Boise Inc. Reports Financial Results for Fourth Quarter and Year End 2010

Boise Inc. today reported net income of $26.2 million or $0.31 per diluted share for fourth quarter 2010 compared with net income of $55.7 million or $0.66 per diluted share for fourth quarter 2009. Net income for 2010 was $62.7 million or $0.75 per diluted share, compared with net income of $153.8 million or $1.85 per diluted share for 2009. Fourth quarter 2009 and full year 2009 results included benefits from alternative fuel mixture credits.

 

Net income excluding special items was $25.8 million or $0.31 per diluted share for fourth quarter 2010 and $76.8 million or $0.91 per diluted share for 2010. EBITDA excluding special items was $92.8 million for fourth quarter 2010 and $325.6 million for 2010.

 

“I am pleased with our accomplishments in 2010” said Alexander Toeldte, president and chief executive officer of Boise Inc. “Our 2010 EBITDA excluding special items was the highest since our inception as a public company three years ago. During 2010, we improved our margins, generated $178 million in free cash flow[1], and grew sales volumes of both our corrugated packaging products and packaging demand-driven and premium office papers 13% over 2009. This strong performance allowed us to reduce our net total debt by $132 million dollars and reward our shareholders by paying a $0.40 per share special dividend in December.

 

“Our success was driven by several factors, including solid operational performance, strong pricing in our core uncoated freesheet and corrugated packaging markets, and continuing variable and fixed cost reductions. Importantly, we also worked more safely, achieving record low incident rates across the company.

 

“On February 22, 2011, we announced the acquisition of Tharco Packaging, an important step in our strategy to profitably grow our packaging business and create value for our shareholders and customers. In the year ahead, we will continue our focus on creating shareholder value through well-performing operations, disciplined capital allocation, and targeted growth.”

 

Sales
Total sales for fourth quarter 2010 were $524.1 million, up $33.8 million, or 7%, from $490.3 million for fourth quarter 2009 and down $30.0 million from third quarter 2010 sales of $554.1 million.

 

Paper segment sales increased $6.8 million during fourth quarter 2010 compared with fourth quarter 2009 due primarily to increased sales prices. Packaging segment sales increased $29.9 million during fourth quarter 2010 compared with fourth quarter 2009 driven by higher sales prices for linerboard, newsprint, and corrugated products and increased sales volumes for corrugated products.

 

Full year 2010 sales were $2.1 billion, a 6% increase over 2009 sales of $2.0 billion. The increase was driven primarily by increased sales prices in both the Paper and Packaging segments and, to a lesser extent, by increased sales volumes in the Packaging segment.

 

Prices and Volumes
Uncoated freesheet net selling prices increased 7% in fourth quarter 2010 compared with fourth quarter 2009 and were flat compared with third quarter 2010. Full year net selling prices for uncoated freesheet improved 2% in 2010 compared with 2009. Total uncoated freesheet sales volumes were 291,000 tons during fourth quarter 2010, a decrease of 6% versus the prior year period and a decrease of 9% from third quarter 2010. Full year sales volumes of uncoated freesheet papers were 1.2 million tons in 2010, down 1% compared with 2009. Combined sales volumes of premium office, label and release, and flexible packaging papers represented 31% of our total 2010 uncoated freesheet sales volumes compared with 27% during 2009. This growth primarily displaced commodity paper products.

 

Corrugated container and sheet sales volumes improved 9% during fourth quarter 2010 compared with fourth quarter 2009, and full year 2010 sales volumes increased 13%, to 6.7 billion square feet, compared with 2009. These improved sales volumes were due primarily to increased sales of sheets from our sheet feeder plant in Texas as industrial markets in the area continued to improve. Corrugated container and sheet sales volumes decreased 3% from third quarter 2010 as a result of seasonal demand decline. Corrugated container and sheet prices increased 9% during fourth quarter 2010 compared with fourth quarter 2009 due to improved market conditions and pass-through of increased prices for linerboard and medium. Corrugated container and sheet prices were flat sequentially from third quarter 2010. Full year corrugated container and sheet prices decreased 2% in 2010 compared with 2009 driven primarily by an increased sales mix of corrugated sheets relative to corrugated containers.

