Boise Reports Third Quarter Net Income of $35.9 Million

Oct. 3, 2010 - Boise Inc. today reported net income of $35.9 million or $0.43 per diluted share for third quarter 2010 compared with net income of $48.2 million or $0.57 per diluted share for third quarter 2009.

In conjunction with the release of financial results, Boise Inc. also announced a special cash dividend of $0.40 per common share, payable December 3, 2010, to shareholders of record at the close of business on November 17, 2010. The total special dividend payout is estimated to be $32.3 million.

Net income excluding special items was $36.6 million or $0.44 per diluted share in third quarter 2010 compared with $10.3 million or $0.12 per diluted share in third quarter 2009. EBITDA excluding special items was a record $110.9 million for third quarter 2010 compared with $66.2 million for third quarter 2009.

"Strong seasonal packaging volumes, improved sequential price trends, and low maintenance costs combined to drive record third quarter results," said Alexander Toeldte, President and Chief Executive Officer of Boise Inc. "Our corrugated packaging business continued to experience strong volumes, with shipments up 12% over the prior year. Sales volumes of our premium office, label and release, and flexible packaging products grew 11% over the prior year period. We continued to generate strong cash flow and ended the quarter with $184 million of cash and short-term investments.

"Looking ahead to the fourth quarter, we expect continued benefit from favorable price levels balanced by lower seasonal sales volumes and increased maintenance costs from the annual maintenance outage at our mill in Jackson, Alabama."

SALES

Total sales for third quarter 2010 were $554.1 million, up $45.8 million, or 9%, from $508.3 million for third quarter 2009 and up $32.5 million from second quarter 2010 sales of $521.6 million.

Paper segment sales increased $22.2 million during third quarter 2010 compared with third quarter 2009 due primarily to increased sales prices. Packaging segment sales increased $26.6 million during third quarter 2010 compared with third quarter 2009 driven by higher sales prices for linerboard and newsprint and increased sales volumes for corrugated products.

PRICES AND VOLUMES

Pricing for uncoated freesheet improved in third quarter 2010 compared with third quarter 2009 and second quarter 2010. Average net selling prices for uncoated freesheet papers increased 6% during third quarter 2010 compared with third quarter 2009 and increased 3% from second quarter 2010.

In first quarter 2010, we implemented a $40-per-ton price increase across most of our uncoated freesheet grades, including cut-size office papers, offset, and midweight opaque grades. In May 2010, we implemented a $60-per-ton price increase across virtually all of our uncoated office papers and printing and converting grades.

Overall, uncoated freesheet sales volumes were 318,000 tons during third quarter 2010, a decrease of 2% versus the prior year period and an increase of 2% from second quarter 2010. Combined sales volumes of premium office, label and release, and flexible packaging papers represented 31% of our total third quarter 2010 uncoated freesheet sales volumes compared with 27% during third quarter 2009. This growth primarily displaced commodity paper products.

Corrugated container and sheet sales volumes improved 12% during third quarter 2010 compared with third quarter 2009 and increased 3% from second quarter 2010. This increase was due primarily to increased sales of sheets from our sheet feeder plant in Texas as industrial markets in the area continued to improve.

Corrugated container and sheet prices increased 2% during third quarter 2010 compared with third quarter 2009 and 5% sequentially from second quarter 2010. This was due to improved market conditions and pass-through of increased prices for linerboard and medium.

Linerboard net selling prices to third parties increased 40% in third quarter 2010 compared with third quarter 2009 and improved 17% sequentially from second quarter 2010. In first quarter 2010, we implemented a $50-per-ton and a $70-per-ton price increase on domestic linerboard sales in the eastern and western U.S., respectively. During the second quarter, we implemented an additional $60-per-ton increase on domestic linerboard sales. In August, we announced a third linerboard price increase, which we do not expect to realize at this time.

Linerboard sales volumes to third parties were 48,000 tons during third quarter 2010, a decrease of 37% from third quarter 2009, and decreased 11% sequentially from second quarter 2010. This was due primarily to improved sales volumes in our corrugated container and sheet operations during third quarter 2010, which resulted in less linerboard available for sales to third parties. Total linerboard sales volumes in third quarter 2010, including linerboard utilized internally in our corrugated container and sheet operations, were 153,000 tons, an increase of 3% compared with third quarter 2009.

INPUT COSTS

Total fiber, energy, and chemical costs for third quarter 2010 were $226.1 million, an increase of $20.3 million, or 10%, compared with costs of $205.8 million for third quarter 2009. The increase was driven primarily by increased purchased pulp prices in our Paper segment and higher consumption of fiber and energy as a result of higher production volumes in our Packaging segment.

Total fiber costs during third quarter 2010 were $119.1 million, an increase of $10.9 million, or 10%, from $108.2 million incurred in third quarter 2009. This was due to higher purchased pulp and recycled fiber prices in our Paper segment and increased consumption of fiber in our Packaging segment as a result of increased production. Fiber costs in third quarter 2010 increased $2.0 million, or 2%, compared with $117.1 million in second quarter 2010.

Energy costs in third quarter 2010 were $52.4 million, an increase of $10.5 million, or 25%, compared with $41.9 million in third quarter 2009. This was driven by higher electrical rates in our Packaging segment and increased overall consumption of energy due to higher production volumes. These factors were offset partially by lower natural gas prices. Energy costs in third quarter 2010 increased $4.3 million, or 9%, from $48.1 million in second quarter 2010 due primarily to increased electrical rates.

Chemical costs in third quarter 2010 were $54.6 million, a decrease of $1.1 million, or 2%, compared with $55.7 million in third quarter 2009 due primarily to reduced consumption of higher cost commodity chemicals. Chemical costs were up $4.7 million, or 9%, compared with $49.9 million in second quarter 2010 driven primarily by higher prices.

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.

SOURCE: Boise Inc.