**Exhibit 99**

 

**Boise Inc.**

**Index to Consolidated FinancialStatements**

** **

The ConsolidatedFinancial Statements, the Notes to Consolidated Financial Statements, and theReports of Independent Registered Public Accounting Firms.

 
| ** **                                                                                                                                                                                                                                                                                                                                                             | ** ** | **Page** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                   |       |     |
| Boise Inc. Consolidated  Statements of Income (Loss) for the years ended December 31, 2009 and  2008, and the period of February 1 (Inception) through December 31,  2007, and the Predecessor Consolidated Statements of Income (Loss) for the  period of January 1 through February 21, 2008, and the year ended  December 31, 2007.   |       | 2        |
|                                                                                                                                                                                                                                                                                                                                                                   |       |     |
| Boise Inc. Consolidated  Balance Sheets as of December 31, 2009 and 2008.                                                                                                                                                                                                                                                                                         |       | 3        |
|                                                                                                                                                                                                                                                                                                                                                                   |       |     |
| Boise Inc. Consolidated  Statements of Cash Flows for the years ended December 31, 2009 and 2008,  and for the period of February 1 (Inception) through December 31,  2007, and the Predecessor Consolidated Statements of Cash Flows for the  period of January 1 through February 21, 2008, and for the year  ended December 31, 2007. |       | 5        |
|                                                                                                                                                                                                                                                                                                                                                                   |       |     |
| Boise Inc. Consolidated  Statements of Stockholders’ Equity for the years ended December 31, 2009  and 2008, and the period ended December 31, 2007, and the Predecessor  Consolidated Statements of Stockholders’ Equity for the year ended  December 31, 2007.                                                                              |       | 6        |
|                                                                                                                                                                                                                                                                                                                                                                   |       |     |
| Notes to Consolidated  Financial Statements.                                                                                                                                                                                                                                                                                                                           |       | 7        |
|                                                                                                                                                                                                                                                                                                                                                                   |       |     |
| Report of Independent  Registered Public Accounting Firm — KPMG LLP.                                                                                                                                                                                                                                                                                              |       | 52       |
|                                                                                                                                                                                                                                                                                                                                                                   |       |     |
| Independent Auditors’  Report — KPMG LLP.                                                                                                                                                                                                                                                                                                                    |       | 53       |
|                                                                                                                                                                                                                                                                                                                                                                   |       |     |
| Report of Independent  Registered Public Accounting Firm — McGladrey & Pullen, LLP.                                                                                                                                                                                                                                                                      |       | 54       |

 

1

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**Boise Inc.Consolidated Statements of Income (Loss)**(dollars, inthousands, except share and per-share data)

 
| ** **                                         | ** ** | **Boise Inc.**                           | ** **  | ** **                               | **Predecessor** | ** **                                                         |
|----------------------------------------------------|------------|------------------------------------------|-------------|------------------------------------------|-----------------|--------------------------------------------------------------------|
| ** **                                         | ** ** | **Year  Ended  December 31,  2009** | ** **  | **Year  Ended  December 31,  2008** | ** **      | **February 1  (Inception)  Through  December 31,  2007** | ** ** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Year  Ended  December 31,  2007** | ** ** |
| ** **                                         |       |                                     |        |                                     |            |                                                               |   |   |   |   |   |   |
| **Sales**                                          |       |                                     |        |                                     |            |                                                               |   |   |   |   |   |   |
| Trade                                              |       | $                                        | 1,935,410   |                                     | $               | 1,990,207                                                          |   | $ | — |   |   | $ | 258,430 |   | $ | 1,636,605 |   |
| Related parties                                    |       | 42,782                                   |        | 80,425                                   |            | —                                                             |   |   | 101,490 |   | 695,998 |   |
|                                               |       | 1,978,192                                |        | 2,070,632                                |            | —                                                             |   |   | 359,920 |   | 2,332,603 |   |
|                                               |       |                                     |        |                                     |            |                                                               |   |   |   |   |   |   |
| **Costs and expenses**                             |       |                                     |        |                                     |            |                                                               |   |   |   |   |   | ** ** |
| Materials, labor, and  other operating expenses    |       | 1,596,214                                |        | 1,756,826                                |            | —                                                             |   |   | 313,931 |   | 1,948,230 |   |
| Fiber costs from related  parties                  |       | 36,858                                   |        | 54,628                                   |            | —                                                             |   |   | 7,662 |   | 39,352 |   |
| Depreciation, amortization,  and depletion         |       | 131,500                                  |        | 109,988                                  |            | —                                                             |   |   | 477 |   | 84,649 |   |
| Selling and distribution  expenses                 |       | 55,524                                   |        | 48,278                                   |            | *—*                                                           |   |   | 9,097 |   | 59,488 |   |
| General and  administrative expenses               |       | 50,250                                   |        | 34,258                                   |            | 334                                                                |   |   | 6,606 |   | 44,549 |   |
| St. Helens mill  restructuring                     |       | 5,805                                    |        | 29,780                                   |            | —                                                             |   |   | — |   | — |   |
| Alternative fuel mixture  credits, net             |       | (207,607                                 | )           | —                                   |            | —                                                             |   |   | — |   | — |   |
| Other (income) expense,  net                       |       | 4,005                                    |        | (2,980                                   | )               | —                                                             |   |   | (989 | ) | (4,142 | ) |
|                                               |       | 1,672,549                                |        | 2,030,778                                |            | 334                                                                |   |   | 336,784 |   | 2,172,126 |   |
|                                               |       |                                     |        |                                     |            |                                                               |   |   |   |   |   |   |
| **Income (loss) from operations**                  |       | 305,643                                  |        | 39,854                                   |            | (334                                                               | ) |   | 23,136 |   | 160,477 |   |
|                                               |       |                                     |        |                                     |            |                                                               |   |   |   |   |   |   |
| Foreign exchange gain  (loss)                      |       | 2,639                                    |        | (4,696                                   | )               | —                                                             |   |   | 54 |   | 1,184 |   |
| Change in fair value of  interest rate derivatives |       | 568                                      |        | (479                                     | )               | —                                                             |   |   | — |   | — |   |
| Loss on extinguishment  of debt                    |       | (44,102                                  | )           | —                                   |            | —                                                             |   |   | — |   | — |   |
| Interest expense                                   |       | (83,263                                  | )           | (91,220                                  | )               | (6                                                                 | ) |   | (2 | ) | — |   |
| Interest income                                    |       | 367                                      |        | 2,246                                    |            | 10,422                                                             |   |   | 161 |   | 697 |   |
|                                               |       | (123,791                                 | )           | (94,149                                  | )               | 10,416                                                             |   |   | 213 |   | 1,881 |   |
| ** **                                         |       |                                     |        |                                     |            |                                                               |   |   |   |   |   |   |
| **Income (loss) before income  taxes**             |       | 181,852                                  |        | (54,295                                  | )               | 10,082                                                             |   |   | 23,349 |   | 162,358 |   |
| Income tax (provision)  benefit                    |       | (28,010                                  | )           | 8,772                                    |            | (4,590                                                             | ) |   | (563 | ) | (2,767 | ) |
| **Net income (loss)**                              | ** ** | **$**                                    | **153,842** | ** **                               | **$**           | **(45,523**                                                        | **)** | **$** | **5,492** | ** ** | ** ** | **$** | **22,786** | ** ** | **$** | **159,591** | ** ** |
| ** **                                         | ** ** | ** **                               | ** **  | ** **                               | ** **      | ** **                                                         |   |   |   | ** ** | ** ** | ** ** |
| **Weighted average common shares  outstanding:**   | ** ** | ** **                               | ** **  | ** **                               | ** **      | ** **                                                         |   |   |   | ** ** | ** ** | ** ** |
| **Basic**                                          | ** ** | **78,354,946**                           | ** **  | **73,635,665**                           | ** **      | **34,272,754**                                                     | ** ** | ** ** | **—** | ** ** | **—** | ** ** |
| **Diluted**                                        | ** ** | **83,080,979**                           | ** **  | **73,635,665**                           | ** **      | **34,272,754**                                                     | ** ** | ** ** | **—** | ** ** | **—** | ** ** |
| ** **                                         | ** ** | ** **                               | ** **  | ** **                               | ** **      | ** **                                                         |   |   |   | ** ** | ** ** | ** ** |
| **Net income (loss) per common  share:**           | ** ** | ** **                               | ** **  | ** **                               | ** **      | ** **                                                         |   |   |   | ** ** | ** ** | ** ** |
| **Basic**                                          | ** ** | **$**                                    | **1.96**    | ** **                               | **$**           | **(0.62**                                                          | **)** | **$** | **0.16** | ** ** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** |
| **Diluted**                                        | ** ** | **1.85**                                 | ** **  | **(0.62**                                | **)**           | **0.16**                                                           | ** ** | ** ** | **—** | ** ** | **—** | ** ** |

 

See accompanying notes toconsolidated financial statements.

 

2

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**Boise Inc.Consolidated Balance Sheets**(dollars, inthousands)

 
| ** **                              | ** ** | **Boise Inc.**              | ** **    |
|-----------------------------------------|------------|-----------------------------|---------------|
| ** **                              | ** ** | **December 31,  2009** | ** **    | **December 31,  2008** | ** ** |
| ** **                              |       |                        |          |   |   |
| **ASSETS**                              |       |                        |          |   |   |
| ** **                              |       |                        |          |   |   |
| **Current**                             |       |                        |          |   |   |
| Cash and cash equivalents               |       | $                           | 69,393        |   | $ | 22,518 |   |
| Short-term investments                  |       | 10,023                      |          | — |   |
| Receivables                             |       |                        |          |   |   |
| Trade, less allowances of $839 and $961 |       | 185,110                     |          | 220,204 |   |
| Related parties                         |       | 2,056                       |          | 1,796 |   |
| Other                                   |       | 62,410                      |          | 4,937 |   |
| Inventories                             |       | 252,173                     |          | 335,004 |   |
| Deferred income taxes                   |       | —                      |          | 5,318 |   |
| Prepaid and other                       |       | 4,819                       |          | 6,289 |   |
|                                    |       | 585,984                     |          | 596,066 |   |
|                                    |       |                        |          |   |   |
| **Property**                            |       |                        |          |   |   |
| Property and equipment, net             |       | 1,205,679                   |          | 1,262,810 |   |
| Fiber farms and deposits                |       | 17,094                      |          | 14,651 |   |
|                                    |       | 1,222,773                   |          | 1,277,461 |   |
|                                    |       |                        |          |   |   |
| **Deferred financing costs**            |       | 47,369                      |          | 72,570 |   |
| **Intangible assets, net**              |       | 32,358                      |          | 35,075 |   |
| **Other assets**                        |       | 7,306                       |          | 7,114 |   |
| **Total assets**                        | ** ** | **$**                       | **1,895,790** | ** ** | **$** | **1,988,286** | ** ** |

 

See accompanyingnotes to consolidated financial statements.

 

3

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**Boise Inc.Consolidated Balance Sheets (continued)**(dollars, inthousands, except share data)

 
| ** **                                                     | ** ** | **Boise Inc.**              | ** **    |
|----------------------------------------------------------------|------------|-----------------------------|---------------|
| ** **                                                     | ** ** | **December 31,  2009** | ** **    | **December 31,  2008** | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                  |       |                        |          |   |   |
| ** **                                                     |       |                        |          |   |   |
| **Current**                                                    |       |                        |          |   |   |
| Current portion of long-term debt                              |       | $                           | 30,711        |   | $ | 25,822 |   |
| Income taxes payable                                           |       | 240                         |          | 841 |   |
| Accounts payable                                               |       |                        |          |   |   |
| Trade                                                          |       | 172,518                     |          | 177,157 |   |
| Related parties                                                |       | 2,598                       |          | 3,107 |   |
| Accrued liabilities                                            |       |                        |          |   |   |
| Compensation and benefits                                      |       | 67,948                      |          | 44,488 |   |
| Interest payable                                               |       | 4,946                       |          | 184 |   |
| Other                                                          |       | 23,735                      |          | 17,402 |   |
|                                                           |       | 302,696                     |          | 269,001 |   |
| ** **                                                     |       |                        |          |   |   |
| **Debt**                                                       |       |                        |          |   |   |
| Long-term debt, less current portion                           |       | 785,216                     |          | 1,011,628 |   |
| Notes payable                                                  |       | —                      |          | 66,606 |   |
| ** **                                                     |       | 785,216                     |          | 1,078,234 |   |
| ** **                                                     |       |                        |          |   |   |
| **Other**                                                      |       |                        |          |   |   |
| Deferred income taxes                                          |       | 32,253                      |          | 8,907 |   |
| Compensation and benefits                                      |       | 123,889                     |          | 149,691 |   |
| Other long-term liabilities                                    |       | 30,801                      |          | 33,007 |   |
|                                                           |       | 186,943                     |          | 191,605 |   |
|                                                           |       |                        |          |   |   |
| ** **                                                     |       |                        |          |   |   |
| **Commitments and contingent liabilities**                     |       |                        |          |   |   |
|                                                           |       |                        |          |   |   |
| **Stockholders’ Equity**                                  |       |                        |          |   |   |
| Preferred stock, $.0001 par value per share:                   |       | —                      |          | — |   |
| 1,000,000 shares authorized; none issued                       |       |                        |          |   |   |
| Common stock, $.0001 par value per share:                      |       | 8                           |          | 8 |   |
| 250,000,000 shares authorized;                                 |       |                        |          |   |   |
| 84,418,691 shares and 79,716,130 shares issued and outstanding |       |                        |          |   |   |
| Additional paid-in capital                                     |       | 578,669                     |          | 575,151 |   |
| Accumulated other comprehensive income (loss)                  |       | (71,553                     | )             | (85,682 | ) |
| Retained earnings (accumulated deficit)                        |       | 113,811                     |          | (40,031 | ) |
| **Total stockholders’ equity**                            |       | 620,935                     |          | 449,446 |   |
| ** **                                                     |       |                        |          |   |   |
| **Total liabilities and stockholders’ equity**            | ** ** | **$**                       | **1,895,790** |   | **$** | **1,988,286** |   |

 

See accompanyingnotes to consolidated financial statements.

 

4

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**Boise Inc.Consolidated Statements of Cash Flows**(dollars, inthousands)

 
| ** **                                                                       | ** ** | **Boise Inc.**                           | ** ** | ** **                               | **Predecessor** | ** **                                                               |
|----------------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|-----------------|--------------------------------------------------------------------------|
| ** **                                                                       | ** ** | **Year  Ended  December 31,  2009** | ** ** | **Year  Ended  December 31,  2008** | ** **      | **February 1  (Inception)  Through  December 31,********2007** | ** ** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Year  Ended  December 31,  2007** | ** ** |
| **Cash  provided by (used for) operations**                                      |       |                                     |       |                                     |            |                                                                     |   |   |   |   |   |   |
| Net  income (loss)                                                               |       | $                                        | 153,842    |                                     | $               | (45,523                                                                  | ) | $ | 5,492 |   |   | $ | 22,786 |   | $ | 159,591 |   |
| Items  in net income (loss) not using (providing) cash                           |       |                                     |       |                                     |            |                                                                     |   |   |   |   |   |   |
| Depreciation,  depletion, and amortization of deferred financing costs and other |       | 144,079                                  |       | 119,933                                  |            | —                                                                   |   |   | 477 |   | 84,649 |   |
| Share-based  compensation expense                                                |       | 3,518                                    |       | 3,096                                    |            | —                                                                   |   |   | — |   | — |   |
| Related-party  interest expense                                                  |       | —                                   |       | 2,760                                    |            | —                                                                   |   |   | — |   | — |   |
| Notes  payable interest expense                                                  |       | 9,000                                    |       | 5,512                                    |            | —                                                                   |   |   | — |   | — |   |
| Interest  income on cash held in trust                                           |       | —                                   |       | —                                   |            | (10,414                                                                  | ) |   | — |   | — |   |
| Pension  and other postretirement benefit expense                                |       | 7,376                                    |       | 8,388                                    |            | —                                                                   |   |   | 1,826 |   | 13,334 |   |
| Deferred  income taxes                                                           |       | 27,709                                   |       | (9,363                                   | )               | —                                                                   |   |   | 11 |   | 253 |   |
| Change  in fair value of energy derivatives                                      |       | (5,877                                   | )          | 7,445                                    |            | —                                                                   |   |   | (37 | ) | 432 |   |
| Change  in fair value of interest rate derivatives                               |       | (568                                     | )          | 479                                      |            | —                                                                   |   |   | — |   | — |   |
| St.  Helens mill restructuring                                                   |       | —                                   |       | 35,998                                   |            | —                                                                   |   |   | — |   | — |   |
| Gain  on changes in retiree healthcare programs                                  |       | —                                   |       | —                                   |            | —                                                                   |   |   | — |   | (4,367 | ) |
| (Gain)  loss on sales of assets, net                                             |       | 514                                      |       | —                                   |            | —                                                                   |   |   | (943 | ) | (112 | ) |
| Other                                                                            |       | (2,639                                   | )          | 4,696                                    |            | —                                                                   |   |   | (54 | ) | (1,184 | ) |
| Loss  on extinguishment of debt                                                  |       | 44,102                                   |       | —                                   |            | —                                                                   |   |   | — |   | — |   |
| Decrease  (increase) in working capital, net of acquisitions                     |       |                                     |       |                                     |            |                                                                     |   |   |   |   |   |   |
| Receivables                                                                      |       | (18,579                                  | )          | 25,296                                   |            | —                                                                   |   |   | (23,522 | ) | (4,357 | ) |
| Inventories                                                                      |       | 83,037                                   |       | (28,950                                  | )               | —                                                                   |   |   | 5,343 |   | (4,402 | ) |
| Prepaid  expenses                                                                |       | 1,470                                    |       | (1,044                                   | )               | (59                                                                      | ) |   | 875 |   | (833 | ) |
| Accounts  payable and accrued liabilities                                        |       | 25,710                                   |       | (17,801                                  | )               | 257                                                                      |   |   | (10,718 | ) | 18,414 |   |
| Current  and deferred income taxes                                               |       | (372                                     | )          | (1,057                                   | )               | 1,284                                                                    |   |   | 335 |   | 509 |   |
| Pension  and other postretirement benefit payments                               |       | (13,001                                  | )          | (636                                     | )               | —                                                                   |   |   | (1,826 | ) | (13,334 | ) |
| Other                                                                            |       | (609                                     | )          | (1,483                                   | )               | —                                                                   |   |   | 2,326 |   | 178 |   |
| Cash  provided by (used for) operations                                          |       | 458,712                                  |       | 107,746                                  |            | (3,440                                                                   | ) |   | (3,121 | ) | 248,771 |   |
| **Cash  provided by (used for) investment**                                      |       |                                     |       |                                     |            |                                                                     |   |   |   |   |   |   |
| Acquisition  of businesses and facilities                                        |       | (543                                     | )          | (1,216,459                               | )               | (2,624                                                                   | ) |   | — |   | — |   |
| Cash  released from (held in) trust, net                                         |       | —                                   |       | 403,989                                  |            | (393,575                                                                 | ) |   | — |   | — |   |
| Expenditures  for property and equipment                                         |       | (77,145                                  | )          | (90,597                                  | )               | —                                                                   |   |   | (10,168 | ) | (141,801 | ) |
| Purchases  of short-term investments                                             |       | (21,643                                  | )          | —                                   |            | —                                                                   |   |   | — |   | — |   |
| Maturities  of short-term investments                                            |       | 11,615                                   |       | —                                   |            | —                                                                   |   |   | — |   | — |   |
| Sales  of assets                                                                 |       | 1,031                                    |       | 394                                      |            | —                                                                   |   |   | 17,662 |   | 14,224 |   |
| Additional  Consideration Agreement payment                                      |       | —                                   |       | —                                   |            | —                                                                   |   |   | — |   | (32,542 | ) |
| Other                                                                            |       | 2,168                                    |       | (5,703                                   | )               | —                                                                   |   |   | 863 |   | 1,769 |   |
| Cash  provided by (used for) investment                                          |       | (84,517                                  | )          | (908,376                                 | )               | (396,199                                                                 | ) |   | 8,357 |   | (158,350 | ) |
| **Cash  provided by (used for) financing**                                       |       |                                     |       |                                     |            |                                                                     |   |   |   |   |   |   |
| Issuances  of long-term debt                                                     |       | 310,000                                  |       | 1,125,700                                |            | —                                                                   |   |   | — |   | — |   |
| Payments  of long-term debt                                                      |       | (531,523                                 | )          | (88,250                                  | )               | —                                                                   |   |   | — |   | — |   |
| Cash  used for extinguishment of debt                                            |       | (39,717                                  | )          | —                                   |            | —                                                                   |   |   | — |   | — |   |
| Payments  of notes payable                                                       |       | (52,924                                  | )          | —                                   |            | —                                                                   |   |   | — |   | — |   |
| Issuances  of short-term debt                                                    |       | —                                   |       | —                                   |            | 137                                                                      |   |   | — |   | — |   |
| Payments  of short-term debt                                                     |       | —                                   |       | —                                   |            | (137                                                                     | ) |   | — |   | — |   |
| Payments  to stockholders for exercise of conversion rights                      |       | —                                   |       | (120,170                                 | )               | —                                                                   |   |   | — |   | — |   |
| Payments  of deferred financing fees                                             |       | (13,156                                  | )          | (81,898                                  | )               | —                                                                   |   |   | — |   | — |   |
| Payments  of deferred underwriters fees                                          |       | —                                   |       | (12,420                                  | )               | (16,560                                                                  | ) |   | — |   | — |   |
| Proceeds  from sale of shares of common stock to initial stockholders            |       | —                                   |       | —                                   |            | 25                                                                       |   |   | — |   | — |   |
| Proceeds  from public offering                                                   |       | —                                   |       | —                                   |            | 414,000                                                                  |   |   | — |   | — |   |
| Proceeds  from issuance of insider warrants                                      |       | —                                   |       | —                                   |            | 3,000                                                                    |   |   | — |   | — |   |
| Net  equity transactions with related parties                                    |       | —                                   |       | —                                   |            | —                                                                   |   |   | (5,237 | ) | (90,420 | ) |
| Other                                                                            |       | —                                   |       | —                                   |            | (640                                                                     | ) |   | — |   | — |   |
| Cash  provided by (used for) financing                                           |       | (327,320                                 | )          | 822,962                                  |            | 399,825                                                                  |   |   | (5,237 | ) | (90,420 | ) |
| **Increase  (decrease) in cash and cash equivalents**                            |       | 46,875                                   |       | 22,332                                   |            | 186                                                                      |   |   | (1 | ) | 1 |   |
| **Balance  at beginning of the period**                                          |       | 22,518                                   |       | 186                                      |            | —                                                                   |   |   | 8 |   | 7 |   |
| **Balance  at end of the period**                                                | ** ** | **$**                                    | **69,393** | ** **                               | **$**           | **22,518**                                                               | ** ** | **$** | **186** | ** ** | ** ** | **$** | **7** | ** ** | **$** | **8** | ** ** |

 

See accompanyingnotes to consolidated financial statements.

