BZ 09.30.2012 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2012
or
¨
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

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 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

There were 100,483,957 common shares, $0.0001 per share par value, of Boise Inc. outstanding as of October 26, 2012.

This Form 10-Q is a combined quarterly 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 H(1)(a) and (b) of Form 10-Q 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.


Table of Contents
 
PART I — FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
7. Debt
 
 
 
 
 
 
 
 
15. Leases
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 

i

 
PART II — OTHER INFORMATION
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
Item 5.
 
 
Item 6.
 
 
 

All reports we file with the Securities and Exchange Commission (SEC) 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.


ii

PART I — FINANCIAL INFORMATION

ITEM 1.        FINANCIAL STATEMENTS

Boise Inc.
Consolidated Statements of Income
(unaudited, dollars and shares in thousands, except per-share data)
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
2012

2011
 
2012
 
2011
Sales
 
 
 
 
 
 
 
Trade
$
631,054

 
$
619,396

 
$
1,883,167

 
$
1,772,500

Related parties
14,131

 
12,346

 
44,704

 
31,140

 
645,185

 
631,742

 
1,927,871

 
1,803,640

 
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 
Materials, labor, and other operating expenses
502,848

 
483,885

 
1,512,490

 
1,417,956

Fiber costs from related parties
5,266

 
4,786

 
14,678

 
13,609

Depreciation, amortization, and depletion
37,540

 
36,374

 
112,399

 
106,438

Selling and distribution expenses
30,015

 
29,799

 
91,225

 
78,655

General and administrative expenses
19,213

 
14,396

 
59,256

 
41,715

St. Helens charges
27,448

 
—

 
27,448

 
—

Other (income) expense, net
1,509

 
(130
)
 
1,590

 
134

 
623,839

 
569,110

 
1,819,086

 
1,658,507

 
 
 
 
 
 
 
 
Income from operations
21,346

 
62,632

 
108,785

 
145,133

 
 
 
 
 
 
 
 
Foreign exchange gain (loss)
296

 
(482
)
 
555

 
(295
)
Interest expense
(15,458
)
 
(15,725
)
 
(46,256
)
 
(48,164
)
Interest income
3

 
58

 
101

 
210

 
(15,159
)
 
(16,149
)
 
(45,600
)
 
(48,249
)
 
 
 
 
 
 
 
 
Income before income taxes
6,187

 
46,483

 
63,185

 
96,884

Income tax provision
(2,584
)
 
(18,119
)
 
(24,582
)
 
(37,929
)
Net income
$
3,603

 
$
28,364

 
$
38,603

 
$
58,955

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
100,144

 
115,657

 
99,772

 
101,250

Diluted
101,030

 
117,955

 
101,131

 
106,791

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.04

 
$
0.25

 
$
0.39

 
$
0.58

Diluted
$
0.04

 
$
0.24

 
$
0.38

 
$
0.55

See accompanying condensed notes to unaudited quarterly consolidated financial statements.


1

Boise Inc.
Consolidated Statements of Comprehensive Income
(unaudited, dollars in thousands)

 
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
2012
 
2011
 
2012
 
2011
Net income
$
3,603

 
$
28,364

 
$
38,603

 
$
58,955

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustment
970

 
—

 
(482
)
 
—

Cash flow hedges:
 
 
 
 
 
 
 
Change in fair value, net of tax of $1,125, ($523), $650, and ($523), respectively
1,794

 
(832
)
 
1,038

 
(832
)
Loss included in net income, net of tax of $150, $0, $1,041, and $0, respectively
239

 
—

 
1,660

 
—

Amortization of actuarial loss and prior service cost for defined benefit pension plans, net of tax of $939, $545, $2,945, and $1,625, respectively
1,500

 
867

 
4,700

 
2,583

Other
—

 
—

 
—

 
(1
)
 
4,503

 
35

 
6,916

 
1,750

 
 
 
 
 
 
 
 
Comprehensive income
$
8,106

 
$
28,399

 
$
45,519

 
$
60,705

See accompanying condensed notes to unaudited quarterly consolidated financial statements.


2

Boise Inc.
Consolidated Balance Sheets
(unaudited, dollars in thousands)
 
September 30, 2012
 
December 31, 2011
ASSETS
 
 
 
 
 
 
 
Current
 
 
 
Cash and cash equivalents
$
102,376

 
$
96,996

Receivables
 
 
 
Trade, less allowances of $1,198 and $1,343
259,778

 
228,838

Other
7,897

 
7,622

Inventories
320,970

 
307,305

Deferred income taxes
5,579

 
20,379

Prepaid and other
12,776

 
6,944

 
709,376

 
668,084

 
 
 
 
Property
 
 
 
Property and equipment, net
1,208,757

 
1,235,269

Fiber farms
23,719

 
21,193

 
1,232,476

 
1,256,462

 
 
 
 
Deferred financing costs
27,820

 
30,956

Goodwill
160,294

 
161,691

Intangible assets, net
149,991

 
159,120

Other assets
7,827

 
9,757

Total assets
$
2,287,784

 
$
2,286,070

 
See accompanying condensed notes to unaudited quarterly consolidated financial statements.


