Edgar Filing: BOISE INC.

BZ 12.31.2011 10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2011



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

1111 West Jefferson Street, Suite 200

Boise, Idaho 83702-5388

(Address of principal executive offices) (Zip Code)

(208) 384-7000

(Registrants' telephone number, including area code)



Commission File Number	Exact Name of Registrant as Specified in Its Charter	State or Other Jurisdiction of Incorporation or Organization	I.R.S. Employer Identification No.
001-33541	Boise Inc.	Delaware	20-8356960
333-166926-04	BZ Intermediate Holdings LLC	Delaware	27-1197223

Securities registered pursuant to Section 12(b) of the Act



Title of Each Class		Name of Each Exchange On Which Registered
Common Stock, $0.0001 par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.



Boise Inc.	Yes ¨	No x
BZ Intermediate Holdings LLC	Yes ¨	No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.



Boise Inc.	Yes ¨	No x
BZ Intermediate Holdings LLC	Yes ¨	No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Boise Inc.	Yes x	No ¨
BZ Intermediate Holdings LLC	Yes x	No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Boise Inc.	Yes x	No ¨
BZ Intermediate Holdings LLC	Yes x	No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act:



Boise Inc.	Large accelerated filer	x	Accelerated filer	¨
	Non-accelerated filer	¨	Smaller reporting company	¨
	(Do not check if smaller reporting company)

BZ Intermediate Holdings LLC	Large accelerated filer	¨	Accelerated filer	¨
	Non-accelerated filer	x	Smaller reporting company	¨
	(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Boise Inc.	Yes ¨	No x
BZ Intermediate Holdings LLC	Yes ¨	No x

As of June 30, 2011, which was the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of Boise Inc.'s Common Stock, par value $0.0001 per share, held by non-affiliates was approximately $919,795,385 based upon the closing price of $7.79 per share as quoted on the New York Stock Exchange on that date.

There were 100,358,071 common shares, $0.0001 per share par value, of Boise Inc. outstanding as of January 31, 2012.

This Form 10-K is a combined annual report being filed separately by two registrants: Boise Inc. and BZ Intermediate Holdings LLC. BZ Intermediate Holdings LLC meets the conditions set forth in general instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format. Unless the context indicates otherwise, any reference in this report to the "Company," "we," "us," "our," or "Boise" refers to Boise Inc. together with BZ Intermediate Holdings LLC and its consolidated subsidiaries.

DOCUMENTS INCORPORATED BY REFERENCE

Some information required for Part III of this Annual Report on Form 10-K is incorporated by reference to the Boise Inc. definitive Proxy Statement for its 2012 Annual Shareholders' Meeting, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, within 120 days of Boise Inc.'s year-end.

Table of Contents



	PART I

Item 1.	Business	1
	Corporate Structure and Reporting Segments	2
	Packaging	2
	Paper	5
	Corporate and Other	9
	Competition	10
	Environmental Issues	11
	Capital Investment	11
	Seasonality	11
	Working Capital	11
	Acquisitions and Divestitures	11
	Employees	12
	Executive Officers of Registrant	12

Item 1A.	Risk Factors	14

Item 1B.	Unresolved Staff Comments	18

Item 2.	Properties	18

Item 3.	Legal Proceedings	19

Item 4.	Mine Safety Disclosure	19

PART II

Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	20

Item 6.	Selected Financial Data	23

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Background	25
	Executive Summary	25
	Factors That Affect Our Operating Results	27
	Our Operating Results	29
	Liquidity and Capital Resources	35
	Contractual Obligations	40
	Off-Balance-Sheet Activities	41
	Guarantees	41
	Inflationary and Seasonal Influences	41
	Disclosures of Financial Market Risks	41
	Environmental	42
	Critical Accounting Estimates	44
	New and Recently Adopted Accounting Standards	48

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 8.	Financial Statements and Supplementary Data	49

	Boise Inc. and Subsidiaries Consolidated Financial Statements	49
	BZ Intermediate Holdings LLC Consolidated Financial Statements	54



	Notes to Consolidated Financial Statements	59
	1. Nature of Operations and Basis of Presentation	59
	2. Summary of Significant Accounting Policies	59
	3. Acquisitions	64
	4. Net Income Per Common Share	66
	5. Income Taxes	67
	6. Segment Information	70
	7. Debt	73
	8. Financial Instruments	76
	9. Retirement and Benefit Plans	78
	10. Stockholders' Equity and Capital	84
	11. Share-Based Compensation	85
	12. Goodwill and Intangible Assets	88
	13. Concentrations of Risk	89
	14. Leases	89
	15. Asset Retirement Obligations	90
	16. Transactions With Related Parties	90
	17. Alternative Fuel Mixture Credits, Net	91
	18. Other (Income) Expense	91
	19. Commitments, Guarantees, and Legal Proceedings	91
	20. Quarterly Results of Operations (unaudited)	93
	21. Subsequent Event	94
	22. Consolidating Guarantor and Nonguarantor Financial Information	94

	Reports of Independent Registered Public Accounting Firm — KPMG LLP	105

Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	108

Item 9A.	Controls and Procedures	108

	Management’s Report on Internal Control Over Financial Reporting	110

Item 9B.	Other Information	111

PART III

Item 10.	Directors, Executive Officers, and Corporate Governance	112

Item 11.	Executive Compensation	112

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	112

Item 13.	Certain Relationships and Related Transactions, and Director Independence	113

Item 14.	Principal Accounting Fees and Services	113

PART IV

Item 15.	Exhibits, Financial Statement Schedules	114

	Signatures	115

	Index to Exhibits	116

PART I

All of our filings with the Securities and Exchange Commission (SEC), which include this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Registration Statements, Current Reports on Form 8-K, and all related amendments are available free of charge via the Electronic Data Gathering Analysis and Retrieval (EDGAR) System on the SEC website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request and make electronic copies of our reports available through our website at www.boiseinc.com as soon as reasonably practicable after filing such material with the SEC. Attached as exhibits to this Form 10-K are certifications of our Chief Executive Officer and Chief Financial Officer required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.


ITEM 1.	BUSINESS

Boise Inc. is a large, diverse manufacturer and seller of packaging and paper products. We are headquartered in Boise, Idaho, and have approximately 5,400 employees. We operate largely in the United States, and recently expanded our operations into Europe, Mexico, and Canada. We manufacture and sell corrugated containers and sheets, protective packaging products and papers associated with packaging, including labeling papers, flexible papers used for food wrap, and newsprint. Additionally, we manufacture linerboard and corrugating medium, which are combined to make containerboard, the base raw material in corrugated sheets and containers. We are also the third-largest North American manufacturer of communication papers, such as office papers, commercial printing papers, envelopes, and forms.

On March 1 and December 1, 2011, we acquired Tharco Packaging (Tharco) for $200 million and Hexacomb for $125 million, subject to post-closing adjustments. These acquisitions diversify our presence in packaging markets, expand our presence globally, and increase our containerboard integration to approximately 90%.

Below is a map of our locations:



	Corporate Headquarters			Packaging
	Paper			Packaging (Tharco)
				Packaging (Hexacomb)

Our operations began on February 22, 2008, when entities controlled by Boise Cascade Holdings, L.L.C. (Boise Cascade) sold their packaging and paper assets to Aldabra 2 Acquisition Corp. (the Acquisition). As part of the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. In this Form 10-K, we use the term "Predecessor" to reference the periods before the Acquisition, including the period when our assets were operated by Boise Cascade.

Corporate Structure and Reporting Segments

The following sets forth our structure at December 31, 2011:

Boise Inc.

BZ Intermediate Holdings LLC

Boise Paper Holdings, L.L.C.

Packaging Segment

Paper Segment

Corporate Segment

We operate and report our business in three reportable segments: Packaging, Paper, and Corporate and Other (support services). We present information about each of our segments and the geographic areas in which they operate in Note 6, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

Packaging

In our Packaging segment, we manufacture and sell linerboard, corrugated containers and sheets, protective packaging products, and newsprint. During 2011, we acquired two packaging companies, Tharco and Hexacomb. We continue to look for opportunities to grow our packaging business and expand our current product lines.

Packaging Products


•	Linerboard: paperboard, which when combined with corrugating medium, forms corrugated board — the key raw material in the manufacture of corrugated sheets and containers. Linerboard is also part of a broader category of products called containerboard.


•	Corrugated sheets: containerboard sheets that are sold primarily to converters that produce a variety of corrugated products.


•	Corrugated containers: corrugated sheets that have been fed through converting machines to create containers, which are used in the packaging of fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products.


•	Protective packaging products: these products include multi-material customized packaging solutions, which may utilize kraft paper-based honeycomb corrugated packaging, foamed plastics, and air pocket packing materials.


•	Newsprint: paper commonly used for printing newspapers, other publications, and advertising material.

During the year ended December 31, 2011, our Packaging segment produced approximately 607,000 short tons (a short ton is equal to 2,000 pounds) of linerboard, and our Paper segment produced approximately 135,000 short tons of corrugating medium, both of which are used in the production of containerboard.

We operate our Packaging segment to maximize profitability through integration of our containerboard and converting operations and through operational improvements in our facilities to lower costs and improve efficiency. During 2011, we increased our integration levels and expanded our corrugated container position through the acquisition of Tharco. Our recent acquisition of Hexacomb will provide additional opportunities for vertical integration in 2012. In 2011, our corrugated container and sheet feeder plants consumed approximately 529,000 short tons of containerboard (including both linerboard and corrugating medium), or the equivalent of 71% of our containerboard production.

We are a low-volume manufacturer of newsprint. Demand for newsprint in North America has declined dramatically in the last several years. We expect this decline to continue, as electronic media displaces newsprint. Despite this decline, our low-cost newsprint machine has enabled our newsprint operations to be profitable in the southern United States.

