As filed with the Securities and Exchange Commission on June 13, 2005.May 18, 2010
Registration Statement No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-4
REGISTRATION STATEMENT
FORM S-4REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
BOISE CASCADE COMPANY*
Boise Paper Holdings, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware | 2600 | 26-1279115 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Boise Co-Issuer Company
(Exact name of registrant as specified in its charter)
Delaware | ||||
incorporation or organization) | (Primary Standard Industrial Classification Code Number) *See Table of Additional Registrants below | (I.R.S. Employer Identification No.) |
1111 West Jefferson Street,
Suite 200
Boise, Idaho 83702Telephone: ID 83702-5388
(208) 384-6161
384-7000
(Address, including zip code, and telephone number, including area code, of registrants'registrant’s principal executive offices)
John W. HolleranKaren E. GowlandBoise Cascade Company
Alexander Toeldte, Chief Executive Officer
1111 West Jefferson Street,
Suite 200
Boise, Idaho 83702Telephone: ID 83702-5388
(208) 384-6161
384-7000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Margaret A. Brown, Esq. |
* The Co-Registrants listed on the next page are also included in this Form S-4 Registration Statement as additional Registrants.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
(617) 573-4800
(617) 573-4822 (facsimile)
Approximate date of commencement of proposed sale of the securities to the public:The exchange will occur as As soon as practicable after the effective date of this Registration Statement.registration statement becomes effective.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o¨
If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o¨
If this formForm is a post-effective amendment filed pursuant to Rule 462(d) under the Securities act,Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o¨
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Unit(1) | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee | ||||||
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Senior Floating Rate Notes due 2012 | $250,000,000 | 100% | $250,000,000 | $ | 29,425 | (1) | ||||
71/8 Senior Subordinated Notes due 2014 | $400,000,000 | 100% | $400,000,000 | $ | 47,080 | (1) | ||||
Guarantees of Notes(2) | $650,000,000 | — | — | — | (3) | |||||
Total | $650,000,000 | $ | 76,505 | |||||||
Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Share (1) | Proposed Maximum Aggregate Offering Price (1) | Amount of Registration Fee | ||||
8% Senior Notes due 2020 | $300,000,000 | 100% | $300,000,000 | $21,390 | ||||
Guarantees of 8% Senior Notes due 2020 | N/A | N/A | N/A | None (2) | ||||
(1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f) under the Securities Act of 1933, as amended |
(2) | Pursuant to Rule 457(n) under the Securities Act, no separate fee is being paid with respect to the Guarantee. |
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 as amended.
The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said SectionOR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(a), may determine.MAY DETERMINE.
| State or Other Jurisdiction of Incorporation or Formation | Primary Standard Industrial Code Number | I.R.S. Employer Identification No. | |||||||||
BZ Intermediate Holdings LLC* | Delaware | 27-1197223 | ||||||||||
Boise Packaging & Newsprint, L.L.C.* | Delaware | 2600 | 20-1529063 | |||||||||
Boise | Delaware | 20-1529327 | ||||||||||
Boise | Delaware | 20-1594229 | ||||||||||
Boise | Delaware | 20-3367969 | ||||||||||
Boise White Paper Holdings Corp.* | Delaware | 2600 | 20-1529451 | |||||||||
Bemis Corporation* | Delaware | 2600 | 20-5314183 | |||||||||
B C T, Inc.* | Delaware | 2600 | 82-0264641 | |||||||||
International Falls Power Company* | Delaware | 2600 | 82-0355630 | |||||||||
Minnesota, Dakota & Western Railway | Minnesota | 2600 | 41-6007144W |
Address and telephone number of principal executive offices are the same as Boise | ||||||
L.L.C.. The 8% Senior Notes due 2020 were issued by Boise |
The name, address, including zip code of the agent for service for each of the Additional Registrants is 1111 West Jefferson Street, Boise, Idaho 83702, telephone: (208) 384-6161.
The information in this prospectus is not complete and may be changed. These securitiesWe may not be soldsell these securities until the registration statement filed with the SECSecurities and Exchange Commission is effective. This prospectus is not an offer to sell northese securities, and it is itnot soliciting an offer to buy these securities in any jurisdictionstate where the offer or sale is not permitted.
Subject to Completion, dated May 18. 2010
SUBJECT TO COMPLETION, DATED JUNE , 2005PROSPECTUS
BOISE CASCADE,Boise Paper Holdings, L.L.C.BOISE CASCADE FINANCE CORPORATION
Exchange Offers for
Boise Co-Issuer Company
$250,000,000300,000,000
8% Senior Floating RateNotes Due 2020
Offer to exchange $300,000,000 aggregate principal amount of 8% Senior Notes due 20122020 (CUSIPs 09747G AA1 and$400,000,000 71/8% U7743P AA6) for 8% Senior Subordinated Notes due 2014
We are offering to exchange:2020 (CUSIP 09747G AB9) that have been registered under the Securities Act of 1933, as amended.
up to $250,000,000 ofThe exchange offer will expire at 5:00 p.m., New York City time, on , 2010, unless we extend the exchange offer in our Senior Floating Rate Notes due 2012, series B, for a like amount of our outstanding Senior Floating Rate Notes due 2012,sole and absolute discretion.
and
up to $400,000,000 of our 71/8% Senior Subordinated Notes due 2014, series B, for a like amount of our outstanding 71/8% Senior Subordinated Notes due 2014.
Material Terms of the Exchange OffersOffer:
We refer to the registered notes offered in this exchange offer as the “new notes” and to all $300,000,000 outstanding principal amount 8% Senior Notes due 2020 issued on March 19, 2010 as the “old notes.” We will exchange the new notes to be issued for all outstanding old notes that are validly tendered and not withdrawn prior to the expiration or termination of the exchange offer. The new notes are being registered with the Securities and Exchange Commission and are being offered in exchange for the old notes that were previously issued in an offering exempt from the Securities and Exchange Commission registration requirements. The terms of the exchange offer are summarized below and more fully described in this prospectus. You may withdraw tenders of old notes at any time prior to the expiration of the exchange offer. The terms of the new notes are substantially identical to those of the outstanding old notes, except that the transfer restrictions, registration rights and additional interest provisions relating to the old notes do not apply to the new notes. An exchange of old notes for new notes pursuant to the exchange offer will be ignored for United States federal income tax purposes. Consequently, a holder of old notes will not recognize gain or loss for United States federal income tax purposes as a result of exchanging old notes for new notes pursuant to the exchange offer. See “Material United States Federal Income Tax Consequences” for more information. We will not receive any proceeds from the exchange offer. There is no established trading market for the new notes. See “Risk Factors” section beginning on page 15 of this prospectus for | ||||||
For a discussion of certain factors thatrisks you should consider before participating in these exchange offers, see "Risk Factors" beginning on page 20 of this prospectus.prior to tendering your old notes for exchange.
Neither the SECSecurities and Exchange Commission nor any state securities commission has approved the notes to be distributed in the exchange offers, nor have anyor disapproved of these organizations determined thatsecurities or passed upon the adequacy or accuracy of this prospectus is truthful or complete.prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is May , 2010
June , 2005
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 130 | |
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We have not authorized anyone to give any information or represent anything to you other thanYou should rely only on the information contained in this prospectus. You mustWe have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on any unauthorizedit. This prospectus is an offer to exchange only the notes offered by this prospectus and only under circumstances and in jurisdictions where it is lawful to do so. You should assume that the information appearing in this prospectus is accurate only as of the date on the front of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
This prospectus contains summaries of the material terms of certain documents. Copies of these documents, except for certain exhibits and schedules, will be made available to you without charge upon written or representations.oral request to us. Requests for documents or other additional information should be directed to Boise Inc., 1111 West Jefferson Street, Suite 200, Boise, Idaho 83702-5388, Attention: Investor Relations, telephone (208) 384-7456. To obtain timely delivery of documents or information, we must receive your request no later than five (5) business days before the expiration of the exchange offer.
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Until , 2005, all dealers that, buy, sellFORWARD-LOOKING STATEMENTS
Certain of the information included in this prospectus constitutes forward-looking statements. You can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends” and “continue” or trade the exchange notes, whether or not participatingsimilar words.
There may be events in the exchange offers,future that we are not able to accurately predict or over which we have little or no control. The following factors, among others, may be requiredcause actual results to deliver adiffer materially from the expectations described by us in our forward-looking statements:
paper and packaging industry trends, including factors affecting supply and demand;
our continued ability to meet the requirements of our credit facilities and other indebtedness;
cost of raw materials and energy;
legislation or regulatory environments, requirements or changes affecting the businesses in which we are engaged;
our customer concentration;
labor and personnel relations;
successfully realizing the benefits of operational restructurings and capital investments;
changing interpretations of generally accepted accounting principles;
credit or currency risks affecting our revenue and profitability;
continued compliance with government regulations;
general economic conditions; and
those factors listed under “Risk Factors” in this prospectus. This requirement is
You should not place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus.
All forward-looking statements included herein attributable to us or any person acting on our behalf are expressly qualified in additiontheir entirety by the cautionary statements contained or referred to in this section. Except to the dealers'extent required by applicable laws and regulations, we undertake no obligation to deliver aupdate these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.
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This prospectus when acting as underwriters andincludes information with respect to their unsold allotmentsmarket share and subscriptions.
Tableindustry conditions, including the size of contents
Boise Cascade, L.L.C.certain markets and our position and the position of our competitors within these markets, which are based upon internal estimates and various third-party sources, including Resource Information Systems Inc. (“RISI”) and the American Forest & Paper Association (“AF&PA”). While we believe that such data is a Delaware limited liability company, a wholly owned subsidiary of Boise Cascade Company and a co-issuerreliable, we have not independently verified any of the notes. Boise Cascade Finance Corporationdata from third-party sources, nor have we ascertained the underlying assumptions relied upon therein. Similarly, our internal research is a Delaware corporationbased upon management’s understanding of industry conditions, and a wholly owned subsidiary of Boise Cascade, L.L.C.,such information has not been verified by any independent sources. Accordingly, such data involve risks and was incorporateduncertainties and are subject to serve as a co-issuer ofchange based on various factors, including those discussed under the notes to facilitate the initial offering of the notes. The senior exchange notes will be guaranteed on a senior unsecured basis and the senior, subordinated exchange notes will be guaranteed on a senior subordinated unsecured basis by Boise Cascade Company (formerly Boise Cascade Holdings, L.L.C.), the owner of all of the equity interests of the co-issuers, by Boise Land & Timber Holdings Corp., a corporation under common ownership with Boise Cascade Company and by each of their existing and future subsidiaries (other than the co-issuers) that is a borrower or a guarantor under our senior credit facilities.heading “Risk Factors” in this prospectus.
In this prospectus, unless the context otherwise requires:
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See "Our Corporate Structure on page 37 of this prospectus for more information regarding our corporate structure.
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This summary mightcontains a general summary of certain information contained in this prospectus. This summary is not complete and does not contain all of the information that is important to you. Before deciding to participateIt is qualified in an exchange offer, youits entirety by the more detailed information included elsewhere in this prospectus. You should readcarefully consider the information contained in this entire prospectus, carefully, including the "Risk Factors"information set forth in the section and the consolidated financial statements and the accompanying notes included inentitled “Risk Factors” beginning on page 15 of this prospectus. Except where otherwise indicated or the context otherwise requires, the words “we,” “us,” “our” and similar terms, as well as references to the “Company,” “Boise” or “Boise Inc.,” refer to Boise Inc. and all of its consolidated subsidiaries, including the co-issuers, Boise Paper Holdings, L.L.C. (“Boise Paper Holdings”) and Boise Co-Issuer Company (“Boise Co-Issuer,” and together with Boise Paper Holdings, the “Issuers”). References to “Parent” refer to Boise Inc. exclusive of its subsidiaries. Parent is not and will not be following the exchange offer an obligor in respect of the old notes or the new notes.
We are a diversified North Americanlarge, diverse United States-based manufacturer of packaging products and papers, including corrugated containers, containerboard, label and release and flexible packaging papers, imaging papers for the office and home, printing and converting papers, newsprint and market pulp. We own pulp and paper mill operations in the following locations: Jackson, Alabama; International Falls, Minnesota; St. Helens, Oregon; and forest products company.Wallula, Washington, all of which manufacture uncoated freesheet paper. We conductalso own a mill in DeRidder, Louisiana, which produces containerboard (linerboard) and newsprint. In addition, we have a network of five corrugated container plants located in the Pacific Northwest, a corrugated sheet plant in Nevada and a corrugated sheet feeder plant in Texas. We are headquartered in Boise, Idaho and have approximately 4,100 employees. For the three months ended March 31, 2010 and the year ended December 31, 2009, we had sales of $494 million and $1,978 million, respectively.
We operate our business in the following four operating segments:three reportable segments—Paper, Packaging, and Corporate and Other (support services).
Three months ended March 31, 2010 sales, by reporting segment (1) | Year ended December 31, 2009 sales, by reporting segment (2) | |
(1) | Excludes Corporate and Other sales and intersegment eliminations of $7.6 million. |
(2) | Excludes Corporate and Other sales and intersegment eliminations of $30.2 million. |
Paper.Paper segment
Through our Paper segment, we manufacture and sell a range of papers, including communication-based papers, packaging-demand-driven papers and market pulp. We are a major producer of uncoated free sheet, includingcategorize these papers as:
Communication-based, commodity and value-added papers.
premium papers
Cut-size office papers
Printing and converting papers
Envelope
Forms
Commercial printing
Packaging-demand-driven papers
Label and release
Flexible packaging
Corrugating medium
Other
Market pulp
We classify cut-size office papers, printing and converting papers, label and release, and flexible packaging products as uncoated freesheet. The majority of our communication-based paper sales are cut-size office papers, which accounted for approximately 63% of total Paper segment sales for the year ended December 31, 2009 and 58% for the quarter ended March 31, 2010. Annual capacity for the Paper segment, including corrugating medium and market pulp, was approximately 1.5 million short tons (a short ton is equal to 2,000 pounds) at December 31, 2009 and March 31, 2010.
We focus our product mix on office 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.
Packaging & Newsprint.segment We
Through our Packaging segment, we manufacture containerboard,and sell corrugated containers and sheets as well as linerboard and newsprint.
Historically, our paper and forest products businesses were owned by OfficeMax Incorporated, or OfficeMax, formerly known as Boise Cascade Corporation. On October 29, 2004, we acquired these businesseslinerboard, and our sister company acquired OfficeMax's timberlands operations,Paper segment produced approximately 126,000 short tons of corrugating medium, both of which are used in the production of corrugated containers. For the year ended December 31, 2009, our corrugated container and sheet feeder plants consumed approximately 451,000 short tons of containerboard (including both linerboard and corrugating medium) or the "timberlands operations." On February 4, 2005, the timberlands operations were sold to an unaffiliated third party for cash, and the proceeds were used to repay borrowings incurred in connection with these acquisitions. We refer to the October 2004 acquisition from OfficeMaxequivalent of its paper and forest products businesses (other than the timberlands operations) and related financing transactions as the "Acquisition," and to the February 2005 sale67% of the timberlands operations as the "Timberlands Sale." See "Certain Relationships and Related Transactions—The Acquisition" and "—Timberlands Sale."
We generated sales, pro forma net income from continuing operations before nonrecurring charges directly attributable to the transactions and pro forma EBITDA of $5.7 billion, $146.3 million and $490.1 million, respectively, during 2004, after giving pro forma effect to, among other things, the Acquisition, the Timberlands Sale and our conversion to a corporation.containerboard production. During the three months ended March 31, 2005, we generated sales, pro forma net income from continuing operations before nonrecurring charges directly attributable to the transactions2010, our Packaging segment produced approximately 139,000 short tons of linerboard, and EBITDA of $1.4 billion, $29.5 million and $111.5 million, respectively. For an explanation of our pro forma adjustments, see "Unaudited Pro Forma Financial Data," and for a reconciliation of pro forma EBITDA to pro forma net income (loss), see "—Summary Historical and Unaudited Pro Forma Financial Data."
Paper. According to the2003-2004 Pulp & Paper Global Fact & Price Book, we are the fourth-largest manufacturer of uncoated free sheet in North America, with annual production capacity of approximately 1.6 million tons and market share of approximately 10% in 2003. Our products include cut-size office paper, commercial printing paper, business forms and envelopes, and a wide range of value-added papers. Our value-added grades include bright and colored office papers and specialty papers that are custom-developed for various uses, including label and release, security and food wrap applications. We manufacture our paper products at four integrated pulp and paper mills, which are complemented by sheeting and converting operations and an efficient logistics network. Our Paper segment generated sales, pro forma income before interest and taxes and pro forma EBITDAproduced approximately 32,000 short tons of $1.37 billion, $81.4 million and $131.4 million, respectively,
during 2004. This segment also generated sales, income before interest and taxes and EBITDA of $357.8 million, $29.2 million and $42.2 million, respectively, duringcorrugating medium. During the three months ended March 31, 2005.2010, our
As part
corrugated container and sheet feeder plants consumed approximately 119,000 short tons of containerboard (including both linerboard and corrugating medium) or the equivalent of 70% of our containerboard production.
We operate our Packaging segment to maximize profitability through integration between our containerboard and converting operations and through operational improvements in our facilities to lower costs and improve efficiency. We plan to increase our integration levels and leverage our corrugated box position in the agricultural and food markets. We are a low-volume producer of newsprint, and we believe that our newsprint production has a low delivered cost to the southern U.S. markets.
On February 22, 2008, Parent completed the acquisition (the “Acquisition”) of Boise Paper Holdings and other assets and liabilities from Boise Cascade, L.L.C. (“Boise Cascade”) for $1,252.3 million in cash, $58.3 million in a subordinated promissory note and 37.9 million shares of Parent common stock. The business we acquired is referred to in this prospectus as the “Predecessor.”
Competitive Strengths
Well positioned in a consolidating industry—We believe that we are well positioned in an industry that is consolidating. According to RISI, the North American market share of the Acquisition,top three producers by capacity in the uncoated freesheet and linerboard industries has risen from 36% and 31%, respectively, in 1994, to 67% and 59%, respectively, in 2009. In uncoated freesheet, we believe that we are the third largest competitor. We operate to maximize our profitability by focusing our two largest uncoated freesheet paper manufacturing machines on cut-size commodity office paper while dedicating as much production as possible on our smaller machines to premium office papers and specialty packaging papers for a variety of markets and end-uses. We believe that our uncoated freesheet market positions are aligned with end-markets and niches that offer more favorable trends than the industry overall. We also believe that our lower cost virgin linerboard mill, complemented by a strong regional corrugated box position, provides us competitive strength in the containerboard market.
Industry leading value proposition in office paper channel—We have a long-term supply agreement with OfficeMax agreedIncorporated (“OfficeMax”) to purchase from us all ofsupply its North American requirements for cut-size office paper. This agreement allows us to utilize our largest uncoated freesheet paper through December 2012. We also have an agreement with OfficeMax that reduces our exposuremachines to produce cut-size office paper price volatility through October 2010. See "Certain Relationships and Related Transactions—The Acquisition—Paper Supply Agreement" and "—Additional Consideration Agreement" for additional information on these agreements.
Packaging & Newsprint. We manufacture containerboard and newsprint at our DeRidder, Louisiana mill, which had an annual production capacity of 555,000 tons of linerboard and 448,000 tons of newsprint as of December 31, 2004. We also operate five corrugated container plants in the Pacific Northwest that collectively consumed, either directly or through trades with other producers, approximately 54% of our linerboard and corrugating medium production in 2004. Our Packaging & Newsprint segment generated sales, pro forma income before interest and taxes and pro forma EBITDA of $694.5 million, $15.3 million and $51.4 million, respectively, during 2004. This segment also generated sales, income before interest and taxes and EBITDA of $193.8 million, $4.5 million and $13.7 million, respectively, during the three months ended March 31, 2005.
Wood Products. According toResource Information Systems, Inc., or RISI, we are a leading producer of engineered wood products, or EWP, comprised of laminated veneer lumber, or LVL, a high-strength engineered lumber often used in beams; I-joists, a structural support typically used in floors and roofs; and laminated beams. We also produce plywood, dimension lumber and high-quality ponderosa pine lumber. Our 20 manufacturing facilities are located primarily in integrated clusters in areas with ample timber resources, increasing our access to fiber and limiting inbound freight costs. Approximately 37% of the wood products we manufactured in 2004, including more than half of our EWP, were sold at market prices to our Building Materials Distribution segment. Our Wood Products segment generated sales, pro forma income before interest and taxes and pro forma EBITDA of $1.36 billion, $178.4 million and $251.2 million, respectively, during 2004. This segment also generated sales, income before interest and taxes and EBITDA of $322.4 million, $33.1 million and $38.4 million, respectively, during the three months ended March 31, 2005.
Building Materials Distribution. According toHome Channel News, we are a leading national inventory-carrying wholesale distributor of building materials. Our nationwide network of 28 strategically located distribution facilities markets a broad line of building materials, most of which we purchase from third parties, including EWP, oriented strand board, plywood, lumber, siding and general line items such as framing accessories, composite decking, roofing and insulation. Approximately 18% of the products purchased by this segment during 2004 were purchased from our Wood Products segment. Our Building Materials Distribution segment generated sales, pro forma income before interest and taxes and pro forma EBITDA of $2.84 billion, $93.5 million and $102.3 million, respectively, during 2004. This segment also generated sales, income before interest and taxes and EBITDA of $696.2 million, $24.4 million and $26.4 million, respectively, during the three months ended March 31, 2005.
For a discussion of our income (loss) before interest and taxes and our EBITDA by segment, see Note 16 to our audited consolidated financial statements and Note 12 to our unaudited consolidated financial statements, in each case included in this prospectus. For a reconciliation of our 2004 pro forma EBITDA and pro forma income (loss) before interest and taxes for each segment, see Note (9) to "Unaudited Pro Forma Financial Data."
Leadership in Key Markets
According to the2003-2004 Pulp & Paper Global Fact & Price Book, we are the fourth- largest manufacturer of uncoated free sheet in North America. We are also the second-largest manufacturer of EWP in North America, according to RISI, and a leading national inventory-carrying wholesale distributor of building materials, according toHome Channel News.
Strong Paper Business Supported by Long-Term Customer Contract
The most significant portion of our paper business is the manufacturing of cut-size office paper. We have a long-term paper supply agreement with OfficeMax, our largest customer. Our relationship with OfficeMax allows us to maximize utilization of our largest machines, optimize production runs and achieve supply chain efficiencies throughout our system.
Efficient Manufacturer of Higher-Margin Products in Attractive Markets
Our assets are well-suited to the efficient production of value-added papers and EWP. We produce higher-margin value-added papers on our smaller machines within integrated mills, which we believe provides us with a cost advantage over many of our competitors. Our large-scale EWP production facilities are integrated with our plywood operations to optimize our veneer utilization, which we believe positions us as a cost-effective producer in the growing higher-margin EWP business.
Rapidly Growing Nationwide Distribution Business
Our Building Materials Distribution segment has achieved double-digit growth rates over the past decade and generated returns significantly in excess of our cost of invested capital. This growth has provided our Wood Products segment with access to one of the industry's broadest and fastest-growing distribution channels.
Favorable Acquisition Structure
We expect the terms and structure of the Acquisition to improve our cash flows compared to historical periods. Key benefits include a stepped-up asset tax basis, pension plans with improved funding transferred by OfficeMax and OfficeMax's agreement to limit our exposure to pre-Acquisition liabilities.
Experienced Management Team with Substantial Equity Incentives
Our senior management team has a track record of financial and operational excellence in the paper and forest products industry. Tom Stephens, our chief executive officer, previously served as chief executive officer of MacMillan Bloedel Inc., Manville Corporation and Riverwood Corp. Approximately 170 of our key managers invested a total of $18.6 million in our company and received additional equity incentives in connection with the Acquisition. Management owns equity in FPH representing approximately 3.4% of our outstanding voting common stock.
Principal Stockholder with Proven Paper, Packaging and Forest Products Expertise
Since 1993, Madison Dearborn, our principal stockholder, has consummated approximately $15.5 billion of management buyout transactions in the paper, packaging and forest products industries, several of which are now public companies, including Packaging Corporation of America and Buckeye Technologies, Inc.
Our new management team is committed to transforming our company by creating a culture of empowerment and accountability in a flat, decentralized organization. We seek to enhance our cash flow by optimizing the use of our assets, improving our operational efficiencies, reducing our costs and taking advantage of selective growth opportunities. Immediately after the Acquisition, our management completed an in-depth business review and developed the strategies outlined below.
Implement Operational Enhancements and Cost Reductions
We have identified significant potential operating cash flow improvements, including energy efficiency projects, operational optimization of our paper and wood products facilities, productivity and technology enhancements and reduction of overhead. Furthermore, our management is focused on managing capital expenditures and working capital and aggressively monetizing non-core and non-operating assets.
Leverage Cut-Size Office Paper Manufacturing and Marketing Expertise
Our long-term supply agreement with OfficeMax allows us to focus our largest paper machines on producing commodity products in long, high-volume production runs. This relationship allows us to continue to improve the capacity utilization of our largest paper machines, leverage supply-chainachieve supply chain efficiencies and develop and test product and packaging innovations. We plan on leveragingleverage the cost efficiencies and expertise derived fromdeveloped in this relationship to better serviceserve our other customers and to develop new customerscustomer relationships and products.
Increase Value-Added Paper Productionproducts while pursuing productivity improvements and Innovation
To grow our sales of higher-margin value-added papers,cost reductions. We operate a distribution network that we seekbelieve to work closely withbe an industry leader in on-time delivery performance, allowing our customers to develop innovative value-addedreduce their inventory and augment their returns on capital. Additionally, we offer a complete suite of premium cut-size office papers and we believe that we are the largest producer of recycled cut-size office papers, which is an important product offering to our customers whose consumers have become increasingly environmentally sensitive. We believe that our value proposition will position us to continue to capture the operational benefits of stable demand and build and improve relationships with our customers.
Cost competitive uncoated freesheet assets with above average margins—The focus of our two largest uncoated freesheet paper machines is on the manufacture of cut-size office papers, where demand has proven more stable than in other uncoated freesheet grades. Given our exposure to more profitable and dependable end markets and the value proposition that we offer to our customers, we believe we are able to achieve above average margins relative to our competitors, whose portfolios tend to be weighted more heavily to printing and converting grades.
Corrugated box position focused on food and agricultural markets—We have a focused position in the agricultural and food markets for corrugated boxes, with over 70% of our corrugated box output used in these markets. We service programsthese less cyclical end markets with our five strategically-located corrugated container
plants, a corrugated sheet feeder plant and a corrugated sheet plant. With our regional focus and footprint, we are better able to service our customer needs from multiple plants, schedule operating runs to maximize productivity and reduce waste and better utilize different paper roll sizes. We believe this position in favorable end-markets creates greater stability than industrial markets generally and has contributed to increases in our profitability.
Expected future benefits from recent investments—We have undertaken several significant capital investment projects, the benefits of which have not been fully realized in our historical financial information. We spent approximately $80 million in the aggregate in 2006 and 2007 to modify our uncoated freesheet paper machine at our Wallula, Washington mill, which historically produced a variety of commodity paper grades, to enable it to produce pressure sensitive (label and release) papers as well as commodity grades. In 2008, we completed an investment of approximately $23 million for a new shoe press for our linerboard machine in DeRidder, Louisiana, increasing our annual capacity by approximately 36,000 short tons to 50,000 short tons, depending on grade mix, extending our product range capabilities and reducing our per ton energy usage rates. Additionally, we restructured our St. Helens, Oregon mill in the fourth quarter of 2008, discontinuing production of the least profitable papers, eliminating a significant number of products and the associated sales and marketing overhead, improving our system-wide product loading and reducing working capital and ongoing capital investment needs. We are also receiving benefits from pulp integration with the Wallula mill.
Strong management team—Our management team benefits from strong global insight and domestic experience. Our management has led our transition from an asset-focused company to a market and customer-focused company. While our management has been able to increase profitability by cutting costs and making investments in projects with high-return potential, management has also increased employee engagement and our commercial excellence, which continues to be an important part of this transformation process, driving productivity, cost savings and safety improvements. On average, our senior management team has over 20 years of experience in the industry.
Strategy
Our business strategy is to continue to align our capital investments and assets with end-markets with favorable trends and to lower our costs to improve our overall financial performance and returns on capital.
Grow premium office papers and packaging-demand-driven papers—We are increasing our presence in the premium office papers and packaging-demand-driven papers markets, while simultaneously reducing our exposure to more mature and lower margin markets. Specialty packaging papers, such as label and release and flexible packaging, have not been as sensitive to electronic substitution, have greater customer focus on specifications and product quality and offer a price premium to other, more commodity-like uncoated freesheet grades. We have improved the Wallula #3 paper machine and structured our sales and marketing teams to profitably and organically grow our market share in these niche, less commodity-like markets. For the year ended December 31, 2009, sales volumes of label and release, flexible packaging and premium office papers grew 4%, compared with the combined year ended December 31, 2008. Sales volumes in our label and release, flexible packaging, and premium office grades grew 17% in first quarter 2010 compared with first quarter 2009.
Increase integration and explore strategic growth in containerboard—We operate our containerboard business to optimize cash flow through direct and indirect integration between our containerboard and converting operations, as we believe that respondour system earns a higher return selling corrugated boxes to their changing needs and technical requirements. On our smaller machines, weend-customers, as opposed to selling containerboard to converters. We will continue to displace the production of commodity grades with higher-margin value-added grades, whichevaluate opportunities for strategic and organic growth. Since 2006, we have purchased Central Texas Corrugated (“CTC”), a sheet feeder plant in Texas, for $43.8 million and a sheet plant in Sparks, Nevada for $0.8 million to further improve integration.
Increase energy self-sufficiency—We believe we can produceimprove our energy self-sufficiency should natural gas and other fossil fuels increase in cost. We have identified a number of potentially high return projects to reduce energy consumption and utilize lower cost competitively.
Grow Our Leadership Position in EWP
We are focused on leveraging our competitive cost structure, comprehensive customer service offering, design support capabilities and efficient distribution network to continue gaining share in the growing, higher-margin EWP market. For example, we are expanding our LVL capacity by 7.5 million cubic feet, or approximately 40%, in 2005. We plan to take advantage of further opportunities to cost-effectively increase our capacity in the future.
Expand Building Materials Distribution Business
We intend to continue expanding our building materials distribution network into new geographic markets and aggressively grow our presence in existing markets. Since 1999, we have expanded our distribution network from 15 to 28 facilities, with much of this expansion occurring in the eastern United States, providing us with a national footprint.renewable sources. We expect to continue to grow salesfurther evaluate and profitability at our existing facilities by expanding our product line, improving marketing, adding value-added services and growing the proportion of higher-margin products in our business mix.
Our Challenges
implement these projects if an appropriate return on capital can be achieved.
In consideration of our competitive strengths and business strategies, you should also consider the following challenges we face. Our industry is highly cyclical, and the prices of and demand for many of our products are subject to wide fluctuations. The fact that we are more highly leveraged than some of our competitors may exacerbate this risk. We also depend to a significant degree on our ability to obtain raw materials, particularly wood fiber, energy and chemicals, at favorable prices. In addition, we face intense competition in many of our businesses, including the distribution of building materials and the manufacturing of our value-added paper and building products, where a shift in market tastes in favor of competing products and/or competing distribution networks would slow our growth. We also depend on OfficeMax, both as a purchaser of uncoated free sheet and insofar as it indemnifies us against losses we may incur related to our business during periods prior to the Acquisition. For additional information on these and other risks relating to our business, see "Risk Factors" beginning on page .
We believe the following industry conditions have benefited our business:
For additional detail on the industriesThe markets in which we operate are large and howhighly competitive. Our products and services compete with similar products manufactured and distributed by others both domestically and globally. Many factors influence our competitive position in each of our operating segments, including price, service, quality, product selection, convenience of location and our manufacturing and overhead costs.
North American uncoated freesheet producers shipped approximately 11 million short tons in 2009 and three major manufacturers accounted for approximately 67% of capacity, according to RISI and our estimates, as of December 31, 2009. We believe that we derivedare the third-largest producer of uncoated freesheet paper in North America. Our largest competitors include Domtar Corporation, International Paper Company and Georgia-Pacific LLC.
According to RISI, demand for uncoated freesheet in North America declined by 1.5 million short tons, or 12%, in 2009 compared to 2008. In 2009, our sales volumes of uncoated freesheet paper declined by 13%, in large part due to the restructuring of our St. Helens, Oregon paper mill, and net sales prices for our uncoated freesheet paper increased by 3%. U.S. industry data set forthdemand for uncoated freesheet improved in this prospectus, see "Industry"first quarter 2010, compared with the same period in 2009. According to AF&PA, year-to-date 2010 U.S. industry shipments through March improved 2.6% compared with the same period in 2009, and "Industry and Market Data."
Madison Dearborn is a leading private equity investment firm, with approximately $8 billion of capital under management. Madison Dearborn has over 100 companiesMarch 2010 industry operating rates in its investment portfolio and is consideredthe U.S. were at 91%, according to be among the most active private equity investorsrecent data available.
North American containerboard (corrugating medium and linerboard) manufacturers produced 33 million short tons in the United States in the paper, packaging2009 and forest products industries. Since 1993, Madison Dearborn has consummatedfive major manufacturers account for approximately $15.5 billion72% of management buyout transactions in these industries, including buyouts of Jefferson Smurfit Group,capacity, according to RISI and our estimates. Our largest competitors include International Paper Company, Smurfit-Stone Container Corporation, Georgia-Pacific LLC, Temple-Inland, Inc. and Packaging Corporation of America. Our corrugated container operations in the Pacific Northwest have a leading regional market position and compete with several national and regional manufacturers. According to RISI, the containerboard industry serves a number of end-markets, some of which have been impacted by negative real GDP growth in North America. Our corrugated product pricing remained steady in 2009, as packaging demand in agriculture, food and beverage markets, which have historically been less correlated to broad economic activity, have remained relatively stable. According to RISI, demand for containerboard in North America Riverwood Holding Corp. (now known as Graphic Packaging Corporation)declined by 2.2 million short tons, or 7%, for 2009 compared to 2008. In 2009, our sales volumes of corrugated boxes and Buckeye Technologies, Inc. Madison Dearborn wassheets declined 5% while sales volumes of linerboard increased by 10%. During the lead sponsor in eachsame time period, net sales prices for corrugated boxes and sheets increased 2% while net sales prices for linerboard declined by 24%. During the three months ended March 31, 2010, our sales volumes of these transactions, other than Graphic Packaging Corporation.corrugated boxes and sheets increased by 14% while sales volumes of linerboard increased by 62% over first quarter 2009. During the same time periods, net sales prices for corrugated boxes and sheets declined by 12% and net sales prices of linerboard declined by 16%.
OurBoise Paper Holdings, L.L.C. is a holding company that conducts substantially all of its operations through its subsidiaries. Boise Co-Issuer was incorporated solely to facilitate the offering of the old notes and will not have any operations or more than de minimis assets and will not have any sales.
The following chart summarizes our operating structure at March 31, 2010:
(1) | Boise Co-Issuer and Boise Finance Company (“Boise Finance”), wholly owned subsidiaries of Boise Paper Holdings, are not shown on this chart. Boise Co-Issuer was incorporated to serve as co-issuer of the old notes in order to facilitate the offering of the old notes. This chart also does not include Boise Paper Holdings’ indirect subsidiaries which, in the case of foreign indirect subsidiaries and indirect subsidiaries that are not majority-owned, will not be guarantors of the new notes. Currently we have no significant non-guarantor subsidiaries. |
(2) | Boise Paper Holdings is the borrower under our credit facilities described in this prospectus. These credit facilities are guaranteed by each of Boise Paper Holdings’ existing and subsequently acquired domestic subsidiaries. |
(3) | Boise Paper Holdings and Boise Finance are the issuers of $300 million aggregate principal amount of 9% Senior Notes due 2017 (the “9% Notes”), issued in October 2009. Boise Finance was incorporated to serve as co-issuer of the 9% Notes in order to facilitate the offering of the 9% Notes. The 9% Notes are guaranteed by BZ Holdings and each existing and future subsidiary of BZ Holdings (other than the Issuers and Boise Finance) that is a borrower or guarantor under our credit facilities. |
Boise Inc. is incorporated in Delaware, and the address of our principal executive offices are located atoffice is 1111 West Jefferson Street, Suite 200, Boise, Idaho 83702. The83702-5388. Our telephone number for our principal executive offices is (208) 384-6161.384-7000. Our internet address iswww.bc.com. This internet address is provided for informational purposes only. The information at this internet address www.boiseinc.com. Information found on our website is not aincorporated into or otherwise part of this prospectus.
Summary of the Exchange Offers
Old Notes | $300.0 million in aggregate principal amount of |
New Notes | ||||
Exchange | We are offering to issue up to $300,000,000 aggregate principal amount of new notes in exchange |
The old notes were issued in a private placement in reliance upon the exemption from registration provided by Rule 144A and Regulation S under the Securities Act.
Expiration Date; Tenders | The exchange offer will expire at 5:00, New York City time, on |
By tendering your old notes, you represent that:
any new notes you receive in the exchange offer are being acquired by you in the ordinary course of your business;
at the time of the commencement of the exchange offer, you have no arrangement or understanding with any person to participate in the distribution, as defined in the Securities Act, of the new notes;
you are not an “affiliate,” as defined in Rule 405 under the Securities Act of us or any of our guarantor subsidiaries;
if you are a broker-dealer, you will receive the new notes for your own account in exchange for old notes that were acquired by you as a result of your market-making or other trading activities and you will deliver a prospectus (or, to the extent permitted by law, make available a prospectus to purchasers) in connection with any resale of the new notes you receive. For further information regarding resales of the new notes by participating broker-dealers, see the discussion under the caption “Plan of Distribution.”
Withdrawal; Non-Acceptance | You may withdraw any old notes tendered | |||
expense promptly after the expiration |
Conditions to the Exchange |
the exchange offer violates any applicable law or applicable interpretation of the staff of the SEC;
an action or proceeding shall have been instituted or threatened in any court or by any governmental agency that might materially impair our or our guarantors’ ability to proceed with the exchange offer;
we do not receive all the governmental approvals that we believe are necessary to consummate the exchange offer; or
there has been proposed, adopted or enacted any law, statute, rule or regulation that, in our reasonable judgment, would materially impair our ability to consummate the exchange offer.
We may waive any of the above conditions in our reasonable discretion. See the discussion below under the caption “The Exchange Offer—Conditions to the Exchange Offer” for more information regarding the conditions to the exchange offer.
Procedures for Tendering | ||||
tender your old notes by sending certificates for your old notes, in proper form for transfer, a properly completed and duly executed letter of transmittal and all other documents required by the letter of transmittal, to Wells Fargo Bank, National Association, as exchange agent, at one of the addresses listed below under the caption “The Exchange Offer—Exchange Agent”; or
tender your old notes by using the book-entry transfer procedures described below and transmitting a properly completed and duly executed letter of transmittal, or an agent’s message instead of the letter of transmittal, to Wells Fargo Bank, National Association, as exchange agent. In order for a book-entry transfer to constitute a valid tender of your old notes in the
exchange | ||||
must receive a |
Guaranteed Delivery Procedures |
the old notes are not immediately available;
time will not permit your old notes or other required documents to reach the exchange agent before the expiration or termination of the exchange offer; or
the procedure for book-entry transfer cannot be completed prior to the expiration or termination of the exchange offer,
then you may tender old notes by following the procedures described below under the caption “The Exchange Offer—Guaranteed Delivery Procedures.”
Special Procedures for Beneficial Owners | If | |||
Material United States Federal Income Tax |
Use of Proceeds | We will not receive any cash proceeds from the |
Exchange Agent |
Resales | Based on interpretations by the staff of the SEC, as set forth in |
Summaryyou are not an affiliate of Terms ofours or a broker-dealer that acquired the Exchange Notes
old notes directly from us;
The form and terms of
you are acquiring the exchangenew notes are the same as the form and terms of the outstanding notes, except that the exchange notes will be registered under the Securities Act. As a result, the exchange notes will not bear legends restricting their transfer and will not contain the registration rights and liquidated damage provisions contained in the outstanding notes. The exchange notes represent the same debt as the outstanding notes. Both the outstanding notesordinary course of your business; and the exchange notes are governed by the same indenture. Unless the context otherwise requires, we use the term notes in this prospectus to collectively refer to the outstanding notes and the exchange notes.
Risk factors
Investment in the exchange notes involves certain risks. You should carefully consider the information under "Risk factors" and all other information included in this prospectus before investing in the exchange notes.
Summary Historical and Unaudited Pro Forma Financial Data
The following table sets forth our historical and pro forma financial data for the periods ended and at the dates indicated below. We have derived the historical financial data set forth below as of December 31, 2002 and 2003, for the years ended December 31, 2002 and 2003, for the three months ended March 31, 2004 and for the period January 1 through October 28, 2004 from the audited and unaudited consolidated financial statements of Boise Forest Products Operations, which we refer to as our "predecessor," included in this prospectus. We have derived the historical financial data as of March 31, 2004 and October 28, 2004 from the unaudited consolidated financial statements of our predecessor thatyou are not included in this prospectus. We have derived the historical financial data as of December 31, 2004 and for the period October 29 through December 31, 2004 from our audited consolidated financial statements included in this prospectus. We have derived the unaudited historical financial data as of March 31, 2005 and for the three months ended March 31, 2005 from our unaudited consolidated financial statements included in this prospectus. In the opinion of management, the unaudited historical financial data presented in this prospectus reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of our results of operations for those periods. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year or any future period.
We have derived the pro forma financial data set forth below from our consolidated financial statements and the consolidated financial statements of our predecessor included in this prospectus.
The unaudited pro forma financial data set forth below give effect to:
in each case, as if these transactions had occurred on January 1, 2004 for statement of income (loss) purposes and March 31, 2005 for balance sheet purposes, other than the Acquisition and the receipt and application of proceeds received in connection with the Timberlands Sale, which are already reflected in the balance sheet as of that date. The pro forma financial data are unaudited, are provided for informational purposes only and are not necessarily indicative of what our financial position or results of operations would have been had these transactions been completed as of the dates indicated. Furthermore, the pro forma financial dataparticipating, do not purport to represent what our financial position or results of operations might be for any future period. For additional information on the pro forma adjustments, see "Unaudited Pro Forma Financial Data."
The following summary financial data should be read in conjunction with "Selected Historical Financial Data," "Unaudited Pro Forma Financial Data," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the accompanying notes included in this prospectus.
| Predecessor | Boise Holdings | Predecessor | Boise Holdings | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, | | October 29 (inception) through December 31, 2004 | | Three months ended March 31, | Pro forma Three months ended March 31, 2005 | |||||||||||||||||||
| January 1 through October 28, 2004 | Pro forma Year ended December 31, 2004 | |||||||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
Statements of income (loss) data: | |||||||||||||||||||||||||
Sales | $ | 4,276.3 | $ | 4,653.7 | $ | 4,862.0 | $ | 872.7 | $ | 5,734.8 | $ | 1,308.0 | $ | 1,432.3 | $ | 1,432.3 | |||||||||
Costs and expenses(1) | 4,287.1 | 4,652.7 | 4,727.3 | 828.7 | 5,427.1 | 1,289.4 | 1,350.6 | 1,350.6 | |||||||||||||||||
Income (loss) from operations | (10.8 | ) | 1.0 | 134.7 | 44.0 | 307.7 | 18.6 | 81.7 | 81.7 | ||||||||||||||||
Equity in net income (loss) of affiliates(2) | (1.5 | ) | 8.7 | 6.3 | — | 6.3 | 5.1 | — | — | ||||||||||||||||
Gain on sale of equity affiliate(3) | — | — | 46.5 | — | 46.5 | — | — | — | |||||||||||||||||
Foreign exchange gain (loss) | (0.1 | ) | 2.7 | 0.9 | 1.2 | 2.1 | 0.1 | (0.8 | ) | (0.8 | ) | ||||||||||||||
Change in fair value of interest rate swaps(4) | — | — | — | — | — | — | 15.2 | — | |||||||||||||||||
Interest expense(5) | (94.8 | ) | (92.9 | ) | (72.1 | ) | (22.2 | ) | (122.8 | ) | (20.6 | ) | (32.1 | ) | (31.3 | ) | |||||||||
Interest income | 1.0 | 0.8 | 0.5 | 2.0 | 2.6 | 0.2 | 1.4 | 0.4 | |||||||||||||||||
Income (loss) before income taxes and cumulative effect of accounting change | (106.2 | ) | (79.7 | ) | 116.8 | 25.0 | 242.4 | 3.4 | 65.4 | 50.0 | |||||||||||||||
Income tax (provision) benefit | 45.3 | 36.5 | (47.3 | ) | (0.3 | ) | (96.1 | ) | (1.3 | ) | (0.7 | ) | (20.5 | ) | |||||||||||
Income (loss) before cumulative effect of accounting change | (60.9 | ) | (43.2 | ) | 69.5 | 24.7 | 146.3 | 2.1 | 64.7 | 29.5 | |||||||||||||||
Cumulative effect of accounting change, net of income tax(6) | — | (4.1 | ) | — | — | — | — | — | — | ||||||||||||||||
Net income (loss) | $ | (60.9 | ) | $ | (47.3 | ) | $ | 69.5 | $ | 24.7 | $ | 2.1 | $ | 64.7 | |||||||||||
Pro forma data: | |||||||||||||||||||||||||
Net income from continuing operations before nonrecurring charges directly attributable to the transactions(7) | $ | 146.3 | $ | 29.5 | |||||||||||||||||||||
Balance sheet data (at end of period): | |||||||||||||||||||||||||
Working capital(8) | $ | 169.8 | $ | 204.6 | $ | 347.8 | $ | 673.4 | $ | (91.7 | ) | $ | 728.1 | $ | 693.2 | ||||||||||
Property and equipment and fiber farms, net | 2,299.0 | 2,251.9 | 2,191.1 | 1,510.5 | 2,231.4 | 1,513.9 | 1,513.9 | ||||||||||||||||||
Total assets | 3,164.8 | 3,123.8 | 3,365.5 | 2,932.1 | 3,196.0 | 2,910.5 | 2,843.0 | ||||||||||||||||||
Total long-term debt, including current portion and short-term borrowings | 1,270.4 | 1,271.3 | 1,289.1 | 1,980.0 | 1,237.2 | 1,824.1 | 1,746.1 | ||||||||||||||||||
Total capital | 803.7 | 728.7 | 864.8 | 369.8 | 778.4 | 417.3 | 379.5 | ||||||||||||||||||
Other financial data: | |||||||||||||||||||||||||
Depreciation, amortization and depletion | $ | 233.8 | $ | 229.8 | $ | 193.8 | $ | 20.0 | $ | 127.5 | $ | 57.7 | $ | 30.6 | $ | 30.6 | |||||||||
Capital expenditures | 152.2 | 175.1 | 140.2 | 2,382.9 | 169.1 | 41.0 | 33.5 | 33.5 | |||||||||||||||||
Ratio of earnings to fixed charges(9) | N/A | N/A | N/A | 2.10 | 2.88 | N/A | 3.00 | 2.57 | |||||||||||||||||
EBITDA(10)(12) | $ | 221.4 | $ | 238.1 | $ | 382.2 | $ | 65.2 | $ | 490.1 | $ | 81.6 | $ | 111.5 | $ | 111.5 | |||||||||
Additional items included in EBITDA(11) | 12.8 | — |
| Predecessor | Boise Holdings | Predecessor | Boise Holdings | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, | | October 29 (inception) through December 31, 2004 | | Three months ended March 31, | Pro forma Three months ended March 31, 2005 | |||||||||||||||||||
| January 1 through October 28, 2004 | Pro forma Year ended December 31, 2004 | |||||||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
Net income (loss)(a) | $ | (60.9 | ) | $ | (47.3 | ) | $ | 69.5 | $ | 24.7 | $ | 146.3 | $ | 2.1 | $ | 64.7 | $ | 29.5 | |||||||
Change in fair value of interest rate swaps | — | — | — | — | — | — | (15.2 | ) | — | ||||||||||||||||
Interest expense | 94.8 | 92.9 | 72.1 | 22.2 | 122.8 | 20.6 | 32.1 | 31.3 | |||||||||||||||||
Interest income | (1.0 | ) | (0.8 | ) | (0.5 | ) | (2.0 | ) | (2.6 | ) | (0.2 | ) | (1.4 | ) | (0.4 | ) | |||||||||
Income tax provision (benefit) | (45.3 | ) | (36.5 | ) | 47.3 | 0.3 | 96.1 | 1.3 | 0.7 | 20.5 | |||||||||||||||
Depreciation, amortization and depletion | 233.8 | 229.8 | 193.8 | 20.0 | 127.5 | 57.7 | 30.6 | 30.6 | |||||||||||||||||
EBITDA | $ | 221.4 | $ | 238.1 | $ | 382.2 | $ | 65.2 | $ | 490.1 | $ | 81.6 | $ | 111.5 | $ | 111.5 | |||||||||
| Year ended December 31, 2004 | Three months ended March 31, 2005 | |||||||
---|---|---|---|---|---|---|---|---|---|
| (dollars in millions) | ||||||||
Items included in EBITDA but excluded from income from operations: | |||||||||
Gain on sale of Voyageur Panel(a) | $ | 46.5 | $ | — | |||||
Equity in net income of affiliates(b) | 6.3 | — | |||||||
Foreign exchange gain (loss)(c) | 2.1 | (0.8 | ) | ||||||
Subtotal | $ | 54.9 | $ | (0.8 | ) | ||||
Other items included in EBITDA: | |||||||||
Loss on sale of mill(d) | $ | (7.1 | ) | $ | — | ||||
Inventory purchase price adjustments(e) | (20.2 | ) | — | ||||||
Retention bonus(f) | (12.7 | ) | — | ||||||
Foreign exchange gain (loss)(c) | (2.1 | ) | 0.8 | ||||||
Subtotal | (42.1 | ) | 0.8 | ||||||
Total | $ | 12.8 | $ | — | |||||
| Predecessor | Boise Holdings | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 1 through October 28, 2004 | October 29 (inception) through December 31, 2004 | Adjustments(a) | Pro forma Year ended December 31, 2004 | ||||||||
| (dollars in millions) | |||||||||||
Income from operations | $ | 134.7 | $ | 44.0 | $ | 129.1 | $ | 307.7 | ||||
Depreciation, amortization and depletion | 193.8 | 20.0 | (86.3 | ) | 127.5 | |||||||
Items included in EBITDA but excluded from income from operations(b) | 53.7 | 1.2 | — | 54.9 | ||||||||
EBITDA | $ | 382.2 | (c) | $ | 65.2 | (c) | $ | 42.7 | $ | 490.1 | ||
| Three months ended March 31, 2005 | |||
---|---|---|---|---|
| (dollars in millions) | |||
Income from operations | $ | 81.7 | ||
Depreciation, amortization and depletion | 30.6 | |||
Items included in EBITDA but excluded from income from operations(a) | (0.8 | ) | ||
EBITDA | $ | 111.5 | (b) | |
You should carefully consider the following risks and all of the other information set forth in this prospectus before participating in the exchange offers.
Risks Associated with the Exchange Offers
Because there is no public market for the exchange notes, you may not be able to resell your notes.
The exchange notes will be registered under the Securities Act, but will constitute a new issue of securities with no established trading market, and there can be no assurance as to:
If a trading market were to develop, the exchange notes might trade at higher or lower prices than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar debentures and our financial performance.
We understand that the initial purchasers presently intend to make a market in the exchange notes. However, they are not obligatedparticipate and have no arrangement or understanding with any person to do so, and any market-making activity with respect to the exchange notes may be discontinued at any time without notice. In addition, any market-making activity will be subject to the limits imposed by the Securities Act and the Securities Exchange Act of 1934, and may be limited during the exchange offers or the pendency of an applicable shelf registration statement. There can be no assurance that an active trading market will exist for the exchange notes or that any trading market that does develop will be liquid.
In addition, any outstanding note holder who tenders in the exchange offers for the purpose of participatingparticipate, in a distribution of the old notes or the new notes.
If you are an affiliate of ours or are engaged in or intend to engage in or have any arrangement or understanding with any person to participate in the distribution of the old notes or the new notes: |
you cannot rely on the applicable interpretations of the staff of the SEC; and
you must comply with the registration requirements of the Securities Act in connection with any resale transaction.
Each broker or dealer that receives new notes for its own account in exchange for old notes that were acquired as a result of market-making or other trading activities may be deemed to have received restricted securities,an underwriter and if so,thus must acknowledge that it will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any offer, resale, transaction. For a descriptionor other transfer of these requirements, see "Exchange Offers."
Your outstandingthe new notes will not be accepted for exchange if you fail to followissued in the exchange offer, procedures and, asincluding the delivery of a result, yourprospectus that contains information with respect to any selling holder required by the Securities Act in connection with any resale of the new notes.
Furthermore, any broker-dealer that acquired any of its old notes will continue to be subject to existing transfer restrictions and youdirectly from us may not rely on the applicable interpretation of the SEC staff contained in no-action letters for Exxon Capital Holdings Corp., (available May 13, 1988), Morgan Stanley & Co. Incorporated, (available June 5, 1991) and Shearman & Sterling, (available July 2, 1993).
As a condition to participation in the exchange offer, each holder will be ablerequired to sell your outstanding notes.represent that it is not our affiliate or a broker-dealer that acquired the old notes directly from us.
We will not accept your
Broker-Dealer | Each broker-dealer that receives new notes for its own account in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. See “Plan of Distribution.” |
Registration Rights Agreement | When we issued the old notes on March 19, 2010, we entered into a Registration Rights Agreement with Banc of America Securities LLC, as representative of the initial purchasers of the old notes. Under the terms of the Registration Rights Agreement, we agreed to: |
file with the SEC, and cause to become effective, a registration statement relating to an offer to exchange the old notes for exchange if you do not followthe new notes;
use our reasonable best efforts to complete the exchange offers procedures. We will issue exchange notes as part of these exchange offers onlyoffer not later than 60 days after a timely receipt of your outstanding notes, a properly completed and duly executed letter of transmittal and all other required documents. Therefore, if you want to tender your outstanding notes, please allow sufficient time to ensure timely delivery. If we do not receive your notes, letter of transmittal and other required documents by the expirationeffective date of the exchange offers,offer;
use our reasonable best efforts to have such registration statement remain effective until the earlier of such time as the participating broker-dealers shall have disposed of the old notes and 180 days after the closing of the exchange offer; and
file a shelf registration statement for the resale of the old notes if we cannot effect an exchange offer within the specified time period and in certain other circumstances described in this prospectus.
If we fail to comply with our obligations under the registration agreement, we will be required to pay additional interest to holders of the old notes as described in the Registration Rights Agreement.
Consequences of Not Exchanging Old Notes | If you do not exchange your old notes in the exchange offer, you will continue to be subject to the restrictions on transfer described in the legend on your old notes. In general, you may offer or sell your old notes only: |
if they are registered under the Securities Act and applicable state securities laws;
if they are offered or sold under an exemption from registration under the Securities Act and applicable state securities laws; or
if they are offered or sold in a transaction not accept your notes for exchange. We are under no duty to give notification of defects or irregularities with respectsubject to the tendersSecurities Act and applicable state securities laws.
We do not currently intend to register the old notes under the Securities Act. Under some circumstances, however, holders of outstandingthe old notes, for exchange. If thereincluding holders who are defectsnot permitted to participate in the exchange offer or irregularities with respectwho may not freely sell new notes received in the exchange offer, may require us to your tenderfile, and to cause to become effective, a shelf registration statement covering resales of the old notes we will not accept your notes for exchange.by these holders. For more information regarding the consequences of not tendering your old notes and our obligations to file a shelf registration statement, see "Exchange Offers."“The Exchange Offer—Consequences of Exchanging or Failing to Exchange Old Notes.”
SUMMARY DESCRIPTION OF THE NEW NOTES
Co-issuers | Boise Paper Holdings, L.L.C., a Delaware limited liability company, and Boise Co-Issuer Company, a Delaware corporation. |
Notes Offered | $300.0 million in aggregate principal amount of 8% senior notes due 2020. |
Maturity Date | April 1, 2020. |
Interest Payment Dates | April 1 and October 1 of each year, beginning on October 1, 2010. |
Guarantees | The new notes will be jointly and severally guaranteed on a senior unsecured basis by BZ Holdings and each existing and future subsidiary of BZ Holdings (other than the Issuers and Boise Finance) that is a borrower or guarantor under our credit facilities. See “Description of the New Notes—Guarantees” and “—Certain Covenants—Future Subsidiary Guarantors.” |
Neither Boise Inc. nor any existing or future subsidiary of Boise Inc., other than BZ Holdings or any subsidiary of BZ Holdings (except for the Issuers and Boise Finance), will guarantee the new notes.
Ranking | The new notes will be senior unsecured obligations of the Issuers and will rank equally with all of the Issuers’ present and future senior indebtedness, including the old notes and the 9% Notes, senior to all of the Issuers’ future subordinated indebtedness and effectively subordinated to all present and future senior secured indebtedness of the Issuers (including all borrowings under our Credit Facilities) to the extent of the value of the assets securing such indebtedness. Each guarantee of the new notes will be a senior unsecured obligation of the applicable guarantor and will rank equally with all of the applicable guarantor’s present and future senior indebtedness, including the old notes and the 9% Notes, senior to all of the applicable guarantor’s future subordinated indebtedness and effectively subordinated to all present and future senior secured indebtedness of the applicable guarantor (including all borrowings under our Credit Facilities) to the extent of the value of the assets securing such indebtedness. The new notes will be effectively subordinated to all of the liabilities and obligations in respect of preferred stock of those subsidiaries of the Issuers that do not guarantee the new notes. |
As of March 31, 2010 (i) the Issuers’ outstanding senior indebtedness was $792.2 million, of which $192.2 million was secured indebtedness, (ii) the guarantors’ outstanding senior indebtedness was $792.2 million, of which $192.2 million was secured indebtedness and (iii) the non-guarantor subsidiaries other than Boise Finance had $5.5 million of outstanding liabilities.
Optional Redemption | On or after April 1, 2015, the Issuers may redeem some or all of the new notes at the redemption prices listed under “Description of the New Notes—Optional Redemption.” In addition, prior to April 1, 2015, the Issuers may redeem some or all of the new notes pursuant to a make-whole provision. See “Description of the New Notes—Make-Whole Redemption.” |
At any time prior to April 1, 2013, the Issuers may, on one or more occasions, redeem up to 35% of the outstanding new notes at a redemption price of 108% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of one or more qualified equity offerings.
Our other existing and future indebtedness may contain provisions that limit the Issuers’ ability to make any optional redemption.
See “Description of the New Notes—Optional Redemption.”
Mandatory Repurchase Offer | If a change of control occurs, the Issuers must offer to repurchase the new notes at 101% of their principal amount, plus accrued and unpaid interest. If BZ Holdings or any of its restricted subsidiaries (including the Issuers) sell certain assets, the Issuers must, subject to certain exceptions, either reinvest the proceeds of such sale or use the proceeds to repay certain indebtedness or offer to repurchase new notes at 100% of their principal amount, plus accrued and unpaid interest. See “Description of the New Notes—Change of Control” and “—Certain Covenants—Limitation on Sales of Assets and Subsidiary Stock.” |
Certain Covenants | The old notes are and the new notes will be governed by an indenture with Wells Fargo Bank, National Association, which acts as trustee. The indenture, among other things, restricts BZ Holdings’ ability and the ability of the restricted subsidiaries (including the Issuers) to: |
incur additional debt and issue preferred stock;
If you do not exchange your outstanding notes, your outstanding notes will continue to be
make certain investments and other restricted payments;
create liens;
create restrictions on distributions from restricted subsidiaries;
engage in specified sales of assets and subsidiary stock;
enter into transactions with affiliates;
enter new lines of business; and
engage in consolidations, mergers and acquisitions.
These covenants are subject to a number of important exceptions and qualifications as described under “Description of the existing transfer restrictions and you may not be able to sell your outstandingNew Notes—Certain Covenants.”
Absence of Public Market for the Notes | The new notes will be a new class of security and there is currently no established trading market for the new notes. As a result, a liquid market for the new notes may not be available if you wish to sell your new notes. We do not intend to apply for a listing of the new notes on any securities exchange or any automated dealer quotation system. |
Risk Factors | You should consider carefully all of the information set forth in this prospectus and, in particular, you should evaluate the specific factors under “Risk Factors.” |
We did not registerYou should carefully consider the outstandingfollowing information together with the other information contained in this prospectus before deciding to tender your old notes nor do we intend to do so followingin the exchange offers. Outstanding notesoffer. The risk factors set forth below, other than those that are not tendered will therefore continue to be subjectdiscuss the risks relating to the existing transfer restrictionsexchange offer, are generally applicable to both the old notes and the new notes. Additional risks or uncertainties not presently known to us, or that we currently deem immaterial, may be transferred onlyalso impair our business operations. We cannot assure you that any of the events discussed in limited circumstances under the securities laws. If you dorisk factors below will not exchange your outstanding notes, you will lose your right to have your outstanding notes registered under the federal securities laws. As a result, if you hold outstanding notes after the exchange offers, you may not be able to sell your outstanding notes.occur.
Adverse business and economic conditions may have a material adverse effect on our business, results of operations and financial position.
Adverse general 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, cash flows and financial position.
Risks Related to Industry Conditions
The paper and forest products industry is highly cyclical. Fluctuationsexperiences cyclicality; changes in the prices of and the demand for our products could result in smaller profit marginsmaterially affect our financial condition, results of operations and lower sales volumes.cash flows.
The paperHistorically, macroeconomic conditions and forest products industry is highly cyclical. Historically, economic and market shifts, fluctuations in industry capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volumevolumes and margins for our products. The length and magnitude of industry cycles have varied over time and by product, but generally reflect changes in macroeconomic conditions and levels of industry capacity. Most of our paper products, including our cut-sizecut size office paper, containerboard and newsprint, and many of our wood products, including our plywood, lumber and particleboard, are commodities that are widely available from other domestic and international producers. Even our non-commoditynoncommodity products, such as value-addedpremium papers, and EWP, are susceptibleaffected by commodity prices since the prices of these grades are often tied to commodity dynamics. Because commodityprices. Commodity products have few distinguishing qualities from producer to producer, and as a result, competition for these products is based primarily on price, which is determined by supply relative to demand.
The overall levels of demand for the commodity products we make and distribute, and consequentlyconsequentially our sales and profitability, reflect fluctuations in levels of end-userend user demand, which depend in large part on general macroeconomic conditions in North America and regional economic conditions in our markets, as well as foreign currency exchange rates. For example,In recent years, particularly since 2000, demand for cut-size officesome grades of paper fluctuates with levels of white-collar employment,has decreased as electronic transmission and document storage alternatives have become more prevalent. Newsprint demand in North America has been in decline for containerboard depends on the state of the durablealmost a decade as electronic media have increasingly displaced paper as a medium for information and non-durable goods industries. Demand for newsprint depends upon prevailing levels of newspaper advertising and circulation. Demand for wood products depends on new residential and light commercial construction and residential repair and remodeling activity, which are impacted by demographic trends, interest rate levels, weather and general economic conditions. Demand for many of our products was materially and negatively impacted by the global economic downturn in the early part of this decade, and we expect to be sensitive to such downturns in the future.communication.
Industry supply of commodity paper and wood products is also subject to fluctuation, as changingChanging 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 of commodity papers and wood products is also influenced by overseas production capacity, which has grown in recent years and is expected to continue to grow. While the weakness of theA weak U.S. dollar has mitigatedtends to mitigate the levels of imports, in recent years,while a strengthening of thestrong U.S. dollar is likelytends to increase imports of commodity papers and woodpaper products from overseas, putting downward pressure on prices.
As a result, prices
Prices for all of our products are driven by many factors outside of our control and we have little influence over the timing and extent of price changes, which are often volatile. Because marketMarket 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 profitability with respectability to these products dependsachieve acceptable operating performance and margins is principally dependent on managing our cost structure, particularlymanaging changes in raw materials and energy prices which(which represent the largest componentsa large component of our operating costs and can fluctuate based upon factors beyond our control, as described below.control) and general conditions in the paper market. If the prices of our products decline or if our raw materials or energymaterial costs increase, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Some of our paper products are vulnerable to long-term declines in demand due to competing technologies or both,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 for paper products may shift from one grade of paper to another or be eliminated altogether. Demand for our containerboard may also decline as corrugated paper packaging may be replaced with other packaging materials, such as plastic.
We face strong competition in our markets.
The paper and packaging 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.
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, such as 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 decline,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 sales and profitability could be materially and adversely affected.machines or facilities.
Our manufacturing businesses may have difficulty obtaining timber at favorable prices, or at all.
Wood fiber is our principal raw material, comprisingaccounting for approximately 27% and 17%, 13% and 30%respectively, of the aggregate amount of materials, labor and other operating expenses, andincluding fiber costs, from related parties for our Paper and Packaging & Newsprintsegments for the year ended December 31, 2009, and Wood Products segments,32% and 17%, respectively, during 2004.for the three months ended March 31, 2010. Wood fiber is a commodity, and prices have historically have been cyclical. Environmental litigationIn addition, wood
fiber, including wood chips, sawdust and regulatory developments have caused, and may causeshavings, is a byproduct in the future, significant reductionsmanufacture 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 the amount of timber available for commercial harvest in the United States. These reductions have caused the closure of plywoodmaterial and lumber operations in some of the geographic areas in which we operate, including the closure of two facilities previously operated by OfficeMax. In addition, futureadverse effects on our sales and profitability. Future domestic or foreign legislation and litigation concerning the use of timberlands, the protection of endangered species the promotion ofand forest health and the response to and prevention of catastrophic wildfires couldcan also affect timber supplies.log and fiber supply. Availability of harvested timberlogs and fiber may be further be limited by fire, insect infestation, disease, ice storms, wind storms, hurricanes, flooding and other natural and man made causes, thereby reducing supply and increasing prices. Wood fiber pricing is subject to regional market influences, and our cost of wood fiber may increase in particular regions due to market shifts in those regions. In addition, our ability to obtain wood fiber from Brazil may be impacted by legal and political conditions in that country as well as transportation difficulties. Any sustained increase in wood fiber prices would increase our operating costs, and we may be unable to increase prices
Energy accounts for our products in response to increased wood fiber costs due to additional factors affecting the demand or supply of these products.
Over the past three years, the timberlands operations provided, on average, approximately 47% of our wood fiber requirements. In connection with the Timberlands Sale, we entered into long-term supply agreements pursuant to which we expect to obtain a significant portion of our future wood fiber requirements. We purchase substantially all of our wood fiber from third parties, either pursuant to these supply agreements or in the open market. If any of our major suppliers of wood fiber stops selling or is unable to sell wood fiber to us, our financial condition and operating results would suffer. As a result of the Timberlands Sale, we have increased our open-market purchases of wood fiber. Since we have not historically made open-market purchases of wood fiber in such large amounts, our wood fiber costs may exceed our historical costs. For example, due to increased costs associated with the procurement of wood fiber, such as higher transportation costs and costs related to identifying potential vendors, we estimate that our wood fiber costs would have been $8 million to $12 million higher in 2004 had the Timberlands Sale been completed on January 1, 2004. Furthermore, as the amount of wood fiber we purchase pursuant to existing supply agreements declines, our wood fiber costs may increase further as we increase our reliance on open-market purchases. In addition, our limited access to an internal supply of timber could expose us to the effects of short-term price volatility and limit our flexibility in responding to shortages in wood fiber supply, and could cause our operating costs to increase to a greater extent than those of our competitors that own timberlands. If we experience constraints on our timber
supply for any of these or other reasons, we would be required to limit production in and/or close manufacturing facilities.
An increase in the cost of our purchased energy or chemicals would lead to higher manufacturing costs, thereby reducing our margins.
Energy is one of our most significant raw materials, comprising approximately 13%, 12% and 3%10%, respectively, of the aggregate amount of materials, labor and other operating expenses, andincluding fiber costs, from related parties for our Paper and Packaging & Newsprintsegments for the year ended December 31, 2009, and Wood Products segments,15% and 14% respectively, during 2004.for the three months ended March 31, 2010. Energy prices, particularly for electricity, natural gas and fuel oil, have been volatile in recent years and currently exceed historical averages.years. These fluctuations impactaffect our manufacturing costs and can contribute significantly to earnings volatility. While we purchase substantial portions of our energy under supply contracts, many of these contracts rely on market pricing. We estimate that a hypothetical 10% increase in electricity, natural gas and fuel oil costs would have reduced our operating income by approximately $27 million and $8 million for the year ended December 31, 2004.
Other raw materials we use include various chemical compounds, such as starch, caustic soda, precipitated calcium carbonate, sodium chlorate and sodium hydroxide, dyes, resins and adhesives.dyes. Purchases of chemicals comprisedaccounted for approximately 12%15% and 7%, 3% and 5%respectively, of the aggregate amount of materials, labor and other operating costs andexpenses, including fiber costs, from related parties for our Paper and Packaging & Newsprintsegments for the year ended December 31, 2009, and Wood Products segments,14% and 5%, respectively, during 2004.for the three months ended March 31, 2010. The costs of these chemicals have been volatile historically and are influenced by capacity utilization, energy prices and other factors beyond our control.
Risk Related to Our Operations
We depend on OfficeMax for a significant portion of our business.
Our largest customer, OfficeMax, accounted for approximately 28% and 26% of our total sales in the year ended December 31, 2009 and the three months ended March 31, 2010, respectively. In October 2004, OfficeMax agreed to purchase, from our Predecessor, its full North American requirements for cut-size office paper, to the extent we choose to supply such paper to them, through December 2012. If this contract is not renewed or not renewed on terms similar to the existing terms, our future business operations may be adversely affected. If OfficeMax was unable to pay, our financial performance could be affected significantly and negatively. Any significant deterioration in the financial condition of OfficeMax or a significant change in its business that would affect its willingness to continue to purchase our products could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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:
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;
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;
labor difficulties; or
other operational problems.
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. Any of these situations could prevent us from meeting customer demands or result in increased costs, thereby reducing our sales and profitability. As of March 31, 2010, we had approximately 4,100 employees. Approximately 60% of these employees work pursuant to collective bargaining agreements. As of March 31, 2010, approximately 33% of our employees were working pursuant to collective bargaining agreements that have expired or will expire within one year, including agreements at the following facility locations: Wallula, Washington; DeRidder, Louisiana; Jackson, Alabama; St. Helens, Oregon; and Nampa, Idaho. The labor contract at our paper mill in Wallula, Washington (332 employees represented by the Association of Western Pulp & Paper Workers (the “AWPPW”)) expired in March 2009 and was terminated by the AWPPW in October 2009. In February 2010, the union employees at Wallula rejected a new collective bargaining agreement that union leadership had recommended unanimously, and we declared an impasse in the bargaining process and implemented the terms of the last contract offer. We are currently negotiating the labor contract at our mill in DeRidder, Louisiana (387 employees represented by the United Steelworkers), which expired in February 2010, and at our mill in St. Helens, Oregon (122 employees represented by the AWPPW), which expired in March 2010.
Our potential inability to reach a mutually acceptable labor contract at any of our other 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 are subject to significant environmental, health and safety laws and regulations, as well as other environmental liabilities, the cost of which 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, particularly with respect to air emissions, waste water discharges, solid and hazardous waste management and site remediation. 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, we may be affected if laws concerning climate change are enacted 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.
Some of our properties have a long history of industrial operations. As an owner and operator of real estate, we may also be liable under environmental laws for cleanup and other damages, including tort liability, resulting from releases of hazardous substances on or from our properties or locations where we have disposed of wastes. We may have liability under these laws whether or not we knew of or were responsible for the presence of these substances on our property, and in some cases, our liability may exceed the value of the property.
During the year ended December 31, 2009, capital expenditures for environmental compliance were $2.2 million. We expect to spend approximately $1.4 million on environmental items in 2010. 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.
We may engage in future acquisitions that could materially affect our business, operating results and financial condition.
We may seek to acquire other businesses, products, or assets. However, we may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not strengthen our competitive position or achieve our goals. Acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses, and adversely affect our business, operating results and financial condition. Future acquisitions may reduce our cash available for operations and other uses. There can be no assurance that we will be able to manage the integration of acquired businesses effectively or be able to retain and motivate key personnel from those businesses. Any difficulties we encounter in the integration process could increase our expenses and have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Economic and Financial Factors
We have substantial indebtedness, and our ability to repay our debt is dependent on our ability to generate cash from operations.
As discussed below in “—Risks Related to the New Notes”, we have a high level of indebtedness. This level of indebtedness will require us to devote a material portion of our cash flow to our debt service obligations. Our ability to repay our indebtedness and to fund planned capital expenditures depends on our ability to generate cash from future operations. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. For example, decreases in the demand for paper products, deterioration in the general economy and weakness in any of our product markets negatively affect our business and our ability to generate cash. As a result, it is possible we will not generate sufficient cash flow from our operations to enable us to repay our indebtedness, make interest payments and fund other liquidity needs. If we do not generate sufficient cash flow to meet these requirements, it would affect our ability to operate as a going concern. If we are unable to generate sufficient cash flow to meet our debt service and other cash obligations, we may need to obtain additional debt, refinance all or a portion of our indebtedness on or before maturity, sell assets or raise equity. We may not be able to obtain additional debt, refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, which could cause us to default on our obligations and materially impair our liquidity. Our inability to generate sufficient cash flow to satisfy our debt obligations, to obtain additional debt or to refinance our obligations on commercially reasonable terms would have a material adverse effect on our business, financial condition and results of operations.
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, 2009, our total capital expenditures, excluding acquisitions, were $77.1 million. We expect to spend approximately $100 million on capital expenditures for 2010 excluding acquisitions and extraordinary capital improvements. We currently expect our capital expenditures to be between $90 million and $120 million annually over the next five years, excluding acquisitions and extraordinary capital improvements.
If we require funds for operating needs and capital expenditures beyond those generated from operations, we may not be able to obtain them on favorable terms or at all. In addition, our debt service obligations will reduce our available cash flows. 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.
A default under our indebtedness may have a material adverse effect on our business and financial condition.
In the event of a default under our Credit Facilities, the indenture governing the 9% Notes or the indenture governing the old notes and the new notes, the lenders or respective holders generally would be able to declare all such indebtedness, together with interest, to be due and payable. In addition, borrowings under the Credit Facilities are secured by first-priority liens on all of the assets of our subsidiaries that guarantee, or are borrowers under, our Credit Facilities, and in the event of a default under those facilities, the lenders generally would be entitled to seize the collateral. Moreover, upon an event of default, the commitment of the lenders to make any further loans would be terminated. Accordingly, a default under any debt instrument, unless cured or waived, would likely have a material adverse effect on our overall business, the results of our operations and our financial condition.
If we became unable to meet our financial obligations, it could also cause concern for our customers, vendors or trade creditors. If any significant customer, vendor or trade creditor changed its relationship with us by stopping work, ceasing sales, requiring sales on cash terms or making other changes, these changes would materially affect our cash flows and results of operations.
We anticipate significant future funding obligations for pension benefits.
In December 2008, we enacted a freeze on our defined benefit pension plan for salaried employees (the “Salaried Plan”); however, we continue to maintain defined benefit pension plans for most of our union employees. Despite the freeze of the Salaried Plan, we will continue to have significant obligations for pension benefits. As of March 31, 2010, our pension assets had a market value of $315 million, compared with $302 million at December 31, 2009. In March 2010, we made a $5.5 million voluntary cash contribution to our qualified pension plans. Assuming a return on plan assets of 7.25% in 2010 and 2011, and the minimum contributions are made in both years, we estimate that we will be required to contribute approximately $1 million in 2010 and approximately $21 million in 2011. 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 cash flows, financial condition and results of operations.
Risks Relating to the Exchange Offer
Holders who fail to exchange their old notes will continue to be subject to restrictions on transfer and may have difficulty selling the old notes that they do not exchange.
If you do not exchange your old notes for new notes in the exchange offer, you will continue to be subject to the restrictions on transfer of your old notes described in the legend on your old notes. The restrictions on transfer of your old notes arise because we issued the old notes under exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, you may only offer or sell the old notes if they are registered under the Securities Act and applicable state securities laws, are offered and sold under an exemption from registration under the Securities Act and applicable state securities laws or are offered or sold in a transaction not subject to the Securities Act and applicable state securities laws. We do not plan to register the old notes under the Securities Act. To the extent old notes are tendered and accepted in the exchange offer, the trading market, if any, for the old notes may be adversely affected. For further information regarding the consequences of not tendering your old notes in the exchange offer, see “The Exchange Offer—Consequences of Exchanging or Failing to Exchange Old Notes.”
Some holders who exchange their old notes may be deemed to be underwriters and these holders will be required to comply with the registration and prospectus delivery requirements in connection with any resale transaction.
If you exchange your old notes in the exchange offer for the purpose of participating in a distribution of the new notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. See “Plan of Distribution.”
Late deliveries of old notes or any other failure to comply with the exchange offer procedures could prevent a holder from exchanging its old notes.
Noteholders are responsible for complying with all exchange offer procedures. The issuance of new notes in exchange for old notes will only occur upon completion of the procedures described in this prospectus under “The Exchange Offer.” Therefore, holders of old notes who wish to exchange them for new notes should allow sufficient time for timely completion of the exchange procedures. Neither we nor the exchange agent are obligated to extend the offer or notify you of any failure to follow the proper procedures.
Risks Related to the New Notes
Neither the Issuers’ nor the guarantors’ assets will secure the new notes, and consequently the new notes will be effectively subordinated to the Issuers’ and the guarantors’ existing and future secured indebtedness.
The new notes are unsecured and rank behind all of the Issuers’ and the guarantors’ senior secured indebtedness to the extent of the value of the assets securing such indebtedness. As a result, upon any distribution to our creditors in a bankruptcy, liquidation or reorganization or similar proceeding relating to us or our property, the holders of secured debt, including the lenders under our Credit Facilities, will be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the instruments governing such debt and to be paid in full from the assets securing that secured debt before any payment may be made with respect to the new notes. In that event, because the new notes will not be secured by any of the Issuers’ or the guarantors’ assets, it is possible that there will be no assets from which claims of holders of the new notes can be satisfied or, if any assets remain, that the remaining assets will be insufficient to satisfy those claims in full. If the value of such remaining assets is less than the aggregate outstanding principal amount of the new notes and all other debt rankingpari passu with the new notes, including the old notes and the 9% Notes, we may be unable to fully satisfy our obligations under the new notes. In addition, if we fail to meet our payment or other obligations under
our secured debt, the holders of that secured debt would be entitled to foreclose on our assets securing that secured debt and liquidate those assets. Accordingly, we may not have sufficient funds to pay amounts due on the new notes. As a result, you may lose a portion of or the entire value of your investment in the new notes.
Substantially all of the assets of the Issuers and the guarantors of the new notes are subject to liens under our Credit Facilities. On an as adjusted basis, giving effect to the exchange of the new notes for the old notes as of March 31, 2010, the new notes would have been effectively subordinated to approximately $192 million of senior secured debt and $227.9 million, which is net of $22.1 million of outstanding letters of credit, would have been available for borrowing as additional senior secured debt under our Credit Facilities. Further, the terms of the new notes permit us to incur additional secured indebtedness. Your new notes will be effectively subordinated to any such additional secured indebtedness.
Our substantial indebtedness could adversely affect our financial health, which could reduce the value of our securities.
As of March 31, 2010, our total indebtedness was $792.2 million. We may issue more debt securities or refinance existing debt securities if available on favorable terms.
Our substantial indebtedness could have important consequences to you. For example, it could:
increase our vulnerability to general adverse economic and industry conditions;
limit our ability to fund future working capital, capital expenditures, research and development costs and other general corporate financing needs;
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
place us at a competitive disadvantage compared to our competitors that have less debt; and
limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds or dispose of assets.
Failing to comply with those covenants could result in an event of default, which, if not cured or waived, could cause us to have to discontinue operations or seek a purchaser for our business or assets.
If we cannot make scheduled payments on our debt, we will be in default and, as a result, holders of our debt could declare all outstanding principal and interest to be due and payable, the lenders under our Credit Facilities could terminate their commitments to loan money and foreclose against the assets securing the borrowings under such Credit Facilities and we could be forced into bankruptcy or liquidation, in each case, which could result in your losing your investment in the new notes.
Despite our existing indebtedness, we may still incur more debt, which could exacerbate the risks described above.
We may be able to incur substantial additional indebtedness in the future. Although covenants under the indentures governing the new notes and the 9% Notes and the credit agreements governing our Credit Facilities limit the ability of the Issuers and the guarantors to incur certain additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. In addition, the indentures do not limit the incurrence of obligations that do not constitute “indebtedness” as defined therein. Following the exchange of the old notes for the new notes we expect that $227.9 million will be available to us for borrowing under our Revolving Credit Facility, subject to
certain conditions, including compliance with certain financial covenants. To the extent that we incur additional indebtedness or such other obligations, the risks associated with our leverage described above, including our possible inability to service our debt, including the new notes, would increase.
Boise Paper Holdings is a holding company, and therefore its ability to repay the new notes is dependent on cash flow generated by its subsidiaries and its subsidiaries’ ability to make distributions to Boise Paper Holdings.
Boise Paper Holdings conducts all of its operations through its subsidiaries, certain of which will not be guarantors of the new notes. Boise Co-Issuer was formed solely for the purpose of facilitating the offering of the old notes and will have only de minimis assets and no operations. BZ Holdings is a holding company with no operations, whose assets consist solely of the equity interests of Boise Paper Holdings. Accordingly, repayment of the Issuers’ indebtedness, including the new notes, is dependent on the generation of cash flow by the subsidiaries of Boise Paper Holdings and the ability of such subsidiaries to make such cash available to Boise Paper Holdings, by dividend, debt repayment or otherwise. Such subsidiaries may not be able to, or may not be permitted to, make distributions to enable Boise Paper Holdings to make payments in respect of its indebtedness, including the new notes. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit Boise Paper Holdings’ ability to obtain cash from subsidiaries. While the indenture governing the new notes limits the ability of certain subsidiaries of Boise Paper Holdings to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to Boise Paper Holdings, those limitations are subject to certain qualifications and exceptions. In the event that Boise Paper Holdings does not receive distributions from its subsidiaries, it may be unable to make required principal and interest payments on its indebtedness, including the new notes.
BZ Holdings is a holding company with no independent operations and no assets other than the equity interests of Boise Paper Holdings, and therefore its ability to make payment on its guarantee of the new notes in the event of a default is likely to be extremely limited.
BZ Holdings is a holding company with no independent operations and no assets other than the equity interests of Boise Paper Holdings. Consequently, in the event that the Issuers default on their obligations under the new notes, holders of the new notes are unlikely to realize material value upon enforcement of BZ Holdings’ guarantee of the new notes.
The new notes will be structurally subordinated to all indebtedness of those of BZ Holdings’ existing or future subsidiaries (other than the Issuers) that are not, or do not become, guarantors of the new notes.
The new notes will, subject to certain exceptions, be guaranteed by BZ Holdings, which is a holding company with no operations and whose assets consist solely of the equity interests of Boise Paper Holdings, and each existing and subsequently acquired or organized subsidiary of BZ Holdings (other than the Issuers and Boise Finance) that is a borrower under or a guarantor of our Credit Facilities. Except for such guarantors of the new notes and the Issuers, the subsidiaries of BZ Holdings will have no obligation, contingent or otherwise, to pay amounts due under the new notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payment. The new notes will therefore be structurally subordinated to all indebtedness and other obligations of any non-guarantor subsidiary (other than the Issuers) such that, in the event of insolvency, liquidation, reorganization, dissolution or other winding up of any such subsidiary, all of such subsidiary’s creditors (including trade creditors and preferred stockholders, if any) would be entitled to payment in full out of such subsidiary’s assets before the holders of the new notes would be entitled to any payment.
Under certain circumstances, subsidiary guarantees may be released.
Those subsidiaries that provide, or will provide, guarantees of the new notes will be automatically released from such guarantees upon the occurrence of certain events, including the following:
the designation of such subsidiary guarantor as an unrestricted subsidiary (as defined in the indenture that governs the new notes);
the release or discharge of any guarantee or indebtedness that resulted in the creation of the guarantee of the new notes by such subsidiary guarantor; or
the sale or other disposition, including the sale of substantially all the assets, of such subsidiary guarantor.
If any such subsidiary guarantee is released, no holder of the new notes will have a claim as a creditor against any such subsidiary and the indebtedness and other liabilities, including trade payables and preferred stock, if any, of such subsidiary will be effectively senior to the claim of any holders of the new notes. See “Description of the New Notes—Guarantees” and “—Future Subsidiary Guarantors.”
Parent will not provide a guarantee of the new notes.
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 Holdings and its subsidiaries, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests. These tests include an interest coverage ratio test, a leverage ratio test and a first lien secured leverage ratio test. In addition, our Credit Facilities, the indenture governing the 9% Notes and the indenture governing the new notes restrict, among other things, the ability of BZ Holdings and its subsidiaries to create additional liens on assets, make investments or acquisitions, pay dividends, incur additional indebtedness, sell assets, including capital stock of subsidiaries, make capital expenditures, place restrictions on the ability of such subsidiaries to make distributions, enter into transactions with our affiliates, enter into new lines of business and engage in consolidations, mergers or sales of substantially all of our assets. 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 those of the holders of the new notes, 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 indenture governing the 9% Notes, the indenture governing the old notes and the new 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 and results of operations. A default would permit lenders or holders to accelerate the maturity of the debt under these agreements and 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 the Issuers under the new 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.
In the event of any default under our Credit Facilities, the lenders thereunder:
will not be required to lend any additional amounts to us;
could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable; and
could require us to apply all of our available cash to repay these borrowings;
any of which could ultimately result in an event of default under the new notes.
If our indebtedness were to be accelerated, our assets may not be sufficient to repay such indebtedness in full. In such circumstances, we could be forced into bankruptcy or liquidation and, as a result, you could lose your investment in the new notes. See “Description of Other Indebtedness” and “Description of the New Notes.”
Federal and state statutes could allow courts, under specific circumstances, to avoid the new notes or any of the guarantees and require noteholders to return payments received from the Issuers or the guarantors to the Issuers or the guarantors or to a fund for the benefit of their respective creditors, or subordinate the new notes or guarantees to other claims of the Issuers or guarantors.
Under Federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the new notes or any of the guarantees thereof could be avoided, or claims in respect of the new notes or any of the guarantees could be subordinated to all other debts of the Issuers or the guarantors if, among other things, the Issuers or the applicable guarantor:
issued the new notes or the applicable guarantee with the intent of hindering, delaying or defrauding any present or future creditor; or
received less than reasonably equivalent value or fair consideration for the issuance of the new notes or for the incurrence of such guarantee; and
was insolvent or rendered insolvent by reason of such issuance or incurrence; or
was engaged in a business or transaction for which the applicable Issuer’s or guarantor’s remaining assets constituted unreasonably small capital; or
intended to incur, or believed that it would incur, debts beyond its ability to pay as they mature; or
an Issuer or any of the guarantors was a defendant in an action for money damages against such person if, in either case, after final judgment, the judgment was unsatisfied.
As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied. A court would likely find that the Issuers or a guarantor did not receive reasonably equivalent value or fair consideration for the new notes or its guarantee, respectively, if the Issuers or such guarantor did not substantially benefit directly or indirectly from the issuance of the new notes or the incurrence of the guarantees.
We cannot be certain as to the standards a court would use to determine whether any of the Issuers or guarantors was solvent at the relevant time or, regardless of the standard that a court uses, whether the new notes or the guarantees would be subordinated to any of the Issuers’ or guarantors’ other debt. In general, however, a court would deem an entity insolvent if:
the sum of its debts, including contingent and unliquidated liabilities, exceeds its assets, at a fair valuation, or
the present fair saleable value of its assets is less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and matured.
If a court were to avoid the issuance of the new notes or the incurrence of the guarantees as the result of a fraudulent transfer or conveyance, the court could direct that holders of the new notes return any amounts paid under the new notes or the guarantees to the applicable Issuer or guarantor or to a fund for the benefit of its creditors, or subordinate the new notes or guarantees to other claims of the Issuers or guarantors.
Each guarantee will contain a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without rendering the incurrence of obligations under its guarantee a fraudulent transfer. This provision may not be effective to protect the guarantees from being avoided or subordinated under fraudulent transfer or conveyance law.
There is no public market for the new notes, and we do not know if a market will ever develop or, if a market does develop, whether it will be sustained.
The new notes are a new issue of securities, and there is no existing trading market for the new notes. Accordingly, we cannot assure you that a liquid market will develop for the new notes, that you will be able to sell your new notes at a particular time or that the prices that you receive when you sell the new notes will be favorable.
We do not intend to apply for listing or quotation of the new notes on any securities exchange or stock market. The liquidity of the new notes and the market price of the new notes will depend on a number of factors, including:
the number of holders of new notes;
our operating performance and financial condition;
the market for similar securities;
the interest of securities dealers in making a market in the new notes; and
prevailing interest rates.
Recently, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of these securities. We cannot assure you that the market for the new notes will be free from similar disruptions. Any such disruptions could have an adverse effect on holders of the new notes.
We may be unable to purchase the new notes upon a change of control.
Upon a change of control, as defined in the indenture governing the new notes, the Issuers are required to offer to purchase all of the new notes then outstanding for cash at 101% of the principal amount thereof plus accrued and unpaid interest, if any. If a change of control occurs, we may not have sufficient funds to pay the change of control purchase price, and we may be required to secure third party financing to do so. We may not be able to obtain this financing on commercially reasonable terms, or on terms acceptable to us, or at all. A change of control would also require that we offer to repurchase all of the old notes and the 9% Notes then outstanding for cash at 101% of the principal amount thereof plus accrued and unpaid interest, if any. In addition, a change of control under the indenture would result in an event of default under our Credit Facilities, which may cause the acceleration of that indebtedness or our other indebtedness. Our future indebtedness may also contain restrictions on our ability to repurchase the new notes upon certain events, including transactions that would constitute a change of control under the indenture. The Issuers’ failure to repurchase the new notes upon a change of control would constitute an event of default under the indenture.
The change of control provisions in the indenture governing the new notes may not protect you in the event we consummate a highly leveraged transaction, reorganization, restructuring, merger or other similar transaction, unless such transaction constitutes a change of control under the indenture. Such a transaction may not involve a change in voting power or beneficial ownership or, even if it does, may not involve a change in the magnitude required under the definition of change of control in the indenture to trigger the Issuers’ obligation to repurchase the new notes. Except as otherwise described above, the indenture does not contain provisions that permit the holders of the new notes to require the Issuers to repurchase or redeem the new notes in the event of a takeover, recapitalization or similar transaction. See “Description of the New Notes—Change of Control.”
Holders of the new notes may not be able to determine when a change of control giving rise to their right to have the new notes repurchased has occurred following a sale of “substantially all” of the assets of BZ Holdings or Boise Paper Holdings.
The definition of change of control in the indenture governing the new notes includes a phrase relating to the sale of “all or substantially all” of the assets of BZ Holdings or Boise Paper Holdings (determined on a
consolidated basis). There is no precise, established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of new notes to require the Issuers to repurchase its new notes as a result of a sale of less than all of the assets of BZ Holdings or Boise Paper Holdings to another person may be uncertain.
Changes in our credit rating or in the rating assigned by a rating agency to the new notes could adversely affect the market price or liquidity of the new notes.
Credit rating agencies continually revise their ratings for the companies that they follow, including us. The credit rating agencies also evaluate our industry as a whole and may change their credit ratings for us based on their overall view of our industry. We cannot be sure that credit rating agencies will maintain their ratings on the new notes. A negative change in our ratings could have an adverse effect on the price of the new notes.
The new notes will be rated by nationally recognized statistical rating agencies. We cannot assure you that any rating assigned will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, circumstances relating to the basis of the rating, such as adverse changes in our business, so warrant. Any lowering or withdrawal of a rating by a rating agency could reduce the liquidity or market value of the new notes.
If a bankruptcy petition were filed by or against the Issuers or any of the guarantors, holders of the new notes may receive a lesser amount for their claim than they would have been entitled to receive under the indenture governing the new notes.
Because the original issue price for the old notes was less than the principal amount of the old notes or the new notes, the claim by holders of the new notes for the principal amount of the new notes in a bankruptcy or reorganization case may be limited to an amount equal to the sum of:
the original issue price for the old notes; and
the portion of interest that is deemed to have accrued on the new notes for purposes of the U.S. Bankruptcy Code.
Under these circumstances, holders of new notes would receive a lesser amount as compared with the amount that they would be entitled to receive had the new notes been held to maturity.
We will not receive any cash proceeds from the exchange offer. In consideration for issuing the new notes, we will receive in exchange the old notes of like principal amount. The old notes surrendered in exchange for the new notes will be retired and cancelled and cannot be reissued. Accordingly, the issuance of the new notes will not result in any change in our indebtedness.
The net proceeds of the sale of the old notes were approximately $288.9 million, after deducting the original issue discount, the initial purchasers’ discounts and estimated fees and expenses payable by us.
We used the net proceeds from the offering of the old notes, together with then-available cash on hand, (i) to repay all $301.7 million outstanding under our Tranche B Term Loan Facility maturing in 2014 plus accrued and unpaid interest thereon and (ii) to pay fees and expenses related to the offering of the old notes.
The following table sets forth Boise’s consolidated cash and capitalization as of March 31, 2010, on an actual basis. You should read the data set forth in the table below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited quarterly financial statements and the accompanying notes appearing elsewhere in this prospectus.
As of March 31, 2010 | |||
(Dollars in thousands) | Actual | ||
Cash, cash equivalents and short-term investments | $ | 98,300 | |
Debt (including current portion): | |||
Revolving credit facility, due 2013 (1) | $ | — | |
Tranche A term loan, due 2013 | 192,244 | ||
9% Senior Notes due 2017 | 300,000 | ||
8% Senior Notes due 2020 | 300,000 | ||
Total debt | 792,244 | ||
Total capital | 618,160 | ||
Total capitalization | $ | 1,410,404 | |
(1) | As of March 31, 2010, on an actual basis, we had $227.9 million of unused borrowing capacity under the Revolving Credit Facility, net of $22.1 million of letters of credit outstanding. |
RATIO OF EARNINGS TO FIXED CHARGES
The table below sets forth our ratio of earnings to fixed charges on a consolidated basis for each of the time periods indicated. This ratio shows the extent to which our business generates sufficient earnings after the payment of all expenses other than interest to make required interest payments on our debt.
BZ Holdings | ||||
Three months ended March 31, 2010 | Year ended December 31, 2009 | Year ended December 31, 2008 | ||
— | 3.08x | 0.46x |
For the purpose of computing the ratio of earnings to fixed charges, earnings consist of pretax income from continuing operations plus fixed charges. Fixed charges consist of interest, whether expensed or capitalized, amortization of expenses related to indebtedness and the portion of rental expense that is considered to be representative of the interest factors in our leases. Our earnings were inadequate to cover our fixed charges by $19.3 million and $47.7 million for the three months ended March 31, 2010 and the year ended December 31, 2008, respectively. Because debt and interest costs were not allocated to the Predecessor, the Predecessor had no fixed charges, and thus no ratio could be calculated.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial data for BZ Holdings and our Predecessor operations for the periods ended and as of the dates indicated below. We have derived the selected historical consolidated financial data of BZ Holdings as of March 31, 2010, December 31, 2009 and 2008 and for the three months ended March 31, 2010 and for the years ended December 31, 2009 and 2008 from our audited and unaudited consolidated financial statements. We have derived the selected historical consolidated financial data of the Predecessor as of December 31, 2007, 2006 and 2005 and for the period from January 1, 2008 through February 21, 2008 and for the years ended December 31, 2007, 2006, and 2005, from the Predecessor’s audited consolidated financial statements.
The following selected historical consolidated financial data (dollars in thousands) should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the accompanying notes thereto appearing elsewhere in this prospectus.
BZ Holdings | Predecessor | ||||||||||||||||||||||||
Three Months Ended March 31, 2010 (a) | Year Ended December 31, 2009 (b) | Year Ended December 31, 2008 (c) | January 1 Through February 21, 2008 | Year Ended December 31 | |||||||||||||||||||||
2007 (d) | 2006 (e) | 2005 (f) | |||||||||||||||||||||||
Statement of Income (loss) data | |||||||||||||||||||||||||
Net sales | $ | 494 | $ | 1,978 | $ | 2,071 | $ | 360 | $ | 2,333 | $ | 2,222 | $ | 2,129 | |||||||||||
Income (loss) from operations | 19 | 306 | 40 | 23 | 160 | 94 | 74 | ||||||||||||||||||
Net income (loss) | (12 | ) | 148 | (42 | ) | 23 | 160 | 93 | 72 | ||||||||||||||||
Balance sheet data (at end of period) | |||||||||||||||||||||||||
Current assets | $ | 573 | $ | 586 | $ | 593 | $ | 560 | $ | 572 | $ | 509 | |||||||||||||
Property and equipment, net | 1,207 | 1,223 | 1,277 | 1,210 | 1,145 | 1,142 | |||||||||||||||||||
Total assets | 1,853 | 1,896 | 1,985 | 1,846 | 1,759 | 1,678 | |||||||||||||||||||
Current liabilities | 268 | 303 | 269 | 250 | 241 | 217 | |||||||||||||||||||
Long-term debt, less current portion | 776 | 785 | 1,012 | — | — | — | |||||||||||||||||||
Total capital | 618 | 629 | 513 | 1,560 | 1,481 | 1,425 | |||||||||||||||||||
Other financial data | |||||||||||||||||||||||||
Ratio of earnings to fixed charges (g) | — | 3.08x | 0.46x | N/A | N/A | N/A | N/A |
Net income (loss) per common share is not applicable as BZ Holdings and the Predecessor do not have common shares.
(a) | Included $0.1 million of expense associated with the restructuring of the St. Helens, Oregon, mill, $3.3 million of expense related to the change in fair value of energy hedges and $22.2 million of loss on extinguishment of debt as a result of the March 2010, debt refinancing. |
(b) | Included $5.8 million of expense associated with the restructuring of the St. Helens, Oregon, mill, $5.9 million of income related to the change in fair value of energy hedges, $66.8 million of loss on extinguishment of debt as a result of the October 2009, debt restructuring and $207.6 million of income relating to alternative fuel mixture credits, net of fees and expenses and before taxes. |
(c) | Included $37.6 million of expense associated with the restructuring of the St. Helens, Oregon, mill, a $2.9 million gain for changes in supplemental pension plans, $7.4 million of expense related to the change in fair |
value of energy hedges, $5.5 million of expense related to lost production and costs incurred as a result of Hurricanes Gustav and Ike, $10.2 million of expense related to inventory purchase accounting adjustments and $19.8 million of expense related to the outage at the DeRidder, Louisiana, mill. |
(d) | Included approximately $41.8 million of lower depreciation and amortization expense as a result of discontinuing depreciation and amortization on the assets recorded as held for sale, a $4.4 million gain for changes in retiree healthcare programs, $8.7 million of expense related to the change in fair value of energy hedges and $4.0 million of expense related to the start-up of the reconfigured paper machine at the Wallula, Washington, mill. |
(e) | Included a $3.7 million gain for changes in retiree healthcare programs, $18.1 million of expense related to the change in fair value of energy hedges, $2.8 million of expense for special project costs and $2.4 million of expense related to write-downs associated with the sale of the Vancouver, Washington, mill. |
(f) | Included a $5.2 million gain for changes in retiree healthcare programs. |
(g) | For further information on the Ratio of Earnings to Fixed Charges, please see “Ratio of Earnings to Fixed Charges” appearing elsewhere in this prospectus. |
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 “Risk Factors” of this prospectus, as well as those factors listed in other documents we file with the Securities and Exchange Commission (“SEC”).
Boise Inc., referred to in this Management’s Discussion and Analysis of Financial Condition and Results of Operations as “the Company,” “we,” “us,” or “our,” is a holding company that currently has no operating assets other than those owned directly or indirectly by BZ Holdings. Likewise, BZ Holdings has no operating assets other than those owned directly or indirectly by Boise Paper Holdings. Accordingly, this discussion for Boise Inc. will reflect the same operating businesses as that of BZ Holdings and Boise Paper Holdings.
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 prospectus.
Background
Boise Inc. is a large, diverse United States-based manufacturer of packaging products and papers, including corrugated containers, containerboard, label and release and flexible packaging papers, imaging papers for the office and home, printing and converting papers, newsprint, and market pulp. We own pulp and paper mill operations in the following locations: Jackson, Alabama; International Falls, Minnesota; St. Helens, Oregon; and Wallula, Washington, all of which manufacture uncoated freesheet paper. We also own a mill in DeRidder, Louisiana, which produces containerboard (linerboard) as well as newsprint. In addition, we have a network of five corrugated container plants located in the Pacific Northwest, a corrugated sheet plant in Nevada, and a corrugated sheet feeder plant in Texas.
On February 22, 2008, Aldabra 2 Acquisition Corp. completed the acquisition (the “Acquisition”) of Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp. (collectively, the Paper Group), and other assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and part of the headquarters operations of Boise Cascade, L.L.C. (“Boise Cascade”). Subsequent to the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. The acquired business is referred to in this prospectus as the “Predecessor.” See Note 15, Acquisition of Boise Cascade’s Paper and Packaging Operations, of the Notes to Consolidated Financial Statements in “Financial Statements and Supplementary Data” of this prospectus for more information related to the Acquisition.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations at times refers to the combined activities of Boise Inc. and the Predecessor for each period specifically indicated, which we believe is the most useful comparison between periods. The Acquisition resulted in a new basis of accounting from those previously reported by the Predecessor. However, sales and most operating cost items are substantially consistent with those reported by the Predecessor. Finished goods inventories were revalued to estimated selling prices less costs of disposal and a reasonable profit on the disposal. Depreciation changed as a result of adjustments to the fair values of property and equipment due to our purchase price allocation. These items, along with changes in interest expense and income taxes, are explained independently where appropriate.
We report our results in three segments: Paper, Packaging, and Corporate and Other (support services). See Note 17, Segment Information, of the Notes to Consolidated Financial Statements in “Financial Statements and Supplementary Data” appearing elsewhere in this prospectus for more information related to our segments.
Debt Issuance and Restructuring
On October 26, 2009, Boise Paper Holdings and Boise Finance, two of our wholly owned indirect subsidiaries, issued a $300 million aggregate principal amount of 9% senior notes due on November 1, 2017 (the “9% Notes”) through a private placement that is exempt from the registration requirements of the Securities Act of 1933, as amended. The 9% Notes pay interest semiannually in arrears on May 1 and November 1, commencing on May 1, 2010.
In connection with the issuance we also entered into amendments to our senior secured credit facilities. These amendments permitted us to incur $300.0 million of new senior unsecured notes, repurchase all of the second lien term loans, repurchase and retire notes payable, and modify certain of our financial covenants. The financial covenant modifications limit our total leverage ratio to 4.75:1:00, stepping down to 4.50:1.00 at September 30, 2011. We also have a new first lien secured leverage ratio of 3.25:1:00, stepping down to 3.00:1.00 at September 30, 2011.
The results of this debt issuance and restructuring, including the changes to our financial covenants, increase our financial flexibility, extend our debt maturity profile, simplify our capital structure, and reduce our total indebtedness.
Debt Refinancing
On March 19, 2010, Boise Paper Holdings and Boise Co-Issuer, two of our wholly owned indirect subsidiaries, issued a $300 million aggregate principal amount of old notes through a private placement that was exempt from the registration requirements of the Securities Act of 1933, as amended. The old notes pay interest semiannually in arrears on April 1 and October 1, 2010.
Following the sale of the old notes, we used the net proceeds of the sale, as well as cash on hand, to repay the Tranche B term loan facility plus accrued and unpaid interest at par. Upon the repayment of all of the indebtedness outstanding under the Tranche B term loan facility, such debt was canceled.
Through this refinancing, we replaced our variable-rate debt due in 2014 with fixed-rate debt due in 2020, thereby extending maturities, fixing interest rates, and increasing our financial flexibility.
Alternative Fuel Mixture Credits
The U.S. Internal Revenue Code allowed an excise tax credit for taxpayers using alternative fuels in the taxpayer’s trade or business. During the year ended December 31, 2009, we recorded $207.6 million in “Alternative fuel mixture credits, net” in our Consolidated Statements of Income (Loss). As of December 31, 2009, we recorded a receivable of $56.6 million in “Receivables, Other” on our Consolidated Balance Sheet for alternative fuel mixture credits. We received this credit in March 2010 after we filed our 2009 federal income tax return. The credits expired on December 31, 2009.
Recent Trends and Operational Outlook
The U.S. economy continued to show signs of improvement in first quarter 2010, following gross domestic product growth in the second half of 2009. However, U.S. consumers still face high unemployment, falling home prices, tight credit conditions, and high debt levels. Economic downturns characterized by higher unemployment, 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, cash flows, ability to meet our debt service obligations, and financial position.
U.S. industry demand for uncoated freesheet stabilized in fourth quarter 2009 and showed signs of improvement in first quarter 2010, compared with prior year levels. According to the American Forest & Paper Association (“AF&PA”), December 2009 U.S. industry shipments improved 1.9%, compared with December 2008; overall U.S. shipments declined 11% during 2009, compared with 2008. Year-to-date March 31, 2010, U.S. industry shipments improved 2.6%, compared with the same period in 2009, and March 2010 industry operating rates in the U.S. were at 91%, according to the most recent data available. Demand for commodity communication papers has been negatively affected by weak macroeconomic conditions and by the longer-term secular shift to electronic media for communications. Demand for printing and converting products has also been negatively affected by these factors and by the decline in direct-mail advertising. Despite soft demand, compared with prior years, U.S. uncoated freesheet inventories remained low at approximately 940,000 short tons in fourth quarter 2009. U.S. uncoated freesheet inventories remained low at approximately 895,000 short tons in March 2010. We curtailed shifts and slowed production on our uncoated freesheet machines to balance production with demand during 2009.
Despite softening demand and price erosion as a result of both secular and cyclical trends, sales prices for our uncoated freesheet papers improved in 2009, compared with 2008. The price improvement was led by cut-size office paper grades, which represented 65% of our 2009 uncoated freesheet sales volumes, and by packaging-demand-driven products (including label and release and flexible packaging grades). Net sales prices for our printing and converting grades, which include commercial printing, form bond, and envelope papers declined, compared with the prior year.
In fourth quarter 2009, we implemented a $40-per-short-ton price increase for our uncoated freesheet, offset, and envelope grades and for some premium colored office papers. In early 2010, we implemented a $40-per-short-ton price increase across most of our uncoated freesheet grades, including cut-size office papers, offset, and midweight opaque grades. In April 2010, we announced a $60-per-short-ton price increase effective in May 2010 across the majority of our uncoated office papers and printing and converting grades. There is no assurance the announced price increase will be fully realized. Since a large portion of our cut-size office paper is sold to OfficeMax under a contract whereby the price OfficeMax pays is determined by a published index, changes in price for this product sold to OfficeMax tend to lag behind the general market by approximately 60 days.
Recent linerboard pricing trends have shown improvement after price erosion throughout 2009. Linerboard net sales prices to third parties increased sequentially from third quarter 2009 as export demand and pricing improved in the fourth quarter. In January 2010, we implemented a $50-per-short-ton and $70-per-short-ton price increase for domestic linerboard sales in the eastern and western U.S., respectively. In April 2010, we announced an additional $60-per-short-ton increase for domestic linerboard sales. These price increases are being passed through to corrugated products as markets and contracts allow. There is no assurance the announced price increase will be fully realized. On an annual basis, compared with 2008, corrugated product pricing improved in 2009, but declined sequentially from third quarter 2009 due to seasonal box mix fluctuations in our agricultural end markets and containerboard price declines earlier in the year. Packaging demand in agriculture, food, and beverage markets, which has historically been less correlated to broad economic activity, remained relatively stable throughout 2009 and improved in first quarter 2010, compared with first quarter 2009. These markets constitute just over half of our corrugated products end-use markets. Demand in our industrial markets and containerboard export markets, which is more closely aligned with general economic activity, was weak throughout 2009, although export markets showed improvement in late third and fourth quarters, compared with earlier in 2009. We experienced improved sales volumes in our corrugated product and sheet operations during the first quarter 2010, which resulted in less linerboard available for sale to third parties compared with fourth quarter 2009.
Despite weak overall containerboard industry demand throughout 2009, total U.S. containerboard inventories declined to 2.1 million short tons in November 2009 from 2.5 million short tons in December 2008, according to AF&PA. U.S. industry containerboard demand improved in first quarter 2010, compared with 2009.
Industry box shipments in the U.S. increased 6.8% in March 2010, compared with March 2009, and industry operating rates were at 94%, according to AF&PA. Total U.S. containerboard inventories declined to 2.1 million short tons in March 2010, compared with 2.4 million short tons in March 2009. During the first half of 2009, we took production downtime to balance production with demand.
Prices for manufacturing inputs, including fiber, energy, and chemicals declined in 2009, compared with 2008, driven by reduced demand as a result of the weak U.S. economy. Overall input costs were higher in fourth quarter 2009, compared with third quarter 2009, primarily as a result of modestly higher prices and a seasonal increase in consumption of some inputs, such as energy. In first quarter 2010, we continued to experience a seasonal increase in consumption of energy, driven by colder winter weather. Overall fiber prices increased primarily as a result of increased pulp costs and wet weather in Alabama. Nearly all of our fiber needs in our Packaging segment are supplied by wood fiber; accordingly, we have been only modestly affected by the rising prices for recycled fiber.
During fourth quarter 2009, we performed a scheduled maintenance outage at our Jackson, Alabama, pulp and paper mill. During first quarter 2010, we performed our scheduled annual maintenance outage at our DeRidder, Louisiana, paper mill. During second quarter 2010, we have scheduled maintenance outages at our International Falls, Minnesota, and Wallula, Washington, paper mills.
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, electronic substitution, and relative currency values.
The ability of our lenders, customers, and suppliers to continue to conduct their businesses.
Competing technologies that affect the demand for our products.
Labor and personnel relations.
The commodity nature of our products and their price movements, which are driven largely by supply and demand.
Availability and affordability of raw materials, wood fiber, energy, and chemicals.
Legislative or regulatory environments, requirements, or changes affecting the businesses in which we are engaged.
Pension funding requirements.
Credit or currency risks affecting our revenue and profitability.
Major equipment failure.
Severe weather phenomena such as drought, hurricanes and significant rainfall, tornadoes, and fire.
Our customer concentration and the ability of our customers to pay.
The other factors described in “Risk Factors” appearing elsewhere in this prospectus.
Demand
The overall level of demand for the products we make and distribute is affected by, among other things, electronic media substitution, manufacturing activity, employment, consumer spending, and currency exchange rates. Accordingly, we believe that our financial results depend in large part on general macroeconomic
conditions in North America, as well as on regional economic conditions in the geographic markets in which we operate. The global financial and credit crisis led to a severe recession in the U.S. economy during 2009. While extended high unemployment levels or a second economic downturn could negatively affect overall demand, no single product line drives our overall financial performance, and individual product lines are influenced by conditions in their respective industries. For example:
Historically, demand for uncoated freesheet correlated positively with general economic activity. However, demand for communication paper grades, such as uncoated freesheet, imaging, and printing and forms paper, which we produce, has decreased as the use of electronic transmission and document storage alternatives has become more widespread and more efficient.
Demand for recycled-content papers is linked to an increased public awareness of environmental and sustainability issues and is less sensitive to general economic activity. We produce grades that contain from 10% to 100% recycled content.
Demand for our packaging products, including corrugated containers and sheets, containerboard, label and release, and flexible packaging papers, is driven by packaging demand. This demand is affected by macroeconomic conditions and is less susceptible to electronic media substitution.
A large share of the demand for corrugated containers and, therefore, containerboard is driven by unprocessed and processed food production and manufacturing, specifically the manufacture of nondurable goods. In addition, inventory stocking or liquidation of these goods has an impact, as do currency exchange rates that affect the cost-competitiveness of foreign manufacturers.
Supply
Industry supply of paper is affected by the number of operational or idled facilities, the building of new capacity, and the shutting down of existing capacity. Capacity also tends to increase gradually over time without significant capital expenditures as manufacturers improve production efficiencies. Generally, more capacity is added or employed when supply is tight and margins are relatively high, and capacity is idled or eliminated when capacity significantly exceeds demand and margins are poor.
Over the last five years, North American uncoated freesheet, containerboard, and newsprint capacities declined approximately 22%, 1%, and 32%, respectively, according to RISI. In fourth quarter 2008 and into 2009, temporary and permanent curtailments accelerated and significantly reduced capacity across many grades. Further capacity closures have been announced for 2010. New capacity additions are constrained by the high capital investment and long lead times required to plan, obtain regulatory approvals for, and build a new mill.
Industry supply of paper is also influenced by the level of imports and by overseas production capacity, which has grown over the past decade. According to RISI, North American uncoated freesheet imports were flat in 2009, compared with 2008. During the first two months of 2010, North American uncoated freesheet imports increased, compared with the same period in 2009, according to RISI.
Operating Costs
The major costs of production are fiber, energy, chemicals, and labor. The relative size of these costs varies by segment. Given the significance of raw material and energy costs to total operating expenses and the limited ability to control these costs, compared with other operating costs, volatility in these costs can materially affect operating margins. In addition, the timing and degree of price cycles of raw materials and energy differ with respect to each type of raw material and energy used.
Fiber. The primary raw material is wood fiber, accounting for the following percentages of materials, labor, and other operating expenses, including fiber costs from related parties, for Boise Inc. and the Predecessor for each of the periods listed below:
Boise Inc. | Predecessor | Combined | Predecessor | ||||||||||||||||||
Three Months Ended March 31, 2010 | Three Months Ended March 31, 2009 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2008 | Year Ended December 31, 2007 | |||||||||||||||
Paper | 32 | % | 27 | % | 27 | % | 29 | % | 26 | % | 29 | % | 29 | % | |||||||
Packaging | 17 | % | 15 | % | 17 | % | 15 | % | 17 | % | 15 | % | 17 | % |
The primary sources of logs and wood fiber are timber and byproducts of timber, such as wood chips, wood shavings, and sawdust. Substantially all fiber is acquired from outside sources. We convert logs and wood chips into pulp, which we use at our paper mills to produce paper. On an aggregate basis, operating at capacity, we are a net consumer of market pulp, producing and selling less market pulp on the open market than we purchase on the open market.
Logs and wood fiber are commodities, and prices for logs and wood fiber have historically been cyclical due to changing levels of supply and demand. Log and fiber supply may be limited by public policy or government regulation as well as fire, insect infestation, disease, ice storms, windstorms, hurricanes, flooding, other weather conditions, and other natural and man-made causes. Residual fiber supply may be limited due to a reduction in primary manufacturing at sawmills and plywood plants. Declines in log and fiber supply, driven primarily by changes in public policy and government regulation, have been severe enough to cause the closure of numerous facilities in some of the regions in which we operate. Any sustained undersupply and resulting increase in wood fiber prices could decrease our production volumes and/or increase our operating costs. Prices for our products might not reflect increases or decreases in log and wood fiber prices, and as a result, our operating margins could fluctuate. Delivered-fiber costs in all of our operating regions include the cost of diesel, which declined in 2009, compared with 2008. Delivered-fiber costs increased in first quarter 2010, compared with first quarter 2009. Higher diesel costs increase the cost of harvesting and transporting wood to the mills, negatively affecting fiber costs in all of our regions.
In Minnesota, our overall fiber costs decreased in 2009, compared with 2008, driven by lower prices for wood and purchased pulp and reduced consumption of purchased pulp as a result of reduced production and sales volumes. Wood fiber prices in the region declined, compared with 2008, primarily as a result of continued curtailment of oriented strand board production in the region. Fiber costs increased in first quarter 2010, compared with first quarter 2009, driven by higher prices for purchased pulp and by higher consumption of purchased pulp as a result of increased production and sales volumes.
In the Pacific Northwest, our fiber costs decreased in 2009, compared with 2008, due to reduced consumption as a result of the St. Helens mill downsizing and lower fiber prices. Residual fiber prices declined, compared with the prior year, as a result of reduced overall fiber demand in the region. Fiber costs increased in first quarter 2010, compared with first quarter 2009, due to increased prices for purchased pulp at our St. Helens mill and higher overall consumption of fiber as a result of increased production and sales volumes. Increased use of whole-log chipping, which provides more flexibility in sourcing our fiber needs and reduces our dependence on residual fiber, also contributed to increased fiber costs.
In the South, during 2009, fiber costs at our DeRidder mill decreased overall, compared with 2008, due to declining wood fiber prices and reduced fiber consumption as a result of the idling of our D-2 newsprint machine. During first quarter 2010, fiber costs at our DeRidder mill increased overall, compared with first quarter 2009, due to increased overall fiber consumption as a result of increased sales and production volumes. This was offset partially by modestly lower wood fiber prices. In Alabama, fiber costs decreased in 2009, compared with 2008, driven by reduced prices for purchased pulp and recycled fiber, offset partially by higher
consumption of purchased pulp. In our Alabama operating region, fiber costs increased in first quarter 2010, compared with first quarter 2009, driven by increased wood and purchased pulp prices as a result of wet weather in the region and by higher contractual pulp prices due to higher prevailing pulp prices.
Other Raw Materials and Energy Purchasing and Pricing.We purchase other raw materials and energy used to manufacture our products in both the open market and through long-term contracts. These contracts are generally with regional suppliers who agree to supply all of our needs for a certain raw material or energy at a single facility. These contracts frequently contain minimum purchase requirements and are for terms of various lengths. They also contain price adjustment mechanisms that take into account changes in market prices. Therefore, although our long-term contracts provide us with supplies of raw materials and energy that are more stable than open-market purchases, they may not, in many cases, alleviate fluctuations in market prices.
Our costs for raw materials are influenced by increases in energy costs. Specifically, some of our key chemicals, including pulping and bleaching chemicals consumed in our paper and packaging mills, are heavily influenced by energy costs. 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 to our customers in the short term. Any sustained increase in chemical or energy prices would reduce our operating margins and potentially require us to limit or cease operations of one or more of our machines.
We face strong competition in our markets.
The paper and forest products industry is highly fragmented, and we face competition from numerous competitors, domestic as well as foreign. Some of our competitors in each of our businesses are large, vertically integrated companies that have greater financial and other resources, greater manufacturing economies of scale, greater energy self-sufficiency and/or lower operating costs than we do. In addition, some of our competitors have less indebtedness than we do, and therefore more of their cash is available for business purposes other than debt service. We may be unable to compete, particularly with respect to our commodity products, during the various stages of the business cycle.
Failure to implement any of our business strategies could result in decreased future sales and net income.
We may be unable to implement fully our strategies or achieve the anticipated results. Our strategies are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. For example, we intend to expand our leadership in the production of higher-growth, higher-margin products such as value-added papers and EWP. This strategy will require us to develop new and innovative product and service characteristics and respond to shifts in customer demand. In addition, we plan to continue to expand our building materials distribution business into new geographical regions, which will require us to identify growing markets and deliver superior customer service. If our manufacturing
businesses fail to deliver quality products at competitive costs, if our distribution business fails to acquire market share in new markets or if we are unable to implement our other key business strategies, our future sales and net income could decrease.
A material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales and/or negatively impact our net income.
Any of our paper or EWP manufacturing facilities, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:
Events such as those listed above have resulted in operating losses in the past. For example, we recently experienced market pulp production losses due to the mechanical failure of one of our digesters at our Wallula, Washington facility. We expect that this interruption will result in a reduction in second quarter 2005 operating income of approximately $2.0 million. Also, in September 2004, damage caused by Hurricane Ivan to our Jackson, Alabama paper mill and the surrounding area led to a temporary shutdown of that facility, resulting in 1.7 days of downtime and a reduction in operating income of approximately $2.8 million. In addition, a fire at our Medford plywood plant in 1998 resulted in significant downtime and caused our plywood sales to drop 20% compared to sales volumes for the prior year. Future events may cause similar shutdowns, which may result in additional downtime and/or cause additional damage to our facilities. Any such downtime or facility damage could prevent us from meeting customer demand for our products and/or require us to make unplanned capital expenditures. If one of these 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 net income.
Some of our paper and wood products are vulnerable to long-term declines in demand due to competing technologies or materials.
Our uncoated free sheet and newsprint compete with electronic transmission and document storage alternatives, as well as with paper grades we do not produce. As the use of these alternatives grows, demand for paper products may decline or shift from one grade of paper to another. For example, demand for newsprint has declined and may continue to decline as newspapers are replaced with electronic media, and demand for our uncoated free sheet for use in pre-printed forms has declined and may continue to decline as the use of desktop publishing and on-demand printing continues to displace traditional forms. Demand for our containerboard may
decline as corrugated paper packaging is replaced with reusable plastic alternatives, particularly with respect to uses for perishable food products. Demand for plywood may decline as customers continue to shift to oriented strand board, a product we do not manufacture. Any substantial shift in demand from our products to competing technologies or materials could result in a material decrease in sales of our products.
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 expand our operations, maintain our equipment, increase our operating efficiency and comply with environmental laws. Our total capital expenditures, excluding acquisitions, were approximately $169 million during 2004, including approximately $114 million for maintenance capital and approximately $8 million for environmental expenditures, and we expect to spend approximately $185 million on capital expenditures during 2005, including approximately $98 million for maintenance capital and approximately $18 million for environmental expenditures. We anticipate our available cash resources and cash generated from operations will be sufficient to fund our operating needs and capital expenditures for at least the next year. However, if we require additional funds, we may not be able to obtain them on favorable terms, or at all. In addition, our debt service obligations reduce our available cash flows. If we cannot maintain or upgrade our equipment as we require or 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 compete effectively in one or more of our markets.
Our operations are impacted by our relationship with OfficeMax.
Until October 2004, we operated as business units of OfficeMax and not as a stand-alone company. During 2004, which period includes the ramp-up of sales to OfficeMax's retail network, sales to OfficeMax represented approximately 47% of our uncoated free sheet sales. During the three months ended March 31, 2005, sales to OfficeMax accounted for approximately 50% of our uncoated free sheet sales volume, including approximately 83% of our office paper sales volume. We anticipate that OfficeMax will continue to be our largest customer and that we will continue to depend on its distribution network for a substantial portion of our uncoated free sheet sales in the future. In connection with the Acquisition, OfficeMax retained and indemnified us against certain liabilities related to our business. Furthermore, we and OfficeMax entered into an additional consideration agreement pursuant to which OfficeMax may be required to make payments to us. Any significant deterioration in OfficeMax's financial condition or our relationship with OfficeMax, or a significant change in OfficeMax's business strategy, could result in OfficeMax's ceasing to be our customer or failing to satisfy its contractual obligations to us, which, in turn, could reduce our sales and subject us to additional material liabilities.
In addition, we may be required to make substantial payments to OfficeMax in connection with agreements we entered into related to the Acquisition. We currently indemnify OfficeMax for breaches of representations, warranties and covenants made in the asset purchase agreement, as well as for all liabilities we assumed, in connection with the Acquisition. Our indemnification obligations with respect to breaches of representations and warranties are, with certain exceptions, subject to a deductible of $20.7 million, and our indemnification obligations are capped at $248.9 million in the aggregate. The additional consideration agreement also requires us to pay OfficeMax, to the extent that the average market price for a benchmark grade of cut-size office paper manufactured within our Paper segment exceeds a specified amount, up to an aggregate amount of $125 million. If we are required to make substantial payments to OfficeMax in respect of our indemnification obligations, the resulting outflows of cash would adversely affect our operating
results and financial condition. In addition, if we are required to make substantial payments to OfficeMax under the additional consideration agreement, our financial condition would be adversely affected.
We are subject to significant environmental regulation and environmental compliance expenditures, as well as other potential environmental liabilities.