 

5

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** **

**BoiseInc.Consolidated Statements of Stockholders’ Equity**(dollars, inthousands, except share data)

 
| **Common  Shares  Outstanding** | ** **   | ** **                                                                                                                                                           | ** ** | **Total  Stockholders’  Equity** | ** **    | **Business  Unit  Equity** | ** ** | **Preferred  Stock** | ** ** | **Common  Stock** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Income  Accumulated  During  Development  Stage** | ** **  | **Retained  Earnings  (accumulated  deficit)** | ** ** |
|---------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|---------------|----------------------------|------------|----------------------|------------|-------------------|------------|----------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|-------------|------------------------------------------------|------------|
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            | *** *** | ***Predecessor***                                                                                                                                                    |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
| **—**                      | ** **   | **Balance at December 31, 2006**                                                                                                                                | ** ** | **$**                                 | **1,481,232** | ** **                 | **$**      | **1,490,608**        | ** ** | **$**             | **—** | ** **                       | **$**      | **—**                                           | ** ** | **$**                                               | **—**  | ** **                                     | **$**      | **(9,376** | **)** | **$** | **—** | ** ** | **$** | **—** | ** ** |
|                            |         | Comprehensive income:                                                                                                                                                |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Net income                                                                                                                                                           |       | 159,591                               |          | 159,591                    |       | —               |       | —            |       | —                           |       | —                                               |       | —                                              |        | —                                         |       |
|                            |         | Other comprehensive income, net of tax                                                                                                                               |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Cash flow hedges                                                                                                                                                     |       | 9,376                                 |          | —                     |       | —               |       | —            |       | —                           |       | 9,376                                                |       | —                                              |        | —                                         |       |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Comprehensive income:                                                                                                                                                |       | $                                     | 168,967       |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |   |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
| —                          |         | Net equity transactions with related parties                                                                                                                         |       | (90,420                               | )             | (90,420                    | )          | —               |       | —            |       | —                           |       | —                                               |       | —                                              |        | —                                         |       |
| —                          | ** **   | **Balance at December 31, 2007**                                                                                                                                | ** ** | **$**                                 | **1,559,779** | ** **                 | **$**      | **1,559,779**        | ** ** | **$**             | **—** | ** **                       | **$**      | **—**                                           | ** ** | **$**                                               | **—**  | ** **                                     | **$**      | **—** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** |
|                            | *** *** | *** ***                                                                                                                                                         |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            | *** *** | ***Boise Inc.***                                                                                                                                                     |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
| —                          |         | Balance at February 1, 2007 (Inception)                                                                                                                         |       | $                                     | —        |                       | $          | —               |       | $                 | —     |                             | $          | —                                               |       | $                                                   | —      |                                           | $          | — |   | $ | — |   | **$** | **—** |   |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Comprehensive income:                                                                                                                                                | ** ** | ** **                            |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Net income                                                                                                                                                           |       | 5,492                                 |          | —                     |       | —               |       | —            |       | —                           |       | —                                               |       | 5,492                                               |        | —                                         |       |
|                            |         | Comprehensive income                                                                                                                                                 |       | $                                     | 5,492         |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |   |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
| 10,350,000                      |         | Issuance of common stock to initial stockholders on February 1,  2007 (Inception) at $.002 per share                                                            |       | 25                                    |          | —                     |       | —               |       | 1                 |       | 24                               |       | —                                               |       | —                                              |        | —                                         |       |
|                            |         | Proceeds of issuance of warrants                                                                                                                                     |       | 3,000                                 |          | —                     |       | —               |       | —            |       | 3,000                            |       | —                                               |       | —                                              |        | —                                         |       |
| 41,400,000                      |         | Sale of 41,400,000 units through public offering net of underwriter’s  discount and offering expenses (which includes 16,555,860 shares subject to  conversion) |       | 384,380                               |          | —                     |       | —               |       | 4                 |       | 384,376                          |       | —                                               |       | —                                              |        | —                                         |       |
|                            |         | Less 16,555,860 shares of common stock subject to possible conversion                                                                                                |       | (159,760                              | )             | —                     |       | —               |       | —            |       | (159,760                         | )          | —                                               |       | —                                              |        | —                                         |       |
| **51,750,000**                  | ** **   | **Balance at December 31, 2007**                                                                                                                                | ** ** | **$**                                 | **233,137**   | ** **                 | **$**      | **—**           | ** ** | **$**             | **—** | ** **                       | **$**      | **5**                                                | ** ** | **$**                                               | **227,640** | ** **                                     | **$**      | **—** | ** ** | **$** | **5,492** | ** ** | **$** | **—** | ** ** |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Comprehensive loss:                                                                                                                                                  |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Net loss                                                                                                                                                             |       | (45,523                               | )             | —                     |       | —               |       | —            |       | —                           |       | —                                               |       | —                                              |        | (45,523                                        | )          |
|                            |         | Other comprehensive loss, net of tax                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Cash flow hedges                                                                                                                                                     |       | (760                                  | )             | —                     |       | —               |       | —            |       | —                           |       | (760                                                 | )          | —                                              |        | —                                         |       |
|                            |         | Unfunded accumulated benefit obligation                                                                                                                              |       | (84,922                               | )             | —                     |       | —               |       | —            |       | —                           |       | (84,922                                              | )          | —                                              |        | —                                         |       |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Other comprehensive loss                                                                                                                                             |       | (85,682                               | )             | —                     |       | —               |       | —            |       | —                           |       | (85,682                                              | )          | —                                              |        | —                                         |       |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Comprehensive loss                                                                                                                                                   |       | $                                     | (131,205      | )                          |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |   |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Reclassification of income accumulated during development stage                                                                                                      |       | —                                |          | —                     |       | —               |       | —            |       | —                           |       | —                                               |       | (5,492                                              | )           | 5,492                                          |       |
| 37,857,374                      |         | Issuance of common stock for acquisition at $9.15 per share (net of a  12% discount for lack of marketability)                                                       |       | 304,828                               |          | —                     |       | —               |       | 4                 |       | 304,824                          |       | —                                               |       | —                                              |        | —                                         |       |
| 2,450,617                       |         | Restricted stock                                                                                                                                                     |       | 3,096                                 |          | —                     |       | —               |       | —            |       | 3,096                            |       | —                                               |       | —                                              |        | —                                         |       |
| (24,517                         | )            | Restricted stock forfeited                                                                                                                                           |       | —                                |          | —                     |       | —               |       | —            |       | —                           |       | —                                               |       | —                                              |        | —                                         |       |
| 30,083                          |         | Restricted stock vested                                                                                                                                              |       | —                                |          | —                     |       | —               |       | —            |       | —                           |       | —                                               |       | —                                              |        | —                                         |       |
|                            |         | Shares of common stock subject to possible conversion converted to  permanent equity                                                                                 |       | 159,760                               |          | —                     |       | —               |       | —            |       | 159,760                          |       | —                                               |       | —                                              |        | —                                         |       |
| (12,347,427                     | )            | Reclassify shares of common stock subject to possible conversion that  were not redeemed to permanent equity                                                         |       | (120,170                              | )             | —                     |       | —               |       | (1                | )          | (120,169                         | )          | —                                               |       | —                                              |        | —                                         |       |
| **79,716,130**                  | ** **   | **Balance at December 31, 2008**                                                                                                                                | ** ** | **$**                                 | **449,446**   | ** **                 | **$**      | **—**           | ** ** | **$**             | **—** | ** **                       | **$**      | **8**                                                | ** ** | **$**                                               | **575,151** | ** **                                     | **$**      | **(85,682** | **)** | **$** | **—** | ** ** | **$** | **(40,031** | **)** |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Comprehensive income:                                                                                                                                                |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Net income                                                                                                                                                           |       | 153,842                               |          | —                     |       | —               |       | —            |       | —                           |       | —                                               |       | —                                              |        | 153,842                                        |       |
|                            |         | Other comprehensive income (loss), net of tax                                                                                                                        |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
|                            |         | Cash flow hedges                                                                                                                                                     |       | 207                                   |          | —                     |       | —               |       | —            |       | —                           |       | 207                                                  |       | —                                              |        | —                                         |       |
|                            |         | Investment gains (losses)                                                                                                                                            |       | (5                                    | )             | —                     |       | —               |       | —            |       | —                           |       | (5                                                   | )          | —                                              |        | —                                         |       |
|                            |         | Changes in unfunded accumulated benefit obligation (net of tax of  $8,600)                                                                                           |       | 13,927                                |          | —                     |       | —               |       | —            |       | —                           |       | 13,927                                               |       | —                                              |        | —                                         |       |
|                            |         | Other comprehensive income                                                                                                                                           |       | 14,129                                |          | —                     |       | —               |       | —            |       | —                           |       | 14,129                                               |       | —                                              |        | —                                         |       |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |   |
|                            |         | Comprehensive income                                                                                                                                                 |       | $                                     | 167,971       |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |   |
|                            |         |                                                                                                                                                                 |       |                                  |          |                       |       |                 |       |              |       |                             |       |                                                 |       |                                                |        |                                           |       |
| 4,602,185                       |         | Restricted stock                                                                                                                                                     |       | 3,518                                 |          | —                     |       | —               |       | —            |       | 3,518                            |       | —                                               |       | —                                              |        | —                                         |       |
| (81,367                         | )            | Restricted stock forfeited                                                                                                                                           |       | —                                |          | —                     |       | —               |       | —            |       | —                           |       | —                                               |       | —                                              |        | —                                         |       |
| 181,743                         |         | Restricted stock units vested, net                                                                                                                                   |       | —                                |          | —                     |       | —               |       | —            |       | —                           |       | —                                               |       | —                                              |        | —                                         |       |
| **84,418,691**                  | ** **   | **Balance at December 31, 2009**                                                                                                                                | ** ** | **$**                                 | **620,935**   | ** **                 | **$**      | **—**           | ** ** | **$**             | **—** | ** **                       | **$**      | **8**                                                | ** ** | **$**                                               | **578,669** | ** **                                     | **$**      | **(71,553** | **)** | **$** | **—** | ** ** | **$** | **113,811** | ** ** |

 

See accompanying notes to consolidated financial statements.

 

6

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***Notes to Consolidated Financial Statements***

 

***1.             Nature of Operations and Basis ofPresentation***

 

Boise Inc. or “the Company,” “we,” “us,” or “our” is alarge, diverse United States-based manufacturer of packaging products andpapers, including corrugated containers, containerboard, label and release andflexible packaging papers, imaging papers for the office and home, printing andconverting papers, newsprint, and market pulp. We own pulp and paper milloperations in the following locations: Jackson, Alabama; International Falls,Minnesota; St. Helens, Oregon; and Wallula, Washington, all of whichmanufacture uncoated freesheet paper. We also own a mill in DeRidder,Louisiana, which produces containerboard (linerboard) as well as newsprint. Wealso have a network of five corrugated container plants located in the PacificNorthwest, a corrugated sheet plant in Nevada, and a corrugated sheet feederplant in Texas.

 

On February 22, 2008, Aldabra 2 Acquisition Corp.completed the acquisition (the Acquisition) of Boise White Paper, L.L.C., BoisePackaging & Newsprint, L.L.C., Boise Cascade Transportation HoldingsCorp. (collectively, the Paper Group), and other assets and liabilities relatedto the operation of the paper, packaging and newsprint, and transportationbusinesses of the Paper Group and part of the headquarters operations of BoiseCascade, L.L.C. (Boise Cascade). Subsequent to the Acquisition, Aldabra 2Acquisition Corp. changed its name to Boise Inc. The acquired business isreferred to in this Form 10-K as the “Predecessor.” See Note 16,Acquisition of Boise Cascade’s Paper and Packaging Operations, for moreinformation related to the Acquisition.

 

The following sets forthour corporate structure at December 31, 2009:

 

 

Boise Inc., headquarteredin Boise, Idaho, operates its business in three reportable segments: Paper,Packaging, and Corporate and Other (support services).

 

The accompanyingConsolidated Statement of Income (Loss) and Consolidated Statement of CashFlows for the year ended December 31, 2008, include the activities ofAldabra 2 Acquisition Corp. prior to the Acquisition and the operations of theacquired businesses from February 22, 2008, through December 31,2008. The Consolidated Statements of Income (Loss) and Consolidated Statements ofCash Flows for the period of January 1 through February 21, 2008, andfor the year ended December 31, 2007, of the Predecessor are presented forcomparative purposes. The period of February 1 (Inception) through December 31,2007, represents the activities of Aldabra 2 Acquisition Corp.

 

7

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For the Predecessorperiods presented, the consolidated financial statements include accountsattributed specifically to the Paper Group and a portion of Boise Cascade’sshared corporate general and administrative expenses. These shared servicesinclude, but are not limited to, finance, accounting, legal, informationtechnology, and human resource functions. Some corporate costs related solelyto the Predecessor and were allocated totally to these operations. Sharedcorporate general and administrative expenses not specifically identifiable tothe Paper Group were allocated primarily based on average sales, assets, andlabor costs. The Predecessor consolidated financial statements do not includean allocation of Boise Cascade’s debt, interest, and deferred financing costs,because none of these items were specifically identified as corporate advancesto, or borrowings by, the Predecessor. Boise Cascade used interest rate swapsto hedge variable interest rate risk. Because debt and interest costs are notallocated to the Predecessor, the effects of the interest rate swaps are notincluded in the consolidated financial statements. During the Predecessorperiods presented, income taxes, where applicable, were calculated as if thePredecessor were a separate taxable entity. For the period of January 1through February 21, 2008, and the year ended December 31, 2007, themajority of the businesses and assets of the Predecessor were held and operatedby limited liability companies, which are not subject to entity-level federalor state income taxation. In addition to the businesses and assets held andoperated by limited liability companies, the Predecessor had taxable corporationssubject to federal, state, and local income taxes for which taxes wererecorded. Information on the allocations and related-party transactions isincluded in Note 5, Transactions With Related Parties.

 

***2.             Summary ofSignificant Accounting Policies***

 

*Consolidationand Use of Estimates*

 

The consolidatedfinancial statements include the accounts of Boise Inc. and its subsidiariesafter elimination of intercompany balances and transactions. The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions about future events. These estimates and the underlyingassumptions affect the amounts of assets and liabilities reported, disclosuresabout contingent assets and liabilities, and reported amounts of revenues andexpenses. Such estimates include the determination and allocation of the fairvalues of assets acquired and liabilities assumed in an acquisition; theassessment of the recoverability of long-lived assets; the recognition,measurement, and valuation of current and deferred income taxes; valuation andrecognition of pension expense and liabilities; and valuation of accountsreceivable, inventories, and asset retirement obligations, among others. Theseestimates and assumptions are based on management’s best estimates andjudgment. Management evaluates its estimates and assumptions on an ongoingbasis using historical experience and other factors, including the currenteconomic environment, which management believes to be reasonable under thecircumstances. We adjust such estimates and assumptions when facts andcircumstances dictate. Illiquid credit markets; volatile equity, foreigncurrency, and energy markets; and declines in consumer spending have combinedto increase the uncertainty inherent in such estimates and assumptions. Asfuture events and their effects cannot be determined with precision, actualresults could differ significantly from these estimates. Changes in theseestimates resulting from continuing changes in the economic environment will bereflected in the consolidated financial statements in future periods.

 

# *Revenue Recognition*

# * *

We recognizerevenue when the following criteria are met: persuasive evidence of anagreement exists, delivery has occurred or services have been rendered, ourprice to the buyer is fixed or determinable, and collectability is reasonablyassured. Delivery is not considered to have occurred until the customer takestitle and assumes the risks and rewards of ownership. The timing of revenuerecognition is dependent on shipping terms. Revenue is recorded at the time ofshipment for terms designated freight on board (f.o.b) shipping point. Forsales transactions designated f.o.b destination, revenue is recorded when theproduct is delivered to the customer’s delivery site. Fees for shipping andhandling charged to customers for sales transactions are included in “Sales.”Costs related to shipping and handling are included in “Materials, labor, andother operating expenses.”

 

*EquityCompensation*

 

We accrue compensation expense for therestricted stock and restricted stock units (collectively restricted stock)granted under the Boise Inc. Incentive and Performance Plan (the Plan) based onthe fair value on the date of the grant. Compensation expense is recognizedratably over the vesting period for the restricted stock grants that vest overtime and ratably over the award period for the restricted stock 

 

8

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grants thatvest based on the closing price of Boise Inc. stock. During the years ended December 31,2009 and 2008, we recognized $3.5 million and $3.1 million,respectively, of compensation expense. Most of these costs were recorded in “Generaland administrative expenses” in our Consolidated Statements of Income (Loss). See Note 15, Stockholders’ Equity,for a discussion of the Plan and the method we use to calculate compensationexpense.

 

During the Predecessorperiods presented, equity compensation was granted to the Predecessor’semployees under Boise Cascade’s equity compensation plans. These equitycompensation plans were accounted for in the same manner we account for ourcurrent plans. During the Predecessor period of January 1 through February 21,2008, and the year ended December 31, 2007, the Predecessor recognized$0.2 million and $1.7 million, respectively, of compensation expense, mostof which was recorded in “General and administrative expenses” in theConsolidated Statements of Income (Loss).

 

*Researchand Development Costs*

 

We expenseresearch and development costs as incurred, and they were immaterial for allperiods presented.

 

# *AdvertisingCosts*

# * *

Weexpense the cost of advertising as incurred, and it was immaterial for allperiods presented. These expenses are generally recorded in “Selling anddistribution expenses” in our Consolidated Statements of Income (Loss).

 

# *ForeignCurrency Translation*

# * *

The functional currencyfor any operations and transactions outside the United States is the U.S.dollar. Nonmonetary assets and liabilities and related depreciation andamortization for these foreign operations and transactions are remeasured intoU.S. dollars using historical exchange rates. Monetary assets and liabilitiesare remeasured into U.S. dollars using the exchange rates as of theConsolidated Balance Sheet date. Revenue and expense items are remeasured intoU.S. dollars using an average exchange rate prevailing during the year. Theforeign exchange gains (losses) reported in the Consolidated Statements ofIncome (Loss) resulted from the remeasurements into the U.S. dollar.

 

*Cash and Cash Equivalents*

 

In general, weconsider all highly liquid interest-earning investments, including timedeposits and certificates of deposit, with a maturity of three months or lessat the date of purchase to be cash equivalents unless designated as availablefor sale and classified as an investment. The fair value of these investmentsapproximates their carrying value. Cash equivalents totaled $65.1 million and $15.3 million, respectively, at December 31,2009 and 2008.

 

*Short-term Investments*

 

In general, investments with original maturities ofgreater than three months and remaining maturities of less than one year areclassified as short-term investments. All cash equivalents and short-terminvestments are classified as available for sale and are recorded at marketvalue. Changes in market value are reflected in “Accumulated othercomprehensive income (loss)” on our Consolidated Balance Sheet. Unrealizedlosses not considered other than temporary and unrealized gains are included in“Accumulated other comprehensive income (loss)” on our Consolidated BalanceSheet. Unrealized losses determined to be other than temporary are recorded inour Consolidated Statement of Income (Loss). The cost of marketable securitiessold is determined based on the specific identification method. Short-terminvestments totaled $10.0 million at December 31, 2009. We did nothave any short-term investments in 2008.

 

*Trade Accounts Receivable and Allowance for DoubtfulAccounts*

 

Trade accounts receivable are stated at the amount we expect to collect.Trade accounts receivable do not bear interest. The allowance for doubtfulaccounts is our best estimate of the losses we expect will result from theinability of our customers to make required payments. We generally determinethe allowance based on a combination of actual historical write-off experienceand an analysis of specific customer accounts. We periodically review ourallowance for doubtful accounts, and adjustments to the 

 

9

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valuationallowance are charged to income. Trade accounts receivable balances that remainoutstanding after we have used reasonable collection efforts are written offthrough a charge to the valuation allowance and a credit to accountsreceivable. We may, at times, insure or arrange for guarantees on ourreceivables.

 

*Financial Instruments*

 

Our financialinstruments are cash and cash equivalents, short-term investments, accountsreceivable, accounts payable, and long-term debt. The recorded values of cashand cash equivalents, short-term investments, accounts receivable, and accountspayable approximate fair values based on their short-term nature. Our long-termdebt is recorded at the face value of those obligations.

 

Weare exposed to market risks, including changes in interest rates, energyprices, and foreign currency exchange rates. We employ a variety of practicesto manage these risks, including operating and financing activities and, wheredeemed appropriate, the use of derivative instruments. Derivative instrumentsare used only for risk management purposes and not for speculation or trading.Derivatives are such that a specific debt instrument, contract, or anticipatedpurchase determines the amount, maturity, and other specifics of the hedge. Ifa derivative contract is entered into, we either determine that it is aneconomic hedge or we designate the derivative as a cash flow or fair valuehedge. We formally document all relationships between hedging instruments andthe hedged items, as well as our risk management objectives and strategies forundertaking various hedged transactions. For those derivatives designated ascash flow or fair value hedges, we formally assess, both at the derivatives’inception and on an ongoing basis, whether the derivatives that are used inhedging transactions are highly effective in offsetting changes in the hedgeditems. The ineffective portion of hedging transactions is recognized in income(loss).

 

Werecord all derivative instruments as assets or liabilities on our ConsolidatedBalance Sheets at fair value. The fair value of these instruments is determinedby third parties. Changes in the fair value of derivatives are recorded ineither “Net income (loss)” or “Other comprehensive income (loss)” asappropriate. The gain or loss on derivatives designated as cash flow hedges isincluded in “Other comprehensive income (loss)” in the period in which changesin fair value occur and is reclassified to income (loss) in the period in whichthe hedged item affects income (loss), and any ineffectiveness is recognizedcurrently in our Consolidated Statements of Income (Loss). The fair value ofthe hedged exposure is presumed to be the market value of the hedginginstrument when critical terms match. The gain or loss on derivativesdesignated as fair value hedges and the offsetting gain or loss on the hedgeditem attributable to the hedged risk are included in income (loss) in theperiod in which changes in fair value occur. The gain or loss on derivativesthat have not been designated as hedging instruments is included in income(loss) in the period in which changes in fair value occur.

 

# *CustomerRebates and Allowances*

# * *

We provide rebates to our customers based on thevolume of their purchases. We provide the rebates to increase the sell-throughof our products. The rebates are recorded as a decrease in “Sales, Trade” inour Consolidated Statements of Income (Loss).

 

*InventoryValuation*

 

Inventories are valued at the lower ofcost or market. Cost is based on the average or first-in, first-out (FIFO)method of inventory valuation. Manufactured inventories include costs formaterials, labor, and factory overhead.

 

10

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Inventories include the following (dollars, inthousands):

 
| ** **                       | ** ** | **Boise  Inc.**      | ** **  |
|----------------------------------|------------|----------------------|-------------|
| ** **                       | ** ** | **December 31** | ** **  |
| ** **                       | ** ** | **2009**             | ** **  | **2008** | ** ** |
|                             |       |                 |        |   |   |
| Finished goods                   |       | $                    | 120,817     |   | $ | 173,029 |   |
| Work in process                  |       | 22,677               |        | 37,582 |   |
| Fiber                            |       | 34,557               |        | 41,241 |   |
| Other raw materials and supplies |       | 74,122               |        | 83,152 |   |
| ** **                       | ** ** | **$**                | **252,173** | ** ** | **$** | **335,004** | ** ** |

 

*Propertyand Equipment, Net*

 

Property andequipment acquired in the Acquisition were recorded at estimated fair value onthe date of the Acquisition. Property and equipment acquired subsequent to theAcquisition are recorded at cost. Cost includes expenditures for majorimprovements and replacements and the amount of interest cost associated withsignificant capital additions. For the years ended December 31, 2009 and2008, we recognized zero****and $0.1 million,respectively, of capitalized interest. During the Predecessor periods of January 1through February 21, 2008, and the year ended December 31, 2007, thePredecessor recognized $0.1 million and $1.7 million, respectively,of capitalized interest. We expenseall repair and maintenance costs as incurred*.*When property and equipment are retired, sold, orotherwise disposed of, the asset’s carrying amount and related accumulateddepreciation are removed from the accounts and any gain or loss is included inincome (loss). In all periods presented, we used the straight-line method ofdepreciation.

 

Property and equipment consisted of the followingasset classes and the following general range of estimated useful lives(dollars, in thousands):

 
| ** **                    | ** ** | **Boise  Inc.**      | ** **    | **General  Range of** | ** ** |
|-------------------------------|------------|----------------------|---------------|-----------------------|------------|
| ** **                    | ** ** | **December 31** | ** **    | **Estimated  Useful** | ** ** |
| ** **                    | ** ** | **2009**             | ** **    | **2008**              | ** ** | **Lives  in Years** | ** ** |
|                          |       |                 |          |                  | ** ** | ** ** | ** ** |
| Land and land improvements    |       | $                    | 31,875        |                  | $          | 31,875 |   | 17-20 |   |   |
| Buildings and improvements    |       | 199,086              |          | 187,892               |       | 9-40 |   |   |
| Machinery and equipment       |       | 1,176,494            |          | 1,113,572             |       | 3-20 |   |   |
| Construction in progress      |       | 18,992               |          | 29,833                |       | N/A |   |   |
| ** **                    |       | 1,426,447            |          | 1,363,172             |       |   |   |   |
| Less accumulated depreciation |       | (220,768             | )             | (100,362              | )          | N/A |   |   |
|                          | ** ** | **$**                | **1,205,679** | ** **            | **$**      | **1,262,810** |   |   |   |   |

 

*Fiber Farms and Deposits*

 

The consolidated financial statementsinclude the cottonwood fiber farm operations in our Paper segment. Ourcottonwood fiber farm has multiple locations near our mill in Wallula,Washington. They are short-rotation fiber farms that have a growing cycleaveraging six to eight years.

 

Costs for activities related to theestablishment of a new crop of trees, including planting, thinning,fertilization, pest control, herbicide application, irrigation, and land leasecosts, are capitalized, while costs for administration, harvesting, insurance,and property taxes are expensed. The capitalized costs are accumulated byspecifically identifiable farm or irrigation blocks. We charge capitalizedcosts, excluding land, to “Depreciation,amortization, and depletion” in the accompanying Consolidated Statementsof Income (Loss) at the time the fiber is harvested based on actual accumulatedcosts associated with fiber cut.

 

We are a party to a number of long-term log and fibersupply agreements. At December 31, 2009 and 2008, our total obligation forlog and fiber purchases under contracts with third parties was approximately$76.4 million and $168.7 million, respectively. Exceptfor deposits required pursuant to wood supply contracts, these obligations arenot recorded in our consolidated financial statements until contract payment termstake effect. The obligations are subject to change based on, among otherthings, the effect of governmental laws and regulations, our manufacturingoperations not operating in the normal course of business, log and fiberavailability, and the status of environmental appeals.

 

11

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*Long-Lived Asset Impairment*

 

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

 

*IntangibleAssets*

 

Our policy is to assessintangible assets with indefinite lives in the fourth quarter of each year, andimmediately if an indicator of possible impairment exists, using afair-value-based approach. We also evaluate the remaining useful lives of ourfinite-lived purchased intangible assets to determine whether any adjustmentsto the useful lives are necessary.

 

*DeferredSoftware Costs*

 

Wedefer internal-use software costs that benefit future years. These costs areamortized using the straight-line method over the expected life of thesoftware, typically three to five years. “Other assets” in theConsolidated Balance Sheets include $4.1 million and $3.9 million ofdeferred software costs at December 31, 2009 and 2008, respectively. Weamortized $1.4 million and $0.7 million, respectively, of deferredsoftware costs for the years ended December 31, 2009 and 2008. For thePredecessor period of January 1 through February 21, 2008, and forthe year ended December 31, 2007, amortization of deferred software coststotaled $0.1 million and $0.6 million, respectively.

 

# *AssetRetirement Obligations*

# * *

We accrue for asset retirement obligationsin the period in which they are incurred if sufficient information is availableto reasonably estimate the fair value of the obligation. When we record theliability, we capitalize the cost by increasing the carrying amount of therelated long-lived asset. Over time, the liability is accreted to itssettlement value, and the capitalized cost is depreciated over the useful lifeof the related asset. Upon settlement of the liability, we will recognize again or loss for any difference between the settlement amount and the liabilityrecorded.

 

*Pensionand Postretirement Benefits*

 

Several estimates andassumptions are required to record pension and postretirement net periodicbenefit cost and liabilities, including discount rate, return on assets, salaryincreases, and longevity and service lives of employees. Generally, we reviewand update these assumptions annually unless a plan curtailment or other eventoccurs requiring we update the estimates on an interim basis. While we believe that the assumptions used to measureour pension obligations are reasonable, differences in actual experience orchanges in assumptions may materially affect our pension obligations and futureexpense.

 

*Taxes Collected*

 

We present taxes collected from customersand remitted to governmental authorities on a net basis in our ConsolidatedStatement of Income (Loss).

 

*New andRecently Adopted Accounting Standards*

 

In October 2009, theFinancial Accounting Standards Board (FASB) issued Accounting Standards Update(ASU) 2009-12, *Fair Value Measurements andDisclosures: Investments in Certain Entities That Calculate Net Asset Value perShare (or Its Equivalent)*(FASBASC 820). This ASU allows investors to use net asset value (NAV) as apractical expedient to estimate fair value of investments in investmentcompanies that do not have readily determinable fair values. The ASU also setsforth disclosure requirements for investments within its scope. We adopted ASU2009-12 in December 2009, and the adoption did not have a material impacton our financial position or results of operations.

 

In August 2009, theFASB issued ASU 2009-05, *MeasuringLiabilities at Fair Value*. This update provides amendments to FASBAccounting Standards Board (ASC) 820, *FairValue Measurements and Disclosure,* for the fair value measurement ofliabilities when a quoted price in an active market is not available. Weadopted ASU 2009-05 on October 1, 2009, and the adoption did not have amaterial impact on our financial position or results of operations.

 

12

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In June 2009, theFASB issued Statement of Financial Accounting Standards (SFAS) No. 168(ASU 2009-01), *The FASB Accounting Standards CodificationTM**and theHierarchy of Generally Accepted Accounting Principles,*approving theFASB Accounting Standards Codification(Codification), which states that the Codification is the exclusiveauthoritative reference for U.S. generally accepted accounting principles(GAAP). The Codification does not change U.S. GAAP. We adopted ASU 2009-01 on September 15,2009, and the adoption did not have a material impact on our financial positionor results of operations.