The following table shows financial results for the Packaging segment for the periods indicated (dollars in millions):



	Boise Inc.								Predecessor
	Year Ended December 31								January 1 Through February 21, 2008		Year Ended December 31, 2007
	2011		2010		2009		2008		January 1 Through February 21, 2008		Year Ended December 31, 2007
Sales	$	949.7	$	671.9	$	588.4	$	703.7	$	113.5	$	783.1

Segment income before interest and taxes	105.0		65.0		67.1		21.1		5.7		40.1
Depreciation, amortization, and depletion	50.5		38.6		42.2		35.1		0.1		37.7
EBITDA (a) (b)	$	155.5	$	103.6	$	109.3	$	56.2	$	5.7	$	77.8

____________

(a)

Segment earnings before interest, taxes, depreciation, and amortization (EBITDA) is calculated as segment income before interest (interest income and interest expense), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance and to decide how to allocate resources to segments. See "Part II, Item 6. Selected Financial Data" of this Form 10-K for a description of our reasons for using EBITDA, for a discussion of the limitations of such a measure, and for a reconciliation of our EBITDA to net income (loss).


(b)	The year ended December 31, 2009, includes approximately $61.6 million of income from alternative fuel mixture credits.

Facilities

We manufacture containerboard (linerboard) and newsprint on two machines at our mill in DeRidder, Louisiana. We also manufacture corrugated containers and sheets and protective packaging products globally at 26 plants located in North America and Europe.

The following table sets forth capacity and production at our mill in DeRidder, Louisiana, by product for the periods indicated (in thousands of short tons):



	Boise Inc.				Predecessor
	Year Ended December 31				January 1 Through February 21, 2008	Year Ended December 31, 2007
	2011	2010	2009	2008	January 1 Through February 21, 2008	Year Ended December 31, 2007
Capacity (a)
Containerboard (linerboard)	605	610	610	600		575
Newsprint	230	225	225	410		425
	835	835	835	1,010		1,000

Production (b)
Containerboard (linerboard)	607	602	544	446	83	573
Newsprint	229	229	188	331	59	409
	836	831	732	777	142	982

____________


(a)	Capacity numbers are shown as of December 31 for the year presented. Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions.


(b)	The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008.

Our corrugated products are generally manufactured to meet specific customer needs, and as a result, production can vary between years. See sales volumes for our corrugated containers and sheets in the "Sales, Marketing, and Distribution" section below.

Raw Materials and Input Costs

Wood fiber, including purchased rollstock consumed in our corrugated operations, is the principal raw material in this segment. The primary sources of wood fiber are timber and its byproducts, such as wood chips. During the year ended December 31, 2011, wood fiber costs accounted for approximately 22% of materials, labor, and other operating expenses in this segment. We generally purchase raw materials through market-based contracts and on the open market from suppliers located in close proximity to DeRidder, Louisiana.

Our Packaging segment consumes substantial amounts of energy, such as electricity and natural gas. During the year ended December 31, 2011, energy costs accounted for approximately 9% of materials, labor, and other operating expenses in this segment. We purchase substantial portions of our natural gas and electricity under supply contracts. Under most of these contracts, the providers are contractually bound to supply us with all of our needs for a particular type of energy at a specific facility. Our natural gas contracts have pricing mechanisms based primarily on current market prices, and our electricity contracts have pricing mechanisms based primarily on published tariffs. We also use derivative instruments such as caps, call spreads, and swaps, or a combination of these instruments, to mitigate price risk for our energy requirements. For more information about our derivative instruments, see Note 8, Financial Instruments, in the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

We consume chemicals in the manufacturing of our Packaging segment products. Important chemicals we use include pulping and bleaching chemicals, such as caustic and sulfuric acid, and starch. During the year ended December 31, 2011, chemical costs accounted for approximately 5% of materials, labor, and other operating expenses in this segment. Most of our chemicals are purchased under contracts, which contain price adjustment mechanisms designed to provide greater pricing stability than open-market purchases. These contracts are negotiated periodically at prevailing rates.

Sales, Marketing, and Distribution

The products manufactured in our Packaging segment are sold by our own sales personnel or brokers. The following table sets forth sales volumes of containerboard (linerboard) and newsprint (in thousands of short tons) and corrugated containers and sheets (in millions of square feet) for the periods indicated:



	Boise Inc.				Predecessor
	Year Ended December 31				January 1 Through February 21, 2008	Year Ended December 31, 2007
	2011	2010	2009	2008	January 1 Through February 21, 2008	Year Ended December 31, 2007
Containerboard (linerboard) (a)	230	225	253	194	36	239
Newsprint	231	231	199	326	56	415
Corrugated containers and sheets (b)	8,720	6,735	5,963	5,337	914	6,609

____________


(a)	Excludes intercompany sales.


(b)	Includes corrugated container and sheet volumes for Tharco and Hexacomb since their acquisitions on March 1, and December 1, 2011, respectively.

Customers

In 2011, we used approximately 71% of our corrugated board (a combination of linerboard and corrugating medium) in our operations, and sold the rest in the open market, both domestically and internationally. We consume virtually all of the corrugating medium we produce. A significant portion of our finished corrugated containers are sold to large agricultural producers and food and beverage processors from our plants in the Pacific Northwest. We are able to serve customers' needs from our multiple regional plants, schedule operating runs to maximize productivity, and optimize shipping distances to our customers. We believe our position in agricultural and food markets makes us more resistant to economic downturns. Plants in other regions, including the newly acquired Tharco and Hexacomb plants, have a diverse customer base that primarily serves industrial markets, including electronics and medical device manufacturers. We also sell corrugated sheets to converters that use the sheets to manufacture corrugated containers for a variety of customers. We sell our newsprint to newspaper publishers located in regional markets near our DeRidder, Louisiana, manufacturing facility and to a lesser extent to export markets, primarily in Latin America. We have over five thousand customers in this segment, and no single customer of this segment exceeds 10% of segment sales.

Paper

In our Paper segment, we manufacture and sell three general categories of products: (1) communication-based papers; (2) packaging-demand-driven papers; and (3) market pulp. These products can be either commodity papers or papers with specialized or custom features, such as colors, coatings, high brightness, or recycled content, which make them specialty or premium products.

Communication-Based Papers


•	Cut-size office papers: imaging papers for the office and home.


•	Printing and converting papers: papers used by commercial printers or converters to manufacture envelopes, forms, and other commercial paper products.

Packaging-Demand-Driven Papers


•	Label and release papers: These papers include label facestocks, as well as release liners, which our customers combine and convert to labels for use on consumer and commercial packaged products.


•	Flexible packaging papers: coated and uncoated papers sold to customers that create flexible packaging products for food and nonfood applications.


•	Corrugating medium: unbleached paperboard, which when corrugated and combined with linerboard, forms corrugated board — the key raw material in the manufacture of corrugated sheets and containers. Corrugating medium is also part of a broader category of products called containerboard.

Market Pulp


•	Market pulp: pulp sold to customers in the open market for use in the manufacture of paper products.

We are the third-largest manufacturer of uncoated freesheet papers in North America. Cut-size office papers, printing and converting papers, label and release, and flexible packaging products are a subset of a larger product category called uncoated freesheet papers. We focus our product mix on cut-size office papers and packaging-demand-driven papers to better align ourselves with changing end markets. Many traditional communication paper markets have declined as electronic document transmission and storage alternatives have developed. These declines have varied by specific products. For example, the use of business forms has declined significantly, while cut-size office paper consumption has declined more modestly over the past several years as increased printer placements in home and manufacturing environments have offset reductions in office consumption. Some paper markets, such as label and release papers and flexible packaging papers, are not as sensitive to electronic substitution. Sales volumes of our label and release, flexible packaging, and premium office papers grew 4% during the year ended December 31, 2011, compared with the year ended December 31, 2010.

The following table shows financial results for the Paper segment for the periods indicated (dollars in millions):



	Boise Inc.								Predecessor
	Year Ended December 31								January 1 Through February 21, 2008		Year Ended December 31, 2007
	2011		2010		2009		2008		January 1 Through February 21, 2008		Year Ended December 31, 2007
Sales	$	1,496.5	$	1,458.3	$	1,420.0	$	1,403.7	$	253.5	$	1,596.2

Segment income before interest and taxes	112.1		151.5		262.7		32.7		20.7		133.5
Depreciation, amortization, and depletion	89.5		87.4		85.1		71.7		0.3		45.0
EBITDA (a) (b)	$	201.5	$	238.9	$	347.8	$	104.3	$	21.1	$	178.5

____________

(a)

Segment EBITDA is calculated as segment income before interest (interest income and interest expense), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance and to decide how to allocate resources to segments. See "Part II, Item 6. Selected Financial Data" of this Form 10-K for a description of our reasons for using EBITDA, for a discussion of the limitations of such a measure, and for a reconciliation of our EBITDA to net income (loss).


(b)	The year ended December 31, 2009, includes approximately $149.9 million of income from alternative fuel mixture credits.

Facilities

We manufacture our Paper segment products at four mills, all located in the United States. These mills are supported by converting machines that, on a net basis, can produce approximately 0.8 million short tons of cut-size office papers annually.

The following table sets forth the annual capacities as of and the production for the year ended December 31, 2011 (in thousands of short tons):



Location	Number of Machines	Capacity (a)	Production
Jackson, Alabama
Uncoated freesheet	2	491	469
International Falls, Minnesota
Uncoated freesheet	4	528	519
St. Helens, Oregon
Uncoated freesheet	1	58	54
Wallula, Washington
Uncoated freesheet (b)	1	192	179
Containerboard (medium)	1	138	135
Market pulp	1	160	152
	10	1,567	1,508

____________


(a)	Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions.


(b)	During 2011, production of label and release accounted for approximately 76% of Wallula uncoated freesheet production, with office papers accounting for the remaining 24%.

The following table sets forth capacity and production by product for the periods indicated (in thousands of short tons):



	Boise Inc.				Predecessor
	Year Ended December 31				January 1 Through February 21, 2008	Year Ended December 31, 2007
	2011	2010	2009	2008	January 1 Through February 21, 2008	Year Ended December 31, 2007
Capacity (a)
Uncoated freesheet	1,269	1,263	1,265	1,300		1,484
Containerboard (medium)	138	136	135	136		138
Market pulp	160	142	145	136		229
	1,567	1,541	1,545	1,572		1,851

Production (b)
Uncoated freesheet	1,221	1,229	1,198	1,204	208	1,458
Containerboard (medium)	135	127	126	118	19	134
Market pulp	152	142	114	187	31	221
	1,508	1,498	1,438	1,509	258	1,813

____________


(a)	Capacity numbers shown are as of December 31 for the year presented. Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions.


(b)	The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008.