3

Boise Inc.
Consolidated Balance Sheets (continued)
(unaudited, dollars and shares in thousands, except per-share data)
 
September 30, 2012
 
December 31, 2011
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current
 
 
 
Current portion of long-term debt
$
—

 
$
10,000

Accounts payable
209,649

 
202,584

Accrued liabilities
 
 
 
Compensation and benefits
70,766

 
64,907

Interest payable
23,287

 
10,528

Other
27,677

 
22,540

 
331,379

 
310,559

 
 
 
 
Debt
 
 
 
Long-term debt, less current portion
775,000

 
790,000

 
 
 
 
Other
 
 
 
Deferred income taxes
169,540

 
161,260

Compensation and benefits
148,340

 
172,394

Other long-term liabilities
71,309

 
57,010

 
389,189

 
390,664

 
 
 
 
Commitments and contingent liabilities

 

 
 
 
 
Stockholders' equity
 
 
 
Preferred stock, $0.0001 par value per share: 1,000 shares authorized; none issued
—

 
—

Common stock, $0.0001 par value per share: 250,000 shares authorized; 100,483 and 100,272 shares issued and outstanding
12

 
12

Treasury stock, 21,151 shares held
(121,423
)
 
(121,421
)
Additional paid-in capital
866,692

 
866,901

Accumulated other comprehensive income (loss)
(115,046
)
 
(121,962
)
Retained earnings
161,981

 
171,317

Total stockholders' equity
792,216

 
794,847

 
 
 
 
Total liabilities and stockholders' equity
$
2,287,784

 
$
2,286,070


See accompanying condensed notes to unaudited quarterly consolidated financial statements.


4

Boise Inc.
Consolidated Statements of Cash Flows
(unaudited, dollars in thousands)
 
Nine Months Ended
September 30
 
2012
 
2011
Cash provided by (used for) operations
 
 
 
Net income
$
38,603

 
$
58,955

Items in net income not using (providing) cash
 
 
 
Depreciation, depletion, and amortization of deferred financing costs and other
115,919

 
111,123

Share-based compensation expense
4,356

 
2,676

Pension expense
8,906

 
8,245

Deferred income taxes
20,757

 
33,806

St. Helens charges
28,371

 
—

Other
825

 
1,073

Decrease (increase) in working capital, net of acquisitions
 
 
 
Receivables
(30,182
)
 
(17,711
)
Inventories
(15,839
)
 
(9,998
)
Prepaid expenses
(3,596
)
 
(1,301
)
Accounts payable and accrued liabilities
20,928

 
10,619

Current and deferred income taxes
1,591

 
1,912

Pension payments
(27,240
)
 
(25,335
)
Other
1,875

 
1,481

Cash provided by operations
165,274

 
175,545

Cash provided by (used for) investment
 
 
 
Acquisition of businesses and facilities, net of cash acquired
—

 
(201,289
)
Expenditures for property and equipment
(82,293
)
 
(83,869
)
Purchases of short-term investments
—

 
(3,494
)
Maturities of short-term investments
—

 
14,114

Other
1,148

 
1,506

Cash used for investment
(81,145
)
 
(273,032
)
Cash provided by (used for) financing
 
 
 
Payments of special dividend
(47,486
)
 
(47,916
)
Issuances of long-term debt
—

 
75,000

Payments of long-term debt
(25,000
)
 
(106,250
)
Equity yield enhancement strategy program
—

 
(25,000
)
Repurchases of common stock
(2
)
 
(76,328
)
Proceeds from exercise of warrants
—

 
284,785

Other
(6,261
)
 
(4,009
)
Cash provided by (used for) financing
(78,749
)
 
100,282

Increase in cash and cash equivalents
5,380

 
2,795

Balance at beginning of the period
96,996

 
166,833

Balance at end of the period
$
102,376

 
$
169,628


See accompanying condensed notes to unaudited quarterly consolidated financial statements.

5

BZ Intermediate Holdings LLC
Consolidated Statements of Income
(unaudited, dollars in thousands)
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
2012
 
2011
 
2012
 
2011
Sales
 
 
 
 
 
 
 
Trade
$
631,054

 
$
619,396

 
$
1,883,167

 
$
1,772,500

Related parties
14,131

 
12,346

 
44,704

 
31,140

 
645,185

 
631,742

 
1,927,871

 
1,803,640

 
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 
Materials, labor, and other operating expenses
502,848

 
483,885

 
1,512,490

 
1,417,956

Fiber costs from related parties
5,266

 
4,786

 
14,678

 
13,609

Depreciation, amortization, and depletion
37,540

 
36,374

 
112,399

 
106,438

Selling and distribution expenses
30,015

 
29,799

 
91,225

 
78,655

General and administrative expenses
19,213

 
14,396

 
59,256

 
41,715

St. Helens charges
27,448

 
—

 
27,448

 
—

Other (income) expense, net
1,509

 
(130
)
 
1,590

 
134

 
623,839

 
569,110

 
1,819,086

 
1,658,507

 
 
 
 
 
 
 
 
Income from operations
21,346

 
62,632

 
108,785

 
145,133

 
 
 
 
 
 
 
 
Foreign exchange gain (loss)
296

 
(482
)
 
555

 
(295
)
Interest expense
(15,458
)
 
(15,725
)
 
(46,256
)
 
(48,164
)
Interest income
3

 
58

 
101

 
210

 
(15,159
)
 
(16,149
)
 
(45,600
)
 
(48,249
)
 
 
 
 
 
 
 
 
Income before income taxes
6,187

 
46,483

 
63,185

 
96,884

Income tax provision
(2,584
)
 
(18,119
)
 
(24,582
)
 
(37,929
)
Net income
$
3,603

 
$
28,364

 
$
38,603

 
$
58,955


See accompanying condensed notes to unaudited quarterly consolidated financial statements.