 

In June 2009, theFASB issued SFAS No. 167, *Amendments to FASBInterpretation No. 46(R) *(FASB ASC 810), which amendsthe consolidation guidance applicable to variable-interest entities (VIEs).This guidance requires that entities evaluate former qualified special-purposeentities for consolidation, changes the approach to determining a VIE’s primarybeneficiary from a quantitative assessment to a qualitative assessment, andincreases the frequency of required reassessment to determine whether a companyis the primary beneficiary of a VIE. It also requires additional year-end andinterim disclosures. We adopted this guidance on January 1, 2010, and theadoption did not have a material impact on our financial position or results ofoperations.

 

In December 2008,the FASB issued FASB Staff Position (FSP) FAS 132(R)-1, *Employer’s Disclosures About Postretirement BenefitPlan Assets* (FASB ASC 715)*.* This FSP amends SFAS No. 132(revised 2003), *Employers’ Disclosures AboutPensions and Other Postretirement Benefits,*to provide guidance onan employer’s disclosures about plan assets of a defined benefit pension orother postretirement plan. We have incorporated the required disclosures inthis Form 10-K. The adoption affected our disclosures only and had noimpact on our financial position or results of operations.

 

In December 2007, the FASB issued SFAS No. 141(R), *Business Combinations* (FASB ASC 805)*,*and SFAS No. 160, *Accounting and Reporting of Noncontrolling Interestsin Consolidated Financial Statements, an Amendment of Accounting ResearchBulletin No. 51* (FASBASC 810)*.* These newstandards significantly changed the accounting for and reporting of businesscombination transactions and noncontrolling (minority) interests inconsolidated financial statements. We adopted SFAS No. 141(R) andSFAS No 160 on January 1, 2009.

 

There were no other accounting standards recently issued that had or areexpected to have a material impact on our financial position or results ofoperations.

 

*Subsequent Events*

 

We have evaluatedevents and transactions subsequent to December 31, 2009, through February 25,2010, the date these consolidated financial statements and notes were includedin this Form 10-K and filed with the Securities and Exchange Commission(SEC). We have not identified any events that would require recognition ordisclosure in the consolidated financial statements or in the notes to thefinancial statements.

 

***3.******                                     ******Alternative Fuel MixtureCredits, Net***

 

The U.S. Internal RevenueCode allowed an excise tax credit for taxpayers using alternative fuels in thetaxpayer’s trade or business. During the year ended December 31, 2009, werecorded $207.6 million in “Alternative fuel mixture credits, net” in ourConsolidated Statements of Income (Loss). As of December 31, 2009, werecorded a receivable of $56.6 million in “Receivables, Other” on ourConsolidated Balance Sheet for alternative fuel mixture credits. The creditsexpired on December 31, 2009. We are reasonably assured that the creditfor the alternative fuel mixture used by us through December 31, 2009, hasbeen earned and will be collected from the U.S. government.

 

***4.******                                     ******Net Income (Loss) PerCommon Share***

 

For the years ended December 31, 2009 and 2008,and the period of February 1 (Inception) through December 31, 2007,when we had publicly traded shares outstanding, net income (loss) per commonshare is computed by dividing net income (loss) by the weighted average numberof shares of common stock outstanding during the period. Basic and diluted netincome (loss) per share is calculated as follows (dollars, in thousands, exceptper-share data):

 

13

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| ** **                                                                      | ** ** | **Boise  Inc.**                          | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                      | ** ** | **Year  Ended  December 31,  2009** | ** ** | **Year  Ended  December 31,  2008** | ** ** | **February 1  (Inception)  Through  December 31,  2007** | ** ** |
|                                                                            |       |                                     |       |   |   |   |   |
| Net income (loss)                                                               |       | $                                        | 153,842    |   | $ | (45,523 | ) | $ | 5,492 |   |
|                                                                            |       |                                     |       |   |   |   |   |
| Weighted average number of common shares for basic net income (loss)  per share |       | 78,355                                   |       | 73,636 |   | 34,273 |   |
| Incremental effect of dilutive common stock equivalents:                        |       |                                     |       |   |   |   |   |
| Common stock warrants (a) (b)                                              |       | —                                   |       | — |   | — |   |
| Restricted stock and restricted stock units (c)                                 |       | 4,726                                    |       | — |   | — |   |
| Weighted average number of shares for diluted net income (loss) per  share      |       | 83,081                                   |       | 73,636 |   | 34,273 |   |
|                                                                            |       |                                     |       |   |   |   |   |
| Net income (loss) per share                                                     |       |                                     |       |   | ** ** | ** ** | ** ** |
| Basic                                                                           | ** ** | **$**                                    | **1.96**   | ** ** | **$** | **(0.62** | **)** | **$** | **0.16** | ** ** |
| Diluted (a) (b) (c)                                                   | ** ** | **$**                                    | **1.85**   | ** ** | **$** | **(0.62** | **)** | **$** | **0.16** | ** ** |

 

----

(a)                                 Warrants topurchase 44.4 million shares of common stock for the years ended December 31,2009 and 2008, were not included in the computation of diluted net income(loss) per share because the exercise price exceeded the average market priceof our common stock.

 

(b)                                 Warrants topurchase 44.4 million shares of common stock for the period of February 1(Inception) through December 31, 2007, were not included in thecomputation of diluted net income per share because the warrants werecontingently exercisable.

 

(c)                                  Restricted stockand restricted stock units for the year ended December 31, 2008, were notincluded in the computation of diluted net loss per share because inclusion ofthese amounts would be antidilutive.

 

***5.******                                     ******Transactions With RelatedParties***

 

*Related-Party Sales*

 

Boise Inc. and the Predecessor provided transportationservices to Boise Cascade. For the years ended December 31, 2009 and 2008,Boise Inc. recorded $2.3 million and$3.4 million, respectively, of sales for transportation services. For the periodof January 1 through February 21, 2008, and the year ended December 31,2007, the Predecessor recorded $0.6 million and $5.0 million,respectively, of sales for transportation services to Boise Cascade.

 

The Predecessor sold $10.8 million and$75.3 million, respectively, of wood to Boise Cascade’s wood productsbusiness during the period of January 1 through February 21, 2008,and the year ended December 31, 2007. These sales are included in “Sales,Related parties” in the Consolidated Statements of Income (Loss). Subsequent tothe Acquisition, Louisiana Timber Procurement Company, L.L.C. (LTP), avariable-interest entity (VIE) that is 50% owned by Boise Inc. and 50% owned byBoise Cascade, began selling wood to Boise Cascade and Boise Inc. at pricesdesigned to approximate market prices. LTP procures saw timber, pulpwood,residual chips, and other residual wood fiber to meet the wood and fiberrequirements of Boise Inc. and Boise Cascade. We are the primary beneficiary ofLTP, as we are the entity most closely associated with this VIE; therefore, wefully consolidate LTP in our financial statements. During the year ended December 31,2009, we recorded $25.5 million of sales to Boise Cascade in “Sales,Related parties” in the Consolidated Statements of Income (Loss) andapproximately the same amount of expenses in “Materials, labor, and otheroperating expenses.” During the year ended December 31, 2008, we recorded$64.9 million of sales to Boise Cascade.

 

In connection with theAcquisition, we entered into a services agreement under which we provide anumber of corporate staff services to Boise Cascade at our cost. These servicesinclude information technology, accounting, and human resource services. Theinitial term of the agreement is for three years and will expire on February 22,2011. It will automatically renew for one-year terms unless either partyprovides notice of termination to the other party at least 12 months inadvance of the applicable term. For the years ended December 31, 2009 and2008, we recognized $15.0 millionand $12.1 million,respectively, in “Sales, Related parties” and the same amounts in “Costs andexpenses” in our Consolidated Statements of Income (Loss) related to thisagreement.

 

14

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During thePredecessor periods of January 1 through February 21, 2008, and theyear ended December 31, 2007, the Predecessor sold paper and paperproducts to OfficeMax Incorporated (OfficeMax) at sales prices that weredesigned to approximate market prices. Subsequent to the Acquisition, OfficeMaxis no longer a related party. For additional information concerningrelated-party sales to OfficeMax during the Predecessor periods, seeNote 18, Segment Information.

 

*Related-Party Costs and Expenses*

 

Boise Inc. and the Predecessor purchased fiber from relatedparties at prices that approximated market prices. For the years ended December 31,2009 and 2008, Boise Inc. recorded $36.9 million and $54.6 million,respectively, of fiber purchases from related parties. During the Predecessorperiods of January 1 through February 21, 2008, and the year ended December 31,2007, fiber purchases from related parties were $7.7 million and$39.4 million, respectively. Most of these purchases related to chip andlog purchases from Boise Cascade’s wood products business. All of the costsassociated with these purchases were recorded as “Fiber costs from relatedparties” in the Consolidated Statements of Income (Loss).

 

During thePredecessor periods, the Predecessor used services and administrative staff ofBoise Cascade. These services included, but were not limited to, finance,accounting, legal, information technology, and human resource functions. Thecosts not specifically identifiable to the Predecessor were allocated basedprimarily on average sales, assets, and labor costs. These costs are includedin “General and administrative expenses” in the Consolidated Statements ofIncome (Loss). The Predecessor believes the allocations are a reasonablereflection of its use of the services. However, had the Predecessor operated ona stand-alone basis, it estimates that its Corporate and Other segment wouldhave reported approximately $2.5 million and $18.0 million,respectively, of segment expenses before interest, taxes, depreciation, andamortization for the Predecessor periods of January 1 through February 21,2008, and the year ended December 31, 2007.

 

During the Predecessor periods, some of thePredecessor’s employees participated in Boise Cascade’s noncontributory definedbenefit pension and contributory defined contribution savings plans. ThePredecessor treated its participants in the pension plans as participants inmultiemployer plans. Accordingly, the Predecessor has not reflected any assetsor liabilities related to the plans on the Consolidated Balance Sheet at December 31,2007. The Predecessor, however, recorded costs associated with the employeeswho participated in these plans in the Consolidated Statements of Income(Loss). For the Predecessor periods of January 1 through February 21,2008, and the year ended December 31, 2007, the Statements of Income(Loss) included $3.9 million and $22.4 million, respectively, ofexpenses attributable to its participation in Boise Cascade’s defined benefitand defined contribution plans.

 

During the Predecessorperiods presented, the Predecessor’s employees and former employees alsoparticipated in Boise Cascade’s other postretirement healthcare benefit plans.All of the Predecessor’s postretirement healthcare benefit plans were unfunded(see Note 14, Retirement and Benefit Plans). In addition, some of thePredecessor’s employees participated in equity compensation programs.

 

During the year ended December 31,2008, we recorded $2.8 million of related-party interest expense in “Interestexpense” in our Consolidated Statements of Income (Loss). This expense isrelated to the subordinated promissory note we issued to Boise Cascade inconnection with the Acquisition. After the Acquisition, the note wastransferred to parties unrelated to Boise Cascade or to us. Accordingly, we nolonger record the note as a related-party note on our Consolidated BalanceSheet. At December 31, 2009 and 2008, we had zero and $66.6 million,respectively, recorded in “Notes payable” on our Consolidated Balance Sheets,as this note was repaid as part of our October 2009 debt restructuring.For additional information on the debt restructuring, see Note 12, Debt.

 

*Predecessor*

 

During thePredecessor periods of January 1 through February 21, 2008, and theyear ended December 31, 2007, the Predecessor participated in BoiseCascade’s centralized cash management system. Cash receipts attributable to thePredecessor’s operations were collected by Boise Cascade, and cashdisbursements were funded by Boise Cascade. The net effect of thesetransactions has been reflected as “Net equity transactions with relatedparties” in the Consolidated Statements of Cash Flows and ConsolidatedStatements of Stockholders’ Equity. The following table includes the componentsof these related-party transactions (dollars, in thousands):

 

15

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| ** **                                              | ** ** | **Predecessor**                                      | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                              | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Year  Ended  December 31,  2007** | ** ** |
|                                                    |       |                                                 |       |   |   |
| Cash collections                                        |       | $                                                    | (354,222   | ) | $ | (2,343,598 | ) |
| Payment of accounts payable                             |       | 336,605                                              |       | 2,094,226 |   |
| Capital expenditures and acquisitions                   |       | 10,168                                               |       | 141,801 |   |
| Income taxes                                            |       | 217                                                  |       | 1,990 |   |
| Corporate general and administrative expense allocation |       | 1,995                                                |       | 15,161 |   |
| Net equity transactions with related parties            | ** ** | **$**                                                | **(5,237** | **)** | **$** | **(90,420** | **)** |

 

***6.******                                     ******Other (Income) Expense,Net***

 

“Other (income) expense,net” includes miscellaneous income and expense items. The components of “Other(income) expense, net” in the Consolidated Statements of Income (Loss) are asfollows (dollars, in thousands):

 
| ** **                             | ** ** | **Boise  Inc.**                          | ** ** | ** **                               | **Predecessor** | ** ** |
|----------------------------------------|------------|------------------------------------------|------------|------------------------------------------|-----------------|------------|
| ** **                             | ** ** | **Year  Ended  December 31,  2009** | ** ** | **Year  Ended  December 31,  2008** | ** **      | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Year  Ended  December 31,  2007** | ** ** |
|                                   |       |                                     |       |                                     |            |       |   |   |   |   |
| Changes in supplemental pension plans  |       | $                                        | —     |                                     | $               | (2,914     | ) |   | $ | — |   | $ | — |   |
| Changes in retiree healthcare programs |       | —                                   |       | —                                   |            |       | — |   | (4,367 | ) |
| Sales of assets, net                   |       | 514                                      |       | —                                   |            |       | (941 | ) | (231 | ) |
| Closure costs                          |       | —                                   |       | —                                   |            |       | — |   | 119 |   |
| Project costs                          |       | 676                                      |       | 248                                      |            |       | — |   | 276 |   |
| Other, net                             |       | 2,815                                    |       | (314                                     | )               |       | (48 | ) | 61 |   |
|                                   | ** ** | **$**                                    | **4,005**  | ** **                               | **$**           | **(2,980** | **)** | ** ** | **$** | **(989** | **)** | **$** | **(4,142** | **)** |

 

The year ended December 31, 2009, included $3.5 million ofexpense related to the indefinite idling of the #2 newsprint machine at ourmill in DeRidder, Louisiana, which was recorded in our Packaging segment. Thesecharges included severance costs,preservation and maintenance costs, and other miscellaneous costs related tothe machine idling. The machine idling resulted in the termination of 17salaried employees at the DeRidder mill, as well as 95 hourly employees, someof whom have filled other positions within the Company, while the remaining areon layoff status as of December 31, 2009. We employ approximately425 employees at the mill after the machine idling. At December 31,2009, we had $0.1 million of severance liabilities recorded in “Accruedliabilities, Compensation and benefits” on the Consolidated Balance Sheet. Weexpect to pay the remainder of these severance costs by first quarter 2010.

 

During the period of February 1(Inception) through December 31, 2007, “Other (income) expense, net” waszero.

 

***7.             Income Taxes***

 

For the year ended December 31, 2009, oureffective tax provision rate was 15.4%. The primary reason for the differencefrom the federal statutory income tax rate of 35.0% is the release of valuationallowances and the effect of state income taxes. We have released the valuationallowances recorded in the prior year because we expect to be able to utilizeour deferred tax assets to offset deferred tax liabilities. For the year ended December 31,2008, our effective tax benefit rate was 16.2%. The primary reason for thedifference from the federal statutory income tax rate is the valuationallowance we recorded during 2008. The effective tax rate for the period of February 1(Inception) through December 31, 2007, was 45.5%. The primary reason forthe difference from the federal statutory income tax rate is the effect ofstate and local income taxes.

 

During the Predecessor periods of January 1through February 21, 2008, and the year ended December 31, 2007, themajority of the Predecessor businesses and assets were held and operated bylimited liability companies, which are not subject to entity-level federal orstate income taxation. For the 

 

16

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separate Predecessor subsidiaries that are taxed as corporations, theeffective tax rates were 37.6% and 44.1%, respectively. During these periods,the primary reason for the difference in tax rates was the effect of stateincome taxes.

 

Areconciliation of the statutory U.S. federal tax benefit (provision) and thereported tax benefit (provision) is as follows (dollars, in thousands):

 
| ** **                                                            | ** ** | **Boise Inc.**                           | ** **  |
|-----------------------------------------------------------------------|------------|------------------------------------------|-------------|
| ** **                                                            | ** ** | **Year  Ended  December 31,  2009** | ** **  | **Year  Ended  December 31,  2008** | ** ** | **February 1  (Inception)  Through  December 31,  2007** | ** ** |
|                                                                  |       |                                     |        |   |   |   |   |
| Income (loss) before income  taxes                                    |       | $                                        | 181,852     |   | $ | (54,295 | ) | $ | 10,082 |   |
| Statutory U.S. income tax  rate                                       |       | 35.0                                     | %           | 35.0 | % | 34.0 | % |
|                                                                  |       |                                     |        |   |   |   |   |
| Statutory tax benefit  (provision)                                    |       | $                                        | (63,648     | ) | $ | 19,003 |   | $ | (3,428 | ) |
| State taxes                                                           |       | (7,432                                   | )           | 1,845 |   | (1,162 | ) |
| Nondeductible interest on  applicable high-yield discount obligations |       | (594                                     | )           | (1,167 | ) | — |   |
| Valuation allowance                                                   |       | 44,063                                   |        | (10,884 | ) | — |   |
| Other                                                                 |       | (400                                     | )           | (25 | ) | — |   |
| Reported tax benefit  (provision)                                     | ** ** | **$**                                    | **(28,011** | **)** | **$** | **8,772** | ** ** | **$** | **(4,590** | **)** |
|                                                                  |       |                                     |        |   |   |   |   |
| Effective income tax  benefit (provision) rate                        | ** ** | **(15.4**                                | **)%**      | **16.2** | **%** | **(45.5** | **)%** |

 

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

 
| ** **                                 | ** ** | **Boise Inc.**                           | ** **  |
|--------------------------------------------|------------|------------------------------------------|-------------|
| ** **                                 | ** ** | **Year  Ended  December 31,  2009** | ** **  | **Year  Ended  December 31,  2008** | ** ** | **February 1  (Inception)  Through  December 31,  2007** | ** ** |
|                                       |       |                                     |        |   |   |   |   |
| Current income tax (provision) benefit     |       |                                     |        |   |   |   |   |
| Federal                                    |       | $                                        | 274         |   | $ | (578 | ) | $ | (2,913 | ) |
| State                                      |       | (563                                     | )           | 2 |   | (1,762 | ) |
| Foreign                                    |       | (13                                      | )           | (15 | ) | — |   |
| Total current                              |       | (302                                     | )           | (591 | ) | (4,675 | ) |
|                                       |       |                                     |        |   |   |   |   |
| Deferred income tax (provision) benefit    |       |                                     |        |   |   |   |   |
| Federal                                    |       | (21,282                                  | )           | 8,778 |   | 85 |   |
| State                                      |       | (6,427                                   | )           | 585 |   | — |   |
| Foreign                                    |       | —                                   |        | — |   | — |   |
| Total deferred                             |       | (27,709                                  | )           | 9,363 |   | 85 |   |
| Total (provision) benefit for income taxes | ** ** | **$**                                    | **(28,011** | **)** | **$** | **8,772** | ** ** | **$** | **(4,590** | **)** |

 

During the year ended December 31,2009, cash received for taxes, net of payments made, was $3.1 million.During the year ended December 31, 2008, cash paid for taxes, net ofrefunds received, was $1.4 million. During the period of February 1(Inception) through December 31, 2007, we made $3.4 million of taxpayments. During the Predecessor period of January 1 through February 21,2008, cash paid for taxes, net of refunds received, was immaterial. Cash paidfor taxes, net of refunds received, was $2.3 million during thePredecessor year ended December 31, 2007.

 

At December 31, 2009, we hadfederal net operating losses of $150.9 million, which expire in 2028 and2029, with a tax value of $52.8 million. At December 31, 2009, we hadstate net operating loss carryovers, which expire between 2013 and 2029, with atax value of $5.8 million.

 

17

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

 
| ** **                                              | ** ** | **Boise Inc.**       | ** **  |
|---------------------------------------------------------|------------|----------------------|-------------|
| ** **                                              | ** ** | **December 31** | ** **  |
| ** **                                              | ** ** | **2009**             | ** **  | **2008** | ** ** |
| ** **                                              | ** ** | **Assets**           | ** **  | **Liabilities** | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
|                                                    |       |                 |        |   |   |   |   |   |   |
| Employee benefits                                       |       | $                    | 61,863      |   | $ | 477 |   | $ | 73,241 |   | $ | 31 |   |
| Property and equipment                                  |       | —               |        | 132,413 |   | — |   | 48,989 |   |
| Deferred financing costs                                |       | 1,906                |        | 2,989 |   | — |   | — |   |
| Intangible assets and other                             |       | 224                  |        | 13,522 |   | 395 |   | 13,576 |   |
| Net operating loss                                      |       | 58,564               |        | — |   | 13,523 |   | — |   |
| Alternative minimum tax                                 |       | —               |        | — |   | 843 |   | — |   |
| Reserves                                                |       | 4,011                |        | — |   | 5,528 |   | — |   |
| Inventories                                             |       | 4,163                |        | — |   | 7,249 |   | — |   |
| Deferred income                                         |       | —               |        | 6,773 |   | — |   | — |   |
| Unearned income                                         |       | —               |        | 21,860 |   | — |   | — |   |
| State income tax  adjustments                           |       | 2,344                |        | 213 |   | — |   | — |   |
| Interest on applicable  high-yield discount obligations |       | —               |        | — |   | 1,912 |   | — |   |
| Other                                                   |       | 3,168                |        | 1,788 |   | 2,280 |   | 1,901 |   |
| Valuation allowance                                     |       | —               |        | — |   | (44,063 | ) | — |   |
|                                                    | ** ** | **$**                | **136,243** | ** ** | **$** | **180,035** | ** ** | **$** | **60,908** | ** ** | **$** | **64,497** | ** ** |

 

At December 31,2009 and 2008, we had the following deferred tax balances on the ConsolidatedBalance Sheets (dollars, in thousands):

 
| ** **                                      | ** ** | **Boise Inc.**                    | ** **  |
|-------------------------------------------------|------------|-----------------------------------|-------------|
| ** **                                      | ** ** | **Years Ended  December 31** | ** **  |
| ** **                                      | ** ** | **2009**                          | ** **  | **2008** | ** ** |
|                                            |       |                              |        |   |   |
| Current deferred tax assets  (liabilities), net |       | $                                 | (11,539     | ) | $ | 5,318 |   |
| Noncurrent deferred tax  liabilities, net       |       | (32,253                           | )           | (8,907 | ) |
| Total deferred tax  liabilities, net            | ** ** | **$**                             | **(43,792** | **)** | **$** | **(3,589** | **)** |

 

Deferred tax assets arereduced by a valuation allowance when it is more likely than not that someportion of the deferred tax assets will not be realized. During the year ended December 31,2009, we released $44.0 million of valuation allowances recorded duringthe year ended December 31, 2008. During the fourth quarter of 2009, wedetermined that it was more likely than not that our deferred tax assets wouldbe realized because of current year income from continuing operations.Therefore, we recognized our entire valuation allowance as an income taxbenefit from continuing operations. At December 31, 2008, we recorded$10.9 million of valuation allowances to income from continuing operationsand $32.9 million and $0.3 million to “Accumulated othercomprehensive income (loss)” on our Consolidated Statement of Stockholders’Equity against our pension liability and cash flow hedges, respectively.

 

Pretax income (loss) from domestic and foreign sourcesis as follows (dollars, in thousands):

 
| ** **           | ** ** | **Boise Inc.**                           | ** **  |
|----------------------|------------|------------------------------------------|-------------|
| ** **           | ** ** | **Year  Ended  December 31,  2009** | ** **  | **Year  Ended  December 31,  2008** | ** ** | **February 1  (Inception)  Through  December 31,  2007** | ** ** |
|                 |       |                                     |        |   |   |   |   |
| Domestic             |       | $                                        | 181,843     |   | $ | (54,306 | ) | $ | 10,082 |   |
| Foreign              |       | 9                                        |        | 11 |   | — |   |
| Pretax income (loss) | ** ** | **$**                                    | **181,852** | ** ** | **$** | **(54,295** | **)** | **$** | **10,082** | ** ** |

 

At December 31, 2009and 2008, our foreign subsidiaries had no undistributed earnings that had beenindefinitely reinvested.

 

18

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*UncertainIncome Tax Positions*

 

We recognize taxliabilities and adjust these liabilities when our judgment changes as a resultof the evaluation of new information not previously available or as newuncertainties occur. For the year ended December 31, 2009, we increasedthe amount of our unrecognized tax benefit by $87.6 million, which wascharged to income tax expense, as a result of excluding the alternative fuelmixture credits from income for tax purposes. If subsequently recognized, thisunrecognized tax benefit would reduce our tax expense by $83.3 million.Exclusion of the alternative fuel mixture credits generated a deferred taxbenefit of $82.9 million for the year ended December 31, 2009,(primarily a net operating loss carryforward).

 

Areconciliation of the unrecognized tax benefits is as follows (dollars, inthousands):

 
| ** **                                              | ** ** | **2009** | ** ** | **2008**   | ** ** |
|---------------------------------------------------------|------------|----------|------------|------------|------------|
|                                                    |       |     |       |       |       |
| Unrecognized tax benefits, beginning of year            |       | $        | 256        |       | $          | 235 |   |
| Gross increases related to prior-period tax positions   |       | 11       |       | 21         |       |
| Gross decrease related to prior-period tax positions    |       | —   |       | —     |       |
| Gross increases related to current-period tax positions |       | 87,571   |       | —     |       |
| Settlements                                             |       | —   |       | —     |       |
| Unrecognized tax benefits, end of year                  | ** ** | **$**    | **87,838** | ** ** | **$**      | **256** | ** ** |

 

The unrecognized taxbenefit net of federal benefit for state taxes is $83.3 million. We havedetermined that there is a filing position to exclude the alternative fuelmixture credits from taxable income. Accordingly, $82.9 million of the$83.3 million is recorded as a credit to our long-term deferred taxes toeliminate the benefit associated with the uncertain tax position. The remaining$0.4 million is recorded in “Other long-term liabilities” on ourConsolidated Balance Sheet. Additional guidance may be issued by the IRS in thenext 12 months, which could cause us to change our unrecognized taxbenefits from the amounts currently recorded. It is not reasonably possible toknow to what extent the total amounts of unrecognized benefits will increase ordecrease within the next 12 months.

 

We recognize interest andpenalties related to uncertain tax positions as income tax expense in ourConsolidated Statement of Income (Loss). Interest expense related to uncertaintax positions was immaterial for both of the years ended December 31, 2009and 2008, and also for the Predecessor year ended December 31, 2007. We didnot record any penalties associated with our uncertain tax positions during theyears ended December 31, 2009 and 2008, or during the Predecessor yearended December 31, 2007.

