**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**Washington, DC 20549

**FORM 10-Q**

** **

**x****                             ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended March 31, 2008**

 

**o****                                ****TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For thetransition period from ____________ to ____________**

 

**CommissionFile Number: 001-33541**

 

**BoiseInc.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **20-8356960**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State  or other jurisdiction of incorporation or organization) |       | (I.R.S.  Employer Identification No.) |

 

**1111 West Jefferson Street, Suite 200Boise, Idaho 83702-5388**(Address of principalexecutive offices) (Zip Code)

 

**(208) 384-7000**

(Registrant’s telephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.     Yes x     No o

 

Indicate by check mark ifthe registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company (as defined by Rule 12b-2of the Exchange Act):

 

| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |   | Smaller reporting company o |
|---------------------------|--------|---------------------|--------|-------------------------|--------|-----------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).      Yes o     No x

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

| **Class**                      | ** ** | **Shares Outstanding as of April 30, 2008** |
|--------------------------------|------------|---------------------------------------------------------------------------|
| Common Stock, $.0001 Par Value |       | 77,259,947                                                                |

 

 

----

 

**Table of Contents**

 
| **PART I—FINANCIAL INFORMATION** |
|--------------------------------------------|
|                                       |   |
| Item 1.                                    | Consolidated  Financial Statements | 1 |
|                                       |   | Notes to  Unaudited Quarterly Consolidated Financial Statements | 5 |
|                                       |   | 1. | Nature of  Operations and Basis of Presentation | 5 |
|                                       |   | 2. | Acquisition of Boise Cascade’s Paper and Packaging  Operations | 6 |
|                                       |   | 3. | Net Income  (Loss) Per Common Share | 8 |
|                                       |   | 4. | Transactions  With Related Parties | 9 |
|                                       |   | 5. | Other (Income)  Expense, Net | 11 |
|                                       |   | 6. | Income Taxes | 11 |
|                                       |   | 7. | Leases | 11 |
|                                       |   | 8. | Receivables | 12 |
|                                       |   | 9. | Inventories | 12 |
|                                       |   | 10. | Property and  Equipment, Net | 13 |
|                                       |   | 11. | Goodwill and  Intangible Assets | 13 |
|                                       |   | 12. | Asset  Retirement Obligations | 14 |
|                                       |   | 13. | Debt | 15 |
|                                       |   | 14. | Financial  Instruments | 18 |
|                                       |   | 15. | New and  Recently Adopted Accounting Standards | 19 |
|                                       |   | 16. | Retirement and  Benefit Plans | 19 |
|                                       |   | 17. | Stockholders’ Equity | 22 |
|                                       |   | 18. | Equity Compensation | 23 |
|                                       |   | 19. | Comprehensive  Income (Loss) | 23 |
|                                       |   | 20. | Segment Information | 23 |
|                                       |   | 21. | Commitments and  Guarantees | 26 |
|                                       |   | 22. | Legal  Proceedings and Contingencies | 26 |
|                                       |   |
| Item 2.                               | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 26 |
|                                       |   | Understanding Our Financial Information | 26 |
|                                       |   | Background and Executive Overview | 27 |
|                                       |   | Acquisition of Boise  Cascade’s Paper and Packaging Operations | 27 |
|                                       |   | Our  Segments | 29 |
|                                       |   | Recent  Trends and Operational Outlook | 30 |
|                                       |   | Factors  That Affect Operating Results | 32 |
|                                       |   | Operating Results | 37 |
|                                       |   | Industry  Mergers and Acquisitions | 41 |
|                                       |   | Liquidity and  Capital Resources | 41 |
|                                       |   | Contractual  Obligations | 46 |
|                                       |   | Off-Balance-Sheet  Activities | 47 |
|                                       |   | Guarantees | 47 |
|                                       |   | Environmental | 47 |
|                                       |   | Critical  Accounting Estimates | 47 |
|                                       |   | New and  Recently Adopted Accounting Standards | 48 |
|                                       |   |
| Item 3.                               | Quantitative  and Qualitative Disclosures About Market Risk | 48 |
|                                       |   |
| Item 4T.                              | Controls and  Procedures | 49 |
|                                       |   |
| **PART II—OTHER  INFORMATION**   |
|                                       |   |
| Item 1.                               | Legal Proceedings | 51 |
|                                       |   |
| Item 1A.                              | Risk Factors | 51 |
|                                       |   |
| Item 2.                                    | Unregistered  Sales of Equity Securities and Use of Proceeds | 57 |

 

i

----

 
|         |                                                |
|--------------|-----------------------------------------------------|
| Item 3.      | Defaults  Upon Senior Securities                    | 57 |
|         |                                                |
| Item 4.      | Submission  of Matters to a Vote of Securityholders | 57 |
|         |                                                |
| Item 5.      | Other Information                                   | 59 |
|         |                                                |
| Item 6. | Exhibits                                            | 59 |

 

All reports we filewith the Securities and Exchange Commission (SEC) are available free of charge viaElectronic Data Gathering Analysis and Retrieval (EDGAR) through the SECwebsite at www.sec.gov. We also provide copies of our SEC filings at no chargeupon request and make electronic copies of our reports available through ourwebsite at www.boiseinc.com as soon as reasonably practicable after filing suchmaterial with the SEC.

 

ii

----

 

**PART 1—FINANCIAL INFORMATION**

 

***ITEM 1.              CONSOLIDATEDFINANCIAL STATEMENTS***

 

**Boise Inc.**

**(Formerly Aldabra 2 Acquisition Corp., aCorporation in the Development Stage)**

**Consolidated Statements of Income (Loss)**

(unaudited, in thousands, except for share data)

** **
| ** **                                       | ** ** | **Boise Inc.**                            | ** **  | **Predecessor**                                                 | ** ** |
|--------------------------------------------------|------------|------------------------------------------------|-------------|-----------------------------------------------------------------|------------|
| ** **                                       | ** ** | **Three  Months  Ended  March 31,  2008** | ** **  | **February 1  (Inception)  Through  March 31,  2007** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
| ** **                                       | ** ** | ** **                                     | ** **  | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Sales**                                        | ** ** | ** **                                     | ** **  | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trade                                            |       | $                                              | 226,044     |                                                            | $          | — |   | $ | 258,430 |   | $ | 402,912 |   |
| Related parties                                  |       | 1,944                                          |        | —                                                          |       | 101,490 |   | 175,789 |   |
|                                             |       | 227,988                                        |        | —                                                          |       | 359,920 |   | 578,701 |   |
|                                             |       |                                           |        |                                                            |       |   |   |   |   |
| **Costs  and expenses**                          | ** ** | ** **                                     | ** **  | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Materials,  labor, and other operating expenses  |       | 195,429                                        |        | —                                                          |       | 313,931 |   | 487,954 |   |
| Fiber costs from  related parties                |       | 18,629                                         |        | —                                                          |       | 7,662 |   | 11,027 |   |
| Depreciation,  amortization, and depletion       |       | 12,747                                         |        | —                                                          |       | 477 |   | 30,771 |   |
| Selling and  distribution expenses               | * *   | 5,943                                          |        | —                                                          |       | 9,097 |   | 14,322 | * * |
| General and  administrative expenses             |       | 4,549                                          |        | 1                                                               |       | 6,606 |   | 9,450 |   |
| Other (income)  expense, net                     |       | (28                                            | )           | —                                                          |       | (989 | ) | 2,408 |   |
|                                             |       | 237,269                                        |        | 1                                                               |       | 336,784 |   | 555,932 |   |
| ** **                                       | ** ** | ** **                                     | ** **  | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Income  (loss) from operations**               |       | (9,281                                         | )           | (1                                                              | )          | 23,136 |   | 22,769 |   |
|                                             |       |                                           |        |                                                            |       |   |   |   |   |
| Foreign exchange  gain (loss)                    |       | (853                                           | )           | —                                                          |       | 54 |   | 72 |   |
| Interest expense                                 |       | (11,435                                        | )           | —                                                          |       | (2 | ) | — |   |
| Interest income                                  |       | 1,821                                          |        | —                                                          |       | 161 |   | 128 |   |
|                                             |       | (10,467                                        | )           | —                                                          |       | 213 |   | 200 |   |
|                                             |       |                                           |        |                                                            |       |   |   |   |   |
| **Income  (loss) before income taxes**           |       | (19,748                                        | )           | (1                                                              | )          | 23,349 |   | 22,969 |   |
| Income tax  (provision) benefit                  |       | 3,377                                          |        | —                                                          |       | (563 | ) | (978 | ) |
| **Net  income (loss)**                           | ** ** | **$**                                          | **(16,371** | **)**                                                           | **$**      | **(1** | **)** | **$** | **22,786** | ** ** | **$** | **21,991** | ** ** |
| ** **                                       | ** ** | ** **                                     | ** **  | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Weighted  average common shares outstanding:** | ** ** | ** **                                     | ** **  | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Basic  and diluted**                           | ** ** | **62,682,834**                                 | ** **  | **10,350,000**                                                  |       | — |   | — |   |
| ** **                                       | ** ** | ** **                                     | ** **  | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  loss per common share:**                  | ** ** | ** **                                     | ** **  | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Basic  and diluted**                           | ** ** | **$**                                          | **(0.26**   | **)**                                                           | **$**      | **—** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

 

1

----

 

**Boise Inc.**

**(Formerly Aldabra 2 Acquisition Corp., aCorporation in the Development Stage)**

**Consolidated Balance Sheets**

(unaudited, in thousands)

** **
| ** **                                           | ** ** | **Boise Inc.**      | ** **    | **Predecessor**             | ** ** |
|------------------------------------------------------|------------|--------------------------|---------------|-----------------------------|------------|
| ** **                                           | ** ** | **March 31,  2008** | ** **    | **December 31,  2007** | ** ** | **December 31,  2007** | ** ** |
|                                                 |       |                     |          |                        |       |   |   |
| **ASSETS**                                           |       |                     |          |                        |       |   |   |
|                                                 |       |                     |          |                        |       |   |   |
| **Current**                                          |       |                     |          |                        |       |   |   |
| Cash and cash  equivalents                           |       | $                        | 24,961        |                        | $          | 186 |   | $ | 8 |   |
| Cash held in  trust                                  |       | —                   |          | 403,989                     |       | — |   |
| Receivables                                          |       |                     |          |                        |       |   |   |
| Trade, less  allowances of $786, $0, and $1,063 |       | 205,574                  |          | —                      |       | 181,799 |   |
| Related parties                                      |       | 11,038                   |          | —                      |       | 36,452 |   |
| Other                                                |       | 12,215                   |          | —                      |       | 10,224 |   |
| Inventories                                          |       | 338,403                  |          | —                      |       | 324,679 |   |
| Other                                                |       | 14,612                   |          | 144                         |       | 6,936 |   |
|                                                 |       | 606,803                  |          | 404,319                     |       | 560,098 |   |
|                                                 |       |                     |          |                        |       |   |   |
| **Property**                                         |       |                     |          |                        |       |   |   |
| Property and  equipment, net                         |       | 1,293,258                |          | —                      |       | 1,192,344 |   |
| Fiber farms and  deposits                            |       | 11,383                   |          | —                      |       | 17,843 |   |
|                                                 |       | 1,304,641                |          | —                      |       | 1,210,187 |   |
|                                                 |       |                     |          |                        |       |   |   |
| **Deferred  financing costs**                        |       | 81,091                   |          | —                      |       | — |   |
| **Goodwill**                                         |       | —                   |          | —                      |       | 42,218 |   |
| **Intangible  assets, net**                          |       | 22,839                   |          | —                      |       | 23,967 |   |
| **Other  assets**                                    |       | 7,209                    |          | 3,293                       |       | 9,242 |   |
| **Total  assets**                                    | ** ** | **$**                    | **2,022,583** | ** **                  | **$**      | **407,612** | ** ** | **$** | **1,845,712** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

 

2

----

 

**Boise Inc.**

**(Formerly Aldabra 2 Acquisition Corp., aCorporation in the Development Stage)**

**Consolidated Balance Sheets (continued)**

(unaudited, in thousands, except for share data)

 
| ** **                                                                                                                                                                                                                                    | ** ** | **Boise Inc.**      | ** **    | **Predecessor**             | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|---------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                    | ** ** | **March 31,  2008** | ** **    | **December 31,  2007** | ** ** | **December 31,  2007** | ** ** |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                |       |                     |          |                        |       |   |   |
|                                                                                                                                                                                                                                          |       |                     |          |                        |       |   |   |
| **Current**                                                                                                                                                                                                                                   |       |                     |          |                        |       |   |   |
| Current portion  of long-term debt                                                                                                                                                                                                            |       | $                        | 11,000        |                        | $          | — |   | $ | — |   |
| Income taxes  payable                                                                                                                                                                                                                         |       | 172                      |          | 1,280                       |       | 306 |   |
| Accounts payable                                                                                                                                                                                                                              |       |                     |          |                        |       |   |   |
| Trade                                                                                                                                                                                                                                         |       | 212,495                  |          | —                      |       | 178,686 |   |
| Related parties                                                                                                                                                                                                                               |       | 12,954                   |          | —                      |       | 299 |   |
| Accrued  liabilities                                                                                                                                                                                                                          |       |                     |          |                        |       |   |   |
| Compensation and  benefits                                                                                                                                                                                                                    |       | 39,380                   |          | —                      |       | 53,573 |   |
| Interest payable                                                                                                                                                                                                                              |       | 1,132                    |          | —                      |       | — |   |
| Deferred  underwriting fee                                                                                                                                                                                                                    |       | —                   |          | 12,420                      |       | — |   |
| Other                                                                                                                                                                                                                                         |       | 17,594                   |          | 1,015                       |       | 16,716 |   |
|                                                                                                                                                                                                                                          |       | 294,727                  |          | 14,715                      |       | 249,580 |   |
|                                                                                                                                                                                                                                          |       |                     |          |                        |       |   |   |
| **Debt**                                                                                                                                                                                                                                      |       |                     |          |                        |       |   |   |
| Long-term debt,  less current portion                                                                                                                                                                                                         |       | 1,019,700                |          | —                      |       | — |   |
| Note payable to  related-party                                                                                                                                                                                                                |       | 58,793                   |          | —                      |       | — |   |
|                                                                                                                                                                                                                                          |       | 1,078,493                |          | —                      |       | — |   |
|                                                                                                                                                                                                                                          |       |                     |          |                        |       |   |   |
| **Other**                                                                                                                                                                                                                                     |       |                     |          |                        |       |   |   |
| Deferred income  taxes                                                                                                                                                                                                                        |       | 235                      |          | —                      |       | 896 |   |
| Compensation and  benefits                                                                                                                                                                                                                    |       | 58,971                   |          | —                      |       | 6,030 |   |
| Other long-term  liabilities                                                                                                                                                                                                                  |       | 28,974                   |          | —                      |       | 29,427 |   |
|                                                                                                                                                                                                                                          |       | 88,180                   |          | —                      |       | 36,353 |   |
|                                                                                                                                                                                                                                          |       |                     |          |                        |       |   |   |
| **Common  stock subject to possible conversion**                                                                                                                                                                                              |       |                     |          |                        |       |   |   |
| (16,555,860  shares at conversion value at December 31, 2007)                                                                                                                                                                            |       | —                   |          | 159,760                     |       | — |   |
|                                                                                                                                                                                                                                          |       |                     |          |                        |       |   |   |
| **Commitments  and contingent liabilities**                                                                                                                                                                                                   |       |                     |          |                        |       |   |   |
|                                                                                                                                                                                                                                          |       |                     |          |                        |       |   |   |
| **Stockholders’  Equity**                                                                                                                                                                                                                |       |                     |          |                        |       |   |   |
| Business unit  equity                                                                                                                                                                                                                         |       | —                   |          | —                      |       | 1,559,779 |   |
| Preferred stock,  $.0001 par value per share: 1,000,000 shares authorized; none issued                                                                                                                                                        |       | —                   |          | —                      |       | — |   |
| Common stock,  $.0001 par value per share:  250,000,000  shares authorized; 77,259,947 shares and 51,750,000 shares issued and  outstanding (which included 16,555,860 shares subject to possible conversion  at December 31, 2007) |       | 8                        |          | 5                           |       | — |   |
| Additional  paid-in capital                                                                                                                                                                                                                   |       | 572,054                  |          | 227,640                     |       | — |   |
| Income  accumulated during development stage                                                                                                                                                                                                  |       | —                   |          | 5,492                       |       | — |   |
| Accumulated  deficit                                                                                                                                                                                                                          |       | (10,879                  | )             | —                      |       | — |   |
| **Total  stockholders’ equity**                                                                                                                                                                                                          |       | 561,183                  |          | 233,137                     |       | 1,559,779 |   |
|                                                                                                                                                                                                                                          |       |                     |          |                        |       |   |   |
| **Total  liabilities and stockholders’ equity**                                                                                                                                                                                          | ** ** | **$**                    | **2,022,583** | ** **                  | **$**      | **407,612** | ** ** | **$** | **1,845,712** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

 

3

----

 

**Boise Inc.**

**(Formerly Aldabra 2 Acquisition Corp., aCorporation in the Development Stage)**

**Consolidated Statements of Cash Flows**

(unaudited, in thousands)

** **
| ** **                                                                             | ** ** | **Boise Inc.**                            | ** ** | **Predecessor**                                                 | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                             | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **February 1  (Inception)  Through  March 31,  2007** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
|                                                                                   |       |                                           |       |                                                            |       |   |   |   |   |
| **Cash  provided by (used for) operations**                                            |       |                                           |       |                                                            |       |   |   |   |   |
| Net income  (loss)                                                                     |       | $                                              | (16,371    | )                                                               | $          | (1 | ) | $ | 22,786 |   | $ | 21,991 |   |
| Items in net  income (loss) not using (providing) cash                                 |       |                                           |       |                                                            |       |   |   |   |   |
| Depreciation,  amortization, and depletion of  deferred financing costs and other |       | 13,554                                         |       | —                                                          |       | 477 |   | 30,771 |   |
| Related-party  interest expense                                                        |       | 986                                            |       | —                                                          |       | — |   | — |   |
| Pension and  other postretirement benefit expense                                      |       | 1,237                                          |       | —                                                          |       | 1,826 |   | 3,163 |   |
| Deferred income  taxes                                                                 |       | (3,377                                         | )          | —                                                          |       | 11 |   | 21 |   |
| (Gain) loss on sales  of assets, net                                                   |       | (3                                             | )          | —                                                          |       | (943 | ) | 1,026 |   |
| Other                                                                                  |       | 649                                            |       | —                                                          |       | (91 | ) | 349 |   |
| Decrease  (increase) in working capital, net of acquisitions                           |       |                                           |       |                                                            |       |   |   |   |   |
| Receivables                                                                            |       | 23,485                                         |       | —                                                          |       | (23,522 | ) | (6,515 | ) |
| Inventories                                                                            |       | (5,158                                         | )          | —                                                          |       | 5,343 |   | (14,429 | ) |
| Prepaid expenses                                                                       |       | (7,451                                         | )          | —                                                          |       | 875 |   | 1,614 |   |
| Accounts payable  and accrued liabilities                                              |       | 23,654                                         |       | 1                                                               |       | (10,718 | ) | (11,125 | ) |
| Current and  deferred income taxes                                                     |       | 1,806                                          |       | —                                                          |       | 335 |   | 888 |   |
| Pension and  other postretirement benefit payments                                     |       | (47                                            | )          | —                                                          |       | (1,826 | ) | (3,163 | ) |
| Other                                                                                  |       | (1,155                                         | )          | —                                                          |       | 2,326 |   | 3,197 |   |
| Cash provided by  (used for) operations                                                |       | 31,809                                         |       | —                                                          |       | (3,121 | ) | 27,788 |   |
|                                                                                   |       |                                           |       |                                                            |       |   |   |   |   |
| **Cash  provided by (used for) investment**                                            |       |                                           |       |                                                            |       |   |   |   |   |
| Acquisition of  businesses and facilities                                              |       | (1,219,421                                     | )          | —                                                          |       | — |   | — |   |
| Cash released  from trust                                                              |       | 403,989                                        |       | —                                                          |       | — |   | — |   |
| Expenditures for  property and equipment                                               |       | (10,224                                        | )          | —                                                          |       | (10,168 | ) | (32,966 | ) |
| Sales of assets                                                                        |       | —                                         |       | —                                                          |       | 17,662 |   | 3,284 |   |
| Other                                                                                  |       | 2,410                                          |       | —                                                          |       | 863 |   | 242 |   |
| Cash provided by  (used for) investment                                                |       | (823,246                                       | )          | —                                                          |       | 8,357 |   | (29,440 | ) |
|                                                                                   |       |                                           |       |                                                            |       |   |   |   |   |
| **Cash  provided by (used for) financing**                                             |       |                                           |       |                                                            |       |   |   |   |   |
| Issuances of  long-term debt                                                           |       | 1,065,700                                      |       | —                                                          |       | — |   | — |   |
| Payments of  long-term debt                                                            |       | (35,000                                        | )          | —                                                          |       | — |   | — |   |
| Issuances of  short-term debt                                                          |       | —                                         |       | 100                                                             |       | — |   | — |   |
| Payments to  stockholders for exercise of conversion rights                            |       | (120,170                                       | )          | —                                                          |       | — |   | — |   |
| Payments of  deferred financing fees                                                   |       | (81,898                                        | )          | —                                                          |       | — |   | — |   |
| Payments of  deferred underwriters fees                                                |       | (12,420                                        | )          | —                                                          |       | — |   | — |   |
| Proceeds from  sale of shares of common stock to initial stockholders                  |       | —                                         |       | 25                                                              |       | — |   | — |   |
| Net equity  transactions with related parties                                          |       | —                                         |       | —                                                          |       | (5,237 | ) | 1,652 |   |
| Other                                                                                  |       | —                                         |       | (97                                                             | )          | — |   | — |   |
| Cash provided by  (used for) financing                                                 |       | 816,212                                        |       | 28                                                              |       | (5,237 | ) | 1,652 |   |
|                                                                                   |       |                                           |       |                                                            |       |   |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                      |       | 24,775                                         |       | 28                                                              |       | (1 | ) | — |   |
|                                                                                   |       |                                           |       |                                                            |       |   |   |   |   |
| **Balance  at beginning of the period**                                                |       | 186                                            |       | —                                                          |       | 8 |   | 7 |   |
| **Balance  at end of the period**                                                      | ** ** | **$**                                          | **24,961** | ** **                                                      | **$**      | **28** | ** ** | **$** | **7** | ** ** | **$** | **7** | ** ** |

 

See accompanying notes tounaudited quarterly consolidated financial statements.

 

4

----

 

***Notes to Unaudited Quarterly Consolidated Financial Statements***

 

***1.             Nature ofOperations and Basis of Presentation***

 

Boise Inc. (formerlyAldabra 2 Acquisition Corp.) or “the Company,” “we,” “us,” or “our” was a blankcheck company, created on February 1, 2007 (inception), and organized forthe purpose of effecting a merger, capital stock exchange, asset acquisition,or other similar business combination with an operating business. On February 22,2008, Boise Inc. completed the acquisition (the Acquisition) of Boise WhitePaper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise CascadeTransportation Holdings Corp. (collectively, the Paper Group), and other assetsand liabilities related to the operation of the paper, packaging and newsprint,and transportation businesses of the Paper Group and part of the headquartersoperations of Boise Cascade, L.L.C. (Boise Cascade). The business we acquiredis referred to in this report on Form 10-Q as the “Predecessor.” TheAcquisition was accomplished through the Company’s acquisition of Boise PaperHoldings, L.L.C. See Note 2, Acquisition of Boise Cascade’s Paper and PackagingOperations, for more information related to the Acquisition.

 

The following sets forthour corporate structure following the Acquisition:

 

 

Boise Inc. operates itsbusiness in three reportable segments, Paper, Packaging, and Corporate andOther (support services), and is headquartered in Boise, Idaho. Boise Inc.manufactures packaging products and papers, including corrugated containers,containerboard, label and release and flexible packaging papers, imaging papersfor the office and home, printing and converting papers, newsprint, and marketpulp.

 

The accompanyingconsolidated statements of income (loss) and cash flows for the three monthsended March 31, 2008 include the activities of Aldabra 2 Acquisition Corp.prior to the Acquisition and the operations of the acquired businesses from February 22,2008, through March 31, 2008. For the period of January 1 through February 21,2008, and for the three months ended March 31, 2007, the consolidatedstatements of income and cash flows of the Predecessor are presented forcomparative purposes. The period of February 1 (inception) through March 31,2007, represents the activities of Aldabra 2 Acquisition Corp.

 

5

----

 

The quarterly consolidated financial statementspresented have not been audited by an independent registered public accounting firm,but, in the opinion of management, include all adjustments, consisting ofnormal, recurring adjustments, necessary to present fairly the results for theperiods presented. The preparation of the consolidated financial statementsinvolves the use of estimates and accruals. Actual results may vary from thoseestimates. Quarterly results are not necessarily indicative of results that maybe expected for the full year. These condensed notes to unaudited consolidatedfinancial statements should be read in conjunction with our 2007 Annual Reporton Form 10-K and the audited consolidated financial statements andfootnotes included in Boise Inc.’s Current Report on Form 8-K filed withthe Securities and Exchange Commission (SEC) on February 28, 2008, whichincludes the accounting policies of the Predecessor which we adopted inconjunction with the Acquisition.

 

For the Predecessorperiods presented, the consolidated financial statements include accountsspecifically attributed 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 Predecessor periodspresented, 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 three months ended March 31, 2007,the majority of the businesses and assets of the Predecessor were held andoperated by limited liability companies, which are not subject to entity-levelfederal or state income taxation. In addition to the businesses and assets heldand operated by limited liability companies, the Predecessor had taxablecorporations subject to federal, state, and local income taxes for which taxeswere recorded. Information on the allocations and related-party transactions isincluded in Note 4, Transactions With Related Parties.

 

***2.             Acquisition of Boise Cascade’sPaper and Packaging Operations***

 

On February 22,2008, we acquired the paper, packaging, and most of the corporate and othersegments of Boise Cascade for cash and securities. We have five pulp and papermills, five corrugated container plants, a corrugated sheet plant, and twopaper distribution facilities located in the United States. Our corporateheadquarters office is in Boise, Idaho.