Raw Materials and Input Costs

Fiber is our principal raw material in this segment. During the year ended December 31, 2011, fiber costs accounted for approximately 30% of materials, labor, and other operating expenses in this segment. The primary sources of fiber are timber and byproducts of timber. Most of our manufacturing facilities are located in close proximity to active wood markets. Because of the continued suppression of the housing and construction markets, a significant number of building products manufacturers have curtailed or closed their facilities. These curtailments

and closures affect the availability and price of wood chips, wood shavings, and other timber byproducts, particularly in the Pacific Northwest. As a result, we have increased our ability to manufacture wood chips from whole logs, which we purchase from third parties. At our mill in Jackson, Alabama, we also utilize recycled fiber to produce our line of recycled office papers.

All of our paper mills, except St. Helens, have on-site pulp production facilities. Some of our paper mills also purchase pulp from third parties pursuant to contractual arrangements. We negotiate these arrangements periodically, and terms can fluctuate based on prevailing pulp market conditions, including pricing and supply dynamics. As we are currently configured and under normal operating conditions, we are a net consumer of pulp, purchasing approximately 60,000 to 80,000 short tons more than we produce annually, subject to changes in product mix.

We purchase raw materials through contracts and open-market purchases. Our contracts are generally with suppliers located in close proximity to the specific facility they supply, and they commonly contain price adjustment mechanisms to account for market price and expense volatility.

Our Paper segment consumes substantial amounts of energy, such as electricity, natural gas, and a modest amount of fuel oil. During the year ended December 31, 2011, energy costs accounted for approximately 12% of materials, labor, and other operating expenses in this segment. We purchase substantial portions of our natural gas and electricity under supply contracts. Under most of these contracts, the providers are contractually bound to provide us with all of our needs for a particular type of energy at a specific facility. Most of these contracts have pricing mechanisms that adjust or set prices based on current market prices. We also use derivative instruments such as caps, call spreads, and swaps, or a combination of these instruments, to mitigate price risk for our energy requirements. For more information about our derivative instruments, see Note 8, Financial Instruments, in the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

We consume a significant amount of chemicals in the production of paper. Important chemicals we use include starch, caustic, sodium chlorate, precipitated calcium carbonate, dyestuffs, and optical brighteners. During the year ended December 31, 2011, chemical costs accounted for approximately 16% of materials, labor, and other operating expenses in this segment. Most of our chemicals are purchased under contracts, which contain price adjustment mechanisms designed to provide greater pricing stability than open-market purchases. These contracts are negotiated periodically at prevailing rates.

Sales, Marketing, and Distribution

Our uncoated freesheet paper is sold primarily by our own sales personnel. We ship to customers both directly from our mills and through distribution centers and a network of outside warehouses. This allows us to respond quickly to customer requirements.

The following table sets forth sales volumes of paper and paper products for the periods indicated (in thousands of short tons):



	Boise Inc.				Predecessor
	Year Ended December 31				January 1 Through February 21, 2008	Year Ended December 31, 2007
	2011	2010	2009	2008	January 1 Through February 21, 2008	Year Ended December 31, 2007
Commodity	771	784	844	768	164	995
Premium and specialty	459	449	407	432	72	480
Uncoated freesheet	1,230	1,233	1,251	1,200	236	1,475

Containerboard (medium)	135	127	127	118	19	134
Market pulp	90	81	58	102	20	145
	1,455	1,441	1,436	1,420	275	1,754

Customers

We have approximately 700 uncoated freesheet paper customers including paper merchants, commercial and financial printers, paper converters such as envelope and form manufacturers, and customers who use our paper for specialty applications such as label and release products. We have established long-term relationships with many of our customers, including our largest customer, OfficeMax Incorporated (OfficeMax). In June 2011, OfficeMax agreed to buy and we agreed to supply virtually all of OfficeMax's North American requirements for office papers through 2012. After 2012, the agreement requires OfficeMax to buy and us to supply at least 80% of OfficeMax's requirements for office papers through December 2017; however, there are circumstances that could cause the agreement to terminate as early as December 31, 2012. If this were to occur, OfficeMax's purchase obligations under the agreement will phase out over four years. If the agreement terminates in 2013 or later, OfficeMax's purchase obligations under the agreement will phase out over two years. The supply agreement with OfficeMax allows us to focus our largest paper machines on long, high-volume production runs, to continue to improve the capacity utilization of our largest paper machines. We leverage the expertise developed in this relationship to better serve our other customers and to develop new customers and products while pursuing productivity improvements and cost reductions. Sales to OfficeMax accounted for $496.0 million of Paper segment sales and were 38% of total uncoated freesheet paper sales volume and 62% of our office papers sales volume. No single customer, other than OfficeMax, exceeds 10% of segment sales.

Corporate and Other

Our Corporate and Other segment includes primarily corporate support services, related assets and liabilities, and foreign exchange gains and losses. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport our products from our manufacturing sites. We provide transportation services not only to our own facilities but also, on a limited basis, to third parties when geographic proximity and logistics are favorable. Rail cars and trucks are typically leased. During the years ended December 31, 2011, 2010, and 2009, segment sales related primarily to our rail and truck business were $68.3 million, $65.4 million, and $63.9 million, respectively.

The following table sets forth segment sales; segment loss before interest and taxes; loss on extinguishment of debt; depreciation, amortization, and depletion; and EBITDA for the periods indicated (dollars in millions):



	Boise Inc.												Predecessor
	Year Ended December 31												January 1 Through February 21, 2008			Year Ended December 31, 2007
	2011			2010			2009			2008			January 1 Through February 21, 2008			Year Ended December 31, 2007
Sales	$	68.3		$	65.4		$	63.9		$	67.7		$	8.6		$	58.9

Segment loss before interest and taxes	(25.9		)	(21.7		)	(21.5		)	(18.6		)	(3.2		)	(12.0		)
Loss on extinguishment of debt	(2.3		)	(22.2		)	(44.1		)	—			—			—
Depreciation, amortization, and depletion	3.7			4.0			4.1			3.3			0.1			2.0
EBITDA (a) (b)	$	(24.4	)	$	(39.9	)	$	(61.4	)	$	(15.4	)	$	(3.1	)	$	(10.0	)

____________

(a)

Segment EBITDA is calculated as segment loss before interest (interest income and interest expense), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance and to decide how to allocate resources to segments. See "Part II, Item 6. Selected Financial Data" of this Form 10-K for a description of our reasons for using EBITDA, for a discussion of the limitations of such a measure, and for a reconciliation of our EBITDA to net income (loss).


(b)	The year ended December 31, 2009, includes approximately $3.9 million of expense from alternative fuel mixture credits.

Competition

All of the markets in which we operate are large and highly competitive. Our products and services compete with similar products manufactured and distributed by others both domestically and internationally. Many factors influence our competitive position in each of our operating segments. Those factors include price, service, quality, product selection, and convenience of location as well as our manufacturing and overhead costs.

Within our operating segments, some of our competitors are larger than we are and have greater financial resources. These resources afford those competitors greater purchasing power, increased financial flexibility, and more capital resources for expansion and improvement, which may enable those competitors to compete more effectively than we can.

Packaging. North American containerboard manufacturers produced 36.2 million short tons in 2011, and five major manufacturers account for approximately 73% of capacity, according to Resource Information Systems Inc. (RISI) and our own estimates. Our largest competitors include International Paper Company, Rock-Tenn Company, Georgia-Pacific LLC, Temple-Inland Inc., and Packaging Corporation of America. Containerboard is a globally traded commodity with numerous worldwide manufacturers. Although price is the primary basis for competition in most of our packaging grades, quality and service are important competitive determinants. The intensity of competition in this industry fluctuates based on demand and supply levels as well as prevailing foreign currency exchange rates. Some of our competitors have lower operating costs and/or enjoy greater integration between their containerboard production and corrugated container production than we do.

Competition in our corrugated container operations tends to be regional, although we also face competition from large competitors with significant national account presence. Our corrugated container operations in the Pacific Northwest have a leading regional market position and supply standard shipping and point-of-purchase containers to a variety of producers manufacturing agricultural, processed food, and industrial products. Our plant in Waco, Texas, known as Central Texas Corrugated, or CTC, produces corrugated sheets that are sold to sheet plants in the Southwest, for converting into corrugated containers for a variety of customers.

Our Tharco operations specialize in stock boxes that can be delivered with short lead times, custom corrugated containers sold to small and medium sized accounts, and combined packaging solutions utilizing foam and other interior packaging to ship high-value products requiring special handling. Our recently acquired Hexacomb operations provide manufacturers and packaging suppliers with custom manufactured honeycomb used for internal packaging requirements, blocking, and bracing in transport applications, advertising solutions, including Falconboard™. Falconboard is a graphic display board constructed from kraft paper-based honeycomb material, which has many end uses, such as a point-of-purchase displays and interior signage.

North American newsprint producers shipped 7.5 million metric tonnes (a metric tonne is equal to 2,205 pounds) in 2011, and three major manufacturers account for approximately 74% of capacity, according to RISI and our own estimates. Our largest competitors in our operating region include Resolute Forest Products (formerly AbitibiBowater Inc.), SP Newsprint Co., and Catalyst Paper Corporation. Demand for newsprint has declined dramatically in the last several years, and we expect this decline to continue as electronic media competes with newspaper readership. Major producers have closed or significantly curtailed capacity as demand has fallen. Nevertheless, our low-cost newsprint machine has enabled our newsprint operations to be profitable in the southern United States. During 2011, our newsprint capacity and production were reduced only for scheduled maintenance.

Paper. The markets in which our Paper segment competes are large and highly competitive. Commodity grades of uncoated freesheet paper are globally traded, with numerous worldwide manufacturers, and as a result, these products compete primarily on the basis of price. All of our paper manufacturing facilities are located in the United States, and although we compete primarily in the domestic market, we do face competition from foreign producers, some of which have lower operating costs than we do. The level of this competition varies, depending on domestic and foreign demand and foreign currency exchange rates. In general, paper production does not rely on proprietary processes or formulas, except in highly specialized or custom grades.

North American uncoated freesheet paper producers shipped 10.4 million short tons in 2011, and four major manufacturers account for approximately 72% of capacity, according to RISI and our own estimates. As of December 31, 2011, we believe we are the third-largest producer of uncoated freesheet paper in North America. Our largest competitors include Domtar Corporation, International Paper Company, and Georgia-Pacific LLC.