6

BZ Intermediate Holdings LLC
Consolidated Statements of Comprehensive Income
(unaudited, dollars in thousands)
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
2012
 
2011
 
2012
 
2011
Net income
$
3,603

 
$
28,364

 
$
38,603

 
$
58,955

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustment
970

 
—

 
(482
)
 
—

Cash flow hedges:
 
 
 
 
 
 
 
Change in fair value, net of tax of $1,125, ($523), $650, and ($523), respectively
1,794

 
(832
)
 
1,038

 
(832
)
Loss included in net income, net of tax of $150, $0, $1,041, and $0, respectively
239

 
—

 
1,660

 
—

Amortization of actuarial loss and prior service cost for defined benefit pension plans, net of tax of $939, $545, $2,945, and $1,625, respectively
1,500

 
867

 
4,700

 
2,583

Other
—

 
—

 
—

 
(1
)
 
4,503

 
35

 
6,916

 
1,750

 
 
 
 
 
 
 
 
Comprehensive income
$
8,106

 
$
28,399

 
$
45,519

 
$
60,705


See accompanying condensed notes to unaudited quarterly consolidated financial statements.


7

BZ Intermediate Holdings LLC
Consolidated Balance Sheets
(unaudited, dollars in thousands)  
 
September 30, 2012
 
December 31, 2011
ASSETS
 
 
 
 
 
 
 
Current
 
 
 
Cash and cash equivalents
$
102,376

 
$
96,996

Receivables
 
 
 
     Trade, less allowances of $1,198 and $1,343
259,778

 
228,838

Other
7,897

 
7,622

Inventories
320,970

 
307,305

Deferred income taxes
5,579

 
20,379

Prepaid and other
12,776

 
6,944

 
709,376

 
668,084

 
 
 
 
Property
 
 
 
Property and equipment, net
1,208,757

 
1,235,269

Fiber farms
23,719

 
21,193

 
1,232,476

 
1,256,462

 
 
 
 
Deferred financing costs
27,820

 
30,956

Goodwill
160,294

 
161,691

Intangible assets, net
149,991

 
159,120

Other assets
7,827

 
9,757

Total assets
$
2,287,784

 
$
2,286,070

 
See accompanying condensed notes to unaudited quarterly consolidated financial statements.

8

BZ Intermediate Holdings LLC
Consolidated Balance Sheets (continued)
(unaudited, dollars in thousands) 
 
September 30, 2012
 
December 31, 2011
LIABILITIES AND CAPITAL
 
 
 
 
 
 
 
Current
 
 
 
Current portion of long-term debt
$
—

 
$
10,000

Accounts payable
209,649

 
202,584

Accrued liabilities
 
 
 
Compensation and benefits
70,766

 
64,907

Interest payable
23,287

 
10,528

Other
27,677

 
22,540

 
331,379

 
310,559

 
 
 
 
Debt
 
 
 
Long-term debt, less current portion
775,000

 
790,000

 
 
 
 
Other
 
 
 
Deferred income taxes
160,993

 
152,712

Compensation and benefits
148,340

 
172,394

Other long-term liabilities
71,359

 
57,061

 
380,692

 
382,167

 
 
 
 
Commitments and contingent liabilities

 

 
 
 
 
Capital
 
 
 
Business unit equity
915,759

 
925,306

Accumulated other comprehensive income (loss)
(115,046
)
 
(121,962
)
 
800,713

 
803,344

 
 
 
 
Total liabilities and capital
$
2,287,784

 
$
2,286,070


See accompanying condensed notes to unaudited quarterly consolidated financial statements.



9

BZ Intermediate Holdings LLC
Consolidated Statements of Cash Flows
(unaudited, dollars in thousands)
 
Nine Months Ended
September 30
 
2012
 
2011
Cash provided by (used for) operations
 
 
 
Net income
$
38,603

 
$
58,955

Items in net income not using (providing) cash
 
 
 
Depreciation, depletion, and amortization of deferred financing costs and other
115,919

 
111,123

Share-based compensation expense
4,356

 
2,676

Pension expense
8,906

 
8,245

Deferred income taxes
20,757

 
33,950

St. Helens charges
28,371

 
—

Other
825

 
1,073

Decrease (increase) in working capital, net of acquisitions
 
 
 
Receivables
(30,182
)
 
(17,711
)
Inventories
(15,839
)
 
(9,998
)
Prepaid expenses
(3,596
)
 
(1,301
)
Accounts payable and accrued liabilities
20,928

 
10,619

Current and deferred income taxes
1,591

 
1,768

Pension payments
(27,240
)
 
(25,335
)
Other
1,875

 
1,481

Cash provided by operations
165,274

 
175,545

Cash provided by (used for) investment
 
 
 
Acquisition of businesses and facilities, net of cash acquired
—

 
(201,289
)
Expenditures for property and equipment
(82,293
)
 
(83,869
)
Purchases of short-term investments
—

 
(3,494
)
Maturities of short-term investments
—

 
14,114

Other
1,148

 
1,506

Cash used for investment
(81,145
)
 
(273,032
)
Cash provided by (used for) financing
 
 
 
Issuances of long-term debt
—

 
75,000

Payments of long-term debt
(25,000
)
 
(106,250
)
Payments (to) from Boise Inc., net
(52,585
)
 
135,541

Other
(1,164
)
 
(4,009
)
Cash provided by (used for) financing
(78,749
)
 
100,282

Increase in cash and cash equivalents
5,380

 
2,795

Balance at beginning of the period
96,996

 
166,833

Balance at end of the period
$
102,376

 
$
169,628


See accompanying condensed notes to unaudited quarterly consolidated financial statements.