 

The Acquisition wasaccounted for in accordance with the provisions of Statement of FinancialAccounting Standards (SFAS) No. 141, *Business Combinations*.Upon completion of the transaction, Boise Cascade owned 37.9 million, or49%, of our outstanding shares. Subsequent to the transaction, Boise Cascadetransferred the shares to its parent company, Boise Cascade Holdings, L.L.C.

 

The purchase price waspaid with cash, the issuance of shares of our common stock, and a note payable.These costs, including estimated direct transaction costs, are summarized asfollows:

 

6

----

 
| ** **                                               | ** ** | **(thousands)** | ** **    |
|----------------------------------------------------------|------------|-----------------|---------------|
|                                                     |       |            |          |
| 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 $9.15  average price per share                 |       | 346,395         |          |
| Lack of  marketability discount                          |       | (41,567         | )             |
| Total equity                                             |       | 304,828         |          |
|                                                     |       |            |          |
| Note payable to  Boise Cascade at closing                |       | 41,000          |          |
| Working capital  adjustment                              |       | 16,807          |          |
| Total note  payable to Boise Cascade                     |       | 57,807          |          |
|                                                     |       |            |          |
| Fees and  expenses                                       |       | 62,123          |          |
|                                                     |       |            |          |
| Total purchase  price                                    | ** ** | **$**           | **1,663,954** | ** ** |

 

*Cash*

 

Upon closing, we paidBoise Cascade $1,252.3 million in cash related to the base purchase price plus$24.9 million incurred by Boise Cascade for transaction financing costsand fees. Immediately prior to the Acquisition, Boise Cascade contributed$38.0 million of cash to the acquired businesses.

 

*Equity*

 

The number of sharesissued to Boise Cascade totaled 37,857,374. The equity price per share wascalculated based on the average per-share closing price of our common stock forthe 20 trading days ending on the third trading day immediately prior to theconsummation of the Acquisition. Since that average price was below the $9.54floor provided in the purchase agreement, we determined a new measurement datein accordance with Issue No. 2 of Emerging Issues Task Force (EITF) 99-12,*Determination of the Measurement Date for theMarket Price of Acquirer Securities Issued in a Purchase Business Combination*.We calculated a $9.15 average price per share based on two days before andafter the Acquisition measurement date, which was February 14, 2008. Thevalue of stock consideration paid to Boise Cascade was reduced by a 12%discount for a lack of marketability, since the stock delivered asconsideration was not registered for resale.

 

*Note payable*

 

In connection with thetransaction, Boise Inc. entered into a note payable with Boise Cascade for$41.0 million. Subsequently, Boise Cascade transferred the note payable toits parent company, Boise Cascade Holdings, L.L.C. After the transaction, andpursuant to the purchase agreement, the note increased by $16.8 millionfor estimated working capital adjustments, the amount by which the workingcapital of the acquired paper and packaging businesses exceeded$329.0 million. Final working capital adjustments will be made in thesecond quarter of 2008, and are expected to increase the note by approximately$0.5 million. See Note 4, Transactions With Related Parties, and Note 13,Debt, for further information on the note payable.

 

Fees and expensesprimarily consist of debt issuance fees and direct costs of the transaction.

 

The purchase priceallocation is preliminary. The final purchase price allocation will be based onthe fair value of assets acquired and liabilities assumed. The purchase priceallocation will remain preliminary until we complete a third-party valuation.Once fair values are finalized, we may have changes to the amounts we haveincluded in our preliminary allocation below. We may also have adjustments toour depreciation and amortization expense, which will be made prospectively.The following table

 

7

----

 

summarizes the preliminary fair value allocation of the assets acquiredand liabilities assumed at the date of the Acquisition:

 
| ** **                | ** ** | **February 22,  2008  Fair Value** | ** **    |
|---------------------------|------------|----------------------------------------------|---------------|
|                      |       | **(thousands)**                              |          |
|                      |       |                                         |          |
| Current assets            |       | $                                            | 590,538       |   |
| Property and  equipment   |       | 1,292,198                                    |          |
| Fiber farms and  deposits |       | 10,972                                       |          |
| Intangible  assets:       |       |                                         |          |
| Trademark and  trade name |       | 6,800                                        |          |
| Customer list             |       | 11,400                                       |          |
| Technology                |       | 5,040                                        |          |
| Deferred  financing costs |       | 81,898                                       |          |
| Other long-term  assets   |       | 4,446                                        |          |
| Current  liabilities      |       | (251,518                                     | )             |
| Long-term  liabilities    |       | (87,820                                      | )             |
| Total purchase  price     | ** ** | **$**                                        | **1,663,954** | ** ** |

 

The following pro formaresults are based on the individual historical results of Boise Inc. and thePredecessor (prior to the Acquisition on February 22, 2008) withadjustments to give effect to the combined operations as if the Acquisition hadbeen consummated on January 1, 2007. The pro forma results are intendedfor information purposes only and do not purport to represent what the combinedcompanies’ results of operations would actually have been had the transactionin fact occurred on January 1, 2007.

 
| ** **                                 | ** ** | **Pro Forma  Three Months  Ended  March 31** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                 | ** ** | **2008**                                                    | ** ** | **2007** | ** ** |
|                                       |       | **(thousands,  except per-share amounts)**                  |       |
|                                       |       |                                                        |       |   |   |
| Sales                                      |       | $                                                           | 587,908    |   | $ | 578,701 |   |
| Net loss                                   |       | (27,022                                                     | )          | (6,515 | ) |
| Net loss per  share—basic and diluted |       | (0.35                                                       | )          | (0.08 | ) |
|                                            |            |                                                             |            |  |  |  |  |

 

***3.******                                      NetIncome (Loss) Per Common Share***

 

For the three months ended March 31, 2008, whenBoise Inc. 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. Diluted net income(loss) per share reflects the potential dilution assuming common shares wereissued for the exercise of outstanding in-the-money warrants and assuming theproceeds thereof were used to purchase common shares at the average marketprice during the period such warrants were outstanding. Basic and diluted netincome (loss) per-share is calculated as follows (in thousands, exceptper-share amounts):

 

8

----

 
| ** **                                                             | ** ** | **Boise Inc.**                            | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                             | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** |
|                                                                   |       |                                           |       |
| Net loss                                                               |       | $                                              | (16,371    | ) |
| Weighted average  number of common shares for basic net loss per share |       | 62,683                                         |       |
| Incremental  effect of dilutive common stock equivalents:              |       | —                                         |       |
| Common stock  warrants (a)                                             |       | —                                         |       |
| Weighted average  number of shares for diluted net loss per share      |       | 62,683                                         |       |
|                                                                   |       |                                           |       |
| Net loss per  share—basic and diluted (a)                         |       | $                                              | (0.26      | ) |

 

----

(a)          Warrants to purchase 44.4 million shares of common stock were notincluded in the computation of diluted net income (loss) per share because thetrading price of the stock was below the exercise price of the warrants.

 

***4.******                                      TransactionsWith Related Parties***

 

During the Predecessorperiods of January 1 through February 21, 2008, and the three monthsended March 31, 2007, the Predecessor participated in Boise Cascade’scentralized 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. The following tableincludes the components of these related-party transactions:

 
| ** **                                               | ** ** | **Predecessor**                                      | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                               | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
| ** **                                               | ** ** | **(thousands)**                                      | ** ** |
|                                                     |       |                                                 |       |   |   |
| Cash collections                                         |       | $                                                    | (354,222   | ) | $ | (575,598 | ) |
| Payment of  accounts payable                             |       | 336,605                                              |       | 540,857 |   |
| Capital  expenditures and acquisitions                   |       | 10,168                                               |       | 32,966 |   |
| Income taxes                                             |       | 217                                                  |       | 69 |   |
| Corporate  general and administrative expense allocation |       | 1,995                                                |       | 3,358 |   |
| Net equity  transactions with related parties            | ** ** | **$**                                                | **(5,237** | **)** | **$** | **1,652** | ** ** |

 

*Related-Party Sales*

 

During the Predecessorperiods of January 1 through February 21, 2008, and the three monthsended March 31, 2007, the Predecessor sold paper and paper products toOfficeMax Incorporated (OfficeMax) at sales prices that were designed toapproximate market prices. For the Predecessor periods of January 1through February 21, 2008, and the three months ended March 31, 2007,sales to OfficeMax were $90.1 million and $157.8 million. During eachof these periods, sales to OfficeMax represented 25% and 27% of total sales,respectively. These sales are included in “Sales, Related parties” in theConsolidated Statements of Income (Loss). Subsequent to the Acquisition,OfficeMax is no longer a related party. During the three months ended March 31, 2008, sales to OfficeMaxwere $63.2 million, or 28% of total sales. 

 

Boise Inc. and thePredecessor provided transportation services to Boise Cascade. For the threemonths ended March 31, 2008, and the Predecessor periods of January 1through February 21, 2008,

 

9

----

 

and the three months ended March 31, 2007, BoiseInc. and the Predecessor recorded $0.4 million, $0.6 million, and$1.1 million of sales for transportation services, respectively. ThePredecessor sold $10.8 million and $16.9 million of wood to BoiseCascade’s building materials distribution and wood products businesses. Thesesales are included in “Sales, Related parties” in the Consolidated Statementsof Income (Loss).

 

In connection with theAcquisition, we entered into an outsourcing services agreement under which weprovide a number of corporate staff services to Boise Cascade at our cost.These services include information technology, accounting, and human resourceservices. The initial term of the agreement is for three years. It willautomatically renew for one-year terms unless either party provides notice oftermination to the other party at least 12 months in advance of theapplicable term. For the three months ended March 31, 2008, we recognized$1.5 million in “Sales, Related parties” in our Consolidated Statement ofIncome (Loss) related to this agreement.

 

*Related-Party Costs and Expenses*

 

BoiseInc. and the Predecessor purchased fiber from related parties at prices thatapproximated market prices. During the three months ended March 31, 2008,and the Predecessor periods of January 1 through February 21, 2008,and the three months ended March 31, 2007, fiber purchases from relatedparties were $18.6 million, $7.7 million, and $11.0 million,respectively. Most of these purchases related to chip and log purchases fromBoise Cascade’s wood products business and, subsequent to the Acquisition,Louisiana Timber Procurement Company, L.L.C., an entity that is 50% owned byBoise Cascade and 50% owned by us. All of the costs associated with thesepurchases were recorded as “Fiber costs from related parties” in theConsolidated Statements of Income (Loss).

 

During the Predecessorperiods, the Predecessor used services and administrative staff of Boise Cascade.These services included, but were not limited to, finance, accounting, legal,information technology, and human resource functions. The costs notspecifically identifiable to the Predecessor were allocated based primarily onaverage sales, assets, and labor costs. These costs are included in “General andadministrative expenses” in the Consolidated Statements of Income (Loss). ThePredecessor believes the allocations are a reasonable reflection of its use ofthe services. However, had the Predecessor operated on a stand-alone basis, itestimates that its Corporate and Other segment would have reportedapproximately $2.5 million and $4.5 million of segment expensesbefore interest, taxes, depreciation, and amortization for the Predecessorperiods of January 1 through February 21, 2008, and the three monthsended March 31, 2007, respectively.

 

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 three months ended March 31, 2007, the Statements of Income(Loss) included $3.9 million and $5.5 million, respectively, ofexpenses attributable to its participation in Boise Cascade’s defined benefitand defined contribution plans.

 

During the Predecessor periods presented, thePredecessor’s employees and former employees also participated in Boise Cascade’sother postretirement healthcare benefit plans. All of the Predecessor’spostretirement healthcare benefit plans were unfunded (see Note 16,Retirement and Benefit Plans). In addition, some of the Predecessor’s employeesparticipated in equity compensation programs.

 

*Note Payable*

 

In connection with theAcquisition, we issued a $41.0 million subordinated promissory note toBoise Cascade. Subsequently, Boise Cascade transferred the note payable to itsparent company, Boise Cascade Holdings, L.L.C. After the Acquisition, andpursuant to the purchase agreement, the note payable increased by$16.8 million for estimated working capital adjustments. Final workingcapital adjustments will be made in the second quarter of 2008, and areexpected to increase the note by 

 

10

----

 

approximately$0.5 million. The note bears interest at 15.75%, compounded quarterly. Tothe extent that interest is not paid in cash, the interest is added to theprincipal amount of the note. The note matures on August 21, 2015,provided that if such date is more than 181 days after the scheduledmaturity date of the indebtedness under our credit agreements, then thematurity date shall automatically be deemed to be 181 days after thelatest maturity date of any such indebtedness. We may prepay the note at anytime in whole or in part, subject to restrictions contained in our creditagreements. During the three months ended March 31, 2008, we recorded$1.0 million of related-party interest expense in our ConsolidatedStatement of Loss and at March 31, 2008, we had $58.8 millionrecorded in “Note payable to related party” on our Consolidated Balance Sheet.

 

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

 

“Other (income) expense, net” includes miscellaneousincome and expense items. The components of “Other (income) expense, net” inthe Consolidated Statements of Income (Loss) are as follows (in thousands):

 
| ** **            | ** ** | **Boise Inc.**                            | ** ** | **Predecessor**                                                 | ** ** |
|-----------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **            | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **February 1  (Inception)  Through  March 31,  2007** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
|                  |       |                                           |       |                                                            |       |   |   |   |   |
| Sales of assets,  net |       | $                                              | (3         | )                                                               | $          | — |   | $ | (941 | ) | $ | 1,026 |   |
| Project costs         |       | —                                         |       | —                                                          |       | — |   | 157 |   |
| Other, net            |       | (25                                            | )          | —                                                          |       | (48 | ) | 1,225 |   |
| ** **            | ** ** | **$**                                          | **(28**    | **)**                                                           | **$**      | **—** | ** ** | **$** | **(989** | **)** | **$** | **2,408** | ** ** |

 

***6.******                                      IncomeTaxes***

 

During the Predecessorperiods of January 1 through February 21, 2008, and the three monthsended March 31, 2007, the majority of the Predecessor businesses andassets were held and operated by limited liability companies, which are notsubject to entity-level federal or state income taxation. For the separatePredecessor subsidiaries that are taxed as corporations, the effective taxrates were 37.6% and 42.4%, respectively. The primary reason for the differencein tax rates is the effect of state income taxes.

 

For the three months ended March 31,2008, we recorded $3.4 million of income tax benefits related to lossesincurred during the quarter. We have not recognized $4.1 million oftax benefit from the losses resulting from our first-quarter operations,because the realization of these benefits is not considered more likely thannot. Because of its pass-through tax structure, the Predecessor recorded taxexpense related only to small subsidiaries that are taxed as corporations. Incometax expense during the Predecessor periods of January 1 through February 21,2008, and the three months ended March 31, 2007, was $0.6 million and$1.0 million, respectively, consisting of federal and state income taxes.

 

During the three monthsended March 31, 2008, cash paid for taxes, net of refunds due, was$1.5 million. During the Predecessor period of January 1 through February 21,2008, the period of February 1, 2007 (inception) through March 31,2007, and the Predecessor three months ended March 31, 2007, cash paid fortaxes, net of refunds due, was not material.

 

***7.             Leases***

 

We lease our distributioncenters as well as other property and equipment under operating leases. Duringthe Predecessor periods presented, the Predecessor leased its distributioncenters as well as other property and equipment under operating leases. Forpurposes of determining straight-line rent expense, the lease term iscalculated from the date of possession of the facility, including any periodsof free rent and any option periods that are reasonably assured of beingexercised. Straight-line rent expense is also adjusted to reflect anyallowances or reimbursements provided by the lessor. Rental expense foroperating leases and sublease rental income received was as follows (inthousands):

 

11

----

 
| ** **              | ** ** | **Boise Inc.**                            | ** ** | **Predecessor**                                                 | ** ** |
|-------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **              | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **February 1  (Inception)  Through  March 31,  2007** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
|                    |       |                                           |       |                                                            |       |   |   |   |   |
| Rental expenses         |       | $                                              | 1,395      |                                                            | $          | — |   | $ | 2,044 |   | $ | 3,562 |   |
| Sublease rental  income |       | —                                         |       | —                                                          |       | — |   | — |   |
| ** **              | ** ** | **$**                                          | **1,395**  | ** **                                                      | **$**      | **—** | ** ** | **$** | **2,044** | ** ** | **$** | **3,562** | ** ** |

 

For noncancelableoperating leases with remaining terms of more than one year, the minimum leasepayment requirements are $8.7 million for the remainder of 2008,$10.7 million in 2009, $9.7 million in 2010, $7.9 million in2011, $6.7 million in 2012, and $4.9 million in 2013, with total paymentsthereafter of $17.5 million. These future minimum lease paymentrequirements have not been reduced by sublease rentals due in the future undernoncancelable subleases. Minimum sublease income received in the future is notexpected to be material.

 

Substantially all leaseagreements have fixed payment terms based on the passage of time. Some leaseagreements provide us with the option to purchase the leased property.Additionally, some agreements contain renewal options averagingseven years, with fixed payment terms similar to those in the originallease agreements.

 

***8.             Receivables***

 

We have a large, diversified customer base. A large portion of ouruncoated free sheet and office paper sales volume is sold to OfficeMax. We (asdid the Predecessor) market our newsprint through a subsidiary ofAbitibi-Consolidated Inc. (Abitibi) pursuant to an arrangement whereby Abitibipurchases all of the newsprint we produce at a price equal to the price atwhich Abitibi sells newsprint produced at its mills located in the southernUnited States, less associated expenses and a sales and marketing discount.Sales to OfficeMax and Abitibi represent concentrations in the volumes ofbusiness transacted and concentrations of credit risk. At March 31, 2008,we had $46.0 million and $20.7 million of accounts receivable duefrom OfficeMax and Abitibi, respectively.

 

***9.             Inventories***

 

Inventories include the following (in thousands):

 
| ** **                          | ** ** | **Boise Inc.**      | ** **  | **Predecessor**             | ** ** |
|-------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                          | ** ** | **March 31,  2008** | ** **  | **December 31,  2007** | ** ** | **December 31,  2007** | ** ** |
|                                |       |                     |        |                        |       |   |   |
| Finished goods  and work in process |       | $                        | 166,748     |                        | $          | — |   | $ | 163,554 |   |
| Raw materials                       |       | 82,928                   |        | —                      |       | 72,712 |   |
| Supplies and  other                 |       | 88,727                   |        | —                      |       | 88,413 |   |
| ** **                          | ** ** | **$**                    | **338,403** | ** **                  | **$**      | **—** | ** ** | **$** | **324,679** |   |

 

12

----

 

***10.          Property and Equipment, Net***

 

Property and equipment consistedof the following asset classes (in thousands):

 
| ** **                     | ** ** | **Boise Inc.**      | ** **    | **Predecessor**             | ** ** |
|--------------------------------|------------|--------------------------|---------------|-----------------------------|------------|
| ** **                     | ** ** | **March 31,  2008** | ** **    | **December 31,  2007** | ** ** | **December 31,  2007** | ** ** |
|                           |       |                     |          |                        |       |   |   |
| Land and land  improvements    |       | $                        | 31,875        |                        | $          | — |   | $ | 31,592 |   |
| Buildings and  improvements    |       | 249,049                  |          | —                      |       | 185,509 |   |
| Machinery and  equipment       |       | 961,631                  |          | —                      |       | 1,212,425 |   |
| Construction in  progress      |       | 62,717                   |          | —                      |       | 36,535 |   |
|                           |       | 1,305,272                |          | —                      |       | 1,466,061 |   |
| Less accumulated  depreciation |       | (12,014                  | )             | —                      |       | (273,717 | ) |
| ** **                     | ** ** | **$**                    | **1,293,258** | ** **                  | **$**      | **—** | ** ** | **$** | **1,192,344** |   |

 

Property and equipment acquiredin the Acquisition was recorded at estimated fair value on the date of theAcquisition. The purchase price allocation is preliminary and will remain sountil we complete a third-party valuation. Once our purchase price allocationis completed, we will have changes to the amounts shown above (see Note 2,Acquisition of Boise Cascade’s Paper and Packaging Operations, for moreinformation).

 

***11.          Goodwill and Intangible Assets***

 

Goodwill represents the excess of purchase price andrelated costs over the value assigned to the net tangible and intangible assetsof businesses acquired. We account for goodwill in accordance with theprovisions of SFAS No. 142,*Goodwilland Other Intangible Assets*, which requires us to assess ouracquired goodwill and intangible assets with indefinite lives for impairment atleast annually in the absence of an indicator of possible impairment andimmediately upon an indicator of possible impairment. We assess goodwill andintangible assets with indefinite lives in the fourth quarter of each yearusing a fair-value-based approach. We also evaluate the remaining useful livesof our finite-lived purchased intangible assets to determine whether anyadjustments to the useful lives are necessary.

 

We account foracquisitions using the purchase method of accounting. As a result, we allocatethe purchase price to the tangible and intangible assets acquired andliabilities assumed based on their respective fair values as of the date ofacquisition. In accordance with SFAS No. 141,*Business Combinations*, we have one year from the purchasedate to finalize or receive information to determine changes in estimates ofthe fair value of assets acquired and liabilities assumed.

 

We have not allocated anyamounts related to the Acquisition to goodwill pending completion of thepurchase price allocation valuations. Previously recorded goodwill of thePredecessor of approximately $42.2 million at December 31, 2007, waseliminated as part of the preliminary purchase price allocation.

 

Intangible assetsrepresent the preliminary values assigned to trade names and trademarks,customer relationships, and technology in connection with the Acquisition.Customer relationships will be amortized over ten years, and technology will beamortized over five years. During the three months ended March 31, 2008,the Predecessor periods of January 1 through February 21, 2008, andthe three months ended March 31, 2007, intangible asset amortization was$0.4 million, $0, and $1.0 million, respectively. Our estimated amortizationexpense is $1.4 million for the remainder of 2008, $2.1 million in2009, 2010, 2011, and 2012, and $1.4 million in 2013. These estimates maychange based on the final purchase price allocation.

 

13

----

 
| ** **                  | ** ** | **Three Months Ended March 31, 2008** | ** ** |
|-----------------------------|------------|----------------------------------------------------------------|------------|
| ** **                  | ** ** | **Gross Carrying  Amount**                                | ** ** | **Accumulated  Amortization** | ** ** | **Net Carrying  Amount** | ** ** |
| ** **                  | ** ** | **(thousands)**                                                | ** ** |
| Trade names and  trademarks |       | $                                                              | 6,800      |   | $ | — |   | $ | 6,800 |   |
| Customer  relationships     |       | 11,400                                                         |       | (249 | ) | 11,151 |   |
| Technology                  |       | 5,040                                                          |       | (152 | ) | 4,888 |   |
| ** **                  | ** ** | **$**                                                          | **23,240** | ** ** | **$** | **(401** | **)** | **$** | **22,839** |   |

 

Intangible assets of thePredecessor totaling $24.0 million at December 31, 2007, wereeliminated as part of the preliminary purchase price allocations.

 

***12.          Asset Retirement Obligations***

 

We account for asset retirement obligations in accordance with SFAS No. 143,*Accounting for Asset Retirement Obligations*,and Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 47,*Accounting for Conditional Asset RetirementObligations — an Interpretation of FASB Statement No. 143*.We accrue for asset retirement obligations in the period in which they areincurred if sufficient information is available to reasonably estimate the fairvalue of the obligation. When we record the liability, we capitalize the costby increasing the carrying amount of the related long-lived asset. Over time,the liability is accreted to its settlement value, and the capitalized cost isdepreciated over the useful life of the related asset. Upon settlement of theliability, we will recognize a gain or loss for any difference between thesettlement amount and the liability recorded.

 

At March 31, 2008, we had $13.8 million of asset retirementobligations recorded on the Consolidated Balance Sheet. At December 31,2007, the Predecessor had $13.3 million of asset retirement obligationsrecorded on the Consolidated Balance Sheet. These liabilities related primarilyto landfill closure and closed-site monitoring costs. These liabilities arebased on the best estimate of current costs and are updated periodically toreflect current technology, laws and regulations, inflation, and other economicfactors. No assets are legally restricted for purposes of settling assetretirement obligations. The table below describes changes to the asset retirementobligations for Boise Inc. for the three months ended March 31, 2008, andthe Predecessor’s year ended December 31, 2007 (in thousands):

 
| ** **                                                                    | ** ** | **Boise Inc.**      | ** ** | **Predecessor**             | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                    | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
| ** **                                                                    | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Asset retirement  obligation at beginning of period                           | ** ** | **$**                    | **—** | ** **                  | **$**      | 10,771 | ** ** |
| Asset retirement  liability recorded in preliminary purchase price allocation |       | 13,655                   |       | —                      |       |
| Liabilities  incurred                                                         |       | —                   |       | —                      |       |
| Accretion  expense                                                            |       | 113                      |       | 869                         |       |
| Payments                                                                      |       | (4                       | )          | (37                         | )          |
| Revisions in  estimated cash flows                                            |       | —                   |       | 1,700                       |       |
| Asset retirement  obligation at end of period                                 | ** ** | **$**                    | **13,764** | ** **                  | **$**      | **13,303** | ** ** |

 

We have additional asset retirement obligations with indeterminatesettlement dates. The fair value of these asset retirement obligations cannotbe estimated due to the lack of sufficient information to estimate thesettlement dates of the obligations. These asset retirement obligationsinclude, for example, (i) removal and disposal of potentially hazardousmaterials related to equipment and/or an operating facility if the equipmentand/or facilities were to undergo major maintenance, renovation, or demolition;(ii) wastewater treatment ponds that may be required to be drained and/orcleaned if the related operating facility is closed; and (iii) storagesites or owned facilities for which removal and/or disposal of chemicals 

 

14

----

 

and other related materials are required if the operating facility isclosed. We will recognize a liability in the period in which sufficientinformation becomes available to reasonably estimate the fair value of theseobligations.