 

We file federal incometax returns in the U.S. and various state income tax returns in the major statejurisdictions of Alabama, Idaho, California, Georgia, Louisiana, Minnesota, andOregon. In the normal course of business, we are subject to examination bytaxing authorities. Boise Inc.’s open tax years are 2009, 2008, and 2007.

 

As part of the purchaseprice of the Acquisition, we acquired two corporate entities. Thesecorporations are wholly owned, consolidated entities of Boise Inc. Theseentities are subject to audit by taxing authorities for the year 2006 and theyears that follow. The statute of limitations for 2005 expired this year. Weare responsible for any tax adjustments resulting from such audits. One ofthese entities, Boise Cascade Transportation Holdings Corp., has completed anexamination for the 2006 tax year without any proposed adjustments.

 

***8.             Leases***

 

We lease ourdistribution centers, as well as other property and equipment, under operatingleases. During the Predecessor periods presented, the Predecessor leased itsdistribution centers, as well as other property and equipment, under operatingleases. For purposes of determining straight-line rent expense, the lease termis calculated from the date of possession of the facility, including anyperiods of free rent and any option periods that are reasonably assured ofbeing exercised. Straight-line rent expense is also adjusted to reflect anyallowances or reimbursements provided by the lessor. Rental expense andsublease income for operating leases were as follows (dollars, in thousands):

 

19

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| ** **             | ** ** | **Boise  Inc.**                          | ** ** | ** **                               | **Predecessor** | ** **                                                         |
|------------------------|------------|------------------------------------------|------------|------------------------------------------|-----------------|--------------------------------------------------------------------|
| ** **             | ** ** | **Year  Ended  December 31,  2009** | ** ** | **Year  Ended  December 31,  2008** | ** **      | **February 1  (Inception)  Through  December 31,  2007** | ** ** | ** ** | **January 1  Through  February 21,********2008** | ** ** | **Year  Ended  December 31,  2007** | ** ** |
|                   |       |                                     |       |                                     |            |                                                               |   |   |   |   |   |   |
| Rental expense         |       | $                                        | 16,357     |                                     | $               | 13,523                                                             |   | $ | — |   |   | $ | 2,044 |   | $ | 13,314 |   |
| Sublease rental income |       | —                                   |       | —                                   |            | —                                                             |   |   | — |   | 5 |   |
|                        |            |                                          |            |                                          |                 |                                                                    |  |  |  |  |  |  |  |  |  |  |  |

 

For noncancelableoperating leases with remaining terms of more than one year, the minimum leasepayment requirements are $12.4 million in 2010, $11.7 million in2011, $10.8 million in 2012, $8.3 million in 2013, $6.9 millionin 2014, and $6.6 million in 2015, with total payments thereafter of$12.5 million. We do not expect sublease rental income in the future to bematerial. Accordingly, our future minimum lease payment requirements have notbeen reduced by sublease rental income.

 

Substantially alllease agreements have fixed payment terms based on the passage of time. Somelease agreements provide us with the option to purchase the leased property.Additionally, some agreements contain renewal options averaging six years,with fixed payment terms similar to those in the original lease agreements.

 

***9.             Concentrations of Risk***

 

*Business*

 

Sales to OfficeMaxrepresent a concentration in the volume of business transacted and revenuegenerated from these transactions. Sales to OfficeMax were $545.4 millionand $494.6 million during the years ended December 31, 2009 and 2008,representing 28% and 24% of total sales for those periods. For the period of January 1through February 21, 2008, and the year ended December 31, 2007, thePredecessor’s sales to OfficeMax were $90.1 million and$615.7 million, respectively. These sales are included in “Sales, Relatedparties” in the Consolidated Statements of Income (Loss). During thePredecessor periods, sales to OfficeMax represented 25% and 26% of sales. At December 31,2009 and 2008, we had $34.7 million and $30.3 million, respectively,of accounts receivable due from OfficeMax. No other single customer accountedfor 10% or more of consolidated trade sales or of total sales.

 

*Labor*

 

As of December 31,2009, we had approximately 4,100 employees. Approximately 60% of theseemployees work pursuant to collective bargaining agreements. As of December 31,2009, approximately 33% of our employees were working pursuant to collectivebargaining agreements that have expired or will expire within one year,including agreements at the following facility locations: Wallula, Washington;DeRidder, Louisiana; Jackson, Alabama; St. Helens, Oregon; and Nampa,Idaho. The labor contract at our paper mill in Wallula, Washington (332employees represented by the Association of Western Pulp & PaperWorkers, or AWPPW) expired in March 2009 and was terminated by the AWPPWon October 31, 2009. In early February 2010, the union employees atWallula rejected a new collective bargaining agreement that union leadershiphad recommended unanimously. On February 22, 2010, the company declared animpasse in the bargaining process and implemented the terms of the lastcontract offer.

 

***10.******                              ******Intangible Assets***

 

Intangible assetsrepresent primarily the values assigned to trademarks and trade names, customerrelationships, and technology in connection with the Acquisition. Customerrelationships are amortized over approximately ten years, and technology isamortized over five years. Trademarks and trade names are not amortized. Duringthe years ended December 31, 2009 and 2008, intangible asset amortizationwas $2.8 million and $2.3 million, respectively. During the Predecessorperiods of January 1 through February 21, 2008, and the year ended December 31,2007, intangible asset amortization was zero and $3.5 million,respectively. Our estimated amortization expense is $2.8 million in both2010 and 2011, $2.7 million in 2012, $1.6 million in 2013, and$1.4 million in both 2014 and 2015. The gross carrying amount, accumulatedamortization, and net carrying amount as of December 31, 2009 and 2008,were as follows (dollars, in thousands):

 

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| ** **                 | ** ** | **Boise Inc.**                        | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| ** **                 | ** ** | **Year Ended December 31, 2009** | ** ** |
| ** **                 | ** ** | **Gross Carrying  Amount**       | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Amount** | ** ** |
| Trademarks and trade names |       | $                                     | 16,800     |   | $ | — |   | $ | 16,800 |   |
| Customer relationships     |       | 13,700                                |       | (2,512 | ) | 11,188 |   |
| Technology and other       |       | 6,895                                 |       | (2,525 | ) | 4,370 |   |
|                       | ** ** | **$**                                 | **37,395** | ** ** | **$** | **(5,037** | **)** | **$** | **32,358** | ** ** |

 
| ** **                 | ** ** | **Boise Inc.**                        | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| ** **                 | ** ** | **Year Ended December 31, 2008** | ** ** |
| ** **                 | ** ** | **Gross Carrying  Amount**       | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Amount** | ** ** |
| Trademarks and trade names |       | $                                     | 16,800     |   | $ | — |   | $ | 16,800 |   |
| Customer relationships     |       | 13,700                                |       | (1,142 | ) | 12,558 |   |
| Technology and other       |       | 6,860                                 |       | (1,143 | ) | 5,717 |   |
|                       | ** ** | **$**                                 | **37,360** | ** ** | **$** | **(2,285** | **)** | **$** | **35,075** | ** ** |

 

We did not haveany triggering events during 2009; therefore, we performed our annualimpairment assessment for our indefinite-lived assets for all of our segmentsduring fourth quarter 2009. Based on the results of our testing, we haveconcluded that our indefinite-lived intangible assets were not impaired. Wehave also performed an undiscounted cash flow analysis as of fourth quarter 2009and determined that the value of our long-lived assets was not impaired. Wealso evaluated the remaining useful lives of our customer relationships andtechnology and determined that no adjustments to the useful lives werenecessary.

 

***11.          Asset Retirement Obligations***

 

We accrue for asset retirement obligationsin the period in which they are incurred if sufficient information is availableto reasonably estimate the fair value of the obligation. When we record theliability, we capitalize the cost by increasing the carrying amount of therelated long-lived asset. Over time, the liability is accreted to itssettlement value, and the capitalized cost is depreciated over the useful lifeof the related asset. Occasionally, we become aware of events or circumstancesthat require us to revise our future estimated cash flows. When revisionsbecome necessary, we recalculate our obligation and adjust our asset andliability accounts utilizing appropriate discount rates. Upon settlement of theliability, we will recognize a gain or loss for any difference between thesettlement amount and the liability recorded.

 

At December 31, 2009 and 2008, we had$10.4 millionand $14.3 million, respectively, of assetretirement obligations recorded on the Consolidated Balance Sheet. Theseliabilities related primarily to landfill closure and closed-site monitoringcosts. These liabilities are based on the best estimate of current costs andare updated periodically to reflect current technology, laws and regulations,inflation, and other economic factors. During 2009, our estimated future cashflows for retirement obligations relating to items at two of our mills werereduced as a result of discussions with third-party organizations. Thesechanges reduced our expected asset retirement obligations. No assets arelegally restricted for purposes of settling asset retirement obligations. Thetable below describes changes to the asset retirement obligations for the yearsended December 31, 2009 and 2008 (dollars, in thousands):

 

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| ** **                                                           | ** ** | **Boise Inc.**                    | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                           | ** ** | **December 31,********2009** | ** ** | **December 31,********2008** | ** ** |
| ** **                                                           | ** ** | ** **                        |       |   |   |
| Asset retirement obligation at beginning of period                   |       | $                                 | 14,283     |   | $ | — |   |
| Asset retirement liability recorded in the purchase price allocation |       | —                            |       | 13,655 |   |
| Liabilities incurred                                                 |       | —                            |       | 58 |   |
| Accretion expense                                                    |       | 1,165                             |       | 921 |   |
| Payments                                                             |       | (122                              | )          | (542 | ) |
| Revisions in estimated cash flows                                    |       | (4,964                            | )          | 191 |   |
| Asset retirement obligation at end of period                         | ** ** | **$**                             | **10,362** | ** ** | **$** | **14,283** | ** ** |

 

We have additional asset retirementobligations with indeterminate settlement dates. The fair value of these assetretirement obligations cannot be estimated due to the lack of sufficientinformation to estimate the settlement dates of the obligations. These assetretirement obligations include, for example, (i) removal and disposal ofpotentially hazardous materials related to equipment and/or an operatingfacility if the equipment and/or facilities were to undergo major maintenance,renovation, or demolition; (ii) wastewater treatment ponds that may berequired to be drained and/or cleaned if the related operating facility isclosed; and (iii) storage sites or owned facilities for which removaland/or disposal of chemicals and other related materials are required if theoperating facility is closed. We will recognize a liability in the period inwhich sufficient information becomes available to reasonably estimate the fairvalue of these obligations.

 

***12.          Debt***

 

At December 31, 2009and 2008, our long-term debt and the interest rates on that debt were as follows(dollars, in thousands):

 
| ** **                           | ** ** | **December 31,  2009** | ** **  | **December 31,  2008** | ** ** |
|--------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
| ** **                           | ** ** | **Amount**                  | ** **  | **Interest  Rate**          | ** ** | **Amount** | ** ** | **Interest  Rate** | ** ** |
|                                 |       |                        |        |                        |       |   |   |   |   |
| Revolving credit facility, due 2013  |       | $                           | —      |                        | —%    |   | $ | 60,000 |   | 4.33% |   |
| Tranche A term loan, due 2013        |       | 203,706                     |        | 3.25%                       |       | 245,313 |   | 4.75% |   |
| Tranche B term loan, due 2014        |       | 312,221                     |        | 5.75%                       |       | 471,437 |   | 5.75% |   |
| Second lien term loan, due 2015      |       | —                      |        | —%                     |       | 260,700 |   | 9.25% |   |
| 9% Senior notes, due 2017            |       | 300,000                     |        | 9.00%                       |       | — |   | —% |   |
| Current portion of long-term debt    |       | (30,711                     | )           | 3.97%                       |       | (25,822 | ) | 5.33% |   |
| Long-term debt, less current portion |       | 785,216                     |        | 6.41%                       |       | 1,011,628 |   | 6.34% |   |
| Current portion of long-term debt    |       | 30,711                      |        | 3.97%                       |       | 25,822 |   | 5.33% |   |
|                                 |       | 815,927                     |        | 6.32%                       |       | 1,037,450 |   | 6.31% |   |
| 15.75% notes payable, due 2015       |       | —                      |        | —%                     |       | 66,606 |   | 15.75% |   |
|                                 | ** ** | **$**                       | **815,927** |                        | ** ** | ** ** | **$** | **1,104,056** |   |   |   |

 

As of December 31, 2009, our debtconsisted of the following:

 

·                  The RevolvingCredit Facility: A five-year nonamortizing $250.0 million senior securedrevolving credit facility with interest at either the London Interbank OfferedRate (LIBOR) plus an applicable margin, which is currently 300 basis points, ora calculated base rate plus an applicable margin, which is currently 200 basispoints (collectively with the Tranche A term loan facility and theTranche B term loan facility, the Credit Facilities).

 

·                  The Tranche ATerm Loan Facility: A five-year loan facility with interest at LIBOR plus anapplicable margin, which is currently 300 basis points, or a calculated baserate plus an applicable margin, which is currently 200 basis points. TheTranche A term loan facility was originally issued at $250.0 million.

 

·                  The Tranche BTerm Loan Facility: A six-year amortizing loan facility with interest at LIBOR(subject to a floor of 4%) plus 350 basis points or a calculated base rate plus250 basis points. The Tranche B term loan facility was originally issued at$475.0 million.

 

22

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·                  The 9% SeniorNotes: An eight-year nonamortizing $300.0 million senior unsecured debtobligation with annual interest at 9%.

 

The Credit Facilities are secured by a first-priority lien onall of the assets of our subsidiaries that guarantee or are borrowers, and inthe event of default, the lenders generally would be entitled to seize thecollateral. All borrowings under the Credit Facilities bear interest at a rateper annum equal to an applicable margin plus a calculated base rate or adjustedEurodollar rate. The calculated base rate means, for any day, a rate per annumequal to the greater of (i) the Prime Rate in effect on such day and (ii) theFederal Funds Effective Rate in effect on such day plus 0.50%. The adjustedEurodollar rate means LIBOR rounded to the nearest 1/16 of 1.0% and adjustedfor any applicable reserve requirements. In addition to paying interest, theCompany pays a commitment fee to the lenders under the revolving creditfacility at a rate of 0.50% per annum (which shall be reduced to 0.375% whenthe leverage ratio is less than 2.25:1.00) times the daily average undrawnportion of the revolving credit facility (reduced by the amount of letters ofcredit issued and outstanding), which fee is payable quarterly in arrears. TheCompany also pays letter of credit fees of 300 basis points times the averagedaily maximum outstanding amount of the letters of credit and a fronting fee of15 basis points to the issuing bank of outstanding letters of credit. Thesefees are payable quarterly and in arrears.

 

At December 31, 2009 and 2008, we had zero and$60.0 million, respectively, of borrowings outstanding under the revolvingcredit facility. For the years ended December 31, 2009 and 2008, theaverage interest rates for our borrowings under our revolving credit facilitywere 3.7% and 6.0%, respectively. The minimum and maximum borrowings under therevolving credit facility were zero and $60.0 million for the year ended December 31,2009. The minimum and maximum borrowings under the Revolving Credit Facilitywere zero and $80.0 million for the year ended December 31, 2008. Theweighted average amount of borrowings outstanding under the revolving creditfacility during the year ended December 31, 2009, was $8.5 million.The weighted average amount of borrowings outstanding under the revolvingcredit facility during the year ended December 31, 2008, was$57.6 million. At December 31, 2009, we had availability of$227.8 million, which is net of outstanding letters of credit of$22.2 million.

 

*Debt Restructuring*

 

On October 26, 2009, Boise Paper Holdings, L.L.C.(Boise Paper Holdings) and Boise Finance Company (together, the Issuers), twoof our wholly owned indirect subsidiaries, issued a $300 million aggregateprincipal amount of 9% senior notes due on November 1, 2017 (the 9% SeniorNotes) through a private placement that is exempt from the registrationrequirements of the Securities Act of 1933, as amended. The 9% Senior Notes payinterest semiannually in arrears on May 1 and November 1, commencingon May 1, 2010.

 

Following the sale of the 9% Senior Notes, the Issuersused the net proceeds of the sale, as well as cash on hand, to retire a portionof the existing term loan indebtedness under Boise Paper Holdings’ CreditFacilities pursuant to the amendments of our Credit Facilities (CreditAgreement Amendments). The Credit Agreement Amendments became effective October 26,2009, at which time Boise Paper Holdings repaid approximately $75 million ofoutstanding secured debt under its first lien term loan. In addition, pursuantto the Credit Agreement Amendments, Boise Paper Holdings used proceeds of theissuance to repurchase, in its entirety, the indebtedness outstanding under itssecond lien term loan. In consideration of the repurchase of indebtedness underthe second lien term loan, Boise Paper Holdings paid a premium of 113% to thelender parties, plus accrued and unpaid interest. Upon the repurchase of all ofthe indebtedness outstanding under the second lien term loan, such debt wascanceled and the second lien credit agreement was terminated.

 

On October 26, 2009, we also used cash on hand torepurchase, in its entirety, our outstanding 15.75% note payable due in 2015.Boise Inc. purchased the note payable at a purchase price of 70% of theoutstanding value of the note payable, plus accrued and unpaid interest.Following the purchase of the note payable, the note was canceled.

 

The issuance of the 9% Senior Notes and the repurchaseof our second lien term loan represented a substantial modification to our debtstructure. Therefore, we wrote off the unamortized deferred financing fees forthe second lien and recognized various other costs and fees incurred inconnection with these transactions in our Consolidated Statements of Income(Loss). We also recorded $13.2 million of deferred financing costs related tothe debt restructuring. In addition, in December 2009, 

 

23

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we made a voluntary prepayment of $100 million onour Tranche B term loan at 101%. We recognized $44.1 million in “Loss onextinguishment of debt,” which consisted of the following (dollars, inthousands):

 
| Write-off of second lien deferred financing fees |       | $       | 27,067     |   |
|--------------------------------------------------|------------|---------|------------|--------|
| Premium paid to second lien holders              |       | 33,891  |       |
| Gain on repurchase of notes payable              |       | (22,682 | )          |
| Other costs and fees                             |       | 5,826   |       |
|                                             | ** ** | **$**   | **44,102** |   |

 

In connection with the issuance of the 9% SeniorNotes, the Issuers and BZ Intermediate Holdings LLC, (Holdings), a wholly ownedconsolidated entity of Boise Inc. and the parent company of Boise PaperHoldings and its restricted subsidiaries (together the 9% Senior NotesGuarantors) entered into the Registration Rights Agreement, dated as of October 26,2009 (the Registration Rights Agreement). The Registration Rights Agreementrequires the Company to register under the Securities Act the 9% Senior Notesdue in 2017 (the Exchange Notes) having substantially identical terms to the 9%Senior Notes and to complete an exchange of the privately placed 9% SeniorNotes for the publicly registered Exchange Notes or, in certain circumstances,to file and keep effective a shelf registration statement for resale of theprivately placed 9% Senior Notes. If the Issuers fail to satisfy theseobligations by October 26, 2010, the Issuers will pay additional interestup to 1% per annum to holders of the 9% Senior Notes.

 

The 9% Senior Notes are senior unsecured obligations and rankequally with all of the Issuers’ present and future senior indebtedness, seniorto all of their future subordinated indebtedness, and effectively subordinatedto all present and future senior secured indebtedness of the Issuers (includingall borrowings with respect to the Credit Facilities to the extent of the valueof the assets securing such indebtedness).

 

*Covenants*

 

The Credit Facilities require Holdings and its subsidiariesto maintain financial covenant ratios. In connection with the October 2009debt restructuring, we also entered into the Credit Agreement Amendments thatmodified our financial covenants under the Credit Facilities. The financialcovenant modifications limit our total leverage ratio to 4.75:1.00, steppingdown to 4.50:1.00 at September 30, 2011. We have a new secured leverageratio of 3.25:1.00, stepping down to 3.00:1.00 at September 30, 2011. Thetotal leverage ratio is defined in our loan agreements at the end of any fiscalquarter as the ratio of (i) consolidated total net debt as defined in ourCredit Facilities debt agreement as of such day to (ii) consolidatedadjusted EBITDA for the four-fiscal-quarter period ending on such date. TheCredit Facilities secured leverage ratio is defined in our First Amendment toour loan agreement as the ratio as of the last day of any fiscal quarter of (i) consolidatedfirst lien secured total net debt as defined in our credit agreement amendmentsas of such day to (ii) consolidated adjusted EBITDA for thefour-fiscal-quarter period ending on such date. The Credit Facilities alsolimit the ability of Holdings and its subsidiaries to make capitalexpenditures, generally to $150 million per year.

 

The 9% Senior Notes indenture contains covenantswhich, subject to certain exceptions, limit the ability of the Issuers and the9% Senior Notes Guarantors to, among other things, incur additionalindebtedness, engage in certain asset sales, make certain types of restrictedpayments, engage in transactions with affiliates, and create liens on assets ofthe Issuers or 9% Senior Notes Guarantors. Upon a change of control, theIssuers must offer to repurchase the 9% Senior Notes at 101% of the principalamount, plus accrued and unpaid interest. If the Issuers sell certain assetsand the Issuers do not use the proceeds from such sale for specified purposes,they must offer to repurchase the 9% Senior Notes at 100% of the principal amount,plus accrued and unpaid interest.

 

*Guarantees*

 

The Company’s obligations under its Credit Facilities areguaranteed by each of Boise Paper Holdings’ existing and subsequently acquireddomestic subsidiaries (collectively, the Credit Facility Guarantors). TheCredit Facilities are secured by a first-priority security interest insubstantially all of the real, personal, and mixed property of Boise PaperHoldings and the Credit Facility Guarantors, including 100% of the equityinterests of Boise Paper Holdings and each domestic subsidiary of Boise PaperHoldings, 65% of the equity interests of each of Boise Paper Holdings’ foreignsubsidiaries (other than Boise Hong Kong Limited so long as Boise Hong KongLimited does not account for more than $2.5 million of consolidatedearnings before interest, taxes, depreciation, and amortization (EBITDA) duringany fiscal year of Boise Paper Holdings), and all intercompany debt.

 

24

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The 9% Senior Notes are jointly and severallyguaranteed on a senior unsecured basis by Holdings and each existing and futuresubsidiary of Holdings (other than the Issuers). The 9% Senior Notes guarantorsdo not include Louisiana Timber Procurement Company, L.L.C., or foreignsubsidiaries.

 

*Prepayments*

 

We may redeem all or a portion of the 9% Senior Notesat any time on or after November 1, 2013, at a premium decreasing to zeroby November 1, 2015, plus accrued and unpaid interest. In addition, priorto November 1, 2012, the Issuers may redeem up to 35% of the aggregateprincipal amount of the 9% Senior Notes at a redemption price of 109% of theprincipal amount thereof with the net proceeds of one or more qualified equityofferings.

 

*Other Provisions*

 

Subject to specified exceptions, the Credit Facilitiesrequire that the proceeds from certain asset sales, casualty insurance, certaindebt issuances, and 75% (subject to step-downs based on certain leverageratios) of the excess cash flow for each fiscal year must be used to pay downoutstanding borrowings. As of December 31,2009, required debt principal repayments under the Credit Facilities, includingthose from excess cash flows, total $30.7 million in 2010. Of this amount,$16.1 million is from our scheduled repayments, and $14.6 millionrelates to excess cash flows. Our debt principal repayment requirements are$48.3 million in 2011, $134.3 million in 2012, $13.0 million in2013, $289.6 million in 2014, and $300.0 million thereafter.

 

*Other*

 

At December 31, 2009 and 2008, we had $47.4 million and $72.6 million, respectively, of costs recorded in “Deferred financing costs” onour Consolidated Balance Sheet. As noted above, we canceled the second lienwith the proceeds from the debt restructuring, and as a result, we expensedapproximately $27.1 million of deferred financing costs. We recorded thischarge in “Loss on extinguishment of debt” in our Consolidated Statement ofIncome (Loss). In addition, the $13.2 million of financing costs relatedto the debt restructuring is included, net of amortization, in “Deferredfinancing costs” on our Consolidated Balance Sheet. The amortization of thesecosts is recorded in interest expense using the effective interest method overthe life of the loans. We recorded $11.3 million and $9.3 million ofamortization expense for the years ended December 31, 2009 and 2008, in “Interest expense” in our Consolidated Statementsof Income (Loss).

 

In April 2008, weentered into interest rate derivative instruments to hedge a portion of ourinterest rate risk as required under the terms of the first and second lienfacilities. At December 31, 2009, we had $515.9 million ofvariable-rate debt outstanding, all of which was hedged using interest ratederivatives. At December 31, 2009, our average effective interest rate wasnot affected by our interest rate derivatives, as the effective cap rates wereabove the interest rates on the hedged debt. For additional information on ourinterest rate derivatives, see Note 13, Financial Instruments.

 

For the years ended December 31, 2009 and 2008, cash payments for interest, net of interestcapitalized, were $56.9 million and $72.8 million, respectively. Nopayments were made during the period of February 1 (Inception) through December 31,2007, the Predecessor period of January 1 through February 21, 2008,and the year ended December 31,2007.

 

***13.          Financial Instruments***

 

We are exposed tomarket risks, including changes in interest rates, energy prices, and foreigncurrency exchange rates.

 

*Interest Rate Risk—Debt*

 

With the exception of the9% Senior Notes maturing in November 2017, our debt is variable-rate debt.At December 31, 2009, the estimated value of the 9% Senior Notes, based onthen-current interest rates for similar obligations with like maturities, wasapproximately $14.6 million more than the amount recorded on ourConsolidated Balance Sheet. At December 31, 2009, the estimated value ofour variable-rate debt, based on then-current interest rates for similarobligations with like maturities, was approximately $32.5 million lessthan the amount recorded on our Consolidated Balance Sheet. The fair value oflong-term debt is estimated based on quoted market prices for the same orsimilar issues or on 

 

25

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the discounted value of the future cash flows expected to be paid usingincremental rates of borrowing for similar liabilities.

 

In April 2008, weentered into interest rate derivative instruments to hedge a portion of ourinterest rate risk as required under the terms of the Credit Facilities. At December 31,2009, we had $515.9 million of variable-rate debt outstanding, all ofwhich was hedged using interest rate derivatives. We purchased interest ratecaps with a term of three years and a cap rate of 5.50% on a notional amount of$260.0 million to hedge the interest rate on our second lien facility.These interest rate caps remain in place. We also purchased interest rate capsto hedge part of the interest rate risk on our Tranche B term loan facilitywith a LIBOR cap rate of 5.00% on a notional amount of $425.0 million forthe period of April 21, 2008, through March 31, 2009; a notionalamount of $350.0 million for the period of March 31, 2009, through March 31,2010; and a notional amount of $300.0 million for the period of March 31,2010, through March 31, 2011.