10

Condensed Notes to Unaudited Quarterly Consolidated Financial Statements

1. Nature of Operations and Basis of Presentation

Boise Inc. is a large, diverse manufacturer and seller of packaging and paper products. Our operations began in February 2008. We are headquartered in Boise, Idaho, and we operate largely in the United States but have 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, such as label and release papers, and newsprint. Additionally, we manufacture linerboard and corrugating medium, which are combined to make corrugated board, the base raw material in our corrugated sheets and containers. We are the third-largest North American manufacturer of communication papers such as office papers, commercial printing papers, envelope papers, and forms.

Our organizational structure is noted below:
 
 
 
 
 
Boise Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BZ Intermediate Holdings LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Boise Paper Holdings, L.L.C.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Packaging Segment
 
Paper Segment
 
Corporate Segment

See Note 6, Segment Information, for additional information about our three reportable segments, Packaging, Paper, and Corporate and Other (support services).

The unaudited quarterly consolidated financial statements included herein are those of the following:
•
Boise Inc. and its wholly owned subsidiaries, including BZ Intermediate Holdings LLC (BZ Intermediate).
•
BZ Intermediate and its wholly owned subsidiaries, parent company to Boise Paper Holdings, L.L.C. (Boise Paper Holdings).

In these unaudited quarterly 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. There are no significant differences between the results of operations, financial condition, and cash flows of Boise Inc. and those of BZ Intermediate other than income taxes and common stock activity. Some amounts in prior periods' consolidated financial statements have been reclassified to conform with the current period's presentation, none of which were considered material.

The quarterly consolidated financial statements presented have not been audited by an independent registered public accounting firm but, in the opinion of management, include all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the results for the periods presented. The preparation of the consolidated financial statements involves the use of estimates and accruals. Actual results may vary from those estimates. Quarterly results are not necessarily indicative of results that may be expected for the full year. These condensed notes to unaudited quarterly consolidated financial statements should be read in conjunction with our 2011 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and the other reports we file with the Securities and Exchange Commission (SEC).




11

2. St. Helens Charges

In September 2012, we committed to a plan to cease paper production on our one remaining paper machine (H2) at our St. Helens, Oregon, paper mill by December 31, 2012. The cessation is a result of the machine's inability to compete in the marketplace over the long-term, due primarily to high fiber costs and declining product demand. This reduces our annual uncoated freesheet capacity by almost 60,000 tons and will result in the loss of approximately 100 jobs, primarily at the mill. The H3 machine, which is owned by Cascades Tissue Group, continues to operate on the site, and we continue to lease them supporting assets.
During the three and nine months ended September 30, 2012, we recorded $31.3 million of pretax costs primarily related to our plan to cease paper production at the mill in our Paper segment. In our Consolidated Statements of Income, we recorded $27.4 million of shutdown costs in "St. Helens charges" and $3.9 million in "Materials, labor, and other operating expenses" related to inventory write-downs and other one-time costs incurred in the quarter. At September 30, 2012, $4.1 million of costs were recorded in “Accrued liabilities, Compensation and benefits”, $0.7 million in “Accrued liabilities, Other”, and $10.4 million in “Other long-term liabilities” on our Consolidated Balance Sheet.
An analysis of the St. Helens costs is as follows (in thousands):
 
Noncash
 
Cash (a)
 
Total Costs
Asset write-down
$
11,193

(b)
$
—

 
$
11,193

Inventory write-down
1,982

 
—

 
1,982

Employee-related costs
—

 
4,136

 
4,136

Pension curtailment loss
1,059

 
—

 
1,059

Increase in asset retirement obligations (Note 16)
—

 
10,353

 
10,353

Other
—

 
2,565

 
2,565

 
$
14,234

 
$
17,054

 
$
31,288

____________
(a)
We expect to pay most of the $6.7 million of employee-related and other costs in early 2013 and the remaining amounts over a longer term.
(b)
During the quarter, we assessed the St. Helens long-lived assets for impairment.  Our assessment was based upon, among other things, our estimates of the amount of future net cash flows to be generated by the long-lived assets (Level 3 inputs) and our estimates of the current fair value of the assets. Considerable management judgment is necessary to evaluate estimated future cash flows. The assumptions used in our impairment evaluations are consistent with our operating plans.

3. Acquisition of Hexacomb

On December 1, 2011, we acquired Hexacomb Corporation and its affiliated companies and all of the honeycomb packaging-related assets of Pregis Mexico (Hexacomb) for $125 million (Hexacomb Acquisition), subject to post-closing adjustments. In connection with the acquisition, we allocated the purchase price to the assets acquired and liabilities assumed based on estimates of the fair value at the date of the acquisition. See Note 3, Acquisitions, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" of our 2011 Form 10-K. During the nine months ended September 30, 2012, we recorded approximately $1.5 million of purchase price adjustments that decreased goodwill. These adjustments related primarily to changes in deferred tax liabilities that resulted from further analysis of the tax basis of acquired assets and liabilities and other tax adjustments. The purchase price continues to be preliminary due to unresolved tax matters; however, purchase accounting will be finalized in fourth quarter 2012.