 

***13.          Debt***

 

At March 31, 2008,our short- and long-term debt was as follows:

 
| ** **                            | ** ** | **Boise Inc.**      | ** **    |
|---------------------------------------|------------|--------------------------|---------------|
| ** **                            | ** ** | **March 31,  2008** | ** **    |
| ** **                            | ** ** | **(thousands)**          | ** **    |
|                                  |       |                     |          |
| Revolving credit  facility, due 2013  |       | $                        | 45,000        |   |
| Tranche A Term  Loan, due 2013        |       | 250,000                  |          |
| Tranche B Term  Loan, due 2014        |       | 475,000                  |          |
| Second Lien Term  Loan, due 2015      |       | 260,700                  |          |
| Current portion  of long-term debt    |       | (11,000                  | )             |
| Long-term debt,  less current portion |       | 1,019,700                |          |
| Current portion  of long-term debt    |       | 11,000                   |          |
|                                  | ** ** | 1,030,700                | ** **    |
| ** **                            | ** ** | ** **               | ** **    |
| 15.75%  Related-party note, due 2015  |       | 58,793                   |          |
| ** **                            | ** ** | **$**                    | **1,089,493** | ** ** |

 

*Senior Secured Credit Facilities*

 

Our new senior secured credit facilities consist of:

 

·                  Afive-year nonamortizing $250.0 million senior secured revolving credit facilitywith interest at either the London Interbank Offered Rate (LIBOR) plus 325basis points or a calculated base rate plus 325 basis points (the RevolvingCredit Facility and, collectively with the Tranche A Term Loan Facility and theTranche B Term Loan Facility, the First Lien Facilities);

 

·                  Afive-year amortizing $250.0 million senior secured Tranche A term loan facilitywith interest at LIBOR plus 325 basis points or a calculated base rate plus 325basis points (the Tranche A Term Loan Facility);

 

·                  A six-yearamortizing $475.0 million senior secured Tranche B term loan facility withinterest at LIBOR plus 350 basis points (subject to a floor of 4.00%) or acalculated base rate plus 250 basis points (the Tranche B Term Loan Facility);and

 

·                  Aseven-year nonamortizing $260.7 million second lien term loan facility withinterest at LIBOR plus 700 basis points (subject to a floor of 5.5%) or acalculated base rate plus 600 basis points (the Second Lien Facility andtogether with the First Lien Facilities, the Credit Facilities).

 

All borrowings under the CreditFacilities bear interest at a rate per annum equal to an applicable margin plusa customary base rate or Eurodollar rate. The base rate means, for any day, arate per annum equal to the greater of (i) the Prime Rate in effect on such dayand (ii) the Federal Funds Effective Rate in effect on such day plus 1⁄2 of 1%. Inaddition to paying interest, the Company pays a commitment fee to the lendersunder the Revolving Credit Facility at a rate of 0.50% per annum (which shallbe reduced to 0.375% when the leverage ratio is less than 2.25:1.00) times thedaily average undrawn portion of the Revolving Credit Facility (reduced by theamount of letters of credit issued and outstanding), which fee will accrue fromthe Acquisition closing date and shall be payable quarterly in arrears. At March 31,2008, we had $45.0 million of borrowings outstanding under the RevolvingCredit Facility. For the three months ended March 31, 2008, the averageinterest rate for our borrowings under our Revolving Credit Facility was 6.3%.The minimum and maximum borrowings under the Revolving Credit Facility werezero and $80.0 million for the three months ended March 31, 2008. Theweighted average amount of borrowings outstanding under the Revolving CreditFacility during the three months ended March 31, 2008, was$73.7 million. At March 31, 2008, we had availability of$196.0 million, which is net of outstanding letters of credit of$9.0 million, above the amount we had borrowed.

 

15

----

 

The Company’s obligations under itsCredit Facilities are guaranteed by each of Boise Paper Holdings, L.L.C.’s (theBorrower) existing and subsequently acquired domestic (and, to the extent nomaterial adverse tax consequences to BZ Intermediate Holdings LLC (Holdings) orBorrower would result therefrom and as reasonably requested by theadministrative agent under each Credit Facility, foreign) subsidiaries andHoldings (collectively, the Guarantors). The First Lien Facilities are securedby a first-priority security interest in substantially all of the real,personal, and mixed property of Borrower and the Guarantors, including afirst-priority security interest in 100% of the equity interests of Borrowerand each domestic subsidiary of Holdings, 65% of the equity interests of eachof Holdings’ foreign subsidiaries (other than Boise Hong Kong Limited so longas Boise Hong Kong Limited does not account for more than $2,500,000 ofconsolidated earnings before interest, taxes, depreciation, and amortization(EBITDA) during any fiscal year of Borrower), and all intercompany debt. TheSecond Lien Facility is secured by a second-priority security interest insubstantially all of the real, personal, and mixed property of Borrower and theGuarantors, including a second-priority security interest in 100% of the equityinterests of Borrower and each domestic subsidiary of Holdings, 65% of theequity interests of each of Holdings’ foreign subsidiaries (other than BoiseHong Kong Limited so long as Boise Hong Kong Limited does not account for morethan $2,500,000 of consolidated EBITDA during any fiscal year of Borrower), andall intercompany debt.

 

In the event all or any portion ofthe Tranche B Term Loan Facility is repaid pursuant to any voluntaryprepayments or mandatory prepayments with respect to asset sale proceeds orproceeds received from the issuance of debt prior to the second anniversary ofthe Acquisition closing date, such repayments will be made at (a) 102.0%of the amount repaid if such repayment occurs prior to the first anniversary ofthe Acquisition closing date and (b) 101.0% of the amount repaid if suchrepayment occurs on or after the first anniversary of the Acquisition closingdate and prior to the second anniversary of the Acquisition closing date.

 

Subject to the provisions of theintercreditor agreement between the First Lien Facility and the Second LienFacility, in the event the Second Lien Facility is prepaid as a result of avoluntary or mandatory prepayment (other than as a result of a mandatoryprepayment with respect to insurance/condemnation proceeds or excess cash flow)at any time prior to the third anniversary of the Acquisition closing date,Borrower shall pay a prepayment premium equal to the “make-whole premium” asdescribed below.

 

At any time after the thirdanniversary of the Acquisition closing date and prior to the sixth anniversaryof the Acquisition closing date, subject to the provisions of the First LienFacilities, the Second Lien Facility may be prepaid in whole or in part subjectto the “call premium” as described below, provided that loans bearing interestwith reference to the reserve-adjusted Eurodollar rate will be prepayable onlyon the last day of the related interest period unless Borrower pays any relatedbreakage costs.

 

The ‘‘make-whole premium’’ means,with respect to a Second Lien Facility loan on any date of prepayment, thepresent value of (a) all required interest payments due on such SecondLien Facility loan from the date of prepayment through and including themake-whole termination date, excluding accrued interest (assuming that theinterest rate applicable to all such interest is the swap rate at the close ofbusiness on the third business day prior to the date of such prepayment withthe termination date nearest to the make-whole termination date plus 7.00%),plus (b) the prepayment premium that would be due if such prepayment weremade on the day after the make-whole termination date, in each case discountedto the date of prepayment on a quarterly basis (assuming a 360-day year andactual days elapsed) at a rate equal to the sum of such swap rate plus 0.50%.

 

The “call premium” means that inthe event all or any portion of the Second Lien Facility is repaid as a resultof a voluntary prepayment or mandatory prepayment with respect to asset saleproceeds or proceeds received from the issuance of debt after the thirdanniversary of the Acquisition closing date and prior to the sixth anniversaryof the Acquisition closing date, such repayments will be made at (i) 105.0%of the amount repaid if such repayment occurs on or after the third anniversaryof the Acquisition closing date and prior to the fourth anniversary of theAcquisition closing date, (ii) 103.0% of the amount repaid if suchrepayment occurs on or after the fourth anniversary of the Acquisition closingdate and prior to the fifth anniversary of the Acquisition closing date, and (iii) 101.0%of the amount repaid if such repayment occurs on or after the fifth anniversaryof the Acquisition closing date, and prior to the sixth anniversary of theAcquisition closing date.

 

16

----

 

Subject to specified exceptions,the Credit Facilities require that the proceeds from certain asset sales,casualty insurance, certain debt issuances, and 75% (subject to step-downsbased on certain leverage ratios) of the excess cash flow for each fiscal yearmust be used to pay down outstanding borrowings. Required debt principalrepayments, excluding those from excess cash flows, total $8.3 million forthe balance of 2008; $15.7 million in 2009; $26.6 million in 2010;$48.5 million in 2011; $134.4 million in 2012; and$797.2 million thereafter.

 

The loan documentation for theCredit Facilities contains, among other terms, representations and warranties,covenants, events of default and indemnification customary for loan agreementsfor similar leveraged acquisition financings, and other representations andwarranties, covenants, and events of default deemed by the administrative agentof the First Lien Facilities or the Second Lien Facility, as applicable, to beappropriate for the specific transaction. The First Lien Facilities requireHoldings and its subsidiaries to maintain a minimum interest coverage ratio anda maximum leverage ratio, the Second Lien Facility requires Holdings and itssubsidiaries to maintain a maximum leverage ratio, and the Credit Facilitieslimit the ability of Holdings and its subsidiaries to make capitalexpenditures.

 

In connection with theAcquisition, Boise Inc. entered into a note (the Related-Party Note) with BoiseCascade, as partial consideration. Subsequently, Boise Cascade transferred thenote payable to its parent company, Boise Cascade Holdings, L.L.C. With theexception of the subsidiaries party to the Credit and Guaranty Agreement, datedas of February 22, 2008, by and among Boise Paper Holdings, L.L.C., BZIntermediate Holding Sub LLC, the other subsidiaries of the Company partythereto, the lenders and agents party thereto, Goldman Sachs Credit PartnersL.P., as joint lead arranger, administrative agent, and collateral agent, andLehman Brothers Inc., as joint lead arranger, each of the Company’s current andfuture domestic subsidiaries are joint and several obligors under thisRelated-Party Note. On February 22, 2008, certain subsidiaries of theCompany entered into a Subordinated Guaranty Agreement, guaranteeing theobligations of the Company to Boise Cascade under the Related-Party Note.

 

The Related-Party Notebears interest at 15.75% per annum (computed on the basis of a 360-day year),payable quarterly (each such quarterly payment date, an Interest Payment Date).Interest will accrue on the Related-Party Note and be added to the principalamount of the Related-Party Note on each Interest Payment Date. TheRelated-Party Note matures on August 21, 2015, provided that if such dateis more than 181 days after the scheduled maturity date of the indebtednessunder the Credit Facilities, then the maturity date shall automatically bedeemed to be 181 days after the latest maturity date of any such indebtedness.At maturity, the amount of the Related-Party Note will be approximately$180.2 million.

 

The Company may prepaythe Related-Party Note at any time in whole or in part, without premium or penalty,subject to any restrictions contained in the Company’s senior creditfacilities. The Company must prepay the Related-Party Note upon the occurrenceof the following events: (i) a Change of Control (as defined in the CreditFacilities); (ii) a sale or transfer of 50% or more of the Company’sassets; and (iii) Events of Default (as provided in the Related-PartyNote). The Company must use the proceeds from the sale of equity or debtsecurities or borrowings to repay the Related-Party Note, subject to anyrestrictions contained in the Company’s senior credit facilities. Anypostclosing adjustments to the purchase price in connection with theAcquisition resulting in a payment owed to the Company will be effected bymeans of a reduction in the principal amount of the Related-Party Note.

 

The Predecessor had no short- or long-term debt outstanding at December 31,2007.

 

*Other*

 

At March 31, 2008, we had $81.1 million of costs recorded in “Deferredfinancing costs” on our Consolidated Balance Sheet related to the Acquisition.The amortization of these costs is recorded in interest expense using theeffective interest method over the life of the loans. We recorded$0.8 million of amortization expense for the three months ended March 31,2008.

 

For the three months ended March 31, 2008, cash payments for interest,net of interest capitalized, was $8.5 million.

 

17

----

 

***14.          Financial Instruments***

 

Weare exposed to market risks including changes in interest rates, energy prices,and foreign currency exchange rates. We employ a variety of practices to managethese risks, including operating and financing activities and, where deemedappropriate, the use of derivative instruments. Derivative instruments are usedonly 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).

 

Inaccordance with SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*, as amended, 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,” as appropriate. Thegain or loss on derivatives designated as cash flow hedges is included in “Othercomprehensive income” in the period in which changes in fair value occur and isreclassified to income (loss) in the period in which the hedged item affectsincome (loss), and any ineffectiveness is recognized currently in ourConsolidated Statements of Income (Loss). 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.

 

*Interest Rate Risk*

 

With the exception of the Related-Party Note, our debtis variable-rate debt. In late April 2008, we entered into interest ratederivative financial instruments to hedge a portion of our exposure to changesin interest rates.

 

*Energy Risk*

 

Weenter into natural gas swaps, options, or a combination of these instruments tohedge the variable cash flow risk of natural gas purchases at index prices. Asof March 31, 2008, we had entered into derivative instruments related toapproximately 3% of our forecasted natural gas purchases from July 2008through October 2008 and approximately 2% of our forecasted natural gaspurchases from November 2008 through March 2009. We have elected toaccount for these instruments as economic hedges and record the changes in fairvalue in “Materials, labor, and operating expenses” in our ConsolidatedStatements of Income (Loss). In April 2008, we entered into derivativeinstruments to hedge additional exposure related to natural gas prices.

 

*Foreign Currency Risk*

 

At March 31,2008, we had no material foreign currency risk.

 

*Predecessor*

 

During the Predecessor periods presented, Boise Cascade occasionally usedinterest rate swaps to hedge variable interest rate risk. Because debt andinterest costs were not allocated to the Predecessor, the effects of theinterest rate swaps were not included in the Predecessor consolidated financialstatements.

 

18

----

 

***15.          New and Recently Adopted Accounting Standards***

 

In March 2008, the FASB issued SFAS No. 161, *Disclosures About Derivative Instruments and HedgingActivities*. SFAS No. 161 requires enhanced disclosures aboutderivative instruments and hedging activities to enable investors to betterunderstand their effects on financial position, financial performance, and cashflows. These requirements include the disclosure of the fair values ofderivative instruments and their gains and losses in a tabular format. SFAS No. 161is effective for fiscal years beginning after November 15, 2008, whichwill require us to adopt these provisions in 2009. Early adoption of SFAS No. 161is permitted. We are currently evaluating the impact SFAS No. 161will have on our consolidated financial statement disclosures.

 

In December 2007, the FASB issued SFAS No. 141(R), *Business Combinations,*and SFAS No. 160,*Accounting and Reporting of NoncontrollingInterest in Consolidated Financial Statements, an Amendment of AccountingResearch Bulletin (ARB) No. 51.* These new standards willsignificantly change the accounting for and reporting of business combinationtransactions and noncontrolling (minority) interests in consolidated financialstatements. SFAS Nos. 141(R) and 160 are required to be adoptedsimultaneously and are effective for the first annual reporting periodbeginning on or after December 15, 2008. Thus, we are required to adoptthese standards on January 1, 2009. Earlier adoption is prohibited. Theimpact of adopting these standards will be limited to business combinationsoccurring on or after January 1, 2009.

 

In September 2006,the FASB issued SFAS No. 157,*FairValue Measurements*. This statement defines fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements. This statement applies under other accounting pronouncements thatrequire or permit fair value measurements, the FASB having previously concludedin those accounting pronouncements that fair value is the relevant measurementattribute. Accordingly, this statement does not require any new fair valuemeasurements. We adopted this standard January 1, 2008, and the adoptiondid not have an impact on our financial position or results of operations**.** In February 2008, the FASB issued Staff Position No. 157-2,which provides a one-year delayed application of SFAS No. 157 fornonfinancial assets and liabilities, except for items that are recognized ordisclosed at fair value in the financial statements on a recurring basis (atleast annually). We must adopt these new requirements no later than our firstquarter of fiscal 2009.

 

***16.          Retirement and Benefit Plans***

 

During 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 was calculatedbased on costs directly attributable to our employees and, in the case of thePredecessor employees of the Paper Group, an allocation of expense related tocorporate employees that serviced all Boise Cascade business units.

 

Some of our employees participatein noncontributory defined pension plans that were either transferred from orspun off from Boise Cascade. The salaried defined benefit pension plan isavailable only to employees who were formerly employed by OfficeMax 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 itsConsolidated Statements of Income (Loss). Expenses attributable toparticipation in noncontributory defined benefit plans for the three monthsended March 31, 2008, and the Predecessor periods of January 1through February 21, 2008, and the three months ended March 31, 2007,were $1.2 million, $1.8 million, and $3.0 million, respectively.

 

Some of our and thePredecessor’s employees participated in contributory defined contributionsavings plans, which covered most of our salaried and hourly employees.Expenses related to matching contributions attributable to participation incontributory defined contribution savings plans for the three 

 

19

----

 

months ended March 31,2008, and the Predecessor periods of January 1 through February 21,2008, and the three months ended March 31, 2007, were $0.8 million,$2.1 million, and $2.5 million, respectively. Employees that are noteligible to participate in the noncontributory defined benefit pension plansare eligible for additional discretionary company matching contributions basedon a percentage approved each plan year.

 

Some of our and thePredecessor’s employees participated in deferred compensation plans, in whichkey managers and nonaffiliated directors may irrevocably elect to defer aportion of their base salary and bonus or director’s fees until termination ofemployment or beyond. A participant’s account is credited with imputed interestat a rate equal to 130% of Moody’s composite average of yields on corporatebonds. In addition, participants other than directors may elect to receivetheir company matching contributions in the deferred compensation plan in lieuof any matching contribution in the contributory defined contribution savingsplan. The deferred compensation plans are unfunded; therefore, benefits arepaid from general assets of the company. At March 31, 2008, we had noliabilities attributable to participation in our new deferred compensationplan, which is effective on April 1, 2008, on our Consolidated BalanceSheet. At December 31, 2007, the Predecessor had $3.8 million ofliabilities attributable to participation in Boise Cascade’s deferredcompensation plan recorded on the Predecessor’s Consolidated Balance Sheet.This liability is not an obligation of Boise Inc. and is not recorded on ourConsolidated Balance Sheet at March 31, 2008.

 

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. The postretirement benefit plans have a December 31 measurementdate.

 

*Obligations and Funded Status ofPostretirement Benefits and Pensions*

 

The Predecessor treatedparticipants in its pension plans as participants in multiemployer plans;accordingly, the Predecessor has not reflected any assets or liabilitiesrelated to the noncontributory defined benefit pension plans on itsConsolidated Balance Sheet at December 31, 2007. In connection with theAcquisition, we have treated the pension and postretirement benefit plans ascompany-sponsored and have measured the benefit obligation and funded status asof February 22, 2008. The funded status changes from period to periodbased on the investment return from plan assets, contributions, benefitpayments, and the discount rate used to measure the obligation. The fundedstatus of the pension and postretirement plans recorded in connection with theAcquisition is shown in the table below as of February 22, 2008 (inthousands):

 
| ** **                    | ** ** | **Pension Benefits** | ** **  | **Other Benefits** | ** ** |
|-------------------------------|------------|---------------------------|-------------|-------------------------|------------|
|                          |       |                      |        |                    |       |
| Projected  benefit obligation |       | $                         | (379,390    | )                       | $          | (2,723 | ) |
| Market value of  assets       |       | 323,640                   |        | —                  |       |
| Funded status                 | ** ** | **$**                     | **(55,750** | **)**                   | **$**      | **(2,723** | **)** |

 

The accumulated benefitobligation for pension benefits at February 22, 2008 was$339.1 million.

 

20

----

 

*Componentsof Net Periodic Benefit Cost*

 

The components of netperiodic benefit cost are as follows (in thousands):

 
| ** **                                     | ** ** | **Pension Benefits**                      | ** ** | **Other Benefits**                              | ** ** |
|------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                     | ** ** | **Boise Inc.**                            | ** ** | **Predecessor**                                      | ** ** | **Predecessor** | ** ** | **Boise Inc.** | ** ** | **Predecessor** | ** ** | **Predecessor** | ** ** |
| ** **                                     | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
| ** **                                     | ** ** | ** **                                     | ** ** | ** **                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service cost                                   |       | $                                              | 1,134      |                                                 | $          | 1,566 |   | $ | 2,998 |   | $ | — |   | $ | — |   | $ | 53 |   |
| Interest cost                                  |       | 2,572                                          |       | 3,458                                                |       | 5,667 |   | 5 |   | 18 |   | 103 |   |
| Expected return  on plan assets                |       | (2,517                                         | )          | (3,452                                               | )          | (5,855 | ) | — |   | — |   | — |   |
| Recognized  actuarial (gain) loss              |       | —                                         |       | (21                                                  | )          | 67 |   | — |   | (12 | ) | — |   |
| Amortization of  prior service costs and other |       | —                                         |       | 194                                                  |       | 176 |   | — |   | — |   | — |   |
| Plan  settlement/curtailment (gain)            |       | —                                         |       | —                                               |       | (46 | ) | — |   | — |   | — |   |
| Company-sponsored  plans                       |       | 1,189                                          |       | 1,745                                                |       | 3,007 |   | 5 |   | 6 |   | 156 |   |
| Multiemployer  pension plans                   |       | 43                                             |       | 75                                                   |       | — |   | — |   | — |   | — |   |
| Net periodic  benefit costs                    | ** ** | **$**                                          | **1,232**  | ** **                                           | **$**      | **1,820** | ** ** | **$** | **3,007** | ** ** | **$** | **5** | ** ** | **$** | **6** | ** ** | **$** | **156** | ** ** |

 

*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:

 
| ** **                     | ** ** | **Pension Benefits**   | ** ** | **Other Benefits**     | ** ** |
|--------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                     | ** ** | **Boise Inc.**         | ** ** | **Boise Inc.**         | ** ** | **Predecessor** | ** ** |
| ** **                     | ** ** | **February 22,  2008** | ** ** | **February 22,  2008** | ** ** | **December 31,  2007** | ** ** |
|                           |       |                        |       |                        |       |   |   |
| Discount rate                  |       | 6.50                        | %          | 5.50                        | %          | 5.75 | % |
| Rate of compensation  increase |       | 4.25                        | %          | —                      | %          | — | % |

 

The following tablepresents the assumptions used in the measurement of net periodic benefit cost:

 
| ** **                                                    | ** ** | **Pension Benefits**                      | ** ** | **Other Benefits**                              | ** ** |
|---------------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                    | ** ** | **Boise Inc.**                            | ** ** | **Predecessor**                                      | ** ** | **Predecessor** | ** ** | **Boise Inc.** | ** ** | **Predecessor** | ** ** | **Predecessor** | ** ** |
| ** **                                                    | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
|                                                          |       |                                           |       |                                                 |       |   |   |   |   |   |   |   |   |
| Discount rate                                                 |       | 6.50                                           | %          | 6.40                                                 | %          | 5.90 | % | 4.70 | % | 5.50 | % | 5.75 | % |
| Expected  long-term rate of return   on plan assets |       | 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 assumptionwas determined using a spot rate yield curve constructed to replicate Aa-gradedcorporate bonds. The plan’s projected cash flows were duration-matched to thisyield curve to develop an appropriate discount rate.

 

21

----

 

*AssetReturn Assumption*. The expected long-term rate of return onplan assets was based on a weighted average of the expected returns for themajor investment asset classes. Expected returns for the asset classes arebased on long-term historical returns, inflation expectations, forecasted grossdomestic product, earnings growth, and other economic factors. The weightsassigned to each asset class were based on the investment strategy.

 

*Rateof Compensation Increases. *This assumption reflects thelong-term actual experience, the near-term outlook, and assumed inflation.

 

The following tablepresents our assumed healthcare cost trend rates at March 31, 2008, andthe Predecessor’s at December 31, 2007:

 
| ** **                                                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted average  assumptions:                                                     |       |     |       |     |       |
| Healthcare cost  trend rate assumed for next year                                  |       | 9.50     | %          | 9.50     | %          |
| Rate to which  the cost trend rate is assumed to decline (the ultimate trend rate) |       | 5.00     | %          | 5.00     | %          |
| Year that the  rate reaches the ultimate trend rate                                |       | 2017     |       | 2017     |       |

 

Assumed healthcare costtrend rates affect the amounts reported for the healthcare plans. At March 31,2008, 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.

 

During the remainder of2008, we are not required to make minimum contributions to our pension plans.

 

***17.******          Stockholders’ Equity***

 

*Preferred Stock*

 

The Company is authorizedto issue 1,000,000 shares of preferred stock with such designations, voting,and other rights and preferences as may be determined from time to time by theBoard of Directors. No shares were issued or outstanding at March 31,2008, and December 31, 2007.

 

*Common Stock*

 

We are authorized toissue 250,000,000 shares of common stock, of which 77,259,947 shares wereissued and outstanding at March 31, 2008. At December 31, 2007, wehad 51,750,000 shares of common stock issued and outstanding, of which16,555,860 shares were subject to possible conversion.

 

On February 5, 2008,stockholders owning 12,543,778 shares exercised their conversion rights andvoted against the Acquisition of Boise Cascade. Such stockholders were entitledto receive their per-share interest in the proceeds from our initial publicoffering, which had been held in trust. At December 31, 2007, cash held intrust was $403,989,389. In connection with the Acquisition, we paid$120,169,890 from our cash held in trust to these stockholders. The remainingcash held in trust was used to effect the Acquisition.

 

*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, commencing on thelater of the completion of a business combination and one year from theeffective date of the public offering and expiring four years from theeffective date of the public offering. We may redeem the Warrants, at a priceof $0.01 per Warrant, upon 30 days’ notice while the Warrants are exercisable,only in the event that the last sale price of the common stock is at least$14.25 per share for any 20 trading days within a 30 trading day period endingon the third day prior to the date on which notice of redemption is given.

 

Simultaneously with theconsummation of the public offering, Aldabra 2 Acquisition Corp.’s chairman andchief executive officer purchased a total of 3,000,000 Warrants (the InsiderWarrants) at $1.00 per Warrant (for an aggregate purchase price of $3,000,000)privately. The amount paid for the Warrants approximated fair value on the dateof issuance. All of the proceeds received from these 

 

22

----

 

purchases were placed incash held in trust. The Insider Warrants purchased were identical to theWarrants underlying the Units issued in the public offering except that theWarrants may not be called for redemption and the Insider Warrants may beexercisable on a “cashless basis,” at the holder’s option, so long as suchsecurities are held by such purchaser or his affiliates.

 

***18.******          Equity Compensation***

 

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 thethree months ended March 31, 2007, the Predecessor recognized $0.2 millionand $0.4 million of compensation expense, most of which was recorded in “Generaland administrative expenses” in the Consolidated Statements of Income (Loss).