Although price is the primary basis for competition in most of our paper grades, quality and service are important competitive determinants, especially in premium and specialty grades. Our uncoated freesheet papers compete with electronic data transmission, e-readers, electronic document storage alternatives, and paper grades we do not produce. Increasing shifts to these alternatives have had, and are likely to continue to have, an adverse effect on traditional print media and paper usage. These secular trends are in addition to the current demand decline driven by a weak economy and reduced white-collar employment.

Major uncoated freesheet paper producers have closed or significantly curtailed capacity in response to lower demand in recent years. During 2011, we took approximately 8,000 short tons of market-related downtime for uncoated freesheet, compared with approximately 17,000 short tons taken during 2010. We may choose to take additional downtime or slow production in the future if market conditions warrant.

Environmental Issues

Our discussion of environmental issues is presented under the caption "Environmental" in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” and "Part I, Item 3. Legal Proceedings" of this Form 10-K.

Capital Investment

Information concerning our capital expenditures is presented under the caption "Investment Activities" in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K.

Seasonality

Our businesses experience modest seasonality, based primarily on buying patterns associated with particular products. For example, the demand for our corrugated containers is influenced by changes in agricultural demand in the Pacific Northwest. In addition, seasonally cold weather increases costs, especially energy consumption, at all of our manufacturing facilities. Seasonality also affects working capital levels as described below.

Working Capital

Working capital levels fluctuate throughout the year and are affected by seasonality, scheduled annual maintenance shutdowns, and changing sales patterns. In our Packaging segment, agricultural demand influences working capital, as finished good inventory levels are increased in preparation for the harvest season in the third and fourth quarters. In our Paper segment, we typically build working capital at the end of the fourth quarter as both a hedge against winter weather disruptions within our supply chain and in anticipation of first-quarter sales. Finished goods inventories are also increased prior to scheduled annual maintenance shutdowns to maintain sales volumes while production is stopped. Inventories for some raw materials, such as fiber, exhibit seasonal swings, as we increase log and chip inventories to ensure ample supply of fiber to our mills throughout the winter. Changes in sales volumes can affect accounts receivable levels in both our Packaging and Paper segments, influencing overall working capital levels. We believe our management practices with respect to working capital conform to common business practices in the U.S.

Acquisitions and Divestitures

During 2011, we acquired two packaging companies, Tharco and Hexacomb. Tharco is an industry leader in the stock box business and produces custom corrugated and combined packaging solutions for customers in the industrial markets. Hexacomb is a leader in kraft paper-based honeycomb protective packaging products. These acquisitions diversify our presence in packaging markets, expand our presence globally, and increase our containerboard integration to approximately 90%. See Note 3, Acquisitions, in the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K for further information.

We may engage in acquisition and divestiture discussions with other companies and make acquisitions and divestitures from time to time. We review our operations and dispose of assets that fail to meet our criteria for return on investment or cease to warrant retention for other reasons.

Employees

As of January 31, 2012, we had approximately 5,400 employees, and approximately 50% of these employees worked pursuant to collective bargaining agreements. In January 2012, employees at one of our locations approved a new collective bargaining agreement. Following the approval of this agreement, approximately 9% of our employees work pursuant to collective bargaining agreements that will expire within one year.

Executive Officers of Registrant

The following individuals are deemed our "executive officers" pursuant to Section 16 of the Securities Exchange Act of 1934. Our executive officers are elected by our board of directors and hold office until their successors are elected and qualified or until their earlier resignation or removal. There are no arrangements or understandings between any of our executive officers and any other persons pursuant to which they were selected as officers. No family relationships exist among any of our executive officers.

Alexander Toeldte, 52, President and Chief Executive Officer, Director — Mr. Toeldte has served as the company's president and chief executive officer and a director since February 2008. Mr. Toeldte joined Boise Cascade Holdings, L.L.C., in early October 2005 as president of the company's Packaging and Newsprint segment and, in late October 2005, became its executive vice president, Paper and Packaging and Newsprint segments. From 2004 to 2006, Mr. Toeldte was chair of Algonac Limited, a private management and consulting firm based in Auckland, New Zealand. Mr. Toeldte's previous experience includes: serving as executive vice president of Fonterra Co-operative Group, Ltd., and chief executive officer of Fonterra Enterprises (Fonterra, based in New Zealand, is a global dairy company); previously, Mr. Toeldte served in various capacities with Fletcher Challenge Limited Group (formerly one of the largest companies in New Zealand with holdings in paper, forestry, building materials, and energy), including as chief executive officer of Fletcher Challenge Building and as chief executive officer of Fletcher Challenge Paper, both of which were publicly traded units of the Fletcher Challenge Limited Group; and Mr. Toeldte served as a partner at McKinsey & Company in Toronto, Brussels, Montreal, and Stockholm. Mr. Toeldte is the chairman of the board of directors of the American Forest & Paper Association (AF&PA). Mr. Toeldte studied economics at the Albert-Ludwigs-Universität in Freiburg, Germany, and received an M.B.A. from McGill University in Montreal, Canada.

Robert A. Warren, 59, Executive Vice President and Chief Operating Officer — Mr. Warren has served as our executive vice president and chief operating officer since November 2010. From April 2008 to October 2010, he served as senior vice president and general manager of our paper operations and supply chain management function. From February 2008 to April 2008, Mr. Warren served as general manager of our supply chain management function. From 2006 to February 2008, Mr. Warren served as general manager of Boise Cascade, L.L.C.'s supply chain management function, and from October 2004 to 2005, he was the business leader for Boise Cascade, L.L.C.'s printing papers business. From 2003 to October 2004, Mr. Warren was a project leader for Boise Cascade Corporation. Prior to joining Boise Cascade Corporation, Mr. Warren was the president and chief executive officer for Strategy in Action Group, a private business consulting firm. Mr. Warren received a B.S. in General Engineering from Oregon State University and an M.B.A. from Kellogg Graduate School of Management, Northwestern University.

Samuel K. Cotterell, 60, Senior Vice President and Chief Financial Officer — Mr. Cotterell has served as our senior vice president and chief financial officer since January 2011. From February 2008 to December 2010, Mr. Cotterell served as our vice president and controller. From October 2004 to February 2008, Mr. Cotterell served as vice president and controller of Boise Cascade, L.L.C. From 1999 to October 2004, Mr. Cotterell served as director of financial reporting of Boise Cascade Corporation. Mr. Cotterell received a B.A. in Spanish from the University of Idaho, a B.S. in Accounting from Boise State University, and a Masters of International Business from the American Graduate School of International Management. Mr. Cotterell is a certified public accountant.

Karen E. Gowland, 53, Senior Vice President, General Counsel and Secretary — Ms. Gowland has served as our senior vice president, general counsel and secretary since August 2010. From February 2008 to July 2010, she served as our vice president, general counsel and secretary. From October 2004 to February 2008, Ms. Gowland served as vice president, general counsel and secretary of Boise Cascade, L.L.C. Prior to 2004, Ms. Gowland served in a number of capacities with Boise Cascade Corporation, including vice president, corporate secretary, associate general counsel, and counsel. Ms. Gowland received a B.S. in Accounting and a J.D. from the University of Idaho.

Judith M. Lassa, 53, Senior Vice President, Paper and Specialty Products — Ms. Lassa has served as senior vice president of our paper and specialty products operations since November 2010. From February 2008 to October 2010, Ms. Lassa served as vice president of our Packaging segment. From October 2004 to February 2008, Ms. Lassa served as vice president, Packaging, of Boise Cascade, L.L.C. Prior to 2004, Ms. Lassa served in a number of capacities with Boise Cascade Corporation, including vice president, Packaging, and packaging business leader. Ms. Lassa received a B.S. in Paper Science and Engineering from the University of Wisconsin-Stevens Point.

Robert E. Strenge, 57, Senior Vice President, Manufacturing — Mr. Strenge has served as senior vice president of our paper manufacturing operations since April 2008. From February 2008 to April 2008, Mr. Strenge served as vice president of our Newsprint segment. From October 2004 to February 2008, Mr. Strenge served as vice president of the Newsprint segment of Boise Cascade, L.L.C. Prior to 2004, Mr. Strenge served in a number of capacities with Boise Cascade Corporation, including vice president of Boise Cascade Corporation's DeRidder operations, and paper mill manager. Mr. Strenge received a B.S. in Pulp and Paper Technology from Syracuse University.

Bernadette M. Madarieta, 36, Vice President and Controller — Ms. Madarieta has served as our vice president and controller since February 2011. From February 2008 to January 2011, Ms. Madarieta served as vice president and controller of Boise Cascade, L.L.C. From October 2004 to January 2008, Ms. Madarieta served as Boise Cascade, L.L.C.’s director of financial reporting. From 2002 to October 2004, Ms. Madarieta served as supervisor of external financial reporting for Boise Cascade Corporation. Prior to joining Boise Cascade Corporation, Ms. Madarieta was an assurance and business advisory manager at KPMG and Arthur Andersen, where she was responsible for planning and supervising audit engagements for corporations and privately held companies. Ms. Madarieta received a B.B.A. in Accounting from Boise State University and is a certified public accountant.


ITEM 1A.	RISK FACTORS

In addition to the risks and uncertainties we discuss elsewhere in this Form 10‑K (particularly in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations") or in our other filings with the Securities and Exchange Commission (SEC), the following are some important factors that could cause our actual results to differ materially from those we project in any forward-looking statement. We cannot guarantee that our actual results will be consistent with the forward-looking statements we make in this report, and we do not assume an obligation to update any forward-looking statement.

Risks Related to Industry Conditions

Some of our products are vulnerable to declines in demand due to competing technologies or materials. Our uncoated freesheet papers and newsprint compete with electronic data transmission, document storage alternatives, and paper grades we do not produce. Increasing shifts to these alternatives have had and are likely to continue to have an adverse effect on traditional print media and paper usage. Neither the timing nor the extent of this shift can be predicted with certainty. Because of these trends, demand may shift from one grade to another or be eliminated altogether. We may not be able to grow our packaging business quickly enough to offset declines in uncoated freesheet papers and newsprint.

