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Boise Reports Fourth Quarter 2008 Loss

Feb. 24, 2009 (Press Release) - Boise Inc. today reported a net loss of $15.5 million or ($0.20) per diluted share for fourth quarter 2008, compared to third quarter net income of $4.4 million or $0.06 per diluted share. Full year 2008 net loss was $45.5 million. Special items in fourth quarter 2008 include $37.6 million in pre-tax charges associated with the St. Helens, Oregon, mill restructuring, $28.8 million of which is related to non-cash expenses, and a $2.9 million gain associated with the freeze of our salaried pension plan.

EBITDA, excluding special items, was $76.0 million for fourth quarter 2008, compared to $77.9 million for third quarter 2008 and was $247.1 million for full year 2008.

"Last year brought unprecedented challenges with significant cost inflation, credit market contraction, and slowing markets," said Alexander Toeldte, President and Chief Executive Officer of Boise Inc.

"Despite this environment, we continued to improve operating performance. During the first quarter 2008, we upgraded our big linerboard machine at our DeRidder mill, lowered our fossil fuel consumption, and extended our linerboard production capability. In the fourth quarter, we responded to slowing markets by taking 39,000 tons of market downtime and restructuring our St. Helens mill, which reduced our uncoated freesheet production capacity by approximately 200,000 tons annually. This restructuring shifts our production away from declining printing and converting paper grades to better focus on packaging-driven and office paper grades. It also lowers our cost structure, enhances cash flow, and improves EBITDA margins. These structural changes, along with progress in improving operational performance, put us in a better position to be successful in 2009."

Sales

Company sales for fourth quarter 2008 were $591.1 million, an increase of $3.5 million, or 1% compared to Predecessor sales of $587.6 million for fourth quarter 2007, and down 7% from third quarter 2008 sales of $633.1 million. Paper segment sales decreased 2% during fourth quarter 2008 compared to fourth quarter 2007, with lower sales volumes partially offset by higher sales prices. Packaging segment sales increased 5% during fourth quarter 2008 compared to fourth quarter 2007, with higher sales prices partially offset by lower sales volumes.

Full year 2008 combined sales were $2.4 billion, a 4% increase over 2007 Predecessor sales of $2.3 billion. In both Packaging and Paper, segment sales increased by 4% driven by increased sales prices, partially offset by lower sales volumes.

Prices and Volumes

Average net selling prices of uncoated freesheet papers improved $89 per ton, or 10% to $969 per ton during fourth quarter 2008 compared to fourth quarter 2007 and improved 1% over third quarter 2008. Overall, uncoated freesheet sales volumes were 332,000 tons during fourth quarter, a decline of 7% versus the prior year period, and down 9% from third quarter 2008 due to lower demand. Full year combined net selling prices for uncoated freesheet improved $66 per ton, or 8% to $930 per ton in 2008 compared to 2007. Full year sales volumes of uncoated freesheet papers were 1.4 million tons in 2008, down 3% compared to the same period in 2007. Combined sales volumes of premium office, label and release, and flexible packaging papers, which represented 23% of our total 2008 uncoated freesheet sales volumes, increased by 14% from the prior year.

Linerboard net selling prices to third parties declined slightly to $406 per ton in fourth quarter 2008 from $407 per ton in fourth quarter 2007, and improved 4% from third quarter 2008, due to increased market prices. Full year net selling prices for linerboard sales to third parties improved $8 per ton, or 2% to $397 per ton in 2008 compared to 2007. Linerboard sales volumes to third parties decreased 4% compared to fourth quarter 2007 and were down 12% from third quarter 2008 due to soft market conditions. Downtime was taken late in the fourth quarter 2008 to match supply to demand. Full year linerboard sales volumes to third parties were 230,000 tons in 2008, down 4% compared to 2007.