 

During the three monthsended March 31, 2008, we made no equity compensation awards.

 

***19.******          ComprehensiveIncome (Loss)***

 

Comprehensive income(loss) includes the following (in thousands):

 
| ** **                                          | ** ** | **Boise Inc.**                            | ** **  | **Predecessor**                                                 | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------|-------------|-----------------------------------------------------------------|------------|
| ** **                                          | ** ** | **Three  Months  Ended  March 31,  2008** | ** **  | **February 1  (Inception)  Through  March 31,  2007** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
|                                                |       |                                           |        |                                                            |       |   |   |   |   |
| Net income  (loss)                                  |       | $                                              | (16,371     | )                                                               | $          | (1 | ) | $ | 22,786 |   | $ | 21,991 |   |
| Other  comprehensive income (loss) cash flow hedges |       | —                                         |        | —                                                          |       | — |   | (9,376 | ) |
| Comprehensive  income (loss)                        | ** ** | **$**                                          | **(16,371** | **)**                                                           | **$**      | **(1** | **)** | **$** | **22,786** | ** ** | **$** | **12,615** | ** ** |

 

***20.******          SegmentInformation***

 

There are nomaterial differences in Boise Inc.’s basis of segmentation or in Boise Inc.’sbasis of measurement of segment profit or loss from those disclosed in thePredecessor’s Note 15, Segment Information, of the Predecessor’s Notes toConsolidated Financial Statements in Exhibit 99.2 of Boise Inc.’s CurrentReport on Form 8-K filed with the SEC on February 28, 2008. We havenot included segment information related to the period of February 1(inception) through March 31, 2007, which represents the activities ofAldabra 2 Acquisition Corp., as the segment results related to this period areinsignificant.

 

23

----

 

An analysis of operationsby segment is as follows:

 

**Boise Inc.**

** **
| ** **                                  | ** ** | ** ** | ** ** | ** **  | ** ** | ** **        | ** ** | ** **     | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|-------------|------------|-------------------|------------|----------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                  | ** ** | **Sales**  | ** ** | **(Loss)**  | ** ** | **Amortization,** | ** ** | ** **     | ** ** |
| ** **                                  | ** ** | ** ** | ** ** | **Related** | ** ** | **Inter-**        | ** ** | ** **     | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                  | ** ** | **Trade**  | ** ** | **Parties** | ** ** | **segment**       | ** ** | **Total**      | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(a)**    | ** ** |
| ** **                                  | ** ** | ** ** | ** ** | ** **  | ** ** | ** **        | ** ** | **(millions)** | ** ** | ** ** | ** ** | ** **        | ** ** | ** ** | ** ** |
| **Three  Months Ended March 31, 2008** |       |       |       |        |       |              |       |           |       |       |       |              |       |       |       |
|                                        |       |       |       |        |       |              |       |           |       |       |       |              |       |       |       |
| Paper                                       |       | $          | 165.1      |        | $          | —            |       | $              | 7.1        |       | $          | 172.2             |       | $          | 11.8       |   | $ | 7.1 |   | $ | 19.0 |   |
| Packaging                                   |       | 59.5       |       | —      |       | 0.4               |       | 59.9           |       | (19.8      | )          | 5.2               |       | (14.5      | )          |
| Corporate and  Other                        |       | 1.5        |       | 1.9         |       | 4.7               |       | 8.1            |       | (2.1       | )          | 0.4               |       | (1.9       | )          |
|                                        |       | 226.1      |       | 1.9         |       | 12.2              |       | 240.2          |       | (10.1      | )          | 12.7              |       | 2.6        |       |
| Intersegment  eliminations                  |       | —     |       | —      |       | (12.2             | )          | (12.2          | )          | —     |       | —            |       | —     |       |
| Interest expense                            |       | —     |       | —      |       | —            |       | —         |       | (11.4      | )          | —            |       | —     |       |
| Interest income                             |       | —     |       | —      |       | —            |       | —         |       | 1.8        |       | —            |       | —     |       |
| ** **                                  | ** ** | **$**      | **226.1**  | ** **  | **$**      | **1.9**           | ** ** | **$**          | **—** | ** ** | **$**      | **228.0**         | ** ** | **$**      | **(19.7**  | **)** | **$** | **12.7** | ** ** | **$** | **2.6** | ** ** |

** **

**Predecessor**

 
| ** **                                         | ** ** | ** ** | ** ** | ** **  | ** ** | ** **        | ** ** | ** **     | ** ** | **Income** | ** ** | **Depreciation,** | ** ** | ** ** | ** ** |
|----------------------------------------------------|------------|------------|------------|-------------|------------|-------------------|------------|----------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                         | ** ** | **Sales**  | ** ** | **(Loss)**  | ** ** | **Amortization,** | ** ** | ** **     | ** ** |
| ** **                                         | ** ** | ** ** | ** ** | **Related** | ** ** | **Inter-**        | ** ** | ** **     | ** ** | **Before** | ** ** | **and**           | ** ** | **EBITDA** | ** ** |
| ** **                                         | ** ** | **Trade**  | ** ** | **Parties** | ** ** | **segment**       | ** ** | **Total**      | ** ** | **Taxes**  | ** ** | **Depletion**     | ** ** | **(a)**    | ** ** |
| ** **                                         | ** ** | ** ** | ** ** | ** **  | ** ** | ** **        | ** ** | **(millions)** | ** ** | ** ** | ** ** | ** **        | ** ** | ** ** | ** ** |
| **January 1  Through February 21, 2008** | ** ** | ** ** | ** ** | ** **  | ** ** | ** **        | ** ** | ** **     | ** ** | ** ** | ** ** | ** **        | ** ** | ** ** | ** ** |
|                                               |       |       |       |        |       |              |       |           |       |       |       |              |       |       |       |
| Paper                                              |       | $          | 154.4      |        | $          | 90.0              |       | $              | 9.1        |       | $          | 253.5             |       | $          | 20.7       |   | $ | 0.3 |   | $ | 21.1 |   |
| Packaging                                          |       | 102.2      |       | 10.9        |       | 0.4               |       | 113.5          |       | 5.7        |       | 0.1               |       | 5.7        |       |
| 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       |       |
| Intersegment  eliminations                         |       | —     |       | —      |       | (15.6             | )          | (15.6          | )          | —     |       | —            |       | —     |       |
| Interest expense                                   |       | —     |       | —      |       | —            |       | —         |       | —     |       | —            |       | —     |       |
| Interest income                                    |       | —     |       | —      |       | —            |       | —         |       | 0.2        |       | —            |       | —     |       |
| ** **                                         | ** ** | **$**      | **258.4**  | ** **  | **$**      | **101.5**         | ** ** | **$**          | **—** | ** ** | **$**      | **359.9**         | ** ** | **$**      | **23.4**   | ** ** | **$** | **0.5** | ** ** | **$** | **23.7** | ** ** |

 

24

----

 

**Predecessor**

 
| ** **                                  | ** ** | ** **     | ** ** | ** **           | ** ** | ** **          | ** ** | ** ** | ** ** | **Income**        | ** ** | **Depreciation,**  | ** ** | ** **      | ** ** |
|---------------------------------------------|------------|----------------|------------|----------------------|------------|---------------------|------------|------------|------------|-------------------|------------|--------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **Sales**      | ** ** | **(Loss)**           | ** ** | **Amortization,**   | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Trade**      | ** ** | **Related  Parties** | ** ** | **Inter-  segment** | ** ** | **Total**  | ** ** | **Before  Taxes** | ** ** | **and  Depletion** | ** ** | **EBITDA  (a)** | ** ** |
| ** **                                  | ** ** | **(millions)** | ** ** |
| **Three  Months Ended March 31, 2007** |       |           | ** ** | ** **           | ** ** | ** **          | ** ** | ** ** | ** ** | ** **        | ** ** | ** **         | ** ** | ** **      | ** ** |
|                                        |       |           |       |                 |       |                |       |       |       |              |       |               |       |            |       |
| Paper                                       |       | $              | 222.9      |                 | $          | 157.8               |       | $          | 14.3       |              | $          | 395.0              |       | $               | 18.1       |   | $ | 16.6 |   | $ | 34.7 |   |
| Packaging                                   |       | 176.7          |       | 16.9                 |       | 0.4                 |       | 194.0      |       | 8.1               |       | 13.4               |       | 21.5            |       |
| Corporate and  Other                        |       | 3.3            |       | 1.1                  |       | 9.5                 |       | 13.9       |       | (3.4              | )          | 0.8                |       | (2.6            | )          |
|                                        |       | 402.9          |       | 175.8                |       | 24.2                |       | 602.9      |       | 22.8              |       | 30.8               |       | 53.6            |       |
| Intersegment  eliminations                  |       | —         |       | —               |       | (24.2               | )          | (24.2      | )          | —            |       | —             |       | —          |       |
| Interest expense                            |       | —         |       | —               |       | —              |       | —     |       | —            |       | —             |       | —          |       |
| Interest income                             |       | —         |       | —               |       | —              |       | —     |       | 0.1               |       | —             |       | —          |       |
| ** **                                  | ** ** | **$**          | **402.9**  | ** **           | **$**      | **175.8**           | ** ** | **$**      | **—** | ** **        | **$**      | **578.7**          | ** ** | **$**           | **23.0**   | ** ** | **$** | **30.8** | ** ** | **$** | **53.6** | ** ** |
|                                             |            |                |            |                      |            |                     |            |            |            |                   |            |                    |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(a)           EBITDA represents income (loss) beforeinterest, income tax provision (benefit), and depreciation, amortization, anddepletion. EBITDA is the primary measure used by our chief operating decisionmakers to evaluate segment operating performance and to decide how to allocateresources to segments. We believe EBITDA is useful to investors because itprovides a means to evaluate the operating performance of our segments and ourcompany on an ongoing basis using criteria that are used by our internal decisionmakers and because it is frequently used by investors and other interestedparties in the evaluation of companies with substantial financial leverage. Webelieve EBITDA is a meaningful measure because it presents a transparent viewof our recurring operating performance and allows management to readily viewoperating trends, perform analytical comparisons, and identify strategies toimprove operating performance. For example, we believe that the inclusion ofitems such as taxes, interest expense, and interest income distorts management’sability to assess and view the core operating trends in our segments. EBITDA,however, is not a measure of our liquidity or financial performance undergenerally accepted accounting principles (GAAP) and should not be considered asan alternative to net income (loss), income (loss) from operations, or anyother performance measure derived in accordance with GAAP or as an alternativeto cash flow from operating activities as a measure of our liquidity. The useof EBITDA instead of net income (loss) or segment income (loss) has limitationsas an analytical tool, including the inability to determine profitability; theexclusion of interest and associated significant cash requirements; and theexclusion of depreciation, amortization, and depletion, which representsignificant and unavoidable operating costs, given the level of ourindebtedness and the capital expenditures needed to maintain our businesses.Management compensates for these limitations by relying on our GAAP results.Our measures of EBITDA are not necessarily comparable to other similarly titledcaptions of other companies due to potential inconsistencies in the methods ofcalculation.

 

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

 
| ** **                                 | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
|--------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|
|                                       |       |                                           |       |                                                 |       |                                           |       |
| Net income  (loss)                         |       | $                                              | (16.4      | )                                                    | $          | 22.8                                           |       | $ | 22.0 |   |
| Interest expense                           |       | 11.4                                           |       | —                                               |       | —                                         |       |
| Interest income                            |       | (1.8                                           | )          | (0.2                                                 | )          | (0.1                                           | )          |
| Income tax  provision (benefit)            |       | (3.4                                           | )          | 0.6                                                  |       | 1.0                                            |       |
| Depreciation,  amortization, and depletion |       | 12.7                                           |       | 0.5                                                  |       | 30.8                                           |       |
| EBITDA                                     | ** ** | **$**                                          | **2.6**    | ** **                                           | **$**      | **23.7**                                       | ** ** | **$** | **53.6** | ** ** |

 

25

----

 

***21.******          Commitmentsand Guarantees***

 

*Commitments*

 

We have commitments for fiber, leases, and utilities.Our lease commitments are discussed further in Note 7, Leases. Inaddition, we have purchase obligations for goods and services, capitalexpenditures, and raw materials entered into in the normal course of business.

 

We are a party to a number of long-term log and fibersupply agreements. At March 31, 2008, our total obligation for log andfiber purchases under contracts with third parties was approximately $185.6 million.Under most of the log and fiber supply agreements, we have the right to cancelor reduce our commitments in the event of a mill curtailment or shutdown. Theprices under most of these agreements is set quarterly or semiannually based onregional market prices, and the estimate is based on contract terms or currentquarter pricing. Our log and fiber obligations are subject to change based on,among other things, the effect of governmental laws and regulations, ourmanufacturing operations not operating in the normal course of business, logand fiber availability, and the status of environmental appeals. Except fordeposits required pursuant to wood supply contracts, these obligations are notrecorded in our consolidated financial statements until contract payment termstake 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 March 31, 2008,we had approximately $30.5 million of utility purchase commitments. Thesepayment obligations were valued at prices in effect on December 31, 2007,or contract language, if available. Because we consume the energy in themanufacture of our products, these obligations represent the face value of thecontracts, not resale value.

 

*Guarantees*

 

We provide guarantees,indemnifications, and assurances to others, which constitute guarantees asdefined under FIN No. 45, *Guarantor’s Accounting andDisclosure Requirements for Guarantees*, *IncludingIndirect Guarantees of Indebtedness of Others*. See Note 13, Debt,included in this Form 10-Q for a description of guarantees, including theapproximate terms of the guarantees, how the guarantees arose, the events orcircumstances that would require us to perform under the guarantees, and themaximum potential undiscounted amounts of future payments we could to requiredto make.

 

***22.******        Legal Proceedings andContingencies***

 

                We are a party to routine legalproceedings that arise in the course of our business. We are not currently aparty to any legal proceedings or environmental claims that we believe wouldhave a material adverse effect on our financial position, results ofoperations, or cash flows.

** **
| ***ITEM  2.*** | ***MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS OF OPERATIONS*** |
|----------------|---------------------------------------------------------------------------------------------------|

 

***Understanding Our Financial Information***

 

The following discussion and analysis provides information managementbelieves to be relevant to understanding our financial condition and results ofoperations. We begin this discussionand analysis with some general background related to our company followed by anoverview of the effects of the “Acquisition of Boise Cascade’s Paper andPackaging Operations” and a discussion of our operating segments. “RecentTrends and Operational Outlook” and “Factors That Affect Operating Results” areintended to give the reader an overview of the goals and challenges and the direction of our business and changesaffecting our products. The analysisthen reviews our “Operating Results” followed by a discussion of relevant merger activity in our industry in “IndustryMergers and Acquisitions.”

 

Wethen discuss our balance sheet and cash flows and our financial commitments inthe section entitled “Liquidity andCapital Resources.” The analysisthen addresses our “Contractual Obligations” and 

 

26

----

 

isfollowed by a discussion of the “Critical Accounting Estimates” that ourmanagement believes are important to understanding the assumptions andjudgments incorporated in our reported financial results.

 

This discussion and analysis includes statements regarding our expectationswith respect to our future performance, liquidity, and capital resources. Suchstatements, along with any other nonhistorical statements in the discussion,are forward-looking. These forward-looking statements are subject to numerousrisks and uncertainties, including, but not limited to, the risks anduncertainties described in “Part II-Item 1A.  Risk Factors” of this Form 10-Q, as well asthose factors listed in other documents we file with the Securities andExchange Commission (SEC).

 

We do not assume an obligation to update any forward-looking statement. Ouractual results may differ materially from those contained in or implied by anyof the forward-looking statements in this Form 10-Q.

 

***Background and Executive Overview***

 

Boise Inc. (formerly Aldabra 2 Acquisition Corp.) or “theCompany,” “we,” “us,” or “our” was a blank check company, created on February 1,2007 (inception) and organized for the purpose of effecting a merger, capitalstock exchange, asset acquisition, or other similar business combination withan operating business. On February 22, 2008, Boise Inc. completed theacquisition (the Acquisition) of Boise White Paper, L.L.C., Boise Packaging &Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp. (collectively,the Paper Group), and other assets and liabilities related to the operation ofthe paper, packaging and newsprint, and transportation businesses of the PaperGroup and part of the headquarters operations of Boise Cascade, L.L.C. (BoiseCascade). The business we acquired is referred to in this report on Form 10-Qas the “Predecessor.” The Acquisition was accomplished through the Company’sacquisition of Boise Paper Holdings, L.L.C. See “Acquisition of Boise Cascade’sPaper and Packaging Operations” below for more information related to theAcquisition.

 

The accompanyingconsolidated statements of income (loss) and cash flows for the three monthsended March 31, 2008 include the activities of Aldabra 2 Acquisition Corp.prior to the Acquisition and the operations of the acquired businesses from February 22,2008, through March 31, 2008. For the period of January 1 through February 21,2008, and for the three months ended March 31, 2007, the consolidatedstatements of income and cash flows of the Predecessor are presented forcomparative purposes. The period of February 1 (inception) through March 31,2007, represents the activities of Aldabra 2 Acquisition Corp.

 

Unless otherwise noted, this “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”refers to the combined activities of Boise Inc. and the Predecessor for eachperiod presented, which we believe is****themost useful comparison between periods. The Acquisition was accounted for inaccordance with Statement of Financial Accounting Standards (SFAS) No. 141,*Business Combinations,*resulting in anew basis of accounting from those previously reported by the Predecessor.However, sales and most operating cost items are substantially consistent withthose reflected by the Predecessor. Finished goods inventories were revalued toestimated selling prices less costs of disposal and a reasonable profit on thedisposal. Depreciation changed as a result of adjustments to the fair values ofproperty and equipment due to our preliminary purchase price allocation. Theseitems, along with changes in interest expense and income taxes, are explainedindependently where appropriate.

 

***Acquisitionof Boise Cascade’s Paper andPackaging Operations***

 

On February 22,2008, we acquired the paper, packaging, and most of the corporate and othersegments of Boise Cascade for cash and securities. We have five pulp and papermills, five corrugated container plants, a corrugated sheet plant, and twopaper distribution facilities located in the United States. Our corporateheadquarters office is in Boise, Idaho.

 

The Acquisition wasaccounted for in accordance with the provisions SFAS No. 141, *Business Combinations*. Upon completion of the transaction,Boise Cascade owned 37.9 million, or 49%, of our outstanding shares. Subsequentto the transaction, Boise Cascade transferred the shares to its parent company,Boise Cascade Holdings, L.L.C.

 

27

----

 

The purchase price waspaid with cash, the issuance of shares of our common stock, and a note payable.These costs, including estimated direct transaction costs, are summarized asfollows:

 
| ** **                                               | ** ** | **(millions)** | ** **  |
|----------------------------------------------------------|------------|----------------|-------------|
|                                                     |       |           |        |
| Cash paid to  Boise Cascade                              |       | $              | 1,252.3     |   |
| Cash paid to  Boise Cascade for financing and other fees |       | 24.9           |        |
| Less: cash  contributed by Boise Cascade                 |       | (38.0          | )           |
| Net cash                                                 |       | 1,239.2        |        |
|                                                     |       |           |        |
| Equity at $9.15  average price per share                 |       | 346.4          |        |
| Lack of marketability  discount                          |       | (41.6          | )           |
| Total equity                                             |       | 304.8          |        |
|                                                     |       |           |        |
| Note payable to  Boise Cascade at closing                |       | 41.0           |        |
| Working capital  adjustment                              |       | 16.8           |        |
| Total note  payable to Boise Cascade                     |       | 57.8           |        |
|                                                     |       |           |        |
| Fees and  expenses                                       |       | 62.2           |        |
|                                                     |       |           |        |
| Total purchase  price                                    | ** ** | **$**          | **1,664.0** | ** ** |

 

*Cash*

 

Upon closing, we paidBoise Cascade $1,252.3 million in cash related to the base purchase priceplus $24.9 million incurred by Boise Cascade for transaction financing costsand fees. Immediately prior to the Acquisition, Boise Cascade contributed$38.0 million of cash to the acquired businesses.

 

*Equity*

 

The number of sharesissued to Boise Cascade totaled 37,857,374. The equity price per share wascalculated based on the average per-share closing price of our common stock forthe 20 trading days ending on the third trading day immediately prior to theconsummation of the Acquisition. Since that average price was below the $9.54floor provided in the purchase agreement, we determined a new measurement datein accordance with Issue No. 2 of Emerging Issues Task Force (EITF) 99-12,*Determination of the Measurement Date for theMarket Price of Acquirer Securities Issued in a Purchase Business Combination*.We calculated a $9.15 average price per share based on two days before andafter the Acquisition measurement date, which was February 14, 2008. Thevalue of stock consideration paid to Boise Cascade was reduced by a 12%discount for a lack of marketability since the stock delivered as considerationwas not registered for resale.

 

*Note payable*

 

In connection with thetransaction, Boise Inc. issued a note payable to Boise Cascade for$41.0 million. Subsequently, Boise Cascade transferred the note payable toits parent company, Boise Cascade Holdings, L.L.C. After the transaction, andpursuant to the purchase agreement, the note increased by $16.8 million forestimated working capital adjustments, the amount by which the working capitalof the acquired paper and packaging businesses exceeded $329.0 million. Finalworking capital adjustments will be made in second quarter of 2008 and areexpected to increase the note by approximately $0.5 million. See Note 4,Transactions With Related Parties, and Note 13, Debt, of the Notes to UnauditedQuarterly Consolidated Financial Statements in “Item 1. Consolidated FinancialStatements” of this Form 10-Q for further information on the note payable.

 

Fees and expensesprimarily consist of debt issuance fees and direct costs of the transaction.

 

The purchase priceallocation is preliminary. The final purchase price allocation will be based onthe fair value of assets acquired and liabilities assumed. The purchase priceallocation will remain 

 

28

----

 

preliminary until wecomplete a third-party valuation. Once fair values are finalized, we may havechanges to the amounts we have included in our preliminary allocation below. Wemay also have adjustments to our depreciation and amortization expense, whichwill be made prospectively. The following table summarizes the preliminary fairvalue allocation of the assets acquired and liabilities assumed at the date ofthe Acquisition:

 
| ** **                | ** ** | **February 22,  2008  Fair Value** | ** **  |
|---------------------------|------------|----------------------------------------------|-------------|
| ** **                | ** ** | **(millions)**                               | ** **  |
|                      |       |                                         |        |   |
| Current assets            |       | $                                            | 590.5       |   |
| Property and  equipment   |       | 1,292.2                                      |        |
| Fiber farms and  deposits |       | 11.0                                         |        |
| Intangible  assets:       |       |                                         |        |
| Trademark and  trade name |       | 6.8                                          |        |
| Customer list             |       | 11.4                                         |        |
| Technology                |       | 5.0                                          |        |
| Deferred  financing costs |       | 81.9                                         |        |
| Other long-term  assets   |       | 4.5                                          |        |
| Current  liabilities      |       | (251.5                                       | )           |
| Long-term  liabilities    |       | (87.8                                        | )           |
| Total purchase  price     | ** ** | **$**                                        | **1,664.0** |   |

 

The following pro formaresults are based on the individual historical results of Boise Inc. and thePredecessor (prior to the Acquisition on February 22, 2008) withadjustments to give effect to the combined operations as if the Acquisition hadbeen consummated on January 1, 2007. The pro forma results are intendedfor information purposes only and do not purport to represent what the combinedcompanies’ results of operations would actually have been had the transactionin fact occurred on January 1, 2007.

 
| ** **                                 | ** ** | **Pro Forma  Three Months  Ended  March 31** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                 | ** ** | **2008**                                                    | ** ** | **2007** | ** ** |
| ** **                                 | ** ** | **(millions, except per-share amounts)**     | ** ** |
|                                       |       |                                                        |       |   |   |
| Sales                                      |       | $                                                           | 587.9      |   | $ | 578.7 |   |
| Net loss                                   |       | (27.0                                                       | )          | (6.5 | ) |
| Net loss per  share—basic and diluted |       | (0.35                                                       | )          | (0.08 | ) |
|                                            |            |                                                             |            |  |  |  |  |

 

***Our Segments***

 

Boise Inc. operates itsbusiness in three reportable segments, Paper, Packaging, and Corporate andOther (support services), and is headquartered in Boise, Idaho. These segmentsrepresent distinct businesses that are managed separately because of differingproducts and services. Each of these businesses requires distinct operating andmarketing strategies. Management reviews the performance of the Company basedon these segments.

 

*Paper.*Our Paper segmentmanufactures and sells uncoated free sheet (including commodity and premiumcut-size office papers); a range of packaging papers (including corrugatingmedium, label and release papers, and flexible packaging papers); commodity andpremium printing and converting papers (including commercial printing papers,envelope papers, and form-related products); and market pulp. Many of thesepaper products are commodity products, while others have specialized featuresthat make these products premium and specialty grades. Our premium gradesinclude 100% recycled and colored cut-size office papers, and our specialtygrades include custom-developed papers for such uses as label and release andflexible food packaging. In 2007, the $80 million conversion of the #3 machinein Wallula, Washington, to Significantly grow label and release capacity wascompleted. We ship to

 

29

----

 

customers both directlyfrom our mills and through distribution centers. In the combined first quarterof 2008, approximately 40% of uncoated free sheet paper sales volume, includingapproximately 72% of the office papers sales volume, was sold to OfficeMaxIncorporated (OfficeMax).

 

*Packaging*. OurPackaging segment manufactures and sells containerboard (linerboard) andnewsprint at our mill in DeRidder, Louisiana. In March of this year, the$23 million linerboard expansion project, which added 50,000 tons of linerboardcapacity that will reduce fuel use and increase product capabilities, wascompleted.

 

We also operate five corrugated containerplants in the Northwest and a sheet feeder plant in Texas. Our corrugatedcontainers are used primarily in the packaging of fresh fruit and vegetables,processed food, beverages, and other industrial and consumer products. OurTexas plant, known as Central Texas Corrugated, or CTC, produces corrugatedsheets that are sold to sheet plants in the Southwest, where they are convertedinto corrugated containers for a variety of customers. Our containerboard andcorrugated products are sold by our own sales personnel and by brokers.