Increases in the cost of our raw materials, including wood fiber, chemicals, and energy, could affect our profitability. We rely heavily on raw materials, including wood fiber and chemicals, and energy sources, including natural gas and electricity. Our profitability has been, and will continue to be, affected by changes in the costs and availability of such raw materials. For most of our products, the relationship between industry supply and demand, rather than changes in the cost of raw materials, determines our ability to increase prices. Consequently, we may be unable to pass increases in our operating costs on to our customers in the short term. Any sustained increase in raw material costs, coupled with our inability to increase prices, would reduce our operating margins and potentially require us to limit or cease operations of one or more of our machines or facilities.

Wood fiber, including purchased rollstock consumed in our corrugated operations, is our principal raw material, accounting for approximately $534.0 million of the aggregate amount of materials, labor, and other operating expenses, including fiber costs from related parties, for the year ended December 31, 2011. Wood fiber is a commodity, and prices have historically been cyclical. In addition, wood fiber, including wood chips, sawdust, and shavings, is a byproduct in the manufacture of building products, and the availability of wood fiber is often negatively affected if demand for building products declines. Severe or sustained shortages of fiber could cause us to curtail our own operations, resulting in material and adverse effects on our sales and profitability. Future domestic or foreign legislation and litigation concerning the use of timberlands, the protection of endangered species, and forest health can also affect log and fiber supply.

Energy accounted for approximately $209.1 million of the aggregate amount of materials, labor, and other operating expenses, including fiber costs from related parties, for the year ended December 31, 2011. Energy prices, particularly for electricity and natural gas, can be volatile, which affect our manufacturing costs and contribute significantly to earnings volatility.

Other raw materials we use include various chemical compounds, such as starch, caustic soda, precipitated calcium carbonate, sodium chlorate, dyestuffs, and optical brighteners. Purchases of chemicals accounted for approximately $235.7 million of the aggregate amount of materials, labor, and other operating expenses, including fiber costs from related parties, for the year ended December 31, 2011. The costs of these chemicals have been volatile historically and are influenced by capacity utilization, energy prices, and other factors beyond our control.

The paper industry experiences cyclicality; changes in the prices of our products could materially affect our financial condition, results of operations, and liquidity. Historically, macroeconomic conditions and fluctuations in industry capacity have created cyclical changes in prices, sales volumes, and margins for our products. Changing industry conditions can influence paper and packaging producers to idle or permanently close individual machines or entire mills. In addition, to avoid substantial cash costs in connection with idling or closing a mill, some producers will choose to continue to operate at a loss, sometimes even a cash loss, which could prolong weak pricing environments due to oversupply. Oversupply in these markets can also result from producers introducing new capacity in response to favorable short-term pricing trends.

Industry supply is also influenced by overseas production capacity, which has grown in recent years and is expected to continue to grow. A weak U.S. dollar tends to mitigate the levels of imports, while a strong U.S. dollar tends to increase imports of commodity paper products from overseas, putting downward pressure on prices.

Prices for all of our products are driven by many factors outside our control, and we have little influence over the timing and extent of price changes, which are often volatile. Market conditions beyond our control determine the prices for our commodity products, and as a result, the price for any one or more of these products may fall below our cash production costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our manufacturing facilities. From time to time, we have taken downtime (or slowed production) at some of our mills to balance our production with the market demand for our products, and we may continue to do so in the future. Some of our competitors may also close or reduce production at their operating facilities, some of which could reopen and increase production capacity. This potential supply and demand imbalance could cause prices to fall. Therefore, our ability to achieve acceptable operating performance and margins is principally dependent on managing our cost structure, managing changes in raw materials prices (which represent a large component of our operating costs and fluctuate based upon factors beyond our control), and general conditions in the paper market. If the prices for our products decline or if our raw material costs increase, it could have a material adverse effect on our business, financial condition, results of operations, and liquidity.

We face strong competition in our markets. The packaging, paper, and newsprint industries are highly competitive. We face competition from numerous competitors, domestic as well as foreign. Some of our competitors are large, vertically integrated companies that have greater financial and other resources, greater manufacturing economies of scale, greater energy self-sufficiency, or lower operating costs, compared with our company. We may be unable to compete with other companies in the market during the various stages of the business cycle and particularly during any downturns. Some of the factors that may adversely affect our ability to compete in the markets in which we participate include the entry of new competitors (including foreign producers) into the markets we serve, our competitors' pricing strategies, our failure to anticipate and respond to changing customer preferences, and our inability to maintain the cost-efficiency of our facilities.

Risks Related to Our Operations

We are subject to significant environmental, health, and safety laws and regulations, and the cost of compliance could adversely affect our business and results of operation. We are subject to a wide range of general and industry-specific environmental, health, and safety laws and regulations. If we fail to comply with these laws and regulations, we may face civil or criminal fines, penalties, or enforcement actions, including orders limiting our operations or requiring corrective measures, installation of pollution control equipment, or other remedial actions.

We anticipate that governmental regulation of our operations will continue to become more burdensome and that we will continue to incur significant capital and operating expenditures in order to maintain compliance with applicable laws. For example, in December 2011, the U. S. Environmental Protection Agency (EPA) released their most recent proposed National Emission Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial, and Institutional Boilers and Process Heaters (Boiler MACT rules). The proposed Boiler MACT rules will require process modifications and/or installation of air pollution controls on power boilers (principally our biomass-fuel-fired boilers) at our pulp and paper mills, and we are currently reviewing those rules to understand the effect they will have on our operations. The cost of compliance is likely to be significant. Our current estimates, based on the December 2011 Boiler MACT rule reproposal, indicate we will incur additional capital spending of up to $50 million for compliance at our paper mills. Compliance with final Boiler MACT rules may also affect operating costs for the paper mills, as some mills may be required to narrow the list of fuels used for energy recovery in their boilers. Final impacts on fuel use and fuel costs cannot be precisely determined at this time due to ambiguities in the proposed rule revisions and the likelihood that additional guidance and rule revisions will be forthcoming from EPA.

We may also be affected by the enactment of laws concerning climate change that regulate greenhouse gas (GHG) emissions. Such laws may require buying allowances for mill GHG emissions or capital expenditures to reduce GHG emissions. Because environmental regulations are not consistent worldwide, our capital and operating expenditures for environmental compliance may adversely affect our ability to compete.

We spent $4 million in 2011 and expect to spend about $9 million in 2012 for capital environmental compliance requirements. Enactment of new environmental laws or regulations or changes in existing laws or

regulations might require significant additional expenditures. We may be unable to generate funds or other sources of liquidity and capital to fund unforeseen environmental liabilities or expenditures.

During 2011 we entered into two acquisitions and may engage in future acquisitions, which in each case could materially affect our business, operating results, liquidity, and financial condition. In addition to our recent acquisitions, we may continue seeking to acquire other businesses, products, or assets. However, we may not be able to find other suitable acquisition candidates, and we may not be able to complete such acquisitions on favorable terms, if at all. Our recent and future acquisitions, assuming we complete them, may not strengthen our competitive position or achieve our goals. Our recent acquisitions and any future acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses, and adversely affect our business, operating results, liquidity, and financial condition. Our recent and any future acquisitions may reduce our cash available for operations and other uses. There can be no assurance that we will be able to effectively manage the integration of our recently acquired businesses, or businesses we may acquire in the future, or be able to retain and motivate key personnel from those businesses. Difficulties encountered in the integration process could increase our expenses and have a material adverse effect on our business, financial condition, liquidity, and results of operations.

OfficeMax represents a significant portion of our business. Our largest customer, OfficeMax, accounted for approximately 21% and 24% of our total sales for the years ended December 31, 2011 and 2010, respectively. In June 2011, OfficeMax agreed to continue to buy and we agreed to continue to supply virtually all of OfficeMax's North American requirements for office papers through 2012. After 2012, the agreement requires OfficeMax to buy and us to supply at least 80% of OfficeMax's requirements for office papers through December 2017. As discussed in "Part I, Item 1. Business" of this Form 10-K, OfficeMax's purchase obligations may terminate earlier under some circumstances and phase out over two to four years. Significant reductions in paper purchases from OfficeMax would cause us to expand our customer base and could potentially decrease our profitability if new customer sales required either a decrease in our pricing and/or an increase in our cost of sales. Any significant deterioration in the financial condition of OfficeMax affecting its ability to pay or causing a significant change in its willingness to continue to purchase our products could have a material adverse effect on our business, financial condition, results of operations, and liquidity.

A material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales, or negatively affect our net income. Any of our manufacturing facilities, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including the following:


•	Maintenance outages.


•	Prolonged power failures.


•	Equipment failure.


•	Disruption in the supply of raw materials, such as wood fiber, energy, or chemicals.


•	A chemical spill or release.


•	Closure because of environmental-related concerns.


•	Explosion of a boiler.


•	Labor difficulties.


•	Other operational problems.


•	The effect of a drought or reduced rainfall on our water supply.


•	Disruptions in the transportation infrastructure, including roads, bridges, railroad tracks, and tunnels.


•	Fires, floods, earthquakes, hurricanes, or other catastrophes.


•	Terrorism or threats of terrorism.

Any such downtime or facility damage could prevent us from meeting customer demand for our products or require us to make unplanned capital expenditures. If our machines or facilities were to incur significant downtime, our ability to meet our production capacity targets and satisfy customer requirements would be impaired, resulting in lower sales and having a negative effect on our financial results.

Labor disruptions or increased labor costs could materially adversely affect our business. While we believe we have good labor relations, we could experience a material labor disruption, strike, or significantly increased labor costs at one or more of our facilities, either in the course of negotiations of a labor agreement or otherwise. Either of these situations could prevent us from meeting customer demands or result in increased costs, thereby reducing our sales and profitability. As of January 31, 2012, we had approximately 5,400 employees, and

approximately 50% of those employees work pursuant to collective bargaining agreements. In January 2012, employees at one of our locations approved a new collective bargaining agreement. Following the approval of this agreement, approximately 9% of our total employees are working pursuant to collective bargaining agreements that will expire within one year.

When negotiating our collective bargaining agreements in the future, our potential inability to reach a mutually acceptable labor contract at any of our facilities could result in, among other things, strikes or other work stoppages or slowdowns by the affected employees. While the company has in place contingency plans to address labor disturbances, we could experience disruption to our operations that could have a material adverse effect on our results of operations, financial condition, and liquidity. Future labor agreements could increase our costs of healthcare, retirement benefits, wages, and other employee benefits. Additionally, labor issues that affect our suppliers could also have a material adverse effect on us if those issues interfere with our ability to obtain raw materials on a cost-effective and timely basis.