4. Net Income Per Common Share

Net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Net income per common share is not applicable to BZ Intermediate because it does not have common shares. Boise Inc.'s basic and diluted net income per share is calculated as follows (dollars and shares in thousands, except per-share data): 

12

 
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
2012
 
2011
 
2012
 
2011
Net income
$
3,603

 
$
28,364

 
$
38,603

 
$
58,955

Weighted average number of common shares for basic net income per common share (a)
100,144

 
115,657

 
99,772

 
101,250

Incremental effect of dilutive common stock equivalents:
 
 
 
 
 
 
 
Restricted stock and restricted stock units
650

 
2,298

 
1,123

 
2,579

Performance units
233

 
—

 
235

 
—

Common stock warrants (a)
—

 
—

 
—

 
2,960

Stock options (b)
3

 
—

 
1

 
2

Weighted average number of common shares for diluted net income per common share
101,030

 
117,955

 
101,131

 
106,791

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.04

 
$
0.25

 
$
0.39

 
$
0.58

Diluted
$
0.04

 
$
0.24

 
$
0.38

 
$
0.55

____________
(a)
During the nine months ended September 30, 2011, warrant holders exercised their warrants, resulting in the issuance of 38.4 million common shares. We repurchased 21.2 million common shares in the second half of 2011.
(b)
We excluded 0.8 million and 0.3 million of stock options from the computation of diluted net income per share because they were antidilutive for both the three and nine months ended September 30, 2012 and 2011, respectively.
 
5. Income Taxes

For the three and nine months ended September 30, 2012, we recorded $2.6 million and $24.6 million of income tax expense and had an effective tax rate of 41.8% and 38.9%, respectively. During the three and nine months ended September 30, 2012, the primary reason for the difference from the federal statutory income tax rate of 35% was the effect of state income taxes.

For the three and nine months ended September 30, 2011, we recorded $18.1 million and $37.9 million of income tax expense and had an effective tax rate of 39.0% and 39.1%, respectively. During the three and nine months ended September 30, 2011, the primary reason for the difference from the federal statutory income tax rate of 35% was the effect of state income taxes and discrete tax items.

Uncertain Income Tax Positions

We recognize tax liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available or as new uncertainties occur. We recognize interest and penalties related to uncertain tax positions as income tax expense in the Consolidated Statements of Income. Interest expense and penalties relating to uncertain tax positions were nominal for all periods presented.

Other

Due to Internal Revenue Code Section 382, changes in our ownership limit the amount of net operating losses that we may utilize in any one year. To the extent the annual limitation is not used in any year, the unutilized limitation amount will carry over and add to the limitation in the subsequent tax year. However, we believe it is more likely than not that our net operating losses will be fully realized before they expire.

We file federal income tax returns in the U.S., state income tax returns in various state jurisdictions, and foreign income tax returns in various foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. BZ Intermediate is a wholly owned, consolidated entity of Boise Inc., and its tax return is filed under the consolidated tax return of Boise Inc. Domestic tax years beginning in 2009 and certain foreign tax jurisdictions are subject to examination by taxing authorities, although net operating loss and credit carryforwards from all years are subject to examinations and adjustments for at least three years following the year in which utilized. The jurisdictions which would be subject to examination include the U.S. federal jurisdiction and various state and foreign jurisdictions.

13


As of September 30, 2012, we had not recognized U.S. deferred income taxes on our cumulative total of undistributed earnings for non-U.S. subsidiaries. Determining the unrecognized deferred tax liability related to investments in these non-U.S. subsidiaries that are indefinitely reinvested is not practicable. We currently intend to indefinitely reinvest those earnings in operations outside the United States.

During the nine months ended September 30, 2012, refunds received, net of cash paid for taxes, were $0.2 million. Cash paid for taxes, net of refunds received, was $1.9 million during the nine months ended September 30, 2011.

6. Segment Information
    
We operate and report our business in three reportable segments: Packaging, Paper, and Corporate and Other (support services). These segments represent distinct businesses that are managed separately because of differing products and services. Each of these businesses requires distinct operating and marketing strategies. Management reviews the performance of the Company based on these segments. There are no differences in our basis of segmentation or in our basis of measurement of segment profit or loss from those disclosed in Note 6, Segment Information, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" in our 2011 Form 10-K.
    
An analysis of operations by segment is as follows (dollars in millions):
 
 
Sales
 
Income (Loss) Before Income Taxes
 
Depreciation,
Amortization, and Depletion
 
EBITDA 
(c)
 
Three Months Ended
September 30, 2012
 
Trade
 
Related
Parties
 
Inter-
segment
 
Total
 
 
 
 
Packaging
 
$
270.9

 
$
14.1

 
$
0.7

 
$
285.7

 
$
22.7

 
$
14.8

 
$
37.5

 
Paper
 
352.0

 
—

 
18.0

 
370.0

 
5.5

(a)
21.8

 
27.3

(a)
Corporate and Other
 
8.2

 
—

 
8.5

 
16.8

 
(6.5
)
 
0.9

 
(5.6
)
 
Intersegment eliminations
 
—

 
—

 
(27.2
)
 
(27.2
)
 
—

 
—

 
—

 
 
 
$
631.1

 
$
14.1

 
$
—

 
$
645.2

 
21.6

 
$
37.5

 
$
59.2

 
Interest expense
 
 
 
 
 
 
 
 
 
(15.5
)
 
 
 
 
 
Interest income
 
 
 
 
 
 
 
 
 
—

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
6.2

  
 
 
 
 

 
 
Sales
 
Income (Loss) Before Income Taxes
 
Depreciation,
Amortization, and Depletion
 
EBITDA 
(c)
 
Three Months Ended
September 30, 2011
 
Trade
 
Related
Parties
 
Inter-
segment
 
Total
 
 
 
 
Packaging
 
$
238.2

 
$
12.3

 
$
1.0

 
$
251.6

 
$
32.0

 
$
13.0

 
$
45.1

 
Paper
 
372.5

 
—

 
18.1

 
390.6

 
36.1

 
22.5

 
58.6

 
Corporate and Other
 
8.6

 
—

 
9.2

 
17.8

 
(6.0
)
 