 

We market our newsprint through asubsidiary of Abitibi Consolidated Inc. (Abitibi) pursuant to an arrangementwhereby Abitibi purchases all of the newsprint we produce at a price equal tothe price at which Abitibi sells newsprint produced at its mills located in thesouthern United States, less associated expenses and a sales and marketing discount.The newsprint price is verified through a third-party review.

 

*Corporateand Other*. Our Corporate and Other segment primarily includescorporate support services, related assets and liabilities, and foreignexchange gains and losses. During the Predecessor periods presented, theCorporate and Other segment primarily included an allocation of Boise Cascadecorporate support services and related assets and liabilities. These supportservices included, but were not limited to, finance, accounting, legal,information technology, and human resource functions. This segment alsoincludes transportation assets, such as rail cars and trucks, that we use totransport our products from our manufacturing sites. Rail cars and trucks aregenerally leased. We provide transportation services not only to our ownfacilities but also, on a limited basis, to third parties when geographicproximity and logistics are favorable.

 

Inconnection with the Acquisition, we entered into an outsourcing servicesagreement under which we provide a number of corporate staff services to BoiseCascade at our cost. These services include information technology, accounting,and human resource services. The initial term of the agreement is for threeyears. 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 three months ended March 31, 2008,we recorded $1.5 million in “Sales, Related parties” in our Consolidated Statementof Income (Loss) related to this agreement.

 

***Recent Trends and Operational Outlook***

 

North American demand for packaging andcommunications paper products is heavily influenced by the level of generaleconomic activity. Over time, packaging paper demand has been growing, whilegrowth in most communications paper grades has been negatively affected byelectronic substitution.

 

Containerboard pricingcontinued to be stable in the first quarter of 2008. Demand in agriculture,food, and beverage markets, which constitute about half of our packagingproduct end use markets has remained relatively strong, while industrialmarkets have shown signs of easing as slower economic growth has reduced demandfor packaging papers in the U.S. The impact of weaker domestic demand hasbeen somewhat offset by a relatively weak U.S. dollar, which continues to helpmake export markets attractive for U.S. producers and U.S. markets lessattractive for overseas producers. Many producers announced price increases inearly March. However, it does not appear those increased prices will berealized in the near term, if at all.

 

The uncoatedfreesheet pricing environment was strong in the first quarter of 2008. Weannounced a $60-per-ton price increase for cut-size copy paper that becameeffective in mid-February and a $60-per-ton price increase for mostprinting and converting grades, which is still being implemented. There is noassurance that the announced price increase will be fully realized. Since mostof our cut-size office paper is sold to OfficeMax under a contract whereby theprice OfficeMax pays is

 

30

----

 

determinedby a published index, changes in price for this product sold to OfficeMax tendto lag behind the general market by approximately 60 days.

 

Demand for our targeted label and release,flexible packaging, and premium office papers (such as colored and 100%recycled-content cut-size papers) has been growing. Demand for commoditycommunications papers in North America has continued to decline as electronicmedia substitutes for traditional paper media. According to ResourceInformation Systems, Inc. (RISI), during the first quarter of 2008,uncoated freesheet demand declined 1.7% compared with the same period in 2007, whiledemand for commodity cut-size office papers declined 1.0%. Demand for uncoatedfree sheet printing and converting papers also continues to be heavily affectedby the shift to electronic media for communications.

 

Two factors haveallowed producers to raise prices in the face of decreasing demand: first,producers have closed or converted capacity to offset demand reductions, andsecond, the decreased value of the U.S. dollar, relative to other currencies,has allowed U.S. producers to export profitably while making U.S. markets lessattractive to offshore producers. As a result, industry inventories are lowrelative to historical standards, and most producers have announced priceincreases.

 

North American newsprint demand hascontinued to trend downward. In December 2007, AbitibiBowater Inc.(AbitibiBowater), the largest producer of newsprint in North America, announcedthe permanent closure of manufacturing facilities with approximately 1 milliontons of annual capacity of groundwood printing and newsprint papers. At thesame time, AbitibiBowater announced price increases of $60-per-ton, which werephased in during the first quarter of 2008. AbitibiBowater has recentlyannounced a second round of $60-per-ton price increases, which are expected tobe phased in during the second quarter. There is no assurance that theannounced price increases will be realized.

 

Our financial results are being negativelyaffected by significant cost increases. Fiber markets in the Pacific Northwestare high by historical standards and modestly higher than early 2007 levels. Accordingto the North American Wood Fiber Review published in March, residual chipprices in the Northwest increased over $40 a bone-dry unit compared with theprior quarter, as wood products capacity curtailments put pressure on residualchip availability and prices in this region. These higher wood fiber costs arehaving a significant negative impact on the financial results of our St.Helens, Oregon, and Wallula, Washington, pulp and paper mills. As a result, we may chooseto change our operating configuration at those facilities, includingpotentially closing some or all of the St. Helens mill if we cannot operate itprofitably. We will continue to evaluate its ongoing financial performance. OurSt. Helens pulp and paper mill and Wallula pulp and paper mill combined consumeapproximately 1 million bone-dryunits (bdu) of fiber in the Pacific Northwest annually undernormal operations. We have expanded our whole-log chipping capacity and we arecurrently pursuing alternative sources of fiber.

 

Energy costs, particularly natural gas,are also high relative to historical standards and increased in first quarter2008. Boise Inc.’s pulp and paper operations consume approximately 14millionBritish thermal units (mmBtu) of natural gas annually under normaloperations.

 

In late 2007 and into 2008, many of BoiseInc.’s chemical suppliers have increased their prices to us as contracts haveallowed.

 

In first quarter 2008, downtime was takenat the DeRidder, Louisiana, pulp and paper mill to conduct long-termmaintenance and to install a shoe press on our linerboard machine. The totalproject was completed in 31 days, and the DeRidder mill lost approximately 19days of linerboard production and 12 days of newsprint production during theoutage. The shoe press will add approximately 50,000 tons of linerboardcapacity annually, reduce fuel consumption, and increase our productcapabilities. The outage had an approximately $20.5 million negative impact onthe DeRidder mill’s operating income in the first quarter. This includes $9.1million in estimated lost contribution from lower production with the balancedue primarily to higher costs of maintenance and energy during the outage and startup.

 

Under purchase accountingrules, in connection with the Acquisition we revalued our finished goodsinventory to estimated selling prices less costs of disposal and a reasonableprofit allowance for the selling effort, and we eliminated previouslyestablished profit in inventory reserves. As a result of these purchaseaccounting adjustments, our materials, labor, and other operating expenses willincrease approximately $11.5 million, of which $6.5 million was recognizedduring the three months ended March 31, 2008, with the balance to berecognized during the second quarter of 2008.

 

31

----

 

***Factors That Affect Operating Results***

 

Ourresults of operations and financial performance are influenced by a variety offactors, including the following:

 

•                    Generaleconomic conditions, including but not limited to durable and nondurable goodsproduction, white-collar employment, electronic substitution, and relativecurrency values;

 

•                    Volatility inraw material costs, energy prices, and currency values;

 

•                    The commoditynature of our products and their price movements, which are driven largely bysupply and demand;

 

•                    Industrycycles and capacity utilization rates;

 

•                    The cost andability to obtain necessary financing;

 

•                    Continuedcompliance with government regulations;

 

•                    Legislative orregulatory environments, requirements, or changes affecting the businesses inwhich we are engaged;

 

•                    Labor andpersonnel relations;

 

•                    Credit orcurrency risks affecting our revenue and profitability;

 

•                    Major equipmentfailure;

 

•                    Severe weatherphenomena such as drought, hurricanes and significant rainfall, tornadoes, andfire;

 

•                    Our customerconcentration;

 

•                    Our ability toimplement our strategies;

 

•                    Actionsof suppliers, customers, and competitors;

 

•                    Theability to secure skilled technical personnel and staffing; and

 

•                    Theother factors described in “Part II-Item 1A. Risk Factors” in this Form 10-Q.

 

*Commodityand Premium and Specialty Products*

 

Manyof the products we manufacture and distribute are commodities widely availableand can be readily produced by our competitors. Because commodity products havefew distinguishing qualities from producer to producer, competition for theseproducts is primarily based on price, which is determined by supply relative todemand. Generally, market conditions beyond our control determine the price forour commodity products, and the price for any one or more of these products may fallbelow our cash production costs. Therefore, our profitability with respect tothese products depends on managing our manufacturing efficiency and coststructure, particularly raw material and energy costs, which also exhibit commoditycharacteristics**.**

 

Premiumand specialty grades include our imaging papers and packaging papers, includinglabel and release and flexible packaging products, and our printing andconverting papers, including commercial printing papers, envelope papers, andform-related products. Our premium and specialty papers are differentiated fromcompeting products based on quality and product design, as well as relatedcustomer service. We are generally able to influence price based on thestrength of differentiation and levels of customer service and are generallyable to sell these products at higher margins than our commodity products.Demand for specialty and premium products is affected by overall levels of economicactivity and, in the case of our packaging papers, is not significantlyimpacted by electronic

 

32

----

 

media substitution. In order to reduce our sensitivity to pricecyclicality and electronic media substitution and improve our margins, afundamental component of our strategy is to increase production of premium andspecialty papers as a percent of our total Paper segment sales. We believethese products are less susceptible to commodity pricing dynamics.

 

In ourPaper segment, sales volumes of our target grades of label and release,flexible packaging, and premium office grades grew by 6%, compared with firstquarter 2007. Sales volume of premium and specialty papers was approximately32% of uncoated free sheet tons sold during the three months ended March 31,2008, compared with 34% for the same period in 2007. The project to convert ourW-3 paper machine in Wallula, Washington to enable it to produce label andrelease grades was a key step in providing us with the capacity to increaseproduction of premium and specialty paper grades. This project came onlineduring second quarter 2007. During the second half of 2007, we identifiedperformance issues relating to equipment installed during the machine rebuild.These issues were resolved in the fourth quarter, enabling us to resume ourproduction ramp-up.

 

*Demand*

 

Theoverall level of demand for the products we make and distribute is affected by,among other things, manufacturing activity, employment, consumer spending, andcurrency exchange rates. Accordingly, we believe that our financial resultsdepend in large part on general macroeconomic conditions in North America,as well as on regional economic conditions in the geographic markets in whichwe operate. While no single product line drives our overall financialperformance, individual product lines are influenced by conditions in theirrespective industries. For example:

 

•                    Historically,demand for uncoated free sheet correlated positively with general economic activity. However,demand for communications paper grades, such as uncoated free sheet printingand forms paper, which we produce, has decreased as the use of electronictransmission and document storage alternatives has become more widespread andmore efficient.

 

•                    Demandfor recycled content papers is linked to an increased public awareness ofenvironmental and sustainability issues and is less sensitive to generaleconomic activity. We produce grades that contain from 10% to 100% recycledcontent.

 

•                    A largeshare of the demand for corrugated containers, and therefore, containerboard,is driven by unprocessed and processed food production and manufacturing, specificallythe manufacture of nondurable goods. In addition, inventory stocking orliquidation of these goods has an impact, as do currency exchange rates thataffect the cost-competitiveness of foreign manufacturers. The weakening U.S.dollar has made U.S. producers more attractive relative to overseascompetitors.

 

•                    Demandfor newsprint depends upon prevailing levels of newspaper advertising andcirculation. Demand for newsprint in North America declined approximately 22%between 2003 and 2007, according to RISI, due in part to the growth ofonline media**.**

 

*Supply*

 

Industrysupply of paper is affected by the number of operational or idled facilities,the building of new capacity, and the shutting down of existing capacity.Capacity also tends to increase gradually over time without significant capitalexpenditures, as manufacturers improve production efficiencies. Generally, morecapacity is added or employed when supply is tight and margins are relativelyhigh, and capacity is idled or eliminated when capacity significantly exceedsdemand and margins are poor.

 

No new uncoated free sheet or linerboard machines havebeen built in North America since 1995. In addition, from 2003 to 2007, NorthAmerican uncoated free sheet, containerboard, and newsprint capacities declined10%, 2%, and 19%, respectively, according to RISI. New capacity additions areconstrained by the high capital investment and long lead times required toplan, obtain regulatory approvals for, and build a new mill. A favorablepricing environment may prompt manufacturers to initiate expansionprojects.

 

33

----

 

Industrysupply of paper is also influenced by the level of imports and overseasproduction capacity, which has grown in recent years. The weakening of the U.S.dollar has mitigated the level of imports in recent years.

 

*OperatingCosts*

 

Themajor costs of production are wood fiber, energy, chemicals, and labor. Therelative size of these costs varies by segment. Given the significance of raw materialand energy costs to total operating expenses and with limited ability tocontrol these costs, compared with other operating costs, volatility in thesecosts can materially affect operating margins. In addition, the timing anddegree of price cycles of raw materials and energy differ with respect to eachtype of raw material and energy used.

 

*Woodfiber.* The primary raw material is wood fiber,accounting for the following percentages of materials, labor, and otheroperating expenses, including fiber costs, for Boise Inc. and the Predecessorfor each of the periods listed below:

 
| ** ** | ** ** | **Boise Inc.**                            | ** ** | **Predecessor**                                      | ** ** | **Combined**                                   | ** ** | **Predecessor**                                | ** ** |
|------------|------------|------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
|       |       |                                           |       |                                                 |       |                                           |       |                                           |       |
| Paper      |       | 30                                             | %          | 26                                                   | %          | 27                                             | %          | 28                                             | %          |
| Packaging  |       | 11                                             | %          | 17                                                   | %          | 15                                             | %          | 18                                             | %          |

 

Theprimary sources of logs and wood fiber are timber and byproducts of timber,such as wood chips, wood shavings, and sawdust. Substantially all fiber isacquired from outside sources. We convert logs and wood chips into pulp, whichwe use at our paper mills to produce paper. On an aggregate basis, operating atcapacity, we are able to produce volume equal to all of our pulp needs,purchasing and selling similar amounts on the open market**.**Recentdevelopments in the Pacific Northwest, if extended, may limit our abilityto produce and profitably sell market pulp. Extended lower pulp sales couldchange Boise Inc.’s aggregate structural pulp balance from pulp neutral to onein which we are a net consumer of pulp.

 

Logsand wood fiber are commodities, and prices for logs and wood fiber havehistorically been cyclical due to changing levels of demand. Log and fibersupply may be limited by public policy or government regulation as well asfire, insect infestation, disease, ice storms, windstorms, hurricanes,flooding, other weather conditions, and other natural and man-made causes.Residual fiber supply may be limited due to a reduction in primarymanufacturing at sawmills and plywood plants. Declines in log and fiber supply,driven primarily by changes in public policy and government regulation, havebeen severe enough to cause the closure of numerous facilities in some of theregions in which we operate. Any sustained undersupply and resulting increasein wood fiber prices could decrease our production volumes and/or increase ouroperating costs. Prices for our products might not reflect increases ordecreases in log and wood fiber prices, and as a result, our operating marginscould fluctuate. In Minnesota, wood fiber prices declined****inthe first quarter of 2008, compared with the first quarter of 2007, as orientedstand board plants in the region curtailed operations, resulting in less demandpressure. In the Northwest, residual fiber costs increased sharply during thesecond half of the first quarter of 2008 and continue to be high by historicalstandards. Because residual fiber for our paper mills in the Northwest comespredominantly from sawmills and plywood plants, curtailments in these mills, asa result of decreased demand for these products related to the housingslowdown, will continue to impact the availability of residual fiber for ourNorthwest pulp and paper operations. After declining throughout 2007, residualfiber prices in the Pacific Northwest began to increase during the firstquarter of 2008, as continued and additional curtailments of wood productsfacilities put pressure on fiber markets. Relative to historical standards,fiber costs were high in Louisiana in 2007 due to unusually high and persistentrainfall, which limited access to many harvest areas and limited supplyavailability. Recently, standing timber prices in Louisiana have decreased, asweather patterns have allowed better access to

 

34

----

 

timberlands. However, delivered cost of fiber is also impacted bydiesel fuel costs. Recent increases in diesel prices have negatively affecteddelivered fiber costs.

 

*Other rawmaterials and energy purchasing and pricing.*We purchaseother raw materials and energy used to manufacture our products in both theopen market and through long-term contracts. These contracts are generally withregional suppliers who agree to supply all of our needs for a certain raw materialor energy at one of our facilities. These contracts normally contain minimumpurchase requirements and are for terms of various lengths. They also containprice adjustment mechanisms that take into account changes in market prices.Therefore, although our long-term contracts provide us with supplies of rawmaterials and energy that are more stable than open-market purchases, in manycases, they may not alleviate fluctuations in market prices.

 

Our costs for raw materials are influencedby increases in energy costs. Specifically, some of our key chemicals,including pulping and bleaching chemicals consumed in our paper and packagingmills, are heavily influenced by energy costs. A number of our major suppliershave increased prices. Relationship between industry supply and demand, ratherthan changes in the cost of raw materials, determines our ability to increaseprices. Consequently, we may be unable to pass increases in our operatingcosts to our customers in the short term.

 

*Energy.*Energyprices, particularly for electricity, natural gas, and fuel oil, have beenvolatile in recent years and currently exceed historical averages. In addition,we have limited flexibility to switch between fuel sources in the short term;accordingly, we have significant exposure to natural gas price changes. In thefirst quarter of 2008, natural gas prices increased sharply. In normaloperations, Boise Inc. pulp and paper operations consume approximately 14 millionmmBtu of natural gas annually**.**Energy costsrepresent the following percentages of materials, labor, and other operatingexpenses, including fiber costs, for Boise Inc. and the Predecessor in each ofthe periods listed below:

 
| ** ** | ** ** | **Boise Inc.**                            | ** ** | **Predecessor**                                      | ** ** | **Combined**                                   | ** ** | **Predecessor**                                | ** ** |
|------------|------------|------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
|       |       |                                           |       |                                                 |       |                                           |       |                                           |       |
| Paper      |       | 17                                             | %          | 15                                                   | %          | 16                                             | %          | 17                                             | %          |
| Packaging  |       | 14                                             | %          | 14                                                   | %          | 14                                             | %          | 15                                             | %          |

 

We may enterinto natural gas swaps, options, or a combination of these instruments to hedgethe variable cash flow risk of natural gas purchases. As of March 31,2008, we had entered into derivative instruments related to approximately 3% ofour forecasted natural gas purchases from July 2008 through October 2008,and approximately 2% of our forecasted natural gas purchases from November 2008through March 2009. These derivatives form a “three-way collar,”which is a combination of options: a written put, a purchased call, and awritten call. The purchased call establishes a maximum price unless the marketprice exceeds the written call, at which point the maximum price would be NewYork Mercantile Exchange (NYMEX) price less the difference between thepurchased call and the written call strike price. The written put establishes aminimum price (the floor) the Company will pay for the volumes under contract.The following table summarizes our natural gas hedged positions as of March 31,2008:

 

35

----

 
| ** **                   | ** ** | **Three-Way Cashless Collar**   | ** ** |
|------------------------------|------------|-------------------------------------------|------------|
| ** **                   | ** ** | **July 2008  Through  October 2008** | ** ** | **November 2008  Through  March 2009** | ** ** |
|                         |       |                                      |       |   |   |
| Volume hedged                |       | 1,000 mmBtu/day                           |       | 1,000 mmBtu/day |   |
|                         |       |                                      |       |   |   |
| Strike price of  call sold   |       | $                                         | 13.00      |   | $ | 14.00 |   |
| Strike price of  call bought |       | 10.00                                     |       | 11.00 |   |
| Strike price of  put sold    |       | 6.00                                      |       | 6.38 |   |
|                         |       |                                      |       |   |   |
| Approximate  percent hedged  |       | 3                                         | %          | 2 | % |
|                              |            |                                           |            |  |  |  |  |

 

Subsequentto March 31, 2008, and as of April 30, 2008, we have entered intonatural gas price caps related to approximately 21% of our forecasted naturalgas purchases from May 2008 through August 2008. We have elected to account forthese instruments as economic hedges and record the changes in fair value in “Materials,labor, and operating expenses” in our Consolidated Statements of Income (Loss).We may enter into additional derivative instruments to hedge variable cash flowrisk of natural gas purchases.

 

*Chemicals.*Importantchemicals we use in the production of our products include starch, sodiumchlorate, precipitated calcium carbonate, sodium hydroxide, and dyestuffs andoptical brighteners. Purchases of chemicals represent the following percentagesof materials, labor, and other operating expenses, including fiber costs, forBoise Inc. and the Predecessor for each of the periods listed below:

 
| ** ** | ** ** | **Boise Inc.**                            | ** ** | **Predecessor**                                      | ** ** | **Combined**                                   | ** ** | **Predecessor**                                | ** ** |
|------------|------------|------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** ** | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
|       |       |                                           |       |                                                 |       |                                           |       |                                           |       |
| Paper      |       | 15                                             | %          | 13                                                   | %          | 14                                             | %          | 14                                             | %          |
| Packaging  |       | 5                                              | %          | 6                                                    | %          | 6                                              | %          | 4                                              | %          |

 

We experienced higher chemical costsduring first quarter 2008, compared with first quarter 2007, due primarily tohigher chemical prices. Chemical consumption was reduced at DeRidder due to theoutage.

 

*Labor.* Laborcosts tend to increase steadily due to inflation in healthcare and wage costs.Labor costs are not as volatile as energy and wood fiber costs. As of March 31,2008, we had approximately 4,600 employees. Approximately 2,750, or 60%, ofthese employees work pursuant to collective bargaining agreements. We arecurrently in negotiations for our Wallula packaging facility (126 employeesrepresented by the United Steelworkers). This year, labor contracts will expireat our converting facility in Jackson, Alabama (106 employees represented bythe United Steelworkers) in June and at our packaging plant in Salem,Oregon (92 employees represented by the Association of Western Pulp &Paper Workers) in December. We do not expect material work interruptions orincreases in our costs during the course of the negotiations with our collectivebargaining units. Nevertheless, if our expectations are not accurate, we couldexperience a material labor disruption or significantly increased labor costsat one or more of our facilities, any of which could prevent us from meetingcustomer demand or reduce our sales and profitability.

 

*Inflationaryand seasonal influences.*Our major costs of production are labor, wood fiber, energy, andchemicals. Fiber costs in the Pacific Northwest are relatively high byhistorical standards. Energy costs, particularly for electricity, natural gas,and fuel oil, have been volatile in recent years and currently exceedhistorical standards. We have also seen higher chemical costs in the currentyear, compared with historical standards. We experience some seasonality, basedprimarily on buying patterns associated with particular products. For example,the demand for our corrugated containers is influenced by agricultural

 

36

----

 

demand in the Pacific Northwest. Inaddition, seasonally cold weather increases costs, especially energyconsumption, at all of our manufacturing facilities.