We may be unable to attract and retain key management and other key employees. Our employees, particularly our key management, are vital to our success and difficult to replace. We may be unable to retain them or to attract other highly qualified employees, particularly if we do not offer employment terms competitive with the rest of the market. Additionally, some of our senior managers are approaching typical retirement age. Failure to attract and retain highly qualified employees, or failure to develop and implement a viable succession plan, could result in inadequate depth of institutional knowledge or skill sets, adversely affecting our business.

Risks Related to Economic and Financial Factors

Adverse business and global economic conditions may have a material adverse effect on our business, results of operations, liquidity, and financial position. General global economic conditions adversely affect the demand and production of consumer goods, employment levels, the availability and cost of credit, and ultimately, the profitability of our business. High unemployment rates, lower family income, lower corporate earnings, lower business investment, and lower consumer spending typically result in decreased demand for our products. These conditions are beyond our control and may have a significant impact on our business, results of operations, liquidity, and financial position.

Our operations require substantial capital, and we may not have adequate capital resources to provide for all of our capital requirements. Our businesses are capital-intensive, and we regularly incur capital expenditures to maintain our equipment, increase our operating efficiency, and comply with environmental laws. In addition, significant amounts of capital are required to modify our equipment to produce alternative or additional products or to make significant improvements in the characteristics of our current products. During the year ended December 31, 2011, our total capital expenditures, excluding acquisitions, were $128.8 million. We expect capital investments in 2012 to be between $140 million and $145 million, excluding acquisitions.

If we require funds for operating needs and capital expenditures beyond those generated from operations and we are unable to access our revolving credit facility, we may not be able to obtain them on favorable terms or at all. In addition, our debt service obligations will reduce our available liquidity. If we cannot maintain or upgrade our equipment as necessary for our continued operations or as needed to ensure environmental compliance, we could be required to cease or curtail some of our manufacturing operations or we may become unable to manufacture products that can compete effectively in one or more of our markets.

Our ability to repay our debt is dependent on our ability to generate cash from operations. As of December 31, 2011, our total indebtedness was $800.0 million. Our ability to repay our indebtedness and to fund planned capital expenditures depends on our ability to generate cash from future operations. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. Our inability to generate sufficient cash flow to satisfy our debt obligations or to obtain additional debt would have a material adverse effect on our business, financial condition, liquidity, and results of operations.

Our indebtedness imposes restrictive covenants on us, and a default under our debt agreements could have a material adverse effect on our business and financial condition. Our credit facilities require BZ Intermediate Holdings LLC (BZ Intermediate) and its subsidiaries to maintain specified financial ratios and to satisfy specified financial tests. These tests include, in the case of our credit facilities, an interest expense coverage ratio, a senior secured leverage ratio, and a total leverage ratio. In addition, our credit facilities restrict, and the indentures governing the 8% and 9% senior notes restrict, among other things, the ability of BZ Intermediate and its

subsidiaries to make some types of restricted payments, acquisitions, and capital expenditures. We will need to seek permission from the lenders under our indebtedness to engage in specified corporate actions. The lenders' interests may be different from our interests, and no assurance can be given that we will be able to obtain the lenders' permission when needed.

Various risks, uncertainties, and events beyond our control could affect our ability to comply with these covenants. Failure to comply with these covenants (or similar covenants contained in future financing agreements) could result in a default under the credit facilities, the indentures governing the 8% and 9% senior notes, and other agreements containing cross-default provisions, which, if not cured or waived, could have a material adverse effect on our business, financial condition, liquidity, and results of operations. A default would permit lenders or holders to accelerate the maturity of the debt under these agreements, to foreclose upon any collateral securing the debt, and to terminate any commitments to lend. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including the obligations of Boise Paper Holdings, L.L.C., Boise Finance Company, and Boise Co-Issuer Company under the 8% and 9% senior notes. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing.

We anticipate significant future funding obligations for pension benefits. Most of our pension benefits plans are frozen; however, we will continue to have significant obligations for pension benefits. As of December 31, 2011, our pension assets had a market value of $390 million, compared with $356 million at December 31, 2010. Assuming a return on plan assets of 7.00% in 2012 and 2013, we will contribute at least the required minimum contributions of approximately $20 million in 2012 and approximately $24 million in 2013. The amount of required contributions will depend, among other things, on actual returns on plan assets, changes in interest rates that affect our discount rate assumptions, changes in pension funding requirement laws, and modifications to our plans. Our estimates may change materially depending upon the impact of these and other factors, and the amount of our contributions may adversely affect our liquidity, financial condition, and results of operations.


Item 1B.	UNRESOLVED STAFF COMMENTS

We have no unresolved staff comments.


Item 2.	PROPERTIES

We own substantially all of our operating facilities and equipment at those facilities. We lease our corporate headquarters in Boise, Idaho, and the majority of the facilities used in our recently acquired Tharco and Hexacomb locations.

Following is a list of our facilities by segment as of January 31, 2012.



Packaging	Packaging (cont.)	Paper
Corrugated Containers	Foam Fabrication	Manufacturing
Burley, ID	Fairfield, California (a)	International Falls, MN
Denver, CO (a)	Honeycomb Manufacturing	Jackson, AL
Nampa, ID	Amboise, France (b)	St. Helens, OR
Salem, OR	Aoiz, Spain (b)	Wallula, WA
Salt Lake City, UT	Arlington, TX (b)	Distribution
San Lorenzo, CA (a)	Auburn, WA (b)	Bensenville, IL
Santa Fe Springs, CA (a)	Ermelo, Netherlands (b)	Pico Rivera, CA
Wallula, WA	Farmville, NC (b)
Corrugated Sheet Feeder	Kalamazoo, MI (b)
Waco, TX	Monterrey, Mexico (b)
Corrugated Sheet Plant	North Haven, CT (b)
Atlanta, GA (a)	Santa Fe Springs, CA (b)
Austin, TX (a)	Tillsonburg, ON, Canada (b)
Seattle, WA (a)	Trenton, IL (b)
Sparks, NV	Linerboard and Newsprint
Distribution	DeRidder, LA
Dallas, TX (a)
Phoenix, AZ (a)
Portland, OR (a)
Salt Lake City, UT (a)

____________


(a)	Tharco facilities acquired in March 2011.


(b)	Hexacomb facilities acquired in December 2011.

Information concerning capacity and utilization of our manufacturing and converting facilities is presented in "Part I, Item 1. Business" of this Form 10-K. We assess the condition and capacity of our manufacturing, distribution, and other facilities needed to meet our operating requirements. Our properties have been generally well maintained and are in good operating condition. In general, our facilities have sufficient capacity and are adequate for our production and distribution requirements. Information concerning encumbrances attached to our properties is presented in Note 7, Debt, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.


ITEM 3.	LEGAL PROCEEDINGS

We are a party to routine proceedings that arise in the course of our business. We are not currently a party to any legal proceedings or environmental claims that we believe would have a material adverse effect on our financial position, results of operations, or liquidity, either individually or in the aggregate.


ITEM 4.	MINE SAFETY DISCLOSURE

None.

PART II


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The New York Stock Exchange (NYSE) is the principal market in which our common stock is traded. The following table indicates the last reported high and low closing prices of our common stock as reported by the NYSE and the cash dividends declared per common share for the periods indicated:



	Market Price				Dividends Declared
Quarter	High		Low		Dividends Declared
2011
Fourth	$	7.12	$	4.71	$	—
Third	8.12		4.42		—
Second	9.82		6.75		0.40
First	9.55		8.10		—
Total					$	0.40
2010
Fourth	$	8.10	$	6.40	$	0.40
Third	7.36		4.96		—
Second	7.40		4.91		—
First	6.13		4.60		—
Total					$	0.40

Holders

On January 31, 2012, there were approximately 32 holders of record of our common stock, one of which was Cede & Co., which is the holder of record of shares held through the Depository Trust Company.

Dividends

We paid a special cash dividend of $0.40 per common share on May 13, 2011, and December 3, 2010, to shareholders of record at the close of business on May 4, 2011, and November 17, 2010, respectively. The total dividend payouts were approximately $47.9 million and $32.3 million, respectively. Our ability to pay dividends continues to be restricted by our credit facilities and by Delaware law and state regulatory authorities. Under Delaware law, our board of directors may not authorize payment of a dividend unless it is either paid out of our capital surplus, as calculated in accordance with the Delaware General Corporation Law, or if we do not have a surplus, it is paid out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. To the extent we do not have adequate surplus or net profits, we are prohibited from paying dividends.

Securities Authorized for Issuance Under Our Equity Compensation Plan



	Column
	A	B		C
Plan Category	Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (a)	Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A) (b)
Equity compensation plans approved by securityholders	2,857,058	$	8.53	9,772,192
Equity compensation plans not approved by securityholders	N/A	N/A		N/A
Total	2,857,058	$	8.53	9,772,192

____________


(a)	The reported amount includes the following outstanding awards that have been granted under the Boise Inc. Incentive and Performance Plan but not yet earned as of December 31, 2011:

2,336,123 shares issuable upon the vesting of service-condition vesting restricted stock and restricted stock units.

332,534 shares issuable upon the vesting and exercise of nonqualified stock options.

188,401 shares issuable upon the vesting of performance units (at target). The number of shares to be issued will be based on our return on net operating assets (RONOA) over a two-year performance period from January 1, 2011, to December 31, 2012. The actual number of shares issued may be adjusted from 0% to 200% of the performance units awarded, based on our actual RONOA performance during the performance period.


(b)	The reported amount assumes the performance units are adjusted to the maximum value (200% of target).

Issuer Purchases of Equity Securities

During 2011, we announced our intent to repurchase up to $150 million of our common stock through a variety of methods, including in the open market, privately negotiated transactions, or through structured share repurchases. During the year ended December 31, 2011, we repurchased 21,150,692 common shares for an average price of $5.74 per common share. For further information on our share repurchase programs, see Note 10, Stockholders' Equity and Capital, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K.