We are subject to a wide range of general and industry-specific environmental laws and regulations, particularly with respect to air emissions, wastewater discharges, solid and hazardous waste management, site remediation, forestry operations and endangered species habitats. Our capital expenditures for environmental compliance were approximately $12 million and $8 million in 2003 and 2004, respectively, and we expect to incur approximately $18 million in 2005. We expect to continue to incur significant capital and operating expenditures in order to maintain compliance with applicable environmental laws and regulations. On July 30, 2004, the U.S. Environmental Protection Agency, or EPA, promulgated rules regulating toxic air emissions from wood panel plants. A second rule regulating toxic air emissions from industrial boilers at wood products plants and paper mills was promulgated on September 13, 2004. We are currently evaluating these rules and the amount of capital expenditures that will be required for compliance. We expect to incur capital expenditures ranging from $13 million to $37 million for the period from 2005 to 2007 to comply with these regulations. We may also be required to incur substantial additional capital expenditures to comply with future environmental regulations. If we fail to comply with applicable environmental laws and regulations, we may face civil or criminal fines or penalties or enforcement actions, including orders limiting our operations or requiring corrective measures, installation of pollution control equipment or other remedial actions.
As owners and operators of real estate, we may be liable under environmental laws for cleanup and other damages, including tort liability, resulting from releases of hazardous substances on or from our properties, including asbestos. We may have liability under these laws whether or not we knew of, or were responsible for, the presence of these substances on our property, and, in some cases, our liability may not be limited to the value of the property. OfficeMax retains responsibility for environmental liabilities that occurred with respect to businesses, facilities and other assets not purchased by us in the Acquisition. In addition, OfficeMax generally indemnifies us for hazardous substance releases and other environmental violations that occurred prior to the closing of the Acquisition or arise out of pre-closing operations at the businesses, facilities and other assets purchased by us. However, OfficeMax may not have sufficient funds to fully satisfy its indemnification obligations when required, and, in some cases, we may not contractually be entitled to indemnification by OfficeMax. Furthermore, we are not entitled to indemnification for liabilities incurred due to releases and violations of environmental laws occurring after the closing of the Acquisition. With respect to the timberlands operations, we may have responsibility for certain environmental liabilities that occurred in the period following the Acquisition but prior to the Timberlands Sale. Any material liability we incur would adversely impact our financial condition and could preclude us from making capital expenditures that would otherwise benefit our business.
Enactment of new environmental laws or regulations or changes in existing laws or regulations might require significant expenditures. We may be unable to generate funds or other sources of liquidity and capital to fund unforeseen environmental liabilities or expenditures.
Labor disruptions or increased labor costs could adversely affect our business.
We could experience a material labor disruption or significantly increased labor costs at one or more of our facilities, either in the course of negotiations of a labor agreement or otherwise, any of which could prevent us from meeting customer demand, reducing our sales and profitability. As of March 31, 2005, we had 10,185 employees. Approximately 4,920, or 48%, of our employees work
pursuant to collective bargaining agreements. Several of these agreements have recently expired or will expire in 2005. In December 2004, an agreement covering approximately 100 workers in our corrugated container facility in Salem, Oregon expired, and in March 2005, an agreement covering approximately 860 workers in our paper facilities in St. Helens, Oregon, Vancouver, Washington, Salem, Oregon, and Wallula, Washington expired. We are currently in negotiations with respect to agreements covering these matters. Agreements covering approximately 100 employees in our Jackson, Alabama sheeter facility and approximately 700 workers in our Oakdale, Louisiana and Florien, Louisiana wood products facilities will expire in July 2005. In addition, an agreement covering approximately 100 workers in our Salt Lake City, Utah corrugated container plant will expire in October 2005. We expect the key issues in the negotiations for new collective bargaining agreements to be pensions, health care and work rules and other contract requirements that we believe inhibit our ability to reduce operational costs. We may be unable to renew these agreements without work stoppages or significant increases in costs, which would reduce our operating margins or require us to limit or cease manufacturing operations at one or more of our facilities.
We depend on third parties for transportation services.
We rely primarily on third parties for transportation of the products we manufacture and/or distribute, as well as delivery of our raw materials, including the delivery of our Brazilian veneer to our Alexandria, Louisiana facility. In particular, a significant portion of the goods we manufacture and raw materials we use are transported by railroad or trucks, which are highly regulated. For example, recent Federal Motor Carrier Safety Administration rules limited the maximum hours of service for motor carrier drivers, which may tighten the market for qualified truck drivers and negatively impact transportation rates and delivery times. If any of our third-party transportation providers were to fail to deliver the goods we manufacture or distribute in a timely manner, we may be unable to sell those products at full value, or at all. Similarly, if any of these providers were to fail to deliver raw materials to us in a timely manner, we may be unable to manufacture our products in response to customer demand. In addition, if any of these third parties were to cease operations or cease doing business with us, we may be unable to replace them at reasonable cost. Any failure of a third-party transportation provider to deliver raw materials or finished products in a timely manner could harm our reputation, negatively impact our customer relationships and have a material adverse effect on our financial condition and operating results.
We depend upon the continued services of our senior management team.
Our success depends, in part, on the efforts of our senior management and other key employees. Our senior management team, led by Tom Stephens, our chief executive officer, has significant industry experience and would be difficult to replace. These individuals possess sales, marketing, engineering, manufacturing, financial and administrative skills that are critical to the operation of our business. While we are party to an employment agreement with Mr. Stephens until 2007, if he were to resign prior to the expiration of the initial agreement term or fail to renew the agreement upon expiration, the implementation of our business strategy may be slowed. If we lose or suffer an extended interruption in the services of Mr. Stephens or one of our other senior officers, we may become unable to implement our business strategy, resulting in lower profitability. Moreover, the market for qualified individuals is highly competitive, and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management or other key employees should the need arise. We do not maintain any key-man or similar insurance policies covering any of our senior management or other key employees.
Risks Relating to the Exchange Notes
Our substantial indebtedness could adversely affect our financial condition and impair our ability to operate our business.
We are a highly leveraged company. As of March 31, 2005, on a pro forma basis, we would have had $1,746.1 million of outstanding indebtedness, including $840.0 million of indebtedness under our senior credit facilities (excluding unused availability under our revolving credit facility and outstanding and undrawn letters of credit), $250.0 million of senior floating rate notes, $400.0 million of senior subordinated notes and $256.1 million representing a loan from Boise Land & Timber Corp. This level of indebtedness could have important consequences to our business, financial condition and operating results, including the following:
We may not be able to generate sufficient cash flows to meet our debt service obligations.
Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures depends on our ability to generate cash from our future operations. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
Our business may not generate sufficient cash flow from operations, or future borrowings under our senior credit facilities or from other sources may not be available to us in an amount sufficient, to enable us to repay our indebtedness or to fund our other liquidity needs, including capital expenditure requirements. A substantial portion of our indebtedness bears interest at floating rates and, accordingly, if interest rates rise, our debt service requirements will increase. We may not be able to refinance any of our indebtedness on commercially reasonable terms, or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances, any of which could impede the implementation of our business strategy or prevent us from entering into transactions that would otherwise benefit our business. Additionally, we may not be able to effect such actions, if necessary, on commercially reasonable terms, or at all.
The terms of our senior credit agreement and the indenture governing our notes restrict our ability to operate our business and to pursue our business strategies.
Our senior credit agreement and the indenture governing our notes contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions on us. Our senior credit agreement and the indenture governing our notes limit our ability, among other things, to:
Our senior credit agreement also requires us to achieve specified financial and operating results and maintain compliance with specified financial ratios. Our ability to comply with these ratios may be affected by events beyond our control.
The restrictions contained in our senior credit agreement and the indenture could:
Despite our substantial indebtedness, we may still incur significantly more debt, which could further exacerbate the risks described above.
Although covenants under the credit agreement governing our senior credit facilities and the indenture governing the notes limit our ability and the ability of our present and future restricted subsidiaries to incur additional indebtedness, the terms of the credit agreement and the indenture permit us to incur significant additional indebtedness, including unused availability under our revolving credit facility. As of March 31, 2005, on a pro forma basis, we had $402.9 million available for additional borrowing under our revolving credit facility (after giving effect to $72.1 million of letters of credit outstanding). In addition, neither the credit agreement nor the indenture prevent us from incurring obligations that do not constitute indebtedness as defined in those documents, or prevent our unrestricted subsidiaries from incurring any obligations. To the extent that we incur additional indebtedness or such other obligations, the risks associated with our substantial leverage described above, including our possible inability to service our debt, would increase.
Our failure to comply with the covenants contained in the credit agreement governing our senior credit facilities or our other debt agreements, including as a result of events beyond our control, could result in an event of default which could materially and adversely affect our operating results and our financial condition.
Our credit agreement requires us to maintain specified financial ratios, including a maximum ratio of total indebtedness to EBITDA and a minimum ratio of EBITDA to interest expense, and maximum capital expenditures. In addition, our credit agreement and the indenture governing the notes require us to comply with various operational and other covenants. If there were an event of default under any of our debt instruments that was not cured or waived, the holders of the defaulted debt could cause all amounts outstanding with respect to the debt to be due and payable immediately, which in turn would result in cross defaults under our other debt instruments. Our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments, either upon maturity or if accelerated upon an event of default.
If, when required, we are unable to repay, refinance or restructure our indebtedness under, or amend the covenants contained in, our credit agreement, or if a default otherwise occurs, the lenders under our senior credit facilities could elect to terminate their commitments thereunder, cease making further loans, declare all borrowings outstanding, together with accrued interest and other fees, to be immediately due and payable, institute foreclosure proceedings against those assets that secure the borrowings under our senior credit facilities and prevent us from making payments on the senior subordinated notes. Any such actions could force us into bankruptcy or liquidation, and we cannot provide any assurance that we could repay our obligations under the notes in such an event.
Your right to receive payment on the senior subordinated notes and the guarantees thereof is subordinated to our and the guarantors' senior debt, including our senior credit facilities and the senior notes.
The senior subordinated notes and the related guarantees are contractually junior in right of payment to all of the co-issuers' and the guarantors' existing and future senior debt, including debt under our credit facilities and the senior notes. As a result, upon a bankruptcy, liquidation, receivership, administration or reorganization or similar proceeding relating to the co-issuers' or any of the guarantors (or their property), the holders of senior debt will be entitled to be paid in full in cash before any payment may be made on the senior subordinated notes or the guarantees thereof. In these cases, we may not have sufficient funds to pay all of our creditors and holders of senior subordinated notes may receive less, ratably, than holders of senior debt and, due to the turnover provisions in the indenture, less, ratably, than the holders certain other obligations, including trade payables.
In addition, all payments on the senior subordinated notes and the guarantees will be blocked in the event of a payment default on senior debt and may be blocked for up to 179 consecutive days in the event of certain non-payment defaults on designated senior debt, including borrowings under our senior credit facilities and the senior notes. Moreover, holders of secured debt often are able to interfere with payments on subordinated debt, such as the senior subordinated notes and the guarantees thereof, outside of the payment blockage provisions by limiting the debtor's access to, and use of, its cash balances. As of March 31, 2005, on a pro forma basis, the senior subordinated notes and related guarantees were subordinated to $1,090.0 million of senior debt, consisting of outstanding secured borrowings under our senior credit facilities and the unsecured senior notes. In addition, we had $402.9 million available for additional borrowing under our revolving credit facility, after giving effect to $72.1 million of letters of credit. The co-issuers and the guarantors will be entitled to incur additional senior debt in the future in accordance with the terms of the credit agreement and the indenture.
The notes are structurally subordinated in right of payment to the indebtedness and other liabilities of those of our existing and future subsidiaries that do not guarantee the notes, and to the indebtedness and other liabilities of any guarantor whose guarantee of the notes is deemed to be unenforceable.
None of our existing foreign subsidiaries have provided guarantees of the notes as of the issue date, and such foreign subsidiaries (and any future foreign subsidiaries) are only required to guarantee the notes in the future under very limited circumstances. In addition, the existing unrestricted subsidiaries of Timber, which are bankruptcy remote entities that have issued the installment notes, and any future subsidiary that we properly designate as an unrestricted subsidiary under the indenture, will not provide guarantees of the notes. Moreover, for the reasons described below under "—Federal and state statutes allow courts, under specific circumstances, to void guarantees and require note holders to return payments received from guarantors," the guarantees that are given by Timber Holdings, Boise Holdings and their respective subsidiaries may be unenforceable in whole or in part.
The claims of creditors of any entity that does not guarantee the notes or of any guarantor whose guarantee of the notes is unenforceable will be required to be paid before the holders of the notes have a claim (if any) against those entities and their assets. Therefore, if there was a dissolution, bankruptcy, liquidation or reorganization of any such entity, the holders of the notes would not receive any amounts with respect to the notes from the assets of such entity until after the payment in full of the claims of creditors (including preferred stockholders) of such entity.
As of March 31, 2005, the total liabilities of the consolidated subsidiaries of Timber Holdings and Boise Holdings (other than the co-issuers) that are not guarantors of the notes were $28.3 million, including trade payables.
Since the notes are unsecured, your right to enforce remedies is limited by the rights of holders of secured debt.
In addition to being contractually subordinated, in the case of the senior subordinated notes, to all of our existing and future senior debt, the co-issuers' obligations under each series of these notes and the guarantors' obligations under the guarantees are not be secured by any of our assets, while the co-issuers' obligations and the obligations of the guarantors under our senior credit facilities are be secured by substantially all of the assets and intercompany loans made by the co-issuers, the co-borrowers and the guarantors, and pledges of the outstanding shares of capital stock of all of our domestic subsidiaries and a portion of the capital stock of our foreign subsidiaries. Therefore, the lenders under our senior credit facilities, and the holders of any other secured debt that the co-issuers or the guarantors may incur in the future, will have claims with respect to these assets that have priority over the claims of holders of these notes. As of March 31, 2005, on a pro forma basis, we had $840.0 million of secured debt, all of which consisted of outstanding borrowings and related guarantees under our senior credit facilities. We had $402.9 million of secured debt available for additional borrowing under our revolving credit facility, after giving effect to $72.1 million of letters of credit. See "Description of Senior Credit Facilities."
Federal and state statutes allow courts, under specific circumstances, to void guarantees and require note holders to return payments received from guarantors.
The issuance of the guarantees of the notes by the guarantors may be subject to review under state and federal laws if a bankruptcy, liquidation or reorganization case or a lawsuit, including in circumstances in which bankruptcy is not involved, were commenced at some future date by, or on behalf of, the unpaid creditors of a guarantor. Under the U.S. bankruptcy law and comparable provisions of state fraudulent transfer and conveyance laws, any guarantees of the notes could be voided, or claims in respect of a guarantee could be subordinated to all other existing and future debts of that guarantor if, among other things, and depending upon the jurisdiction whose laws are
applied, the guarantor, at the time it incurs the indebtedness evidenced by its guarantee or, in some jurisdictions, when payments came due under such guarantee:
A court would likely find that a guarantor did not receive reasonably equivalent value or fair consideration for its guarantee unless it benefited substantially directly or indirectly from the issuance of the notes.
The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:
Each guarantee other than the parent guarantee contains a provision intended to limit the guarantor's liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. This provision may not be effective to protect the guarantees from being voided under fraudulent transfer law, or may reduce the guarantor's obligation to an amount that effectively makes the guarantee worthless.
We cannot be certain as to the standard that a court would use to determine whether or not a guarantor was solvent upon issuance of the guarantee or, regardless of the actual standard applied by the court, that the issuance of the guarantee of the notes would not be voided or subordinated to our or any guarantor's other debt.
If a guarantee were legally challenged, such guarantee could also be subject to the claim that, since the guarantee was incurred for Boise LLC's benefit, and only indirectly for the benefit of the guarantor, the obligations of the guarantor were incurred for less than fair consideration. A court could thus void the obligations under a guarantee, subordinate it to a guarantor's other debt or take other action detrimental to the holders of the notes.
If a court voided a guarantee, you would no longer have a claim against such guarantor for amounts owed in respect of such guarantee. In addition, a court might direct you to repay any amounts already received from such guarantor. If a court were to void any guarantee, funds may not be available from any other source to pay our obligations under the notes.
Our holding company structure may impact your ability to receive payment on the notes.
We operate in a multiple tiered holding company structure. Each of Boise Holdings, the parent company of the co-issuers, Timber Holdings, the parent company of Timber, and Timber unconditionally guarantee the notes. However, each of Boise Holdings, Timber Holdings and Timber is a holding company whose entire operating income and cash flow is derived from its subsidiaries and whose only material asset is the capital stock of its subsidiaries. As a result, Boise Holdings',
Timber Holdings' and Timber's guarantees provide little, if any, additional credit support for the notes, and investors should not place undue reliance on such guarantees in evaluating whether to invest in the notes.
Boise LLC, one of the co-issuers, is also a holding company that does not directly conduct any business operations or hold any material asset other than the capital stock of its subsidiaries. Furthermore, Boise Finance, the other co-issuer, does not have any operations or assets of any kind and will not have any sales. Because substantially all of Boise LLC's operating assets are held by its subsidiaries, the co-issuers will rely principally on cash generated from the operations of certain Boise LLC subsidiaries to pay the principal and interest on the notes. The subsidiaries of Boise LLC are separate and distinct legal entities, and may be restricted from making distributions by, among other things, applicable corporate laws, other laws and regulations and the terms of agreements to which they are or may become a party. While the subsidiaries of Boise LLC unconditionally guarantee the notes, such guarantees could be rendered unenforceable for the reasons described above. In the event that such guarantees were rendered unenforceable, the holders of the notes would lose their direct claim against the entities holding substantially all of our total operating assets.
We may not be able to purchase the notes upon a change of control, which would result in a default under the indenture governing the notes and would adversely affect our business and financial condition.
Upon the incurrence of specific kinds of change of control events, we must offer to purchase the notes at 101% of the principal amount thereof plus accrued and unpaid interest to the purchase date. We may not have sufficient funds available to make any required repurchases of the notes, and restrictions under our credit agreement may not allow that repurchase. If we fail to repurchase notes in that circumstance, we will be in default under the indenture governing the notes and, in turn, under our credit agreement. In addition, certain change of control events will constitute an event of default under our credit agreement. A default under our credit agreement would result in an event of default under the indenture if the administrative agent or the lenders accelerate our debt under our senior credit facilities. Upon the occurrence of a change of control we could seek to refinance the indebtedness under our senior credit facilities and the notes or obtain a waiver from the lenders or you as a holder of the notes. We cannot assure you, however, that we would be able to obtain a waiver or refinance our indebtedness on commercially reasonable terms, if at all. Any future debt that we incur may also contain restrictions on repayment of the notes upon a change of control. See "Description of Senior Credit Facilities" and "Description of notes—Change of control."
The interests of the controlling stockholder of our parent may conflict with your interests as a holder of the notes.
Madison Dearborn controls each of the co-issuers and each of the guarantors of the notes, including the co-issuers' parent, Boise Holdings, and Timber Holdings and each of its subsidiaries. Madison Dearborn generally has the ability to elect a majority of the board of directors of Boise Holdings and a majority of the board of directors of Timber Holdings, and is able to select our management team, determine our corporate and management policies and make decisions relating to fundamental corporate actions. The directors have the authority to make decisions affecting our capital structure, including the issuance of additional debt and declaration of dividends. In addition, the directors may authorize transactions, such as acquisitions, that could enhance the equity investment of Madison Dearborn while involving risks to your interest. The interests of Madison Dearborn may not be aligned with your interests as a holder of the notes. See "Certain Relationships and Related Transactions" and "Principal Stockholders."
This prospectus contains forward-looking statements. Statements that are predictive in nature or that depend upon or refer to future events or conditions are forward-looking statements. These statements are often identified by the words "will," "should," "anticipate," "believe," "expect," "intend," "estimate" or similar expressions. These statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. There are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. These factors, risks and uncertainties include, among others, the following:
Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations or financial condition. In view of these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. Subject to our obligations under the Securities Act, we expressly disclaim any obligation to revise publicly any forward-looking statements that have been made to reflect the occurrence of events after the date hereof. For a discussion of other factors that may affect our business, you should read carefully the factors described in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus. We note that the safe harbor for forward-looking statements provided by the Private Securities Litigation & Reform Act of 1995 does not apply to statements made in connection with any initial public offering.
Boise Holdings, Timber Holdings, Timber and Boise LLC are holding companies that conduct substantially all of their operations through their respective subsidiaries. Boise Finance was incorporated solely to facilitate the initial offering of the notes and does not have any operations or assets of any kind and does not have any sales. As a result of the Timberlands Sale, Timber Holdings and Timber do not own any operating subsidiaries.
The following chart summarizes our corporate structure, equity ownership (percentages based on voting power, excluding management options) and principal indebtedness as of March 31, 2005, on an adjusted basis to reflect (1) the amendment and restatement of our senior credit facilities, as described under "Description of Senior Credit Facilities—Amendment and Restatement" and (2) our conversion to a corporation, as described below under "Reorganization as a Corporation."
subsidiaries, are not guarantors of the notes. As of March 31, 2005, Boise LLC's non-guarantor subsidiaries had a total of $84.4 million in assets.
Reorganization as a Corporation
On May 9, 2005, Boise Cascade Holdings, L.L.C. converted from a Delaware limited liability company to a Delaware corporation. In connection with the conversion, all of its Series A common units were exchanged for preferred stock, all of its Series B common units were exchanged for Class B common stock and all of its Series C common units were exchanged for Class C common stock, in each case according to their relative rights and preferences. All of the outstanding capital stock of Boise Cascade Company is held by FPH and OfficeMax. See "Description of Capital Stock."
Unless otherwise indicated, information contained in this prospectus concerning the paper and forest products industry, its segments and related markets (including end-use markets), our general expectations concerning such industry, its segments and related markets and our market position and market share within such industry, its segments and related markets are based on information from independent industry analysts and publications, such asResource Information Systems, Inc., Home Channel News, 2003-2004 Pulp & Paper Global Fact & Price Book, and management estimates. Management estimates are derived from publicly available information released by third-party sources, as well as data from our internal research, and are based on assumptions made by us based on such data and our knowledge of such industry and markets, which we believe to be reasonable. None of the independent industry publications used in this prospectus was prepared on our or our affiliates' behalf and none of the sources cited in this prospectus has consented to the inclusion of any data from its reports, nor have we sought their consent. Market share data is based on sales, in the case of our Building Materials Distribution segment, and, in the case of our other segments, production capacity, unless otherwise indicated. Estimates of historical growth rates in the markets in which we operate are not necessarily indicative of future growth rates in such markets.
Terms of the Exchange Offers
Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we are offering to exchange:
We will accept for exchange any and all outstanding notes validly tendered pursuant to either exchange offer and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date of the applicable exchange offer. We will issue $1,000 principal amount of exchange notes of each series in exchange for each $1,000 principal amount of outstanding notes of the same series accepted in the exchange offers. Any holder may tender some or all of its outstanding notes pursuant to either exchange offer. However, outstanding notes may be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms of the outstanding notes except that:
The exchange notes will evidence the same debt as the outstanding notes and will be entitled to the benefits of the indenture relating to the outstanding notes.
As of the date of this prospectus, $250,000,000 aggregate principal amount of the Senior Floating Rate Notes and $400,000,000 aggregate principal amount of the 71/8% Senior Subordinated Notes were outstanding. We have fixed the close of business on , 2005 as the record date for the exchange offers for purposes of determining the persons to whom this prospectus and the letter of transmittal will be mailed initially.
Holders of outstanding notes do not have any appraisal or dissenters' rights under the General Corporation Law of the State of Delaware or the indenture relating to the notes in connection with the exchange offers. We intend to conduct the exchange offers in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder.
We will be deemed to have accepted validly tendered outstanding notes when, as and if we have given oral or written notice thereof to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the exchange notes from us.
If any tendered outstanding notes are not accepted for exchange because of an invalid tender, the occurrence of specified other events set forth in this prospectus or otherwise, the certificates for
any unaccepted outstanding notes will be returned, without expense, to the tendering holder thereof promptly following the expiration date of the exchange offers.
Holders who tender outstanding notes in the exchange offers will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of outstanding notes pursuant to the exchange offers. We will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the exchange offers. See "—Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "expiration date" for each exchange offer will mean 5:00 p.m., New York City time, on , 2005, unless we, in our sole discretion, extend either exchange offer, in which case the term "expiration date" will mean the latest date and time to which such exchange offer is extended.
In order to extend an exchange offer, we will make a press release or other public announcement, notify the exchange agent of any extension by oral or written notice and will mail to the registered holders an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion, (1) to delay accepting any outstanding notes, to extend the exchange offers or to terminate the exchange offers if any of the conditions set forth below under "—Conditions" have not been satisfied, by giving oral or written notice of any delay, extension or termination to the exchange agent or (2) to amend the terms of the exchange offers in any manner. Such decision will also be communicated in a press release or other public announcement prior to 9:00 a.m., New York City time on the next business day following such decision. Any announcement of delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders.
Interest on the Exchange Notes
The exchange notes will bear interest from their date of issuance. Holders of outstanding notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the exchange notes. Such interest will be paid with the interest payment for the senior floating rate exchange notes on July 15, 2005 and for the 71/8% senior subordinated exchange notes on October 15, 2005. Interest on the outstanding notes accepted for exchange will cease to accrue upon issuance of the exchange notes.
Interest on the senior floating rate exchange notes is payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing on July 15, 2005. Interest on the 71/8% senior subordinated exchange notes is payable semiannually in arrears on April 15 and October 15 of each year, commencing on October 15, 2005.
Procedures for Tendering
Only a holder of outstanding notes may tender outstanding notes in either exchange offer. To tender in the exchange offers, a holder must complete, sign and date the applicable letter of transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the applicable letter of transmittal or transmit an agent's message in connection with a book-entry transfer, and mail or otherwise deliver the applicable letter of transmittal or the facsimile, together with the outstanding notes and any other required documents, to the exchange agent prior to 5:00 p.m., New York City time, on the expiration date. To be tendered effectively, the outstanding notes, letter of transmittal or an agent's message and other required documents must be completed and received by the exchange agent at the address set forth below under "—Exchange Agent"
prior to 5:00 p.m., New York City time, on the expiration date. Delivery of the outstanding notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of the book-entry transfer must be received by the exchange agent prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry transfer facility to, and received by, the exchange agent forming a part of a confirmation of a book-entry, which states that the book-entry transfer facility has received an express acknowledgment from the participant in the book-entry transfer facility tendering the outstanding notes that the participant has received and agrees: (1) to participate in ATOP; (2) to be bound by the terms of the letter of transmittal; and (3) that we may enforce the agreement against the participant.
By executing the letter of transmittal, each holder will make to us the representations set forth above in the third paragraph under the heading "—Purpose and Effect of the Exchange Offers."
The tender by a holder and our acceptance thereof will constitute an agreement between the holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal or agent's message.
The method of delivery of outstanding notes and the letter of transmittal or agent's message and all other required documents to the exchange agent is at the election and sole risk of the holder. As an alternative to delivery by mail, holders may wish to consider overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the exchange agent before the expiration date. No letter of transmittal or old notes should be sent to us. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for them.
Any beneficial owner whose outstanding notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner's behalf. See "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included with the letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member of the Medallion System unless the outstanding notes tendered pursuant to the letter of transmittal are tendered (1) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the letter of transmittal or (2) for the account of a member firm of the Medallion System. In the event that signatures on a letter of transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, the guarantee must be by a member firm of the Medallion System.
If the letter of transmittal is signed by a person other than the registered holder of any outstanding notes listed in this prospectus, the outstanding notes must be endorsed or accompanied by a properly completed bond power, signed by the registered holder as the registered holder's name appears on the outstanding notes with the signature thereon guaranteed by a member firm of the Medallion System.
If the letter of transmittal or any outstanding notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, offices of corporations or others acting in a fiduciary or representative capacity, the person signing should so indicate when signing, and evidence satisfactory to us of its authority to so act must be submitted with the letter of transmittal.
We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the outstanding notes at DTC for the purpose of facilitating the exchange offers, and subject to the establishment thereof, any financial institution that is a participant in DTC's system may make book-entry delivery of outstanding notes by causing
DTC to transfer the outstanding notes into the exchange agent's account with respect to the outstanding notes in accordance with DTC's procedures for the transfer. Although delivery of the outstanding notes may be effected through book-entry transfer into the exchange agent's account at DTC, unless an agent's message is received by the exchange agent in compliance with ATOP, an appropriate letter of transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the exchange agent at its address set forth below on or prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under the procedures. Delivery of documents to DTC does not constitute delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of receipt, acceptance of tendered outstanding notes and withdrawal of tendered outstanding notes will be determined by us in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all outstanding notes not properly tendered or any outstanding notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right in our sole discretion to waive any defects, irregularities or conditions of tender as to particular outstanding notes, provided however that, to the extent such waiver includes any condition to tender, we will waive such condition as to all tendering holders. Our interpretation of the terms and conditions of the exchange offers, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of outstanding notes must be cured within the time we determine. Although we intend to notify holders of defects or irregularities with respect to tenders of outstanding notes, neither we, the exchange agent nor any other person will incur any liability for failure to give the notification. Tenders of outstanding notes will not be deemed to have been made until the defects or irregularities have been cured or waived. Any outstanding notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the letter of transmittal, promptly following the expiration date.
Guaranteed Delivery Procedures
Holders who wish to tender their outstanding notes and (1) whose outstanding notes are not immediately available, (2) who cannot deliver their outstanding notes, the letter of transmittal or any other required documents to the exchange agent or (3) who cannot complete the procedures for book-entry transfer, prior to the expiration date, may effect a tender if:
confirmation of book-entry transfer of the outstanding notes into the exchange agent's account at DTC, and all other documents required by the letter of transmittal are received by the exchange agent within three New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their outstanding notes according to the guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, tenders of outstanding notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date.
To withdraw a tender of outstanding notes in the exchange offers, a letter or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in this prospectus prior to 5:00 p.m., New York City time, on the expiration date of the relevant exchange offer. Any notice of withdrawal must:
All questions as to the validity, form and eligibility, including time of receipt, of the notices will be determined by us, which determination will be final and binding on all parties. Any outstanding notes so withdrawn will be deemed not to have been validly tendered for purposes of the relevant exchange offer and no exchange notes will be issued with respect thereto unless the outstanding notes so withdrawn are validly retendered. Any outstanding notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to the holder promptly after withdrawal, rejection of tender or termination of the relevant exchange offer. Properly withdrawn outstanding notes may be retendered by following one of the procedures described above under "—Procedures for Tendering" at any time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offers, we will not be required to accept for exchange, or exchange notes for, any outstanding notes, and may, prior to the expiration of the exchange offers, terminate or amend the exchange offers as provided in this prospectus before the acceptance of the outstanding notes, if:
If we determine that any of the conditions are not reasonably satisfied, we may (1) refuse to accept any outstanding notes and return all tendered outstanding notes to the tendering holders, (2) extend the exchange offers and retain all outstanding notes tendered prior to the expiration of the exchange offers, subject, however, to the rights of holders to withdraw the outstanding notes (see "—Withdrawal of Tenders") or (3) waive the unsatisfied conditions with respect to either exchange offer and accept all properly tendered outstanding notes which have not been withdrawn.
Exchange Agent
U.S. Bank National Association has been appointed as exchange agent for the exchange offers. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for Notice of Guaranteed Delivery should be directed to the exchange agent addressed as follows:
Delivery to an address other than set forth above will not constitute a valid delivery.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, additional solicitation may be made by telephone or in person by our and our affiliates' officers and regular employees.
We have not retained any dealer-manager in connection with the exchange offers and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offers. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses incurred in connection with these services.
We will pay the cash expenses to be incurred in connection with the exchange offers. Such expenses include fees and expenses of the exchange agent and trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the outstanding notes, which is face value, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes as a result of the exchange offers. The expenses of the exchange offers will be deferred and charged to expense over the term of the exchange notes.
Consequences of Failure to Exchange
The outstanding notes that are not exchanged for exchange notes pursuant to the exchange offers will remain restricted securities. Accordingly, the outstanding notes may be resold only:
Resale of the Exchange Notes
With respect to resales of exchange notes, based on interpretations by the Staff of the SEC set forth in no-action letters issued to third parties, we believe that a holder or other person who receives exchange notes, whether or not the person is the holder, other than a person that is our affiliate within the meaning of Rule 405 under the Securities Act, in exchange for outstanding notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the exchange notes, will be allowed to resell the exchange notes to the public without further registration under the Securities Act and without delivering to the purchasers of the exchange notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires exchange notes in the exchange offers for the purpose of distributing or participating in a distribution of the exchange notes, the holder cannot rely on the position of the Staff of the SEC expressed in the no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where the outstanding notes were acquired by the broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes.
The gross proceeds from the issuance and sale of the outstanding notes (before discounts to initial purchasers) was $650.0 million. We used the proceeds, together with the financings described below, to consummate the Acquisition and to pay related fees and expenses.
The following table reflects the sources and uses of cash related to the Acquisition (dollars in millions):
Sources | | Uses | | |||||
---|---|---|---|---|---|---|---|---|
Revolving credit facility(a) | $ | 40.0 | Acquisition consideration(b) | $ | 2,052.6 | |||
Tranche B term loan | 1,330.0 | Fees and expenses | 140.3 | |||||
Senior floating rate notes | 250.0 | Working capital | 2.0 | |||||
Senior subordinated notes | 400.0 | Loan to Boise Land & Timber Corp.(c) | 164.0 | |||||
Series A common units | 36.4 | |||||||
Series B common units | 302.5 | |||||||
Total sources | $ | 2,358.9 | Total uses | $ | 2,358.9 | |||
These exchange offers are intended to satisfy certain of our obligations under the registration rights agreement. We will not receive any cash proceeds from the issuance of the exchange notes. In consideration for issuing the exchange notes contemplated in this prospectus, we will receive outstanding notes in like principal amount, the form and terms of which are the same as the form and terms of the exchange notes, except as otherwise described in this prospectus.
The following table sets forth our capitalization as of March 31, 2005:
This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Financial Data" and the consolidated financial statements and the notes thereto included in this prospectus.
| Boise Holdings | ||||||||
---|---|---|---|---|---|---|---|---|---|
| As of March 31, 2005 | ||||||||
| Historical | Pro forma | |||||||
| (dollars in millions) (unaudited) | ||||||||
Long-term debt, including current maturities: | |||||||||
Senior credit facilities:(1) | |||||||||
Revolving credit facility | $ | — | $ | — | |||||
Tranche B term loan | 918.0 | — | |||||||
Tranche D term loan | — | 840.0 | |||||||
Senior floating rate notes due 2012 | 250.0 | 250.0 | |||||||
71/8% senior subordinated notes due 2014 | 400.0 | 400.0 | |||||||
Loan from affiliate(2) | 256.1 | 256.1 | |||||||
Total debt | 1,824.1 | 1,746.1 | |||||||
Members'/stockholders' equity: | |||||||||
Series A common units | 37.6 | — | |||||||
Series B common units | 375.5 | — | |||||||
Series C common units | 4.2 | — | |||||||
Preferred stock, $0.01 par value per share, 106,000,000 shares authorized; 66,000,000 shares issued and outstanding pro forma | — | 37.6 | |||||||
Class A common stock, $0.01 par value per share, 150,000,000 shares authorized pro forma; no shares issued and outstanding pro forma | — | — | |||||||
Class B common stock, $0.01 par value per share, 100,000,000 shares authorized pro forma; 41,309,446 shares issued and outstanding pro forma | — | 0.5 | |||||||
Class C common stock, $0.01 par value per share, 10,000,000 shares authorized pro forma; 2,675,819 shares issued and outstanding pro forma | — | — | |||||||
Additional paid in capital | — | 334.0 | |||||||
Retained earnings | — | — | |||||||
Accumulated other comprehensive income | — | 7.4 | |||||||
Total members'/stockholders' equity | 417.3 | 379.5 | |||||||
Total capitalization | $ | 2,241.4 | $ | 2,125.6 | |||||
UNAUDITED PRO FORMA FINANCIAL DATA
We derived the following unaudited pro forma financial data by applying pro forma adjustments to our unaudited balance sheet as of March 31, 2005 and the audited statement of income (loss) of our predecessor for the period January 1 through October 28, 2004, our audited statement of income (loss) for the period October 29 (inception) through December 31, 2004 and our unaudited statement of income (loss) for the three months ended March 31, 2005 included in this prospectus. The unaudited pro forma financial data as of the date and for the periods presented give effect to:
in each case, as if these transactions had occurred on March 31, 2005 for balance sheet purposes and January 1, 2004 for statement of income (loss) purposes, other than the Acquisition and the receipt and application of proceeds received in connection with the Timberlands Sale, which are already reflected in the balance sheet as of that date. We describe the assumptions underlying the pro forma adjustments in the accompanying notes, which should be read in conjunction with the unaudited pro forma financial data.
The unaudited pro forma statements of income (loss) for the year ended December 31, 2004 and for the three months ended March 31, 2005 do not reflect (1) a $43.0 million non-cash charge related to the write-off of the Tranche B term loan deferred financing costs in connection with the amendment and restatement of our senior credit facilities, which was completed in April 2005, and (2) an $11.5 million non-cash charge to income tax provision to establish net deferred tax liabilities assuming that our conversion to a corporation had occurred on March 31, 2005. The $43.0 million charge will be reflected in our statement of income (loss) for the second quarter of 2005. The non-cash charge to income tax will be reflected in our statement of income (loss) in the second quarter of 2005. The unaudited pro forma statements of income (loss) for the three months ended March 31, 2005 also do not reflect $15.2 million in income due to the change in fair value of interest rate swaps that were no longer considered cash flow hedges of our expected future Tranche B term loan variable interest rate payments. These interest rate swaps could no longer be treated as hedges as of March 31, 2005 due to our decision to pursue an amendment and restatement of our senior credit facilities. As a result, the fair value of the interest rate swaps at March 31, 2005, which under hedge accounting was recorded in Series B common units on our balance sheet to be amortized against future interest expense, was immediately recognized in income. On April 28, 2005, these interest rate swaps were redesignated as hedges of the cash flow risk from the LIBOR-based variable interest payments on term loans borrowed under our senior credit facilities. As a result of the accounting treatment of these hedges, we recognized $15.2 million of non-cash income in the first quarter of 2005 and will recognize $5.3 million of non-cash expense in the second quarter of 2005. The net $9.9 million of income recognized during these periods will result in higher interest expense over the remaining life of the interest rate swaps. The above amounts are reflected on our unaudited pro forma balance sheet as of March 31, 2005.
The unaudited pro forma financial data are for informational purposes only and should not be considered indicative of actual results that would have been achieved had the Acquisition, the
Timberlands Sale, the amendment and restatement of our senior credit facilities and/or our conversion to a corporation been consummated on the date or for the periods indicated and do not purport to indicate balance sheet data or results of operations as of any future date or any future period. The unaudited pro forma financial data should be read in conjunction with the information contained in "Use of Proceeds," "Capitalization," "Selected Historical Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the accompanying notes included in this prospectus.
Unaudited Pro Forma Condensed Balance Sheet as of March 31, 2005
| Boise Holdings Historical(2) | Adjustments(5) | Boise Cascade Company Pro Forma | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | |||||||||
ASSETS | ||||||||||
Current | ||||||||||
Cash | $ | 142,074 | $ | 838,000 | (a) | $ | 62,074 | |||
(918,000) | (b) | |||||||||
Receivables | ||||||||||
Trade, less allowances | 364,067 | — | 364,067 | |||||||
Related parties | 48,011 | — | 48,011 | |||||||
Other | 17,309 | — | 17,309 | |||||||
Inventories | 647,705 | — | 647,705 | |||||||
Deferred income taxes | — | 36,801 | (e) | 53,546 | ||||||
16,745 | (c) | |||||||||
Other | 17,494 | — | 17,494 | |||||||
1,236,660 | (26,454 | ) | 1,210,206 | |||||||
Property | ||||||||||
Property and equipment, net | 1,465,180 | — | 1,465,180 | |||||||
Fiber farms and timber deposits | 48,748 | — | 48,748 | |||||||
1,513,928 | — | 1,513,928 | ||||||||
Deferred financing costs | 81,072 | 2,000 | (a) | 40,026 | ||||||
(43,046) | (c) | |||||||||
Goodwill | 11,773 | — | 11,773 | |||||||
Intangibles | 33,715 | — | 33,715 | |||||||
Other assets | 33,319 | — | 33,319 | |||||||
Total assets | $ | 2,910,467 | $ | (67,500 | ) | $ | 2,842,967 | |||
LIABILITIES AND CAPITAL | ||||||||||
Current | ||||||||||
Current portion of long-term debt | $ | — | $ | 8,400 | (a) | $ | 8,400 | |||
Accounts payable | ||||||||||
Trade | 359,940 | — | 359,940 | |||||||
Related parties | 236 | — | 236 | |||||||
Accrued liabilities | ||||||||||
Compensation and benefits | 78,967 | — | 78,967 | |||||||
Interest payable | 15,103 | — | 15,103 | |||||||
Other | 54,355 | — | 54,355 | |||||||
508,601 | 8,400 | 517,001 | ||||||||
Debt | ||||||||||
Long-term debt, less current portion | 1,568,000 | 831,600 | (a) | 1,481,600 | ||||||
(918,000) | (b) | |||||||||
Note payable to related party, net | 256,123 | — | 256,123 | |||||||
1,824,123 | (86,400 | ) | 1,737,723 | |||||||
Other | ||||||||||
Deferred income taxes | — | 48,281 | (e) | 48,281 | ||||||
Compensation and benefits | 135,804 | — | 135,804 | |||||||
Other long-term liabilities | 24,680 | — | 24,680 | |||||||
160,484 | 48,281 | 208,765 | ||||||||
Capital | ||||||||||
Series A common units | 37,595 | (37,595) | (d) | — | ||||||
Series B common units | 375,464 | (375,464) | (d) | — | ||||||
Series C common units | 4,200 | (4,200) | (d) | — | ||||||
Preferred stock | — | 37,595 | (d) | 37,595 | ||||||
Class B common stock | — | 413 | (d) | 413 | ||||||
Class C common stock | — | 27 | (d) | 27 | ||||||
Additional paid in capital | — | (43,046) | (c) | 333,998 | ||||||
16,745 | (c) | |||||||||
371,779 | (d) | |||||||||
(11,480) | (e) | |||||||||
Accumulated other comprehensive income | — | 7,445 | (d) | 7,445 | ||||||
Total capital | 417,259 | (37,781 | ) | 379,478 | ||||||
Total liabilities and capital | $ | 2,910,467 | $ | (67,500 | ) | $ | 2,842,967 | |||
See the accompanying notes to the unaudited pro forma condensed financial statements,which are an integral part of these statements.
Unaudited Pro Forma Condensed Statement of Income (Loss)for the Year Ended December 31, 2004
| Predecessor | Boise Holdings | | | | | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | | | | | | |||||||||||||||||
| January 1 through October 28, 2004 | October 29 (inception) through December 31, 2004 | Acquisition Adjustments(3) | Timberlands Sale Adjustments(4) | Pro Forma for Acquisition and Timberlands Sale | Other Adjustments(6) | Boise Cascade Company Pro Forma | ||||||||||||||||
| | (dollars in thousands) | | ||||||||||||||||||||
Sales | |||||||||||||||||||||||
Trade | $ | 4,417,440 | $ | 779,953 | $ | — | $ | — | $ | 5,197,393 | $ | — | $ | 5,197,393 | |||||||||
Related parties | 444,608 | 92,774 | — | — | 537,382 | — | 537,382 | ||||||||||||||||
4,862,048 | 872,727 | — | — | 5,734,775 | — | 5,734,775 | |||||||||||||||||
Materials, labor and other operating expenses | 4,122,045 | 733,509 | (2,245) | (a) | 119,988 | (d) | 4,951,204 | — | 4,951,204 | ||||||||||||||
(30,459) | (b) | 10,000 | (e) | ||||||||||||||||||||
(1,634) | (c) | ||||||||||||||||||||||
Fiber costs from related parties | 95,537 | 24,451 | — | (119,988) | (d) | — | — | — | |||||||||||||||
Depreciation, amortization and depletion | 193,816 | 20,037 | (87,958) | (e) | — | 127,468 | — | 127,468 | |||||||||||||||
1,573 | (f) | ||||||||||||||||||||||
Selling and distribution expenses | 211,319 | 40,118 | (2,575) | (b) | — | 248,293 | — | 248,293 | |||||||||||||||
(569) | (c) | ||||||||||||||||||||||
General and administrative expenses | 79,317 | 10,608 | (7,806) | (b) | — | 76,945 | — | 76,945 | |||||||||||||||
3,153 | (d) | ||||||||||||||||||||||
(2,539) | (c) | ||||||||||||||||||||||
3,984 | (g) | ||||||||||||||||||||||
(9,772) | (h) | �� | |||||||||||||||||||||
Other (income) expense, net | 25,348 | (23 | ) | (2,176) | (i) | — | 23,149 | — | 23,149 | ||||||||||||||
4,727,382 | 828,700 | (139,023 | ) | 10,000 | 5,427,059 | — | 5,427,059 | ||||||||||||||||
Income from operations | 134,666 | 44,027 | 139,023 | (10,000 | ) | 307,716 | — | 307,716 | |||||||||||||||
Equity in net income of affiliates | 6,308 | — | — | — | 6,308 | — | 6,308 | ||||||||||||||||
Gain on sale of affiliate | 46,498 | — | — | — | 46,498 | — | 46,498 | ||||||||||||||||
Foreign exchange gain | 912 | 1,181 | — | — | 2,093 | — | 2,093 | ||||||||||||||||
Interest expense | (72,124 | ) | (22,182 | ) | (22,774) | (j) | (20,104) | (b) | (126,951 | ) | 4,200 | (a) | (122,751 | ) | |||||||||
(7,730) | (k) | 17,963 | (c) | ||||||||||||||||||||
Interest income | 557 | 2,005 | 8,021 | (l) | (8,021) | (a) | 2,562 | — | 2,562 | ||||||||||||||
(17,849 | ) | (18,996 | ) | (22,483 | ) | (10,162 | ) | (69,490 | ) | 4,200 | (65,290 | ) | |||||||||||
Income (loss) before income taxes | 116,817 | 25,031 | 116,540 | (20,162 | ) | 238,226 | 4,200 | 242,426 | |||||||||||||||
Income tax (provision) benefit | (47,351 | ) | (329 | ) | 47,680 | (m) | — | — | (96,113) | (b) | (96,113 | ) | |||||||||||
Net income (loss) from continuing operations before nonrecurring charges directly attributable to the transactions | $ | 69,466 | $ | 24,702 | $ | 164,220 | $ | (20,162 | ) | $ | 238,226 | $ | (91,913 | ) | $ | 146,313 | |||||||
See the accompanying notes to the unaudited pro forma condensed financial statements,which are an integral part of these statements.
Unaudited Pro Forma Condensed Statement of Income (Loss)for the Three Months Ended March 31, 2005
| Boise Holdings Historical | | | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three months ended March 31, 2005 | Timberlands Sale Adjustments(4) | Pro Forma for Timberlands Sale | Other Adjustments(6) | Boise Cascade Company Pro Forma | ||||||||||||
| (dollars in thousands) | ||||||||||||||||
Sales | |||||||||||||||||
Trade | $ | 1,281,935 | $ | — | $ | 1,281,935 | $ | — | $ | 1,281,935 | |||||||
Related parties | 150,336 | — | 150,336 | — | 150,336 | ||||||||||||
1,432,271 | — | 1,432,271 | — | 1,432,271 | |||||||||||||
Materials, labor and other operating expenses | 1,220,658 | 17,609 | (d) | 1,238,267 | — | 1,238,267 | |||||||||||
Fiber costs from related parties | 17,609 | (17,609 | )(d) | — | — | — | |||||||||||
Depreciation, amortization and depletion | 30,637 | — | 30,637 | — | 30,637 | ||||||||||||
Selling and distribution expenses | 62,336 | — | 62,336 | — | 62,336 | ||||||||||||
General and administrative expenses | 19,204 | — | 19,204 | — | 19,204 | ||||||||||||
Other expense, net | 127 | — | 127 | — | 127 | ||||||||||||
1,350,571 | — | 1,350,571 | — | 1,350,571 | |||||||||||||
Income from operations | 81,700 | — | 81,700 | — | 81,700 | ||||||||||||
Equity in net income of affiliates | — | — | — | — | — | ||||||||||||
Foreign exchange loss | (793 | ) | — | (793 | ) | — | (793 | ) | |||||||||
Change in fair value of interest rate swaps | 15,200 | — | 15,200 | (15,200 | )(c) | — | |||||||||||
Interest expense | (32,079 | ) | (1,989 | )(b) | (32,322 | ) | 1,050 | (a) | (31,272 | ) | |||||||
1,746 | (c) | ||||||||||||||||
Interest income | 1,350 | (917 | )(a) | 433 | — | 433 | |||||||||||
(16,322 | ) | (1,160 | ) | (17,482 | ) | (14,150 | ) | (31,632 | ) | ||||||||
Income (loss) before income taxes | 65,378 | (1,160 | ) | 64,218 | (14,150 | ) | 50,068 | ||||||||||
Income tax (provision) benefit | (639 | ) | — | (639 | ) | (19,883 | )(b) | (20,522 | ) | ||||||||
Net income (loss) | $ | 64,739 | $ | (1,160 | ) | $ | 63,579 | $ | (34,033 | ) | $ | 29,546 | |||||
See the accompanying notes to the unaudited pro forma condensed financial statements,which are an integral part of these statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
Notes to Pro Forma Adjustments Related to the Acquisition
1. Sources and Uses
The following table reflects the sources and uses of cash related to the Acquisition (dollars in millions):
Sources | | Uses | | |||||
---|---|---|---|---|---|---|---|---|
Revolving credit facility(a) | $ | 40.0 | Acquisition consideration(b) | $ | 2,052.6 | |||
Tranche B term loan | 1,330.0 | Fees and expenses | 140.3 | |||||
Senior floating rate notes | 250.0 | Working capital | 2.0 | |||||
Senior subordinated notes | 400.0 | Loan to Boise Land & Timber Corp.(c) | 164.0 | |||||
Series A common units | 36.4 | |||||||
Series B common units | 302.5 | |||||||
Total sources | $ | 2,358.9 | Total uses | $ | 2,358.9 | |||
2. Purchase Price Allocation
As of March 31, 2005, the allocation of the purchase price for the Acquisition is reflected in our balance sheet. The purchase price was determined based on negotiations between Madison Dearborn and OfficeMax, plus fees and expenses. We allocated the purchase price to the assets acquired by us and the liabilities assumed by us in accordance with the asset purchase agreement based on their estimated fair values as of the date of the Acquisition. Estimated fair values were derived through consideration and application of standard valuation approaches and techniques. The initial purchase price allocation may be adjusted within one year of the date of the Acquisition for changes in estimates of the fair value of assets acquired and liabilities assumed. We have not completed the assessment of the fair value of our fiber farms and may allocate a higher portion of the purchase price to those assets. An increase in those values would reduce goodwill.
In connection with the Acquisition, we are evaluating the acquired facilities and organizational structure. In accordance with the provisions of Emerging Issues Task Force, or EITF, 95-3, Recognition of Liabilities in Connection With a Purchase Business Combination, exit activities in connection with the Acquisition will increase goodwill. We have one year from the date of the Acquisition to develop our restructuring plans and adjust goodwill. As of December 31, 2004, we had finalized a portion of our plans in sufficient detail to meet the requirements of EITF 95-3 to record a liability. Accordingly, we recorded a reserve of $14.3 million, most of which related to
severance costs for 310 of our employees. Of that amount, we recorded $7.3 million in our Paper segment, $0.6 million in our Packaging & Newsprint segment, $1.8 million in our Wood Products segment and $4.6 million in our Corporate and Other segment. Most of these costs are expected to be paid in 2005. Cost savings related to these restructuring activities will result primarily from lower salaries and benefits.
At March 31, 2005, approximately $9.7 million of the 2004 restructuring reserves were included in accrued liabilities, compensation and benefits, and $0.3 million was included in accrued liabilities, other. Restructuring reserve liability account activity related to these 2004 charges is as follows:
| Severance | Other | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (dollars in millions) | |||||||||
2004 restructuring reserve | $ | 13.8 | $ | 0.5 | $ | 14.3 | ||||
Charges against reserve | (1.0 | ) | — | (1.0 | ) | |||||
Restructuring reserve at December 31, 2004 | $ | 12.8 | $ | 0.5 | $ | 13.3 | ||||
Charges against reserve | (3.9 | ) | (0.3 | ) | (4.2 | ) | ||||
Reserve charged to goodwill | 0.8 | 0.1 | 0.9 | |||||||
Restructuring reserve at March 31, 2005 | $ | 9.7 | $ | 0.3 | $ | 10.0 | ||||
We expect to complete our restructuring plans by the end of the second quarter of 2005. When those plans are finalized, we expect to record additional restructuring liabilities and increase goodwill.
3. Adjustments to Unaudited Pro Forma Condensed Statement of Income (Loss) for the Acquisition
Description | Amount | Amortization period | |||
---|---|---|---|---|---|
Trade names and trademarks | $ | 22.8 | — | ||
Customer relationships | 6.8 | 5 years | |||
Technology | 5.1 | 3 to 5 years | |||
$ | 34.7 | ||||
| | Assumed rate | Interest expense | |||||
---|---|---|---|---|---|---|---|---|
| Principal amount | January 1 through October 28, 2004 | January 1 through October 28, 2004 | |||||
| (dollars in millions) | |||||||
Revolving credit facility | $ | — | — | % | $ | — | ||
Tranche B term loan(1) | 1,330.0 | 4.895 | % | 54.3 | ||||
Senior floating-rate notes(1) | 250.0 | 6.593 | % | 13.7 | ||||
Senior subordinated notes | 400.0 | 7.125 | % | 23.8 | ||||
$ | 1,980.0 | |||||||
Interest on notes and senior credit facilities, excluding amortization of deferred financing costs | 91.8 | |||||||
Ongoing fees on senior credit facilities | 3.1 | |||||||
Total new cash interest expense | 94.9 | |||||||
Less historical interest expense | 72.1 | |||||||
Adjustment | $ | 22.8 | ||||||
Increase in interest expense if rates on variable rate debt increased by 25 basis points | $ | 780.0 | 0.25 | % | $ | 2.0 | ||
Notes to Pro Forma Adjustments Related to the Timberlands Sale
4. Adjustments to Unaudited Pro Forma Condensed Statement of Income (Loss) for the Timberlands Sale
Notes to Pro Forma Adjustments Related to the Amendment and Restatement of Our Senior Credit Facilities and Conversion to a Corporation
5. Adjustments to Unaudited Pro Forma Condensed Balance Sheet for the Amendment and Restatement of Our Senior Credit Facilities and Conversion to a Corporation
6. Adjustments to Unaudited Pro Forma Condensed Statement of Income (Loss) for the Amendment and Restatement of Our Senior Credit Facilities and Conversion to a Corporation
7. Reconciliation of EBITDA by Segment to Pro Forma EBITDA and Income (Loss) Before Interest and Taxes by Segment
EBITDA is the primary measure used by our chief operating decision makers to evaluate segment operating performance. The following is a reconciliation of EBITDA by segment as set forth in Note 16 to our audited consolidated financial statements included in this prospectus to pro forma EBITDA and pro forma income (loss) before interest and taxes by segment, in each case, for the year ended December 31, 2004.
| Paper | Packaging & Newsprint | Wood Products | Building Materials Distribution | Corporate and Other | Total Boise Holdings | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in millions) | ||||||||||||||||||
EBITDA | $ | 110.4 | $ | 46.8 | $ | 245.4 | $ | 96.5 | $ | (51.7 | ) | $ | 447.4 | ||||||
Benefit costs(a) | 14.2 | 6.5 | 12.0 | 3.5 | 4.6 | 40.8 | |||||||||||||
ESOP(b) | 1.0 | 0.3 | 0.5 | 0.9 | 2.1 | 4.8 | |||||||||||||
COLI(c) | — | — | — | — | (3.1 | ) | (3.1 | ) | |||||||||||
LIFO(d) | 3.8 | — | (1.6 | ) | — | — | 2.2 | ||||||||||||
Captive insurance(e) | — | — | — | — | (4.0 | ) | (4.0 | ) | |||||||||||
Restricted stock(f) | 2.7 | 0.3 | 1.7 | 1.4 | 3.7 | 9.8 | |||||||||||||
Receivables securitization(g) | — | — | — | — | 2.2 | 2.2 | |||||||||||||
Wood fiber adjustment(h) | (0.7 | ) | (2.5 | ) | (6.8 | ) | — | — | (10.0 | ) | |||||||||
Pro forma EBITDA | $ | 131.4 | $ | 51.4 | $ | 251.2 | $ | 102.3 | $ | (46.2 | ) | $ | 490.1 | ||||||
Pro forma depreciation and amortization(i) | 50.0 | 36.1 | 19.9 | 8.8 | 12.7 | 127.5 | |||||||||||||
Pro forma income (loss) before interest and taxes | $ | 81.4 | $ | 15.3 | $ | 231.3 | (j) | $ | 93.5 | $ | (58.9 | ) | $ | 362.6 | |||||
| Paper | Packaging & Newsprint | Wood Products | Building Materials Distribution | Corporate and Other | Total Boise Holdings | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in millions) | ||||||||||||||||||
Depreciation and amortization (historical) | $ | 126.8 | $ | 40.7 | $ | 26.8 | $ | 7.6 | $ | 11.9 | $ | 213.8 | |||||||
Pro forma adjustments (see Notes 3(e) and 3(f) above) | (76.8 | ) | (4.6 | ) | (6.9 | ) | 1.2 | 0.8 | (86.3 | ) | |||||||||
Pro forma depreciation and amortization | $ | 50.0 | $ | 36.1 | $ | 19.9 | $ | 8.8 | $ | 12.7 | $ | 127.5 | |||||||
8. Pro forma Ratio of Earnings to Fixed Charges
The pro forma ratio of earnings to fixed charges gives effect to the Acquisition, the receipt and application of proceeds from Boise Land & Timber Corp. in connection with the Timberlands Sale, the amendment and restatement of our senior credit facilities and our conversion to a corporation as if these transactions had occurred on January 1, 2004 and was calculated using the same methodology used to compute our historical ratio of earnings to fixed charges in Exhibit 12.1 in this Registration Statement on Form S-4. For purposes of calculating the pro forma ratio of earnings to fixed charges, earnings consist of the pro forma income from operations before income taxes plus fixed charges and fixed charges consist of interest expense plus the interest component of rent and the amortization of capitalized expenses related to indebtedness.
| Pro forma Year ended December 31, 2004 | Pro forma Three months ended March 31, 2005 | ||||
---|---|---|---|---|---|---|
| (thousands, except ratios) | |||||
Interest costs | $ | 122,751 | $ | 31,272 | ||
Interest factor related to noncapitalized leases(a) | 2,937 | 663 | ||||
Total fixed charges | $ | 125,688 | $ | 31,935 | ||
Income before income taxes | $ | 242,426 | $ | 50,068 | ||
Undistributed earnings of less than 50% owned entities, net of distributions received | (6,308 | ) | — | |||
Total fixed charges | 125,688 | 31,935 | ||||
Total earnings before fixed charges | $ | 361,806 | $ | 82,003 | ||
Ratio of earnings to fixed charges | 2.88 | 2.57 |
SELECTED HISTORICAL FINANCIAL DATA
We have derived the selected historical financial data as of December 31, 2000, December 31, 2001, March 31, 2004 and October 28, 2004 and for the years ended December 31, 2000 and 2001 from the unaudited financial statements of Boise Forest Products Operations, or our "predecessor," that are not included in this prospectus. We have derived the selected historical financial data as of December 31, 2002 and 2003 and for the years ended December 31, 2002 and 2003, for the three months ended March 31, 2004 and for the period January 1 through October 28, 2004 from the audited and unaudited financial statements of our predecessor that are included in this prospectus. We have derived the selected historical financial data as of December 31, 2004 and for the period October 29 through December 31, 2004 from our audited consolidated financial statements included in this prospectus. We have derived the selected historical financial data as of March 31, 2005 and for the three months ended March 31, 2005 from our unaudited consolidated financial statements included in this prospectus. In the opinion of management, the unaudited financial data presented in this prospectus reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of our results of operations for those periods. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year or any future period.
The selected historical financial data set forth below should be read in conjunction with the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the accompanying notes included in this prospectus.
| Predecessor | Boise Holdings | Predecessor | Boise Holdings | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | October 29 (inception) through December 31, 2004 | Three months ended March 31, | ||||||||||||||||||
| Year ended December 31, | January 1 through October 28, 2004 | |||||||||||||||||||||||
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||
Statements of income (loss) data: | |||||||||||||||||||||||||
Sales | $ | 4,467.9 | $ | 4,251.7 | $ | 4,276.3 | $ | 4,653.7 | $ | 4,862.0 | $ | 872.7 | $ | 1,308.0 | $ | 1,432.3 | |||||||||
Costs and expenses(1) | 4,307.3 | 4,292.9 | 4,287.1 | 4,652.7 | 4,727.3 | 828.7 | 1,289.4 | 1,350.6 | |||||||||||||||||
Income (loss) from operations | 160.6 | (41.2 | ) | (10.8 | ) | 1.0 | 134.7 | 44.0 | 18.6 | 81.7 | |||||||||||||||
Equity in net income (loss) of affiliates(2) | 2.3 | (2.8 | ) | (1.5 | ) | 8.7 | 6.3 | — | 5.1 | — | |||||||||||||||
Gain on sale of equity affiliate(3) | — | — | — | — | 46.5 | — | — | — | |||||||||||||||||
Change in fair value of interest rate swaps(4) | — | — | — | — | — | — | — | 15.2 | |||||||||||||||||
Foreign exchanges gain (loss) | (1.1 | ) | (0.6 | ) | (0.1 | ) | 2.7 | 0.9 | 1.2 | 0.1 | (0.8 | ) | |||||||||||||
Interest expense(5) | (109.5 | ) | (93.5 | ) | (94.8 | ) | (92.9 | ) | (72.1 | ) | (22.2 | ) | (20.6 | ) | (32.1 | ) | |||||||||
Interest income | 2.5 | 1.5 | 1.0 | 0.8 | 0.5 | 2.0 | 0.2 | 1.4 | |||||||||||||||||
Income (loss) before income taxes and cumulative effect of accounting change | 54.8 | (136.6 | ) | (106.2 | ) | (79.7 | ) | 116.8 | 25.0 | 3.4 | 65.4 | ||||||||||||||
Income tax (provision) benefit | (8.6 | ) | 58.2 | 45.3 | 36.5 | (47.3 | ) | (0.3 | ) | (1.3 | ) | (0.7 | ) | ||||||||||||
Income (loss) before cumulative effect of accounting change | 46.2 | (78.4 | ) | (60.9 | ) | (43.2 | ) | 69.5 | 24.7 | 2.1 | 64.7 | ||||||||||||||
Cumulative effect of accounting change, net of income tax(6) | — | — | — | (4.1 | ) | — | — | — | — | ||||||||||||||||
Net income (loss)(7) | $ | 46.2 | $ | (78.4 | ) | $ | (60.9 | ) | $ | (47.3 | ) | $ | 69.5 | $ | 24.7 | $ | 2.1 | $ | 64.7 | ||||||
Balance sheet data (at end of period): | |||||||||||||||||||||||||
Property and equipment and fiber farms, net | $ | 2,404.1 | $ | 2,397.4 | $ | 2,299.0 | $ | 2,251.9 | $ | 2,191.1 | $ | 1,510.5 | $ | 2,231.4 | $ | 1,513.9 | |||||||||
Total assets | 3,301.5 | 3,225.8 | 3,164.8 | 3,123.8 | 3,365.5 | 2,932.1 | 3,196.0 | 2,910.5 | |||||||||||||||||
Total long-term debt, including current portion and short term borrowings | 1,387.5 | 1,276.8 | 1,270.4 | 1,271.3 | 1,289.1 | 1,980.0 | 1,237.2 | 1,824.1 | |||||||||||||||||
Total capital | 820.1 | 871.2 | 803.7 | 728.7 | 864.8 | 369.8 | 778.4 | 417.3 | |||||||||||||||||
Other financial data: | |||||||||||||||||||||||||
Ratio of earnings to fixed charges(8) | N/A | N/A | N/A | N/A | N/A | 2.10 | N/A | 3.00 |
MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Management's Discussion and Analysis of Financial Condition and Results of Operations, the term "Boise Holdings" means Boise Cascade Holdings, L.L.C., which was our name prior to our conversion to a corporation, and its consolidated subsidiaries, and the terms "Boise Forest Products Operations" and "predecessor" mean the paper and forest products assets of OfficeMax Incorporated, or OfficeMax, that we acquired in the Acquisition. The terms "we," "us" and "our" mean Boise Holdings with respect to periods after the Acquisition and Boise Forest Products Operations with respect to periods prior to the Acquisition.
The statements regarding industry outlook and our expectations with respect to our performance, liquidity and capital resources and any other non-historical statements in the discussion and analysis 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 "Risk Factors." Our actual results may differ materially from those contained in or implied by any of these forward-looking statements. You should read the following discussion together with the sections entitled "Risk Factors," "Forward-Looking Statements," "Unaudited Pro Forma Financial Data" and "Selected Historical Financial Data."
Overview
We are a diversified North American paper and forest products company. We conduct our business in the following four operating segments:
Historically, our businesses were operated by OfficeMax. On October 29, 2004, we acquired OfficeMax's paper and forest products assets, other than its timberland operations, for an aggregate purchase price of $2,196.5 million, including approximately $140 million of related fees and expenses. We refer to this acquisition, including the related financing transactions, as the "Acquisition." The purchase price is subject to adjustment based on amounts paid under the additional consideration agreement that we entered into as part of the Acquisition. For information on the additional consideration agreement, see "—Effects of the Acquisition—Material Ongoing Agreements with OfficeMax—Additional Consideration Agreement." Concurrently with the Acquisition, Boise Land & Timber Holdings Corp., or Timber Holdings, an entity that is majority owned by our majority stockholder, Forest Products Holdings, L.L.C., or FPH, acquired OfficeMax's timberlands operations. Since the timberlands operations were not acquired by us and were never part of our business, we do not discuss the results of the timberlands operations in this Management's Discussion and Analysis of Financial Condition and Results of Operations and they are not included in our consolidated financial statements included in this prospectus.
Effects of the Acquisition
Purchase Accounting
We accounted for the Acquisition using the purchase method of accounting. As a result, the purchase price of $2,196.5 million was allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the date of the Acquisition. The initial purchase price allocations may be adjusted within one year of the date of the Acquisition for changes in estimates of the fair value of assets acquired and liabilities assumed. We have not completed the assessment of the fair value of our fiber farms and may allocate a higher portion of the purchase price to those assets, which would reduce goodwill. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of October 29, 2004:
| (dollars in millions) | |||
---|---|---|---|---|
Current assets | $ | 1,045.8 | ||
Property and equipment | 1,456.2 | |||
Fiber farms and timber deposits | 43.5 | |||
Deferred financing costs | 85.9 | |||
Goodwill | 4.1 | |||
Intangible assets | 34.7 | |||
Other assets | 9.9 | |||
Assets acquired | 2,680.1 | |||
Current liabilities | 326.2 | |||
Long-term liabilities | 157.4 | |||
Liabilities assumed | 483.6 | |||
Net assets acquired | $ | 2,196.5 | ||
The excess of the purchase price over the fair values of assets acquired and liabilities assumed was allocated to goodwill. We recorded $1.5 million, $0.9 million, $1.4 million and $0.3 million of goodwill in our Paper, Packaging & Newsprint, Wood Products and Building Materials Distribution segments, respectively.
The amount allocated to intangible assets was attributed to the following categories:
| (dollars in millions) | ||
---|---|---|---|
Trade names and trademarks | $ | 22.8 | |
Customer relationships | 6.8 | ||
Technology | 5.1 | ||
$ | 34.7 | ||
Compared with the predecessor periods presented, the allocation of the purchase price resulted in a decrease in depreciation expense related to our acquired assets because we allocated a lower value to the acquired assets. We also assigned new estimated useful lives, resulting in an average useful life of 11.5 years, compared with nine years for our predecessor. We wrote up the value of the inventory by $20.2 million, resulting in increased costs and expenses recognized by us upon the sale of the inventory during the period October 29 through December 31, 2004.
Restructuring Activities
In connection with the Acquisition, we are evaluating the acquired facilities and organizational structure. In accordance with the provisions of Emerging Issues Task Force, or EITF, 95-3,
Recognition of Liabilities in Connection With a Purchase Business Combination, exit activities in connection with the Acquisition will increase goodwill. We have one year from the date of the Acquisition to develop our restructuring plans and adjust goodwill. As of December 31, 2004, we had finalized a portion of our plans in sufficient detail to meet the requirements of EITF 95-3 to record a liability. Accordingly, we recorded a reserve of $14.3 million, most of which related to severance costs for 310 employees. Of that amount, we recorded $7.3 million in our Paper segment, $0.6 million in our Packaging & Newsprint segment, $1.8 million in our Wood Products segment and $4.6 million in our Corporate and Other segment. Most of these costs are expected to be paid in 2005. During the three months ended March 31, 2005, we recorded an additional restructuring reserve of $0.9 million. This adjustment reflects additional severance costs and increases the total reserve recorded since the Acquisition to $15.2 million, most of which relates to severance costs for 330 employees. At March 31, 2005, we had terminated approximately 270 employees in connection with the Acquisition. Most of these costs will be paid during 2005.
At March 31, 2005, approximately $9.7 million of the 2004 restructuring reserves were included in accrued liabilities, compensation and benefits and $0.3 million was included in accrued liabilities, other. Restructuring reserve liability account activity related to these 2004 charges is as follows:
| Severance | Other | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (dollars in millions) | |||||||||
2004 restructuring reserve | $ | 13.8 | $ | 0.5 | $ | 14.3 | ||||
Charges against reserve | (1.0 | ) | — | (1.0 | ) | |||||
Restructuring reserve at December 31, 2004 | $ | 12.8 | $ | 0.5 | $ | 13.3 | ||||
Charges against reserve | (3.9 | ) | (0.3 | ) | (4.2 | ) | ||||
Reserve charged to goodwill | 0.8 | 0.1 | 0.9 | |||||||
Restructuring reserve at March 31, 2005 | $ | 9.7 | $ | 0.3 | $ | 10.0 | ||||
We expect to complete our restructuring plans by the end of the second quarter of 2005. When those plans are finalized, we expect to record additional restructuring liabilities and increase goodwill.
Increased Leverage
To finance the Acquisition, we incurred $1,330.0 million of term borrowings under our senior credit facilities and issued $250.0 million of senior floating rate notes and $400.0 million of senior subordinated notes. In February 2005, we prepaid $412.0 million of our term borrowings, primarily with the proceeds of a related-party loan from Boise Land & Timber Corp., an affiliate that is majority owned by FPH, and the repayment by Boise Land & Timber Corp. of a loan we had previously made to it. The principal amount of the related-party loan, which initially was $264.8 million, is subject to adjustment based on transactions between us and Boise Land & Timber Corp. Our leverage may make us more vulnerable to a downturn in our business, the paper and forest products industry or the economy in general.
Material Ongoing Agreements with OfficeMax
In connection with the Acquisition, we entered into the following agreements with OfficeMax that could affect our results of operations in future periods:
Paper Supply Agreement. Under this agreement, OfficeMax is required to purchase from us all of its North American requirements for cut-size office paper, to the extent we choose to supply such paper to them, through December 2012, at prices approximating market prices. OfficeMax's
purchase obligations under the agreement will phase out over a four-year period beginning one year after the delivery of notice of termination, but not prior to December 31, 2012.
Additional Consideration Agreement. Under this agreement, we will adjust the purchase price for the Acquisition based on changes in paper prices over the six-year period following the closing of the Acquisition. OfficeMax has agreed to pay us $710,000 for each dollar by which the average market price per ton of a specified benchmark grade of cut-size office paper during any twelve-month period ending on an anniversary of the closing of the Acquisition, or the annual paper price, is less than $800 per ton, and we have agreed to pay $710,000 to OfficeMax for each dollar by which the annual paper price exceeds $920 per ton. Neither party will be obligated to make a payment under the agreement in excess of $45 million in any one year. Payments are also subject to an aggregate cap of $125 million, which declines to $115 million for the period ending on October 29, 2009 and $105 million for the period ending on October 29, 2010, and, in each case, are calculated on a net basis. Any payments made or received pursuant to the additional consideration agreement will be treated as adjustments to the purchase price for the Acquisition and, therefore, will not be reported in our statement of income (loss) but will be included in consolidated EBITDA for purposes of certain covenants under our debt agreements.
Segments
We operate our business using five reportable segments: Paper, Packaging & Newsprint, Wood Products, Building Materials Distribution and Corporate and Other. 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.
Prior to the Acquisition, OfficeMax operated our business within three of its reportable segments: Boise Paper Solutions (which included both the paper and packaging and newsprint businesses), Boise Building Solutions (which included both the building products manufacturing and building materials distribution businesses) and Corporate and Other. We have recast the financial information of our predecessor in this prospectus to conform to our current segments.
Pension and Benefit Plans
The predecessor financial statements treat our participants in OfficeMax's pension plans as participants in multiemployer plans. Accordingly, no assets or liabilities related to OfficeMax's defined benefit pension plans are reflected in the predecessor balance sheet. OfficeMax transferred sufficient assets from its employee defined benefit pension plans to fund our accumulated benefit obligation for the employees of the acquired businesses at a 6.25% discount rate. As a result, we are not required to make any contributions in 2005, but may elect to make voluntary contributions in 2005. At December 31, 2004, our balance sheet reflected an unfunded net projected benefit obligation of $114.4 million, assuming a 5.75% discount rate and a 4.25% rate of compensation increase. In addition, under the terms of the asset purchase agreement, OfficeMax retained all pension costs related to employees who retired or were terminated on or before July 31, 2004, postretirement benefits costs related to employees who retired or were terminated prior to the Acquisition, and all pension and postretirement benefit costs related to active OfficeMax employees. As a result, we expect that our annual pension expense in future periods will be less than amounts included in the predecessor financial statements.
Stand-Alone Company
We have historically operated as business units of OfficeMax and not as a stand-alone company. Financial information for Boise Forest Products Operations that is included in this
Management's Discussion and Analysis of Financial Condition and Results of Operations has been derived from the historical consolidated financial statements of OfficeMax and includes the assets, obligations and activities of OfficeMax for Boise Forest Products Operations. The predecessor financial information included in this prospectus may not reflect what our results of operations, financial position and cash flows would have been had we operated as a separate, stand-alone company without the shared resources of OfficeMax for the periods presented and may not be indicative of our future results of operations, financial position and cash flows.
The predecessor financial information included in this Management's Discussion and Analysis of Financial Condition and Results of Operations includes amounts specifically attributable to Boise Forest Products Operations and a portion of OfficeMax's shared corporate general and administrative expenses. These shared services include, but are not limited to, finance, accounting, legal, information technology and human resource functions. Some of OfficeMax's corporate costs related solely to Boise Forest Products Operations and were allocated totally to these operations in the predecessor financial information included in this prospectus. Shared corporate general and administrative expenses that were not specifically attributable to Boise Forest Products Operations were allocated based on average sales, assets and labor costs. We believe these allocations are a reasonable reflection of the use of the shared services of OfficeMax. However, the amounts could differ from amounts that would have resulted if we had operated on a stand-alone basis and are not necessarily indicative of costs to be incurred in the future.
OfficeMax transferred substantially all of the legacy corporate functions that were employed with respect to Boise Forest Products Operations to us in connection with the Acquisition. We and OfficeMax entered into a mutual administrative services agreement pursuant to which we and OfficeMax exchange certain accounting and financial management, legal and human resource services for terms ending between two and fourteen months after the Acquisition. Substantially all of these services are provided by us for OfficeMax. Fees for substantially all of the services provided under this agreement equal the provider's cost. We eliminated some of the costs of these functions at or immediately following the closing of the Acquisition and expect to eliminate additional costs currently being charged to OfficeMax upon the termination of the transition service period. Our reductions in costs have been reflected in the predecessor financial information through the allocation of costs to OfficeMax. However, there can be no assurance that we will be able to terminate the costs associated with these functions as planned. In the event we are unable to eliminate such functions, our actual operating costs will be higher than those reflected in the predecessor financial information.
Our predecessor participated in OfficeMax's centralized cash management system. Cash receipts attributable to our operations were collected by OfficeMax, and cash disbursements were funded by OfficeMax. Cash advances necessary to fund our major improvements to and replacements of assets, acquisitions and expansion, to the extent not provided through internally generated funds, were provided by OfficeMax's cash or funded with debt. As such, the amounts of cash and cash equivalents recorded on our predecessor balance sheet do not represent the amounts required or generated by our businesses. In each of the periods presented in the predecessor financial information, OfficeMax's total debt and related interest expense were allocated to us based on our average asset balances. We believe the allocations of debt and interest expense are a reasonable reflection of our debt position and interest costs. However, the amounts are not necessarily indicative of debt balances and interest costs in the future. In connection with the Acquisition, we incurred a substantial amount of indebtedness, interest expense and repayment obligations. For more information, see "—Liquidity and Capital Resources" in this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Taxes
For the period October 29 through December 31, 2004 and the three months ended March 31, 2005, most of our businesses were held and operated by limited liability companies, which are not subject to entity-level federal income taxation. The taxes in respect of these operations are payable by our equity holders in accordance with their respective ownership percentage. Boise Holdings and affiliates have made cash distributions to permit the members of Boise Holdings and affiliates to pay these taxes. Both our senior credit facilities and the indenture governing our notes permit these distributions. We will not make these cash distributions following our conversion to a corporation.
In addition to the businesses and assets held and operated by limited liability companies, there are small corporations that are subject to state and local income taxes. As of March 31, 2005, these corporations accrued income taxes of $639,000, which consisted of $459,000 accrued for U.S. federal taxes, $139,000 accrued for U.S. state taxes and $41,000 accrued for Canadian taxes. There are no deferred tax assets or liabilities for these corporations.
In the predecessor periods presented, Boise Forest Products Operations results were included in the consolidated income tax returns of OfficeMax. However, in the predecessor financial statements, income taxes were provided based on a calculation of the income tax expense that would have been incurred if we had operated as a separate taxpayer. Income taxes have been provided for all items included in the statements of income (loss), regardless of when such items were reported for tax purposes or when the taxes were actually paid or refunded.
Wood Fiber Supply
Historically, we have met a significant part of our fiber needs through purchases, at prices that approximated market prices, from OfficeMax's timberlands operations, which in October 2004 were acquired from OfficeMax by Timber Holdings. In February 2005, Timber Holdings sold the timberlands operations to Forest Capital Partners, LLC, an unaffiliated party. We refer to this sale as the "Timberlands Sale." In connection with the Timberlands Sale, we entered into a series of fiber supply agreements with Forest Capital. These fiber supply agreements require Forest Capital to sell specified amounts of timber to us at prices that approximate market prices. We believe that our future cost of fiber may exceed those incurred during historical periods due to increased costs associated with the procurement of fiber, such as higher transportation costs and costs related to identifying potential vendors. We estimate that our wood fiber costs would have been $8 million to $12 million higher in 2004 had the Timberlands Sale occurred on January 1, 2004. We believe that we will be able to satisfy our timber requirements through a combination of purchases under supply agreements, including our fiber supply agreements with Forest Capital, and open-market purchases.
Factors that Affect our Operating Results
The paper and forest products industry is highly cyclical. Over the past two decades, demand for our products has correlated with general economic conditions. The majority of our products are commodities whose prices are determined by industry supply and demand. In addition, our businesses are capital intensive and a large portion of our operating costs is fixed. As a result, relatively modest changes in our sales volumes can have a significant impact on our overall operating profitability.
Our cash flows and earnings are influenced by a variety of factors, including the following:
These factors have historically produced cyclicality in our results of operations, and we expect this cyclicality to continue in future periods.
Commodity and Value-Added Products and Product Margins
Most of our products are widely available and can be readily produced by our competitors. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is primarily based on price, which is determined by supply relative to demand. Generally, market conditions beyond our control determine the price for our commodity products, and the price for any one or more of these products may fall below our cash production costs. Therefore, our profitability with respect to these products depends on managing our cost structure, particularly raw materials and energy prices, which also exhibit commodity characteristics.
Not all of our products are commodities. Our value-added papers and EWP are differentiated from competing products based on superior quality and product design, as well as related customer service. In the case of these value-added products, we are generally able to influence price based on the strength of differentiation and levels of customer service, and are generally able to sell these products at higher margins than our commodity products. In order to reduce our sensitivity to the cyclicality of our industry, a fundamental component of our strategy is to increase production of value-added papers and EWP. However, even value-added papers and EWP are susceptible to commodity dynamics.
Demand
The overall level of demand for the products we make and distribute, and consequently our financial results, are affected by, among other things, manufacturing activity, construction, employment and consumer spending. Accordingly, we believe that our financial results depend in large part on general macroeconomic conditions in North America, as well as on regional economic conditions in the geographic markets in which we operate. While no single product line drives our overall financial performance, individual product lines are influenced by conditions in their respective industries. For example:
Supply
Industry supply of commodity paper and wood products is affected by the number of operational or idled facilities, the building of new capacity or the shutting down of existing capacity. Capacity also tends to increase gradually over time without significant capital expenditures, as manufacturers implement production efficiencies. Generally, more capacity is added or employed when supply is tight and margins are relatively high, and capacity is idled or eliminated when supply significantly exceeds demand and margins are poor. Margins tend to decrease with lower capacity utilization because of downward price pressure and because fixed costs attributable to a product are spread across lower volumes.
While new capacity additions are constrained by the high capital investment and long lead times required to plan, obtain regulatory approvals for and build a new mill, a favorable pricing environment may prompt manufacturers to initiate expansion projects. For example, in response to the strong demand for EWP, some EWP manufacturers, including us, have initiated capacity expansion projects.
In a weak pricing environment, capacity rationalization is typically determined on a mill-by-mill basis. In order 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 can prolong weak pricing environments due to oversupply. Large producers with a mix of high and low cost mills have the financial strength to withstand prolonged market downturns, either operating or idling their higher cost mills based on their expectations of realizing profits from a market recovery. Larger producers have become more disciplined and have responded to the most recent economic decline by rationalizing capacity. From 2000 to 2004, North American uncoated free sheet, containerboard and newsprint capacities have declined by 9%, 4% and 15%, respectively, according to RISI.
Industry supply of commodity papers and wood products is also influenced by the level of imports and overseas production capacity, which has grown in recent years and is expected to continue to grow. While the weakness of the U.S. dollar has mitigated the level of imports in recent years, a strengthening in the U.S. dollar is likely to increase imports of commodity papers and wood products from overseas, thereby offsetting domestic capacity rationalization and putting downward pressure on prices.
Recent Trends
Improving economic trends have increased demand for uncoated free sheet and, combined with the reduction in North American uncoated free sheet capacity and the negative impact on imports of the weak U.S. dollar, have recently led to an improvement in uncoated free sheet prices. According to RISI, the price of 20 lb. copy paper, a benchmark grade of uncoated free sheet, increased from $730 per ton in December 2003 to $825 per ton in April 2005, an increase of 13%. While we and other manufacturers announced price increases for our uncoated free sheet products earlier this year, the majority of the increases have not been accepted by the market. During the first four months of 2005, plywood and lumber prices fell from the historical highs of 2004, but remained strong relative to historical levels.
Sales Volumes and Prices
Set forth below are sales volumes and average net selling prices for our principal products by segment for the years ended December 31, 2002 and 2003, for the periods January 1 through October 28, 2004 and October 29 (inception) through December 31, 2004, for the three months ended March 31, 2004 and 2005, and pro forma for the year ended December 31, 2004:
| Predecessor | Boise Holdings | Predecessor | Boise Holdings | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, | | October 29 (inception) through December 31, 2004 | | Three months ended March 31, | ||||||||||||||||
| January 1 through October 28, 2004 | Pro forma Year ended December 31, 2004 | |||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | |||||||||||||||||
Sales Volumes: | |||||||||||||||||||||
Paper | |||||||||||||||||||||
(thousands of short tons) | |||||||||||||||||||||
Uncoated free sheet | 1,425 | 1,396 | 1,249 | 246 | 1,495 | 386 | 376 | ||||||||||||||
Containerboard (medium) | 123 | 126 | 110 | 23 | 133 | 32 | 31 | ||||||||||||||
Market pulp and other | 179 | 146 | 138 | 27 | 165 | 38 | 30 | ||||||||||||||
1,727 | 1,668 | 1,497 | 296 | 1,793 | 456 | 437 | |||||||||||||||
Packaging & Newsprint | |||||||||||||||||||||
Containerboard (linerboard) | 532 | 524 | 427 | 94 | 521 | 105 | 129 | ||||||||||||||
Newsprint | 406 | 416 | 349 | 81 | 430 | 104 | 97 | ||||||||||||||
938 | 940 | 776 | 175 | 951 | 209 | 226 | |||||||||||||||
Wood Products | |||||||||||||||||||||
(in millions) | |||||||||||||||||||||
LVL (cubic feet) | 7.8 | 9.8 | 10.1 | 1.8 | 11.9 | 2.7 | 3.2 | ||||||||||||||
I-joists (equivalent lineal feet) | 166 | 200 | 192 | 31 | 223 | 50 | 57 | ||||||||||||||
Plywood (sq. ft.) (3/8" basis) | 1,788 | 1,890 | 1,466 | 292 | 1,758 | 464 | 406 | ||||||||||||||
Lumber (board feet) | 395 | 364 | 303 | 60 | 363 | 90 | 87 | ||||||||||||||
Particleboard (sq. ft.) (3/4" basis) | 189 | 153 | 134 | 22 | 156 | 40 | 39 | ||||||||||||||
Building Materials Distribution | |||||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||
Sales | $ | 1,696.1 | $ | 2,047.8 | $ | 2,442.4 | $ | 401.7 | $ | 2,844.1 | $ | 619.2 | $ | 696.2 | |||||||
Average Net Selling Prices: | |||||||||||||||||||||
Paper | |||||||||||||||||||||
(dollars per short ton) | |||||||||||||||||||||
Uncoated free sheet | $ | 722 | $ | 721 | $ | 718 | $ | 768 | $ | 727 | $ | 688 | $ | 752 | |||||||
Containerboard (medium) | 371 | 360 | 388 | 452 | 399 | 336 | 364 | ||||||||||||||
Market pulp and other | 324 | 355 | 400 | 394 | 399 | 370 | 419 | ||||||||||||||
Packaging & Newsprint | |||||||||||||||||||||
Containerboard (linerboard) | $ | 336 | $ | 331 | $ | 360 | $ | 401 | $ | 367 | $ | 312 | $ | 351 | |||||||
Newsprint | 363 | 397 | 434 | 445 | 436 | 430 | 456 | ||||||||||||||
Wood Products | |||||||||||||||||||||
(dollars per unit) | |||||||||||||||||||||
LVL (100 cubic feet) | $ | 1,483 | $ | 1,463 | $ | 1,640 | $ | 1,853 | $ | 1,673 | $ | 1,536 | $ | 1,860 | |||||||
I-joists (1,000 equivalent lineal feet) | 886 | 874 | 978 | 1,032 | 986 | 907 | 1,052 | ||||||||||||||
Plywood (1,000 sq. ft.) (3/8" basis) | 229 | 267 | 336 | 278 | 325 | 326 | 307 | ||||||||||||||
Lumber (1,000 board feet) | 466 | 431 | 552 | 511 | 546 | 518 | 519 | ||||||||||||||
Particleboard (1,000 sq. ft.) (3/4" basis) | 239 | 236 | 305 | 295 | 304 | 273 | 270 |
Operating Costs
Our major costs of production are labor, wood fiber, energy and chemicals. The relative importance of these costs varies by segment. Given the significance of raw materials and energy costs to our total operating expenses and our limited ability to control these costs as compared to other operating costs, volatility in these costs can materially affect our margins. In addition, the timing and degree of price cycles of raw materials and energy differ with respect to each type of raw material and energy we use.
Labor. Our labor costs tend to increase steadily due to inflation in health care as well as wage costs. However, labor costs are not as volatile as our energy and wood fiber costs. See "Business—Employees."
Wood fiber. Our primary raw material is wood fiber, which comprised the following percentages of materials, labor and other operating expenses and fiber costs from related parties for our Paper, Packaging & Newsprint and Wood Products segments: for the period January 1 through October 28, 2004, approximately 16%, 13% and 30%, respectively; for the period October 29 through December 31, 2004, approximately 19%, 13% and 30%, respectively; and for the three months ended March 31, 2005, approximately 16%, 13% and 34%, respectively. Our primary sources of wood fiber are timber and byproducts of timber, such as wood chips, wood shavings and sawdust. Historically, we acquired fiber from the timberlands operations and from outside sources. Since the Timberlands Sale, we have acquired substantially all of our fiber from outside sources, including pursuant to supply agreements with the buyer of the timberlands operations. We believe that our future cost of fiber may exceed that of historical periods due to increased costs associated with the procurement of fiber, such as higher transportation costs and costs related to identifying potential vendors. We convert the wood fibers to pulp at our paper mills. On an aggregate basis, we are able to produce all of our pulp needs, generally purchasing and selling similar amounts on the open market. During 2004, we met 46% of our wood fiber requirements through the timberlands operations and internal wood fiber sources, 46% through private sources and 8% through government sources. During 2003, these percentages were 47%, 42% and 11%, respectively, and in 2002, they were 49%, 39% and 12%, respectively. Wood fiber is a commodity and prices for wood fiber have historically been cyclical due to changing levels of demand. In addition, timber supply may be limited by fire, insect infestation, disease, ice storms, wind storms, flooding, other weather conditions and other natural and man-made causes. In recent years, declines in the timber supply have been severe enough to cause the closure of numerous facilities in some of the regions in which we operate. Any sustained undersupply and resulting increase in wood fiber prices would increase our operating costs. Prices for our products might not reflect increases in wood fiber prices and, as a result, our operating margins would decrease. Our sensitivity to these fluctuations may materially increase due to the Timberlands Sale.
Energy.Energy prices, particularly for electricity, natural gas, and fuel oil, have been volatile in recent years and currently exceedyears. Currently, energy prices are favorable, compared with historical averages. In 2009, energy costs were lower, compared with 2008, due mainly to significantly lower prices and less consumption of electricity and natural gas. Consumption was reduced as a result of the restructuring of the St. Helens mill and the indefinite idling of our D-2 newsprint machine in DeRidder. During first quarter 2010, energy prices were favorable, compared with historical averages. In first quarter 2010, energy costs were higher, compared with first quarter 2009, due mainly to seasonal increases in consumption as a result of exceptionally cold winter weather. Under normal operations, and assuming that the D-2 newsprint machine is not operating, we expect to consume approximately 12 million mmBtu (millions of British thermal units) of natural gas annually. Energy costs comprisedrepresent the following percentages of materials, labor, and other operating expenses, andincluding fiber costs from related parties, for Boise Inc. and the Predecessor in each of the periods listed below:
Boise Inc. | Predecessor | Combined | Predecessor | ||||||||||||||||||
Three Months Ended March 31, 2010 | Three Months Ended March 31, 2009 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2008 | Year Ended December 31, 2007 | |||||||||||||||
Paper | 15 | % | 16 | % | 12 | % | 16 | % | 15 | % | 16 | % | 15 | % | |||||||
Packaging | 14 | % | 14 | % | 10 | % | 15 | % | 14 | % | 15 | % | 14 | % |
We enter into transactions to hedge the variable cash flow risk of natural gas purchases. As of December 31, 2009, we had entered into derivative instruments related to approximately 50% of our Paper, Packaging & Newsprint and Wood Products segments:forecasted natural gas purchases for the period January 12010 through October 28, 2004,2010, approximately 13%, 12%16% of our forecasted natural gas purchases for November 2010 through March 2011, and 3%, respectively;approximately 6% of our forecasted natural gas purchases for the periodApril 2011 through October 292011. As of March 31, 2010, we had entered into derivative instruments related to approximately 50% of our forecasted natural gas purchases for April 2010 through October 2010, approximately 27% of our forecasted natural gas purchases for November 2010 through March 2011, approximately 19% of our forecasted natural gas purchases for April 2011 through October 2011, and approximately 4% of our forecasted natural gas purchases for November 2011 through March 2012. At December 31, 2004, approximately 17%, 14%2009 and 4%, respectively;March 31, 2010, these derivatives included three-way collars and call spreads.
We have elected to account for these instruments as economic hedges. At December 31, 2009, we recorded the fair value of the derivatives, or $1.4 million, in “Accrued liabilities, Other” on our Consolidated Balance Sheet. During the years ended December 31, 2009 and 2008, we recorded the change in fair value of the instruments, or $5.9 million of income and $7.4 million of expense, in “Materials, labor, and other operating
expenses” in our Consolidated Statements of Income (Loss). At March 31, 2010, we recorded the fair value of the derivatives, or $4.8 million, in “Accrued liabilities, Other” on our Consolidated Balance Sheet. During the three months ended March 31, 2005, approximately 15%, 12%2010 and 3%, respectively. When energy prices rise,2009, we recorded the change in fair value of the instruments, or $3.3 million and $2.2 million of expense, respectively, in “Materials, labor, and other operating expenses” in our fuel costs increase, leading to higher costs and lower margins.Consolidated Statements of Income (Loss).
Chemicals.Important chemicals we use in the production of our products include starch, sodium chlorate, caustic, precipitated calcium carbonate, sodium chlorate, sodium hydroxide, dyes, resins and adhesives.dyestuffs and optical brighteners. Purchases of chemicals comprisedrepresent the following percentages of materials, labor, and other operating expenses, andincluding fiber costs from related parties, for Boise Inc. and the Predecessor for each of the periods listed below:
Boise Inc. | Predecessor | Combined | Predecessor | ||||||||||||||||||
Three Months Ended March 31, 2010 | Three Months Ended March 31, 2009 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2008 | Year Ended December 31, 2007 | |||||||||||||||
Paper | 14 | % | 14 | % | 15 | % | 15 | % | 13 | % | 15 | % | 14 | % | |||||||
Packaging | 5 | % | 6 | % | 7 | % | 6 | % | 6 | % | 6 | % | 5 | % |
Total chemical costs in 2009 were lower, compared with 2008, as a result of lower prices and reduced consumption due to the restructuring of the St. Helens mill. Total chemical costs in first quarter 2010 were lower, compared with first quarter 2009, as a result of lower prevailing prices for many of our Paper, Packaging & Newsprintcommodity chemical inputs. Many of our chemicals are purchased under long-term contracts, which provide more stability than open-market purchases. Many of these contracts are renegotiated annually.
Labor. Labor costs tend to increase steadily due to inflation in healthcare and
Wood Products segments: for the period January 1 through October 28, 2004, approximately 12%, 3% and 5%, respectively; for the period October 29 through December 31, 2004, approximately 13%, 3% and 5%, respectively; and for the three months ended wage costs. As of March 31, 2005,2010, we had approximately 12%, 3%4,100 employees. Approximately 60% of these employees work pursuant to collective bargaining agreements. As of March 31, 2010, approximately 33% of our employees were working pursuant to collective bargaining agreements that have expired or will expire within one year, including agreements at the following facility locations: Wallula, Washington; DeRidder, Louisiana; Jackson, Alabama; St. Helens, Oregon; and 6%, respectively.
Raw materialNampa, Idaho. The labor contract at our paper mill in Wallula, Washington (332 employees represented by the AWPPW) expired in March 2009 and energy purchasingwas terminated by the AWPPW in October, 2009. In February 2010, the union employees at Wallula rejected a new collective bargaining agreement that union leadership had recommended unanimously, and pricing. We purchase raw materials and energy usedwe declared an impasse in the manufacturebargaining process and implemented the terms of the last contract offer. Our potential inability to reach a mutually acceptable labor contract at Wallula, or at any of our productsother facilities, could result in, bothamong other things, strikes or other work stoppages or slowdowns by the open marketaffected employees. We are currently negotiating the labor contract at our mill in DeRidder, Louisiana (387 employees represented by the United Steelworkers), which expired in February 2010, and through long-term requirement contracts. These contracts are generallyat our mill in St. Helens, Oregon (122 employees represented by the AWPPW), which expired in March 2010.
In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (the Acts) became law. Based on our preliminary review, the Acts do not appear to create any substantial, immediate costs for us. Because we do not provide retirees with regional suppliers, who agreepost-65 medical coverage, the elimination of the tax deduction related to supply all of our needs for a certain raw material or energy at one of our facilities. These contracts normally contain minimum purchase requirementsthe Medicare Part D subsidy in the Patient Protection and are for terms of various length. They also contain price adjustment mechanisms that take into account changes in market prices. Therefore, although our long-term contracts provide us with supplies of raw materials and energy that are more stable than open-market purchases, in many cases theyAffordable Care Act will not alleviate fluctuations in market prices.
Our costs will riseaffect our financial statements. We are continuing to evaluate the effect, if prices for our raw materials or energy rises and our margins are impacted by how much and how quickly we can pass such price increases through to our customers. Our ability to pass through price increases depends on several factors which vary based on product line. Generally, if energy prices rise, we are not able to pass the incremental cost to customers. However, if wood fiber prices rise, we can generally increase our prices for our products.
Divestitures
In May 2004, we sold our 47% interest in Voyageur Panel, which owned an oriented strand board plant in Barwick, Ontario, Canada, to Ainsworth Lumber Co. Ltd. for $91.2 million in cash. We recorded a $46.5 million pre-tax gain in other (income) expense, net in the Wood Products segment. This item increased net income after tax by $28.4 million during 2004.
We have historically accounted for Voyageur Panel under the equity method. Accordingly, our results do not include Voyageur Panel sales. For the years ended December 31, 2004 and 2003, our Wood Products segment results included $6.3 million and $8.7 million, respectively, of equity in earnings, compared with $0.6 million of equity losses for 2002.
In February 2004, we sold our plywood and lumber facilities in Yakima, Washington. In connection with the sale, we recorded $7.1 million of costs and a $7.4 million reduction in our estimated LIFO reserve for the year ended December 31, 2004. In December 2003, we recorded a $14.7 million pre-tax charge for the write-down of impaired assets at these facilities after our internal reviewany, of the operationsActs on our financial position and indicationsresults of operations. Given the scope and complexity of the current market value of such operations.legislation, it is difficult to predict its future impact.
Our Operating Results of Operations
The following tables settable sets forth ouroperating results of operations in dollars and as a percentage of sales for the predecessor years ended December 31, 2003 and 2002, the predecessor period January 1 through October 28, 2004, the predecessor three months ended March 31, 2004,2010 and 2009, and for the period October 29 throughyears ended December 31, 20042009 and 2008, the Predecessor periods of January 1 through February 21, 2008, and the three monthsyear ended MarchDecember 31, 2005. We have not included period-to-period comparisons2007 (in millions, except percent-of-sales data):
Boise Inc. (a) | Predecessor | |||||||||||||||||||||||||
Three Months Ended March 31, 2010 | Three Months Ended March 31, 2009 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2007 | |||||||||||||||||||||
Sales | ||||||||||||||||||||||||||
Trade | $ | 485.9 | $ | 484.9 | $ | 1,935.4 | $ | 1,990.2 | $ | 258.4 | $ | 1,636.6 | ||||||||||||||
Related parties | 8.2 | 15.4 | 42.8 | 80.4 | 101.5 | 696.0 | ||||||||||||||||||||
494.1 | 500.3 | 1,978.2 | 2,070.6 | 359.9 | 2,332.6 | |||||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||
Materials, labor, and other operating expenses | 408.5 | 413.2 | 1,596.2 | 1,756.8 | 313.9 | 1,948.2 | ||||||||||||||||||||
Fiber costs from related parties | 9.8 | 5.7 | 36.9 | 54.6 | 7.7 | 39.4 | ||||||||||||||||||||
Depreciation, amortization, and depletion | 32.1 | 32.0 | 131.5 | 110.0 | 0.5 | 84.6 | ||||||||||||||||||||
Selling and distribution expenses | 13.7 | 13.8 | 55.5 | 48.3 | 9.1 | 59.5 | ||||||||||||||||||||
General and administrative expenses | 11.6 | 10.4 | 50.3 | 34.2 | 6.6 | 44.5 | ||||||||||||||||||||
St. Helens mill restructuring (b) | 0.1 | 3.6 | 5.8 | 29.8 | — | — | ||||||||||||||||||||
Alternative fuel mixture credits, net | — | — | (207.6 | ) | — | — | — | |||||||||||||||||||
Other (income) expense, net | (0.3 | ) | 0.2 | 4.0 | (3.0 | ) | (1.0 | ) | (4.1 | ) | ||||||||||||||||
475.5 | 478.9 | 1,672.6 | 2,030.7 | 336.8 | 2,172.1 | |||||||||||||||||||||
Income from operations | $ | 18.6 | $ | 21.4 | $ | 305.6 | $ | 39.9 | $ | 23.1 | $ | 160.5 | ||||||||||||||
Sales | ||||||||||||||||||||||||||
Trade | 98.3 | % | 96.9 | % | 97.8 | % | 96.1 | % | 71.8 | % | 70.2 | % | ||||||||||||||
Related parties | 1.7 | 3.1 | 2.2 | 3.9 | 28.2 | 29.8 | ||||||||||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
Costs and expenses | ||||||||||||||||||||||||||
Materials, labor, and other operating expenses | 82.7 | % | 82.6 | % | 80.7 | % | 84.9 | % | 87.2 | % | 83.5 | % | ||||||||||||||
Fiber costs from related parties | 2.0 | 1.1 | 1.9 | 2.6 | 2.2 | 1.7 | ||||||||||||||||||||
Depreciation, amortization, and depletion | 6.5 | 6.4 | 6.6 | 5.3 | 0.1 | 3.6 | ||||||||||||||||||||
Selling and distribution expenses | 2.8 | 2.8 | 2.8 | 2.3 | 2.5 | 2.6 | ||||||||||||||||||||
General and administrative expenses | 2.3 | 2.1 | 2.5 | 1.7 | 1.9 | 1.9 | ||||||||||||||||||||
St. Helens mill restructuring | — | 0.7 | 0.3 | 1.4 | — | — | ||||||||||||||||||||
Alternative fuel mixture credits, net | — | — | (10.5 | ) | — | — | — | |||||||||||||||||||
Other (income) expense, net | (0.1 | ) | — | 0.2 | (0.1 | ) | (0.3 | ) | (0.2 | ) | ||||||||||||||||
96.2 | % | 95.7 | % | 84.5 | % | 98.1 | % | 93.6 | % | 93.1 | % | |||||||||||||||
Income from operations | 3.8 | % | 4.3 | % | 15.5 | % | 1.9 | % | 6.4 | % | 6.9 | % | ||||||||||||||
(a) | We have not included information related to the period of February 1 (Inception) through December 31, 2007, which represents the activities of Aldabra 2 Acquisition Corp., as the operating results related to this period are insignificant. |
(b) | In November 2008, we announced the restructuring of our St. Helens, Oregon, paper mill. Of the $37.6 million restructuring charge recorded in 2008, $29.8 million is included in “St. Helens mill restructuring” and $7.8 million related to inventory write-downs is included in “Materials, labor, and other operating expenses.” |
Sales Volumes and Prices
Set forth below are our segment sales volumes and average net selling prices for net income (loss) or other items below income (loss)
from operations, as we believe the comparisons with predecessor periods are not relevant for an understanding of our business following the Acquisition.
| Predecessor | Boise Holdings | Predecessor | Boise Holdings | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, | | October 29 (inception) through December 31, 2004 | Three months ended March 31, | |||||||||||||||
| January 1 through October 28, 2004 | ||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | |||||||||||||||
| (dollars in millions) | ||||||||||||||||||
Sales | |||||||||||||||||||
Trade | $ | 3,864.3 | $ | 4,217.3 | $ | 4,417.4 | $ | 780.0 | $ | 1,187.4 | $ | 1,282.0 | |||||||
Related parties | 412.0 | 436.4 | 444.6 | 92.7 | 120.6 | 150.3 | |||||||||||||
4,276.3 | 4,653.7 | 4,862.0 | 872.7 | 1,308.0 | 1,432.3 | ||||||||||||||
Costs and expenses | |||||||||||||||||||
Materials, labor and other operating expenses | 3,653.5 | 3,982.2 | 4,122.1 | 733.5 | 1,115.1 | 1,220.7 | |||||||||||||
Fiber costs from related parties | 110.8 | 113.8 | 95.5 | 24.5 | 27.8 | 17.6 | |||||||||||||
Depreciation, amortization and depletion | 233.8 | 229.8 | 193.8 | 20.0 | 57.7 | 30.6 | |||||||||||||
Selling and distribution expenses | 203.6 | 224.4 | 211.3 | 40.1 | 60.1 | 62.4 | |||||||||||||
General and administrative expenses | 73.6 | 69.7 | 79.3 | 10.6 | 19.5 | 19.2 | |||||||||||||
Other (income) expense, net | 11.8 | 32.8 | 25.3 | — | 9.2 | 0.1 | |||||||||||||
4,287.1 | 4,652.7 | 4,727.3 | 828.7 | 1,289.4 | 1,350.6 | ||||||||||||||
Income (loss) from operations | $ | (10.8 | ) | $ | 1.0 | $ | 134.7 | $ | 44.0 | $ | 18.6 | $ | 81.7 | ||||||
(percentage of sales) | |||||||||||||||||||
Sales | |||||||||||||||||||
Trade | 90.4 | % | 90.6 | % | 90.9 | % | 89.4 | % | 90.8 | % | 89.5 | % | |||||||
Related parties | 9.6 | 9.4 | 9.1 | 10.6 | 9.2 | 10.5 | |||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Costs and expenses | |||||||||||||||||||
Materials, labor and other operating expenses | 85.4 | % | 85.6 | % | 84.8 | % | 84.1 | % | 85.3 | % | 85.2 | % | |||||||
Fiber costs from related parties | 2.6 | 2.4 | 2.0 | 2.8 | 2.1 | 1.2 | |||||||||||||
Depreciation, amortization and depletion | 5.5 | 4.9 | 4.0 | 2.3 | 4.4 | 2.2 | |||||||||||||
Selling and distribution expenses | 4.8 | 4.8 | 4.3 | 4.6 | 4.6 | 4.4 | |||||||||||||
General and administrative expenses | 1.7 | 1.5 | 1.6 | 1.2 | 1.5 | 1.3 | |||||||||||||
Other (income) expense, net | 0.3 | 0.8 | 0.5 | — | 0.7 | — | |||||||||||||
100.3 | % | 100.0 | % | 97.2 | % | 95.0 | % | 98.6 | % | 94.3 | % | ||||||||
Income (loss) from operations | (0.3 | )% | — | 2.8 | % | 5.0 | % | 1.4 | % | 5.7 | % | ||||||||
The consolidated financial statements present the financial results of Boise Holdingsprincipal products for the three months ended March 31, 20052010 and 2009, and for the period October 29 (inception) throughyears ended December 31, 2004,2009 and 2008, the Predecessor period of January 1 through February 21, 2008, the combined year ended December 31, 2008, and the financialPredecessor year ended December 31, 2007 (in thousands of short tons and dollars per short ton, except corrugated containers and sheets):
Boise Inc. | Predecessor | Combined | Predecessor | ||||||||||||||||||||
Three Months Ended March 31, 2010 | Three Months Ended March 31, 2009 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2008 | Year Ended December 31, 2007 | |||||||||||||||||
Paper | |||||||||||||||||||||||
Uncoated freesheet | 312 | 303 | 1,251 | 1,200 | (a) | 236 | 1,436 | (a) | 1,475 | ||||||||||||||
Containerboard (medium) | 32 | 30 | 127 | 118 | 19 | 137 | 134 | ||||||||||||||||
Market pulp | 18 | 7 | 58 | 102 | (a) | 20 | 122 | (a) | 145 | ||||||||||||||
362 | 340 | 1,436 | 1,420 | 275 | 1,695 | 1,754 | |||||||||||||||||
Packaging | |||||||||||||||||||||||
Containerboard (linerboard) | 62 | 38 | 253 | 194 | 36 | 230 | 239 | ||||||||||||||||
Newsprint | 54 | 60 | 199 | 326 | 56 | 382 | 415 | ||||||||||||||||
Corrugated containers and sheets (mmsf) | 1,616 | 1,418 | 5,963 | 5,337 | 914 | 6,251 | 6,609 | ||||||||||||||||
Paper | |||||||||||||||||||||||
Uncoated freesheet | $ | 941 | $ | 981 | $ | 954 | $ | 942 | $ | 868 | $ | 930 | $ | 864 | |||||||||
Containerboard (medium) | 408 | 469 | 418 | 481 | 454 | 477 | 435 | ||||||||||||||||
Market pulp | 496 | 383 | 429 | 512 | 535 | 516 | 538 | ||||||||||||||||
Packaging | |||||||||||||||||||||||
Containerboard (linerboard) | $ | 296 | $ | 352 | $ | 301 | $ | 396 | $ | 399 | $ | 397 | $ | 389 | |||||||||
Newsprint | 442 | 588 | 459 | 584 | 494 | 571 | 489 | ||||||||||||||||
Corrugated containers and sheets ($/msf) | 53 | 60 | 58 | 58 | 55 | 57 | 53 |
(a) | The year ended December 31, 2008, and the combined year ended December 31, 2008, included 177,000 and 206,000 short tons, respectively, of uncoated freesheet and 24,000 and 29,000 short tons, respectively, of market pulp from machines at the St. Helens paper mill that have been shut down. |
Operating Results
The following presents a discussion of sales and costs for the three months ended March 31, 2010, compared with the three months ended March 31, 2009, the year ended December 31, 2009, compared with the combined year ended December 31, 2008, and for the combined year ended December 31, 2008, compared with
the year ended December 31, 2007. The combined year ended December 31, 2008, represents the results of Boise Forest Products OperationsInc. for the years prior to 2004,year ended December 31, 2008, and the results of the Predecessor for the period of January 1 through October 28, 2004February 21, 2008. See “—Background” and “—Acquisition of Boise Cascade’s Paper and Packaging Operations” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information related to the Acquisition.
Management believes this combined presentation of the Boise Inc. and Predecessor statement of operations is the most useful comparison between periods. The Acquisition resulted in a new basis of accounting from that previously reported by the Predecessor. However, sales and most operating cost items are substantially consistent with those reflected by the Predecessor. Some inventories were revalued in accordance with purchase accounting rules. Depreciation changed as a result of adjustments to the fair values of property and equipment due to our purchase price allocation. These items, along with changes in interest expense and income taxes, are explained independently where appropriate.
Three Months Ended March 31, 2010, Compared With the Three Months Ended March 31, 2009
Sales
For the three months ended March 31, 2010, total sales decreased $6.2 million, or 1%, to $494.1 million from $500.3 million for the three months ended March 31, 2009. The decrease was driven primarily by lower sales prices in both the Paper and Packaging segments, offset partially by higher sales volumes.
Paper. For the three months ended March 31, 2010, sales increased $1.5 million to $353.5 million from $352.0 million for the three months ended March 31, 2009. The increase was driven primarily by a 3% increase in uncoated freesheet sales volumes, as market conditions improved and less market downtime was taken in first quarter 2010, compared with first quarter 2009. Sales volumes for uncoated freesheet premium and specialty grades increased 12%, compared with first quarter 2009, driven primarily by a 17% growth in sales volumes in our label and release, flexible packaging, and premium office papers. Sales volumes of commodity grades declined 1%. Increased sales volumes were offset partially by lower prices. Overall uncoated freesheet net sales prices decreased 4%, compared with 2009, as both commodity and premium and specialty uncoated freesheet net sales prices decreased, compared with the prior-year period.
Packaging.For the three months ended March 31, 2010, sales decreased $8.9 million, or 6%, to $148.2 million from $157.1 million for the three months ended March 31, 2009. The decrease was driven primarily by lower prices for segment linerboard, newsprint, and corrugated products. Net sales prices for segment linerboard declined 16%, newsprint net sales prices declined 25%, and corrugated products net sales prices decreased 12%, compared with the prior-year period. Lower sales volumes for newsprint also contributed to reduced segment sales. In April 2009, we indefinitely idled our D-2 newsprint machine in DeRidder, Louisiana. These sales price declines were offset partially by increased sales volumes of segment linerboard and corrugated products. Sales volumes of segment linerboard increased 62%, and sales volumes of corrugated containers and sheets improved 14% due to improved market conditions and increased sheet sales from our sheet feeder in Texas.
Costs and Expenses
Materials, labor, and other operating expenses, including the cost of fiber from related parties, decreased $0.6 million to $418.3 million for the three months ended March 31, 2010, compared with $418.9 million for the three months ended March 31, 2009. The decrease was driven primarily by lower prices for energy and chemicals, compared with first quarter 2009, offset partially by increased fiber costs and increased maintenance costs at our DeRidder mill during the annual maintenance outage.
Fiber, energy, and chemical costs were $115.5 million, $63.4million, and $49.1 million, respectively, for the three months ended March 31, 2010, and $94.1 million, $60.8 million, and $50.8 million, respectively, for the
three months ended March 31, 2009. This represents a cost increase of $22.3 million for the three months ended March 31, 2010, compared with the three months ended March 31, 2009. This increase was driven primarily by increased costs for fiber as a result of higher consumption and higher purchased pulp prices. Increased consumption was driven primarily by higher sales and production volumes. These costs were offset partially by lower prices for energy and chemicals.
For the three months ended March 31, 2010, fiber costs increased $17.3 million in our Paper segment and $4.1 million in our Packaging segment, compared with the three months ended March 31, 2009, due primarily to increased fiber consumption as a result of increased sales and production volumes, increased purchased pulp prices, and increased wood prices in our Alabama operating region due to wet weather, which adds to the cost of procuring and delivering wood fiber.
For the three months ended March 31, 2010 compared with the three months ended March 31, 2009, energy costs increased $0.3 million in our Paper segment and $2.3 million in our Packaging segment, due primarily to increased consumption of energy as a result of colder winter weather and increased production, offset partially by lower prices for fuel and electricity.
For the three months ended March 31, 2010, chemical costs decreased $0.1 million in our Paper segment and $1.6million in our Packaging segment, compared with the three months ended March 31, 2009, due primarily to lower prices for chemical inputs.
Depreciation, amortization, and depletion for the three months ended March 31, 2010, was $32.1 million, compared with $32.0 million for the three months ended March 31, 2009.
Selling and distribution expenses decreased $0.1 million to $13.7 million for the three months ended March 31, 2010, compared with $13.8 million for the three months ended March 31, 2009.
General and administrative expenses increased $1.2 million, or 11%, to $11.6 million for the three months ended March 31, 2010, compared with $10.4 million for the three months ended March 31, 2009. As a percentage of sales, general and administrative expenses increased to 2.3% for the three months ended March 31, 2010, compared with 2.1% for the three months ended March 31, 2009.
St. Helens Mill Restructuring. The three months ended March 31, 2010, include $0.1 million of costs associated with the restructuring of our St. Helens paper mill, compared with $3.6 million for the three months ended March 31, 2009. These costs are recorded in our Paper segment and in “St. Helens mill restructuring” in the Consolidated Statement of Income (Loss). These costs included decommissioning costs and other costs related to the restructuring of the mill.
Other (Income) Expense.“Other (income) expense, net” includes miscellaneous income and expense items. For the three months ended March 31, 2010, we had $0.3 million of other income, and for the three months ended March 31, 2004. We refer to the period October 29 (inception) through December 31, 2004, which represents the portion of 2004 following the closing of the Acquisition, as the "last two months of 2004" and the period January 1 through October 28, 2004 as the "first ten months of 2004."
Three Months Ended March 31, 2005 Compared with Three Months Ended March 31, 2004
Sales
For the three months ended March 31, 2005, total sales increased $124.3 million, or 9.5%, to $1.4 billion, compared with the three months ended March 31, 2004. Sales in each of our segments increased during the three months ended March 31, 2005, compared with the same period in the prior year.
Paper. Sales increased $27.1 million, or 8%, to $357.8 million for the three months ended March 31, 2005 from $330.7 million for the three months ended March 31, 2004. The increase was due primarily to a 9% increase in weighted average paper prices, partially offset by a 4% decrease in average sales volume. Sales volume in the three months ended March 31, 2004 was particularly strong as customers ordered paper ahead of announced price increases, and2009, we shipped volume in excess of our production, selling approximately 26,000 tons of paper from inventory during the period. Office papers sold to OfficeMax increased 11% to approximately 187,000 tons during the three months ended March 31, 2005, compared to sales of office paper to Office Max during the same period in the prior year. We also reduced our market-related curtailment by 67%, from 15,000 tons of market-related downtime for the three months ended March 31, 2004 to 5,000 tons of market-related downtime for the same period in 2005. All market-related downtime in the three months ended March 31, 2005 occurred in uncoated free sheet production, primarily in the first part of the quarter. Average paper prices for uncoated free sheet and medium increased 9% and 8%, respectively, for the three months ended March 31, 2005, compared to paper prices for the same period in 2004.
Packaging & Newsprint. Sales increased $40.1 million, or 26%, to $193.8 million for the three months ended March 31, 2005 from $153.7 million for the three months ended March 31, 2004. The increase was primarily due to a 9% increase in weighted average prices for linerboard and newsprint. Newsprint sales volume decreased 7%, while linerboard sales volume increased 23%. Linerboard sales volume increased from the prior year primarily due to a 23% increase in production, which mainly resulted from a decrease in maintenance downtime. Maintenance downtime for linerboard decreased significantly to 4,000 tons during the three months ended March 31, 2005, compared with 24,000 tons during the same period in the prior year. This decrease was the result of the planned replacement of the linerboard machine dryer hood at our DeRidder, Louisiana mill in 2004. Additionally, market curtailment for newsprint for each of the three months ended March 31, 2004 and 2005 was approximately 7,000 tons.
Wood Products. Sales increased $1.1 million to $322.4 million for the three months ended March 31, 2005 from $321.3 million for the three months ended March 31, 2004. Sales of our EWP increased 42% compared to the same period in 2004, due to a 21% increase in prices and a 17% increase in sales volume for LVL, and a 16% increase in prices and a 14% increase in sales volume for I-joists. Average plywood prices declined 6% and average lumber prices were relatively flat for the three months ended March 31, 2005, compared with the same period in the prior year. At the same time, unit sales volume for plywood and lumber decreased 12% and 4%, respectively, primarily due to the sale of our predecessor's plywood and lumber facilities in Yakima, Washington in February 2004.
Building Materials Distribution. Sales increased $77.0 million, or 12%, to $696.2 million for the three months ended March 31, 2005 from $619.2 million for the three months ended March 31, 2004. Prices and sales volume increased by 5% and 7%, respectively, for the three months ended March 31, 2005, as a result of continued strong housing activity and commodity pricing, offset somewhat by extreme weather, including rain in southern California and snow in the Northeast.
Costs and Expenses
Materials, labor and other operating expenses and fiber costs from related parties increased $95.4 million, or 8%, to $1.2 billion for the three months ended March 31, 2005, compared with $1.1 billion during the same period in the prior year. Total unit manufacturing costs, excluding depreciation expense, decreased 1% in our Paper segment and remained flat in our Packaging & Newsprint segment, primarily because of a reduction in payroll and benefit costs, offset by increases in energy, fiber and chemical costs. In the three months ended March 31, 2005, our Wood Products segment experienced higher delivered log costs. As a percentage of sales, however, materials, labor and other operating expenses and fiber costs decreased to 86.4% in the three months ended March 31, 2005 from 87.4% in the same period in the prior year. The percentage decrease was primarily attributable to increased sales in our Building Materials Distribution segment, which resulted primarily from higher sales prices and volume and, to a lesser extent, an increase in sales in our Packaging & Newsprint segment.
Depreciation, amortization and depletion expenses decreased $27.1 million, or 47%, to $30.6 million for the three months ended March 31, 2005, compared with $57.7 million for the same period in the prior year. This decrease was a result of the reduction in the value of property and equipment due to the application of purchase accounting for the Acquisition. As a percentage of sales, depreciation, amortization and depletion expenses decreased to 2.2% in the three months ended March 31, 2005 from 4.4% in the same period in the prior year.
Selling and distribution expenses increased $2.3 million, or 4%, to $62.4 million for the three months ended March 31, 2005, compared with $60.1 million for the same period in the prior year. As a percentage of sales, however, selling and distribution expenses decreased to 4.4% for the three months ended March 31, 2005 from 4.6% in the same period in 2004 because of increased sales in our Building Materials Distribution segment, which resulted from higher sales prices and volume.
General and administrative expenses decreased $0.3 million, or 1%, to $19.2 million for the three months ended March 31, 2005, compared with $19.5 million for the same period in the prior year. General and administrative expenses as a percentage of sales decreased 0.2%, from 1.5% for the three months ended March 31, 2004 to 1.3% for the three months ended March 31, 2005.
Other (income) expense, net, decreased $9.1 million to $0.1had $0.2 million of expense for the three months ended March 31, 2005, compared with $9.2 million of expense for the same period in the prior year. Other (income) expense, net, for the three months ended March 31, 2004 included $7.1 million of expenses related to the sale of our predecessor's plywood and lumber operations in Yakima, Washington.
Reflected in the costs and expenses discussed above is the positive impact of the reduced benefit costs we realized as a result of the Acquisition due to OfficeMax retaining the benefit obligation for all of its former employees. For the three months ended March 31, 2005, our pension and other post-retirement benefit expense decreased $16.3 million, or 70%, to $7.1 million from $23.4 million for the three months ended March 31, 2004. The three months ended March 31, 2004 included $4.3 million of expense for pension curtailment costs, which were included in the $7.1 million of expenses related to the sale of our predecessor's plywood and lumber operations in Yakima, Washington.expense.
Income (Loss) fromFrom Operations
Income (loss) from operations increased $63.1 million, or 339%, for the three months ended March 31, 2005, compared with the same period for the prior year. Both our Paper and Packaging & Newsprint segments reported increased income before interest and taxes for the three
months ended March 31, 2005, while our Wood Products and Building Materials Distribution segments reported decreased income before interest and taxes for the period. Compared with the same period in the prior year, the largest increase in income from operations for the three months ended March 31, 2005 occurred in our Paper segment. Paper segment income before interest and taxes increased $55.0 million due primarily to higher paper prices and, to a lesser extent,2010, decreased depreciation expense and benefit costs. Income before interest and taxes also increased in our Packaging & Newsprint segment, due to increased prices and sales volumes for linerboard and increased prices for newsprint. Income before interest and taxes in our Wood Products segment declined primarily because of the decrease in sales volume and price for plywood. Income before interest and taxes in our Building Materials Distribution segment declined slightly due to an increase in materials, labor and other operating expenses, compared to the same period in the prior year.
Paper. Segment income before interest and taxes increased $55.0$2.8 million to $29.2$18.6 million, compared with $21.4 million for the three months ended March 31, 2005 compared with a loss before interest2009. This decrease was driven primarily by lower sales prices, offset partially by higher sales volumes and taxes of $25.8lower overall costs.
Paper. Segment income increased $5.1 million to $29.9 million for the three months ended March 31, 2004. The improved results were primarily attributable to a 9% increase in average paper prices and a decrease in depreciation expense of approximately $22.5 million, primarily due to the reduction in the value of property and equipment due to the application of purchase accounting for the Acquisition.
Packaging & Newsprint. Segment income before interest and taxes increased $16.9 million to $4.52010, compared with $24.8 million for the three months ended March 31, 2005, compared with2009. This increase was due primarily to increased sales volumes and reduced energy and chemical costs, offset partially by lower sales prices and increased fiber costs.
Packaging. Segment income decreased $6.9 million to a $12.4$5.8 million loss for the three months ended March 31, 2004. The weighted average selling prices for linerboard and newsprint were 9% greater, and average sales volumes were 8% greater, than in the prior year. Partially offsetting the favorable price and volume increases were increased raw materials and energy costs.
Wood Products. Segment income before interest and taxes decreased $11.0 million, or 25%, to $33.1 million for the three months ended March 31, 2005,2010, compared with $44.1 million for the three months ended March 31, 2004. Volume and price increases for our EWP were offset by volume and price decreases for plywood and increased wood fiber costs. Additionally, prior to the sale of our interest in Voyageur Panel, our predecessor accounted for the joint venture under the equity method. Accordingly, while segment results do not include the joint venture's sales, they do include $5.1 million of equity in earnings for the three months ended March 31, 2004. Income before interest and taxes for the three months ended March 31, 2004 included $7.1 million of expense related to the sale of our predecessor's plywood and lumber operations in Yakima, Washington and $6.1 million of income due to changes in LIFO inventory reserves.