 

***Operating Results***

 

Thefollowing table sets forth operating results in dollars and as a percentage ofsales for the three months ended March 31, 2008, the period of February 1(inception) through March 31, 2007, and the Predecessor periods of January 1through February 21, 2008, and the three months ended March 31, 2007(in millions, except for percent of sales data):

 
| ** **                                      | ** ** | **Boise Inc.**                           | ** ** | **Predecessor**                                                 | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                      | ** ** | **Three Months  Ended  March 31,  2008** | ** ** | **February 1  (Inception)  Through  March 31,  2007** | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three Months  Ended  March 31,  2007** | ** ** |
| **Sales**                                       |       |                                          |       |                                                            |       |   |   |   |   |
| Trade                                           |       | $                                             | 226.1      |                                                            | $          | — |   | $ | 258.4 |   | $ | 402.9 |   |
| Related parties                                 |       | 1.9                                           |       | —                                                          |       | 101.5 |   | 175.8 |   |
|                                            |       | 228.0                                         |       | —                                                          |       | 359.9 |   | 578.7 |   |
| ** **                                      | ** ** | ** **                                    | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Costs  and expenses**                         |       |                                          |       |                                                            |       |   |   |   |   |
| Materials,  labor, and other operating expenses |       | 195.4                                         |       | —                                                          |       | 313.9 |   | 488.0 |   |
| Fiber costs from  related parties               |       | 18.6                                          |       | —                                                          |       | 7.7 |   | 11.0 |   |
| Depreciation,  amortization, and depletion      |       | 12.7                                          |       | —                                                          |       | 0.5 |   | 30.8 |   |
| Selling and  distribution expenses              |       | 6.0                                           |       | —                                                          |       | 9.1 |   | 14.3 |   |
| General and  administrative expenses            |       | 4.6                                           |       | —                                                          |       | 6.6 |   | 9.4 |   |
| Other (income)  expense, net                    |       | —                                        |       | —                                                          |       | (1.0 | ) | 2.4 |   |
|                                            |       | 237.3                                         |       | —                                                          |       | 336.8 |   | 555.9 |   |
|                                            |       |                                          |       |                                                            |       |   |   |   |   |
| **Income  (loss) from operations**              | ** ** | **$**                                         | **(9.3**   | **)**                                                           | **$**      | **—** | ** ** | **$** | **23.1** | ** ** | **$** | **22.8** | ** ** |
| ** **                                      | ** ** | ** **                                    | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Sales**                                       |       |                                          |       |                                                            |       |   |   |   |   |
| Trade                                           |       | 99.1                                          | %          | —                                                          | %          | 71.8 | % | 69.6 | % |
| Related parties                                 |       | 0.9                                           |       | —                                                          |       | 28.2 |   | 30.4 |   |
|                                            |       | 100.0                                         | %          | —                                                          | %          | 100.0 | % | 100.0 | % |
|                                            |       |                                          |       |                                                            |       |   |   |   |   |
| **Costs  and expenses**                         |       |                                          |       |                                                            |       |   |   |   |   |
| Materials,  labor, and other operating expenses |       | 85.7                                          | %          | —                                                          | %          | 87.2 | % | 84.3 | % |
| Fiber costs from  related parties               |       | 8.2                                           |       | —                                                          |       | 2.2 |   | 1.9 |   |
| Depreciation,  amortization, and depletion      |       | 5.6                                           |       | —                                                          |       | 0.1 |   | 5.3 |   |
| Selling and  distribution expenses              |       | 2.6                                           |       | —                                                          |       | 2.5 |   | 2.5 |   |
| General and  administrative expenses            |       | 2.0                                           |       | —                                                          |       | 1.9 |   | 1.7 |   |
| Other (income)  expense, net                    |       | —                                        |       | —                                                          |       | (0.3 | ) | 0.4 |   |
|                                            |       | 104.1                                         | %          | —                                                          | %          | 93.6 | % | 96.1 | % |
|                                            |       |                                          |       |                                                            |       |   |   |   |   |
| **Income  (loss) from operations**              | ** ** | **(4.1**                                      | **)%**     | —                                                          | %          | **6.4** | **%** | **3.9** | **%** |

 

37

----

 

***Sales Volumes and Prices***

 

Set forth below are segment sales volumes and average netselling prices for our principal products for the three months ended March 31,2008, the Predecessor period of January 1 through February 21, 2008,the combined three months ended March 31, 2008, the period of February 1(inception) through March 31, 2007, the Predecessor three months ended March 31,2007, and the combined three months ended March 31, 2007:

 
| ** **                                 | ** ** | **Boise Inc.**                                                 | ** ** | **Predecessor**                                 | ** ** | **Combined**                                   | ** ** | **Boise Inc.**                                             | ** ** | **Predecessor**                                | ** ** | **Combined**                                   | ** ** |
|--------------------------------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                 | ** ** | **Three  Months  Ended  March 31,  2008**                      | ** ** | **January 1  Through  February 21,  2008** | ** ** | **Three  Months  Ended  March 31,  2008** | ** ** | **February 1  (Inception)  Through  March 31,  2007** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** | **Three  Months  Ended  March 31,  2007** | ** ** |
|                                       |       | ** **                                                          |       |
|                                       |       | (thousands of short  tons, except corrugated containers and sheets) |       |
| **Paper**                                  |       |                                                                |       |                                            |       |                                           |       |                                                            |       |                                           |       |                                           |       |
| Uncoated free  sheet                       |       | 154                                                                 |       | 236                                             |       | 390                                            |       | —                                                          |       | 380                                            |       | 380                                            |       |
| Containerboard  (medium)                   |       | 15                                                                  |       | 19                                              |       | 34                                             |       | —                                                          |       | 32                                             |       | 32                                             |       |
| Market pulp                                |       | 13                                                                  |       | 20                                              |       | 33                                             |       | —                                                          |       | 23                                             |       | 23                                             |       |
|                                       |       | 182                                                                 |       | 275                                             |       | 457                                            |       | —                                                          |       | 435                                            |       | 435                                            |       |
|                                       |       |                                                                |       |                                            |       |                                           |       |                                                            |       |                                           |       |                                           |       |
| **Packaging**                              |       |                                                                |       |                                            |       |                                           |       |                                                            |       |                                           |       |                                           |       |
| Containerboard  (linerboard)               |       | 12                                                                  |       | 36                                              |       | 48                                             |       | —                                                          |       | 65                                             |       | 65                                             |       |
| Newsprint                                  |       | 29                                                                  |       | 56                                              |       | 85                                             |       | —                                                          |       | 107                                            |       | 107                                            |       |
| Corrugated  containers and sheets (mmsf)   |       | 640                                                                 |       | 914                                             |       | 1,554                                          |       | —                                                          |       | 1,634                                          |       | 1,634                                          |       |
|                                       |       |                                                                |       |                                            |       |                                           |       |                                                            |       |                                           |       |                                           |       |
|                                       |       | (dollars per short ton,  except corrugated containers and sheets)   |       |
|                                       |       |                                                                |       |                                            |       |                                           |       |                                                            |       |                                           |       |                                           |       |
| **Paper**                                  |       |                                                                |       |                                            |       |                                           |       |                                                            |       |                                           |       |                                           |       |
| Uncoated free  sheet                       |       | $                                                                   | 890        |                                            | $          | 868                                            |       | $                                                               | 877        |                                           | $          | —                                         |       | $ | 846 |   | $ | 846 |   |
| Containerboard  (medium)                   |       | 454                                                                 |       | 454                                             |       | 454                                            |       | —                                                          |       | 423                                            |       | 423                                            |       |
| Market pulp                                |       | 568                                                                 |       | 535                                             |       | 548                                            |       | —                                                          |       | 516                                            |       | 516                                            |       |
|                                       |       |                                                                |       |                                            |       |                                           |       |                                                            |       |                                           |       |                                           |       |
| **Packaging**                              |       |                                                                |       |                                            |       |                                           |       |                                                            |       |                                           |       |                                           |       |
| Containerboard  (linerboard)               |       | $                                                                   | 386        |                                            | $          | 399                                            |       | $                                                               | 396        |                                           | $          | —                                         |       | $ | 375 |   | $ | 375 |   |
| Newsprint                                  |       | 512                                                                 |       | 494                                             |       | 500                                            |       | —                                                          |       | 524                                            |       | 524                                            |       |
| Corrugated  containers and sheets ($/mmsf) |       | 56                                                                  |       | 55                                              |       | 55                                             |       | —                                                          |       | 51                                             |       | 51                                             |       |

 

***Salesand Costs for the Combined Three Months Ended March 31, 2008, ComparedWith the Three Months Ended March 31, 2007***

 

Thefollowing presents a discussion of sales and costs for the combined threemonths ended March 31, 2008, compared with the same period in 2007. Thecombined three months ended March 31, 2008, represent the results of BoiseInc. for the three months ended March 31, 2008, and the results of thePredecessor for the period from January 1 through February 21, 2008.See “Background and Executive Overview” and “Acquisition of Boise Cascade’sPaper and Packaging Operations” in this Management’s Discussion and Analysisfor more information related to the Acquisition.

 

Managementbelieves this combined presentation of the Boise Inc. and Predecessor statementof operations is the most useful comparison between periods. The Acquisitionwas accounted for in accordance with SFAS No. 141, *BusinessCombinations,*resulting in a new basis of accounting from thosepreviously reported by the Predecessor. However, sales and most operating costitems are substantially consistent with those reflected by the Predecessor.Some inventories were revalued in accordance with purchase accounting rules.Depreciation changed as a result of adjustments to the fair values of propertyand equipment due to our preliminary purchase allocation. These items, alongwith changes in interest expense and income taxes, are explained independentlywhere appropriate.

 

38

----

# * *

# *Sales*

# * *

Forthe combined three months ended March 31, 2008, total sales increased$9.2 million, or 2%, to $587.9 million from $578.7 million during thethree months ended March 31, 2007. The increase was primarily driven by an8% increase in Paper segment sales resulting from both higher prices and highervolumes, offset by an 11% decline in Packaging segment sales driven mainly byreduced sales volumes as a result of completely shutting down the DeRidder millfor planned maintenance. The shutdown resulted in 19 days of lost linerboardproduction and 12 days of lost newsprint production.

 

*Paper.* Salesincreased $30.7 million, or8%, to $425.7 million forthe combined three months ended March 31, 2008, from $395.0 millionfor the three months ended March 31, 2007. This increase was driven bycontinued strong demand and favorable market conditions in the first quarter of2008. Commodity paper sales volumes increased 6%, compared with first quarter2007. Total premium and specialty volumes declined 4% due to declining sales inmature printing and converting market segments such as lightweight opaque, cardstock, and certain envelope grades. The sales volume of our target grades oflabel and release, flexible packaging, and premium office grades grew 6%,compared with first quarter 2007. Net sales prices increased across all majorpaper grades, including a 4% increase for our commodity products and a 3%increase on label and release, flexible packaging, and premium office grades.

 

*Packaging.*Salesdecreased $20.6 million, or11%, to $173.4 million forthe combined three months ended March 31, 2008, from $194.0 millionfor the three months ended March 31, 2007. The decrease was largely driven by a 26% reduction in linerboard salesvolume and a 20% reduction in newsprint sales volume due to the DeRidder outageand 5% lower newsprint pricing, compared with first quarter 2007.Containerboard demand was stable and pricing favorable as linerboard pricingimproved 6% and corrugated container and sheet pricing improved 8%. Newsprintpricing, although lower than first quarter 2007 levels, has improved in thefirst quarter of 2008, compared with fourth quarter of 2007, in conjunctionwith accelerated capacity reductions across the industry.

 

##### ***Costsand Expenses***

##### *** ***

Materials, labor, andother operating expenses, including the cost of fiber from related parties,increased $36.6 million, or7%, to $535.6 million forthe combined three months ended March 31, 2008, from $499.0 millionduring the three months ended March 31, 2007. The increase was drivenprimarily by increased fixed costs, mainly maintenance, associated with theDeRidder outage and higher fiber, energy, and chemical prices, partially offsetby lower usage due to the outage.

 

Fiber, energy, andchemical costs were $127.3 million, $82.8 million, and $62.0 million,respectively, for the combined three months ended March 31, 2008, and$127.1 million, $82.8 million, and $53.5 million, respectively, for thethree months ended March 31, 2007. Fiber costs increased $4.3 million inour Paper segment,****primarily dueto rapidly increasing chip prices in the Pacific Northwest during the secondhalf of the first quarter as a result of a reduced supply of residual chips,increased waste paper costs, primarily at our Jackson, Alabama, recyclingplant, and increased prices of wood in our Alabama operating region. InPackaging, fiber costs decreased $4.1 million due to reduced consumption as aresult of the outage and lower costs to access timber stands. Overall woodprices were higher, however, driven in part by increased diesel costs toharvest and transport logs.

 

Compared with the threemonths ended March 31, 2007, energy costs increased $1.1 million in ourPaper segment, driven by higher costs for fuel and electricity, and decreased$1.1 million in our Packaging segment, driven by reduced usage during theoutage, partially offset by higher natural gas pricing.

 

Chemical costs increased$5.3 million in our Paper segment and $3.2 million in our Packaging segment,driven mainly by substantial price increases for commodity chemical inputs.

 

Under purchase accountingrules, in connection with the Acquisition we revalued our finished goodsinventory to estimated selling prices less costs of disposal and a reasonableprofit allowance for the selling effort, and we eliminated previouslyestablished profit in inventory reserves. As a result of these purchaseaccounting adjustments, our materials, labor, and other operating expenses willincrease approximately $11.5 million, of which

 

39

----

 

$6.5 million wasrecognized during the three months ended March 31, 2008, with the balanceto be recognized during the second quarter of 2008.

 

Depreciation,amortization, and depletion for the three months ended March 31, 2008, was$12.7 million, which includes depreciation, amortization, and depletionfor the period from February 22, 2008, through March 31, 2008. Thisamount is based on our preliminary purchase price allocation, which may changeas we complete our final allocation. For the Predecessor period of**January 1 through February 21, 2008,depreciation, amortization, and depletion was $0.5 million due to thesuspension of depreciation for the assets being held for sale as a result ofthe Acquisition. For the Predecessor three months ended March 31, 2007,depreciation, amortization, and depletion was $30.8 million.

 

Selling and distributionexpenses increased****$0.8 million, or 5%, to$15.1 million for the combined three months ended March 31, 2008,from $14.3 million during the three months ended March 31, 2007. As apercentage of sales, selling and distribution expenses remained flat.

 

General andadministrative expenses increased $1.8 million,or 18%, to $11.2 million forcombined three months ended March 31, 2008, from $9.4 million duringthe three months ended March 31, 2007. Relative to the three months ended March 31,2007, the increase related primarily to higher professional fees andinformation technology costs as we implemented a new information technology systemin our Paper segment.

 

*Other (income)expense, net.* Other (income) expense net, includesmiscellaneous income and expense items. During the three months ended March 31,2008, we had $28,000 of other income, which represented primarily miscellaneousincome items. The components of Other (income) expense, net include income froma net gain on sales of assets of $1.0 million for the Predecessor period January 1through February 21, 2008, and $2.4 million of expense that consistsof a net loss on sales of assets of $1.0 million, project costs of $0.2million, and other nonoperating expenses of $1.2 million for the three monthsended March 31, 2007.

 

*Income (loss) fromoperations.* Overall, we estimate thatour operating results for the three months ended March 31, 2008, werenegatively affected by approximately $20.5 million due to the DeRidder outageand by $6.5 million from inventory purchase price adjustments.

 

*Other*

 

*Interest income.*For the combinedthree months ended March 31, 2008, interest income was $2.0 million,compared with $0.1 million for the three months ended March 31, 2007.Interest income is primarily attributable to income from interest earned ontrust assets held by Aldabra 2 Acquisition Corp. prior to the Acquisition.

 

*Interest expense.*For thethree months ended March 31, 2008, interest expense was$11.4 million, of which $9.6 million was for unrelated third-partydebt, $1.0 million was for related-party debt, and $0.8 million wasfor amortization of deferred financing fees. Interest expense is attributableto our new long-term debt and amortization of deferred financing costs incurredin connection with that debt. At March 31, 2008, our long-term debt,excluding related-party debt, was $1,019.7 million, and our net debt,defined as long-term and short-term debt owed to unrelated third parties pluscurrent portion of long-term debt less cash and cash equivalents, was$1,005.7 million. Compared with February 22, 2008, net debt decreased$22.0 million from $1,027.7 million. For additional information, refer to ourdiscussion of debt under “Liquidity and Capital Resources” in this “Management’sDiscussion and Analysis of Financial Condition and Results of Operations.” Thedebt of Boise Cascade was not allocated to the Predecessor in the financialstatements included in this Form 10-Q.

 

*Income taxes*. For thethree months ended March 31, 2008, we recorded $3.4 million of incometax benefits related to losses incurred during the quarter. We have notrecognized $4.1 million of tax benefit from the losses resulting from ourfirst-quarter operations, because the realization of these benefits is notconsidered more likely than not. Because of its pass-through tax structure, thePredecessor recorded tax expense related only to small subsidiaries that aretaxed as corporations.

 

40

----

 

***Industry Mergers and Acquisitions***

 

In March 2008,two of Boise Inc.’s major competitors announced their intention to combinetheir packaging businesses when International Paper agreed to acquireWeyerhaeuser’s containerboard operations. This combination, if it is realized, wouldcreate a larger and potentially much stronger competitor. The impact of thismerger on our operations and results is uncertain at this time.

 

***Liquidity and Capital Resources***

 

Webelieve that funds generated from operations and available borrowing capacitywill be adequate to fund debt service requirements, capital expenditures, andworking capital requirements for the next 12 months. Our ability to continue tofund these items may be affected by general economic, financial,competitive, legislative, and regulatory factors. We cannot assure that ourbusiness will generate sufficient cash flow from operations or that futureborrowings will be available for use under our revolving credit facility in anamount sufficient to enable us to pay our indebtedness or to fund our otherliquidity needs.

 

Unless otherwisenoted, this discussion of liquidity and capital resources refers to thecombined activities of Boise Inc. and the Predecessor for each periodpresented.

 

***OperatingActivities***

 

We operate in a cyclical industry, and ouroperating cash flows vary accordingly. Our principal operating cashexpenditures are for compensation, fiber, energy, and interest. For the threemonths ended March 31, 2008 and 2007, operating activities provided $28.7million and $27.8 million of cash, respectively.

 

Relative to 2007, cash provided byoperations was negatively affected by lower combined net income for the threemonths ended March 31, 2008. As discussed under “Operating Results” above,the lower net income in first quarter 2008 reflects the impact of the DeRidderoutage, as well as higher interest expense and inventory purchase priceadjustments.

 

Offsetting the decrease in net income wasa favorable change in working capital, compared with the first quarter of 2007.In the first quarter of 2008, favorable changes in working capital contributed$6.5 million of cash to operations, while unfavorable changes in workingcapital used $30.4 million of cash in the first quarter of 2007. Workingcapital is subject to cyclical operating needs, the timing of the collection ofreceivables, the payment of payables and expenses, and to a lesser extent,seasonal fluctuations in our operations.

 

In first quarter 2008,changes in working capital primarily reflect an increase in accounts payableand accrued expenses, the net effect of which was partially offset by anincrease in prepaid corporate expenses. The higher levels of accounts payableand accrued expenses reflect higher trade accounts payable in the Packagingsegment, due in large part to increased costs associated with the DeRidderoutage. In addition, the Packaging segment had a significant increase inaccounts payable to related parties for fiber purchases, which havehistorically been sourced internally. Accounts receivable for the Packagingsegment decreased, which reflects a lower level of sales for March 2008,compared with December 31, 2007, as March sales were impacted by lostproduction during the DeRidder outage. To a lesser extent, also contributing tothe favorable change in working capital was an increase in trade payables forthe Paper segment, which reflected an increase in fiber costs.

 

In addition to theincrease in prepaid corporate expenses, these favorable changes in workingcapital were also partially offset by lower levels of accrued compensation,which reflect bonus payouts by the Predecessor across all segments in firstquarter 2008. Accounts receivable increased for the Paper segment and the Corporateand Other segment. Increased receivables in the Paper segment reflect a higherlevel of sales for March 2008, compared with December 31, 2007. Theincrease in accounts receivable for the Corporate segment reflectsrelated-party receivables for the trucking business.

 

41

----

 

***InvestmentActivities***

 

*Acquisition*

 

On February 22,2008, Boise Inc. acquired the Paper, Packaging, and most of the Corporate andOther segments of Boise Cascade for a total purchase price of $1.7 billion,which included $1.3 billion of net cash and fees. Boise Inc. obtained $1.1billion of financing in conjunction with the Acquisition, which is discussedbelow in “Financing Activities.”

 

*Combined investing activities of Boise Inc. and Predecessor*

 

Cash investing activitiesused $814.9 million for thethree months ended March 31, 2008, compared with $29.4 millionduring the same period in 2007. For the three months ended March 31, 2008,investing activities included $1.2 billion in cash spent for the Acquisition,excluding deferred financing fees, as discussed above.

 

Combined cash capitalexpenditures for property, plant, and equipment for the three months ended March 31,2008, was $20.4 million. This amount includes $10.2 million spent bythe Predecessor for the period from January 1, 2008, through February 21,2008, and $10.2 million spent by us from February 22, 2008, through March 31,2008. Of these amounts, $7.1 million relates to the installation of a shoepress in our DeRidder, Louisiana mill to reduce the use of energy in producinglinerboard. We estimate****total capitalspending of $23 million for the project. As of March 31, 2008, cumulativecash spending on this project totaled $19.1 million, with the balance tobe paid in 2008.

 

For the three months ended March 31,2007, cash investing activities included $33.0 million of capital expendituresfor the purchase of property, plant, and equipment. Approximately$17 million of these expenditures relate to the reconfiguration of thepaper machine at our pulp and paper mill in Wallula, Washington, to produceboth pressure sensitive paper and commodity uncoated free sheet.

 

Weexpect capital investments in 2008 to total approximately $110 million to$120 million, excluding acquisitions. This level of capital expenditurescould increase or decrease as a result of a number of factors, including ourfinancial results and future economic conditions. Our capital spending in 2008will be for expansion, business improvement, and quality/efficiency projects,replacement projects, and ongoing environmental compliance.

 

***FinancingActivities***

 

Cash provided byfinancing activities was $811.0 million for the three months ended March 31,2008, which reflects approximately $1.1 billion of debt financing obtained inconjunction with the Acquisition, partially offset by $120.2 million paid tostockholders who exercised their conversion rights, $94.3 million ofdeferred financing costs and underwriting fees, and $35.0 million of debtrepayments. Under our $250 million revolving credit facility, there was $196.0million of availability at March 31, 2008. Prior to the Acquisition,financing activities have historically consisted primarily of intercompanyloans obtained by the Predecessor

 

Our expected debtservice obligation, assuming interest rates stay at March 31, 2008 levels,is estimated to be approximately $71.0 million for 2008 and $98.6 million for2009, consisting of cash payments for principal, interest, and fees. Theseamounts remain subject to change, and such changes may be material. Forexample, a 1% increase in interest rates would increase interest expense byapproximately $5.6 million per year (based on debt levels and interestrates as of March 31, 2008).

 

42

----

 

At March 31,2008, our short- and long-term debt was as follows:

 
| ** **                            | ** ** | **Boise Inc.**      | ** **  |
|---------------------------------------|------------|--------------------------|-------------|
| ** **                            | ** ** | **March 31,  2008** | ** **  |
| ** **                            | ** ** | **(millions)**           | ** **  |
|                                  |       |                     |        |
| Revolving credit  facility, due 2013  |       | $                        | 45.0        |   |
| Tranche A Term  Loan, due 2013        |       | 250.0                    |        |
| Tranche B Term  Loan, due 2014        |       | 475.0                    |        |
| Second Lien Term  Loan, due 2015      |       | 260.7                    |        |
| Current portion  of long-term debt    |       | (11.0                    | )           |
| Long-term debt,  less current portion |       | 1,019.7                  |        |
| Current portion  of long-term debt    |       | 11.0                     |        |
|                                  | ** ** | 1,030.7                  | ** **  |
| ** **                            | ** ** | ** **               | ** **  |
| 15.75%  Related-party note, due 2015  |       | 58.8                     |        |
| ** **                            | ** ** | **$**                    | **1,089.5** | ** ** |

 

*Senior Secured Credit Facilities*

 

Our new senior securedcredit facilities consist of:

 

•                    Afive-year nonamortizing $250.0 million senior secured revolving credit facilitywith interest at either the London Interbank Offered Rate (LIBOR) plus 325basis points or a calculated base rate plus 325 basis points (the RevolvingCredit Facility and collectively with the Tranche A Term Loan Facility and theTranche B Term Loan Facility, the First Lien Facilities);

 

•                    Afive-year amortizing $250.0 million senior secured Tranche A term loan facilitywith interest at LIBOR plus 325 basis points or a calculated base rate plus 325basis points (the Tranche A Term Loan Facility);

 

•                    A six-yearamortizing $475.0 million senior secured Tranche B term loan facility with interestat LIBOR plus 350 basis points (subject to a floor of 4.00%) or a calculatedbase rate plus 250 basis points (the Tranche B Term Loan Facility); and

 

•                    Aseven-year nonamortizing $260.7 million second lien term loan facility withinterest at LIBOR plus 700 basis points (subject to a floor of 5.5%) or acalculated base rate plus 600 basis points (the Second Lien Facility andtogether with the First Lien Facilities, the Credit Facilities).

 

Allborrowings under the Credit Facilities bear interest at a rate per annum equalto an applicable margin plus a customary base rate or Eurodollar rate. The baserate means, for any day, a rate per annum equal to the greater of (i) the PrimeRate in effect on such day and (ii) the Federal Funds Effective Rate in effecton such day plus 1/2 of 1%. 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 will accrue from the Acquisitionclosing date and shall be payable quarterly in arrears. At March 31, 2008,we had $45.0 million of borrowings outstanding under the Revolving CreditFacility. For the three months ended March 31, 2008, the average interestrate for our borrowings under our Revolving Credit Facility was 6.3%. Theminimum and maximum borrowings under the Revolving Credit Facility were zeroand $80.0 million for the three months ended March 31, 2008. Theweighted average amount of borrowings outstanding under the Revolving CreditFacility during the three months ended March 31, 2008, was $73.7 million.At March 31, 2008, we had availability of $196.0 million, which isnet of outstanding letters of credit of $9.0 million, above the amount wehad borrowed.

 

The Company’sobligations under its Credit Facilities are guaranteed by each of Boise PaperHoldings, L.L.C.’s (the Borrower) existing and subsequently acquired domestic(and, to the extent no material adverse tax consequences to BZ IntermediateHoldings LLC (Holdings) or Borrower would result therefrom and as reasonablyrequested by the administrative agent under each Credit Facility, foreign)subsidiaries and Holdings (collectively, the Guarantors). The First LienFacilities are secured by a first-priority security interest in substantiallyall of the real, personal, and mixed property of Borrower and the

 

43

----

 

Guarantors, including a first-priority security interest in 100% of theequity interests of Borrower and each domestic subsidiary of Holdings, 65% ofthe equity interests of each of Holdings’ foreign subsidiaries (other thanBoise Hong Kong Limited so long as Boise Hong Kong Limited does not account formore than $2,500,000 of consolidated EBITDA during any fiscal year ofBorrower), and all intercompany debt. The Second Lien Facility is secured by asecond-priority security interest in substantially all of the real, personal,and mixed property of Borrower and the Guarantors, including a second-prioritysecurity interest in 100% of the equity interests of Borrower and each domesticsubsidiary of Holdings, 65% of the equity interests of each of Holdings’foreign subsidiaries (other than Boise Hong Kong Limited so long as Boise HongKong Limited does not account for more than $2,500,000 of consolidated EBITDAduring any fiscal year of Borrower), and all intercompany debt.

 

In theevent all or any portion of the Tranche B Term Loan Facility is repaid pursuantto any voluntary prepayments or mandatory prepayments with respect to assetsale proceeds or proceeds received from the issuance of debt prior to thesecond anniversary of the Acquisition closing date, such repayments will bemade at (a) 102.0% of the amount repaid if such repayment occurs prior tothe first anniversary of the Acquisition closing date and (b) 101.0% ofthe amount repaid if such repayment occurs on or after the first anniversary ofthe Acquisition closing date and prior to the second anniversary of theAcquisition closing date.

 

Subject tothe provisions of the intercreditor agreement between the First Lien Facilityand the Second Lien Facility, in the event the Second Lien Facility is prepaidas a result of a voluntary or mandatory prepayment (other than as a result of amandatory prepayment with respect to insurance/condemnation proceeds or excesscash flow) at any time prior to the third anniversary of the Acquisitionclosing date, Borrower shall pay a prepayment premium equal to the “make-wholepremium” as described below.

 

At any timeafter the third anniversary of the Acquisition closing date and prior to thesixth anniversary of the Acquisition closing date, subject to the provisions ofthe First Lien Facilities, the Second Lien Facility may be prepaid inwhole or in part subject to the “call premium” as described below,provided that loans bearing interest with reference to the reserve-adjustedEurodollar rate will be prepayable only on the last day of the related interestperiod unless Borrower pays any related breakage costs.

 

The “make-wholepremium” means, with respect to a Second Lien Facility loan on any date ofprepayment, the present value of (a) all required interest payments due onsuch Second Lien Facility loan from the date of prepayment through andincluding the make-whole termination date, excluding accrued interest (assumingthat the interest rate applicable to all such interest is the swap rate at theclose of business on the third business day prior to the date of suchprepayment with the termination date nearest to the make-whole termination dateplus 7.00%), plus (b) the prepayment premium that would be due if suchprepayment were made on the day after the make-whole termination date, in eachcase discounted to the date of prepayment on a quarterly basis (assuming a360-day year and actual days elapsed) at a rate equal to the sum of such swaprate plus 0.50%.