The following table presents information related to our repurchases of common stock made under our plan announced on September 14, 2011, during the three months ended December 31, 2011:



Issuer Purchases of Equity Securities
Period	Total Number of Shares (or Units) Purchased	Average Price Paid Per Share (or Unit)			Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs
October 1-31, 2011	1,626,700	$	5.13		1,626,700
November 1-30, 2011	1,214,900	6.03			1,214,900
December 1-31, 2011	4,938,237	5.94			4,938,237
Total	7,779,837	$	5.79	(a)	7,779,837	$	28,578,241

____________


(a)	Excludes brokerage commissions paid by the company. If commissions were included, the average purchase price would be $5.80 per common share.

Performance Graph

The following graph compares the return on a $100 investment in our common stock on February 25, 2008 (the day we first began trading on the NYSE with a $100 investment also made on February 25, 2008, in the S&P 500 Index and our peer group. The companies included in our peer group are Domtar Corp., Glatfelter, Greif, Inc., International Paper Company, KapStone Paper & Packaging, MeadWestvaco Corp., Neenah Paper Inc., Packaging Corp. of America, Rock-Tenn Company, Sappi Ltd., Stora Enso Corp., Temple-Inland Inc., UPM-Kymmene Corp., Verso Paper Corp., and Wausau Paper Corp.

We added Greif, Inc. and Rock-Tenn Company to, and omitted Smurfit-Stone Container Corporation and AbitibiBowater Inc. from our peer group this year because: Rock-Tenn Company acquired Smurfit-Stone Container Corp.; AbitibiBowater Inc. went through bankruptcy and, with our minor newsprint position, was no longer a relevant comparison. With our acquisitions of Tharco and Hexacomb shifting our product mix to more packaging, we deemed Greif, Inc., a packaging company, a more relevant comparison.

The following table reflects each investment's value at December 31, 2008, 2009, 2010, and 2011.



	December 31
	2008		2009		2010		2011
Boise Inc.	$	5	$	62	$	98	$	93
S&P 500 Index	$	67	$	85	$	98	$	100
Peer Group	$	53	$	88	$	104	$	96


ITEM 6.	SELECTED FINANCIAL DATA

Except where otherwise indicated, this Selected Financial Data is provided with respect to Boise Inc., which has materially the same financial condition and results of operations as BZ Intermediate Holdings LLC (BZ Intermediate) except for income taxes and common stock activity. Historical differences between the two entities resulted primarily from the effect of income taxes, the notes payable at Boise Inc. that were repurchased and canceled in October 2009, and the associated interest expense on those notes. The following table sets forth selected financial data for the periods indicated and should be read in conjunction with the disclosures in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K (dollars in millions, except per-share data):



	Boise Inc.											Predecessor
	Year Ended December 31									February 1 (Inception) Through December 31, 2007		January 1 Through February 21, 2008		Year Ended December 31, 2007 (e)
	2011 (a)		2010 (b)		2009 (c)		2008 (d)			February 1 (Inception) Through December 31, 2007		January 1 Through February 21, 2008		Year Ended December 31, 2007 (e)
Statement of income (loss) data
Net sales	$	2,404	$	2,094	$	1,978	$	2,071		$	—	$	360	$	2,333
Income from operations	191		194		306		40			—		23		160
Net income (loss)	75		63		154		(46		)	5		23		160
Net Income (loss) per common share:
Basic	0.74		0.78		1.96		(0.62		)	0.16		—		—
Diluted	0.70		0.75		1.85		(0.62		)	0.16		—		—
Earnings before interest, taxes, depreciation, and amortization (EBITDA) (f)	333		303		396		145			—		24		246
Cash dividends declared per common share	0.40		0.40		—		—
Balance sheet data (at end of year)
Current assets	$	668	$	653	$	586	$	596		$	404			$	560
Property	1,256		1,217		1,223		1,277			—				1,210
Total assets	2,286		1,939		1,896		1,988			408				1,846
Current liabilities	311		304		303		269			15				250
Long-term debt, less current portion	790		738		785		1,012			—				—
Notes payable	—		—		—		67			—				—
Total liabilities	1,491		1,292		1,275		1,539			175				286
Stockholders’ equity	795		647		621		449			233				1,560

____________

Included in the selected financial data above are the activities of Aldabra 2 Acquisition Corp. prior to the Acquisition and the operations of the acquired businesses from February 22, 2008, through December 31, 2008. The Predecessor financial data is presented for the periods prior to the Acquisition. The period of February 1 (Inception) through December 31, 2007, represents the activities of Aldabra 2 Acquisition Corp.


(a)	Included $2.2 million of expense related to the inventory purchase price adjustments that were recognized in March 2011 as part of our acquisition of Tharco.

Included a $2.3 million loss on extinguishment of debt recorded in the Corporate and Other segment.

Included $3.1 million of transaction-related costs, of which $1.6 million was recorded in our Packaging segment and $1.5 million was recorded in our Corporate and Other segment. Transaction-related expenses include expenses associated with transactions, whether consummated or not, and do not include integration costs.


(b)	Included a $22.2 million of loss on extinguishment of debt recorded in the Corporate and Other segment.


(c)	Included $5.8 million of expense associated with the restructuring of the St. Helens, Oregon, mill.

Included $5.9 million of income related to energy hedges.

Included $44.1 million of loss on extinguishment of debt for Boise Inc., or $66.8 million of loss on extinguishment of debt for BZ Intermediate, as a result of the October 2009 debt restructuring. The difference is due to the gain recognized by Boise Inc. related to the notes payable, which were held by Boise Inc.

Included $207.6 million of income as a result of alternative fuel mixture credits.


(d)	Included $37.6 million of expense associated with the restructuring of the St. Helens, Oregon, mill.

Included $7.4 million of expense related to energy hedges.

Included $5.5 million of expense related to lost production and costs incurred as a result of Hurricanes Gustav and Ike.

Included $10.2 million of expense related to inventory purchase accounting adjustments.

Included $19.8 million of expense related to the outage at the DeRidder, Louisiana, mill.

Included a $2.9 million gain for changes in supplemental pension plans.


(e)	Included approximately $19.1 million, $21.7 million, and $1.0 million of lower depreciation and amortization expense in the Packaging, Paper, and Corporate and Other segments, respectively, as a result of discontinuing depreciation and amortization on the assets recorded as held for sale.

Included a $4.4 million gain for changes in retiree healthcare benefits.

Included $8.7 million of expense related to the impact of energy hedges.

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


(f)	The following table reconciles net income (loss) to EBITDA for the periods indicated (dollars in millions):



	Boise Inc.												Predecessor
	Year Ended December 31									February 1 (Inception) Through December 31, 2007			January 1 Through February 21, 2008		Year Ended December 31, 2007
	2011		2010		2009		2008			February 1 (Inception) Through December 31, 2007			January 1 Through February 21, 2008		Year Ended December 31, 2007
Net income (loss)	$	75	$	63	$	154	$	(46	)	$	5		$	23	$	160
Interest expense	64		65		83		91			—			—		—
Interest income	—		—		—		(2		)	(10		)	—		(1		)
Income tax provision (benefit)	50		45		28		(9		)	5			1		3
Depreciation, amortization, and depletion	144		130		132		110			—			—		85
EBITDA	$	333	$	303	$	396	$	145		$	—		$	24	$	246

____________

EBITDA represents income (loss) before interest (interest expense and interest income), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of companies. We believe EBITDA is a meaningful measure because it presents a transparent view of our recurring operating performance and allows management to readily view operating trends, perform analytical comparisons, and identify strategies to improve operating performance. For example, we believe that the inclusion of items such as taxes, interest expense, and interest income distorts management’s ability to assess and view the core operating trends in our segments. EBITDA, however, is not a measure of our liquidity or financial performance under generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income (loss), income (loss) from operations, or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of EBITDA instead of net income (loss) or segment income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest expense, interest income, and associated significant cash requirements; and the exclusion of depreciation, amortization, and depletion, which represent significant and unavoidable operating costs, given the level of our indebtedness 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 titled captions of other companies due to potential inconsistencies in the methods of calculation.


ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis includes statements regarding our expectations with respect to our future performance, liquidity, and capital resources. Such statements, along with any other nonhistorical statements in the discussion, are forward-looking. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Part I, Item 1A. Risk Factors" of this Form 10-K, as well as those factors listed in other documents we file with the Securities and Exchange Commission (SEC). Except where otherwise indicated, this Management's Discussion and Analysis of Financial Condition and Results of Operations is provided with respect to Boise Inc., which has materially the same financial condition and results of operations as BZ Intermediate Holdings LLC (BZ Intermediate) except for income taxes and common stock activity. We do not assume an obligation to update any forward-looking statement. Our actual results may differ materially from those contained in or implied by any of the forward-looking statements in this Form 10-K.

Background

Boise Inc. is a large, diverse manufacturer and seller of packaging and paper products. Our operations began on February 22, 2008, when entities controlled by Boise Cascade Holdings, L.L.C. (Boise Cascade) sold their packaging and paper assets to Aldabra 2 Acquisition Corp. (the Acquisition). In these consolidated financial statements, unless the context indicates otherwise, the terms "the Company," "we," "us," "our," or "Boise" refer to Boise Inc. and its consolidated subsidiaries, including BZ Intermediate. We are headquartered in Boise, Idaho, and have approximately 5,400 employees. We operate largely in the United States but have recently expanded our operations into Europe, Mexico, and Canada.

We operate and report our results in three reportable segments: Packaging, Paper, and Corporate and Other (support services). See Note 6, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of this Form 10-K for more information related to our segments.

Executive Summary

This past year was our most successful year as a public company since our inception. In 2011, we reported $75.2 million of net income, compared with $62.7 million in 2010. We reported $332.6 million of EBITDA, or a record $340.2 million, excluding the special items in the table below. The increases were due primarily to increased sales and operating income in our Packaging segment, driven by improved linerboard and newsprint pricing and the acquisitions of Tharco Packaging (Tharco) and Hexacomb on March 1, and December 1, 2011, respectively. In 2011, we generated $121.4 million of operating cash flow, less capital expenditures, and returned $169.3 million of capital back to our shareholders through share repurchases and dividends. During 2011, we successfully negotiated eight new labor agreements covering approximately 2,000 employees. The agreements have expiration dates ranging from 2014 to 2017. Our financial position remains strong, and we improved our financial flexibility by entering into a new credit agreement in November, extending maturities and lowering interest rates.