Building Materials Distribution. Segment income before interest and taxes decreased $0.5 million, or 2%, to $24.4 million for the three months ended March 31, 2005 from $24.9$1.1 million of income for the three months ended March 31, 2004, despite the increase in sales driven by price and volume increases. Materials, labor and other operating expenses increased $74.0 million, or 13%, from the same period in the prior year,2009. This decrease was due primarily to lower sales prices and additional maintenance costs as a result of a more extensive annual outage at DeRidder in first quarter 2010. This decrease was offset partially by increased sales volumevolumes and higher material costs.reduced chemical prices.
Other
Corporate and Other.Foreign exchange gain (loss). SegmentFor the three months ended March 31, 2010, foreign exchange gain was $0.7 million, compared with a loss before interest and taxes increased $3.3of $0.7 million for the three months ended March 31, 2005,2009. This increase was due primarily to a weakening of the U.S. dollar, compared with other global currencies, particularly the same period in 2004. The amounts forCanadian dollar.
Interest expense.For the three months ended March 31, 2004 included $4.72010 and 2009, interest expense was $16.4 million and $19.5 million, respectively, which includes interest on our debt obligations as well as the amortization of credits relateddeferred financing fees and other. Interest expense decreased period over period due to changesour reduced principal balances. For additional information, refer to our discussion of debt under “Liquidity and Capital Resources” in intersegment profit in inventory reservesthis Management’s Discussion and income from operations that remained with OfficeMax. The amounts forAnalysis of Financial Condition and Results of Operations.
Interest income.For the three months ended March 31, 2005 included an additional $0.9 million of foreign exchange expense compared to the same period in 2004. These unfavorable variances were partially offset by a $2.2 million decrease in depreciation2010 and amortization expense in the2009, interest income was immaterial.
three months ended March 31, 2005, compared withIncome taxes. For the three months ended March 31, 2004,2010, we recorded $7.5 million of income tax benefits and had an effective tax benefit rate of 38.6%. For the three months ended March 31, 2009, we recorded $0.2 million of income tax benefits.
Year Ended December 31, 2009, Compared With the Combined Year Ended December 31, 2008
Sales
For the year ended December 31, 2009, total sales decreased $452.4 million, or 19%, to $1,978.2 million from $2,430.6 million for the combined year ended December 31, 2008. The decrease was driven primarily by a 14% decrease in Paper segment sales due to lower sales volumes, offset partially by higher sales prices, and a 28% decline in Packaging segment sales due primarily to lower sales volumes and prices.
Paper. Sales decreased $237.2 million, or 14%, to $1,420.0 million for the year ended December 31, 2009, from $1,657.2 million for the combined year ended December 31, 2008. This decrease was driven primarily by a 13% decline in uncoated freesheet sales volumes, due primarily to lower production capacity as a result of the St. Helens mill restructuring and to market downtime as a result of declining demand. Sales volumes for uncoated freesheet commodity grades declined 10% and premium and specialty grades declined 19%, compared with 2008, driven primarily by sharp reductions in printing and converting sales volumes. Sales volumes in our label and release, flexible packaging, and premium office grades grew 4%, compared with 2008, as we continued to convert commodity production to label and release at our Wallula, Washington, mill. Reduced volumes were offset partially by higher prices. Overall uncoated freesheet net sales prices increased 3%, compared with 2008, as both commodity and premium and specialty uncoated freesheet net sales prices increased.
Packaging. Sales decreased $228.8 million, or 28%, to $588.4 million for the year ended December 31, 2009, from $817.2 million for the year ended December 31, 2008. The decrease was driven by lower sales volumes for newsprint and corrugated products and lower net sales prices for newsprint and linerboard, offset partially by higher segment linerboard sales volumes and higher corrugated products sales prices. Sales volumes for newsprint declined 48% and for corrugated container and sheets declined 5%, while segment linerboard sales volumes increased 10%, compared with 2008. Net sales prices for segment linerboard declined 24%, newsprint net sales prices declined 20%, and corrugated products net sales prices increased 2% over the same time period. Demand for linerboard was weak early in 2009 but improved later in the year, particularly in export markets.
Newsprint experienced a significant decline in demand during 2009, resulting in market downtime during the period to match production with demand. In April 2009, we indefinitely idled our D-2 newsprint machine in DeRidder, Louisiana.
Costs and Expenses
Materials, labor, and other operating expenses, including the cost of fiber from related parties, decreased $499.9 million, or 23%, to $1,633.1 million for the year ended December 31, 2009, from $2,133.0 million for the combined year ended December 31, 2008. The decrease was driven primarily by lower prices and lower consumption of inputs and by fixed cost reductions as a result of the St. Helens mill restructuring and the idling of our D-2 newsprint machine.
Fiber, energy, and chemical costs were $401.1 million, $188.9 million, and $210.3 million, respectively, for the year ended December 31, 2009, and $530.0 million, $340.2 million, and $262.6 million, respectively, for the combined year ended December 31, 2008. Combined, this represents a cost decrease of $332.5 million in 2009, compared with 2008. This decrease was driven primarily by lower prices for energy, fiber, and chemicals and reduced consumption of inputs due to lower production volumes.
Fiber costs decreased $100.9 million in our Paper segment and $28.0 million in our Packaging segment, compared with the combined year ended December 31, 2008, due primarily to lower prices for wood, purchased pulp, and recycled fiber and reduced overall consumption of fiber.
Compared with the combined year ended December 31, 2008, energy costs decreased $96.4 million in our Paper segment and $54.8 million in our Packaging segment, driven by lower prices for fuel and electricity and reduced consumption of energy.
Chemical costs decreased $40.7 million in our Paper segment and $11.6 million in our Packaging segment, compared with the combined year ended December 31, 2008, due primarily to lower consumption and lower prices for chemical inputs.
Depreciation, amortization, and depletion was $131.5 million for the year ended December 31, 2009, and $110.0 million for the year ended December 31, 2008. The year ended December 31, 2008, included depreciation, amortization, and depletion for the period of February 22, 2008, through December 31, 2008. For the Predecessor period of January 1 through February 21, 2008, depreciation, amortization, and depletion was $0.5 million due to the suspension of depreciation for the assets being held for sale as a result of the Acquisition.
Two Months Ended December 31, 2004
Sales
Total sales during the last two months of 2004 were $872.7 million. Sales in our Paper, Packaging & Newsprint, Wood Products and Building Materials Distribution segments were $230.1 million, $128.9 million, $200.1 million and $401.7 million, respectively, during that period. Our Paper segment realized a 7% price increase for uncoated free sheet, compared to prices for the first ten months of 2004. Containerboard and newsprint prices in our Packaging & Newsprint segment increased 11% and 3%, respectively, compared to prices for the first ten months of 2004. Our Wood Products and Building Distribution segments benefited from favorable prices for EWP, offset by generally lower prices for plywood and lumber, compared to prices for these products in the first ten months of 2004.
Costs and Expenses
The aggregate amount of materials, labor and other operating expenses and fiber costs from related parties was $758.0 million for the last two months of 2004. As a percentage of sales, these expenses and costs were flat compared to the first ten months of 2004.
Selling and distribution expenses were $40.1decreased $1.9 million, inor 3%, to $55.5 million for the last two months of 2004.year ended December 31, 2009, from $57.4 million for the combined year ended December 31, 2008. As a percentage of sales, selling and distribution expenses increased slightly from 4.3%to 2.8% for the first ten months of 2004 to 4.6% inyear ended December 31, 2009, compared with 2.4% for the last two months of 2004, due primarily to higher transportation costs.combined year ended December 31, 2008, as these expenses declined less than sales.
General and administrative expenses were $10.6increased $9.4 million, inor 23%, to $50.3 million for the last two months of 2004. General and administrative expenses asyear ended December 31, 2009, from $40.9 million for the combined year ended December 31, 2008. As a percentage of sales, decreasedgeneral and administrative expenses increased to 2.5% for the year ended December 31, 2009, compared with 1.7% for the combined year ended December 31, 2008, due primarily to increased employee compensation costs. Short-term incentive compensation was suspended for 2008.
St. Helens Mill Restructuring. The years ended December 31, 2009 and 2008, include $5.8 million and $37.6 million, respectively, of costs associated with the restructuring of our St. Helens paper mill. During 2008, $28.8 million of the costs related to noncash expenses. These costs are recorded in our Paper segment. The $5.8 million of costs recorded in 2009 related to decommissioning and other costs associated with the restructuring of the mill and are recorded in “St. Helens mill restructuring” in the last two monthsConsolidated Statement of 2004 from 1.6%Income (Loss). Of the $37.6 million pretax loss recorded in 2008, $7.8 million related to the write-down of
inventory and is recorded in “Materials, labor, and other operating expenses” in the Consolidated Statement of Income (Loss). We recorded the remaining $29.8 million of restructuring costs in “St. Helens mill restructuring” in the Consolidated Statement of Income (Loss). These costs included asset write-downs for plant and equipment at the St. Helens mill, employee-related severance costs, pension curtailment losses, and other miscellaneous costs related to the restructuring of the mill.
Alternative Fuel Mixture Credits. The year ended December 31, 2009, includes $207.6 million of alternative fuel mixture credits, of which $149.9 million is recorded in our Paper segment and $61.6 million is recorded in our Packaging segment. These amounts are net of fees and expenses and before taxes. We also recorded $3.9 million of expenses in our Corporate and Other segment relating to alternative fuel mixture credits. For more information, see “Alternative Fuel Mixture Credits” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Other (Income) Expense, Net.“Other (income) expense, net” includes miscellaneous income and expense items. For the year ended December 31, 2009, we had $4.0 million of expense, compared with $4.0million of income in the combined prior year. In 2009, the $4.0 million of expense consisted primarily of expenses related to the idling of our D-2 newsprint machine at our DeRidder mill. In 2008, the $4.0 million of income consisted primarily of a $2.9 million gain on changes in supplemental pension plans and a net gain on sales of assets of $1.0 million for the first ten monthsPredecessor period of 2004January 1 through February 21, 2008.
Income From Operations. Income from operations for the year ended December 31, 2009, increased $242.6 million to 1.2%$305.6 million, compared with $63.0 million for the combined year ended December 31, 2008. This increase was driven primarily by reduced input and fixed costs, alternative fuel mixture credits for our use of renewable biomass fuels, and the restructuring of our St. Helen’s mill in late 2008. This increase was offset partially by reduced depreciation in 2008 due to the last two monthssuspension of 2004. This decrease was due in part to our lower benefit costsdepreciation for the assets being held for sale as a result of the Acquisition.
Income from Operations
Income from operations for the last two months of 2004 was $44.0 million. Each operating segment reported positive results for that period, with income before interestAcquisition, reduced volumes, and taxes in our Paper segment of $19.0 million,lower net sales prices in our Packaging & Newsprint segment of $7.3 million, in our Wood Products segment of $15.6 million and in our Building Materials Distribution segment of $10.1 million. As a percentage of sales, income from operations increased to 5%segment. Income for the last two months of 2004 from 3% forcombined year ended December 31, 2008, was negatively affected by approximately $20.5 million due to the first ten months of 2004. This improvement reflects a decrease in depreciation, amortization and depletion expenses as a percentage of sales from 4%DeRidder outage in the first ten months of 2004quarter and by $10.2 million due to 2%inventory purchase price adjustments.
Paper. Segment income increased $209.3 million, or 392%, to $262.7 million in 2009 from $53.4 million in the last two monthscombined year ended December 31, 2008. The impact of 2004,the alternative fuel mixture credits was $149.9 million. The remainder of this increase was due primarily to reduced input and fixed costs, and the restructuring of our St. Helen’s mill in late 2008, offset partially by lower sales volumes and reduced depreciation due to a lower depreciable asset basethe suspension of depreciation for the assets being held for sale as a result of the Acquisition. IncomeThe combined year ended December 31, 2008, included $7.4 million of expense from operationsinventory purchase accounting adjustments.
Packaging. Segment income increased $40.3 million, or 150%, to $67.1 million in 2009 from $26.8 million in the combined year ended December 31, 2008. The impact of the alternative fuel mixture credits was $61.6 million. The remainder of this increase was due primarily to reduced input and fixed costs (offset partially by lower net sales prices and sales volumes) and reduced depreciation due to the suspension of depreciation for the last two months of 2004 reflects a $20.2 million non-cash charge due to an inventory valuation adjustment recordedassets being held for sale as a result of the Acquisition. The combined year ended December 31, 2008, included $20.5 million in costs due to the planned DeRidder outage in the first quarter and $2.8 million of expense from inventory purchase accounting adjustments.
Ten Months Ended October 28, 2004 Compared with 2003Other
Foreign Exchange Gain (Loss).For the year ended December 31, 2009, foreign exchange gain was $2.6 million, compared with a $4.6 million loss for the same period in the combined year ended December 31, 2008. This gain was driven primarily by weakening of the U.S. dollar, compared with other global currencies, particularly the Canadian dollar.
Loss on Extinguishment of Debt. For the year ended December 31, 2009, loss on extinguishment of debt was $66.8 million as a result of the October 2009 debt restructuring. For additional information, refer to our discussion under “Debt Issuance and Restructuring” and “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Interest Expense.For the year ended December 31, 2009, interest expense was $74.3 million, of which $56.9 million consisted of cash interest payments related to debt under our senior secured credit facilities. The remaining amount of interest expense consisted primarily of noncash items, including $11.3 million for amortization of deferred financing fees. For the combined year ended December 31, 2008, interest expense was $82.9 million, of which $72.1 million consisted of cash interest payments related to debt under our senior secured credit facilities. The remaining amount of interest expense consisted primarily of noncash items, including $9.3 million for amortization of deferred financing fees. For additional information, refer to our discussion of debt under “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The debt of Boise Cascade was not allocated to the Predecessor in the financial statements included in this prospectus.
Interest Income.For the year ended December 31, 2009, interest income was $0.4 million, compared with $0.8 million for the combined year ended December 31, 2008.
Income Taxes. For the year ended December 31, 2009, we recorded $20.4 million of income tax expense and had an effective tax rate of 12.1%. We increased our income tax expense in 2009 as a result of our uncertain tax position regarding alternative fuel mixture credits. This increase was offset by a $45.7 million tax benefit from the release of valuation allowances. For the year ended December 31, 2008, we recorded $5.8 million of income tax benefits related to losses incurred during the year. We did not recognize an additional $12.5 million of tax benefits from those losses because the realization of those benefits was not considered more likely than not.
Combined Year Ended December 31, 2008, Compared With the Year Ended December 31, 2007
Sales
TotalFor the combined year ended December 31, 2008, total sales increased $0.2 billion, or 4%, to $4.9 billion in the first ten months of 2004 from $4.7 billion in the full year 2003. Sales in our Building Materials Distribution and Wood Products segments increased 19% and 4%, respectively, for the first ten months of 2004, compared with full year 2003 sales. Paper sales decreased 9% primarily due to decreased sales volume given the shorter reporting period and relatively flat paper prices. Packaging & Newsprint sales decreased
11% primarily due to a 17% decrease in sales volume given the shorter reporting period, partially offset by a 9% increase in weighted average prices. Despite the shorter reporting period, Wood Products sales increased 4% due to plywood and lumber prices that were 26% and 28%, respectively, higher for the first ten months in 2004 than for the full year 2003, as well as increased prices for our EWP. Building Materials Distribution sales rose 19% primarily due to 22% higher prices, offset by a 2% decrease in sales volume given the shorter reporting period.
Paper. Sales decreased $116.7 million, or 9%, to $1.1 billion in the first ten months of 2004 from $1.3 billion in the full year 2003. The decrease was due primarily to an 11% decrease in sales volume of our uncoated free sheet as stronger average monthly sales volume was more than offset by the shorter reporting period in 2004. In 2004, we began to sell our paper products to OfficeMax's retail operation. The volume of our office paper sales to OfficeMax was 579,000 tons for the first ten months in 2004. The increase in average monthly sales volume, as a result of increased sales to OfficeMax, led to an 80% decrease in market-related downtime from 172,000 tons of market-related downtime in the full year 2003 to 34,750 tons of market-related downtime in the first ten months of 2004. Average paper prices for uncoated free sheet were relatively flat for the first ten months of 2004 compared to the full year 2003, as paper prices rebounded during the second half of 2004 from a decline experienced during the second half of 2003.
Packaging & Newsprint. Sales decreased $72.5 million, or 11%, to $565.6 million in the first ten months of 2004 from $638.1 million in the full year 2003. The decrease was primarily due to decreased newsprint and containerboard sales volumes of 16% and 19%, respectively, in the first ten months of 2004 due primarily to the shorter reporting period, partially offset by a 9% increase in weighted average prices for linerboard and newsprint. Maintenance downtime in linerboard more than doubled to 24,000 tons in 2004 as a result of a planned replacement of the linerboard machine dryer hood at our DeRidder, Louisiana mill.
Wood Products. Sales increased $44.2$98.0 million, or 4%, to $1.2 billion$2,430.6 million from $2,332.6 million for the year ended December 31, 2007. The increase was driven by a 4% increase in both Paper and Packaging segment sales, due primarily by higher sales prices for uncoated freesheet, offset partially by lower sales volumes.
Paper. Sales increased $61.0 million, or 4%, to $1,657.2 million for the combined year ended December 31, 2008, from $1,596.2 million for the year ended December 31, 2007. This increase was driven by improved pricing for uncoated freesheet and medium in 2008, offset partially by lower pulp pricing. Commodity uncoated freesheet sales prices increased 8%, compared with 2007, while premium and specialty prices increased 6%. Commodity uncoated freesheet volumes were down 6% from 2007 due primarily to declining demand across most grades, particularly more mature printing and converting grades, including envelope and offset grades. To balance production with demand, we took market downtime in the first ten monthssecond half of 20042008. Premium and specialty sales volumes were up 5%, compared with the prior year, driven by a 14% increase in sales of premium office papers and label and release and flexible packaging grades.
Packaging.Sales increased $34.1 million, or 4%, to $817.2 million for the combined year ended December 31, 2008, from $1.1 billion in$783.1 million for the full year 2003.ended December 31, 2007. The increase was due primarily to strong product pricing. Averagehigher prices for our EWP increased 12%linerboard, corrugated containers and sheets, and newsprint, offset partially by lower sales volumes. Linerboard pricing to third parties was 2% higher in the first ten months of 2004 compared2008, corrugated container and sheet pricing
improved 8%, and newsprint pricing improved 17%. Overall sales volumes for linerboard to the full year 2003. Asthird parties and newsprint decreased 4% and 8%, respectively, primarily as a result of increased demand from new residential constructionthe planned DeRidder outage in first quarter 2008, downtime related to Hurricanes Gustav and Ike in the third quarter 2008, market-related downtime taken in the fourth quarter, and production of lower interest rates, average plywood prices rose 26%basis weight newsprint grades. Corrugated container and average lumber prices rose 28%,sheet volumes decreased 5% in each case, compared to the full year 2003 average prices. At the same time, unit sales volume for plywood decreased 22% and sales volume of lumber decreased 17%2008, compared with the full year 2003, due primarily to the shorter reporting period. The decrease2007, driven mainly by lower sales volumes from our sheet feeder plant in the plywood sales volume was also due to the saleTexas as a result of our predecessor's plywoodslowing industrial markets and lumber facilities in Yakima, Washington in February 2004. The sale of the Yakima, Washington facilities did not have a material impact on our predecessor's results of operations for the first ten months of 2004.
Building Materials Distribution. Sales increased $394.6 million, or 19%, to $2.4 billion in the first ten months of 2004 from $2.0 billion in the full year 2003. Average prices increased 22% and sales volume decreased 2% in the first ten months of 2004 compared to the full year 2003. The increase in prices resulted from a strong housing market and the decrease in volume resulted from the shorter reporting period in 2004.disruption caused by Hurricane Ike.
Costs and Expenses
Materials, labor, and other operating expenses, including the cost of fiber from related parties, increased $145.4 million, or 7%, to $2,133.0 million for the combined year ended December 31, 2008, from $1,987.6 million for the year ended December 31, 2007. The aggregate amountincrease was driven primarily by higher input costs and higher fixed costs, mainly maintenance, associated with the planned DeRidder outage.
Fiber, energy, and chemical costs were $530.0 million, $340.2 million, and $262.6 million, respectively, for the combined year ended December 31, 2008, and $505.3 million, $294.5 million, and $228.1 million, respectively, for the year ended December 31, 2007. Combined, this represented a cost increase of $104.9 million in 2008, compared with 2007. This increase was driven primarily by a sharp rise in these costs brought on by higher fossil fuel prices and a reduction in supply of residual chips in 2008.
Fiber costs increased $30.4 million in our Paper segment, due primarily to higher prices for wood, purchased pulp, and secondary fiber. In Packaging, fiber costs decreased $5.6 million, due primarily to reduced consumption during the planned DeRidder outage in the first quarter, offset partially by increased recycled fiber prices.
Compared with the year ended December 31, 2007, energy costs increased $36.8 million in our Paper segment, driven by higher fuel and electricity prices, and $8.9 million in our Packaging segment, driven by increased electricity and natural gas prices.
Chemical costs increased $24.7 million in our Paper segment and $9.8 million in our Packaging segment, driven by substantially higher prices for commodity chemical inputs.
Under purchase accounting rules, in connection with the Acquisition, we revalued our inventory to estimated selling prices less costs of disposal and a reasonable profit allowance for the selling effort. As a result of these purchase accounting adjustments, our materials, labor, and other operating expenses increased $10.2 million for the year ended December 31, 2008.
Depreciation, amortization, and fiber costs from related parties increased $121.6depletion for the year ended December 31, 2008, was $110.0 million. The year ended December 31, 2008, included depreciation, amortization, and depletion for the period of February 22, 2008, through December 31, 2008. For the Predecessor period of January 1 through February 21, 2008, depreciation, amortization, and depletion was $0.5 million or 3.0%,due to $4.2 billion in the first ten monthssuspension of 2004 from $4.1 billion indepreciation for the full year 2003. As a percentage of sales, however, these expenses and costs decreased to 86.8% in the first ten months of 2004 from 88.0% in the full year 2003. The percentage decrease was primarily attributable to increased sales in our Wood Products segment, mostlyassets being held for sale as a result of higher prices.the Acquisition. For the Predecessor year ended December 31, 2007, depreciation, amortization, and depletion was $84.6 million.
Selling and distribution expenses decreased $13.1$2.1 million, or 6%4%, to $211.3 million in the first ten months of 2004 from $224.4$57.4 million for the fullcombined year 2003.ended December 31, 2008, from $59.5 million for the year ended December 31, 2007. As a percentage of sales, selling and distribution expenses decreasedwere reduced to 4.3%2.4% for the combined year ended December 31, 2008, compared with 2.6% in the first ten months of 2004 from 4.8% for the full year 2003 because of higher sales in our Wood Products and Building Materials Distribution segments, primarily as a result of higher prices.prior year.
General and administrative expenses increased $9.6 million, or 14%, to $79.3 million in the first ten months of 2004 from $69.7 million for the full year 2003, due primarily to higher pension, healthcare and benefit expenses. Because of the increase in sales in the first ten months of 2004 compared to the full year 2003, general and administrative expenses as a percentage of sales increased only 0.1% in the first ten months of 2004, from 1.5% in the full year 2003 to 1.6% in the first ten months of 2004.
Other (income) expense, net, decreased $7.5 million, from $32.8 million of expense in full year 2003 to $25.3 million of expense in the first ten months of 2004. Other (income) expense, net, in the first ten months of 2004 included $12.7 million of expense related to a one-time retention bonus OfficeMax granted to our employees, $7.1 million of expenses related to the sale of our predecessor's plywood and lumber operations in Yakima, Washington, and a $3.0 million loss on sale of assets. Other (income) expense, net, for the full year 2003 included a $14.7 million pre-tax charge for the write-down of impaired assets at our predecessor's plywood and lumber operations in Yakima, Washington, $3.6 million of costs associated with the September 2003 early termination of an operating lease used in connection with our Paper segment, $4.6 million for the write-down of miscellaneous assets and a $3.1 million loss on sale of assets.
Income (Loss) from Operations
Each of our operating segments other than the Paper segment reported increased income from operations in the first ten months of 2004 compared to the full year 2003, despite a shorter reporting period and higher pension, healthcare and benefit expenses. Income before interest and taxes in our Packaging & Newsprint segment improved 92% due to 9% higher weighted average selling prices for linerboard and newsprint. Our Wood Products segment increased its income before interest and taxes in the first ten months of 2004 over full year 2003 results at a greater percentage than any of our other operating segments. In our Wood Products segment, income before interest and taxes increased by $159.5 million, due primarily to increased prices for plywood, lumber and EWP. In addition, results for our Wood Products segment included a $46.5 million pre-tax gain for the sale of our 47% interest in Voyageur Panel, which was completed in May 2004. The increase in income before interest and taxes for our Building Materials Distribution segment was due to increased prices.
Paper. Segment loss before interest and taxes increased $11.7 million, or 49%, to a $35.4 million loss before interest and taxes in the first ten months of 2004 from a $23.7 million loss for the full year 2003. In addition to volume decreases in uncoated free sheet, we incurred $2.8 million of costs and/or lost income due to mill damage and lost production at our Alabama paper mill related to disruption from hurricanes in September 2004 and adverse weather conditions and operating difficulties experienced in the first quarter of 2004. Relative to the full year 2003, the largest manufacturing cost increases for the first ten months of 2004 were fiber costs, which increased 9% due to higher prices paid for pulp and wood.
Packaging & Newsprint. Segment income before interest and taxes increased $13.8 million, or 92%, to a $1.2 million loss in the first ten months of 2004 from a $15.0 million loss for the full year 2003. The weighted average selling prices for linerboard and newsprint were 9% higher in the first ten months of 2004 than in the full year 2003.
Wood Products. Fueled by continued strong plywood and lumber markets, Wood Products income before interest and taxes increased $159.5 million to $203.0 million of income in the first ten months of 2004 from $43.5 million of income for the full year 2003. In the first ten months of 2004, we recorded a $46.5 million pre-tax gain for the sale of our predecessor's 47% interest in Voyageur Panel. This gain was offset by $7.1 million of expenses related to the sale of our predecessor's plywood and lumber facilities in Yakima, Washington. Prior to the sale of our interest in Voyageur Panel, we accounted for the joint venture under the equity method. Accordingly, segment results do not include the joint venture's sales but do include $6.3 million of equity in earnings in the first ten months of 2004, compared with $8.7 million of equity in earnings in the full year 2003. Before the gain recorded from the sale of our interest in Voyageur Panel, segment income before interest and taxes increased 260% in the first ten months of 2004 to $156.5 million, primarily due to increased product prices.
Building Materials Distribution. Segment income before interest and taxes increased $31.1 million, or 65%, to $78.8 million of income before interest and taxes in the first ten months of 2004 from $47.7 million of income in the full year 2003. The increase resulted from strong plywood and lumber markets driven by a strong housing market. Prices increased 22% and sales volumes decreased 2% for the first ten months of 2004 compared to the full year 2003.
2004 Pro Forma Sales Compared with 2003
Sales volumes and prices are two of the most important factors in understanding our results of operations. The following presents a discussion of pro forma 2004 sales compared to 2003 sales.
Sales
Total sales increased $1.1 billion, or 23%, to $5.7 billion in 2004 from $4.7 billion in 2003. Sales in all of our segments increased during 2004, compared to 2003. Paper sales increased 9% due to increased sales volumes and an increase in weighted average paper prices. Packaging & Newsprint sales increased 9% due primarily to a 10% increase in weighted average prices. Wood Products sales increased 22% due to plywood and lumber prices that were 22% and 27%, respectively, higher than 2003 prices, as well as increased prices for and sales volumes of our EWP. Building Materials Distribution sales rose 39% due to a 15% increase in sales volume and 21% higher prices.
Paper. Sales increased $113.4 million, or 9%, to $1.4 billion in 2004 from $1.3 billion in 2003. The increase was due primarily to a 7% increase in sales volumes, as sales volumes were up for all of our paper product categories. Sales volumes increased in 2004 compared to 2003 due to a stronger economy and weaker U.S. dollar, which resulted in lower paper imports. In addition, in 2004, we began to sell our paper products to OfficeMax's retail operation. The volume of our office paper sales to OfficeMax increased 23% in 2004 to approximately 701,000 tons. The increase in sales volume, including the increase in our sales to OfficeMax, led to a 71% decrease in market- related downtime, from 172,000 tons of market-related downtime in 2003 to 50,000 tons of market-related downtime in 2004. All market-related downtime in 2004 and 2003 related to uncoated free sheet. Consistent with our strategy, the volume of value-added papers sold increased 14% in 2004 to approximately 426,000 tons. Average paper prices rose 2% in 2004 compared to 2003. Average prices for uncoated free sheet and containerboard increased 1% and 11%, respectively, in 2004 compared to 2003 prices.
Packaging & Newsprint. Sales increased $56.4 million, or 9%, to $694.5 million in 2004 from $638.1 million in 2003. The increase was due to a 10% increase in average linerboard and newsprint prices. Sales volume of newsprint increased 1% in 2004 from 2003, while containerboard sales volume remained flat. Maintenance downtime in linerboard more than doubled to 24,000 tons
in 2004 due to a planned replacement of the linerboard machine dryer hood at our DeRidder, Louisiana mill.
Wood Products. Sales increased $244.3 million, or 22%, to $1.4 billion in 2004 from $1.1 billion in 2003. The increase was due to strong product pricing. Sales of EWP increased 36% in 2004 due to increased prices and sales volume. As a result of increased demand from new residential construction and historically low interest rates in 2004, average plywood prices rose 22% and average lumber prices rose 27%, compared to 2003. At the same time, unit sales volume for plywood decreased 7% and the volume of lumber sold remained relatively flat compared to 2003. The decrease in the volume of plywood sold was due to the sale of our predecessor's plywood and lumber operations in Yakima, Washington in February 2004. The sale of the Yakima, Washington facilities did not have a material impact on our predecessor's results of operations in 2004.
Building Materials Distribution. Sales increased $796.4 million, or 39%, to $2.8 billion in 2004 from $2.0 billion in 2003. Prices increased 21%, and sales volume increased 15% compared to 2003. The increase in sales volume and prices resulted from a strong housing market and increased volume from new and upgraded facilities.
2003 Compared with 2002
Sales
Total sales increased $377.5 million, or 9%, to $4.7 billion in 2003 from $4.3 billion in 2002. The increase was due to increased sales in our Wood Products and Building Materials Distribution segments and a slight increase in our Packaging & Newsprint segment, offset by a 2% decline in sales in our Paper segment due primarily to lower sales volume. Packaging & Newsprint sales increased 1% because average paper prices increased 3%. Wood Products sales increased 11% due to higher plywood prices and increased EWP sales, which were driven primarily by increased sales volume. Building Materials Distribution sales increased 21% due to increased commodity prices and sales volume.
Paper. Sales decreased $28.0 million, or 2%, to $1,257.1 million in 2003 from $1,285.1 million in 2002, primarily because weak demand led to a 2% decrease in sales volume. Sales volume decreased despite a 4% increase in the volume of our office paper sales to OfficeMax in 2003. Weak demand throughout 2003 led to market-related downtime of nearly 172,000 tons, up 64% from the downtime taken in 2002. The market-related downtime related to uncoated free sheet. Average prices were relatively flat in 2003, compared to 2002 prices.
In 2003, volume of specialty papers sold increased 3% to approximately 374,000 tons. Overall, the average net selling price of the specialty grades we sold in 2003 was $181 per ton higher than the average net selling price of our uncoated commodity grades.
Packaging & Newsprint. Sales increased $4.7 million, or 1%, to $638.1 million in 2003, compared to $633.4 million in 2002, primarily because average sales prices increased 3%. Sales volume for newsprint increased 3%, while linerboard sales volume decreased 2%. Average prices for newsprint increased 9% from 2002 prices, while linerboard prices decreased 1%.
Wood Products. Sales increased $111.5 million, or 11%, to $1.1 billion in 2003 from $1.0 billion in 2002. This increase was due to a strong building season beginning late in the second quarter of 2003 and continuing through the first two months of the fourth quarter of 2003, after a slow start earlier in the year due to adverse weather conditions, particularly in the eastern United States. Sales of EWP increased 20% in 2003, compared to 2002, due to increased sales volume. As a result of increased demand from housing construction, prices for our major grades of structural panels reached record levels in 2003. Average plywood prices and sales volume increased 17%
and 6%, respectively, in 2003. In contrast, average prices and sales volume for our lumber products, which are mostly ponderosa pine, declined 8% due to an unfavorable balance of supply and demand during the first half of 2003. Lumber prices began to recover late in 2003.
Building Materials Distribution. Sales increased 21% in 2003, compared to 2002, due to strong pricing coupled with an 11% increase in unit sales volume. The increase in unit sales volume resulted from a stronger building season in 2003, compared to 2002.
Costs and Expenses
Materials, labor and other operating expenses increased $328.7 million, or 9%, to $4.0 billion for 2003 compared to $3.7 billion in 2002 because of increased unit manufacturing costs in our Paper and Packaging & Newsprint segments due to higher wood fiber, chemical and pension costs, partially offset by favorable wood fiber costs in our Wood Products segment. As a percentage of sales, materials, labor and other operating expenses increased to 85.6% in 2003 from 85.4% in 2002.
Selling and distribution expenses increased $20.8 million, or 10%, to $224.4 million in 2003 from $203.6 million in 2002. As a percentage of sales, selling and distribution expenses in 2003 were relatively consistent with 2002, despite higher pension, healthcare and benefit expenses.
General and administrative expenses decreased $3.9$3.6 million, or 5%8%, to $69.7$40.9 million in 2003for the combined year ended December 31, 2008, from $73.6$44.5 million in 2002.for the year ended December 31, 2007. The decrease was due primarily to the elimination of annual incentive compensation payouts for 2008. As a percentage of sales, general and administrative expenses decreased to 1.5% in 2003, comparedwere reduced to 1.7% for the combined year ended December 31, 2008, compared with 1.9% in 2002, duethe prior year.
St. Helens Mill Restructuring. The year ended December 31, 2008, included $37.6 million in costs associated with the restructuring of our St. Helens paper mill; $28.8 million of these costs related to improved cost controls, despite highernoncash expenses. These costs are recorded in our Paper segment. Of the $37.6 million, $7.8 million related to the write-down of inventory and was recorded in “Materials, labor, and other operating expenses” in the Consolidated Statement of Income (Loss). We recorded the remaining $29.8 million of restructuring costs in “St. Helens mill restructuring” in the Consolidated Statement of Income (Loss). These costs included asset write-downs for plant and equipment at the St. Helens mill, employee-related severance costs, pension healthcarecurtailment losses, and benefit expenses.other miscellaneous costs related to the restructuring of the mill.
Other (Income) Expense, Net.“Other (income) expense, net, increased $21.0 million, or 177%, to $32.8 million of expense in 2003 from $11.8 million of expense in 2002. In 2003, other (income) expense, net, included a $14.7 million pre-tax charge for the write-down of impaired assets at our predecessor's plywood and lumber operations in Yakima, Washington, a $3.6 million loss on the termination of a cottonwood fiber farm lease and a $7.7 million loss on the sale and write-down of assets and othernet” includes miscellaneous income and expense items.
Income (Loss) from Operations
Income (loss) from operations increased $11.8 For the combined year ended December 31, 2008, we had $4.0 million to $1.0of other income, compared with $4.1 million in the prior year. In 2008, the $4.0 million of income consisted primarily of a $2.9 million gain on changes in 2003, compared tosupplemental pension plans and a $10.8net gain on sales of assets of $1.0 million loss in 2002. The increase in income from operations in 2003 resulted from increased plywood prices, equity in earnings and favorable wood fiber costs in our Wood Products segment, increased sales in our Building Materials Distribution segment and improved results in our Packaging & Newsprint segment, offset by the pre-tax charge for the write-downPredecessor period of impaired assets at our predecessor's plywood and lumber operations in Yakima, Washington and operating losses in our Paper segment.
Paper. Segment income (loss) before interest and taxes decreased $57.6 million, or 170%, to a $23.7 million loss in 2003 from $33.9 million of income in 2002. The decrease resulted from lower unit sales volumes, more market-related curtailment and increased unit manufacturing costs. Total paper manufacturing cost of sales increased $19 per ton, or 3.2%, compared to 2002. The increase was due to higher wood fiber, chemical and energy costs.
Packaging & Newsprint. Segment income (loss) before interest and taxes improved $5.1 million, or 26%, to a $15.0 million loss in 2003, compared to a $20.1 million loss in 2002. Improved results were primarily attributable to a 3% increase in average sales prices. A 3% increase in newsprint sales volume, which was primarily the result of capacity closures by other major
producers, was partially offset by a 1% decrease in linerboard sales volume. Offsetting the favorable price and volume increases were total unit manufacturing costs that increased $7 per ton, or 2%.
Wood Products. Segment income before interest and taxes increased $42.3 million to $43.5 million of income in 2003 from $1.2 million of income in 2002. As discussed above, the increase was due to a strong building season that began late in the second quarter of 2003, after a slow start earlier in the year. The primary reasons for the increase were increased structural panel prices and favorable wood costs, partially offset by a $14.7 million pre-tax charge for the write-down of impaired assets at our predecessor's plywood and lumber operations in Yakima, Washington. The write-down resulted from our internal review of the operations and indications of current market value. The write-down was recorded in other (income) expense, net.January 1 through February 21, 2008. For the year ended December 31, 2003,2007, the write-down decreased net income by $9.0 million.
Building Materials Distribution. Segment income before interest and taxes increased $22.6 million, or 90%, to $47.7$4.1 million of income consisted primarily of a $4.4 million gain on changes in 2003retiree healthcare programs.
Income (Loss) From Operations.Income from $25.1operations for the combined year ended December 31, 2008, decreased $97.5 million to $63.0 million, compared with $160.5 million for the year ended December 31, 2007.
Paper. Segment income decreased $80.1 million, or 60%, to $53.4 million in 2008 from $133.5 million in 2007. Overall, our operating results for the year ended December 31, 2008, were affected by approximately $92.1 million in increased input costs (including fiber, chemical, and energy costs), $37.6 million due to the St. Helens mill restructuring, $7.4 million from inventory purchase accounting adjustments, and $6.1 million from noncash mark-to-market energy hedge expenses. The Predecessor suspended depreciation from September 2007 through February 2008 for the assets being held for sale as a result of the Acquisition, which reduced depreciation and amortization during 2007 by approximately $21.7 million, compared with 2008.
Packaging. Segment income decreased $13.3 million, or 33%, to $26.8 million in 2008 from $40.1 million in 2007. Overall, our operating results for the year ended December 31, 2008, were affected by $13.2 million in increased input costs (including fiber, chemical, and energy costs), $20.5 million from the planned DeRidder outage in the first quarter, $2.8 million from inventory purchase accounting adjustments, $1.3 million from noncash mark-to-market energy hedge expenses, and approximately $5.5 million from lost production and costs as a result of Hurricanes Gustav and Ike. The Predecessor suspended depreciation from September 2007 through February 2008 for the assets being held for sale as a result of the Acquisition, which reduced depreciation and amortization during 2007 by approximately $19.1 million, compared with 2008.
Other
Foreign Exchange Gain (Loss).For the combined year ended December 31, 2008, foreign exchange loss was $4.6 million, compared with a $1.2 million gain for the same period in 2007. This loss was driven primarily by a strengthening of the U.S. dollar against the Canadian dollar, which reduced the amount we collected on our Canadian-denominated accounts receivable.
Interest Expense.For the combined year ended December 31, 2008, interest expense was $82.9 million, of which $72.1 million consisted of cash interest payments related to debt under our senior secured credit facilities. The remaining amount of interest expense consisted primarily of noncash items, including $9.3 million for amortization of deferred financing fees. For additional information, refer to our discussion of debt under “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The debt of Boise Cascade was not allocated to the Predecessor in the financial statements included in this prospectus.
Interest Income.For the combined year ended December 31, 2008, interest income was $0.8 million, compared with $0.7 million for the year ended December 31, 2007.
Income Taxes. For the year ended December 31, 2008, we recorded $5.8 million of income in 2002.tax benefits related to losses incurred during the year. We did not recognize an additional $12.5 million of tax benefits from these losses, because the realization of these benefits was not considered more likely than not. The increasetax benefit we recognized was dueprimarily the result of the ability to strong pricing coupled with an 11% increase in unit sales volume. The increase in unit sales volume resultedcarry back some of our federal net operating loss to 2007 and to offset some of the net operating loss against the deferred tax liabilities recorded from our purchase price allocation. As a stronger building season, driven by higher housing starts, whichresult of completing our purchase price allocation during the year ended December 31, 2008, we recorded $12.4 million of deferred tax liabilities and assumed $0.6 million of deferred tax liabilities from Boise Cascade. At December 31, 2008, our deferred tax liability, net of deferred tax assets, was $6.5 million.
Because of its pass-through tax structure, the Predecessor recorded tax expense related only to small subsidiaries that are estimated by RISI to have been 8% higher in 2003 compared to 2002.taxed as corporations.
Liquidity and Capital Resources
Operating Activities
For the three months ended March 31, 2005,During 2009, our operating activities provided $22.6 million in cash, compared with $26.0 million in the same period in 2004. For the three months ended March 31, 2005, items included in net income provided $92.4 million of cash, and increases in working capital items used $69.8 million of cash from operations. The increase in working capital for the period ended March 31, 2005 was primarily attributable to higher receivables and inventories within our Paper and Building Materials Distribution segments. Higher receivables in these segments reflected increased sales volumes and increased sales prices. Higher inventory in our Building Materials Distribution segment was primarily due to increased volumes in anticipation of the spring building season. Higher inventory in our Paper segment was primarily due to increased purchases of fiber in anticipation of the spring thaws, when harvesting of logs is more difficult. The higher accounts receivable and inventory balances did not materially change our accounts receivable and inventory turnover ratios,liquidity position strengthened as compared to prior periods. For the three months ended March 31, 2004, items included in net income provided $77.9 million of cash, and increases in working capital items used $51.9 million of cash from operations.
For the period October 29 through December 31, 2004, our operating activities provided $230.5 million of cash. This cash generation was due primarily to favorable changes in working capital items. The collection of receivables related to strong sales provided $122.0 million of cash and increases in accounts payable and accrued liabilities provided $85.6 million of cash. Increases in inventories used $21.4 million of cash.
For the period January 1 through October 28, 2004, operating activities used $47.8 million of cash. Increases in receivables used $320.9 million of cash in the period due in part to the changes in the receivable sales program discussed below. Increases in inventories used $15.4 million of cash and increases in accounts payable and accrued liabilities provided $74.4 million of cash.
In 2003, items included in net income provided $258.6 million of cash, and unfavorable changes in working capital items used $39.3 million of cash from operations. Net income items provided $207.6 million of cash in 2002, and changes in working capital items used $47.4 million of cash from operations.
During the predecessor periods presented, Boise Forest Products Operations participated in OfficeMax's receivable sales program. Under that program, OfficeMax sold fractional ownership interests in a defined pool of trade accounts receivable. In anticipation of the Acquisition, we ceased to participate in OfficeMax's receivable sales program. Accordingly, at October 28, 2004, no sold accounts receivable were excluded from receivables onrestructured our balance sheet compared with $148.8in October and reduced our total debt by $288.1 million during the year. The debt restructuring resulted in changes to our financial covenants, increased our financial flexibility, extended our debt maturity profile, simplified our capital structure, and $105.4 million of receivables excluded at December 31, 2003 and 2002. The decrease of $148.8 million in sold accounts receivable at October 28, 2004 compared to the amount of sold accounts receivable at December 31, 2003 usedreduced our total indebtedness.
We believe that our cash flow from operations as well as our available borrowing capacity under our $250.0 million revolving credit facility should be adequate to provide cash as required to support our ongoing operations, capital expenditures, and our debt service obligations for the period ended October 28, 2004. The increase at December 31, 2003 in sold accounts receivable of $43.4next 12 months.
If a contractually committed lender fails to honor its commitment under the $250.0 million at December 31, 2003 compared torevolving credit facility, the amount of sold accounts receivable at December 31, 2002 provided cash from operations in 2003. Theother lenders would remain committed for their portion of fractional ownership interest we retain is includedthe total facility. A total of 12 lenders participated in receivables in our balance sheet.
Investment Activities
Our cash investing activities provided $122.0 million for the three months endedrevolving credit facility at March 31, 2005, compared with $39.2 million used for investing activities during the same period in 2004. Investing activities included $157.5 million for collection of a loan to a subsidiary of Timber Holdings, offset by $33.5 million used for purchases of property and equipment. In the predecessor period, cash investing activities included $41.0 million for purchases of property and equipment, partially offset by $9.0 million of proceeds from the sale of our predecessor's Yakima, Washington, plywood and lumber facilities in February 2004.
We expect capital investments in 2005 to total approximately $185 million, excluding acquisitions. Our capital spending in 2005 will be for quality and efficiency projects, replacement projects and ongoing environmental compliance. During 2004, we spent $8 million on environment compliance. We expect to spend approximately $18 million in 2005 for this purpose.
For the period October 29 through December 31, 2004, our cash investing activities used $2.4 billion of cash. This cash usage included $2.2 billion for the acquisition of OfficeMax's paper and forest products assets and $157.5 million for our loan to Timber Holdings.
For the period January 1 through October 28, 2004, our cash investing activities used $37.1 million of cash. This cash usage included $140.0 million for property plant and equipment purchases, offset by $103.2 million of proceeds from the sale of our predecessor's Yakima, Washington, plywood and lumber facilities in February 20042010, and the sale of our Voyageur Panel interest in May 2004.
Our cash investing activities used $192.6 million in 2003 and $146.2 million in 2002. In 2003 and 2002, this included $175.1 million and $146.1 million, respectively, for property and equipment and fiber farm purchases. Additionally, in 2002, investing activities included $6.1 million forlargest single commitment under the acquisition of assets of a wholesale building products distribution and reload operation in Riverside, California. In all periods, capital expenditures for property and equipment consisted primarily of facility and equipment modernization, energy and cost-saving projects and environmental compliance.
Details of 2004 capital investment by segment are included in the table below:
| Boise Holdings | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| October 29 (inception) through December 31, 2004 | |||||||||||
| Acquisition/Expansion | Quality/Efficiency(1) | Replacement, Environmental and Other | Total | ||||||||
| (dollars in millions) | |||||||||||
Paper | $ | 0.5 | $ | 4.4 | $ | 11.6 | $ | 16.5 | ||||
Packaging & Newsprint | — | 0.9 | 1.9 | 2.8 | ||||||||
Wood Products | 5.4 | 0.5 | 1.7 | 7.6 | ||||||||
Building Materials Distribution | 0.5 | — | 0.6 | 1.1 | ||||||||
Corporate and Other | — | 0.1 | 0.8 | 0.9 | ||||||||
Acquisition of paper and forest products businesses | 2,196.5 | — | — | 2,196.5 | ||||||||
Loan to related party | 157.5 | — | — | 157.5 | ||||||||
$ | 2,360.4 | $ | 5.9 | $ | 16.6 | $ | 2,382.9 | |||||
Predecessor | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| January 1 through October 28, 2004 | |||||||||||
| Acquisition/Expansion | Quality/Efficiency(1) | Replacement, Environmental and Other | Total | ||||||||
| (dollars in millions) | |||||||||||
Paper | $ | 0.6 | $ | 8.2 | $ | 47.4 | $ | 56.2 | ||||
Packaging & Newsprint | 0.2 | 5.2 | 21.7 | 27.1 | ||||||||
Wood Products | 11.4 | 4.0 | 25.9 | 41.3 | ||||||||
Building Materials Distribution | 3.1 | — | 6.7 | 9.8 | ||||||||
Corporate and Other | 0.4 | 0.7 | 4.7 | 5.8 | ||||||||
$ | 15.7 | $ | 18.1 | $ | 106.4 | $ | 140.2 | |||||
Financing Activities
Cash used for financing activities was $165.8 million for the three months ended March 31, 2005. Cash provided by financing activities was $13.3 million for the three months ended March 31, 2004. Cash used for financing activities in the first three months of 2005 included $412.0 million of debt prepayments related to our Tranche B term loan, which was primarily paid down with proceeds from the related-party loan received from a subsidiary of Timber Holdings. Additionally, $9.4 million of cash was used to pay our equity investors amounts to fund their 2004 tax obligations related to their investment in us. Cash provided by financing activities in the three months ended March 31, 2004 included $47.4 million of cash received from net equity transactions with OfficeMax, partially offset by $34.2 million in long-term debt payments.
Debt Transactions
Our primary source of liquidity for our business is cash flow generated from operations and borrowing capacity available under our revolving credit facility. We expect that our primary liquidity requirements will be debt service, working capital and capital expenditures.
As a result of the Acquisition, we incurred $2.0 billion of indebtedness.facility was $100 million. At March 31, 2005, long-term debt consisted of the following:
| (dollars in millions) | ||
---|---|---|---|
Revolving credit facility, due 2010 | $ | — | |
Tranche B term loan, due 2011 | 918.0 | ||
Senior floating rate notes due 2012 | 250.0 | ||
71/8% Senior subordinated notes due 2014 | 400.0 | ||
Note payable to related party | 256.1 | ||
1,824.1 | |||
Less current portion | — | ||
$ | 1,824.1 | ||
Prior to the amendment and restatement of our senior credit facilities described below, our senior secured credit facilities, which2010, we entered into in October 2004 in connection with the Acquisition, consisted of a six-year senior secured revolving credit facility and a seven-year senior secured Tranche B term loan.
Under that revolving credit facility, we coulddid not have borrowed up to $400.0 million for general corporate purposes at variable interest rates based on LIBOR, the prime rate or the federal funds effective rate, plus an interest rate spread based upon our leverage ratio. At March 31, 2005, we had no loans and $72.1 million of undrawn letters of creditany borrowings outstanding under the revolving credit facility, and had remainingfacility. Thus, at March 31, 2010, our aggregate liquidity from unused borrowing capacity of $327.9 million. Letters of credit are subject to a 0.25% fronting fee, payable to the issuing bank, and a fee payable to the lenders equal to the product of the interest rate spread applicable to LIBOR borrowings under our revolving credit facility and the daily average amount available for drawing under the outstanding letters of credit. In addition, the revolving credit facility provides for a commitment fee of 0.50% per annum, payable to the lenders on the average daily unused portion of the revolving credit facility.
We used the proceeds of our $1,330.0totaled $227.9 million, senior secured Tranche B term loan to fund a portion of the purchase price for the Acquisition. The Tranche B term loan bore interest at a variable interest rate based on LIBOR, the prime rate or the federal funds effective rate, plus a fixed interest rate spread. At March 31, 2005, our borrowing rate under the Tranche B term loan was 5.1% per annum.
In October 2004, we issued $250.0 million of senior unsecured floating rate notes due 2012 and $400.0 million of 71/8% senior subordinated notes due 2014. We may redeem all or part of the notes at any time at redemption prices defined in the indenture. Net proceeds from the notes were used to fund a portion of the purchase price for the Acquisition. If we sell specific assets or experience specific kinds of changes in control, we must offer to purchase the notes. At March 31, 2005, our borrowing rate for the $250.0 million senior floating rate notes was 5.5%. We have entered into interest rate swaps to hedge the cash flow risk from the variable interest payments on the $250.0 million senior floating rate notes, which gave us an effective interest rate of 6.6% at March 31, 2005. For additional information on these interest rate swaps, see "—Disclosure of Financial Market Risk."
We paid approximately $85.9 million in fees and expenses associated with the foregoing debt transactions. The fees are being amortized over the shorter of the call period or the term of the loan. At March 31, 2005, we had $81.1 million of costs recorded in deferred financing costs on our balance sheet.
At March 31, 2005, there were no scheduled payments of long-term debt through 2009. In February 2005, we prepaid $412.0 million of our Tranche B term loan, primarily with the proceeds of a related-party loan from a subsidiary of Timber Holdings and the repayment by such subsidiary of a loan we had previously made to it. This prepayment eliminated our scheduled payments of long-term debt through 2009, and reduced the payments thereafter to $1.6 billion. The principal amount of the related-party loan we received from a subsidiary of Timber Holdings, which initially was $264.8 million, is subject to adjustment based on transactions between such subsidiary and us and matures on February 4, 2015. At March 31, 2005, the related-party loan balance was $256.1 million and was recorded as a note payable to related-party on our consolidated balance sheet. The note accrues interest at 8%. For the three months ended March 31, 2005, we recorded $3.1 million of interest expense related to the note.
On April 18, 2005, we amended and restated our senior credit facilities, which now consist of a $840.0 million Tranche D term loan and a $475.0 million revolving credit facility. In connection therewith, we repaid all amounts outstanding under our Tranche B term loan. We are required to make scheduled principal payments on the Tranche D term loan in the amount of approximately $6.3 million in 2005, $8.4 million in each of 2006 through 2009 and $6.3 million in 2010. The Tranche D term loan will mature in 2011. The maturity on our revolving credit facility did not change as a result of this amendment and restatement. We will incur a $43.0 million charge related to the write-off of the Tranche B term loan deferred financing costs in connection with the amendment and restatement of our senior credit facilities. This $43.0 million charge will be reflected in our statement of income (loss) for the second quarter of 2005. See "Description of Senior Credit Facilities—Amendment and Restatement."
For the periods October 29 through December 31, 2004, January 1 through October 28, 2004, and the years ended December 31, 2003 and 2002, cash payments for interest, net of interest capitalized, were $11.3 million, $64.8 million, $90.0 million and $91.6 million, respectively.
During the predecessor periods, our principal sourceoutstanding letters of liquidity in excesscredit of that provided by cash flow generated from operations was borrowings from OfficeMax. Since our predecessor's financing activities have been represented historically by borrowings from OfficeMax, Boise Forest Products Operations financing activities are not comparable with our current operations.
Equity Transactions
On October 29, 2004, FPH and OfficeMax made a cash equity investment in us of $338.9$22.1 million. The equity investment consisted of $242.4 million invested by FPH in exchange for 440 million Series B common units and $96.5 million invested by OfficeMax in exchange for 109 million and 66 million Series B and Series A common units, respectively. See our statement of capital and Note 14 to our audited consolidated financial statements included in this prospectus for a discussion of the change in equity units and their holders since the date of the Acquisition and a discussion of the rights and privileges of the equity units.
Other
We believe that funds generated from operations and planned borrowing capacity will be adequate to fund debt service requirements, capital expenditures and working capital requirements for the next 12 months. Our ability to continue to fund these items may be affected by general economic, financial, competitive, legislative and regulatory factors.
We believe that our current financial position and financing plans will provide flexibility in financing activities and permit us to respond to changing conditions in credit markets. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available for use under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness according to its terms or to fund our other liquidity needs.
Unless otherwise noted, this discussion of liquidity and capital resources with respect to 2008 refers to the combined activities of Boise Inc. and the Predecessor.
Sources and Uses of Cash
We generate cash from sales of our products and from short-term and long-term borrowings, as well as from cash proceeds from the sale of nonstrategic assets. In 2009, we generated cash from the alternative fuel mixture credits the U.S. Internal Revenue Code allowed for taxpayers using alternative fuels in the taxpayer’s trade or business. In addition to paying for ongoing operating costs, we use cash to invest in our business, repay debt, and meet our contractual obligations and commercial commitments. Below is a discussion of our sources and uses of cash through operating activities (including a sensitivity analysis related to our sources and uses of cash from/for operating activities), investing activities, and financing activities.
Operating Activities
We operate in a cyclical industry, and our operating cash flows vary accordingly. Our principal operating cash expenditures are for fiber, compensation, energy, chemicals and interest.
First Quarter 2010
For the three months ended March 31, 2010, our operating activities provided $68.0 million of cash, compared with $85.7 million for the same period of 2009. Relative to 2009, cash provided by operations was positively affected by the receipt of alternative fuel mixture credits and negatively affected by an increased net loss, lower favorable changes in working capital, and our qualified pension plan contribution. Working capital levels in first quarter 2009 were affected by the restructuring of our St. Helens mill and associated inventory liquidation, which reduced working capital levels during that period.
In the first quarter 2010, favorable changes in working capital provided $29.5 million of cash from operations, compared with $44.7 million of cash provided from operations in the first quarter 2009. Working capital is subject to cyclical operating needs, the timing of the collection of receivables, the payment of payables and expenses, and to a lesser extent, seasonal fluctuations in our operations.
The $29.5 million of cash provided by favorable changes in working capital during the first quarter 2010, is attributable primarily to decreases in receivables, offset partially by decreases in accounts payable and accrued liabilities. The primary reason for the decrease in receivables is related to the first quarter 2010 collection of the $56.6 million alternative fuel mixture credit receivable. Accounts payable and accrued liabilities decreased in part as a result of the payment of 2009 short-term incentive compensation during first quarter 2010.
During first quarter 2009, favorable changes in working capital provided $44.7 million of cash from operations. This increase was due primarily to decreases in receivables and inventories, offset partially by decreases in accounts payable and accrued liabilities. Decreases in receivable levels provided $38.8 million of cash from operations, which was attributable primarily to lower sales levels. Decreases in inventory levels provided $25.3 million of cash from operations. Inventory volumes and levels were down due primarily to lower production levels and our restructuring activities at the St. Helens mill. Lower levels of accounts payable and accrued liabilities used $19.6 million of cash from operations, attributable to decreased levels of trade payables across all of our segments. These decreases were primarily a result of lower raw material and supply purchases due to reduced production.
Fiscal year 2009
In 2009, our operating activities provided $458.7 million of cash, compared with $104.6 million in 2008. As discussed under “Our Operating Results” above, income for the year ended December 31, 2009, reflects $207.6 million of alternative fuel mixture credits, including fees and expenses and before taxes. In October 2009, we began filing for alternative fuel mixture credits as a refundable credit on our income tax return instead of as a refundable excise tax credit. At December 31, 2009, we had a $56.6 million receivable for alternative fuel mixture credits.
In 2009, favorable changes in working capital provided $91.6 million of cash from operations, while unfavorable changes in working capital used $50.5 million of cash in 2008. Working capital is subject to cyclical operating needs, the timing of the collection of receivables, the payment of payables and expenses, and to a lesser extent, seasonal fluctuations in our operations. Relative to 2008, cash provided by operations was positively affected by higher net income for the year ended December 31, 2009, and favorable working capital changes.
In 2009, the $91.6 million of cash generated from favorable changes in working capital items is attributable primarily to a decrease in inventories and an increase in accounts payable and accrued liabilities, offset partially by increased receivables.
Inventories in the Paper and the Packaging segments were down $59.1 million and $23.7 million, respectively, providing $83.0 million in cash from operations as we concentrated on inventory reduction. The decline in Paper segment inventories was due in part to the liquidation of St. Helens inventory related to the mill restructuring. The annual shutdown during December 2009 at our mill in Jackson, Alabama, reduced inventory levels at year-end as we sold inventory that we had on hand. Further declines in inventory within the Packaging segment resulted from operating one newsprint machine rather than the two we were operating at the end of 2008.
Higher levels of accounts payable and accrued liabilities provided $25.7 million of cash from operations. We experienced higher accounts payable and accrued liabilities in the Paper and Corporate and Other segments. These increases were offset by decreases in the Packaging segment. We had higher incentive compensation accruals at December 31, 2009, than at December 31, 2008, as we did not pay any incentive compensation related to 2008. The increase in accounts payable and accrued liabilities in the Paper segment was due primarily to the annual mill shutdown at Jackson, offset by the reduction of payables and accrued liabilities as a result of the St. Helens mill restructuring. The decrease in accounts payable and accrued liabilities within the Packaging segment was due in part to reconfigured newsprint operations.
Higher levels of receivables used $18.6 million of cash from operations, which is attributable primarily to an increase in “Other” receivables relating to the alternative fuel mixture credits of $56.6 million, offset partially by a $35.5 million decrease in trade receivables. The decrease in trade receivables was due primarily to lower sales within each of our operating segments.
Fiscal year 2008
In 2008, the $50.5 million of cash used from operations related to unfavorable changes in working capital items attributable primarily to increases in inventory and decreases in accounts payable and accrued liabilities. Increases in inventory levels in both the Paper and the Packaging segments used $23.6 million of cash from operations, which included the $7.8 million of noncash inventory write-down as a part of the St. Helens mill restructuring. The increase in Paper segment inventory levels was attributable to increases in finished goods inventory as well as fiber inventories. The increase in finished goods inventory levels was due partly to the sharper than expected slowdown in demand during fourth quarter 2008. The increase in fiber inventories in the Pacific Northwest was driven primarily by increased log inventories to support our whole-log chipping operations and increased market pulp inventory. The increase in Packaging segment inventory levels was driven primarily by higher levels of containerboard roll stock inventories at our corrugated product and sheet feeder plants as demand for these products weakened in late 2008. Lower levels of accounts payable and accrued liabilities used $28.5 million of cash from operations, which was attributable primarily to decreased levels of trade payables in the Paper segment as a result of lower raw material purchases near the end of 2008, compared with the same period in 2007. This decrease in purchases was primarily the result of lower production volumes due to slowed production and market downtime in fourth quarter 2008. To a lesser extent, decreased levels of accrued compensation and benefits, due primarily to the elimination of incentive bonuses, contributed to the unfavorable change in this working capital item. Partially offsetting these increases in working capital were higher levels of trade payables in our Packaging and Corporate and Other segments.
Fiscal year 2007
In 2007, operating activities provided $245.3 million. Working capital and other items used $2.3 million in 2007. The $2.3 million unfavorable change in 2007 consisted primarily of $13.3 million of payments for pension and other postretirement benefit programs, offset partially by a decrease in working capital that provided $9.0 million. The decrease in working capital was attributable primarily to higher accounts payable and accrued liabilities in the Paper segment due largely to the timing of payments. As discussed under “Our Operating Results” above, the 2007 increase in income was primarily the result of higher income in the Paper segment due to higher product sales prices.
Contractual ObligationsSensitivity Analysis Related to Sources and Uses of Cash From/For Our Operating Activities
Sources of cash flows from operating activities
Our primary source of cash is revenue generated by the sale of our packaging and paper products, including uncoated freesheet, linerboard, corrugated containers and sheets, and newsprint. Declines in working capital also provide cash for operations, including declines in receivables from sales of our products, reductions in inventory levels, reductions in prepaid expenses, and increases in accounts payable and other accrued liabilities. The sensitivities described below are based on our 2009 operations and reflect the restructuring of our St. Helens mill and the indefinite idling of our D-2 newsprint machine.
First quarter 2010
For the three months ended March 31, 2010, we sold 312,000 short tons of uncoated freesheet, 62,000 short tons of linerboard to third parties, 1.6 billion square feet of corrugated products, 54,000 short tons of newsprint, and 19,000 short tons of market pulp. A $10-per-short-ton price change in uncoated freesheet would have affected our revenue by approximately $13 million annually. A $10-per-short-ton price change in linerboard sold to third parties would have affected our revenue by approximately $3 million annually, and a $10-per-short-ton price change in newsprint would have affected our revenue by approximately $2 million. For corrugated sheets and containers a $1-per-thousand-square-feet change in pricing affects our sales revenue by approximately $6 million.
Selling prices for uncoated freesheet, corrugated containers and sheets, linerboard, and newsprint declined, while selling prices for pulp improved, for the three months ended March 31, 2010, compared with the same period in 2009. Sales volumes for all product lines, except newsprint, increased due to improved market conditions. Newsprint volumes declined as a result of a continuing decline in demand in the U.S. markets and the idling of our D-2 newsprint machine. Average net selling prices for uncoated freesheet papers declined $40 per short ton, or 4%, to $941 per short ton for the three months ended March 31, 2010, compared with $981 per short ton for the three months ended March 31, 2009. During the three months ended March 31, 2010, we took no market-related downtime in uncoated freesheet production, compared with approximately 30,000 short tons of market-related downtime in the three months ended March 31, 2009. Corrugated container and sheet prices declined $7 per msf, or 12%, to $53 per msf for the three months ended March 31, 2010, compared with $60 per msf for the three months ended March 31, 2009. Linerboard net selling prices to third parties declined $56 per short ton, or 16%, to $296 per short ton for first quarter 2010, compared with $352 per short ton for first quarter 2009, due primarily to weak market conditions in first quarter 2010 relative to first quarter 2009. Newsprint prices decreased $146 per short ton, or 25%, to $442 per short ton for the three months ended March 31, 2010, compared with $588 per short ton for the same period in 2009, due to lower demand. During the three months ended March 31, 2010, we did not take any market-related downtime in linerboard or newsprint production, compared with 31,000 short tons of market-related downtime in linerboard production and approximately 52,000 short tons of market-related downtime in newsprint during the same period in 2009.
Fiscal year 2009
In 2009, we sold 1.3 million short tons of uncoated freesheet, 253,000 short tons of linerboard to third parties, 6.0 billion square feet of corrugated products, 199,000 short tons of newsprint, and 58,000 short tons of market pulp. A $10-per-short-ton price change in uncoated freesheet would have affected our revenue by approximately $13 million annually. A $10-per-short-ton price change in linerboard sold to third parties would have affected revenue by approximately $3 million annually, and a $10-per-short-ton price change in newsprint would have affected our revenue by approximately $2 million. For corrugated sheets and containers, a $1-per-thousand-square-feet change in pricing affects sales revenue by approximately $6 million.
Selling prices for uncoated freesheet and corrugated containers and sheets improved, while selling prices for linerboard and newsprint declined in 2009, compared with 2008. Sales volumes for all product lines except linerboard decreased due to declines in product demand and market curtailments and capacity reductions across
the industry. Average net selling prices for uncoated freesheet papers improved $24 per short ton, or 3%, to $954 per short ton in 2009, compared with $930 per short ton in 2008. During 2009, we took approximately 42,000 short tons of market-related downtime in uncoated freesheet production, compared with approximately 39,000short tons of market-related downtime in 2008. Corrugated container and sheet prices improved $1 per msf, or 2%, to $58 per msf in 2009, compared with $57 per msf during 2008. Linerboard net selling prices to third parties declined $96 per short ton, or 24%, to $301 per short ton in 2009, compared with $397 per short ton in 2008, due primarily to weak market conditions. Newsprint prices decreased $112 per short ton, or 20%, to $459 per short ton during 2009, compared with 2008, due to lower demand. In 2009, we took approximately 44,000 short tons of market-related downtime in linerboard production and approximately 225,000 short tons of market-related downtime in newsprint production, compared with 5,000 short tons market-related downtime in linerboard production and approximately 16,500 short tons of market-related downtime in newsprint during the same period in 2008. The market-related downtime in newsprint in 2009 included the idled short tons related to the April 2009 D-2 machine idling. The idled machine has an annual capacity of 186,000 short tons.
Uses of cash flows for operating activities
Our primary uses of cash are for expenses related to the manufacture of packaging and paper products, including fiber, compensation, energy and chemicals. Other significant uses of cash are for interest expenses, pension contributions, taxes, and increases in working capital, including increases in receivables from sales of our products, increases in inventory, increases in prepaid expenses, and reductions in accounts payable and other accrued liabilities.
First quarter 2010
Fiber costs for first quarter 2010 were $115.5 million, an increase of $21.4 million, or 23%, compared with costs of $94.1 million for the same period in 2009, due primarily to increased consumption of fiber as a result of increased sales and production volumes, increased purchased pulp prices, and increased wood prices in our Alabama operating region due to wet weather, which adds to the cost of procuring and delivering wood. A 1% change in fiber costs affects our financial results by approximately $4 million annually.
Energy costs for first quarter 2010 were $63.4 million, an increase of $2.6 million, or 4%, compared with costs of $60.8 million for the same period in 2009, driven primarily by increased consumption of energy as a result of colder winter weather and expanded production, offset partially by lower prices for fuel and electricity. Natural gas is a significant component of our energy costs. A $1-per-mmBtu change in our natural gas prices affects our financial results by approximately $12 million annually.
Chemical costs for first quarter 2010 were $49.1 million, a decrease of $1.7 million, or 3%, from costs of $50.8 million for first quarter 2009, due primarily to lower prices for chemical inputs. A 1% change in chemical prices affects our financial results by approximately $2 million annually.
Labor costs related to the production of our products recorded in “Materials, labor, and other operating expenses” were $69.4 million in first quarter 2010 and 2009. 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. While we believe we have good labor relations, we could experience a material labor disruption or significantly increased labor costs at one or more of our facilities, either in the course of negotiations of a labor agreement or otherwise.
Fiscal year 2009
Fiber costs in 2009 were $401.1 million, a decrease of $128.9 million, or 24%, compared with costs of $530.0 million for 2008, due primarily to lower prices for wood and recycled fiber and reduced overall consumption as a result of lower production volumes. A 1% change in fiber costs affects our financial results by approximately $4 million annually.
Energy costs in 2009 were $188.9 million, a decrease of $151.3 million, or 44%, compared with costs of $340.2 million in 2008, due primarily to lower fuel and electricity prices and reduced consumption as a result of lower production volumes. Natural gas is a significant component of our energy costs. We consume approximately 12 million mmBtu annually. A $1-per-mmBtu change in our natural gas prices affects our financial results by approximately $12 million annually.
Chemical costs in 2009 were $210.3 million, a decrease of $52.3 million, or 20%, compared with costs of $262.6 million in 2008, due primarily to lower consumption of and lower prices for chemical inputs. A 1% change in chemical prices affects our financial results by approximately $2 million annually.
Labor costs related to the production of our products, recorded in “Materials, labor, and other operating expenses,” were $273.5 million in 2009, a decrease of $26.7 million, or 9%, from costs of $300.2 million in 2008. The change was due primarily to a reduction in the number of people employed at our mills, mainly at St. Helens and DeRidder, offset partially by increases in healthcare and wage costs. 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. While we believe we have good labor relations and have established staggered labor contracts for each of our five paper mills to minimize potential disruptions in the event of a labor dispute, we could experience a material labor disruption or significantly increased labor costs at one or more of our facilities, either in the course of negotiations of a labor agreement or otherwise.
The weak macroeconomic conditions, significant decline in global equity markets, and turmoil in credit markets caused our pension investment portfolio to suffer significant losses through the end of first quarter 2009. A rebound occurred in the financial markets during 2009 and first quarter 2010, and as of March 31, 2010, our pension assets had increased to a market value of $315 million, compared with $248 million at December 31, 2008. While the Worker, Retiree, and Employee Recovery Act of 2008 provides some relief as to the timing of our required future cash contributions, we may make material contributions to our pension plans in future years. In March 2010, we made a $5.5 million voluntary cash contribution to our qualified pension plans. Assuming a rate of return on plan assets of 7.25% in 2010 and 2011, and that minimum contributions are made in both years, we estimate that we will be required to contribute an additional $1 million in 2010 and approximately $21 million in 2011. 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 on the effect of these and other factors. Changes in the financial markets may require us to make larger contributions to our pension plans than previously anticipated. We may also elect to make additional voluntary contributions in any year, which could reduce the amount of required contributions in future years.
Investment Activities
First quarter 2010
Cash investing activities used $10.8 million for the three months ended March 31, 2010, compared with $18.1 million used for the same period in 2009.
Cash capital expenditures for property, plant, and equipment for the three months ended March 31, 2010, were $14.7 million. Cash capital expenditures for property, plant, and equipment for the three months ended March 31, 2009, were $17.2 million.
Cash investing activities for the three months ended March 31, 2010, also included $2.4 million for purchases of short-term investments and $5.2 million of maturities of short-term investments, which consisted of funds invested in certificates of deposit insured by the Federal Deposit Insurance Corporation.
Fiscal year 2009
For the year ended December 31, 2009, investing activities consisted primarily of expenditures for property and equipment and purchases and maturities of short-term investments. Cash investing activities used $84.5million for the year ended December 31, 2009, compared with $900.0 million in 2008 and $554.5 million in 2007.
Cash capital expenditures for property, plant, and equipment for the year ended December 31, 2009, were $77.1 million. Cash investing activities for the year ended December 31, 2009, also included net $10.0 million for purchases of short-term investments, which consisted of funds invested in certificates of deposit insured by the Federal Deposit Insurance Corporation (“FDIC”).
Details of cash capital expenditures for property, plant, and equipment by segment for the year ended December 31, 2009, are included in the table below (dollars, in millions):
Year Ended December 31, 2009 | ||||||||||||
Acquisition/ Expansion | Quality/ Efficiency (a) | Replacement, Environmental, and Other | Total | |||||||||
Paper | $ | — | $ | 13.9 | $ | 37.1 | $ | 51.0 | ||||
Packaging | 0.1 | 2.5 | 20.5 | 23.1 | ||||||||
Corporate and Other | — | 0.4 | 2.6 | 3.0 | ||||||||
$ | 0.1 | $ | 16.8 | $ | 60.2 | $ | 77.1 | |||||
(a) | Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects. |
We expect capital investments in 2010 to total approximately $100 million, excluding acquisitions and extraordinary capital improvements. This level of capital expenditures could increase or decrease as a result of a number of factors, including our financial results and future economic conditions. Our capital spending in 2010 will be for business improvement, quality/efficiency projects, replacement projects, and ongoing environmental compliance. Our efficiency projects are focused on opportunities to improve our energy efficiency. During 2009, we spent $2.2 million for environmental compliance projects. We expect to spend approximately $1.4 million in 2010 for this purpose.
Fiscal year 2008
On February 22, 2008, Aldabra 2 Acquisition Corp. completed the Acquisition of the Paper Group and other assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and part of the headquarters operations of Boise Cascade for a total purchase price of $1.7 billion, which included $1.3 billion of net cash and fees. Subsequent to the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. Boise Inc. obtained $1.1 billion of financing in conjunction with the Acquisition, which is discussed below in “Financing Activities.”
For the year ended December 31, 2008, investing activities included $1.2 billion in cash spent for the Acquisition, excluding deferred financing fees, as discussed above.
Combined cash capital expenditures for property, plant, and equipment for the year ended December 31, 2008, were $100.8 million. This amount included $10.2 million spent by the Predecessor for the period of January 1, 2008, through February 21, 2008, and $90.6 million spent by us from February 22, 2008, through December 31, 2008. Of these amounts, $10.4 million related to the installation of a shoe press in our DeRidder mill in March to reduce the use of energy in producing linerboard. Total capital spending for this project was $22.4 million, part of which was spent in 2007.
Details of cash capital expenditures for property, plant, and equipment by segment for the combined year ended December 31, 2008, are included in the table below (dollars, in millions):
Year Ended December 31, 2008 | ||||||||||||
Acquisition/ Expansion (a) | Quality/ Efficiency (b) | Replacement, Environmental, and Other | Total | |||||||||
Paper | $ | 0.7 | $ | 7.0 | $ | 40.1 | $ | 47.8 | ||||
Packaging (c) | 11.1 | 4.2 | 33.4 | 48.7 | ||||||||
Corporate and Other | 1.2 | 0.6 | 2.5 | 4.3 | ||||||||
$ | 13.0 | $ | 11.8 | $ | 76.0 | $ | 100.8 | |||||
(a) | Acquisition and expansion does not include $1.2 billion of cash paid for acquisition of businesses and facilities as recorded on our Consolidated Statement of Cash Flows. |
(b) | Quality and efficiency projects include quality improvements, modernization, energy, and cost-saving projects. |
(c) | Includes $10.4 million of spending related to the installation of a shoe press in our DeRidder, Louisiana, mill to reduce our use of energy in producing linerboard, which is included under “Acquisition/Expansion” in the table above. Total capital spending for this project was $22.4 million, part of which was spent in 2007. |
Fiscal year 2007
Investing activities for the year ended December 31, 2007, included $393.6 million of net cash held in trust related primarily to the net proceeds of the initial public offering. The $393.6 million of net cash held in trust included $399.5 million of cash deposited from the initial public offering net of $5.9 million of cash used from the trust to pay initial business, legal, and accounting due diligence expenses on prospective business combinations, general and administrative expenses, and corporate income and franchise taxes. For the year ended December 31, 2007, investing activities also included $2.6 million of cash paid for acquisition costs.
Investing activities in 2007 of the Predecessor also included $141.8 million of capital expenditures for property, plant, and equipment, while the remaining amount was used for environmental compliance and to improve energy efficiency. Approximately $45 million of the expenditures for property and equipment related to the reconfiguration of the paper machine at our pulp and paper mill in Wallula to produce both pressure sensitive and label and release paper in addition to commodity uncoated freesheet paper. As of December 31, 2007, total spending on this project was approximately $80 million. Also included in this amount is $10 million of spending related to the installation of a shoe press in our DeRidder, Louisiana, mill to reduce our use of energy in producing linerboard. Investing activities also included $14.2 million of proceeds from the sale of assets. Of this $14.2 million, approximately $5.2 million (net of cash costs paid to buyer) was from the sale of the paper converting facility in Salem, Oregon, and approximately $3.7 million and $3.2 million of proceeds from the sale of a portion of the Wallula, Washington, fiber farm and Jackson, Alabama, sawmill, respectively.
Investing activities in 2007 used $32.5 million of cash to pay amounts owed to OfficeMax under the Additional Consideration Agreement. As part of the Forest Products Acquisition, the Predecessor entered into an Additional Consideration Agreement with OfficeMax, pursuant to which it agreed to adjust the purchase price based on changes in paper prices over the six-year period following the Forest Products Acquisition. This agreement terminated as a result of the Acquisition, and consequently, we neither received payments from, nor made subsequent payments to, OfficeMax under this agreement.
Financing Activities
First quarter 2010
Cash used for financing activities was $35.5 million for the three months ended March 31, 2010, compared with $62.6 million of cash used for financing activities for the same period in 2009. Financing activities for the
three months ended March 31, 2010, reflect the repayment of $323.7 million of debt, the issuance of $300.0 million of old notes, and $11.8 million of cash paid for deferred financing fees. Under our $250 million revolving credit facility, $227.9 million was available at March 31, 2010. Cash used by financing activities for the three months ended March 31, 2009, reflects $72.6 million of debt repayments.
Our expected debt service obligation, assuming interest rates remain at March 31, 2010, levels, is estimated to be approximately $54.7 million for the remainder of 2010 and $102.1 million for 2011, consisting of cash payments for principal, interest, and fees. These amounts remain subject to change, and such changes may be material. For example, a 1% increase in interest rates would increase interest expense by approximately $1.9 million per year (based on debt levels and interest rates as of March 31, 2010).
Fiscal year 2009
Cash used for financing activities was $327.3 million for the year ended December 31, 2009, compared with $817.7 million of cash provided by financing activities for the same period in 2008. Financing activities for the year ended December 31, 2009, reflect the issuance of $300 million of 9% Notes obtained as a result of our debt restructuring and repayment of approximately $510 million of existing debt plus costs to accomplish the restructuring.
We lease our distribution centers, as well as other property and equipment, under operating leases. These operating leases are not included in debt; however, they represent a commitment. Obligations under operating leases are shown in the “Contractual Obligations” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Fiscal year 2008
For the year ended December 31, 2008, cash financing activities were $817.7 million and reflect approximately $1.1 billion of debt financing obtained in conjunction with the Acquisition, offset partially by $120.2 million paid to stockholders who exercised their conversion rights, $94.3 million of deferred financing costs and underwriting fees, and $88.3 million of debt repayments. Under our $250 million revolving credit facility, $163.6 million was available at December 31, 2008. Prior to the Acquisition, financing activities have historically consisted primarily of intercompany loans obtained by the Predecessor.
Fiscal year 2007
For the year ended December 31, 2007, cash financing activities included $414.0 million of gross proceeds from the initial public offering on June 22, 2007, as well as $3.0 million related to the sale of insider warrants. In conjunction with the offering, we paid $16.6 million in underwriting discounts and commissions and incurred approximately $0.6 million in other costs related to the offering. As discussed above in “Investing Activities,” the net amount from the offering, or $399.5 million, was deposited in a trust account. These funds were released from the trust as a result of the Acquisition. Also included in this amount is $90.4 million of intercompany loans obtained by the Predecessor.
The following discussion describes our debt structure in more detail.
At March 31, 2010 and December 31, 2009 and 2008, our long-term debt and the interest rates on that debt were as follows (dollars, in millions):
March 31, 2010 | December 31, 2009 | December 31, 2008 | |||||||||||||||||||
Amount | Interest Rate | Amount | Interest Rate | Amount | Interest Rate | ||||||||||||||||
Revolving credit facility, due 2013 | $ | — | — | % | $ | — | — | % | $ | 60.0 | 4.33 | % | |||||||||
Tranche A term loan, due 2013 | 192.2 | 3.00 | % | 203.7 | 3.25 | % | 245.3 | 4.75 | % | ||||||||||||
Tranche B term loan, due 2014 | — | — | % | 312.2 | 5.75 | % | 471.4 | 5.75 | % | ||||||||||||
Second lien term loan, due 2015 | — | — | % | — | — | % | 260.7 | 9.25 | % | ||||||||||||
9% Senior Notes, due 2017 | 300.0 | 9.00 | % | 300.0 | 9.00 | % | — | — | % | ||||||||||||
8% Senior Notes, due 2020 | 300.0 | 8.00 | % | — | — | % | — | — | % | ||||||||||||
Current portion of long-term debt | (16.7 | ) | 3.00 | % | (30.7 | ) | 3.97 | % | (25.8 | ) | 5.33 | % | |||||||||
Long-term debt, less current portion | 775.5 | 7.25 | % | 785.2 | 6.41 | % | 1,011.6 | 6.34 | % | ||||||||||||
Current portion of long-term debt | 16.7 | 3.00 | % | 30.7 | 3.97 | % | 25.8 | 5.33 | % | ||||||||||||
792.2 | 7.17 | % | 815.9 | 6.32 | % | 1,037.5 | 6.31 | % | |||||||||||||
15.75% notes payable, due 2015 | — | — | % | — | — | % | 66.6 | 15.75 | % | ||||||||||||
$ | 792.2 | $ | 815.9 | $ | 1,104.1 | ||||||||||||||||
As of March 31, 2010, our debt consisted of the following:
The Revolving Credit Facility: A five-year nonamortizing $250.0 million senior secured revolving credit facility with interest at either the London Interbank Offered Rate (“LIBOR”) plus an applicable margin, which is currently 275 basis points, or a calculated base rate plus an applicable margin, which is currently 175 basis points (collectively with the Tranche A term loan facility, the Credit Facilities).
The Tranche A Term Loan Facility: A five-year amortizing senior secured loan facility with interest at LIBOR plus an applicable margin, which is currently 275 basis points, or a calculated base rate plus an applicable margin, which is currently 175 basis points. The Tranche A term loan facility was originally issued at $250.0 million. At December 31, 2009, our LIBOR applicable margin was 300 basis points and our calculated base rate applicable margin was 200 basis points.
The 9% Notes: An eight-year nonamortizing $300.0 million senior unsecured debt obligation with annual interest at 9%.
The 8% Notes: A ten-year nonamortizing $300.0 million senior unsecured debt obligation with annual interest at 8%.
The Credit Facilities are secured by a first-priority lien on all of the assets of our subsidiaries that guarantee or are borrowers, and in the event of default, the lenders generally would be entitled to seize the collateral. All borrowings under the Credit Facilities bear interest at a rate per annum equal to an applicable margin plus a calculated base rate or adjusted Eurodollar rate. The calculated base rate means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 0.50%. The adjusted Eurodollar rate means LIBOR rounded to the nearest 1/16 of 1.0% and adjusted for any applicable reserve requirements. In addition to paying interest, the Company pays a commitment fee to the lenders under the revolving credit facility at a rate of 0.375% per annum times the daily average undrawn portion of the revolving credit facility (reduced by the amount of letters of credit issued and outstanding), which fee is payable quarterly in arrears. The Company also pays letter of credit fees of 275 basis points times the average daily maximum outstanding amount of the letters of credit and a fronting fee of 15 basis points to the issuing bank of outstanding letters of credit. These fees are payable quarterly in arrears.
At March 31, 2010, and December 31, 2009, we had no borrowings outstanding under the revolving credit facility. For the three months ended March 31, 2010, and the year ended December 31, 2009, the average interest rates for our borrowings under our revolving credit facility were 0.0% and 3.7%, respectively. The minimum and maximum borrowings under the revolving credit facility were zero for the three months ended March 31, 2010, and zero and $60.0 million for the year ended December 31, 2009. The weighted average amount of borrowings outstanding under the revolving credit facility during the three months ended March 31, 2010 and 2009, was zero and $28.1 million, respectively. At March 31, 2010, we had availability of $227.9 million, which is net of outstanding letters of credit of $22.1 million.
Debt Refinancing
On March 19, 2010, Boise Paper Holdings and Boise Co-Issuer (together, the “8% Notes Issuers”) issued a $300 million aggregate principal amount of old notes, through a private placement that is exempt from the registration requirements of the Securities Act of 1933, as amended. The old notes pay interest semiannually in arrears on April 1 and October 1, commencing on October 1, 2010. As a result of this refinancing, we extended the maturity of our debt and fixed our interest rates.
Following the sale of the old notes, we used the net proceeds of the sale, as well as cash on hand, to repay the Tranche B term loan facility plus accrued and unpaid interest at par. Upon the repayment of all of the indebtedness outstanding under the Tranche B term loan facility, such debt was canceled.
The issuance of the old notes and the repayment of our Tranche B term loan facility represented a substantial modification to our debt structure. Therefore, we wrote off $22.2 million of previously unamortized deferred financing costs for the Tranche B term loan facility in “Loss on extinguishment of debt” in our Consolidated Statements of Income (Loss). We recorded $11.8 million of new deferred financing costs related to the March 2010 debt refinancing.
In connection with the issuance of the old notes, the 8% Notes Issuers and BZ Holdings and its restricted subsidiaries (together the “8% Notes Guarantors”) entered into the 8% Notes Registration Rights Agreement, dated as of March 19, 2010. The 8% Notes Registration Rights Agreement requires us to register under the Securities Act the new notes having substantially identical terms to the old notes and to complete an exchange of the privately placed old notes for the publicly registered new notes or, in certain circumstances, to file and keep effective a shelf registration statement for resale of the old notes. If we fail to satisfy these obligations by March 19, 2011, we will pay additional interest up to 1% per annum to holders of the old notes.
The old notes and new notes are senior unsecured obligations and rank equally with all of the Issuers’ present and future senior indebtedness, senior to all of their future subordinated indebtedness, and effectively subordinated to all of our present and future senior secured indebtedness (including all borrowings with respect to the Credit Facilities to the extent of the value of the assets securing such indebtedness).
Debt Issuance and Restructuring
On October 26, 2009, Boise Paper Holdings and Boise Finance (together, the “9% Notes Issuers”) issued a $300 million aggregate principal amount of the 9% Notes through a private placement that is exempt from the registration requirements of the Securities Act of 1933, as amended. The 9% Notes pay interest semiannually in arrears on May 1 and November 1, commencing on May 1, 2010.
Following the sale of the 9% Notes, the 9% Notes Issuers used the net proceeds of the sale, as well as cash on hand, to retire a portion of the existing term loan indebtedness under Boise Paper Holdings’ Credit Facilities pursuant to the amendments of our Credit Facilities (“Credit Agreement Amendments”). The Credit Agreement Amendments became effective October 26, 2009, at which time Boise Paper Holdings repaid approximately $75 million of outstanding secured debt under its first lien term loan. In addition, pursuant to the Credit Agreement Amendments, Boise Paper Holdings used proceeds of the issuance to repurchase, in its entirety, the indebtedness
outstanding under its second lien term loan. In consideration of the repurchase of indebtedness under the second lien term loan, Boise Paper Holdings paid a premium of 113% to the lender parties, plus accrued and unpaid interest. Upon the repurchase of all of the indebtedness outstanding under the second lien term loan, such debt was canceled and the second lien credit agreement was terminated.
On October 26, 2009, we also used cash on hand to repurchase, in its entirety, our outstanding 15.75% note payable due in 2015. Boise Inc. purchased the note payable at a price of 70% of the outstanding value of the note payable, plus accrued and unpaid interest. Following the purchase of the note payable, the note was cancelled.
The issuance of the 9% Notes and the repurchase of our second lien term loan represented a substantial modification to our debt structure. Therefore, we wrote off the unamortized deferred financing fees for the second lien and recognized various other costs and fees incurred in connection with these transactions in our Consolidated Statements of Income (Loss). We also recorded $13.2 million of deferred financing costs related to the debt restructuring. In addition, in December 2009, we made a voluntary prepayment of $100 million on our Tranche B term loan at 101%. We recognized $66.8 million in “Loss on extinguishment of debt” in our Consolidated Statements of Income (Loss), which consisted of the following (dollars, in millions):
Write-off of second lien deferred financing fees | $ | 27.1 | |
Premium paid to second lien holders | 33.9 | ||
Other costs and fees | 5.8 | ||
$ | 66.8 | ||
In connection with the issuance of the 9% Notes, the 9% Notes Issuers and BZ Holdings and its restricted subsidiaries (together the “9% Notes Guarantors”) entered into the Registration Rights Agreement, dated as of October 26, 2009 (the “Registration Rights Agreement”). The Registration Rights Agreement requires the Company to register under the Securities Act the 9% Senior Notes due in 2017 (the “Exchange Notes”) having substantially identical terms to the 9% Notes and to complete an exchange of the privately placed 9% Notes for the publicly registered Exchange Notes or, in certain circumstances, to file and keep effective a shelf registration statement for resale of the privately placed 9% Notes. If the 9% Notes Issuers fail to satisfy these obligations by October 26, 2010, the 9% Notes Issuers will pay additional interest up to 1% per annum to holders of the 9% Notes.
The 9% Notes are senior unsecured obligations and rank equally with all of the 9% Notes Issuers’ present and future senior indebtedness, senior to all of their future subordinated indebtedness, and effectively subordinated to all present and future senior secured indebtedness of the 9% Notes Issuers (including all borrowings with respect to the Credit Facilities to the extent of the value of the assets securing such indebtedness).
Covenants
The Credit Facilities require BZ Holdings and its subsidiaries to maintain financial covenant ratios. We are required to have a total leverage ratio of less than 4.75:1.00, stepping down to 4.50:1.00 at September 30, 2011, and a secured leverage ratio of 3.25:1.00, stepping down to 3.00:1.00 at September 30, 2011. The total leverage ratio is defined in our loan agreements at the end of any fiscal quarter as the ratio of (i) consolidated total net debt as defined in our Credit Facilities debt agreement as of such day to (ii) consolidated adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for the four-fiscal-quarter period ending on such date. The Credit Facilities secured leverage ratio is defined in our First Amendment to our loan agreement as the ratio as of the last day of any fiscal quarter of (i) consolidated first lien secured total net debt as defined in our credit agreement amendments as of such day to (ii) consolidated adjusted EBITDA for the four-fiscal-quarter period ending on such date. The Credit Facilities also limit the ability of Holdings and its subsidiaries to make capital expenditures, generally to $150 million per year.
The 9% Notes, the old notes and the new notes are governed by indenture agreements that contain covenants which, subject to certain exceptions, limit the ability of the 9% Notes Issuers and the 8% Notes Issuers and the 9% Notes Guarantors and the 8% Notes Guarantors to, among other things, incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with affiliates, and create liens on assets of the 9% Notes Issuers and the 8% Notes Issuers or 9% Notes Guarantors and the 8% Senior Notes Guarantors. Upon a change of control, the 9% Notes Issuers and the 8% Notes Issuers must offer to repurchase the 9% Notes and the old notes and new notes at 101% of the principal amount, plus accrued and unpaid interest. If the 9% Notes Issuers and 8% Notes Issuers sell certain assets and do not use the proceeds from such sales for specified purposes, they must offer to repurchase the 9% Notes and the old notes and new notes at 100% of the principal amount, plus accrued and unpaid interest.
Guarantees
The Company’s obligations under its Credit Facilities are guaranteed by each of Boise Paper Holdings’ existing and subsequently acquired domestic subsidiaries (collectively, the “Credit Facility Guarantors”). The Credit Facilities are secured by a first-priority security interest in substantially all of the real, personal, and mixed property of Boise Paper Holdings and the Credit Facility Guarantors, including 100% of the equity interests of Boise Paper Holdings and each domestic subsidiary of Boise Paper Holdings, 65% of the equity interests of each of Boise Paper Holdings’ foreign subsidiaries (other than Boise Hong Kong Limited so long as Boise Hong Kong Limited does not account for more than $2.5 million of consolidated EBITDA during any fiscal year of Boise Paper Holdings), and all intercompany debt.
The 9% Notes and the old notes and new notes are jointly and severally guaranteed on a senior unsecured basis by BZ Holdings and each existing and future subsidiary of BZ Holdings (other than their respective issuers and, in the case of the old notes and the new notes, other than Boise Finance Company). The 9% Notes Guarantors and 8% Notes Guarantors do not include Louisiana Timber Procurement Company, L.L.C., or foreign subsidiaries.
Prepayments
We may redeem all or a portion of the 9% Notes at any time on or after November 1, 2013, at a premium decreasing to zero by November 1, 2015, plus accrued and unpaid interest. In addition, prior to November 1, 2012, the 9% Notes Issuers may redeem up to 35% of the aggregate principal amount of the 9% Notes at a redemption price of 109% of the principal amount thereof with the net proceeds of one or more qualified equity offerings.
We may redeem all or a portion of the old notes or new notes at any time on or after April 1, 2015, at a premium decreasing to zero by April 15, 2018, plus accrued and unpaid interest. In addition, prior to April 1, 2013, the 8% Notes Issuers may redeem up to 35% of the aggregate principal amount of the old notes or new notes at a redemption price of 108% of the principal amount thereof with the net proceeds of one or more qualified equity offerings.
Other Provisions
Subject to specified exceptions, the Credit Facilities require that the proceeds from certain asset sales, casualty insurance, certain debt issuances, and 75% (subject to step-downs based on certain leverage ratios) of the excess cash flow for each fiscal year must be used to pay down outstanding borrowings. As of March 31, 2010, required debt principal repayments, excluding those from excess cash flows, total $10.4 million during the remainder of 2010, $43.7 million in 2011, $129.7 million in 2012, $8.4 million in 2013, zero in 2014 and 2015, and $600.0 million thereafter. Based on our variable-rate debt levels and interest rates as of March 31, 2010, we estimate that a 1% increase in interest rates on our variable-rate debt would increase our interest expense by approximately $1.9 million per year.
Other
At March 31, 2010, and December 31, 2009, we had $34.6 million and $47.4 million, respectively, of costs recorded in “Deferred financing costs” on our Consolidated Balance Sheet. As noted above, we repaid the Tranche B term loan facility with the proceeds from the March 2010 debt refinancing, and as a result, we expensed approximately $22.2 million of previously unamortized deferred financing costs. We recorded this charge in “Loss on extinguishment of debt” in our Consolidated Statement of Income (Loss). In addition, $11.8 million of new deferred financing costs related to the debt refinancing are included, net of amortization, in “Deferred financing costs” on our Consolidated Balance Sheet. The amortization of these costs is recorded in interest expense using the effective interest method over the life of the loans. We recorded $2.3 million and $2.9 million, respectively, of amortization expense for the three months ended March 31, 2010 and 2009, in “Interest expense” in our Consolidated Statements of Income (Loss).
For the three months ended March 31, 2010 and 2009, cash payments for interest, net of interest capitalized, were $6.0 million and $16.5 million, respectively.
Contractual Obligations
In the table below, we set forth our contractualenforceable and legally binding obligations as of December 31, 2004, unless otherwise noted.2009. As of March 31, 2010, there have been no material changes to our contractual obligations from those disclosed below, except as discussed in Note 11, Debt, of the Notes to the Unaudited Consolidated Financial Statements in this prospectus. Some of the amounts we includeincluded in thisthe table are based on management'smanagement’s estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, the enforceable and legally binding obligations we will actually pay in future periodsour actual payments may vary from those reflected in the table.
| Payments Due by Period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2006-2007 | 2008-2009 | Thereafter | Total | |||||||||||
| (dollars in millions) | |||||||||||||||
Long-term debt, including current portion(1) | $ | 752.4 | $ | 16.8 | $ | 16.8 | $ | 1,450.1 | $ | 2,236.1 | ||||||
Interest(1) | 90.8 | 173.3 | 168.8 | 244.5 | 677.4 | |||||||||||
Operating leases(2) | 11.7 | 18.4 | 14.9 | 26.5 | 71.5 | |||||||||||
Purchase obligations | ||||||||||||||||
Raw materials(3)(6) | 174.8 | 290.5 | 228.0 | 458.9 | 1,152.2 | |||||||||||
Utilities(4) | 97.9 | 15.1 | 5.2 | — | 118.2 | |||||||||||
Capital spending | 20.5 | 26.6 | 13.4 | — | 60.5 | |||||||||||
Other | 0.7 | 0.6 | 0.4 | — | 1.7 | |||||||||||
Other long-term liabilities reflected on our balance sheet | ||||||||||||||||
Compensation and benefits(5) | 0.4 | 1.7 | 29.6 | 101.9 | 133.6 | |||||||||||
Other | — | 5.0 | 2.6 | 16.0 | 23.6 | |||||||||||
$ | 1,149.2 | $ | 548.0 | $ | 479.7 | $ | 2,297.9 | $ | 4,474.8 | |||||||
information, see Note 7 to the audited consolidated financial statements includedaccrued liabilities (dollars, in this prospectus.millions):
Payments Due by Period | |||||||||||||||
2010 | 2011-2012 | 2013-2014 | Thereafter | Total | |||||||||||
Long-term debt, including current portion (a) | $ | 30.7 | $ | 182.6 | $ | 302.6 | $ | 300.0 | $ | 815.9 | |||||
Interest (b) | 50.1 | 97.2 | 73.2 | 82.2 | 302.7 | ||||||||||
Operating leases (c) | 12.4 | 22.5 | 15.2 | 19.1 | 69.2 | ||||||||||
Purchase obligations | |||||||||||||||
Raw materials and finished goods inventory (d) | 45.7 | 19.4 | 18.4 | — | 83.5 | ||||||||||
Utilities (e) | 23.2 | 11.3 | 2.2 | 0.1 | 36.8 | ||||||||||
Other | 5.3 | 0.8 | — | — | 6.1 | ||||||||||
Other long-term liabilities reflected on our Balance Sheet: | |||||||||||||||
Compensation and benefits (f) | 2.2 | 60.4 | 57.3 | 4.3 | 124.2 | ||||||||||
Other (g) | 2.7 | 5.8 | 2.2 | 22.6 | 33.3 | ||||||||||
$ | 172.3 | $ | 400.0 | $ | 471.1 | $ | 428.3 | $ | 1,471.7 | ||||||
(a) | These borrowings are further explained in “—Financing Activities” under “—Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The table assumes our long-term debt is held to maturity and includes the current portion of long-term debt. |
(b) | Amounts represent estimated interest payments as of December 31, 2009, and assume our long-term debt is held to maturity. |
(c) | We enter into operating leases in the normal course of business. We lease our distribution centers as well as other property and equipment under operating leases. Some lease agreements provide us with the option to renew the lease or purchase the leased property. Our operating lease obligations would change if we |
exercised these renewal options and/or if we entered into additional operating lease agreements. For more information, see Note 7, Leases, of the Notes to Consolidated Financial Statements in “Financial Statements and Supplementary Data” appearing elsewhere in this prospectus. |
(d) | Included among our raw materials purchase obligations are contracts to purchase approximately $76.4 million of wood fiber. Under most of these log and fiber supply agreements, we have the right to cancel or reduce our commitments in the event of a mill curtailment or shutdown. Future purchase prices under most of these agreements are set quarterly or semiannually based on regional market prices, and the estimate is based on contract terms or first quarter 2010 pricing. Our log and fiber obligations are subject to change based on, among other things, the effect of governmental laws and regulations, our manufacturing operations not operating in the normal course of business, log and fiber availability, and the status of environmental appeals. Except for deposits required pursuant to wood supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect. |
(e) | We enter into utility contracts for the purchase of electricity and natural gas. We also purchase these services under utility tariffs. The contractual and tariff arrangements include multiple-year commitments and minimum annual purchase requirements. Our payment obligations were based upon prices in effect on December 31, 2009, or upon contract language, if available. Because we consume the energy in the manufacture of our products, these obligations represent the face value of the contracts, not resale value. |
(f) | Amounts consist primarily of pension and other postretirement benefit obligations, including current portion of $0.3 million. |
(g) | Includes current liabilities of $2.5 million. |
In addition to the contractual obligations quantified in the table above, we have other obligations for goods and services and raw materials entered into in the normal course of business. We expect to make tax distributions to our equityholders equal to 38.9% of our taxable income with respect to periods prior to our conversion to a corporation. Furthermore, pursuant to our additional consideration agreement between us and OfficeMax, we may be required to make substantial cash payments to, or receive substantial cash payments from, OfficeMax. Under the additional consideration agreement, the purchase price may be adjusted upward or downward based on paper prices during the six years following the closing date, subject to annual and aggregate caps. Neither party will be obligated to make a payment under the additional consideration agreement in excess of $45 million in any one year. Payments are also subject to an aggregate cap of $125 million that declines to $115 million in the fifth year and $105 million in the sixth year.
The Series A common units issued to OfficeMax in connection with the Acquisition, which were converted to Series A preferred stock in connection with our conversion to a corporation, accrued dividends daily at a rate of 8% per annum on the holder's capital contributions (net of any distributions previously received by such holder) plus any accumulated dividends. Accrued and unpaid dividends accumulate on the Series A preferred stock on June 30Off-Balance-Sheet Activities
At March 31, 2010 and December 31, of each year. At December 31, 20042009 and March 31, 2005, $0.5 million and $1.2 million, respectively, of dividends were recorded in Series A equity units in our balance sheet.
Off-Balance-Sheet Activities
At March 31, 2005,2008, we did not have anyhad no off-balance-sheet arrangements with unconsolidated entities.
In the predecessor periods presented, Boise Forest Products Operations participated in OfficeMax's receivable sales program. This program consisted of selling fractional ownership interests in a defined pool of accounts receivable. The sales program was accounted for under Statement of Financial Accounting Standards, or SFAS, No. 140, Accounting for TransfersGuarantees
Note 11, Debt, and Servicing of Financial AssetsNote 18, Commitments and Extinguishments of Liabilities. Our predecessor entered into this program to provide funding at rates favorable to other borrowing arrangements. Under this program, OfficeMax sold substantially all of its domestic trade accounts receivable on a revolving basis to a fully consolidated, wholly owned subsidiary. The subsidiary in turn sold a fractional ownership interest in the receivables to affiliates of two banks. Based on the termsGuarantees, of the sale, OfficeMax recorded the sales as true salesNotes to Consolidated Financial Statements in “Financial Statements and not as loans secured by the receivables. At October 28, 2004, no sold accounts receivable were excluded from receivables, compared with $148.8 million and $105.4 million at December 31, 2003 and 2002, respectively. The portion of fractional ownership interest our predecessor retained is included in receivables on our balance sheet. A portion of the retained interest is subordinate to the interests of the bank affiliates, providing them credit support if the receivables become uncollectible. The anticipated impact of the credit support is reflected in the allowance for uncollectible receivables. The proceeds available under this program could be reduced, based on the level of eligible receivables, restrictions on the concentrations of receivables and the historical performance of the receivables. Costs under this program vary based on changes in interest rates. Costs incurred related to Boise Forest Products Operations totaled $2.2 million, $1.9 million, and $2.3 million for the period January 1 through October 28, 2004, and for the years ended December 31, 2003 and 2002, respectively.
In anticipation of the Acquisition, during the third quarter of 2004, OfficeMax stopped selling receivables related to Boise Forest Products Operations' businesses. We do not currently participate in a receivable sales program. Compared with the predecessor period financial statements, not participating in a securitization program may increase interest expense, assets and liabilities.
Guarantees
See Note 17 to our audited consolidated financial statements and Note 13 to our unaudited consolidated financial statements, in each case includedSupplementary Data” appearing elsewhere in this prospectus for a description of our guarantees anddescribe the nature of our guarantees, including the approximate terms of the guarantees, how the guarantees arose, the events or circumstances that would require us to perform under the guarantees, and the maximum potential undiscounted amounts of future payments we could be required to make.
Inflationary and Seasonal Influences
We believe inflation has not had a material effect on our financial condition or resultsOur major costs of operations. However, thereproduction are labor, wood fiber, energy, and chemicals. Pricing for these manufacturing inputs can be no assurance that we willsubject to both macroeconomic inflationary influences and regional supply and demand. For example, fiber prices are highly dependent on regional wood supply and demand trends. Pricing for natural gas, which constitutes a significant portion of our energy costs, tends to follow macroeconomic supply and demand trends and can fluctuate based on many factors, including weather and natural gas storage levels. Many of our chemicals are specialized and pricing may not correlate with macroeconomic trends. Pricing for our manufactured end products is dependent on industry supply and demand trends, which in turn can be affectedinfluenced by inflationmacroeconomic manufacturing activity, employment levels, and consumer spending.
We experience some 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 future. Seasonal changes in levelsPacific Northwest. In addition, seasonally cold weather increases costs, especially energy consumption, at all of building activity affect our building products businesses, and we typically have higher sales andmanufacturing facilities. Seasonality also affects working capital levels as described in the second and third quarters. In addition, cold weather may affect our operating costs (including energy) at our manufacturing facilities.“Business—Seasonality” appearing elsewhere in this prospectus.
Disclosures of Financial Market Risks
At December 31, 2004,We are exposed to market risks, including changes in interest rates, energy prices, and foreign currency exchange rates. We employ a variety of practices to manage these risks, including operating and financing activities and, where deemed appropriate, the estimated currentuse of derivative instruments. Derivative instruments are used only for risk management purposes and not for speculation or trading. Derivatives are such that a specific debt instrument, contract, or anticipated purchase determines the amount, maturity, and other specifics of the hedge. If a derivative contract is entered into, we either determine that it is an economic hedge or we designate the derivative as a cash flow or fair value hedge. We formally document all relationships between hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking various hedged transactions. For those derivatives designated as cash flow or fair value hedges, we formally assess, both at the derivatives’ inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the hedged items. The ineffective portion of hedging transactions is recognized in income (loss).
We record all derivative instruments as assets or liabilities on our Consolidated Balance Sheets at fair value. The fair value of these instruments is determined by third parties. Changes in the fair value of derivatives are recorded in either “Net income (loss)” or “Other comprehensive income (loss)” as appropriate. The gain or loss on derivatives designated as cash flow hedges is included in “Other comprehensive income (loss)” in the period in which changes in fair value occur and is reclassified to income (loss) in the period in which the hedged item affects income (loss), and any ineffectiveness is recognized currently in our Consolidated Statements of Income (Loss). The fair value of the hedged exposure is presumed to be the market value of the hedging instrument when critical terms match. The gain or loss on derivatives designated as fair value hedges and the offsetting gain or loss on the hedged item attributable to the hedged risk are included in income (loss) in the period in which changes in fair value occur. The gain or loss on derivatives that have not been designated as hedging instruments is included in income (loss) in the period in which changes in fair value occur.
Interest Rate Risk—Debt
With the exception of the Tranche A term loan facility, our debt is fixed-rate debt. At March 31, 2010, the estimated value of our fixed-rate debt, based on then-current interest rates for similar obligations with like maturities, was approximately $9.7$17.6 million more than
the amount of debt reportedrecorded on our balance sheet. TheConsolidated Balance Sheet. At March 31, 2010, the estimated fair valuesvalue of our other financial instruments, cash and cash equivalents and receivables are the same as their carrying values. During 2004, $534.8 million, or 9%, and during the three months ended March 31, 2005, $150.3 million, or 10%, of our total sales were to OfficeMax, which represents a concentration in the volume of business transacted and the revenue generated from these transactions. Apart from these sales, concentration of credit risks with respect to trade receivables is limited due to the wide variety of customers and channels to and through which our products are sold, as well as their dispersion across many geographic areas.
Changes in interest and currency rates expose the company to financial market risk. We occasionally use derivative financial instruments, such as interest rate swaps, rate hedge agreements, forward purchase contracts and forward exchange contracts, to hedge underlyingvariable-rate debt, obligations or anticipated transactions. We do not use them for trading purposes. For qualifying interest hedges, the interest rate differential is reflected as an adjustment to interest expense over the life of the swap or underlying debt.
Our obligations under our senior credit facilities and senior floating rate notes expose us to changes in short-termbased on then-current interest rates because interest ratesfor similar obligations with like maturities, was approximately $6.7 million less than the amount recorded on this debt are variable. In November 2004, we entered into four interest rate swaps with a total notional amount of $550 million to hedge our exposure to interest rate fluctuations associated with our Tranche B term loan. The swaps on $300 million of our Tranche B term loan were fixed at an average pay rate of 3.3% and expire in December 2007, while the swaps on $250 million of the loan were fixed at an average pay rate of 3.5% and expire in December 2008. We also entered into two 3.7% interest rate swaps with an aggregate notional amount of $250 million to hedge the exposure to floating rate interest rate risks associated with our senior floating rate notes. These swaps expire in October 2009. All of the swaps were designated as cash flow hedges. Accordingly, changes in the fair value of the swaps, net of taxes, were recorded in Series B equity units and reclassified to interest expense, as interest expense was recognized on the LIBOR-based debt. Amounts reclassified in the period October 29 through December 31, 2004 increased interest expense by $1.8 million. Assuming no change in interest rates, $1.7 million would be reclassified in 2005. Ineffectiveness related to these hedges, which was calculated using the hypothetical derivative method, was not significant. The $300 million interest rate swaps expiring in December 2007 and the $250 million interest rate swaps expiring in December 2008 were specifically designated to hedge the variable interest rate exposure associated with our Tranche B term loan. Prior to March 31, 2005, we decided to pursue a refinancing of our Tranche B term loan in anticipation of our planned initial public offering. Because it was probable at March 31, 2005 that we would no longer have future variable rate interest payments under the Tranche B term loan, the original designation of the cash flow hedging relationship could not be maintained. We were required under generally accepted accounting principles to reclassify amounts in other comprehensive income related to these interest rate swaps and recognize the change in the fair value of interest rate swaps in our income statement. On April 28, 2005, these interest rate swaps were redesignated as hedges of the cash flow risk from the LIBOR-based variable interest payments on the term loans borrowed under our senior credit facilities. As a result of the accounting treatment of these hedges, we recognized $15.2 million of non-cash income in the first quarter of 2005 and will recognize $5.3 million of non-cash expense in the second quarter of 2005. The $9.9 million of net income recognized during these periods will result in higher interest expense over the remaining life of the interest rate swaps. This will increase our interest expense by approximately $2.3 million in 2005, $3.3 million in 2006, $3.1 million in 2007 and $1.2 million in 2008.Consolidated Balance Sheet.
As described in Note 11 to our audited consolidated financial statements and Note 9 to our unaudited consolidated financial statements, in each case included in this prospectus, in each of the predecessor periods presented, OfficeMax allocated debt and interest costs to us based on our
average asset balances. OfficeMax occasionally used derivative financial instruments, such as interest rate swaps, rate hedge agreements and forward exchange contracts, to hedge underlying debt obligations or anticipated transactions. The effects of these financial instruments are not included in the predecessor financial statements other than through OfficeMax's allocations to us.
The table below provides informationa summary of our long-term debt obligations as of DecemberMarch 31, 2004 about our financial instruments that are sensitive to changes in interest rates or utility indexes. For debt obligations, the2010. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. For obligations with variable interest rates, and sensitivity to energy market risk, the table sets forth payout amounts based on current rates and does not attempt to project future rates. Other instruments subject to market risk, such as obligations for pension plans and other postretirement benefits, are not reflected in the table.
Financial Instruments
| | | | | | | | | Predecessor | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | 2004 | 2003 | |||||||||||||||||||||||
| 2005 | 2006 | 2007 | 2008 | 2009 | There - -after | Total | Fair Value | Total | Fair Value | |||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||
Debt | |||||||||||||||||||||||||||||||
Short-term borrowings | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 2.9 | $ | 2.9 | |||||||||||
Average interest rates | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Long-term debt | |||||||||||||||||||||||||||||||
Fixed-rate debt payments | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 400.0 | $ | 400.0 | $ | 409.7 | $ | 1,042.5 | $ | 1,074.9 | |||||||||||
Average interest rates | — | — | — | — | — | 7.1 | % | 7.1 | % | — | 7.3 | % | — | ||||||||||||||||||
Variable-rate debt payments(1) | $ | 13.3 | $ | 13.3 | $ | 13.3 | $ | 13.3 | $ | 13.3 | $ | 1,513.5 | $ | 1,580.0 | $ | 1,580.0 | $ | 225.9 | $ | 225.9 | |||||||||||
Average interest rates(2) | 4.7 | % | 4.7 | % | 4.7 | % | 4.7 | % | 4.7 | % | 4.7 | % | 4.7 | % | — | 3.3 | % | — | |||||||||||||
Interest rate swaps | |||||||||||||||||||||||||||||||
Notional principal amount of interest rate exchange agreements maturing | |||||||||||||||||||||||||||||||
Variable to fixed | $ | — | $ | — | $ | 300.0 | $ | 250.0 | $ | 250.0 | $ | — | $ | 800.0 | $ | 6.3 | $ | — | $ | — | |||||||||||
Average pay rate | — | — | 3.3 | % | 3.5 | % | 3.7 | % | — | 3.5 | % | — | — | — | |||||||||||||||||
Average receive rate | — | — | 2.4 | % | 2.4 | % | 2.2 | % | — | 2.3 | % | — | — | — | |||||||||||||||||
Energy swaps | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1.4 | $ | 1.4 |
Environmental
Our businesses are subject to a wide range of general and industry-specific environmental laws and regulations. In particular, we are affected by laws and regulations covering air emissions, wastewater discharges, solid and hazardous waste management and site remediation. Compliance with these laws and regulations is a significant factor in the operation of our businesses. We believe that we have created a corporate culture of strong compliance by taking a conservative approach to environmental issues in order to assure that we are operating well within the bounds of
regulatory requirements. However, we cannot assure you that we will at all times be in full compliance with environmental requirements, and we cannot assure you that we will not incur fines and penalties in the future.
In 2002, OfficeMax entered into a consent decree with the Environmental Protection Agency, or EPA, to settle alleged air permit violations at eight of the plywood and particleboard manufacturing facilities that we now own. The EPA alleged these plants failed to obtain New Source Review air permits. The final installation of control equipment required under the Consent Decree was completed in April 2005.
We incur substantial capital and operating expenditures to comply with federal, state and local environmental laws and regulations. Failure to comply with these laws and regulations could result in civil or criminal fines or penalties or in enforcement actions. Our failure to comply could also result in governmental or judicial orders that stop or interrupt our operations or require us to take corrective measures, install additional pollution control equipment or take other remedial actions. During 2004, we made approximately $8 million in capital expenditures to comply with environmental requirements. We anticipate capital expenditures of approximately $18 million in 2005 to comply with environmental requirements, and we expect to spend similar or greater amounts on environmental capital expenditures in the years ahead.
In 2004, the EPA promulgated rules to control air toxics emissions from wood and panel plants and industrial boilers. Compliance with these rules is required in 2007. The rules will require capital spending at our wood panel plants and paper mills. We are currently evaluating the rules and the amount of capital spending that will be required to comply with them. We expect capital spending on these projects to range from $13 million to $37 millionquoted market prices for the period from 2005 to 2007. This range will be refined as mills develop their detailed compliance strategies.
As an owner and operator of real estate, we may be liable under environmental laws forsame or similar issues or on the cleanup of past and present spills and releases of hazardous or toxic substances on or from our properties and operations. We can be found liable under these laws if we knew of, or were responsible for, the presence of such substances. In some cases, this liability may exceed thediscounted value of the property itself.
Somefuture cash flows expected to be paid using incremental rates of borrowing for similar liabilities. Changes in market rates of interest affect the fair value of our properties have been the subject of investigation or cleanupfixed-rate debt (dollars, in connection with environmental contamination. In 2001, the EPA and the Oregon Department of Environmental Quality began an investigation at our paper mill in St. Helens, Oregon. The investigation is being conducted under Oregon's Voluntary Cleanup Program. The investigation has focused on polychlorinated biphenyls, pentachlorophenol, volatile and semi-volatile organic compounds, dioxins and heavy metals. Although we cannot assure you regarding the outcome of this investigation, based on current information, we do not expect itmillions, except for percentages):
March 31, 2010 | December 31, 2009 | |||||||||||||||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | There- after | Total | Fair Value | Total | Fair Value | |||||||||||||||||||||||||||||||
Debt | ||||||||||||||||||||||||||||||||||||||||
Long-term debt(a) | ||||||||||||||||||||||||||||||||||||||||
Fixed-rate debt payments (b) | ||||||||||||||||||||||||||||||||||||||||
9% Notes (c) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 300.0 | $ | 300.0 | $ | 316.4 | $ | 300.0 | $ | 314.6 | ||||||||||||||||||||
Average interest rates | — | % | — | % | — | % | — | % | — | % | 9.0 | % | 9.0 | % | — | % | 9.0 | % | — | % | ||||||||||||||||||||
8% Notes (c) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 300.0 | $ | 300.0 | $ | 301.2 | $ | — | $ | — | ||||||||||||||||||||
Average interest rates | — | % | — | % | — | % | — | % | — | % | 8.0 | % | 8.0 | % | — | % | — | % | — | % | ||||||||||||||||||||
Total fixed-rate payments (c) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 600.0 | $ | 600.0 | $ | 617.6 | $ | 300.0 | $ | 314.6 | ||||||||||||||||||||
Average interest rates | — | % | — | % | — | % | — | % | — | % | 8.5 | % | 8.5 | % | — | % | 9.0 | % | — | % | ||||||||||||||||||||
Variable-rate debt payments (b) | $ | 10.4 | $ | 43.7 | $ | 129.7 | $ | 8.4 | $ | — | $ | — | $ | 192.2 | $ | 185.5 | $ | 515.9 | $ | 483.5 | ||||||||||||||||||||
Average interest rates (d) | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | 3.0 | % | — | % | 4.8 | % | — | % |
(a) | Includes current portion. |
(b) | These obligations are further explained in “Financing Activities” under “Liquidity and Capital Resources” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The table assumes our long-term debt is held to maturity. |
(c) | The table assumes that accumulated interest is paid semiannually. |
(d) | Does not include the effect of interest rate derivatives. |
We use interest rate derivative instruments to result in material liabilities. Given that the investigation concerns hazardous substance releases that occurred prior to closing of the Acquisition, OfficeMax retained responsibility for this matter pursuant to the asset purchase agreement, as described below.
OfficeMax retains responsibility for environmental liabilities incurred with respect to businesses, facilities and other assets not purchased by us in connection with the Acquisition, and indemnifies us for hazardous substance releases and other environmental regulatory violations related to our business that occurred prior to the closing of the Acquisition or arise out of pre-closing operations. However, OfficeMax may not have sufficient funds to satisfy in full its indemnification obligations when required, and, in some cases, we may not be entitled to indemnification under the asset purchase agreement.
Critical Accounting Estimates
Critical accounting estimates as those that are most important to the portrayalhedge a portion of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments, often asinterest rate risk. We have derivatives in place with a resultcap rate of 5% on a notional amount of $300 million through the need to estimate matters that are inherently uncertain. We reviewed the development, selection and disclosure of the following critical accounting estimates with our board of directors. Our current critical accounting estimates are as follows:
Purchase Price Allocation
On October 29, 2004,period ending March 31, 2011. At March 31, 2010, we acquired the paper, forest products and timberland assets of OfficeMax. We accounted for the business combination under the purchase method of accounting in accordance with SFAS No. 141, Business Combinations, and allocated the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The determination of the fair values of the assets acquired and liabilities assumed, as well as associated asset useful lives, required management to make estimates. Estimated fair values were derived through consideration and application of standard valuation approaches and techniques.
We estimated the value of property, plant and equipment assets based on the application of either a cost, market or income approach. Under the cost approach, replacement cost new was estimated and then adjusted for depreciation due to physical, functional and economic obsolescence. The market approach derived value was based on an analysis of comparable asset sale information. The income approach derived value was based on the forecasted cash flow potential of the asset. We estimatedrecorded the fair value of the trade names and trademarks and technology based on the application of the income approach. The critical assumptions involved with valuing the trade names and trademarks and technology were the expected revenue and cash flow levels anticipated over the assets' expected lives and the risk profile of the assets. The fair value of the customer relationships was based on the application of the cost approach. The critical assumptions involved with valuing the customer relationships were associated with estimating the costs required to replicate these assets to their current condition.
Liabilities subjectiveinterest rate derivatives, or $13,000, in nature primarily include estimates of costs to restructure the operations of the acquired company. We have not completed our restructuring plans for the acquired company. In accordance with the provision of EITF 95-3, Recognition of Liabilities in Connection With a Purchase Business Combination, restructuring activities in connection with the Acquisition will increase goodwill. We have one year from the acquisition date to develop our restructuring plans and adjust for changes in estimates of the fair value of assets acquired and liabilities assumed. The initial purchase price allocations may be adjusted within one year of the date of the Acquisition for changes in estimates of the fair value of assets acquired and liabilities assumed. We have not completed the assessment of the fair value of our fiber farms and may allocate a higher portion of the purchase price to those assets. An increase in those values would reduce goodwill.
The purchase price may also be adjusted upward or downward based on paper sales prices during the six years following the closing date pursuant to the additional consideration agreement. Over that period, we could pay OfficeMax a maximum aggregate amount of $125.0 million, or OfficeMax could pay us a maximum aggregate amount of $125.0 million, in each case net of payments received. The purchase price allocation does not include the effect, if any, of this contingent consideration.
Due to the numerous variables associated with our judgments and assumptions relating to the valuation of the assets acquired and liabilities assumed, both the precision and reliability of the resulting estimates are subject to uncertainty.
Valuation of Management Equity Units
We account for awards granted under our management equity agreement in accordance with SFAS No. 123 (revised 2004), Share Based Payment. On December 10, 2004, key managers purchased 18.6 million Series B common units in FPH at $1.00 per unit, which was more than the estimated fair value on the date of purchase of $0.99 per unit. Managers who purchased Series B common units received a grant of 35.6 million Series C common units (profit interests) that represent the right to participate in profits after capital is returned to the holders of the FPH Series B common units. The Series C common units had no value to the holder on the date of grant and will have no value to the holder until the equity value appreciates above a specified level. Generally, the Series B common units held by management and 50% of the Series C common units vest 20% at the end of each year through 2009. Upon either the sale of the company (as defined in the agreement) or an initial public offering, all of the Series B common units will vest. In addition, of the one-half of the Series C common units that vest solely based on time served as an employee, those that were scheduled to vest within two years will vest. The other 50% of the Series C common units vest at the end of 2009 if specific criteria tied to internal rates of return are met. The vesting schedules are shortened for managers who were at least 60 years old as of December 31, 2004, so that the units fully vest by December 31 of the year in which the manager reaches age 65 and at least two vesting periods have been met. Compensation expense attributable to these equity awards by FPH is required to be reflected in our operating results. We did not recognize compensation expense for the Series B common units on the date of grant because the purchase price paid by management was equal to or more than the fair value of the units. The Series C common units are accounted for as restricted stock. We will accrue compensation expense over the vesting periods for the Series C common units based on the fair value on the date of the grant. We determined the fair value on the date of grant of the Series C common units that vest over time to be approximately $8.2 million, or an average $0.46 per unit. We determined the fair value on the date of grant of the Series C common units that vest based on internal rates of return to be approximately $4.2 million, or an average of $0.24 per unit.
The determination of the fair values of the common units is complex, requiring the use of valuation professionals, and represents a critical accounting estimate. Due to time constraints at the time of issuance in December 2004, we did not perform a contemporaneous valuation as of the date of grant or purchase. We obtained a retrospective valuation as soon as practicable in the first quarter following the grant date.
Series B Common Units. The determination of the fair value of the common units purchased by management required a determination of our enterprise value. The purchase price for the Acquisition, which was determined on an arms-length basis following extensive negotiations between Madison Dearborn and OfficeMax and their respective financial advisors and was the culmination of a sales process conducted by OfficeMax over several months involving numerous potential buyers for all or a portion of the sold businesses, represented the best evidence of the fair market value of our businesses at the time of the Acquisition. Since the Acquisition occurred only 42 days prior to management's purchase of Series B common units and the grant to management of Series C common units, the enterprise value indicated by the purchase price for the Acquisition was the primary factor considered in determining our enterprise value for the purpose of valuing management's equity units. We considered whether any adjustment to the value of the Series B common units as implied in the Acquisition was warranted using a form of income approach, known as discounted cash flow analysis, and a market approach, which used an event analysis and a trend analysis.