 

The “callpremium” means that in the event all or any portion of the Second Lien Facilityis repaid as a result of a voluntary prepayment or mandatory prepayment withrespect to asset sale proceeds or proceeds received from the issuance of debtafter the third anniversary of the Acquisition closing date and prior to thesixth anniversary of the Acquisition closing date, such repayments will be madeat (i) 105.0% of the amount repaid if such repayment occurs on or afterthe third anniversary of the Acquisition closing date and prior to the fourthanniversary of the Acquisition closing date, (ii) 103.0% of the amountrepaid if such repayment occurs on or after the fourth anniversary of theAcquisition closing date and prior to the fifth anniversary of the Acquisitionclosing date, and (iii) 101.0% of the amount repaid if such repaymentoccurs on or after the fifth anniversary of the Acquisition closing date andprior to the sixth anniversary of the Acquisition closing date.

 

Subject tospecified exceptions, the Credit Facilities require that the proceeds fromcertain asset sales, casualty insurance, certain debt issuances, and 75%(subject to step-downs based on certain leverage ratios) of the excess cashflow for each fiscal year must be used to pay down outstanding borrowings. Requireddebt principal repayments, excluding those from excess cash flows, total$8.3 million for the balance of 2008; $15.7 million in 2009;$26.6 million in 2010; $48.5 million in 2011; $134.4 million in2012; and $797.2 million thereafter.

 

44

----

 

The loandocumentation for the Credit Facilities contains, among other terms,representations and warranties, covenants, events of default andindemnification customary for loan agreements for similar leveraged acquisitionfinancings, and other representations and warranties, covenants, and events ofdefault deemed by the administrative agent of the First Lien Facilities or theSecond Lien Facility, as applicable, to be appropriate for the specific transaction.The First Lien Facilities require Holdings and its subsidiaries to maintain aminimum interest coverage ratio and a maximum leverage ratio, the Second LienFacility requires Holdings and its subsidiaries to maintain a maximum leverageratio, and the Credit Facilities limit the ability of Holdings and itssubsidiaries to make capital expenditures.

 

Inconnection with the Acquisition, Boise Inc. entered into a note (theRelated-Party Note) with Boise Cascade as partial consideration. Subsequently,Boise Cascade transferred the note payable to its parent company, Boise CascadeHoldings, L.L.C. With the exception of the subsidiaries party to the Credit andGuaranty Agreement, dated as of February 22, 2008, by and among BoisePaper Holdings, L.L.C., BZ Intermediate Holding Sub LLC, the other subsidiariesof the Company party thereto, the lenders and agents party thereto, GoldmanSachs Credit Partners L.P., as joint lead arranger, administrative agent, andcollateral agent, and Lehman Brothers Inc., as joint lead arranger, each of theCompany’s current and future domestic subsidiaries are joint and severalobligors under this Related-Party Note. On February 22, 2008, certainsubsidiaries of the Company entered into a Subordinated Guaranty Agreement, guaranteeingthe obligations of the Company to Boise Cascade under the Related-Party Note.

 

TheRelated-Party Note bears interest at 15.75% per annum (computed on the basis ofa 360-day year), payable quarterly (each such quarterly payment date, anInterest Payment Date). Interest will accrue on the Related-Party Note and beadded to the principal amount of the Related-Party Note on each InterestPayment Date. The Related-Party Note matures on August 21, 2015, providedthat if such date is more than 181 days after the scheduled maturity date ofthe indebtedness under the Credit Facilities, then the maturity date shallautomatically be deemed to be 181 days after the latest maturity date of anysuch indebtedness. At maturity, the amount of the Related-Party Note will beapproximately $180.2 million.

 

TheCompany may prepay the Related-Party Note at any time in whole or in part,without premium or penalty, subject to any restrictions contained in theCompany’s senior credit facilities. The Company must prepay the Related-PartyNote upon the occurrence of the following events: (i) a Change of Control(as defined in the Credit Facilities); (ii) a sale or transfer of 50% ormore of the Company’s assets; and (iii) Events of Default (as provided inthe Related-Party Note). The Company must use the proceeds from the sale ofequity or debt securities or borrowings to repay the Related-Party Note,subject to any restrictions contained in the Company’s senior creditfacilities. Any postclosing adjustments to the purchase price in connectionwith the Acquisition resulting in a payment owed to the Company will beeffected by means of a reduction in the principal amount of the Related-PartyNote.

 

ThePredecessor had no short- or long-term debt outstanding at December 31,2007.

 

*Other*

 

At March 31, 2008, we had $81.1 millionof costs recorded in “Deferred financing costs” on our Consolidated BalanceSheet related to the Acquisition. The amortization of these costs is recordedin interest expense using the effective interest method over the life of theloans. We recorded $0.8 million of amortization expense for the threemonths ended March 31, 2008.

 

For the three months ended March 31,2008, cash payments for interest, net of interest capitalized, was$8.5 million.

 

In April 2008,we entered into interest rate derivative instruments to hedge a portion of ourinterest rate risk as required under the terms of the First Lien Facilities. Wepurchased interest rate caps with a term of 3 years and a cap rate of 5.50% ona notional amount of $260.0 million to hedge the interest rate on our SecondLien Facility. We also purchased interest rate caps to hedge part of theinterest rate risk on our Tranche B Term Loan Facility with a cap rate of 5.00%on a notional amount of $425 million for the period April 21, 2008,through March 31, 2009; a notional amount of $350 million for the period March 31,2009, through March 31, 2010; and

 

45

----

 

a notional amount of $300 million for the period March 31, 2010,through March 31, 2011.

 

***Contractual Obligations***

 

In the table below, weset forth our enforceable and legally binding obligations as of March 31,2008. Some of the amounts included in the table are based on management’sestimates and assumptions about these obligations, including their duration,the possibility of renewal, anticipated actions by third parties, and otherfactors. Because these estimates and assumptions are necessarily subjective,our actual payments may vary from those reflected in the table. Purchaseorders made in the ordinary course of business are excluded from the tablebelow. Any amounts for which we are liable under purchase orders are reflectedon the Consolidated Balance Sheets as accounts payable and accrued liabilities.

 
| ** **                                                  | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                  | ** ** | **Remainder  of 2008**               | ** ** | **2009-2010** | ** ** | **2011-2012** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|                                                        |       |                                      |       |   |   | **(millions)** |   |   |   |   |   |
|                                                        |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term debt,  including current portion (a)              |       | $                                         | 8.3        |   | $ | 42.3 |   | $ | 182.9 |   | $ | 797.2 |   | $ | 1,030.7 |   |
| Interest (b)                                                |       | 62.7                                      |       | 164.5 |   | 154.9 |   | 112.9 |   | 495.0 |   |
| Note payable to  related-party (c)                          |       | —                                    |       | — |   | — |   | 180.2 |   | 180.2 |   |
| Operating leases  (d)                                       |       | 8.7                                       |       | 20.4 |   | 14.6 |   | 22.4 |   | 66.1 |   |
| Purchase  obligations                                       |       |                                      |       |   |   |   |   |   |   |   |   |
| Raw materials  and finished goods inventory (e)             |       | 73.0                                      |       | 75.9 |   | 20.5 |   | 19.5 |   | 188.9 |   |
| Utilities (f)                                               |       | 18.0                                      |       | 11.5 |   | 0.6 |   | 0.4 |   | 30.5 |   |
| Capital spending                                            |       | 0.4                                       |       | — |   | — |   | — |   | 0.4 |   |
| Other                                                       |       | 8.9                                       |       | 6.7 |   | 0.1 |   | — |   | 15.7 |   |
| Other long-term  liabilities reflected on our Balance Sheet |       |                                      |       |   |   |   |   |   |   |   |   |
| Compensation and  benefits (g)                              |       | 0.6                                       |       | 31.0 |   | 27.7 |   | 0.3 |   | 59.6 |   |
| Other                                                       |       | 3.0                                       |       | 6.2 |   | 6.4 |   | 17.8 |   | 33.4 |   |
| ** **                                                  | ** ** | **$**                                     | **183.6**  | ** ** | **$** | **358.5** | ** ** | **$** | **407.7** | ** ** | **$** | **1,150.7** | ** ** | **$** | **2,100.5** |   |

 

----

(a)                                  These borrowings are further explained in “FinancingActivities” under “Liquidity and Capital Resources” in this Management’sDiscussion and Analysis of Financial Condition and Results of Operations. Thetable assumes our long-term debt is held to maturity and includes the currentportion of long-term debt.

 

(b)                                 Amounts represent estimated interest paymentsas of March 31, 2008, and assume our long-term debt is held to maturity.

 

(c)                                  In connection with the Acquisition, Boise Inc.issued a $41.0 million subordinated 15.75% Related-Party Note Payable thatcompounds quarterly and matures in 2015 to Boise Cascade. Subsequently, BoiseCascade transferred the note to its parent company, Boise Cascade Holdings,L.L.C. The interest on the Related-Party Note is not paid in cash, butaccumulates and is added to the principal amount outstanding on theRelated-Party Note. The table above assumes that the accumulated interest ispaid in 2015 with the principle balance of the note. Subsequent to theAcquisition, the Related-Party Note increased by $16.8 million forestimated working capital adjustments, the amount by which the working capitalof the acquired paper and packaging businesses exceeded $329.0 million.Final working capital adjustments will be made in the second quarter of 2008,and are expected to increase the note by approximately $0.5 million.

 

(d)                                 We enter into operating leases in the normalcourse of business. We lease our distribution centers as well as other propertyand equipment under operating leases. Some lease agreements provide us with theoption to renew the lease or purchase the leased property. Our operating leaseobligations would change if we exercised these renewal options and/or weentered into additional operating lease agreements. For more information, seeNote 7, Leases, of the Notes to Unaudited Quarterly Consolidated FinancialStatements in “Part I-Item 1. Consolidated Financial Statements” of this Form 10-Q.

 

(e)                                  Included among our raw materials purchaseobligations are contracts to purchase approximately $185.6 million of woodfiber. Under most of these log and fiber supply agreements, we have the rightto cancel or reduce our commitments in the event of a mill curtailment orshutdown. The prices under most of these agreements are set quarterly orsemiannually based on regional market prices, and the estimate is based oncontract terms or current quarter pricing. Our log and fiber obligations aresubject to change based on, among other things, the effect of governmental lawsand regulations, our manufacturing operations not operating in the normalcourse of business, log and fiber availability, and the status of

 

46

----

 

environmental appeals. Except for deposits requiredpursuant to wood supply contracts, these obligations are not recorded in ourconsolidated financial statements until contract payment terms take effect.

 

(f)                                    We enter into utility contracts for thepurchase of electricity and natural gas. We also purchase these services underutility tariffs. The contractual and tariff arrangements include multiple-yearcommitments and minimum annual purchase requirements. Our payment obligationswere based upon prices in effect on December 31, 2007, or upon contractlanguage, if available. Because we consume the energy in the manufacture of ourproducts, these obligations represent the face value of the contracts, notresale value.

 

(g)                                 Amounts consist primarily of pension and otherpostretirement benefit obligations, including current portion.

 

***Off-Balance-Sheet Activities***

 

At March 31,2008, and December 31, 2007, we had no material off-balance-sheetarrangements with unconsolidated entities. The Predecessor had nooff-balance-sheet arrangements with unconsolidated entities at December 31,2007.

 

***Guarantees***

 

Note 21, Commitments and Guarantees,and Note 13, Debt, of the Notes to Unaudited Quarterly Consolidated FinancialStatements in “Item 1. Consolidated Financial Statements” of this Form 10-Qdescribe the nature of our guarantees, including the approximate terms of theguarantees, how the guarantees arose, the events or circumstances that wouldrequire us to perform under the guarantees, and the maximum potentialundiscounted amounts of future payments we could be required to make.

 

***Environmental***

 

Forinformation on environmental issues, see Boise Inc.’s Current Report on Form 8-Kfiled with the SEC on February 28, 2008. There have been no materialchanges to Boise Inc.’s environmental information from that disclosed for thePredecessor in the Current Report on Form 8-K filed with the SEC on February 28,2008.

 

***Critical Accounting Estimates***

 

Criticalaccounting estimates are those that are most important to the portrayal of ourfinancial condition and results. These estimates require management’s mostdifficult, subjective, or complex judgments, often as a result of the need toestimate matters that are inherently uncertain. We review the development,selection, and disclosure of our critical accounting estimates with the AuditCommittee of our board of directors. For information about critical accountingestimates, see Critical Accounting Estimates in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in Boise Inc.’sCurrent Report on Form 8-K filed with the SEC on February 28, 2008. Exceptas disclosed below, as of March 31, 2008, there have been no changes inBoise Inc.’s critical accounting estimates from those the Predecessor disclosedin Boise Inc.’s Current Report on Form 8-K filed with the SEC on February 28,2008.

 

*Acquisitions – Purchase Price Allocation*

 

Weaccount for acquisitions in accordance with the provisions of SFAS No. 141,*Business Combinations*. We assign to allidentifiable assets acquired (including intangible assets), and to allidentifiable liabilities assumed, a portion of the cost of the acquired companyequal to the estimated fair value of such assets and liabilities at the date ofacquisition. We record the excess of the cost of the acquired company over thesum of the amounts assigned to identifiable assets acquired less liabilitiesassumed, if any, as goodwill.

 

Wehave made a preliminary purchase price allocation in connection with ourAcquisition of the Paper, Packaging, and most of the Corporate and Othersegments of Boise Cascade. This purchase price allocation is preliminary andwill remain so until we complete a third-party valuation and have obtained allthe necessary information to make fair value determinations. Once our purchaseprice allocation is completed, we may have changes to the amounts recordedin our preliminary allocation. If necessary, we have up to one year after theclosing date of our Acquisition to finish these fair value determinations andfinalize the purchase price allocation.

 

47

----

 

***New and RecentlyAdopted Accounting Standards***

 

In March 2008, the FinancialAccounting Standards Board (FASB) issued SFAS No. 161, *Disclosures About Derivative Instruments and HedgingActivities*. SFAS No. 161 requires enhanced disclosures aboutderivative instruments and hedging activities to enable investors to betterunderstand their effects on financial position, financial performance, and cashflows. These requirements include the disclosure of the fair values ofderivative instruments and their gains and losses in a tabular format. SFAS No. 161is effective for fiscal years beginning after November 15, 2008, whichwill require us to adopt these provisions in 2009. Early adoption of SFAS No. 161is permitted. We are currently evaluating the impact SFAS No. 161will have on our consolidated financial statement disclosures.

 

In December 2007, the FASB issuedSFAS No. 141(R), *Business Combinations,*and SFAS No. 160, *Accountingand Reporting of Noncontrolling Interest in Consolidated Financial Statements,an Amendment of Accounting Research Bulletin (ARB) No. 51.*These new standards will significantly change the accounting for and reportingof business combination transactions and noncontrolling (minority) interests inconsolidated financial statements. SFAS Nos. 141(R) and 160 are requiredto be adopted simultaneously and are effective for the first annual reportingperiod beginning on or after December 15, 2008. Thus, we are required toadopt these standards on January 1, 2009. Earlier adoption is prohibited.We are currently evaluating the impact of adopting SFAS Nos. 141(R) and160 on our consolidated financial statements. However, their impact will belimited to business combinations occurring on or after January 1, 2009.

 

In September 2006,the FASB issued SFAS No. 157,*FairValue Measurements*. This statement defines fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements. This statement applies under other accounting pronouncements thatrequire or permit fair value measurements, the FASB having previously concludedin those accounting pronouncements that fair value is the relevant measurementattribute. Accordingly, this statement does not require any new fair valuemeasurements. We adopted this standard January 1, 2008, and the adoptiondid not have an impact on our financial position or results of operations. In February 2008,the FASB issued Staff Position No. 157-2, which provides a one-yeardelayed application of SFAS No. 157 for nonfinancial assets andliabilities, except for items that are recognized or disclosed at fair value inthe financial statements on a recurring basis (at least annually). We mustadopt these new requirements no later than our first quarter of fiscal 2009.

 

***ITEM3.             QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK***

 

We are exposed to market risks,including changes in interest rates, energy prices, and foreign currencyexchange rates. We employ a variety of practices to manage these risks,including operating and financing activities and, where deemed appropriate, theuse of derivative instruments. Derivative instruments are used only for riskmanagement purposes and not for speculation or trading. Derivatives are suchthat a specific debt instrument, contract, or anticipated purchase determinesthe amount, maturity, and other specifics of the hedge. If a derivativecontract is entered into, we either determine that it is an economic hedge orwe designate the derivative as a cash flow or fair value hedge. We formallydocument all relationships between hedging instruments and the hedged items, aswell as our risk management objectives and strategies for undertaking varioushedged transactions. For those derivatives designated as cash flow or fairvalue hedges, we formally assess, both at the derivatives’ inception and on anongoing basis, whether the derivatives that are used in hedging transactionsare highly effective in offsetting changes in the hedged items. The ineffectiveportion of hedging transactions is recognized in income (loss).

 

In accordance with SFAS No. 133, *Accounting for Derivative Instruments and HedgingActivities*, as amended, we record all derivative instruments asassets or liabilities on our Consolidated Balance Sheets at fair value. Thefair value of these instruments is determined by third parties. Changes in thefair value of derivatives are recorded in either “Net income (loss)” or “Othercomprehensive income,” as appropriate. The gain or loss on derivativesdesignated as cash flow hedges is included in “Other comprehensive income” inthe period in which changes in fair value occur and is reclassified to income(loss) in the period in which the hedged item affects income (loss), and anyineffectiveness is recognized currently in our Consolidated Statements ofIncome (Loss). The gain or loss on derivatives designated as

 

48

----

 

fair value hedges and the offsetting gain or loss on the hedged itemattributable to the hedged risk are included in income (loss) in the period inwhich changes in fair value occur. The gain or loss on derivatives that havenot been designated as hedging instruments is included in income (loss) in theperiod in which changes in fair value occur.

 

*Interest Rate Risk*

 

With the exception of the Related-PartyNote, our debt is variable-rate debt. As described in “Item 2. Management’sDiscussion and Analysis of Financial Conditions and Results of Operation” inthis Form 10-Q, in late April 2008, we entered into interest ratederivative financial instruments to hedge a portion of our exposure to changesin interest rates.

 

*Energy Risk*

 

We enter into natural gas swaps,options, or a combination of these instruments to hedge the variable cash flowrisk of natural gas purchases at index prices. As of March 31, 2008, wehad entered into derivative instruments related to approximately 3% of ourforecasted natural gas purchases from July 2008 through October 2008and approximately 2% of our forecasted natural gas purchases from November 2008through March 2009. We have elected to account for these instruments aseconomic hedges and record the changes in fair value in “Materials, labor, andoperating expenses” in our Consolidated Statements of Income (Loss). In April 2008,we entered into derivative instruments to hedge additional exposure related tonatural gas prices.

 

*Foreign Currency Risk*

 

At March 31, 2008, we had nomaterial foreign currency risk.

 

*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 thePredecessor, the effects of the interest rate swaps were not included in thePredecessor consolidated financial statements.

 

***ITEM4T.          CONTROLS AND PROCEDURES***

 

Attached as exhibits to this Form 10-Qare certifications of our chief executive officer and chief financial officer. Rule 13a-14of the Securities Exchange Act of 1934, as amended, requires that we includethese certifications with this report. This Controls and Procedures section includesinformation concerning the disclosure controls and procedures referred to in thecertifications. You should read this section in conjunction with thecertifications.

 

*Evaluation of Disclosure Controls and Procedures*

 

We maintain “disclosure controls andprocedures” as Rule 13a-15(e) under the Securities Exchange Act of1934, as amended, defines such term. We have designed these controls andprocedures to reasonably assure that information required to be disclosed inour reports filed under the Exchange Act, such as this Form 10-Q, isrecorded, processed, summarized, and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms. We have alsodesigned our disclosure controls to provide reasonable assurance that suchinformation is accumulated and communicated to our senior management, includingthe chief executive officer (CEO) and chief financial officer (CFO), asappropriate, to allow them to make timely decisions regarding our requireddisclosures.

 

We evaluate the effectiveness of ourdisclosure controls and procedures on at least a quarterly basis. A number ofkey components in our internal control system assist us in these evaluations.Since the Acquisition, we have had a disclosure committee. The committee meetsregularly and receives input from our senior management, general counsel, internalaudit staff, and independent accountants. This committee is charged withconsidering and evaluating the materiality of information and reviewing thecompany’s disclosure obligations on a timely basis. Our internal auditdepartment also evaluates components of our internal controls on an ongoingbasis. To assist in its evaluations, the internal audit staff identifies,documents, and tests our disclosure controls and procedures. Our intent is tomaintain

 

49

----

 

disclosure controls and procedures as dynamic processes thatchange as our business and working environments change.

 

Our management, with the participation ofour CEO and CFO, has evaluated the effectiveness of the design and operation ofour disclosure controls and procedures as of the end of the quarter covered bythe quarterly report on this Form 10-Q. Based on that evaluation, the CEOand CFO have concluded that, as of such date, our disclosure controls andprocedures were effective in meeting the objectives for which they weredesigned and were operating at a reasonable assurance level.

 

As a result of management’sevaluation of the design and operation of our disclosure controls andprocedures, we have identified a number of changes during the first quarter of2008 that materially affected, or would be reasonably likely to materiallyaffect, the company’s internal control over financial reporting. All of thesechanges related to the Acquisition of the packaging and paper assets of BoiseCascade. Specifically, as a result of the Acquisition, our existing financialreporting processes were all expanded and or modified. To accommodate theAcquisition of our operating assets, we implemented significant disclosurecontrols and procedures related to financial reporting, revenue andreceivables, purchasing and payables, property and equipment, treasury,inventory, payroll, employee benefits, non-recurring transactions, informationtechnology, and other control functions. The vast majority of these controlsand procedures had been implemented previously by Boise Cascade.

 

Inaddition, and also in conjunction with the Acquisition, we have enhanced ourgovernance framework through the formation of new board committees(compensation, governance, and executive committees) and the adoption andimplementation of a new code of ethics, governance guidelines, disclosurecommittee and procedures, and standing board resolutions that govern theauthority delegated to management. This governance framework is intended to ensurethat information and communication flows are effective and to monitorperformance, including performance of internal control procedures.

 

*Limitations on the Effectiveness of Controls andProcedures*

 

In designing and evaluating our disclosurecontrols and procedures, we recognized that disclosure controls and procedures,no matter how well-conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the disclosure controls andprocedures are met. Additionally, in designing disclosure controls andprocedures, our management necessarily was required to apply its judgment inevaluating the cost-benefit relationship of possible disclosure controls andprocedures. We have also designed our disclosure controls and procedures basedin part upon assumptions about the likelihood of future events, and therecan be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions.

 

50

----

 

**PART II—OTHER INFORMATION**

 

***ITEM 1.******             ******LEGAL PROCEEDINGS***

 

We are a party to routine legal proceedings that arisein the ordinary course of our business. We are not currently a party to anylegal proceedings or environmental claims that we believe would have a materialadverse effect on our financial position, results of operations, or cash flows.

 
| ***ITEM  1A*** | ***RISK  FACTORS*** |
|----------------|---------------------|

 

This quarterly report on Form 10-Qcontains forward-looking statements. Statements that are not historical orcurrent facts, including statements about our expectations, anticipatedfinancial results, projected capital expenditures, and future businessprospects, are forward-looking statements. You can identify these statements byour use of words such as “may,” “will,” “expect,” “believe,” “should,” “plan,” “anticipate,”and other similar expressions. You can find examples of these statementsthroughout this report, including the “Recent Trends and Operational Outlook” sectionof “Management’s Discussion and Analysis of Financial Condition and Results ofOperations.” We cannot guarantee that our actual results will be consistentwith the forward-looking statements we make in this report. You should reviewcarefully the risk factors listed below, as well as those factors listed inother documents we file with the Securities and Exchange Commission (SEC). Wedo not assume an obligation to update any forward-looking statements.

 

Unless otherwise noted, this discussion ofRisk Factors refers to the combined activities of Boise Inc. and thePredecessor.

 

***The paper industry is cyclical. Fluctuations in the pricesof and the demand for our products could result in smaller profit margins andlower sales volumes.*** Historically, economic and marketshifts, fluctuations in capacity, and changes in foreign currency exchangerates have created cyclical changes in prices, sales volumes, and margins forour products. The length and magnitude of industry cycles have varied over timeand by product but generally reflect changes in macroeconomic conditions andlevels of industry capacity. Most of our paper products, including our cut-sizeoffice paper, containerboard, and newsprint, are commodities that are widelyavailable from other producers. Even our noncommodity products, such as premiumpapers, are impacted by commodity prices since the prices of these grades areoften tied to commodity prices. Commodity products have few distinguishingqualities from producer to producer, and as a result, competition for theseproducts is based primarily on price, which is determined by supply relative todemand.

 

The overall levels ofdemand for the commodity products we make and distribute, and consequently oursales and profitability, reflect fluctuations in levels of end-user demand,which depend in large part on general macroeconomic conditions in North Americaand regional economic conditions in our markets, as well as foreign currencyexchange rates. For example, demand for our paper products fluctuates withlevels of employment, the state of durable and nondurable goods industries, andprevailing levels of advertising and print circulation. In recent years,particularly since 2000, demand for some grades of paper has decreased aselectronic transmission and document storage alternatives have become moreprevalent. Newsprint demand in North America has been in decline for decades aselectronic media has increasingly displaced paper as a medium for informationand communication.

 

Industry supply ofcommodity paper products is also subject to fluctuation, as changing industryconditions can influence producers to idle or permanently close individualmachines or entire mills. In addition, to avoid substantial cash costs inconnection with idling or closing a mill, some producers will choose tocontinue to operate at a loss, sometimes even a cash loss, which could prolongweak pricing environments due to oversupply. Oversupply in these markets canalso result from producers introducing new capacity in response to favorableshort-term pricing trends.

 

Industry supply ofcommodity paper products is also influenced by overseas production capacity,which has grown in recent years and is expected to continue to grow. While theweakness of the U.S. dollar has mitigated the levels of imports in recentyears, a strengthening of the U.S. dollar is likely to increase imports ofcommodity paper products from overseas, putting downward pressure on prices.