 

*Credit Facilities.*Effective December 31,2008, we began utilizing the calculated base rate plus 250 basis points on theTranche B term loan facility rather than the LIBOR plus 350 basis points(subject to a floor of 4%) used prior to December 31, 2008. As theinterest rate on this debt no longer matched the rate on the interest ratederivatives used to hedge a portion of that debt, we account for them aseconomic hedges. The amounts recorded in “Accumulated other comprehensiveincome (loss)” on our Consolidated Balance Sheet will be amortized to interestexpense over the remaining life of the interest rate derivatives. Changes inthe fair value of these derivatives will be recorded in “Change in fair valueof interest rate derivatives” in our Consolidated Statements of Income (Loss).

 

Thesederivatives have a cap rate of 5.00% on a notional amount of$425.0 million for the period of April 21, 2008, through March 31,2009; a notional amount of $350.0 million for the period of March 31,2009, through March 31, 2010; and a notional amount of $300.0 millionfor the period of March 31, 2010, through March 31, 2011. At December 31,2009 and 2008, we recorded the fair valueof the interest rate derivatives, or $0.1 million and $0.2 million,respectively, in “Other assets” on our Consolidated Balance Sheet. During theyear ended December 31, 2009, we recorded the charge in fair value ofthese derivatives, or a $0.4 million gain, in “Changes in fair value ofinterest rate derivatives” in our Consolidated Statement of Income (Loss).During the year ended December 31, 2008, we recorded the change in fairvalue of these derivatives, or a $0.8 million loss, in “Accumulated othercomprehensive income (loss)” on our Consolidated Balance Sheet. No amounts werereclassified to interest expense. During the years ended December 31, 2009and 2008, we recorded $0.5 million and $0.4 million, respectively, in“Interest expense” for the amortization of the premiums paid for the interestrate derivatives. At December 31, 2008, there was no ineffectivenessrelated to these hedges.

 

*Second Lien Facility.*We account for the interest ratederivatives with a notional amount of $260.0 million that hedged our exposureto interest rate fluctuations on our second lien facility as economic hedges. At December 31, 2009 and 2008, we recorded thefair value of the interest rate derivatives, or $0.1 million, in “Otherassets” on our Consolidated Balance Sheet. During the years ended December 31,2009 and 2008, we recorded the change in fair value of these derivatives, or$0.2 million and $0.5 million, respectively, of expense, in “Changein fair value of interest rate derivatives” in our Consolidated Statement ofIncome (Loss). During each year ended December 31, 2009 and 2008, werecorded $0.2 million in “Interest expense” for the amortization of thepremiums paid for the interest rate derivatives.

 

*Interest Rate Risk—Investments*

 

Our exposure to market risk for changes in interestrates also relates to our cash, cash equivalents, and short-terminvestments. As of December 31, 2009, our cash, cash equivalents, andshort-term investments consisted primarily of funds invested in money marketaccounts and certificates of deposit insured by the Federal Deposit InsuranceCorporation (FDIC). As the interest rates on a significant portion of our cash,cash equivalents, and short-term investments are variable, a change in interestrates earned would affect interest income along with cash flows but would nothave a significant impact on the fair market value of the related underlyinginstruments.

 

26

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The components of cash, cashequivalents, and short-term investments as of and for the year ended December 31,2009, are as follows (dollars, in thousands):

 
| ** **              | ** ** | **Year  Ended December 31, 2009** | ** ** |
|-------------------------|------------|----------------------------------------|------------|
| ** **              | ** ** | **Cost  Basis**                        | ** ** | **Accrued  Interest** | ** ** | **Unrealized  Gains  (Losses)** | ** ** | **Recorded  Basis** | ** ** | **Cash  and  Cash  Equivalents** | ** ** | **Short-Term  Investments** | ** ** |
|                    |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Cash                    |       | $                                      | 4,268      |   | $ | — |   | $ | — |   | $ | 4,268 |   | $ | 4,268 |   | $ | — |   |
| Money market accounts   |       | 65,125                                 |       | — |   | — |   | 65,125 |   | 65,125 |   | — |   |
| Certificates of deposit |       | 10,000                                 |       | 28 |   | (5 | ) | 10,023 |   | — |   | 10,023 |   |
| Total                   | ** ** | **$**                                  | **79,393** | ** ** | **$** | **28** | ** ** | **$** | **(5** | **)** | **$** | **79,416** | ** ** | **$** | **69,393** | ** ** | **$** | **10,023** | ** ** |

 

AtDecember 31, 2009, net unrealized losses of $5,000 are included in “Accumulatedother comprehensive income (loss)” on our Consolidated Balance Sheet. Duringthe year ended December 31, 2009, $11.6 million of certificates ofdeposit matured, all of which we subsequently reinvested. At December 31,2009, we did not have any investments in individual securities that had been ina continual unrealized loss position for more than 12 months. The unrealizedlosses at December 31, 2009, represent a temporary condition due to thehigh quality of the investment securities, and we expect to recover the parvalue of these investments.

 

AtDecember 31, 2008, we had $22.5 million in cash and cash equivalents,consisting of $7.2 million in cash and $15.3 million in money marketaccounts. We did not have any short-term investments as of or during the yearended December 31, 2008.

 

*Energy Risk*

 

We enter into natural gas swaps, options, or acombination of these instruments to hedge the variable cash flow risk ofnatural gas purchases at index prices. As of December 31, 2009, we had enteredinto derivative instruments related to approximately 50% of our forecastednatural gas purchases for the period of January 2010 through October 2010,approximately 16% of our forecasted natural gas purchases from November 2010through March 2011, and approximately 6% of our forecasted natural gaspurchases from April 2011 through October 2011. These derivatives includethree-way collars and call spreads.

 

A three-way collar is acombination of options: a written put, a purchased call, and a written call.The purchased call establishes a maximum price unless the market price exceedsthe written call, at which point the maximum price would be New York MercantileExchange (NYMEX) price less the difference between the purchased call and thewritten call strike price. The written put establishes a minimum price (thefloor) for the volumes under contract. This strategy enables us to decrease thefloor and the ceiling price of the collar beyond the range of a traditionalcollar while offsetting the associated cost with the sale of the written call.The following tables summarize our position related to these instruments as of December 31,2009 (in millions of British thermal units, or mmBtu, per day):

 
| ** **                  | ** ** | **Three-Way Collars**                           | ** ** |
|-----------------------------|------------|-------------------------------------------------|------------|
| ** **                  | ** ** | **January 2010  Through  March 2010** | ** ** |
|                        |       |                                            |       |   |   |   |   |
| Volume hedged               |       | 6,000                                           |       | 8,500 |   | 4,000 |   |
|                        |       |                                            |       |   |   |   |   |
| Strike price of call sold   |       | $                                               | 12.00      |   | $ | 12.00 |   | $ | 11.00 |   |
| Strike price of call bought |       | 9.00                                            |       | 9.00 |   | 8.00 |   |
| Strike price of put sold    |       | 6.50                                            |       | 5.35 |   | 4.60 |   |
| Three-way collar premium    |       | 0.17                                            |       | — |   | — |   |
|                        |       |                                            |       |   |   |   |   |
| Approximate percent hedged  |       | 16                                              | %          | 23 | % | 11 | % |
|                             |            |                                                 |            |  |  |  |  |  |  |  |

 

27

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| ** **                  | ** ** | **Three-Way Collars**                           | ** ** |
|-----------------------------|------------|-------------------------------------------------|------------|
| ** **                  | ** ** | **April 2010  Through  October 2010** | ** ** | **November 2010  Through  March 2011** | ** ** | **April 2011  Through  October 2011** | ** ** |
|                        |       |                                            |       |   |   |   |   |   |   |
| Volume hedged               |       | 5,500                                           |       | 9,500 |   | 4,000 |   | 1,000 |   |
|                        |       |                                            |       |   |   |   |   |   |   |
| Strike price of call sold   |       | $                                               | 12.00      |   | $ | 11.00 |   | $ | 11.00 |   | $ | 11.00 |   |
| Strike price of call bought |       | 9.00                                            |       | 8.00 |   | 8.00 |   | 8.00 |   |
| Strike price of put sold    |       | 5.90                                            |       | 5.03 |   | 5.66 |   | 5.33 |   |
| Three-way collar premium    |       | —                                          |       | — |   | — |   | — |   |
|                        |       |                                            |       |   |   |   |   |   |   |
| Approximate percent hedged  |       | 18                                              | %          | 32 | % | 11 | % | 3 | % |
|                             |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |

 

A call spread is acombination of a purchased call and a written call. The purchased callestablishes a maximum price unless the market exceeds the written call, atwhich point the maximum price would be the NYMEX price less the differencebetween the purchased call and the written call strike price plus anyapplicable net premium associated with the two options. The following tablessummarize our position related to these instruments as of December 31,2009 (in mmBtu per day):

 
| ** **                  | ** ** | **Call  Spreads**                                | ** ** |
|-----------------------------|------------|--------------------------------------------------|------------|
| ** **                  | ** ** | **November 2010  Through  March 2011** | ** ** | **April 2011  Through  October 2011** | ** ** |
| ** **                  | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Volume hedged               |       | 2,000                                            |       | 1,000 |   |
|                        |       |                                             |       |   |   |
| Strike price of call sold   |       | $                                                | 11.00      |   | $ | 11.00 |   |
| Strike price of call bought |       | 8.00                                             |       | 8.00 |   |
| Net cap premium             |       | 0.54                                             |       | 0.40 |   |
|                        |       |                                             |       |   |   |
| Approximate percent hedged  |       | 5                                                | %          | 3 | % |
|                             |            |                                                  |            |  |  |  |  |

 

We have elected toaccount for these instruments as economic hedges. At December 31,2009 and 2008, we recorded the fair value of the derivatives, or$1.4 million and $7.3 million, respectively, in “Accrued liabilities,Other” on our Consolidated Balance Sheet. During the years ended December 31,2009 and 2008, we recorded the change in fair value of the instruments, or a$5.9 million gain and a $7.4 million loss, respectively, in “Materials,labor, and other operating expenses” in our Consolidated Statements of Income(Loss).

 

*Foreign Currency Risk*

 

Whilewe are exposed to foreign currency risk in our operations, none of this riskwas material to our financial position or results of operations as of December 31, 2009 and 2008.

 

*Predecessor*

 

During the Predecessor periods presented,Boise Cascade occasionally used interest rate swaps to hedge variable interestrate risk. Because debt and interest costs were not allocated to the Predecessor,the effects of the interest rate swaps were not included in the Predecessorconsolidated financial statements.

 

*Fair Value Measurements*

 

We record our financial assets and liabilities, whichconsist of cash equivalents,short-term investments, and derivative financial instruments that are used tohedge exposures to interest rate and energy risks, at fair value. The fairvalue hierarchy under U.S. GAAP gives the highest priority to quoted marketprices (Level 1) and the lowest priority to unobservable inputs(Level 3). In general, and where applicable, we use quoted prices inactive markets for identical assets or liabilities to determine fair value(Level 1). In general, and where applicable, we use quoted prices in activemarkets for identical assets or liabilities to determine fair value (Level 1).If quoted prices in active markets for identical assets or liabilities are notavailable to determine fair value, we use quoted prices for similar assets andliabilities or inputs that are observable either directly or indirectly (Level2). If quoted prices for identical or similar assets are not available or areunobservable, we may use internally developed valuation models, whose 

 

28

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inputs include bid prices and third-party valuations utilizingunderlying asset assumptions (Level 3). We enter into these hedges with largefinancial institutions, and we monitor their credit ratings to determine if anyadjustments to fair value need to be made. No such adjustments were made in anyperiod presented.

 

At December 31,2009, fair value for these financial instruments was determined based onapplicable interest rates, such as LIBOR, interest rate curves, and NYMEX pricequotations under the terms of the contracts, using current market informationas of the reporting date. The following table provides a summary of our assetsand liabilities measured at fair value on a recurring basis and the inputs usedto develop these estimated fair values under the fair value hierarchy discussedabove (dollars, in thousands):

 
| ** **                    | ** ** | **Fair  Value Measurements at December 31, 2009, Using:** | ** ** |
|-------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                    | ** ** | **Total**                                                      | ** ** | **Quoted  Prices  in Active  Markets for  Identical  Assets  (Level 1)** | ** ** | **Significant  Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
|                          |       |                                                           |       |   |   |   |   |   |   |
| Assets:                       |       |                                                           |       |   |   |   |   |   |   |
| Money market accounts (a)     |       | $                                                              | 65,125     |   | $ | 65,125 |   | $ | — |   | $ | — |   |
| Certificates of deposit (b)   |       | 10,023                                                         |       | 10,023 |   | — |   | — |   |
| Interest rate derivatives (c) |       | 163                                                            |       | — |   | 163 |   | — |   |
|                          | ** ** | **$**                                                          | **75,311** | ** ** | **$** | **75,148** | ** ** | **$** | **163** | ** ** | **$** | **—** | ** ** |
|                          |       |                                                           |       |   |   |   |   |   |   |
| Liabilities:                  |       |                                                           |       |   |   |   |   |   |   |
| Energy derivatives (d)        |       | $                                                              | 1,447      |   | $ | — |   | $ | 1,447 |   | $ | — |   |
|                          | ** ** | **$**                                                          | **1,447**  | ** ** | **$** | **—** | ** ** | **$** | **1,447** | ** ** | **$** | **—** | ** ** |

 
| ** **                    | ** ** | **Fair  Value Measurements at December 31, 2008, Using:** | ** ** |
|-------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                    | ** ** | **Total**                                                      | ** ** | **Quoted  Prices  in Active  Markets for  Identical  Assets  (Level 1)** | ** ** | **Significant  Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
|                          |       |                                                           |       |   |   |   |   |   |   |
| Assets:                       |       |                                                           |       |   |   |   |   |   |   |
| Interest rate derivatives (c) |       | $                                                              | 341        |   | $ | — |   | $ | 341 |   | $ | — |   |
|                          | ** ** | **$**                                                          | **341**    | ** ** | **$** | **—** | ** ** | **$** | **341** | ** ** | **$** | **—** | ** ** |
|                          |       |                                                           |       |   |   |   |   |   |   |
| Liabilities:                  |       |                                                           |       |   |   |   |   |   |   |
| Energy derivatives (d)        |       | $                                                              | 7,324      |   | $ | — |   | $ | 7,324 |   | $ | — |   |
|                          | ** ** | **$**                                                          | **7,324**  | ** ** | **$** | **—** | ** ** | **$** | **7,324** | ** ** | **$** | **—** | ** ** |

 

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(a)           Recordedin “Cash and cash equivalents” on our Consolidated Balance Sheet.

 

(b)           Recordedin “Short-term investments” on our Consolidated Balance Sheet.

 

(c)           Recordedin “Other assets” on our Consolidated Balance Sheet.

 

(d)           Recordedin “Accrued liabilities, Other” on our Consolidated Balance Sheet.

 

Asof December 31, 2009 and 2008,we did not have any fair value measurements using significant unobservableinputs (Level 3).

 

29

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*Tabular Disclosure of the Fair Values of DerivativeInstruments and the Effect of Those Instruments*(dollars, inthousands)

 
| ** **                                                        | ** ** | **Fair Values of Derivative Instruments** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                        | ** ** | **Asset Derivatives**                     | ** ** | **Liability Derivatives** | ** ** |
| ** **                                                        | ** ** | **December 31, 2009**                |
| ** **                                                        | ** ** | **Balance  Sheet  Location**              | ** ** | **Fair Value** | ** ** | **Balance  Sheet  Location** | ** ** | **Fair Value** | ** ** |
|                                                              |       |                                      |       |   |   |   |   |   |   |
| Derivatives designated as  economic hedging instruments (a)       |       |                                      |       |   |   |   |   |   |   |
| Interest rate contracts                                           |       | Other assets                              |       | $ | 163 |   | Accrued liabilities |   | $ | — |   |
| Natural gas contracts                                             |       | Other assets                              |       | — |   | Accrued liabilities |   | 1,447 |   |
| **Total derivatives  designated as economic hedging instruments** | ** ** | ** **                                | ** ** | **$** | **163** | ** ** | ** ** | ** ** | **$** | **1,447** | ** ** |
|                                                              |       |                                      |       |   |   |   |   |   |   |
| **Total derivatives**                                             | ** ** | ** **                                | ** ** | **$** | **163** | ** ** | ** ** | ** ** | **$** | **1,447** | ** ** |

 
| ** **                                                         | ** ** | **Fair Values of Derivative Instruments** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                         | ** ** | **Asset Derivatives**                     | ** ** | **Liability Derivatives** | ** ** |
| ** **                                                         | ** ** | **December 31, 2008**                | ** ** |
| ** **                                                         | ** ** | **Balance  Sheet  Location**              | ** ** | **Fair Value** | ** ** | **Balance  Sheet  Location** | ** ** | **Fair Value** | ** ** |
|                                                               |       |                                      |       |   |   |   |   |   |   |
| Derivatives designated as  cash flow hedging instruments (b)       |       |                                      |       |   |   |   |   |   |   |
| Interest rate contracts                                            |       | Other assets                              |       | $ | 250 |   | Accrued liabilities |   | $ | — |   |
| **Total derivatives  designated as cash flow hedging instruments** | ** ** | ** **                                | ** ** | **$** | **250** | ** ** | ** ** | ** ** | **$** | **—** | ** ** |
|                                                               |       |                                      |       |   |   |   |   |   |   |
| Derivatives designated as  economic hedging instruments (a)        |       |                                      |       |   |   |   |   |   |   |
| Interest rate contracts                                            |       | Other assets                              |       | $ | 91 |   | Accrued liabilities |   | $ | — |   |
| Natural gas contracts                                              |       | Other assets                              |       | — |   | Accrued liabilities |   | 7,324 |   |
| **Total derivatives  designated as economic hedging instruments**  | ** ** | ** **                                | ** ** | **$** | **91** | ** ** | ** ** | ** ** | **$** | **7,324** | ** ** |
|                                                               |       |                                      |       |   |   |   |   |   |   |
| **Total derivatives**                                              | ** ** | ** **                                | ** ** | **$** | **341** | ** ** | ** ** | ** ** | **$** | **7,324** | ** ** |

 
| **The  Effect of Derivative Instruments on the Consolidated Statement of Income  (Loss) for the Year Ended December 31, 2009** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Derivatives  Designated  as Cash Flow  Hedging  Instruments (b)**                                                                 | ** ** | **Amount of Gain  or (Loss)  Recognized in OCI  on Derivative  (Effective Portion)** | ** ** | **Location of Gain  or (Loss)  Reclassified from  Accumulated OCI  Into Income  (Effective Portion)** | ** ** | **Amount of Gain  or (Loss)  Reclassified from  Accumulated OCI  Into Income  (Effective Portion)** | ** ** | **Derivatives  Designated  as Economic  Hedging  Instruments (a)** | ** ** | **Location of Gain  or (Loss)  Recognized in  Income on  Derivative** | ** ** | **Amount of Gain  or (Loss)  Recognized in  Income on  Derivative** | ** ** |
|                                                                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate contracts                                                                                                             |       | $ | — |   | Interest  income/expense |   | $ | 338 |   | Interest rate  contracts |   | Change in fair value of interest rate  derivatives |   | $ | 568 |   |
|                                                                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                |       |   |   |   |   |   |   | Natural gas  contracts |   | Materials, labor,  and other |   |   |   |
|                                                                                                                                |       |   |   |   |   |   |   |   |   | operating expenses |   | 5,877 |   |
| ** **                                                                                                                          | ** ** | **$** | **—** | ** ** | ** ** | ** ** | **$** | **338** | ** ** | ** ** | ** ** | ** ** | ** ** | **$** | **6,445** | ** ** |

 

30

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| **The  Effect of Derivative Instruments on the Consolidated Statement of Income  (Loss) for the Year Ended December 31, 2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Derivatives  Designated  as Cash Flow  Hedging  Instruments (b)**                                                                 | ** ** | **Amount of Gain  or (Loss)  Recognized in OCI  on Derivative  (Effective Portion)** | ** ** | **Location of Gain  or (Loss)  Reclassified from  Accumulated OCI  Into Income  (Effective Portion)** | ** ** | **Amount of Gain  or (Loss)  Reclassified from  Accumulated OCI  Into Income  (Effective Portion)** | ** ** | **Derivatives  Designated  as Economic  Hedging  Instruments (a)** | ** ** | **Location of Gain  or (Loss)  Recognized in  Income on  Derivative** | ** ** | **Amount of Gain  or (Loss)  Recognized in  Income on  Derivative** | ** ** |
|                                                                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest rate contracts                                                                                                             |       | $ | (760 | ) | Interest  income/expense |   | $ | — |   | Interest rate  contracts |   | Change in fair value of interest rate derivatives |   | $ | (479 | ) |
|                                                                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                |       |   |   |   |   |   |   |   |   | Materials, labor,  and other |   |   |   |
|                                                                                                                                |       |   |   |   |   |   |   | Natural gas  contracts |   | operating expenses |   | (7,445 | ) |
| ** **                                                                                                                          | ** ** | **$** | **(760** | **)** | ** ** | ** ** | **$** | **—** | ** ** | ** ** | ** ** | ** ** | ** ** | **$** | **(7,924** | **)** |

 

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(a)                                  See discussionabove for additional information on our purpose for entering into derivativesdesignated as economic hedges and our overall risk management strategies.

 

(b)                                 As of January 1,2009, we no longer have interest rate derivatives designated as cash flowhedges. The amounts recorded in “Accumulated other comprehensive income (loss)”on our Consolidated Balance Sheet are being amortized to interest over theremaining life of the interest rate derivatives. During the year ended December 31,2009, these derivatives were accounted for as economic hedges.

 

**14.          *Retirement and BenefitPlans***

 

During all of the periodspresented, some of our employees participated in our retirement plans, and someof the Predecessor’s employees participated in Boise Cascade’s retirementplans. These plans consist of noncontributory defined benefit pension plans,contributory defined contribution savings plans, deferred compensation plans,and postretirement healthcare benefit plans. Compensation expense wascalculated based on costs directly attributable to our employees and, in thecase of the Predecessor employees of the Paper Group, an allocation of expenserelated to corporate employees that serviced all Boise Cascade business units.

 

*DefinedBenefit Plans*

 

Some of our employeesparticipate in noncontributory defined benefit pension plans that were eithertransferred to us or spun off from Boise Cascade. The salaried defined benefitpension plan is available only to employees who were formerly employed byOfficeMax (known at the time as Boise Cascade Corporation) before November 2003.The pension benefit for salaried employees is based primarily on the employees’years of service and highest five-year average compensation. The benefit forhourly employees is generally based on a fixed amount per year of service. ThePredecessor treated participants in these plans as participants inmultiemployer plans. Accordingly, the Predecessor did not reflect any assets orliabilities related to the noncontributory defined benefit pension plans on itsConsolidated Balance Sheet. The Predecessor did, however, record costsassociated with the employees who participated in these plans in its ConsolidatedStatements of Income (Loss). Expenses attributable to participation innoncontributory defined benefit plans for the years ended December 31,2009 and 2008, and the Predecessor period of January 1 through February 21,2008, and the year ended December 31, 2007, were $8.7 million,$8.3 million, $1.8 million, and $13.1 million, respectively.

 

In December 2008, we amended our defined benefitpension plan for salaried employees (Salaried Plan). This amendment freezes theaccumulation of benefits and years of service for participants of the SalariedPlan effective April 15, 2009. This amendment also freezes benefits in theBoise Inc. Supplemental Plan (SUPP) and the Boise Inc. Supplemental EarlyRetirement Plan for Executive Officers (SERP). Because the Salaried Plan hasunrecognized losses, the curtailment gain associated with this amendment wasapplied to partially offset those losses. However, we have recognized a $2.9million gain on our SUPP and SERP plans because the curtailment gain exceededour existing unrecognized losses. This gain is recognized in “Other (income)expense, net” in our Consolidated Statements of Income (Loss) for the yearended December 31, 2008.

 

31

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*Defined Contribution Plans*

 

Some of our employeesparticipate in contributory defined contribution savings plans, which coveredmost of our salaried and hourly employees. Expenses related to matchingcontributions attributable to participation in contributory definedcontribution savings plans for the years ended December 31, 2009 and 2008,and the Predecessor period of January 1 through February 21, 2008,and the year ended December 31, 2007, were $10.0 million,$8.4 million, $2.1 million, and $9.3 million, respectively.Salaried employees hired after October 31, 2003, who are otherwiseeligible to participate in these plans are eligible for additionaldiscretionary company matching contributions based on a percentage approvedeach plan year. Beginning April 16, 2009, the company contributions foreligible salaried employees consisted of a nondiscretionary, nonmatching basecontribution of 3% of eligible compensation plus a matching contribution. Inaddition, the Company may make additional discretionary nonmatchingcontributions each year. The company contribution structure for hourlyemployees varies.

 

*DeferredCompensation Plans*

 

Some of our employeesparticipate in deferred compensation plans, in which key managers andnonaffiliated directors may irrevocably elect to defer a portion of their basesalary and bonus or director’s fees until termination of employment or beyond.A participant’s account is credited with imputed interest at a rate equal to130% of Moody’s composite average of yields on corporate bonds. In addition,participants other than directors may elect to receive their companycontributions in the deferred compensation plan in lieu of any companycontribution in the contributory defined contribution savings plan. Thedeferred compensation plans are unfunded; therefore, benefits are paid fromgeneral assets of the Company. At December 31, 2009 and 2008, we had$0.9 million and $0.6 million, respectively, of liabilitiesattributable to participation in our deferred compensation plan on ourConsolidated Balance Sheet.

 

*PostretirementBenefit Plans*

 

Some of our and thePredecessor’s employees participated in Boise Cascade’s postretirementhealthcare benefit plans. The type of retiree healthcare benefits and theextent of coverage vary based on employee classification, date of retirement,location, and other factors. All of the postretirement healthcare plans areunfunded. In 2007 and 2006, the Predecessor communicated to employees changesto the retiree healthcare programs. The Predecessor discontinued healthcarecoverage for most of the post-65 retirees. In addition, the Predecessoreliminated the company subsidy for some of the pre-65 hourly retirees. Thischange shifts retiree medical costs to the plan participants. As a result ofthis change, the Predecessor recorded a $4.4 million gain in theConsolidated Statement of Income (Loss) for the year ended December 31,2007. The postretirement benefit plans have a December 31 measurementdate.