The discounted cash flow analysis incorporated Madison Dearborn's expectation of our future performance and applied a weighted average cost of capital of 10.5%. Madison Dearborn's expectations as to our future performance were based on certain assumptions relating to product
sale prices, sales volume, product mix and costs and expenses with respect to each of our operating segments. Madison Dearborn's projections were prepared for its own use in connection with the Acquisition, and the assumptions that underlie such projections are inherently uncertain and are subject to change based on changing market conditions. These assumptions involved judgments with respect to future economic, competitive and market conditions, all of which are difficult or impossible to predict accurately and many of which are outside our control. The assumptions set forth below were the assumptions used by Madison Dearborn at the time of the Acquisition and have not been updated or revised to reflect changes in our expected future performance as a result of current market conditions or recent initiatives implemented by our new senior management team since the completion of the Acquisition. As a result, many of the assumptions set forth below may no longer be accurate or the current view of Madison Dearborn or Boise Holdings. All of the assumptions set forth below were "forward-looking statements," and our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. Accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have“Other assets” on our results of operations or financial condition. In view of these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We note that RISI has published more recent pricing forecasts thanConsolidated Balance Sheet. During the June 2004 forecast used by Madison Dearbornthree months ended March 31, 2010 and described below.
The pricing assumptions used by Madison Dearborn for our key product areas were derived from RISI's June 2004 price forecast, with adjustments for the historical difference between the net selling prices for our key products compared to the specific RISI benchmark products. The other significant assumptions used by Madison Dearborn for each of our operating segments are set forth below:
Paper. The key drivers of financial performance in our Paper segment are product prices, sales volumes and raw material costs. Based on the June 2004 RISI price forecast, average selling prices for uncoated freesheet product papers were assumed to continue to increase in 2005, fall modestly in 2006 and 2007 as a result of a forecasted recession, and then recover again in 2008. Madison Dearborn forecasted our value-added paper sales volumes to grow at an average annual rate of approximately 5% and our commodity paper sales volumes to grow by approximately 1% annually, reflecting a continued focus on improving our sales mix.
Purchased wood fiber and pulp costs were based on the June 2004 RISI forecast. Wood fiber costs were projected to increase for the volumes sourced from the timberlands operations, reflecting an expected increase in fiber procurement costs if the timberlands were sold to a third-party. Madison Dearborn's projection assumed that the timberlands operations would be sold in equal increments over a three-year period beginning in 2006. Other significant raw material costs were projected to increase 3% annually over the projection period.
Packaging & Newsprint. The key drivers of financial performance in our Packaging & Newsprint segment are product prices, sales volumes and raw material costs. Based on the June 2004 RISI price forecast, average selling prices for linerboard and newsprint were expected to continue to increase during 2005, fall during 2006 and 2007, and recover again in 2008. Annual sales volume growth in this segment was projected at slightly less than 1%. Raw material cost assumptions were consistent with those described for our Paper segment.
Wood Products. The key drivers of financial performance in our Wood Products segment are product prices, sales volumes and raw material costs. Price forecasts for EWP, plywood, lumber and particleboard were based on the June 2004 RISI forecasts. The price projections, particularly for plywood and lumber, reflected an anticipated slowdown in the homebuilding market relative to the levels experienced in 2004. Product selling prices were projected to fall in 2005 and 2006, with a
recovery in 2007 and 2008. EWP sales volumes were assumed to grow at approximately 5% annually over the projection period, with other product sales volumes essentially flat compared with 2004. Raw material cost assumptions were consistent with those described for our Paper segment.
Building Materials Distribution. The key drivers of financial performance in our Building Materials Distribution segment are sales volumes and gross margins. Revenue for 2005 in this segment was assumed to decline by approximately 20% from the record levels experienced in 2004. This was based on an assumption of a slowdown in the homebuilding market and lower prices for commodity wood products. For 2006 through 2008, Madison Dearborn forecasted growth in EWP sales in this segment of 5% annually, with general line and commodity product sales growing at annual rates of 3% and 1%, respectively. The forecast did not assume any new facilities. Gross margins on sales were assumed to decline modestly from 2004 to 2005 for EWP and commodity products and then remain level through the forecast period. Gross margins for general line products were assumed to increase modestly in 2005 and remain flat thereafter.
A market approach considering an event analysis and a trend analysis was also considered in the valuation of the Series B common units purchased by management. The event analysis consisted of analyzing the effect of significant events on us and eleven comparable publicly-traded companies between the date of the Acquisition and the date of management's purchase of Series B common units. Significant events affecting the comparable companies included earnings announcements, changed outlooks on earnings or demand estimates and announcements of restructuring and new supply agreements. In contrast, the only significant event affecting us during the period was the availability of the financial results for the one-month period between the date of the Acquisition and the date of the purchase by management of the Series B common units. Since we were not affected by the types of significant events affecting comparable companies, the valuation also considered the general stock price movement for the comparable companies. The median equity price appreciation for the comparable companies over the relevant period was an increase of between 5% and 6%. Furthermore, we considered how returns on our equity compared, after adjusting for leverage, to the returns on equity of the comparable companies. Adjusting for the significant events affecting the comparable companies but not us, our leverage adjusted returns were similar to the industry return. The results of the event analysis indicated no significant departures in events and a slight upward movement in industry returns. Therefore, a 5% increase in our equity value, or an indicated value of $1.05 per Series B common unit, was used.
The trend analysis identified key financial indicators of value of the Series B common units on the date of the Acquisition compared with similar indicators on the date of management's purchase of the Series B common units. As part of this trend analysis, an implied EBITDA multiple for the Acquisition was calculated based on the purchase price for the Acquisition and trailing twelve months EBITDA as of the closing date of the Acquisition. This implied EBITDA multiple was applied to the trailing twelve months EBITDA as of the purchase date of management's Series B common units. The trailing twelve months EBITDA increased approximately $28 million between the closing date of the Acquisition and the date of management's purchase of Series B common units. The trend analysis indicated an upward movement in the equity value of management's Series B common units and resulted in a valuation of $1.23 per Series B common unit.
The outcomes of the discounted cash flow analysis, the event analysis and the trend analysis were given equal consideration. This resulted in an average value indication of $1.10 per unit for the Series B common units. A 10% discount for lack of marketability was applied to management's Series B common units based upon a consideration of specific liquidity factors, including transfer restrictions imposed by the operating agreement, the lack of an active market for the units, and the limited circumstances in which the Company is required to redeem the units for cash. After application of the discount, the value per unit of management's Series B common units was estimated to be $0.99 per unit on the date of purchase.
Series C Common Units. The fair value of the Series C common units as of the grant date was estimated by analyzing the possible future events for our Company, the paths to liquidity for the holders of the Series C common units and how these paths may affect the valuation of the Series C common units. These possible future events included a sale of the Company, an initial public offering and remaining a private company. We estimated probabilities of these events occurring based on the Company's strategies as of the grant date. We assigned probabilities to these events for the remainder of 2004 and years 2005 through 2009, the vesting period for the Series C common units, and the assigned likelihood varied by year, with a higher probability of being sold or becoming a public company in later years. For example, in 2005 we assigned probabilities of 10% to being sold, 15% to becoming a public company and 75% to remaining a private company. In 2007, we assigned probabilities of 30% to being sold, 45% to becoming a public company and 25% to remaining a private company. In 2009, we assigned probabilities of 40% to being sold, 45% to becoming a public company and 15% to remaining a private company. A decision tree analysis that incorporated these event outcomes andrecorded the likelihood of their occurrences was created. Payoffs to the holders of the Series C common units were constructed at each event outcome on the decision tree. Based on this framework, a simulation analysis was run to arrive at the fair values of the Series C common units.
SFAS 123 (revised 2004) requires different valuation calculations for equity grants that have a service condition and equity grants that have a market condition. The 50% of the Series C common units that vest over time are "service condition" awards. Under the requirements of SFAS 123 (revised 2004), thechange in fair value of these awards is measured assuming that all conditions have been met,derivatives, or as if they were fully vested on grant date. Compensation$29,000 and $132,000 of expense, is recognized over the vesting period and adjusted if the service condition is not met. We determined therespectively, in “Change in fair value on the date of grantinterest rate derivatives” in our Consolidated Statements of the Series C common units that vest over time to be approximately $8.2 million, or an average of $0.46 per unit. The vesting period and compensation expense recognition for these awards accelerates in the event of a public offering.
The 50% of the Series C common units that vest based on internal rates of return are "market condition" grants under the requirements of SFAS 123 (revised 2004). The standard requires that the valuation of market condition awards considers the likelihood that the market condition will be satisfied rather than assuming that the award is vested on the award date. Because the internal rate of return represents a more difficult threshold to meet before payout, with greater uncertainty that the market condition will be satisfied, these awards have a lower fair value than those that vest based solely on the passage of time. However, compensation expense is required to be recognized under SFAS 123 (revised 2004) for an award regardless of when, if ever, the market condition is satisfied. We determined the fair value on the date of grant of the Series C common units that vest based on internal rates of return to be approximately $4.2 million, or an average of $0.24 per unit. Vesting of the 50% of the Series C common units that vest based on internal rates of return is not accelerated as a result of an initial public offering.
Pensions
During the predecessor periods, most of Boise Forest Products Operations employees, along with some other employees of OfficeMax, participated in OfficeMax's defined benefit pension plans, and were treated as participants in multiemployer plans. Accordingly, there are no assets or liabilities related to defined benefit pension plans in the predecessor balance sheet. Our predecessor did, however, incur costs associated with the employees who participated in OfficeMax's plans in the statements of income (loss)Income (Loss). During the three months ended March 31, 20052010 and March 31, 2004,2009, we incurred $6.7recorded $0.1 million and $21.7$0.2 million, respectively, in “Interest expense” for the amortization of pension expenses, respectively. For the periods October 29 through December 31, 2004, and January 1 through October 28, 2004, andpremiums paid for the years ended December 31, 2003 and 2002, pension expense wasinterest rate derivatives. Changes in the fair value of these derivatives are recorded in “Change in fair value of interest rate derivatives” in our Consolidated Statements of Income (Loss).
$2.6 million, $60.9 million, $52.9 million and $19.2 million, respectively. In connection with the Acquisition, OfficeMax transferredrepayment of our Tranche B term loan facility, the remaining amounts recorded in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet relating to us the portioninterest rate derivatives were charged to “Interest expense” in our Consolidated Statement of the pension plan liability that was attributable to active employees who became employed by us immediately following the Acquisition. Pension assets transferred by OfficeMax were sufficient to fund our accumulated benefit obligation at a 6.25% discount rate. At December 31, 2004, our balance sheet reflected a projected benefit obligation of $114.4 million, assuming a 5.75% discount rate and a 4.25% rate of compensation increase. Under the terms of the Acquisition, OfficeMax also retained all pension costs related to employees who retired or were terminated on or before July 31, 2004, all postretirement benefits costs related to employees who retired or were terminated before the Acquisition, and all pension and postretirement benefit costs related to active OfficeMax employees.Income (Loss). As a result, we expect that our annual pension expense going forward will be less than amounts included in our predecessor's financial statements.
We account for pension expense in accordance with SFAS No. 87, Employer's Accounting for Pensions. This statement requires us to calculate pension expense and liabilities using actuarial assumptions, including a discount rate assumption and a long-term asset return assumption. We base our discount rate assumption on the rates of return on high-quality bonds currently available and expected to be available during the period to maturity of the pension benefits. We base our long-term asset return assumption on the average rate of earnings expected on invested funds. We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from period to period, based on the performance of plan assets, actuarial valuations and changes in interest rates, and the effect on our financial position and results of operations could be material. The estimate for pensions is a critical accounting estimate for all of our segments.
Our discount rate assumption was 5.75% for the period October 29 through December 31, 2004, and 6.25% for the predecessor period January 1 through October 28, 2004, and our long-term asset return assumption was 7.25% and 8.25%, respectively. Using these assumptions, our 2004 pension expense was $63.5 million, compared with $52.9 million and $19.2 million of expense in 2003 and 2002. If we had used a 6.0% estimated discount rate and a 7.75% expected return on plan assets during all of 2004, our 2004 pension expense would have been $67.8 million, and net income would have decreased approximately $4.3 million.
For 2005, our discount rate assumption is 5.75%, and our expected return on plan assets is 7.25%. Using these assumptions, we estimate that our 2005 pension expense will be approximately $28.7 million. If we were to decrease our estimated discount rate assumption to 5.5% and our expected return on plan assets to 7.0%, our 2005 pension expense would be approximately $31.0 million. If we were to increase our discount rate assumption to 6.0% and our expected return on plan assets to 7.5%, our 2005 pension expense would be approximately $27 million.
In 2005, there is no required minimum contribution to our pension plans. However, we may make voluntary contributions.
Long-Lived Asset Impairment
We account for the impairment of long-lived assets in all of our segments in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An impairment of a long-lived asset exists when the carrying value of an asset exceeds its fair value and when the carrying value is not recoverable through future operations. We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.
Long-lived asset impairment is a critical accounting estimate, as it is susceptible to change from period to period. To estimate whether the carrying value of an asset or asset group is
impaired, we estimate the cash flows that could be generated under a range of possible outcomes, and we estimate the likelihood of possible outcomes. To measure future cash flows, we are required to make assumptions about future production volumes, future product pricing and future expenses to be incurred. In addition, estimates of future cash flows may change based on the availability of timber, environmental requirements, capital spending and other strategic management decisions. We estimate the fair value of an asset or asset group based on quoted market prices (the amount for which the asset(s) could be bought or sold in a current transaction with a third party) when available. When quoted market prices are not available, we use a discounted cash flow model to estimate fair value.
Due to the numerous variables associated with our judgments and assumptions relating to the valuation of assets and the effects of changes in circumstances (timber availability, environmental requirements, capital spending and other management decisions) on these valuations, both the precision and reliability of our estimates are subject to uncertainty. As additional information becomes known, we may change our estimates.
The paper and forest products industry is capital intensive and highly cyclical. The North American industry is mature, and long-term demand and financial performance tend to correlate with changes in U.S. gross domestic product. Over the last several years, the industry has seen significant consolidation and disciplined capital management, resulting in improving industry fundamentals, as described below.
Paper
We compete in the uncoated paper segment of the paper industry. According to RISI, uncoated free sheet accounted for approximately 12% of all paper and paperboard production in North America in 2004. Uncoated free sheet is uncoated white paper primarily produced from bleached hardwood chemical pulp. End uses for uncoated free sheet include cut-size office paper, commercial printing paper, business forms and envelopes and a wide range of value-added grades. Value-added grades include bright and colored cut-size office papers and specialty papers such as label and release, security and other custom applications.
According to RISI, North America is the world's largest consumer of uncoated free sheet, with production capacity of approximately 15.4 million tons in 2004. Historically, demand for uncoated free sheet, like demand for paper products generally, has correlated positively with general economic activity. In addition, demand for cut-size office paper, which, according to RISI, comprised approximately 42% of U.S. uncoated free sheet production in 2004, fluctuated historically with white-collar employment. In recent years, demand for uncoated free sheet has been negatively impacted by the global economic downturn and the increased use of electronic transmission and document storage alternatives. In response, North American uncoated free sheet capacity declined from 2000 through 2004 by approximately 1.5 million tons, according to RISI. Consolidation has played a major role in capacity rationalization, enabling companies to reallocate production more efficiently by closing higher-cost facilities. The four largest producers of uncoated free sheet in North America comprised approximately 68% of the North American uncoated free sheet market in 2003, according to the2003-2004 Pulp & Paper Global Fact & Price Book, compared to approximately 44% in 1997, according toPulp & Paper 1998.
Recent economic improvements have increased demand for uncoated free sheet and, combined with the reduction in North American uncoated free sheet capacity and the negative impact the weak U.S. dollar has had on imports, led to an improvement in uncoated free sheet prices. According to RISI, the price of 20 lb. copy paper, a benchmark grade of uncoated free sheet, increased from $730 per ton in December 2003 to $825 per ton in April 2005, or 13%. While we and other manufacturers announced price increases for our uncoated free sheet products earlier this year, the majority of the increases have not been accepted by the market.
Packaging & Newsprint
We compete in the following segments of the packaging and newsprint industries:
Containerboard and Corrugated Containers
According to RISI, containerboard accounted for approximately 33% of all paper and paperboard production in North America in 2004. Containerboard, which includes both linerboard and corrugating medium, can be manufactured from virgin or recycled fiber, and is used to make corrugated containers. Linerboard is the material used as the inside and outside facing surfaces in corrugated containers. Corrugating medium is the fluting material that is laminated between linerboard to form sheets that are then printed, cut, folded and glued at converting plants to produce corrugated containers. In 2003, approximately 25% of U.S. containerboard production was
exported or sold in the open market to independent corrugated container producers, according to the2003-2004 Pulp & Paper Global Fact & Price Book. The remaining 75% was sold by integrated producers to their own corrugated container plants. Corrugated containers are used primarily for packaging in the food and beverage, agricultural and durable and non-durable goods industries, and is the most widely used form of packaging for the transportation of manufactured and bulk goods. According to the2003-2004 Pulp & Paper Global Fact & Price Book, the United States is the world's largest corrugated container producer and, in 2003, accounted for approximately 28% of global production.
Containerboard and corrugated container demand is influenced by growth in non-durable industrial output and consumer spending, as well as foreign currency exchange rates. During the early part of this decade, the North American containerboard market was adversely affected by overcapacity and reduced economic activity, which negatively impacted prices and resulted in the closure of a number of inefficient production facilities. From 2000 through 2004, according to RISI, approximately 4.8 million tons of North American containerboard capacity were permanently closed or indefinitely idled. The significant consolidation experienced in the containerboard industry in recent years has contributed to this reduction in capacity. The four largest producers of linerboard in North America collectively comprised approximately 59% of the North American market in 2003, according to the2003-2004 Pulp & Paper Global Fact & Price Book, compared to approximately 38% in 1997, according toPulp & Paper 1998.
Industry conditions improved during 2004, as the strengthening economy led to greater box shipments and increased demand for corrugated containers. As a result of the increased demand and reduced capacity, the transaction price of 42 lb. eastern, a benchmark linerboard grade, increased, according to RISI, from $350 per ton in December 2003 to $430 per ton in April 2005, or 23%.
Newsprint
According to RISI, newsprint accounted for approximately 13% of all paper and paperboard production in North America in 2004. The primary customers for North American newsprint are daily newspapers, which, according toConservatree, consumed approximately 80% of North American production. Other uses for newsprint include weekly newspapers, pre-printed newspaper inserts and paperback books. National newsprint consumption by daily newspapers is affected primarily by advertising levels, which correlate positively with economic growth. Demand for newsprint in North America declined approximately 15% between 2000 and 2004, according to RISI, due in part to the growth of online media and substitution towards other uncoated groundwood grades. In response to declining demand, North American producers have permanently closed, indefinitely idled or converted to other groundwood specialties approximately 2.6 million metric tonnes of capacity from 2000 through 2004, according to data provided by RISI. Consolidation has also increased capacity concentration. The four largest producers of newsprint in North America collectively comprised approximately 66% of the North American market in 2003, according toPaperloop, compared to approximately 52% in 1997, according toPulp & Paper 1998.
The reduction in capacity has allowed the newsprint industry to effect several price increases during 2004, notwithstanding a decline in demand. According to RISI, the price of 48.8 gram, a benchmark newsprint grade, increased from $515 per metric tonne in December 2003 to $584 per metric tonne in April 2005, or 13%.
Wood Products
Consumption of wood products and other building materials is primarily driven by new housing starts, which in turn depend on, among other things, demographic trends and interest
rates. In recent years, the housing starts have been very strong, in part due to historically low interest rates. According to RISI, the housing starts were 1.94 million units in 2004, 1.85 million units in 2003 and 1.71 million units in 2002, compared to the average of 1.4 million units per year during the 1990s. While the anticipated rise in interest rates is expected to negatively impact the growth in new housing starts, RISI projects that new housing starts will average 1.7 million units per year during the period from 2005 to 2009, driven principally by favorable demographic trends. Demand for wood products and other building materials is also influenced by the size of new homes built, light commercial construction and repair and remodeling activity. In that regard, according to RISI, the average size of new homes is also increasing, with the average square footage of new homes built in 2004 more than 14% greater than of homes constructed in 1990.
We compete in the EWP and commodity wood product segments of the wood products industry.
Engineered Wood Products
EWP consists of LVL, a high-strength engineered lumber often used in beams, and I-joists, a structural support typically used in floors and roofs; and laminated beams. These products are manufactured in a manner that maximizes physical strength and dimensional stability while minimizing the amount of wood used as a raw material. For example, I-joists are an attractive replacement product for solid wide-dimension lumber joists because they have lower installed costs and are generally stronger, straighter and lighter. According to RISI, LVL consumption has increased from about 27.4 million cubic feet in 1995 to 84.9 million cubic feet in 2004, resulting in a compound annual growth rate of 13%. RISI also estimates that I-joist consumption increased from approximately 390 million lineal feet in 1995 to approximately 1.3 billion lineal feet in 2004, representing a compound annual growth rate of 14%.
In response to the strong demand for EWP, several of EWP manufacturers, including us, have initiated capacity increases. This increase in capacity could create downward pressure on EWP prices.
Commodity Wood Products
Commodity wood products include structural panels, lumber and non-structural panels. Structural panels, including plywood and OSB, are used in new residential construction, residential repair and remodeling, and industrial applications such as truck floors, fruit bins and walls. Historically, plywood has been the preferred structural panel, but as OSB quality has improved and production methods have become less expensive, plywood's market share has eroded. We do not manufacture OSB. Lumber is manufactured from both softwoods and hardwoods. Structural softwood lumber is used in framing roofs, walls and floors, and hardwood lumber is used in the production of flooring, furniture and other home furnishings. Non-structural panels, including medium density fiberboard, or MDF, and particleboard, are less sturdy than structural panels, and consequently are used in non-load bearing applications such as furniture, cabinets and bookshelves. We do not manufacture MDF.
General line products include reinforcement materials, framing accessories, insulation, roofing, brick, stucco, composite decking and other specialty materials. We do not manufacture any general line products.
Building Materials Distribution
While building products manufacturers may distribute their products directly to home builders, industrial users and retailers, a significant portion of building products is distributed through wholesale distributors in a two-step distribution model. Two-step distributors, such as our Building
Materials Distribution segment, buy building products from manufacturers and sell these products to industrial users and building materials dealers and retailers, who in turn sell these products directly to the ultimate end user. Distributors generally add value by creating flexibility in the supply chain, breaking bulk shipments down into smaller lots, providing product assortment and storage capabilities, performing just-in-time service and providing "one-stop" shopping for a variety of products. Building products may be either manufacturer controlled, like us, or independent. Manufacturer controlled distributors are generally able to capitalize on a stable supply of products.
National building products distributors have gained market share in recent years due to the significant economies of scale they can employ to better serve their customers. Nationwide distributors have the ability to serve multi-regional accounts, as well as leverage greater purchasing power, a broader offering of products and services, real-time nationwide market intelligence and sophisticated operating systems that offer value-added service to customers. National distributors also provide manufacturers with greater access to sales and distribution resources. Due in large part to significant consolidation among building products retailers and retailers' demand for nationwide service, there is considerable pressure among wholesalers to consolidate. As of 2003, the 150 largest wholesale distributors of building materials had aggregate sales of $50.0 billion, according toHome Channel News, with the top ten accounting for 54% of that total.
Sales volumes of building materials distributors are influenced by many of the same factors that influence sales volumes of building products manufacturers, including new housing starts and the strength of the repair and remodeling market. The operating results of inventory-carrying distributors also depend on volatility of prices for the underlying products held in inventory.
Company Overview
We are a diversified North American paper and forest products company. We conduct our business in the following four operating segments:
For additional information about the segments in which we operate, see Note 16 to our audited consolidated financial statements and Note 12 to our unaudited consolidated financial statements, in each case included in this prospectus.
Historically, our paper and building products businesses were operated as business units of OfficeMax, formerly known as Boise Cascade Corporation. On October 29, 2004, shortly after our organization, we acquired these businesses, and the timberlands operations of OfficeMax were acquired by Boise Land & Timber Corp., an entity that is majority-owned by FPH, our majority stockholder, which is in turn controlled by Madison Dearborn. On February 4, 2005, the timberlands operations were sold to an unaffiliated third party for cash, and the net proceeds were used to repay borrowings incurred in connection with these acquisitions. See "Certain Relationships and Related Transactions—The Acquisition" and "—Timberlands Sale."
Our Competitive Strengths
Leadership in Key Markets
We are among the industry's largest producers in many of our key product categories, holding what we believe to be strong competitive positions in some of the most attractive market segments within the paper and forest products industry. According to the2003-2004 Pulp & Paper Global Fact & Price Book, we are the fourth-largest manufacturer of uncoated free sheet in North America, with annual production capacity of approximately 1.6 million tons and market share of approximately 10% in 2003. We are the second-largest manufacturer of EWP in North America, with an estimated market share of approximately 20% in 2004, according to RISI. In addition, we believe we have leading market positions in the manufacture of plywood and ponderosa pine lumber. We are a leading national inventory-carrying wholesale distributor of building materials, according toHome Channel News, and one of a small number of distributors with a national presence.
Strong Paper Business Supported by Long-Term Customer Contract
The most significant portion of our uncoated free sheet business is the manufacture of cut-size office paper. Our two newest paper machines, which became operational in 1990 and 1997 as part of a $1.1 billion expansion and modernization of our International Falls, Minnesota and Jackson, Alabama mills, are among the largest in North America. Our supply relationship with OfficeMax allows us to maximize utilization of these machines, optimize production runs and achieve supply chain efficiencies such as maintenance of lower inventories through the system and more efficient distribution. The operating benefits we enjoy as a result of our relationship with OfficeMax have increased with the growth in our sales to OfficeMax from $356.2 million in 2000 to $534.8 million in
2004, representing a compound annual growth rate of 11%. During 2004, which period includes the ramp-up of sales to OfficeMax's retail network, OfficeMax accounted for $534.8 million of our sales and approximately 47% of our uncoated free sheet sales volume. During the first quarter of 2005, sales volumes to OfficeMax increased 11% compared to the same period in the prior year and accounted for $150.3 million of our sales and approximately 50% of our uncoated free sheet sales volume during the period. We believe the growth and stability provided by our relationship with OfficeMax will allow us to further streamline our cut-size office paper production in the future.
Efficient Manufacturer of Higher-Margin Products in Attractive Markets
Our assets are well suited to the efficient production of value-added papers and EWP, two attractive markets within the paper and forest products industry. Leveraging our existing assets and knowledge of value-added papers, we continue to increase production of these higher-margin grades on our smaller machines, displacing production of lower-margin commodity grades. We operate these machines within integrated mills that produce pulp and energy, which we believe provides us with a cost advantage over many of our competitors. EWP commands premium pricing and higher margins than traditional alternatives and continues to grow in popularity due to its superior performance characteristics, ease of use and competitive installed cost. Our large-scale EWP production facilities in Louisiana and Western Oregon are integrated with our plywood operations to optimize our veneer utilization and are located near attractive fiber baskets, which we believe positions us as a cost-effective producer of LVL and I-joists.
Rapidly Growing Nationwide Distribution Business
Our Building Materials Distribution segment grew from $1.3 billion of sales in 1999 to $2.8 billion of sales in 2004, establishing its position as a leading national inventory-carrying wholesale distributor of building materials. During this period, our growth, operational excellence and decentralized business model have allowed us to generate returns significantly in excess of our cost of invested capital. This growth has also provided our Wood Products segment, which sold approximately 37% of its manufactured products through our Building Materials Distribution segment in 2004, with access to one of the industry's broadest and fastest-growing distribution channels. This channel has been particularly effective in driving the growth of our EWP, more than half of which is sold through our Building Materials Distribution segment. Total sales from our Wood Products segment to our Building Materials Distribution segment grew at a compound annual rate of 19% from 1999 to 2004, from $171.6 million to $409.4 million.
Favorable Acquisition Structure
As compared to the historical expenditures in our businesses, we expect the terms and structure of the Acquisition to reduce our future cash tax payments, pension and other postretirement benefit obligations and exposure to pre-Acquisition liabilities. Since the Acquisition was structured as an asset purchase, our assets were written-up for tax purposes and their depreciable lives were reset, potentially reducing our future cash tax payments. In addition, the asset purchase agreement relating to the Acquisition limits our exposure to many of the legacy obligations typically associated with companies in our industry. For example, we did not assume pension and post-retirement benefit obligations related to former employees, and OfficeMax funded a significant portion of our accumulated benefits obligations. Consequently, we do not expect to be required to make contributions to our pension plan in 2005. Similarly, OfficeMax retained and indemnified us against substantially all of the pre-Acquisition environmental liabilities related to our businesses, limiting the future earnings and cash flow impact of these liabilities.
Experienced Management Team with Substantial Equity Incentives
Our senior management team has a track record of financial and operational excellence in the paper and forest products industry. Tom Stephens, our chief executive officer since October 2004, served as chief executive officer of MacMillan Bloedel from 1997 to 1999, Manville Corporation from 1986 to 1996 and Riverwood Corp. from 1982 to 1985. Our newly-appointed senior management team has extensive industry experience and deep knowledge of our businesses and assets. Approximately 170 of our key managers purchased a total of $18.6 million of common equity of FPH, our majority owner, and received substantial equity incentives in FPH in connection with the Acquisition. Management owns equity interests in FPH representing % of our outstanding common stock. For more information, see "Management—Management Equity Arrangements," "Our Corporate Structure—Reorganization as a Corporation."
Principal Stockholder with Proven Paper, Packaging and Forest Products Expertise
Our principal stockholder, Madison Dearborn, is one of the most active global investors in the paper, packaging and forest products industries. Since 1993, Madison Dearborn has consummated approximately $15.5 billion of management buyout transactions in these industries, including buyouts of Jefferson Smurfit Group, Packaging Corporation of America, Riverwood Holding Corp. (now known as Graphic Packaging Corporation) and Buckeye Technologies, Inc. Madison Dearborn was the lead sponsor in each of these transactions, other than Graphic Packaging Corporation.
Our Strategy
Our new management team intends to generate shareholder value by implementing focused business strategies, streamlining our organization and maximizing free cash flow. Our business strategies revolve around growing our leadership position in value-added products and services and focusing on efficiency and cost reduction in commodity product areas. We are committed to transforming our company by creating a culture of empowerment and accountability in a flat, decentralized organization. We seek to enhance our cash flow by optimizing the use of our assets, improving our operational efficiencies, reducing our costs and taking advantage of selective growth opportunities.
Immediately after the Acquisition, our management completed an in-depth business review and developed the strategies outlined below.
Implement Operational Enhancements and Cost Reductions
Our management, through its in-depth business review, has identified a range of potential operating cash flow improvements across our business segments and corporate organization. Management has reduced headcount by approximately 700 since the announcement of the Acquisition in 2004. We intend to aggressively pursue substantial additional profit improvement initiatives over the next two years. Major elements of this plan include energy efficiency projects, operational optimization of our paper and wood products facilities, productivity and technology enhancements, and reduction of overhead. Furthermore, our management is focused on managing capital expenditures and working capital and aggressively monetizing non-core and non-operating assets.
Leverage Cut-Size Office Paper Manufacturing and Marketing Expertise
We intend to build on our successful customer relationship with OfficeMax. Our long-term supply agreement with OfficeMax allows us to focus our largest paper machines on producing commodity products in long, high-volume production runs, resulting in improved capacity utilization and supply-chain efficiencies. This relationship allows us to gain a deeper understanding of
end-user needs and provides us with a unique channel to develop and test product and packaging innovations. We intend to leverage the expertise developed through this relationship to better service our other customers and develop new customers and products. We also intend to apply the operational expertise acquired as a result of our relationship with OfficeMax to achieve further productivity improvements, cost reductions and inventory and distribution efficiencies.
Increase Value-Added Paper Production and Innovation
We believe that our smaller paper machines are well suited to the competitive production of value-added papers and our paper marketing and development organization is well positioned to support the growth and innovation of these products. To grow our sales of higher-margin value-added papers, we continue to work closely with our customers to develop and manufacture innovative value-added papers and service programs that respond to their changing needs and technical requirements. We will support this increased demand by displacing the production of commodity grades on our smaller machines with higher-margin value-added grades. By leveraging our existing customer relationships, design capabilities, cost-competitive position and efficient logistics network, we intend to become a leading North American supplier of these products.
Grow Our Leadership Position in EWP
We seek to further expand our market position in EWP. We believe EWP will continue to gain market share from traditional building products and that margins for EWP, on average, will continue to exceed those for most commodity wood-based building products. We are focused on leveraging our competitive cost structure, comprehensive customer service offering, design support capabilities and efficient distribution network to continue gaining market share among homebuilders, building products retailers and other distributors. To that end, we seek to expand our presence in EWP by adding capacity in a cost-effective manner. With demand for EWP at record levels over the last year and North American producers straining to meet demand, according to RISI, EWP markets have been operating on an allocation basis. We are currently expanding our LVL capacity by 7.5 million cubic feet, or approximately 40%. We have entered into new customer relationships and increased our volume commitments to our existing customers based on this expected increase in capacity. We believe we have further opportunities to increase our EWP capacity with low capital requirements due to the design of our EWP production facilities and their integration with our plywood plants.
Expand Building Materials Distribution Business
We intend to continue expanding our building materials distribution network into new geographic markets and aggressively grow in our existing markets. Since 1999, we have expanded our distribution network from 15 to 28 facilities, with much of this expansion occurring in the eastern United States, providing us with a national footprint. As a result, our sales in this segment grew from $1.3 billion in 1999 to $2.8 billion in 2004. We have grown successfully by acquiring facilities, opening new locations, relocating and expanding existing facilities and capturing local market share through superior customer service and broadening of our product and service offering. We expect to continue to grow sales and profitability at our existing facilities by expanding our product line, improving marketing, adding value-added services, and growing the proportion of higher-margin products, such as EWP, in our business mix.
Paper
Products
We manufacture and sell uncoated free sheet, including commodity and value-added papers, as well as market pulp and corrugating medium. According to the2003-2004 Pulp & Paper Global Fact & Price Book, we are the fourth-largest manufacturer of uncoated free sheet in North America, with annual uncoated free sheet production capacity of approximately 1.6 million tons and market share of approximately 10% in 2003. Our Paper segment generated sales, pro forma income before interest and taxes and pro forma EBITDA of $1.37 billion, $81.4 million and $131.4 million, respectively, during 2004. This segment also generated sales, income before interest and taxes and EBITDA of $357.8 million, $29.2 million and $42.2 million, respectively, during the three months ended March 31, 2005.
Our uncoated free sheet products include cut-size office paper, commercial printing paper, papers for business forms and envelopes and value-added papers. Our value-added grades include bright and colored cut-size office papers and specialty papers that are custom-developed for various uses, including label and release, security and food wrap applications. Our larger paper machines produce primarily commodity grades2010, we recognized $0.4 million in long, high-volume production runs that achieve economies“Interest expense” in our Consolidated Statements of scale. On our smaller paper machines, which allow us to cost-effectively accommodate shorter production runs and more frequent grade changes, production of value-added grades is displacing the production of commodity grades. Value-added grades tend to require shorter production runs, and they also tend to generate higher and more stable prices and higher margins than commodity grades. Sales volumes of value-added grades increased by 14%, from 374,000 tons in 2003 to 426,000 tons in 2004 and declined 3% duringIncome (Loss). For the three months ended March 31, 2005, compared2009, we amortized $0.1 million of the amounts recorded in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheet to “Interest expense” in our Consolidated Statement of Income (Loss).
Interest Rate Risk—Investments
Our exposure to market risk for changes in interest rates also relates to our cash, cash equivalents, and short-term investments. As of March 31, 2010, our cash, cash equivalents, and short-term investments consisted primarily of funds invested in money market accounts and Federal Deposit Insurance Corporation (“FDIC”) insured certificates of deposit. As the same period in the prior year. An increased focusinterest rates on value-added grades is an important componenta significant portion of our strategy.cash, cash equivalents, and short-term investments are variable, a change in interest rates earned would affect interest income along with cash flows but would not have a significant effect on the fair market value of the related underlying instruments.
Since we produce market pulp in volumes approximately equivalent to the market pulp we purchase, we are largely insulated from the cyclical price changes in this product. We also produce corrugating medium for use by our Packaging & Newsprint segment.
Facilities
We manufacture our uncoated free sheet at four mills in the United States. Our mills had a total annual uncoated free sheet capacityThe components of 1.6 million short tons as of December 31, 2004. Our uncoated free sheet paper mills are supported by converting machines that have the capacity to convert 994,000 tons of roll paper into cut-cash, cash equivalents, and folio-sized sheets annually. From 1999 to 2004, approximately $483 million was invested in these mills to improve their cost position, expand capacity, enhance product capabilities, maintain facilities and comply with environmental regulations.
The following table sets forth annual capacities of manufacturing locations in our Paper segmentshort-term investments as of and production for the year ended, December 31, 2004:
| Number of Machines | Capacity(1) | Production | ||||
---|---|---|---|---|---|---|---|
| | (short tons in thousands) | |||||
Pulp and paper mills | |||||||
Jackson, Alabama | |||||||
Uncoated free sheet | 2 | 519 | 451 | ||||
International Falls, Minnesota | |||||||
Uncoated free sheet | 4 | 563 | 523 | ||||
St. Helens, Oregon | |||||||
Uncoated free sheet | 3 | 251 | 249 | ||||
Market pulp | — | 103 | 97 | ||||
Wallula, Washington | |||||||
Uncoated free sheet | 1 | 243 | 236 | ||||
Market pulp | 1 | 129 | 126 | ||||
Containerboard (corrugating medium) | 1 | 134 | 132 | ||||
Annual capacity by product | |||||||
Uncoated free sheet | 10 | 1,576 | 1,459 | ||||
Containerboard (corrugating medium) | 1 | 134 | 132 | ||||
Market pulp | 1 | 232 | 223 |
Raw Materials and Input Costs
Wood fiber is the principal raw material in this segment. The primary sources of wood fiber are timber and its byproducts, such as wood chips, wood shavings and sawdust. Prior to the Timberlands Sale, we supplied our paper mills with fiber from the timberlands operations, as well as from third parties. Concurrent with the Timberlands Sale, we entered into long-term supply contracts with Forest Capital for a portion of our fiber needs. These agreements expire on December 31, 2014, and fiber purchased under these agreements is purchased at prices that approximate market levels. We currently supply our paper mills with fiber pursuant to these contracts, as well as pursuant to agreements with other third parties and open-market purchases. As a result of the Timberlands Sale, we increased our open-market purchases of wood fiber. Since most of our manufacturing facilities are located in close proximity to active wood markets, we believe the Timberlands Sale will not adversely affect our access to fiber at competitive prices. However, we may incur costs associated with the procurement of fiber, such as higher transportation costs and costs related to identifying potential vendors, that exceed historical levels. We obtain some of our wood byproducts from our sawmills and panel plants in the Northwest and, to a lesser extent, in the South, and purchase the remainder from outside sources. We also obtain fiber for our pulp mills in the Pacific Northwest from our cottonwood fiber farm near Wallula, Washington.
All of our paper mills have onsite pulp production facilities. Some of our paper mills also purchase pulp from third parties. In addition to wood fiber and market pulp, we purchase waste paper to convert into recycled pulp for use in our paper products. Other important raw materials used in this segment include precipitated calcium carbonate, sodium chlorate, sodium hydroxide and dyes.
Our Paper segment consumes substantial amounts of energy, such as electricity, natural gas and fuel oil. During 2004 and the three months ended March 31, 2005, energy costs comprised approximately 13% and 15%, respectively, of the aggregate amount of materials, labor and other operating expenses and fiber costs from related parties2010, are as follows (dollars in this segment. We purchase substantial portions of our natural gas and electricity under supply contracts, most of which are between a specific plant and a specific local provider. Under most of these contracts, the providers are 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.millions):
Sales, Marketing and Distribution
Our uncoated free sheet is sold primarily by our own sales personnel. We sell to end users both directly from our mills and through distribution centers. This allows us to respond quickly to customer demands.
Three Months Ended March 31, 2010 | ||||||||||||||||||
Cost Basis | Accrued Interest | Unrealized Gains (Losses) | Recorded Basis | Cash and Cash Equivalents | Short-Term Investments | |||||||||||||
Cash | $ | 8.3 | $ | — | $ | — | $ | 8.3 | $ | 8.3 | $ | — | ||||||
Money market accounts | 82.7 | — | — | 82.7 | 82.7 | — | ||||||||||||
Certificates of deposit | 7.2 | — | — | 7.2 | — | 7.2 | ||||||||||||
Total | $ | 98.2 | $ | — | $ | — | $ | 98.2 | $ | 91.0 | $ | 7.2 | ||||||
During 2004, we processed 42% of our uncoated free sheet orders electronically, either over the internet or using Electronic Data Interchange, a computer-to-computer purchase ordering and tracking system.
Customers
During 2004 and the three months ended March 31, 2005, OfficeMax accounted2010, $5.2 million of certificates of deposit matured, and $2.4 million were reinvested. At March 31, 2010, we did not have any investments in individual securities that had been in a continual unrealized loss position for $534.8 millionmore than 12 months. The unrealized losses at March 31, 2010, represent a temporary condition due to the high quality of the investment securities, and $150.3 million, respectively,we expect to recover the par value of Paper segment sales, including 47% andthese investments.
Energy Risk
We enter into transactions to hedge the variable cash flow risk of natural gas purchases. As of March 31, 2010, we had entered into derivative instruments related to approximately 50%, respectively, of our uncoated free sheet sales volume. Inforecasted natural gas purchases for April 2010 through October 2004, OfficeMax agreed2010, approximately 27% of our forecasted natural gas purchases for November 2010 through March 2011, approximately 19% of our forecasted natural gas purchases for April 2011 through October 2011, and approximately 4% of our forecasted natural gas purchases for November 2011 through March 2012. At March 31, 2010, these derivatives included three-way collars and call spreads.
A three-way collar is a combination of options: a written put, a purchased call, and a written call. The purchased call establishes a maximum price unless the market price exceeds the written call, at which point the maximum price would be New York Mercantile Exchange (“NYMEX”) price less the difference between the purchased call and the written call strike price. The written put establishes a minimum price (the floor) for the volumes under contract. This strategy enables us to purchase from us its full North American requirementsdecrease the floor and the ceiling price of the collar beyond the range of a traditional collar while offsetting the associated cost with the sale of the written call. The following tables summarize our position related to these instruments as of March 31, 2010 (in mmBtu per day):
Three-Way Collars | ||||||||||||||||
April 2010 Through October 2010 | November 2010 Through March 2011 | April 2011 Through October 2011 | ||||||||||||||
Volume hedged | 5,500 | 9,500 | 4,000 | 1,000 | ||||||||||||
Strike price of call sold | $ | 12.00 | $ | 11.00 | $ | 11.00 | $ | 11.00 | ||||||||
Strike price of call bought | 9.00 | 8.00 | 8.00 | 8.00 | ||||||||||||
Strike price of put sold | 5.90 | 5.03 | 5.66 | 5.33 | ||||||||||||
Approximate percent hedged | 18 | % | 32 | % | 11 | % | 3 | % |
A call spread is a combination of a purchased call and a written call. The purchased call establishes a maximum price unless the market exceeds the written call, at which point the maximum price would be the NYMEX price less the difference between the purchased call and the written call strike price plus any applicable net premium associated with the two options. The following tables summarize our position related to these instruments as of March 31, 2010 (in mmBtu per day):
Call Spreads | ||||||||||||||||||||
November 2010 Through March 2011 | April 2011 Through October 2011 | November 2011 Through March 2012 | ||||||||||||||||||
Volume hedged | 4,500 | 1,500 | 2,500 | 2,500 | 1,500 | |||||||||||||||
Strike price of call sold | $ | 11.00 | $ | 10.00 | $ | 11.00 | $ | 10.00 | $ | 11.00 | ||||||||||
Strike price of call bought | 8.00 | 7.00 | 8.00 | 7.00 | 8.00 | |||||||||||||||
Net cap premium | 0.40 | 0.30 | 0.36 | 0.32 | 0.37 | |||||||||||||||
Approximate percent hedged | 12 | % | 4 | % | 8 | % | 8 | % | 4 | % |
We have elected to account for cut-size office paper, tothese instruments as economic hedges. At March 31, 2010, we recorded the extent we choose to supply such paper to them, through December 2012. The price for paper sold under this supply agreement approximates market levels. OfficeMax's purchase obligations underfair value of the agreement will phase out over a four-year period beginning one year after the delivery of notice of termination, but not prior to December 31, 2012. This supply agreement provides us with access to one of North America's largest office products sales and distribution networks, giving us a competitive advantage of market access and customer supply chain management. For additional detailsderivatives, or $4.8 million, in “Accrued liabilities, Other” on our contracts with OfficeMax, see "Certain Relationships and Related Transactions."
In addition to Office Max, we have over 1,100 uncoated free sheet paper customers, none of which individually represents a material portion of our sales. Our customers include 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 or food wrap. The majority of these customers purchase products through individual purchase orders. In addition to our paper supply agreement with OfficeMax, we have long-term agreements with certain of our other customers, including contracts establishing terms and, in some cases, pricing mechanisms for future orders and sales.
Competition
The markets in which our Paper segment competes are large and highly competitive. Commodity grades of uncoated free sheet are globally traded, with numerous worldwide manufacturers. All of our paper manufacturing facilities are located in the United States. Although we compete largely in the domestic market, we do face competition from foreign producers, many 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.
About a dozen major manufacturers compete in the North American uncoated free sheet market. Some of our competitors in this segment are more vertically integrated than we are, and/or have access to internal sources of wood fiber, which may allow them to subsidize their base
manufacturing business in periods of rising fiber prices. Although price is the primary basis for competition in most of our paper grades, quality and service are important competitive determinants, especially in value-added grades. Our paper products also compete with other paper grades, electronic transmission and document storage alternatives. As the use of these alternative products continues to grow, we may see variances in the overall demand for paper products or shifts from one type of paper to another.
Packaging & Newsprint
Products
We manufacture and sell containerboard and corrugated containers, as well as newsprint. Our Packaging & Newsprint segment generated sales, pro forma income before interest and taxes and pro forma EBITDA of $694.5 million, $15.3 million and $51.4 million, respectively, during 2004. This segment also generated sales, income before interest and taxes and EBITDA of $193.8 million, $4.5 million and $13.7 million, respectively, duringConsolidated Balance Sheet. During the three months ended March 31, 2005.
Containerboard is used2010, we recorded the change in the production of corrugated containers. Our corrugated containers are used in the packaging of fresh fruit and vegetables, processed food, beverages and other industrial and consumer products. We sold approximately 521,000 tons of linerboard and approximately 4.7 billion square feet of corrugated containers during 2004, and approximately 129,000 tons of linerboard and 1.14 billion square feet of corrugated containers during the three months ended March 31, 2005. During 2004, our corrugated container plants consumed (either directly or through trades with other containerboard producers) approximately 54% of our containerboard production, including the corrugating medium manufactured in our Paper segment.
We sold approximately 427,000 tons of newsprint during 2004 and 97,000 tons of newsprint during the three months ended March 31, 2005, primarily for use in printing daily newspapers and other publications in North America.
Facilities
We manufacture containerboard and newsprint at our mill in DeRidder, Louisiana. This mill had an annual production capacity of 1.0 million short tons as of December 31, 2004. From 1999 to 2004, our Packaging & Newsprint segment invested approximately $209 million in the DeRidder mill to improve its cost position, expand capacity, enhance product capabilities, maintain the facility and comply with environmental regulations. We also manufacture corrugated containers at five plants in the Pacific Northwest, with an aggregate annual capacity of approximately 4.5 billion square feet, based on operating the plants five days a week, 24 hours a day.
The following table sets forth annual capacities of our containerboard and newsprint mill in DeRidder, Louisiana as of, and production for the year ended, December 31, 2004:
| Number of Machines | Capacity(1) | Production | ||||
---|---|---|---|---|---|---|---|
| | (short tons in thousands) | |||||
DeRidder, Louisiana | |||||||
Containerboard (linerboard) | 1 | 555 | 521 | ||||
Newsprint | 2 | 448 | 427 |
Raw Materials and Input Costs
Wood fiber is the principal raw material in this segment. The primary sources of wood fiber are timber and its byproducts, such as wood chips, wood shavings and sawdust. Prior to the Timberlands Sale, we supplied our DeRidder mill with fiber from the timberlands operations, as well as from third parties. Concurrently with the Timberlands Sale, we entered into long-term supply contracts with the buyerfair value of the timberlands operations for a portioninstruments, or $3.3 million of our fiber needs. These agreements expire on March 31, 2014, and fiber purchased under these agreements is purchased at prices that approximate market levels. We currently supply our DeRidder mill with fiber pursuant to these contracts, as well as pursuant to agreements with other third parties and open-market purchases. As a result of the Timberlands Sale, we have increased our open-market purchases of wood fiber. Since most of our manufacturing facilities are locatedexpense, in close proximity to active wood markets, we believe the Timberlands Sale will not adversely affect our access to fiber at competitive prices. However, we may incur costs associated with the procurement of fiber, such as higher transportation costs and costs related to identifying potential vendors, that exceed historical levels. We obtain some of our wood byproducts from our wood product plants in the South, and purchase the remainder from outside sources.
Our Packaging & Newsprint segment consumes substantial amounts of energy, such as electricity and natural gas. During 2004 and the three months ended March 31, 2005, energy costs accounted for approximately 12% of the sum of materials, labor and other expenses and fiber costs from related third parties in this segment. We purchase substantial portions of our natural gas and electricity under supply contracts. Under most of these contracts, the providers are bound to provide us with all of our needs for a particular type of energy at a specific facility. Our gas supply contracts have pricing mechanisms based primarily on current market prices, and our electricity supply contracts have pricing mechanisms based primarily on published tariffs.
Sales, Marketing and Distribution
Our containerboard and corrugated container products are sold by brokers and our own sales personnel. We market our newsprint through Abitibi-Consolidated, the world's largest producer and marketer of newsprint, pursuant to an arrangement whereby Abitibi purchases all of the newsprint we produce, at price equal to the price at which Abitibi sells newsprint produced at its mills located in the southern United States, less associated expenses and a sales and marketing discount. We recently extended our contract with Abitibi through 2008.
Customers
During 2004 and the three months ended March 31, 2005, we sold approximately 60% of our linerboard in the open market, of which approximately half was sold domestically. We sell our corrugated containers to over 1,200 active customers, including large agricultural producers and food and beverage processors. We sell our newsprint to Abitibi-Consolidated, which sells it primarily to newspaper publishers located near our DeRidder, Louisiana mill.
Competition
Containerboard and newsprint are globally traded commodities with numerous worldwide manufacturers and, as a result, these products compete primarily on the basis of price. The intensity of competition in these industries fluctuates based on demand levels and prevailing foreign currency exchange rates. Our corrugated container business, based in the Pacific Northwest, has a leading regional market position and competes with several national and regional manufacturers. Some of our competitors have lower operating costs than we do, and/or enjoy greater integration between their containerboard production and corrugated container production. During 2004, we
had market shares of approximately 2% and 3% in the North American linerboard and newsprint markets, respectively.
Wood Products
Products
According to RISI, we are a leading producer of engineered wood products, or EWP, comprised of laminated veneer lumber, or LVL, a high-strength engineered lumber often used in beams; I-joists, a structural support typically used in floors and roofs; and laminated beams. We believe we are the second-largest EWP manufacturer in North America, with an estimated market share of approximately 20% in 2004, according to RISI. Over the past ten years, we have shifted our product focus from commodity products such as plywood and lumber, to more stable, higher-margin EWP. EWP accounted for 34% of our sales in this segment in 2004. As a result of growth in new housing construction and substitution trends away from traditional wide-dimension lumber to EWP, our EWP sales grew from 1997 through 2004 at a compound annual rate of 18%. We also produce plywood, dimension lumber and high-quality ponderosa pine lumber, a premium lumber grade sold primarily to manufacturers of specialty wood windows, moldings and doors. Our wood products are used in new residential and light commercial construction and in residential repair and remodeling. Our Wood Products segment generated sales, pro forma income before interest and taxes and pro forma EBITDA of $1.36 billion, $178.4 million and $251.2 million, respectively, during 2004. This segment also generated sales, income before interest and taxes and EBITDA of $322.4 million, $33.1 million and $38.4 million, respectively, during the three months ended March 31, 2005.
Facilities
We currently operate an integrated network of three EWP facilities and ten plywood and veneer plants, some of which manufacture inputs used in our EWP facilities. We also operate five sawmills and one particleboard plant. The following table lists annual capacities of our Wood Products facilities as of, and production for the year ended, December 31, 2004:
| Number of Mills | Capacity(1) | Production | ||||
---|---|---|---|---|---|---|---|
| | (in millions) | |||||
Engineered wood products(2) | 3 | ||||||
Laminated veneer lumber (LVL) (cubic feet) | 20 | 18 | |||||
I-joists (equivalent lineal feet) | — | 229 | |||||
Plywood and veneer (sq. ft.) (3/8" basis)(3) | 10 | 1,600 | 1,666 | ||||
Lumber (board feet)(4) | 6 | 275 | 288 | ||||
Particleboard (sq. ft.) (3/4" basis) | 1 | 200 | 156 | ||||
Brazilian veneer (sq. ft.) (3/8" basis)(5) | 1 | 150 | 85 |
Our manufacturing facilities are located primarily in integrated clusters in areas with ample timber resources, increasing our access to fiber and limiting inbound freight costs.
Raw Materials and Input Costs
Our domestic plywood and veneer facilities use Douglas fir, spruce and white fir, and southern pine logs as raw materials. We use ponderosa pine, spruce and white fir logs to manufacture various grades of lumber. Our EWP facilities in Louisiana and Oregon use veneers and parallel laminated veneer panels produced by our facilities and purchased from third parties, together with OSB purchased from third parties, to manufacture LVL and I-joists. Concurrently with the Timberlands Sale, we entered into long-term supply agreements with the buyer of the timberlands operations for a portion of our fiber needs in most of the areas where we still have significant manufacturing capacity. These agreements expire on December 31, 2014, and the prices for fiber purchased under these agreements approximate market levels. We believe that we will be able to access sufficient wood resources for our facilities through our supply agreements and open-market purchases from third parties. As a result of the Timberlands Sale, we increased our open-market purchases of wood fiber. Since all of our Wood Products manufacturing facilities are located in active wood markets, we believe the Timberlands Sale will not adversely affect our access to raw materials at competitive prices. However, we may incur costs associated with the procurement of fiber, such as higher transportation costs and costs related to identifying potential vendors, that exceed historical levels.
Other important materials used to manufacture and prepare our wood products for sale include resins, adhesives, plastic strapping and lumber wrap, which we purchase both on the open market and through long-term requirement contracts.
During 2004 and the three months ended March 31, 2005, energy, primarily electricity, natural gas and fuel oil accounted for approximately 3% of the sum of our materials,“Materials, labor, and other operating expensesexpenses” in our Consolidated Statements of Income (Loss). At December 31, 2009 and fiber2008, we recorded the fair value of the derivatives, or $1.4 million and $7.3 million, respectively, in “Accrued liabilities, Other” on our Consolidated Balance Sheet. During the years ended December 31, 2009 and 2008, we recorded the change in fair value of the instruments, or a $5.9 million gain and a $7.4 million loss, respectively, in “Materials, labor, and other operating expenses” in our Consolidated Statements of Income (Loss).
Foreign Currency Risk
While we are exposed to foreign currency risk in our operations, none of this risk was material to our financial position or results of operations as of March 31, 2010 and December 31, 2009 and 2008.
Predecessor
During the Predecessor periods presented, Boise Cascade occasionally used interest rate swaps to hedge variable interest rate risk. Because debt and interest costs from related partieswere not allocated to the Predecessor, the effects of the interest rate swaps were not included in this segment. the Predecessor consolidated financial statements.
Fair Value Measurements
We purchase substantial portionsrecord our financial assets and liabilities, which consist of cash equivalents, short-term investments, and derivative financial instruments that are used to hedge exposures to interest rate and energy risks, at fair value. The fair value hierarchy under U.S. generally accepted accounting principles (“GAAP”) gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, and 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). We enter into these hedges with large financial institutions, and we monitor their credit ratings to determine if any adjustments to fair value need to be made. No such adjustments were made in any period presented.
At March 31, 2010 and December 31, 2009, fair value for these financial instruments was determined based on applicable interest rates, such as LIBOR, interest rate curves, and NYMEX price quotations under the terms of the contracts, using current market information as of the reporting date. Our certificates of deposit, interest rate derivatives, and energy derivatives are valued using third-party valuations based on quoted prices for similar assets and liabilities. The following table provides a summary of our natural gasassets and electricity under supply contracts, most of which are with local providers in regions in which our facilities are located. Most of these contracts are requirements contracts, whereby the providers are bound to provide us with all of our needs for a particular type of energyliabilities measured at a specific facility. Our gas supply contracts have pricing mechanisms based primarily on current market prices, and our electricity supply contracts have pricing mechanisms based primarily on published tariffs.
Sales, Marketing and Distribution
Sales of plywood, lumber and particleboard are managed centrally by product. Our EWP sales force is managed centrally through a main office that oversees regional sales teams. Our sales force provides a variety of technical support services for our EWP, including integrated design, engineering, product specification software, distributor inventory management software and job-pack preparation systems.
Customers
Our largest customer in this segment in 2004 was our Building Materials Distribution segment, representing approximately 37% of the products we manufacture, including 58% of our EWP sales. Our third-party customers in this segment include integrated and independent wholesalers, major retailers and industrial converters in both domestic and export markets.
Competition
Our markets in this segment are large, fragmented and highly competitive. There are several major producers for most of our products, including EWP and plywood, as well as numerous local and regional manufacturers. According to RISI, we have leading market positions in the manufacture of EWP, plywood and ponderosa pine lumber. We hold much smaller competitive positions with respect to our other building products. Some of our competitors, though, enjoy strong reputations for product quality and customer service, and these competitors may have strong relationships with certain distributors, making it difficult for our products to gain additional market share. Most of our competitors are located in the United States and Canada, although competition from manufacturers in other countries has increased in recent years. Many of these foreign competitors have lower operating costs than we do. We compete not only with manufacturers and distributors of similar building products but also with products made from alternative materials, such as steel and plastic. Our products in this segment compete primarily on the basis of price, quality and, particularly with respect to EWP, levels of customer service. We believe our cost-competitive production facilities and our customer service are our principal competitive advantages in this segment.
Building Materials Distribution
Products
We are a leading national inventory-carrying wholesale distributor of building materials, according toHome Channel News. We distribute a broad line of building materials, most of which we purchase from third parties, including EWP, OSB, plywood, lumber, siding and general line items such as framing accessories, composite decking, roofing and insulation. In 2004, our Building Materials Distribution segment generated approximately 13% of its sales from EWP, a high-growth product category with higher margins than most building materials we distribute. We believe our broad product line provides our customers with a one-stop resource for their needs and lowers per-unit freight costs. We also have expertise in special-order sourcing and merchandising support, and our nationwide supplier relationships allow us to offer excellent customer service on top brands in the building materials industry. Our Building Materials Distribution segment generated sales, pro forma income before interest and taxes and pro forma EBITDA of $2.84 billion, $93.5 million and $102.3 million, respectively, during 2004. This segment also generated sales, income before interest and taxes and EBITDA of $696.2 million, $24.4 million and $26.4 million, respectively, during the three months ended March 31, 2005.
Facilities
We operate a network of 28 strategically located distribution facilities in this segment, located throughout the United States. We have expanded from 15 to 28 facilities since 1999, with much of this growth occurring in the eastern United States, providing us with a national footprint. This expansion has occurred through both acquisitions and organic growth.
Raw Materials and Input Costs
We purchase the majority of the building materials we distribute from third-party suppliers. Approximately 18% of the products purchased by Building Materials Distribution during 2004 were purchased from our Wood Products segment. Our vendor base includes over 1,300 suppliers. Because we purchase large volumes of products from certain of our suppliers, we believe we are able to obtain favorable price and term arrangements. We generally do not have long-term supply contracts with our vendors, which allows us to use the leverage provided by our national presence to obtain favorable vending relationshipsfair value on a constant basis.
Sales, Marketingrecurring basis and Distribution
Each of our distribution centers implements its own distribution and logistics model tailoredthe inputs used to develop these estimated fair values under the customers it serves. We operate a fleet of trucks to deliver materials on a regularly scheduled basis. We have a large decentralized sales force that uses timely and accurate market information and local product knowledge to support customers.
Customers
Our customer basefair value hierarchy discussed above (dollars, in this segment includes a wide range of customers across multiple market segments and various end markets. In 2004, a majority of our sales in this segment were to "pro dealers," retail distributors that sell building materials to professional builders in the residential, light commercial construction and repair and remodeling markets. We also service retail lumber yards, home improvement centers and other industrial accounts.
Competition
The building materials distribution markets in which we operate are highly fragmented, and we compete in each of our geographic and product markets with national, regional and local distributors, wholesale brokers and/or buying cooperatives, some of which are larger than we are and/or have more extensive relationships with professional builders. We compete on the basis of delivery cost and speed, quality of service and compatibility with customers' needs. If one or more of our competitors is able to leverage its geographic coverage and/or customer relationships into expansion in new markets, our growth strategy in this segment could be impeded. Proximity to customers is an important factor in minimizing shipping costs and facilitating quick order turnaround and on-time delivery. We believe our ability to obtain quality materials, from both internal and external sources, and our focus on customer service are our primary competitive advantages in this segment.
Employeesmillions):
Fair Value Measurements at March 31, 2010, Using: | ||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||
Assets: | ||||||||||||
Money market accounts (a) | $ | 82.7 | $ | 82.7 | $ | — | $ | — | ||||
Certificates of deposit (b) | 7.2 | — | 7.2 | — | ||||||||
Interest rate derivatives (c) | — | — | — | — | ||||||||
$ | 89.9 | $ | 82.7 | $ | 7.2 | $ | — | |||||
Liabilities: | ||||||||||||
Energy derivatives (d) | $ | 4.8 | $ | — | $ | 4.8 | $ | — | ||||
$ | 4.8 | $ | — | $ | 4.8 | $ | — | |||||
Fair Value Measurements at December 31, 2009, Using: | ||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||
Assets: | ||||||||||||
Money market accounts (a) | $ | 65.1 | $ | 65.1 | $ | — | $ | — | ||||
Certificates of deposit (b) | 10.0 | — | 10.0 | — | ||||||||
Interest rate derivatives (c) | 0.2 | — | 0.2 | — | ||||||||
$ | 75.3 | $ | 65.1 | $ | 10.2 | $ | — | |||||
Liabilities: | ||||||||||||
Energy derivatives (d) | $ | 1.4 | $ | — | $ | 1.4 | $ | — | ||||
$ | 1.4 | $ | — | $ | 1.4 | $ | — | |||||
(a) | Recorded in “Cash and cash equivalents” on our Consolidated Balance Sheet. |
(b) | Recorded in “Short-term investments” on our Consolidated Balance Sheet. |
(c) | Recorded in “Other assets” on our Consolidated Balance Sheet. |
(d) | Recorded in “Accrued liabilities, Other” on our Consolidated Balance Sheet. |
As of March 31, 2005,2010 and December 31, 2009, we had 10,185 employees. Approximately 4,920, or 48%, of these employees were covered by collective bargaining agreements. Several of these agreementsdid not have expired or will expire in 2005. In March 2005, an agreement covering 860 workers in our paper facilities in St. Helens, Oregon, Vancouver, Washington, Salem, Oregon, and Wallula, Washington expired. Negotiations continue with these groups. In July 2005, agreements covering approximately 100 employees in our Jackson, Alabama sheeter facility and 700 workers in our Oakdale, Louisiana and Florien, Louisiana plywood facilities will expire. In addition, an agreement covering approximately 100 workers in our Salt Lake City, Utah corrugated container plant will expire in October 2005.any fair value measurements using significant unobservable inputs (Level 3).
Properties
We own substantially all of our facilities. Our properties are in good operating condition and are suitable and adequate for the operations for which they are used. We own substantially allTabular Disclosure of the equipment usedFair Values of Derivative Instruments and the Effect of Those Instruments
(dollars, in our facilities. The following is a list of our facilities by segment as of March 31, 2005.millions)
Paper
The following table summarizes facilities in our Paper segment:
Fair Values of Derivative Instruments | ||||||||||
Asset Derivatives | Liability Derivatives | |||||||||
March 31, 2010 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||
Derivatives designated as economic hedging instruments (a) | ||||||||||
Interest rate contracts | Other assets | $ | — | Accrued liabilities | $ | — | ||||
Natural gas contracts | Other assets | — | Accrued liabilities | 4.8 | ||||||
Total derivatives designated as economic hedging instruments | $ | — | $ | 4.8 | ||||||
Total derivatives | $ | — | $ | 4.8 | ||||||
Fair Values of Derivative Instruments | ||||||||||
Asset Derivatives | Liability Derivatives | |||||||||
December 31, 2009 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||
Derivatives designated as economic hedging instruments (a) | ||||||||||
Interest rate contracts | Other assets | $ | 0.2 | Accrued liabilities | $ | — | ||||
Natural gas contracts | Other assets | — | Accrued liabilities | 1.4 | ||||||
Total derivatives designated as economic hedging instruments | $ | 0.2 | $ | 1.4 | ||||||
Total Derivatives | $ | 0.2 | $ | 1.4 | ||||||
The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Three Months Ended March 31, 2010 | |||||||||||||||||
Derivatives Designated as Cash Flow Hedging Instruments (b) | Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Derivatives Designated as Economic Hedging Instruments (a) | Location of Gain or (Loss) Recognized in Income on Derivative | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||||
Interest rate contracts | $ | — | Interest income/expense | $ | (0.4 | ) | Interest rate contracts | Change in fair value of interest rate derivatives | $ | — | |||||||
Natural gas contracts | Materials, labor, and other operating expenses | (3.3 | ) | ||||||||||||||
$ | — | $ | (0.4 | ) | $ | (3.3 | ) | ||||||||||
The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Year Ended December 31, 2009 | |||||||||||||||
Derivatives Designated as Cash Flow Hedging Instruments (b) | Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Derivatives Designated as Economic Hedging Instruments (a) | Location of Gain or (Loss) Recognized in Income on Derivative | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||
Interest rate contracts | $ | — | Interest income/expense | $ | 0.3 | Interest rate contracts | Change in fair value of interest rate derivatives | $ | 0.6 | ||||||
Natural gas contracts | Materials, labor, and other operating expenses | 5.9 | |||||||||||||
$ | — | $ | 0.3 | $ | 6.5 | ||||||||||
See discussion above for additional information on our purpose for entering into derivatives designated as economic hedges and | |||||
Packaging & Newsprint
The following table summarizes facilities in our Packaging & Newsprint segment:
(b) | As of | |||||
Wood Products
The following table summarizes facilities in our Wood Products segment:
Building Materials Distribution
The following table summarizes facilities in our Building Materials Distribution segment:
Environmental Matters
Our businesses are subject to a wide range of general and industry-specific environmental laws and regulations. In particular, we are affected by laws and regulations covering air emissions, wastewater discharges, solid and hazardous waste management, and site remediation. Compliance with these laws and regulations is a significant factor in the operation of our businesses. We believe that we have created a corporate culture of strong compliance by taking a conservative approach to environmental issues in order to assure that we are operating well within the bounds of regulatory requirements. However, we cannot assure you that we will at all times be in full compliance with environmental requirements, and we cannot assure you that we will not incur fines and penalties in the future. In 2009, we made no payments for environmental fines and penalties across all of our segments. In all periods presented, environmental spending for fines and penalties across all of our segments was immaterial.
In 2002, OfficeMax entered into a Consent Decree with the EPAWe incur, and we expect to settle alleged air permit violations at eight of the plywood and particleboard manufacturing facilities that we now own. The EPA alleged these plants failed to obtain New Source Review air permits. The final installation of control equipment required under the Consent Decree was completed in April 2005.
We incur, substantial capital and operating expenditures to comply with federal, state, and local environmental laws and regulations. Failure to comply with these laws and regulations could result in civil or criminal fines or penalties or in enforcement actions. Our failure to comply could also result in governmental or judicial orders that stop or interrupt our operations or require us to take corrective measures, install additional pollution control equipment, or take other remedial actions. During 2004,2009, we made approximately $8spent $2.2 million inon capital expenditures to comply with environmental requirements. We anticipate capital expenditures of approximately $18$1.4 million in 20052010 to comply with environmental requirement,requirements and we expect to spend similar or greater amounts on environmental capital expenditures in the years ahead.
In 2004, the EPA promulgated rules to control air toxic emissions from wood and panel plants and industrial boilers. Compliance with these rules is required in 2007. The rules will require capital spending at our wood panel plants and paper mills. We are currently evaluating the rules and the amount of capital spending that will be required to comply with them. We expect capital spending for these projects to range from $13 million to $37 million for the period from 2005 to 2007. This range will be refined as mills develop their detailed compliance strategies.
As an owner and operator of real estate, we may be liable under environmental laws for the cleanup of past and present spills and releases of hazardous or toxic substances on or from our properties and operations. We can be found liable under these laws if we knew of or were responsible for the presence of such substances. In some cases, this liability may exceed the value of the property itself.
Some of our properties have been the subject of investigation or cleanup in connection with environmental contamination. In 2001, the EPA and the Oregon Department of Environmental Quality began an investigation at our paper mill in St. Helens, Oregon. The investigation is being conducted under Oregon's Voluntary Cleanup Program. The investigation has focused on polychlorinated biphenyls, pentachlorophenol, volatile and semi-volatile organic compounds, dioxins and heavy metals. Although we cannot assure you regarding the outcome of this investigation, based on current information, we do not expect it to result in material liabilities. Given that the investigation concerns hazardous substance releases that occurred prior to the closing of the Acquisition, OfficeMax retained responsibility for this matter pursuant to the asset purchase agreement, as described below.
OfficeMax retains responsibility for environmental liabilities incurredthat occurred with respect to businesses, facilities, and other assets not purchased by usMadison Dearborn from OfficeMax in connection with the Acquisition,2004 transaction. In addition, OfficeMax generally indemnifies our operating subsidiaries, Boise White Paper, L.L.C., and indemnifies usBoise Packaging & Newsprint, L.L.C., for hazardous substance releases and other environmental regulatory violations related to our business that occurred prior to the closing of2004 transaction at the Acquisition or arise out of pre-closing operations.businesses, facilities, and other assets purchased by such subsidiaries. However, OfficeMax may not have sufficient funds to fully satisfy in full its indemnification obligations when required, and in some cases, we may not be contractually entitled to indemnification by OfficeMax.
Climate change, in its many dimensions (legislative, regulatory, market, and physical), has the potential to significantly affect our business. Boise relies on a sustainably managed supply of woody biomass as our principal raw material and main energy source. About 65% of our energy comes from renewable woody biomass. The carbon dioxide emitted when burning biomass from sustainably managed sources for energy is generally considered to be carbon neutral (does not contribute to climate change) because it is recycled in a closed loop whereby the carbon is removed from the atmosphere by the biomass and then returned to the atmosphere when the biomass is burned, resulting in no net increase of carbon dioxide in the atmosphere. Significant amounts of carbon are permanently sequestered (stored) in forests and forest products.
Our manufacturing operations emit GHGs, which may contribute to global warming and climate change. We are a voluntary member of the United States Environmental Protection Agency (“EPA”) Climate Leaders program and the Chicago Climate Exchange (“CCX”). Under these programs, we have established GHG emission inventories using established protocols, and in the case of CCX, the emissions have been third-party verified. In 2008 (the last recorded year), our company emitted about 2.6 million metric tonnes of GHGs (1.0 million metric tonnes of direct emissions and 1.6 million metric tonnes of indirect emissions from purchased electricity). The carbon dioxide from burning biomass, which is generally considered to be carbon neutral, is excluded from our GHG inventories. In 2011, we will begin reporting GHGs under the asset purchase agreement.EPA’s mandatory regulatory program.
Other Legal Proceedings
Climate change legislative and regulatory activities that affect our operations generally focus on reducing GHG emissions through some combination of GHG limitations (such as cap and trade or emission standards) and a renewable electricity standard (“RES”). Three of the five states in which our primary GHG emitting facilities operate (Minnesota, Oregon, and Washington) have an RES. There is currently no national RES in effect, although legislation passed by the United States House of Representatives (House) in July 2009 does include such a standard. The RES could increase our energy cost due to the higher cost of renewable electrical generation facilities, compared with those generating electricity from fossil fuel.
Climate change legislation prescribing a cap and trade system was passed by the House in the July 2009 legislation. The U.S. Senate Environment and Public Works Committee proposed similar legislation, but the full Senate has not yet voted on the legislation. The prognosis for enacting national climate change legislation into law is uncertain. The effect of any climate change legislation on our operations is also uncertain. Under the current proposed legislation, our facilities may be largely insulated from higher costs for an initial period through 2025. Nevertheless, as the protective measures phase out from 2026 to 2035, our energy costs could increase substantially. Furthermore, U.S. legislation and regulation may put our operations at a competitive disadvantage relative to foreign competition if competing countries have not enacted commensurate GHG reduction programs.
The EPA has initiated the regulation of GHGs following its “endangerment finding” in December 2009. The EPA has proposed regulating GHGs under its Clean Air Act Title V permitting and Prevention of Significant Deterioration programs. There is considerable uncertainty whether or when these regulations will be enacted and what the regulations may require. Such rules could lead to longer permitting times and additional costs to reduce GHG emissions.
Increased interest in biomass as a renewable energy source could increase demand for and the cost of wood, our principal raw material. On the other hand, as incentives for biofuels manufacturing increase, there may be opportunities to locate biorefineries at our paper mills to produce biofuels as a coproduct. We are a significant manufacturer of recycled paper. Recycling of paper reduces greenhouse gas emissions from landfills.
There is considerable uncertainty concerning the physical risks that may be presented by climate change. Predictions range widely and can include more weather extremes (floods and drought), increased storm intensity, and rising sea levels. Climate change could also affect forests supplying our wood both positively and negatively. Increased carbon dioxide in the atmosphere and warmer temperatures could increase forest biomass production. Weather patterns and insects might affect forests either favorably or unfavorably. We cannot predict the effect of climate change on our operations with any degree of certainty until the legislative and regulatory landscape takes shape.
Critical Accounting Estimates
Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management’s most difficult, subjective, or complex judgments, often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of our board of directors. As of March 31, 2010, there have been no material changes in our exposure to our critical accounting estimates from those disclosed below.
Income Taxes
We account for income taxes and separately recognize deferred tax assets and deferred tax liabilities. Such deferred tax assets and deferred tax liabilities represent the tax effect of temporary differences between financial reporting, and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse. We also recognize only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority.
We make judgments and estimates in determining income tax expense for financial statement purposes. These judgments and estimates occur in the calculation of tax credits, benefits, and deductions and in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to uncertain tax positions. Significant changes to these estimates may result in an increase or decrease in our tax provision in a subsequent period.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions. It is inherently difficult and subjective to estimate uncertain tax positions, because we have to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
For the year ended December 31, 2009, we increased the amount of our unrecognized tax benefit by $87.6 million, which was charged to income tax expense, as a result of excluding the alternative fuel mixture credits from income for tax purposes. If subsequently recognized, this unrecognized tax benefit would reduce our tax expense by $83.3 million. Exclusion of the alternative fuel mixture credits generates a deferred tax benefit of $82.9 million for the year ended December 31, 2009 (primarily a net operating loss carry forward).
A reconciliation of the unrecognized tax benefits is as follows (dollars, in millions):
2009 | 2008 | |||||
Unrecognized tax benefits, beginning of year | $ | 0.3 | $ | 0.2 | ||
Gross increases related to prior-period tax positions | — | — | ||||
Gross decrease related to prior-period tax positions | — | — | ||||
Gross increases related to current-period tax positions | 87.6 | — | ||||
Settlements | — | — | ||||
Unrecognized tax benefits, end of year | $ | 87.8 | $ | 0.3 | ||
The unrecognized tax benefit net of federal benefit for state taxes is $83.3 million. We have determined that there is a filing position to exclude the alternative fuel mixture credits from taxable income. Accordingly, $82.9 million of the $83.3 million is recorded as a credit to our long-term deferred taxes to eliminate the benefit associated with the uncertain tax position. The remaining $0.4 million is recorded in “Other long-term liabilities” on our Consolidated Balance Sheet. Additional guidance may be issued by the Internal Revenue Service (“IRS”) in the next 12 months, which could cause us to change our unrecognized tax benefits from the amounts currently recorded. It is not reasonably possible to know to what extent the total amounts of unrecognized benefits will increase or decrease within the next 12 months.
We recognize interest and penalties related to uncertain tax positions as income tax expense in our Consolidated Statement of Income (Loss). Interest expense related to our uncertain tax positions was immaterial for both of the years ended December 31, 2009 and 2008, and also for the Predecessor year ended December 31, 2007. We did not record any penalties associated with the uncertain tax positions during the years ended December 31, 2009 and 2008, or during the Predecessor year ended December 31, 2007.
Pensions
Some of our employees participate in noncontributory defined pension plans that were either transferred from or spun off from Boise Cascade. The salaried defined benefit pension plan is available only to employees who were formerly employed by OfficeMax before November 2003. The pension benefit for salaried employees is based primarily on the employees’ years of service and highest five-year average compensation. The benefit
for hourly employees is generally based on a fixed amount per year of service. The Predecessor treated participants in these plans as participants in multiemployer plans. Accordingly, the Predecessor did not reflect any assets or liabilities related to the noncontributory defined benefit pension plans on its Consolidated Balance Sheet. The Predecessor did, however, record costs associated with the employees who participated in these plans in its Consolidated Statements of Income (Loss). Expenses attributable to participation in noncontributory defined benefit plans for the years ended December 31, 2009 and 2008, the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, were $8.7 million, $8.3 million, $1.8 million, and $13.1 million, respectively.
We calculate pension expense and liabilities using actuarial assumptions, including discount rates, expected return on plan assets, expected rate of compensation increases, retirement rates, mortality rates, expected contributions, and other factors. We based the assumptions used in this analysis to calculate pension expense on the following factors:
Discount Rate Assumption. The discount rate assumption was determined using a spot rate yield curve constructed to replicate Aa-graded corporate bonds. The Aa-graded bonds included in the yield curve reflect anticipated investments that would be made to match the expected monthly benefit payments over time and do not include all Aa-graded corporate bonds. The plan’s projected cash flows were duration-matched to this yield curve to develop an appropriate discount rate.
Asset Return Assumption. The expected long-term rate of return on plan assets was based on a weighted average of the expected returns for the major investment asset classes. Expected returns for the asset classes are based on long-term historical returns, inflation expectations, forecasted gross domestic product, earnings growth, and other economic factors. The weights assigned to each asset class were based on the investment strategy. The weighted average expected return on plan assets we will use in our calculation of 2010 net periodic benefit cost is 7.25%. In 2009, plan assets performed well above the long-term return assumption.
Rate of Compensation Increases. Salaried pension benefits are frozen, so the compensation increase assumption is not applicable. Negotiated compensation increases are reflected in the projected benefit obligation for certain hourly employees with salary-related benefits. Historically, this assumption reflected long-term actual experience, the near-term outlook, and assumed inflation.
Retirement and Mortality Rates. These rates were developed to reflect actual and projected plan experience.
Expected Contributions. Plan obligations and expenses are based on existing retirement plan provisions. No assumption is made for future changes to benefit provisions beyond those to which we are presently committed, for example, changes we might commit to in future labor contracts. We made a $5.5 million voluntary contribution to our qualified pension plans in March 2010. We estimate that we will be required to contribute approximately $1 million more to our pension plans in 2010 and approximately $21 million in 2011.
We recognize the funded status of our pension and other postretirement benefit plans on our Consolidated Balance Sheet and recognize the actuarial and experience gains and losses and the prior service costs and credits as a component of “Accumulated other comprehensive income (loss)” in our Consolidated Statement of Stockholders’ Equity. Actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. While we believe that the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.
A change of 0.25% in either direction to the discount rate, the expected rate of return on plan assets, or the rate of compensation increases would have had the following effect on 2009 and 2010 pension expense (dollars, in millions). These sensitivities are specific to 2009 and 2010. The sensitivities may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.
Base Expense | Increase (Decrease) in Pension Expense | |||||||||
0.25% Increase | 0.25% Decrease | |||||||||
2009 Expense | ||||||||||
Discount rate | $ | 8.7 | $ | (0.4 | ) | $ | 0.7 | |||
Expected rate of return on plan assets | 8.7 | (0.8 | ) | 0.8 | ||||||
2010 Expense | ||||||||||
Discount rate | $ | 10.2 | $ | (0.7 | ) | $ | 0.7 | |||
Expected rate of return on plan assets | 10.2 | (0.8 | ) | 0.8 |
We believe that the accounting estimate related to pensions is a critical accounting estimate because it is highly susceptible to change from period to period. As discussed above, the future effects of pension plans on our financial position and results of operations will depend on economic conditions, employee demographics, mortality rates, retirement rates, investment performance, and funding decisions, among other factors. The following table presents selected assumptions used and expected to be used in the measurement of pension expense in the following periods (dollars, in millions):
Year Ending December 31, 2010 | Boise Inc. | |||||||||||
Year Ended December 31 | ||||||||||||
2009 | 2008 | |||||||||||
Pension expense | $ | 10.2 | $ | 8.7 | $ | 8.3 | ||||||
Discount rate | 6.10 | % | 6.20 | % | 6.50 | % | ||||||
Expected rate of return on plan assets | 7.25 | % | 7.25 | % | 7.25 | % | ||||||
Rate of compensation increases | — | % | — | % | 4.25 | % |
Changes in our actual asset returns affect the amount of expense we recognize in future years. However, under pension accounting rules, this impact is recognized over time. In addition, we are required to adjust our equity in “Accumulated other comprehensive income (loss)” in our Consolidated Statement of Stockholders’ Equity to record minimum pension liabilities under accounting rules. In 2009, we recorded an approximately $22 million pretax increase in equity. The amount of expense and minimum pension liability we recognize depends on, among other things, actual returns on plan assets, changes in interest rates which affect our discount rate assumptions, and modifications to our plans.
Pension funding requirements depend in part on returns on plan assets. As of March 31, 2010, our pension assets had a market value of $315 million, compared with $248 million at December 31, 2008. The amount of required contributions will depend, among other things, on actual returns on plan assets, changes in our plan asset return assumptions, 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. Changes in the financial markets may require us to make larger than previously anticipated contributions to our pension plans.
Long-Lived Asset Impairment
An impairment of a long-lived asset exists when the carrying value of an asset exceeds its fair value and when the carrying value is not recoverable through future undiscounted cash flows from operations. We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.
Long-lived asset impairment is a critical accounting estimate, as it is susceptible to change from period to period. To estimate whether the carrying value of an asset or asset group is impaired, we estimate the undiscounted cash flows that could be generated under a range of possible outcomes. To measure future cash flows, we are required to make assumptions about future production volumes, future product pricing, and future expenses to be incurred. In addition, estimates of future cash flows may change based on the availability of logs and fiber, environmental requirements, capital spending, and other strategic management decisions. We estimate the fair value of an asset or asset group based on quoted market prices (the amount for which the asset(s) could be bought or sold in a current transaction with a third party) when available. When quoted market prices are not available, we use a discounted cash flow model to estimate fair value. We acquired all of our long-lived assets in February 2008 as part of the Acquisition. As a result, most of our long-lived assets are valued at relatively current amounts.
We believe we have adequate support for the carrying value of all of our assets based on anticipated cash flows that will result from our estimates of future demand, pricing, and production costs, assuming certain levels of capital expenditures. However, if the markets for our products deteriorate significantly or if we decide to invest capital differently and if other cash flow assumptions change, it is possible that we will be required to record noncash impairment charges that could have a material affect on our results of operations. Due to the numerous variables associated with our judgments and assumptions relating to the valuation of assets and the effects of changes on these valuations, both the precision and reliability of our estimates are subject to uncertainty. As additional information becomes known, we may change our estimates.
We performed our annual impairment assessment for our indefinite-lived intangible assets for all of our segments during fourth quarter 2009. Based on the results of our testing, we have concluded that our indefinite-lived intangible assets were not impaired. We have also performed an undiscounted cash flow analysis as of fourth quarter 2009 and determined that the value of our long-lived assets was not impaired. We also evaluated the remaining useful lives of our customer relationships and technology and determined that no adjustments to the useful lives were necessary.
Acquisitions—Purchase Price Allocation
As part of the Acquisition, we assigned to all identifiable assets acquired (including intangible assets), and to all identifiable liabilities assumed, a portion of the cost of the acquired company equal to the estimated fair value of such assets and liabilities at the date of the acquisition. Based on the values assigned to all of the assets and liabilities in the purchase price allocation, no goodwill was recorded in the Acquisition valuation.
The Acquisition purchase price allocation required management’s estimates of such things as the new replacement value of property and equipment, obsolescence factors, royalty rates, future sales prices, input costs, and capital spending to estimate future cash flows, discount rates, and the cost of acquiring customers, among others. These estimates affect, in turn, the amount and timing of the recognition of depreciation and amortization expense, cost of goods sold, income and other tax expense, the carrying amounts of inventory, long-lived and intangible assets, and liabilities assumed. We engaged valuation experts to assist us with this purchase price allocation. The following discussion describes the purchase price allocation.
The comparative sales method was used in valuing the finished goods inventory. We used estimates of expected sales prices for the inventory items. Disposal costs already incurred by the Predecessor were derived from the accounting records of the Predecessor. Costs to be incurred by us were based on our forecasted selling
expenses, distribution expenses, and general and administrative expenses. Costs yet to be incurred were subtracted from the estimated sales proceeds. Pretax profit was calculated based on our expected margins. The total pretax profit to be generated from the inventory was then allocated to the Predecessor based on costs already incurred by them and estimated costs to be incurred by us. Holding costs were estimated based on a pretax working capital rate and expected inventory turnover.
Raw materials, including logs and supplies, were assumed to have a fair value equal to the net book value of the Predecessor, unless they were identified for disposal in other than the normal manufacturing process. The net book value was judged to approximate current replacement cost. Items to be disposed of in other than the normal manufacturing process were valued at their estimated net disposal value. Work-in-process inventory was not significant and was assumed to have fair value equal to its net book value.
The value of property and equipment reflects assumptions that would be made by market participants if they were to buy or sell each identified asset on an individual basis. They were valued at their highest and best use, which was assumed to be for their continued current uses. The sales comparison approach was used to value acquired land. Under this approach, land sales in each of the Company’s geographic areas were obtained and compared to the acquired property, focusing most heavily on recent sales of similar size, location, and zonings. The fair value of buildings and improvements and machinery and equipment was estimated using the cost approach. Under this method, the cost to replace the asset was estimated assuming the cost of constructing or buying a similar asset of equivalent utility at current price. This current replacement cost was reduced for estimated depreciation of the asset, including physical deterioration, functional obsolescence, and economic obsolescence.
We assigned value to various intangible assets. We concluded that the trademark and trade name had value. To determine that value, a relief from royalty method was used. This method assumes that through ownership of the trademark and trade name, the acquirer avoids the royalty expense associated with licensing, resulting in cost savings. The primary variable in this method is the selection of an appropriate royalty rate. This royalty rate can then be used in a discounted cash flow analysis to determine the values of the intangible assets. Royalty rates are usually determined as a percentage of net sales. Because many of the products manufactured by the paper industry are commodities, we concluded that name recognition is less important to customers than other factors such as price. As a result, a minimal royalty rate was used in the valuation.
If an entity establishes relationships with its customers through contracts such as purchase orders, those customer contracts and the related customer relationships are intangible assets that must be valued in a purchase price allocation. Because customers in our industry are more price-driven than relationship-driven, the customer relationships were valued utilizing a cost approach, which looks at the cost to replace the existing customer relationships. Using historical cost data for sales and distribution employees, we calculated employee costs, to which we added additional estimated costs such as travel and entertainment, promotional, information technology, telecommunication, and training. The sum of these costs, adjusted for economic obsolescence, represented our estimate of the fair value of the customer-related intangible assets.
We determined that technology-based intangible assets existed in the acquired business. These assets relate to innovations or technological advances. In estimating the fair value of this technology, the relief from royalty method was employed. Again, this method is based on the assumption that in lieu of ownership, an entity would be willing to pay a royalty in order to exploit the related benefits of technology assets. We identified various specific technologies that should be valued, and then, based on estimated product margins for the associated products and industry data, a royalty rate for each technology was established. These rates were used in a discounted cash flow analysis to determine the values of the technology-based intangible assets.
We also considered the valuation of other intangible assets such as favorable contracts, including leases, order backlogs, and internally developed software, and concluded that the values to be assigned to these assets, if any, were minimal.
Liabilities were recorded at the historical book value of the Predecessor in most instances. We did establish liabilities for the obligations for the defined benefit plans assumed in the transactions. These obligations were not previously recorded by the Predecessor. For further information, see “Pensions” in this discussion of Critical Accounting Estimates. We also recorded deferred tax liabilities to recognize the book and tax basis differences of assets and liabilities recorded in the purchase price allocation.
New and Recently Adopted Accounting Standards
For a listing of our new and recently adopted accounting standards, see Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in “Financial Statements and Supplementary Data” appearing elsewhere in this prospectus.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
We have had no disagreements with our independent accountants regarding accounting or financial disclosure matters.
Quantitative and Qualitative Disclosures about Market Risk
In addition to the sensitivity analysis provided below, information concerning quantitative and qualitative disclosures about market risk can be found above under the caption “—Disclosures of Financial Market Risks” in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this prospectus.
Our operations can be affected by the following sensitivities (dollars, in millions). These sensitivities are based on our 2009 operations and have been adjusted to reflect the restructuring of our St. Helens mill, and the indefinite idling of the #2 newsprint machine (D-2) at our mill in DeRidder and the refinancing of our long-term debt:
Estimated Annual Impact on Income Before Taxes | |||
Sensitivity Analysis | |||
Each $10/short ton change in the selling price of the following products (except for corrugated containers and sheets): | |||
Paper | |||
Uncoated freesheet | $ | 13 | |
Packaging | |||
Containerboard (linerboard) | 3 | ||
Newsprint | 2 | ||
Corrugated containers and sheets ($1.00/msf change in price) | 6 | ||
Interest rate (1% change in interest rate on our variable-rate debt before hedging) (a) | 2 | ||
Energy (b) | |||
Natural gas ($1.00/mmBtu change in price before hedging) | 12 | ||
Diesel ($0.50/gallon change in price before hedging) | 10 | ||
Fiber (1% change in cost of fiber) | 4 | ||
Chemicals (1% change in cost of chemicals) | 2 |
(a) | In March 2010, we refinanced our variable rate debt due 2014 with fixed rate debt due in 2020, extending maturities, fixing interest rates, and increasing our financial flexibility. As a result of the refinancing we have decreased our sensitivity to interest rate changes. |
(b) | Based on 2009 consumption levels. The allocation between energy sources may vary during the year in order to take advantage of market conditions. The diesel sensitivity does not take into account any floors that may exist in rail or truck fuel surcharge formulas. |
Boise Inc. is a large, diverse United States-based manufacturer of packaging products and papers, including corrugated containers, containerboard, label and release and flexible packaging papers, imaging papers for the office and home, printing and converting papers, newsprint, and market pulp. We own pulp and paper mill operations in the following locations: Jackson, Alabama; International Falls, Minnesota; St. Helens, Oregon; and Wallula, Washington, all of which manufacture uncoated freesheet paper. We also own a mill in DeRidder, Louisiana, which produces containerboard (linerboard) and newsprint. In addition, we have a network of five corrugated container plants located in the Pacific Northwest, a corrugated sheet plant in Nevada, and a corrugated sheet feeder plant in Texas. We are headquartered in Boise, Idaho, and have approximately 4,100 employees.
On February 22, 2008, Aldabra 2 Acquisition Corp. completed the acquisition (the “Acquisition”) of Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp. (collectively, the “Paper Group”), and other assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and part of the headquarters operations of Boise Cascade, L.L.C. (“Boise Cascade”). Subsequent to the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. The acquired business is referred to in this prospectus as the “Predecessor.”
We operate our business in three reportable segments: Paper, Packaging, and Corporate and Other (support services). We present information pertaining to each of our three segments and the geographic areas in which they operate in Note 17, Segment Information, of the Notes to Consolidated Financial Statements in “Financial Statements and Supplementary Data” appearing elsewhere in this prospectus.
Corporate Structure
The following chart summarizes our operating structure at March 31, 2010:
Paper
Products
We manufacture and sell a range of papers, including communication-based papers, packaging-demand-driven papers, and market pulp. We categorize these papers as shown in the table below:
Communication-Based Commodity and Premium Papers | Packaging-Demand-Driven Papers | Other | ||
• Cut-Size Office Papers | • Label and Release | • Market Pulp | ||
• Printing and Converting Papers | • Corrugating Medium | |||
• Envelope | ||||
• Forms | • Flexible Packaging | |||
• Commercial Printing |
We are the third-largest manufacturer of uncoated freesheet in North America. We classify cut-size office papers, printing and converting papers, label and release, and flexible packaging products as uncoated freesheet. The majority of our communication-based paper sales are cut-size office papers, which accounted for approximately 63% of 2009 segment sales and 58% of segment sales during first quarter 2010. Total Paper segment capacity including corrugating medium and market pulp was approximately 1.5 million short tons (a short ton is equal to 2,000 pounds) at December 31, 2009.
Our strategy in our Paper segment is to focus our two largest paper machines on cut-size commodity office paper while dedicating our smaller machines to the production of premium papers, including 100% recycled, high-bright, and colored cut-size office papers, and packaging papers. Our long-term supply agreement enteredwith OfficeMax allows us to focus our largest paper machines on long, high-volume production runs, continue to improve the capacity utilization of our largest paper machines, achieve supply chain efficiencies, and develop and test product and packaging innovations. 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.
We focus our product mix on office 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. During the year ended December 31, 2009, sales volumes of label and release, flexible packaging, and premium office papers grew 4%, compared with the combined year ended December 31, 2008. During the three months ended March 31, 2010, our sales volumes in label and release, flexible packaging, and premium office papers grew 17% compared to first quarter 2009 sales volumes.
The following table sets forth capacity and production by product for the periods indicated (in thousands of short tons):
Boise Inc. | Predecessor | |||||||||||||
Three Months Ended March 31, 2010 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31 | ||||||||||
2007 | 2006 | 2005 | ||||||||||||
Capacity (a) | ||||||||||||||
Uncoated freesheet | 1,265 | 1,265 | 1,300 | 1,484 | 1,547 | 1,550 | ||||||||
Containerboard (medium) | 135 | 135 | 136 | 138 | 134 | 130 | ||||||||
Market pulp | 145 | 145 | 136 | 229 | 224 | 228 | ||||||||
1,545 | 1,545 | 1,572 | 1,851 | 1,905 | 1,908 | |||||||||
Production (b) | ||||||||||||||
Uncoated freesheet | 317 | 1,198 | 1,204 | 208 | 1,458 | 1,520 | 1,487 | |||||||
Containerboard (medium) | 32 | 126 | 118 | 19 | 134 | 132 | 128 | |||||||
Market pulp | 34 | 114 | 187 | 31 | 221 | 187 | 229 | |||||||
383 | 1,438 | 1,509 | 258 | 1,813 | 1,839 | 1,844 | ||||||||
(a) | Capacity numbers shown are as the date presented. Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Capacity for first quarter 2010 is assumed to be unchanged from 2009. |
(b) | The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008. |
The following table sets forth segment sales; segment income (loss) before interest and taxes; and depreciation, amortization, and depletion for the periods indicated (dollars, in millions):
Boise Inc. | Predecessor | ||||||||||||||||||||
Three Months Ended March 31, 2010 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31 | |||||||||||||||||
2007 | 2006 | 2005 | |||||||||||||||||||
Sales | $ | 353.5 | $ | 1,420.0 | $ | 1,403.7 | $ | 253.5 | $ | 1,596.2 | $ | 1,494.7 | $ | 1,415.2 | |||||||
Segment income (loss) before interest and taxes | $ | 29.9 | $ | 262.7 | $ | 32.7 | $ | 20.7 | $ | 133.5 | $ | 63.3 | $ | 57.5 | |||||||
Depreciation, amortization, and depletion | 21.5 | 85.2 | 71.7 | 0.3 | 45.0 | 62.3 | 55.2 | ||||||||||||||
EBITDA (a)(b) | $ | 51.4 | $ | 347.8 | $ | 104.3 | $ | 21.1 | $ | 178.5 | $ | 125.6 | $ | 112.6 | |||||||
(a) | Segment EBITDA is calculated as segment income (loss) before interest (interest income, interest expense, and change in fair value of interest rate derivatives), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. See the Notes to audited and unaudited consolidated financial statements in this prospectus 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 have four paper mills in the Paper segment, all located in the United States. These mills had an annual capacity of 1.3 million short tons of uncoated freesheet as of December 31, 2009. These mills are supported by converting machines that, on a net basis, can produce approximately 0.8million short tons of cut-size papers annually.
The following table sets forth the annual capacities of manufacturing locations in our Paper segment as of December 31, 2009, and production for the year then ended (in thousands of short tons):
Number of Machines | Capacity (a) | Production | ||||
PULP AND PAPER MILLS | ||||||
Jackson, Alabama | ||||||
Uncoated freesheet | 2 | 480 | 469 | |||
International Falls, Minnesota | ||||||
Uncoated freesheet | 4 | 530 | 494 | |||
St. Helens, Oregon | ||||||
Uncoated freesheet | 1 | 55 | 53 | |||
Wallula, Washington | ||||||
Uncoated freesheet | 1 | 200 | 182 | |||
Containerboard (medium) | 1 | 135 | 126 | |||
Market pulp | 1 | 145 | 114 | |||
10 | 1,545 | 1,438 | ||||
(a) | Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. |
Raw Materials and Input Costs
Wood fiber is our principal raw material in this segment. During the year ended December 31, 2009 and the three months ended March 31, 2010, wood fiber costs accounted for approximately 27% and 32% of materials, labor, and other operating expenses in this segment, respectively. The primary sources of wood fiber are timber and byproducts of timber. Most of our manufacturing facilities are located in close proximity to active wood markets. Because of the decline in 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.
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, producing and selling approximately 80,000 to 100,000 short tons less pulp volume annually on the open market than we consume.
We generally purchase raw materials through contracts or open-market purchases. Our contracts are generally with suppliers located in closest proximity to the specific facility they supply, and they generally 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, 2009 and the three months ended March 31, 2010,
energy costs accounted for approximately 12% and 15% of materials, labor, and other operating expenses in this segment, respectively. We purchase substantial portions of our natural gas and electricity under supply contracts. Under most of these contracts, the providers are 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. In addition, we use derivative instruments such as three-way collars, natural gas caps, call spreads, and swaps, or a combination of these instruments, to mitigate price risk for our energy requirements.
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, 2009 and the three months ended March 31, 2010, chemical costs accounted for approximately 15% and 14% of materials, labor, and other operating expenses in this segment, respectively. Many of our chemicals are purchased under contracts, which provide more stability than open-market purchases. However, many of these contracts are negotiated annually at prevailing rates. Higher prevailing rates may result in increases to overall chemical costs.
Sales, Marketing, and Distribution
Our uncoated freesheet 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 | |||||||||||||
Three Months Ended March 31, 2010 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31 | ||||||||||
2007 | 2006 | 2005 | ||||||||||||
Commodity | 203 | 844 | 768 | 164 | 995 | 999 | 1,080 | |||||||
Premium and specialty | 109 | 407 | 432 | 72 | 480 | 498 | 436 | |||||||
Uncoated freesheet | 312 | 1,251 | 1,200 | 236 | 1,475 | 1,497 | 1,516 | |||||||
Containerboard (medium) | 32 | 127 | 118 | 19 | 134 | 132 | 128 | |||||||
Market pulp | 18 | 58 | 102 | 20 | 145 | 112 | 142 | |||||||
362 | 1,436 | 1,420 | 275 | 1,754 | 1,741 | 1,786 | ||||||||
Customers
Our largest customer in this segment is OfficeMax. During the year ended December 31, 2009 and the three months ended March 31, 2010, sales to OfficeMax accounted for $545.4 million and $128.2 million of Paper segment sales respectively. Sales to OfficeMax constitute 41% of total uncoated freesheet sales volume and 63% of our office papers sales volume. Pursuant to a long-standing contractual agreement, OfficeMax has agreed to purchase its full North American requirements for cut-size office paper from Boise Inc. through December 2012. OfficeMax’s purchase obligations under the agreement will phase out ratably over a four-year period beginning one year after the delivery of notice of termination, but in no event will the purchase obligation be reduced prior to December 31, 2012. The price for paper sold under this supply agreement approximates market prices. However, due to the structure of the contract, price changes to OfficeMax lag the market by approximately 60 days.
In addition to OfficeMax, we have approximately 800 uncoated freesheet paper customers. Our customers include 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. In addition to the paper supply agreement with OfficeMax, we have long-term relationships with other customers. No single customer, other than OfficeMax, exceeds 6% of segment sales.
Packaging
Products
We manufacture and sell corrugated containers and sheets as well as linerboard and newsprint. Containerboard is used in the production of corrugated containers and sheets. Our corrugated containers are used in the packaging of fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. Corrugated sheets are sold primarily to converting operations, which finish the sheets into corrugated container products. During the year ended December 31, 2009, our Packaging segment produced approximately 544,000 short tons of linerboard, and our Paper segment produced approximately 126,000 short tons of corrugating medium, both of which are used in the production of corrugated containers. During the year ended December 31, 2009, our corrugated container and sheet feeder plants consumed approximately 451,000 short tons of containerboard (including both linerboard and corrugating medium) or the equivalent of 67% of our containerboard production. During the three months ended March 31, 2010, our Packaging segment produced approximately 139,000 short tons of linerboard, and our Paper segment produced approximately 32,000 short tons of corrugating medium. During the three months ended March 31, 2010, our corrugated container and sheet feeder plants consumed approximately 119,000 short tons of containerboard (including both linerboard and corrugating medium) or the equivalent of 70% of our containerboard production.
We operate our Packaging segment to maximize profitability through integration between our containerboard and converting operations and through operational improvements in our facilities to lower costs and improve efficiency. We plan to increase our integration levels and leverage our corrugated box position in the agricultural and food markets. We are a low-volume producer of newsprint, and we believe that our newsprint production has a low delivered cost to the southern U.S. markets. In April 2009, we announced that we had indefinitely idled the #2 newsprint machine at our mill in DeRidder, Louisiana. The idled machine has an annual capacity of 186,000 short tons of newsprint. We continue to operate the #3 newsprint machine.
The following table sets forth capacity and production by product for the periods indicated (in thousands of short tons):
Boise Inc. | Predecessor | |||||||||||||
Three Months Ended March 31, 2010 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31 | ||||||||||
2007 | 2006 | 2005 | ||||||||||||
Capacity (a) | ||||||||||||||
Containerboard (linerboard) | 610 | 610 | 600 | 575 | 559 | 554 | ||||||||
Newsprint | 225 | 225 | 410 | 425 | 426 | 434 | ||||||||
835 | 835 | 1,010 | 1,000 | 985 | 988 | |||||||||
Production (b) | ||||||||||||||
Containerboard (linerboard) | 139 | 544 | 446 | 83 | 573 | 554 | 533 | |||||||
Newsprint | 54 | 188 | 331 | 59 | 409 | 415 | 411 | |||||||
193 | 732 | 777 | 142 | 982 | 969 | 944 | ||||||||
(a) | Capacity numbers are shown as of the date presented. Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Capacity for first quarter 2010 is assumed to be unchanged from 2009. |
(b) | The year ended December 31, 2008, represents operations from February 22, 2008, through December 31, 2008. |
The following table sets forth segment sales; segment income (loss) before interest and taxes; and depreciation, amortization, and depletion for the periods indicated (dollars, in millions):
Boise Inc. | Predecessor | |||||||||||||||||||||
Three Months Ended March 31, 2010 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31 | ||||||||||||||||||
2007 | 2006 | 2005 | ||||||||||||||||||||
Sales | $ | 148.2 | $ | 588.4 | $ | 703.7 | $ | 113.5 | $ | 783.1 | $ | 766.5 | $ | 731.6 | ||||||||
Segment income (loss) before interest and taxes | $ | (5.8 | ) | $ | 67.1 | $ | 21.1 | $ | 5.7 | $ | 40.1 | $ | 45.3 | $ | 23.8 | |||||||
Depreciation, amortization, and depletion | 9.7 | 42.2 | 35.1 | 0.1 | 37.7 | 50.8 | 37.2 | |||||||||||||||
EBITDA (a)(b) | $ | 3.9 | $ | 109.3 | $ | 56.2 | $ | 5.7 | $ | 77.8 | $ | 96.1 | $ | 61.0 | ||||||||
(a) | Segment EBITDA is calculated as segment income (loss) before interest (interest income, interest expense, and change in fair value of interest rate derivatives), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. See the Notes to audited and unaudited consolidated financial statements in this prospectus 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. |
We manufactured approximately 188,000 short tons of newsprint during the year ended December 31, 2009, for use primarily in printing daily newspapers and other publications in North America. Demand for newsprint has declined dramatically in the last several years and may continue to decline as newspapers are replaced with electronic media. By idling the D-2 machine, we reduced operating and capital costs during this period of declining newsprint demand, while preserving the asset for potential future use. We may pursue future opportunities to convert the machine for packaging production. Should the need arise, we can restart the D-2 machine within a short period of time.
Facilities
We manufacture containerboard (linerboard) and newsprint at our mill in DeRidder, Louisiana. This mill’s annual production capacity is approximately 835,000 short tons as of December 31, 2009. We also manufacture corrugated containers and sheets at five plants in the Northwest, a sheet plant in Nevada, and a sheet feeder plant in Texas, with an aggregate annual capacity of approximately 7.3 billion square feet (which assumes operating the plants five days a week, 24 hours a day).
The following table sets forth annual capacities of our containerboard (linerboard) and newsprint mill in DeRidder, Louisiana, as of December 31, 2009, and production for the year then ended (in thousands of short tons):
Number of Machines | Capacity (a) | Production | ||||
PULP AND PAPER MILL | ||||||
DeRidder, Louisiana | ||||||
Containerboard (linerboard) | 1 | 610 | 544 | |||
Newsprint | 1 | 225 | 188 | |||
2 | 835 | 732 | ||||
(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. |
Raw Materials and Input Costs
Wood fiber 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, 2009 and the three months ended March 31, 2010, wood fiber costs accounted for approximately 17% of material, labor, and other operating expenses in this segment. We generally purchase raw materials through market-based contracts or on the open market with suppliers located in close proximity to DeRidder. We obtain some of our wood residuals from Boise Cascade’s wood products plants in Louisiana, and the remainder of the wood residuals are purchased from outside sources.
Our Packaging segment consumes substantial amounts of energy, such as electricity and natural gas. During the year ended December 31, 2009 and the three months ended March 31, 2010, energy costs accounted for approximately 10% and 14% of materials, labor, and other operating expenses in this segment, respectively. We purchase substantial portions of our natural gas and electricity under supply contracts. Under most of these contracts, the providers are bound to supply us with all of our needs for a particular type of energy at a specific facility. Our 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 three-way collars, natural gas caps, call spreads, and swaps, or a combination of these instruments, to mitigate price risk. For more information about our derivative instruments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Disclosures of Financial Market Risks” appearing elsewhere in this prospectus.
We consume chemicals in the manufacturing of our Packaging segment products. Important chemicals we use include pulping and bleaching chemicals such as caustic, starch, sulfuric acid, and sodium chlorate. During the year ended December 31, 2009 and the three months ended March 31, 2010, chemical costs accounted for approximately 7% and 5% of materials, labor, and other operating expenses in this segment, respectively. Many of our chemicals are purchased under long-term contracts, which provide more stability than open-market purchases. However, many of these contracts are negotiated at the end of each year at prevailing rates. Higher prevailing rates may result in increases to overall chemical costs.
Sales, Marketing, and Distribution
Our containerboard (linerboard) and corrugated containers and sheets are sold by our own sales personnel or brokers. Abitibi Consolidated Sales Corporation (“ACSC”) purchased all of our newsprint production until late February 2009, when we terminated the arrangement with ACSC. Since that time, we have sold newsprint through our own sales personnel.
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 | |||||||||||||
Three Months Ended March 31, 2010 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31 | ||||||||||
2007 | 2006 | 2005 | ||||||||||||
Containerboard (linerboard) | 62 | 253 | 194 | 36 | 239 | 266 | 452 | |||||||
Newsprint | 54 | 199 | 326 | 56 | 415 | 411 | 408 | |||||||
Corrugated containers and sheets | 1,616 | 5,963 | 5,337 | 914 | 6,609 | 6,599 | 4,770 |
Customers
During the year ended December 31, 2009, approximately 47% of our linerboard volume was sold in the open market, both domestically and internationally. The remaining volume was used in our operations. We sell our finished corrugated containers to over 1,100 active customers, including large agricultural producers and food and beverage processors. We sell corrugated sheets to over 200 converters, who use the sheets to manufacture corrugated containers for a variety of customers.
We have a focused position in the agricultural and food markets for corrugated boxes. We service these less cyclical end markets with our five strategically located corrugated container plants, one sheet feeder plant, and one sheet plant. With our regional focus and footprint, we are able to service our customers’ needs from multiple plants, schedule operating runs to maximize productivity, and reduce waste and better utilize different paper roll sizes. We believe this position in favorable end markets has contributed to increases in our profitability and has made us more resistant to economic downturns. We sell to newspaper publishers located in regional markets near our DeRidder, Louisiana, manufacturing facility and to export markets primarily in South America.
Corporate and Other
Our Corporate and Other segment includes primarily corporate support services, related assets and liabilities, and foreign exchange gains and losses. During the Predecessor periods presented, the Corporate and Other segment included primarily an allocation of Boise Cascade corporate support services and related assets and liabilities. These support services included, but were not limited to, finance, accounting, legal, information technology, and human resource functions. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport our products from our manufacturing sites. Rail cars and trucks are generally leased. 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. During the three months ended March 31, 2010 and the year ended December 31, 2009, segment sales related primarily to our rail and truck business were $16.5 million and $63.8 million, respectively. During the year ended December 31, 2008, and the Predecessor period of January 1 through February 21, 2008, and for the year ended December 31, 2007, these sales were $67.7 million, $8.5 million, and $58.9 million, respectively.
In connection with the Acquisition, we entered into a services agreement under which we provide a number of corporate staff services to Boise Cascade at our cost. These services include information technology, accounting, and human resource services. The initial term of the agreement was for three years. The agreement has been extended and will expire on February 22, 2012. It will automatically renew for one-year terms unless either party provides notice of termination to the other party at least 12 months in advance of the applicable term. For the three months ended March 31, 2010, and the years ended December 31, 2009 and 2008, we recorded $2.3 million, $15.0 million and $12.1 million, respectively, in “Sales, Related parties.”
The following table sets forth segment sales; segment income (loss) before interest and taxes; and depreciation, amortization, and depletion for the periods indicated (dollars, in millions):
Boise Inc. | Predecessor | |||||||||||||||||||||||||||
Three Months Ended March 31, 2010 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31 | ||||||||||||||||||||||||
2007 | 2006 | 2005 | ||||||||||||||||||||||||||
Sales | $ | 16.5 | $ | 63.8 | $ | 67.7 | $ | 8.5 | $ | 58.9 | $ | 61.4 | $ | 66.5 | ||||||||||||||
Segment income (loss) before interest and taxes | $ | (4.8 | ) | $ | (21.5 | ) | $ | (18.6 | ) | $ | (3.2 | ) | $ | (11.9 | ) | $ | (14.9 | ) | $ | (7.7 | ) | |||||||
Loss on extinguishment of debt | (22.2 | ) | (44.1 | ) | — | — | — | — | — | |||||||||||||||||||
Depreciation, amortization, and depletion | 0.9 | 4.1 | 3.2 | 0.1 | 1.9 | 3.3 | 3.0 | |||||||||||||||||||||
EBITDA (a)(b) | $ | (26.0 | ) | $ | (61.5 | ) | $ | (15.4 | ) | $ | (3.1 | ) | $ | (10.0 | ) | $ | (11.6 | ) | $ | (4.6 | ) | |||||||
(a) | Segment EBITDA is calculated as segment income (loss) before interest (interest income, interest expense, and change in fair value of interest rate derivatives), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. See the Notes to audited and unaudited consolidated financial statements in this prospectus 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
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 globally. 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.
Some of our competitors in each of our segments are larger than we are and have assumed responsibilitygreater 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.
Paper. The markets in which our Paper segment competes are large and highly competitive. Commodity grades of uncoated freesheet 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 largely 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.
The North American uncoated freesheet producers shipped 10.9 million short tons in 2009 and has four major manufacturers that account for approximately 74% of capacity, according to RISI and our estimates. As of March 31, 2010, we believe that we are the third-largest producer of uncoated freesheet paper in North America. Our competitors include Domtar Corporation (the largest producer), International Paper, 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, document storage alternatives, and paper grades we do not produce. Increasing shifts to these alternatives and increasing use of the Internet 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 producers, including Boise Inc., have responded to declining demand by closing or significantly curtailing capacity to match lower demand. In December 2008, we permanently restructured our mill in St. Helens, Oregon, by permanently closing the pulp mill and two of our three paper machines at that facility. During 2009, we elected to take economic downtime and slowed production on selected machines to balance production with demand. We may continue to take additional downtime or slow production if market conditions warrant.
Packaging. The North American containerboard (corrugating medium and linerboard) manufacturers produced 33 million short tons in 2009, and five major manufacturers account for approximately 72% of capacity, according to RISI and our estimates. Our largest competitors include International Paper Company,
Smurfit-Stone Container Corporation, Georgia-Pacific LLC, Temple-Inland, Inc., and Packaging Corporation of America. Containerboard (corrugating medium and linerboard) and newsprint are globally traded commodities with numerous worldwide manufacturers. These products compete primarily on the basis of price. The intensity of competition in these industries fluctuates based on demand and supply levels as well as prevailing foreign currency exchange rates. Our corrugated container operations in the Pacific Northwest have a leading regional market position and compete with several national and regional manufacturers. Our plant in Waco, Texas, known as Central Texas Corrugated, or CTC, produces corrugated sheets that are sold to sheet plants in the Southwest, where they are converted into corrugated containers for a small numbervariety of claimscustomers. Some of our competitors have lower operating costs and/or enjoy greater integration between their containerboard production and litigation matterscorrugated container production than we do.
The North American newsprint producers shipped 7.2 million metric tonnes (a metric tonne is equal to 2,205 pounds) in 2009 and has three major manufacturers that aroseaccount for approximately 74% of capacity, according to RISI and our estimates. Our largest competitors include AbitibiBowater Inc., White Birch Paper, and Kruger. In April 2009, AbitibiBowater Inc., North America’s largest maker of newsprint, sought bankruptcy protection in the U.S. and Canada.
Demand for newsprint has declined dramatically in the last several years and may continue to decline as electronic media replaces newspapers. Major producers have closed capacity and taken downtime, including AbitibiBowater, which announced in December 2008 a total of approximately 1,070,000 metric tonnes of permanent and temporary curtailments for 2009. In April 2009, we announced that we had indefinitely idled the D-2 newsprint machine at our mill in DeRidder, Louisiana. Depending on demand and our ability to sell newsprint through our own sales personnel, we may be required to take economic downtime or slow production on our newsprint machine to balance production with demand, as market conditions warrant.
Environmental Issues
Our discussion of environmental issues is presented under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Environmental” and “—Legal Proceedings” appearing elsewhere in this prospectus.
Capital Investment
Information concerning our capital expenditures is presented under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investment Activities” appearing elsewhere in this prospectus.
Seasonality
Our businesses experience some 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, maintenance shutdowns, and changing sales patterns. Typically, we build working capital in our Paper segment at the end of the fourth quarter as we build finished goods inventory in preparation for 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. In our Packaging
segment, agricultural demand influences working capital as finished good inventory levels are increased in preparation for the harvest season in third and fourth quarters. Changes in sales volumes can affect accounts receivable levels in both our Paper and Packaging 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
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. For more information about our acquisitions and divestitures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisition of Boise Cascade’s Paper and Packaging Operations” appearing elsewhere in this prospectus.
Employees
As of March 31, 2010, we had approximately 4,100 employees. Approximately 60% of these employees work pursuant to collective bargaining agreements. As of March 31, 2010, approximately 33% of our employees were working pursuant to collective bargaining agreements that have expired or will expire within one year, including agreements at the following facility locations: Wallula, Washington; DeRidder, Louisiana; Jackson, Alabama; St. Helens, Oregon; and Nampa, Idaho. The labor contract at our paper mill in Wallula, Washington (332 employees represented by the AWPPW) expired in March 2009 and was terminated by the AWPPW in October 2009. In February 2010, the union employees at Wallula rejected a new collective bargaining agreement that union leadership had recommended unanimously, and we declared an impasse in the bargaining process and implemented the terms of the last contract offer. Our potential inability to reach a mutually acceptable labor contract at Wallula, or at any of our other facilities, could result in, among other things, strikes or other work stoppages or slowdowns by the affected employees. We are currently negotiating the labor contract at our mill in DeRidder, Louisiana (387 employees represented by the United Steelworkers), which expired in February 2010, and at our mill in St. Helens, Oregon (122 employees represented by the AWPPW), which expired in March 2010.
Properties
We own substantially all of our manufacturing facilities and substantially all of the equipment used in our facilities. Information concerning encumbrances attached to the properties described in the table below are presented in Note 11, Debt, of the Notes to Consolidated Financial Statements in “Financial Statements and Supplementary Data” appearing elsewhere in this prospectus. Information concerning production capacity and the utilization of our manufacturing facilities is presented in “Business” appearing elsewhere in this prospectus.
Following is a list of our facilities by segment as of March 31, 2010. We lease a portion of the corporate headquarters building in Boise, Idaho.
Paper
The following table summarizes our paper facilities:
Facility Type | Number of Facilities | Locations | ||
Pulp and paper mills | 3 | Alabama, Minnesota, and Washington | ||
Paper mill | 1 | Oregon | ||
Distribution centers | 2 | California and Illinois |
Packaging
The following table summarizes our packaging facilities:
Facility Type | Number of Facilities | Locations | ||
Pulp and paper mill | 1 | Louisiana | ||
Corrugated container, sheet feeder, and sheet plants | 7 | Idaho (2), Nevada, Oregon, Texas, Utah, and Washington |
We assess 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.
Legal Proceedings
We are a party to routine legal proceedings that arise in the ordinary course of our business. ThereWe are not currently no materiala party to any legal proceedings pending against us. Also, OfficeMax has agreed to retain responsibility for allor environmental claims and litigation not explicitly assumed by us pursuant to the Acquisition, including all litigation with respect to asbestos claims.that we believe would have a material adverse effect on our business, financial position, or results of operations.
DirectorsBoise Paper Holdings and Executive Officers
Boise Co-Issuer are wholly owned subsidiaries of BZ Holdings. BZ Holdings is a wholly owned subsidiary of Boise Inc. Set forth below is information concerningregarding the executive officers and directors of Boise Inc. as of April 30, 2010. Each of our directors and executive officers.officers has served in the positions of Boise Inc. listed in the table below since the Acquisition, except as indicated in the biographical information below:
Name | Position | ||||||||
Alexander Toeldte | 50 | Chief Executive | |||||||
Jeffrey P. Lane | 54 | Senior Vice President, | |||||||
Robert M. McNutt | 49 | Senior Vice President, | |||||||
Robert E. Strenge | 56 | Senior Vice President—Manufacturing | |||||||
Robert A. Warren | 57 | Senior Vice President, General Manager—Paper and Supply Chain | |||||||
Samuel K. Cotterell | Vice President, | ||||||||
Judith M. Lassa | |||||||||
W. Thomas Stephens became our Chief Executive Officer and Chairman and a director in October 2004 following a period of retirement. Mr. Stephens served as the President and Chief Executive Officer of MacMillan Bloedel from 1997 until his retirement in 1999. From 1986 to 1996, Mr. Stephens served as the President and Chief Executive Officer of Manville Corporation. From 1982 to 1985, Mr. Stephens served as the Chief Executive Officer of Riverwood Corporation. Mr. Stephens currently serves as a Trustee of Putnam Funds and as a director of TransCanada Pipelines.
John W. Holleran became our Executive Vice President, Administration and Chief Legal Officer in connection with the Acquisition. From 1999 until 2004, he served as the Senior Vice President, Human Resources and General Counsel of Boise Cascade Corporation.
Stanley R. Bell became our Senior Vice President, Building Materials Distribution in connection with the Acquisition. From 2000 until 2004, he served as the Senior Vice President and General Manager, Boise Building Solutions, Distribution of Boise Cascade Corporation.
Thomas E. Carlile became our Senior Vice President and Chief Financial Officer in connection with the Acquisition. From 1994 to 2004, Mr. Carlile served as the Vice President and Controller of Boise Cascade Corporation.
Miles A. Hewitt became our Senior Vice President, Paper in connection with the Acquisition. From 2001 to 2004, Mr. Hewitt served as the Vice President, General Manager, Boise Paper Solutions, Boise Cascade Corporation. From 1999 to 2001, Mr. Hewitt served as the Vice President, Boise Paper Solutions—Minnesota Operations, Boise Cascade Corporation.
Thomas A. Lovlien became our Senior Vice President, Wood Products in connection with the Acquisition. From 2000 to 2004, Mr. Lovlien served as the Vice President of Operations, Boise Building Solutions Manufacturing of Boise Cascade Corporation. From 1999 to 2000, Mr. Lovlien served as the operations manager of Boise Cascade Corporation's Timber and Wood Products Division.
Samuel K. Cotterell became our Vice President and Controller in connection with the Acquisition. From 1999 until 2004, he served as the Director of Financial Reporting of Boise Cascade Corporation.
Zaid F. Alsikafi became a director in October 2004. Mr. Alsikafi has been employedInc.’s executive officers are elected by Madison Dearborn since 2003 and currently serves as a Vice President. From 2001 to 2003, Mr. Alsikafi attended Harvard Business School. Mr. Alsikafi was employed by Madison Dearborn from 1999 to 2001 as an Associate.
John W. Madigan became a director in January 2005. Mr. Madigan retired in December 2003 from Tribune Company, where he served as Chairman and Chief Executive Officer since 1996. Mr. Madigan currently serves as a consultant with Madison Dearborn. Mr. Madigan is also a member of the Board of Directors of Morgan Stanley.
Christopher J. McGowan became a director in October 2004. Mr. McGowan has been employed by Madison Dearborn since 1999 and currently serves as a Director. Mr. McGowan is a member of the boardsits board of directors of Jefferson Smurfit Group Limited and Auto Trade Center, Inc.
Samuel M. Mencoff became a director in October 2004. Mr. Mencoff has been employed by Madison Dearborn since 1993hold office until their successors are elected and currently serves as Co-President. From 1987 to 1993, Mr. Mencoff served as Vice President of First Chicago Venture Capital. Mr. Mencoff is a member of the boards of directors of Buckeye Technologies, Inc., Great Lakes Dredge & Dock Corporation, Jefferson Smurfit Group Limited and Packaging Corporation of America.
Thomas S. Souleles became a director in October 2004. Mr. Souleles has been employed by Madison Dearborn since 1995 and currently serves as a Managing Director. Mr. Souleles is a member of the boards of directors of Great Lakes Dredge & Dock Corporation, Jefferson Smurfit Group Limited, Magellan Midstream Partners, L.P. and Packaging Corporation of America.
Except as described in this prospectus, therequalified 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—Mr. Toeldte has served as Boise Inc.’s president and chief executive officer and a director since the Acquisition on February 22, 2008. Mr. Toeldte joined Boise Cascade, 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 also served as a partner at McKinsey & Company in Toronto, Brussels, Montreal, and Stockholm.
Jeffrey P. Lane—Mr. Lane joined the Company and was elected senior vice president and general manager of Boise Inc.’s packaging operations on April 30, 2008. Prior to joining the Company, Mr. Lane was a partner at McKinsey & Company from 1989 to 1995 and from 1998 until 2008. From 2000 until 2008, Mr. Lane led McKinsey’s global packaging industry practice. Mr. Lane served as the president of MicroCoating Technologies, an advanced materials technology startup, during 1997, and served as the vice president of marketing and business development for Westinghouse Security Systems, a division of Westinghouse Electric Corporation, during 1996. From 1983 to 1989, Mr. Lane served as brand manager at The Procter & Gamble Company, a global consumer products company. Mr. Lane received a B.S. (Biology) from Georgia Institute of Technology and an M.B.A. from Kellogg Graduate School of Management, Northwestern University.