Corrugated container and sheet prices improved 11% in fourth quarter 2008 over prices for these products during fourth quarter 2007 and increased 5% over third quarter 2008 prices. Full year corrugated container and sheet prices improved 8% in 2008 compared to 2007. Sales volumes for corrugated containers and sheets in fourth quarter 2008 declined 7% versus fourth quarter 2007 and declined 6% from third quarter 2008. Full year corrugated container and sheet volumes decreased 5% to 6.3 billion square feet in 2008 compared to 2007, driven mainly by lower volumes from our sheet feeder plant in Texas as a result of slowing industrial markets and market disruptions caused by Hurricane Ike.

Newsprint pricing continued to improve in fourth quarter 2008 as net selling prices increased by $175 per ton, or 37% to $643 per ton over fourth quarter 2007 and 8% over third quarter 2008. Full year net selling prices for newsprint sales improved $82 per ton, or 17% to $571 per ton in 2008 compared to 2007. Newsprint volumes declined 13% compared to fourth quarter 2007 and were down 3% from third quarter 2008 due to production of lower basis weights and lower demand. Full year newsprint sales volumes were 382,000 tons in 2008, down 8% compared to 2007.

All of the company's newsprint production was sold to and marketed by AbitibiBowater until late February 2009, when we terminated the arrangement. Going forward, we will market newsprint through our own sales personnel primarily to newspaper publishers located in regional markets near our DeRidder, Louisiana, manufacturing facility. We expect our customer base to grow as we further establish our presence in these markets.

Input Costs

Total fiber, energy, and chemical costs for fourth quarter 2008 were $267.0 million, an increase of $4.5 million, or 2% over costs of $262.5 million for fourth quarter 2007, and a decrease of $36.7 million, or 12% from costs of $303.7 million for third quarter 2008. Full year 2008 combined fiber, energy, and chemical costs were $1,132.8 million, an increase of $104.9 million, or 10% over costs of $1,027.9 million for 2007.

Total fiber costs during fourth quarter 2008 were $124.0 million, a decrease of $7.5 million, or 6% over the $131.5 million incurred for fiber in fourth quarter 2007. This was driven primarily by reduced consumption due to market downtime and the Jackson, Alabama, annual maintenance outage, partially offset by higher prices. Fiber costs in fourth quarter 2008 declined $12.4 million, or 9% from $136.4 million for third quarter 2008. Full year 2008 combined fiber costs were $530.0 million, an increase of $24.7 million, or 5% over costs of $505.3 million for 2007, due primarily to higher prices for wood, purchased pulp, and secondary fiber partially offset by reduced consumption during the DeRidder outage in the first quarter 2008 and lower production volumes in the fourth quarter due to slowed production and market downtime.

Energy costs in fourth quarter 2008 increased $6.2 million, or 9% to $77.5 million compared to $71.3 million in the same quarter a year ago. Higher electricity and natural gas prices were the primary drivers. Reduced consumption due to lower production volumes provided a partial offset. Energy costs in fourth quarter 2008 decreased $18.1 million, or 19% from $95.6 million in third quarter 2008, due to lower prices for natural gas and fuel and non-cash expenses associated with natural gas hedging incurred in third quarter 2008. Full year 2008 combined energy costs increased by $45.7 million to $340.2 million, 16% over costs of $294.5 million for 2007.

Chemical costs in fourth quarter 2008 were $65.5 million, an increase of $5.8 million, or 10% compared to $59.7 million in the prior year's fourth quarter, and down $6.2 million, or 9% compared to $71.7 million in third quarter 2008. The key drivers were reduced consumption due to the Jackson annual maintenance outage and market downtime taken in fourth quarter 2008. Full year 2008 combined chemical costs were $262.6 million, an increase of $34.5 million over $228.1 million for 2007, due to higher prices for commodity chemicals.

About Boise Inc.

Headquartered in Boise, Idaho, Boise Inc. manufactures packaging products and papers including corrugated containers, containerboard, label and release and flexible packaging papers, imaging papers for the office and home, printing and converting papers, newsprint, and market pulp. Our entire team of approximately 4,350 employees is committed to delivering excellent value while managing our businesses to sustain environmental resources for future generations.

SOURCE: Boise Inc.




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