Demand for Our Products

U.S. industry containerboard demand increased modestly during 2011. Absolute industry box shipments in the U.S. increased 0.4% through December 2011, and box shipments on an average-week basis were up 0.5%, compared with the prior year. Year-to-date industry operating rates through December 2011, measured as total production in the U.S. as a percentage of total capacity, were at 96%, according to the American Forest & Paper Association (AF&PA). Total U.S. containerboard inventories were 2.4 million short tons in December 2011, compared with 2.3 million short tons in December 2010.

Packaging demand in our agriculture, food, and beverage markets has historically been correlated to weather and crop harvests in the Pacific Northwest. Demand in these markets was affected by 2011's inclement spring weather, causing later than normal plantings and subsequent fall harvest delays, when compared with the prior year. Demand in our containerboard export markets and industrial corrugated markets are more closely aligned with general economic activity. These markets remained stable through 2011, compared with 2010. In late 2011, export market demand softened as a result of global macroeconomic events, including the sovereign debt crisis in Europe.

U.S. industry demand for uncoated freesheet paper declined during 2011, compared with 2010. According to AF&PA, U.S. industry shipments were down 3.0% in 2011, compared with the prior year. Year-to-date industry operating rates for December 2011, measured as total uncoated freesheet paper shipments in the U.S. as a percentage of total capacity, were at 87%. Demand for commodity communication papers has declined due to soft macroeconomic conditions and elevated unemployment and continues to be negatively affected by the secular shift to electronic media for communications. The long-term demand for printing and converting products has also been negatively affected by weak macroeconomic conditions and by the decline in direct-mail advertising. Declines in demand have been mitigated by significant reductions in uncoated freesheet paper industry capacity in recent years, and that trend continued during 2011. Compared with prior years, U.S. uncoated freesheet paper inventories remained low, at approximately 941,000 short tons in December 2011, compared with 966,000 short tons in December 2010.

Our total uncoated freesheet volumes were flat in 2011, despite overall demand decline, as increased premium and specialty sales volumes offset declines in commodity sales volumes. Net selling prices were slightly

improved, compared with 2010, driven by improved pricing across our premium and specialty papers. Our average uncoated freesheet net sales prices finished at $990 per ton in 2011, an increase of 1% versus the prior year.

Net Selling Prices and Input Costs

During 2011, our linerboard net selling prices and sales volumes to third parties increased 16% and 2%, respectively, compared with 2010, due to stronger demand in export markets and improved production of linerboard at our DeRidder, Louisiana, mill. The sales volume increase was achieved despite increased consumption of linerboard through our own operations and higher corrugated product sales volumes as a result of the acquisition of Tharco.

During fourth quarter 2011, net selling prices for uncoated freesheet began to decline as a result of softer demand through the quarter. Compared with fourth quarter 2010, prices for commodity chemicals and wood fiber in the Pacific Northwest increased. Diesel prices, which affect freight costs on both inbound raw materials and outbound finished goods, also increased. Prices for natural gas declined, compared with fourth quarter 2010. Labor costs are not as volatile as energy and wood fiber costs; however, they make up a significant component of our operating costs and tend to increase over time.

Operational Outlook

In the year ahead, we will focus on integrating the Tharco and Hexacomb operations, and we will pursue growth opportunities in our Packaging segment that combine industrial and competitive logic with a reasonable price. We expect continued growth in our premium office, label and release, and flexible packaging papers, helping to offset declining demand in commodity paper markets. In 2011, input costs continued to increase, including chemicals and diesel across both of our businesses and the cost of fiber in our Paper segment. As we look forward, our focus will be to continue to manage input cost inflation.

In December 2011, the United States Environmental Protection Agency (EPA) published their most recent proposed National Emission Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial, and Institutional Boilers and Process Heaters (Boiler MACT rules). Comments submitted by the paper and forest products industry through individual companies and trade associations will be reviewed by the EPA and a final rule incorporating revisions is expected in May or June 2012, with a potential compliance deadline of May or June 2014. We continue to monitor regulatory and competitive developments across the industry, including the Boiler MACT legislation, to determine potential impacts on our businesses.

Financial Results and Special Items

The following table sets forth our financial results for the years ended December 31, 2011, 2010, and 2009 (dollars in millions, except per-share data):



	Year Ended December 31
	2011		2010		2009
Sales	$	2,404.1	$	2,093.8	$	1,978.2
Net income	75.2		62.7		153.8
Net income per diluted share	0.70		0.75		1.85
Net income excluding special items	79.9		76.8		20.4
Net income excluding special items per diluted share	0.75		0.91		0.25
EBITDA	332.6		302.6		395.7
EBITDA excluding special items	340.2		325.6		232.1

Net income excluding special items, net income excluding special items per diluted share, EBITDA, and EBITDA excluding special items are not measures under U.S. generally accepted accounting principles (GAAP). EBITDA excluding special items and net income excluding special items represent EBITDA and net income adjusted by eliminating items that we believe are not consistent with our ongoing operations. The Company uses these measures to focus on ongoing operations and believes they are useful to investors because these measures enable meaningful comparisons of past and present operating results.

The Company believes that using this information, along with their comparable GAAP measures, provides for a more complete analysis of the results of operations. The following table provides a reconciliation of net income to EBITDA and EBITDA to EBITDA excluding special items for the years ended December 31, 2011, 2010, and 2009 (dollars in millions):



	Year Ended December 31
	2011			2010			2009
Net income	$	75.2		$	62.7		$	153.8
Interest expense	63.8			64.8			82.7
Interest income	(0.3		)	(0.3		)	(0.4		)
Income tax provision	50.1			45.4			28.0
Depreciation, amortization, and depletion	143.8			129.9			131.5
EBITDA	$	332.6		$	302.6		$	395.7

Inventory purchase accounting expense	$	2.2		$	—		$	—
Loss on extinguishment of debt	2.3			22.2			44.1
Transaction-related costs	3.1			—			—
Change in fair value of energy hedges	—			0.6			(5.9		)
St. Helens mill restructuring	—			0.2			5.8
Alternative fuel mixture credits	—			—			(207.6		)
EBITDA excluding special items	$	340.2		$	325.6		$	232.1

The following table reconciles net income to net income excluding special items and presents net income excluding special items per diluted share for the years ended December 31, 2011, 2010, and 2009 (dollars and shares in millions, except per-share data):



	Year Ended December 31
	2011			2010			2009
Net income	$	75.2		$	62.7		$	153.8
Inventory purchase accounting expense	2.2			—			—
Loss on extinguishment of debt	2.3			22.2			44.1
Transaction-related costs	3.1			—			—
Change in fair value of energy hedges	—			0.6			(5.9		)
St. Helens mill restructuring	—			0.2			5.8
Alternative fuel mixture credits	—			—			(207.6		)
Tax (provision) benefit for special items (a)	(2.9		)	(8.9		)	63.3
Reversal of income tax valuation allowances	—			—			(33.2		)
Net income excluding special items	$	79.9		$	76.8		$	20.4
Weighted average common shares outstanding: diluted	106.7			84.1			83.1
Net income excluding special items per diluted share	$	0.75		$	0.91		$	0.25

____________


(a)	Special items are tax effected in the aggregate at an assumed combined federal and state statutory rate in effect for the period.

Factors That Affect Our Operating Results

Our results of operations and financial performance are influenced by a variety of factors, including the following:


•	General economic conditions, including but not limited to durable and nondurable goods production, white-collar employment, and electronic substitution.


•	Competing technologies that affect the demand for our products.


•	The commodity nature of our products and their price movements, which are driven largely by supply and demand.


•	Availability and affordability of raw materials, including wood fiber, energy, and chemicals.


•	Legislative or regulatory environments, requirements, or changes affecting the businesses in which we are engaged.


•	Our customer concentration and the ability of our customers to pay.


•	Integration of our acquisitions.


•	Labor and personnel relations.


•	The ability of our lenders, customers, and suppliers to continue to conduct their businesses.


•	Pension funding requirements.


•	Credit or currency risks affecting our revenue and profitability.


•	Major equipment failure or significant operational setbacks.


•	Severe weather phenomena such as drought, hurricanes and significant rainfall, tornadoes, and fire.


•	The other factors described in "Part I, Item 1A. Risk Factors" of this Form 10-K.

Our Operating Results

The following table sets forth our operating results in dollars and as a percentage of sales for the years ended December 31, 2011, 2010, and 2009 (dollars in millions, except percent-of-sales data):



	Year Ended December 31
	2011			2010			2009
Sales
Trade	$	2,364.0		$	2,058.1		$	1,935.4
Related parties	40.1			35.6			42.8
	2,404.1			2,093.8			1,978.2

Costs and expenses
Materials, labor, and other operating expenses	1,880.3			1,634.0			1,596.2
Fiber costs from related parties	18.8			25.3			36.9
Depreciation, amortization, and depletion	143.8			129.9			131.5
Selling and distribution expenses	107.7			58.1			55.5
General and administrative expenses	60.6			52.3			50.3
Alternative fuel mixture credits, net	—			—			(207.6		)
Other (income) expense, net	2.0			0.2			9.8
	2,213.0			1,899.8			1,672.5

Income from operations	$	191.1		$	194.0		$	305.6

Sales
Trade	98.3		%	98.3		%	97.8		%
Related parties	1.7			1.7			2.2
	100.0		%	100.0		%	100.0		%

Costs and expenses
Materials, labor, and other operating expenses	78.2		%	78.0		%	80.7		%
Fiber costs from related parties	0.8			1.2			1.9
Depreciation, amortization, and depletion	6.0			6.2			6.6
Selling and distribution expenses	4.5			2.8			2.8
General and administrative expenses	2.5			2.5			2.5
Alternative fuel mixture credits, net	—			—			(10.5		)
Other (income) expense, net	0.1			—			0.5
	92.1		%	90.7		%	84.5		%

Income from operations	7.9		%	9.3		%	15.5		%

Sales Volumes and Prices

Set forth below are our segment sales volumes and average net selling prices for our principal products for the years ended December 31, 2011, 2010, and 2009 (in thousands of short tons and dollars per short ton, except corrugated containers and sheets):



	Year Ended December 31
	2011	2010	2009
Sales Volumes
Packaging
Containerboard (linerboard)	230	225	253
Newsprint	231	231	199
Corrugated containers and sheets (mmsf) (a)	8,720	6,735	5,963
Paper
Uncoated freesheet	1,230	1,233	1,251
Containerboard (medium)	135	127	127
Market pulp	90