Robert M. McNutt—Mr. McNutt has served as Boise Inc.’s senior vice president and chief financial officer since the Acquisition on February 22, 2008. Prior to the Acquisition, and since June 2005, Mr. McNutt served as Boise Cascade’s vice president, Investor Relations and Public Policy. From October 2004 to May 2005, Mr. McNutt served as Boise Cascade’s financial manager, Building Products, where he was the senior financial manager overseeing Boise Cascade’s Wood Products and Building Materials Distribution segments with responsibility for strategy, information systems, accounting and credit functions. Mr. McNutt received a B.A. (Accounting and Finance) and an M.B.A. (Accounting) from Washington State University.
Robert E. Strenge—Mr. Strenge was elected senior vice president of the Company’s paper manufacturing operations on April 30, 2008. Since the Acquisition, Mr. Strenge had served as vice president of Boise Inc.’s newsprint segment, a position that he also held with Boise Cascade from October 29, 2004, to the date of the Acquisition. Mr. Strenge was Boise Cascade Corporation’s vice president, DeRidder Operations, from 2003 to 2004. From 1997 to 2003, Mr. Strenge served as mill manager of Boise Cascade Corporation’s St. Helens, Oregon paper mill. Mr. Strenge received a B.S. (Pulp and Paper Technology) from Syracuse University.
Robert A. Warren—Mr. Warren was elected senior vice president and general manager of the Company’s paper operations and supply chain management function on April 30, 2008. Since the Acquisition, Mr. Warren had served as general manager of Boise Inc.’s supply chain function, a position that he also held with Boise Cascade since 2006. From 2004 to 2005, Mr. Warren was the business leader for Boise Cascade’s printing papers business and from 2003 to 2004 he 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. (General Engineering) from Oregon State University and an M.B.A. from Kellogg Graduate School of Management, Northwestern University.
Samuel K. Cotterell—Mr. Cotterell has served as Boise Inc.’s vice president and controller since the Acquisition on February 22, 2008. Prior to the Acquisition, and since October 2004, Mr. Cotterell served as Boise Cascade’s vice president and controller. From 1999 to October 2004, Mr. Cotterell served as director of financial reporting of Boise Cascade Corporation. Mr. Cotterell received a B.A. (Spanish) from the University of Idaho, a B.S. (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.
Judith M. Lassa—Ms. Lassa has served as vice president of Boise Inc.’s Packaging segment since the Acquisition on February 22, 2008. Prior to the Acquisition, and since October 2004, Ms. Lassa served as Boise Cascade’s vice president, Packaging. From 2000 to October 2004, Ms. Lassa served as vice president, Packaging, of Boise Cascade Corporation. From 1997 to 2000, Ms. Lassa served as Packaging business leader of Boise Cascade Corporation. Ms. Lassa received a B.S. (Paper Science and Engineering) from the University of Wisconsin-Stevens Point.
Directors
Boise Inc’s board of directors consists of three staggered classes of directors, designated as Class I, Class II, and Class III. The director members of, and the termination dates for, each class are:
Class | Director Members | Age | Termination Date | |||
III | Nathan D. Leight | 50 | Date of 2011 Annual | |||
Alexander Toeldte | 50 | Shareholders’ Meeting | ||||
I | Carl A. Albert | 68 | Date of 2012 Annual | |||
Heinrich R. (Rudi) Lenz | 54 | Shareholders’ Meeting | ||||
Jason G. Weiss | 40 | |||||
II | Jonathan W. Berger | 51 | Date of 2013 Annual | |||
Jack Goldman | 69 | Shareholders’ Meeting |
At each succeeding annual shareholders’ meeting, successors to the class of directors whose term expires at that annual meeting will be elected for a three-year term. Each director will hold office for the term to which he or she is elected and until his or her successor is duly elected and qualified or until his or her earlier death, disqualification, resignation, or removal.
Carl A. Albert
Mr. Albert serves as our board chair. He has served as a director of the company since its inception in 2007.
Business Experience
Since April 2000, Mr. Albert has served as the chair of the board and chief executive officer of Fairchild Venture Capital Corporation, a private investment firm. From 1990 to 2000, he was the majority owner, chair of the board, and chief executive officer of Fairchild Aerospace Corporation and Fairchild Dornier Corporation and chair of the supervisory board of Dornier Luftfahrt, GmbH, all aircraft manufacturing companies. From 1989 to 1990, Mr. Albert was a private investor. After providing start-up venture capital, he served from 1981 to 1988 as chair of the board and chief executive officer of Wings West Airlines, a regional airline that was acquired by AMR Corporation, parent of American Airlines, in 1988. Following the acquisition, Mr. Albert served as president until 1989. Prior to this, he was an attorney practicing business, real estate, and corporate law.
Education
B.A., University of California at Los Angeles
L.L.B., University of California at Los Angeles, School of Law
Current public company directorships, other than Boise Inc.
None
Prior directorships held during past five years at any public company or registered investment company
None
Attributes and Skills
Extensive experience as a former chief executive officer and board chair of a capital intensive industry
International business experience
Legal expertise
Jonathan W. Berger
Mr. Berger has served as a director of the company since its inception in 2007. Mr. Berger is the cousin of Nathan D. Leight, one of our directors.
Business Experience
Mr. Berger has been the managing partner of Tellurian Partners, LLC since August 2009. Tellurian Partners, LLC is a consulting and financial advisory business. From December 2001 to July 2009, Mr. Berger was associated with Navigant Consulting, Inc., an NYSE-listed consulting firm, and was the managing director and co-leader of that firm’s corporate finance practice. He was also president of Navigant Capital Advisors, L.L.C., Navigant Consulting, Inc.’s registered broker-dealer, from October 2003 to July 2009. From 2000 to 2001, Mr. Berger was president of DotPlanet.com, an Internet services provider. From 1983 to 1999, Mr. Berger was employed by KPMG LLP, an independent public accounting firm, and served as a partner from 1991 to 1999, where he led the corporate finance practice for three of those years.
Education
B.S., Cornell University
M.B.A., Emory University
Current public company directorships, other than Boise Inc.
Great Lakes Dredge & Dock Company—Global provider of dredging services (Mr. Berger serves as chair of Great Lakes’ Audit Committee)
Prior directorships held during past five years at any public company or registered investment company
None
Attributes and Skills
Extensive accounting background, with over 25 years of accounting experience
Certified public accountant
Holds a masters of business administration
Jack Goldman
Mr. Goldman has served as a director of the company since February 2008.
Business Experience
From January 2006 through 2009, Mr. Goldman was a senior attorney in the law firm of Theodora, Oringher, Miller & Richman PC in Los Angeles and in January 2010 became of counsel to the firm. From May 2002 until January 2006, Mr. Goldman was of counsel to the law firm of Miller & Holguin, at which time it merged with his current firm. Mr. Goldman was a partner in the law firm of Arter & Hadden from 1994 through 2000 and thereafter was of counsel to that firm until 2002. During the period of April 2001 through December 2007, Mr. Goldman also served as chair and chief executive officer of Business Protection Systems International, Inc., a privately held provider of proprietary software solutions for business continuity and risk management programs for business and public sector clients. He continued to serve as a director through March 2009 when he was elected again as board chair, the position he currently holds. From 1989 until 1994, he was a partner in the law firm of Keck, Mahin & Cate. Mr. Goldman engaged in private practice through his own law firm from 1980 through 1989. Mr. Goldman was general counsel of Superscope, Inc., a multinational manufacturer and distributor of brand name consumer audio products from 1975 through 1980. While at Superscope, he also served as treasurer and vice president of administration. Mr. Goldman was admitted to practice law in California in 1966 and engaged in private practice until 1975.
Education
B.A., Lafayette College
J.D., University of California at Los Angeles, School of Law
Current public company directorships, other than Boise Inc.
None
Prior directorships held during past five years at any public company or registered investment company
None
Attributes and Skills
Expertise in business continuity and risk management programs
Extensive experience with corporate governance matters
Legal expertise
Nathan D. Leight
Mr. Leight has served as a director of the company since its inception in 2007. Mr. Leight is the cousin of Jonathan W. Berger, one of our directors.
Business Experience
Mr. Leight has been the senior managing member of Terrapin Partners, LLC since 1998 and the managing member and chief investment officer of Terrapin Asset Management, LLC since 2002. Terrapin Partners, LLC is a private investment management firm focused on private equity investing and recapitalization of public and private companies. Terrapin Asset Management, LLC focuses on the management of alternative investment vehicles, including hedge funds and multi-manager hedge fund portfolios. Mr. Leight was chair of the board of Aldabra Acquisition Corporation, a publicly traded blank check company, from its inception in 2004 until it merged with Great Lakes Dredge & Dock Company in 2006. From 2000 to 2002, Mr. Leight served as the interim chief executive officer of VastVideo, Inc., and from 1998 to 1999, he served as the interim chief executive officer of e-STEEL L.L.C. From 1995 to 1998, Mr. Leight was employed by hedge fund Gabriel Capital LP, where he served as chief investment officer. From 1991 to 1995, Mr. Leight served as a managing director of Dillon Read & Co., overseeing the firm’s proprietary trading department.
Education
A.B., Harvard College (cum laude)
Current public company directorships, other than Boise Inc.
Great Lakes Dredge & Dock Company—Global provider of dredging services
TradeStation Group, Inc.—Online brokerage firm serving active trader and certain institutional trader markets
Prior directorships held during past five years at any public company or registered investment company
None
Attributes and Skills
Over 25 years of experience in asset and hedge fund management, venture capital, and private equity investing
Expertise in capital markets
Heinrich R. (Rudi) Lenz
Mr. Lenz has served as a director of the company since February 2010.
Business Experience
Mr. Lenz has served as president and chief executive officer of Sun Chemical Corporation, a producer of printing inks and pigments, since January 2008. From 2002 to 2007, Mr. Lenz served as Sun Chemical’s senior vice president and chief financial officer/president, Latin America. From 1997 to 2002, Mr. Lenz was employed
by Fairchild Aerospace, a manufacturer of corporate jets and aircraft for regional airlines, serving first as executive vice president and chief financial officer and then as president and chief executive officer of Fairchild Aircraft Inc. From 1980 to 1997, Mr. Lenz was employed by Allied Signal Aerospace in its aerospace, automotive, specialty chemicals, plastics, and engineered materials businesses, ultimately being promoted to vice president, Finance. From 1976 to 1980, Mr. Lenz was employed by the German Internal Revenue Service.
Education
B.S. (Finance and Taxes), University of Edenkoben, Germany
M.S. (Business and Administration), University of Wiesbaden, Germany
Current public company directorships, other than Boise Inc.
None
Prior directorships held during past five years at any public company or registered investment company
None
Attributes and Skills
Extensive international business experience
Extensive financial background, with over 30 years of accounting experience
Experience as chief executive officer of a capital intensive, global company
Alexander Toeldte
Mr. Toeldte has served as the company’s president and chief executive officer and a director since February 2008.
Business Experience
Mr. Toeldte joined Boise Cascade, 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 also served as a partner at McKinsey & Company in Toronto, Brussels, Montreal, and Stockholm.
Education
Economics, Albert-Ludwigs-Universität, Freiburg, Germany
M.B.A., McGill University, Montreal, Canada
Current public company directorships, other than Boise Inc.
None
Prior directorships held during past five years at any public company or registered investment company
None
Attributes and Skills
Previous experience as chief executive officer of a publicly traded company
Previous experience as board chair of a publicly traded company
Extensive international business experience across a wide variety of industries
Extensive experience in the capital intensive wood products industry
Management consulting experience
Jason G. Weiss
Mr. Weiss has served as a director of the company since its inception in 2007. Mr. Weiss serves on our board as a designee of the Aldabra Majority Holders (as defined in the Investor Rights Agreement).
Business Experience
Mr. Weiss has been the managing member and sole owner of Terrapin Palisades Ventures, LLC since June 2009. Terrapin Palisades Ventures, LLC is a private investment company and is also a general partner of the Terrapin-Fabbri Management Company LLC, which serves as the general partner of several almond farm-related investment partnerships. In June 2009, Mr. Weiss sold his interest in Terrapin Partners, LLC, Terrapin Asset Management, LLC, and TWF Management Company LLC, all private equity and asset management companies in which he had been a managing member and the co-founder since 1998. From 2004 to 2006, he was chief executive officer of Aldabra Acquisition Corporation, a previously publicly traded blank check company (in December 2006, Aldabra merged with Great Lakes Dredge & Dock Company). During 2004, Mr. Weiss served as a managing member of American Classic Sanitation LLC. From 1999 to 2000, he served as the chief executive officer and executive vice president of strategy of PaperExchange.com. During 1998 and 2000, Mr. Weiss served as a managing member of e-STEEL LLC.
Education
B.A., University of Michigan (with Highest Distinction)
J.D., Harvard Law School (cum laude)
Current public company directorships, other than Boise Inc.
Great Lakes Dredge & Dock Company—Global provider of dredging services (Mr. Weiss serves on Great Lakes’ Compensation Committee)
Prior directorships held during past five years at any public company or registered investment company
None
Attributes and Skills
Extensive experience with private equity and asset management companies
Previous experience as chief executive officer in a variety of industries
Legal expertise
Director Independence
Our directors believe board independence allows the board to provide appropriate oversight and maintain managerial accountability.
Since we list our common stock and other securities on the New York Stock Exchange (“NYSE”), the NYSE rules require that a majority of our board of directors must be composed of “independent directors.” This is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship that, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director.
Our board has determined that Messrs. Albert, Berger, Goldman, Leight, Lenz, and Weiss are independent directors as defined under the NYSE’s listing standards. These directors constitute a majority of our board of directors. In making their determination, our board considered the relationships disclosed in the section of this prospectus entitled “Certain Relationships and Related Party Transactions.” All members of the Audit Committee, Compensation Committee and Nominating Committee are independent as defined under the NYSE’s listing standards.
Our board of directors, as well as its committees, can retain independent financial, legal, compensation, or other advisors to represent the independent interests of our board of directors or its committees. The retention of independent advisors is at the board’s or committee’s sole discretion and is paid for by the company.
Compensation Committee Interlocks and Insider Participation
Messrs. Albert, Goldman, Thomas S. Souleles, and W. Thomas Stephens served on the Compensation Committee of the board of directors of Boise Inc. during the last completed fiscal year. Mr. Souleles resigned from our board of directors and the Compensation Committee effective February 18, 2010. Mr. Berger was appointed as chair of the Compensation Committee effective February 18, 2010. Mr. Stephens did not stand for re-election to the board of directors at our last annual meeting on April 29, 2010. As of April 29, 2010, the current members of the committee are Messrs. Albert, Berger, Goldman and Lenz.
None of the members of the Compensation Committee is now or was previously an officer or employee of the company. None of the company’s executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officer,officers serving on the company’s board of directors or the Compensation Committee.
Compensation Discussion and any other person pursuantAnalysis
This Compensation Discussion and Analysis describes the compensation practices at Boise Inc. Boise Inc. is our indirect parent, and has no operations apart from the operations controlled by us. Boise Inc.’s executive officers are the same as our executive officers, but are not compensated separately for their performance for us. Throughout this section, we refer to which that person was elected or appointed to his or her position.the company’s named executive officers, who are as follows:
Our
Alexander Toeldte, President and Chief Executive Officer
Robert M. McNutt, Senior Vice President and Chief Financial Officer
Jeffrey P. Lane, Senior Vice President and General Manager, Packaging
Robert E. Strenge, Senior Vice President, Manufacturing
Robert A. Warren, Senior Vice President and General Manager, Paper and Supply Chain
Executive Compensation Philosophy and Objectives
The company’s compensation programs are built around four primary objectives:
Closely align compensation with the company’s performance on both a short- and long-term basis;
Link compensation to each officer’s individual performance;
Attract, motivate, reward, and retain management talent critical to achieving the company’s business goals; and
Encourage officers to own the company’s stock.
The company began operations on February 22, 2008, and since that time, two factors have had major influences on its compensation programs and decisions:
First, when the company acquired the paper, packaging, and newsprint assets of Boise Cascade, it agreed to maintain, for at least one year following the acquisition (Acquisition), executive compensation and benefits at levels substantially comparable to the levels of executive compensation and benefits maintained by Boise Cascade. Accordingly, the company based its executive compensation programs for 2008 and a portion of 2009 largely on those programs maintained by Boise Cascade.
Second, in both 2008 and 2009, the company’s compensation programs have been challenged by the difficult economic conditions in North America and around the globe. Despite meeting significant operating challenges and many of the financial targets, the named executive officers received no short-term incentive pay in 2009 for 2008 performance, due to overall affordability considerations. Further, since the company’s stock became listed on the NYSE on February 25, 2008, its stock price has fallen from $7.95 per share to $0.24 per share at its lowest point. Although the company has seen dramatic increases in its stock price since mid 2009, the overall pricing levels have greatly diminished the value of the equity awards the company has granted to its named executive officers. Further, like most of the company’s other salaried employees, the named executive officers have seen other elements of compensation and benefits diminish, including the freezing of salaries for 2009 and the freezing of the defined benefit pension plan. These developments, while understandable given the ailing economy, make it more difficult to achieve the company’s compensation objectives.
How the Company Designs Its Executive Compensation Programs
The company’s board of directors has ultimate responsibility for approving the powercompany’s executive compensation programs. The Compensation Committee of the board assists the board in fulfilling these responsibilities.
The company’s executive compensation program has three key elements:
Base salary;
Short-term incentive compensation under the Boise Inc. Incentive and Performance Plan; and
Long-term incentive compensation under the Boise Inc. Incentive and Performance Plan.
In addition, the company offers a number of other programs and benefits to appoint ourits named executive officers, including retirement and health benefits and a deferred compensation plan.
The Compensation Committee believes a combination of these elements supports the company’s compensation objectives. The long-term nature of the company’s equity awards aligns the interests of its named executive officers with those of the company’s shareholders and promotes the retention of its named executive officers. The company also believes that as its named executive officers achieve higher levels of responsibility, a greater percentage of their pay should be at risk, with base salary representing a lower percentage of total compensation as responsibility levels increase.
Benchmarking
The Compensation Committee regularly reviews compensation paid to executives in other comparable companies to make decisions regarding appropriate compensation levels. In the past, the Compensation Committee has used data primarily from Hewitt Associates (“Hewitt”), a widely recognized compensation consulting firm, to make these decisions.
Because of last year’s unprecedented economic challenges, and the general decision to freeze salaries, the company has not conducted executive compensation benchmarking since the company began operations in 2008. The Compensation Committee, however, will undertake an executive compensation review in 2010 based on a study begun in the fourth quarter of 2009.
For the 2010 compensation analysis, the Compensation Committee has worked with the company’s management and Hewitt to develop a custom peer group to be used for comparison purposes. The peer group includes industry competitors, companies with whom it competes for executive talent, and those that share the company’s structural complexity or strategic focus. The company’s custom peer group is:
AptarGroup, Inc.
Avery Dennison Corporation
Bemis Company, Inc.*
Buckeye Technologies Inc.*
Cenveo, Inc.
Domtar Corp.*
Graphic Packaging Holding Company*
Greif, Inc.
MeadWestvaco Corporation*
Micron Technology, Inc.
Nalco Holding Company
Neenah Paper, Inc.*
Olin Corporation
Packaging Corp. of America*
P.H. Glatfelter Company*
Rayonier Inc.
Rock-Tenn Company*
Schweitzer-Mauduit International, Inc.*
Solutia Inc.
Sonoco Products Company*
Temple-Inland Inc.*
Verso Paper Corp.*
Wausau Paper Corp.*
Since the company competes for executive talent with a broad range of companies and industries, the companies included in the custom peer group for compensation purposes are not necessarily the same as companies included in the peer group used in the performance graph in Boise Inc.’s 2009 Annual Report on Form 10-K.
The Compensation Committee also requested that Hewitt develop a subset of the custom peer group that included only paper and packaging companies. This subset was created to compare the compensation within the subset of peer companies with the custom peer group as a whole. The subset data will be used, along with the entire peer group data, as a benchmark against which the company will make salary and short- and long-term incentive compensation recommendations for the named executive officers. The companies included in the subset peer group are indicated by an asterisk(*).
In addition to compensation data gathered through the peer group comparisons, the company will also use a broad Hewitt survey to benchmark compensation for a wide number of positions, including those of the named executive officers. This survey includes a general industry group consisting of 93 companies. The median annual revenue for this group is $2.6 billion. The survey uses a proprietary methodology for valuing compensation, and it measures, among other things, base salary, short-term cash incentives (actual and targets), and long-term incentives. Hewitt applies a regression analysis to its data to account for variations in company size.
The company’s philosophy is to target salary and short- and long-term incentive compensation, collectively, for each named executive officer at the 50th percentile of the market data. The company, however, also takes into account each named executive officer’s performance, level of experience, and contributions to the company’s goals and objectives when making final compensation decisions. The 50th percentile (median) of the market data for the peer groups is used because it represents a competitive target at which the company believes it can effectively recruit, reward, and retain executive talent.
Executive Compensation Consultant
The Compensation Committee independently retains Hewitt to assist the Committee in its deliberations regarding executive compensation. The company also retains Hewitt to assist with various compensation and short- and long-term incentive plan matters. Hewitt does not provide any services such as health and welfare benefits consulting or 401(k) consulting. Payments made to Hewitt in 2009 are as follows:
Services Provided | 2009 Payments ($) | ||
Executive compensation consulting services provided to the Compensation Committee | $ | 11,079 | |
Executive compensation consulting services provided to management | $ | 47,379 |
Neither the Compensation Committee nor the company rely on Hewitt to recommend specific levels of total pay or any specific element of compensation to the named executive officers. Those recommendations are developed by management and then presented to the Compensation Committee for consideration.
Executive Compensation Program Elements
Base Salary
The Compensation Committee believes a greater percentage of the compensation of the named executive officers should be “at risk” than other employees because of the officers’ significant influence over the company’s ability to meet its goals and objectives; however, the Compensation Committee also believes the named executive officers’ compensation should contain a stable, base salary component to attract, motivate, reward, and retain management talent. The Compensation Committee reviews base salaries for the named executive officers annually and at the time of promotions or other changes in responsibilities.
Generally, merit increases were not awarded to the company’s employees in 2009 given the challenging economic environment; however, limited exceptions were made to provide salary increases for promotions and when critical inequities were identified. Mr. Warren, one of the company’s named executive officers, received a 2009 salary increase from $300,000 to $325,000 to reflect his increased responsibilities for the performance of the company’s Paper segment and supply chain management, as well as his exceptional individual performance. Mr. Warren was the only named executive officer who received a salary increase in 2009.
For 2010, the Compensation Committee will again consider each named executive officer’s role and level of responsibility. In addition, the Compensation Committee will use the benchmarking data described previously as part of its analysis to assist in determining base salaries for the named executive officers.
Short-Term Incentive Compensation
The Compensation Committee establishes annual variable, or short-term, incentive compensation, in the form of a cash award, to tie a portion of annual compensation to the company’s annual performance objectives. Each year, the Compensation Committee establishes objective performance criteria the company must meet for cash awards to be paid (establishing minimum, target, and maximum payout levels for each type of performance criteria), a target incentive payout for each named executive officer that is expressed as a percentage of salary, and other terms and conditions of awards. A description of each of these components follows. No short-term incentive awards are earned or paid unless the minimum performance criteria are achieved and the company meets the financial affordability standard. The Compensation Committee typically approves short-term incentive award criteria in February to comply with the provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended, which requires that performance metrics be set within 90 days of the commencement of the performance period. Compliance with Section 162(m) enables the awards to qualify as “performance-based” compensation and allows the awards to be tax-deductible by the company.
2009 Short-Term Incentive Awards
The 2009 short-term incentive awards were based on the attainment of financial goals and safety objectives. A financial goal was chosen as the key metric because it focused the company’s leaders on the primary driver of shareholder value. Safety was chosen as a goal to reinforce the company’s commitment to an incident-free workplace. While the company is proud of its locations that have achieved zero accidents and incidents, until the entire company reaches that goal, the company’s safety performance is not good enough. The company believes every employee, including its most senior leaders, must fully participate to keep its work environment safe.
The awards were calculated as a percentage of base salary, based on the extent to which the financial goals and safety objectives were met during the year. For the named executive officers, the major performance target was corporate incentive cash flow. Incentive Cash Flow (“ICF”) is the company’s EBITDA, less a working capital charge of 15% per year, times the company’s average operating working capital balance. The 2009 corporate ICF target was $217 million. If this target was achieved, the anticipated payout would be one times target. The company’s corporate plan provided a payout only if ICF reached a minimum of $183 million, which would provide a payout of 0.55 times target. The company would have attained a maximum payout (2.25 times target) under the corporate plan if ICF reached $309 million. The company’s 2009 corporate safety goal for a one times payout was a 1.8 recordable incident rate (“RIR”). There would be no payout on the safety goal if the company’s RIR was greater than 2.0. Corporate ICF for 2009 was $378 million and the company achieved a corporate safety RIR of 1.33. A portion of the company’s ICF was comprised of earnings resulting from alternative fuel mixture credits, which permitted a refundable excise tax credit for the production and use of alternative biofuel mixtures. Because the Compensation Committee believed these credits resulted in corporate ICF that was not entirely representative of operating performance, it reduced the awards to the named executive officers from a calculated award of 2.25 times target to an award of 1.65 times target.
The following table sets forth the 2009 short-term incentive objectives, as well as the target and actual incentive payouts for each of the named executive officers:
Name | 2009 Financial Goals and Safety | 2009 Target Incentive Payout (% of Salary) | 2009 Actual Incentive Payout (% of Salary) | |||||
Alexander Toeldte | 90% corporate ICF 10% safety based on corporate RIR | 100 | % | 165.00 | % | |||
Robert M. McNutt | 90% corporate ICF 10% safety based on corporate RIR | 65 | % | 107.25 | % | |||
Jeffrey P. Lane | 90% corporate ICF 10% safety based on corporate RIR | 65 | % | 107.25 | % | |||
Robert E. Strenge | 90% corporate ICF 10% safety based on corporate RIR | 65 | % | 107.25 | % | |||
Robert A. Warren | 90% corporate ICF 10% safety based on corporate RIR | 65 | % | 107.25 | % |
2010 Short-Term Incentive Awards
The 2010 short-term incentive compensation program will be based on similar financial goals and safety objectives as were in place for 2009.
Long-Term Incentive Compensation
The Compensation Committee believes equity awards encourage ownership of the company’s stock by the named executive officers, which in turn aligns the interests of those officers with the interests of the company’s
shareholders. In addition, the vesting provisions applicable to the equity awards help retain the named executive officers and reward the achievement of long-term business objectives that benefit the company’s shareholders. If it chooses to make an award, it is the Compensation Committee’s practice to award long-term equity incentives on March 15. If March 15 falls on a weekend or holiday, then the grant date is the next business day.
The Boise Inc. Incentive and Performance Plan permits awards of restricted stock, restricted stock units, performance stock, performance units, stock appreciation rights (“SARs”), and stock options (including performance-based or indexed stock options) to the named executive officers. The plan gives the Compensation Committee flexibility in choosing among these awards to provide competitive long-term incentive compensation.
2009 Equity Awards
On March 15, 2009, the named executive officers received long-term equity incentive awards as shown in the following table. The 2009 equity awards consisted entirely of service-condition vesting restricted stock or restricted stock units. Twenty percent of the shares or units vested on March 15, 2010; 20% will vest on March 15, 2011; and the remaining 60% will vest on March 15, 2012. The named executive officers who were eligible for retirement on or before March 15, 2012, received restricted stock units in lieu of restricted stock. In its decision to make all of the 2009 equity awards service-condition vesting rather than market-condition vesting, the Compensation Committee considered the reduced probability that the market-condition vesting restricted stock and restricted stock units awarded in 2008 would vest given that the company’s shares were trading near their historic low.
Determining equity award targets and values was challenging in 2009 for two reasons:
First, as previously noted, the Compensation Committee did not conduct executive compensation benchmarking because of the year’s unprecedented economic challenges and the general decision to freeze salaries; and
Second, the company’s share price was extremely depressed and, thus, trying to provide an equity award based on a market-competitive economic value would have resulted in substantial dilution. The Compensation Committee decided to provide an equity award to all officers and senior management participating in the long-term incentive program equal to 5% of the company’s outstanding shares in the aggregate, which equity award totaled 3,864,000 shares. The named executive officers received 54.6% of the total amount of these equity awards. Because the share price at the time of these equity awards was historically low, the Compensation Committee believed these awards would provide strong upside potential.
Name | 2009 Restricted Stock (#) | 2009 Restricted Stock Units (#) | ||
Alexander Toeldte | 960,000 | — | ||
Robert M. McNutt | 398,500 | — | ||
Jeffrey P. Lane | 230,000 | — | ||
Robert E. Strenge | — | 230,000 | ||
Robert A. Warren | — | 290,000 |
2010 Equity Awards
Given the large equity awards granted in 2009, after consideration, the Compensation Committee determined it would not grant any long-term incentive awards to the named executive officers in 2010.
Retirement and Health Benefits
The company offers pension benefits to qualifying named executive officers. Those pension benefits include a salaried defined pension benefit plan (“Salaried Pension Plan”), a supplemental pension plan (“SUPP”), and a supplemental early retirement plan (“SERP”). The following table reflects the named executive officers eligible to participate in each pension benefit plan.
Name | Salaried Pension Plan | SUPP | SERP | |||
Alexander Toeldte | No | No | No | |||
Robert M. McNutt | Yes | Yes | No | |||
Jeffrey P. Lane | No | No | No | |||
Robert E. Strenge | Yes | Yes | Yes | |||
Robert A. Warren | Yes | Yes | No |
Pension Plan Freeze
The Salaried Pension Plan, SUPP, and SERP, each described in the following sections, were frozen effective April 15, 2009. Messrs. McNutt, Strenge, and Warren will keep the benefits they earned up to that point but no additional benefits are earned after April 14, 2009.
Salaried Pension Plan
Messrs. McNutt, Strenge, and Warren are eligible to participate in the company’s Salaried Pension Plan. The Salaried Pension Plan is a plan for all salaried employees who were former employees of OfficeMax Incorporated (formerly Boise Cascade Corporation) prior to November 1, 2003.
The Salaried Pension Plan entitles each vested employee to receive a pension benefit at normal retirement age equal to 1.25% of the average of the highest five consecutive years of compensation out of the last ten years of employment, calculated as of April 14, 2009, multiplied by the employee’s years of service through December 31, 2003, plus 1% of the average of the highest five consecutive years of compensation out of the last ten years of employment, calculated as of April 14, 2009, multiplied by the employee’s years of service after December 31, 2003, through April 14, 2009. Under the Salaried Pension Plan, “compensation” is defined as the employee’s base salary plus any amounts earned under the company’s variable incentive compensation programs. Benefits are computed on a straight-life annuity basis and are not offset by Social Security or other retirement-type benefits.
Supplemental Pension Plan (SUPP)
Messrs. McNutt, Strenge, and Warren are eligible to participate in the company’s SUPP. The SUPP is a plan for salaried employees who were former employees of OfficeMax Incorporated (formerly Boise Cascade Corporation) prior to November 1, 2003.
If an employee is entitled to a greater benefit under the Salaried Pension Plan’s formula than the Internal Revenue Code allows for tax-qualified plans, the excess benefits will be paid from the company’s general assets under the company’s unfunded SUPP. The SUPP also provides payments to the extent that participation in the company’s deferred compensation plan has the effect of reducing an individual’s pension benefit under the qualified plan.
Supplemental Early Retirement Plan (SERP)
Mr. Strenge is the only named executive officer eligible to participate in the company’s SERP. The SERP entitles pension-eligible elected officers to receive an early retirement benefit equal to the benefit calculated at age 65 under the Salaried Pension Plan without reduction due to the officer’s early retirement. This pension benefit is unfunded and is paid from the company’s general assets. Eligible elected officers are those who:
Are 55 years old or older, if elected by OfficeMax (formerly Boise Cascade Corporation) prior to June 1, 2004;
Are 58 years old or older, if elected on or after June 1, 2004, and prior to October 29, 2004 (the SERP was closed to new entrants as of October 29, 2004);
Have ten or more years of service;
Have served as an elected officer for at least five full years; and
Retire before age 65.
For further information on the company’s Salaried Pension Plan, SUPP, and SERP, please refer to the sections of this prospectus entitled “Executive Compensation—Compensation Tables—Summary Compensation Table” and “—Pension Benefits Table.”
Health Benefits
The company offers health benefits to all its employees. The company pays a significant portion of the benefit cost for all employees. Previously, highly compensated employees paid a greater portion than did employees at lower compensation levels. The provision requiring a higher payment by highly compensated employees was removed effective January 1, 2010. The company does not offer supplemental health benefits to its named executive officers.
Deferred Compensation Plan
The named executive officers are eligible to participate in the company’s “nonqualified” Deferred Compensation Plan. The plan is an unfunded plan intended to help participants supplement their retirement income while providing them an opportunity to reinvest a portion of their compensation in the company’s overall business performance.
Each year, participants may irrevocably elect to defer receipt of a portion of their base salary and incentive compensation. A participant’s account is credited with imputed interest at a rate equal to 130% of Moody’s Composite Average of Yields on Corporate Bonds. In addition, participants may elect to receive their company contributions in the company’s Deferred Compensation Plan in lieu of any contributions in the company’s 401(k) Savings Plan, as described below:
Through April 15, 2009, the company’s contribution to the 401(k) Savings Plan was:
A regular match equal to $0.70 on the dollar up to the first 6% of eligible compensation; plus
For employees hired or rehired on or after November 1, 2003, a discretionary match that was announced annually and could vary from year to year but would be no more than $0.30 on the dollar up to the first 6% of eligible compensation. This match was provided only to those eligible employees who were employed by the company on the last day of the plan year (December 31).
Effective April 16, 2009, the company’s contribution to the 401(k) Savings Plan is:
• | Base Company Contribution—The company contributes the equivalent of 3% of a participant’s eligible compensation to his or her account; plus |
• | Matching Company Contribution—The company matches $0.50 for each $1.00 a participant contributes up to the first 3% of his or per pay; plus |
• | Discretionary Matching Company Contribution—The company intends to provide a discretionary match of $0.50 for each $1.00 a participant contributes to the plan up to the first 3% of pay. The actual amount of the discretionary match may vary from year to year, depending on the company’s financial performance and, thus, the affordability of the match. The company will announce at the end of each year whether a discretionary match will be made and, if so, in what amount. |
Participants elect the form and timing of distributions of their deferred compensation balances. Participants may receive payment in cash in a lump sum or in annual installments over a specified period of years following the termination of their employment with the company.
None of the named executive officers elected to defer any of their 2009 compensation under this plan. Mr. Warren is the only named executive officer who elected to participate in this plan in 2010, but he did not elect to have the company contribution put into the plan.
No changes are expected to be made to the company’s Deferred Compensation Plan in 2010.
For further information on the company’s Deferred Compensation Plan, please refer to the sections of this prospectus entitled “Executive Compensation—Compensation Tables—Summary Compensation Table” and “—Nonqualified Deferred Compensation Table.”
Supplemental Life Plan
Mr. Strenge is the only named executive officer eligible to participate in the company’s Supplemental Life Plan. The plan is for elected officers who were officers of OfficeMax Incorporated (formerly Boise Cascade Corporation) prior to July 31, 2003.
The plan provides participants with an insured death benefit during employment and, in limited cases, after retirement. Participants in the Supplemental Life Plan can purchase a life insurance policy from a designated insurance carrier, with policy premiums to be paid by the company as described in the plan. The plan provides the participant with a target death benefit equal to two times his or her base salary while employed by the company and a target postretirement death benefit equal to one times his or her final base salary, both of which are less any amount payable under the company’s group term life insurance policy.
No changes are expected to be made to the company’s Supplemental Life Plan in 2010.
For further information on the company’s Supplemental Life Plan, please refer to the section of this prospectus entitled “Executive Compensation—Compensation Tables—Summary Compensation Table.”
Financial Counseling Program for Officers
The named executive officers are eligible to participate in the company’s Financial Counseling Program for Officers. The program provides participants up to $5,000 per calendar year for financial counseling services. The participants may carry over unused amounts, up to one year’s allowance, from one year to the next. Under the program, a participant may spend his or her allowance on investment planning, tax preparation, tax planning and compliance, or estate planning. Since the expenses of these services are generally not deductible for federal income tax purposes, the participant receives a cash gross-up payment on reimbursed charges. The gross-up payment helps cover the tax on the payment for services and the tax on the tax payment. The current gross-up is 39% based on a 28% federal tax rate. The gross-up payment is also deducted from the participant’s annual allowance. Money paid on a participant’s behalf by the company for these services and gross-up payments is taxable and is reported in his or her W-2 earnings on a monthly basis.
No changes are expected to be made to the Financial Counseling Program for Officers in 2010.
For further information on the company’s Financial Counseling Program for Officers, please refer to the section of this prospectus entitled “Executive Compensation—Compensation Tables—Summary Compensation Table.”
Agreements With, and Potential Payments to, Named Executive Officers
The following summaries provide a description of the severance agreements the company has entered into with its named executive officers. These agreements provide severance benefits and protect other benefits the named executive officers have already earned or reasonably expect to receive under the company’s employee benefit plans. The named executive officer will hold officereceive the benefits provided under the agreement if the named executive officer’s employment is terminated other than for cause or disability (as defined in the term determined byagreement) or if the named executive officer terminates employment after the company takes actions (as specified in the agreement) that adversely affect the named executive officer.
These severance agreements help to ensure the company will have the benefit of the named executive officers’ services without distraction in the face of future potential changes. The company’s board of directors believes the agreements are in the best interests of the company and until such person's successor is chosenits shareholders.
These agreements formerly provided that upon a qualifying termination, the officer would receive a multiple of his or her base salary plus target short-term incentive. Pursuant to a notice issued by the IRS, when an agreement (such as these severance agreements) provides for payment of an amount linked to a performance-based bonus without requiring achievement of the performance goals, the performance-based bonus itself may not qualify as performance-based compensation under Internal Revenue Code 162(m). To avoid this consequence, these agreements were recently amended to remove the reference to target short-term incentive and qualified or until such person's death, resignation or removal.
There are no family relationships among anyto provide instead for a multiple of our directors orbase salary, without regard to target short-term incentive. These amendments did not change the economic benefit to the named executive officers.
CompositionFor further information on the severance agreements the company has entered into with its named executive officers, please refer to the section of the Board of Directorsthis prospectus entitled “Executive Compensation—Compensation Tables—Severance Tables.”
Alexander Toeldte
Our certificatePursuant to the terms of incorporation provides forMr. Toeldte’s severance agreement dated February 6, 2008, as amended February 18, 2010, if he voluntarily terminates employment with good reason or his employment is involuntarily terminated without cause, as defined in his severance agreement, and subject to his execution of a classified boardvalid release of directors consisting of three staggered classes of directors, as nearly equal in number as possible. At each annual meeting of stockholders, a class of directorsemployment- related claims, Mr. Toeldte will be electedentitled to severance pay equal to 4 times his annual base salary at the rate in effect at the time he receives a notice of termination. To the extent not already paid, Mr. Toeldte will receive a lump-sum amount equal to the value of his unused and accrued time off, less any advanced time off. Mr. Toeldte will also receive a lump-sum payment equal to (a) 36 times the monthly group premium for healthcare, disability, and accident insurance plans, plus (b) three times the annual allowance for financial counseling services. The severance agreement also imposes confidentiality and nondisparagement provisions on Mr. Toeldte, as well as a three-year termnonsolicitation provision that will continue for one year after his employment terminates.
Robert M. McNutt, Jeffrey P. Lane, Robert E. Strenge, and Robert A. Warren
Pursuant to succeed the directors of the same class whose terms are then expiring. The terms of the directorsseverance agreements dated February 25, 2008, as amended February 18, 2010, with Messrs. McNutt, Strenge, and Warren and the severance agreement dated April 30, 2008, as amended February 18, 2010, with Mr. Lane, if these officers voluntarily terminate employment with good reason or their employment is involuntarily terminated without cause, as defined in their severance agreements, and subject to
their execution of a valid release of employment-related claims, Mr. McNutt will expire upon election and qualification of successor directorsbe entitled to severance pay equal to 3 times his annual base salary at the rate in effect at the time he receives a notice of termination, and Messrs. Lane, Strenge, and Warren will be entitled to severance pay equal to 1.65 times their annual meetingbase salary at the rate in effect at the time they receive a notice of stockholderstermination. To the extent not already paid, they will receive a lump-sum amount equal to be held during the years 2006value of their unused and accrued time off, less any advanced time off. The company will maintain group insurance coverage (healthcare, disability, term life, and accident) and financial counseling services for 12 months following their date of termination, subject to the officer’s payment of any applicable premium at the active employee rate. The company will also continue to pay the company-paid premium under the Supplemental Life Plan (if the officer was a participant in such plan) for 12 months.
Compensation Tables
The following Summary Compensation Table presents:
Alexander Toeldte—Compensation information for the Class I directors, 2007 for the Class II directorsfiscal years ended December 31, 2009 and 2008, for Mr. Toeldte, who has served as the Class III directors.
Our by-laws provide that the authorized number of directors, which will initially be seven, may be changed by a resolution adopted by at least two-thirds of our directors then in office. Any additional directorships resulting from an increase in the number of directors may only be filled by the directorscompany’s president and will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of our board of directors could have the effect of delaying or preventing changes in control or changes in our management.
Committees of the Board of Directors
Our board of directors currently has an audit committee and an executive compensation committee. The composition, duties and responsibilities of these committees are set forth below. Committee members will hold office for a term of one year.
Audit Committee. The audit committee is responsible for (1) selecting the independent auditor, (2) approving the overall scope of the audit, (3) discussing the annual audited financial statements and quarterly financial statements, including matters required to be reviewed under applicable legal, regulatory or NYSE requirements, with management and the independent auditor, (4) discussing earnings press releases, guidance provided to analysts and other financial information provided to the public, with management and the independent auditor, as appropriate, (5) discussing with management and the independent auditor, as appropriate, any audit problems or difficulties and management's response, (6) discussing the company's risk assessment and risk management policies, (7) reviewing the company's financial reporting and accounting standards and principles, significant changes in such standards or principles and the key accounting decisions affecting the company's financial statements, (8) reviewing and approving the internal corporate audit staff functions, (9) reviewing the company's internal system of audit, financial and disclosure controls and the results of internal audits, (10) annually reviewing the independent auditor's written report describing the auditing firm's internal quality-control procedures and any material issues raised by the auditing firm's internal quality-control review or peer review of the auditing firm, (11) setting hiring policies for employees or former employees of the independent auditors, (12) reviewing and investigating matters pertaining to the integrity of management, (13) establishing procedures concerning the treatment of complaints and concerns regarding accounting, internal accounting controls or audit matters, (14) meeting separately with management, the corporate audit staff and the independent auditor, (15) handling such other matters that are specifically delegated to the audit committee by the board of directors from time to time and (16) reporting regularly to the full board of directors.
Our audit committee currently consists of Messrs. Souleles, Mencoff and Madigan. Mr. Madigan has been determined to be an independent director according to the rules and regulations of the SEC and NYSE and an "audit committee financial expert," as such term is defined in Item 401(h) of Regulation S-K.
Executive Compensation Committee. The executive compensation committee is responsible for (1) reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer and annually evaluating the chief executive officer's performance in light of these goals, (2) reviewing and approving the compensation and incentive opportunities of our executive officers, (3) reviewing and approving employment contracts, severance arrangements, incentive arrangements, change-in-control arrangements and other similar arrangements between us and our executive officers, (4) receiving periodic reports on the company's compensation programs as they affect all employees, (5) reviewing executive succession plans for business and staff organizations and (6) such other matters that are specifically delegated to the compensation committee by the board of directors from time to time. Our compensation committee consists of Messrs. Mencoff, Madigan and Souleles.
Corporate Governance and Nominating Committee. Our board of directors has established a corporate governance and nominating committee. Our corporate governance and nominating committee's purpose is to assist our board in identifying individuals qualified to become members of our board of directors, assess the effectiveness of the board and develop our corporate governance principles. This committee is responsible for (1) identifying and recommending for election individuals who meet the criteria the board has established for board membership, (2) recommending nominees to be presented at the annual meeting of stockholders, (3) reviewing
the board's committee structure and recommending to the board the composition of each committee, (4) annually reviewing director compensation and benefits, (5) establishing a policy for considering stockholder nominees for election to our board, (6) developing and recommending a set of corporate governance guidelines and reviewing them on an annual basis and (7) developing and recommending an annual self evaluation process of the board and its committees and overseeing such self-evaluations.
Other Committees. Our board of directors may establish other committees as it deems necessary or appropriate from time to time.
Compensation of Executive Officers
None of our executive officers received compensation from us prior tofollowing the closing of the Acquisition withon February 22, 2008.
Robert M. McNutt—Compensation information for the exception offiscal years ended December 31, 2009 and 2008, for Mr. StephensMcNutt, who received a fee for consulting services prior tohas served as the closing. Therefore, all compensation figures cover the period betweencompany’s senior vice president and chief financial officer following the closing of the Acquisition on February 22, 2008.
Jeffrey P. Lane, Robert E. Strenge, and Robert A. Warren—Compensation information for the fiscal years ended December 31, 2004,2009 and 2008, for Messrs. Lane, Strenge, and Warren, the endcompany’s three most highly compensated executive officers other than Messrs. Toeldte and McNutt.
These executive officers are referred to as named executive officers elsewhere in this prospectus.
Summary Compensation Table
Name and Principal Position | Year | Salary ($) (1) | Bonus ($) (2) | Stock Awards ($) (3) | Non-Equity Incentive Plan Compen- sation ($) (4) | Change in Pension Value and Nonqualified Deferred Compen- sation Earnings ($) (5) | All Other Compen- sation ($) (6) | Total ($) (3) | |||||||||||||||
Alexander Toeldte | 2009 | $ | 793,940 | $ | — | $ | 412,800 | $ | 1,319,992 | $ | 2,737 | $ | 25,530 | $ | 2,554,999 | ||||||||
President and Chief Executive Officer | 2008 | 672,918 | — | 2,398,780 | — | 767 | 57,359 | 3,129,824 | |||||||||||||||
Robert M. McNutt | 2009 | 349,334 | — | 171,355 | 377,518 | 39,711 | 10,562 | 948,480 | |||||||||||||||
Senior Vice President and Chief Financial Officer | 2008 | 296,084 | — | 525,130 | — | 130,693 | 2,264 | 954,171 | |||||||||||||||
Jeffrey P. Lane | 2009 | 377,122 | — | 98,900 | 407,548 | 958 | 53,026 | 937,554 | |||||||||||||||
Senior Vice President and General Manager, Packaging | 2008 | 237,500 | 150,000 | 624,966 | — | 232 | 65,943 | 1,078,641 | |||||||||||||||
Robert E. Strenge | 2009 | 297,728 | — | 98,900 | 321,748 | 46,117 | 20,684 | 785,177 | |||||||||||||||
Senior Vice President, Manufacturing | 2008 | 250,000 | 50 | 263,341 | — | 629,165 | 117,539 | 1,260,095 | |||||||||||||||
Robert A. Warren | 2009 | 315,247 | — | 124,700 | 348,560 | 51,891 | 12,587 | 852,985 | |||||||||||||||
Senior Vice President and General Manager, Paper and Supply Chain | 2008 | 216,250 | — | 263,341 | — | 202,444 | 2,432 | 684,467 | |||||||||||||||
(1) | 2009 Salary—The 2009 amounts reported for the named executive officers represent salaries paid from January 1, 2009, through December 31, 2009. |
2008 Salary—The 2008 amounts reported for Messrs. Toeldte, McNutt, Strenge, and Warren represent salaries paid from the date of our last completed fiscal year. Prior to the closing of the Acquisition each of our executive officers, other than Mr. Stephens, was employed by, and received compensation from, OfficeMax or its affiliates.
The following table presents information regarding compensation paid by us relating to the fiscal year endedon February 22, 2008, through December 31, 2004 to our chief executive officer and our four next most highly compensated executive officers whose total annual2008. The 2008 amount reported for Mr. Lane represents salary and bonus exceeded $100,000 forpaid from April 30, 2008 (the date he joined the fiscal year endedcompany) through December 31, 2004. 2008.
These executives are referred to as the "named executive officers" elsewhere in this prospectus.
Summary Compensation Table
| | | Long Term Compensation | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Annual Compensation | | ||||||||||
Name and Principal Position | Restricted Stock Awards(3) | All Other Compensation(4) | ||||||||||
Salary(1) | Bonus(2) | |||||||||||
W. Thomas Stephens Chairman and Chief Executive Officer | $ | 166,667 | $ | 192,128 | $ | 0 | $ | 438,757 | ||||
John W. Holleran Executive Vice President, Administration and Chief Legal Officer | 83,453 | 118,179 | 0 | — | ||||||||
Thomas E. Carlile Senior Vice President and Chief Financial Officer | 71,230 | 120,067 | 0 | — | ||||||||
Stanley R. Bell Senior Vice President, Building Materials Distribution | 61,865 | 80,082 | 0 | — | ||||||||
Thomas A. Lovlien Senior Vice President, Wood Products | 55,313 | 71,410 | 0 | — |
For further information on the company’s Deferred Compensation Plan, please refer to the sections of this prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Deferred Compensation Plan” and “—Compensation Tables, Nonqualified Deferred Compensation Table.”
(2) | 2009 Bonus—None of the named executive officers received a discretionary bonus in 2009. |
2008 Bonus—The 2008 amount reported for Mr. Lane represents a signing bonus he received when he joined the company on April 30, 2008. The 2008 amount reported for Mr. Strenge represents a safety award.
(3) | 2009 Stock Awards—On March 16, 2009, Messrs. Toeldte, McNutt, and Lane were awarded, at no cost, 960,000; 398,500; and 230,000 restricted stock shares, respectively, under the Boise Inc. Incentive and Performance Plan. Also on March 16, 2009, Messrs. Strenge and Warren were awarded, at no cost, 230,000 and 290,000 restricted stock units, respectively, under the Boise Inc. Incentive and Performance Plan. The |
amounts reported for these awards reflect the aggregate grant date fair value of the awards computed in accordance with Financial Accounting Standards Board, Accounting Standards Codification (“FASB ASC”) Topic 718. These 2009 stock awards were all service-condition vesting awards. |
2008 Stock Awards—On May 2, 2008, Messrs. Toeldte, McNutt, and Lane were awarded, at no cost, 975,100; 213,400; and 254,000 restricted stock shares, respectively, under our variable incentive compensation planthe Boise Inc. Incentive and excellence awards. OfPerformance Plan. Also on May 2, 2008, Messrs. Strenge and Warren were each awarded, at no cost, 107,000 restricted stock units under the Boise Inc. Incentive and Performance Plan. The amounts reported for Messrs. Holleranthese awards reflect the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718. These 2008 stock awards and Carlile, $22,1152008Total compensation have been recomputed in accordance with FASB ASC Topic 718, as required by SEC rules, to facilitate a year-to-year comparison. These 2008 stock awards consisted of a combination of service- and $38,413, respectively, represent special cash bonuses recognizing their individual contributionsmarket-condition vesting awards.
For further information on these long-term incentive awards, please refer to the Acquisition.
(4) | 2009 Non-Equity Incentive Plan Compensation—On February 19, 2009, the Compensation Committee approved the 2009 short-term incentive award criteria for the named executive officers pursuant to the Boise Inc. Incentive and Performance Plan. Payments were made to the named executive officers under these 2009 awards because the company’s performance objectives were met. |
2008 Non-Equity Incentive Plan Compensation—On April 30, 2008, the holder until FPH's equity value appreciates above a specified level. One half ofCompensation Committee approved the Series C common units issued to such named executive officers were subject to vesting over a five-year period, and the other half of the Series C common units were subject to vesting only if the original investors achieved a specified rate of return on their total investment in FPH. As of December 31, 2004,2008 short-term incentive award criteria for the named executive officers heldpursuant to the following Series C common units of FPH:
Name | Company matching contributions to the savings plan(1) | Company paid portion of executive officer life insurance | Consulting agreement(2) | ||||||
---|---|---|---|---|---|---|---|---|---|
W. Thomas Stephens | $ | 1,750 | $ | 7,555 | $ | 429,452 |
Stock Option Grants in 2004
We did not grant any stock options stock appreciation rights, or SARs, to our named executive officers duringunder these 2008 awards because the fiscal year ended December 31, 2004. Therecompany’s performance objectives were no outstanding optionsnot met.
For further information on these short-term incentive awards, please refer to purchase common stock or SARs held by our named executive officers asthe sections of December 31, 2004.
this prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Short-Term Incentive Compensation” and “—Compensation Tables—Grants of DirectorsPlan-Based Awards Table.”
We do not currently compensate directors
(5) | Amounts disclosed in theChange in Pension Value and Nonqualified Deferred Compensation Earnings column include the following: |
Name | Year | Change in Pension Value ($)(a) | Nonqualified Deferred Compensation Earnings ($) (b) | |||||
Alexander Toeldte | 2009 | $ | — | $ | 2,737 | |||
2008 | — | 767 | ||||||
Robert M. McNutt | 2009 | 39,711 | — | |||||
2008 | 130,693 | — | ||||||
Jeffrey P. Lane | 2009 | — | 958 | |||||
2008 | — | 232 | ||||||
Robert E. Strenge | 2009 | 46,117 | — | |||||
2008 | 629,165 | — | ||||||
Robert A. Warren | 2009 | 51,891 | — | |||||
2008 | 202,444 | — |
(a) | The amounts reported for Messrs. McNutt, Strenge, and Warren reflect the actuarial increase in the present value of their benefits under all of the company’s pension plans using interest rate and mortality rate assumptions consistent with those used in the company’s financial statements and include amounts such officers may not be currently entitled to receive because such amounts are not vested. For further |
information on the valuation method and all material assumptions applied in quantifying these amounts, please refer to Footnote 14, Retirement and Benefit Plans in the Notes to Consolidated Financial Statements to the “Financial Statements and Supplementary Data” appearing elsewhere in this prospectus. Messrs. Toeldte and Lane are not eligible to participate in the company’s pension plans. |
Prior to the Acquisition, Mr. Strenge was a participant in the Boise Cascade Supplemental Early Retirement Plan for their service on our board of directors. ToExecutive Officers (the Boise Cascade SERP), which like the extent any future directors are neither our employees nor our equity investors, such directors may receive fees.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves ascompany’s SERP, provided unreduced early retirement benefits for eligible officers. The Boise Cascade SERP also provided an offset for amounts payable from a memberpredecessor company’s plan so that only a portion of the board of directors or compensation committee of any entity that has one or more executive officers serving on our executive compensation committee. No interlocking relationship exists between the board or directors or the compensation committee of any other company.
Employment Agreement
Mr. Stephens is party to an employment agreement with us pursuant to which he will serve as our Chairman and Chief Executive Officer. This agreement is scheduled to expire in October 2007, but will be automatically renewed each year thereafter for successive one-year terms unless either party gives the other party 60 days notice prior to the expiration of the then-current term. Mr. Stephens receives an initial annual base salary of $1,000,000, subject to adjustment at the discretion of the board of directors, and will be eligible to receive an annual performance bonus, up to a maximum of 146% of his annual salary, based upon the achievement of performance goals as determined by the compensation committee of our board of directors.
In the event of termination for reasons other than for cause and other than as a result of expiration and non-renewal of the employment agreement term, or if Mr. Stephens resigns for good reason, as defined in the agreement, subject to his execution of a valid release of employment-related claims, Mr. Stephens will be entitled to receive a lump sum payment of two times the sum of his base salary and target bonus and will remain eligible to participate in our benefit plans for a period of two years. We would also be required in such an event to purchase real property inwas payable from Boise Idaho from Mr. Stephens at fair market value, which is currently estimated to be approximately $850,000. We also maintain a term life insurance policy on Mr. Stephens' life with a face amount of $2,000,000, which policy is payable to beneficiaries designated by Mr. Stephens.
As part of the agreement, we would become obligated to purchase real property in Vancouver, British Columbia and a boat from Mr. Stephens at fair market value, which is currently estimated to total approximately $1.7 million, in the event that Mr. Stephens does not sell the property. Mr. Stephens is currently in negotiations with an unaffiliated party to sell the property. If we purchase the property, Mr. Stephens may also require us to lease this property to him at fair market value until it is sold. We intend to promptly dispose of any property purchased in connection with this agreement.Cascade. Upon the closing of the Acquisition, we also madethe Boise Cascade SERP obligations (and its predecessor company’s) were extinguished. Accordingly, Mr. Strenge’s SERP benefits became the company’s sole obligation, resulting in a one-time paymentsubstantial increase in the reportedChange in Pension Value for 2008 for Mr. Strenge.
For further information on the company’s pension plans, please refer to Mr. Stephens in exchange for consulting services performed in connection with the Acquisition, totaling $429,452.
Mr. Stephens has the right under this agreement to be nominated for a position on our board of directors for so long as he is employed under the termssections of this agreement. We have also agreed to use our reasonable efforts to have him elected asprospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Retirement and Health Benefits” and “—Compensation Tables—Pension Benefits Table.”
(b) | The amounts reported for Messrs. Toeldte and Lane reflect the above-market portion of the interest they earned on compensation they deferred in 2008. None of the named executive officers elected to defer any of their 2009 compensation under the company’s Deferred Compensation Plan. The above-market portion represents interest on deferred compensation that exceeds 120% of the applicable federal long-term rates, with compounding at the rate that corresponds most closely to the rate under the company’s plan (130% of Moody’s Composite Yields on Corporate Bonds). |
For further information on the chairman of our board during such period. The employment agreement also imposes on Mr. Stephens certain confidentiality, non-compete and non-solicitation obligations. The non-compete and non-solicitation obligations will continue to be in effect for two years after termination of his employment.
Severance Agreements
Priorcompany’s Deferred Compensation Plan, please refer to the Acquisition, OfficeMax entered into agreements with mostsections of our current executive officers to provide for severance benefits if we terminatedthis prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Deferred Compensation Plan” and “—Compensation Tables—Nonqualified Deferred Compensation Table.”
(6) | Amounts disclosed in theAll Other Compensationcolumn include the following: |
Name | Year | Company- Matching Contributions to Savings Plan ($) (a) | Company- Matching Contributions to Deferred Compensation Plan ($) (a) | Company-Paid Portion of Executive Officer Life Insurance ($) (b) | Reportable Perquisites ($) (c) | |||||||||
Alexander Toeldte | 2009 | $ | 6,300 | $ | 17,718 | $ | 1,512 | $ | — | |||||
2008 | — | 42,918 | 300 | 14,141 | ||||||||||
Robert M. McNutt | 2009 | 9,242 | — | 1,320 | — | |||||||||
2008 | 1,964 | — | 300 | — | ||||||||||
Jeffrey P. Lane | 2009 | 9,155 | 4,132 | 1,512 | 38,227 | |||||||||
2008 | — | 13,775 | 354 | 51,814 | ||||||||||
Robert E. Strenge | 2009 | 10,763 | — | 9,921 | — | |||||||||
2008 | — | — | 8,771 | 108,768 | ||||||||||
Robert A. Warren | 2009 | 10,595 | — | 1,992 | — | |||||||||
2008 | 1,598 | — | 834 | — |
(a) | The company’s Savings Plan is a defined contribution plan intended to be qualified under Section 401(a) of the Internal Revenue Code that contains a cash or deferred arrangement meeting the requirements of Section 401(k) of the Code. The company’s Deferred Compensation Plan is a nonqualified savings plan offered to key employees, including the named executive officers. Participants in the Deferred Compensation Plan may choose to have matching contributions made under the Deferred Compensation Plan in lieu of receiving matching contributions under the Savings Plan. |
For further information on the officer after the Acquisition. In connection with the Acquisition, we assumed these agreements and agreed to perform these agreements following the closing of the Acquisition. These agreements generally expire in October 2007. Pursuantcompany’s Deferred Compensation Plan, please refer to the termssections of these severance agreements, each of our named executive officers (other than Mr. Stephens, who was not an officer of OfficeMax) isthis prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Deferred Compensation Plan” and “—Compensation Tables—Nonqualified Deferred Compensation Table.”
(b) | The company maintains two plans under which company paid life insurance is made available to its officers. Under its Salaried Employee Life Insurance Plan, the company provides, at its expense during each salaried employee’s period of employment, life insurance in an amount equal to the employee’s base salary. All of the company’s salaried employees, including its named executive officers, are covered by this plan. In addition, Mr. Strenge is eligible for and participated in the company’s Supplemental Life Plan, under which his company-paid life insurance benefit during employment is increased to two times his base salary. The plan also provides Mr. Strenge with a postretirement death benefit equal to one times his final base salary. |
For further information on the company’s Supplemental Life Plan, please refer to the following benefits subjectsection of this prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Supplemental Life Plan.”
(c) | 2009 Perquisites—The costs for 2009 perquisites the company provided to Messrs. Toeldte, McNutt, Strenge, and Warren are not reflected because the total amount for each officer did not exceed $10,000. Mr. Lane’s relocation expenses consisted of temporary living costs and return trips to his home in Atlanta, Georgia. None of the named executive officers had personal use of company-paid aircraft during 2009. |
2008 Perquisites—The costs for 2008 perquisites the company provided to his execution of a valid release of employment-related claims: if the officer's employment is terminated "without cause" or if the officer terminates employment for "good reason," as such termsMessrs. McNutt and Warren are defined in the agreements, the officer will be entitled to severance pay equal to the following: two times the officer's annual base salary plus the greater of (1) the officer's annual target incentive bonus for the year in which the termination occurs or (2) the officer's incentive bonus for 2004; accrued and unpaid vacation; continuation for two years of all life, disability, accident and healthcare insurance plans and financial consulting services or a lump sum payment
equal to (a) 24 times 150% of the monthly premium for such insurance plans plus (b) two times the annual allowance for such financial consulting services; and the premium under our supplemental life plan for 24 months following the officer's date of termination. We will also be required to increase the officer's total payments under the agreement to cover any excise taxes imposed by the Internal Revenue Service as a result of such payments.
Such officer will also be entitled to benefits under our supplemental pension plan. For the purposes of calculating the amount of the benefit under our supplemental pension plan, the officer shall be deemed to have accrued at least two years of service credit at a salary equal to the officer's base salary and target bonus at the time of termination. The officer is also entitled to legal fees incurred to enforce the agreement.
The severance agreements also provide that the officers will not solicit, for a period of at least one year following the date of officer's termination, our, or any of our subsidiaries' or affiliates', management-level employees to leave their employment.
The estimated amount of payments and other benefits (not including legal fees, if any) each named executive officer would receive under the agreement based on 2004 compensation figures (in excess of the benefits to which the officer is entitled without the agreement) is:
Name | Severance Payment | ||
---|---|---|---|
John W. Holleran | $ | 3,254,627 | |
Thomas E. Carlile | 3,167,633 | ||
Stanley R. Bell | 1,697,580 | ||
Thomas A. Lovlien | 1,903,587 |
Payments that would be made subsequent to an officer's termination date have been discounted as of December 31, 2004 at a rate of 4.24%, according to the requirements of Section 280G of the Internal Revenue Code. Actual payments made under the agreements at any future date would vary, depending in part upon what the executive has accrued under the variable compensation plans and benefit plans.
Prior to the Acquisition, OfficeMax also entered into severance agreements with certain of our other executive officers, with terms similar to those described above, but which generally provide for one year of compensation and other benefits instead of two years and for at least one year of service credit under our supplemental pension plan rather than two years.
Management Equity Arrangements
Pursuant to an equity incentive program established shortly after the closing of the Acquisition, approximately 170 of our management-level employees purchased Series B common units of FPH for approximately $18.6 million. Purchasers of FPH Series B common units in this program also received Series C common units of FPH representing the right to participate in our profits after the holders of the FPH Series B common units have received a return of all of their invested capital. The FPH Series C common units have no value to the holder until FPH's equity value appreciates above a specified level. To prevent dilution of Madison Dearborn's interest in Boise Cascade Holdings, L.L.C., FPH was issued Series C common units in Boise Cascade Holdings, L.L.C. to reflect management's equity interest in FPH.
In connection with this program, the management investors received (1) an aggregate of approximately 4.2% ofreflected because the total FPH Series B common units as of the date of their investment, representing a 3.4% ownership interest in our total common equity, and (2) FPH Series C common units representing a 7.5% profits interest in FPH. Percentages of our common equity ownership exclude the Series A preferred stock held by OfficeMax, which is non-voting and is only eligible to
receive distributions up to their liquidation value. See "—Description of Capital Stock"amount for details of our Series A preferred stock.
Set forth below is the number of shares of FPH Series B common units and FPH Series C common units held by our executive officers as of December 31, 2004.
Name | FPH Series B common units | FPH Series C common units | ||
---|---|---|---|---|
W. Thomas Stephens | 4,000,000 | 11,183,000 | ||
John W. Holleran | 1,000,000 | 2,812,000 | ||
Stanley R. Bell | 740,000 | 1,917,000 | ||
Thomas E. Carlile | 850,000 | 2,396,000 | ||
Miles A. Hewitt | 660,000 | 1,598,000 | ||
Thomas A. Lovlien | 400,000 | 851,000 | ||
Samuel K. Cotterell | 150,000 | 311,000 |
We will enter into restricted stock agreements with the management investors that will provide for, among other things, repurchase of their unvested shares upon certain events.
Variable Incentive and Performance Plans
2005 Boise Incentive and Performance Plan
Our board of directors adopted, and our stockholders approved, the Boise Incentive and Performance Plan, or the Boise Plan. The Boise Plan will permit grants of annual incentive awards, stock bonuses, restricted stock, restricted stock units, performance stock, performance units, SARs, and stock options (including performance based or indexed stock options) to certain of our executive officers, key employees and nonemployee directors, including each of the named executive officers. Plan participants will generally be selected by the executive compensation committee of our board of directors.
A total of 3,350,000 shares of Class A common stock are reserved for issuance under the Boise Plan. Also, the following shares of Class A common stock will again be available for issuance under the Boise Plan: (1) shares subject to an incentive award that is cancelled, expired, terminated, forfeited, surrendered, or otherwise settled without the issuance of any stock and (2) shares of stock related to an incentive award that is settled in cash in lieu of stock.
Approximately 300 of our executive officers, key employees and nonemployee directors are eligible to receive awards under the Boise Plan at the discretion of the executive compensation committee. The Boise Plan restricts the number of stock options, SARs, shares of restricted stock, restricted stock units and performance shares that can be granted during any fiscal year to a participant. In addition, the Boise Plan also limits the amount that may be paid to a participant for both annual incentive awards and performance units granted in a single fiscal year.
Awards will become exercisable or otherwise vest at the times and upon the conditions that the executive compensation committee may determine at the time of grant, as reflected in the applicable award agreement. The committee may also make any or all awards performance-based, which means the award will be paid out based on the attainment of specified performance goals, in addition to any other conditions the committee may establish. Awards under the Boise Plan are discretionary. To date, no awards have been granted under this plan.
Stock Options. Stock options entitle the holder to purchase shares of our Class A common stock during a specified period at a purchase price set by the executive compensation committee (not less than 100% of the fair market value of the common stock on the grant date). Each option granted under the Boise Plan will be exercisable for a maximum period of 10 years from the date of
grant (or for a lesser period if the committee so determines). Participants exercising an option may pay the exercise price by any lawful method permitted by the committee.
Stock Appreciation Rights. A SAR is the right, denominated in shares, to receive upon exercise, without payment to the company, an amount equal to the excess of the fair market value of a share of our Class A common stock on the exercise date over the fair market value of a share of our Class A common stock on the grant date, multiplied by the number of shares with respect to which the SAR is being exercised. Payment will be made in stock. The executive compensation committee may grant SARs to participants as either freestanding awards or as awards related to stock options. For SARs related to an option, the terms and conditions of the grant will be substantially the same as the terms and conditions applicable to the related option, and exercise of either the SAR or the option will cause the cancellation of the other, unless otherwise determined by the committee. The committee will determine the terms and conditions applicable to awards of freestanding SARs.
Restricted Stock. Restricted stock is Class A common stock that is transferred or sold by the company to a participant and that is subject to a substantial risk of forfeiture and to restrictions on sale or transfer for a period of time. The executive compensation committee will determine the amounts, terms and conditions (including the attainment of performance goals) of any grant of restricted stock. Except for restrictions on transfer (and any other restrictions that the committee may impose), participants will have all the rights of a stockholder with respect to the restricted stock. Unless the committee determines otherwise, a participant's termination of employment during the restricted period will result in forfeiture of all shares subject to restrictions.
Restricted Stock Units. Restricted stock units are similar to restricted stock, except that the shares of stock areofficer did not issued to the participant until after the end of the restriction period and any other applicable conditions are satisfied. Restricted stock units may also be paid in cash rather than stock, or in a combination of cash and stock, at the committee's discretion.
Performance Units. Performance units, which are the right to receive a payment upon the attainment of specified performance goals, may also be awarded by the executive compensation committee. The committee will establish the applicable performance goals at the time the units are awarded. Payment may be made in cash, stock, or a combination of cash and stock, at the committee's discretion.
Performance Shares. Performance shares represent the right to receive a payment at a future date based on the value of the Class A common stock in accordance with the terms of the grant and upon the attainment of specified performance goals. The executive compensation committee will establish the performance goals and all other terms applicable to the grant. Payment may be made in cash, stock, or a combination of cash and stock, at the committee's discretion.
Annual Incentive Awards. Annual incentive awards are payments based on the attainment of performance goals specified by the executive compensation committee. Awards are calculated as a percentage of salary, based on the extent to which the performance goals are met during the year, as determined by the committee. Awards are paid in cash, stock or a combination of cash and stock, at the committee's discretion.
Stock Bonuses. Stock bonus awards, consisting of Class A common stock, may be made at the discretion of the executive compensation committee upon the terms and conditions (if any) determined by the committee.
Performance Goals. Awards of restricted stock, performance units, performance shares, annual incentive awards and other awards under the Boise Plan may be subject to the attainment of performance goals relating to one or more business criteria within the meaning of
Section 162(m) of the Internal Revenue Code. These goals may include or be based upon, without limitation, sales; gross revenue; gross margins; internal rate of return; cost; ratio of debt to debt plus equity; profit before tax; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings per share; operating earnings; economic value added; ratio of operating earnings to capital spending; cash flow; free cash flow; net operating profit; net income; net earnings; net sales or net sales growth; price of our common stock; return on capital, net assets, equity or stockholders' equity; segment income; market share; productivity ratios; expense targets; working capital targets; or total return to stockholders. Performance goals may be used to measure the company's performance as a whole or any subsidiary, business unit or segment of the company, may be adjusted to include or exclude extraordinary items, and may reflect absolute entity performance or a relative comparison of entity performance to the performance of a peer group, index or other external measure, in each case as determined by the committee in its discretion.
Change of Control. The Boise Plan provides that in the event of a change of control (as defined in the Boise Plan), unless otherwise determined by the compensation committee, all then-outstanding stock options and stock appreciation rights shall become fully vested and exercisable, and all other then-outstanding awards that are subject to time-based vesting shall vest in full and be free of restrictions, except to the extent that another award meeting the requirements set forth in the Boise Plan is provided to the participant to replace such award. The Boise Plan provides that such a replacement award may take the form of a continuation of the award outstanding prior to the change of control.
Administration of the Plan. The Boise Plan is administered by our board's executive compensation committee. The executive compensation committee has the sole discretion and responsibility to grant incentive awards, determine the participants to whom incentive awards shall be granted and establish and administer performance goals, among other things. The board of directors may amend the Boise Plan at any time and may make adjustments to the Boise Plan and outstanding options, without stockholder approval, to reflect a stock split, stock dividend, recapitalization, merger, consolidation or other corporate events. Stockholders must approve amendments that:
The board may terminate the plan at any time. The plan, however, will remain in effect as awards may extend beyond that time in accordance with their terms.
2004 Boise Incentive Award Plan
For 2004, each of our executive officers received a cash bonus pursuant to the 2004 Boise Incentive Award Plan. These awards were based on the attainment of performance goals related to our net operating profits before taxes. Awards were calculated as a percentage of salary, based on the extent to which the performance goals were met during the year. For 2004, Messrs. Carlile, Holleran and Stephens were eligible to receive up to approximately 146% of the base salary they received from us. Messrs. Bell, Lovlien and Hewitt were eligible to receive up to approximately 124% of the base salary they received from us and Mr. Cotterell was eligible to receive up to approximately 101% of the base salary he received from us.
Defined Benefit Pension Plan for Executive Officers
We maintain a defined benefit pension plan, which we refer to as the Salaried Pension Plan, for certain salaried employees, including our named executive officers.
For employees hired before November 2003, our Salaried Pension Plan entitles each vested employee to receive a pension benefit at normal retirement equal to (1) 1.25% of the average of the highest five consecutive years of compensation out of the last 10 years of employment, multiplied by the participant's years of service through December 31, 2003, plus (2) 1% of the average of the highest five consecutive years of compensation out of the last 10 years of employment multiplied by the participant's years of service after December 31, 2003. Under the Salaried Pension Plan, "compensation" is defined as the employee's base salary plus any amounts earned under our variable incentive compensation programs.
The following table reflects estimated annual benefits payable based on various compensation and years of service combinations.
| Years of Service | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Remuneration | |||||||||||||||||||
15 | 20 | 25 | 30 | 35 | 40 | ||||||||||||||
$ | 300,000 | $ | 56,250 | $ | 75,000 | $ | 93,750 | $ | 112,500 | $ | 131,250 | $ | 150,000 | ||||||
400,000 | 75,000 | 100,000 | 125,000 | 150,000 | 175,000 | 200,000 | |||||||||||||
500,000 | 93,750 | 125,000 | 156,250 | 187,500 | 218,750 | 250,000 | |||||||||||||
600,000 | 112,500 | 150,000 | 187,500 | 225,000 | 262,500 | 300,000 | |||||||||||||
700,000 | 131,250 | 175,000 | 218,750 | 262,500 | 306,250 | 350,000 | |||||||||||||
800,000 | 150,000 | 200,000 | 250,000 | 300,000 | 350,000 | 400,000 | |||||||||||||
900,000 | 168,750 | 225,000 | 281,250 | 337,500 | 393,750 | 450,000 | |||||||||||||
1,000,000 | 187,500 | 250,000 | 312,500 | 375,000 | 437,500 | 500,000 | |||||||||||||
1,200,000 | 225,000 | 300,000 | 375,000 | 450,000 | 525,000 | 600,000 | |||||||||||||
1,400,000 | 262,500 | 350,000 | 437,500 | 525,000 | 612,500 | 700,000 | |||||||||||||
1,600,000 | 300,000 | 400,000 | 500,000 | 600,000 | 700,000 | 800,000 |
As shown in the Salaried Pension Plan table above, benefits are computed on a straight-life annuity basis and are not offset by social security or other retirement-type benefits. An employee is 100% vested in his or her pension benefit after five years of service, except for breaks in service. If an employee is entitled to a greater benefit under the plan's formula than the Internal Revenue Code allows for tax-qualified plans, the excess benefits will be paid from our general assets under the unfunded supplemental pension plan. The supplemental pension plan will also provide payments to the extent that participation in the deferred compensation plans has the effect of reducing an individual's pension benefit under the qualified plan. Benefits payable under this supplemental plan are offset by benefits payable under a similar plan maintained by OfficeMax.
As of December 31, 2004, the average of the highest five consecutive years of compensation and the years of service for eachexceed $10,000. None of the named executive officers had personal use of company-paid aircraft during 2008.
The reportable perquisites for the named executive officers consisted of the following:
Name | Year | Nonbusiness Memberships ($) | Financial Counseling ($) | Legal Fees ($) | Relocation Expenses ($) | |||||||||
Alexander Toeldte | 2009 | $ | — | $ | — | $ | — | $ | — | |||||
2008 | 4,028 | 10,000 | 113 | — | ||||||||||
Robert M. McNutt | 2009 | — | — | — | — | |||||||||
2008 | — | — | — | — | ||||||||||
Jeffrey P. Lane | 2009 | 4,935 | 2,294 | — | 30,998 | |||||||||
2008 | 4,080 | 3,347 | — | 44,387 | ||||||||||
Robert E. Strenge | 2009 | — | — | — | — | |||||||||
2008 | — | 1,911 | — | 106,857 | ||||||||||
Robert A. Warren | 2009 | — | — | — | — | |||||||||
2008 | — | — | — | — |
Grants of Plan-Based Awards Table
The following table presents information concerning each grant of a non-equity and equity award made to the named executive officers in 2009 under the Boise Inc. Incentive and Performance Plan.
Name | Grant Date (1) | Compen- sation Committee Approval Date (1) | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (2) | Estimated Future Payouts Under Equity Incentive Plan Awards (3) | Grant Date Fair Value of Stock and Option Awards ($) (4) | |||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||
Alexander Toeldte | ||||||||||||||||||||||
2009 Non-Equity Award | — | 2/19/09 | $ | 440,000 | $ | 800,000 | $ | 1,800,000 | — | — | — | $ | — | |||||||||
2009 Equity Award | 3/16/09 | 2/19/09 | — | — | — | — | 960,000 | — | 412,800 | |||||||||||||
Robert M. McNutt | ||||||||||||||||||||||
2009 Non-Equity Award | — | 2/19/09 | 125,840 | 228,800 | 514,800 | — | — | — | — | |||||||||||||
2009 Equity Award | 3/16/09 | 2/19/09 | — | — | — | — | 398,500 | — | 171,355 | |||||||||||||
Jeffrey P. Lane | ||||||||||||||||||||||
2009 Non-Equity Award | — | 2/19/09 | 135,850 | 247,000 | 555,750 | — | — | — | — | |||||||||||||
2009 Equity Award | 3/16/09 | 2/19/09 | — | — | — | — | 230,000 | — | 98,900 | |||||||||||||
Robert E. Strenge | ||||||||||||||||||||||
2009 Non-Equity Award | — | 2/19/09 | 107,250 | 195,000 | 438,750 | — | — | — | — | |||||||||||||
2009 Equity Award | 3/16/09 | 2/19/09 | — | — | — | — | 230,000 | — | 98,900 | |||||||||||||
Robert A. Warren | ||||||||||||||||||||||
2009 Non-Equity Award | — | 2/19/09 | 116,188 | 211,250 | 475,313 | — | — | — | — | |||||||||||||
2009 Equity Award | 3/16/09 | 2/19/09 | — | — | — | — | 290,000 | — | 124,700 |
(1) | It is the Compensation Committee’s practice to award long-term equity incentives to the company’s named executive officers with a March 15 grant date. If March 15 falls on a weekend or holiday, then the grant date is the next business day. |
(2) | Reflects possible 2009 non-equity incentive plan award payouts for the named executive officers under the Boise Inc. Incentive and Performance Plan.Threshold,Target, andMaximum payouts reported are calculated based on the named executive officer’s annual pay rate in effect at the end of the 2009 calendar year. It is possible to have a zero payout if the award criteria are not met. |
For further information on the terms of these 2009 non-equity incentive plan awards, please refer to the sections of this prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Short-Term Incentive Compensation” and “—Compensation Tables—Summary Compensation Table.”
(3) | The 2009 equity incentive plan awards consisted of 100% service-condition vesting restricted stock or restricted stock units. Twenty percent of the shares or units vested on March 15, 2010; 20% will vest on March 15, 2011; and the remaining 60% will vest on March 15, 2012. TheTarget amounts reported are 100% of the 2009 equity incentive plan awards and assume the named executive officers remain employed with the company until they fully vest on March 15, 2012. |
For further information on the terms of these 2009 equity incentive plan awards, please refer to the sections of this prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Long-Term Incentive Compensation” and “—Compensation Tables—Summary Compensation Table,” “—Outstanding Equity Awards at Fiscal Year-End Table,” “—Option Exercises and Stock Vested Table,” and “—Severance Tables.”
(4) | Values reported for the 2009 equity incentive plan awards reflect the grant date fair value of each equity award computed in accordance with FASB ASC Topic 718. |
Outstanding Equity Awards at Fiscal Year-End Table
The following table presents information concerning the 2009 and 2008 equity incentive plan awards made to the named executive officers under the Boise Inc. Incentive and Performance Plan that had not vested as follows:of December 31, 2009.
Name | Compensation(1) | Years of Service(1) | |||
---|---|---|---|---|---|
W. Thomas Stephens | — | — | |||
John W. Holleran | $ | 648,310 | 26 | ||
Thomas E. Carlile | 413,930 | 32 | |||
Stanley R. Bell | 447,184 | 34 | |||
Thomas A. Lovlien | 337,127 | 26 |
Stock Awards | |||||
Name | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) (1) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) (2) | |||
Alexander Toeldte | |||||
2009 Equity Award | 960,000 | $ | 5,097,600 | ||
2008 Equity Award | 878,933 | 4,667,134 | |||
Robert M. McNutt | |||||
2009 Equity Award | 398,500 | 2,116,035 | |||
2008 Equity Award | 192,333 | 1,021,288 | |||
Jeffrey P. Lane | |||||
2009 Equity Award | 230,000 | 1,221,300 | |||
2008 Equity Award | 228,933 | 1,215,634 | |||
Robert E. Strenge | |||||
2009 Equity Award | 230,000 | 1,221,300 | |||
2008 Equity Award | 96,433 | 512,059 | |||
Robert A. Warren | |||||
2009 Equity Award | 290,000 | 1,539,900 | |||
2008 Equity Award | 96,433 | 512,059 |
(1) | 2009 Equity Awards—No portion of the 2009 equity incentive plan awards vested during 2009. For further information on the vesting terms of the 2009 equity incentive plan awards, please refer to the section of this prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Long-Term Incentive Compensation.” |
2008 Equity Awards—A portion of the 2008 equity incentive plan awards vests with the passage of time (service-condition vesting) and the remaining portion vests only if the company achieves specific performance hurdles (market-condition vesting). The first 1/3 of the service-condition vesting restricted stock and restricted stock units vested in full on March 2, 2009; the second 1/3 vested in full on March 1, 2010; and the third 1/3 will vest on February 28, 2011. This vesting schedule results in fractional shares and the company repurchases the fractional shares as they vest. A portion of the market-condition vesting restricted stock and restricted stock units will vest on February 28, 2011, if at some point before that date the company’s stock price has closed at or above $10.00 on 20 of any consecutive 30 trading days. The other portion of the market-condition vesting restricted stock and restricted stock units will vest on February 28, 2011, if at some point before that date the company’s stock price has closed at or above $12.50 on 20 of any consecutive 30 trading days.
(2) | The values reported reflect the number of unvested shares or units held by each of the named executive officers as of December 31, 2009, multiplied by the company’s closing stock price on December 31, 2009 ($5.31/share). On April 30, 2010, the company’s closing stock price was $6.89 per share. The company’s stock price would have to increase approximately 45% for the 2008 $10.00-per-share market-condition vesting restricted stock and restricted stock units to vest in 2011 and approximately 81% for the 2008 $12.50-per-share market-condition vesting restricted stock and restricted stock units to vest in 2011. |
Option Exercises and Stock Vested Table
No portion of the 2009 equity incentive plan awards made to the named executive officers under the Boise Inc. Incentive and Performance Plan vested during 2009. The following table presents information concerning the 2008 equity incentive plan awards made to the named executive officers under the Boise Inc. Incentive and Performance Plan that had vested as of December 31, 2009.
Stock Awards | |||||
Name | Number of Shares Acquired on Vesting (#) (1) | Value Realized on Vesting ($) (2) | |||
Alexander Toeldte | |||||
2008 Equity Award | 96,166 | $ | 24,042 | ||
Robert M. McNutt | |||||
2008 Equity Award | 21,066 | 5,267 | |||
Jeffrey P. Lane | |||||
2008 Equity Award | 25,066 | 6,267 | |||
Robert E. Strenge | |||||
2008 Equity Award | 10,566 | 2,642 | |||
Robert A. Warren | |||||
2008 Equity Award | 10,566 | 2,642 |
(1) | A portion of the 2008 equity incentive plan awards vests with the passage of time (service-condition vesting) and the remaining portion vests only if the company achieves specific performance hurdles (market-condition vesting). The first 1/3 of the service-condition vesting restricted stock and restricted stock units vested in full on March 2, 2009; the second 1/3 vested in full on March 1, 2010; and the third 1/3 will vest on February 28, 2011. This vesting schedule results in fractional shares and the company repurchases the fractional shares as they vest. A portion of the market-condition vesting restricted stock and restricted stock units will vest on February 28, 2011, if at some point before that date the company’s stock price has closed at or above $10.00 on 20 of any consecutive 30 trading days. The other portion of the market-condition vesting restricted stock and restricted stock units will vest on February 28, 2011, if at some point before that date the company’s stock price has closed at or above $12.50 on 20 of any consecutive 30 trading days. |
(2) | The values reported reflect the number of vested shares or units held by each of the named executive officers that vested during the year ending on December 31, 2009, multiplied by the company’s closing stock price on March 2, 2009, which was the vesting date ($0.25/share). |
Pension Benefits Table
The following table presents the actuarial present value of accumulated benefits payable to Messrs. McNutt, Strenge, and Warren, the number of years of service include amounts attributablecredited to employment with OfficeMax prior toeach of them, and payments made during 2009 under the Acquisition.
Supplemental Early Retirement Plan for Executive Officers
We maintain a Supplemental Early Retirement Plan for executive officers who: (1) are 55 years old or older (58 years old for executive officers appointed on or after June 1, 2004); (2) have 10 or more years of service; (3) have served as an executive officer for at least five full years; and (4) retire before the age of 65. Eligible executive officers receive an early retirement benefit prior to the age of 65 equal to the benefit calculated under thecompany’s Salaried Pension Plan, without reduction dueSUPP, and SERP, and related obligations. For further information on the valuation method and all material assumptions applied in quantifying these amounts, please refer to Footnote 14, Retirement and Benefit Plans to the officer's early retirement. Benefits payable underNotes to Consolidated Financial Statements in “Financial Statements and Supplementary Data” appearing elsewhere in this planprospectus. Messrs. Toeldte and Lane are offset by benefits payable under a similar plan maintained by OfficeMax.not eligible to participate in the company’s pension plans.
For further information on the company’s pension plans, please refer to the sections of this prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Retirement and Health Benefits” and “—Compensation Tables—Summary Compensation Table.”
Name | Plan Name | Number of Years Credited Service (#) (1) | Present Value of Accumulated Benefit ($) | Payments During Last Fiscal Year ($) (2) | ||||||
Robert M. McNutt | Salaried Pension Plan | 24.3 | $ | 342,062 | $ | — | ||||
SUPP | 24.3 | 82,914 | 84,192 | |||||||
SERP (3) | — | — | — | |||||||
Robert E. Strenge | Salaried Pension Plan | 21.3 | 358,836 | — | ||||||
SUPP | 21.3 | 306,064 | — | |||||||
SERP (3) | 21.3 | 682,096 | — | |||||||
Robert A. Warren | Salaried Pension Plan | 26.6 | 575,262 | — | ||||||
SUPP | 26.6 | 77,011 | — | |||||||
SERP (3) | — | — | — |
(1) | Number of years credited service for Messrs. McNutt, Strenge, and Warren include amounts attributable to their employment with OfficeMax Incorporated (formerly Boise Cascade Corporation) prior to Madison Dearborn Partners’ acquisition of the forest products assets from OfficeMax on October 29, 2004, and their employment with Boise Cascade, L.L.C. |
(2) | The 2009 SUPP payment made to Mr. McNutt occurred as a result of his termination of employment from Boise Cascade, L.L.C. in 2008. The payment was made according to Mr. McNutt’s existing election under the Boise Cascade SUPP. Boise Inc. assumed the responsibility to make payments under the Boise Cascade SUPP as part of the Acquisition. Because these benefits are the contractual responsibility of Boise Inc., Mr. McNutt’s payment is reported here even though the SUPP continues to be sponsored by Boise Cascade. |
(3) | Messrs. McNutt and Warren are not eligible to participate in the SERP. Mr. Strenge became vested in the SERP as of December 31, 2009. |
Nonqualified Deferred Compensation PlanTable
Our 2004 Key ExecutiveNone of the named executive officers elected to defer any of their 2009 compensation under the company’s Deferred Compensation Plan. Messrs. Toeldte and Lane did not have any withdrawals or distributions under the plan during 2009.
For further information on the company’s Deferred Compensation Plan, please refer to the sections of this prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Deferred Compensation Plan” and “—Compensation Tables—Summary Compensation Table.”
Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($)(1) | Aggregate Earnings in Last FY ($)(2) | Aggregate Balance at Last FYE ($) | ||||||||
Alexander Toeldte | $ | — | $ | 17,718 | $ | 6,509 | $ | 87,336 | ||||
Jeffrey P. Lane | — | 4,132 | 2,279 | 30,393 |
(1) | The amounts reported for Messrs. Toeldte and Lane reflect a discretionary match made by the company in early 2009 for amounts deferred in 2008. These amounts are included in the 2009All Other Compensationcolumn in “—Summary Compensation Table.” |
(2) | The above-market portion of these amounts are included in the 2009Change in Pension Value and Nonqualified Deferred Compensation Earnings column in “—Summary Compensation Table.” |
Severance Tables
The following tables present an estimate of the compensation the company would have been required to pay the named executive officers in the event of termination of these employees with the company due to:
Voluntary termination with good reason or involuntary termination without cause;
Involuntary termination due to change in control;
Involuntary termination due to restructuring;
For-cause termination or voluntary termination without good reason; or
Disability or death.
The compensation shown assumes termination was effective as of December 31, 2009, and pursuant to the severance agreements in place with the named executive officers as of that date. The compensation the company would actually be required to pay the named executive officers would only be determinable at the time of separation.
For further information on the severance agreements the company entered into with the named executive officers, please refer to the section of this prospectus entitled “Executive Compensation—Compensation Discussion and Analysis—Executive Compensation Program Elements—Agreements With, and Potential Payments to, Named Executive Officers.”
Alexander Toeldte
President and Chief Executive Officer
Benefits | Voluntary Termination With Good Reason or Involuntary Termination Without Cause ($)(1) | Involuntary Termination Due to Change in Control ($) (1) | Involuntary Termination Due to Restructuring ($) (1) | For-Cause Termination or Voluntary Termination Without Good Reason ($) (1) | Disability or Death ($) (1) | ||||||||||
Severance Payment (2) | $ | 3,200,000 | $ | 3,200,000 | $ | 3,200,000 | $ | — | $ | — | |||||
Value of Accelerated Vesting of Restricted Stock (3) | 2,795,917 | 9,764,736 | 4,940,533 | — | 4,940,533 | ||||||||||
Insurance—Healthcare, Disability, and Accident (For 36 Months) | 37,742 | 37,742 | 37,742 | — | — | ||||||||||
Financial Counseling (3 x $5,000 Annual Allowance) | 15,000 | 15,000 | 15,000 | — | — | ||||||||||
Unused Vacation (156 Hours) | 60,000 | 60,000 | 60,000 | 60,000 | 60,000 | ||||||||||
TOTAL (4) | $ | 6,108,659 | $ | 13,077,478 | $ | 8,253,275 | $ | 60,000 | $ | 5,000,533 | |||||
(1) | Amounts shown assume a termination of Mr. Toeldte’s employment was effective as of December 31, 2009. Mr. Toeldte would have received his base salary through the date of termination. |
(2) | Amounts shown assume a termination of Mr. Toeldte’s employment was effective as of December 31, 2009, and subject to the terms of his severance agreement in place at that time, which provided for a severance payment equal to two times his base salary plus two times his target 100% short-term incentive award. Mr. Toeldte’s severance agreement was recently amended to remove the reference to target short-term incentive and to provide instead for a severance payment equal to 4 times his annual base salary at the rate in effect at the time he receives a notice of termination. |
(3) | Amounts shown are based on various vesting scenarios as set forth in Mr. Toeldte’s Restricted Stock Award Agreements. |
(4) | Total amounts shown are in addition to payments Mr. Toeldte would have received under the company’s Savings Plan and Deferred Compensation Plan. Mr. Toeldte’s Deferred Compensation Plan balance would have been distributed in accordance with his distribution election. For information on Mr. Toeldte’s Deferred Compensation Plan balance, please refer to the section of this prospectus entitled “Executive Compensation—Compensation Tables—Nonqualified Deferred Compensation Table.” |
Robert M. McNutt
Senior Vice President and Chief Financial Officer
Benefits | Voluntary Termination With Good Reason or Involuntary Termination Without Cause ($) (1) | Involuntary Termination Due to Change in Control ($) (1) | Involuntary Termination Due to Restructuring ($) (1) | For-Cause Termination or Voluntary Termination Without Good Reason ($) (1) | Disability or Death ($) (1) | ||||||||||
Severance Payment (2) | $ | 1,161,600 | $ | 1,161,600 | $ | 1,161,600 | $ | — | $ | — | |||||
Value of Accelerated Vesting of Restricted Stock (3) | 1,010,704 | 3,137,325 | 1,479,858 | — | 1,479,858 | ||||||||||
Insurance—Healthcare, Disability, and Accident (For 12 Months) | 12,389 | 12,389 | 12,389 | — | — | ||||||||||
Financial Counseling (1 x $5,000 Annual Allowance) | 5,000 | 5,000 | 5,000 | — | — | ||||||||||
Unused Vacation (96 Hours) | 16,246 | 16,246 | 16,246 | 16,246 | 16,246 | ||||||||||
TOTAL (4) | $ | 2,205,939 | $ | 4,332,560 | $ | 2,675,093 | $ | 16,246 | $ | 1,496,104 | |||||
(1) | Amounts shown assume a termination of Mr. McNutt’s employment was effective as of December 31, 2009. Mr. McNutt would have received his base salary through the date of termination. |
(2) | Amounts shown assume a termination of Mr. McNutt’s employment was effective as of December 31, 2009, and subject to the terms of his severance agreement in place at that time, which provided for a severance payment equal to two times his base salary plus two times his target 65% short-term incentive award. Mr. McNutt’s severance agreement was recently amended to remove the reference to target short-term incentive and to provide instead for a severance payment equal to 3 times his annual base salary at the rate in effect at the time he receives a notice of termination. |
(3) | Amounts shown are based on various vesting scenarios as set forth in Mr. McNutt’s Restricted Stock Award Agreements. |
(4) | Total amounts shown are in addition to payments Mr. McNutt would have received under the company’s Savings Plan, Salaried Pension Plan, and SUPP. For information on Mr. McNutt’s Salaried Pension Plan and SUPP balances, please refer to the section of this prospectus entitled “Executive Compensation—Compensation Tables—Pension Benefits Table.” |
Jeffrey P. Lane
Senior Vice President and General Manager, Packaging
Benefits | Voluntary Termination With Good Reason or Involuntary Termination Without Cause ($) (1) | Involuntary Termination Due to Change in Control ($) (1) | Involuntary Termination Due to Restructuring ($) (1) | For-Cause Termination or Voluntary Termination Without Good Reason ($) (1) | Disability or Death ($) (1) | ||||||||||
Severance Payment (2) | $ | 627,000 | $ | 627,000 | $ | 627,000 | $ | — | $ | — | |||||
Value of Accelerated Vesting of Restricted Stock (3) | 685,969 | 2,436,936 | 1,244,456 | — | 1,244,456 | ||||||||||
Insurance—Healthcare, Disability, and Accident (For 12 Months) | 12,581 | 12,581 | 12,581 | — | — | ||||||||||
Financial Counseling (1 x $5,000 Annual Allowance) | 5,000 | 5,000 | 5,000 | — | — | ||||||||||
Unused Vacation (12 Hours) | 2,192 | 2,192 | 2,192 | 2,192 | 2,192 | ||||||||||
TOTAL (4) | $ | 1,332,742 | $ | 3,083,709 | $ | 1,891,229 | $ | 2,192 | $ | 1,246,648 | |||||
(1) | Amounts shown assume a termination of Mr. Lane’s employment was effective as of December 31, 2009. Mr. Lane would have received his base salary through the date of termination. |
(2) | Amounts shown assume a termination of Mr. Lane’s employment was effective as of December 31, 2009, and subject to the terms of his severance agreement in place at that time, which provided for a severance payment equal to one times his base salary plus one times his target 65% short-term incentive award. Mr. Lane’s severance agreement was recently amended to remove the reference to target short-term incentive and to provide instead for a severance payment equal to 1.65 times his annual base salary at the rate in effect at the time he receives a notice of termination. |
(3) | Amounts shown are based on various vesting scenarios as set forth in Mr. Lane’s Restricted Stock Award Agreements. |
(4) | Total amounts shown are in addition to payments Mr. Lane would have received under the company’s Savings Plan and Deferred Compensation Plan. Mr. Lane’s Deferred Compensation Plan balance would have been distributed in accordance with his distribution election. For information on Mr. Lane’s Deferred Compensation Plan balance, please refer to the section of this prospectus entitled “Executive Compensation—Compensation Tables—Nonqualified Deferred Compensation Table.” |
Robert E. Strenge
Senior Vice President, Manufacturing
Benefits | Voluntary Termination With Good Reason or Involuntary Termination Without Cause ($) (1) | Involuntary Termination Due to Change in Control ($) (1) | Involuntary Termination Due to Restructuring ($) (1) | For-Cause Termination or Voluntary Termination Without Good Reason ($) (1) | Disability or Death ($) (1) | ||||||||||
Severance Payment (2) | $ | 495,000 | $ | 495,000 | $ | 495,000 | $ | — | $ | — | |||||
Value of Accelerated Vesting of Restricted Stock Units (3) | 570,683 | 1,733,361 | 805,885 | — | 805,885 | ||||||||||
Life Insurance Premiums (For 12 Months) | 9,729 | 9,729 | 9,729 | — | — | ||||||||||
Insurance—Healthcare, Disability, and Accident (For 12 Months) | 8,453 | 8,453 | 8,453 | — | — | ||||||||||
Financial Counseling (1 x $5,000 Annual Allowance) | 5,000 | 5,000 | 5,000 | — | — | ||||||||||
Unused Vacation (104 Hours) | 15,000 | 15,000 | 15,000 | 15,000 | 15,000 | ||||||||||
TOTAL (4) | $ | 1,103,865 | $ | 2,266,543 | $ | 1,339,067 | $ | 15,000 | $ | 820,885 | |||||
(1) | Amounts shown assume a termination of Mr. Strenge’s employment was effective as of December 31, 2009. Mr. Strenge would have received his base salary through the date of termination. |
(2) | Amounts shown assume a termination of Mr. Strenge’s employment was effective as of December 31, 2009, and subject to the terms of his severance agreement in place at that time, which provided for a severance payment equal to one times his base salary plus one times his target 65% short-term incentive award. Mr. Strenge’s severance agreement was recently amended to remove the reference to target short-term incentive and to provide instead for a severance payment equal to 1.65 times his annual base salary at the rate in effect at the time he receives a notice of termination. |
(3) | Amounts shown are based on various vesting scenarios as set forth in Mr. Strenge’s Restricted Stock Unit Award Agreements. |
(4) | Total amounts shown are in addition to payments Mr. Strenge would have received under the company’s Savings Plan, Salaried Pension Plan, Supp, and SERP. For information on Mr. Strenge’s Salaried Pension Plan, SUPP, and SERP balances, please refer to the section of this prospectus entitled “Executive Compensation—Compensation Tables—Pension Benefits Table.” |
Robert A. Warren
Senior Vice President and General Manager, Paper and Supply Chain
Benefits | Voluntary Termination With Good Reason or Involuntary Termination Without Cause ($) (1) | Involuntary Termination Due to Change in Control ($) (1) | Involuntary Termination Due to Restructuring ($) (1) | For-Cause Termination or Voluntary Termination Without Good Reason ($) (1) | Disability or Death ($) (1) | ||||||||||
Severance Payment (2) | $ | 536,250 | $ | 536,250 | $ | 536,250 | $ | — | $ | — | |||||
Value of Accelerated Vesting of Restricted Stock Units (3) | 697,640 | 2,051,961 | 932,842 | — | 932,842 | ||||||||||
Insurance—Healthcare, Disability, and Accident (For 12 Months) | 10,253 | 10,253 | 10,253 | — | — | ||||||||||
Financial Counseling (1 x $5,000 Annual Allowance) | 5,000 | 5,000 | 5,000 | — | — | ||||||||||
Unused Vacation (72 Hours) | 11,250 | 11,250 | 11,250 | 11,250 | 11,250 | ||||||||||
TOTAL (4) | $ | 1,260,393 | $ | 2,614,714 | $ | 1,495,595 | $ | 11,250 | $ | 944,092 | |||||
(1) | Amounts shown assume a termination of Mr. Warren’s employment was effective as of December 31, 2009. Mr. Warren would have received his base salary through the date of termination. |
(2) | Amounts shown assume a termination of Mr. Warren’s employment was effective as of December 31, 2009, and subject to the terms of his severance agreement in place at that time, which provided for a severance payment equal to one times his base salary plus one times his target 65% short-term incentive award. Mr. Warren’s severance agreement was recently amended to remove the reference to target short-term incentive and to provide instead for a severance payment equal to 1.65 times his annual base salary at the rate in effect at the time he receives a notice of termination. |
(3) | Amounts shown are based on various vesting scenarios as set forth in Mr. Warren’s Restricted Stock Unit Award Agreements. |
(4) | Total amounts shown are in addition to payments Mr. Warren would have received under the company’s Savings Plan, Salaried Pension Plan, and SUPP. For information on Mr. Warren’s Salaried Pension Plan and SUPP balances, please refer to the section of this prospectus entitled “Executive Compensation—Compensation Tables—Pension Benefits Table.” |
Director Compensation
Employee board members of Boise Inc. do not receive compensation for their service on its board of directors. Nonemployee board members are entitled to receive the following annual compensation for their board service:
Cash retainer;
Committee membership fees;
Equity award; and
Reimbursement for travel expenses incurred in connection with their duties.
The Governance Committee of Boise Inc. annually reviews our directors’ compensation and recommends changes, if any, to its board of directors. The Compensation Committee oversees the administration of the directors’ compensation plans.
2009 Director Fees
In 2009, Boise Inc.’s paid directors received the following compensation for their board service:
2009 | |||
Director Fees (Annual): | |||
Cash Retainer | $ | 50,000 | |
Equity Award | $ | 100,000 | |
Board Chair Equity Award (1) | $ | 250,000 | |
Committee Chair Fees (Annual): | |||
Audit | $ | 15,000 | |
Compensation | $ | 10,000 | |
Other Committees | $ | 8,000 | |
Nonchair Committee Membership Fees (Annual): | |||
Audit | $ | 10,000 | |
Compensation | $ | 8,000 | |
Other Committees | $ | 5,000 |
(1) | This equity award was in addition to the cash retainer, committee chair and membership fees, and the $100,000 regular equity award. |
2009 Director Equity Awards
Boise Inc. believes its director compensation should encourage ownership of the company’s stock. In light of that goal, on March 16, 2009, Boise Inc.’s paid directors received service-condition vesting awards of restricted stock (2009 Director Restricted Stock) or restricted stock units (2009 Director Restricted Stock Units) as shown in the following table. Directors who received 2009 Director Restricted Stock were required by the terms of the award to include the value of the stock in their 2009 income. Those directors who preferred to include the value of their award in their 2010 income received 2009 Director Restricted Stock Units.
Name | 2009 Director Restricted Stock (#) | 2009 Director Restricted Stock Units (#) | ||
Carl A. Albert (1) | 813,953 | — | ||
Jonathan W. Berger (1) | 232,558 | — | ||
Jack Goldman (1) | 232,558 | — | ||
Nathan D. Leight (1) | 232,558 | — | ||
Matthew W. Norton (2) | — | — | ||
Thomas S. Souleles (2) | — | — | ||
W. Thomas Stephens (3) | — | 232,558 | ||
Jason G. Weiss (1) | 232,558 | — |
(1) | The2009 Director Restricted Stock awarded to Messrs. Albert, Berger, Goldman, Leight, and Weiss vested in full on March 15, 2010. |
(2) | Beginning in 2009, Messrs. Norton and Souleles declined to receive compensation (both cash and equity) for their service on our board of directors. Accordingly, Messrs. Norton and Souleles did not receive a 2009 equity award. Messrs. Norton and Souleles resigned from our board of directors effective January 22, 2010, and February 18, 2010, respectively. |
(3) | The2009 Director Restricted Stock Units awarded to Mr. Stephens represented a contingent right to receive one share of Boise Inc. common stock for each unit. The 2009 Director Restricted Stock Units vested in full on March 15, 2010. |
Directors Deferred Compensation Plan
Boise Inc. maintains a “nonqualified” Deferred Compensation Plan offered to its paid directors. The plan is an unfunded plan. Under this plan executive officers may irrevocably electintended to defer receipt ofhelp participants supplement their retirement income while providing them an opportunity to reinvest a portion of their base salary and bonus until terminationcash compensation in the company’s overall business performance.
Under the plan, each director who receives cash compensation for board service may elect to defer all or a portion of employmenthis or beyond. A participant's account isher cash compensation in a calendar year. Amounts deferred are credited with imputed interest at a rate equal to 130% of Moody'sMoody’s Composite Average of Yields on Corporate Bonds. Participants elect the form and timing of distributions of their deferred compensation balances. Participants may receive payment in cash in a lump sum or in annual installments following their service on our board of directors.
None of Boise Inc.’s directors elected to defer their cash compensation in 2009 or 2010 under this plan.
No changes are expected to be made to Boise Inc.’s Directors Deferred Compensation Plan in 2010.
2010 Director Compensation
Boise Inc.’s board of directors has approved the following compensation for board service in 2010:
Cash retainer—The annual cash retainer fee remains unchanged;
Committee membership fees—Chair and nonchair committee membership fees for the Audit and Compensation Committees were increased due to greater responsibilities of committee members in these areas; and
Equity awards—Director equity awards for 2010 were approved in the same fixed amounts as were approved for 2009.
2010 Director Fees
In addition, participants may elect2010, Boise Inc.’s paid directors are entitled to receive the following compensation for their company matching contributionboard service:
2010 | |||
Director Fees (Annual): | |||
Cash Retainer | $ | 50,000 | |
Equity Award | $ | 100,000 | |
Board Chair Equity Award (1) | $ | 250,000 | |
Committee Chair Fees (Annual): | |||
Audit | $ | 25,000 | |
Compensation | $ | 20,000 | |
Other Committees | $ | 8,000 | |
Nonchair Committee Membership Fees (Annual): | |||
Audit | $ | 17,500 | |
Compensation | $ | 15,000 | |
Other Committees | $ | 5,000 |
(1) | This equity award is in addition to the cash retainer, committee chair and membership fees, and the $100,000 regular equity award. |
2010 Director Equity Awards
Upon recommendation of the Governance Committee, Boise Inc.’s board of directors approved 2010 equity awards in Boise's deferredthe form of restricted stock for each nonemployee director valued at $100,000. Mr. Albert also received a $250,000 annual board chair equity award in addition to his $100,000 regular equity award. The number of restricted stock shares awarded to each paid director was determined by dividing $100,000 ($350,000 in the case of Mr. Albert) by our closing stock price on March 15, 2010. These restricted stock awards are service-condition vesting awards, vesting in full on March 15, 2011. Our paid directors are required by the terms of their award to include the value of the restricted stock in their 2010 income.
Name | 2010 Director Restricted Stock (#) | |
Carl A. Albert | 64,103 | |
Stanley R. Bell (1) | 18,315 | |
Jonathan W. Berger | 18,315 | |
Jack Goldman | 18,315 | |
Nathan D. Leight | 18,315 | |
Heinrich R. (Rudi) Lenz | 18,315 | |
W. Thomas Stephens (1) | 18,315 | |
Jason G. Weiss | 18,315 |
(1) | Mr. Bell joined Boise Inc.’s board of directors effective January 22, 2010. Messrs. Bell and Stephens resigned from the company’s board of directors effective April 29, 2010. Pursuant to their Director Restricted Stock Award Agreement, a pro rata calculation was made to determine the number of shares that were fully vested and the number of shares that were forfeited as of April 30, 2010. They each received 2,309 fully vested shares and forfeited the remaining 16,006 shares effective April 30, 2010. |
Director Compensation Table
The followingDirector Compensation Table presents compensation plan in lieuinformation for each of any matching contribution in our Savings Plan. The matching contribution is equal to $0.70 onParent’s nonemployee directors for the dollar up to the first 6% of eligible compensation, plus an additional discretionary match for eligible participants that may vary fromfiscal year to year. In 2004, the discretionary match was equal to $0.30 on the dollar up to the first 6% of eligible compensation. ended December 31, 2009:
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (2) | Total ($) | ||||||||
Carl A. Albert | $ | 89,000 | $ | 350,000 | $ | — | $ | 439,000 | ||||
Stanley R. Bell (3) | — | — | — | — | ||||||||
Jonathan W. Berger | 80,000 | 100,000 | 1,019 | 181,019 | ||||||||
Jack Goldman | 81,000 | 100,000 | — | 181,000 | ||||||||
Nathan D. Leight | 50,000 | 100,000 | — | 150,000 | ||||||||
Heinrich R. (Rudi) Lenz (3) | — | — | — | — | ||||||||
Matthew W. Norton (4) | — | — | — | — | ||||||||
Thomas S. Souleles (4) | — | — | — | — | ||||||||
W. Thomas Stephens | 58,000 | 100,000 | — | 158,000 | ||||||||
Jason G. Weiss | 50,000 | 100,000 | — | 150,000 |
(1) | 2009 Director Equity Awards—On March 16, 2009, Mr. Albert was awarded, at no cost, 813,953 shares of restricted stock, and Messrs. Berger, Goldman, Leight, and Weiss were each awarded, at no cost, 232,558 shares of restricted stock under the Boise Inc. Incentive and Performance Plan. Also on March 16, 2009, Mr. Stephens was awarded, at no cost, 232,558 restricted stock units under the Boise Inc. Incentive and Performance Plan. The amounts reported for these awards reflect the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718. These 2009 director equity awards were all service-condition vesting awards. |
(2) | Change in Pension Value—We do not provide our directors with pension benefits. |
Nonqualified Deferred Compensation Earnings—None of our named executive officers participatedpaid directors elected to participate in our Directors Deferred Compensation Plan in 2009. The amount reported for Mr. Berger reflects the above-market portion of the interest he earned on compensation he deferred compensation plan during 2004.in 2008.
(3) | Messrs. Bell and Lenz joined our board of directors effective January 22, 2010 and February 18, 2010, respectively. Accordingly, they did not receive any compensation (cash or equity) in 2009. |
(4) | Beginning in 2009, Messrs. Norton and Souleles declined to receive compensation (both cash and equity) for their service on our board of directors. Messrs. Norton and Souleles resigned from our board of directors effective January 22, 2010, and February 18, 2010, respectively. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
Beneficial Ownership of Greater Than 5% of Our Outstanding Common Stock
All of our outstanding common stock is indirectly owned by our Parent, Boise Cascade, L.L.C.Inc. As of April 30, 2010, Boise Inc. had 84,760,219 shares issued and Boise Cascade Finance Corporation, the co-issuers of the notes, are our wholly owned subsidiaries.outstanding. The following table sets forth the actual beneficial ownership of each person owning greater than 5% of Boise Inc.’s outstanding common stock as of April 30, 2010:
Name and Address of Beneficial Owner and Nature of Beneficial Ownership | Amount of Beneficial Ownership (#) (1) | Percent of Class (%) (2) | |||
Joint Filing By (3) | |||||
Brian Taylor (B. Taylor) | 6,944,598 | 8.2 | % | ||
Pine River Capital Management L.P. (PRCM) | |||||
c/o Pine River Capital Management L.P. 601 Carlson Parkway, Suite 330 Minnetonka, MN 55305 And | |||||
Nisswa Acquisition Master Fund Ltd. (Nisswa) | 6,385,332 | 7.5 | % | ||
c/o Pine River Capital Management L.P. 601 Carlson Parkway, Suite 330 Minnetonka, MN 55305 | |||||
Nathan D. Leight (N. Leight) (4) | 4,954,662 | 5.8 | % | ||
c/o Terrapin Partners, LLC 60 Edgewater Drive—Unit TSK Coral Gables, FL 33133 | |||||
Joint Filing By (5) | |||||
Katherine R. Hensel (K. Hensel) | 4,505,766 | 5.3 | % | ||
500 Fifth Avenue, Suite 930 New York, NY 10110 And | |||||
Barry G. Haimes (B. Haimes) | 3,446,845 | 4.1 | % | ||
500 Fifth Avenue, Suite 930 New York, NY 10110 And | |||||
Sage Master Investments Ltd. (Sage Master) | 3,326,745 | 3.9 | % | ||
c/o Appleby Corporate Services (Cayman) Ltd. Clifton House, 75 Fort Street PO Box 1350 Grand Cayman KY1-1108, Cayman Islands And | |||||
Sage Opportunity Fund (QP), L.P. (QP Fund) | |||||
Sage Asset Management, L.P. (SAM) | |||||
Sage Asset Inc. (Sage Inc.) | |||||
500 Fifth Avenue, Suite 930 New York, NY 10110 |
(1) | For purposes of this table, a person is considered to “beneficially own” any shares with respect to which they exercise sole or shared voting or investment power or as to which they have the right to acquire the beneficial ownership within 60 days of April 30, 2010. |
(2) | “Percent of Class” is calculated by dividing the number of shares beneficially owned by the total number of outstanding shares of Boise Inc. on April 30, 2010. This calculation includes the number of shares such person has the right to acquire within 60 days of April 30, 2010. |
(3) | Pursuant to Schedule 13G, Amendment No. 2, dated January 15, 2010, and filed with the SEC on January 15, 2010: |
Voting Power | Investment Power | |||||||
Name | Sole | Shared | Sole | Shared | ||||
B. Taylor | 0 | 6,944,598 | 0 | 6,944,598 | ||||
PRCM | 0 | 6,944,598 | 0 | 6,944,598 | ||||
Nisswa | 0 | 6,385,332 | 0 | 6,385,332 |
(4) | Pursuant to Schedule 13D, Amendment No. 2, dated December 29, 2009, and filed with the SEC on December 29, 2009, and Form 4 dated March 16, 2010, and filed with the SEC on March 16, 2010: |
Voting Power | Investment Power | |||||||
Name | Sole | Shared | Sole | Shared | ||||
N. Leight | 4,954,662 | 0 | 4,954,662 | 0 |
Shares include Mr. Leight’s 1,502,900 warrants, which are currently exercisable but had not been exercised as of March 15, 2010, and 18,315 shares of service-condition vesting restricted stock awarded to Mr. Leight on March 15, 2010, as his 2010 director equity award.
(5) | Pursuant to Schedule 13G dated March 5, 2010, and filed with the SEC on March 5, 2010: |
Voting Power | Investment Power | |||||||
Name | Sole | Shared | Sole | Shared | ||||
K. Hensel | 1,179,021 | 3,326,745 | 1,179,021 | 3,326,745 | ||||
B. Haimes | 120,100 | 3,326,745 | 120,100 | 3,326,745 | ||||
Sage Master | 0 | 3,326,745 | 0 | 3,326,745 | ||||
QP Fund | 0 | 3,326,745 | 0 | 3,326,745 | ||||
SAM | 0 | 3,326,745 | 0 | 3,326,745 | ||||
Sage Inc. | 0 | 3,326,745 | 0 | 3,326,745 |
Collectively, K. Hensel, B. Haimes, Sage Master, QP Fund, SAM, and Sage Inc. beneficially own 4,625,866 shares of the company’s common stock, which constitutes 5.5% of all of the issued and outstanding shares of the company’s common stock as of April 30, 2010.
K. Hensel beneficially owns 3,326,745 shares of the company’s common stock individually owned by Sage Master, solely in her capacity as a controlling person of Sage Inc., and an additional 1,179,021 shares of the company’s common stock that she individually beneficially owns personally (consisting of 483,621 shares of the company’s common stock and warrants exercisable for 695,400 shares of the company’s common stock).
B. Haimes beneficially owns 3,326,745 shares of the company’s common stock individually owned by Sage Master, solely in his capacity as a controlling person of Sage Inc., and an additional 120,100 shares of the company’s common stock that he individually beneficially owns personally (consisting of 62,800 shares of the company’s common stock and warrants exercisable for 57,300 shares of the company’s common stock).
Sage Master individually beneficially owns 3,326,745 shares of the company’s common stock, consisting of: (i) 1,590,945 shares of the company’s common stock and (ii) warrants exercisable for 1,735,800 shares of the company’s common stock.
QP Fund, solely in its capacity as the controlling shareholder of Sage Master, beneficially owns 3,326,745 shares of the company’s common stock individually beneficially owned by Sage Master.
SAM, solely in its capacity as investment manager of Sage Master, beneficially owns 3,326,745 shares of the company’s common stock individually beneficially owned by Sage Master.
Sage Inc., solely in its capacity as the general partner of SAM, beneficially owns 3,326,745 shares of the company’s common stock individually beneficially owned by Sage Master.
Beneficial Ownership of Boise Inc.’s Directors and Executive Officers
All of our outstanding common stock is indirectly owned by our Parent, Boise Inc. As of April 30, 2010, Boise Inc. had 84,760,219 shares issued and outstanding. The following table sets forth, as of April 30, 2010, the actual beneficial ownership of our outstanding common stock by:
Each of Boise Inc.’s directors;
Each of Boise Inc.’s named executive officers; and
All of Boise Inc.’s directors and executive officers as a group.
None of these shares are pledged as security for any obligation (such as pursuant to a loan arrangement or agreement or a margin account agreement).
Name and Address of Beneficial Owner and Nature of Beneficial Ownership | Amount of Beneficial Ownership (#) (1) | Percent of Class (%) (2) | |||
Carl A. Albert (3) | 1,128,056 | 1.3 | % | ||
Jonathan W. Berger (4) | 353,973 | * | % | ||
Jack Goldman (5) | 300,773 | * | % | ||
Nathan D. Leight (6) | 4,954,662 | 5.8 | % | ||
Heinrich R. Lenz (7) | 18,315 | * | % | ||
Jason G. Weiss (8) | 3,238,405 | 3.8 | % | ||
Alexander Toeldte (9) | 1,890,139 | 2.2 | % | ||
Robert M. McNutt (10) | 587,386 | * | % | ||
Jeffrey P. Lane (11) | 614,000 | * | % | ||
Robert E. Strenge (12) | 47,758 | * | % | ||
Robert A. Warren (13) | 55,648 | * | % | ||
All directors and executive officers as a group (13 persons) (14) | 13,499,911 | 15.9 | % |
* | Less than 1% |
(1) | For purposes of this table, a person is considered to “beneficially own” any shares with respect to which they exercise sole or shared voting or investment power or as to which they have the right to acquire the beneficial ownership within 60 days of April 30, 2010. |
(2) | “Percent of Class” is calculated by dividing the number of shares beneficially owned by the total number of outstanding shares of the company on April 30, 2010. This calculation includes the number of shares such person has the right to acquire within 60 days of April 30, 2010. |
(3) | Mr. Albert’s business address is c/o Boise Inc., 1111 West Jefferson Street, Suite 200, Boise, ID 83702. Mr. Albert’s shares are held as follows: 974,256 shares held directly; 23,800 shares held indirectly by the Albert-Schaefer Trust; and 130,000 shares held indirectly by the Carl A. Albert Trust. |
(4) | Mr. Berger’s business address is c/o Tellurian Partners, LLC, 1170 Peachtree Street, NE, Atlanta, GA 30309. Mr. Berger’s shares are held as follows: 343,973 shares held directly; and 10,000 warrants held directly, which are currently exercisable but had not been exercised as of April 30, 2010. |
(5) | Mr. Goldman’s business address is c/o Theodora, Oringher, Miller & Richman, P.C., 10880 Wilshire Boulevard, Suite 1700, Los Angeles, CA 90024. Mr. Goldman’s shares are held as follows: 286,973 shares held directly; and 13,800 shares held indirectly in an individual retirement account. |
(6) | Mr. Leight’s business address is c/o Terrapin Partners, LLC, 60 Edgewater Drive—Unit TSK, Coral Gables, FL 33133. Mr. Leight’s shares are held as follows: 3,441,762 shares held directly; 10,000 shares held indirectly in an individual retirement account; and 1,502,900 warrants held directly, which are currently exercisable but had not been exercised as of April 30, 2010. |
(7) | Mr. Lenz’s business address is c/o Sun Chemical Corporation, 35 Waterview Boulevard, Parsippany, NJ 07054. Mr. Lenz’s shares are all held directly. |
(8) | Mr. Weiss’s business address is c/o Boise Inc., 1111 West Jefferson Street, Suite 200, Boise, ID 83702. Mr. Weiss’s shares are held as follows: 286,973 shares held directly; 935,699 shares held indirectly by the |
Jason G. Weiss Revocable Trust; 1,200,733 shares held indirectly by the Weiss Family Trust; and 815,000 warrants held indirectly by the Jason G. Weiss Revocable Trust, which are currently exercisable but had not been exercised as of April 30, 2010. |
(9) | Mr. Toeldte’s business address is c/o Boise Inc., 1111 West Jefferson Street, Suite 200, Boise, ID 83702. Mr. Toeldte’s shares are held as follows: 1,850,139 shares held directly; and 40,000 shares held indirectly by the Toeldte Family Revocable Trust. |
(10) | Mr. McNutt’s business address is c/o Boise Inc., 1111 West Jefferson Street, Suite 200, Boise, ID 83702. Mr. McNutt’s shares are held as follows: 577,386 shares held directly; and 10,000 shares held indirectly in Mr. McNutt’s 401(k) account. |
(11) | Mr. Lane’s business address is c/o Boise Inc., 1111 West Jefferson Street, Suite 200, Boise, ID 83702. Mr. Lane’s shares are all held directly. |
(12) | Mr. Strenge’s business address is c/o Boise Inc., 1111 West Jefferson Street, Suite 200, Boise, ID 83702. Mr. Strenge’s shares are all held directly. |
(13) | Mr. Warren’s business address is c/o Boise Inc., 1111 West Jefferson Street, Suite 200, Boise, ID 83702. Mr. Warren’s shares are all held directly. |
(14) | Included in this total amount are shares held by the company’s two remaining executive officers—Samuel K. Cotterell, vice president and controller, and Judith M. Lassa, vice president, Packaging. The business address for Mr. Cotterell and Ms. Lassa is c/o Boise Inc., 1111 West Jefferson Street, Suite 200, Boise, ID 83702. Mr. Cotterell holds 22,154 shares, all of which are held directly. Ms. Lassa holds 288,642 shares, all of which are held directly. |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related-Person Transactions
Investor Rights Agreement
In connection with the Acquisition, our parent company, Boise Inc. entered into an Investor Rights Agreement with (1) Boise Cascade, L.L.C., Boise Cascade Holdings, L.L.C. (together, the Boise Majority Holders); and (2) Messrs. Berger, Leight, and Weiss and Mr. Richard Rogel, a former director of the company (together, the Aldabra Majority Holders). The Investor Rights Agreement provides for registration rights with respect to shares held by these entities and individuals, who have the right to demand registration under the Securities Act of 1933, as amended, of some or all of their registrable securities. In March 2009, the Aldabra Majority Holders used this right to register all of their Boise Inc. shares. In February 2009, the Boise Majority Holders used this right to register all of their Boise Inc. shares, and in early 2010, sold all of their Boise Inc. shares to the public and we no longer have any Boise Cascade Board Representatives on our board.
The Investor Rights Agreement provides that the Aldabra Majority Holders have the right to designate directors to Boise Inc.’s board in an amount proportionate to the voting power of the shares they each hold. Pursuant to this right, Mr. Weiss serves as representative of the Aldabra Majority Holders.
Relationship With Boise Cascade Holdings, L.L.C.
We have entered into a number of agreements with Boise Cascade to carry out specified operational functions of both companies. A number of these agreements allow us to purchase wood fiber from Boise Cascade to furnish our paper operations. We also have agreements under which we provide administrative and transportation services to Boise Cascade.
From February 22, 2008, through early March 2010, Boise Cascade held a significant interest in us, and our transactions with Boise Cascade were related-party transactions. In early March 2010, Boise Cascade sold all of its remaining investment in us, and consequently, it is no longer a related party. Beginning in early March 2010, no transactions between Boise Cascade and us will be considered related party transactions, except those concerning Louisiana Timber Procurement Company, L.L.C. (“LTP”). LTP, which facilitates the purchases of saw logs and pulpwood for our pulp and paper mill in DeRidder, Louisiana, is a variable-interest entity that is 50% owned by us and 50% owned by Boise Cascade.
