	)		—			(195	)
Cash flow hedges:
Change in fair value		—			(1,069	)		—		—			—			(1,069	)
Loss included in net income		—			101			—		—			—			101
Amortization of actuarial loss and prior service cost for defined benefit pension plans		—			1,349			—		—			—			1,349
Other		—			(24	)		—		—			—			(24	)
Equity in other comprehensive income of affiliates		162			(195	)		—		—			33			—

		162			162			—		(195	)		33			162

Comprehensive income (loss)	$	(2,046	)	$	(2,046	)	$	21,911	$	(271	)	$	(19,594	)	$	(2,046	)

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Comprehensive Income

For the Three Months Ended June 30, 2012

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
Net income	$	13,662	$	13,662		$	45,008	$	415		$	(59,085	)	$	13,662
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment		—		—			—		(2,307	)		—			(2,307	)
Cash flow hedges:
Change in fair value		—		1,459			—		—			—			1,459
Loss included in net income		—		604			—		—			—			604
Amortization of actuarial loss and prior service cost for defined benefit pension plans		—		1,585			—		—			—			1,585
Other		—		(5	)		—		—			—			(5	)
Equity in other comprehensive income of affiliates		1,336		(2,307	)		—		—			971			—

		1,336		1,336			—		(2,307	)		971			1,336

Comprehensive income (loss)	$	14,998	$	14,998		$	45,008	$	(1,892	)	$	(58,114	)	$	14,998

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Comprehensive Income

For the Six Months Ended June 30, 2013

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	(3,433	)	$	(3,433	)	$	42,482	$	182		$	(39,231	)	$	(3,433	)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment		—			—			—		(423	)		—			(423	)
Cash flow hedges:
Change in fair value		—			587			—		—			—			587
Loss included in net income		—			3			—		—			—			3
Amortization of actuarial loss and prior service cost for defined benefit pension plans		—			2,665			—		—			—			2,665
Other		—			(48	)		—		—			—			(48	)
Equity in other comprehensive income of affiliates		2,784			(423	)		—		—			(2,361	)		—

		2,784			2,784			—		(423	)		(2,361	)		2,784

Comprehensive income (loss)	$	(649	)	$	(649	)	$	42,482	$	(241	)	$	(41,592	)	$	(649	)

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Comprehensive Income

For the Six Months Ended June 30, 2012

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
Net income	$	35,000	$	35,000		$	102,091	$	824		$	(137,915	)	$	35,000
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment		—		—			—		(1,452	)		—			(1,452	)
Cash flow hedges:
Change in fair value		—		(756	)		—		—			—			(756	)
Loss included in net income		—		1,421			—		—			—			1,421
Amortization of actuarial loss and prior service cost for defined benefit pension plans		—		3,210			—		—			—			3,210
Other		—		(10	)		—		—			—			(10	)
Equity in other comprehensive income of affiliates		2,413		(1,452	)		—		—			(961	)		—

		2,413		2,413			—		(1,452	)		(961	)		2,413

Comprehensive income (loss)	$	37,413	$	37,413		$	102,091	$	(628	)	$	(138,876	)	$	37,413

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Balance Sheets at June 30, 2013

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current
Cash and cash equivalents	$	—	$	54,280	$	177	$	6,629	$	—		$	61,086
Receivables
Trade, less allowances		—		1,316		243,151		9,881		—			254,348
Intercompany		—		3,265		330		2,149		(5,744	)		—
Other		—		2,785		4,439		2,637		—			9,861
Inventories		—		4		284,254		4,449		—			288,707
Deferred income taxes		—		11,997		—		—		—			11,997
Prepaid and other		—		9,144		4,311		684		—			14,139

		—		82,791		536,662		26,429		(5,744	)		640,138

Property
Property and equipment, net		—		9,238		1,192,225		11,200		—			1,212,663
Fiber farms		—		—		25,113		—		—			25,113

		—		9,238		1,217,338		11,200		—			1,237,776

Deferred financing costs		—		24,380		—		—		—			24,380
Goodwill		—		—		153,576		6,556		—			160,132
Intangible assets, net		—		—		128,319		13,699		—			142,018
Investments in affiliates		758,305		1,744,654		—		—		(2,502,959	)		—
Intercompany notes receivable		—		3,400		1,524		—		(4,924	)		—
Other assets		—		5,945		499		185		—			6,629

Total assets	$	758,305	$	1,870,408	$	2,037,918	$	58,069	$	(2,513,627	)	$	2,211,073

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Balance Sheets at June 30, 2013 (continued)