0.9

 
(5.2
)
 
Intersegment eliminations
 
—

 
—

 
(28.3
)
 
(28.3
)
 
—

 
—

 
—

 
 
 
$
619.4

 
$
12.3

 
$
—

 
$
631.7

 
62.2

 
$
36.4

 
$
98.5

 
Interest expense
 
 
 
 
 
 
 
 
 
(15.7
)
 
 
 
 
 
Interest income
 
 
 
 
 
 
 
 
 
0.1

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
46.5

  
 
 
 
 


14

 
 
Sales
 
Income (Loss) Before Income Taxes
 
Depreciation,
Amortization, and Depletion
 
EBITDA 
(c)
 
Nine Months Ended
September 30, 2012
 
Trade
 
Related
Parties
 
Inter-
segment
 
Total
 
 
 
 
Packaging
 
$
796.0

 
$
44.7

 
$
2.1

 
$
842.8

 
$
70.0

 
$
45.5

 
$
115.5

 
Paper
 
1,063.0

 
—

 
52.6

 
1,115.6

 
59.0

(a)
64.3

 
123.3

(a)
Corporate and Other
 
24.1

 
—

 
28.0

 
52.1

 
(19.6
)
 
2.6

 
(17.0
)
 
Intersegment eliminations
 
—

 
—

 
(82.6
)
 
(82.6
)
 
—

 
—

 
—

 
 
 
$
1,883.2

 
$
44.7

 
$
—

 
$
1,927.9

 
109.3

 
$
112.4

 
$
221.7

 
Interest expense
 
 
 
 
 
 
 
 
 
(46.3
)
 
 
 
 
 
Interest income
 
 
 
 
 
 
 
 
 
0.1

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
63.2

  
 
 
 
 
 
 
Sales
 
Income (Loss) Before Income Taxes
 
Depreciation,
Amortization, and Depletion
 
EBITDA 
(c)
 
Nine Months Ended
September 30, 2011
 
Trade
 
Related
Parties
 
Inter-
segment
 
Total
 
 
 
 
Packaging
 
$
664.6

 
$
31.1

 
$
2.6

 
$
698.3

 
$
73.2

(b)
$
36.9

 
$
110.0

(b)
Paper
 
1,084.4

 
—

 
52.4

 
1,136.8

 
90.3

 
66.9

 
157.1

 
Corporate and Other
 
23.5

 
—

 
27.1

 
50.6

 
(18.6
)
 
2.7

 
(15.9
)
 
Intersegment eliminations
 
—

 
—

 
(82.1
)
 
(82.1
)
 
—

 
—

 
—

 
 
 
$
1,772.5

 
$
31.1

 
$
—

 
$
1,803.6

 
144.8

 
$
106.4

 
$
251.3

 
Interest expense
 
 
 
 
 
 
 
 
 
(48.2
)
 
 
 
 
 
Interest income
 
 
 
 
 
 
 
 
 
0.2

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
96.9

  
 
 
 
 
____________
(a)
In September 2012, we committed to a plan to cease paper production on our one remaining paper machine (H2) at our St. Helens, Oregon, paper mill. For the three and nine months ended September 30, 2012, we recorded pretax charges totaling $31.3 million in our Paper segment. See Note 2, St. Helens Charges, for more information.
(b)
In connection with the Tharco purchase price allocation, inventories were written up to their estimated fair market value. As the related inventories were sold, we recognized $2.2 million of expense in "Materials, labor, and other operating expenses" in our Consolidated Statement of Income for the nine months ended September 30, 2011.
(c)
EBITDA represents income before interest (interest expense and interest income), income tax provision, 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, income 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 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 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.

The following is a reconciliation of net income to EBITDA for Boise Inc. and BZ Intermediate (dollars in millions):

15

 
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
2012
 
2011
 
2012
 
2011
Net income
$
3.6

(a)
$
28.4

 
$
38.6

(a)
$
59.0

Interest expense
15.5

 
15.7

 
46.3

 
48.2

Interest income
—

 
(0.1
)
 
(0.1
)
 
(0.2
)
Income tax provision
2.6

 
18.1

 
24.6

 
37.9

Depreciation, amortization, and depletion
37.5

 
36.4

 
112.4

 
106.4

EBITDA
$
59.2

(a)
$
98.5

 
$
221.7

(a)
$
251.3


7. Debt

At September 30, 2012 and December 31, 2011, our long-term debt and the interest rates on that debt were as follows (dollars in thousands): 
 
September 30, 2012
 
December 31, 2011
 
Amount
 
Interest Rate
 
Amount
 
Interest Rate
Tranche A term loan, due 2016
$
175,000

 
2.22
%
 
$
200,000

 
2.30
%
9% senior notes, due 2017
300,000

 
9.00

 
300,000

 
9.00

8% senior notes, due 2020
300,000

 
8.00

 
300,000

 
8.00

Long-term debt
775,000

 
7.08

 
800,000

 
6.95

Current portion of long-term debt
—

 
—

 
(10,000
)
 
2.30

Long-term debt, less current portion
$
775,000

 
7.08
%
 
$
790,000

 
7.01
%

As of September 30, 2012, our debt consisted of the following:
•
The Revolving Credit Facility: A five-year nonamortizing $500 million senior secured revolving credit facility with variable annual interest. In addition to paying interest, we pay an annual commitment fee for undrawn amounts at a rate of either 0.35% or 0.50% depending on our total leverage ratio.
•
The Tranche A Term Loan Facility: A five-year amortizing $200 million senior secured loan facility with variable annual interest.
•
The 9% Senior Notes: An eight-year nonamortizing $300 million senior unsecured debt obligation with fixed annual interest of 9%.
•
The 8% Senior Notes: A ten-year nonamortizing $300 million senior unsecured debt obligation with fixed annual interest of 8%.