For the year ended December 31, 2009, we recorded $2.3 million and $15.0 million of related-party sales, respectively, for transportation and administrative services rendered by us to Boise Cascade and $25.5 million for sales from LTP. For the year ended December 31, 2009, we recorded $36.9 million of costs for fiber purchases we made from Boise Cascade.
In the first quarter of 2010, we recorded $0.3 million and $2.3 million of related-party sales, respectively, for transportation and administrative services rendered by us to Boise Cascade and $5.6 million for sales from LTP. We recorded $9.8 million of costs for fiber purchases we made from Boise Cascade during the same period.
Family Relationships
Messrs. Berger and Leight are cousins, who have both served on our board since the company’s inception in 2007.
Policies and Procedures for Related-Person Transactions
Our Code of Ethics, which is posted on our website, governs the review, approval, or ratification of related-person transactions. Pursuant to our Code of Ethics, our directors and officers are required to be free from actual or apparent conflicts of interest that would interfere with their loyalty to us or to our shareholders. Similarly, our Code of Ethics prohibits our directors and officers from appropriating business opportunities that are presented to the company, from competing with the company, and from using their positions with the company or company information for personal gain.
All actual or potential conflicts, including transactions with related parties, must be reported to the company’s general counsel, who will provide guidance and a recommendation on how to address the issue. If the situation so warrants, the general counsel will report the conflict or transaction to our board of directors. If a significant conflict issue arises and cannot be resolved, or if the conflict was not disclosed, the board of directors may ask for the resignation or termination of the director or officer.
Our decisions to enter into the Investor Rights Agreement and into the agreements with Boise Cascade were approved by our entire board of directors in connection with the Acquisition. There have been no subsequent related-party transactions concerning our directors or officers that have been brought to the attention of the general counsel.
DESCRIPTION OF OTHER INDEBTEDNESS
Existing indebtedness
Credit Facilities
Our senior secured credit facilities, under which Boise Paper Holdings is the borrower, consist of:
• | Revolving Credit Facility. A five-year nonamortizing $250 million senior secured revolving credit facility with interest at either the London Interbank Offered Rate (LIBOR) plus an applicable margin, which is currently 275 basis points, or a calculated base rate plus an applicable margin, which is currently 175 basis points (the “Revolving Credit Facility”); and |
• | Tranche A Term Loan Facility.A five-year amortizing senior secured term loan facility with an outstanding principal amount of $192.2 million as of March 31, 2010 with interest at LIBOR plus an applicable margin based on leverage ratios, which is currently 275 basis points, or a calculated base rate plus an applicable margin, which is currently 175 basis points, resulting in an applicable interest rate at March 31, 2010 of 3.00% (the “Tranche A Term Loan Facility” and together with the Revolving Credit Facility, the “Credit Facilities”); |
All borrowings under the Credit Facilities bear interest at a rate per annum equal to an applicable margin plus a customary base rate or adjusted Eurodollar rate. The calculated base rate means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 0.50%. The adjusted Eurodollar rate means LIBOR rounded to the nearest 1/16 of 1% and adjusted for any applicable reserve requirements. In addition to paying interest, we pay a commitment fee to the lenders under the Revolving Credit Facility at a rate of 0.375% per annum times the daily average undrawn portion of the Revolving Credit Facility (reduced by the amount of letters of credit issued and outstanding), which fee is payable quarterly in arrears. We also pay letter of credit fees of 275 basis points times the average daily maximum outstanding amount of the letters of credit and a fronting fee of 15 basis points to the issuing bank of outstanding letters of credit. These fees are payable quarterly and in arrears.
At March 31, 2010, and December 31, 2009, we had no borrowings outstanding under the revolving credit facility. For the three months ended March 31, 2010, and the year ended December 31, 2009, the average interest rates for our borrowings under our revolving credit facility were 0.0% and 3.7%, respectively. The minimum and maximum borrowings under the revolving credit facility were zero for the three months ended March 31, 2010, and zero and $60.0 million for the year ended December 31, 2009. The weighted average amount of borrowings outstanding under the revolving credit facility during the three months ended March 31, 2010 and 2009, was zero and $28.1 million, respectively. At March 31, 2010, we had availability of $227.9 million, which is net of outstanding letters of credit of $22.1 million.
The loan documentation for the Credit Facilities contains other terms, representations and warranties, covenants, events of default and indemnification customary for loan agreements for similar leveraged acquisition financings, and other representations and warranties, covenants and events of default deemed by the administrative agent to be appropriate for the specific transaction.
Covenants. Our Credit Facilities require BZ Holdings and its majority owned subsidiaries, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests. At March 31, 2010, BZ Holdings is required to maintain a minimum interest coverage ratio of 2.50:1.00 and a maximum total leverage ratio of 4.75:1.00. As of March 31, 2010, our “Consolidated Adjusted EBITDA” (as defined in the Credit and Guaranty Agreement, dated as of February 22, 2008, among Boise Paper Holdings, BZ Holdings, certain subsidiaries of Boise Paper Holdings, the lenders party thereto and Goldman Sachs Credit Partners L.P. as administrative agent and collateral agent, (the “First Lien Credit Agreement”)) was $433.3 million. As of March 31, 2010, our interest coverage ratio (as defined in the First Lien Credit Agreement) was 7.42:1.00, which excludes non-cash interest expense, including interest on the recently retired subordinated promissory note, and our total leverage ratio (as defined in the First Lien Credit Agreement) was 1.75:1.00. The maximum leverage ratio decreases to 4:50:1:00 in the third fiscal quarter of 2011.
The interest coverage ratio is defined in our First Lien Credit Agreement at the end of any fiscal quarter as the ratio of (i) Consolidated Adjusted EBITDA (as defined in the First Lien Credit Agreement) for the four-fiscal-quarter period then ended to (ii) consolidated interest expense payable in cash for such four-fiscal-quarter period. The leverage ratio is defined in our First Lien Credit Agreement at the end of any fiscal quarter as the ratio of (i) consolidated total debt as of such day to (ii) Consolidated Adjusted EBITDA (as defined in the First Lien Credit Agreement) for the four-fiscal-quarter period ending on such date.
Our Credit Facilities also require BZ Holdings to maintain a maximum first lien secured leverage ratio of 3.25:1.00 beginning with the fiscal quarter ended December 31, 2009. The maximum first lien secured leverage ratio decreases to 3.00:1.00 in the third fiscal quarter of 2011. The first lien secured leverage ratio is defined at the end of any fiscal quarter as the ratio of (i) Consolidated First Lien Secured Debt (as defined in the First Lien Credit Agreement) as of such day to (ii) Consolidated Adjusted EBITDA (as defined in the First Lien Credit Agreement) for the four-fiscal-quarter period ending on such date. As of March 31, 2010, our first lien secured leverage ratio (as defined in the First Lien Credit Agreement) was 0.36:1.00.
The Credit Facilities also limit the ability of BZ Holdings and its majority owned subsidiaries to make capital expenditures, generally to $150 million per year. This amount may increase by an additional $75 million per year if we have less than $150 million of capital expenditures in the previous fiscal year. Under the terms of our Credit Facilities, we may also spend $125 million per year, up to an aggregate of $200 million, for permitted acquisitions.
As of the date of this prospectus, and after giving effect towe were in compliance with the financial covenants under our conversion into a corporation, regardingCredit Facilities. We anticipate compliance with these covenant requirements under our Credit Facilities through the beneficial ownershipremainder of 2010; however, unforeseen declines in the demand for or pricing of our common stock held by:
Guarantees. Boise Paper Holdings’ obligations under the Credit Facilities are guaranteed by BZ Holdings and by each of our named executive officers;
Beneficial ownership of the common stock listed in the table for Madison Dearborn and members of our management represents such persons' proportional interest in our common stock held by FPH. Except as noted in the preceding sentence, beneficial ownership of the common stock listed in the table has been determined in accordance with the applicable rules and regulations promulgated under the Exchange Act and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to the table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by such stockholder. Percentage of beneficial ownership is based on 48,600,000 shares of common stock outstanding. Unless indicated otherwise in the footnotes, the address of each individual listed in the table is c/o Boise Cascade Company, 1111 West Jefferson Street, Boise, Idaho 83702.
| Class B Common Stock(1) | Class C Common Stock(1) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Name of Beneficial Owner | Number | Percent of Class | Number | Percent of Class | ||||||
Principal stockholders: | ||||||||||
Forest Products Holdings, L.L.C.(2) | 33,104,543.6 | 80.1 | % | 2,674,343.7 | 100 | % | ||||
Madison Dearborn(2) | 31,573,589.4 | 76.4 | — | — | ||||||
OfficeMax Incorporated(3) | 8,202,757.9 | 19.9 | — | — | ||||||
Directors and named executive officers: | ||||||||||
W. Thomas Stephens | 301,018.6 | * | 841,572.9 | 31.5 | ||||||
John W. Holleran | 75,254.7 | * | 211,616.1 | 7.9 | ||||||
Thomas E. Carlile | 63,966.5 | * | 180,310.2 | 6.7 | ||||||
Stanley R. Bell | 55,688.4 | * | 144,263.2 | 5.4 | ||||||
Thomas A. Lovlien | 30,101.9 | * | 64,041.7 | 2.4 | ||||||
Zaid F. Alsikafi(4) | — | — | — | — | ||||||
John W. Madigan(5) | 75,254.7 | * | — | — | ||||||
Christopher J. McGowan(4) | — | — | — | — | ||||||
Samuel M. Mencoff(6) | 31,573,589.4 | 76.4 | — | — | ||||||
Thomas S. Souleles(6) | 31,573,589.4 | 76.4 | — | — | ||||||
All directors and executive officers as a group (10 persons) | 32,235,830.4 | 78.1 | % | 1,600,912.5 | 59.8 | % |
(footnotes continued on following page)
Other Provisions. Subject to specified exceptions, the Credit Facilities require that the proceeds from certain asset sales, casualty insurance, any debt issuances not permitted by the First Lien Credit Agreement and 75% (subject to step-downs based on certain leverage ratios) of the excess cash flow for each fiscal year (other than our 2009 fiscal year) must be used to pay down outstanding borrowings. For our 2009 fiscal year, the Credit Facilities required that 50% of the excess cash flow for such fiscal year be used to pay down outstanding borrowings, subject to specified deductions. In 2009, those deductions included prepayments of outstanding borrowings in the table represent Mr. Madigan's proportionate ownership interestamount of $75 million in the shares held by FPH. Mr. Madigan does not exercise voting or investment power over any of the shares held by FPH.
The discussion set forth below describes our capital stock, certificate of incorporation and by-laws. Our authorized capital stock consists of 260,000,000 shares of common stock, $0.01 par value per share, 150,000,000 shares of which are designated Class A common stock, 100,000,000 shares of which are designated Class B common stock and 10,000,000 of which are designated Class C common stock, 40,000,000 shares of preferred stock, par value $0.01 per share, and 66,000,000 shares of Series A Redeemable Preferred Stock, par value $0.01 per share. We refer to the Class A common stock, Class B common stock and the Class C common stock collectively as the "common stock."$100 million in December 2009. As of March 31, 20052010, required debt principal repayments under the Credit Facilities, the 9% Notes and the old notes, excluding those from excess cash flows, total $10.4 million in 2010, $43.7 million in 2011, $129.7 million in 2012, $8.4 million in 2013, $0 in 2014 and $600.0 million thereafter.
9% Notes
On October 26, 2009, Boise Paper Holdings and Boise Finance issued the 9% Notes through a private placement that was exempt from the registration requirements of the Securities Act. The 9% Notes will mature on a pro forma basis after giving effect to our conversion to a corporation, we hadNovember 1, 2017, and bear an interest rate per annum of 9%, payable semiannually in arrears on May 1 and November 1, commencing on May 1, 2010.
The 9% Notes were issued under an indenture, dated as of October 26, 2009 (the “9% Notes Indenture”) among Boise Paper Holdings, Boise Finance, the 9% Note Guarantors (as defined below) and outstanding no shares of Class A common stock, 41,309,446 shares of Class B common stock, 2,675,819 shares of Class C common stock and 66,000,000 shares of Series A Redeemable Preferred Stock. Our certificate of incorporation and by-laws are includedWells Fargo Bank, National Association, as exhibitstrustee. The 9% Notes Indenture contains covenants substantially similar to the registration statementcovenants for the indenture governing the old notes and the new notes. These covenants, subject to certain exceptions, limit the ability of which this prospectus forms a part.
Common Stock
All of our existing common stock is validly issued, fully paidBZ Holdings and nonassessable. As of March 31, 2005, after giving effect to our conversion to a corporation as described under "Our Corporate Structure—Reorganization as a Corporation," there were no record holder of our Class A common stock and two record holders of our Class B common stock and one record holder of our Class C common stock.
Dividend Rights. Subject to preferences that may apply to shares of our outstanding preferred stock, holders of our outstanding shares of common stock are entitled to receive dividends out of assets legally available at the times andits Restricted Subsidiaries (as defined in the amounts as9% Notes Indenture) to, among other things, incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with affiliates and create liens on assets of Boise Paper Holdings, Boise Finance or the board9% Note Guarantors (as defined below). Upon a change of directors may from timecontrol, Boise Paper Holdings and Boise Finance must offer to time determine.
Our certificate of incorporation provides that on or prior to December 31, 2005, our board of directors will declare, and we will pay torepurchase the holders9% Notes at 101% of the Class B common stock, out of any funds legally available therefor, (i) a special, one-time cash dividend with certain net proceeds received from any initial public offering (the "IPO"), (ii) a special, one-time cash dividend with certain net proceeds received from exercise of the underwriters over-allotment option in connection with the IPO, and (iii) a special one-time stock dividend with shares of Class A common stock reserved for sale, but not sold, in connection with the underwriters' over-allotment option in connection with the IPO.
The shares of Series A preferred stock, Class A common stock and Class B common stock shall receive dividends in preference to the shares of Class C common stock, until the aggregateprincipal amount, paid from and after May 9, 2005 (i) in respect of the Series A preferred shares equals the aggregate liquidation value thereof plus all Series A Preferred accumulated dividends and all other accrued and unpaid dividends thereon, and (ii) in respect of the shares of Class A and Class B common stock equals the original purchase price therefore. However, if any share of Class C common stock has been granted with a threshold equity value as described in our certificate of incorporation, then such share of Class C common stock will not have the right to receive dividendsinterest. If BZ Holdings or other distributions pro rata with shares of Class A common stock and Class B common stock to the extent that the aggregate distributions that have been made to all shares of common stock from and after May 9, 2005 are equal to the threshold equity value of such share of Class C common stock.
Voting Rights. Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of stockholders. The holders of Class A common stock, Class B common stock and Class C common stock will vote as a single class on all matters with respect to which the holders of common stock are entitled to vote, except as otherwise required by law and except that,
in addition to any other vote of stockholders required by law, holders of Class A common stock shall not be eligible to vote on any alteration or changeits Restricted Subsidiaries (as defined in the powers, preferences or special rights of the Class B common stock that would adversely affect the rights of the Class B common stock9% Notes Indenture) sell certain assets, and would not adversely affect the rights of the Class A common stock. The holders of common stock do not have cumulative voting rights in the election of directors.
Preemptive or Similar Rights. Our common stock is not entitled to preemptive or other similar subscription rights to purchase any of our securities.
Conversion Rights. The Class A common stock and the Class C common stock is not convertible. The Class B common stock may be converted at any time at the option of the holder into Class A common stock and will be automatically converted upon the conversion of a majority of the Class B common stock.
Right to Receive Liquidation Distributions. Upon our liquidation, dissolution or winding up, the holders of our common stock are entitled to receive pro rata our assets which are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of any holders of preferred stock then outstanding. The shares of Series A Preferred stock, Class A common stock and Class B common stock shall receive distributions in preference to the shares of Class C common stock, until the aggregate amount paid from and after May 9, 2005 (i) in respect of the Series A Preferred shares equals the aggregate liquidation value thereof plus all Series A Preferred accumulated dividends and all other accrued and unpaid dividends thereon, and (ii) in respect of the shares of Class A and Class B common stock has been granted with a threshold equity value as described in our certificate of incorporation, then such share of Class C common stock will not have the right to receive any distributions until the aggregate distributions that have been made to all shares of common stock from and after May 9, 2005 are equal to the threshold equity value of such share of Class C common stock.
Series A Redeemable Preferred Stock
As of March 31, 2005, after giving effect to our conversion to a corporation as described under "Our Corporate Structure—Reorganization as a Corporation," there was one holder of our Series A Redeemable Preferred Stock.
Dividends. Each outstanding share of Series A Preferred is entitled to a dividend which shall accrue on a daily basis at the rate of 8% per annum of the sum of the liquidation value thereof plus all Series A Preferred accumulated dividends thereon, from and including the date of issuance of such Series A Preferred share to and including the date on which the liquidation value of such Series A Preferred share (plus all Series A Preferred accumulated dividends and all other accrued and unpaid dividends thereon) is paid. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds legally available for the payment of dividends.
Voting Rights. The Series A Preferred shares have no voting rights.
Retirement. On the date that we pay or make available in full the entire liquidation value plus Series A Preferred accumulated dividends plus all other accrued but unpaid dividends on a share of Series A Preferred or otherwise acquire a share of Series A Preferred from the holder thereof, such share shall cease to be outstanding, shall be canceled and shall no longer accrue dividends or be entitled to any distribution from us.
Preferred Stock
Our certificate of incorporation provides that our board of director may, without further action by our stockholders, from time to time, direct the issuance of shares of preferred stock in series and may, at the time of issuance, determine the rights, preferences and limitations of each series. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of funds available for the payment of dividends on shares of common stock. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of our liquidation, dissolution or winding-up before any payment is made to the holders of shares of common stock. Under specified circumstances, the issuance of shares of preferred stock may make it more difficult to complete, or tend to discourage, a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities or the removal of incumbent management. We have no present intention to issue any shares of preferred stock.
Limitations on Liability and Indemnification of Officers and Directors
Our certificate of incorporation limits the liability of directors to the fullest extent permitted by the Delaware General Corporation Law. In addition, our certificate of incorporation provides that we shall indemnify our directors and officers to the fullest extent permitted by such law. We have entered into indemnification agreements with our current directors.
Corporate Opportunities
Our certificate of incorporation renounces any interest or expectancy of us in business opportunities that are offered to officers, directors or stockholders who are not our or our subsidiaries' employees to the fullest extent permitted by the Delaware General Corporation Law.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have established procedures for the review of all transactions and other relationships between us and our directors, executive officers, and other affiliates. Our board of directors has charged the audit committee with the responsibility of reviewing and investigating any conflicts of interest involving management and our board of directors. Our amended and restated certificate of incorporation renounces any interest or expectancy of us in business opportunities that are offered to officers, directors or stockholders who are not our or our subsidiaries' employees to the fullest extent permitted by the Delaware General Corporation Law.
The Acquisition
Pursuant to an asset purchase agreement entered into between FPH and OfficeMax, FPH acquired OfficeMax's paper, packaging and newsprint operations, wood products manufacturing, building materials distribution and timberlands operations for an aggregate purchase price of $3.9 billion in cash and installment notes, including fees and expenses. Of the purchase price, $1.7 billion was allocated to the timberlands operations and $2.2 billion was allocated to the remaining assets. FPH owns and operates the paper and forest products businesses through us. The timberlands operations were sold by Boise Land & Timber Corp., a sister corporation that is majority-owned by FPH, on February 4, 2005. See "—Timberlands Sale."
For five years after the closing of the Acquisition, OfficeMax may not compete with us anywhere in the United States in the businesses purchased in the Acquisition, nor may OfficeMax induce or attempt to induce any customer to terminate or reduce its relationship with us.
Until October 29, 2006, we must maintain health and welfare benefit plans, defined contribution retirement plans and severance benefits that will provide transferred employees with plans and benefits that are, in the aggregate, comparable to those offered by OfficeMax prior to the closing of the Acquisition.
The asset purchase agreement contains customary representations, warranties and covenants, including an obligation by OfficeMax to indemnify us for breaches of representatives, warranties and covenants. OfficeMax's indemnification obligations with respect to such breaches generally survive until April 29, 2006, with indemnification obligations with respect to breaches relating to employee and environmental law matters surviving until October 29, 2009. OfficeMax's indemnification obligations for breaches of representations, warranties and covenants are, with certain exceptions, subject to a deductible of $20.7 million and an aggregate cap of $248.9 million. OfficeMax also indemnifies us with respect to certain pre-closing liabilities, including environmental, asbestos, tax, benefits and other legacy liabilities.
We currently indemnify and hold harmless each of our present or former officers, directors or employees against all claims, losses, liabilities, damages and other costs and expenses arising out of or pertaining to the fact that the indemnified party is or was an officer, director or employee of ours or our subsidiaries for matters existing or occurring prior to the completion of the Acquisition.
Purchase of Equity Interests in Us and Boise Land & Timber Holdings Corp.
In connection with the Acquisition, FPH and OfficeMax capitalized us with approximately $338.9 million in equity capital, $302.5 million of which consisted of Series B common units and $36.4 million of which consisted of Series A common units, which were later converted into Series A preferred stock in connection with our conversion to a corporation. Boise Land & Timber Holdings Corp. was capitalized in connection with the Acquisition with approximately $276.1 million in equity capital in the form of common stock, $246.5 million of which consisted of Series B common stock and $29.6 million of which consists of Series A common stock.
FPH was issued approximately 80.1% of each of our Series B common units and Boise Land & Timber Holdings Corp.'s Series B common stock in exchange for cash contributions of approximately $242.4 million and $197.6 million, respectively. OfficeMax was issued approximately 19.9% of our Series B common units and all of our Series A common units in exchange for cash contributions of $60.1 million and $36.4 million, respectively. An affiliate of OfficeMax was issued approximately 19.9% of Boise Land & Timber Holdings Corp.'s Series B common stock and all of its Series A common stock in exchange for cash contributions of $48.9 million and $29.6 million, respectively.
In addition, on December 12, 2004, we and Boise Land & Timber Holdings Corp. each issued additional equity securities to FPH so that both FPH and OfficeMax would proportionately bear any dilution caused by the 35,600,120 FPH Class C units issued to approximately 170 of our senior managers on such date.
Paper Supply Agreement
In connection with the Acquisition, we entered into a 12-year paper supply agreement with OfficeMax under which OfficeMax is required to purchase from us all of its North American requirements for cut-size office paper, to the extent we choose to supply such paper to them, through December 2012. OfficeMax's purchase obligations under the agreement will phase out over a four-year period beginning one year after the delivery of notice of termination, but not prior to December 31, 2012.
Additional Consideration Agreement
In connection with the Acquisition, we entered into a six-year agreement with OfficeMax. Under the agreement, OfficeMax will pay us $710,000 for each dollar by which the average market price per ton of a specified benchmark grade of cut-size office paper during any twelve-month period ending on an anniversary of the closing of the Acquisition, or the annual paper price, is less than $800 per ton. In addition, we will pay $710,000 to OfficeMax for each dollar by which the annual paper price exceeds $920 per ton. Neither party will be obligated to make payments under the agreement (1) in excess of $45.0 million in any one year or (2) in excess of $125.0 million in the aggregate during the first four years following the closing, $115.0 million in the aggregate if the determination is made during the fifth year following the closing, and $105.0 million in the aggregate if the determination is made during the sixth year following the closing, in each case net of payments received (the "Maximum Aggregate Consideration"). If a party has paid the Maximum Aggregate Consideration during the first four years following the closing, the party will not be entitled to recoup in years five or six the amount previously paid in excess of the Maximum Aggregate Consideration applicable in years five and six. This agreement is scheduled to expire as of the earliest of (1) six years after the closing, (2) the sale of 50% or more of the outstanding common equity (as measured on October 29, 2004) of Boise Cascade, L.L.C., our subsidiary, in an underwritten public offering, (3) the sale or transfer by Boise Cascade, L.L.C. of more than 50% of its common equity in Boise White Paper, L.L.C. (the subsidiary that operates our Paper segment) and (4) termination by either party upon a payment default by the other party not cured within 30 days. In connection with the asset purchase agreement, FPH represented to OfficeMax that no change of control or sale transaction involving the white paper business was contemplated as of that date and that FPH will not sell its white paper business during the first six months after closing.
Any payments made or received pursuant to the additional consideration agreement will be treated as adjustments to the purchase price for the Acquisition.
Shared Service Agreements With OfficeMax
Concurrently with the Acquisition, we and OfficeMax entered into a mutual administrative services agreement pursuant to which we and OfficeMax exchange certain accounting and financial management, legal, human resources and transportation services for terms ranging from two to fourteen months after the Acquisition. Substantially all of the services to be performed under this agreement are provided by us for OfficeMax. In addition, we also entered into an aviation services agreement under which we agreed to provide aviation services to OfficeMax for an initial term of eight months following the Acquisition, subject to extension at both parties' option. Fees for substantially all of the services provided under these agreements equal the provider's cost.
Registration Rights Agreement
In connection with the Acquisition, we entered into a registration rights agreement with FPH and OfficeMax with respect to the equity interests they own in us. Under the registration rights agreement, (a) FPH has the right to demand that we effect an unlimited number of registrations of its equity interests, whether pursuant to a long-form registration statement or a short-form registration, and pay all expenses, other than underwriting discounts and commissions, related to such registrations and (b) after the earlier of the fifth anniversary of the completion of the Acquisition or completion of an initial public offering by us, OfficeMax has the right to demand that we effect (1) seven registrations of its equity interests on a long-form registration statement and pay all expenses, other than underwriting discounts and commissions, related to any two of such registrations (with OfficeMax paying all expenses relating to the other five of such registrations) and (2) an unlimited number of registrations of its equity interests on a short-form registration statement and pay all expenses, other than underwriting discounts and commissions, related to such registrations. In addition, FPH and OfficeMax have the right to participate in registrations of our equity interests effected by us, whether such registrations relate to an offering by us or by our stockholders.
Acquisition Fees
At the closing of the Acquisition, Madison Dearborn received a fee of $40 million. Madison Dearborn may be paid additional fees from time to time in the future for providing management, consulting or advisory services and will be reimbursed for all future expenses incurred in connection with its investment in us.
Relationship Between Us and Boise Land & Timber Holdings Corp.
Prior to the Timberlands Sale, FPH operated our business and the timberlands operations through two direct, majority-owned subsidiaries. The timberlands operations supplied timber to us at prices that approximated market prices. Our fiber purchases from the timberlands operations were $120.0 million and $17.6 million during 2004 and the three months ended March 31, 2005, respectively, and were reflected as "fiber costs from related parties" in our statement of income. These sales, as well as the allocation of certain corporate, overhead and labor costs, were reflected through the adjustment of an intercompany note. See "—Loans Between Us and Boise Land & Timber Corp.," Note 11 to our audited consolidated financial statements and Note 9 to our unaudited consolidated financial statements, in each case included in this prospectus.
Loans Between Us and Boise Land & Timber Corp.
In connection with the Acquisition, our subsidiary, Boise Cascade, L.L.C., loaned $164 million to Boise Land & Timber Corp., a subsidiary of Boise Land & Timber Holdings Corp., a sister corporation that is majority-owned by FPH. This loan bore interest at a rate of 6% per annum. The principal amount of the loan was adjusted from time to time to reflect the payments between these companies for allocated costs and expenses. This loan had a balance, including accrued interest, of $159.5 million on February 4, 2005 and was repaid from the proceeds of the Timberlands Sale.
In connection with the Timberlands Sale, Boise Land & Timber Corp. loaned Boise Cascade, L.L.C. $264.8 million ofuse the proceeds from such sale to make a mandatory repayment of indebtedness under our senior credit facilities. This note bears interest at 8% per annum, compounded semi-annually, isfor specified purposes, they must, subject to adjustment based on transactions betweencertain exceptions, offer to repurchase the two entities.
Timberlands Sale9% Notes at 100% of the principal amount, plus accrued and unpaid interest.
On February 4, 2005, weBoise Paper Holdings and Boise Land & Timber Corp.,Finance may redeem all or a subsidiaryportion of the 9% Notes at any time on or after November 1, 2013, at a premium decreasing to zero by November 1, 2015, plus accrued and unpaid interest. In addition, prior to November 1, 2012, Boise Paper Holdings and Boise Finance may redeem up to 35% of the aggregate principal amount of the 9% Notes at a redemption price of 109% of the principal amount thereof, with the net proceeds of one or more qualified equity offerings.
The 9% Notes are senior unsecured obligations of Boise Land & TimberPaper Holdings Corp., completed the Timberlands Sale to entities controlled by Forest Capital Partners, LLC, an unaffiliated private equity investment firm, for an aggregate purchase price of $1,650 million, with net cash proceeds of $1,632 million after fees and expenses. The purchase and sale agreement entered into in connection with the Timberlands Sale contains customary representations, warranties and covenants, including an obligation by us and Boise Land & Timber Corp.Finance and rank equally with all of their present and future senior indebtedness, including the old notes and the new notes, senior to indemnify the purchasers for breachesall of representations, warrantiestheir future subordinated indebtedness and covenants. Our indemnification obligations, with certain exceptions, survive until February 4, 2006effectively subordinated to all present and are subject to a deductiblefuture senior secured indebtedness of $16.5 million and an aggregate cap of $100.0 million. In addition, the purchasers have agreed that, if the events giving rise to an indemnification claim against usBoise Paper Holdings and Boise Land & Timber Corp. also give rise to an indemnification claim against OfficeMax under OfficeMax's indemnification obligations arising from its sale of the timberlands operations, the purchasers will pursue remedies directly and exclusively against OfficeMax. In connection with the foregoing, FPH assigned to the purchasersFinance (including all of its rights to indemnification by OfficeMaxborrowings with respect to the timberlands operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—EffectsCredit Facilities) to the extent of the Acquisition—Wood Fiber Supply."
We received an aggregate of $408.8 million in connection with the Timberlands Sale, including $159.5 million paid by Boise Land & Timber Corp. in satisfaction of a note issued to us concurrently with the Acquisition and $264.8 million in the form of a loan from Boise Land & Timber Corp. We used all of these amounts to reduce amounts outstanding under our Tranche B term loan. Boise Land & Timber Corp. used the remaining $1,225.0 millionvalue of the proceeds to repay in full its Tranche C term loan.assets securing such indebtedness.
Amended and Restated Going Public Agreement
We, along with FPH, Boise Land & Timber Holdings Corp. and OfficeMax, entered into an Amended and Restated Going Public Agreement pursuant to which the parties acknowledged the proposed plan of reorganization described in "Our Corporate Structure—Reorganization as a Corporation," including, among other things, our conversion to a corporation and our repurchase of our preferred stock using the net proceeds from an initial public offering of our Class A common stock, which has not been completed.
DESCRIPTION OF SENIOR CREDIT FACILITIES
General
In connection with the Acquisition, we entered into term loan and revolving credit facilities, which we refer to as our senior credit facilities, with JPMorgan Chase Bank, N.A. as administrative agent, J.P. Morgan Securities Inc. and Lehman Brothers Inc. as joint-lead arrangers and joint book-runners and Lehman Commercial Paper Inc. as syndication agent. Under the term loan facilities, Boise Cascade, L.L.C., one of our direct subsidiaries, borrowed a seven-year tranche B term loan in a principal amount of $1,330.0 million and Boise Land & Timber Corp., a sister corporation, borrowed a six-year tranche C term loan in a total principal amount of $1,225.0 million. In February 2005, Boise Land & Timber Corp. repaid in full the tranche C term loan from the proceeds of the Timberlands Sale. Also in February 2005, Boise Cascade, L.L.C. prepaid $412.0 million of the tranche B term loan with the amounts it received from Boise Land & Timber Corp. as a loan and as a repayment of an existing loan, as well as a modest amount of cash on hand. Boise Cascade, L.L.C. is the borrower under the six-year revolving credit facility, which has a principal amount of up to $400.0 million, available for general corporate purposes, subject to certain conditions.
Guarantees and Security Interests
The obligations under our senior credit facilities and any interest rate protection and other permitted hedging arrangements and overdrafts resulting from cash management arrangements, in each case entered into with one of the lenders under our senior credit facilities,9% Notes are jointly and severally guaranteed by usBZ Holdings and by eachall of our existing or subsequently organizedthe domestic majority-owned subsidiaries whichof BZ Holdings except for Boise Paper Holdings and Boise Finance (the “9% Note Guarantors”). The guarantees of the 9% Notes are senior unsecured obligations of the 9% Note Guarantors and rank equally with all of the 9% Note Guarantors’ present and future senior indebtedness, including the old notes and the new notes, senior to all of the 9% Note Guarantors’ future subordinated indebtedness and effectively subordinated to all present and future senior secured indebtedness (including all borrowings with respect to the Credit Facilities) to the extent of the value of the assets securing such indebtedness.
The 9% Note Indenture contains customary events of default substantially similar to the events of default for the indenture governing the old notes and the new notes.
Concurrent with this exchange offer, Boise Paper Holdings and Boise Finance are offering to exchange the 9% Notes with new 9% notes that have been registered under the Securities Act, with substantially identical terms as the original 9% Notes. If Boise Paper Holdings and Boise Finance fail to complete the exchange in the time frame required, they will pay additional interest to holders of the 9% Notes.
When we refer to collectively as Guarantors.
Our borrowings under our senior credit facilities and the guarantees described above are (subject to limited exclusions) secured by:
Interest Rates and Fees
As of March 31, 2005, borrowings under our senior credit facilities bore interest, at our option, at either, in the case of the revolving credit facility, Adjusted LIBOR plus an interest rate spread based upon our leverage ratio, ranging from 1.50% to 2.25%, or the alternate base rate plus an interest rate spread based upon our leverage ratio, ranging from 0.50% to 1.25%, and, in the case of the tranche B term loan, Adjusted LIBOR plus 2.25% or the alternate base rate plus 1.25%. Adjusted LIBOR is the rate appearing on Page 3750 of the Dow Jones Market Service, plus statutory reserve requirements. Our credit agreement defines the alternate base rate as the higher of (1) the prime rate announced by JPMorgan Chase Bank, N.A. or (2) the federal funds effective rate plus 0.50%.
Letters of credit are subject to a 0.25% fronting fee, payable to the issuing bank, and a fee payable to the lenders equal to the product of the margin applicable to Adjusted LIBOR borrowings under our revolving credit facility multiplied by the daily average amount available for drawing under
the letters of credit. In addition, the senior credit facilities provide for an annual administration fee to be paid to the administrative agent, and a commitment fee of 0.50% per annum on the average daily unused amount under the revolving credit facility to be paid to the lenders.
Mandatory and Optional Repayment
Subject to certain exceptions and limitations, including, under some circumstances, for reinvestment of proceeds, under the debt covenants in effect as of March 31, 2005, we were required to prepay outstanding term loans under our senior credit facilities with 50% of our excess cash flow (as defined in our credit agreement), 100% of the net cash proceeds of certain asset dispositions, 100% of casualty or condemnation proceeds, 100% of the net cash proceeds of issuances of debt (other than debt permitted to be outstanding under our credit agreement) and 50% of the net cash proceeds of certain issuances of equity. We obtained consent from the lenders, under an amendment and restatement of our senior credit facilities, to permit the use of the equity proceeds as described“Notes” in this prospectus, and to permit future dividend payments on our common stock. See "—Amendment and Restatement."
We may voluntarily prepay loans or reduce commitments under our senior credit facilities at any time, in whole or in part, subject to minimum amounts. If we prepay Eurodollar loans at any time other than at the end of an applicable interest period, we will be required to reimburse lenders for their redeployment costs.
Covenants
Our senior credit facilities contain negative and affirmative covenants affecting us and each of our existing and future direct and indirect subsidiaries, with certain exceptions as set forth in the credit agreement. Our senior credit facilities contain, among others, the following negative covenants and restrictions: limitations on indebtedness, preferred stock, dividends and other restricted junior payments, redemptions and repurchases of capital stock, liens and sale-leaseback transactions, loans and investments, mergers, consolidations, liquidations, recapitalizations, acquisitions and asset sales, transactions with affiliates, changes in business conducted, amendments of debt and other material agreements, prohibitions on certain debt prepayments and redemptions and repurchases of interest rate swap agreements. Our senior credit facilities also require us and our existing and future direct and indirect wholly-owned subsidiaries, with certain exceptions set forth in our credit agreement, to meet certain financial covenants and ratios, in particular a leverage ratio, an interest coverage ratio and a limitation on capital expenditures.
Our senior credit facilities contain, among others, the following affirmative covenants: delivery of financial and other informationare referring to the administrative agent, noticeold notes and the new notes. The terms of the new notes we are issuing in this exchange offer and the old notes that are outstanding are identical in all material respects, except:
the new notes will have been issued under the Securities Act
the new notes will not contain transfer restrictions and registration rights that relate to the administrative agent of old notes; and
the occurrence of certain material events, maintenance of corporate existence and rights, payment of obligations, maintenance of properties and insurance, accessnew notes will not contain provisions relating to books and properties by the lenders, compliance with laws, further assurances, payment of taxes and maintenance of interest rate protection agreements.
Events of Default
Our senior credit facilities specify certain events of default, including: failure to pay principal, interest or other amounts, violation of covenants, inaccuracy of representations and warranties, cross events of default and cross accelerations to other material indebtedness, certain bankruptcy and insolvency events, certain ERISA events, certain undischarged judgments, change of control, failure to maintain liens on the collateral and invalidity of guarantees or security or other loan documents.
Amendment and Restatement
On April 18, 2005, we amended and restated our senior credit facilities, which now consist of a $840.0 million Tranche D term loan and a $475.0 million revolving credit facility. Under the terms of our amended and restated credit agreement, until such time as the senior credit facilities are rated BB or better by S&P and Ba2 or better by Moody's, borrowings under the Tranche D term loan bear interest at the following rates:
After such time as the senior credit facilities are rated BB or better by S&P and Ba2 or better by Moody's, borrowings under the Tranche D term loan will bear interest at the following rates:
We are required to make scheduled principal payments on the Tranche D term loan in the amount of approximately $6.3 million in 2005, $8.4 million in each of 2006 through 2009 and $6.3 million in 2010. The Tranche D term loan will mature on October 28, 2011. The maturity and interest rate on our revolving credit facility did not change as a result of this amendment and restatement.
Furthermore, the amended and restated senior credit facilities permit the payment of dividends in an amount notadditional interest to exceedbe made to the sum of:
Notwithstanding such restrictions, the amended and restated senior credit facilities permit us to declare and pay dividends in an aggregate amount of $35.0 million, whether or not the foregoing formula would permit the declaration and payment of dividends. The payment of dividends pursuant to this exception would, however, reduce the amount of dividends that could be paid pursuantcircumstances related to the formula described above.timing of the exchange offer.
On October 29, 2004, Boise Cascade,Paper Holdings, L.L.C. and Boise Cascade Finance Corporation issuedCo-Issuer Company will issue the Senior Floating Rate Notes due 2012 (the "Senior Notes") andnew notes under the Senior Subordinated Notes due 2014 (the "Senior Subordinated Notes", and together with the Senior Notes, the "Notes") under an Indenture (the "“Indenture"”) among themselves, the Note Guarantors and U.S.Wells Fargo Bank, National Association, as Trustee.Trustee, dated as of March 19, 2010. This is the same indenture under which the old notes were issued. The terms of the Notesnew notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act.
The Senior Notes and the Senior Subordinated Notes are two separate series of Notes under the Indenture for purposes of, among other things, payments of principal and interest, Events of Default and consents to amendments to the Indenture and the Notes.
Certain terms used in this description are defined under the subheading "—“—Certain definitions"Definitions”. In this description, (i) the term "Boise LLC"“Boise Paper Holdings” refers only to Boise Cascade,Paper Holdings, L.L.C. and not to any of its subsidiaries,Subsidiaries, (ii) the term "Boise Finance"“Boise Co-Issuer” refers only to Boise Cascade Finance Corporation,Co-Issuer Company, a Wholly Owned Subsidiary of Boise LLCPaper Holdings with nominal assets which conducts no operations, (iii) the term "Issuers"“Issuers” and the terms "we"“we”, “us” and "our"“our” refer to Boise LLCPaper Holdings and Boise Finance,Co-Issuer, as co-issuers of the Notes, (iv) the term "Boise Holdings"“BZ Holdings” refers to Boise CascadeBZ Intermediate Holdings L.L.C.,LLC, which owns all of the outstanding Capital Stock of Boise LLC, and not to any of its Subsidiaries, (v) the term "Timber Holdings" refers to Boise Land & Timber Holdings Corp., a corporation under common control with BoisePaper Holdings, and not to any of its Subsidiaries and (vi)(v) the term "Timber"“Parent” refers to Boise Land & Timber Corp., a Wholly Owned Subsidiary of Timber Holdings,Inc. and not to any of its Subsidiaries. Each of Boise Holdings and Timber Holdings are majority owned and controlled by Forest Products Holdings, L.L.C., which is referred to herein as the "Parent".
The following description is only a summary of the material provisions of the Indenture and the Registration Rights Agreements.Indenture. We urge you to read the Indenture and the Registration Rights Agreements because they,it, not this description, definedefines your rights as Holders of thesethe Notes. You may request copiesCopies of these agreements at our address set forththe Indenture are included as exhibits to the Exchange offer Registration Statement of which this prospectus forms a part.
The registered holder of a Note will be treated as the owner of it for all purposes. Only registered holders will have rights under the heading "Where you can find more information".Indenture.
Brief descriptionDescription of the notesNotes
TheseThe Notes:
are in the case of the Senior Notes, unsecured senior obligations of the Issuers and, in the case of the Senior Subordinated Notes, unsecured senior subordinated obligations of the Issuers;
are senior in right of payment to any existing and future Subordinated Obligations of the Issuers (which, in the case of the Senior Notes, includes the Senior Subordinated Notes);
are guaranteed in the case of the Senior Notes,by each Note Guarantor on a senior basisunsecured basis; and in the case of the Senior Subordinated Notes, on senior subordinated basis, by each Note Guarantor; and
are subject to registration with the SEC pursuant to the Registration Rights Agreements.
Principal, maturityMaturity and interestInterest
Senior Notes
The Issuers will issue the Senior Notesnew notes initially with a maximum aggregate principal amount of $250.0up to $300.0 million. The Issuers will issue the Senior Notesnew notes in minimum denominations of $2,000 and any greater integral multiple of $1,000. The Senior Notes will mature on October 15, 2012.April 1, 2020. Subject to our compliance with the covenant described under the subheading "—“—Certain covenants—Covenants—Limitation on indebtedness"indebtedness”, we are permitted to issue
more Senior Notes from time to time under the Indenture on the same terms and conditions and with the same CUSIP numbers as the Senior Notes being offered hereby in an unlimited additional aggregate principal amount (the "“Additional Senior Notes"”). The Senior Notes and the Additional Senior Notes, if any, will be treated as a single class for all purposes of the Indenture, including waivers, amendments, redemptions and offers to purchase. Unless the context otherwise requires, for all purposes of the Indenture and this "Description“Description of notes,"the New Notes”, references to the Senior Notes include any Additional Senior Notes actually issued.
Interest on the Senior Notes will accrue at athe rate of 8% per annum reset quarterly, equaland will be payable semiannually in arrears on April 1 and October 1, commencing on October 1, 2010. We will make each interest payment to LIBOR plus 2.875%, as determined by the calculation agent (the "Calculation Agent"), which shall initially beHolders of record of the Trustee.Notes on the immediately preceding March 15 and September 15. We will pay interest on overdue principal at 1% per annum in excess of the above rate to the extent lawful and will pay interest on overdue installments of interest at such higher rate to the extent lawful. Interest on the Senior Notes will be payable quarterly in arrears on January 15, April 15, July 15 and October 15, commencing on January 15, 2005. We will make each interest payment to the Holders of record of the Senior Notes on the immediately preceding January 1, April 1, July 1 and October 1. Interest on the Senior Notes will accrue from the date of original issuance.
The amount of interest for each day that the Senior Notes are outstanding (the "Daily Interest Amount") will be calculated by dividing the interest rate in effect for such day by 360 and multiplying the result by the principal amount of the Senior Notes. The amount of interest to be paid on the Senior Notes for each Interest Period will be calculated by adding the Daily Interest Amounts for each day in the Interest Period. All percentages resulting from any of the above calculations will be rounded, if necessary, to the nearest one hundred thousandth of a percentage point, with five one-millionths of a percentage point being rounded upwards (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one-half cent being rounded upwards).
The interest rate on the Senior Notes will in no event be higher than the maximum rate permitted by New York law as the same may be modified by United States law of general application.
The Calculation Agent will, upon the request of any Holder of Senior Notes, provide the interest rate then in effect with respect to the Senior Notes. All calculations made by the Calculation Agent in the absence of manifest error will be conclusive for all purposes and binding on the Issuers, the Guarantors and the Holders of the Senior Notes.
Additional interest may accrue on the Senior Notes in certain circumstances pursuant to the Registration Rights Agreement to be entered into with respect to that series of Notes.Agreement. See “Exchange Offer; Registration Rights”.
Senior Subordinated Notes
The Issuers will issue the Senior Subordinated Notes initially with a maximum aggregate principal amount of $400.0 million. The Issuers will issue the Senior Subordinated Notes in denominations of $2,000 and any integral multiple of $1,000. The Senior Subordinated Notes will mature on October 15, 2014. Subject to our compliance with the covenant described under the subheading "—Certain covenants—Limitation on indebtedness", we are permitted to issue more
Senior Subordinated Notes from time to time under the Indenture on the same terms and conditions and with the same CUSIP numbers as the Senior Subordinated Notes being offered hereby in an unlimited additional aggregate principal amount (the "Additional Senior Subordinated Notes" and, together with any Additional Senior Notes, the "Additional Notes"). The Senior Subordinated Notes and the Additional Senior Subordinated Notes, if any, will be treated as a single class for all purposes of the Indenture, including waivers, amendments, redemptions and offers to purchase. Unless the context otherwise requires, for all purposes of the Indenture and this "Description of notes", references to the Senior Subordinated Notes include any Additional Senior Subordinated Notes actually issued.
Interest on the Senior Subordinated Notes will accrue at the rate of 71/8% per annum, and will be payable semiannually in arrears on April 15 and October 15, commencing on April 15, 2005. We will make each interest payment to the Holders of record of the Senior Subordinated Notes on the immediately preceding April 1 and October 1. We will pay interest on overdue principal at 1% per annum in excess of the above rate and will pay interest on overdue installments of interest at such higher rate to the extent lawful.
Interest on the Senior Subordinated Notes will accrue from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Additional interest may accrue onOptional Redemption
Except as set forth below, we will not be entitled to redeem the Senior Subordinated Notes in certain circumstances pursuantat our option prior to the Registration Rights Agreement to be entered into with respect to that series of Notes.April 1, 2015.
Optional redemption
Senior Notes
Optional redemption. WeOn and after April 1, 2015, we will be entitled at our option at any time and from time to time to redeem all or a portion of the Senior Notes upon not less than 30 nor more than 60 days'days’ notice, at the redemption prices (expressed in percentages of principal amount on the redemption date), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on October 15April 1 of the years set forth below:
Period | Redemption Price | ||
---|---|---|---|
2004 | 103.000 | % | |
2005 | 102.000 | % | |
2006 | 101.000 | % | |
2007 and thereafter | 100.000 | % |
Period | Redemption Price | ||
2015 | 104.000 | % | |
2016 | 102.667 | % | |
2017 | 101.333 | % | |
2018 and thereafter | 100.000 | % |
Senior Subordinated Notes
Optional redemption on and after October 15, 2009. On and after October 15, 2009,In addition, at any time prior to April 1, 2013, we will be entitled at our option (subject to our compliance with the covenant described under the heading "—Certain covenants—Limitation on restricted payments") to redeem all or a portion of the Senior Subordinated Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed in percentages of principal amount on the redemption date), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on October 15 of the years set forth below:
Period | Redemption Price | ||
---|---|---|---|
2009 | 103.563 | % | |
2010 | 102.375 | % | |
2011 | 101.188 | % | |
2012 and thereafter | 100.000 | % |
Optional redemption with proceeds of equity offerings. Prior to October 15, 2007, we will be entitled at our option (subject to our compliance with the covenant described under the heading "—Certain covenants—Limitation on restricted payments") on one or more occasions to redeem Senior Subordinated Notes (including Additional Senior Subordinated Notes, if any) in an aggregate principal amount (together with the principal amount of Senior Subordinated Notes, if any, redeemed with Timberlands Proceeds as provided in the following paragraph) not to exceed 40%35% of the aggregate principal amount of the Senior Subordinated Notes (including Additional Senior Subordinated Notes, if any) originally issued at a redemption price (expressed as a percentage of principal amount) of 107.125%108%, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Qualified Equity Offerings;provided,however, that
(1) | at least 65% of such aggregate principal amount of Notes (including Additional Notes, if any) remains outstanding immediately after the occurrence of each such redemption (other than Notes held, directly or indirectly, by the Issuers or their Affiliates); and |
(2) | each such redemption occurs within 180 days after the date of the related Qualified Equity Offering. |
Optional redemption with timberlands proceeds.Make-Whole Redemption
Prior to October 15, 2007, we would have been entitled at our option (subject to our compliance with the covenant described under the heading "—Certain covenants—Limitation on restricted payments") on one or more occasions to redeem Senior Subordinated Notes (including Additional Senior Subordinated Notes, if any), in an aggregate principal amount (together with the principal amount of Senior Subordinated Notes, if any, redeemed with the proceeds of Equity Offerings as provided in the preceding paragraph) not to exceed 40% of the aggregate principal amount of the Senior Subordinated Notes (including Additional Senior Subordinated Notes, if any) originally issued at a redemption price (expressed as a percentage of principal amount) of 107.125%, plus accrued and unpaid interest to the redemption date, with up to 50% of Timberlands Proceeds received after the Issue Date (taken together with all other Timberlands Proceeds received after the Issue Date) in excess of $1,650.0 million in the aggregate, less, without duplication, the amount of any such Timberlands Proceeds applied pursuant to clause (a)(3)(C) of the covenant described under "—Certain covenants—Limitation on sales of assets and subsidiary stock", or used to make Restricted Payments pursuant to the covenants described under "—Certain covenants—Limitation on sales of assets and subsidiary stock" and clause (b)(13) of "—Certain covenants—Limitation on restricted payments";provided,however, that
Make-whole redemption
Prior to October 15, 2009,April 1, 2015, we will be entitled (subject to our compliance with the covenant described under the heading "—Certain covenants—Limitation on restricted payments") on one or more occasions to redeem all or a portion of the Senior Subordinated Notes (which includes Additional Senior Subordinated Notes, if any) upon not less than 30 nor more than 60 days'days’ notice at a redemption price equal to the sum of:
(1) | 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date);plus |
(2) | the applicable Make-Whole Amount, if any. |
The term "Make-Whole Amount"“Make-Whole Amount” shall mean, in connection with any optional redemption of any Senior Subordinated Note, the greater of (1) 1.0% of the principal amount of such Senior Subordinated Note and (2) the excess, if any, of (A) the aggregate present value as of the date of such redemption of the redemption price of such Senior Subordinated Note on October 15, 2009April 1, 2015 (as set forth in the table above under "—“—Optional redemption—Senior Subordinated Notes—Optional redemption on and after October 15, 2009"Redemption”) and the amount of interest (exclusive of interest accrued to the redemption date) that would have been payable in respect of such Senior Subordinated Note through October 15, 2009April 1, 2015 if such redemption had not been made, determined by discounting, on a semiannual basis (assuming a 360-day year comprised of twelve 30-day months), such redemption price and interest at the Treasury Rate (determined on the business dayBusiness Day preceding the date of such redemption) plus 0.5%, from the respective dates on which such redemption price and interest would have been payable if such redemption had not been made, over (B) the principal amount of the Senior Subordinated Note being redeemed.
"Treasury Rate"“Treasury Rate” means, in connection with the calculation of any Make-Whole Amount with respect to any Senior Subordinated Note, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity, as compiled by and published in the most recent Statistical Release that has become publicly available at least two business daysBusiness Days prior to the redemption date, equal to the period from the redemption date to October 15, 2009.April 1, 2015. If no maturity exactly corresponds to such period, yields for the published maturities occurring prior to and after such maturity most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Treasury Rate shall be interpolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month.
"Statistical Release"“Statistical Release” means the statistical release "H.15(519)"“H.15(519)” or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination, then such other reasonably comparable index which shall be designated by the Trustee.Issuers.
Selection and noticeNotice of redemptionRedemption
If we are redeeming less than all the Notes of a series at any time, the Trustee will select Notes of that series on apro rata basis to the extent practicable.
We will redeem Notes of $1,000$2,000 or less in whole and not in part. We will cause notices of redemption to be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address.
If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount thereof to be redeemed. We will issue a new Note in a
principal amount equal to the unredeemed portion of the original Note in the name of the Holder upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption.
Mandatory redemption; offersRedemption; Offers to purchase; open market purchasesPurchase; Open Market Purchases
We are not required to make any mandatory redemption or sinking fund payments with respect to the Notes. However, under certain circumstances, we may be required to offer to purchase Notes as described under the captions "—“—Change of control"Control” and "Certain covenants—“—Certain Covenants—Limitation on sales of assets and subsidiary stock"stock”. We may at any time and from time to time purchase Notes in the open market or otherwise.
GuarantiesGuarantees
The Note Guarantors will jointly and severally Guarantee, on a senior unsecured basis, in the case of the Senior Notes, and on a senior subordinated basis, in the case of the Senior Subordinated Notes, our obligations under these Notes.the Notes and the Indenture. The obligations of each Subsidiary Guarantor and each CrossNote Guarantor under its Note GuarantyGuarantee will be limited as necessary to prevent that Note GuarantyGuarantee from constituting a fraudulent conveyance under applicable law. See "Risk factors—
“Risk Factors—Risks Related to this Offering and the Notes—Federal and state statutes could allow courts, under specific circumstances, to voidavoid the Notes or any of the guarantees and require noteholders to return payments received from guarantors"the Issuers or the guarantors to the Issuers or the guarantors or to a fund for the benefit of their respective creditors, or subordinate the Notes or the guarantees to other claims of the Issuers or guarantors”. No Subsidiary of BZ Holdings that is properly designated an Unrestricted Subsidiary pursuant to the terms of the Indenture will provide a Guarantee of the Notes. In addition, no Foreign Subsidiaries of BZ Holdings will provide Guarantees of the Notes as of the Issue Date, and such Foreign Subsidiaries (and any future Foreign Subsidiaries of BZ Holdings) will only be required to provide Guarantees of the Notes in the future in limited circumstances. Furthermore, Boise Finance Company will not be a Note Guarantor.
Each Note Guarantor that makes a payment under its Note GuarantyGuarantee will be entitled upon payment in full of all guarantiedguaranteed obligations under the Indenture to a contribution from each other Note Guarantor in an amount equal to such other Note Guarantor'sGuarantor’spro rata portion of such payment based on the respective net assets of all the Note Guarantors at the time of such payment determined in accordance with GAAP.
If a Subsidiary Guaranty or Cross Guaranty wereNote Guarantee was rendered voidable, it could be subordinated by a court to all other indebtedness (including guaranteesGuarantees and other contingent liabilities) of the applicable Note Guarantor, and, depending on the amount of such indebtedness, such a Note Guarantor'sGuarantor’s liability on its Note GuarantyGuarantee could be reduced to zero. See "Risk factors—“Risk Factors—Risks Related to this Offering and the Notes—Federal and state statutes could allow courts, under specific circumstances, to voidavoid the Notes or any of the guarantees and require noteholders to return payments received from guarantors".
Neither the Timber LLCs nor any other Subsidiary of Timber HoldingIssuers or Boise Holdings who is properly designated an Unrestricted Subsidiary in the future pursuantguarantors to the termsIssuers or the guarantors or to a fund for the benefit of their respective creditors, or subordinate the Notes or the guarantees to other claims of the Indenture will provide Guarantees of the Notes. In addition, none of our Foreign Subsidiaries will provide Guarantees of the Notes as of the Issue Date, and such Foreign Subsidiaries (and any future Foreign Subsidiaries) will only be required to provide Guarantees of the Notes in the future in the unlikely event that such Subsidiaries also provide Guarantees under any Credit Agreement.Issuers or guarantors”.
Pursuant to the Indenture, (A) a Subsidiary Guarantor or Cross Guarantor may consolidate with, merge with or into, or transfer all or substantially all its assets to any other Person to the extent described below under "—“—Certain covenants—Covenants—Merger and consolidation"consolidation” and (B) the Capital Stock of a Subsidiary Guarantor or Cross Guarantor may be sold or otherwise disposed of to another Person to the extent described below under "—“—Certain covenants—Covenants—Limitation on sales of assets and subsidiary stock"stock”;provided,however, that in the case of a consolidation, merger or transfer of all or substantially all the assets of such Subsidiary Guarantor, or Cross Guarantor, if such other Person is not Boise LLCPaper Holdings or a Note Guarantor, such Subsidiary Guarantor's or Cross
Guarantor'sGuarantor’s obligations under its Note GuarantySubsidiary Guarantee must be expressly assumed by such other Person, except that such assumption will not be required in the case of:
(1) | the sale or other disposition (including by way of consolidation or merger) of a Subsidiary Guarantor, including the sale or disposition of Capital Stock of a Subsidiary Guarantor, following which such Subsidiary Guarantor is no longer a Subsidiary of BZ Holdings; or |
(2) | the sale or disposition of all or substantially all the assets of a Subsidiary Guarantor; |
in each case other than to Boise LLCBZ Holdings or an Affiliate of Boise LLCBZ Holdings and as permitted by the Indenture and if in connection therewith the Issuers provide an Officers'Officers’ Certificate to the Trustee to the effect that the Issuers and each of Boise Holdings and TimberBZ Holdings will comply with their obligations under the covenant described under "—“—Limitation on sales of assets and subsidiary stock"stock” in respect of such disposition. Upon any sale or disposition described in clause (1) or (2) above, the obligor on the related Note GuarantySubsidiary Guarantee will be released and discharged automatically and unconditionally from its obligations thereunder.under the Indenture.
The Subsidiary GuarantyGuarantee of a Subsidiary Guarantor and the Cross Guaranty of a Cross Guarantor also will be released:
Notwithstanding the foregoing two paragraphs, in the event of any sale, transfer or other disposition of a Timberlands Parent Entity (or its Capital Stock), such Timberlands Parent Entity's obligations under its Note Guaranty will not be released unless (i) at the time of such sale, transfer or other disposition such Timberlands Parent Entity and its Restricted Subsidiaries do not own or control any material assets or operations other than Timberlands Assets, (ii) the Net Available Cash from such sale, transfer or other disposition is concurrently contributed to Boise Holdings as common equity (a "Timberlands Contribution"), except to the extent such Net Available Cash is then distributable pursuant to clause (b)(13) of the covenant described under "—Certain covenants—Limitation on restricted payments" (in which case any such Net Available Cash not so contributed shall be deemed to have been contributed as a Timberlands Contribution to Boise Holdings and distributed as a dividend pursuant to such clause (b)(13)) and (iii) the proceeds of such Timberlands Contribution are applied as Timberlands Proceeds in accordance with "Certain covenants—Limitations on sales of assets and subsidiary stock."
(1) | upon the designation of such Subsidiary Guarantor as an Unrestricted Subsidiary; |
(2) | upon the release or discharge of any Guarantee or other Indebtedness that resulted in the creation after the Issue Date of the Guarantee of the Notes by such Subsidiary Guarantor pursuant to the covenant described under “—Certain Covenants—Future subsidiary guarantors”; or |
(3) | if we exercise our legal defeasance option or our covenant defeasance option as described under “—Defeasance” or if our obligations under the Indenture are discharged in accordance with the terms of the Indenture. |
Ranking
Senior indebtedness versus notes
The payment of the principal of, premium, if any, and interest on the Senior Subordinated Notes and the payment of any Note Guaranty of the Senior Subordinated Notes will be subordinate in right of payment to the prior payment in full of all Senior Indebtedness of the Issuers or the relevant Note Guarantor, as the case may be, including the obligations of the Issuers and the Note Guarantors under any Credit Agreement and the Senior Notes. The indebtedness evidenced by the Senior Notes and the Note Guarantees of the Senior Notes will be unsecured and will rankpari passu in right of payment to any other Senior Indebtedness of the Issuers and the Note Guarantors, as the case may be.
As of March 31, 2005:2010:
(1) | the Issuers’ outstanding Senior Indebtedness was approximately $792.2 million, including $192.2 million of Secured Indebtedness, all of which Senior Indebtedness, in the case of Boise Paper Holdings, consists of its secured borrowings under the Credit Agreement and its unsecured obligations in respect of the 9% Notes and the Notes and, in the case of Boise Co-Issuer, consists of its secured Guarantee of Senior Indebtedness under the Credit Agreement, its unsecured Guarantee with respect to the 9% Notes and its unsecured obligations in respect of the Notes; |
(2) | the outstanding Senior Indebtedness of the Subsidiary Guarantors was approximately $792.2 million, including $192.2 million of Secured Indebtedness, all of which Senior Indebtedness consists of the Subsidiary Guarantors’ respective secured Guarantees of Senior Indebtedness under the Credit Agreement and unsecured Guarantees with respect to the 9% Notes and the Notes; and |
(3) | the outstanding Senior Indebtedness of BZ Holdings was approximately $792.2 million, including $192.2 million of Secured Indebtedness, all of which Senior Indebtedness consists of BZ Holdings’ secured Guarantee of Senior Indebtedness under the Credit Agreement and unsecured Guarantees with respect to the 9% Notes and the Notes. |
As of March 31, 2010, an additional $227.9 million of Secured Indebtedness all of which Senior Indebtedness, in the case of Boise LLC, consists of its secured borrowings and its secured Guarantee under the Credit Agreement and its unsecured obligations in respect of the Senior Notes and, in the case of Boise Finance, consists of its secured Guarantee under the Credit Agreement and its unsecured obligations in respect of the Senior Notes;
As of March 31, 2005, on a pro forma basis, an additional $402.9 million of Secured Indebtedness waswould have been available for borrowing under the revolving facility under the Credit Agreement.
The Notes are unsecured obligations of the Issuers.Issuers and the Note Guarantees are unsecured obligations of the Note Guarantors. Secured debt and other secured obligations of the Issuers and the Note Guarantors (including obligations with respect to anythe Credit Agreement) will be effectively senior to the Senior Notes and the Note Guarantees, respectively, to the extent of the value of the assets securing such debt or other obligations.
Although the Indenture contains limitations on the amount of additional Indebtedness that the IssuersBZ Holdings and the Note GuarantorsRestricted Subsidiaries may incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness. See "—Certain covenants—Limitation on indebtedness".
Liabilities of subsidiaries and cross guarantors versus notes
All of the operations of Boise Holdings and Timber Holdings are conducted through their Subsidiaries. As described above under "—Guarantees", Subsidiary Guaranties and Cross Guaranties may be released under certain circumstances. In addition, future Subsidiaries of Boise Holdings and Timber Holdings may not be required to Guarantee the Notes. Although the Indenture limits the incurrence of Indebtedness and preferred stock by Boise Holdings and certain of its Subsidiaries and by Timber Holdings and certain of its Subsidiaries, such limitation is subject to a number of significant qualifications. Moreover, the Indenture does not impose any limitation on the incurrence by such entities of liabilities that are not considered Indebtedness under the Indenture. See "—“—Certain covenants—Covenants—Limitation on indebtedness"indebtedness”.
Not allLiabilities of subsidiaries versus notes
All of the operations of BZ Holdings and Boise Paper Holdings are conducted through their Subsidiaries. Some Subsidiaries of BoiseBZ Holdings are not Guaranteeing the Notes, and, Timberas described above under “—Guarantees”, Subsidiary Guarantees may be released under certain circumstances. In addition, future Subsidiaries of BZ Holdings willmay not be required to Guarantee the Notes. Unrestricted Subsidiaries will not be Guarantors, and no Foreign Subsidiaries will be Guarantors as of the Issue Date. Claims of creditors of any non-guarantor Subsidiaries (other than the Issuers), including trade creditors and creditors holding indebtednessIndebtedness or guaranteesGuarantees issued by such non-guarantor Subsidiaries, and claims of preferred stockholders of such non-guarantor Subsidiaries, generally will have priority with respect to the assets and earnings of such non-guarantor Subsidiaries over the claims of the creditors of Boise LLC,the Issuers, including Holders of the Notes, even if such claims do not constitute Senior Indebtedness. Accordingly, the Notes will be effectively subordinated to creditors (including trade creditors) and preferred stockholders, if any, of such non-guarantor Subsidiaries. Boise Finance currently conductsCo-Issuer will conduct no operations and hashave no Subsidiaries.
As of
At March 31, 2010, (1) the date of the Indenture, the Timber LLCs will be designated by the Issuers as "Unrestricted Subsidiaries." See "Certain relationships and related transactions" for a description of these entities. In addition, as described in the definition of "Unrestricted Subsidiary," anytotal liabilities of the Subsidiaries of BoiseBZ Holdings (other than the Issuers)Issuers, the Subsidiary Guarantors and Timber Holdings may be designated as "Unrestricted Subsidiaries" if certain conditions are satisfied. The effect of designatingBoise Finance Company, which is a Subsidiary as an "Unrestricted Subsidiary" is that:
As of March 31, 2005,(2) the total Indebtedness and other liabilities of the non-guarantor Subsidiaries (including the Unrestricted Subsidiaries) was approximately $28.3 million, allnon-majority owned subsidiaries of which was effectively senior to the Notes with respect to the assets of such non-guarantor Subsidiaries. The Timber LLCs, which are the only Unrestricted Subsidiaries as of the Issue Date, have no operations other than their participation in the letter of credit or guaranty transactions described under "Certain relationships and related transactions," and have no assets other than the collateral notes acquired in connection with such transactions. In addition, the Timber LLCs will not be consolidated with TimberBZ Holdings or Boise Holdings for financial reporting purposes.
Other senior subordinated indebtedness versus Senior Subordinated Notes
Only Indebtedness of the Issuers and the Note Guarantors that is Senior Indebtedness will rank senior to the Senior Subordinated Notes and the relevant Note Guaranties of the Senior
Subordinated Notes in accordance with the provisions of the Indenture. The Senior Subordinated Notes and each Note Guaranty of the Senior Subordinated Notes will in all respects rankpari passu with all other Senior Subordinated Indebtedness of the Issuers and the relevant Note Guarantor, respectively.
In respect of the Senior Subordinated Notes, we and the Note Guarantors will agree in the Indenture that we and they will not Incur any Indebtedness that is subordinate or junior in right of payment to our Senior Indebtedness or the Senior Indebtedness of such Note Guarantors, unless such Indebtedness is Senior Subordinated Indebtedness of the applicable Person or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of the applicable Person. The Indenture does not treat (1) unsecured Indebtedness as subordinated or junior to Secured Indebtedness merely because it is unsecured or (2) Secured Indebtedness as subordinated or junior to any other Secured Indebtedness merely because it has a junior priority with respect to the same collateral.
Payment of Senior Subordinated Notes
We are not permitted to pay principal of, premium, if any, or interest on the Senior Subordinated Notes or make any deposit in respect of the Senior Subordinated Notes pursuant to the provisions described under "—Defeasance" below and may not purchase, redeem or otherwise retire any Senior Subordinated Notes (collectively, "pay the Senior Subordinated Notes") if either of the following occurs (a "Payment Default"):
unless, in either case, the Payment Default has been cured or waived and any such acceleration has been rescinded or such Designated Senior Indebtedness has been paid in full in cash. Regardless of the foregoing, we are permitted to pay the Senior Subordinated Notes if we and the Trustee receive written notice approving such payment from the Representatives of all Designated Senior Indebtedness with respect to which the Payment Default has occurred and is continuing.
During the continuance of any default (other than a Payment Default) with respect to any Designated Senior Indebtedness of the Issuers pursuant to which the maturity thereof may be accelerated without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, we are not permitted to pay the Senior Subordinated Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to us) of written notice (a "Blockage Notice") of such default from the Representative of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter. The Payment Blockage Period will end earlier if such Payment Blockage Period is terminated:
Notwithstanding the provisions described above, unless the holders of such Designated Senior Indebtedness or the Representative of such Designated Senior Indebtedness have accelerated the maturity of such Designated Senior Indebtedness, we are permitted to resume paying the Senior Subordinated Notes after the end of such Payment Blockage Period. The Notes shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period irrespective of the number of defaults with respect to Designated Senior Indebtedness of the Issuers during such period, except that if any Blockage Notice is delivered to the Trustee by or on behalf of holders of Designated Senior Indebtedness (other than holders of Indebtedness under any Credit Agreement), a Representative of holders of Indebtedness under any Credit Agreement may give another Blockage Notice within such period. However, in no event may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any consecutive 360-day period, and there must be 181 days during any consecutive 360-day period during which no Payment Blockage Period is in effect.
Upon any payment or distribution of the assets of Boise LLC or Boise Finance upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to Boise LLC or Boise Finance or their respective property:
The subordination and payment blockage provisions described above will not prevent a Default from occurring under the Indenture upon the failure of the Issuers to pay interest or principal with respect to the Senior Subordinated Notes when due by their terms. If payment of the Senior Subordinated Notes is accelerated because of an Event of Default, the Issuers or the Trustee must promptly notify the holders of Designated Senior Indebtedness of the Issuers or the Representative of such Designated Senior Indebtedness of the acceleration. If any Designated Senior Indebtedness of the Issuers is outstanding, neither the Issuers nor any Note Guarantor may pay the Senior Subordinated Notes until five Business Days after the Representatives of all the issues of Designated Senior Indebtedness of the Issuers receive notice of such acceleration and, thereafter, may pay the Senior Subordinated Notes only if the Indenture otherwise permits payment at that time.
The obligations of a Note Guarantor under its Note Guaranty of the Senior Subordinated Notes are senior subordinated obligations. As such, the rights of such Noteholders to receive payment by a Note Guarantor pursuant to a Note Guaranty of the Senior Subordinated Notes will be subordinated in right of payment to the rights of holders of Senior Indebtedness of the applicable Note Guarantor. The terms of the subordination and payment blockage provisions described above with respect to the Issuers' obligations under the Senior Subordinated Notes apply
equally to a Note Guarantor and the obligations of such Note Guarantor under the applicable Note Guaranty of the Senior Subordinated Notes.
By reason of the subordination provisions contained in the Indenture, in the event of a liquidation or insolvency proceeding, creditors of the Issuers or a Note Guarantor who are holders of Senior Indebtedness of the Issuers or a Note Guarantor, as the case may be, may recover more, ratably, than the Holders of the Senior Subordinated Notes, and creditors of ours who are not holders of Senior Indebtedness may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the Holders of the Senior Subordinated Notes.
The terms of the subordination provisions described above will not apply to payments from money or the proceeds of U.S. Government Obligations held in trust by the Trustee for the payment of principal of and interest on the Senior Subordinated Notes pursuant to the provisions described under "—Defeasance".
Registration rights
We and the Note Guarantors entered into Registration Rights Agreements with the Initial Purchasers on the Issue Date. In these agreements, we agreed for the benefit of the Holders of each series of the Notes that we would use our reasonable best efforts to file with the SEC and cause to become effective a registration statement relating to offers to exchange each series of the Notes for an issue of SEC-registered notes (the "Exchange Notes") with terms identical to such series of the Notes (except that the Exchange Notes will not be subject to restrictions on transfer or to any increase in annual interest rate as described below).
When the SEC declares the exchange offer registration statement effective, we will offer a series of Exchange Notes in return for each series of Notes. Each exchange offer will remain open for at least 20 business days after the date we mail notice of such exchange offer to Holders. For each Note surrendered to us under an exchange offer, the Holder will receive an Exchange Note of equal principal amount. Interest on each Exchange Note will accrue from the last interest payment date on which interest was paid on the applicable series of Notes or, if no interest has been paid on the applicable series of Notes, from the Issue Date. If applicable interpretations of the staff of the SEC do not permit us to effect the exchange offer, we will use our reasonable best efforts to cause to become effective a shelf registration statement relating to resales of each series of the Notes and to keep that shelf registration statement effective until the expiration of the time period referred to in Rule 144(k) under the Securities Act, or such shorter period that will terminate when all Notes covered by the shelf registration statement have been sold. We will, in the event of such a shelf registration, provide to each Holder copies of a prospectus, notify each Holder when the shelf registration statement has become effective and take certain other actions to permit resales of each series of the Notes. A Holder that sells Notes under the shelf registration statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with those sales and will be bound by the provisions of the applicable Registration Rights Agreement that are applicable to such a Holder (including certain indemnification obligations).
If an exchange offer with respect to a series of Notes is not completed (or, if required, the shelf registration statement is not declared effective) on or before the date that is 270 days after the Issue Date, the annual interest rate borne by such series of the Notes will be increased by .50% per annum for the first 90-day period immediately following such date and by an additional .50% per annum to a maximum additional rate of 1.0% per annum thereafter until the exchange offer is completed or the shelf registration statement is declared effective.
If we effect the exchange offers, we will be entitled to close the exchange offers 20 business days after their commencement, provided that we have accepted all Notes of the applicable series validly surrendered in accordance with the terms of an exchange offer. Notes not tendered in the exchange offer shall bear interest at the rate otherwise provided for in this prospectus and will be subject to all the terms and conditions specified in the Indenture, including transfer restrictions.
This summary of the provisions of the Registration Rights Agreements does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreements, copies of which are available from us upon request.were $5.5 million.
Change of controlControl
Upon the occurrence of any of the following events (each a "“Change of Control"”), each Holder shall have the right to require that the Issuers repurchase such Holder'sHolder’s Notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date):
(1) | the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” (as that term is used in Section 13(d) and Section 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the “beneficial owner” (as that term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating beneficial ownership for purposes of this clause, such person shall be deemed to have “beneficial ownership” of all securities that such person has the right to acquire, whether such right is exercisable immediately or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of Parent; |
(2) | (a) Parent ceases to be the “beneficial owner” (as that term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of 51% or more of the total voting power of the Voting Stock of BZ Holdings or (b) BZ Holdings ceases to be the “beneficial owner” (as that term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of 100% of the total voting power of the Voting Stock of either Issuer; |
(3) | individuals who on the Issue Date constituted the Board of Directors of Parent or BZ Holdings (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of Parent or BZ Holdings, as the case may be, (i) was approved by a vote of a majority of the directors of Parent or BZ Holdings, as the case may be, then still in office who were either directors on the Issue Date or whose election or nomination for election was previously so approved or (ii) in the case of the Board of Directors of BZ Holdings, was approved by Parent) cease for any reason to constitute a majority of the Board of Directors of Parent or BZ Holdings, as the case may be, then in office; |
(4) | the adoption of a plan relating to the liquidation or dissolution of BZ Holdings or either Issuer; or |
(5) | the merger or consolidation of Parent or BZ Holdings with or into another Person or the merger of another Person with or into Parent or BZ Holdings, or the sale of all or substantially all the assets of BZ Holdings or Boise Paper Holdings (determined on a consolidated basis) to another Person, other than (A) a transaction in which the survivor or transferee is a Permitted Holder or a Person that is controlled by a Permitted Holder or (B) a transaction following which (i) in the case of a merger or consolidation transaction, holders of securities that represented 100% of the Voting Stock of Parent or BZ Holdings, as the case may be, immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) own directly or indirectly at least a majority of the voting power of the Voting Stock of the surviving Person in such merger or consolidation transaction immediately after such transaction and in substantially the same proportion as before the transaction and (ii) in the case of a sale of assets transaction, each transferee becomes an obligor in respect of the Notes and a Subsidiary of the transferor of such assets. |
Within 30 days following any Change of Control, we will mail a notice by first-class mail to each Holder with a copy to the Trustee (the "“Change of Control Offer"”) stating:
(1) | that a Change of Control has occurred and that such Holder has the right to require us to purchase such Holder’s Notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date); |
(2) | the circumstances and relevant facts regarding such Change of Control (including information with respect topro forma historical income, cash flow and capitalization, in each case after giving effect to such Change of Control); |
(3) | the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and |
(4) | the instructions, as determined by us, consistent with the covenant described hereunder, that a Holder must follow in order to have its Notes purchased. |
We will not be required to make a Change of Control Offer with respect to a series of Notes following a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by us and purchases all Notes of such series validly tendered and not withdrawn under such Change of Control Offer or (2) notice of redemption of all of such series of Notes has been given pursuant to the Indenture as described herein under the caption "—“—Optional redemption"Redemption” or "—Make-whole redemption,"“—Make-Whole Redemption”, unless and until there has been a default in payment of the applicable redemption price.
A Change of Control Offer may be made in advance of a Change of Control, conditional upon thesuch Change of Control, if a definitive agreement is ain place for the Change of Control at the time of making of the Change of Control Offer.
We will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described hereunder, we will comply with the applicable securities laws and regulations and shall not be deemed to have breached our obligations under the covenant described hereunder by virtue of our compliance with such securities laws or regulations.
The Change of Control purchase feature of the Notes may in certain circumstances make more difficult or discourage a sale or takeover of the Issuers, Parent Boiseor BZ Holdings Timber Holdings and the Issuers and, thus, the removal of incumbent management. The Change of Control purchase feature is a result of negotiations between the Issuers and the Initial Purchasers. None of the Issuers, Parent Boiseor BZ Holdings Timber Holdings or the Issuers has the present intention to engage in a transaction involving a Change of Control, although it is possible that we or they could decide to do
so in the future. Subject to the limitations discussed below, we or they could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of indebtednessIndebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to Incur additional Indebtedness are contained in the covenants described under "—“—Certain covenants—Covenants—Limitation on indebtedness"indebtedness” and with respect to the Senior Notes, "—Certain covenants—“—Limitation on liens" and "—Limitation on sale/leaseback transactions."liens”. Such restrictions can only be waived with respect to a series with the consent of the Holders of a majority in principal amount of the Notes of that series then outstanding. Except for the limitations contained in such covenants, however, the Indenture willdoes not contain any covenants or provisions that may afford Holders of the Notes protection in the event of a highly leveraged transaction.
The Credit Agreement will prohibitprohibits us from purchasing any Notes upon a Change of Control prior to the maturity of the borrowings thereunder, and will also provide that the occurrence of certain change of control events would
constitute a default thereunder. In the event that at the time of sucha Change of Control occurs at a time when we are prohibited from purchasing Notes, we may seek the termsconsent of the Credit Agreement, in the case of the Senior Notes, or the terms of any Senior Indebtedness of the Issuers (including any Credit Agreement), in the case of the Senior Subordinated Notes, restrict or prohibitour lenders to the purchase of Notes followingor may attempt to refinance the borrowings that contain such Change of Control, then prior to the mailing of the notice to Holders but in any event within 30 days following any Change of Control, we undertake to (1) repay in full all such Indebtedness or (2) obtain the requisite consents under the agreements governing such Indebtedness to permit the repurchase of the Notes.prohibition. If we do not obtain such a consent or repay such Indebtedness or obtain such consents,borrowings, we will remain prohibited from purchasing Notes. In such case, our failure to comply with the foregoing undertaking, after appropriate notice and lapse of time,offer to purchase Notes would result in an Event ofconstitute a Default under the Indenture, which would, in turn, constitute a default under the Credit Agreement. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Senior Subordinated Notes.
Future indebtednessIndebtedness that we may incurIncur may contain prohibitions on the occurrence of certain events that would constitute a Change of Control or require the repurchase of such indebtednessIndebtedness upon a Change of Control. Moreover, the exercise by the Holders of their right to require us to repurchase their Notes could cause a default under such indebtedness,Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on us. Finally, our ability to pay cash to the Holders of Notes following the occurrence of a Change of Control may be limited by our then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases.
The definition of "Change“Change of Control"Control” includes a disposition of all or substantially all assets.of the assets of BZ Holdings or Boise Paper Holdings to any Person in certain circumstances. Although there is a limited body of case law interpreting the phrase "substantially all"“substantially all”, there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of "all“all or substantially all"all” of the assets of the Parent, BoiseBZ Holdings or TimberBoise Paper Holdings. As a result, it may be unclear as to whether a Change of Control has occurred and whether a Holder of Notes may require the Issuers to make an offer to repurchase the Notes as described above.
The provisions under the Indenture relative to our obligation to make an offer to repurchase the Notes of a series as a result of a Change of Control may be waived or modified with respect to that series with the written consent of the Holders of a majority in principal amount of the Notes of that series.Notes.
The Indenture contains covenants including, among others, those described below, with respect to each series of the Notes.following:
Fall-away of covenants with respect to Timber Holdings and its restricted subsidiaries.
Except where the context otherwise requires, on or after the date of the sale of all of the Capital Stock of Timber Holdings in accordance with the covenant described under "—Limitation on sales of assets and subsidiary stock" and the release of the Note Guaranty of Timber Holdings in accordance with "—Guaranties" above (the "Timber Fall-away Date"), the following covenants, including without limitation the exceptions therefrom, shall no longer apply to Timber Holdings and its Subsidiaries and shall be construed as if the references to such entities were not contained therein.
Limitation on indebtedness
its Note Guaranty and (D) on the Timber Fall-away Date any Indebtedness held by Timber Holdings or any of its Restricted Subsidiaries shall be deemed to constitute the Incurrence of such Indebtedness by the obligor thereon and shall not be permitted under this clause (2);
(a) | BZ Holdings will not, and will not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;provided,however, that the Issuers and the Note Guarantors will be entitled to Incur Indebtedness if, on the date of such Incurrence and after giving effect thereto on apro forma basis, the Consolidated Coverage Ratio exceeds 2.0 to 1. |
Subsidiaries shall be deemed to constitute on Incurrence of such Guarantee by the obligor thereon and shall not be permitted under this clause (10);
(b) | Notwithstanding the foregoing paragraph (a), BZ Holdings and the Restricted Subsidiaries will be entitled to Incur any or all of the following Indebtedness: |
Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of such Issuer or Note Guarantor, as applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of such Issuer or Note Guarantor, as applicable, or (2) any Secured Indebtedness that is not Senior Indebtedness of such Person unless contemporaneously therewith such Person makes effective provision to secure the Senior Subordinated Notes or the relevant Note Guaranty of Senior Subordinated Notes, as applicable, equally and ratably with (or on a senior basis to, in the case of Indebtedness subordinated in right of payment to the Senior Subordinated Notes or the relevant Note Guaranty of Senior Subordinated Notes, as applicable) such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. The Indenture will not treat (1) unsecured Indebtedness as subordinated or junior in ranking or right of payment to Secured Indebtedness merely because it is unsecured or (2) Secured Indebtedness as subordinated or junior in ranking or right of payment to any other Secured Indebtedness merely because it has a junior priority with respect to the same collateral.
(1) | Indebtedness Incurred by the Issuers and the Note Guarantors pursuant to any Credit Agreement;provided,however, that, immediately after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under this clause (1) and then outstanding does not exceed $870.0 million plus (in the case of any Refinancing) the aggregate amount of fees, underwriting discounts, premiums, prepayment penalties and other costs and expenses Incurred in connection with the Refinancing, less the sum of all permanent repayments of principal with respect to such Indebtedness pursuant to clause (3)(A) of paragraph (a) of the covenant described under “—Limitation on sales of assets and subsidiary stock”; |
(2) | Indebtedness owed to and held by BZ Holdings or any Restricted Subsidiary;provided,however, that (A) any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to BZ Holdings or a Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the obligor thereon, (B) if an Issuer is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in |
full in cash of all obligations with respect to the Notes, and (C) if a Note Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all obligations of such Note Guarantor with respect to its Note Guarantee; |
(3) | the Notes (other than any Additional Notes); |
(4) | Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2) or (3) of this covenant); |
(5) | Indebtedness of a Restricted Subsidiary Incurred and outstanding on or prior to the date on which such Subsidiary was acquired by BZ Holdings or any Restricted Subsidiary (other than Indebtedness Incurred in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Subsidiary became a Subsidiary or was acquired by BZ Holdings or any Restricted Subsidiary);provided that on the date of such acquisition and after givingpro forma effect thereto, Boise Paper Holdings would have been entitled to Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of this covenant; |
(6) | Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (3), (4) or (5) or this clause (6);provided,however, that to the extent such Refinancing Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary Incurred pursuant to clause (5), such Refinancing Indebtedness shall be Incurred only by such Subsidiary; |
(7) | Hedging Obligations that are Incurred for bona fide hedging purposes of BZ Holdings and its Restricted Subsidiaries;provided that such obligations are entered into in the ordinary course of business to hedge or mitigate risks to which BZ Holdings or any of its Restricted Subsidiaries is exposed in the conduct of their business or the management of their liabilities and not for speculative purposes (as determined by BZ Holdings’ or such Restricted Subsidiary’s principal financial officer in the exercise of his or her good faith business judgment); |
(8) | obligations in respect of workers’ compensation claims, self-insurance obligations, bankers’ acceptances, completion guarantees and performance, bid, surety, environmental, reclamation and appeal bonds provided by or on behalf of BZ Holdings or any Restricted Subsidiary in the ordinary course of its business; |
(9) | Indebtedness arising in connection with endorsement of instruments for deposit in the ordinary course of business; |
(10) | Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business;provided,however, that such Indebtedness is extinguished within five Business Days of its Incurrence; |
(11) | Indebtedness consisting of the Note Guarantee of a Note Guarantor (including any Note Guarantee with respect to the new notes) and any Guarantee by Boise Paper Holdings or any Note Guarantor of Indebtedness (other than any Indebtedness Incurred by a Restricted Subsidiary that is not a Note Guarantor pursuant to clause (5) or (14) of this covenant) of BZ Holdings or any Restricted Subsidiary so long as the Incurrence of such Indebtedness Incurred by BZ Holdings or such Restricted Subsidiary is permitted under the terms of the Indenture;provided that if such Indebtedness is by its express terms subordinated in right of payment to the Senior Indebtedness of the borrower then any such Guarantee with respect to such Indebtedness shall be subordinated in right of payment to the Senior Indebtedness of the Person Guaranteeing such Indebtedness; |
(12) | Indebtedness arising from agreements of BZ Holdings or a Restricted Subsidiary providing for indemnification, adjustment of purchase price, earn out or similar obligations, in each case, Incurred or assumed in connection with the acquisition or disposition of any business, assets or a Subsidiary, other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; |
provided,however, that (a) such Indebtedness is not reflected on the balance sheet of BZ Holdings or any Restricted Subsidiary (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (a)) and (b) in the case of a disposition, the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds, including non-cash proceeds (the Fair Market Value of such non-cash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by BZ Holdings and the Restricted Subsidiaries in connection with such disposition; |
(13) | Purchase Money Indebtedness Incurred by BZ Holdings or a Restricted Subsidiary, and any Refinancing Indebtedness Incurred to Refinance such Indebtedness, in an aggregate principal amount which, when added together with the amount of Indebtedness Incurred pursuant to this clause (13) and then outstanding, does not exceed $25.0 million; |
(14) | Indebtedness Incurred by a Foreign Subsidiary in an aggregate principal amount which, when added together with the amount of Indebtedness Incurred pursuant to this clause (14) and then outstanding, does not exceed $5.0 million; and |
(15) | Indebtedness of an Issuer or of any Note Guarantor in an aggregate principal amount which, when taken together with all other Indebtedness Incurred pursuant to this clause (15) and then outstanding, does not exceed $100.0 million. |
(c) | Notwithstanding the foregoing, neither the Issuers nor any Note Guarantor will Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations of an Issuer or any Note Guarantor unless such Indebtedness shall be subordinated to the Notes or the applicable Note Guarantee to at least the same extent as such Subordinated Obligations, as reasonably determined in good faith by an Officer. |
(d) | For purposes of determining compliance with this covenant: |
(1) | any Indebtedness remaining outstanding on the Issue Date under the Credit Agreement after giving effect to the Transactions will be treated as Incurred on the Issue Date under clause (1) of paragraph (b) above; |
(2) | in the event that an item of Indebtedness (or any portion thereof) meets the criteria of more than one of the types of Indebtedness described above, the Issuers, in their sole discretion, will classify such item of Indebtedness (or any portion thereof) at the time of Incurrence and will only be required to include the amount and type of such Indebtedness in one of the above clauses; |
(3) | the Issuers will be entitled to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described above; and |
(4) | any Indebtedness originally classified as Incurred pursuant to one of the clauses in paragraph (b) above (other than pursuant to clause (1) of paragraph (b) above) may later be reclassified by the Issuers such that it will be deemed as having been Incurred pursuant to paragraph (a) above or another clause in paragraph (b) above, as applicable, to the extent that such reclassified Indebtedness could be Incurred pursuant to such paragraph or clause at the time of such reclassification. |
For purposes of determining compliance with any U.S. dollar denominateddollar-denominated restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is denominated in a differentforeign currency, the amount of such Indebtedness shall be the U.S. Dollar Equivalent determined on the date of the Incurrence of such Indebtedness;Indebtedness (or, in the case of revolving credit Indebtedness, on the date such revolving credit Indebtedness was first committed);provided,however, that if any such Indebtedness is Incurred to Refinance other Indebtedness denominated in a differentthe same foreign currency, is subjectand such Refinancing would cause the applicable U.S. dollar-denominated restriction to a Currency Agreement with respectbe exceeded if calculated at the relevant currency exchange rate in effect on the date
of such Refinancing, such U.S. dollar-denominated restriction shall be deemed not to U.S. dollars covering allhave been exceeded so long as the principal premium, if any, and interest payable onamount of such Refinancing Indebtedness (as denominated in the applicable foreign currency) does not exceed the principal amount of such Indebtedness expressed in U.S. dollars shall be as provided in such Currency Agreement. The principal amount of any Refinancing Indebtedness Incurredbeing Refinanced (as denominated in the same currency as the Indebtedness being Refinanced shall be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the extent that (1) such U.S. Dollar Equivalent was determined based on a Currency Agreement, in which case the Refinancing Indebtedness shall be determined in accordance with the preceding sentence, and (2) the principal amount of the Refinancing Indebtedness exceeds the principal amount of the Indebtedness being Refinanced, in which case the U.S. Dollar Equivalent of such excess shall be determined on the date such Refinancing Indebtedness is Incurred.applicable foreign currency).
In addition, for purposes of determining any particular amount of Indebtedness under this covenant, Guarantees, Liens or letter of credit obligations supporting Indebtedness otherwise included in the determination of such particular amount shall not be included so long as Incurred by a Person that could have Incurred such Indebtedness pursuant to this covenant.
Limitation on restricted payments
quarter ending prior to the date of such Restricted Payment for which internal financial statements are available (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit);plus
(a) | BZ Holdings will not, and will not permit any Restricted Subsidiary to, directly or indirectly, make a Restricted Payment if at the time BZ Holdings or such Restricted Subsidiary makes such Restricted Payment: |
The fair market value of property other than cash covered by clauses 3(B), (C), (D) and (E) above shall be determined in good faith by Boise Holdings or Timber Holdings and
(1) | a Default shall have occurred and be continuing (or would result therefrom); |
therefrom);provided further,however, that such dividend or other distribution shall be included in the calculation of the amount of Restricted Payments;
(2) | Boise Paper Holdings is not entitled to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under “—Limitation on indebtedness”; or |
continuing (or result therefrom);provided further,however, that such dividends shall be excluded in the calculation of the amount of Restricted Payments;
(3) | the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of (without duplication): |
unless such loans have been repaid with cash on or prior to the date of determination) ("Refinancing Disqualified Stock");provided that:
(A) | 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the Issue Date to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment for which internal financial statements are available (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit);plus |
and provided,further, that such Restricted Payments shall be excluded in the calculation of the amount of Restricted Payments;
(B) | 100% of the aggregate Net Cash Proceeds, and 100% of the aggregate Net Fair Market Value of any property other than cash, in each case received by BZ Holdings either (x) from the issuance or sale of its Qualified Capital Stock subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of BZ Holdings) or (y) as a contribution to capital in respect of its Qualified Capital Stock from its equity holders subsequent to the Issue Date;plus |
defeasances or other acquisitions or retirements shall be included in the calculation of the amount of Restricted Payments;
(C) | the amount by which Indebtedness (other than Indebtedness owed to BZ Holdings or any Subsidiary of BZ Holdings) of BZ Holdings is reduced on BZ Holdings’ balance sheet upon the conversion or exchange subsequent to the Issue Date of any Indebtedness of BZ Holdings convertible or exchangeable for Qualified Capital Stock of BZ Holdings (less the amount of any cash, or the Fair Market Value of any other property, distributed by BZ Holdings upon such conversion or exchange);provided,however, that the foregoing amount shall not exceed the Net Cash Proceeds received by BZ Holdings or any Restricted Subsidiary from the sale of such Indebtedness (excluding Net Cash Proceeds from sales to BZ Holdings or a Subsidiary of BZ Holdings);plus |
Incur Indebtedness under clause (b)(19) of the covenant described under "—Limitation on indebtedness";provided further,however, that such Restricted Payments shall be excluded in the calculation of Restricted Payments; or
(D) | 100% of the aggregate amount received in cash by BZ Holdings or any Restricted Subsidiary, and the Fair Market Value of property other than cash received by BZ Holdings or any Restricted Subsidiary, in each case subsequent to the Issue Date, from the sale or other disposition (other than to BZ Holdings or any of its Subsidiaries) of Investments (other than Permitted Investments) made by BZ Holdings or any of its Restricted Subsidiaries, and from repurchases and redemptions of such Investments (other than Permitted Investments) from BZ Holdings or any of its Restricted Subsidiaries by any Person (other than BZ Holdings or any of its Subsidiaries), and from repayments of loans or advances which constituted Investments (other than Permitted Investments) (except in each case to the extent the Investment was made pursuant to paragraph (b) below, and excluding in each case any dividends not representing the return of capital);plus |
(E) | in the event any Unrestricted Subsidiary has been redesignated as a Restricted Subsidiary or has been merged, consolidated or amalgamated with or into, or transfers or conveys its assets to, or is liquidated into, BZ Holdings or a Restricted Subsidiary, in each case subsequent to the Issue Date, the Fair Market Value of the Investment of BZ Holdings or such Restricted Subsidiary in such Unrestricted Subsidiary at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable), after deducting any Indebtedness associated with the Unrestricted Subsidiary so designated or combined or, without duplication, any Indebtedness associated with the assets so transferred or conveyed (except in each case to the extent that the designation of such Subsidiary as an Unrestricted Subsidiary was made pursuant to paragraph (b) below or constituted a Permitted Investment). |
(b) | The preceding provisions will not prohibit: |
(1) | any Restricted Payment made out of the Net Cash Proceeds of the substantially concurrent sale of, or made by exchange for, Qualified Capital Stock of BZ Holdings (other than Capital Stock issued or sold to a Subsidiary of BZ Holdings) or a substantially concurrent cash capital contribution received by BZ Holdings from its equity holders with respect to its Qualified Capital Stock;provided,however, that (A) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale or such cash capital contribution (to the extent so used for such Restricted Payment) shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; |
(2) | any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations of an Issuer or a Note Guarantor made by exchange for, or out of the proceeds of the substantially concurrent Incurrence of, Indebtedness of such Person which is permitted to be Incurred pursuant to the covenant described under “—Limitation on indebtedness”;provided,however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; |
(3) | dividends or other distributions paid within 60 days after the date of declaration thereof if at such date of declaration such dividend or other distribution would have complied with this covenant;provided,however, that at the time of payment of such dividend or other distribution, no other Default shall have occurred and be continuing (or result therefrom);provided further,however, that such dividend or other distribution shall be included in the calculation of the amount of Restricted Payments; |
(4) | so long as no Default has occurred and is continuing, the purchase, redemption or other acquisition of shares of Capital Stock of BZ Holdings, Parent or any of their Subsidiaries from any of their employees, former employees, officers, former officers, directors, former directors, consultants or former consultants (or permitted transferees of such employees, former employees, officers, former officers, directors, former directors, consultants or former consultants), pursuant to the terms of agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors of BZ Holdings or Parent, as the case may be, under which such individuals purchase or sell, or are granted the option to purchase or sell, shares of such Capital Stock;provided,however, that the aggregate amount of such purchases, redemptions and other acquisitions (excluding amounts representing cancellation of Indebtedness) shall not exceed $5.0 million in any calendar year;provided further that (a) BZ Holdings may carry forward and make in a subsequent calendar year, in addition to the amounts permitted for such calendar year, the amount of such purchases, redemptions or other acquisitions permitted to have been made but not made in any preceding calendar year up to a maximum of $15.0 million in any calendar year pursuant to this clause (4) and (b) such amount in any calendar year may be increased by (i) the cash proceeds of key man life insurance policies received by BZ Holdings and its Restricted Subsidiaries after the Issue Date and (ii) the aggregate cash proceeds received by BZ Holdings (or Parent, to the extent such proceeds are contributed to the common equity capital of BZ Holdings) |
during that calendar year from any re-issuance of Capital Stock by BZ Holdings (or Parent) to employees, officers, directors or consultants of BZ Holdings and its Restricted Subsidiaries (provided that such aggregate cash proceeds received upon re-issuance shall be excluded for purposes of making Restricted Payments under clause (3)(B) of paragraph (a) above and clause (1) of this paragraph (b)), less any amount previously applied to the payment of Restricted Payments pursuant to this clause (4);provided further,however, that such Restricted Payments shall be excluded in the calculation of the amount of Restricted Payments; |
(5) | the declaration and payment of dividends on Disqualified Stock or Preferred Stock of Restricted Subsidiaries issued pursuant to the covenant described under “—Limitation on indebtedness”;provided,however, that, at the time of payment of such dividend, no Default shall have occurred and be continuing (or result therefrom);provided further,however, that such dividends shall be excluded in the calculation of the amount of Restricted Payments; |
(6) | repurchases of Capital Stock deemed to occur upon exercise of stock options, warrants or similar instruments if such Capital Stock represents a portion of the exercise price of such options, warrants or similar instruments;provided,however, that such repurchases shall be excluded in the calculation of the amount of Restricted Payments; |
(7) | cash payments in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Capital Stock of Parent or BZ Holdings, or cash payments in lieu of the issuance of fractional shares or required upon the perfection of appraisal or dissent rights in connection with a merger, consolidation, amalgamation or other combination involving BZ Holdings or Parent;provided,however, that any such cash payment shall not be for the purpose of evading the limitation of the covenant described under this subheading (as determined in good faith by the Board of Directors of BZ Holdings);provided further,however, that such payments shall be excluded in the calculation of the amount of Restricted Payments; |
(8) | in the event of a Change of Control, and if no Default shall have occurred and be continuing, the payment, purchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations of an Issuer or any Note Guarantor, in each case, at a purchase price not greater than 101% of the principal amount of such Subordinated Obligations, plus any accrued and unpaid interest thereon;provided,however, that prior to such payment, purchase, redemption, defeasance or other acquisition or retirement, the Issuers (or a third party to the extent permitted by the Indenture) have made a Change of Control Offer with respect to the Notes as a result of such Change of Control and have repurchased all Notes validly tendered and not withdrawn in connection with such Change of Control Offer;provided further,however, that such payments, purchases, redemptions, defeasances or other acquisitions or retirements shall be included in the calculation of the amount of Restricted Payments; |
(9) | for so long as BZ Holdings is a pass-through or disregarded entity for United States Federal income tax purposes, Tax Distributions in respect of any taxable year of BZ Holdings equal to the product of (i) the amount of taxable income allocated to the Members for such taxable year, less the amount of taxable loss allocated to the Members for all prior taxable years (except to the extent such taxable losses have previously been taken into account under this provision),times (ii) the highest aggregate marginal statutory federal, state and local income tax rate (determined taking into account the deductibility of state and local income taxes for federal income tax purposes) to which any of the Members of BZ Holdings is subject for such year; and BZ Holdings shall be permitted to make such payments on a quarterly basis during such taxable year based on the best estimate of the chief financial officer of BZ Holdings of the amounts specified in clauses (i) and (ii) above;provided that if the aggregate amount of the estimated Tax Distributions made in any taxable year of BZ Holdings exceeds the actual maximum amount of Tax Distributions for that year as finally determined, the amount of any Tax Distributions in the succeeding taxable year (or, if necessary, any subsequent taxable years) shall be reduced by the amount of such excess; |
andprovided further that, at any time at which the amount of Restricted Payments is calculated, all Tax Distributions made shall be excluded from such calculation of the amount of Restricted Payments, except to the extent that (i) the aggregate Tax Distributions made from the Issue Date to the end of the most recent fiscal quarter ending prior to such time for which internal financial statements are available exceeds (ii) the aggregate income taxes accrued and deducted in determining Consolidated Net Income from the Issue Date to the end of the most recent fiscal quarter ending prior to such time for which internal financial statements are available, in which case 50% of such excess shall be included in the calculation of the amount of Restricted Payments at such time; |
(10) | so long as no Default shall have occurred and be continuing, Restricted Payments to Parent for operating expenses and administrative, legal, accounting and corporate reporting expenses and other fees required to maintain its corporate existence, of up to $7.5 million per fiscal year;provided,however, that such Restricted Payments shall be included in the calculation of the amount of Restricted Payments; |
(11) | payments of intercompany subordinated Indebtedness, the Incurrence of which was permitted under clause (2) of paragraph (b) of the covenant described under “—Limitation on indebtedness”;provided,however, that no Default has occurred and is continuing or would otherwise result therefrom;provided further,however, that such payments shall be excluded in the calculation of the amount of Restricted Payments; |
(12) | so long as no Default has occurred and is continuing, the declaration and payment of dividends to Parent in an aggregate amount not to exceed $25.0 million in any fiscal year, solely for the purpose of funding the payment by Parent of ordinary dividends on its common stock;provided,however, that such dividends shall be included in the calculation of the amount of Restricted Payments; |
(13) | any payment pursuant to the terms of a Guarantee or similar contingent payment arrangement that constituted an Investment (other than a Permitted Investment) when entered into;provided that such payment does not exceed the amount of the Investment consisting of the Guarantee or similar contingent payment arrangement in respect of which such payment is made; andprovided further that the amount of the Investment arising at the time the Guarantee or similar contingent payment arrangement was entered into is included in the calculation of the amount of Restricted Payments; |
(14) | the Transactions; or |
(15) | Restricted Payments in an amount which, when taken together with all Restricted Payments made pursuant to this clause (15), does not exceed $35.0 million;provided,however, that (A) at the time of each such Restricted Payment, no Default shall have occurred and be continuing (or result therefrom) and (B) such Restricted Payments shall be excluded from the calculation of the amount of Restricted Payments. |
For purposes of clauses (b)(1), and (b)(2) and (b)(10)(B) above, a Restricted Payment shall be deemed to have been made substantially concurrently with a sale, contribution or Incurrence, as the case may be, if made or irrevocably committed to within 3090 days of such sale, contribution or Incurrence.
Limitation on restrictions on distributions from restricted subsidiaries
Boise Holdings and TimberBZ Holdings will not, and will not permit any of their respectiveits Restricted Subsidiaries (other than the Issuers) to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any such Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to Boise Holdings, TimberBZ Holdings or any Restricted Subsidiary or pay any Indebtedness owed to Boise Holdings, TimberBZ Holdings or any Restricted Subsidiary, (b) make any loans or advances to Boise Holdings, TimberBZ Holdings or any Restricted Subsidiary or (c) transfer any of its property or assets to Boise Holdings, TimberBZ Holdings or any Restricted Subsidiary, except:
(1) | any encumbrance or restriction arising pursuant to the terms of the Indenture or the Notes, as the same may be amended or modified; |
(2) | any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date (including the Credit Agreement); |
(3) | any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred or Capital Stock issued by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by BZ Holdings or any Restricted Subsidiary (other than Indebtedness Incurred or Capital Stock issued as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by BZ Holdings or any Restricted Subsidiary) and outstanding on such date; |
(4) | any encumbrance or restriction arising by reason of applicable law, rule, regulation or order; |
(5) | restrictions on cash, cash equivalents, Temporary Cash Investments or other deposits or net worth imposed under contracts entered into in the ordinary course of business, including such restrictions imposed by customers or insurance, surety or bonding companies; |
(6) | any encumbrance or restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; |
(7) | any encumbrance or restriction consisting of customary nonassignment provisions in leases or licenses to the extent such provisions impose restrictions of the type described in clause (c) above on the property leased or licensed thereunder; |
(8) | any encumbrance or restriction contained in security agreements or mortgages (or any related credit agreements, indentures, notes, note purchase agreements or similar agreements) securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restriction restricts the transfer of the property subject to such security agreements or mortgages; |
(9) | customary restrictions under Purchase Money Indebtedness Incurred in compliance with the covenant described under “—Limitation on indebtedness”; |
(10) | customary provisions in joint venture agreements and other similar agreements that restrict the transfer of ownership interests in such joint venture or similar Person; |
(11) | any encumbrance or restriction contained in contracts entered into in the ordinary course of business, not relating to Indebtedness and that do not, individually or in the aggregate, detract from the value of the assets of BZ Holdings or any of its Restricted Subsidiaries in any material respect; |
(12) | any encumbrance or restriction contained in any Indebtedness Incurred by a Foreign Subsidiary in compliance with the Indenture that applies only to such Foreign Subsidiary; and |
(13) | any encumbrances or restrictions of the type referred to in clauses (a), (b) and (c) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (1) through (12) above or this clause (13);provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of an Officer, not materially more restrictive, taken as a whole, with respect to such dividend and other restrictions than those contained in the dividend or other restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. |
Limitation on sales of assets and subsidiary stock
(a) | BZ Holdings will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, consummate any Asset Disposition unless: |
(1) | BZ Holdings or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the Fair Market Value (including as to the value of all non-cash consideration) of the shares and assets subject to such Asset Disposition; |
(2) | at least 75% of the consideration thereof received by BZ Holdings or such Restricted Subsidiary is in the form of cash or cash equivalents; and |
(3) | an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by BZ Holdings or such Restricted Subsidiary, as the case may be: |
(A) | to the extent BZ Holdings or such Restricted Subsidiary, as the case may be, elects (or is required by the terms of any Indebtedness), to prepay, repay, redeem or purchase Indebtedness under any Credit Agreement or Indebtedness (other than any Preferred Stock) of a Restricted Subsidiary that is not an Issuer or a Subsidiary Guarantor (in each case other than Indebtedness owed to BZ Holdings or an Affiliate of BZ Holdings) within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; |
(B) | to the extent BZ Holdings or such Restricted Subsidiary, as the case may be, elects, to acquire, make or improve Additional Assets within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; |
(C) | to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the Holders of the Notes (and to holders of other Senior Indebtedness of Boise Paper Holdings designated by Boise Paper Holdings)to purchase Notes (and such other Senior Indebtedness of Boise Paper Holdings) pursuant to and subject to the conditions contained in the Indenture; and |
(D) | to enter into binding commitments to take any of the actions described in clauses (A) and (B), and take such actions within one year of entering into such commitment; |
provided,however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, Boise Holdings, TimberBZ Holdings or such Restricted Subsidiary shall permanently retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, (i) Boise Holdings, TimberBZ Holdings and the Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions which is not applied in accordance with this covenant exceeds $20.0 million; (ii) in the case of sales, leases, transfers or other dispositions of Timberlands Assets or Capital Stock of any Timberlands Entity, (A) the first $1,650.0 million of Timberlands Proceeds shall be used to permanently repay Indebtedness outstanding under the Credit Agreement, (B) at least 50% of Timberlands Proceeds received (taken together with all other Timberlands Proceeds received) in excess of $1,650.0 million shall be applied to permanently repay Indebtedness outstanding under the Credit Agreement, and (C) an amount up to the remaining 50% of such excess may be used to make Restricted Payments pursuant to clause (b)(13) of the covenant described under "—Limitation on restricted payments" in lieu of application pursuant to clause (a)(3)(C) of this covenant;provided,however, that (1) the Issuers may, at their option, use the Net Available Cash described in clause (C) of this paragraph, to the extent not otherwise used for Restricted Payments pursuant to such clause or applied pursuant to clause (a)(3)(C) of this covenant, as described under "—Optional redemption—Senior Subordinated Notes—Optional redemption with timberlands proceeds" (it being understood that a redemption of Senior Subordinated Notes pursuant to such section shall be a Restricted Payment with respect to the Senior Notes) and (2) to the extent that the aggregate amount of Indebtedness outstanding under the Credit Agreement is less than the amount of Timberlands Proceeds that is required to be applied in respect thereof pursuant to clauses (A) and (B) of this paragraph, such excess Timberlands Proceeds shall be applied pursuant to clause (a)(3)(A) of this covenant; and (iii) Boise Holdings, Timber Holdings and their Restricted Subsidiaries will not be permitted to sell, transfer or otherwise dispose of any Capital Stock of a Timberlands Entity unless (x) such Timberlands Entity and its Restricted Subsidiaries do not own or control any material assets or operations other than Timberlands Assets and (y) following such sale, transfer or other disposition such Timberlands Entity (A) in the case of a Timberlands Entity that is not
a Timberlands Parent Entity, is either a Restricted Subsidiary of Boise Holdings, Timber Holdings or a Restricted Subsidiary or none of the Capital Stock of such Timberlands Entity is owned directly or indirectly by Boise Holdings, Timber Holdings or a Restricted Subsidiary or (B) in the case of Timberlands Parent Entity, is either a Subsidiary of Parent or none of the Capital Stock of such Timberlands Parent Entity is owned directly or indirectly by Parent.
million. Pending application of Net Available Cash pursuant to this covenant, such Net Available Cash shall be invested in Temporary Cash Investments or applied to temporarily reduce revolving credit indebtedness.Indebtedness.
For the purposes of this covenant, the following are deemed to be cash or cash equivalents:
therefore, the Issuers may use any such excess Net Available Cash for general corporate purposes or any other purpose, in each case not prohibited by the Indenture. The Issuers shall not be required to make such an offer to purchase Notes (and other Senior Indebtedness or Senior Subordinated Indebtedness, as applicable, of Boise LLC) pursuant to this covenant if the Net Available Cash available therefor is less than $20.0 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). Upon completion of such an offer to purchase, Net Available Cash will be deemed to be reduced by the aggregate amount of such offer (regardless of the amount of Notes tendered in such offer).
(1) | the assumption or discharge of Indebtedness of BZ Holdings (other than obligations in respect of Disqualified Stock of BZ Holdings) or any Restricted Subsidiary (other than obligations in respect of Disqualified Stock or Preferred Stock of an Issuer or a Subsidiary Guarantor) and the release of BZ Holdings or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition; |
(2) | securities received by BZ Holdings or any Restricted Subsidiary from the transferee that are converted by BZ Holdings or such Restricted Subsidiary into cash within 180 days after such Asset Disposition, to the extent of the cash received in that conversion; and |
(3) | any Designated Non-cash Consideration received by BZ Holdings or any Restricted Subsidiary in an Asset Disposition having an aggregate Fair Market Value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (3) (unless such Designated Non-cash Consideration has been converted into cash, which cash shall be treated after such conversion as Net Available Cash), not to exceed 7.5% of Consolidated Net Tangible Assets at the time of the receipt of such Designated Non-cash Consideration (with the Fair Market Value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value). |
(b) | In the event of an Asset Disposition that requires the purchase of Notes (and other Senior Indebtedness of Boise Paper Holdings) pursuant to clause (a)(3)(C) above, the Issuers will purchase Notes tendered pursuant to an offer by the Issuers for the Notes (and such other Senior Indebtedness) at a purchase price of 100% of their principal amount (or, in the event such other Senior Indebtedness of Boise Paper Holdings was issued with original issue discount, 100% of the accreted value with respect thereto) without premium, plus accrued but unpaid interest (or, in respect of such other Senior Indebtedness of Boise Paper Holdings, such lesser price, if any, as may be provided for by the terms of such Senior Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of the securities tendered exceeds the Net Available Cash allotted to their purchase, the Issuers will select the securities to be purchased on apro rata basis but in round denominations, which in the case of the Notes will be denominations of $1,000 principal amount (subject to the $2,000 minimum denomination) or multiples thereof. If the aggregate purchase price of the securities purchased pursuant to such offer in accordance with this covenant is less than the Net Available Cash offered therefor, the Issuers may use any such excess Net Available Cash for general corporate purposes or any other purpose, in each case not prohibited by the Indenture. The Issuers shall not be required to make such an offer to purchase Notes (and other Senior Indebtedness of Boise Paper Holdings) pursuant to this covenant if the Net Available Cash available therefor is less than $20.0 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). Upon completion of such an offer to purchase, Net Available Cash will be deemed to be reduced by the aggregate amount of such offer (regardless of the amount of Notes tendered in such offer). |
(c) | The Issuers will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached their obligations under this covenant by virtue of their compliance with such securities laws or regulations. |
Limitation on affiliate transactions
(a) | BZ Holdings will not, and will not permit any of its Restricted Subsidiaries to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with, or for the benefit of, any Affiliate of BZ Holdings (an “Affiliate Transaction |
(1) | the terms of the Affiliate Transaction are |
(2) | if such Affiliate Transaction involves an amount in excess of $10.0 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the directors of |
(3) | if such Affiliate Transaction involves an amount in excess of $25.0 million, the Board of Directors of |
(b) | The provisions of the preceding paragraph (a) will not prohibit: |
(1) | any |
(2) | any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment or compensation arrangements, stock options and stock ownership plans approved by the Board of Directors of |
(3) | the payment of reasonable fees to directors of |
(4) | any transaction with |
(5) | the issuance or sale of any Capital Stock (other than Disqualified Stock) of |
(6) | any agreement as in effect on the Issue Date and described in Item 13 of Parent’s Annual Report on Form 10-K for the |
(7) | transactions with customers, clients, suppliers or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture that are on terms no less favorable than those that would have been obtained in a comparable transaction with an unrelated party; |
(8) | any transaction |
Limitation on line of business
BZ Holdings will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than a Related Business, except to such extent as would not be material to BZ Holdings and its Restricted Subsidiaries, taken as a whole.
Limitation on liens
BZ Holdings will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur or permit to exist any Lien (the “Initial Lien”) of any nature whatsoever on any of its properties (including Capital Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired, securing any Indebtedness, other than Permitted Liens, without effectively providing that the Notes shall be secured equally and ratably with (or prior to) the obligations so secured for so long as such obligations are so secured.
Any Lien created for the benefit of the Holders of the Notes pursuant to the preceding sentence shall provide by its terms that such Lien shall be automatically and unconditionally released and discharged upon the release and discharge of the Initial Lien.
Merger and consolidation
(1) | the resulting, surviving or transferee Person (the |
(2) | immediately after givingpro forma effect to such transaction |
(3) | immediately after givingpro forma effect to such transaction, either (A) the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under and |
(4) | the Issuers shall have delivered to the Trustee an |
provided,provided,however, that clause (3) will not be applicable to (A) a Restricted Subsidiary consolidating with, merging into or transferring all or part of its properties and assets to BZ Holdings or a Wholly Owned Subsidiary of BZ Holdings (so long as no Capital Stock of BZ Holdings or such Wholly Owned Subsidiary is distributed to any Person) or (B) BZ Holdings, Boise Paper Holdings or Boise Co-Issuer merging with an Affiliate of BZ Holdings solely for the purpose and with the sole effect of reincorporating BZ Holdings, Boise Paper Holdings or Boise Co-Issuer, as applicable, to (A) Timber Holdings or any Restricted Subsidiary consolidating with, merging into or transferring all or part of its properties and assets to Boise Holdings, Timber Holdings or a Wholly Owned Subsidiary (so long as no Capital Stock of Boise Holdings, Timber Holdings or such Wholly Owned Subsidiary is distributed to any Person) or (B) Boise Holdings, Timber Holdings, Boise Finance or Boise LLC merging with an Affiliate of Boise LLC solely for the purpose and with the sole effect of reincorporating Boise Holdings, Timber Holdings, Boise Finance or Boise LLC in another jurisdiction.
For purposes of this covenant, the sale, lease, conveyance, assignment, transfer or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of BZ Holdings or Boise Paper Holdings, which properties and assets, if held by BZ Holdings or Boise Paper Holdings instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of BZ Holdings and its Restricted Subsidiaries or Boise Paper Holdings and its Restricted Subsidiaries, in each case on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of BZ Holdings and its Restricted Subsidiaries or Boise Paper Holdings and its Restricted Subsidiaries, as applicable.
The Successor Company will be the successor to BZ Holdings, Boise Paper Holdings or Boise Co-Issuer, as applicable, and shall succeed to, and be substituted for, and may exercise every right and power of, BZ Holdings, Boise Paper Holdings or Boise Co-Issuer, as applicable, under the Indenture, and the predecessor Person, except in the case of a lease, shall be released from the obligation to pay the principal of and interest on the Notes.
For purposes of this covenant, (A) the sale, lease, conveyance, assignment, transfer or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of Boise Holdings, Timber Holdings or Boise LLC, which properties and assets, if held by Boise Holdings, Timber Holdings or Boise LLC, as applicable, instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of Boise Holdings, Timber Holdings and the Restricted Subsidiaries determined on a Combined Consolidated Basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of Boise Holdings, Timber Holdings and the Restricted Subsidiaries and (B) a disposition of all or substantially all of the Timberlands Assets or of the Capital Stock of a Person that together with its Subsidiaries does not own or control material assets or operations other than Timberlands Assets shall not be deemed to be a sale of all or substantially all of the assets of Boise Holdings, Timber Holdings and the Restricted Subsidiaries determined on a Combined Consolidated Basis;provided that the disposition referred to in this clause (B) is made in compliance with the covenant described under "—Limitation on sales of assets and subsidiary stock".
The Successor Company will be the successor to Boise Holdings, Timber Holdings, Boise LLC or Boise Finance, as applicable, and shall succeed to, and be substituted for, and may exercise every right and power of, such Person under the Indenture, and the predecessor Person, except in the case of a lease, shall be released from the obligation to pay the principal of and interest on the Notes.
(b) | BZ Holdings will not permit any Subsidiary |
(1) | except in the case of a Subsidiary Guarantor |
consolidation or sale of Capital Stock or assets or |
(2) | immediately after giving effect to such transaction or transactions on apro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; and |
(3) | the Issuers deliver to the Trustee an
|
provided,however, that this covenant will not be applicable to any Subsidiary Guarantor consolidating with, merging into or transferring all or part of its properties and assets to an Issuer or any Note Guarantor.
Future subsidiary guarantors
At any time that any Indebtedness under the Credit Agreement is outstanding, BZ Holdings will cause each of its Restricted Subsidiaries (other than the Issuers and Boise Finance Company) that Incurs (including by Guarantee) any Indebtedness under any Credit Agreement to, in each case, within five Business Days of such Incurrence, execute and deliver to the Trustee a Guarantee Agreement pursuant to which such Restricted Subsidiary will Guarantee payment of the Notes on the same terms and conditions as those set forth in the Indenture. At any time that no Indebtedness under any Credit Agreement is outstanding, BZ Holdings will cause each of its domestic Restricted Subsidiaries (other than the Issuers and Boise Finance Company) that Incurs (including by Guarantee) any Indebtedness in a principal amount outstanding in excess of $25.0 million (other than Indebtedness permitted to be Incurred pursuant to clause (2), (3), (7), (8), (10) or (12) of paragraph (b) of the covenant described under “—Limitation on indebtedness”) to, and each Foreign Subsidiary that enters into a Guarantee of any Senior Indebtedness in a principal amount outstanding in excess of $25.0 million (other than a Foreign Subsidiary that Guarantees Senior Indebtedness Incurred by another Foreign Subsidiary) to, in each case, within five Business Days of such Incurrence, execute and deliver to the Trustee a Guarantee Agreement pursuant to which such Restricted Subsidiary will Guarantee payment of the Notes on the same terms and conditions as those set forth in the Indenture.
Limitation on the conduct of business of Boise Co-Issuer and Boise Finance Company
In addition to the other restrictions set forth in the Indenture, the Indenture provides that (i) Boise Co-Issuer may not hold any material assets, become liable for any material obligations or engage in any significant business activities other than in connection with serving as an Issuer with respect to the Notes and its Guarantee in respect of the Credit Agreement and the 9% Notes and (ii) Boise Finance Company may not hold any material assets, become liable for any material obligations or engage in any significant business activities other than in connection with serving as issuer with respect to the 9% Notes and its Guarantee in respect of the Credit Agreement. Boise Paper Holdings will not sell or otherwise dispose of any shares of Capital Stock of Boise Co-Issuer or Boise Finance Company and will not permit Boise Co-Issuer or Boise Finance Company, directly or indirectly, to issue or sell or otherwise dispose of any shares of its Capital Stock.
SEC reports
Whether or not BZ Holdings is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, BZ Holdings will file with the SEC (subject to the next sentence), and promptly after such filing provide the Trustee with, such annual and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. entity subject to such Sections, such reports to be so filed at the times specified for the filings of such reports under such Sections and containing all the information, audit reports and exhibits required for such reports. If, at any time, BZ Holdings is not subject to the periodic reporting requirements of the Exchange Act for any reason, BZ Holdings will nevertheless continue filing the reports specified in the preceding sentence with the SEC within the time periods required (unless the SEC will not accept such a filing), and promptly after such filings provide such reports to the Trustee. BZ Holdings agrees that it will not take any action for the purpose of causing the SEC not to accept such filings. If, notwithstanding the foregoing, the SEC will not accept such filings for any reason, BZ Holdings will post the reports specified above on its website within the time periods that would apply if BZ Holdings were required to file those reports with the SEC.
At any time that any of BZ Holdings’ Subsidiaries are Unrestricted Subsidiaries, the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of the financial condition and results of operations of BZ Holdings and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of BZ Holdings.
Notwithstanding the foregoing, so long as (i) BZ Holdings is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and (ii) Parent “beneficial owns” (as that term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, 100% of the total voting power of the Voting Stock of BZ Holdings and no other material assets, and Parent conducts no other material operations, BZ Holdings shall not be required to file the reports and information described above with the SEC under Section 13(a) or 15(d) of the Exchange Act (or any successor provisions thereto) or provide such reports and information to the Trustee so long as (i) Parent files such reports and information with the SEC, (ii) Parent, the Issuers and each Note Guarantor comply with respect to such reports and other information with the requirements set forth in Rule 3-10 of Regulation S-X under the Exchange Act and (iii) the Issuers provide the Trustee and Holders with such reports and information filed by Parent as and when required as provided above.
In addition, the Issuers will furnish to the Holders of the Notes and to prospective investors, upon the requests of such Holders, any information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so long as any Notes are not freely transferable under the Securities Act.
Defaults
Each of the following is an Event of Default:
Future guarantors
At any time that any Indebtedness under any Credit Agreement is outstanding, Boise Holdings will cause each of its Restricted Subsidiaries (other than the Issuers), and Timber Holdings will cause each of its Restricted Subsidiaries, that Incurs (including by Guarantee) any Indebtedness under any Credit Agreement to, in each case, within five business days of such Incurrence, execute and deliver to the Trustee a Guaranty Agreement pursuant to which such Restricted Subsidiary will Guarantee payment of the Notes on the same terms and conditions as those set forth in the Indenture. At any time that no Indebtedness under any Credit Agreement is outstanding, Boise
Holdings will cause each of its domestic Restricted Subsidiaries (other than Boise LLC and Boise Finance), and Timber Holdings will cause each of its domestic Restricted Subsidiaries, that Incurs (including by Guarantee) any Indebtedness in a principal amount outstanding in excess of $25.0 million (other than Indebtedness permitted to be Incurred pursuant to clause (2), (3), (7), (8), (9), (11), (12), (13), (15) or (18) of paragraph (b) of the covenant described under "—Limitation on indebtedness") to, and each Foreign Subsidiary that enters into a Guarantee of any Senior Indebtedness in a principal amount outstanding in excess of $25.0 million (other than a Foreign Subsidiary that Guarantees Senior Indebtedness Incurred by another Foreign Subsidiary) to, in each case, within five business days of such Incurrence, execute and deliver to the Trustee a Guaranty Agreement pursuant to which such Restricted Subsidiary will Guarantee payment of the Notes on the same terms and conditions as those set forth in the Indenture. Notwithstanding the foregoing, this covenant shall not apply to any Receivables Entity.
Limitation on the conduct of business of Boise Finance
In addition to the other restrictions set forth in the Indenture, the Indenture will provide that Boise Finance may not hold any material assets, become liable for any material obligations or engage in any significant business activities other than in connection with serving as an Issuer with respect to the Notes and its Guarantee in respect of the Credit Agreement.