 

Linerboard net selling prices to third parties increased 47% in fourth quarter 2010 compared with fourth quarter 2009 and improved 8% sequentially from third quarter 2010. Full year 2010 net selling prices to third parties increased 21% in 2010 compared with 2009. Linerboard sales volumes to third parties decreased 27% in fourth quarter 2010 from fourth quarter 2009 and decreased 11%, to 225,000 tons, in 2010 compared with 2009. The decreased sales volumes were due primarily to improved sales volumes in our corrugated container and sheet operations during those periods, which resulted in less linerboard available for sales to third parties. Linerboard sales volumes to third parties increased 27% sequentially from third quarter 2010. Total linerboard sales volumes in 2010, including linerboard utilized internally in our corrugated container and sheet operations, were 602,000 tons, an increase of 11% compared with 2009.

 

Input Costs
Total fiber, energy, and chemical costs for fourth quarter 2010 were $209.2 million, an increase of $4.2 million, or 2%, compared with costs of $205.0 million for fourth quarter 2009. The increase was driven primarily by increased purchased pulp prices in our Paper segment. Full year 2010 fiber, energy, and chemical costs totaled $878.4 million, an increase of $78.1 million, or 10%, from costs of $800.3 million for 2009.

 

Total fiber costs during fourth quarter 2010 were $110.0 million, an increase of $3.5 million, or 3%, from $106.5 million incurred in fourth quarter 2009. Full year 2010 fiber costs were $461.8 million, an increase of $60.7 million, or 15%, from costs of $401.1 million for 2009. Increases in both periods were due to higher purchased pulp and recycled fiber prices in our Paper segment and increased consumption of fiber as a result of increased overall production. Fiber costs in fourth quarter 2010 decreased $9.1 million, or 8%, compared with $119.1 million in third quarter 2010.

 

Energy costs in fourth quarter 2010 were $47.8 million, an increase of $2.1 million, or 5%, compared with $45.7 million in fourth quarter 2009. This was driven primarily by higher electrical rates in our Packaging segment compared with fourth quarter 2009. These rates declined sequentially from third quarter 2010; accordingly, energy costs in fourth quarter 2010 decreased $4.6 million, or 9%, from $52.4 million in third quarter 2010. Full year 2010 energy costs were $211.7 million, an increase of $22.8 million, or 12%, from costs of $188.9 million in 2009. This was driven primarily by higher electrical rates in our Packaging segment and increased consumption as a result of increased production.

 

Chemical costs in fourth quarter 2010 were $51.4 million, a decrease of $1.4 million, or 3%, compared with $52.8 million in fourth quarter 2009, and down $3.2 million, or 6%, from third quarter 2010 due primarily to reduced consumption of higher cost commodity chemicals. Full year 2010 chemical costs were $204.9 million, a decrease of $5.4 million, or 3%, from costs of $210.3 million in 2009 as a result of a more favorable chemical mix, which reduced consumption of some higher cost commodity chemicals.

 

Acquisition
On February 21, 2011, our wholly owned subsidiary, Boise Paper Holdings, L.L.C., entered into a Stock Purchase Agreement (Agreement) to purchase all of the outstanding stock of Tharco Packaging, Inc., for $200 million of cash consideration, subject to adjustments set forth in the Agreement. This acquisition, which closed on March 1, 2011, expands our presence in packaging markets; is a good geographical fit, as it extends our reach from the Pacific Northwest to California, Colorado, Arizona, and Georgia; and increases our containerboard integration to over 85% from approximately 70%. We obtained appropriate consents from our lenders to enable the acquisition under our Credit Facilities.

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