 

51

----

 

Prices for all of ourproducts are driven by many factors outside our control, and we have littleinfluence over the timing and extent of price changes, which are oftenvolatile. Market conditions beyond our control determine the prices for ourcommodity products, and as a result, the price for any one or more of theseproducts may fall below our cash production costs, requiring us to either incurshort-term losses on product sales or cease production at one or more of ourmanufacturing facilities. Therefore, our profitability with respect to theseproducts depends on managing our cost structure, particularly raw materials andenergy prices, which represent the largest components of our operating costsand can fluctuate based upon factors beyond our control, as described below. Ifthe prices of our products decline, or if our raw materials or energy costsincrease, or both, then our sales and profitability could be materially andadversely affected.

 

***We face strong competition in our markets.***The paper and packaging and newsprint industry is highly competitive, and weface competition from numerous competitors, domestic as well as foreign. Someof our competitors are large, vertically integrated companies that have greaterfinancial and other resources, greater manufacturing economies of scale,greater energy self-sufficiency, and/or lower operating costs, compared withour company. Because of ongoing consolidation in our industry, many of ourcompetitors have become larger, and this trend may continue in the future. Someof our competitors have less indebtedness than we do, and therefore, more oftheir cash will be available for business purposes other than debt service. Asa result, we may be unable to compete with other companies in the market duringthe various stages of the business cycle and particularly during any downturns.

 

***Our manufacturing businesses may have difficulty obtaininglogs and fiber at favorable prices or at all.*** Wood fiberis our principal raw material, accounting for approximately 27% and 15% of theaggregate amount of materials, labor, and other operating expenses, includingfiber costs, for our Paper and Packaging segments, respectively, for the threemonths ended March 31, 2008. Wood fiber is a commodity, and prices havehistorically been cyclical. In addition, availability of wood fiber is oftennegatively affected if demand for building products declines, since wood fiber,including wood chips, sawdust, and shavings, is a byproduct in the manufactureof building products. Wood fiber for our paper mills in the Northwest comespredominantly from building products manufacturing plants. Because of thedecline in the housing markets and new construction, a number of buildingproducts manufacturing plants have been curtailed and closed in the Northwest.These curtailments affect the availability and price of wood fiber in the regionand, in turn, affect the operating and financial performance of our Northwestpaper mills. In many cases, we may be unable to increase product prices inresponse to increased wood fiber costs, depending on other factors affectingthe demand or supply of paper. Further, severe or sustained shortages of fibercould cause us to curtail our own operations, resulting in material and adverseaffects on our sales and profitability.

 

Future domestic orforeign legislation and litigation concerning the use of timberlands, theprotection of endangered species, the promotion of forest health, and theresponse to, and prevention of, catastrophic wildfires can also affect log andfiber supply. Availability of harvested logs and fiber may be further limitedby fire, insect infestation, disease, ice storms, windstorms, hurricanes,flooding, and other natural and man-made causes, thereby reducing supply andincreasing prices. In addition, since a number of our manufacturing facilitiesuse wood-based biomass as an alternative energy source, an increase in woodfiber costs or a reduction in availability can increase the price of, or reducethe total usage of biomass, which could result in higher energy costs.

 

***Further increases in the cost of our purchased energy orchemicals would lead to higher manufacturing costs, thereby reducing ourmargins.*** Energy is one of our most significant costs, andit accounted for approximately 16% and 14% of the aggregate amount ofmaterials, labor, and other operating expenses, including fiber costs, for ourPaper and Packaging segments, respectively, for the three months ended March 31,2008. Energy prices, particularly for electricity, natural gas, and fuel oil,have been volatile in recent years and currently exceed historical averages. Thesefluctuations impact our manufacturing costs and contribute to earningsvolatility. We have some flexibility to switch between fuel sources; however,we have significant exposure to natural gas, fuel oil, and biomass (hog fuel)price increases. Increased demand for these fuels (which could be driven bycold weather) or further supply constraints could drive prices higher. Theelectricity rates charged to us are impacted by the increase in natural gasprices, although the degree of impact depends on each utility’s mix of energyresources and the relevant regulatory situation.

 

Other raw materials weuse include various chemical compounds, such as precipitated calcium carbonate,sodium chlorate, sodium hydroxide, and dyes. Purchases of chemicals accountedfor approximately 14% and 6% of the aggregate amount of materials, labor, andother operating expenses, 

 

52

----

 

including fiber costs, for our Paper and Packaging segments,respectively, for the three months ended March 31, 2008. The costs ofthese chemicals have been volatile historically and are influenced by capacityutilization, energy prices, and other factors beyond our control.

 

For our products, therelationship between industry supply and demand, rather than changes in thecost of raw materials, determines our ability to increase prices. Consequently,we may be unable to pass increases in our operating costs to our customers inthe short term. Any sustained increase in chemical or energy prices would reduceour operating margins and potentially require us to limit or cease operationsof one or more of our machines or facilities.

 

***Some of our paper products are vulnerable to long-termdeclines in demand due to competing technologies or materials.***Our uncoated free sheet paper and newsprint compete with electronictransmission, document storage alternatives, and paper grades we do notproduce. As the use of these alternatives grows, demand for paper products mayshift from one grade of paper to another or be eliminated altogether. Forexample, demand for newsprint has declined and may continue to decline asnewspapers are replaced with electronic media, and demand for our uncoated freesheet paper for use in preprinted forms has declined and may continue to declineas the use of desktop publishing and on-demand printing continues to displacetraditional forms. Demand for our containerboard may decline as corrugatedpaper packaging may be replaced with other packaging materials. Any substantialshift in demand from our products to competing technologies or materials couldresult in a material decrease in sales of our products. The increase in importsalso has negatively influenced demand for domestic containerboard, as moreproducts are manufactured and packaged offshore.

 

***A material disruption at one of our manufacturing facilitiescould prevent us from meeting customer demand, reduce our sales, and/ornegatively impact our net income.*** Any of ourmanufacturing facilities, or any of our machines within an otherwiseoperational facility, could cease operations unexpectedly due to a number ofevents, including:

 

·      Maintenance outages;

 

·      Prolonged power failures;

 

·      An equipment failure;

 

·      Disruption in the supply ofraw materials, such as wood fiber, energy, or chemicals;

 

·      A chemical spill or release;

 

·      Closure because ofenvironmental-related concerns;

 

·      Explosion of a boiler;

 

·      The effect of a drought orreduced rainfall on our water supply;

 

·      Disruptions in thetransportation infrastructure, including roads, bridges, railroad tracks, andtunnels;

 

·      Fires, floods, earthquakes,hurricanes, or other catastrophes;

 

·      Terrorism or threats ofterrorism;

 

·      Labor difficulties; or

 

·      Other operational problems.

 

Future events may causeshutdowns, which may result in downtime and/or cause damage to our facilities.Any such downtime or facility damage could prevent us from meeting customerdemand for our products and/or require us to make unplanned capitalexpenditures. If our machines or facilities were to incur significant downtime,our ability to meet our production capacity targets and satisfy customerrequirements would be impaired, resulting in lower sales and net income.

 

53

----

 

***Our operations require substantial capital, and we may nothave adequate capital resources to provide for all of our capital requirements.***Our manufacturing businesses are capital-intensive, and we regularly incurcapital expenditures to expand our operations, maintain our equipment, increaseour operating efficiency, and comply with environmental laws. On a combinedbasis, during the three months ended March 31, 2008, our total capitalexpenditures, excluding acquisitions, were approximately $20.4 million. Weexpect to spend approximately $110 million to $120 million on capitalexpenditures for 2008. Our capital expenditures are expected to be between$110 million and $130 million annually over the next five years,excluding acquisitions or major capital expenditures.

 

If we require funds for operatingneeds and capital expenditures beyond those generated from operations, we maynot be able to obtain them on favorable terms, or at all. In addition, our debtservice obligations will reduce our available cash flows. If we cannot maintainor upgrade our equipment as we require or ensure environmental compliance, wecould be required to cease or curtail some of our manufacturing operations orwe may become unable to manufacture products that can compete effectively inone or more of our markets.

 

***Our operations are affected by our relationship withOfficeMax Incorporated (“OfficeMax”).*** Pursuant to a 2004paper supply contract that remained in place after the Acquisition, OfficeMaxis required to purchase its North American requirements for certain grades ofpaper from us. We anticipate that OfficeMax will continue to be our largestcustomer and that we will continue to depend on OfficeMax’s distributionnetwork for a substantial portion of our uncoated free sheet sales in thefuture. Any significant deterioration in OfficeMax’s financial condition or ourrelationship with OfficeMax, or a significant change in OfficeMax’s businessstrategy, could result in OfficeMax ceasing to be our customer, or failing tosatisfy its contractual obligations to us, or simply result in lower uncoatedfree sheet (cut size) paper sales through OfficeMax, which in turn could reduceour sales.

 

***We are subject to significant environmental regulation andenvironmental compliance expenditures, as well as other potential environmentalliabilities.*** We are subject to a wide range of generaland industry-specific environmental laws and regulations, particularly withrespect to air emissions, wastewater discharges, solid and hazardous wastemanagement, and site remediation. We expect to incur approximately$1 million of capital expenditures for environmental compliance for 2008.We expect to continue to incur significant capital and operating expendituresin order to maintain compliance with applicable environmental laws and regulations.If we fail to comply with applicable environmental laws and regulations, we mayface civil or criminal fines, penalties, or enforcement actions, includingorders limiting our operations or requiring corrective measures, installationof pollution control equipment, or other remedial actions.

 

As an owner and operatorof real estate, we may be liable under environmental laws for cleanup and otherdamages, including tort liability, resulting from releases of hazardoussubstances on or from our properties. We may have liability under these lawswhether or not we knew of, or were responsible for, the presence of thesesubstances on our property, and in some cases, our liability may not be limitedto the value of the property.

 

The purchase and saleagreement governing the 2004 transaction with OfficeMax (2004 Transaction)contained customary representations, warranties, covenants, and indemnificationrights in favor of Boise Cascade’s parent entity (as the purchaser thereunder)and Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C.,and Boise Cascade Transportation Holdings Corp.; therefore, after theAcquisition was consummated, the Paper Group continues to have unlimitedindemnification rights against OfficeMax for certain preclosing liabilities, includingfor hazardous substance releases and other environmental violations thatoccurred prior to the 2004 Transaction or that arose out of pre-2004 operationsat the businesses, facilities, and other assets purchased by Boise Cascade.However, OfficeMax may not have sufficient funds to fully satisfy itsindemnification obligations when required. Furthermore, we are not entitled toindemnification for liabilities incurred due to releases and violations ofenvironmental laws occurring after the 2004 Transaction.

 

Enactment of newenvironmental laws or regulations or changes in existing laws or regulationsmight require significant expenditures. We may be unable to generate funds orother sources of liquidity and capital to fund unforeseen environmental liabilitiesor expenditures. In addition, we may be impacted if laws concerning climatechange are enacted that regulate greenhouse gas (GHG) emissions. Such lawsrequire buying allowances for mill GHG emissions or cause expenditure ofcapital to reduce GHG emissions.

 

54

----

 

***Labor disruptions or increased labor costs could adverselyaffect our business.*** While we believe we have good laborrelations and have established staggered labor contracts for each of our five papermills to minimize potential disruptions in the event of a labor dispute, wecould experience a material labor disruption or significantly increased laborcosts at one or more of our facilities, either in the course of negotiations ofa labor agreement or otherwise. Either of these situations could prevent usfrom meeting customer demand or increased costs, thereby reducing our sales andprofitability. As of March 31, 2008, we had approximately 4,600 employees. Approximately2,750, or 60%, of these employees work pursuant to collective bargainingagreements. We are currently in negotiations at our Wallula, Washington,packaging facility (126 employees represented by the United Steelworkers). Thisyear, labor contracts will expire at our Jackson, Alabama, converting facility(106 employees represented by the United Steelworkers) in June and at our packagingplant in Salem, Oregon (92 employees represented by the Association of WesternPulp & Paper Workers) in December. We do not expect material work interruptionsor increases in our costs during the course of the negotiations with ourcollective bargaining units. Nevertheless, if our expectations are notaccurate, we could experience a material labor disruption or significantlyincreased labor costs at one or more of our facilities, any of which couldprevent us from meeting customer demand or reduce our sales and profitability.

 

***If the Acquisition’s benefits do not meet the expectationsof the marketplace, investors, financial analysts, or industry analysts, themarket price of our common stock may decline.***The marketprice of our common stock may decline as a result of the Acquisition if we donot perform as expected or if we do not otherwise achieve the perceivedbenefits of the Acquisition as rapidly as, or to the extent anticipated by, themarketplace, investors, financial analysts, or industry analysts. Accordingly,investors may experience a loss as a result of a decreasing stock price, and wemay not be able to raise future capital, if necessary, in the equity markets.

 

***Our stock ownership is highly concentrated, and as a result,Boise Cascade Holdings, L.L.C., will influence our affairs significantly.***BoiseCascade Holdings, L.L.C., owns approximately 49% of our common stock. As aresult, Boise Cascade Holdings, L.L.C., will have significant representation onour board of directors and will have the voting power to significantlyinfluence our policies, business, and affairs and will also have the ability toinfluence the outcome of any corporate transaction or other matter, includingmergers, consolidations, and the sale of all or substantially all of ourassets. This concentration may have the effect of delaying, deterring, orpreventing a change of control that otherwise could result in a premium in theprice of our common stock.

 

***Our indebtedness could adversely affect our financialcondition and impair our ability to operate.***We haveapproximately $1,090 million of outstanding indebtedness (consisting ofapproximately $1,031 million under the new credit facilities andapproximately $59 million under a related-party note). The level ofindebtedness incurred in connection with the Acquisition could have importantconsequences for our business, financial condition, and operating results,including the following:

 

·                  Itmay limit our ability to borrow money or sell stock to fund our workingcapital, capital expenditures, acquisitions, debt service requirements, andother financing needs;

 

·                  Ourinterest expense would increase if interest rates generally rise, because asubstantial portion of our indebtedness, including all of our indebtednessunder our new credit facilities, bears interest at floating rates;

 

·                  Itmay limit our flexibility in planning for, or reacting to, changes in ourbusiness and future business opportunities;

 

·                  Wewill be subject to debt covenants that may restrict management’s ability tomake certain business decisions;

 

·                  Wemay be more highly leveraged than some of our competitors, which may place usat a competitive disadvantage;

 

·                  Itmay make us more vulnerable to a downturn in our business, our industry, or theeconomy in general;

 

55

----

 

·                  Asubstantial portion of our cash flow from operations will be dedicated to therepayment of indebtedness, including indebtedness we may incur in the future,and will not be available for other business purposes; and

 

·                  There would be amaterial adverse effect on our business and financial condition if we wereunable to service our indebtedness or obtain additional financing as needed.

 

***Our operations may not be able to generate sufficient cashflows to meet our debt service obligations.***Our abilityto make payments on and to refinance our indebtedness and to fund plannedcapital expenditures depends on our ability to generate cash from futureoperations. This, to a certain extent, is subject to general economic,financial, competitive, legislative, regulatory, and other factors that arebeyond our control. As a result, it is possible that we may not generatesufficient cash flow from our operations to enable us to repay ourindebtedness, make interest payments, and to fund other liquidity needs. To theextent we do not generate sufficient cash flow to meet these requirements, itwould impact our ability to operate as a going concern.

 

The indebtedness incurredby us under the new credit facilities bears interest at variable rates, inwhich case increases in interest rates would cause our debt servicerequirements to increase. In such a case, we might need to refinance orrestructure all or a portion of our indebtedness on or before maturity.However, we may not be able to refinance any of our indebtedness, including thenew credit facilities, on commercially reasonable terms, or at all. Ourexpected debt service obligation, assuming interest rates stay at March 31,2008, levels, is estimated to be approximately $83.8 million in cashinterest payments and fees per annum, which amount will be reduced each year inaccordance with scheduled debt amortization payments, if made. In addition,debt service requirements will also include scheduled principal payments totalingat $8.3 million for 2008 and rising to a maximum of$447.7 million for 2014.

 

***A default under our indebtedness may have a material adverseeffect on our business and financial condition.***In theevent of a default under our new credit facilities, the lenders generally wouldbe able to declare all such indebtedness, together with interest, to be due andpayable. In addition, borrowings under the new credit facilities are secured byfirst- and second-priority liens, as applicable, on all of our assets and oursubsidiaries’ assets, and in the event of a default under those facilities, thelenders generally would be entitled to seize the collateral. Moreover, upon theoccurrence of an event of default, the commitment of the lenders to make anyfurther loans would be terminated. Accordingly, a default under any debtinstrument, unless cured or waived, would likely have a material adverse effecton our overall business, the results of our operations, and our financialcondition.

 

***Servicing debt could limit funds available for otherpurposes.***We will use cash from operations to pay theprincipal and interest on our debt. These payments will limit funds availablefor other purposes, including expansion of our operations through acquisitions,funding future capital expenditures, and the payment of dividends.

 

***Our new credit facilities contain restrictive covenants thatwill limit our overall liquidity and corporate activities***.The new credit facilities impose operating and financial restrictions that willlimit our ability to:

 

·      Create additional liens onour assets;

 

·      Make investments oracquisitions;

 

·      Pay dividends;

 

·      Incur additionalindebtedness or enter into sale/leaseback transactions;

 

·      Sell assets, includingcapital stock of subsidiaries;

 

·      Enable our subsidiaries tomake distributions;

 

·      Enter into transactions withour affiliates;

 

·      Enter into new lines ofbusiness; and

 

56

----

 

·      Engage in consolidations,mergers, or sales of substantially all of our assets.

 

We will need to seekpermission from the lenders in order to engage in certain corporate actions.The lenders’ interests may be different from ours, and no assurance can begiven that we will be able to obtain the lenders’ permission when needed. Thismay prevent us from taking actions that are in our stockholders’ best interest.

 

The new credit facilitiesalso require us to achieve specified financial and operating results andmaintain compliance with specified financial ratios. Our ability to comply withthese ratios may be affected by events beyond our control, and these types ofrestrictions could:

 

·                  Limitour ability to plan for, or react to, market conditions or meet capital needsor otherwise restrict our activities or business plans; and

 

·                  Adverselyaffect our ability to finance our operations, strategic acquisitions,investments, alliances, and other capital needs or to engage in other businessactivities that would be in our best interest.

 

***If we fail to maintain effective systems for disclosure andinternal controls over financial reporting, we may be unable to comply with therequirements of Section 404 of the Sarbanes-Oxley Act in a timely manner.***Section 404of the Sarbanes-Oxley Act will require us to document and test theeffectiveness of our internal controls over financial reporting in accordancewith an established internal control framework and to report on our conclusionas to the effectiveness of the internal controls. It will also require anindependent registered public accounting firm to test our internal controlsover financial reporting and report on the effectiveness of such controls forour fiscal year ending December 31, 2008, and subsequent years. It maycost us more than we expect to comply with these controls and procedure-relatedrequirements. If we discover areas of internal controls that need improvement,we cannot be certain that any remedial measures taken will ensure that weimplement and maintain adequate internal controls over financial processes andreporting in the future. Any failure to implement requirements for new orimproved controls, or difficulties encountered in their implementation,could harm our operating results or cause us to fail to meet our reportingobligations.

 

***ITEM 2.******             ******UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS***

 

Information regarding the issuance of securities toBoise Cascade in connection with the Acquisition is set forth in “Item 3.02,Unregistered Sales of Equity Securities” in our Report on Form 8-K filedwith the SEC on February 28, 2008, and is incorporated by reference.

 

In February 2008, inconnection with the Acquisition, holders of 12,347,427 shares of our commonstock issued in Aldabra 2 Acquisition Corp.’s initial public offering electedto exercise conversion rights, reducing the number of shares outstanding to77,259,947.  Each shareholder whoproperly exercised conversion rights received $9.7323831 per share.  All shares that were converted as part of theAcquisition were retired.  No additionalshares may be converted.

 

***ITEM 3.******             ******DEFAULTS UPON SENIOR SECURITIES***

 

None.

 
| ***ITEM 4*** | ***SUBMISSION OF MATTERS TO A VOTE OF  SECURITYHOLDERS*** |
|--------------|-----------------------------------------------------------|

 

On February 5, 2008, Aldabra 2 Acquisition Corp.(Aldabra 2) held a special meeting of Stockholders (the Special Meeting) at10:00 a.m., Eastern Standard Time, at the offices of Kramer Levin Naftalis &Frankel LLP, 1177 Avenue of the Americas, New York, New York 10036. At theSpecial Meeting, the stockholders voted upon and approved the six proposals setforth below. A total of 41,400,000 shares issued in Aldabra 2’s initial publicoffering were eligible to vote at the meeting.

 

57

----

 
| **Proposal** | ** ** | **Votes  For**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **Votes Against  or Withheld** | ** ** | **Abstentions** | ** ** | **Not Voted** | ** ** |
|--------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-----------------|------------|--------------------|------------|
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                     |       |            |       |               |       |   |   |
| 1.           |       | Adoption of the Purchase and Sale Agreement dated as  of September 7, 2007, by and among Boise Cascade, L.L.C., Boise Paper  Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging &  Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2,  and Aldabra Sub LLC, as amended by Amendment No. 1 to Purchase and Sale  Agreement dated October 18, 2007, by and among such persons, and to  approve the transactions contemplated by the purchase agreement (the  Acquisition Proposal). |       | 24,264,669                               |       | 12,543,778      |       | 1,669,206          |       | 2,922,347 |   |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                     |       |            |       |               |       |   |   |
| 2.           |       | Adoption of a certificate of amendment to Aldabra  2’s existing amended and restated certificate of incorporation to increase  the number of authorized shares of common stock from 100 million to 250  million (the Closing Charter Amendment Proposal).                                                                                                                                                                                                                                                                              |       | 28,225,279                               |       | 9,583,012       |       | 669,362            |       | 2,922,347 |   |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                     |       |            |       |               |       |   |   |
| 3.           |       | Adoption of an amended and restated charter  immediately following the closing of the Acquisition to, among other things,  change Aldabra 2’s name to “Boise Inc.,” delete certain provisions relating  to Aldabra 2 as a blank check company, and create perpetual corporate  existence (the Amended and Restated Charter Proposal).                                                                                                                                                                                        |       | 28,241,144                               |       | 9,566,877       |       | 669,632            |       | 2,922,347 |   |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                     |       |            |       |               |       |   |   |
| 4.           |       | Election of the following nine members of the board  of directors to serve on the Boise Inc. board of directors from the  completion of the Acquisition until their successors are duly elected and  qualified:                                                                                                                                                                                                                                                                                                                             |       |                                     |       |            |       |               |       |   |   |
|         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                                     |       |            |       |               |       |   |   |
|         |       | Carl A. Albert                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | 30,577,046                               |       | 8,193,784       |       | —             |       | 2,629,170 |   |
|         |       | Zaid F. Alsikafi                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | 31,414,428                               |       | 7,356,402       |       | —             |       | 2,629,170 |   |
|         |       | Jonathan W.  Berger                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | 30,581,746                               |       | 8,189,084       |       | —             |       | 2,629,170 |   |
|         |       | Jack Goldman                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       | 31,418,128                               |       | 7,352,702       |       | —             |       | 2,629,170 |   |
|         |       | Nathan D. Leight                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | 31,405,131                               |       | 7,365,699       |       | —             |       | 2,629,170 |   |
|         |       | Thomas S.  Souleles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | 31,407,028                               |       | 7,363,802       |       | —             |       | 2,629,170 |   |

 

58

----

 
|   |   | W. Thomas  Stephens                                                                                                                                                                                                                                                                                                                                                                                                             |   | 31,404,831 |   | 7,365,999 |   | —  |   | 2,629,170 |   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|-----------|--------|---------|--------|-----------|--------|
|   |   | Alexander  Toeldte                                                                                                                                                                                                                                                                                                                                                                                                              |   | 31,405,131 |   | 7,365,699 |   | —  |   | 2,629,170 |   |
|   |   | Jason G. Weiss                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 31,409,556 |   | 7,361,274 |   | —  |   | 2,629,170 |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |   |       |   |      |   |    |   |      |   |
| 5.     |   | Adoption of the 2008 Boise Inc. Incentive and  Performance Plan (the Incentive Plan Proposal).                                                                                                                                                                                                                                                                                                                                  |   | 28,207,306 |   | 9,600,985 |   | 669,362 |   | 2,922,347 |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |   |       |   |      |   |    |   |      |   |
| 6.     |   | Adoption of an adjournment proposal to authorize the  adjournment of the Special Meeting to a later date or dates, if necessary, to  permit further solicitation and vote of proxies in the event there were  insufficient votes at the time of the Special Meeting to adopt the  Acquisition Proposal, the Closing Charter Amendment Proposal, the Amended and  Restated Charter Proposal, and/or the Incentive Plan Proposal. |   | 28,069,020 |   | 9,739,271 |   | 669,362 |   | 2,922,347 |   |

 

***ITEM 5.******             ******OTHER INFORMATION***

 

None.

 

***ITEM 6.******             ******EXHIBITS***

 

Required exhibits arelisted in the Index to Exhibits and are incorporated by reference.

 

59

----

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |   | BOISE  INC.                            |
|--------|--------|----------------------------------------|
|   |   |                                   |
|   |   |                                   |
|   |   | /s/ Samuel K. Cotterell                |
|   |   | Samuel K. Cotterell                    |
|   |   | Vice President and  Controller         |
|   |   | (As Duly Authorized  Officer and Chief |
|   |   | Accounting Officer)                    |

 

Date: May 5, 2008

 

60

----

 

**BOISEINC.**

 

**INDEX TO EXHIBITS**

 

Filed With theQuarterly Report on Form 10-Q for the Quarter Ended March 31, 2008

 
| **Number** | ** ** | **Description**                                                                                        |
|------------|------------|--------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                   |
| 10         |       | Boise Inc. Directors  Deferred Compensation Plan, Effective April 4, 2008                         |
|       |       |                                                                                                   |
| 31.1       |       | CEO Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                      |
|       |       |                                                                                                   |
| 31.2       |       | CFO Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                      |
|       |       |                                                                                                   |
| 32         |       | Section 906  Certifications of Chief Executive Officer and Chief Financial Officer of  Boise Inc. |

 

61

----