Boise LLC will not sell or otherwise dispose of any shares of Capital Stock of Boise Finance and will not permit Boise Finance, directly or indirectly, to issue or sell or otherwise dispose of any shares of its Capital Stock.
SEC reports
Boise Holdings and Timber Holdings will furnish to the Trustee and the Holders and, after the completion of any exchange offer (or, if in lieu thereof, the effectiveness of any shelf registration statement) in respect of either series of the Notes, will file with the SEC (to the extent the SEC will accept such filings) such annual reports and such information, documents and other reports as are specified in Section 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections (including, for avoidance of doubt, a quarterly report for the quarter ended September 30, 2004), such information, documents and other reports to be so filed and provided at the times specified for the filings of such information, documents and reports under such Sections;provided,however, that Boise Holdings and Timber Holdings shall not be required to furnish or file any such reports with the SEC until the later of 45 days following the issuance of the Notes and the date any such report is required to be filed;provided, further, that the financial statements contained in the reports furnished or filed by Boise Holdings shall contain a footnote presenting financial statement information (including condensed income statement, balance sheet and statement of cash flow information for the applicable periods and comparative prior periods, and such footnotes as are reasonably necessary for a complete presentation of the information set forth in such financial statements) for Boise Holdings and Timber Holdings on a Combined Consolidated Basis to the extent permitted by the SEC, and, if not permitted, such information shall be supplementally provided to the Trustee and the Holders;provided,further, such requirements shall be deemed satisfied prior to the commencement of the exchange offer or the effectiveness of the shelf registration statement by the filing with the SEC of the exchange offer registration statement and/or shelf registration statement, to the extent that any such registration statement contains substantially the same information as would be required to be filed by Boise Holdings and Timber Holdings if they were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, and by providing the Trustee and the Holders with such registration statement (and any amendments thereto) promptly following the filing thereof; andprovided,further, if Boise Holdings and Timber Holdings are exempt from the requirements of Section 13(a) or 15(d) of the Exchange
Act under Section 12h-5 of the Exchange Act, Boise Holdings and Timber Holdings shall not be required to file such reports and documents with the SEC under Section 13(a) or 15(d) of the Exchange Act (or any successor provisions thereto) or provide such annual reports and such information, documents and other reports to the Trustee and the Holders so long as (i) the Parent files such annual reports and such information, documents and other reports with the SEC, (ii) the Parent, the Issuers and each Note Guarantor are in compliance with the requirements set forth in Rule 3-10 of Regulation S-X under the Exchange Act and (iii) the Issuers provide the Trustee and Noteholders with such annual reports and such information, documents and other reports filed by Parent.
At any time that any of Boise Holdings' or Timber Holdings' Subsidiaries (other than any Subsidiary of Boise Holdings or Timber Holdings which is not then consolidated with Boise Holdings or Timber Holdings under GAAP) are Unrestricted Subsidiaries that individually or collectively constitute a Significant Subsidiary, then the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in "Management's discussion and analysis of financial condition and results of operations", of the financial condition and results of operations of Boise Holdings and Timber Holdings and their Restricted Subsidiaries separate from the financial condition and results of operations of such Unrestricted Subsidiaries. In addition, the quarterly and annual financial information required by the preceding paragraph will include disclosure of the amount of any payments made or received in the applicable period pursuant to the Additional Consideration Agreement.
In addition, the Issuers will furnish to the Holders of the Notes and to prospective investors, upon the requests of such Holders, any information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so long as any Notes are not freely transferable under the Securities Act.
Defaults
Each of the following is an Event of Default with respect to a series of Notes:
(1) | a default in the payment of interest on |
(2) | a default in the payment of principal of any Note |
(3) | the failure by |
(4) | the failure by |
(5) | the failure by |
(7) | certain events of bankruptcy, insolvency or reorganization of an Issuer, |
(8) | any judgment or decree for the payment of money in excess of |
(9) | any Note |
However, a default under clauses (4) and (5) will not constitute an Event of Default with respect to a series of Notes until the Trustee or the Holders of 25% in principal amount of the outstanding Notes of such series notify the Issuers of the default and the Issuers do not cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration of acceleration, such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of BZ Holdings or an Issuer occurs and is continuing, the principal of and interest on all the Notes willipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders of the Notes. In the event of a declaration of acceleration of the Notes because an Event of Default has occurred and is continuing as a result of the acceleration of any Indebtedness described in clause (6) of the preceding paragraph (excluding any resulting payment default under the Indenture or the Notes), the declaration of acceleration of the Notes shall be automatically annulled if the holders of all Indebtedness described in clause (6) have rescinded the declaration of acceleration in respect of such Indebtedness within 20 days of the date of such declaration, and if the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction, and all existing Events of Default, except non-payment of principal or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived.
The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences under the Indenture, except (i) a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes, (ii) a Default arising from the failure to redeem or purchase any Notes when required pursuant to the Indenture or (iii) a Default in respect of a provision that cannot pursuant to the Indenture be amended without the consent of each Holder affected. The Holders of a majority in principal amount of the outstanding Notes by written notice to the Trustee may rescind an acceleration and its consequences if (1) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely because of acceleration, have been cured or waived, and (2) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction.
Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders of the Notes unless such Holders have offered to the
Trustee indemnity or security satisfactory to it against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless:
If an Event of Default with respect to a series of Notes occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding Notes of such series may declare the principal of and accrued but unpaid interest on all the Notes of such series to be due and payable. Upon such a declaration of acceleration, such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of Boise Holdings, Timber Holdings or an Issuer occurs and is continuing, the principal of and interest on all the Notes willipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders of the Notes.
In the event of a declaration of acceleration of a series of the Notes because an Event of Default has occurred and is continuing as a result of the acceleration of any Indebtedness described in clause (6) of the preceding paragraph (excluding any resulting payment default under the Indenture or such series of Notes), the declaration of acceleration of such series of the Notes shall be automatically annulled if the holders of all Indebtedness described in clause (6) have rescinded the declaration of acceleration in respect of such Indebtedness within 20 days of the date of such declaration, and if the annulment of the acceleration of such series of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction, and all existing Events of Default, except non-payment of principal or interest on such series of the Notes that became due solely because of the acceleration of such series of the Notes, have been cured or waived.
The Holders of a majority in aggregate principal amount of the Notes of a series then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes of such series waive an existing Default or Event of Default and its consequences under the Indenture with respect to such series except (i) a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes of such series, (ii) a Default arising from the failure to redeem or purchase any Notes of such series when required pursuant to the Indenture or (iii) a Default in respect of a provision that cannot pursuant to the Indenture be amended without the consent of each Holder affected. The Holders of a majority in principal amount of the outstanding Notes of a
series by written notice to the Trustee may rescind an acceleration and its consequences with respect to such series if:
(1)
| such Holder has previously given the Trustee notice that an Event of Default is continuing; |
(2) | Holders of at least 25% in principal amount of the outstanding Notes |
(3) | such Holders have offered the Trustee |
(4) | the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and |
(5) | Holders of a majority in principal amount of the outstanding Notes
|
Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder of a Note of that series or that would involve the Trustee in personal liability.
If a Default occurs, is continuing and is known to the Trustee, the Trustee must mail to each Holder of the Notes notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is not opposed to the interest of the Holders of the Notes. In addition, the Issuers are required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Issuers are required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action the Issuers are taking or propose to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the consent of the Holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes) and any past default or compliance with any provisions may also be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding. However, without the consent of each Holder of an outstanding Note affected thereby, an amendment or waiver may not, among other things:
If a Default occurs, is continuing and is known to the Trustee, the Trustee must mail to each Holder of the Notes of each series to which such Default applies notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is not opposed to the interest of the Holders of the Notes. In addition, we are required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. We are required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action we are taking or propose to take in respect thereof.
Amendments and waivers
Subject to certain exceptions, the Indenture may be amended with respect to the Notes of a series with the consent of the Holders of a majority in principal amount of the Notes of that series then outstanding (including consents obtained in connection with a tender offer or exchange for the
Notes) and any past default or compliance with any provisions with respect to the Notes of a series may also be waived with the consent of the Holders of a majority in principal amount of the Notes of that series then outstanding. However, without the consent of each Holder of an outstanding Note of a series affected thereby, an amendment or waiver may not, with respect to that series, among other things:
(1) | reduce the amount of |
(2) | reduce the rate of or extend the time for payment of interest on any |
(3) | reduce the principal of or change the Stated Maturity of any |
(4) | change the provisions applicable to the redemption of any |
(5) | make any |
(6) | impair the right of any Holder of |
(7) | make any change in the amendment provisions which require each |
(8) | make any change in the ranking or priority of any |
(9) | make any change in, or release other than in accordance with the Indenture, any Note |
Notwithstanding the preceding, without the consent of any Holder of the Notes, the Issuers, the Note Guarantors and Trustee may amend the Indenture:
Notwithstanding the preceding, without the consent of any Holder of the Notes of a series, the Issuers, the Note Guarantors and Trustee may amend the Indenture with respect to that series:
(1) | to cure any ambiguity, omission, defect or |
(2) | to provide for the assumption by a successor |
(3) | to provide for uncertificated Notes in addition to or in place of certificated Notes |
(4) | to add Guarantees with respect to the Notes, |
(5) | to add to the covenants of the Issuers or |
(6) | to make any change that does not adversely affect the rights of any Holder of the Notes; |
(7) | to comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act; |
(8) | to conform the text of the Indenture, the Notes or |
(9) | to release a Note Guarantor from its obligations under its Note Guarantee or the Indenture in accordance with the applicable provisions of the Indenture; |
(10) | to provide for the issuance of Additional Notes in accordance with the applicable provisions of the Indenture; |
(11) | to comply with the rules of any applicable securities depository; or |
The consent of the Holders of the Notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we are required to mail to Holders of the Notes a notice briefly describing such amendment. However, the failure to give such notice to all Holders of the Notes, or any defect therein, will not impair or affect the validity of the amendment.
Neither Boise Paper Holdings nor any Affiliate of Boise Paper Holdings may, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to all Holders and is paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement.
The Notes will be issued in registered form and will be transferable only upon the surrender of the Notes being transferred for registration of transfer. We may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection with certain transfers and exchanges.
Satisfaction and discharge
When (1) we deliver to the Trustee all outstanding Notes of a series for cancelation or (2) all outstanding Notes of a series have become due and payable, whether at maturity or on a redemption date as a result of the mailing of notice of redemption, and, in the case of clause (2), we irrevocably deposit with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Notes of that series, including interest thereon to maturity or such redemption date, and if in either case we pay all other sums payable under the Indenture by us with respect to that series, then the Indenture shall, subject to certain exceptions, cease to be of further effect with respect to that series.
Defeasance
At any time, we may terminate all our obligations under the Senior Subordinated Notes and the Indenture with respect to the Senior Subordinated Notes ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Senior Subordinated Notes, to replace mutilated, destroyed, lost or stolen Senior Subordinated Notes and to maintain a registrar and paying agent in respect of the Senior Subordinated Notes.
In addition, at any time we may terminate our obligations under "—Change of control" and under the covenants described under "—Certain covenants" (other than the covenant described under "—Merger and consolidation"), the operation of the cross acceleration provision, the bankruptcy provisions with respect to the Subsidiary Guarantors, Cross Guarantors (other than Timber Holdings) and Significant Subsidiaries and the judgment default provision described under "—Defaults" above and the limitations contained in clause (3) of the first paragraph under "—Certain covenants—Merger and consolidation" above, in each case with respect to the Senior Subordinated Notes ("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior exercise of our covenant defeasance option. If we exercise our legal defeasance option with respect to the Senior Subordinated Notes, payment of the Senior Subordinated Notes may not be accelerated because of an Event of Default with respect thereto. If we exercise our covenant defeasance option with respect to the Senior Subordinated Notes, payment of the Senior Subordinated Notes may not be accelerated because of an Event of Default specified in clause (4), (6), (7) (with respect only to Significant Subsidiaries) or (8) under "—Defaults" above or because of the failure of an Issuer, Boise Holdings or Timber Holdings to comply with clause (3) of the first paragraph under "—Certain covenants—Merger and consolidation" above. If we exercise our legal defeasance option or our covenant defeasance option with respect to the Senior Subordinated Notes, each Note Guarantor will be released from all of its obligations with respect to its Note Guaranty of the Senior Subordinated Notes.
In order to exercise either of our defeasance options with respect to the Senior Subordinated Notes, we must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations or a combination thereof for the payment of principal and interest on the Senior Subordinated Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that Holders of the Senior Subordinated Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law).
Concerning the trustee
U.S. Bank National Association is to be the Trustee under the Indenture. We have appointed U.S. Bank National Association as Registrar and Paying Agent with regard to each series of the Notes.
The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of an Issuer, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions;provided,however, if it acquires any conflicting interest it must either eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign.
The Holders of a majority in principal amount of the outstanding Notes of a series will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions, with respect to that series. If an Event of Default occurs (and is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or expense and then only to the extent required by the terms of the Indenture.
No personal liability of directors, officers, employees, stockholders or holders of membership interests
No director, officer, employee, incorporator, stockholder or holder of membership interests of any Issuer or any Note Guarantor will have any liability for any obligations of any Issuer or any Note Guarantor under the Notes, any Note Guaranty or the Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver and release may not be effective to waive liabilities under the U.S. Federal securities laws, and it is the view of the SEC that such a waiver is against public policy.
Governing law
The Indenture and the Notes will be governed by, and construed in accordance with, the laws of the State of New York.
Certain definitions
Except when the context otherwise requires, after the Timber Fall-away Date the following definitions shall no longer apply to Timber Holdings and its Subsidiaries and shall be construed as if the references to such entities were not contained therein.
"Acquisition" means, pursuant to the Asset Purchase Agreement dated as of July 26, 2004, the acquisition by Boise Holdings, Timber Holdings and their Subsidiaries of the Timberlands Assets and all of the assets comprising Boise Cascade Corporation's white paper manufacturing and distribution, packaging and newsprint, building solutions and manufacturing and building solutions distribution businesses.
"Transfer
The Notes will only be issued pursuant to and will only be transferable pursuant to the terms of the Indenture. We may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection with certain transfers and exchanges.
Satisfaction and Discharge
When (1) we deliver to the Trustee all outstanding Notes for cancellation or (2) all outstanding Notes have become due and payable, whether at maturity or on a redemption date as a result of the mailing of notice of redemption, and, in the case of clause (2), we irrevocably deposit with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Notes, including interest thereon to maturity or such redemption date, and if in either case we pay all other sums payable under the Indenture by us, then the Indenture shall, subject to certain exceptions, cease to be of further effect.
Defeasance
At any time, we may terminate all our obligations under the Notes and the Indenture (“legal defeasance”), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes.
In addition, at any time we may terminate our obligations under “—Change of Control” and under the covenants described under “—Certain Covenants” (other than the covenant described under “—Merger and consolidation”), the operation of the cross acceleration provision, the bankruptcy provisions with respect to Subsidiary Guarantors and Significant Subsidiaries and the judgment default provision described under “—Defaults” above and the limitations contained in clause (3) of the first paragraph under “—Certain Covenants—Merger and consolidation” above (“covenant defeasance”).
We may exercise our legal defeasance option notwithstanding our prior exercise of our covenant defeasance option. If we exercise our legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If we exercise our covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (4), (5) (solely with respect to the covenant described under “—Certain Covenants—SEC reports”), (6), (7) (with respect only to Subsidiary Guarantors and Significant Subsidiaries) or (8) under “—Defaults” above or because of the failure of BZ Holdings or an Issuer to comply with clause (3) of the first paragraph under “—Certain Covenants—Merger and consolidation” above. If we exercise our legal defeasance option or our covenant defeasance option, each Note Guarantor will be released from all of its obligations with respect to its Note Guarantee.
In order to exercise either of our defeasance options, we must irrevocably deposit in trust (the “defeasance trust”) with the Trustee money or U.S. Government Obligations or a combination thereof for the payment of principal and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that Holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law).
Concerning the Trustee
Wells Fargo Bank, National Association is the Trustee under the Indenture. We have appointed Wells Fargo Bank, National Association as Registrar and Paying Agent with regard to the Notes.
The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of an Issuer, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions;provided,however, if it acquires any conflicting interest it must either eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign.
The Holders of a majority in principal amount of the outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. If an Event of Default occurs (and is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of his or her own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense and then only to the extent required by the terms of the Indenture.
No Personal Liability of Directors, Officers, Employees or Equity Holders
No director, officer, employee, incorporator or equity holder of an Issuer or any Note Guarantor will have any liability for any obligations of an Issuer or any Note Guarantor under the Notes, any Note Guarantee or the Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver and release may not be effective to waive liabilities under the U.S. Federal securities laws, and it is the view of the SEC that such a waiver is against public policy.
Governing Law
The Indenture and the Notes are governed by, and will be construed in accordance with, the laws of the State of New York.
Certain Definitions
“9% Notes” means the 9% Senior Notes due 2017, issued pursuant to the Indenture, dated as of October 26, 2009, among Boise Paper Holdings, Boise Finance Company, the guarantors party thereto and Wells Fargo Bank, National Association, as trustee.
“Additional Assets"” means:
(1) | any property, plant or equipment used or useful in a Related Business; |
(2) | the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by BZ Holdings or another Restricted Subsidiary; |
(3) | Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; |
(4) | Improvements on real estate owned by BZ Holdings or a Restricted Subsidiary; or |
(5) | Capital expenditures made by BZ Holdings or a Restricted Subsidiary relating to an asset used or useful in a Related Business; |
provided,however, that any such Restricted Subsidiary described in clause (2) or (3) above is primarily engaged in a Related Business.
"Additional Consideration Agreement" means the Additional Consideration Agreement, to be dated as of the date of the Indenture, by and between OfficeMax Incorporated (formerly Boise Cascade Corporation) a Delaware corporation, and Boise LLC.
"“Affiliate"“ of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control"“control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling"“controlling” and "controlled"“controlled” have meanings correlative to the foregoing. For purposes of the covenants described
under "—Certain covenants—Limitation on restricted payments", "—Certain covenants—Limitation on affiliate transactions" and "—Certain covenants—Limitation on sales of assets and subsidiary stock" only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of Boise Holdings, Timber Holdings or an Issuer or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"“Asset Disposition"” means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by Boise Holdings, TimberBZ Holdings or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "“disposition"”), of:
(1) | any shares of Capital Stock of a Restricted Subsidiary (other than directors’ qualifying shares or shares required by applicable law to be held by a Person other than BZ Holdings or a Restricted Subsidiary); |
(2) | all or substantially all the assets of any division or line of business of BZ Holdings or any Restricted Subsidiary; or |
(3) | any other assets of BZ Holdings or any Restricted Subsidiary outside of the ordinary course of business of BZ Holdings or such Restricted Subsidiary, |
other than, Boise Holdings, Timber Holdings or a Restricted Subsidiary);
(A) | a disposition by a Restricted Subsidiary to BZ Holdings or by BZ Holdings or a Restricted Subsidiary to a Restricted Subsidiary; |
(B) | for purposes of the covenant described under “—Certain Covenants—Limitation on sales of assets and subsidiary stock” only, (i) a disposition that constitutes a Restricted Payment (or would constitute a Restricted Payment but for the exclusions from the definition thereof) and that is not prohibited by the covenant described under “—Certain Covenants—Limitation on restricted payments” and (ii) a disposition of all or substantially all the assets of BZ Holdings or an Issuer in accordance with the covenant described under “—Certain Covenants—Merger and consolidation”; |
(C) | a disposition of assets or Capital Stock, as the case may be, with a Fair Market Value of less than $5.0 million; |
(D) | a disposition of assets that are worn out, obsolete or damaged or no longer used or useful in the business of BZ Holdings or any Restricted Subsidiary, as the case may be, in the ordinary course of business; |
(E) | a disposition of cash or Temporary Cash Investments; |
(F) | the creation of a Lien (but not the sale or other disposition of the property subject to such Lien); |
(G) | the sale or lease of products, services or accounts receivable or the licensing of intellectual property, in each case in the ordinary course of business; and |
(H) | the sale of the Capital Stock of an Unrestricted Subsidiary. |
"“Attributable Debt"” in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended);provided,however, that if such Sale/Leaseback Transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of "Capital“Capital Lease Obligation"Obligation”.
"“Average Life"” means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing:
(1) | the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of or redemption or similar payment with respect to such Indebtedness multiplied by the amount of such payment by |
(2) | the sum of all such payments. |
"“Board of Directors"” means (i) with respect to a Person that is a corporation, the Board of Directors of such Person or any committee thereof duly authorized to act on behalf of such Board of Directors, (ii) with respect to a Person that is a limited liability company, the managing member or members or any controlling committee of members of such Person or (iii) with respect to any other Person, any equivalent governing body.
"“Boise Finance Company” means Boise Finance Company, a Delaware corporation and co-issuer of the 9% Notes.
“Business Day"” means each day which is not a Legal Holiday.
"“BZ Guarantee” means the Guarantee by BZ Holdings of the Issuers’ obligations with respect to the Notes.
“Calculation Adjustments"” means the adjustments described in the proviso to the first paragraph (including subparagraphs (1) through (8)(7)), and the second and third paragraphsparagraph of the definition of "Consolidated“Consolidated Coverage Ratio"Ratio”.
"“Capital Lease Obligation"” means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. For purposes of the covenant described under "—“—Certain covenants—Covenants—Limitation on liens,"liens”, a Capital Lease Obligation will be deemed to be secured by a Lien on the property being leased.
"“Capital Stock"” of any Person means any and all shares, interests (including partnership interests and limited liability company units), rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity.
"“Code"“ means the Internal Revenue Code of 1986, as amended.
"Combined Consolidated Basis" means, (i) prior to the Timber Fall-away Date, the consolidated financial data of each of Boise Holdings and its Subsidiaries and the consolidated financial data of Timber Holdings and its Subsidiaries, in each case prepared in accordance with GAAP, combined in accordance with GAAP (other than including the treatment of minority interests in Boise Holdings or Timber Holdings as equity in the combined financial statements) and (ii) following the Timber Fall-away Date, the consolidated financial data of Boise Holdings and its Subsidiaries prepared in accordance with GAAP (for purposes of clarification, the financial data of Timber Holdings and its consolidated subsidiaries shall be included for the period prior to the
Timber Fall-away Date to the extent such period prior to the Timber Fall-away Date falls within any Measurement Period).
"“Commodity Agreement"” means any forward contract, swap, option, hedge or other similar financial instrument or arrangement designed to protect against fluctuations in commodity prices and not entered into for speculative purposes.prices.
"“Consolidated Coverage Ratio"” as of any date of determination means the ratio of (a)(x) the aggregate amount of EBITDA for the Measurement Period to (b)(y) Consolidated Interest Expense for such Measurement Period;provided,however, that:
Indebtedness) as if such Investment or acquisition had occurred on the first day of such period;
(1) | if BZ Holdings or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on apro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period; |
(2) | if BZ Holdings or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on apro forma basis as if such repayment, repurchase, defeasance or discharge had occurred on the first day of such period and as if BZ Holdings or such Restricted Subsidiary had not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; |
(3) | if since the beginning of such period BZ Holdings or any Restricted Subsidiary shall have made any Asset Disposition, EBITDA for such period shall be reduced by an amount equal to EBITDA (if positive) |
directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of BZ Holdings or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to BZ Holdings and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent BZ Holdings and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); |
(4) | if since the beginning of such period BZ Holdings or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after givingpro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition had occurred on the first day of such period; |
(5) | if since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into BZ Holdings or any Restricted Subsidiary since the beginning of such period shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) above if made by BZ Holdings or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after givingpro formaeffect thereto as if such Asset Disposition, Investment or acquisition had occurred on the first day of such period; |
(6) | if since the beginning of such period any Person was designated as an Unrestricted Subsidiary or redesignated as or otherwise became a Restricted Subsidiary, EBITDA and Consolidated Interest Expense shall be calculated as if such event had occurred on the first day of such period; and |
(7) | the EBITDA and Consolidated Interest Expense of discontinued operations recorded on or after the date such operations are classified as discontinued in accordance with GAAP shall be excluded. |
For purposes of this definition, wheneverpro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, thepro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of Boise LLC and may include Pro Forma Cost Savings.Officer. If any Indebtedness bears a floating rate of interest and is being givenpro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). For avoidance of doubt, in the event the Timber Fall-away Date occurs during a Measurement Period,pro forma effect shall be given to such event as if it had occurred on the first day of such period.
If any Indebtedness is Incurred under a revolving credit facility and is being givenpro forma effect, the interest on such Indebtedness shall be calculated based on the average daily balance of such Indebtedness for the four fiscal quarters subject to thepro forma calculation. If cost savings and other operating expense reductions and improvements have been realized with respect to an acquisition of assets being givenpro forma effect or are reasonably expected to be realized, such savings, reductions and improvements may be included in thepro forma calculations to the extent permitted to be reflected inpro forma financial statements under Article 11 of Regulation S-X promulgated by the SEC.
"“Consolidated Current Liabilities” as of the date of determination means the aggregate amount of liabilities of BZ Holdings and its consolidated Restricted Subsidiaries which may properly be classified as current liabilities (including taxes accrued as estimated), on a consolidated basis, after eliminating:
(1) | all intercompany items between BZ Holdings and any Restricted Subsidiary; and |
(2) | all current maturities of long-term Indebtedness, all as determined in accordance with GAAP consistently applied. |
“Consolidated Interest Expense"” means, for any period, the total interest expense of Boise Holdings, TimberBZ Holdings and theirits consolidated Restricted Subsidiaries, on a Combined Consolidated Basis, plus, to the extent not included in such total interest expense, and to the extent Incurredincurred by Boise Holdings, TimberBZ Holdings or theirits Restricted Subsidiaries, without duplication:
Consolidated Interest Expense shall not include amounts described in the preceding sentence for Timber Holdings and its Restricted Subsidiaries for periods following the Timber Fall-away Date.
(1) | interest expense attributable to Capital Lease Obligations; |
(2) | amortization of debt discount and debt issuance cost (other than any deferred financing costs related to the prepayment, acquisition or retirement of Indebtedness in the Transactions as disclosed herein); |
(3) | capitalized interest; |
(4) | non-cash interest expense; |
(5) | commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing; |
(6) | net payments or receipts (if any) pursuant to Interest Rate Agreements; |
(7) | dividends accrued in respect of all Disqualified Stock of BZ Holdings or any Issuer and all Preferred Stock of any Restricted Subsidiary, in each case held by Persons other than BZ Holdings or a Restricted Subsidiary (other than dividends payable solely in Capital Stock (other than Disqualified Stock) of BZ Holdings); |
(8) | interest incurred in connection with Investments in discontinued operations; |
(9) | interest accruing on any Indebtedness of any Person (other than BZ Holdings or any Restricted Subsidiary) to the extent such Indebtedness is Guaranteed by (or secured by the assets of) BZ Holdings or any Restricted Subsidiary; and |
(10) | the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than BZ Holdings or any Restricted Subsidiary) in connection with Indebtedness Incurred by such plan or trust. |
"Consolidated Leverage Ratio" as of any date of determination means the ratio of (a) the Total Consolidated Indebtedness as of the date of determination to (b) the aggregate amount of EBITDA for the Measurement Period;provided,however, that the calculation of the Consolidated Leverage Ratio shall give effect to the Calculation Adjustments, as applicable.
"“Consolidated Net Income"” means, for any period, the net income of Boise Holdings, TimberBZ Holdings and theirits consolidated Subsidiaries on a Combined Consolidated Basis;determined in accordance with GAAP;provided,however, that there shall not be included in such Consolidated Net Income:Income (without duplication):
the making of distributions by such Restricted Subsidiary, directly or indirectly, to Boise Holdings, Timber Holdings or the Issuers, as the case may be, except that:
(1) | any net income of any Person (other than BZ Holdings) if such Person is not a Restricted Subsidiary, except that: |
(A) | subject to the exclusion contained in clause (3) below, BZ Holdings’ equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to BZ Holdings or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary (other than an Issuer), to the limitations contained in clause (2) below); and |
(B) | BZ Holdings’ equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; |
(2) | any net income of any Restricted Subsidiary (other than an Issuer) if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to BZ Holdings or the Issuers, except that: |
(A) | subject to the exclusion contained in clause (3) below, BZ Holdings’ equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income to the extent that the net income of such Restricted Subsidiary would be permitted at the date of determination to be dividended to BZ Holdings or an Issuer without any prior approval or waiver (that has not been obtained) pursuant to the terms of its charter and all agreements, instruments, |
judgments, decrees, orders, statutes, rules or governmental regulations applicable to that Restricted Subsidiary or its equity holders (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary (other than an Issuer), to the limitation contained in this clause); and |
(B) | BZ Holdings’ equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; |
provided that, with respect to the net income of any Restricted Subsidiary that is a NoteSubsidiary Guarantor, this clause (2) shall apply solely for purposes of paragraph (a) of the covenant described under "—“—Certain covenants—Covenants—Limitation on restricted payments"payments”;
(3) | any gain or loss (together with any related provision for taxes thereon) realized upon the sale or other disposition of any assets of BZ Holdings, its consolidated Subsidiaries or any other Person (including pursuant to any sale-and-leaseback arrangement) which are not sold or otherwise disposed of in the ordinary course of business and any gain or loss (together with any related provision for taxes thereon) realized upon the sale or other disposition of any Capital Stock of any Person; |
(4) | extraordinary gains or losses (together with any related provision for taxes thereon); |
(5) | the cumulative effect of a change in accounting principles; |
(6) | any unrealized gain or loss in respect of Hedging Obligations accounted for in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 815: Derivatives and Hedging; |
(7) | any non-cash gains or losses (together with any related provision for taxes thereon) attributable to the early extinguishment of Indebtedness; |
(8) | unusual or non-recurring non-cash gains or losses (other than (x) any such non-cash loss to the extent that it represents an accrual of or reserve for cash expenditures in any future period, and (y) any such non-cash gain to the extent representing a reversal (made without any payment in cash) of reserves previously excluded from clause (x)); |
(9) | any non-cash goodwill or intangible asset impairment charges resulting from the application of Financial Accounting Standards Board Accounting Standards Codification Topics 805: Business Combinations, 350: Intangibles—Goodwill and Other; and 360: Property, Plant and Equipment; |
(10) | any non-cash compensation charge or expense, including any such charge or expense arising from grants or repurchases of stock options or restricted stock or other equity-incentive programs for the benefit of officers, directors and employees of BZ Holdings, any Restricted Subsidiary or Parent; |
(11) | any expenses or reserves for liabilities to the extent that BZ Holdings or any of its Restricted Subsidiaries is entitled to indemnification therefor (other than from BZ Holdings or any of its Subsidiaries) under binding agreements and has made a claim for indemnity in accordance with such agreements;provided that any such expenses or liabilities that have been excluded from Consolidated Net Income in accordance with the foregoing shall reduce Consolidated Net Income in any later period in which (i) it is reasonably determined in good faith by an Officer that indemnity will not be received for such expenses or liabilities or (ii) 270 days from the date of the claim for indemnity have elapsed without collection of such indemnity; |
(12) | any expenses with respect to liability or casualty events or business interruption to the extent covered by insurance with third-party carriers and (i) actually reimbursed to BZ Holdings or any of its Restricted Subsidiaries or (ii) with respect to which an Officer has reasonably determined in good faith that there exists reasonable evidence that such amount will in fact be reimbursed to BZ Holdings or any of its Restricted Subsidiaries by the insurer;providedthat, in the case of this clause (ii), any such expenses that have been excluded from Consolidated Net Income in accordance with the foregoing |
shall reduce Consolidated Net Income in any later period in which (x) the claim in respect thereof is denied by the applicable insurer in writing or (y) 270 days from the date of the claim for insurance have elapsed without collection of such insurance payments; and |
(13) | non-cash gains and losses resulting solely from fluctuations in currency values and the related tax effects and charges relating to Financial Accounting Standards Board Accounting Standards Codification Topics 815: Derivatives and Hedging, and 820: Fair Value Measurements and Disclosures, |
in each case, for such period. Notwithstanding the foregoing, (i) any amounts received and any amounts paid by Boise Holdings, Timber Holdings or any Restricted Subsidiary (excluding Timber Holdings and its Restricted Subsidiaries for periods following the Timber Fall-away Date) under the
Additional Consideration Agreement during such period shall be added and subtracted, respectively, in calculating Consolidated Net Income, without duplication, and (ii) for the purposes of the covenant described under "—“—Certain covenants—Covenants—Limitation on restricted payments"payments” only, (i) there shall be excluded from Consolidated Net Income any repurchases, repayments or redemptions of Investments, proceeds realized on the sale of Investments or return of capital to Boise Holdings, TimberBZ Holdings or a Restricted Subsidiary (excluding Timber Holdings and its Restricted Subsidiaries for periods following the Timber Fall-away Date) to the extent such repurchases, repayments, redemptions, proceeds or returns increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.thereof, and (ii) Consolidated Net Income for any period shall include (without duplication) alternative fuel mixture credits pursuant to the Code, net of fees and expenses with respect thereto, to the extent (and solely to the extent) that cash payments from the U.S. government in respect thereof are received during such period by BZ Holdings or its Restricted Subsidiaries.
"“Continuing DirectorConsolidated Net Tangible Assets" means,” as of anythe date of determination, any membermeans the total amount of the Boardassets (less accumulated depreciation and amortization, allowances for doubtful receivables, other applicable reserves and other properly deductible items) which would appear on a consolidated balance sheet of Directors of the Parent, BoiseBZ Holdings or Timber Holdings, as applicable, who (i) was a member of the Board of Directors of such Person on the date of the Indentureand its consolidated Restricted Subsidiaries, determined in accordance with GAAP, and after giving effect to purchase accounting and after deducting therefrom Consolidated Current Liabilities and, to the Acquisition or (ii) was nominated for election or elected to such Board of Directors withextent otherwise included, the approval of a majority of the Continuing Directors who were members of such Board at the time of the nomination or election or was otherwise designated by a Permitted Holder.amounts of:
(1) | minority interests in consolidated Subsidiaries held by Persons other than BZ Holdings or a Restricted Subsidiary; |
(2) | excess of cost over fair value of assets of businesses acquired, as determined in good faith by the Board of Directors of BZ Holdings; |
(3) | any revaluation or other write-up in book value of assets subsequent to the Issue Date as a result of a change in the method of valuation in accordance with GAAP consistently applied; |
(4) | unamortized debt discount and expenses and other unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, licenses, organization or developmental expenses and other intangible items; |
(5) | treasury stock; |
(6) | cash set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of Capital Stock to the extent such obligation is not reflected in Consolidated Current Liabilities; and |
(7) | Investments in and assets of Unrestricted Subsidiaries. |
"“Credit Agreement"” means the Credit and Guaranty Agreement, to be entered into by anddated as of February 22, 2008, among Boise Paper Holdings, TimberBZ Holdings, certain Subsidiaries of Boise LLC and Timber,Paper Holdings, the lenders referred to therein, JPMorgan Chase Bank, as Administrative Agent and Lehman Commercial Paper Inc.party thereto, Goldman Sachs Credit Partners L.P., as Syndication Agent,administrative agent and collateral agent, Toronto Dominion (Texas) LLC, as syndication agent, and Bank of America, N.A. and CoBank, ACB, as co-documentation agents, together with the documents related documents thereto (including the term loans and revolving loans thereunder, any guaranteesGuarantees and security documents), as amended, extended, renewed, restated, supplemented or otherwise modified, whether through a credit agreement, indenture, note, note purchase agreement or otherwise (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions), from time to time, (including by adding Subsidiaries of Boise Holdings and Timber Holdings as additional borrowers or Guarantors thereunder), and any agreement (and related document) governing Indebtedness Incurred to Refinance, (including one or more debt facilities, receivables financing facilities or commercial paper facilities or indentures with banks or other institutional lenders or a trustee providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit or issuance of debt securities to institutional investors, or one or more Sale/Leaseback Transactions with counterparties thereto), in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or a successor Credit Agreement, whether by the same or any other lender or group of lenders.
"Cross Guarantor" means Timber Holdings, Timber and each other Subsidiary of Timber Holdings that hereafter Guarantees the Notes pursuant to the terms of the Indenture.
"Cross Guaranty" means a Guarantee by a Cross Guarantor of the Issuers' obligations with respect to the Notes.
"“Currency Agreement"” means any foreign exchange contract, currency swap agreement or other similar agreement with respect to currency values.
"“Default"“ means any event which is, or after notice or passage of time or both would be, an Event of Default.
“"Designated Non-cash Consideration"Consideration” means the fair market valueFair Market Value of non-cash consideration received by Boise Holdings, TimberBZ Holdings or any Restricted Subsidiary in connection with an Asset Disposition that is so designated as Designated Non-cash Consideration pursuant to an Officer'sOfficer’s Certificate, setting forth the basis of such valuation.
"Designated Senior Indebtedness", with respect to a Person, means:
"Determination Date" with respect to an Interest Period will be the second London Banking Day preceding the first day of such Interest Period.
"“Disqualified Stock"” means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the happening of any event:
(1) | matures or is mandatorily redeemable (other than redeemable only for Capital Stock of such Person which is not itself Disqualified Stock) pursuant to a sinking fund obligation or otherwise; |
(2) | is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock; or |
(3) | is mandatorily redeemable or must be purchased upon the occurrence of certain events or otherwise, in whole or in part; |
in each case on or prior to 18091 days after the Stated Maturity of the Notes;provided,however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an "asset sale"“asset sale” or "change“change of control"control” occurring prior to the first anniversary of91 days after the Stated Maturity of the Notes shall not constitute Disqualified Stock if:
(1) | the “asset sale” or “change of control” provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the terms applicable to the Notes and described under “—Certain Covenants—Limitation on sales of assets and subsidiary stock” and “—Change of Control”; and |
(2) | any such requirement only becomes operative after compliance with such terms applicable to the Notes, including the purchase of any Notes tendered pursuant thereto. |
The amount of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price will be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or repurchased on any date on which the amount of such Disqualified Stock is to be determined pursuant to the Indenture;provided,however, that if such Disqualified Stock could not be required to be redeemed, repaid or repurchased at the time of such determination, the redemption, repayment or repurchase price will be the book value of such Disqualified Stock as reflected in the most recent financial statements of such Person. Boise LLC may designate in an Officer's Certificate delivered to the Trustee at the time of issuance any Preferred Stock of Boise Holdings, Timber Holdings or any Restricted Subsidiary that would not otherwise be "Disqualified Stock" to be Disqualified Stock for all purposes of the Indenture.
"“EBITDA"” for any period means the sum of Consolidated Net Income, plus the following, without duplication, to the extent deducted in calculating such Consolidated Net Income:
(1) | all income tax expense of BZ Holdings and its consolidated Restricted Subsidiaries;plus |
(2) | Consolidated Interest Expense;plus |
(3) | depreciation, depletion and amortization expense of BZ Holdings and its consolidated Restricted Subsidiaries (excluding amortization expense attributable to a prepaid item that was paid in cash in a prior period);plus |
(4) | (A) all other non-cash charges of BZ Holdings and its consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period),less(B) all non-cash items of income of BZ Holdings and its consolidated Restricted Subsidiaries (other than accruals of revenue in the ordinary course of business and other than reversals (to the extent made without any payment in cash) of reserves previously excluded from clause (A)), |
in each case for such period. Notwithstanding the foregoing, (A) the provision for taxes based on the income or profits of, and the depreciation, amortizationdepletion and depletionamortization and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion, including by reason of minority interests) that the net income or loss of such Restricted Subsidiary was included in calculating Consolidated Net Income, for any purpose and with respect(B) EBITDA shall exclude all amounts attributable to a Restricted Subsidiary that is not a Note Guarantor, only if a corresponding amount would be permitted at the date of determination to be dividended to an Issuer or Boise Holdings, with respect to a Restricted Subsidiary of Boise Holdings, or to a Cross Guarantor, with respect to a Restricted Subsidiary of Timber Holdings, by such Restricted Subsidiary without prior approval (that has not been obtained),alternative fuel mixture credits pursuant to the termsCode, regardless of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders.whether cash payments from the U.S. government in respect thereof have been received.
"Equity Offering" means a public or private primary offering of Capital Stock (other than Disqualified Stock) of Boise Holdings, Timber Holdings or Boise LLC or of any direct or indirect parent company of Boise LLC, the proceeds of which are contributed to the equity capital of Boise Holdings or Timber Holdings, other than (i) any public offering registered on Form S-8, (ii) issuances upon the exercise of options by the holders thereof and (iii) issuances to Boise Holdings, Timber Holdings or any Subsidiary of Boise Holdings or Timber Holdings.
"“Exchange Act"” means the U.S. Securities Exchange Act of 1934, as amended.
"“Exchange NotesFair Market Value"” means, with respect to any asset or property, the debt securitiesprice which could be negotiated in an arm’s-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value will be determined in good faith by (i) if such Fair Market Value is less than $10.0 million, an Officer or (ii) if such Fair Market Value is in excess of $10.0 million, the Board of Directors of BZ Holdings (whose determination will be conclusive and evidenced by a resolution of such Board of Directors);provided,however, that for purposes of clause (a)(3)(B) under “—Certain Covenants—Limitation on restricted payments”, if the Fair Market Value of the Issuers issued pursuantproperty or assets in question is so determined to the Indenturebe in exchange for, and inexcess of $25.0 million, such determination must be confirmed by an aggregate principal amount equal to, the applicable series of the Notes, in compliance with the terms of the applicable Registration Rights Agreement.
"Excluded Contributions" means the net cash proceeds received by Boise Holdings or Timber Holdings after the Issue Date from (i) contributions (other than from Boise Holdings, Timber Holdings or any Subsidiary of Boise Holdings or Timber Holdings) to its common equity capital and (ii) the sale (other than to Boise Holdings, Timber Holdings or any Subsidiary of Boise Holdings or Timber Holdings or any management equity plan or stock option plan or any other management or employee benefit plan or agreement of Boise Holdings, Timber Holdings or any Subsidiary of Boise Holdings or Timber Holdings) of Capital Stock (other than Disqualified Stock) of Boise Holdings or Timber Holdings, in each case designated as Excluded Contributions pursuant to an Officer's Certificate.Independent Qualified Party.
"Financing Transactions" means (1) the issuance of the Notes and (2) the entrance into the Credit Agreement by Boise Holdings, Timber Holdings and their Subsidiaries and the funding of the senior secured credit facilities thereunder on the Issue Date.
"“Foreign Subsidiary"” means any Restricted Subsidiary that is not organized under the laws of the United States of America or any State thereof or the District of Columbia.
"“GAAP"” means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in:
(1) | the Financial Accounting Standards Board Accounting Standards Codification; and |
(2) | the rules and regulations of the SEC governing the inclusion of financial statements (includingpro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. |
"“Guarantee"” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person:
(1) | to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or |
(2) | entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); |
provided,however, that the term "Guarantee"“Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee"“Guarantee” used as a verb has a corresponding meaning. The term Guarantor shall mean any Person Guaranteeing any obligation.
"“GuarantyGuarantee Agreement"” means a supplemental indenture, in a form reasonably satisfactory to the Trustee, pursuant to which a Note Guarantor guaranteesGuarantees the Issuers'Issuers’ obligations with respect to the Notes on the terms provided for in the Indenture.
"“Hedging Obligations"” of any Person means the obligations of such Person pursuant to any Interest Rate Agreement, Currency Agreement or Commodity Agreement.
"“Holder" or "Noteholder"” means the Person in whose name a Note is registered on the Registrar'sRegistrar’s books.
"“Incur"” means issue, assume, Guarantee, incur or otherwise become liable for;provided,however, that any Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Person at the time it becomes a Restricted Subsidiary. The term "Incurrence"“Incurrence” when used as a noun shall have a correlative meaning. Solely for purposes of determining compliance with "—Certain covenants—Limitation on indebtedness":
The following will not be deemed to be the Incurrence of Indebtedness.Indebtedness:
(1) | amortization of debt discount or the accretion of principal with respect to a non-interest bearing or other discount security; |
(2) | the payment of regularly scheduled interest in the form of additional Indebtedness of the same instrument or the payment of regularly scheduled dividends on Capital Stock in the form of additional Capital Stock of the same class and with the same terms; and |
(3) | the obligation to pay a premium in respect of Indebtedness arising in connection with the issuance of a notice of redemption or making of a mandatory offer to purchase such Indebtedness. |
"“Indebtedness"” means, with respect to any Person on any date of determination (without duplication):
(1) | the principal in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable, including, in each case, any premium on such indebtedness to the extent such premium has become due and payable; |
(2) | all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions (without duplication) entered into by such Person; |
(3) | all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding any accounts payable or other liability to trade creditors arising in the ordinary course of business); |
(4) | all obligations of such Person for the reimbursement of any obligor for principal on any letter of credit, bankers’ acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following payment on the letter of credit); |
(5) | the principal amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock of such Person or with respect to any Preferred Stock of any Subsidiary of such Person, the principal amount of such Capital Stock to be determined in accordance with the Indenture (but excluding, in each case, any accrued dividends); |
(6) | all obligations of the type referred to in clauses (1) through (5) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; |
(7) | all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the Fair Market Value of such property or assets and the amount of the obligation so secured; and |
(8) | to the extent not otherwise included in this definition, Hedging Obligations of such Person. |
In no event shall obligations of Boise Holdings or any of its Subsidiaries under the Additional Consideration Agreement be deemed Indebtedness. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations to pay as described above;provided,however, that in the case of Indebtedness sold at a discount, the amount of such Indebtedness at any time will be the accreted value thereof at such time.
"“Independent Qualified Party"” means an investment banking firm, accounting firm or appraisal firm of national standing;provided,however, that such firm is not an Affiliate of Boise Holdings or Timber Holdings.the Issuers.
"“Initial Purchasers"” means Banc of America Securities LLC, Barclays Capital Inc., J.P. Morgan Securities Inc., Lehman BrothersRabo Securities USA, Inc., Deutsche Bank SecuritiesScotia Capital (USA) Inc. and Goldman, Sachs & Co.TD Securities (USA) LLC.
"Interest Period" means the period commencing on and including an interest payment date and ending on and including the day immediately preceding the next succeeding interest payment date, with the exception that the first Interest Period shall commence on and include the Issue Date and end on and include January 14, 2005.
"“Interest Rate Agreement"” means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement with respect to exposure to interest rates.
"“Investment"” in any Person means any direct or indirect advance, loan (other than advances, trade credits or endorsements for collection or deposit to customerstrade creditors in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by, such Person. If Boise Holdings, TimberBZ Holdings or any Restricted Subsidiary issues, sells or otherwise disposes of any Capital Stock of a Person that is a Restricted Subsidiary such that, after giving effect thereto, such Person is no longer a Restricted Subsidiary, any Investment by Boise Holdings, TimberBZ Holdings or any Restricted Subsidiary in such Person remaining after giving effect thereto will be deemed to be a new Investment at such time. On the Timber Fall-away Date any Investment by Boise Holdings or any of its Restricted Subsidiaries in Timber Holdings or any of its Restricted Subsidiaries remaining at such time will be deemed to be a new Investment at such time. The acquisition by Boise Holdings, TimberBZ Holdings or any Restricted Subsidiary of a Person that holds an Investment in a third Person will be deemed to be an Investment by Boise Holdings, TimberBZ Holdings or such Restricted Subsidiary in such third Person at such time. Except as otherwise provided for herein, the amount of an Investment shall be its fair market valueFair Market Value at the time the Investment is made and without giving effect to subsequent changes in value.
For purposes of the definition of "Unrestricted Subsidiary"“Unrestricted Subsidiary”, the definition of "Restricted Payment"“Restricted Payment” and the covenant described under "—“—Certain covenants—Covenants—Limitation on restricted payments"payments”:
(1) | “Investment” shall include the portion (proportionate to BZ Holdings’ equity interest in such Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of BZ Holdings at the time that such Subsidiary is designated an Unrestricted Subsidiary;provided,however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, BZ Holdings shall be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary equal to an amount (if positive) equal to (A) BZ Holdings’ “Investment” in such Subsidiary at the time of such redesignationless (B) the portion (proportionate to BZ Holdings’ equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and |
(2) | any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer. |
"“Issue Date"” means October 29, 2004.March 19, 2010.
"“Legal Holiday"” means a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York.
"LIBOR", with respect to an Interest Period, will be the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period beginning on the second London Banking Day after the Determination Date that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the Determination Date. If Telerate Page 3750 does not include such a rate or is unavailable on a Determination Date, the Calculation Agent will request the principal London office of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide such bank's offered quotation (expressed as a percentage per annum), as of approximately 11:00 a.m., London time, on such Determination Date, to prime banks in the London interbank market for deposits in a Representative Amount in U.S. dollars for a three-month period beginning on the second London Banking Day after the Determination Date. If at least two such offered quotations are so provided, the rate for the Interest Period will be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Calculation Agent will request each of three major banks in New York City, as selected by the Calculation Agent, to provide such bank's rate (expressed as a percentage per annum), as of approximately 11:00 a.m., New York City time, on such Determination Date, for loans in a Representative Amount in U.S. dollars to leading European banks for a three-month period beginning on the second London Banking Day after the Determination Date. If at least two such rates are so provided, the rate for the Interest Period will be the arithmetic mean of such rates. If fewer than two such rates are so provided, then the rate for the Interest Period will be the rate in effect with respect to the immediately preceding Interest Period.
"“Lien"” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof).
"London Banking Day" is any day on which dealings in U.S. dollars are transacted or, with respect to any future date, are expected to be transacted in the London interbank market.
"Management Investors" means those executive officers of Boise Holdings or Timber Holdings acquiring any Capital Stock directly or indirectly in Boise Holdings or any direct or indirect parent company of Boise Holdings on or prior to the Issue Date in connection with the Acquisition.
"“Measurement Period"” means, with respect to any date of determination, the period of the most recent four consecutive fiscal quarters ended prior to such date of determination for which internal financial statements are available.
"“Moody'sMoody’s"” means Moody'sMoody’s Investors Service, Inc. and any successor to its rating agency business.
"“Net Available Cash"” from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration or any Designated Non-cash Consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form), in each case net of:
(1) | all legal, accounting and investment banking fees, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes paid or required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition; |
(2) | all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition; |
(3) | all distributions and other payments required to be made to minority interest holders in Restricted Subsidiaries as a result of such Asset Disposition; |
(4) | the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by BZ Holdings or any Restricted Subsidiary after such Asset Disposition; and |
(5) | any portion of the purchase price from an Asset Disposition placed in escrow, whether as a reserve for adjustment of the purchase price, for satisfaction of indemnities in respect of such Asset Disposition or otherwise in connection with that Asset Disposition;provided,however, that upon the termination of such escrow, Net Available Cash will be increased by any portion of funds in the escrow that are released to BZ Holdings or any Restricted Subsidiary. |
"“Net Cash Proceeds"”, with respect to any issuance or sale of Capital Stock or Indebtedness, means the cash proceeds of such issuance or sale net of attorneys'attorneys’ fees, accountants'accountants’ fees, underwriters'underwriters’ or placement agents'agents’ fees, discounts or commissions and brokerage, consultant and other fees actually Incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof.
"Net Fair Market Value," with respect to any non-cash property received by Boise Holdings or Timber Holdings in respect of the issuance or sale of its Capital Stock, means the fair market value of such property, determined as provided in clause (a) of the covenant described under "Certain covenants—Limitation on restricted payments", net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof.
“"Non-Public Indebtedness"Net Fair Market Value means:
"Note Guarantor"Capital Stock, means the Parent Guarantor, each Cross GuarantorFair Market Value of such property, net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, discounts or commissions and each Subsidiary Guarantor.brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof.
"“Note GuarantyGuarantee"” means the Parent Guaranty, any Cross GuarantyBZ Guarantee and any Subsidiary Guaranty,Guarantee, as the context may require.
"“Note Guarantor” means BZ Holdings and each Subsidiary Guarantor.
“Obligations"” means, with respect to any Indebtedness, all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements and other amounts payable pursuant to the documentation governing such Indebtedness.
"“Offering MemorandumOfficer”" means the final offering memorandum dated as of October 15, 2004 and used in connection with the offering of the Notes.
"Officer" means the Chairman of the Board of Directors, the President, any Vice President, the Treasurer or the Secretary of Boise LLC.Paper Holdings.
"“Officers'Officers’ Certificate"” means a certificate signed by two Officers.
"“Opinion of Counsel"” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to Boise LLCPaper Holdings or the Trustee.
"Parent Guarantor" means Boise Cascade Holdings, L.L.C.
"Parent Guaranty" means the Guarantee by Boise Holdings of the Issuers' obligations with respect to the Notes.
"Permitted Asset Swap" means any transfer of properties or assets by Boise Holdings, Timber Holdings or a Restricted Subsidiary in which at least 90% of the consideration received by the transferor consists of properties or assets (other than cash) that will be used in a Related Business;provided, that (i) the aggregate fair market value of the property or assets being transferred (as determined in good faith by the Board of Directors of Boise Holdings or Timber Holdings if such fair market value exceeds $10,000,000, or an Officer of Boise Holdings or Timber Holdings, as the case may be, if the fair market value is less than or equal to $10,000,000) by Boise Holdings, Timber Holdings or a Restricted Subsidiary is not greater than the aggregate fair market value of the property or assets received (as determined in good faith by the Board of Directors of Boise Holdings or Timber Holdings if such fair market value exceeds $10,000,000, or an Officer of Boise Holdings or Timber Holdings, as the case may be, if the fair market value is less than or equal to $10,000,000) by Boise Holdings, Timber Holdings or such Restricted Subsidiary in such exchange, (ii) the aggregate fair market value of all property or assets transferred by Boise Holdings, Timber Holdings and any Restricted Subsidiary in any such transfer, together with the aggregate fair market value of property or assets transferred in all prior Permitted Asset Swaps, shall not exceed 10.0% of
Total Assets at the time of such transfer and (iii) with respect to any transfer of Timberlands Assets, "Permitted Asset Swap" shall include only such transfers in which at least 90% of the consideration received by the transferor consists of real property owned or leased for the purpose of growing and harvesting timber, and related timber rights.
"“Permitted Holders"” means (i) Madison Dearborn Partners, LLC, (ii) the Management Investors, (iii) any Related Party of a Person referred to in clauses (i) and (ii), and (iv) solely with respect to clause (1) of the provisions described under "Change of control", any party to the Stockholders Agreement;provided in the case of this clause (iv) that Madison Dearborn Partners, LLC or any Related Party of Madison Dearborn Partners, LLC is also a party to the Stockholders Agreement and any such other party to the Stockholders Agreement is not the beneficial owner (giving effect to any Voting Stock that may be deemed to be beneficially owned by any Person pursuant to Rules 13d-3 or 13d-5 under the Exchange Act) of more of the total voting power of the Voting Stock of the Parent, Boise Holdings or Timber Holdings than Madison Dearborn Partners, LLC and its Related Parties (in each case without giving effect to any Voting Stock that may be deemed to be beneficially ownedinvestment fund controlled by any Person pursuant to Rules 13d-3 or 13d-5 under the Exchange ActMadison Dearborn Partners, LLC and, for so long as a result of the terms of the Stockholders Agreement). Except for aParent is controlled by another Permitted Holder, specifically identified by name, in determining whether Voting Stock is owned by a Permitted Holder, only Voting Stock acquired by a Permitted Holder in its described capacity will be treated as "beneficially owned" by such Permitted Holder.Parent.
"“Permitted Investment"” means:
(1) | any Investment in BZ Holdings, a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; |
(2) | any Investment in another Person if, as a result of such Investment, such other Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all its assets to, BZ Holdings or a Restricted Subsidiary; |
(3) | cash and Temporary Cash Investments; |
(4) | receivables owing to BZ Holdings or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;provided,however, that such trade terms may include such concessionary trade terms as BZ Holdings or any such Restricted Subsidiary deems reasonable under the circumstances; |
(5) | payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; |
(6) | loans or advances to employees made in the ordinary course of business consistent with past practices of BZ Holdings or a Restricted Subsidiary; |
(7) | stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to BZ Holdings or any Restricted Subsidiary or in satisfaction of judgments; |
(8) | any Investment in any Person to the extent such Investment represents the non-cash portion of the consideration received for (A) an Asset Disposition as permitted pursuant to the covenant described under “—Certain Covenants—Limitation on sales of assets and subsidiary stock” or (B) a disposition of assets not constituting an Asset Disposition; |
(9) | any Investment in any Person where such Investment was acquired by BZ Holdings or any of its Restricted Subsidiaries (A) in exchange for any other Investment or accounts receivable held by BZ Holdings or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable, (B) as a result of a foreclosure by BZ Holdings or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default or (C) in settlement, compromise or resolution of litigation, arbitration or other disputes; |
(10) | any Investment in any Person to the extent such Investment consists of prepaid expenses, negotiable instruments held for collection and lease, utility and workers’ compensation, performance and other similar deposits made in the ordinary course of business by BZ Holdings or any Restricted Subsidiary; |
(11) | Investments consisting of Hedging Obligations otherwise permitted under the covenant described under “—Certain Covenants—Limitation on indebtedness”; |
(12) | Investments resulting from the acquisition of a Person that at the time of such acquisition held instruments constituting Investments that were not acquired in contemplation of the acquisition of such Person; |
(13) | any Investment to the extent such Investment exists on the Issue Date, and any extension, modification or renewal of any such Investments existing on the Issue Date, but only to the extent not involving additional advances, contributions or other Investments of cash or other assets or other increases thereof (other than as a result of the accrual or accretion of interest or original issue discount or the issuance of pay-in-kind securities, in each case, pursuant to the terms of such Investment as in effect on the Issue Date); and |
(14) | any Investment to the extent such Investment, when taken together with all other Investments made pursuant to this clause (14) and outstanding on the date such Investment is made, do not exceed the greater of (A) $50.0 million and (B) 2.5% of Consolidated Net Tangible Assets. |
"“Permitted Liens"” means, with respect to any Person:
tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business;
(1) | pledges or deposits by such Person under worker’s compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; |
(2) | Liens imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens, in each case for sums not yet overdue for more than 30 days or being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review and Liens arising solely by virtue of any statutory or common law provision relating to banker’s Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution;provided,however, that (A) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by BZ Holdings or the Issuers in excess of those set forth by regulations promulgated by the Federal Reserve Board and (B) such deposit account is not intended by BZ Holdings or any Restricted Subsidiary to provide collateral to the depository institution; |
(3) | Liens for taxes, assessments or other governmental charges not yet due and payable or subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings; |
(4) | Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business;provided,however, that such letters of credit do not constitute Indebtedness; |
(5) | survey exceptions, encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; |
(6) | Liens securing Purchase Money Indebtedness Incurred pursuant to clause (b)(13) under “—Certain Covenants—Limitation on indebtedness”;provided,however, that any Lien arising in connection with any such Indebtedness shall be limited to the specific asset being financed or, in the case of real property or fixtures, including additions and improvements, the real property on which such asset is attached; |
(7) | Liens securing Indebtedness in an aggregate principal amount, as of any date of determination, not to exceed the greater of (A) the aggregate principal amount of Indebtedness permitted under the provisions described in clause (b)(1) under “—Certain Covenants—Limitation on indebtedness” and (B) the maximum principal amount of Secured Indebtedness that, after giving effect to the Incurrence of such Secured Indebtedness, would not cause the Secured Leverage Ratio to exceed 2.5 to 1; |
(8) | Liens existing on the Issue Date (other than under the Credit Agreement); |
(9) | Liens on property or shares of Capital Stock of another Person at the time such other Person becomes a Subsidiary of such Person (other than Liens Incurred in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of transactions pursuant to which such Person becomes such a Subsidiary);provided,however, that the Liens may not extend to any other property owned by such Person or any of its Restricted Subsidiaries (other than assets and property affixed or appurtenant thereto); |
(10) | Liens on property at the time such Person or any of its Subsidiaries acquires the property, including any acquisition by means of a merger or consolidation with or into such Person or a Subsidiary of such Person (other than Liens Incurred in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of transactions pursuant to which such Person or any of its Subsidiaries acquired such property);provided, however, that the Liens may not extend to any other property owned by such Person or any of its Restricted Subsidiaries (other than assets and property affixed or appurtenant thereto); |
(11) | Liens securing Indebtedness or other obligations of a Subsidiary of such Person owing to such Person or a Wholly Owned Subsidiary of such Person; |
(12) | Liens on the assets of a Foreign Subsidiary securing Indebtedness of such Foreign Subsidiary Incurred pursuant to clause (b)(14) of the covenant described under “—Certain Covenants— Limitation on indebtedness”; |
(13) | Liens securing Hedging Obligations permitted under the Indenture; |
(14) | Liens on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; |
(15) | Liens imposed pursuant to licenses, sublicenses, leases and subleases (including, but not limited to, landlords’ Liens) which do not materially interfere with the ordinary conduct of the business of BZ Holdings or any of its Restricted Subsidiaries; |
(16) | Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by BZ Holdings and its Restricted Subsidiaries in the ordinary course of business; |
(17) | Liens in favor of an Issuer or any Note Guarantor or Liens on assets of a Restricted Subsidiary that is not a Subsidiary Guarantor (other than the Issuers) in favor solely of another Restricted Subsidiary that is not a Subsidiary Guarantor (other than the Issuers); |
(18) | judgment Liens not giving rise to an Event of Default, so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; |
(19) | Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with importation of goods; |
(20) | Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by BZ Holdings or any of its Restricted Subsidiaries in the ordinary course of business; |
(21) | Liens securing Indebtedness in an amount which, together with the aggregate outstanding amount of all other Indebtedness secured by Liens Incurred pursuant to this clause (21), does not exceed $50.0 million; |
(22) | Liens incurred to secure cash management services in the ordinary course of business; |
(23) | customary restrictions on, or options, contracts or other agreements for, transfers of assets contained in agreements related to any sale of assets pending such sale;provided that such restrictions apply only to the assets to be sold and such sale is otherwise permitted by the Indenture; |
(24) | Liens securing obligations to the Trustee arising under the Indenture; |
(25) | Liens on trusts, cash or Temporary Cash Investments or other funds provided in connection with the defeasance (whether by covenant or legal defeasance), discharge or redemption of Indebtedness;provided that such defeasance, discharge or redemption is otherwise permitted by the Indenture; |
(26) | Liens securing all of the Notes (including any Additional Notes), the Subsidiary Guarantees thereof and other obligations to the Holders under the Indenture; |
(27) | Liens to secure any Refinancing (or successive Refinancings) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clause (8), (9) or (10);provided, however, that: |
(A) | such new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to such property or proceeds or distributions thereof); and |
(B) | the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (x) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clause (8), (9) or (10) at the time the original Lien became a Permitted Lien and (y) an amount necessary to pay any fees and expenses, including premiums, related to such Refinancing; and |
(28) | solely with respect to any Lien incurred pursuant to clause (7) in respect of the excess, if any, of the amount described in clause (7)(B) over the amount described in clause (7)(A) (such excess in respect of which such Lien was incurred, the “Secured Leverage Ratio Excess”)), “Permitted Liens” shall include Liens to secure any Refinancing (or successive Refinancings) as a whole, or in part, of Indebtedness secured by such Lien;provided, however, that the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (x) the lesser of (i) the principal amount of the Indebtedness being Refinanced and (ii) the applicable Secured Leverage Ratio Excess at the time the original Lien was so incurred, and (y) an amount necessary to pay any fees and expenses, including premiums, related to such Refinancing. |
Notwithstanding the foregoing, "Permitted Liens"“Permitted Liens” will not include any Lien described in clause (6), (9) or (10) above to the extent such Lien applies to any Additional Assets acquired directly or indirectly from Net Available Cash pursuant to the covenant described under "—“—Certain covenants—Covenants—Limitation on sale of assets and subsidiary stock"stock”. For purposes of this definition, the term "Indebtedness"“Indebtedness” shall be deemed to include interest on such Indebtedness.
"Person“Person”" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.
"“Preferred StockStock”", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.
"principal“principal”" of a Note means the principal of the Note plus the premium, if any, payable on the Note which is due or overdue or is to become due at the relevant time.
"Pro Forma Cost Savings" means cost savings that Boise Holdings or Timber Holdings reasonably determines are probable based upon specifically identified actions to be taken within six months of the date of the acquisition (net of any reduction in EBITDA as a result of such cost savings that Boise Holdings or Timber Holdings reasonably determines are probable);provided that Boise Holdings' or Timber Holdings' chief financial officer shall have certified in an Officer's Certificate delivered to the Trustee the specific actions to be taken, the cost savings to be achieved from each such action, that such savings have been determined to be probable and the amount, if any, of any reduction in EBITDA in connection therewith. Where specifically provided by the Indenture, the Issuers shall givepro forma effect to such Pro Forma Cost Savings as if they had been effected as of the beginning of the applicable period.
"“Purchase Money IndebtednessIndebtedness”" means Indebtedness (including Capital Lease Obligations)Obligations and Attributable Debt) (1) consisting of the deferred purchase price of property, conditional sale obligations, obligations under any title retention agreement, other purchase money obligations and obligations in respect of industrial revenue bonds or similar Indebtedness, in each case where the maturity of such Indebtedness does not exceed the anticipated useful life of the asset being financed, and (2) Incurred to finance the acquisition by Boise Holdings, TimberBZ Holdings or a Restricted Subsidiary of such asset (whether through the direct purchase of such asset or the purchase of the
Capital Stock of any Person owning such asset), including additions and improvements, in each case in the ordinary course of business;provided,,however,, that such Indebtedness is Incurred within 180270 days after such acquisition of such assets.
"“Qualified Capital Stock” means Capital Stock of BZ Holdings other than Disqualified Stock.
“Qualified Receivables TransactionEquity Offering”" means any transactionpublic or seriesprivate primary offering for cash of transactionsQualified Capital Stock of BZ Holdings, or of Capital Stock of Parent the proceeds of which are contributed to the common equity capital of BZ Holdings (provided that mayany such contributed amounts used to redeem Notes shall be entered intoexcluded for purposes of making Restricted Payments under clause (3)(B) of paragraph (a) of, and clause (1) of paragraph (b) of, the covenant described under “—Limitation on restricted payments”), other than (i) any public offering registered on Form S-8, (ii) issuances upon the exercise of employee stock options by Boise Holdings, Timberthe holders thereof and (iii) issuances to BZ Holdings or any Restricted Subsidiary pursuant to which Boise Holdings, Timber Holdings or any Restricted Subsidiary may sell, convey, contribute to capital or otherwise transfer to a Receivables Entity, or may grant a security interest in and/or pledge, any Receivables or interests therein and any assets related thereto, including, without limitation, all collateral securing such Receivables, all contracts and contract rights, purchase orders, security interests, financing statements or other documentation in respect of such Receivables, any Guarantees, indemnities, warranties or other obligations in respect of such Receivables, any other assets that are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving receivables similar to such Receivables and any collections or proceeds of any of the foregoing (collectively, the "Related Assets"), which transfer, grant of security interest or pledge is funded in whole or in part, directly or indirectly, by the Incurrence or issuance by the transferee or any successor transferee of Indebtedness, fractional undivided interests, or other securities that are to receive payments from, or that represent interests in, the cash flow derived from such Receivables and Related Assets or interests in Receivables and Related Assets, it being understood that a Qualified Receivables Transaction may involve:
The grant of a security interest in any accounts receivable of Boise Holdings, Timber Holdings or any of Restricted Subsidiary to secure Indebtedness Incurred pursuant to the Credit Agreement shall not be deemed a Qualified Receivables Transaction.
"Rating Agency" means Standard & Poor's and Moody's or if Standard & Poor's or Moody's or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Issuers (as certified by a resolution of the Board of Directors of Boise LLC) which shall be substituted for Standard & Poor's or Moody's or both, as the case may be.BZ Holdings.
"Receivables“Refinance”" means accounts receivable (including all rights to payment created by or arising from the sale of goods, leases of goods or the rendition of services, no matter how evidenced (including in the form of chattel paper) and whether or not earned by performance) of Boise Holdings, Timber Holdings or any Restricted Subsidiary, whether now existing or arising in the future.
"Receivables Entity" means any Person formed for the purposes of engaging in a Qualified Receivables Transaction with Boise Holdings, Timber Holdings or a Restricted Subsidiary which engages in no activities other than in connection with the financing of Receivables of Boise Holdings, Timber Holdings and Restricted Subsidiaries, all proceeds thereof and all rights (contractual or other), collateral and other assets relating thereto, and any business or activities incidental or related to such business, and which is designated by the Board of Directors of the Restricted Subsidiary that is the direct parent company of such Receivables Entity, or, if the Receivables Entity is not a Subsidiary of Boise Holdings or Timber Holdings, by the Board of Directors of any Restricted Subsidiary participating in such Qualified Receivables Transaction, (in each case as provided below), as a Receivables Entity and:
Any such designation by the Board of Directors of the applicable Restricted Subsidiary shall be evidenced to the trustee by filing with the trustee a certified copy of the resolution of such Board of Directors giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing conditions.
"Receivables Financing" means any transaction (including, without limitation, any Qualified Receivables Transaction) pursuant to which Boise Holdings, Timber Holdings or any Restricted Subsidiary may sell, convey or otherwise transfer or grant a security interest in any Receivables or Related Assets of the type specified in the definition of "Qualified Receivables Transaction".
"Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, replace, repay, prepay, purchase, redeem, defease (whether by covenant or legal defeasance), discharge or otherwise retire or acquire for value, in whole or in part, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced"“Refinanced” and "Refinancing"“Refinancing” shall have correlative meanings.
"“Refinancing IndebtednessIndebtedness”" means Indebtedness that Refinances any Indebtedness of Boise Holdings, TimberBZ Holdings or any Restricted Subsidiary existing on the Issue Date or Incurred in
compliance with the Indenture, including Indebtedness that Refinances Refinancing Indebtedness;provided,,however,, that:
(1) | (a) if the Stated Maturity of the Indebtedness being Refinanced has a Stated Maturity earlier than the Stated Maturity of the Notes, such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced or (b) if the Stated Maturity of the Indebtedness being Refinanced is later than the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated Maturity at least 91 days later than the Stated Maturity of the Notes; |
(2) | such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced; |
(3) | such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; and |
(4) | if the Indebtedness being Refinanced is subordinated in right of payment to the Notes or a Note Guarantee, such Refinancing Indebtedness is subordinated in right of payment to the Notes or such Note Guarantee at least to the same extent as the Indebtedness being Refinanced; |
provided further,,however,, that Refinancing Indebtedness shall not include (A) Indebtedness of a Subsidiary of Boise Holdings or TimberBZ Holdings that is not a Note Guarantor or Issuer that Refinances Indebtedness of Boise Holdings or Timber Holdings, as the case may be, or Indebtedness of a Subsidiary of Boise LLC that is not a Note Guarantor that Refinances Indebtedness of Boise LLC or (B) Indebtedness of Boise Holdings, Timber Holdings or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.Issuer.
"“Registration Rights AgreementsAgreement”" means the Registration Rights Agreement in respect ofdated March 19, 2010, among the Senior NotesIssuers, the Note Guarantors and the Registration Rights Agreement in respect of the Senior Subordinated Notes (each, a "Registration Rights Agreement"), in each case dated October 29, 2004, among the Initial Purchasers, the Issuers and the Note Guarantors.Purchasers.
"“Related BusinessBusiness”" means any business in which Boise Holdings, TimberBZ Holdings or any of the Restricted Subsidiaries was engaged on the Issue Date and any business similar, related, supportive, ancillary or complementary to such business.
"Related Party" means (a) with respect to Madison Dearborn Partners, LLC, (i) any investment fund controlled by or under common control with, Madison Dearborn Partners, LLC, and any officer, director or employee of Madison Dearborn Partners, LLC, and (ii) any spouse or lineal descendant (including by adoption and stepchildren) of the officers, directors and employees referred to in clause (a)(i) above; and (b) with respect to any officer or employee of Boise Holdings, Timber Holdings or any of their Subsidiaries, (i) any spouse or lineal descendant (including by adoption and stepchildren) of the officer or employee and (ii) any trust, corporation, partnership or other entity, of which an 80% or more controlling interest is held by beneficiaries, stockholders, partners or owners who are the officer or employee, any of the persons described in clause (b)(i) above or any combination of these identified relationships.
"Representative" means, with respect to a Person, any trustee, agent or representative (if any) for an issue of Senior Indebtedness of such Person.
"Representative Amount" means a principal amount of not less than $1,000,000 for a single transaction in the relevant market at the relevant time.
"“Restricted PaymentPayment”" with respect to any Person means:
(1) | the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than (A) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock), (B) dividends or distributions payable solely to BZ Holdings or a Restricted Subsidiary, (C) pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation) and (D) dividends or distributions of shares of Capital Stock of Unrestricted Subsidiaries); |
(2) | the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of any Capital Stock of BZ Holdings held by any Person (other than by a Restricted Subsidiary) or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of BZ Holdings (other than by a Restricted Subsidiary or BZ Holdings), including in connection with any merger or consolidation and including the exercise of any option to exchange any Capital Stock (other than into Qualified Capital Stock); |
(3) | the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations of the Issuers or any Note Guarantor (other than (A) from BZ Holdings or a Restricted Subsidiary or (B) the purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase, redemption, defeasance or other acquisition or retirement); or |
(4) | the making of any Investment (other than a Permitted Investment) in any Person. |
“Restricted Subsidiary”means Boise Paper Holdings, Boise Co-Issuer and any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than (A) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock), (B) dividends or distributions payable solely to Boise Holdings, Timber Holdings or a Restricted Subsidiary, (C) pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation) and (D) dividends or distributions of shares of Capital Stock of, or Indebtedness owed to Boise Holdings, Timber Holdings or any Restricted Subsidiary by, Unrestricted Subsidiaries);
"Restricted Subsidiary" means Boise LLC, Boise Finance, and any Subsidiary of Boise Holdings or TimberBZ Holdings that is not an Unrestricted Subsidiary.
"“Sale/Leaseback TransactionTransaction”" means an arrangement relating to property owned by Boise Holdings, TimberBZ Holdings or a Restricted Subsidiary on the Issue Date or thereafter acquired by Boise Holdings, TimberBZ Holdings or a Restricted Subsidiary whereby Boise Holdings, TimberBZ Holdings or a Restricted Subsidiary transfers such property to a Person and Boise Holdings, TimberBZ Holdings or a Restricted Subsidiary leases it from such Person.
"“SEC"” means the U.S. Securities and Exchange Commission.
"“Secured Indebtedness"” means any Indebtedness secured by a Lien.
"“Secured Leverage Ratio” means, as of any date of determination, the ratio of (x) total Secured Indebtedness of BZ Holdings and its Restricted Subsidiaries, determined on a consolidated basis, as of such date of determination to (y) the aggregate amount of EBITDA for the Measurement Period;provided,however, that the calculation of the Secured Leverage Ratio shall give effect to the Calculation Adjustments, as applicable.
“Securities Act"” means the U.S. Securities Act of 1933, as amended.
"“Senior Indebtedness"” means with respect to any Person:
(1) | Indebtedness of such Person, whether outstanding on the Issue Date or thereafter Incurred; and |
(2) | all other Obligations of such Person (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such Person whether or not post-filing interest is allowed in such proceeding) in respect of Indebtedness described in clause (1) above |
unless, in the case of clauses (1) and (2), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such Indebtedness or other Obligations are subordinate in the case of the Senior Notes, or subordinate orpari passu, in the case of the Senior Subordinated Notes, in right of payment to suchthe Notes or the Note GuarantyGuarantee of such Person, of such Notes, as the case may be;provided,however, that Senior Indebtedness shall not include:
(1) | any obligation of such Person to BZ Holdings or any Subsidiary of BZ Holdings; |
(2) | any liability for Federal, state, local or other taxes owed or owing by such Person; |
(3) | any accounts payable or other liability to trade creditors arising in the ordinary course of business; |
(4) | any Capital Stock; |
(5) | any Indebtedness or other Obligation of such Person which is subordinate or junior in any respect to any other Indebtedness or other Obligation of such Person; or |
(6) | that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of the Indenture. |
"Senior Subordinated Indebtedness" means, with respect to a Person, the Senior Subordinated Notes (in the case of the Issuers), the Note Guaranties of the Senior Subordinated Notes (in the case of a Note Guarantor) and any other Indebtedness of such Person that specifically provides that such Indebtedness is to rankpari passu with the Senior Subordinated Notes or such Note Guaranty of the Senior Subordinated Notes, as the case may be, in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of such Person which is not Senior Indebtedness of such Person.
"“Significant Subsidiary"” means any Restricted Subsidiary that would be a "Significant Subsidiary"“Significant Subsidiary” of Boise Holdings or TimberBZ Holdings within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC;provided that, solely for purposes of the covenant described under "—Certain covenants—SEC reports", 5% shall be substituted for 10% for purposes of such definition.SEC.
"Standard Securitization Undertakings" means all representations, warranties, covenants, indemnities, performance Guarantees and servicing obligations entered into by the Parent or any Subsidiary of the Parent (other than a Receivables Entity) which are customary in connection with any Qualified Receivables Transaction.
"“Standard & Poor'sPoor’s"” means Standard & Poor's,Poor’s, a division of The McGraw-Hill Companies, Inc., and any successor to its rating agency business.
"“Stated Maturity"” means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred).
"Stockholders Agreement" means, collectively, the Stockholders Agreements among the holders of the Capital Stock of Boise Holdings or Timber Holdings, as applicable, as described in
the Offering Memorandum under the caption "Certain relationships and related transactions", as in effect in the Issue Date and giving effect to any amendment thereto (including an amendment to add additional parties) that is not materially less favorable to the Holders.
"“Subordinated Obligation"” means, with respect to a Person, and with respect to a series of Notes, any Indebtedness of such Person (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to such series ofthe Notes or a Note GuarantyGuarantee of such Person, of such series of Notes, as the case may be, pursuant to a written agreement to that effect. With respect to the Senior Notes, the Senior Subordinated Notes shall be Subordinated Obligations.
"“Subsidiary"” means, with respect to any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by:
(1) | such Person; |
(2) | such Person and one or more Subsidiaries of such Person; or |
(3) | one or more Subsidiaries of such Person;provided that such Person is required to consolidate such Subsidiary or Subsidiaries in accordance with GAAP. |
“Subsidiary Guarantee” means a Guarantee by a Subsidiary Guarantor of such Person; or
"“Subsidiary Guarantor" ”means Boise White Paper, L.L.C., Boise Building Solutions Manufacturing, L.L.C., Boise Building Solutions Distribution, L.L.C., Boise Packaging & Newsprint, L.L.C.,each Subsidiary of BZ Holdings that executes the Indenture as a guarantor on the Issue Date and each other Subsidiary of BoiseBZ Holdings that hereafter guaranteesthereafter Guarantees the Notes pursuant to the terms of the Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the Issuers' obligations with respect to the Notes.
"“Tax Distributions" shall mean” means cash distributions by BoiseBZ Holdings to holders of its Capital Stock (the "“Members"”) in respect of its Capital Stock for the purpose of providing the Members with funds to pay the tax liability attributable to their shares of the taxable income of BoiseBZ Holdings and its Restricted Subsidiaries and, to the extent of the amount actually received from any Unrestricted Subsidiaries, an amount required to pay such taxes to the extent attributable to the income of such Unrestricted Subsidiaries.
"Telerate Page 3750" means the display designated at "Page 3750" on the Moneyline Telerate service (or such other page as may replace Page 3750 on that service).
"“Temporary Cash Investments"” means any of the following:
(1) | any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof; |
(2) | investments in demand and time deposit accounts, certificates of deposit and money market deposits maturing within 365 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any State thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital and surplus aggregating in excess of $500.0 million (or the foreign currency equivalent thereof) and has |
outstanding debt which is rated “A” (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor; |
(3) | repurchase obligations for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above; |
(4) | investments in commercial paper, maturing not more than 365 days after the date of acquisition, issued by a corporation (other than an Affiliate of Boise Paper Holdings) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of “P-1” (or higher) according to Moody’s or “A-1” (or higher) according to Standard & Poor’s; |
(5) | investments in securities with maturities of 365 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least “A” by Standard & Poor’s or “A” by Moody’s; and |
(6) | investments in money market funds that invest at least 95% of their assets in securities of the types described in clauses (1) through (5) above. |
“Transactions” means (1) the issuance of the United States of America or any agency thereof or obligations guaranteed byold notes, (2) the United States of America or any agency thereof;
"Timber LLCs" means Timber LLC I and Timber LLC II, each a Delaware limited liability company and direct Wholly Owned Subsidiary of Timber.
"Timberlands Assets" means all the assets comprising the timberland portfolio acquired by Timber in the Acquisition.
"Timberlands Entity" means any of Boise Holdings, Timber Holdings or any of their respective Restricted Subsidiaries that, together with its Subsidiaries, owns or controls a material amount of Timberlands Assets.
"Timberlands Parent Entity" means either or both of Boise Holdings or Timber Holdings at the time such entity is a Timberlands Entity.
"Timberlands Parent Entity Proceeds" means the Net Available Cash from sales, transfers or other dispositions of Capital Stock of a Timberlands Parent Entity.
"Timberlands Proceeds" means the Net Available Cash from sales, leases, transfers or other dispositions of Timberlands Assets or Capital Stock of any Timberlands Entity (including, without limitation, any Timberlands Parent Entity), including any Timberlands Contribution.
"Timberlands Sales" means the sale, disposition or other transfer in one or more transactions of Timberlands Assets or Capital Stock of Timberlands Entities which, together with their Subsidiaries, do not own or control material assets or operates other than Timberlands Assets for aggregate proceeds of no less than $1,485.0 million and the application of the proceeds thereof as provided in the covenant described under "—Certain covenants—Limitation on sales of assets and subsidiary stock".
"Total Assets" as of any date of determination means the total consolidated assets, less applicable depreciation, amortization and other valuation reserves, as shown on the most recent balance sheet of (i) prior to the Timber Fall-away Date, Boise Holdings, Timber Holdings and the Restricted Subsidiaries, prepared on a Combined Consolidated Basis and (ii) following the Timber Fall-away Date, Boise Holdings and its Restricted Subsidiaries on a consolidated basis.
"Total Consolidated Indebtedness" means, as of any date of determination, an amount equal to the aggregate amount of all Indebtedness (other than Indebtedness in respect of any Qualified Receivables Transaction, Attributable Debt and Hedging Obligations) of (i) prior to the Timber Fall-away Date, Boise Holdings, Timber Holdings and their Restricted Subsidiaries, determined on a Combined Consolidated Basis and (ii) following the Timber Fall-away Date, Boise Holdings and its Restricted Subsidiaries on a consolidated basis, in each case outstanding as of such date of determination, after giving effect to any Incurrence of Indebtedness and the application of the proceeds therefrom giving rise to such determination.
"Transactions" means the Acquisition, the Financing Transactions and the payment of related fees and expenses, in the case of each caseof clauses (2) and (3), as described in the Offering Memorandum.section entitled “Use of Proceeds” in this prospectus.
"Trustee" means U.S. Bank National Association until a successor replaces it and, thereafter, means the successor.
"“Trust Indenture Act"” means the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the Issue Date..
"“Trust Officer"” means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters.
"“Trustee” means Wells Fargo Bank, National Association until a successor replaces it and, thereafter, means the successor.
“Unrestricted Subsidiary" means the Timber LLCs and:” means:
(1) | any Subsidiary of BZ Holdings that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of BZ Holdings in the manner provided below; and |
(2) | any Subsidiary of an Unrestricted Subsidiary. |
The Board of Directors of Boise Holdings or Timber Holdings in the manner provided below; and
The Boards of Directors of Boise Holdings and TimberBZ Holdings may designate any Subsidiary of BoiseBZ Holdings (other than Boise LLC, Boise Finance and any Timber Entity) or Timber Holdings (other than any Timber Entity), as(excluding the case may be (includingIssuers, but including any newly acquired or newly formed Subsidiary), to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or (except in the case of a Receivables Entity) holds any Lien on any property of, Boise Holdings or TimberBZ Holdings or any other Subsidiary of Boise Holdings or TimberBZ Holdings that is not a Subsidiary of the Subsidiary to be so designated;provided,however, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under the covenant described under "—“—Certain covenants—Covenants—Limitation on restricted payments"payments”.
The BoardsBoard of Directors of Boise Holdings and TimberBZ Holdings may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;provided,however, that immediately after giving effect to such designation (A) either (i) Boise LLCPaper Holdings could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "—“—Certain covenants—Covenants—Limitation on indebtedness"indebtedness” or (ii) the Consolidated Coverage Ratio would be greater immediately following such designation than immediately prior to such designation and (B) no Default shall have occurred and be continuing. Any such designation by the Board of Directors of Boise Holdings or TimberBZ Holdings shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors of Boise Holdings or TimberBZ Holdings giving effect to such designation and an Officers'Officers’ Certificate certifying that such designation complied with the foregoing provisions.
"“U.S. Dollar Equivalent"” means, with respect to any monetary amount in a currency other than U.S. dollars, at any time for determination thereof, the amount of U.S. dollars obtained by converting such foreign currency involved in such computation into U.S. dollars at the spot rate for the purchase of U.S. dollars with the applicable foreign currency as published in The Wall Street Journal (or if such rate is not published in the "Exchange Rates" column under the heading "Currency Trading"The Wall Street Journal at such time, as published by another nationally recognized financial publisher) on the date two Business Days prior to such determination.
"“U.S. Government Obligations"” means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option.issuer’s option or depository receipts issued by a bank or trust company as custodian with respect to any such U.S. Government Obligations.
"“Voting Stock"” of a Person means all classes of Capital Stock of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.
"“Wholly Owned Subsidiary"” means a Restricted Subsidiary all the Capital Stock of which (other than directors'directors’ qualifying shares) is owned by Boise Holdings or TimberBZ Holdings or one or more other Wholly Owned Subsidiaries.
As of the date of this prospectus, $300,000,000 aggregate principal amount of old notes are outstanding. We are sending this prospectus, together with the letter of transmittal, to all holders of old notes that we are aware of on the date of this prospectus. We expressly reserve the right, at any time, to extend the period of time that the exchange offer is open, and delay acceptance for exchange of any old notes, by giving oral or written notice of an extension to the holders of the old notes as described below. During any extension, all old notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any old notes not accepted for exchange for any reason will be returned without expense to the tendering holder as promptly as practicable after the expiration or termination of the exchange offer. Old notes tendered in the exchange offer must be in denominations of principal amount of $1,000 and any integral multiple thereof. We expressly reserve the right to amend or terminate the exchange offer, and not to exchange any old notes, upon the occurrence of any of the conditions of the exchange offer specified under “—Conditions to the Exchange Offer.” We will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the old notes as promptly as practicable. In the case of any extension, we will issue a notice by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. Procedures for Tendering Old Notes Your tender to us of old notes as set forth below and our acceptance of old notes will BOOK-ENTRY SETTLEMENT AND CLEARANCE
THE EXCHANGE OFFERThe global notesTerms of the Exchange Offer; Period for Tendering Old Notes TheSubject to terms and conditions detailed in this prospectus, we will accept for exchange old notes that are properly tendered prior to the expiration date and not withdrawn as permitted below. When we refer to the term expiration date, we mean 5:00 p.m., New York City time, , 2010. We may, however, extend the period of time that the exchange offer is open. In such event, the term expiration date means the latest time and date to which the exchange offer is extended.be issuedconstitute a binding agreement between us and you on the terms and subject to the conditions detailed in this prospectus and in the formaccompanying letter of several registeredtransmittal. Except as set forth below, to tender old notes for exchange in global form, without interest coupons (the "global notes"), as follows:•senior notesthe exchange offer, you must transmit a properly completed and senior subordinated notes sold to qualified institutional buyers under Rule 144A will be representedduly executed letter of transmittal, including all other documents required by the Rule 144A global senior note andletter of transmittal or, in the Rule 144A global senior subordinated note, respectively;•seniorcase of a book-entry transfer, an agent’s message in place of the letter of transmittal, to Wells Fargo Bank, National Association, as exchange agent, at the address set forth below under “—Exchange Agent” prior to the expiration date. In addition:
certificates for old notes and senior subordinated notes sold in offshore transactions to non-U.S. persons in reliance on Regulation S will initiallymust be representedreceived by the temporary Regulation S global senior note andexchange agent prior to the temporary Regulation S global senior subordinated note, respectively, and, after completionexpiration date, along with the letter of transmittal, or
a timely confirmation of a book-entry transfer, which we refer to in this prospectus as a book-entry confirmation, of old notes, if this procedure is available, into the exchange agent’s account at DTC pursuant to the procedure for book-entry transfer described beginning on page 188 must be received by the exchange agent prior to the expiration date, with the letter of transmittal or an agent’s message in place of the global note exchangesletter of transmittal, or
the holder must comply with the guaranteed delivery procedures described below,below.
The term “agent’s message” means a message, transmitted by DTC to and received by the permanent Regulation S global senior noteexchange agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the permanent Regulation S global senior subordinated note;tendering participant stating that such participant has received and
The method of delivery of old notes, letters of transmittal and all other required documents is at your election and risk. If such delivery is by mail, it is recommended that you use registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure timely delivery. No letter of transmittal or old notes should be sent to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the Institutional Accredited Investor global senior subordinated note, respectively.
Upon issuance, each
by a holder of the globalold notes willwho has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal, or
for the account of an Eligible Institution (as defined below).
In the event that signatures on a letter of transmittal or a notice of withdrawal are required to be deposited withguaranteed, such guarantees must be by a firm which is a member of the TrusteeSecurities Transfer Agent Medallion Program, the Stock Exchanges Medallion Program or the New York Stock Exchange Medallion Program (we refer to each such entity as custodian for The Depository Trust Company ("DTC") andan “Eligible Institution” in this prospectus). If old notes are registered in the name of Cede & Co., as nominee of DTC.
Ownership of beneficial interests in each global note will be limited to persons who have accounts with DTC ("DTC participants") or persons who hold interests through DTC participants. We expect that under procedures established by DTC:
We or the exchange agent will make a final and binding determination on all questions as to the validity, form, eligibility, including time of receipt, and acceptance of old notes tendered for exchange. We reserve the absolute right to reject any and all tenders of any particular old note not properly tendered or to not accept any particular old note which acceptance might, in our or our counsel’s judgment, be unlawful. We also reserve the absolute right to waive any defects or irregularities or conditions of the globalexchange offer as to any particular old note to the accounts of the DTC participants designated by the initial purchasers; and
During the Distribution Compliance Period described below, beneficial interests in the temporary Regulation S global notes may be transferred only to non-U.S. persons under Regulation S, qualified institutional buyers under Rule 144A or institutional accredited investors.
After the Distribution Compliance Period ends, beneficial interests in the temporary Regulation S global senior note and the temporary Regulation S global senior subordinated note may be exchanged for beneficial interests in the permanent Regulation S global senior note and the permanent Regulation S global senior subordinated note, respectively, upon certification that those interests are owned either by non-U.S. persons or by U.S. persons who purchased those interests pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act.
Beneficial interests in the global notes may not be exchanged for notes in physical, certificated form except in the limited circumstances described below.
Each global note and beneficial interests in each global note will be subject to restrictions on transfer as described under "Transfer restrictions."
Exchanges among the global notes
The Distribution Compliance Period will begin on the closing date and end 40 days after the closing date.
Beneficial interests in one global note of a series may generally be exchanged for interests in another global note of the same series. Depending on whether the transfer is being made duringbefore or after the Distribution Compliance Period,expiration date, including the right to waive the ineligibility of any holder who seeks to tender old notes in the exchange offer. Our or the exchange agent’s interpretation of the terms and conditions of the exchange offer as to which globalany particular old note either before or after the transferexpiration date, including the letter of transmittal and the instructions thereto, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes for exchange must be cured within a reasonable period of time, as we determine. We are not, nor is being made, the Trustee may require the sellerexchange agent or any other person, under any duty to notify you of any defect or irregularity with respect to your tender of old notes for exchange, and no one will be liable for failing to provide certain written certifications insuch notification.
If the form provided in the indenture. In addition, in the caseletter of a transfer of interests to the Institutional Accredited Investor global notes, the Trustee may require the buyer to deliver a representation letter in the form provided in the indenture that states, among other things, that the buyertransmittal is not acquiring notes with a view to distributing them in violation of the Securities Act.
A beneficial interest in a global note that is transferred tosigned by a person who takes delivery through another global note will, upon transfer, become subject to any transfer restrictions andor persons other procedures applicable to beneficial interests in the other global note.
Book-entry procedures for the global notes
All interests in the global notes will be subject to the operations and procedures of DTC. We provide the following summaries of those operations and procedures solely for the convenience of investors. The operations and procedures of DTC are controlled by DTC and may be changed at any time. Neither we nor the initial purchasers are responsible for those operations or procedures.
DTC has advised us that it is:
DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes to the accounts of its participants. DTC's participants include securities brokers and dealers, including the initial purchasers; banks and trust companies; clearing corporations and other organizations. Indirect access to DTC's system is also available to others such as banks, brokers, dealers and trust companies; these indirect participants clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly. Investors who are not DTC participants may beneficially own securities held by or on behalf of DTC only through DTC participants or indirect participants in DTC.
So long as DTC's nominee isthan the registered owner of a global note, that nominee will be considered the sole owner or holder of the notes represented by that global note for all purposes under the indenture. Except as provided below, owners of beneficial interests in a global note:
If the letter of transmittal or any old notes under the indenture for any purpose, including with respect to the givingor powers of any direction, instructionattorneys are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or approval to the Trustee under the indenture.
As a result, each investor who owns a beneficial interestothers acting in a global notefiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us or the exchange agent, proper evidence satisfactory to us of their authority to so act must rely onbe submitted with the proceduresletter of DTCtransmittal.
By tendering old notes, you represent to exercise any rights of aus that, among other things:
the holder of notes under the indenture (and, if the investor is not a participant or an indirect participantour “affiliate,” as defined in DTC, on the procedures of the DTC participant through which the investor owns its interest).
Payments of principal, premium (if any) and interest with respect to the notes represented by a global note will be made by the Trustee to DTC's nominee as the registered holder of the global note. Neither we nor the Trustee will have any responsibility or liability for the payment of amounts to owners of beneficial interests in a global note, for any aspect of the records relating to or payments made on account of those interests by DTC, or for maintaining, supervising or reviewing any records of DTC relating to those interests.
Payments by participants and indirect participants in DTC to the owners of beneficial interests in a global note will be governed by standing instructions and customary industry practice and will be the responsibility of those participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC's procedures and will be settled in same-day funds.
DTC has agreed to the above procedures to facilitate transfers of interests in the global notes among participants in DTC. However, DTC is not obligated to perform these procedures and may discontinue or change these procedures at any time. Neither we nor the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their obligations under the rules and procedures governing its operations.
Certificated notes
Notes in physical, certificated form will be issued and delivered to each person that DTC identifies as a beneficial owner of the related notes only if:
the Trustee that we elect to cause the issuance of certificated notes; or
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal income and estate tax aspects of the acquisition, ownership and disposition of the notes. This discussion is a summary for general information purposes and does not consider all aspects of U.S. federal income taxation that may be relevant to the purchase, ownership and disposition of thenew notes by a prospective investor in light of such investor's personal circumstances. This discussion is based upon the U.S. Internal Revenue Code of 1986, as amended (the "Code"), existing Treasury regulations thereunder (the "Treasury Regulations") and current administrative rulings and court decisions. All of the foregoing is subject to change, possibly on a retroactive basis, and any such change could affect the continuing validity of this discussion. We have not sought any ruling from the Internal Revenue Service (the "IRS") with respect to the statements made and conclusions reached in the following summary, and there can be no assurance that the IRS will agree with our statements and conclusions. This discussion deals only with beneficial owners who purchased the notes in connection with the offering at the initial offering price. Because this discussion is directed solely to prospective purchasers in the initial offering, it does not address some issues that are relevant to subsequent purchasers of the notes, including, but not limited to, the treatment of market discount for U.S. federal income tax purposes. This discussion also does not address the U.S. federal income tax consequences of ownership of notes not held as capital assets within the meaning of Section 1221 of the Code, or the U.S. federal income tax consequences to investors subject to special treatment under the U.S. federal income tax laws, such as dealers in securities or foreign currency, tax-exempt entities, financial institutions, regulated investment companies, real estate investment trusts, insurance companies, persons that hold the notes as part of a "straddle," a "hedge" or a "conversion transaction," U.S. Holders (as defined below) that have a "functional currency" other than the U.S. dollar, persons liable for alternative minimum tax, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings and investors in pass-through entities. In addition, this discussion does not describe any tax consequences arising out of the tax laws of any state, local or foreign jurisdiction.
If an entity treated as a partnership for U.S. federal income tax purposes holds notes, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Any partner of a partnership holding notes should consult its own tax advisors.
THE FOLLOWING DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVISE. PERSONS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS.
U.S. Holders
The following discussion is limited to the U.S. federal income tax consequences relevant to U.S. Holders. As used herein, a "U.S. Holder" is a beneficial owner of a note that is, for U.S. federal income tax purposes:
meaning of the Code, have the authority to control all of its substantial decisions or a trust that was treated as a domestic trust under the law in effect before 1997, and has properly elected, under applicable Treasury Regulations to be treated as a domestic trust.
Certain U.S. federal income tax consequences relevant to a holder other than a U.S. Holder are discussed separately below.
Interest income
Payments of interest on a note generally will be taxable to a U.S. Holder as ordinary interest income at the time such payments are accrued or are received (in accordance with the holder's regular method of tax accounting). The notes are being issued without original issue discount within the meaning of Section 1273 of the Code.
We may be obligated to pay an additional amount to the holders of the notes under certain circumstances described under "Description of notes—Registration rights." It is possible that the IRS could assert that the additional amount paid to the holders of the notes is a contingent payment. In that case, the notes may be treated as contingent payment debt instruments for U.S. federal income tax purposes, with the result that the timing, amount of income included and the character of income recognized may be different from the consequences discussed herein. Under the Treasury Regulations, however, such payments will not be subject to the special rules applicable to contingent payment debt instruments if, as of the issue date, the contingency is either "remote" or "incidental." We believe that as of the issue date the likelihood of our paying additional amounts is remote and, accordingly, we intend to take the position that, solely for these purposes, the payment of any additional amount is a remote or incidental contingency. Accordingly, the payment of any such additional amount should be taxable as ordinary income in accordance with the holder's regular method of tax accounting. Our determination that such payments are a remote or incidental contingency for these purposes is binding on a holder, unless such holder discloses in the proper manner to the IRS that it is taking a different position. Our determination is not, however, binding on the IRS, and if the IRS were to challenge this determination, a holder might be required to accrue income on its notes in excess of stated interest and to treat as ordinary income rather than capital gain any income realized on the taxable disposition of a note before the resolution of the contingencies. In the event a contingency occurs, it would affect the amount and timing of the income recognized by a holder. Prospective investors should consult their tax advisors as to the tax considerations relating to the payment of the additional amount.
Sale or exchange of notes
A holder will generally recognize taxable gain or loss equal to the difference between the amount realized on the sale, exchange (other thanacquired pursuant to the exchange offers) or other taxable disposition of a note (other than amounts attributable to accrued interest not already taken into income, which will be taxed as ordinary income) and the holder's adjusted tax basisoffer are being obtained in the note. A holder's adjusted tax basisordinary course of business of the person receiving such new notes, whether or not such person is the holder; and
neither the holder nor such other person has any arrangement or understanding with any person, to participate in the note generally will bedistribution of the initial purchase price paid therefor. Gain recognized on the sale of a note should be long-term capital gain provided the holder's holding period for the note exceeds one year. new notes.
In the case of a holder other than a corporation, the current maximum marginal U.S. federal income tax rate applicable to long term capital gain recognized on the sale of a note is 15%.
If the selling price is less than the holder's adjusted tax basis, the holder will recognize a capital loss. The deduction of capital loss is subject to limitation. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for U.S. federal income tax purposes.
The exchange offers
The exchange of notes for exchange notes pursuant to the registered exchange offers will not constitute a significant modification of the terms of the notes, and, accordingly, such exchanges should not constitute taxable exchanges for U.S. federal income tax purposes. Therefore, a holder will not recognize gain or loss upon receipt of an exchange note in the registered exchange offers; a holder's holding period for such note will include the holding period of the note surrendered and such holder's adjusted tax basis in such note will be the same as such holder's tax basis in the note surrendered. In addition, each holder of notes would continue to be required to include interest on the notes in its gross income in accordance with its method of accounting for U.S. federal income tax purposes.
Backup withholding and information reporting
Under the Code, a U.S. Holder of a note will generally be subject to information reporting and may be subject, under certain circumstances, to backup withholding with respect to payments of interest on, or the gross proceeds from disposition of, a note. The payor will be required to withhold backup withholding tax currently at a rate of 28% if a U.S. Holder:
Backup withholding is not an additional tax. Any amount withheld from a payment to a U.S. Holder under the backup withholding rules is allowable as a credit, and may entitle such holder to a refund, against such holder's U.S. federal income tax liability, provided that the required information is furnished to the IRS. Certain persons are generally exempt from information reporting and backup withholding, including corporations and tax-exempt organizations. Holders of notes should consult their tax advisors as to their qualification for exemption from withholding and the procedure for obtaining such exemption.
Non-U.S. holders
The following discussion is limited to the U.S. federal income and estate tax consequences relevant to a holder of a note (other than a partnership) that is not a U.S. Holder (a "Non-U.S. Holder").
This discussion does not address all aspects of U.S. federal income taxationbroker-dealer, that may be relevantholder, by tendering, will also represent to the purchase, ownership or disposition of the notes by any particular Non-U.S. Holder in light of such holder's personal circumstances, including holding the notes through a partnership. For example, persons who are partners in foreign partnerships or beneficiaries of foreign trusts or estates and who are subject to U.S. federal income tax because of their own status, such as U.S. residents or foreign persons engaged in a trade or business in the United States, may be subject to U.S. federal income tax even though the entity is not subject to income tax on disposition of its note. Additionally, special rules may apply to certain Non-U.S. Holders, such as "controlled foreign corporations," "passive foreign investment companies," "foreign personal holding companies" and certain expatriates, that are subject to special treatment under the Code. Such entities should
consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
For purposes of the following discussion, interest and gain on the sale, exchange or other disposition of the note will be considered "U.S. trade or business income" if such income or gain is effectively connected with the conduct of a U.S. trade or business, and in the case where an applicable income tax treaty between the United States and the country of which the holder is a qualified resident applies, such income or gain is attributable to a U.S. permanent establishment.
Stated interest
Generally, any interest paid to a Non-U.S. Holder of a note that is not U.S. trade or business income will not be subject to U.S. federal income tax if the interest qualifies as "portfolio interest." Interest on the notes will qualify as portfolio interest if:
The gross amount of payments to a Non-U.S. Holder of interest that do not qualify for the portfolio interest exception and that are not U.S. trade or business income will be subject to U.S. withholding tax at the rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S. trade or business income will be taxed at regular U.S. federal income tax rates rather than the 30% gross rate. In addition, a corporate Non-U.S. Holder may be subject to a branch profits tax on such U.S. trade or business income; this tax is generally imposed at a rate equal to 30% (or lesser rate under an applicable income tax treaty) of the corporate Non-U.S. Holder's earnings and profits for the taxable year, subject to adjustments, that are effectively connected with such holder's conduct of a U.S. trade or business.
To claim the benefit of a tax treaty or to claim exemption from withholding because the income is U.S. trade or business income, the Non-U.S. Holder must provide a properly executed Form W-8BEN or W-8ECI, or such successor forms as the IRS designates, as applicable, prior to payment of interest. These forms must be periodically updated. A Non-U.S. Holder who is claiming the benefits of a tax treaty may be required to obtain a U.S. TIN and to provide certain documentary evidence issued by foreign governmental authorities to prove residence in the foreign country.
Sale, exchange or redemption of the notes
Subject to the discussion concerning backup withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or redemption of a note generally will not be subject to U.S. federal
income tax unless such gain is U.S. trade or business income, or, subject to certain exceptions, the Non-U.S. Holder is an individual who holds the note as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition.
U.S. federal estate tax
If a Non-U.S. Holder is an individual and is not a resident of the United States (as specially defined for U.S. federal estate tax purposes) at the time of the holder's death, the holder's notes will generally not be subject to the U.S. federal estate tax, unless, at the time of the holder's death (i) the holder directly or indirectly, actually or constructively, own 10% or more of the total combined voting power of all our classes of stock; or (ii) interest on the holder's notes is effectively connected with the holder's conduct of a trade or business within the United States.
Information reporting and backup withholding
Generally, we must report annually to the IRS and to each Non-U.S. Holder any interest payments that we make to such holder and the tax withheld with respect to such payments, regardless of whether withholding was required. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. In certain limited circumstances, such as interest payments which qualify as "portfolio interest", as defined in the Code, we may not be required to file an information return.
Backup withholding will not apply to payments of principal and interest on the notes by us to a Non-U.S. Holder, if the holder certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption, provided that neither we nor our paying agent have actual knowledge or reason to know that the holder is not engaged in and does not intend to engage in a U.S. Holder or that the conditions of any other exemption are not, in fact, satisfied.
Information reporting and backup withholding tax will not apply to payments to a Non-U.S. Holderdistribution of the proceedsnew notes.
If you are our “affiliate,” as defined under Rule 405 under the Securities Act, and engage in or intend to engage in or have an arrangement or understanding with any person to participate in a distribution of such new notes to be acquired pursuant to the exchange offer, you or any such other person:
may not rely on the applicable interpretations of the salestaff of the SEC; and
must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes effectedfor its own account in exchange for old notes, where the old notes were acquired by the broker-dealer as a broker, providedresult of market-making activities or other trading activities, must acknowledge that eitherit will deliver a prospectus in connection with any offer, resale or other transfer of the sale occurs throughnew notes issued in the exchange offer, including information with respect to any selling holder required by the Securities Act in connection with any resale of the new notes.
Furthermore, any broker-dealer that acquired any of its old notes directly from us:
may not rely on the applicable interpretation of the staff of the SEC’s position contained in Exxon Capital Holdings Corp., SEC no-action letter (publicly available May 13, 1988), Morgan Stanley & Co. Incorporated, SEC no-action letter (publicly available June 5, 1991) and Shearman & Sterling, SEC no-action letter (publicly available July 2, 1993); and
must also be named as a foreign office of a foreign broker that has noselling noteholder in connection with the United States, as described inregistration and prospectus delivery requirements of the Treasury Regulations, or such broker has in its records certain documentary evidence allowed by the Treasury Regulations that the beneficial owner is a Non-U.S. Holder or otherwise qualifies for an exemption, certain other conditions are met and the broker does not have actual knowledge or reasonSecurities Act relating to know that the holder is a U.S. Holder or that the conditions of any other exemption are not, in fact, satisfied.resale transaction.
Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S. Holder's U.S. federal income tax liability, provided that the required information is furnished to the IRS.
Non-U.S. Holders should consult their own tax advisors regarding application of information reporting and backup withholding in their particular circumstance and the availability of and procedure for obtaining an exemption from information reporting and backup withholding under current Treasury Regulations.
Each participating broker-dealer that receives exchangenew notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. The letter of transmittal states that by so acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes which were received by the broker-dealer as a result of market-making or other trading activities. Under the registration rights agreement, we have agreed that, for a period of up to the until the earlier of (i) such time as each broker-dealer that receives new notes for its own account in the exchange offer in exchange for old notes that were acquired by such broker-dealer as a result of market-making or other trading activities shall have disposed of the new notes held by it and (ii) 180 days after the closing of the exchange offer, if requested, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution.”
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, promptly after the expiration date, all old notes properly tendered and will issue the new notes promptly after acceptance of the old note. See “—Conditions to the Exchange Offer.” For purposes of the exchange offer, we will be deemed to have accepted properly tendered old notes for exchange if and when we give oral (confirmed in writing) or written notice to the exchange agent.
The holder of each old note accepted for exchange will receive a new note in the amount equal to the surrendered old notes. Accordingly, holders of new notes on the record date for the first interest payment date following the consummation of the exchange offer will receive interest accruing from the most recent date that interest has been paid on the old notes. Holders of new notes will not receive any payment in respect of accrued interest on old notes otherwise payable on any interest payment date, the record date for which occurs on or after the consummation of the exchange offer.
In all cases, issuance of new notes for old notes that are accepted for exchange will only be made after timely receipt by the exchange agent of:
certificates for such old notes or a timely book-entry confirmation of such old notes into the exchange agent’s account at DTC,
a properly completed and duly executed letter of transmittal or an agent’s message in lieu thereof, and
all other required documents.
If any tendered old notes are not accepted for any reason set forth in the terms and conditions of the exchange offer or if old notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged old notes will be returned without expense to the tendering holder or, in the case of old notes tendered by book-entry transfer into the exchange agent’s account at DTC pursuant to the book-entry procedures described below, the non-exchanged old notes will be credited to an account maintained with DTC, as promptly as practicable after the expiration or termination of the exchange offer.
Book-Entry Transfers
For purposes of the exchange offer, the exchange agent will request that an account be established with respect to the old notes at DTC within two business days after the date of this prospectus, unless the exchange agent already has established an account with DTC suitable for the exchange offer. Any financial institution that is a participant in DTC may make book-entry delivery of old notes by causing DTC to transfer such old notes into the exchange agent’s account at DTC in accordance with DTC’s procedures for transfer. Although delivery of old notes may be effected through book-entry transfer at DTC, the letter of transmittal or facsimile thereof or an agent’s message in lieu thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the exchange agent at the address set forth under “—Exchange Agent” prior to the expiration date or the guaranteed delivery procedures described below must be complied with.
Guaranteed Delivery Procedures
If you desire to tender your old notes and your old notes are not immediately available, or time will not permit your old notes or other required documents to reach the exchange agent before the expiration date, a tender may be effected if:
prior to the expiration date, the exchange agent received from such Eligible Institution a notice of guaranteed delivery, substantially in the form we provide, by facsimile transmission, mail or hand delivery, setting forth your name and address, the amount of old notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange (“NYSE”) trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered old notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed appropriate letter of transmittal or facsimile thereof or agent’s message in lieu thereof, with any required signature guarantees and any other documents required by the letter of transmittal will be deposited by such Eligible Institution with the exchange agent, and
the certificates for all physically tendered old notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a properly completed and duly executed appropriate letter of transmittal or facsimile thereof or agent’s message in lieu thereof, with any required signature guarantees and all other documents required by the letter of transmittal, are received by the exchange agent within three NYSE trading days after the date of execution of the notice of guaranteed delivery.
Withdrawal Rights
You may withdraw your tender of old notes at any time prior to the expiration date. To be effective, a written notice of withdrawal must be received by the exchange agent at one of the addresses set forth under “—Exchange Agent.” This notice must specify:
the name of the person having tendered the old notes to be withdrawn,
the old notes to be withdrawn, including the principal amount of such old notes, and
where certificates for old notes have been transmitted, the name in which such old notes are registered, if different from that of the withdrawing holder.
If certificates for old notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of the certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution, unless such holder is an Eligible Institution. If old notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn old notes and otherwise comply with the procedures of DTC.
We or the exchange agent will make a final and binding determination on all questions as to the validity, form and eligibility, including time of receipt, of such notices. Any old notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any old notes tendered for exchange but not exchanged for any reason will be returned to the holder without cost to the holder, or, in the case of old notes tendered by book-entry transfer into the exchange agent’s account at DTC pursuant to the book-entry transfer procedures described above, the old notes will be credited to an account maintained with DTC for the old notes as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be re-tendered by following one of the procedures described under “—Procedures for Tendering Old Notes” above at any time prior to the expiration date.
Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we are not required to accept for exchange, or to issue new notes in exchange for, any old notes and may terminate or amend the exchange offer, if any of the following events occur prior to acceptance of such old notes:
the exchange offer violates any applicable law or applicable interpretation of the staff of the SEC;
an action or proceeding shall have been instituted or threatened in any court or by any governmental agency that might materially impair our ability to proceed with the exchange offer;
we shall not have received all governmental approvals that we deem necessary to consummate the exchange offer; or
there has been proposed, adopted, or enacted any law, statute, rule or regulation that, in our reasonable judgment, would materially impair our ability to consummate the exchange offer.
The conditions stated above are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any condition or may be waived by us in whole or in part at any time in our reasonable discretion. Our failure at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right and each such right will be deemed an ongoing right which may be asserted at any time.
In addition, we will not accept for exchange any old notes tendered, and we will not issue new notes in exchange for any such old notes, if at such time any stop order by the SEC is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part, or the qualification of the indenture under the Trust Indenture Act.
Exchange Agent
Wells Fargo Bank, National Association has been appointed as the exchange agent for the exchange offer. All executed letters of transmittal should be directed to the exchange agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent addressed as follows:
By Registered or Certified Mail: WELLS FARGO BANK, NATIONAL ASSOCIATION Corporate Trust Operations MAC N9303-121 PO Box 1517 Minneapolis, MN 55480 | By Regular Mail or Overnight Courier WELLS FARGO BANK, NATIONAL ASSOCIATION Corporate Trust Operations MAC N9303-121 Sixth & Marquette Avenue Minneapolis, MN 55479 By Facsimile Transmission: (for eligible Institutions Only) (612) 667-6282 For Information or Confirmation byTelephone (800) 344-5128 | In Person by Hand Only: WELLS FARGO BANK, NATIONAL ASSOCIATION 12th Floor-Northstar East Building Corporate Trust Operations 608 Second Avenue South Minneapolis, MN 55479 |
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
Fees and Expenses
The principal solicitation is being made by mail by Wells Fargo Bank, National Association, as exchange agent. We will pay the exchange agent customary fees for its services, reimburse the exchange agent for its reasonable out-of-pocket expenses incurred in connection with the provision of these services and pay other registration expenses, including fees and expenses of the trustee under the indenture relating to the new notes, filing fees, blue sky fees and printing and distribution expenses. We will not make any payment to brokers, dealers or others soliciting acceptances of the exchange offer.
Additional solicitation may be made by telephone, facsimile or in person by our and our affiliates’ officers and regular employees and by persons so engaged by the exchange agent.
Accounting Treatment
We will record the new notes at the same carrying value as the old notes, as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes.
Transfer Taxes
You will not be obligated to pay any transfer taxes in connection with the tender of old notes in the exchange offer unless you instruct us to register new notes in the name of, or request that old notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder. In those cases, you will be responsible for the payment of any potentially applicable transfer tax.
Consequences of Exchanging or Failing to Exchange Old Notes
If you do not exchange your old notes for new notes in the exchange offer, your old notes will continue to be subject to the provisions of the indenture relating to the notes regarding transfer and exchange of the old notes and the restrictions on transfer of the old notes described in the legend on your certificates. These transfer restrictions are required because the old notes were issued under an exemption from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the old notes may not be offered or sold unless registered under the Securities Act, except under an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not plan to register the old notes under the Securities Act.
Under existing interpretations of the Securities Act by the SEC’s staff contained in several no-action letters to third parties, and subject to the immediately following sentence, we believe that the new notes would generally be freely transferable by holders after the exchange offer without further registration under the Securities Act, subject to certain representations required to be made by each holder of new notes, as set forth below. However, any purchaser of new notes who is one of our “affiliates” as defined in Rule 405 under the Securities Act or who intends to participate in the exchange offer for the purpose of distributing the new notes:
will not be able to rely on the interpretation of the SEC’s staff;
will not be able to tender its old notes in the exchange offer; and
must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the new notes unless such sale or transfer is made pursuant to an exemption from such requirements. See “Plan of Distribution.”
We do not intend to seek our own interpretation regarding the exchange offer, and there can be no assurance that the SEC’s staff would make a similar determination with respect to the new notes as it has in other interpretations to other parties, although we have no reason to believe otherwise.
Each broker-dealer that receives new notes for its own account in exchange for old notes, where the old notes were acquired by it as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus that meets the requirements of the Securities Act in connection with any resale of the new notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes which were received by the broker-dealer as a result of market-making or other trading activities. Under the registration rights agreement, we have agreed that, for a period of up to the until the earlier of (i) such time as each broker-dealer that receives new notes for its own account in the exchange offer in exchange for old notes that were acquired by such broker-dealer as a result of market-making or other trading activities shall have disposed of the new notes held by it and (ii) 180 days after the closing of the exchange offer, if requested, we will make this prospectus available to any broker-dealer for use in connection with any such resale.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain United States federal income tax consequences of the exchange of old notes for new notes by a holder pursuant to the exchange offer. This discussion is based upon United States federal income tax law in effect on the date of this prospectus, which is subject to differing interpretations or change, possibly with retroactive effect. This discussion does not discuss all aspects of United States federal income taxation which may be important to particular investors in light of their individual investment circumstances, such as investors subject to special tax rules (e.g., financial institutions, insurance companies, broker-dealers, partnerships and their partners, holders that have a “functional currency” other than the U.S. dollar, and tax-exempt organizations (including private foundations)) or to persons that hold old notes, or will hold new notes, as part of a straddle, hedge, conversion, constructive sale or other integrated security transaction for United States federal income tax purposes, all of whom may be subject to tax rules that differ significantly from those discussed below. This discussion does not discuss any state, local or non-United States tax considerations. Each holder is urged to consult its tax advisor regarding the United States federal, state, local and non-United States income and other tax considerations of the exchange of old notes for new notes.
Exchange of old notes for new notes
An exchange of old notes for new notes pursuant to the exchange offer will be ignored for United Stated federal income tax purposes. Consequently, a holder of old notes will not recognize gain or loss for United States federal income tax purposes as a result of exchanging old notes for new notes pursuant to the exchange offer. A holder’s holding period with respect to the new notes received pursuant to the exchange offer will include the holder’s holding period with respect to the old notes exchanged therefore, and a holder’s initial tax basis in such new notes will be the same as the holder’s adjusted tax basis in such old notes as determined immediately before the exchange.
Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a participating broker-dealer in connection with resales of exchangenew notes received by it in exchange for outstandingold notes where such outstandingold notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of one yearup to the until the earlier of (i) such time as each broker-dealer that receives new notes for its own account in the exchange offer in exchange for old notes that were acquired by such broker-dealer as a result of market-making or other trading activities shall have disposed of the new notes held by it and (ii) 180 days after the expiration date,closing of the exchange offer, if requested, we will make this prospectus, as amended or supplemented, available to any participating broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any salessale of the exchangenew notes by participating broker-dealers. ExchangeNew notes received by participating broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions transactions:
in the over-the-counter market,
in negotiated transactions,
through the writing of options on the exchangenew notes, or
a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such participating broker-dealer and/or the purchasers of any such exchangenew notes. Any participating broker-dealer that resells the exchangewho holds old notes that were received by itacquired for its own account as a result of market-making activities, and who receives new notes in exchange for such old notes pursuant to the exchange offer, and any broker or dealer that participates in a distribution of such exchangenew notes may be deemed to be an "underwriter"“underwriter” within the meaning of the Securities Act, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, including the delivery of a prospectus that contains information with respect to any selling holder required by the Securities Act in connection with any resale of the new notes, and any profit onof any such resale of exchangenew notes and any commissionscommission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a participating broker-dealer will not be deemed to admit that it is an "underwriter"“underwriter” within the meaning of the Securities Act.
Furthermore, any broker-dealer that acquired any of the old notes directly from us:
may not rely on the applicable interpretation of the staff of the SEC’s position contained in Exxon Capital Holdings Corp., SEC no-action letter (publicly available May 13, 1988), Morgan Stanley & Co. Incorporated, SEC no-action letter (publicly available June 5, 1991) and Shearman & Sterling, SEC no-action letter (publicly available July 2, 1993); and
must also be named as a selling noteholder in connection with the registration and prospectus delivery requirements of the Securities Act relating to any resale transaction.
For a period of up to the earlier of (i) such time as each broker-dealer that receives new notes for its own account in the exchange offer in exchange for old notes that were acquired by such broker-dealer as a result of market-making or other trading activities shall have disposed of the new notes held by it and (ii) 180 days after the expiration dateclosing of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any participating broker-dealer that requests such documents in the letter of transmittal.
Prior We have agreed to pay all expenses incident to the exchange offer there has not been any public market(including the expenses of one counsel for the outstanding notes. The outstandingholders of the old notes) other than commissions or concessions of any broker-dealer and will indemnify the holders of the old notes have not been registered(including any broker-dealers) against certain liabilities, including liabilities under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for exchange notes by holders who are entitled to participate in this exchange offer. The holders of outstanding notes, other than any holder that is our affiliate within the meaning of Rule 405 under the Securities Act, who are not eligible to participate in the exchange offer are entitled to certain registration rights, and we may be required to file a shelf registration statementAct.
Certain matters with respect to their outstanding notes. Thethis exchange notes will constitute a new issue of securities with no established trading market. We do not intend to list the exchange notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The initial purchasers have advised us that they currently intend to make a market in the exchange notes. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the exchange offer and the pendency of any shelf registration statements. Accordingly, no assurance can be given that an active public or other market will develop for the exchange notes or as to the liquidity of the trading market for the exchange notes. If a trading market does not develop or is not maintained, holders of the exchange notes may experience difficulty in reselling the exchange notes or may be unable to sell them at all. If a market for the exchange notes develops, any such market may be discontinued at any time.
The validity of the exchange notes and the guarantees and other legal matters, including the tax-free nature of the exchange, will be passed upon on our behalffor us by KirklandSkadden, Arps, Slate, Meagher & Ellis LLP, a partnership that includes professional corporations, Chicago, Illinois. Kirkland & Ellis LLP has fromFlom LLP. From time to time, represented, and may continue to represent, Madison Dearborn Partners, LLC and some of its affiliatesSkadden, Arps, Slate, Meagher & Flom LLP provides legal services for us in connection with various legal matters. Some ofmatters unrelated to the partners of Kirkland & Ellis LLP are partners in a partnership that is an investor in one or more of the investment funds affiliated with Madison Dearborn that have invested in FPH. Certain matters under Minnesota law will be passed upon by Karen E. Gowland, general counsel for Minnesota, Dakota & Western Railway Company.exchange offer described herein.
OurThe consolidated financial statements of BZ Intermediate Holdings LLC as of December 31, 20042009 and 2008, and for the period from October 29, 2004 (inception) throughyear ended December 31, 2004, and the financial statements of Boise Forest Products Operations (formerly owned by OfficeMax Incorporated) as of December 31, 20032009 and for the period from January 1, 200418, 2008 (inception) through October 28, 2004 and for each of the years in the two-year period ended December 31, 20032008, have been included herein in reliance upon the reportsreport of KPMG LLP, an independent registered public accounting firm,auditors, appearing elsewhere in this prospectus,herein, and upon the authority of said firm as experts in accounting and auditing.
KPMG LLP's report with respect to Boise Forest Products Operations (formerly owned by OfficeMax Incorporated) contains an explanatory paragraph that describes the adoption of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations" and SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure."
The consolidated financial statements of Boise Land & Timber Holdings Corp. as of December 31, 2004 and for the period from October 29, 2004 (inception) through December 31, 2004, and the financial statements of Boise Timberlands (formerly owned by OfficeMax Incorporated) as of December 31, 2003 andPaper Products for the period from January 1, 20042008 through October 28, 2004February 21, 2008, and for each of the years in the two-year periodyear ended December 31, 20032007, have been included herein in reliance upon the reportsreport of KPMG LLP, an independent registered public accounting firm,auditors, appearing elsewhere in this prospectus,herein, and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filedBoise Inc. files annual, quarterly and current reports, proxy statements and other information with the SEC. Such SEC a registration statement on Form S-4 under the Securities Act with respect to the securities being offered hereby. This prospectus does not contain all of the information set forth in the registration statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information about us and the securities being offered hereby, please refer to the registration statement.
You mayfilings can be read and copy all or any portion of the registration statement or any reports, statements or other information we file with the SECcopied at the SEC’s public reference facility maintained by the SECroom at Room 1024, Judiciary Plaza, 450 Fifth100 F Street, N.W.N.E., Washington, D.C. 20549. Copies of such material are also available by mail from the Public Reference Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Please call the SEC at 1-800-SEC-0330 for morefurther information on the operation of the public reference rooms. You can also find ourroom. Boise Inc.’s SEC filings are also available over the Internet at the SEC'sSEC’s website at http://www.sec.gov.
We will provide, without charge to each person, including any beneficial owner, to whom this prospectus is delivered, upon written or oral request of such person, You may obtain a copy of any of these documents at no cost by writing us at the following address or all oftelephoning us at the documents incorporated herein by reference other than exhibits, unless such exhibits specifically are incorporated by reference into such documents or this document. Requests for such documents should be addressed in writing to:following telephone number:
Boise Cascade Company
Inc.
