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Boise Reports Second Quarter Profit

Aug. 5, 2009 - Boise Inc. today reported net income of $50.9 million or $0.60 per diluted share for second quarter 2009, compared with first quarter 2009 net loss of $0.9 million or ($0.01) per diluted share and second quarter 2008 net loss of $18.1 million or ($0.23) per diluted share.

EBITDA, excluding special items, was $53.0 million for second quarter 2009, compared with $58.6 million for first quarter 2009 and $40.1 million for second quarter 2008.

Net covenant debt(b) was $921.6 million at June 30, 2009, a decline of $27.4 million from $949.0 million at March 31, 2009. Net total debt was $901.7 million at June 30, 2009, a decline of $114.9 million from $1,016.5 million at March 31, 2009.

"Our core businesses delivered solid earnings and cash flow during second quarter 2009 as demand for our office papers, label and release papers, and agricultural-based packaging products held up well despite the sluggish economy," said Alexander Toeldte, President and Chief Executive Officer of Boise Inc. "We reduced working capital and ended the quarter with a much strengthened liquidity position. We will continue to focus on controlling costs, balancing production with demand, and generating cash."

Sales

Total sales for second quarter 2009 were $479.4 million, a decrease of $139.0 million, or 22%, from $618.4 million during second quarter 2008 and down 4% from first quarter 2009 sales of $500.3 million.

Paper segment sales during second quarter 2009 decreased $54.5 million, or 13%, to $356.4 million from $410.9 million compared with second quarter 2008, driven by 10% lower uncoated freesheet sales volumes. This was due primarily to the St. Helens, Oregon, mill downsizing, which eliminated 13% of our annual uncoated freesheet capacity. Reduced sales volumes were offset partially by higher net sales prices. Paper segment sales in second quarter 2009 increased by $4.4 million, or 1%, from first quarter 2009.

Packaging segment sales during second quarter 2009 decreased $86.9 million, or 40%, to $130.2 million from $217.1 million compared with second quarter 2008. Lower newsprint volumes due to the indefinite idling of our DeRidder #2 newsprint machine and a lower operating rate on our DeRidder #3 newsprint machine negatively impacted revenue. Reduced segment linerboard sales volumes also contributed to the decline as we balanced production to match lower demand. Packaging segment sales decreased $26.9 million, or 17%, from first quarter 2009 due to lower newsprint volumes and lower net selling prices for linerboard and newsprint.

Prices and Volumes

Average net selling prices of uncoated freesheet papers improved $33 per ton, or 4%, to $958 per ton during second quarter 2009 compared with second quarter 2008, and declined $23 per ton, or 2%, from first quarter 2009. Uncoated freesheet sales volumes were 315,000 tons during second quarter 2009, a decline of 10% versus the prior year period due to reduced capacity and market downtime as a result of lower demand. Uncoated freesheet sales volumes increased 4% from first quarter 2009 on reduced market downtime, improved demand, and higher sales volumes of label and release and office papers. Combined sales volumes of premium office, label and release, and flexible packaging papers, which represented 28% of our second quarter 2009 uncoated freesheet sales volumes, increased by 4% from the prior year.

Corrugated container and sheet prices improved $3 per thousand square feet (msf), or 5%, to $59 per msf in second quarter 2009 over prices for these products during the second quarter 2008 and decreased $1 per msf, or 2%, compared with first quarter 2009 prices. Sales volumes for corrugated containers and sheets were 1.4 million msf in second quarter 2009, a decline of 8% from second quarter 2008 due primarily to lower volumes from our sheet feeder plant in Texas as a result of slowing industrial markets. Corrugated products sales volumes increased 2% from first quarter 2009 on improving seasonal agricultural and food sector demand in our Pacific Northwest corrugated plants.

Linerboard net selling prices to third parties declined $92 per ton, or 23%, to $302 per ton in second quarter 2009 from $394 per ton in the second quarter 2008 and declined $50 per ton, or 14%, from first quarter 2009, due to softening demand, particularly in export markets. Linerboard sales volumes to third parties were 54,000 tons, a decrease of 18% compared with the second quarter 2008 and an increase of 42% from first quarter 2009. In the first quarter 2009, we performed our annual maintenance outage at our mill in DeRidder, Louisiana, which reduced production and sales during that period.

Newsprint pricing in second quarter 2009 decreased by $110 per ton, or 20%, to $434 per ton from the second quarter 2008 and declined $154 per ton, or 26%, from first quarter 2009. Newsprint sales volumes were 28,000 tons, a decline of 73% compared with the second quarter 2008 and down 53% from first quarter 2009 due to weak newsprint demand, coupled with a change in our approach to market as we exited our sales relationship with AbitibiBowater and began to sell directly to publishers.

Input Costs

Total fiber, energy, and chemical costs for second quarter 2009 were $183.7 million, a decrease of $106.3 million, or 37%, from costs of $290.0 million for second quarter 2008. Much of the decline was driven by reduced consumption as a result of the restructuring of our mill in St. Helens, Oregon, and market downtime at our mill in DeRidder, Louisiana. Total fiber, energy, and chemical costs for second quarter 2009 decreased $22.0 million, or 11%, from costs of $205.7 million for first quarter 2009.

Fiber costs during second quarter 2009 were $92.2 million, a decrease of $50.1 million, or 35%, from $142.3 million in second quarter 2008; this was due to lower fiber prices and reduced consumption as a result of lower production capacity due to the St. Helens mill downsizing and market downtime. Fiber costs decreased $1.9 million, or 2%, from first quarter 2009 due primarily to lower prices for purchased pulp, wood, and recycled fiber.

Energy costs in second quarter 2009 decreased $43.8 million, or 52%, to $40.5 million compared with $84.3 million in the same quarter a year ago, and decreased $20.3 million, or 33%, from first quarter 2009 due to lower overall energy consumption and lower prices for natural gas, fuel, and electricity.

Chemical costs in second quarter 2009 were $51.0 million, a decrease of $12.4 million, or 20%, compared with $63.4 million in the prior year's second quarter due to lower consumption, offset partially by higher prices, and flat compared with first quarter 2009.

Alternative Fuel Tax Credit

We continue to invest in our assets and improve our operating practices to reduce consumption of fossil fuels. Between 2002 and 2008, our mills reduced their fossil fuel use by 21% per ton, primarily through conservation and increased use of biomass fuels. Each year, under normal operating conditions, we produce and use approximately 500 million gallons of liquid fuel produced from biomass to provide energy to four of our five paper mills. The U.S. Internal Revenue Code allows an excise tax credit of $0.50 per gallon for taxpayers who use alternative fuels in the taxpayer's trade or business. During the first quarter, we filed to be registered as an alternative fuel mixer and, in April, received notification from the Internal Revenue Service that our registration was approved. We became eligible to receive the credit at our four pulp and paper mills beginning at various dates from late January to late March 2009. During the three months ended June 30, 2009, we recorded $75.3 million of alternative fuel mixture tax credits, net of associated fees and expenses and before taxes. As of June 30, 2009, we had received $58.7 million of alternative fuel mixture cash payments. Our first quarter 2009 results do not include any effects of the alternative fuel credits.

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. The company has approximately 4,090 employees.

SOURCE: Boise Inc.




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