 

*Obligationsand Funded Status of Postretirement Benefits and Pensions*

 

The following table, which includes only company-sponsored plans,reconciles the beginning (February 22, 2008, for 2008 plan year) andending balances of our benefit obligation. It also shows the fair value of planassets and aggregate funded status of our plans. The funded status changes fromyear to year based on the investment return from plan assets, contributions,and benefit payments and the discount rate used to measure the liability(dollars, in thousands):

 

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| ** **                                                                                    | ** ** | **Pension Benefits** | ** **   | **Other Benefits** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------|--------------|--------------------|------------|
| ** **                                                                                    | ** ** | **2009**             | ** **   | **2008**           | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                          |       |                 |         |               |       |   |   |   |   |
| Change in benefit obligation                                                                  |       |                 |         |               |       |   |   |   |   |
| Benefit obligation at  beginning of year  (February 22, 2008, for 2008 plan year)        |       | $                    | 396,692      |               | $          | 379,390 |   | $ | 2,490 |   | $ | 2,723 |   |
| Service cost                                                                                  |       | 6,891                |         | 9,226              |       | 4 |   | 3 |   |
| Interest cost                                                                                 |       | 24,314               |         | 20,881             |       | 47 |   | 98 |   |
| Amendments                                                                                    |       | 145                  |         | 364                |       | — |   | (77 | ) |
| Actuarial (gain) loss                                                                         |       | 9,138                |         | 31,715             |       | (1,725 | ) | — |   |
| Closure and curtailment  gain                                                                 |       | —               |         | (37,473            | )          | — |   | — |   |
| Benefits paid                                                                                 |       | (13,218              | )            | (7,411             | )          | (44 | ) | (257 | ) |
| Benefit obligation at end  of year                                                            |       | $                    | 423,962      |               | $          | 396,692 |   | $ | 772 |   | $ | 2,490 |   |
|                                                                                          |       |                 | ** **   | ** **         |       |   | ** ** | ** ** | ** ** |
| Change  in plan assets                                                                        |       |                 |         |               |       |   |   |   |   |
| Fair value of plan assets  at beginning of year  (February 22, 2008, for 2008 plan year) |       | $                    | 248,084      |               | $          | 323,640 |   | $ | — |   | $ | — |   |
| Actual return on plan  assets                                                                 |       | 54,358               |         | (68,210            | )          | — |   | — |   |
| Employer contributions                                                                        |       | 12,298               |         | 65                 |       | — |   | — |   |
| Benefits paid                                                                                 |       | (13,218              | )            | (7,411             | )          | — |   | — |   |
| Fair  value of plan assets at end of year                                                     |       | $                    | 301,522      |               | $          | 248,084 |   | $ | — |   | $ | — |   |
|                                                                                          |       |                 | ** **   | ** **         |       |   | ** ** | ** ** | ** ** |
| Over (under) funded status                                                                    | ** ** | **$**                | **(122,440** | **)**              | **$**      | **(148,608** | **)** | **$** | **(772** | **)** | **$** | **(2,490** | **)** |
| Amounts recognized on our  Consolidated Balance Sheet                                         |       |                 | ** **   | ** **         |       |   | ** ** | ** ** | ** ** |
| Current liabilities                                                                           |       | $                    | (143         | )                  | $          | (1,317 | ) | $ | (182 | ) | $ | (670 | ) |
| Noncurrent liabilities                                                                        |       | (122,297             | )            | (147,291           | )          | (590 | ) | (1,820 | ) |
| Net amount recognized                                                                         | ** ** | **$**                | **(122,440** | )                  | **$**      | **(148,608** | **)** | **$** | **(772** | **)** | **$** | **(2,490** | **)** |

 

Amounts recognized in Accumulated Other Comprehensive(Income) Loss (pretax) in our Consolidated Statement of Stockholders’ Equityconsist of (dollars, in thousands):

 
| ** **            | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|-----------------------|------------|----------------------|------------|--------------------|------------|
| ** **            | ** ** | **2009**             | ** ** | **2008**           | ** ** | **2009** | ** ** | **2008** | ** ** |
|                  |       |                 |       |               |       |   |   |   |   |
| Net (gain) loss       |       | $                    | 62,334     |               | $          | 84,600 |   | $ | (413 | ) | $ | (42 | ) |
| Prior service cost    |       | 473                  |       | 364                |       | — |   | — |   |
| Net amount recognized | ** ** | **$**                | **62,807** | ** **         | **$**      | **84,964** | ** ** | **$** | **(413** | **)** | **$** | **(42** | **)** |

 

The accumulated benefitobligation for all defined benefit pension plans was $423.8 million and$393.2 million as of December 31, 2009 and 2008. All of our definedbenefit pension plans have accumulated benefit obligations in excess of planassets.

 

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*Componentsof Net Periodic Benefit Cost and Other Comprehensive (Income) Loss*

 

Thecomponents of net periodic benefit cost and other comprehensive (income) loss(pretax) are as follows (dollars, in thousands):

 
| ** **                                                                                      | ** ** | **Pension Benefits**                     | ** **  | **Other Benefits**                       | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------------------------|-------------|------------------------------------------|------------|
| ** **                                                                                      | ** ** | **Boise Inc.**                           | ** **  | **Predecessor**                          | ** ** | **Boise Inc.** | ** ** | **Predecessor** | ** ** |
| ** **                                                                                      | ** ** | **Year  Ended  December 31,  2009** | ** **  | **Year  Ended  December 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Year  Ended  December 31,  2007** | ** ** | **Year  Ended  December 31,  2009** | ** ** | **Year  Ended  December 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Year  Ended  December 31,  2007** | ** ** |
|                                                                                            |       |                                     |        |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service cost                                                                                    |       | $                                        | 6,891       |                                     | $          | 9,226 |   | $ | 1,566 |   | $ | 12,103 |   | $ | 4 |   | $ | 3 |   | $ | — |   | $ | 75 |   |
| Interest cost                                                                                   |       | 24,314                                   |        | 20,881                                   |       | 3,458 |   | 22,718 |   | 47 |   | 98 |   | 18 |   | 230 |   |
| Expected return on plan assets                                                                  |       | (23,269                                  | )           | (20,398                                  | )          | (3,452 | ) | (23,173 | ) | — |   | — |   | — |   | — |   |
| Amortization of actuarial (gain) loss                                                           |       | 315                                      |        | —                                   |       | (21 | ) | 271 |   | (1,344 | ) | — |   | (12 | ) | (34 | ) |
| Amortization of prior service costs and other                                                   |       | 36                                       |        | —                                   |       | 194 |   | 1,190 |   | — |   | — |   | — |   | — |   |
| Plan settlement curtailment (gain) loss                                                         |       | —                                   |        | (1,749                                   | )          | — |   | (46 | ) | — |   | — |   | — |   | — |   |
| Company-sponsored plans                                                                         |       | 8,287                                    |        | 7,960                                    |       | 1,745 |   | 13,063 |   | (1,293 | ) | 101 |   | 6 |   | 271 |   |
| Multiemployer plans                                                                             |       | 382                                      |        | 327                                      |       | 75 |   | — |   | — |   | — |   | — |   | — |   |
| Net periodic benefit costs                                                                      | ** ** | **$**                                    | **8,669**   | ** **                               | **$**      | **8,287** | ** ** | **$** | **1,820** | ** ** | **$** | **13,063** | ** ** | **$** | **(1,293** | **)** | **$** | **101** | ** ** | **$** | **6** | ** ** | **$** | **271** | ** ** |
| Changes in plan assets and benefit obligations  recognized in other comprehensive (income) loss |       |                                     |        |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net (gain) loss                                                                                 |       | $                                        | (21,951     | )                                        | $          | 84,600 |   | $ | — |   | $ | — |   | $ | (1,715 | ) | $ | (42 | ) | $ | — |   | $ | — |   |
| Prior service cost                                                                              |       | 145                                      |        | 364                                      |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Amortization of actuarial gain (loss)                                                           |       | (315                                     | )           | —                                   |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Amortization of prior service cost                                                              |       | (36                                      | )           | —                                   |       | — |   | — |   | 1,344 |   | — |   | — |   | — |   |
| Total recognized in other comprehensive (income) loss                                           |       | (22,157                                  | )           | 84,964                                   |       | — |   | — |   | (371 | ) | (42 | ) | — |   | — |   |
| Total recognized in net periodic benefit cost and  other comprehensive (income) loss            | ** ** | **$**                                    | **(13,488** | )                                        | **$**      | **93,251** | ** ** | **$** | **1,820** | ** ** | **$** | **13,063** | ** ** | **$** | **(1,664** | **)** | **$** | **59** | ** ** | **$** | **6** | ** ** | **$** | **271** | ** ** |

 

In 2010, we estimate net periodic pension expense willbe $10.2** **million. The 2010 net periodicpension expense will include $1.8** **millionof net loss and $0.1 million of prior service cost that will be amortizedfrom “Accumulated other comprehensive income (loss)” on our ConsolidatedStatement of Stockholders’ Equity.

 

*Assumptions*

 

The assumptions used inaccounting for the plans are estimates of factors that will determine, amongother things, the amount and timing of future benefit payments. The followingtable presents the assumptions used in the measurement of our benefitsobligation:

 

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| ** **                     | ** ** | **Pension Benefits**        | ** ** | **Other Benefits**          | ** ** |
|--------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                     | ** ** | **December 31,  2009** | ** ** | **December 31,  2008** | ** ** | **February 22,  2008** | ** ** | **December 31,  2009** | ** ** | **December 31,  2008** | ** ** | **February 22,  2008** | ** ** |
|                           |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Weighted average               |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Discount rate                  |       | 6.10                        | %          | 6.20                        | %          | 6.50 | % | 4.60 | % | 5.70 | % | 5.50 | % |
| Rate of compensation  increase |       | —                      | %          | 4.25                        | %          | 4.25 | % | — | % | — | % | — | % |

 

Thefollowing table presents the assumptions used in the measurement of netperiodic benefit cost:

 
| ** **                                                               | ** ** | **Pension Benefits**                     | ** ** | **Other Benefits**                       | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                               | ** ** | **Boise Inc.**                           | ** ** | **Predecessor**                          | ** ** | **Boise Inc.** | ** ** | **Predecessor** | ** ** |
| ** **                                                               | ** ** | **Year  Ended  December 31,  2009** | ** ** | **Year  Ended  December 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Year  Ended  December 31,  2007** | ** ** | **Year  Ended  December 31,  2009** | ** ** | **Year  Ended  December 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Year  Ended  December 31,  2007** | ** ** |
|                                                                     |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average assumptions as of the last day in  the presented period |       |                                     |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                                            |       | 6.20                                     | %          | 6.50                                     | %          | 6.40 | % | 5.90 | % | 5.70 | % | 5.70 | % | 5.50 | % | 5.75 | % |
| Expected long-term rate of return on plan assets                         |       | 7.25                                     | %          | 7.25                                     | %          | 7.25 | % | 7.25 | % | — | % | — | % | — | % | — | % |
| Rate of compensation Increase                                            |       | —                                   | %          | 4.25                                     | %          | 4.25 | % | 4.25 | % | — | % | — | % | — | % | — | % |

 

*DiscountRate Assumption*.In all periods presented, the discount rate assumption was determined using aspot rate yield curve constructed to replicate Aa-graded corporate bonds. TheAa-graded bonds included in the yield curve reflect anticipated investmentsthat would be made to match the expected monthly benefit payments over time anddo not include all Aa-graded corporate bonds. The plan’s projected cash flows wereduration-matched to this yield curve to develop an appropriate discount rate.

 

*AssetReturn Assumption*.The expected long-term rate of return on plan assets was based on a weightedaverage of the expected returns for the major investment asset classes.Expected returns for the asset classes are based on long-term historicalreturns, inflation expectations, forecasted gross domestic product, earningsgrowth, and other economic factors. The weights assigned to each asset classwere based on the investment strategy. The weighted average expected return onplan assets we will use in our calculation of 2010 net periodic benefit cost is7.25%. In 2009, plan assets performed well above the long-term returnassumption.

 

*Rate ofCompensation Increases.* Salaried pension benefits are frozen, so the compensation increaseassumption is not applicable. Negotiated compensation increases are reflectedin the projected benefit obligation for certain hourly employees withsalary-related benefits. Historically, this assumption reflected long-termactual experience, the near-term outlook, and assumed inflation.

 

The following tablepresents our assumed healthcare cost trend rates at December 31, 2009 and2008:

 
| ** **                                                                         | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted average assumptions:                                                      |       |     |       |     |       |
| Healthcare cost trend rate assumed for next year                                   |       | 8.50     | %          | 9.00     | %          |
| Rate to which the cost trend rate is assumed to  decline (the ultimate trend rate) |       | 6.50     | %          | 5.00     | %          |
|                                                                               |       |     |       |     |       |
| Year that the rate reaches the ultimate trend rate                                 |       | 2025     |       | 2017     |       |

 

Assumed healthcare costtrend rates affect the amounts reported for the healthcare plans. At December 31,2009, a one-percentage-point change in our assumed healthcare cost trend ratewould not significantly affect our total service or interest costs or ourpostretirement benefit obligation.

 

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*InvestmentPolicies and Strategies*

 

AtDecember 31, 2009, 52% of our pension plan assets were invested in equitysecurities, and 48% were invested in fixed-income securities. The generalinvestment objective for all of our plan assets is to optimize growth of thepension plan trust assets, while minimizing the risk of significant losses inorder to enable the plans to satisfy their benefit payment obligations overtime. The objectives take into account the long-term nature of the benefitobligations, the liquidity needs of the plans, and the expected risk/returntrade-offs of the asset classes in which the plans may choose to invest. TheRetirement Funds Investment Committee is responsible for establishing andoverseeing the implementation of our investment policy. Russell Investments(Russell) oversees the active management of our pension investments in order toachieve broad diversification in a cost-effective manner. At December 31,2009, our investment policy governing our relationship with Russell allocated48% to long-duration fixed-income securities, 33% to large-capitalization U.S.equity securities, 12% to international equity securities, and 7% to small- andmid-capitalization U.S. equity securities. Our arrangement with Russellrequires monthly rebalancing to the policy targets noted above.

 

Investment securities, ingeneral, are exposed to various risks, such as interest rate, credit, andoverall market volatility risk, all of which are subject to change. Due to thelevel of risk associated with certain investment securities, it is reasonablypossible that changes in the values of investment securities will occur in thenear term, and such changes could materially affect the reported amounts.

 

*Fair Value Measurements of PlanAssets*

 

The defined benefit planshold an interest in the Boise Paper Holdings, L.L.C., Master Pension Trust(Master Trust). The assets in the Master Trust are invested in common andcollective trusts that hold several mutual funds invested in U.S. equities,international equities, and fixed-income securities managed by Russell TrustCompany.

 

The following table setsforth by level, within the fair value hierarchy, the pension plan assets, bymajor asset category, at fair value at December 31, 2009 (dollars, inthousands):

 
| ** **                                     | ** ** | **Quoted Prices in  Active Market for  Identical Assets********(Level 1)** | ** ** | **Significant Other  Observable  Inputs********(Level 2) (a)** | ** ** | **Significant  Unobservable  Inputs********(Level 3)** | ** ** | **Total** | ** **  |
|------------------------------------------------|------------|----------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|--------------------------------------------------------|------------|-----------|-------------|
|                                           |       |                                                                       |       |                                                           |       |                                                   |       |      |        |
| Equity securities:                             |       |                                                                       |       |                                                           |       |                                                   |       |      |        |
| Large  cap U.S. equity securities (b)          |       | $                                                                          | —     |                                                           | $          | 99,614                                                 |       | $         | —      |   | $ | 99,614 |   |
| Small-  and mid-cap U.S. equity securities (c) |       | —                                                                     |       | 21,262                                                         |       | —                                                 |       | 21,262    |        |
| International  equity securities (d)           |       | —                                                                     |       | 35,861                                                         |       | —                                                 |       | 35,861    |        |
| Fixed-income  securities (e)                   |       | —                                                                     |       | 144,011                                                        |       | —                                                 |       | 144,011   |        |
| Total securities at fair  value                |       | —                                                                     |       | 300,748                                                        |       | —                                                 |       | 300,748   |        |
| Receivables and accruals,  net                 |       |                                                                       |       |                                                           |       |                                                   |       | 774       |        |
| Total fair value of plan  assets               | ** ** | ** **                                                                 | ** ** | ** **                                                     | ** ** | ** **                                             | ** ** | **$**     | **301,522** | ** ** |
|                                                |            |                                                                            |            |                                                                |            |                                                        |            |           |             |  |  |  |  |

 

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(a)                                  Investments aremutual funds managed by Russell Trust Company. The funds are valued at the netasset value (NAV) provided by Russell Trust Company, the administrator of thefunds. The NAV is based on the value of the assets owned by the fund, lessliabilities at year-end. While the underlying assets are actively traded on anexchange, the funds are not.

 

(b)                                 Our investments in this category are invested in the Russell Equity IFund. The fund seeks higher long-termreturns that exceed the Russell 1000 Index by investing in common stocks thatrank among the largest 1,000 companies in the U.S. stock market.

 

(c)                                  Our investments in this category are invested in the Russell Equity IIFund. The fund seeks high, long-term returns that exceed the Russell 2500 Indexby investing in the smaller capitalization stocks of the U.S. stock market.

 

(d)                                 Our investments in this category are invested in the RussellInternational Fund. The fund benchmarks against the MSCI European, Australian,and Far East (EAFE) Index and seeks high, long-term returns comparable to thebroad international stock market by investing in non-U.S. companies from thedeveloped countries around the world. The fund participates primarily in thestock markets of Europe and the Pacific Rim.

 

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(e)                                  Our investments in this category are invested in the Russell LongDuration Fixed Income Fund (Long Duration Fund) and Russell Long Credit FixedIncome Fund (Long Credit Fund). The Long Duration Fund seeks to achieveabove-average consistency in performance relative to the Barclays Capital U.S.Long Government/Credit Bond Index by combining manager styles and strategieswith different payoffs over various phases of an investment cycle. The LongCredit Fund seeks to achieve above-average consistency in performance relativeto the Barclays Capital Long Credit Index and is generally used with other bondfunds, such as the Long Duration Fund, to gain additional credit exposure toasset portfolios. Both funds are designed to provide maximum total returnthrough diversified strategies, including sector rotation, modest interest ratetiming, security selection, and tactical use of high-yield and emerging marketsbonds.

 

*CashFlows*

 

In connection with the Acquisition, Boise Cascadetransferred sufficient assets to fund Boise Inc.’s accumulated benefitobligation at a 6.5% discount rate, and as a result, we were not required toand did not make contributions to the qualified pension plans during 2008.Pension funding requirements depend in part on returns on plan assets. As of December 31,2009 and 2008, our pension assets had a market value of $302 million and$248 million, respectively. Assuming a rate of return on plan assets of7.25% in 2010 and 2011, we estimate that we would be required to contributeapproximately $2 million in 2010 and approximately $22 million in 2011.The amount of required contributions will depend, among other things, on actualreturns on plan assets, changes in interest rates that affect our discount rateassumptions, changes in pension funding requirement laws, and modifications toour plans. Our estimates may change materially depending upon the impact ofthese and other factors. Changes in the financial markets may require us tomake larger than previously anticipated contributions to our pension plans. Wemay also elect to make additional voluntary contributions in any year, whichcould reduce the amount of required contributions in future years. For the yearended December 31, 2009, we made $11 million of cash contributions toour qualified pension plans. Additionally, we made cash contributions andcertain benefit payments to our nonqualified pension plans and otherpostretirement benefit plans totaling $2.0 million.

 

The following benefitpayments (dollars, in thousands), which reflect expected future service asappropriate, are expected to be paid. Qualified pension benefit payments arepaid from plan assets, while nonqualified pension and other benefit paymentsare paid by the Company.

 
| ** **      | ** ** | **Pension  Benefits** | ** ** | **Other  Benefits** | ** ** |
|-----------------|------------|-----------------------|------------|---------------------|------------|
|            |       |                  |       |                |       |
| 2010            |       | $                     | 14,536     |                | $          | 183 |   |
| 2011            |       | 16,879                |       | 142                 |       |
| 2012            |       | 19,451                |       | 117                 |       |
| 2013            |       | 21,842                |       | 100                 |       |
| 2014            |       | 24,284                |       | 71                  |       |
| Years 2015-2019 |       | 152,493               |       | 174                 |       |
|                 |            |                       |            |                     |            |  |  |

 

**15*.          Stockholders’ Equity***

 

*PreferredStock*

 

We are authorized toissue 1,000,000 shares of preferred stock with such designations, voting, andother rights and preferences as may be determined from time to time by theboard of directors. No shares were issued or outstanding at December 31,2009 and 2008.

 

*CommonStock*

 

We are authorized toissue 250,000,000 shares of common stock, of which 84,418,691 shares wereissued and outstanding at December 31, 2009. Of these shares outstanding,6,525,052 shares were restricted stock (discussed below). At December 31,2008, we had 79,716,130 shares of common stock issued and outstanding, of which2,426,100 shares were restricted stock. The common stock outstanding does notinclude restricted stock units.

 

On February 5, 2008,stockholders owning 12,543,778 shares exercised their conversion rights andvoted against the Acquisition. Such stockholders were entitled to receive theirper-share interest in the proceeds from our initial public offering, which hadbeen held in trust. Of these 12,543,778 shares, 12,347,427 shares werepresented for conversion. The remaining shares not presented remainoutstanding. In connection with the Acquisition, we paid $120.2 millionfrom our cash held in trust to these stockholders. The remaining cash held intrust was used to effect the Acquisition.

 

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*Warrants*

 

In connection with ourpublic offering in June 2007, we issued 41,400,000 units (the Units). EachUnit consists of one share of our common stock and one Redeemable Common StockPurchase Warrant (the Warrants). Each Warrant entitles the holder to purchaseone share of common stock at an exercise price of $7.50 and expires on June 18,2011. We may redeem the Warrants, at a price of $0.01 per Warrant, upon 30 days’notice while the Warrants are exercisable, only in the event that the last saleprice of the common stock is at least $14.25 per share for any 20 trading dayswithin a 30-trading-day period ending on the third day prior to the date onwhich notice of redemption is given.

 

Simultaneously with theconsummation of the public offering, Aldabra 2 Acquisition Corp.’s chairman andchief executive officer privately purchased a total of 3,000,000 warrants (theInsider Warrants) at $1.00 per warrant (for an aggregate purchase price of$3,000,000). The amount paid for the Insider Warrants approximated fair valueon the date of issuance. All of the proceeds received from these purchases wereplaced in cash held in trust. The Insider Warrants purchased were identical tothe Warrants underlying the Units issued in the public offering except that theInsider Warrants may not be called for redemption and may be exercisable on a “cashlessbasis,” at the holder’s option, so long as such securities are held by suchpurchaser or his affiliates. At December 31, 2009 and 2008,44,400,000 warrants were outstanding, including 3,000,000 InsiderWarrants.

 

*Restricted Stock and RestrictedStock Units*

 

In our consolidated financial statements, we evaluate share-basedcompensation for awards granted under the Boise Inc. Incentive and PerformancePlan (the Plan) on a quarterly basis based on our estimate of expectedrestricted stock forfeiture, review of recent forfeiture activity, and expectedfuture turnover. We recognize the effect of adjusting the forfeiture rate forall expense amortization in the period that we change the forfeiture estimate.The effect of forfeiture adjustments during the years ended December 31,2009 and 2008, was zero.

 

On April 23, 2009,our stockholders approved a Plan Amendment that increased the number of sharesavailable for issuance under the Plan from 5,175,000 to 17,175,000.

 

*Service-Condition Vesting Awards*

 

In March 2009,pursuant to the Plan, we granted to directors and members of management4.6 million shares of restricted stock and 1.2 million restrictedstock units (collectively restricted stock) subject to stockholder approval ofthe Plan Amendment described above. The2.0 million shares of restricted stock granted to the directors are earnedon a pro rata basis through March 15, 2010, and vest upon the earlier of (i) theirdeparture from the board (vesting pro rata based on time served) or (ii) March 15,2010 (full vesting). The grants to members of management vest as follows:one-fifth on March 15, 2010, one-fifth on March 15, 2011, andthree-fifths on March 15, 2012, subject to EBITDA goals. Any shares notvested on or before March 15, 2012, will be forfeited.

 

In May 2008, directors and members of managementwere granted awards of 0.4 million and 0.8 million shares,respectively, of restricted stock subject to service-condition vesting. The restricted stock granted to directors vested on March 2,2009. Additionally, one-third of the management grants subject toservice-condition vesting restrictions also vested on March 2, 2009. Theremaining grants subject to service-condition vesting restrictions vest equallyon February 28, 2010, and February 28, 2011, subject to EBITDA goals.Any shares not vested on or before February 28, 2011, will be forfeited.

 

*Market-Condition Vesting Awards*

 

In May 2008, members of management were granted1.9 million shares of restricted stock, subject to market-based vesting restrictions.Of this 1.9 million, 0.7 million will vest on February 28, 2011,if the closing price of Boise Inc. stock has been at least $10 per share for atleast 20 trading days in any period of 30 consecutive trading days betweenthe grant date and February 28, 2011. The weighted average grant-date fairvalue of these awards was $2.03 per share. The remaining 1.2 millionshares of the restricted stock grants will vest on February 28, 2011, ifthe closing price of Boise Inc. stock has been at least $12.50 per share for atleast 20 trading days in any period of 30 consecutive trading days between thegrant date and February 28, 2011. The weighted average grant-date fairvalue of these awards was $1.57 per share. Any shares not vested on February 28,2011, will be forfeited.

 

38

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*Compensation Expense*

 

We recognize compensation expense for the restricted stock based on thefair value on the date of the grant, as described below. Compensation expenseis recognized ratably over the vesting period for the restricted stock grantsthat vest over time and ratably over the award period for the restricted stockgrants that vest based on the closing price of Boise Inc. stock, as discussedabove. During the years ended December 31, 2009 and 2008, we recognized$3.5 million and$3.1 million, respectively, ofcompensation expense. Most of these costs were recorded in “General andadministrative expenses” in our Consolidated Statement of Income (Loss).

 

*Fair Value Measurement*

 

The fair value of service-condition restricted stockis determined based on the number of shares or units granted and the quotedprice of our stock at the date of grant and is expensed on a straight-linebasis over the vesting period. The fair value on the date of grant was $0.43 per share for the 2009restricted stock grants and $4.16 per share for the 2008 grants.Compensation expense is adjusted if the service condition is not met.

 

The equity grants that vest based on the stock price of Boise Inc. are market-conditiongrants. Because themarket-based restrictions representa more difficult threshold to meet before payout, with greater uncertainty thatthe market condition will be satisfied, these awards have a lower fair valuethan those that vest based primarily on the passage of time. However,compensation expense is required to be recognized for an award regardless ofwhen, if ever, the market condition is satisfied. We determined the fair valueon the date of grant of the market-condition awards that vest based on thestock price of Boise Inc. at $10 per share and $12.50 per share to beapproximately $2.03 per share and $1.57 per share, respectively. The fair value of market-conditionrestricted stock or units is estimated at the grant date using a Monte Carlosimulation. We assumed a risk-free rate of 2.59%, an expected stock volatilityof 58.60%, and a stock price for Boise Inc.’s common shares of $4.16 per share.The $4.16-per-share value is based on Boise Inc.’s closing stock price on thedate of grant. Expense is recognized on a straight-line basis over the serviceperiod.