Interest on our Revolving Credit Facility and the Tranche A Term Loan Facility (collectively the Credit Facilities) is determined at our election and is based on an alternate base rate or the London Interbank Offered Rate (LIBOR), which is our current election, plus an applicable spread based on our total leverage ratio. Our total leverage ratio is essentially our total net debt divided by our trailing four quarters of Adjusted Consolidated EBITDA (as defined in the credit agreement). At September 30, 2012, the interest rate on our Credit Facilities is LIBOR plus 200 basis points. Based on our current election of one-month LIBOR, we pay interest on the Credit Facilities monthly in arrears.

At September 30, 2012, and December 31, 2011, we had no borrowings outstanding under our Revolving Credit Facility. We had availability of $492.7 million under our Revolving Credit Facility at September 30, 2012, which is net of outstanding letters of credit of $7.3 million.

The Credit Facilities and senior note agreements contain certain restrictions relating to dividend payments, capital expenditures, financial ratios, guarantees, and the incurrence of additional indebtedness, which are discussed in Note 7, Debt, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" in our 2011 Form 10-K.

Subject to specified exceptions, the Credit Facilities require that the proceeds from certain asset sales, casualty insurance, and certain debt issuances be used to pay down outstanding borrowings. During the nine months ended September 30, 2012, we made $25.0 million of long-term debt payments on our Tranche A Term

16

Loan, $17.5 million of which were voluntary and eliminate our required principal payment obligations until December 31, 2013.

As of September 30, 2012, required debt principal repayments were as follows (dollars in thousands): 
 
Remaining
 
 
 
 
 
 
 
 
 
 
 
2012
 
2013
 
2014
 
2015
 
2016
 
Thereafter
Required debt principal repayments
$
—

 
$
5,000

 
$
20,000

 
$
30,000

 
$
120,000

 
$
600,000


At September 30, 2012, and December 31, 2011, we had $27.8 million and $31.0 million, respectively, of costs recorded in "Deferred financing costs" on our Consolidated Balance Sheets. We record the amortization of deferred financing costs in interest expense using the effective interest method over the term of the loans. For the three months ended September 30, 2012 and 2011, we recorded $1.1 million and $1.5 million, respectively, and for the nine months ended September 30, 2012 and 2011, we recorded $3.3 million and $4.5 million, respectively, of amortization expense in "Interest expense" in our Consolidated Statements of Income.

For the nine months ended September 30, 2012 and 2011, cash payments for interest were $30.3 million and $30.6 million, respectively.

With the exception of the Credit Facilities, our debt is fixed-rate debt. At September 30, 2012, the book value of our fixed-rate debt was $600.0 million, and the fair value was estimated to be $662.3 million. The difference between the book value and fair value is due to the difference between the period-end market interest rate and the stated rate of our fixed-rate, long-term debt. We estimated the fair value of our fixed-rate debt using quoted market prices (Level 1 inputs), discussed further in Note 8, Financial Instruments.

8. Financial Instruments

Our primary objective in holding derivative financial instruments is to manage cash flow risk. We do not use derivative instruments for speculative purposes.

We enter into transactions to hedge the variable cash flow risk of natural gas purchases. At September 30, 2012, these derivatives included caps and call spreads, which we account for as economic hedges, and swaps, which are accounted for as cash flow hedges. As of September 30, 2012, we had entered into derivative instruments related to the following approximate percentages of our forecasted natural gas purchases:

 
October 2012
 
November 2012
Through
March 2013
 
April 2013
Through
October 2013
 
November 2013
Through
March 2014
 
April 2014
Through
October 2014
 
November 2014
Through
March 2015
 
April 2015
Through
October 2015
Approximate percent hedged
83
%
 
87
%
 
73
%
 
53
%
 
48
%
 
43
%
 
37
%

Economic Hedges

For derivative instruments that are designated as economic hedges, the gain or loss on the derivatives is recognized in "Materials, labor, and other operating expenses" in the Consolidated Statements of Income. During the three and nine months ended September 30, 2012 and 2011, we recognized an insignificant amount of expense and/or income related to natural gas contracts we account for as economic hedges.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of "Accumulated other comprehensive income (loss)" on our Consolidated Balance Sheets and is recognized in "Materials, labor, and other operating expenses" in our Consolidated Statements of Income in the period in which the hedged transaction affects earnings. Financial instruments designated as cash flow hedges are assessed both at inception and quarterly thereafter to ensure they are effective in offsetting changes in the cash flows of the related underlying exposures. The fair value of the instruments is reclassified out of accumulated other comprehensive income (loss) to earnings if the hedge ceases to be highly effective or if the hedged transaction is no longer probable. At September 30, 2012, and December 31,

17

2011, we had $1.0 million and $3.7 million of losses, respectively, net of tax, recorded in "Accumulated other comprehensive income (loss)" on our Consolidated Balance Sheets related to our natural gas contracts. Based on September 30, 2012 pricing, the estimated loss, net of tax, to be recognized in earnings during the next 12 months is $1.0 million.