(unaudited, 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	$	—		$	15,000		$	—	$	—		$	—		$	15,000
Accounts payable
Trade		—			11,423			186,106		5,673			—			203,202
Intercompany		—			210			1,934		3,569			(5,713	)		—
Accrued liabilities
Compensation and benefits		—			20,817			43,162		1,407			—			65,386
Interest payable		—			10,529			—		—			—			10,529
Other		—			3,859			17,832		3,498			(31	)		25,158

		—			61,838			249,034		14,147			(5,744	)		319,275

Debt
Long-term debt, less current portion		—			760,000			—		—			—			760,000
Intercompany notes payable		—			—			—		4,924			(4,924	)		—

		—			760,000			—		4,924			(4,924	)		760,000

Other
Deferred income taxes		—			126,476			53,497		3,327			—			183,300
Compensation and benefits		—			116,077			76		—			—			116,153
Other long-term liabilities		—			47,712			26,102		226			—			74,040

		—			290,265			79,675		3,553			—			373,493

Commitments and contingent liabilities
Capital
Business unit equity		856,825			856,825			1,709,209		36,171			(2,602,205	)		856,825
Accumulated other comprehensive loss		(98,520	)		(98,520	)		—		(726	)		99,246			(98,520	)

		758,305			758,305			1,709,209		35,445			(2,502,959	)		758,305

Total liabilities and capital	$	758,305		$	1,870,408		$	2,037,918	$	58,069		$	(2,513,627	)	$	2,211,073

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Balance Sheets at December 31, 2012

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)		Boise Paper Holdings and Co- issuers		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current
Cash and cash equivalents	$	—	$	40,801	$	516	$	8,390	$	—		$	49,707
Receivables
Trade, less allowances		—		1,458		230,178		8,823		—			240,459
Intercompany		—		2,234		1,580		2,670		(6,484	)		—
Other		—		2,880		4,266		1,121		—			8,267
Inventories		—		3		291,065		3,416		—			294,484
Deferred income taxes		—		17,955		—		—		—			17,955
Prepaid and other		—		6,952		1,021		855		—			8,828

		—		72,283		528,626		25,275		(6,484	)		619,700

Property
Property and equipment, net		—		7,930		1,203,384		11,687		—			1,223,001
Fiber farms		—		—		24,311		—		—			24,311

		—		7,930		1,227,695		11,687		—			1,247,312

Deferred financing costs		—		26,677		—		—		—			26,677
Goodwill		—		—		153,576		6,554		—			160,130
Intangible assets, net		—		—		133,115		14,449		—			147,564
Investments in affiliates		756,683		1,778,531		—		—		(2,535,214	)		—
Intercompany notes receivable		—		3,400		1,524		—		(4,924	)		—
Other assets		—		5,992		902		135		—			7,029

Total assets	$	756,683	$	1,894,813	$	2,045,438	$	58,100	$	(2,546,622	)	$	2,208,412

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Balance Sheets at December 31, 2012 (continued)

(unaudited, dollars in thousands)


	BZ Intermediate Holdings LLC (Parent)			Boise Paper Holdings and Co- issuers			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated
LIABILITIES AND CAPITAL
Current
Current portion of long-term debt	$	—		$	10,000		$	—	$	—		$	—		$	10,000
Accounts payable
Trade		—			18,547			160,152		6,379			—			185,078
Intercompany		—			571			2,090		3,842			(6,503	)		—
Accrued liabilities
Compensation and benefits		—			22,206			47,605		1,139			—			70,950
Interest payable		—			10,516			—		—			—			10,516
Other		—			3,773			14,033		2,703			19			20,528

		—			65,613			223,880		14,063			(6,484	)		297,072

Debt
Long-term debt, less current portion		—			770,000			—		—			—			770,000
Intercompany notes payable		—			—			—		4,924			(4,924	)		—

		—			770,000			—		4,924			(4,924	)		770,000

Other
Deferred income taxes		—			132,841			53,497		3,485			—			189,823
Compensation and benefits		—			121,606			76		—			—			121,682
Other long-term liabilities		—			48,070			24,932		150			—			73,152

		—			302,517			78,505		3,635			—			384,657

Commitments and contingent liabilities
Capital
Business unit equity		857,987			857,987			1,743,053		35,779			(2,636,819	)		857,987
Accumulated other comprehensive loss		(101,304	)		(101,304	)		—		(301	)		101,605			(101,304	)

		756,683			756,683			1,743,053		35,478			(2,535,214	)		756,683

Total liabilities and capital	$	756,683		$	1,894,813		$	2,045,438	$	58,100		$	(2,546,622	)	$	2,208,412