 

The following summarizes the activity ofour outstanding service- and market-condition restricted stock and unitsawarded under the Plan as of December 31, 2009 and 2008, and changesduring the years ended December 31, 2009 and 2008 (number of shares andaggregate fair value, in thousands):

 
|                                               |       | **Service-Condition Vesting Awards** | ** ** | **Market-Condition Vesting Awards**           |       |
|----------------------------------------------------|------------|--------------------------------------|------------|-----------------------------------------------|------------|
|                                               |       | **Number of  Shares**                | ** ** | **Weighted  Average  Grant-Date  Fair Value** | ** ** | **Aggregate  Fair Value** | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Grant-Date  Fair Value** | ** ** | **Aggregate  Fair Value** |   |
|                                               |       |                                 |       |                                          |       |   |   |   |   |   |   |   |   |
| Outstanding at  January 1, 2008               |       | —                               |       | $                                             | —     |   | $ | — |   | — |   | $ | — |   | $ | — |   |
|                                               |       |                                 |       |                                          |       |   |   |   |   |   |   |   |   |
| Granted                                            |       | 1,185                                |       | 4.16                                          |       | 4,927 |   | 1,929 |   | 1.75 |   | 3,368 |   |
| Vested (a)                                         |       | (30                                  | )          | 4.16                                          |       | (125 | ) | — |   | — |   | — |   |
| Forfeited                                          |       | (12                                  | )          | 4.16                                          |       | (48 | ) | (13 | ) | 1.75 |   | (23 | ) |
| Outstanding at December 31, 2008 (b)          | ** ** | **1,143**                            | ** ** | **$**                                         | **4.16**   | ** ** | **$** | **4,754** | ** ** | **1,916** | ** ** | **$** | **1.75** | ** ** | **$** | **3,345** | ** ** |
|                                               |       |                                 |       |                                          |       |   |   |   |   |   |   |   |   |
| Granted                                            |       | 5,841                                |       | 0.43                                          |       | 2,512 |   | — |   | — |   | — |   |
| Vested (a)                                         |       | (604                                 | )          | 4.16                                          |       | (2,511 | ) | — |   | — |   | — |   |
| Forfeited                                          |       | (49                                  | )          | 1.27                                          |       | (63 | ) | (32 | ) | 1.75 |   | (56 | ) |
| Outstanding at December 31, 2009 (b) (c) | ** ** | **6,331**                            | ** ** | **$**                                         | **0.74**   | ** ** | **$** | **4,692** | ** ** | **1,884** | ** ** | **$** | **1.75** | ** ** | **$** | **3,289** | ** ** |

 

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(a)                                  We repurchase for cash any fractionalshares as they vest. During the years ended December 31, 2009 and 2008, werepurchased 24.33 shares and no shares, respectively.

 

(b)           Outstandingawards included all nonvested and nonforfeited awards

 

(c)                                  The remaining weighted average contractualterm is approximately 1.6 years for the service-condition awards and1.3 years for the market-condition awards.

 

At December 31, 2009, we had approximately $2.6 million and $1.3 million of total unrecognized compensation cost related tothe nonvested service-condition and market-condition restricted stock grants,respectively, under the Plan. The cost is expected to be recognized generallyover a weighted 

 

39

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averageperiod of 2.3 years and 3.0 years for the service-condition andmarket-condition awards, respectively. Unrecognized compensation expense iscalculated net of estimated forfeitures of $0.1 million. During the year ended December 31, 2009, we recognized $3.5 million of compensation expense, of which $2.4 million related to the grant-date fair value of service-condition awards vestedthrough December 31, 2009, and $1.1 million related to the market-condition awards that generally vest on February 28,2011. During the year ended December 31, 2008, we recognized$3.1 million of compensation expense, of which $2.2 million relatedto the grant-date fair value of service-condition awards vested through December 31,2008, and $0.9 million related to the market-condition awards thatgenerally vest on February 28, 2011. The net income tax benefit associatedwith restricted stock awards was $0.3 million and $0.4 million forthe years ended December 31, 2009 and 2008, respectively.

 

*Dividends*

 

Ourability to pay dividends is restricted by our senior secured credit facilitiesas well as Delaware law and state regulatory authorities. Under Delaware law,our board of directors may not authorize payment of a dividend unless it iseither paid out of our capital surplus, as calculated in accordance with theDelaware General Corporation Law, or if we do not have a surplus, it is paidout of our net profits for the fiscal year in which the dividend is declaredand/or the preceding fiscal year. To the extent we do not have adequate surplusor net profits, we will be prohibited from paying dividends. We have notpaid any cash dividends on our common stock to date.

 

*Accumulated Other Comprehensive Income (Loss)*

 

Accumulated other comprehensive income (loss) includesthe following (dollars, in thousands):

 
| ** **                                      | ** ** | ** **          | ** ** | ** **       | ** ** | **Unfunded  Accumulated**    | ** ** | **Accumulated**              | ** **  |
|-------------------------------------------------|------------|---------------------|------------|------------------|------------|------------------------------|------------|------------------------------|-------------|
| ** **                                      | ** ** | **Investment**      | ** ** | **Cash**         | ** ** | **Benefit  Obligation**      | ** ** | **Other**                    | ** **  |
| ** **                                      | ** ** | **Gains  (Losses)** | ** ** | **Flow  Hedges** | ** ** | **Actuarial  Loss (a)** | ** ** | **Prior  Service  Cost (a)** | ** **  | **Comprehensive  Income (Loss)** | ** ** |
|                                            |       |                |       |             |       |                         |       |                         |        |   |   |
| Balance at December 31, 2007, net of taxes |       | $                   | —     |             | $          | —                       |       | $                            | —      |   | $ | — |   | $ | — |   |
|                                            |       |                |       |             |       |                         |       |                         |        |   |   |
| Current-period changes, before taxes            |       | —              |       | (760             | )          | (84,558                      | )          | (364                         | )           | (85,682 | ) |
| Reclassifications to earnings, before taxes     |       | —              |       | —           |       | —                       |       | —                       |        | — |   |
| Income taxes                                    |       | —              |       | —           |       | —                       |       | —                       |        | — |   |
| Balance at December 31, 2008, net of taxes | ** ** | **$**               | **—** | ** **       | **$**      | **(760**                     | **)**      | **$**                        | **(84,558** | **)** | **$** | **(364** | **)** | **$** | **(85,682** | **)** |
|                                            |       |                | ** ** | ** **       | ** ** | ** **                   | ** ** | ** **                   |        |   |   |
| Current-period changes, before taxes            |       | (5                  | )          | —           |       | 23,665                       |       | (145                         | )           | 23,515 |   |
| Reclassifications to earnings, before taxes     |       | —              |       | 338              |       | (1,029                       | )          | 36                           |        | (655 | ) |
| Income taxes                                    |       | —              |       | (131             | )          | (8,656                       | )          | 56                           |        | (8,731 | ) |
| Balance at December 31, 2009, net of taxes | ** ** | **$**               | **(5**     | **)**            | **$**      | **(553**                     | **)**      | **$**                        | **(70,578** | **)** | **$** | **(417** | **)** | **$** | **(71,553** | **)** |

 

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(a)                                  The 2010 netperiodic pension expense will include $1.8** **millionof net loss and $0.1 million of prior service cost that will be amortizedfrom “Accumulated other comprehensive income (loss)” on Our ConsolidatedStatement of Stockholders’ Equity.

 

*Predecessor*

 

During the Predecessorperiods presented, equity compensation was granted to the Predecessor’semployees under Boise Cascade’s equity compensation plans. During thePredecessor periods of January 1 through February 21, 2008, and theyear ended December 31, 2007, the Predecessor recognized $0.2 million and$1.7 million, respectively, of compensation expense, most of which wasrecorded in “General and administrative expenses” in the ConsolidatedStatements of Income (Loss).

 

***16.******          Acquisitionof Boise Cascade’s Paper and Packaging Operations***

 

On February 22,2008, Aldabra 2 Acquisition Corp. completed the Acquisition the Paper Group andother assets and liabilities related to the operation of the paper, packagingand newsprint, and transportation businesses of the Paper Group and part of theheadquarters operations of Boise Cascade for cash and securities. Aldabra 2Acquisition Corp. acquired four pulp and paper mills, one paper mill, fivecorrugated container plants, a corrugated sheet feeder plant, and two paperdistribution facilities, all located in the U.S. Subsequent to the Acquisition,Aldabra 2 Acquisition Corp. changed its name to Boise Inc.

 

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The purchase price waspaid with cash, the issuance of shares of our common stock, and a note payable.These costs, including direct transaction costs and purchase price adjustments,are summarized as follows (dollars, in thousands):

 
| ** **                                              | ** ** | **February 22,  2008** | ** **    |
|---------------------------------------------------------|------------|-----------------------------|---------------|
|                                                    |       |                        |          |
| Cash paid to Boise Cascade                              |       | $                           | 1,252,281     |   |
| Cash paid to Boise Cascade for financing and other fees |       | 24,915                      |          |
| Less: cash contributed by Boise Cascade                 |       | (38,000                     | )             |
| Net cash                                                |       | 1,239,196                   |          |
|                                                    |       |                        |          |
| Equity at $9.15 average price per share                 |       | 346,395                     |          |
| Lack of marketability discount                          |       | (41,567                     | )             |
| Total equity                                            |       | 304,828                     |          |
|                                                    |       |                        |          |
| Note payable to Boise Cascade at closing                |       | 41,000                      |          |
| Working capital adjustment                              |       | 17,334                      |          |
| Total note payable to Boise Cascade                     |       | 58,334                      |          |
|                                                    |       |                        |          |
| Fees and expenses                                       |       | 61,785                      |          |
|                                                    |       |                        |          |
| Total purchase price                                    | ** ** | **$**                       | **1,664,143** | ** ** |

 

The following tablesummarizes the fair value allocation of the assets acquired and liabilitiesassumed in the Acquisition as adjusted (dollars, in thousands):

 
| ** **                  | ** ** | **February 22,  2008,  Fair Value** | ** **    |
|-----------------------------|------------|------------------------------------------|---------------|
|                        |       |                                     |          |
| Current  assets             |       | $                                        | 571,936       |   |
| Property  and equipment     |       | 1,306,070                                |          |
| Fiber  farms and deposits   |       | 11,006                                   |          |
| Intangible  assets:         |       |                                     |          |
| Trademarks  and trade names |       | 16,800                                   |          |
| Customer  list              |       | 13,700                                   |          |
| Technology                  |       | 6,860                                    |          |
| Deferred  financing costs   |       | 81,898                                   |          |
| Other  long-term assets     |       | 4,465                                    |          |
| Current  liabilities        |       | (246,928                                 | )             |
| Long-term  liabilities      |       | (101,664                                 | )             |
| Total  purchase price       | ** ** | **$**                                    | **1,664,143** | ** ** |

 

Upon completion of thetransaction, Boise Cascade owned 37.9 million, or 49%, of our outstandingshares. Boise Cascade continues to hold a significant interest in us. At December 31,2009, Boise Cascade owned 21.7% of our common stock. On December 15, 2009,Boise Cascade announced its intention to further reduce its holdings by anadditional 8 million shares by entering into a trading plan under SECrules. Sales under this trading plan commenced February 16, 2010.

 

***17.          St. Helens Mill Restructuring***

 

In November 2008, we announced the restructuringof our paper mill in St. Helens, Oregon, permanently halting pulp production atthe plant and reducing annual paper production capacity by approximately200,000 short tons and market pulp capacity at the St. Helens and Wallula,Washington, mills. The restructuring was primarily the result of decliningproduct demand coupled with continuing high costs. The restructuring wassubstantially complete in January 2009. We have permanently ceased paperproduction on machines #1 and #4 at the mill. Paper machine #2 at St. Helenscontinues to operate, manufacturing primarily printing papers and flexiblepackaging papers. The #3 machine, which is owned 

 

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by Cascades Tissue Group, also continues to operate. The permanentcapacity reductions resulted in the loss of approximately 330 jobs at theSt. Helens mill and 36 jobs in related sales, marketing, and logisticsfunctions elsewhere in the Company. Eligible salaried employees were offeredseverance packages and outplacement assistance. We will employ approximately140 employees at the mill after restructuring. At December 31, 2009,we had terminated approximately 360 employees.

 

For the years ended December 31, 2009 and 2008,we recorded a pretax charge of $5.8 million and $37.6 million,respectively, associated with the restructuring in “St. Helens millrestructuring” in the Consolidated Statements of Income (Loss). These costs arerecorded in our Paper segment. For the year ended December 31, 2009, thesecharges included decommissioning costs and other miscellaneous costs related tothe restructuring of the mill. For the year ended December 31, 2008,$28.8 million related to noncash expenses. Of the $37.6 million ofexpense in 2008, $7.8 million related to the write-down of inventory andwas recorded in “Materials, labor, and other operating expenses” in theConsolidated Statement of Income (Loss). We recorded the remaining$29.8 million of restructuring costs in “St. Helens mill restructuring” inthe Consolidated Statement of Income (Loss). For the year ended December 31,2008, the costs included asset write-downs for plant and equipment at the St.Helens mill, employee-related severance costs, pension curtailment losses, andother miscellaneous costs related to the restructuring of the mill. At December 31,2009, we had $0.5 million of severance liabilities included in “Accruedliabilities, Compensation and benefits” on the Consolidated Balance Sheet.

 

An analysis of total restructuring-related activityas of December 31, 2009, is as follows (dollars, in thousands):

 
| ** **                                  | ** ** | **Noncash Expense** | ** ** | **Cash Expense** | ** ** | **Total Expenses** | ** ** |
|---------------------------------------------|------------|---------------------|------------|------------------|------------|--------------------|------------|
|                                        |       |                |       |             |       |               |       |
| Inventory write-down                        |       | $                   | 7,788      |             | $          | —             |       | $ | 7,788 |   |
| Asset write-down                            |       | 19,825              |       | —           |       | 19,825             |       |
| Employee-related costs                      |       | —              |       | 8,433            |       | 8,433              |       |
| Pension curtailment loss                    |       | 1,165               |       | —           |       | 1,165              |       |
| Other                                       |       | —              |       | 357              |       | 357                |       |
| December 31, 2008                      |       | 28,778              |       | 8,790            |       | 37,568             |       |
|                                        |       |                |       |             |       |               |       |
| Decommissioning costs                       |       | —              |       | 5,490            |       | 5,490              |       |
| Other                                       |       | —              |       | 315              |       | 315                |       |
| December 31, 2009                      |       | —              |       | 5,805            |       | 5,805              |       |
|                                        |       |                |       |             |       |               |       |
| Total activity as of December 31, 2009 |       | **$**               | **28,778** |             | **$**      | **14,595**         |       | **$** | **43,373** |   |

 

We expect to spendapproximately $1.6 million during 2010 and $1.0 million in 2011 indecommissioning and other costs. During the year ended December 31, 2009,we spent $5.8 million for these costs, which are recorded in “St. Helensmill restructuring” in our Consolidated Statements of Income (Loss). Theseexpenses are recorded when the liability is incurred.

 

***18.          Segment Information***

 

Boise Inc.,headquartered in Boise, Idaho, operates its business in three reportablesegments: Paper, Packaging, and Corporate and Other (support services). Thesesegments represent distinct businesses that are managed separately because ofdiffering products and services. Each of these businesses requires distinct operatingand marketing strategies. Management reviews the performance of the Companybased on these segments.

 

*Paper.*Our Paper segment manufactures and sellsuncoated freesheet paper (including commodity and premium cut-size officepapers); a range of packaging papers (including label and release papers,flexible packaging papers, and corrugating medium); commodity and premiumprinting and converting papers (including commercial printing papers, envelopepapers, and form-related products); and market pulp. Many of these paperproducts are commodity products, while others have specialized features thatmake these products premium and specialty grades. Our premium grades include100% recycled, high-bright, and colored cut-size office papers, and ourspecialty grades include custom-developed papers for such uses as label andrelease and flexible food packaging. We ship to customers both directly fromour mills and through distribution centers. In 2009, approximately 41% of ouruncoated freesheet paper sales volume, including approximately 63% of ouroffice papers sales volume, was sold to OfficeMax.

 

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*Packaging*. Our Packaging segment manufactures and sells containerboard (linerboard)and newsprint at our mill in DeRidder, Louisiana. We also operate fivecorrugated container plants in the Northwest, a sheet plant in Reno, Nevada,and a sheet feeder plant in Waco, Texas. Our corrugated containers are usedprimarily in the packaging of fresh fruit and vegetables, processed food, andbeverages, as well as industrial and consumer products. Our Waco, Texas, plant,known as Central Texas Corrugated, or CTC, produces corrugated sheets that aresold to sheet plants in the Southwest, where they are converted into corrugatedcontainers for a variety of customers. Our containerboard and corrugatedproducts are sold by our own sales personnel and by brokers.

 

Until late February 2009, we marketed ournewsprint through Abitibi Consolidated Sales Corporation (ACSC), an indirectsubsidiary of AbitibiBowater Inc. (AbitibiBowater), pursuant to an arrangementwhereby ACSC purchased all of the newsprint we produce. ACSC sold our newsprintprimarily in regional markets near our DeRidder, Louisiana, manufacturingfacility. In late February 2009, we terminated our arrangement with ACSCand since that time have sold our newsprint production through our own salespersonnel primarily to newspaper publishers in the southern U.S.

 

*Corporateand Other*. OurCorporate and Other segment includes primarily corporate support services,related assets and liabilities, and foreign exchange gains and losses. Duringthe Predecessor periods presented, the Corporate and Other segment includedprimarily an allocation of Boise Cascade corporate support services and relatedassets and liabilities. These support services included, but were not limitedto, finance, accounting, legal, information technology, and human resourcefunctions. This segment also includes transportation assets, such as rail carsand trucks, which we use to transport our products from our manufacturingsites. Rail cars and trucks are generally leased. We provide transportationservices not only to our own facilities but also, on a limited basis, to thirdparties when geographic proximity and logistics are favorable. During the yearsended December 31, 2009 and 2008, segment sales related primarily to ourrail and truck business were $63.8 million and $67.7 million,respectively. During the Predecessor period of January 1 through February 21,2008, and for the year ended December 31, 2007, these sales were$8.5 million and $58.9 million, respectively.

 

In connection with theAcquisition, we entered into a services agreement under which we provide anumber of corporate staff services to Boise Cascade at our cost. These servicesinclude information technology, accounting, and human resource services. Theinitial term of the agreement is for three years and will expire on February 22,2011. It will automatically renew for one-year terms unless either partyprovides notice of termination to the other party at least 12 months inadvance of the applicable term. For the years ended December 31, 2009 and2008, we recorded $15.0 million and $12.1 million, respectively, in “Sales,Related parties.”

 

The segments’ profits and losses are measured onoperating profits before change in fair value of interest rate derivatives,interest expense, and interest income. Specified expenses are allocated to thesegments. For many of these allocated expenses, the related assets andliabilities remain in the Corporate and Other segment.

 

The segmentsfollow the accounting principles described in Note 2, Summary ofSignificant Accounting Policies.

 

Export sales toforeign unaffiliated customers were $180.3 million in 2009, $212.8 millionin 2008, and $40.8 million and $222.1 million during the Predecessorperiod of January 1 through February 21, 2008, and the year ended December 31,2007, respectively. In all periods presented, net sales were generateddomestically, and long-lived assets were held by domestic operations.

 

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Segment sales to externalcustomers by product line are as follows (dollars, in millions):

 
| ** **                        | ** ** | **Boise Inc.**                           | ** **  | ** **                               | **Predecessor** | ** **                                                         |
|-----------------------------------|------------|------------------------------------------|-------------|------------------------------------------|-----------------|--------------------------------------------------------------------|
| ** **                        | ** ** | **Year  Ended  December 31,  2009** | ** **  | **Year  Ended  December 31,  2008** | ** **      | **February 1  (Inception)  Through  December 31,  2007** | ** ** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Year  Ended  December 31,  2007** | ** ** |
| Paper                             |       |                                     | ** **  | ** **                               | ** **      | ** **                                                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Uncoated freesheet                |       | $                                        | 1,289.8     |                                     | $               | 1,240.9                                                            |   | $ | — |   |   | $ | 224.2 |   | $ | 1,392.1 |   |
| Containerboard (medium)           |       | 0.1                                      |        | 0.2                                      |            | —                                                             |   |   | 0.1 |   | 1.5 |   |
| Market pulp and other             |       | 73.5                                     |        | 101.9                                    |            | —                                                             |   |   | 20.1 |   | 139.3 |   |
|                              |       | 1,363.4                                  |        | 1,343.0                                  |            | —                                                             |   |   | 244.4 |   | 1,532.9 |   |
|                              |       |                                     |        |                                     |            |                                                               |   |   |   |   |   |   |
| Packaging                         |       |                                     |        |                                     |            |                                                               |   |   |   |   |   |   |
| Containerboard (linerboard)       |       | 88.6                                     |        | 88.6                                     |            | —                                                             |   |   | 16.5 |   | 104.3 |   |
| Newsprint                         |       | 98.4                                     |        | 203.2                                    |            | —                                                             |   |   | 29.8 |   | 217.1 |   |
| Corrugated containers and  sheets |       | 347.7                                    |        | 324.3                                    |            | —                                                             |   |   | 53.1 |   | 364.5 |   |
| Other                             |       | 51.2                                     |        | 84.3                                     |            | —                                                             |   |   | 13.7 |   | 94.5 |   |
|                              |       | 585.9                                    |        | 700.4                                    |            | —                                                             |   |   | 113.1 |   | 780.4 |   |
|                              |       |                                     |        |                                     |            |                                                               |   |   |   |   |   |   |
| Corporate and Other               |       | 28.9                                     |        | 27.2                                     |            | —                                                             |   |   | 2.4 |   | 19.3 |   |
|                              | ** ** | **$**                                    | **1,978.2** | ** **                               | **$**           | **2,070.6**                                                        | ** ** | **$** | **—** | ** ** | ** ** | **$** | **359.9** | ** ** | **$** | **2,332.6** | ** ** |

 

44

----

 

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

 

**Boise Inc.**

 
| ** **                                        |       |      |        |        |   |              |       |      |   | **Income** |   | **Depreciation,** |       |          |      |             |   |       |       |
|---------------------------------------------------|------------|-----------|-------------|-------------|--------|-------------------|------------|-----------|--------|------------|--------|-------------------|------------|---------------|-----------|------------------|--------|------------|------------|
| ** **                                        |       | **Sales** |        | **(Loss)**  |   | **Amortization,** |       |      |   | ** ** |   |              |       |
| ** **                                        |       |      |        | **Related** |   | **Inter-**        |       |      |   | **Before** |   | **and**           |       |          |      | **Capital**      |   |       |       |
| ** **                                        |       | **Trade** |        | **Parties** |   | **segment**       |       | **Total** |   | **Taxes**  |   | **Depletion**     |       | **EBITDA(e)** |      | **Expenditures** |   | **Assets** |       |
| ** **                                        |       |      |        |        |   |              |       |      |   |       |   |              |       |          |      |             |   |       |       |
| **Year Ended December 31,  2009**            |       |      |        |        |   |              |       |      |   |       |   |              |       |          |      |             |   |       |       |
| Paper                                             |       | $         | 1,363.4     |        | $      | —            |       | $         | 56.6   |       | $      | 1,420.0           |       | $             | 262.7     | (a)              | $      | 85.2       |       | $ | 347.8 | (a) | $ | 51.0 |   | $ | 1,249.8 |   |
| Packaging                                         |       | 560.4     |        | 25.5        |   | 2.5               |       | 588.4     |   | 67.1       | (a)    | 42.2              |       | 109.3         | (a)       | 23.1             |   | 497.9      |       |
| Corporate and Other                               |       | 11.6      |        | 17.3        |   | 34.9              |       | 63.8      |   | (21.5      | )(a)   | 4.1               |       | (17.3         | )(a)      | 3.0              |   | 239.5      |       |
|                                              |       | 1,935.4   |        | 42.8        |   | 94.0              |       | 2,072.2   |   | 308.3      |   | 131.5             |       | 439.8         |      | 77.1             |   | 1,987.2    |       |
| Intersegment eliminations                         |       | —    |        | —      |   | (94.0             | )          | (94.0     | )      | —     |   | —            |       | —        |      | —           |   | (91.4      | )          |
| Change in fair value of interest rate derivatives |       | —    |        | —      |   | —            |       | —    |   | 0.6        |   | —            |       | —        |      | —           |   | —     |       |
| Loss on extinguishment of debt                    |       | —    |        | —      |   | —            |       | —    |   | (44.1      | )      | —            |       | (44.1         | )         | —           |   | —     |       |
| Interest expense                                  |       | —    |        | —      |   | —            |       | —    |   | (83.3      | )      | —            |       | —        |      | —           |   | —     |       |
| Interest income                                   |       | —    |        | —      |   | —            |       | —    |   | 0.4        |   | —            |       | —        |      | —           |   | —     |       |
| ** **                                        | ** ** | **$**     | **1,935.4** | ** **  | **$**  | **42.8**          | ** ** | **$**     | — | ** ** | **$**  | **1,978.2**       | ** ** | **$**         | **181.9** | ** **       | **$**  | **131.5**  | ** ** | **$** | **395.7** | ** ** | **$** | **77.1** | ** ** | **$** | **1,895.8** | ** ** |

 

45

----

 