The effects of our cash flow hedging instruments on our Consolidated Balance Sheets and Consolidated Statements of Income were as follows (dollars in thousands):
 
(Gain) Loss Recognized in Accumulated Other Comprehensive Income
 
Loss Reclassified From Accumulated Other Comprehensive Income Into Earnings
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Natural gas contracts
$
(2,919
)
 
$
1,355

 
$
(1,688
)
 
$
1,355

 
$
389

 
$
—

 
$
2,701

 
$
—


Fair Value Measurements

The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) establishes a fair value hierarchy, which prioritizes the inputs of valuation techniques used to measure fair value into three levels. The fair value hierarchy gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). Where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value (Level 1). If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly (Level 2). If quoted prices for identical or similar assets are not available or are unobservable, we may use internally developed valuation models, whose inputs include bid prices and third-party valuations utilizing underlying asset assumptions (Level 3). Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements. We monitor credit ratings of counterparties to the agreements, which are large financial institutions, to consider the impact, if any, on the determination of fair value. No significant adjustments were made in any periods presented.

Fair Values of Derivative Instruments

At September 30, 2012, and December 31, 2011, the fair value of our financial instruments was determined based on New York Mercantile Exchange (NYMEX) price quotations under the terms of the contracts, using current market information as of the reporting date. The derivatives were valued by us using third-party valuations based on quoted prices for similar assets and liabilities. Accordingly, all of our fair value measurements use Level 2 inputs.

All of our derivative instruments are recorded in "Accrued liabilities, Other" and "Other long-term liabilities" on our Consolidated Balance Sheets. We offset asset and liability balances, by counterparty, where legal right of offset exists. The following table presents the fair value of these instruments at September 30, 2012, and December 31, 2011 (dollars in thousands): 
 
Level 2: Significant Other Observable Inputs
 
September 30, 2012
 
December 31, 2011
Natural gas contracts
 
 
 
Cash flow hedges
$
1,850

 
$
6,022

Economic hedges
2,234

 
2,370

Total
$
4,084

 
$
8,392


Derivative instruments in an asset position at September 30, 2012, were not material. We did not have any derivative instruments in an asset position at December 31, 2011.


18

9. Retirement and Benefit Plans

The components of net periodic benefit cost are as follows (dollars in thousands):
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
2012
 
2011
 
2012
 
2011
Service cost
$
646

 
$
746

 
$
2,086

 
$
3,224

Interest cost
6,135

 
6,385

 
18,460

 
19,196

Expected return on plan assets
(6,856
)
 
(6,179
)
 
(20,435
)
 
(18,402
)
Amortization of actuarial loss
2,445

 
1,405

 
7,662

 
4,189

Amortization of prior service costs and other
3

 
13

 
8

 
38

Plan curtailment loss
1,059

 
—

 
1,125

 
—

Net periodic benefit cost
$
3,432

 
$
2,370

 
$
8,906

 
$
8,245


Our funding practice for our pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that we determine to be appropriate considering the funded status of the plan, tax deductibility, our cash flows from operations, and other factors. During the nine months ended September 30, 2012, we contributed $27.2 million to our pension plans, which exceeds our 2012 minimum required contributions.

10. Stockholders' Equity and Share-Based Compensation

Special Dividend

On March 21, 2012, we paid a special cash dividend of $0.48 per common share to Boise Inc. shareholders of record at the close of business on March 9, 2012. The dividend payment was $47.5 million.

Share-Based Compensation

Under the Boise Inc. Incentive and Performance Plan (the Plan), the compensation committee of our board of directors has the ability to authorize the grant of various types of stock- and cash-based awards. Awards granted under the Plan vest and expire in accordance with terms established at the time of grant. Shares issued pursuant to awards under the Plan are from our authorized but unissued shares or from treasury shares. Share-based compensation costs in BZ Intermediate's financial statements represent expenses for restricted stock, restricted stock units, stock options, and performance units of Boise Inc., which have been pushed down to BZ Intermediate for accounting purposes. Additional information regarding the Plan and awards can be found in Note 11, Share-Based Compensation, of the Notes to Consolidated Financial Statements in "Part II, Item 8. Financial Statements and Supplementary Data" in our 2011 Form 10-K.

Restricted Stock and Performance Unit Awards. For restricted stock and restricted stock units (collectively restricted stock), the awards generally vest over a three-year period. Performance unit awards granted are subject to adjustment based on the achievement of defined percentages of the two-year average return on net operating assets (RONOA). Because the RONOA component contains a performance condition, we record compensation expense, net of estimated forfeitures, over the requisite service period based on the most probable number of awards expected to vest. Any shares not vested are forfeited. The fair values of the restricted stock and performance unit awards were based on the closing market price of our common stock on the date of grant, and compensation expense is recorded over the awards' vesting periods. These awards are eligible to participate in dividend payments, if any, which we accrue to be paid upon the vesting of those awards.

The following table presents the restricted stock and performance unit award activity for the nine months ended September 30, 2012 (shares in thousands):

19

 
Restricted Stock Awards and Performance Units
 
Nonvested Shares
 
Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2011
2,524

 
$
2.55

Granted
716

 
8.06

Vested
(2,048
)
 
1.23

Forfeited
(27
)
 
5.51

Outstanding at September 30, 2012
1,165

 
$
8.20


Stock Option Awards. From time to time we grant nonqualified stock options to members of management. The stock options have a contractual term of ten years. These awards are eligible to participate in dividend payments, if any, which we accrue to be paid upon the vesting of those awards.
A summary of our stock option activity is presented in the following table (number of options in thousands):
 
Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Life (in years)
 
Aggregate Intrinsic Value (millions)
Outstanding at December 31, 2011
333

 
$
8.53

 
 
 
 
Granted
508

 
8.22

 
 
 
 
Forfeited
—

 
—