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Cash Flows

For the Six Months Ended June 30, 2013

(unaudited, 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 (loss)	$	(3,433	)	$	(3,433	)	$	42,482		$	182		$	(39,231	)	$	(3,433	)
Items in net income (loss) not using (providing) cash
Equity in net income of affiliates		3,433			(42,664	)		—			—			39,231			—
Depreciation, depletion, and amortization of deferred financing costs and other		—			4,454			83,993			1,346			—			89,793
Share-based compensation expense		—			3,076			—			—			—			3,076
Pension expense		—			3,020			—			—			—			3,020
Deferred income taxes		—			(2,501	)		—			(123	)		—			(2,624	)
Restructuring costs		—			—			9,992			—			—			9,992
Other		—			434			676			290			—			1,400
Decrease (increase) in working capital
Receivables		—			(682	)		(12,076	)		(2,233	)		(740	)		(15,731	)
Inventories		—			(1	)		3,691			(1,124	)		—			2,566
Prepaid expenses		—			990			(3,290	)		173			—			(2,127	)
Accounts payable and accrued liabilities		—			(10,294	)		9,935			659			740			1,040
Current and deferred income taxes		—			(893	)		1			203			—			(689	)
Pension payments		—			(5,091	)		—			—			—			(5,091	)
Other		—			720			(338	)		22			—			404

Cash provided by (used for) operations		—			(52,865	)		135,066			(605	)		—			81,596

Cash provided by (used for) investment
Expenditures for property and equipment		—			(3,240	)		(60,481	)		(874	)		—			(64,595	)
Other		—			(434	)		1,402			(278	)		—			690

Cash used for investment		—			(3,674	)		(59,079	)		(1,152	)		—			(63,905	)

Cash provided by (used for) financing
Payments of long-term debt		—			(5,000	)		—			—			—			(5,000	)
Payments (to) from Boise Inc., net		(1,100	)		—			—			—			—			(1,100	)
Due to (from) affiliates		1,100			75,018			(76,326	)		208			—			—
Other		—			—			—			(212	)		—			(212	)

Cash provided by (used for) financing		—			70,018			(76,326	)		(4	)		—			(6,312	)

Increase (decrease) in cash and cash equivalents		—			13,479			(339	)		(1,761	)		—			11,379
Balance at beginning of the period		—			40,801			516			8,390			—			49,707

Balance at end of the period	$	—		$	54,280		$	177		$	6,629		$	—		$	61,086

BZ Intermediate Holdings LLC and Subsidiaries

Consolidating Statements of Cash Flows

For the Six Months Ended June 30, 2012

(unaudited, 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	$	35,000		$	35,000		$	102,091		$	824		$	(137,915	)	$	35,000
Items in net income not using (providing) cash
Equity in net income of affiliates		(35,000	)		(102,915	)		—			—			137,915			—
Depreciation, depletion, and amortization of deferred financing costs and other		—			3,653			72,159			1,378			—			77,190
Share-based compensation expense		—			2,729			—			—			—			2,729
Pension expense		—			5,474			—			—			—			5,474
Deferred income taxes		—			12,750			—			(140	)		—			12,610
Other		—			1			136			(180	)		—			(43	)
Decrease (increase) in working capital
Receivables		—			(1,518	)		(6,988	)		(4,389	)		845			(12,050	)
Inventories		—			—			(19,888	)		(336	)		—			(20,224	)
Prepaid expenses		—			188			(4,350	)		(707	)		—			(4,869	)
Accounts payable and accrued liabilities		—			(16,116	)		(1,025	)		3,925			(845	)		(14,061	)
Current and deferred income taxes		—			7,221			1			230			—			7,452
Pension payments		—			(18,191	)		—			—			—			(18,191	)
Other		—			2,638			(708	)		180			—			2,110

Cash provided by (used for) operations		—			(69,086	)		141,428			785			—			73,127

Cash provided by (used for) investment
Expenditures for property and equipment		—			(2,404	)		(49,741	)		(312	)		—			(52,457	)
Other		—			3			140			443			—			586

Cash provided by (used for) investment		—			(2,401	)		(49,601	)		131			—			(51,871	)

Cash provided by (used for) financing
Payments of long-term debt		—			(5,000	)		—			—			—			(5,000	)
Payments (to) from Boise Inc., net		(52,440	)		—			—			—			—			(52,440	)
Due to (from) affiliates		52,440			46,164			(100,312	)		1,708			—			—
Other		—			(247	)		—			(1,063	)		—			(1,310	)

Cash provided by (used for) financing		—			40,917			(100,312	)		645			—			(58,750	)

Increase (decrease) in cash and cash equivalents		—			(30,570	)		(8,485	)		1,561			—			(37,494	)
Balance at beginning of the period		—			82,532			9,737			4,727			—			96,996

Balance at end of the period	$	—		$	51,962		$	1,252		$	6,288		$	—		$	59,502