**Boise Inc.**

 
| ** **                                                      |       | ** ** |        |        |   |              |       |       |       | **Income** |   | **Depreciation,** |       |          |      |             |   |       |       |
|-----------------------------------------------------------------|------------|------------|-------------|-------------|--------|-------------------|------------|------------|------------|------------|--------|-------------------|------------|---------------|-----------|------------------|--------|------------|------------|
| ** **                                                      |       | **Sales**  |        | **(Loss)**  |   | **Amortization,** |       |       |       | ** ** |   |              |       |
| ** **                                                      |       | ** ** |        | **Related** |   | **Inter-**        |       | ** ** |       | **Before** |   | **and**           |       | ** **    |      | **Capital**      |   | ** ** |       |
| ** **                                                      |       | **Trade**  |        | **Parties** |   | **segment**       |       | **Total**  |       | **Taxes**  |   | **Depletion**     |       | **EBITDA(e)** |      | **Expenditures** |   | **Assets** |       |
| ** **                                                      |       | ** ** |        | ** **  |   | ** **        |       | ** ** |       | ** ** |   | ** **        |       | ** **    |      | ** **       |   | ** ** |       |
| **Year Ended December 31,  2008**                          |       |       |        |        |   |              |       |       |       |       |   |              |       |          |      |             |   |       |       |
| Paper                                                           |       | $          | 1,343.0     |        | $      | —            |       | $          | 60.7       |       | $      | 1,403.7           |       | $             | 32.7      | (b)              | $      | 71.7       |       | $ | 104.3 | (b) | $ | 42.8 |   | $ | 1,310.4 |   |
| Packaging                                                       |       | 635.5      |        | 64.9        |   | 3.3               |       | 703.7      |       | 21.1       | (b)    | 35.1              |       | 56.2          | (b)       | 43.5             |   | 558.3      |       |
| Corporate and Other                                             |       | 11.7       |        | 15.5        |   | 40.5              |       | 67.7       |       | (18.6      | )(b)   | 3.2               |       | (15.4         | )(b)      | 4.3              |   | 156.4      |       |
|                                                            |       | 1,990.2    |        | 80.4        |   | 104.5             |       | 2,175.1    |       | 35.2       |   | 110.0             |       | 145.1         |      | 90.6             |   | 2,025.1    |       |
| Intersegment eliminations                                       |       | —     |        | —      |   | (104.5            | )          | (104.5     | )          | —     |   | —            |       | —        |      | —           |   | (36.8      | )          |
| Change in fair value of interest rate derivatives               |       | —     |        | —      |   | —            |       | —     |       | (0.5       | )      | —            |       | —        |      | —           |   | —     |       |
| Interest expense                                                |       | —     |        | —      |   | —            |       | —     |       | (91.2      | )      | —            |       | —        |      | —           |   | —     |       |
| Interest income                                                 |       | —     |        | —      |   | —            |       | —     |       | 2.2        |   | —            |       | —        |      | —           |   | —     |       |
| ** **                                                      | ** ** | **$**      | **1,990.2** | ** **  | **$**  | **80.4**          | ** ** | **$**      | **—** | ** ** | **$**  | **2,070.6**       | ** ** | **$**         | **(54.3** | **)**            | **$**  | **110.0**  | ** ** | **$** | **145.1** | ** ** | **$** | **90.6** | ** ** | **$** | **1,988.3** | ** ** |
| **February 1 (Inception)  Through December 31, 2007** |       |       |        |        |   |              |       |       |       |       |   |              |       |          |      |             |   |       |       |
| Paper                                                           |       | $          | —      |        | $      | —            |       | $          | —     |       | $      | —            |       | $             | —    |             | $      | —     |       | $ | — |   | $ | — |   | $ | — |   |
| Packaging                                                       |       | —     |        | —      |   | —            |       | —     |       | —     |   | —            |       | —        |      | —           |   | —     |       |
| Corporate and Other                                             |       | —     |        | —      |   | —            |       | —     |       | (0.3       | )      | —            |       | (0.3          | )         | —           |   | 407.6      |       |
|                                                            |       | —     |        | —      |   | —            |       | —     |       | (0.3       | )      | —            |       | (0.3          | )         | —           |   | 407.6      |       |
| Intersegment eliminations                                       |       | —     |        | —      |   | —            |       | —     |       | —     |   | —            |       | —        |      | —           |   | —     |       |
| Interest income                                                 |       | —     |        | —      |   | —            |       | —     |       | 10.4       |   | —            |       | —        |      | —           |   | —     |       |
| ** **                                                      | ** ** | **$**      | **—**  | ** **  | **$**  | **—**        | ** ** | **$**      | **—** | ** ** | **$**  | **—**        | ** ** | **$**         | **10.1**  | ** **       | **$**  | **—** | ** ** | **$** | **(0.3** | **)** | **$** | **—** | ** ** | **$** | **407.6** |   |

 

46

----

 

**Predecessor**

 
| ** **                                         | ** ** | **Sales**  | ** **  | **Income  (Loss)**   | ** ** | **Depreciation,  Amortization,** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **         | ** ** |
|----------------------------------------------------|------------|------------|-------------|----------------------|------------|----------------------------------|------------|------------|------------|-------------------|------------|--------------------|------------|
| ** **                                         | ** ** | **Trade**  | ** **  | **Related  Parties** | ** ** | **Inter-  segment**              | ** ** | **Total**  | ** ** | **Before  Taxes** | ** ** | **and  Depletion** | ** ** | **EBITDA(e)** | ** ** | **Capital  Expenditures** | ** ** | **Assets** | ** ** |
| ** **                                         |       |       |        |                 |       |                             |       |       |       |              |       |               |       |   |   |   |   |   |   |
| **January 1 Through  February 21, 2008** |       |       |        |                 |       |                             |       |       |       |              |       |               |       |   |   |   |   |   |   |
| Paper                                              |       | $          | 154.4       |                 | $          | 90.0                             |       | $          | 9.1        |              | $          | 253.5              |       | $ | 20.7 |   | $ | 0.3 |   | $ | 21.1 |   | $ | 5.0 |   |   |   |
| Packaging                                          |       | 102.2      |        | 10.9                 |       | 0.4                              |       | 113.5      |       | 5.7               |       | 0.1                |       | 5.7 |   | 5.2 |   |   |   |
| Corporate and Other                                |       | 1.8        |        | 0.6                  |       | 6.1                              |       | 8.5        |       | (3.2              | )          | 0.1                |       | (3.1 | ) | — |   |   |   |
|                                               |       | 258.4      |        | 101.5                |       | 15.6                             |       | 375.5      |       | 23.2              |       | 0.5                |       | 23.7 |   | 10.2 |   |   |   |
| Intersegment eliminations                          |       | —     |        | —               |       | (15.6                            | )          | (15.6      | )          | —            |       | —             |       | — |   | — |   |   |   |
| Interest income                                    |       | —     |        | —               |       | —                           |       | —     |       | 0.2               |       | —             |       | — |   | — |   |   |   |
|                                               | ** ** | **$**      | **258.4**   | ** **           | **$**      | **101.5**                        | ** ** | **$**      | **—** | ** **        | **$**      | **359.9**          | ** ** | **$** | **23.4** | ** ** | **$** | **0.5** | ** ** | **$** | **23.7** |   | **$** | **10.2** |   |   |   |
|                                               | ** ** | ** ** | ** **  | ** **           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** **        | ** ** | ** **         | ** ** | ** ** |   | ** ** |   |   |   |
| **Year Ended December 31,  2007**             | ** ** |       | ** **  |                 | ** ** |                             | ** ** | ** ** | ** ** | ** **        | ** ** | ** **         | ** ** | ** ** |   | ** ** |   |   |   |
| Paper                                              | ** ** | $          | 917.2       | ** **           | $          | 615.7                            | ** ** | $          | 63.3       |              | $          | 1,596.2            |       | $ | 133.5 | (d) | $ | 45.0 | (c) | $ | 178.5 | (d) | $ | 103.4 |   | $ | 1,265.6 |   |
| Packaging                                          | ** ** | 705.1      | ** **  | 75.3                 | ** ** | 2.7                              |       | 783.1      |       | 40.1              | (d)        | 37.7               | (c)        | 77.8 | (d) | 38.2 |   | 579.1 |   |
| Corporate and Other                                | ** ** | 14.3       | ** **  | 5.0                  | ** ** | 39.6                             |       | 58.9       |       | (11.9)       | (d)        | 1.9                | (c)        | (10.0) | (d) | 0.2 |   | 12.4 |   |
|                                               | ** ** | 1,636.6    | ** **  | 696.0                | ** ** | 105.6                            |       | 2,438.2    |       | 161.7             | ** ** | 84.6               | ** ** | 246.3 |   | 141.8 |   | 1,857.1 |   |
| Intersegment eliminations                          | ** ** | —     | ** **  | —               | ** ** | (105.6                           | )          | (105.6     | )          | —            | ** ** | —             | ** ** | — |   | — |   | (11.4 | ) |
| Interest income                                    | ** ** | —     | ** **  | —               | ** ** | —                           |       | —     |       | 0.7               | ** ** | —             | ** ** | — |   | — |   | — |   |
|                                               | ** ** | **$**      | **1,636.6** | ** **           | **$**      | **696.0**                        | ** ** | **$**      | **—** | ** **        | **$**      | **2,332.6**        | ** ** | **$** | **162.4** | ** ** | **$** | **84.6** | ** ** | **$** | **246.3** |   | **$** | **141.8** |   | **$** | **1,845.7** |   |

 

----

(a)           Included $5.8 million of expenserecorded in the Paper segment associated with the restructuring of the St.Helens mill.

 

Included$5.9 million of income related to the impact of energy hedges, of which$4.8 million was recorded in the Paper segment and $1.1 million wasrecorded in the Packaging segment.

 

Included$149.9 million of income recorded in the Paper segment, $61.6 millionof income recorded in the Packaging segment, and $3.9 million of expensesrecorded in the Corporate and Other segment relating to alternative fuelmixture credits. These amounts are net of fees and expenses and before taxes.

 

Included$44.1 million of income recorded in the Corporate and Other segment associatedwith the restructuring of our debt.

 

47

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(b)           Included $37.6 million of expense recorded in thePaper segment associated with the restructuring of the St. Helens mill.

 

Included $7.4 million of expense related to the impact of energyhedges, of which $6.1 million was recorded in the Paper segment and$1.3 million was recorded in the Packaging segment.

 

Included $5.5 million of expense recorded in the Packaging segmentrelated to lost production and costs incurred as a result of Hurricanes Gustavand Ike.

 

Included $10.2 million related to inventory purchase accountingadjustments, of which $7.4 million was recorded in the Paper segment and$2.8 million was recorded in the Packaging segment.

 

Included $19.8 million of expense recorded in the Packaging segmentrelated to the outage at the DeRidder, Louisiana, mill.

 

Included a $2.9 million gain on changes in supplemental pensionplans recorded in the Corporate and Other segment.

 

(c)                                  Includedapproximately $21.7 million, $19.1 million, and $1.0 million oflower depreciation and amortization expense in the Paper, Packaging, andCorporate and Other segments as a result of discontinuing depreciation andamortization on the assets recorded as held for sale.

 

(d)                                 Included a$4.4 million gain for changes in retiree healthcare programs recorded inthe Corporate and Other segment.

 

Included $8.7 million of expense related to the impact of energyhedges. Of the $8.7 million, $7.3 million was recorded in the Papersegment and $1.4 million was recorded in the Packaging segment.

 

Included $4.0 million of expense recorded in the Paper segmentrelated to the start-up of the reconfigured paper machine at the Wallula,Washington, mill.

 

(e)                                  EBITDArepresents income (loss) before interest (interest expense, interest income,and change in fair value of interest rate derivatives), income tax provision(benefit), and depreciation, amortization, and depletion. EBITDA is the primarymeasure used by our chief operating decision makers to evaluate segmentoperating performance and to decide how to allocate resources to segments. Webelieve EBITDA is useful to investors because it provides a means to evaluatethe operating performance of our segments and our company on an ongoing basisusing criteria that are used by our internal decision makers and because it isfrequently used by investors and other interested parties in the evaluation ofcompanies with substantial financial leverage. We believe EBITDA is ameaningful measure because it presents a transparent view of our recurringoperating performance and allows management to readily view operating trends,perform analytical comparisons, and identify strategies to improve operatingperformance. For example, we believe that the inclusion of items such as taxes,interest expense, and interest income distorts management’s ability to assessand view the core operating trends in our segments. EBITDA, however, is not ameasure of our liquidity or financial performance under generally acceptedaccounting principles (GAAP) and should not be considered as an alternative tonet income (loss), income (loss) from operations, or any other performancemeasure derived in accordance with GAAP or as an alternative to cash flow fromoperating activities as a measure of our liquidity. The use of EBITDA insteadof net income (loss) or segment income (loss) has limitations as an analyticaltool, including the inability to determine profitability; the exclusion ofinterest expense, interest income, change in fair value of interest ratederivatives, and associated significant cash requirements; and the exclusion ofdepreciation, amortization, and depletion, which represent significant andunavoidable operating costs, given the level of our indebtedness and thecapital expenditures needed to maintain our businesses. Management compensatesfor these limitations by relying on our GAAP results. Our measures of EBITDAare not necessarily comparable to other similarly titled captions of othercompanies due to potential inconsistencies in the methods of calculation.

 

48

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The following is areconciliation of net income to EBITDA (dollars, in millions):

 
| ** **                                         | ** ** | **Boise Inc.**                       | ** ** | ** **                                | **Predecessor** | ** **                                                         |
|----------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|-----------------|--------------------------------------------------------------------|
|                                               |       | **Year   Ended  December 31,  2009** | ** ** | **Year   Ended  December 31,  2008** | ** **      | **February 1  (Inception)  Through  December 31,  2007** |   |   | **January  1  Through  February 22,  2008** |   | **Year  Ended  December 31,  2007** |   |
|                                               |       |                                      |       |                                      |            |                                                               |   |   |   |   |   |   |
| Net income (loss)                                  |       | $                                         | 153.8      |                                      | $               | (45.5                                                              | ) | $ | 5.5 |   |   | $ | 22.8 |   | $ | 159.6 |   |
| Change in fair value of  interest rate derivatives |       | (0.6                                      | )          | 0.5                                       | ** **      | —                                                             | ** ** | ** ** | — |   | — |   |
| Interest expense                                   |       | 83.3                                      |       | 91.2                                      |            | —                                                             |   |   | — |   | — |   |
| Interest income                                    |       | (0.4                                      | )          | (2.2                                      | )               | (10.4                                                              | ) |   | (0.2 | ) | (0.7 | ) |
| Income tax provision  (benefit)                    |       | 28.0                                      |       | (8.8                                      | )               | 4.6                                                                |   |   | 0.6 |   | 2.8 |   |
| Depreciation, amortization,  and depletion         |       | 131.5                                     |       | 110.0                                     |            | —                                                             |   |   | 0.5 |   | 84.6 |   |
| EBITDA                                             | ** ** | **$**                                     | **395.7**  | ** **                                | **$**           | **145.1**                                                          | ** ** | **$** | **(0.3** | **)** | ** ** | **$** | **23.7** | ** ** | **$** | **246.3** |   |

 

***19.          Commitments and Guarantees***

 

*Commitments*

 

We have financial commitments for lease payments andfor the purchase of logs, wood fiber, and utilities. In addition, we have otherfinancial obligations that we enter into in the normal course of our businessto purchase goods and services and to make capital improvements to ourfacilities.

 

Our lease commitments are discussed further inNote 8, Leases.

 

We are a party to a number of long-term log and fibersupply agreements. At December 31, 2009 and 2008, our total obligation forlog and fiber purchases under contracts with third parties was approximately$76.4 million and $168.7 million, respectively. Under most of the logand fiber supply agreements, we have the right to cancel or reduce ourcommitments in the event of a mill curtailment or shutdown. Future purchaseprices under most of these agreements are set quarterly or semiannually basedon regional market prices, and the estimate is based on contract terms or firstquarter 2010 pricing. Our log and fiber obligations are subject to change basedon, among other things, the effect of governmental laws and regulations, ourmanufacturing operations not operating in the normal course of business, andlog and fiber availability. Except for deposits required pursuant to woodsupply contracts, these obligations are not recorded in our consolidatedfinancial statements until contract payment terms take effect.

 

We enter into utility contracts for the purchase ofelectricity and natural gas. We also purchase these services under utilitytariffs. The contractual and tariff arrangements include multiple-yearcommitments and minimum annual purchase requirements. At December 31, 2009and 2008, we had approximately $36.8 million and $24.0 million,respectively, of utility purchase commitments. These payment obligations werevalued at prices in effect on December 31, 2009 or 2008, respectively, ordetermined pursuant to contractual terms, if available. Because we consume theenergy in the manufacture of our products, these obligations represent the facevalue of the contracts, not resale value.

 

*Guarantees*

 

We provide guarantees, indemnifications, andassurances to others in the normal course of our business. See Note 12,Debt, for a description of the guarantees, including the approximate terms ofthe guarantees, how the guarantees arose, the events or circumstances thatwould require us to perform under the guarantees, and the maximum potentialundiscounted amounts of future payments we could be required to make.

 

***20.          Legal Proceedings and Contingencies***

 

We are a party to routine proceedings that arise inthe course of our business. We are not currently a party to any legalproceedings or environmental claims that we believe would have a materialadverse effect on our financial position, results of operations, or cash flows.

 

49

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***21.******                              ******Quarterly Results of Operations (unaudited, inmillions, except per-share and stock price information)***

 
| ** **                          | ** ** | ** ** | **Boise Inc.**     | ** ** |
|-------------------------------------|------------|------------|-------------------------|------------|
| ** **                          | ** ** | ** ** | **2009**                | ** ** |
| ** **                          | ** ** | ** ** | **First   Quarter (a)** | ** ** | **Second  Quarter (b)** | ** ** | **Third  Quarter (c)** | ** ** | **Fourth  Quarter (d)** | ** ** |
|                                |       |       |                    |       |   |   |   |   |   |   |
| Net  sales                          |       |       | $                       | 500.3      |   | $ | 479.4 |   | $ | 508.3 |   | $ | 490.3 |   |
| Income  (loss) from operations      |       |       | 21.4                    |       | 96.6 |   | 93.5 |   | 94.2 |   |
| Net  income (loss)                  |       |       | (0.9                    | )          | 50.9 |   | 48.2 |   | 55.7 |   |
|                                |       |       |                    |       |   |   |   |   |   |   |
| Net  income (loss) per common share |       |       |                    |       |   |   |   |   |   |   |
| Basic                               |       |       | (0.01                   | )          | 0.65 |   | 0.61 |   | 0.70 |   |
| Diluted                             |       |       | (0.01                   | )          | 0.60 |   | 0.57 |   | 0.66 |   |
|                                |       |       |                    |       |   |   |   |   |   |   |
| Common  stock dividends per share   |       |       | —                  |       | — |   | — |   | — |   |
|                                |       |       |                    |       |   |   |   |   |   |   |
| Common  stock prices (i)            |       |       |                    |       |   |   |   |   |   |   |
| High                                |       |       | 0.75                    |       | 2.47 |   | 5.40 |   | 6.29 |   |
| Low                                 |       |       | 0.24                    |       | 0.51 |   | 1.41 |   | 4.71 |   |
|                                     |            |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                          | ** ** | ** **                                           | ** **             | ** **          | ** **               |
|-------------------------------------|------------|------------------------------------------------------|------------------------|---------------------|--------------------------|
| ** **                          | ** ** | **Predecessor**                                      | ** **             | **Boise Inc.** | ** **               |
| ** **                          | ** ** | **January 1  Through  February 21,  2008** | ** **             | **2008**            | ** **               |
| ** **                          | ** ** | ** **                                           | **First  Quarter (e)** | ** **          | **Second   Quarter (f)** | ** ** | **Third   Quarter (g)** | ** ** | **Fourth  Quarter (h)** | ** ** |
|                                |       |                                                 |                   |                |                     |   |   |   |   |   |   |
| Net Sales                           |       | $                                                    | 359.9                  |                | $                        | 228.0 |   | $ | 618.4 |   | $ | 633.1 |   | $ | 591.1 |   |
| Income (loss)  from operations      |       | 23.1                                                 |                   | (9.3                | )                        | 7.6 |   | 30.1 |   | 11.4 |   |
| Net income  (loss)                  |       | 22.8                                                 |                   | (16.4               | )                        | (18.1 | ) | 4.4 |   | (15.5 | ) |
|                                |       |                                                 |                   |                |                     |   |   |   |   |   |   |
| Net income  (loss) per common share |       |                                                 |                   |                |                     |   |   |   |   |   |   |
| Basic                               |       | —                                               |                   | (0.26               | )                        | (0.23 | ) | 0.06 |   | (0.20 | ) |
| Diluted                             |       | —                                               |                   | (0.26               | )                        | (0.23 | ) | 0.06 |   | (0.20 | ) |
|                                |       |                                                 |                   |                |                     |   |   |   |   |   |   |
| Common stock  dividends per share   |       | —                                               |                   | —              |                     | — |   | — |   | — |   |
|                                |       |                                                 |                   |                |                     |   |   |   |   |   |   |
| Common stock  prices (i)            |       |                                                 |                   |                |                     |   |   |   |   |   |   |
| High                                |       | —                                               |                   | 9.70                |                     | 6.73 |   | 4.20 |   | 1.45 |   |
| Low                                 |       | —                                               |                   | 6.19                |                     | 3.58 |   | 1.56 |   | 0.29 |   |
|                                     |            |                                                      |                        |                     |                          |  |  |  |  |  |  |  |  |  |  |  |

 

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(a)                                  First quarter2009 included $3.6 million of expense recorded in the Paper segment associatedwith the restructuring of the St. Helens mill.

 

First quarter 2009 included $2.2 million of expense related to theimpact of energy hedges, $1.8 million of which was recorded in the Papersegment and $0.4 million in the Packaging segment.

 

(b)                                 Second quarter2009 included $57.0 million of income recorded in the Paper segment,$19.9 million of income recorded in the Packaging segment, and$1.6 million of expenses recorded in the Corporate and Other segmentrelating to alternative fuel mixture credits. These amounts are net of fees andexpenses and before taxes.

 

Secondquarter 2009 included $1.1 million of expense recorded in the Papersegment associated with the restructuring of the St. Helens mill.

 

Secondquarter 2009 included $3.5 million of income related to the impact ofenergy hedges, $2.8 million of which was recorded in the Paper segment and$0.7 million in the Packaging segment.

 

(c)                                  Third quarter2009 included $42.9 million of income recorded in the Paper segment,$19.4 million of income recorded in the Packaging segment, and$2.7 million of expenses recorded in the Corporate and Other segmentrelating to alternative fuel mixture credits. These amounts are net of fees andexpenses and before taxes.

 

Thirdquarter 2009 included $1.4 million of expense recorded in the Papersegment associated with the restructuring of the St. Helens mill.

 

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Thirdquarter 2009 included $3.6 million of income related to the impact ofenergy hedges, $2.9 million of which was recorded in the Paper segment and$0.7 million in the Packaging segment.

 

(d)                                 Fourth quarter 2009 included$50.1 million of income recorded in the Paper segment, $22.2 millionof income recorded in the Packaging segment, and $0.4 million of incomerecorded in the Corporate and Other segment relating to alternative fuelmixture credits. These amounts are net of fees and expenses and before taxes.

 

Fourthquarter 2009 included $44.1 million of expense recorded in the Corporateand Other segment associated with the restructuring of our debt.

 

Fourthquarter 2009 included $1.0 million of income related to the impact ofenergy hedges, $0.9 million of which was recorded in the Paper segment and$0.1 million in the Packaging segment.

 

(e)           First quarter 2008 included$19.8 million of expense related to the outage at the DeRidder, Louisiana,mill.

 

Firstquarter 2008 included $6.5 million of expense related to inventorypurchase accounting adjustments.

 

(f)                                    Second quarter2008 included $3.7 million of expense related to inventory purchaseaccounting adjustments.

 

Secondquarter 2008 included $3.7 million of income related to the impact ofenergy hedges, $3.0 million of which was recorded in the Paper segment and$0.7 million in the Packaging segment.

 

(g)                                 Third quarter2008 included $11.3 million of expense related to the impact of energyhedges, $9.5 million of which was recorded in the Paper segment and$1.8 million in the Packaging segment.

 

Thirdquarter 2008 included $5.5 million of expense related to lost productionand costs incurred as a result of Hurricanes Gustav and Ike.

 

(h)                                 Fourth quarter2008 included $37.6 million of expenses related to the restructuring ofour pulp and paper mill in St. Helens, Oregon, which we announced in November 2008.

 

Fourthquarter 2008 included a $2.9 million gain for changes in supplementalpension plans.

 

(i)                                     Our common stockbegan trading on February 22, 2008, on the New York Stock Exchange (NYSE)under the symbol BZ and, as of December 31, 2009, traded under the symbolBZ. From June 29, 2007, through February 21, 2008, Aldabra 2Acquisition Corp.’s common stock was traded on the American Stock Exchange(AMEX) under the symbol AII. In connection with the Acquisition on February 22,2008, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. ThePredecessor had no common stock and was not traded on an exchange. Common stockprices are based on daily closing prices.

 

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**Report ofIndependent Registered Public Accounting Firm**

 

The Board of Directorsand Stockholders

Boise Inc.:

 

We have audited the accompanying consolidated balancesheets of Boise Inc. and subsidiaries as of December 31, 2009 and 2008,and the related consolidated statements of income (loss), stockholders’ equity,and cash flows for each of the years in the two-year period ended December 31,2009. We also have audited Boise Inc.’s. internal control over financialreporting as of December 31, 2009, based on criteria established in *Internal Control — Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). BoiseInc.’s management is responsible for these consolidated financial statements,for maintaining effective internal control over financial reporting, and forits assessment of the effectiveness of internal control over financialreporting, included in the accompanying *Management’s Report onInternal Control Over Financial Reporting*. Our responsibility is toexpress an opinion on these consolidated financial statements and an opinion onthe Company’s internal control over financial reporting based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement and whether effective internal control over financialreporting was maintained in all material respects. Our audits of theconsolidated financial statements included examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. Our audits ofinternal control over financial reporting included obtaining an understandingof internal control over financial reporting, assessing the risk that amaterial weakness exists, and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk. Our audits alsoincluded performing such other procedures as we considered necessary in thecircumstances. We believe that our audits provide a reasonable basis for ouropinions.

 

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Boise Inc. and subsidiaries as of December 31, 2009 and 2008,and the results of their operations and their cash flows for each of the yearsin the two-year period ended December 31, 2009, in conformity with U.S.generally accepted accounting principles. Also in our opinion, Boise Inc.maintained, in all material respects, effective internal control over financialreporting as of December 31, 2009, based on criteria established in *Internal Control — Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission.

 

/s/ KPMG LLP

 

Boise, IdahoFebruary 25, 2010

 

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**Independent Auditors’ Report**

 

TheBoard of Directorsof Boise Inc.:

 

Wehave audited the accompanying consolidated statement of income, capital, andcash flow for the period from January 1, 2008 through February 21,2008, and for the year ended December 31, 2007, of Boise Paper Productsand subsidiaries. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits.

 

Weconducted our auditsin accordance with auditing standards generally accepted in theUnited States of America. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the results of Boise Paper Products andsubsidiaries operations and their cash flows for the period from January 1,2008 through February 21, 2008, and for the year ended December 31,2007, in conformity with U.S. generally accepted accounting principles.

 

/s/ KPMG LLP

 

Boise, IdahoFebruary 23, 2009

 

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**Reportof Independent Registered Public Accounting Firm**

 

To the Board of Directorsand Stockholders

Aldabra 2 AcquisitionCorp.:

 

We have audited theaccompanying consolidated statements of income, stockholders’ equity and cashflows for the period from February 1, 2007 (inception) to December 31,2007 of Aldabra 2 Acquisition Corp. (a corporation in the development stage)and subsidiary (the “Company”). These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basisfor our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the results of operations of Aldabra 2 Acquisition Corp. andsubsidiary and their cash flows for the period from February 1, 2007 (dateof inception) to December 31, 2007, in conformity with U.S. generallyaccepted accounting principles.

 

 

/s/ McGladrey &Pullen, LLP

 

**McGLADREY & PULLEN, LLP**

New York, New York

 

February 21, 2008

 

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