1111 West Jefferson Street,
Suite 200
Boise, Idaho 83702
83702-5388
Attention: Investor Relations
Phone: (208) 384 7456
Pursuant to the indenture, we will agree that, whether or not we are required to do so by Sections 13 or 15(d) of the Exchange Act for so long as any of the Notes remain outstanding, we will provide the trustee substantially all the information required to be contained in Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, such reports to be filed and provided at the times specified in the applicable Exchange Act rules. See “Description of the New Notes—Certain Covenants—SEC reports.”
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |||
Unaudited consolidated balance sheets at March 31, 2010 and December 31, 2009 | F-3 | ||
Notes to unaudited quarterly consolidated financial statements | |||
BZ Intermediate Holdings LLC audited financial statements | |||
Audited consolidated balance sheets at December 31, 2009 and 2008 | F-36 | ||
F-40 | ||
BOISE CASCADE HOLDINGS, L.L.C.UNAUDITED CONSOLIDATED BALANCE SHEETS
Consolidated Statements of Income (Loss)
| March 31, 2005 | December 31, 2004 | ||||||
---|---|---|---|---|---|---|---|---|
| (thousands) | |||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | $ | 142,074 | $ | 163,345 | ||||
Receivables | ||||||||
Trade, less allowances of $2,499 and $2,323 | 364,067 | 276,668 | ||||||
Related parties | 48,011 | 42,055 | ||||||
Other | 17,309 | 19,174 | ||||||
Inventories | 647,705 | 594,869 | ||||||
Deferred income taxes | — | — | ||||||
Other | 17,494 | 15,621 | ||||||
1,236,660 | 1,111,732 | |||||||
Property | ||||||||
Property and equipment | ||||||||
Land and land improvements | 82,622 | 83,123 | ||||||
Buildings and improvements | 206,446 | 204,704 | ||||||
Machinery and equipment | 1,224,232 | 1,196,978 | ||||||
1,513,300 | 1,484,805 | |||||||
Accumulated depreciation | (48,120 | ) | (18,956 | ) | ||||
1,465,180 | 1,465,849 | |||||||
Fiber farms and timber deposits | 48,748 | 44,646 | ||||||
1,513,928 | 1,510,495 | |||||||
Note receivable from related party | — | 157,509 | ||||||
Deferred financing costs | 81,072 | 84,054 | ||||||
Goodwill | 11,773 | 18,390 | ||||||
Intangible assets | 33,715 | 34,357 | ||||||
Other assets | 33,319 | 15,532 | ||||||
Total assets | $ | 2,910,467 | $ | 2,932,069 | ||||
(unaudited, dollars in thousands)
Three Months Ended March 31 | ||||||||
2010 | 2009 | |||||||
Sales | ||||||||
Trade | $ | 485,851 | $ | 484,868 | ||||
Related parties | 8,254 | 15,417 | ||||||
494,105 | 500,285 | |||||||
Costs and expenses | ||||||||
Materials, labor, and other operating expenses | 408,485 | 413,139 | ||||||
Fiber costs from related parties | 9,831 | 5,703 | ||||||
Depreciation, depletion, and amortization | 32,131 | 31,972 | ||||||
Selling and distribution expenses | 13,734 | 13,782 | ||||||
General and administrative expenses | 11,459 | 10,373 | ||||||
St. Helens mill restructuring | 128 | 3,648 | ||||||
Other (income) expense, net | (303 | ) | 239 | |||||
475,465 | 478,856 | |||||||
Income from operations | 18,640 | 21,429 | ||||||
Foreign exchange gain (loss) | 687 | (678 | ) | |||||
Change in fair value of interest rate derivatives | (29 | ) | (132 | ) | ||||
Loss on extinguishment of debt | (22,197 | ) | — | |||||
Interest expense | (16,445 | ) | (19,531 | ) | ||||
Interest income | 37 | 54 | ||||||
(37,947 | ) | (20,287 | ) | |||||
Income (loss) before income taxes | (19,307 | ) | 1,142 | |||||
Income tax (provision) benefit | 7,458 | 227 | ||||||
Net income (loss) | $ | (11,849 | ) | $ | 1,369 | |||
See accompanying notes to unaudited quarterly consolidated financial statements.
Consolidated Balance Sheets (unaudited, dollars in thousands) ASSETS Current Cash and cash equivalents Short-term investments Receivables Trade, less allowances of $760 and $839 Related parties Other Inventories Deferred income taxes Prepaid and other Property Property and equipment, net Fiber farms and deposits Deferred financing costs Intangible assets, net Other assets Total assets See accompanying notes to unaudited quarterly consolidated financial statements.BOISE CASCADE HOLDINGS, L.L.C.UNAUDITED CONSOLIDATED BALANCE SHEETS (Continued)
BZ Intermediate Holdings LLC March 31,
2005 December 31,
2004 (thousands) LIABILITIES AND CAPITAL
Current
Current portion of long-term debt $ — $ 13,300 Accounts payable Trade 359,940 310,148 Related parties 236 150 Accrued liabilities Compensation and benefits 78,967 62,495 Interest payable 15,103 8,584 Other 54,355 43,631 508,601 438,308 Debt Long-term debt, less current portion 1,568,000 1,966,700 Note payable to related party 256,123 — 1,824,123 1,966,700 Other Deferred income taxes — — Compensation and benefits 135,804 133,648 Other long-term liabilities 24,680 23,573 160,484 157,221 Commitments and contingent liabilities
Capital
Series A equity units—no par value; 66,000,000 units authorized and outstanding 37,595 36,868 Series B equity units—no par value; 549,000,000 units authorized; 548,928,750 and 549,000,000 outstanding 375,464 332,972 Series C equity units—no par value; 38,165,775 units authorized; 35,556,860 and 35,600,120 outstanding 4,200 — Accumulated other comprehensive income — — Total capital 417,259 369,840 Total liabilities and capital $ 2,910,467 $ 2,932,069 March 31, 2010 December 31, 2009 $ 91,068 $ 69,393 7,232 10,023 183,719 185,110 1,578 2,056 6,167 62,410 266,073 252,173 11,279 — 5,836 4,819 572,952 585,984 1,189,743 1,205,679 16,884 17,094 1,206,627 1,222,773 34,614 47,369 31,670 32,358 7,402 7,306 $ 1,853,265 $ 1,895,790
BOISE CASCADE HOLDINGS, L.L.C.UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Consolidated Balance Sheets (continued)
| Boise Holdings | Predecessor | |||||
---|---|---|---|---|---|---|---|
| Three Months Ended March 31, | ||||||
| 2005 | 2004 | |||||
| (thousands) | ||||||
Sales | |||||||
Trade | $ | 1,281,935 | $ | 1,187,438 | |||
Related parties | 150,336 | 120,597 | |||||
1,432,271 | 1,308,035 | ||||||
Costs and expenses | |||||||
Materials, labor and other operating expenses | 1,220,658 | 1,115,147 | |||||
Fiber costs from related parties | 17,609 | 27,842 | |||||
Depreciation, amortization and depletion | 30,637 | 57,736 | |||||
Selling and distribution expenses | 62,336 | 60,055 | |||||
General and administrative expenses | 19,204 | 19,467 | |||||
Other expense, net | 127 | 9,164 | |||||
1,350,571 | 1,289,411 | ||||||
Income from operations | 81,700 | 18,624 | |||||
Equity in net income of affiliates | — | 5,064 | |||||
Foreign exchange (loss) gain | (793 | ) | 141 | ||||
Change in fair value of interest rate swaps | 15,200 | — | |||||
Interest expense | (32,079 | ) | (20,604 | ) | |||
Interest income | 1,350 | 157 | |||||
(16,322 | ) | (15,242 | ) | ||||
Income before income taxes | 65,378 | 3,382 | |||||
Income tax provision | (639 | ) | (1,275 | ) | |||
Net income | $ | 64,739 | $ | 2,107 | |||
(unaudited, dollars in thousands)
March 31, 2010 | December 31, 2009 | |||||
LIABILITIES AND CAPITAL | ||||||
Current | ||||||
Current portion of long-term debt | $ | 16,663 | $ | 30,711 | ||
Income taxes payable | 98 | 240 | ||||
Accounts payable | ||||||
Trade | 174,442 | 172,518 | ||||
Related parties | 941 | 2,598 | ||||
Accrued liabilities | ||||||
Compensation and benefits | 45,636 | 67,948 | ||||
Interest payable | 12,443 | 4,946 | ||||
Other | 17,647 | 23,735 | ||||
267,870 | 302,696 | |||||
Debt | ||||||
Long-term debt, less current portion | 775,581 | 785,216 | ||||
Other | ||||||
Deferred income taxes | 40,251 | 24,563 | ||||
Compensation and benefits | 120,686 | 123,889 | ||||
Other long-term liabilities | 30,717 | 30,836 | ||||
191,654 | 179,288 | |||||
Commitments and contingent liabilities | ||||||
Capital | 618,160 | 628,590 | ||||
Total liabilities and capital | $ | 1,853,265 | $ | 1,895,790 | ||
See accompanying notes to unaudited quarterly consolidated financial statements.
BOISE CASCADE HOLDINGS, L.L.C.UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Consolidated Statements of Cash Flows
| Boise Holdings | Predecessor | ||||||
---|---|---|---|---|---|---|---|---|
| Three Months Ended March 31, | |||||||
| 2005 | 2004 | ||||||
| (thousands) | |||||||
Cash provided by (used for) operations | ||||||||
Net income | $ | 64,739 | $ | 2,107 | ||||
Items in net income not using (providing) cash | ||||||||
Equity in net income of affiliates | — | (5,064 | ) | |||||
Depreciation, depletion and amortization of deferred financing costs and other costs | 34,159 | 57,736 | ||||||
Pension and other postretirement benefit expense | 7,130 | 23,441 | ||||||
Change in fair value of interest rate swaps | (15,200 | ) | — | |||||
Management equity units expense | 782 | — | ||||||
Other | 793 | (388 | ) | |||||
Decrease (increase) in working capital | ||||||||
Receivables | (91,490 | ) | (51,905 | ) | ||||
Inventories | (52,836 | ) | (29,340 | ) | ||||
Accounts payable and accrued liabilities | 73,732 | 48,153 | ||||||
Pension and other postretirement benefit payments | (145 | ) | (23,441 | ) | ||||
Current and deferred income taxes | — | 5,168 | ||||||
Other | 922 | (510 | ) | |||||
Cash provided by operations | 22,586 | 25,957 | ||||||
Cash provided by (used for) investment | ||||||||
Expenditures for property and equipment | (33,532 | ) | (40,977 | ) | ||||
Repayment of note receivable from related party | 157,509 | — | ||||||
Sale of assets | — | 8,952 | ||||||
Other | (1,991 | ) | (7,200 | ) | ||||
Cash provided by (used for) investment | 121,986 | (39,225 | ) | |||||
Cash provided by (used for) financing | ||||||||
Tax distribution to members | (9,425 | ) | — | |||||
Note payable to related party | 256,123 | — | ||||||
Payments of long-term debt | (412,000 | ) | (34,165 | ) | ||||
Net equity transactions with OfficeMax | — | 47,433 | ||||||
Other | (541 | ) | — | |||||
Cash provided by (used for) financing | (165,843 | ) | 13,268 | |||||
Decrease in cash and cash equivalents | (21,271 | ) | — | |||||
Balance at beginning of the period | 163,345 | — | ||||||
Balance at end of the period | $ | 142,074 | $ | — | ||||
(unaudited, dollars in thousands)
Three Months Ended March 31 | ||||||||
2010 | 2009 | |||||||
Cash provided by (used for) operations | ||||||||
Net income (loss) | $ | (11,849 | ) | $ | 1,369 | |||
Items in net income (loss) not using (providing) cash | ||||||||
Depreciation, depletion, and amortization of deferred financing costs and other | 35,066 | 35,030 | ||||||
Share-based compensation expense | 894 | 857 | ||||||
Pension and other postretirement benefit expense | 2,438 | 2,450 | ||||||
Deferred income taxes | (7,461 | ) | (506 | ) | ||||
Change in fair value of energy derivatives | 3,330 | 2,191 | ||||||
Change in fair value of interest rate derivatives | 29 | 132 | ||||||
(Gain) loss on sales of assets, net | (114 | ) | (20 | ) | ||||
Other | (687 | ) | 678 | |||||
Loss on extinguishment of debt | 22,197 | — | ||||||
Decrease (increase) in working capital, net of acquisitions | ||||||||
Receivables | 58,213 | 38,800 | ||||||
Inventories | (16,085 | ) | 25,258 | |||||
Prepaid expenses | 389 | 256 | ||||||
Accounts payable and accrued liabilities | (13,057 | ) | (19,577 | ) | ||||
Current and deferred income taxes | (5 | ) | (39 | ) | ||||
Pension and other postretirement benefit payments | (5,657 | ) | (1,319 | ) | ||||
Other | 321 | 128 | ||||||
Cash provided by (used for) operations | 67,962 | 85,688 | ||||||
Cash provided by (used for) investment | ||||||||
Acquisition of businesses and facilities | — | (543 | ) | |||||
Expenditures for property and equipment | (14,734 | ) | (17,171 | ) | ||||
Purchases of short-term investments | (2,388 | ) | — | |||||
Maturities of short-term investments | 5,182 | — | ||||||
Sales of assets | 22 | 61 | ||||||
Other | 1,093 | (412 | ) | |||||
Cash provided by (used for) investment | (10,825 | ) | (18,065 | ) | ||||
Cash provided by (used for) financing | ||||||||
Issuances of long-term debt | 300,000 | 10,000 | ||||||
Payments of long-term debt | (323,683 | ) | (72,631 | ) | ||||
Payments of deferred financing fees | (11,779 | ) | —�� | |||||
Cash provided by (used for) financing | (35,462 | ) | (62,631 | ) | ||||
Increase (decrease) in cash and cash equivalents | 21,675 | 4,992 | ||||||
Balance at beginning of the period | 69,393 | 22,518 | ||||||
Balance at end of the period | $ | 91,068 | $ | 27,510 | ||||
See accompanying notes to unaudited quarterly consolidated financial statements.
BOISE CASCADE HOLDINGS, L.L.C.UNAUDITED CONSOLIDATED STATEMENT OF CAPITAL
| Series A Equity Units | Series B Equity Units | Series C Equity Units | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Capital | |||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | ||||||||||||||
| (thousands) | |||||||||||||||||||
Balance at December 31, 2004 | 66,000 | $ | 36,868 | 549,000 | $ | 332,972 | 35,600 | $ | — | $ | 369,840 | |||||||||
Net income | — | — | — | 59,368 | — | 5,371 | 64,739 | |||||||||||||
Management equity units expensed | — | — | — | 782 | — | — | 782 | |||||||||||||
Other comprehensive income | ||||||||||||||||||||
Cash flow hedges(1) | — | — | — | 1,184 | — | — | 1,184 | |||||||||||||
Paid-in-kind dividend | — | 727 | — | (727 | ) | — | — | — | ||||||||||||
Tax distribution to members | — | — | — | (18,076 | ) | — | (1,171 | ) | (19,247 | ) | ||||||||||
Repurchase of equity units | — | — | (71 | ) | (39 | ) | (43 | ) | — | (39 | ) | |||||||||
Balance at March 31, 2005 | 66,000 | $ | 37,595 | 548,929 | $ | 375,464 | 35,557 | $ | 4,200 | $ | 417,259 | |||||||||
See accompanying notesNotes to unaudited quarterly consolidated financial statements.
BOISE CASCADE HOLDINGS, L.L.C.NOTES TO UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Quarterly Consolidated Financial Statements
1. Nature of Operations and Basis of Presentation
On May 9, 2005,BZ Intermediate Holdings LLC or “the Company,” “we,” “us,” or “our” is a large, diverse United States-based manufacturer of packaging products and papers, including corrugated containers, containerboard, label and release and flexible packaging papers, imaging papers for the office and home, printing and converting papers, newsprint, and market pulp. We own pulp and paper mill operations in the following locations: Jackson, Alabama; International Falls, Minnesota; St. Helens, Oregon; and Wallula, Washington, all of which manufacture uncoated freesheet paper. We also own a mill in DeRidder, Louisiana, which produces containerboard (linerboard) as well as newsprint. Additionally, we converted fromhave a limited liability company tonetwork of five corrugated container plants located in the Pacific Northwest, a C corporationcorrugated sheet plant in Nevada, and changeda corrugated sheet feeder plant in Texas.
The following sets forth our name from operating structure and equity ownership at March 31, 2010:
Boise CascadeFinance Company and Boise Co-Issuer Company, two wholly owned subsidiaries of Boise Paper Holdings, L.L.C. to(Boise Paper Holdings), are not shown on this chart. This chart also excludes Boise Cascade Company. As used in these consolidated financial statements, the terms "Boise," "Boise Holdings" and "we" refer to Boise Cascade Company and its consolidated subsidiaries and their predecessors in interest. The terms "Boise Forest Products Operations" and "predecessor" refer to the paper and forest products assets of OfficeMax Incorporated (OfficeMax) that we acquired on October 29, 2004, from OfficeMax. OfficeMax was formerly known as Boise Cascade Corporation. See Note 2, Purchase of OfficeMax's Paper and Forest Products Assets, for additional information.Holdings’ indirect subsidiaries.
We are a diversified North American paper and forest products company. We areBZ Intermediate Holdings LLC, headquartered in Boise, Idaho. These unauditedIdaho, operates its business in three reportable segments: Paper, Packaging, and Corporate and Other (support services).
The quarterly consolidated financial statements present the financial results of Boise for the three months ended March 31, 2005, and the results of Boise Forest Products Operations for the three months ended March 31, 2004. We have five reportable segments: Paper, Packaging & Newsprint, Wood Products, Building Materials Distribution and Corporate and Other. Historically, OfficeMax conducted Boise Forest Products Operations in three segments: Boise Paper Solutions, Boise Building Solutions and Corporate and Other. We have recast the financial statements of our predecessor included herein to conform to our current segment presentation. See Note 12, Segment Information, for additional information on our reportable segments.
The predecessor financial statements include accounts specifically attributed to Boise Forest Products Operations and a portion of OfficeMax's shared corporate general and administrative expenses. These shared services included, but were not limited to, finance, accounting, legal, information technology and human resource functions. Some of OfficeMax's corporate costs related solely to Boise Forest Products Operations and were allocated in full to these operations. Shared corporate general and administrative expenses not specifically identifiable to Boise Forest Products Operations have been allocated based on sales, assets and labor costs. The predecessor financial statements also include an allocation of OfficeMax's interest expense based on average asset balances (see Note 9). The predecessor's results have been or will be included in OfficeMax's consolidated tax returns. Income taxes in the predecessor periods of these consolidated financial statements have been calculated as if Boise Forest Products Operations was a separate taxable entity (see Note 5). Information on the allocations and related-party transactions is included in Note 3, Transactions With Related Parties.
The predecessor financial information may not reflect what our results of operations would have been had we operated as a separate stand-alone company and may not be indicative of our future results of operations. In addition, the predecessor financial information is not comparable to our results of operations due to the impact of purchase accounting.
The quarterly consolidated financial statementspresented have not been audited by an independent registered public accounting firm but, in the opinion of management, include all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly the results for the periods presented. Net income forThe preparation of the three months ended March 31, 2005 and 2004, involvedconsolidated 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.
Certain amounts in prior years' These notes to unaudited consolidated financial statements have been reclassifiedshould be read in conjunction with our 2009 audited financial statements.
Notes to conform with the current year's presentation. These reclassifications did not affect net income.
2. Purchase of OfficeMax's Paper and Forest Products AssetsUnaudited Quarterly Consolidated Financial Statements—(Continued)
On October 29, 2004, we acquired OfficeMax's paper
Subsequent Events
We have evaluated events and forest products assets, other than its timberlands operations, for an aggregate purchase price of $2,196.5 million, including approximately $140 million of related fees and expenses (the Acquisition). For more information about our purchase of OfficeMax's paper and forest products assets, see Note 2, Purchase of OfficeMax's Paper and Forest Products Assets, in our auditedtransactions subsequent to March 31, 2010, through May 4, 2010, the date these consolidated financial statements.
We accounted for the Acquisition using the purchase method of accounting. As a result, the purchase price was allocatedstatements and notes were available to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the date of the Acquisition. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was allocated to goodwill.
The initial purchase price allocations may be adjusted within one year of the purchase date for changes in estimates of the fair value of assets acquired and liabilities assumed.issued. We have not completedidentified any events that would require recognition or disclosure in the assessmentconsolidated financial statements or in the notes to the financial statements.
2. Transactions With Related Parties
From February 22, 2008, through early March 2010, Boise Cascade, L.L.C. (Boise Cascade) held a significant interest in us, and our transactions with Boise Cascade were related-party transactions. In early March 2010, Boise Cascade sold all of its remaining investment in our parent company, Boise Inc., and accordingly, it is no longer a related party.
The transportation and other outsourcing services revenues described below were earned during January and February 2010. Beginning in March 2010, no transactions between Boise Cascade and us will be considered related-party transactions, except those concerning Louisiana Timber Procurement Company, L.L.C. (LTP), as described below.
Related-Party Sales
BZ Intermediate Holdings LLC provides transportation services to Boise Cascade. For the three months ended March 31, 2010 and 2009, we recorded $0.3 million and $0.6 million, respectively, of sales for transportation services recorded in “Sales, Related parties” in the Consolidated Statements of Income (Loss).
We are party to an outsourcing services agreement under which we provide a number of corporate staff services to Boise Cascade at our cost. These services include information technology, accounting, and human resource services. The agreement, as extended, expires on February 22, 2012. It will automatically renew for one-year terms unless either party provides notice of termination to the other party at least 12 months in advance of the fair valueapplicable term. For the three months ended March 31, 2010 and 2009, we recognized $2.3 million and $3.6 million, respectively, in “Sales, Related parties” in the Consolidated Statements of Income (Loss).
LTP, a variable-interest entity that is 50% owned by us and 50% owned by Boise Cascade, sells wood to Boise Cascade and BZ Intermediate Holdings LLC at prices designed to approximate market prices. LTP procures saw timber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of BZ Intermediate Holdings LLC and Boise Cascade. We are the primary beneficiary of LTP, as we are the entity most closely associated with the VIE; therefore, we consolidate LTP in our fiber farmsfinancial statements. Although Boise Cascade is no longer a related party to our operations, Boise Cascade continues to be a related party to LTP; therefore, sales between Boise Cascade and may allocate a higher portionLTP are related-party sales in our consolidated financial statements. As of March 31, 2010, the purchase pricecarrying amounts of LTP’s assets and liabilities on our Consolidated Balance Sheet are $5.5 million and relate primarily to those assets. An increase in those values would reduce goodwill.noninventory working capital. During the three months ended March 31, 2005,2010, we reduced goodwill by $6.6recorded $5.6 million (see Note 8, Goodwillof LTP sales to Boise Cascade in “Sales, Related parties” in the Consolidated Statements of Income (Loss) and Intangible Assets), primarily due to a one-time pension curtailment gain recognizedapproximately the same amount of expenses in accordance with Statement of Financial Accounting Standards (SFAS) No. 88, Employer's Accounting for Settlements“Materials, labor, and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, net of an increase of $0.9 million to reflect severance cost adjustments. See "Restructuring Activities."
Restructuring Activities
In connection with the Acquisition, we are evaluating the acquired facilities and organizational structure. In accordance with the provisions of Emerging Issues Task Force (EITF) 95-3, Recognition of Liabilities in Connection With a Purchase Business Combination, exit activities related to the Acquisition will increase goodwill. We have one year from the acquisition date to develop our restructuring plans and adjust goodwill. At December 31, 2004, we had finalized a portion of our plans in sufficient detail to meet the requirements of EITF 95-3 to record a liability.other operating expenses.” During the three months ended March 31, 2005,2009, we recorded an additional restructuring reserve of $0.9 million. This adjustment reflects additional severance costs and increases the total reserve recorded since the Acquisition to $15.2 million, most of which relates to severance costs for 330 employees. At March 31, 2005, we had terminated approximately 270 employees. Most of these costs will be paid during 2005.
At March 31, 2005, approximately $9.7$11.2 million of the 2004 restructuring reserves was includedLTP sales to Boise Cascade in "Accrued liabilities, Compensation and benefits," and $0.3 million was included in "Accrued
liabilities, Other." Restructuring reserve liability account activity related to these 2004 charges is as follows (in thousands):
| Severance | Other | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2004 restructuring reserve | $ | 13,768 | $ | 501 | $ | 14,269 | ||||
Charges against reserve | (1,012 | ) | (1 | ) | (1,013 | ) | ||||
Restructuring reserve at December 31, 2004 | 12,756 | 500 | 13,256 | |||||||
Charges against reserve | (3,831 | ) | (317 | ) | (4,148 | ) | ||||
Reserve charged to goodwill | 854 | 70 | 924 | |||||||
Restructuring reserve at March 31, 2005 | $ | 9,779 | $ | 253 | $ | 10,032 | ||||
We have not completed our restructuring plans for the acquired businesses. We expect to complete our plans by the end of the second quarter of 2005. When those plans are finalized, we may record additional restructuring liabilities and increase goodwill.
3. Transactions With“Sales, Related Parties
During the predecessor period presented, our predecessor participated in OfficeMax's cash management system. Cash receipts attributable to our predecessor's operations were collected by OfficeMax, and cash disbursements were funded by OfficeMax. The net effect of these transactions has been reflected as "Net equity transactions with OfficeMax"parties” in the Consolidated StatementStatements of Cash Flow. The following table includes the components of net equity transactions with OfficeMax (in thousands):Income (Loss).
| Predecessor | |||
---|---|---|---|---|
| Three Months Ended March 31, 2004 | |||
Cash collections | $ | (1,265,239 | ) | |
Payment of accounts payable | 1,234,871 | |||
Capital expenditures and acquisitions | 40,977 | |||
Income taxes | 1,275 | |||
Net debt payments | 34,165 | |||
Corporate general and administrative allocation | 6,710 | |||
Other | (5,326 | ) | ||
Net equity transactions with OfficeMax | $ | 47,433 | ||
During the predecessor period presented, our predecessor used servicesRelated-Party Costs and administrative staff of OfficeMax. These services included, but were not limited to, finance, accounting, legal, information technology and human resource functions. The costs not specifically identifiable to Boise Forest Products Operations were allocated based on average sales, assets and labor costs. For the predecessor three months ended March 31, 2004, the allocated costs amounted to $6.7 million. These costs are included in "General and administrative expenses" in the Consolidated Statement of Income. Management believes these allocations are a reasonable
reflection of our predecessor's use of such services. However, they may not necessarily be indicative of costs to be incurred by us in the future.Expenses
At December 31, 2004, we had a $157.5 million note receivable from Boise Land & TimberBZ Intermediate Holdings Corp. (Timber Holdings) recorded as "Note receivableLLC purchases fiber from related party" on our Consolidated Balance Sheet. The note was repaid in February 2005. The note accrued interestparties at 6%. For the three months ended March 31, 2005, we recorded $0.9 million of interest income from the note.
During each of the periods presented, we sold paper and paper products to OfficeMax at sales prices that approximated market.approximate market prices. During the three months ended March 31, 2005, sales2010 and 2009, fiber purchases from related parties were
Notes to OfficeMaxUnaudited Quarterly Consolidated Financial Statements—(Continued)
$9.8 million and $5.7 million, respectively. These purchases related to chip and log purchases from Boise Cascade’s wood products business. All of the costs associated with these purchases were $150.3 million. For the three months ended March 31, 2004, sales to OfficeMax were $119.0 million. These sales are included in "Sales, Related parties"recorded as “Fiber costs from related parties” in the Consolidated Statements of Income.
During each of the periods presented, we purchased fiberIncome (Loss). Beginning in March 2010, “Fiber costs from related parties at prices that approximated market. During the three months ended March 31, 2005, fiberparties” represent only LTP’s purchases from Boise Land & Timber Corp., a subsidiary of Timber Holdings, were $17.6 million. For the three months ended March 31, 2004, fiberCascade. Future chip and log purchases from OfficeMax's timberlands operations were $27.8 million. The costs associated with these purchases areBoise Cascade by BZ Intermediate Holdings LLC will be recorded as "Fiber costs from related parties"“Materials, labor, and other operating expenses” in the Consolidated Statements of Income.Income (Loss).
During the predecessor period, most Boise Forest Products Operations employees, along with some employees of OfficeMax, participated in OfficeMax's defined benefit pension plans. In addition, most employees of Boise Forest Products Operations were eligible for participation in OfficeMax's defined contribution plans. During the predecessor period, our predecessor treated its participants in OfficeMax's plans as participants in multiemployer plans. Boise Forest Products Operations did, however, incur costs associated with the employees who participated in OfficeMax's plans. For the three months ended March 31, 2004, the Consolidated Statement of Income included $26.3 million of expenses attributable to our participation in OfficeMax's defined benefit and defined contribution plans.
Boise Forest Products Operations employees and former employees also participated in OfficeMax's other postretirement benefit plans. All of the postretirement benefit plans are unfunded (see Note 11). In addition, employees participated in OfficeMax's stock compensation programs.
For more information, see Note 13, Retirement and Benefit Plans, in our audited consolidated financial statements.
4.3. Other (Income) Expense, Net
"Other“Other (income) expense, net"net” includes miscellaneous income and expense items. The components of "Other“Other (income) expense, net"net” in the Consolidated Statements of Income (Loss) are as follows (in(dollars in thousands):
| Boise Holdings | Predecessor | |||||
---|---|---|---|---|---|---|---|
| Three Months Ended March 31, | ||||||
| 2005 | 2004 | |||||
Loss on sales of assets | $ | 219 | $ | 1,574 | |||
Sale of plywood and lumber operations | — | 7,123 | |||||
Sale of receivables | — | 622 | |||||
Other, net | (92 | ) | (155 | ) | |||
$ | 127 | $ | 9,164 | ||||
Three Months Ended March 31 | ||||||||
2010 | 2009 | |||||||
Sales of assets, net | $ | (114 | ) | $ | (20 | ) | ||
Other, net | (189 | ) | 259 | |||||
$ | (303 | ) | $ | 239 | ||||
5.4. Income Taxes
Prior toFor the conversion to a C corporation,three months ended March 31, 2010, our effective tax benefit rate was 38.6%. The primary reason for the difference from the federal statutory income tax rate of 35.0% is the effect of state income taxes. For the three months ended March 31, 2010, we heldrecorded $7.5 million of income tax benefits. For the three months ended March 31, 2009, our effective tax benefit rate was not meaningful. The primary reason for the difference from the federal statutory income tax rate was the effect of establishing valuation allowances on losses incurred during the quarter, which effect was substantially offset by the effect of various discrete tax items. For the three months ended March 31, 2009, we recorded $0.2 million of income tax benefits.
Uncertain Income Tax Positions
We recognize interest and operated the majority of our businesses and assets as limited-liability companies, which are not subject to entity-level federal income taxation. The taxes with respect to these operations are payable by our equity holders in accordance with their respective ownership percentages. We expect that we will make cash distributions to permit our equity holders to pay the taxes incurred prior to our conversion to a C corporation. Both our senior secured credit facilities and the indenture governing our notes permit these distributions.
In February 2005, our board of directors authorized us to pay our equity investors amounts sufficient to fund their 2004 tax obligationspenalties related to their investmentuncertain tax positions as income tax expense in usour Consolidated Statements of Income (Loss). Interest expense related to uncertain tax positions was immaterial for the three months ended March 31, 2010 and to make estimated 2005 quarterly2009. We did not record any penalties associated with our uncertain tax payments. positions during the three months ended March 31, 2010 and 2009.
Other
During the three months ended March 31, 2005, we paid $9.4 million in tax distributions and recorded $9.8 million in "Accrued liabilities, Other" on our Consolidated Balance Sheet2010, refunds received for additional future payments.
In addition to the businesses and assets held and operated by limited liability companies, we have small corporations that are subject to federal, state and local income taxes. Astaxes, net of March 31, 2005, these corporations accrued income taxes of $639,000, which consisted of $459,000 accrued for U.S. federal taxes, $139,000 accrued for U.S. state taxes and $41,000 accrued for Canadian taxes. There are no deferred tax assets or liabilities for these corporations.
In the predecessor period presented, Boise Forest Products Operations resultspayments made, were included in the consolidated income tax returns of OfficeMax. However, in the predecessor financial statements, income taxes were provided based on a calculation of the income tax expense that would have been incurred if our predecessor had operated as a separate taxpayer. Income taxes have been provided for all items included in the Consolidated Statement of Income, regardless of when such items were reported for tax purposes or when the taxes were actually paid or refunded.
6. Investments in Equity Affiliates
In May 2004, Boise Forest Products Operations sold its 47% interest in Voyageur Panel, which owned an oriented strand board plant in Barwick, Ontario, Canada, to Ainsworth Lumber Co. Ltd.
Prior to the sale, Boise Forest Products Operations accounted for the joint venture under the equity method. Accordingly, the results do not include the joint venture's sales but do include $5.1 million of equity in earnings for the three months ended March 31, 2004.
7. Inventories
Inventories include the following (in thousands):
| March 31, 2005 | December 31, 2004 | ||||
---|---|---|---|---|---|---|
Finished goods and work in process | $ | 438,418 | $ | 384,772 | ||
Logs | 46,224 | 62,406 | ||||
Other raw materials and supplies | 163,063 | 147,691 | ||||
$ | 647,705 | $ | 594,869 | |||
8. Goodwill and Intangible Assets
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and intangible assets of businesses acquired. We account for goodwill in accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, which requires us to assess our acquired goodwill and intangible assets with indefinite lives for impairment at least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment. We will assess goodwill and intangible assets with indefinite lives in the fourth quarter of each year using a fair-value-based approach. We will also evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary. The finite-lived purchased intangible assets consist of customer relationships and technology. These intangible assets are discussed in more detail below.
Changes in the carrying amount of our goodwill by segment are as follows (in thousands):
| Paper | Packaging & Newsprint | Wood Products | Building Materials Distribution | Corporate and Other | Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2004 | $ | 8,776 | $ | 1,510 | $ | 3,198 | $ | 348 | $ | 4,558 | $ | 18,390 | |||||||
Purchase price adjustments (Note 2) | (1,317 | ) | 80 | (822 | ) | — | (4,558 | ) | (6,617 | ) | |||||||||
Balance at March 31, 2005 | $ | 7,459 | $ | 1,590 | $ | 2,376 | $ | 348 | $ | — | $ | 11,773 | |||||||
Intangible assets represent the values assigned to trade names and trademarks, customer relationships and technology. The trade names and trademarks assets have an indefinite life and are not amortized. All other intangible assets are amortized over their expected useful lives.
Customer relationships are amortized over five years, and technology is amortized over three to five years. Intangible assets consisted of the following (in thousands):
| Period Ended March 31, 2005 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||
Trade names and trademarks | $ | 22,800 | $ | — | $ | 22,800 | |||
Customer relationships | 6,800 | (502 | ) | 6,298 | |||||
Technology | 5,080 | (463 | ) | 4,617 | |||||
$ | 34,680 | $ | (965 | ) | $ | 33,715 | |||
| Period Ended December 31, 2004 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||
Trade names and trademarks | $ | 22,800 | $ | — | $ | 22,800 | |||
Customer relationships | 6,800 | (227 | ) | 6,573 | |||||
Technology | 5,080 | (96 | ) | 4,984 | |||||
$ | 34,680 | $ | (323 | ) | $ | 34,357 | |||
Intangible asset amortization expense was $0.6 million and $0.04 million for the three months ended March 31, 2005 and 2004, respectively. The estimated amortization expense is $2.5 million in each of 2005, 2006 and 2007, $2.3 million in 2008 and $1.8 million in 2009.
9. Debt
At March 31, 2005, our long-term debt consisted of the following (in thousands):
| March 31, 2005 | ||
---|---|---|---|
Revolving credit facility, due 2010 | $ | — | |
Tranche B term loan, due 2011 | 918,000 | ||
Senior floating-rate notes, due 2012 | 250,000 | ||
7.125% senior subordinated notes, due 2014 | 400,000 | ||
Note payable to related party, due 2015 | 256,123 | ||
1,824,123 | |||
Less current portion | — | ||
$ | 1,824,123 | ||
Our senior secured credit facilities, which we entered into in October 2004 in connection with the Acquisition, consist of a six-year senior secured revolving credit facility and a seven-year senior secured Tranche B term loan.
In October 2004, our subsidiary, Boise Cascade L.L.C. (Boise LLC), and its affiliates entered into a six-year senior secured revolving credit facility as part of the senior secured credit
arrangements used to partially fund the Acquisition. We are a guarantor of the facility, and it is secured by substantially all of the operating assets and equity interests of Boise LLC and its affiliates. The agreement permitted us to borrow as much as $400.0 million at variable interest rates based on the London InterBank Offered Rate (LIBOR), the prime rate or the federal funds effective rate. We had no borrowings under the agreement at March 31, 2005. At March 31, 2005, $72.1 million of letters of credit were considered a draw on the revolver, thus reducing our borrowing capacity to $327.9$0.3 million. Letters of credit issued under the terms of the revolving credit facility were charged at a rate of 2.5%, including the fronting fee. In addition, we were charged a fee of 0.5% on the average daily unused portion of our revolving credit facility balance.
In October 2004, Boise LLC and its affiliates also entered into a seven-year senior secured floating-rate $1,330.0 million Tranche B term loan. The Tranche B term loan was available only to fund the Acquisition and was part of the senior secured credit facilities. The interest rate on the term loan is based on LIBOR plus 225 basis points. At March 31, 2005, our borrowing rate under the term loan was 5.1%, and $918.0 million was outstanding.
In October 2004, we issued $250.0 million of senior unsecured floating-rate notes due 2012 and $400.0 million of 7.125% senior subordinated notes due 2014. We may redeem all or part of the notes at any time at redemption prices defined in the indenture. Net proceeds from the notes were used to fund a portion of the purchase price for the Acquisition. If we sell specific assets or experience specific kinds of changes in control, we must offer to purchase the notes. At March 31, 2005, our borrowing rate for the $250.0 million senior floating-rate notes was 5.5%. We have entered into interest rate swaps to hedge the cash flow risk from the variable interest payments on the $250.0 million senior floating-rate notes, which gave us an effective interest rate of 6.6% at March 31, 2005 (see Note 10).
We paid approximately $85.9 million of fees and expenses associated with the foregoing debt transactions. The fees are being amortized over the shorter of the call period or the term of the loan, which range from three to eight years. At March 31, 2005, we had $81.1 million of costs recorded in "Deferred financing costs" on our Consolidated Balance Sheet. As discussed below, we amended and restated our senior secured credit facilities, and we will incur a $43.0 million charge related to the write-off of the Tranche B term loan deferred financing costs in connection with this amendment and restatement. This $43.0 million charge will be reflected in our Consolidated Statement of Income (Loss) for the second quarter of 2005.
At March 31, 2005, our average interest rate was 5.9%.
At March 31, 2005, there were no scheduled payments of long-term debt through 2009. In February 2005, we repaid $412.0 million of our Tranche B term loan, primarily with proceeds from a related-party loan from a subsidiary of Timber Holdings and the repayment by such subsidiary of a loan we had previously made to it. This repayment eliminated our scheduled payments of long-term debt through 2009 and reduced the payments thereafter to $1.6 billion. The principal amount of the related-party loan we received from a subsidiary of Timber Holdings, which initially was $264.8 million, is subject to adjustment based on transactions between such subsidiary and us and matures on February 4, 2015. At March 31, 2005, the loan balance was $256.1 million and was recorded as "Note payable to related party" on our Consolidated Balance Sheet. The note accrues interest at 8%. During the three months ended March 31, 2005, we recorded $3.1 million2009, cash paid for taxes, net of interest expense relatedrefunds received, was $0.3 million.
Due to the note.
Amendment and Restatement
On April 18, 2005, we amended and restatedInternal Revenue Code Section 382, Boise Cascade’s recent sales of its remaining investment in our senior secured credit facilities (the Facilities). Our amended and restated Facilities consist of an $840.0 million Tranche D term loan and a $475.0 million revolving credit facility. In connection with this transaction, we repaid all amounts outstanding under our Tranche B term loan. We are required to make scheduled principal payments on the Tranche D term loan inparent company, Boise Inc., limit the amount of $6.3 millionnet operating losses that we may utilize in 2005, $8.4 millionany one year. However, we believe it is more likely than not that our net operating losses will be fully realizable before they expire in each2028 and 2029.
In the normal course of 2006 through 2009, and $6.3 million in 2010. The Tranche D term loan matures on October 28, 2011. Borrowingsbusiness, we are subject to examination by taxing authorities. As we are a wholly owned, consolidated entity of Boise Inc., our tax return is filed under the Tranche Dconsolidated tax return of Boise Inc. Boise Inc.’s open tax years are 2009, 2008, and 2007.
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
We have two wholly owned, consolidated entities of Boise Inc. that are subject to audit by taxing authorities for the year 2006 and the years that follow. The statute of limitations for 2005 expired during 2009. We are responsible for any tax adjustments resulting from such audits.
5. Leases
We lease our distribution centers, as well as other property and equipment, under operating leases. For purposes of determining straight-line rent expense, the lease term loanis calculated from the date of possession of the facility, including any periods of free rent and any renewal option periods that are reasonably assured of being exercised. Straight-line rent expense is also adjusted to reflect any allowances or reimbursements provided by the lessor. We do not have any sublease rental income for the periods presented below. We do not expect sublease rental income in the future to be material. Accordingly, our future minimum lease payment requirements have not been reduced by sublease rental income. Rental expense for operating leases is as follows (dollars in thousands):
Three Months Ended March 31 | ||||||
2010 | 2009 | |||||
Rental expense | $ | 3,727 | $ | 3,919 |
For noncancelable operating leases with remaining terms of more than one year, the minimum lease payment requirements are as follows (dollars in thousands):
Remaining 2010 | 2011 | 2012 | 2013 | 2014 | 2015 and Thereafter | |||||||||||||
Minimum payment | $ | 9,331 | $ | 11,801 | $ | 10,898 | $ | 8,381 | $ | 6,908 | $ | 19,346 |
Substantially all lease agreements have fixed payment terms based on the prime rate,passage of time. Some lease agreements provide us with the federal funds effective rate plus 50 basis points, or LIBOR plus 175 basis points. At April 18, 2005, our borrowing underoption to purchase the new term loan was at a rate of 4.7%. The maturity of the revolving credit facility did not change as a result of this amendment and restatement.
In addition, the Facilities permit usleased property. Additionally, some agreements contain renewal options averaging six years, with fixed payment terms similar to pay dividends equal to 50% of consolidated net income, as definedthose in the Facilities, that has accumulated since October 29, 2004. If the accumulated consolidated net income is less than $70 million, the agreement permits the paymentoriginal lease agreements.
6. Concentrations of up to $35 million in dividends.Risk
Predecessor PeriodBusiness
In the predecessor period presented, our predecessor participated in OfficeMax's centralized cash management system. Cash advances necessary to fund Boise Forest Products Operations' major improvements to, and replacements of, property and acquisitions and expansion, to the extent not provided through internally generated funds, were provided by OfficeMax's cash or funded with debt. In the predecessor period presented, interest costs were allocated to our predecessor based on its average asset balances. The interest expense attributable to the debt allocated from OfficeMax is included in our Consolidated Statement of Income. We believe the allocation of interest is a reasonable reflection of Boise Forest Products Operations' interest costs.
10. Financial Instruments
For the three months ended March 31, 2005, $150.3 million, or 10% of our total sales, wereSales to OfficeMax which representsrepresent a concentration in the volume of business transacted and thein revenue generated from these transactions. Apart from these sales,those transactions and a concentration of credit risksrisk. Sales to OfficeMax were $128.2 million and $141.9 million during the three months ended March 31, 2010 and 2009, representing 26% and 28% of total sales for those periods. At March 31, 2010, and December 31, 2009, we had $34.5 million and $34.7 million, respectively, of accounts receivable due from OfficeMax.
Labor
As of March 31, 2010, we had approximately 4,100 employees. Approximately 60% of these employees work pursuant to collective bargaining agreements. As of March 31, 2010, approximately 33% of our employees were working pursuant to collective bargaining agreements that have expired or will expire within one year, including agreements at the following facility locations: Wallula, Washington; DeRidder, Louisiana; Jackson, Alabama; St. Helens, Oregon; and Nampa, Idaho. The labor contract at our paper mill in Wallula, Washington (332 employees represented by the Association of Western Pulp & Paper Workers, the “AWPPW”) expired in March 2009 and was terminated by the AWPPW in October 2009. In February 2010, the union employees at
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
Wallula rejected a new collective bargaining agreement that union leadership had recommended unanimously, and we declared an impasse in the bargaining process and implemented the terms of the last contract offer. We are currently negotiating the labor contract at our mill in DeRidder, Louisiana (387 employees represented by the United Steelworkers), which expired in February 2010, and at our mill in St. Helens, Oregon (122 employees represented by the AWPPW), which expired in March 2010.
7. Inventories
Inventories include the following (dollars in thousands):
March 31, 2010 | December 31, 2009 | |||||
Finished goods | $ | 130,795 | $ | 120,817 | ||
Work in process | 23,063 | 22,677 | ||||
Fiber | 39,398 | 34,557 | ||||
Other raw materials and supplies | 72,817 | 74,122 | ||||
$ | 266,073 | $ | 252,173 | |||
8. Property and Equipment, Net
Property and equipment consist of the following asset classes (dollars in thousands):
March 31, 2010 | December 31, 2009 | |||||||
Land and land improvements | $ | 31,875 | $ | 31,875 | ||||
Buildings and improvements | 203,825 | 199,086 | ||||||
Machinery and equipment | 1,184,755 | 1,176,494 | ||||||
Construction in progress | 19,879 | 18,992 | ||||||
1,440,334 | 1,426,447 | |||||||
Less accumulated depreciation | (250,591 | ) | (220,768 | ) | ||||
$ | 1,189,743 | $ | 1,205,679 | |||||
9. Intangible Assets
Intangible assets represent primarily the values assigned to trademarks and trade names, customer relationships, and technology. Customer relationships are amortized over approximately ten years, and technology is amortized over approximately five years. Trademarks and trade names are not amortized. During the three months ended March 31, 2010 and 2009, intangible asset amortization was $0.7 million. Our estimated amortization expense is $2.1 million for the remainder of 2010, $2.8 million in 2011 and 2012, $1.6 million in 2013, and $1.4 million in 2014 and 2015. The gross carrying amount, accumulated amortization, and net carrying amount as of March 31, 2010, and December 31, 2009, were as follows (dollars in thousands):
As of March 31, 2010 | ||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||
Trademarks and trade names | $ | 16,800 | $ | — | $ | 16,800 | ||||
Customer relationships | 13,700 | (2,854 | ) | 10,846 | ||||||
Technology and other | 6,895 | (2,871 | ) | 4,024 | ||||||
$ | 37,395 | $ | (5,725 | ) | $ | 31,670 | ||||
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
As of December 31, 2009 | ||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||
Trademarks and trade names | �� | $ | 16,800 | $ | — | $ | 16,800 | |||
Customer relationships | 13,700 | (2,512 | ) | 11,188 | ||||||
Technology and other | 6,895 | (2,525 | ) | 4,370 | ||||||
$ | 37,395 | $ | (5,037 | ) | $ | 32,358 | ||||
10. Asset Retirement Obligations
We accrue for asset retirement obligations in the period in which they are incurred if sufficient information is available to reasonably estimate the fair value of the obligation. When we record the liability, we capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value, and the capitalized cost is depreciated over the useful life of the related asset. Occasionally, we become aware of events or circumstances that require us to revise our future estimated cash flows. When revision becomes necessary, we recalculate our obligation and adjust our asset and liability accounts utilizing appropriate discount rates. Upon settlement of the liability, we will recognize a gain or loss for any difference between the settlement amount and the liability recorded.
At March 31, 2010, and December 31, 2009, we had $10.6 million and $10.4 million, respectively, of asset retirement obligations primarily recorded in “Other long-term liabilities” on the Consolidated Balance Sheets. These liabilities primarily related to landfill closure and closed-site monitoring costs. These liabilities are based on the best estimate of current costs and are updated periodically to reflect current technology, laws and regulations, inflation, and other economic factors. During 2009, our estimated future cash flows for retirement obligations relating to items at two of our mills were reduced as a result of discussions with respectthird-party organizations. These changes reduced our expected asset retirement obligations. No assets are legally restricted for purposes of settling asset retirement obligations. The table below describes changes to trade receivables is limitedthe asset retirement obligations for the three months ended March 31, 2010, and for the year ended December 31, 2009 (dollars in thousands):
Period Ended | |||||||
March 31, 2010 | December 31, 2009 | ||||||
Asset retirement obligation at beginning of period | $ | 10,362 | $ | 14,283 | |||
Liabilities incurred | — | — | |||||
Accretion expense | 206 | 1,165 | |||||
Payments | — | (122 | ) | ||||
Revisions in estimated cash flows | — | (4,964 | ) | ||||
Asset retirement obligation at end of period | $ | 10,568 | $ | 10,362 | |||
We have additional asset retirement obligations with indeterminate settlement dates. The fair value of these asset retirement obligations cannot be estimated due to the wide varietylack of customerssufficient information to estimate the settlement dates of the obligations. These asset retirement obligations include, for example, (i) removal and channelsdisposal of potentially hazardous materials related to equipment and/or an operating facility if the equipment and/or facility were to undergo major maintenance, renovation, or demolition; (ii) wastewater treatment ponds that may be required to be drained and/or cleaned if the related operating facility is closed; and (iii) storage sites or owned facilities for which removal and/or disposal of chemicals and other related materials are required if the operating facility is closed. We will recognize a liability in the period in which sufficient information becomes available to reasonably estimate the fair value of these obligations.
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
11. Debt
At March 31, 2010, and December 31, 2009, our long-term debt and the interest rates on that debt were as follows (dollars in thousands):
March 31, 2010 | December 31, 2009 | |||||||||||||
Amount | Interest Rate | Amount | Interest Rate | |||||||||||
Revolving credit facility, due 2013 | $ | — | — | % | $ | — | — | % | ||||||
Tranche A term loan, due 2013 | 192,244 | 3.00 | % | 203,706 | 3.25 | % | ||||||||
Tranche B term loan, due 2014 | — | — | % | 312,221 | 5.75 | % | ||||||||
9% senior notes, due 2017 | 300,000 | 9.00 | % | 300,000 | 9.00 | % | ||||||||
8% senior notes, due 2020 | 300,000 | 8.00 | % | — | — | % | ||||||||
Current portion of long-term debt | (16,663 | ) | 3.00 | % | (30,711 | ) | 3.97 | % | ||||||
Long-term debt, less current portion | 775,581 | 7.25 | % | 785,216 | 6.41 | % | ||||||||
Current portion of long-term debt | 16,663 | 3.00 | % | 30,711 | 3.97 | % | ||||||||
$ | 792,244 | 7.17 | % | $ | 815,927 | 6.32 | % | |||||||
As of March 31, 2010, our debt consisted of the following:
The Revolving Credit Facility: A five-year nonamortizing $250.0 million senior secured revolving credit facility with interest at either the London Interbank Offered Rate (LIBOR) plus an applicable margin, which is currently 275 basis points, or a calculated base rate plus an applicable margin, which is currently 175 basis points (collectively with the Tranche A term loan facility, the Credit Facilities).
The Tranche A Term Loan Facility: A five-year amortizing senior secured loan facility with interest at LIBOR plus an applicable margin, which is currently 275 basis points, or a calculated base rate plus an applicable margin, which is currently 175 basis points. The Tranche A term loan facility was originally issued at $250.0 million. At December 31, 2009, our LIBOR applicable margin was 300 basis points and our calculated base rate applicable margin was 200 basis points.
The 9% Senior Notes: An eight-year nonamortizing $300.0 million senior unsecured debt obligation with annual interest at 9%.
The 8% Senior Notes: A ten-year nonamortizing $300.0 million senior unsecured debt obligation with annual interest at 8%.
The Credit Facilities are secured by a first-priority lien on all of the assets of our subsidiaries that guarantee or are borrowers, and in the event of default, the lenders generally would be entitled to seize the collateral. All borrowings under the Credit Facilities bear interest at a rate per annum equal to an applicable margin plus a calculated base rate or adjusted Eurodollar rate. The calculated base rate means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 0.50%. The adjusted Eurodollar rate means LIBOR rounded to the nearest 1/16 of 1.0% and adjusted for any applicable reserve requirements. In addition to paying interest, we pay a commitment fee to the lenders under the revolving credit facility at a rate of 0.375% per annum times the daily average undrawn portion of the revolving credit facility (reduced by the amount of letters of credit issued and outstanding), which fee is payable quarterly in arrears. We also pay letter of credit fees of 275 basis points times the average daily maximum outstanding amount of the letters of credit and a fronting fee of 15 basis points to the issuing bank of outstanding letters of credit. These fees are payable quarterly and in arrears.
At March 31, 2010, and December 31, 2009, we had no borrowings outstanding under the revolving credit facility. For the three months ended March 31, 2010, and the year ended December 31, 2009, the average interest
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
rates for our borrowings under our revolving credit facility were 0.0% and 3.7%, respectively. The minimum and maximum borrowings under the revolving credit facility were zero for the three months ended March 31, 2010, and zero and $60.0 million for the year ended December 31, 2009. The weighted average amount of borrowings outstanding under the revolving credit facility during the three months ended March 31, 2010 and 2009, was zero and $28.1 million, respectively. At March 31, 2010, we had availability of $227.9 million, which is net of outstanding letters of credit of $22.1 million.
Debt Refinancing
On March 19, 2010, Boise Paper Holdings and Boise Co-Issuer Company (together, the 8% Senior Note Issuers), two of our wholly owned indirect subsidiaries, issued a $300 million aggregate principal amount of 8% senior notes due on April 1, 2020 (the 8% Senior Notes) through whicha private placement that is exempt from the registration requirements of the Securities Act of 1933, as amended. The 8% Senior Notes pay interest semiannually in arrears on April 1 and October 1, commencing on October 1, 2010. As a result of this refinancing, we extended the maturity of our products are sold,debt and fixed our interest rates.
Following the sale of the 8% Senior Notes, we used the net proceeds of the sale, as well as their dispersion across many geographic areas.
Changes in interest and currency rates expose uscash on hand, to financial market risk. We occasionally use derivative financial instruments, such as interest rate swaps, rate hedge agreements, forward purchase contracts and forward exchange contracts, to hedge underlying debt obligations or anticipated transactions. We do not use them for trading purposes. For qualifying interest hedges,repay the interest rate differential is reflected as an adjustment to interest expense over the life of the swap or underlying debt.
Our obligations under our senior secured credit facilities and senior notes expose us to changes in short-term interest rates since interest rates on this debt are variable. In November 2004, we entered into four interest rate swaps with a total notional amount of $550 million to hedge the exposure to interest rate fluctuations associated with our Tranche B term loan. loan facility plus accrued and unpaid interest at par. Upon the repayment of all of the indebtedness outstanding under the Tranche B term loan facility, such debt was canceled.
The swaps on $300 millionissuance of the 8% Senior Notes and the repayment of our Tranche B term loan were fixed at an average pay rate of
3.3% and expire in December 2007, while the swaps on $250facility represented a substantial modification to our debt structure. Therefore, we wrote off $22.2 million of ourpreviously unamortized deferred financing costs for the Tranche B term loan facility in “Loss on extinguishment of debt” in our Consolidated Statements of Income (Loss). We recorded $11.8 million of new deferred financing costs related to the March 2010 debt refinancing.
In connection with the issuance of the 8% Senior Notes, we and the 8% Senior Notes Issuers (together the 8% Senior Notes Guarantors) entered into the 8% Senior Notes Registration Rights Agreement, dated as of March19, 2010. The 8% Senior Notes Registration Rights Agreement requires us to register under the Securities Act the 8% Senior Notes due in 2020 (the 8% Exchange Notes) having substantially identical terms to the 8% Senior Notes and to complete an exchange of the privately placed 8% Senior Notes for the publicly registered 8% Exchange Notes or, in certain circumstances, to file and keep effective a shelf registration statement for resale of the privately placed 8% Senior Notes. If we fail to satisfy these obligations by March 19, 2011, we will pay additional interest up to 1% per annum to holders of the 8% Senior Notes.
The 8% Senior Notes are senior unsecured obligations and rank equally with all of the Issuers’ present and future senior indebtedness, senior to all of their future subordinated indebtedness, and effectively subordinated to all of our present and future senior secured indebtedness (including all borrowings with respect to the Credit Facilities to the extent of the value of the assets securing such indebtedness).
Debt Restructuring
On October 26, 2009, Boise Paper Holdings and Boise Finance Company (together, the 9% Senior Notes Issuers), two of our wholly owned indirect subsidiaries, issued a $300 million aggregate principal amount of 9% senior notes due on November 1, 2017 (the 9% Senior Notes) through a private placement that is exempt from the registration requirements of the Securities Act of 1933, as amended. The 9% Senior Notes pay interest semiannually in arrears on May 1 and November 1, commencing on May 1, 2010.
In connection with the issuance of the 9% Senior Notes, we and the 9% Senior Notes Issuers (together the 9% Senior Notes Guarantors) entered into the 9% Senior Notes Registration Rights Agreement, dated as of
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
October 26, 2009. The 9% Senior Notes Registration Rights Agreement requires us to register under the Securities Act the 9% Senior Notes due in 2017 (the 9% Exchange Notes) having substantially identical terms to the 9% Senior Notes and to complete an exchange of the privately placed 9% Senior Notes for the publicly registered 9% Exchange Notes or, in certain circumstances, to file and keep effective a shelf registration statement for resale of the privately placed 9% Senior Notes. If we fail to satisfy these obligations by October 26, 2010, we will pay additional interest up to 1% per annum to holders of the 9% Senior Notes.
The 9% Senior Notes are senior unsecured obligations and rank equally with all of the Issuers’ present and future senior indebtedness, senior to all of their future subordinated indebtedness, and effectively subordinated to all of our present and future senior secured indebtedness (including all borrowings with respect to the Credit Facilities to the extent of the value of the assets securing such indebtedness).
Covenants
The Credit Facilities require us and our subsidiaries to maintain financial covenant ratios. We are required to have a total leverage ratio of less than 4.75:1.00, stepping down to 4.50:1.00 at September 30, 2011, and a secured leverage ratio of 3.25:1.00, stepping down to 3.00:1.00 at September 30, 2011. The total leverage ratio is defined in our loan agreements at the end of any fiscal quarter as the ratio of (i) consolidated total net debt as defined in our Credit Facilities debt agreement as of such day to (ii) consolidated adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for the four-fiscal-quarter period ending on such date. The Credit Facilities secured leverage ratio is defined in our First Amendment to our loan agreement as the ratio as of the last day of any fiscal quarter of (i) consolidated first lien secured total net debt as defined in our credit agreement amendments as of such day to (ii) consolidated adjusted EBITDA for the four-fiscal-quarter period ending on such date. The Credit Facilities also limit our ability and our subsidiaries’ ability to make capital expenditures, generally to $150 million per year.
The 9% and 8% Senior Notes indenture agreements contain covenants which, subject to certain exceptions, limit the ability of the 9% and 8% Senior Notes Issuers and the 9% and 8% Senior Notes Guarantors to, among other things, incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with affiliates, and create liens on assets of the 9% and 8% Senior Notes Issuers or 9% and 8% Senior Notes Guarantors. Upon a change of control, the 9% and 8% Senior Notes Issuers must offer to repurchase the 9% and 8% Senior Notes at 101% of the principal amount, plus accrued and unpaid interest. If the 9% and 8% Senior Notes Issuers sell certain assets and do not use the proceeds from such sales for specified purposes, they must offer to repurchase the 9% and 8% Senior Notes at 100% of the principal amount, plus accrued and unpaid interest.
Guarantees
Our obligations under our Credit Facilities are guaranteed by each of Boise Paper Holdings’ existing and subsequently acquired domestic subsidiaries (collectively, the Credit Facility Guarantors). The Credit Facilities are secured by a first-priority security interest in substantially all of the real, personal, and mixed property of Boise Paper Holdings and the Credit Facility Guarantors, including 100% of the equity interests of Boise Paper Holdings and each domestic subsidiary of Boise Paper Holdings, 65% of the equity interests of each of Boise Paper Holdings’ foreign subsidiaries (other than Boise Hong Kong Limited so long as Boise Hong Kong Limited does not account for more than $2.5 million of consolidated EBITDA during any fiscal year of Boise Paper Holdings), and all intercompany debt.
The 9% and 8% Senior Notes are jointly and severally guaranteed on a senior unsecured basis by us and each of our existing and future subsidiaries (other than their respective issuers). The 9% and 8% Senior Notes guarantors do not include Louisiana Timber Procurement Company, L.L.C., or foreign subsidiaries.
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
Prepayments
We may redeem all or a portion of the 9% Senior Notes at any time on or after November 1, 2013, at a premium decreasing to zero by November 1, 2015, plus accrued and unpaid interest. In addition, prior to November 1, 2012, the 9% Senior Notes Issuers may redeem up to 35% of the aggregate principal amount of the 9% Senior Notes at a redemption price of 109% of the principal amount thereof with the net proceeds of one or more qualified equity offerings.
We may redeem all or a portion of the 8% Senior Notes at any time on or after April 1, 2015, at a premium decreasing to zero by April 1, 2018, plus accrued and unpaid interest. In addition, prior to April 1, 2013, the 8% Senior Notes Issuers may redeem up to 35% of the aggregate principal amount of the 8% Senior Notes at a redemption price of 108% of the principal amount thereof with the net proceeds of one or more qualified equity offerings.
Other Provisions
Subject to specified exceptions, the Credit Facilities require that the proceeds from certain asset sales, casualty insurance, certain debt issuances, and 75% (subject to step-downs based on certain leverage ratios) of the excess cash flow for each fiscal year must be used to pay down outstanding borrowings. As of March 31, 2010, required debt principal repayments, excluding those from excess cash flows, total $10.4 million during the remainder of 2010, $43.7 million in 2011, $129.7 million in 2012, $8.4 million in 2013, zero in 2014 and 2015, and $600.0 million thereafter.
Other
At March 31, 2010, and December 31, 2009, we had $34.6 million and $47.4 million, respectively, of costs recorded in “Deferred financing costs” on our Consolidated Balance Sheet. As noted above, we repaid the Tranche B term loan facility with the proceeds from the March 2010 debt refinancing, and as a result, we expensed approximately $22.2 million of previously unamortized deferred financing costs. We recorded this charge in “Loss on extinguishment of debt” in our Consolidated Statement of Income (Loss). In addition, $11.8 million of new deferred financing costs related to the debt refinancing are included, net of amortization, in “Deferred financing costs” on our Consolidated Balance Sheet. The amortization of these costs is recorded in interest expense using the effective interest method over the life of the loans. We recorded $2.3 million and $2.9 million, respectively, of amortization expense for the three months ended March 31, 2010 and 2009, in “Interest expense” in our Consolidated Statements of Income (Loss).
For the three months ended March 31, 2010 and 2009, cash payments for interest, net of interest capitalized, were fixed at an average pay$6.0 million and $16.5 million, respectively.
12. Financial Instruments
We are exposed to market risks, including changes in interest rates, energy prices, and foreign currency exchange rates.
Interest Rate Risk—Debt
With the exception of the Tranche A term loan facility, our debt is fixed-rate debt. At March 31, 2010, the estimated value of our fixed-rate debt, based on then-current interest rates for similar obligations with like maturities, was approximately $17.6 million more than the amount recorded on our Consolidated Balance Sheet. At March 31, 2010, the estimated fair value of our variable-rate debt, based on then-current interest rates for
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
similar obligations with like maturities, was approximately $6.7 million less than the amount recorded on our Consolidated Balance Sheet. The fair value of long-term debt is estimated based on quoted market prices for the same or similar issues or on the discounted value of the future cash flows expected to be paid using incremental rates of borrowing for similar liabilities.
We use interest rate derivative instruments to hedge a portion of our interest rate risk. We have derivatives in place with a cap rate of 3.5% and expire in December 2008. We also entered into two 3.7% interest rate swaps with an aggregate5% on a notional amount of $250$300 million to hedgethrough the exposure to floating-rate interest rate risks associated with our senior floating-rate notes. These swaps expire in October 2009. All of the swaps were designated as cash flow hedges. Accordingly, changes inperiod ending March 31, 2011. At March 31, 2010, we recorded the fair value of the interest rate swaps, netderivatives, or $13,000, in “Other assets” on our Consolidated Balance Sheet. During the three months ended March 31, 2010 and 2009, we recorded the change in fair value of taxes, werethese derivatives, or $29,000 and $132,000 of expense, respectively, in “Change in fair value of interest rate derivatives” in our Consolidated Statements of Income (Loss). During the three months ended March 31, 2010 and 2009, we recorded $0.1 million and $0.2 million, respectively, in “Interest expense” for the amortization of the premiums paid for the interest rate derivatives. Changes in the fair value of these derivatives are recorded in "Series“Change in fair value of interest rate derivatives” in our Consolidated Statements of Income (Loss).
In connection with the repayment of our Tranche B equity units"term loan facility, the remaining amounts recorded in accumulated other comprehensive income (loss) relating to the interest rate derivatives were included in “Capital” on our Consolidated Balance Sheet and reclassifiedcharged to "Interest expense" as“Interest expense” in our Consolidated Statement of Income (Loss). As a result, during the three months ended March 31, 2010, we recognized $0.4 million in “Interest expense” in our Consolidated Statements of Income (Loss). For the three months ended March 31, 2009, we amortized $0.1 million of the amounts recorded in accumulated other comprehensive income (loss), which is included in “Capital” on our Consolidated Balance Sheet, to “Interest expense” in our Consolidated Statement of Income (Loss).
Interest Rate Risk—Investments
Our exposure to market risk for changes in interest expense was recognizedrates also relates to our cash, cash equivalents, and short-term investments. As of March 31, 2010, our cash, cash equivalents, and short-term investments consisted primarily of funds invested in money market accounts and Federal Deposit Insurance Corporation (FDIC) insured certificates of deposit. As the interest rates on a significant portion of our cash, cash equivalents, and short-term investments are variable, a change in interest rates earned would affect interest income and cash flows but would not have a significant impact on the LIBOR-based debt. Amounts reclassifiedfair market value of the related underlying instruments.
The components of cash, cash equivalents, and short-term investments as of and for the three months ended March 31, 2005, increased interest expense by $1.9 million. Assuming no change2010, are as follows (dollars in interest rates, an additional $1.2 million will be reclassified in 2005 as interest expense related to our $250.0 million senior floating-rate notes. Ineffectiveness related to these hedges, calculated using the hypothetical derivative method, was not significant (see Note 9).thousands):
The $300 million interest rate swaps expiring in December 2007 and the $250 million interest rate swaps expiring in December 2008 were specifically designated to hedge the variable interest rate exposure associated with our Tranche B term loan. Prior to March 31, 2005, we decided to pursue a refinancing of our Tranche B term loan in anticipation of our planned initial public offering. Because it was probable at March 31, 2005 that we would no longer have future variable rate interest payments under the Tranche B term loan, the original designation of the cash flow hedging relationship could not be maintained. We were required under generally accepted accounting principles to reclassify amounts in other comprehensive income related to these interest rate swaps and recognize the change in the fair value of interest rate swaps in our income statement. On April 28, 2005, these interest rate swaps were redesignated as hedges of the cash flow risk from the LIBOR-based variable interest payments on the term loans borrowed under our senior credit facilities. As a result of the accounting treatment of these hedges, we recognized $15.2 million of non-cash income in the first quarter of 2005 and will recognize $5.3 million of non-cash expense in the second quarter of 2005. The $9.9 million of net income recognized during these periods will result in higher interest expense over the remaining life of the interest rate swaps. This will increase our interest expense by approximately $2.3 million in 2005, $3.3 million in 2006, $3.1 million in 2007 and $1.2 million in 2008.
Three Months Ended March 31, 2010 | |||||||||||||||||||
Cost Basis | Accrued Interest | Unrealized Gains (Losses) | Recorded Basis | Cash and Cash Equivalents | Short-Term Investments | ||||||||||||||
Cash | $ | 8,333 | $ | — | $ | — | $ | 8,333 | $ | 8,333 | $ | — | |||||||
Money market accounts | 82,735 | — | — | 82,735 | 82,735 | — | |||||||||||||
Certificates of deposit | 7,196 | 38 | (2 | ) | 7,232 | — | 7,232 | ||||||||||||
Total | $ | 98,264 | $ | 38 | $ | (2 | ) | $ | 98,300 | $ | 91,068 | $ | 7,232 | ||||||
As described in Note 9, Debt, in the predecessor period presented OfficeMax allocated debt and interest costs to Boise Forest Products Operations based on its average asset balances. OfficeMax occasionally used derivative financial instruments, such as interest rate swaps, rate hedge agreements and forward exchange contracts, to hedge underlying debt obligations or anticipated transactions. The effects of these financial instruments are not included in the predecessor financial statements other than through OfficeMax's allocations to our predecessor.
11. Retirement and Benefit Plans
Pension and Other Postretirement Benefit Plans
Some of our employees are covered by noncontributory defined benefit pension plans. The pension benefit for eligible salaried employees is based primarily on the employees' years of service and highest five-year average compensation. The benefit for eligible hourly employees is generally based on a fixed amount per year of service. We use a December 31 measurement date for our pension plans.
We also sponsor contributory defined contribution savings plans for most of our salaried and hourly employees. ForDuring the three months ended March 31, 20052010, $5.2 million of certificates of deposit matured, and 2004, total expense$2.4 million were reinvested. At March 31, 2010, we did not have any investments in individual securities that had been in a continual unrealized loss position for more than 12 months. The unrealized losses at March 31, 2010, represent a temporary condition due to the high quality of the investment securities, and we expect to recover the par value of these investments.
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
Energy Risk
We enter into transactions to hedge the variable cash flow risk of natural gas purchases. As of March 31, 2010, we had entered into derivative instruments related to approximately 50% of our forecasted natural gas purchases for April 2010 through October 2010, approximately 27% of our forecasted natural gas purchases for November 2010 through March 2011, approximately 19% of our forecasted natural gas purchases for April 2011 through October 2011, and approximately 4% of our forecasted natural gas purchases for November 2011 through March 2012. At March 31, 2010, these derivatives included three-way collars and call spreads.
A three-way collar is a combination of options: a written put, a purchased call, and a written call. The purchased call establishes a maximum price unless the market price exceeds the written call, at which point the maximum price would be the New York Mercantile Exchange (“NYMEX”) price less the difference between the purchased call and the written call strike price. The written put establishes a minimum price (the floor) for the volumes under contract. The strategy enables us to decrease the floor and the ceiling price of the collar beyond the range of a traditional collar while offsetting the associated cost with the sale of the written call. The following table summarizes our position related to these instruments as of March 31, 2010 (in millions of British thermal units, or mmBtu, per day):
Three-Way Collars | ||||||||||||||||
April 2010 Through October 2010 | November 2010 Through March 2011 | April 2011 Through October 2011 | ||||||||||||||
Volume hedged | 5,500 | 9,500 | 4,000 | 1,000 | ||||||||||||
Strike price of call sold | $ | 12.00 | $ | 11.00 | $ | 11.00 | $ | 11.00 | ||||||||
Strike price of call bought | 9.00 | 8.00 | 8.00 | 8.00 | ||||||||||||
Strike price of put sold | 5.90 | 5.03 | 5.66 | 5.33 | ||||||||||||
Approximate percent hedged | 18 | % | 32 | % | 11 | % | 3 | % |
A call spread is a combination of a purchased call and a written call. The purchased call establishes a maximum price unless the market exceeds the written call, at which point the maximum price would be the NYMEX price, less the difference between the purchased call and the written call strike price, plus any applicable net premium associated with the two options. The following table summarizes our position related to these instruments as of March 31, 2010 (in mmBtu per day):
Call Spreads | ||||||||||||||||||||
November 2010 Through March 2011 | April 2011 Through October 2011 | November 2011 Through March 2012 | ||||||||||||||||||
Volume hedged | 4,500 | 1,500 | 2,500 | 2,500 | 1,500 | |||||||||||||||
Strike price of call sold | $ | 11.00 | $ | 10.00 | $ | 11.00 | $ | 10.00 | $ | 11.00 | ||||||||||
Strike price of call bought | 8.00 | 7.00 | 8.00 | 7.00 | 8.00 | |||||||||||||||
Net cap premium | 0.40 | 0.30 | 0.36 | 0.32 | 0.37 | |||||||||||||||
Approximate percent hedged | 12 | % | 4 | % | 8 | % | 8 | % | 4 | % |
We have elected to account for these plansinstruments as economic hedges. At March 31, 2010, we recorded the fair value of the derivatives, or $4.8 million, in “Accrued liabilities, Other” on our Consolidated Balance Sheet. During the three months ended March 31, 2010, we recorded the change in fair value of the instruments, or $3.3 million of expense, in “Materials, labor, and other operating expenses” in our Consolidated Statements of Income (Loss).
Foreign Currency Risk
While we are exposed to foreign currency risk in our operations, none of this risk was $3.4 million and $4.6 million, respectively.material to our financial position or results of operations as of March 31, 2010.
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
Fair Value Measurements
We record our financial assets and liabilities, which consist of cash equivalents, short-term investments, and derivative financial instruments that are used to hedge exposures to interest rate and energy risks, at fair value. The fair value hierarchy under U.S. generally accepted accounting principles (GAAP) gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, and 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). We enter into these hedges with large financial institutions, and we monitor their credit ratings to determine if any adjustments to fair value need to be made. No such adjustments were made in any period presented.
At March 31, 2010, and December 31, 2009, fair value for these financial instruments was determined based on applicable interest rates, such as LIBOR, interest rate curves, and NYMEX price quotations under the terms of the contracts, using current market information as of the reporting date. Our certificates of deposit, interest rate derivatives, and energy derivatives are valued using third-party valuations based on quoted prices for similar assets and liabilities. The following table provides a summary of our assets and liabilities measured at fair value on a recurring basis and the inputs used to develop these estimated fair values under the hierarchy discussed above (dollars in thousands):
Fair Value Measurements at March 31, 2010, Using: | ||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||
Assets: | ||||||||||||
Money market accounts (a) | $ | 82,735 | $ | 82,735 | $ | — | $ | — | ||||
Certificates of deposit (b) | 7,232 | — | 7,232 | — | ||||||||
Interest rate derivatives (c) | 13 | — | 13 | — | ||||||||
$ | 89,980 | $ | 82,735 | $ | 7,245 | $ | — | |||||
Liabilities: | ||||||||||||
Energy derivatives (d) | $ | 4,777 | $ | — | $ | 4,777 | $ | — | ||||
$ | 4,777 | $ | — | $ | 4,777 | $ | — | |||||
Fair Value Measurements at December 31, 2009, Using: | ||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||
Assets: | ||||||||||||
Money market accounts (a) | $ | 65,125 | $ | 65,125 | $ | — | $ | — | ||||
Certificates of deposit (b) | 10,023 | — | 10,023 | — | ||||||||
Interest rate derivatives (c) | 163 | — | 163 | — | ||||||||
$ | 75,311 | $ | 65,125 | $ | 10,186 | $ | — | |||||
Liabilities: | ||||||||||||
Energy derivatives (d) | $ | 1,447 | $ | — | $ | 1,447 | $ | — | ||||
$ | 1,447 | $ | — | $ | 1,447 | $ | — | |||||
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
(a) | Recorded in “Cash and cash equivalents” on our Consolidated Balance Sheet. |
(b) | Recorded in “Short-term investments” on our Consolidated Balance Sheet. |
(c) | Recorded in “Other assets” on our Consolidated Balance Sheet. |
(d) | Recorded in “Accrued liabilities, Other” on our Consolidated Balance Sheet. |
As of March 31, 2010, and December 31, 2009, we did not have any fair value measurements using significant unobservable inputs (Level 3).
Tabular Disclosure of the Fair Values of Derivative Instruments and the Effect of Those Instruments
(dollars in thousands)
Fair Values of Derivative Instruments | ||||||||||
Asset Derivatives | Liability Derivatives | |||||||||
March 31, 2010 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||
Derivatives designated as economic hedging instruments (a) | ||||||||||
Interest rate contracts | Other assets | $ | 13 | Accrued liabilities | $ | — | ||||
Natural gas contracts | Other assets | — | Accrued liabilities | 4,777 | ||||||
Total derivatives designated as economic hedging instruments | $ | 13 | $ | 4,777 | ||||||
Total derivatives | $ | 13 | $ | 4,777 | ||||||
Fair Values of Derivative Instruments | ||||||||||
Asset Derivatives | Liability Derivatives | |||||||||
December 31, 2009 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||
Derivatives designated economic hedging instruments (a) | ||||||||||
Interest rate contracts | Other assets | $ | 163 | Accrued liabilities | $ | — | ||||
Natural gas contracts | Other assets | — | Accrued liabilities | 1,447 | ||||||
Total derivatives designated as economic hedging instruments | $ | 163 | $ | 1,447 | ||||||
Total derivatives | $ | 163 | $ | 1,447 | ||||||
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Three Months Ended March 31, 2010 | |||||||||||||||||
Derivatives Designated as Cash Flow Hedging Instruments (b) | Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Derivatives Designated as Economic Hedging Instruments (a) | Location of Gain or (Loss) Recognized in Income on Derivative | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||||
Interest rate contracts |
$ |
— | Interest income/expense |
$ |
(422 |
) | Interest rate contracts |
Change in fair value of interest rate |
$ |
(29 |
) | ||||||
Natural gas contracts |
Materials, labor, and other operating expenses |
|
(3,330 |
) | |||||||||||||
$ | — | $ | (422 | ) | $ | (3,359 | ) | ||||||||||
The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Three Months Ended March 31, 2009 | |||||||||||||||||
Derivatives Designated as Cash Flow Hedging Instruments (b) | Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Derivatives Designated as Economic Hedging Instruments (a) | Location of Gain or (Loss) Recognized in Income on Derivative | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||||
Interest rate contracts |
$ |
— | Interest income/expense |
$ |
(84 |
) | Interest rate contracts |
Change in fair interest rate derivatives |
$ |
(132 |
) | ||||||
Natural gas contracts |
Materials, labor, and other operating expenses |
|
(2,191 |
) | |||||||||||||
$ | — | $ | (84 | ) | $ | (2,323 | ) | ||||||||||
(a) | See discussion above for additional information on our purpose for entering into derivatives designated as economic hedges and our overall risk management strategies. |
(b) | As of January 1, 2009, we no longer have interest rate derivatives designated as cash flow hedges. During the three months ended March 31, 2010 and 2009, these derivatives were accounted for as economic hedges. |
13. New and Recently Adopted Accounting Standards
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-06,Improving Disclosures about Fair Value Measurements. This ASU amends FASB Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, to require reporting entities to make new disclosures about recurring or nonrecurring fair value measurements, including significant transfers into and out of Level 1 and Level 2 fair value measurements and information about purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The ASU also clarifies existing fair value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques. We adopted this guidance on January 1, 2010, and the adoption did not have a material impact on our financial position or results of operations. The detailed Level 3 roll-forward disclosures are effective for fiscal years beginning after December 15, 2010. We do not expect the adoption of the Level 3 roll-forward disclosures to have a material impact on our financial position or results of operation.
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
In June 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 167,Amendments to FASB Interpretation No. 46(R) (FASB ASC 810), which amends the consolidation guidance applicable to variable-interest entities (VIEs). This guidance requires that entities evaluate former qualified special-purpose entities for consolidation, changes the approach to determining a VIE’s primary beneficiary from a quantitative assessment to a qualitative assessment, and increases the frequency of required reassessment to determine whether a company is the primary beneficiary of a VIE. It also requires additional year-end and interim disclosures. We adopted this guidance on January 1, 2010, and the adoption did not have a material impact on our financial position or results of operations. During first quarter 2010, we reassessed our primary beneficiary assertion relating to Louisiana Timber Procurement, L.L.C., our only VIE, after Boise Cascade sold all of their remaining interest in us. This analysis did not change our assertions or have a material impact on our financial position or results of operations.
There were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
14. Retirement and Benefit Plans
During all of the periods presented, some of our employees participated in our retirement plans. These plans consist of noncontributory defined benefit pension plans, contributory defined contribution savings plans, deferred compensation plans, and postretirement healthcare benefit plans. The type of retiree healthcare benefits and the extent of coverage varyCompensation expense was calculated based on employee classification, datecosts directly attributable to our employees.
Components of retirement, location and other factors. All of our postretirement healthcare plans are unfunded. We explicitly reserve the right to amend or terminate our retiree medical plans at any time, subject only to constraints, if any, imposed by the terms of collective bargaining agreements. Accrual of costs pursuant to accounting standards does not affect, or reflect, our ability to amend or terminate these plans. Amendment or termination may significantly affect the amount of expense incurred. We use a December 31 measurement date for our postretirement benefit plans.
During the predecessor period, most Boise Forest Products Operations employees, along with some employees of OfficeMax, participated in OfficeMax's defined benefit pension plans. In addition, most employees of Boise Forest Products Operations were eligible for participation in OfficeMax's defined contribution plans. During the predecessor period, Boise Forest Products Operations treated its participants in OfficeMax's plans as participants in multiemployer plans. Accordingly, no assets or liabilities related to OfficeMax's defined benefit pension plans are reflected in the predecessor Consolidated Balance Sheet. Boise Forest Products Operations did, however, incur costs associated with the employees who participated in OfficeMax's plans in the Consolidated Statement of Income.
The following represents the components of net periodic pension and postretirement benefit costs in accordance with revised SFAS No. 132, Employers' Disclosures About PensionsNet Periodic Benefit Cost and Other Postretirement Benefits. Comprehensive (Income) Loss
The components of net periodic benefit cost and other comprehensive (income) loss are as follows (in(dollars in thousands):
| Pension Benefits | Other Benefits | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Boise Holdings | Predecessor | Boise Holdings | Predecessor | |||||||||
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
Service cost | $ | 6,363 | $ | 7,723 | $ | 159 | $ | 298 | |||||
Interest cost | 7,703 | 20,191 | 269 | 1,374 | |||||||||
Expected return on plan assets | (7,585 | ) | (19,352 | ) | — | — | |||||||
Recognized actuarial loss | 94 | 7,334 | — | 291 | |||||||||
Amortization of prior service costs and other | — | 5,684 | — | (252 | ) | ||||||||
Company-sponsored plans | 6,575 | 21,580 | 428 | 1,711 | |||||||||
Multiemployer pension plans | 127 | 150 | — | — | |||||||||
Net periodic benefit cost | $ | 6,702 | $ | 21,730 | $ | 428 | $ | 1,711 | |||||
Under the terms of the Acquisition, OfficeMax retained all pension costs related to employees who retired or were terminated on or before July 31, 2004 and all postretirement benefits costs related to employees who retired or were terminated before the Acquisition. In addition, OfficeMax transferred sufficient assets from its employee defined benefit pension plans to fund our
Pension Benefits | Other Benefits | ||||||||||||||
Three Months Ended March 31 | Three Months Ended March 31 | ||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||
Service cost | $ | 1,508 | $ | 1,916 | $ | 1 | $ | 1 | |||||||
Interest cost | 6,346 | 6,041 | 8 | 31 | |||||||||||
Expected return on plan assets | (5,879 | ) | (5,734 | ) | — | — | |||||||||
Amortization of actuarial (gain) loss | 455 | 83 | (139 | ) | — | ||||||||||
Amortization of prior service costs and other | 13 | 9 | — | — | |||||||||||
Company-sponsored plans | 2,443 | 2,315 | (130 | ) | 32 | ||||||||||
Multiemployer plans | 125 | 103 | — | — | |||||||||||
Net periodic benefit cost | $ | 2,568 | $ | 2,418 | $ | (130 | ) | $ | 32 | ||||||
accumulated benefit obligation for the employees of the acquired businesses at a 6.25% discount rate, which improved the funded position of the pension plans. The reduced liability and increased funding significantly reduced expense for pension and other benefits inDuring the three months ended March 31, 2005, compared to the predecessor period2010 and 2009, net periodic pension expense included $0.5 million and $0.1 million, respectively, of net loss that was amortized from accumulated other comprehensive income (loss), which is included in “Capital” on our Consolidated Balance Sheets.
We made a year ago.
In 2005, there is no required minimum$5.5 million voluntary contribution to our qualified pension plans.plans in March 2010. We estimate that we will be required to contribute approximately $1 million more to our pension plans in 2010, and we may choose to make further voluntary contributions during the year.
12.15. Capital
BZ Intermediate Holdings LLC has authorized 1,000 voting common units with a par value of $0.01. All of these units have been issued to Boise Inc. “Capital” on our Consolidated Balance Sheets represents our equity
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
transactions with Boise Inc., net income (loss) from the operations of our subsidiaries, the effect of changes in other comprehensive income, and restricted stock. Share-based compensation costs in our financial statements represent expenses for restricted stock of Boise Inc., which have been pushed down to us for accounting purposes and are explained in more detail below.
Net income (loss) per common share is not applicable as BZ Intermediate Holdings LLC and the Predecessor do not have common shares.
Restricted Stock and Restricted Stock Units
In our consolidated financial statements, we evaluate share-based compensation for awards granted under the Boise Inc. Incentive and Performance Plan (the Plan) on a quarterly basis based on our estimate of expected restricted stock forfeiture, review of recent forfeiture activity, and expected future turnover. We recognize the effect of adjusting the forfeiture rate for all expense amortization in the period that we change the forfeiture estimate. The effect of forfeiture adjustments during the three months ended March 31, 2010 and 2009, was zero.
Service-Condition Vesting Awards
In March 2010, pursuant to the Plan, Boise Inc. granted 0.2 million shares of restricted stock to our nonemployee directors. The shares will vest fully on March 15, 2011. Any shares not vested on or before March 15, 2011, will be forfeited.
In March 2009, pursuant to the Plan, Boise Inc. granted to directors and members of management 4.6 million shares of restricted stock and 1.2 million restricted stock units (collectively, restricted stock). The 2.0 million shares of restricted stock granted to the directors vested on March 15, 2010. The grants to members of management vested or will vest as follows: one-fifth on March 15, 2010, one-fifth on March 15, 2011, and three-fifths on March 15, 2012. Any shares not vested on or before March 15, 2012, will be forfeited.
In May 2008, directors and members of management were granted awards of 0.4 million and 0.8 million shares, respectively, of restricted stock subject to service-condition vesting. The restricted stock granted to directors vested on March 2, 2009. Additionally, one-third of the management grants subject to service-condition vesting restrictions vested on March 2, 2009. Half of the remaining management grants subject to service-condition vesting restrictions vested on February 28, 2010, and the remaining half will vest on February 28, 2011. Any shares not vested on or before February 28, 2011, will be forfeited.
Market-Condition Vesting Awards
In May 2008, members of management were granted 1.9 million shares of restricted stock, subject to market-based vesting restrictions. Of this 1.9 million, 0.7 million will vest on February 28, 2011, if the closing price of Boise Inc. stock has been at least $10 per share for at least 20 trading days in any period of 30 consecutive trading days between the grant date and February 28, 2011. The weighted average grant-date fair value of these awards was $2.03 per share. The remaining 1.2 million shares of the restricted stock grants will vest on February 28, 2011, if the closing price of Boise Inc. stock has been at least $12.50 per share for at least 20 trading days in any period of 30 consecutive trading days between the grant date and February 28, 2011. The weighted average grant-date fair value of these awards was $1.57 per share. Any shares not vested on February 28, 2011, will be forfeited.
Compensation Expense
We recognize compensation expense for the restricted stock based on the fair value on the date of the grant, as described below. Compensation expense is recognized ratably over the vesting period for the restricted stock grants that vest over time and ratably over the award period for the restricted stock grants that vest based on the
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
closing price of Boise Inc. stock, as discussed above. During each of the three months ended March 31, 2010 and 2009, we recognized $0.9 million of compensation expense. Most of these costs were recorded in “General and administrative expenses” in our Consolidated Statements of Income (Loss).
Fair Value Measurement
The fair value of service-condition restricted stock is determined based on the number of shares or units granted and the quoted price of our stock at the date of grant and is expensed on a straight-line basis over the vesting period. The fair value on the date of grant was $5.46 per share for the 2010 restricted stock grant, $0.43 per share for the 2009 grant, and $4.16 per share for the 2008 grant. Compensation expense is adjusted if the service condition is not met.
The equity grants that vest based on the stock price of Boise Inc. are market-condition grants. Because the market-based restrictions represent a more difficult threshold to meet before payout, with greater uncertainty that the market condition will be satisfied, these awards have a lower fair value than those that vest based primarily on the passage of time. However, compensation expense is required to be recognized for an award regardless of when, if ever, the market condition is satisfied. We determined the fair value on the date of grant of the market-condition awards that vest based on the stock price of Boise Inc. at $10 per share and $12.50 per share to be approximately $2.03 per share and $1.57 per share, respectively. The fair value of market-condition restricted stock or units is estimated at the grant date using a Monte Carlo simulation. We assumed a risk-free rate of 2.59%, an expected stock volatility of 58.60%, and a stock price for Boise Inc.’s common shares of $4.16 per share. The $4.16-per-share value is based on Boise Inc.’s closing stock price on the date of grant. Expense is recognized on a straight-line basis over the service period.
The following summarizes the activity of the outstanding service- and market-condition restricted stock and units awarded under the Plan as of March 31, 2010, and December 31, 2009, and changes during the periods ended March 31, 2010, and December 31, 2009 (number of shares and aggregate fair value in thousands):
Service-Condition Vesting Awards | Market-Condition Vesting Awards | |||||||||||||||||||
Number of Shares | Weighted Average Grant-Date Fair Value | Aggregate Fair Value | Number of Shares | Weighted Average Grant-Date Fair Value | Aggregate Fair Value | |||||||||||||||
Outstanding at December 31, 2008 (a) | 1,143 | $ | 4.16 | $ | 4,754 | 1,916 | $ | 1.75 | $ | 3,345 | ||||||||||
Granted | 5,841 | 0.43 | 2,512 | — | — | — | ||||||||||||||
Vested (b) | (604 | ) | 4.16 | (2,511 | ) | — | — | — | ||||||||||||
Forfeited | (49 | ) | 1.27 | (63 | ) | (32 | ) | 1.75 | (56 | ) | ||||||||||
Outstanding at December 31, 2009 (a)(c) | 6,331 | $ | 0.74 | $ | 4,692 | 1,884 | $ | 1.75 | $ | 3,289 | ||||||||||
Granted | 200 | $ | 5.46 | $ | 1,090 | — | $ | — | $ | — | ||||||||||
Vested (b) | (3,005 | ) | 0.76 | (2,279 | ) | (4 | ) | 1.75 | (7 | ) | ||||||||||
Forfeited | (10 | ) | 0.52 | (5 | ) | (2 | ) | 1.75 | (3 | ) | ||||||||||
Outstanding at March 31, 2010 (a)(c) | 3,516 | $ | 0.99 | $ | 3,498 | 1,878 | $ | 1.75 | $ | 3,279 | ||||||||||
(a) | Outstanding awards included all nonvested and nonforfeited awards. |
(b) | We repurchase for cash any fractional shares as they vest. During the three months ended March 31, 2010, and the year ended December 31, 2009, we repurchased 25.18 shares and 24.33 shares, respectively. |
(c) | The remaining weighted average contractual term is approximately 1.3 years for the service-condition awards and 1.0 years for the market-condition awards. |
In 2010, employees were given the option to utilize shares to cover minimum tax withholdings upon the vesting of restricted stock. As of March 31, 2010, a total of 220,457 shares and 81,826 units were withheld from employees to cover taxes. The shares were canceled and retired.
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
At March 31, 2010, we had approximately $3.1 million and $1.0 million, respectively, of total unrecognized compensation cost related to the nonvested service-condition and market-condition restricted stock grants under the Plan. The cost is expected to be recognized generally over a weighted average period of 2.0 years and 3.0 years for the service-condition and market-condition awards, respectively. Unrecognized compensation expense is calculated net of estimated forfeitures of $0.1 million. During the three months ended March 31, 2010 and 2009, we recognized $0.9 million of compensation expense, $0.6 million of which related to the grant-date fair value of service-condition awards and $0.3 million of which related to the market-condition awards.
16. Comprehensive Income (Loss)
Comprehensive income (loss) includes the following (dollars in thousands):
Three Months Ended March 31 | ||||||||
2010 | 2009 | |||||||
Net income (loss) | $ | (11,849 | ) | $ | 1,369 | |||
Other comprehensive income (loss), net of tax: | ||||||||
Cash flow hedges | 259 | 84 | ||||||
Unfunded accumulated benefit obligation | 264 | (92 | ) | |||||
Unrealized gains on short-term investments | 3 | — | ||||||
Comprehensive income (loss) | $ | (11,323 | ) | $ | 1,361 | |||
17. St. Helens Mill Restructuring
In November 2008, we announced the restructuring of our paper mill in St. Helens, Oregon. The restructuring was primarily the result of declining product demand coupled with continuing high costs. We expect to spend approximately $1.6 million in 2010 and $1.0 million in 2011 in decommissioning and other costs. During the three months ended March 31, 2010, we spent $0.1 million in decommissioning costs, and during the three months ended March 31, 2009, we spent $3.2 million in decommissioning costs and $0.4 million in other costs, all of which are recorded in “St. Helens mill restructuring” in our Consolidated Statements of Income (Loss). These expenses are recorded in our Paper segment when the liability is incurred. At March 31, 2010, and December 31, 2009, we had $0.3 million and $0.5 million, respectively, of severance liabilities included in “Accrued liabilities, Compensation and benefits” on the Consolidated Balance Sheets.
18. Segment Information
There are no significant differences in our basis of segmentation or in our basis of measurement of segment profit or loss from thatthose disclosed in Note 17, Segment Information, of the Notes to Consolidated Financial Statements in our 20042009 audited consolidated financial statements.
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
An analysis of our operations by segment is as follows (in(dollars in millions):
| Boise Holdings | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales | | | | ||||||||||||||||||
| Income (Loss) Before Taxes | Depreciation, Amortization and Depletion | | |||||||||||||||||||
| Trade | Related Parties | Intersegment | Total | EBITDA(a) | |||||||||||||||||
Three months ended March 31, 2005 | ||||||||||||||||||||||
Paper | $ | 195.8 | $ | 150.3 | $ | 11.7 | $ | 357.8 | $ | 29.2 | $ | 13.0 | $ | 42.2 | ||||||||
Packaging & Newsprint | 174.5 | — | 19.3 | 193.8 | 4.5 | 9.2 | 13.7 | |||||||||||||||
Wood Products | 207.8 | — | 114.6 | 322.4 | 33.1 | 5.3 | 38.4 | |||||||||||||||
Building Materials Distribution | 696.2 | — | — | 696.2 | 24.4 | 2.0 | 26.4 | |||||||||||||||
Corporate and Other | 7.7 | — | 11.7 | 19.4 | (10.3 | ) | 1.1 | (9.2 | ) | |||||||||||||
1,282.0 | 150.3 | 157.3 | 1,589.6 | 80.9 | 30.6 | 111.5 | ||||||||||||||||
Intersegment eliminations | — | — | (157.3 | ) | (157.3 | ) | — | — | — | |||||||||||||
Change in fair value of interest rate swaps | — | — | — | — | 15.2 | — | — | |||||||||||||||
Interest expense | — | — | — | — | (32.1 | ) | — | — | ||||||||||||||
Interest income | — | — | — | — | 1.4 | — | — | |||||||||||||||
$ | 1,282.0 | $ | 150.3 | $ | — | $ | 1,432.3 | $ | 65.4 | $ | 30.6 | $ | 111.5 | |||||||||
| Predecessor | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales | | | | Equity in Net Income of Affiliates | |||||||||||||||||||
| Income (Loss) Before Taxes | Depreciation, Amortization and Depletion | | |||||||||||||||||||||
| Trade | Related Parties | Intersegment | Total | EBITDA(a) | |||||||||||||||||||
Three months ended March 31, 2004 | ||||||||||||||||||||||||
Paper | $ | 199.6 | $ | 119.0 | $ | 12.1 | $ | 330.7 | $ | (25.8 | ) | $ | 35.5 | $ | 9.7 | $ | — | |||||||
Packaging & Newsprint | 138.0 | — | 15.7 | 153.7 | (12.4 | ) | 10.3 | (2.1 | ) | — | ||||||||||||||
Wood Products | 222.9 | 1.6 | 96.8 | 321.3 | 44.1 | 6.7 | 50.8 | 5.1 | ||||||||||||||||
Building Materials Distribution | 619.2 | — | — | 619.2 | 24.9 | 1.9 | 26.8 | — | ||||||||||||||||
Corporate and Other | 7.7 | — | 14.4 | 22.1 | (7.0 | ) | 3.3 | (3.6 | ) | — | ||||||||||||||
1,187.4 | 120.6 | 139.0 | 1,447.0 | 23.8 | 57.7 | 81.6 | 5.1 | |||||||||||||||||
Intersegment eliminations | — | — | (139.0 | ) | (139.0 | ) | — | — | — | — | ||||||||||||||
Interest expense | — | — | — | — | (20.6 | ) | — | — | — | |||||||||||||||
Interest income | — | — | — | — | 0.2 | — | — | — | ||||||||||||||||
$ | 1,187.4 | $ | 120.6 | $ | — | $ | 1,308.0 | $ | 3.4 | $ | 57.7 | $ | 81.6 | $ | 5.1 | |||||||||
BZ Intermediate Holdings LLC | Sales | Income (Loss) Before Income Taxes | Depre- ciation, Amorti- zation, and Depletion | EBITDA (c) | |||||||||||||||||||||
Three Months Ended March 31, 2010 | Trade | Related Parties | Inter- segment | Total | |||||||||||||||||||||
Paper | $ | 339.3 | $ | — | $ | 14.2 | $ | 353.5 | $ | 29.9 | (a) | $ | 21.5 | $ | 51.4 | (a) | |||||||||
Packaging | 141.9 | 5.6 | 0.7 | 148.2 | (5.8 | )(a) | 9.7 | 3.9 | (a) | ||||||||||||||||
Corporate and Other | 4.7 | 2.6 | 9.2 | 16.5 | (4.8 | )(a) | 0.9 | (3.8 | )(a) | ||||||||||||||||
485.9 | 8.2 | 24.1 | 518.2 | 19.3 | 32.1 | 51.5 | |||||||||||||||||||
Intersegment eliminations | — | — | (24.1 | ) | (24.1 | ) | — | — | — | ||||||||||||||||
Change in fair value of interest rate derivatives | — | — | — | — | — | — | — | ||||||||||||||||||
Loss on extinguishment of debt | — | — | — | — | (22.2 | )(a) | — | (22.2 | )(a) | ||||||||||||||||
Interest expense | — | — | — | — | (16.4 | ) | — | — | |||||||||||||||||
Interest income | — | — | —�� | — | — | — | — | ||||||||||||||||||
$ | 485.9 | $ | 8.2 | $ | — | $ | 494.1 | $ | (19.3 | ) | $ | 32.1 | $ | 29.3 | |||||||||||
BZ Intermediate Holdings LLC | Sales | Income (Loss) Before Income Taxes | Depre- ciation, Amorti- zation, and Depletion | EBITDA (c) | |||||||||||||||||||||
Three Months Ended March 31, 2009 | Trade | Related Parties | Inter- segment | Total | |||||||||||||||||||||
Paper | $ | 337.0 | $ | — | $ | 15.0 | $ | 352.0 | $ | 24.8 | (b) | $ | 21.3 | $ | 46.1 | (b) | |||||||||
Packaging | 145.3 | 11.2 | 0.6 | 157.1 | 1.1 | (b) | 9.7 | 10.8 | (b) | ||||||||||||||||
Corporate and Other | 2.6 | 4.2 | 8.5 | 15.3 | (5.1 | ) | 1.0 | (4.2 | ) | ||||||||||||||||
484.9 | 15.4 | 24.1 | 524.4 | 20.8 | 32.0 | 52.7 | |||||||||||||||||||
Intersegment eliminations | — | — | (24.1 | ) | (24.1 | ) | — | — | — | ||||||||||||||||
Change in fair value of interest rate derivatives | — | — | — | — | (0.1 | ) | — | — | |||||||||||||||||
Interest expense | — | — | — | — | (22.2 | ) | — | — | |||||||||||||||||
Interest income | — | — | — | — | 0.1 | — | — | ||||||||||||||||||
$ | 484.9 | $ | 15.4 | $ | — | $ | 500.3 | $ | (1.5 | ) | $ | 32.0 | $ | 52.7 | |||||||||||
(a) | Included $0.1 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens mill. |
Included $3.3 million of expense interest income and changesrelated to the change in fair value of interest rate swaps, income tax provision (benefit)energy hedges, of which $2.8million was recorded in the Paper segment and depreciation, amortization$0.5 million was recorded in the Packaging segment.
Included $22.2 million of noncash expense recorded in the Corporate and depletion. EBITDA isOther segment associated with the primary measure used
by our chief operating decision makers 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 performancerefinancing of our segments and our company on an ongoing basis using criteria that is used by our internal decision makers and because it is frequently used by investors and other interested partiesdebt.
(b) | Included $3.6 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens mill. |
Included $2.2 million of expense related to the change in fair value of energy hedges, $1.8 million of which was recorded in the evaluation of companies with substantial financial leverage. We believe EBITDA is a meaningful measure because it presents a transparent view of our recurring operating performancePaper segment and allows management$0.4 million in the Packaging segment.
(c) | EBITDA represents income (loss) before interest (interest expense, interest income, and change in fair value of interest rate derivatives), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers 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 |
Notes 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 GAAPUnaudited Quarterly Consolidated Financial Statements—(Continued)
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 with substantial financial leverage. 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, change in fair value of interest rate derivatives, 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. |
The following is a reconciliation of net income (loss) to EBITDA (dollars in millions):
Three Months Ended March 31 | ||||||||
2010 | 2009 | |||||||
Net income (loss) | $ | (11.8 | ) | $ | 1.4 | |||
Change in fair value of interest rate derivatives | — | 0.1 | ||||||
Interest expense | 16.4 | 19.5 | ||||||
Interest income | — | (0.1 | ) | |||||
Income tax provision (benefit) | (7.5 | ) | (0.2 | ) | ||||
Depreciation, amortization, and depletion | 32.1 | 32.0 | ||||||
EBITDA | $ | 29.3 | $ | 52.7 | ||||
19. Alternative Fuel Mixture Credits Receivable
The U.S. Internal Revenue Code allowed an excise tax credit for taxpayers using alternative fuels in the taxpayer’s trade or segment income (loss) has limitations as an analytical tool, including the inability to determine profitability, the exclusionbusiness. As of interest expense and associated significant cash requirements and the exclusionDecember 31, 2009, we recorded a receivable 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 primarily$56.6 million in “Receivables, Other” on our GAAP results and by using EBITDA only supplementally. Our measures of EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistenciesConsolidated Balance Sheet for alternative fuel mixture credits. We received this credit in the methods of calculation.March 2010 after we filed our 2009 federal income tax return. The credits expired on December 31, 2009.
13.20. Commitments and Guarantees
Commitments
We have financial commitments for leaseslease payments and long-term debtfor the purchase of logs, wood fiber, and utilities. In addition, we have other financial obligations that we enter into in the normal course of our business to purchase goods and services and to make capital improvements to our facilities.
These agreements are discussed further in Note 7, Leases, and Note 11, Debt, in our 2004 audited consolidated financial statements and Note 9, Debt, in these unaudited financial statements. For information on our other commitments, see Note 17,18, Commitments and Guarantees, of the Notes to Consolidated Financial Statements in our 20042009 audited consolidated financial statements. At March 31, 2005,2010, there have been no material changes regarding theto our commitments outside of the ordinarynormal course of business.business, except as disclosed in Note 11, Debt.
GuaranteesNotes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
For information on our
Guarantees
We provide guarantees, see Note 17, Commitmentsindemnifications, and Guarantees, in our 2004 audited consolidated financial statements, and the indemnification information disclosed below, which considers the effect of the Timberlands Sale in February 2005.
In connection with the Timberlands Sale, we, along with Timber Holdings, have agreedassurances to indemnify the purchasers for any breach of representation or warranty or covenant contained in the purchase agreement. Our indemnification obligations, with certain exceptions, survive until February 4, 2006, and are subject to a deductible of $16.5 million and an aggregate cap of $100.0 million. In addition, the purchasers have agreed that, if the events giving rise to an indemnification claim against us and Timber Holdings also give rise to an indemnification claim against OfficeMax under OfficeMax's indemnification obligations arising from its sale of the timberlands operations, the purchasers will pursue remedies directly and exclusively against OfficeMax. In connection with the foregoing, Forest Products Holdings, L.L.C., an entity controlled by Madison Dearborn Partners, LLC, assigned to the purchasers all of its rights to indemnification by OfficeMax with respect to the timberlands operations.
14. Legal Proceedings and Contingencies
We are involved in litigation and administrative proceedings arisingothers in the normal course of our business. InSee Note 11, Debt, for a description of the opinionguarantees, including the approximate terms of management,the guarantees, how the guarantees arose, the events or circumstances that would require us to perform under the guarantees, and the maximum potential undiscounted amounts of future payments we could be required to make.
21. Legal Proceedings and Contingencies
We are a party to routine proceedings that arise in the course of our recovery, ifbusiness. We are not currently a party to any legal proceedings or our liability, if any, under pending litigation or administrative proceedings,environmental claims that we believe would not materially affecthave a material adverse effect on our financial position, or results of
operations. For information concerning legal proceedings and contingencies, see our 2004 Consolidated Financial Information. operations, or liquidity.
15. Subsequent Event
On May 9, 2005 we converted from a limited liability company to a corporation and changed our name to Boise Cascade Company. In connection with the conversion, the Series A equity units were exchanged for shares of Series A preferred stock, the Series B equity units were exchanged for shares of Class B common stock and the Series C equity units were exchanged for shares of Class C common stock.
16.22. Consolidating Guarantor and Non-GuarantorNonguarantor Financial Information
The following consolidating financial information presents balance sheets, statements of operationsOur 9% and cash flow information related to the Company's business. The senior notes8% Senior Notes are jointly and severally guaranteed on a senior unsecured basis and the senior subordinated notes are guaranteed on a senior subordinated basis, in each case jointly and severally by Boise Cascade Company, TimberBZ Intermediate Holdings and by each of theirits existing and future subsidiaries (other thanthan: (i) the co-issuers,Co-issuers, Boise Cascade LLC andPaper Holdings, Boise Cascade Finance Corporation). The Non-Guarantors are the Company's foreign subsidiaries. Other than the consolidated financial statements and footnotes for Boise CascadeCo-Issuer Company and Boise Land &Finance Company; (ii) Louisiana Timber Holdings Corp.,Procurement Company, L.L.C.; and (iii) our foreign subsidiaries). The following consolidating financial statements present the results of operations, financial position and other disclosures concerningcash flows of (i) BZ Intermediate Holdings LLC (parent); (ii) Co-issuers; (iii) Guarantor subsidiaries; (iv) Non-guarantor subsidiaries; and (v) eliminations to arrive at the Guarantors have not been presented because management believes that such information is not materialon a consolidated basis.
Notes to investors.Unaudited Quarterly Consolidated Financial Statements—(Continued)
Boise Cascade CompanyBZ Intermediate Holdings LLC and subsidiariesconsolidating balance sheetsSubsidiaries
Consolidating Statements of Income (Loss)
For the Three Months Ended March 31, 2010
(dollars, in thousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Sales | ||||||||||||||||||||||||
Trade | $ | — | $ | 1,214 | $ | 483,445 | $ | 1,192 | $ | — | $ | 485,851 | ||||||||||||
Intercompany | — | — | — | 26,763 | (26,763 | ) | — | |||||||||||||||||
Related parties | — | 2,364 | 332 | 5,558 | — | 8,254 | ||||||||||||||||||
— | 3,578 | 483,777 | 33,513 | (26,763 | ) | 494,105 | ||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||
Materials, labor, and other operating expenses | — | 3,432 | 398,303 | 33,513 | (26,763 | ) | 408,485 | |||||||||||||||||
Fiber costs from related parties | — | — | 9,831 | — | — | 9,831 | ||||||||||||||||||
Depreciation, amortization, and depletion | — | 824 | 31,307 | — | — | 32,131 | ||||||||||||||||||
Selling and distribution expenses | — | — | 13,680 | 54 | — | 13,734 | ||||||||||||||||||
General and administrative expenses | — | 5,314 | 6,145 | — | — | 11,459 | ||||||||||||||||||
St. Helens mill restructuring | — | — | 128 | — | — | 128 | ||||||||||||||||||
Other (income) expense, net | — | 17 | (290 | ) | (30 | ) | — | (303 | ) | |||||||||||||||
— | 9,587 | 459,104 | 33,537 | (26,763 | ) | 475,465 | ||||||||||||||||||
Income (loss) from operations | — | (6,009 | ) | 24,673 | (24 | ) | — | 18,640 | ||||||||||||||||
Foreign exchange gain (loss) | — | 432 | 255 | — | — | 687 | ||||||||||||||||||
Change in fair value of interest rate derivatives | — | (29 | ) | — | — | — | (29 | ) | ||||||||||||||||
Loss on extinguishment of debt | — | (22,197 | ) | — | — | — | (22,197 | ) | ||||||||||||||||
Interest expense | — | (16,445 | ) | — | — | — | (16,445 | ) | ||||||||||||||||
Interest expense—intercompany | — | (49 | ) | — | (4 | ) | 53 | — | ||||||||||||||||
Interest income | — | 35 | 2 | — | — | 37 | ||||||||||||||||||
Interest income—intercompany | — | 4 | 49 | — | (53 | ) | — | |||||||||||||||||
— | (38,249 | ) | 306 | (4 | ) | — | (37,947 | ) | ||||||||||||||||
Income (loss) before income taxes | — | (44,258 | ) | 24,979 | (28 | ) | — | (19,307 | ) | |||||||||||||||
Income tax (provision) benefit | — | 7,496 | (38 | ) | — | — | 7,458 | |||||||||||||||||
Income (loss) before equity in net income (loss) of affiliates | — | (36,762 | ) | 24,941 | (28 | ) | — | (11,849 | ) | |||||||||||||||
Equity in net income (loss) of affiliates | (11,849 | ) | 24,913 | — | — | (13,064 | ) | — | ||||||||||||||||
Net income (loss) | $ | (11,849 | ) | $ | (11,849 | ) | $ | 24,941 | $ | (28 | ) | $ | (13,064 | ) | $ | (11,849 | ) | |||||||
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Income (Loss)
For the Three Months Ended March 31, 2009
(dollars, in thousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Sales | |||||||||||||||||||||||
Trade | $ | — | $ | — | $ | 483,859 | $ | 1,009 | $ | — | $ | 484,868 | |||||||||||
Intercompany | — | — | 3 | 18,180 | (18,183 | ) | — | ||||||||||||||||
Related parties | — | 3,616 | 582 | 11,219 | — | 15,417 | |||||||||||||||||
— | 3,616 | 484,444 | 30,408 | (18,183 | ) | 500,285 | |||||||||||||||||
Costs and expenses | |||||||||||||||||||||||
Materials, labor, and other operating expenses | — | 3,383 | 397,532 | 30,407 | (18,183 | ) | 413,139 | ||||||||||||||||
Fiber costs from related parties | — | — | 5,703 | — | — | 5,703 | |||||||||||||||||
Depreciation, amortization, and depletion | — | 828 | 31,144 | — | — | 31,972 | |||||||||||||||||
Selling and distribution expenses | — | — | 13,738 | 44 | — | 13,782 | |||||||||||||||||
General and administrative expenses | — | 3,667 | 6,706 | — | — | 10,373 | |||||||||||||||||
St. Helens mill restructuring | — | — | 3,648 | — | — | 3,648 | |||||||||||||||||
Other (income) expense, net | — | 370 | (72 | ) | (59 | ) | — | 239 | |||||||||||||||
— | 8,248 | 458,399 | 30,392 | (18,183 | ) | 478,856 | |||||||||||||||||
Income (loss) from operations | — | (4,632 | ) | 26,045 | 16 | — | 21,429 | ||||||||||||||||
Foreign exchange gain (loss) | — | (409 | ) | (269 | ) | — | — | (678 | ) | ||||||||||||||
Change in fair value of interest rate derivatives | — | (132 | ) | — | — | — | (132 | ) | |||||||||||||||
Interest expense | — | (19,531 | ) | — | — | — | (19,531 | ) | |||||||||||||||
Interest expense—intercompany | — | (40 | ) | — | (4 | ) | 44 | — | |||||||||||||||
Interest income | — | 54 | — | — | — | 54 | |||||||||||||||||
Interest income—intercompany | — | 4 | 40 | — | (44 | ) | — | ||||||||||||||||
— | (20,054 | ) | (229 | ) | (4 | ) | — | (20,287 | ) | ||||||||||||||
Income (loss) before income taxes | — | (24,686 | ) | 25,816 | 12 | — | 1,142 | ||||||||||||||||
Income tax (provision) benefit | — | 312 | (85 | ) | — | — | 227 | ||||||||||||||||
Income (loss) before equity in net income (loss) of affiliates | — | (24,374 | ) | 25,731 | 12 | — | 1,369 | ||||||||||||||||
Equity in net income (loss) of affiliates | 1,369 | 25,743 | — | — | (27,112 | ) | — | ||||||||||||||||
Net income (loss) | $ | 1,369 | $ | 1,369 | $ | 25,731 | $ | 12 | $ | (27,112 | ) | $ | 1,369 | ||||||||||
Notes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Balance Sheets at March 31, 20052010
| Boise Cascade Company (Parent) | Boise Cascade LLC | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | |||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 139,732 | $ | 35 | $ | 2,307 | $ | — | $ | 142,074 | ||||||||
Receivables | ||||||||||||||||||||
Trade, less allowances | — | — | 358,323 | 5,744 | — | 364,067 | ||||||||||||||
Intercompany | — | 1 | 3,105 | 3,406 | (6,512 | ) | — | |||||||||||||
Related parties | — | — | 48,011 | — | — | 48,011 | ||||||||||||||
Other | — | 2,699 | 9,086 | 5,524 | — | 17,309 | ||||||||||||||
Inventories | — | 17 | 626,457 | 21,231 | — | 647,705 | ||||||||||||||
Other | — | 14,440 | 2,631 | 423 | — | 17,494 | ||||||||||||||
— | 156,889 | 1,047,648 | 38,635 | (6,512 | ) | 1,236,660 | ||||||||||||||
Property | ||||||||||||||||||||
Property and equipment | ||||||||||||||||||||
Land and land improvements | — | 7,600 | 74,575 | 447 | — | 82,622 | ||||||||||||||
Buildings and improvements | — | 24,447 | 175,481 | 6,518 | — | 206,446 | ||||||||||||||
Machinery and equipment | — | 4,361 | 1,184,905 | 34,966 | — | 1,224,232 | ||||||||||||||
— | 36,408 | 1,434,961 | 41,931 | — | 1,513,300 | |||||||||||||||
Accumulated depreciation | — | (818 | ) | (39,117 | ) | (8,185 | ) | — | (48,120 | ) | ||||||||||
— | 35,590 | 1,395,844 | 33,746 | — | 1,465,180 | |||||||||||||||
Fiber farms and timber deposits | — | — | 37,169 | 11,579 | — | 48,748 | ||||||||||||||
— | 35,590 | 1,433,013 | 45,325 | — | 1,513,928 | |||||||||||||||
Deferred financing costs | — | 81,072 | — | — | — | 81,072 | ||||||||||||||
Goodwill | — | — | 11,773 | — | — | 11,773 | ||||||||||||||
Intangible assets | — | — | 33,715 | — | — | 33,715 | ||||||||||||||
Investments in affiliates | 417,259 | 153,098 | — | — | (570,357 | ) | — | |||||||||||||
Other assets | — | 27,927 | 4,924 | 468 | — | 33,319 | ||||||||||||||
Total assets | $ | 417,259 | $ | 454,576 | $ | 2,531,073 | $ | 84,428 | $ | (576,869 | ) | $ | 2,910,467 | |||||||
(dollars, in thousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 90,800 | $ | 6 | $ | 262 | $ | — | $ | 91,068 | ||||||||
Short-term investments | — | 7,232 | — | — | — | 7,232 | ||||||||||||||
Receivables | ||||||||||||||||||||
Trade, less allowances | — | 1,231 | 182,435 | 53 | — | 183,719 | ||||||||||||||
Intercompany | — | — | 24 | 3,570 | (3,594 | ) | — | |||||||||||||
Related parties | — | — | — | 1,578 | — | 1,578 | ||||||||||||||
Other | — | 1,914 | 4,252 | 1 | — | 6,167 | ||||||||||||||
Inventories | — | 17 | 266,056 | — | — | 266,073 | ||||||||||||||
Deferred income taxes | — | 11,279 | — | — | — | 11,279 | ||||||||||||||
Prepaid and other | — | 7,153 | (1,323 | ) | 6 | — | 5,836 | |||||||||||||
— | 119,626 | 451,450 | 5,470 | (3,594 | ) | 572,952 | ||||||||||||||
Property | ||||||||||||||||||||
Property and equipment, net | — | 6,299 | 1,183,444 | — | — | 1,189,743 | ||||||||||||||
Fiber farms and deposits | — | — | 16,884 | — | — | 16,884 | ||||||||||||||
— | 6,299 | 1,200,328 | — | — | 1,206,627 | |||||||||||||||
Deferred financing costs | — | 34,614 | — | — | 34,614 | |||||||||||||||
Intangible assets, net | — | — | 31,670 | — | — | 31,670 | ||||||||||||||
Investments in affiliates | 618,160 | 1,466,225 | — | — | (2,084,385 | ) | — | |||||||||||||
Other assets | — | 4,271 | 3,131 | — | — | 7,402 | ||||||||||||||
Total assets | $ | 618,160 | $ | 1,631,035 | $ | 1,686,579 | $ | 5,470 | $ | (2,087,979 | ) | $ | 1,853,265 | |||||||
Boise Cascade CompanyNotes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC and subsidiariesconsolidating balance sheetsSubsidiaries
Consolidating Balance Sheets at March 31, 2005 (Continued)2010
| Boise Cascade Company (Parent) | Boise Cascade LLC | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | ||||||||||||||||||
LIABILITIES AND CAPITAL | |||||||||||||||||||
Current | |||||||||||||||||||
Accounts payable | |||||||||||||||||||
Trade | $ | — | $ | 34,521 | $ | 320,073 | $ | 5,346 | $ | — | $ | 359,940 | |||||||
Intercompany | — | 2 | 3,407 | 3,103 | (6,512 | ) | — | ||||||||||||
Related parties | — | 27 | 209 | — | — | 236 | |||||||||||||
Accrued liabilities | |||||||||||||||||||
Compensation and benefits | — | 29,104 | 49,260 | 603 | — | 78,967 | |||||||||||||
Interest payable | — | 15,103 | — | — | — | 15,103 | |||||||||||||
Other | — | 18,873 | 33,434 | 2,048 | — | 54,355 | |||||||||||||
— | 97,630 | 406,383 | 11,100 | (6,512 | ) | 508,601 | |||||||||||||
Debt | |||||||||||||||||||
Long-term debt, less current portion | — | 1,568,000 | — | — | — | 1,568,000 | |||||||||||||
Note payable to related party | — | 256,123 | — | — | — | 256,123 | |||||||||||||
— | 1,824,123 | — | — | — | 1,824,123 | ||||||||||||||
Other | |||||||||||||||||||
Compensation and benefits | — | 135,804 | — | — | — | 135,804 | |||||||||||||
Other long-term liabilities | — | 13,784 | 10,896 | — | — | 24,680 | |||||||||||||
— | 149,588 | 10,896 | — | — | 160,484 | ||||||||||||||
Due to (from) affiliates | — | (2,034,024 | ) | 2,016,820 | 17,204 | — | — | ||||||||||||
Capital | |||||||||||||||||||
Series A equity units | 37,595 | — | — | — | — | 37,595 | |||||||||||||
Series B equity units | 375,464 | — | — | — | — | 375,464 | |||||||||||||
Series C equity units | 4,200 | — | — | — | — | 4,200 | |||||||||||||
Subsidiary equity | — | 417,259 | 96,974 | 56,124 | (570,357 | ) | — | ||||||||||||
Total capital | 417,259 | 417,259 | 96,974 | 56,124 | (570,357 | ) | 417,259 | ||||||||||||
Total liabilities and capital | $ | 417,259 | $ | 454,576 | $ | 2,531,073 | $ | 84,428 | $ | (576,869 | ) | $ | 2,910,467 | ||||||
(dollars, in thousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
LIABILITIES AND CAPITAL | ||||||||||||||||||||
Current | ||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | 16,663 | $ | — | $ | — | $ | — | $ | 16,663 | ||||||||
Income taxes payable | — | (2,238 | ) | 2,334 | 2 | — | 98 | |||||||||||||
Accounts payable | ||||||||||||||||||||
Trade | — | 10,052 | 160,052 | 4,338 | — | 174,442 | ||||||||||||||
Intercompany | — | 1 | 3,570 | 23 | (3,594 | ) | — | |||||||||||||
Related parties | — | — | — | 941 | — | 941 | ||||||||||||||
Accrued liabilities | ||||||||||||||||||||
Compensation and benefits | — | 18,062 | 27,574 | — | — | 45,636 | ||||||||||||||
Interest payable | — | 12,443 | — | — | — | 12,443 | ||||||||||||||
Other | — | 586 | 16,902 | 159 | — | 17,647 | ||||||||||||||
— | 55,569 | 210,432 | 5,463 | (3,594 | ) | 267,870 | ||||||||||||||
Debt | ||||||||||||||||||||
Long-term debt, less current portion | — | 775,581 | — | — | — | 775,581 | ||||||||||||||
Other | ||||||||||||||||||||
Deferred income taxes | — | 39,971 | 280 | — | — | 40,251 | ||||||||||||||
Compensation and benefits | — | 120,686 | — | — | — | 120,686 | ||||||||||||||
Other long-term liabilities | — | 21,068 | 9,649 | — | — | 30,717 | ||||||||||||||
— | 181,725 | 9,929 | — | — | 191,654 | |||||||||||||||
Commitments and contingent liabilities | ||||||||||||||||||||
Capital | 618,160 | 618,160 | 1,466,218 | 7 | (2,084,385 | ) | 618,160 | |||||||||||||
Total liabilities and capital | $ | 618,160 | $ | 1,631,035 | $ | 1,686,579 | $ | 5,470 | $ | (2,087,979 | ) | $ | 1,853,265 | |||||||
Boise Cascade CompanyNotes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC and subsidiariesconsolidating statementsSubsidiaries
Consolidating Statements of operationsforCash Flow
For the three months endedThree Months Ended March 31, 20052010
| Boise Cascade Company (Parent) | Boise Cascade LLC | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | ||||||||||||||||||
Sales | |||||||||||||||||||
Trade | $ | — | $ | — | $ | 1,269,964 | $ | 11,971 | $ | — | $ | 1,281,935 | |||||||
Intercompany | — | — | — | 12,603 | (12,603 | ) | — | ||||||||||||
Related parties | — | — | 150,336 | — | — | 150,336 | |||||||||||||
— | — | 1,420,300 | 24,574 | (12,603 | ) | 1,432,271 | |||||||||||||
Costs and expenses | |||||||||||||||||||
Materials, labor and other operating expenses | — | — | 1,208,355 | 24,906 | (12,603 | ) | 1,220,658 | ||||||||||||
Fiber costs from related parties | — | — | 17,609 | — | — | 17,609 | |||||||||||||
Depreciation, amortization and depletion | — | 722 | 29,147 | 768 | — | 30,637 | |||||||||||||
Selling and distribution expenses | — | — | 61,869 | 467 | — | 62,336 | |||||||||||||
General and administrative expenses | — | 9,128 | 10,076 | — | — | 19,204 | |||||||||||||
Other expense, net | — | 40 | (782 | ) | 869 | — | 127 | ||||||||||||
— | 9,890 | 1,326,274 | 27,010 | (12,603 | ) | 1,350,571 | |||||||||||||
Income (loss) from operations | — | (9,890 | ) | 94,026 | (2,436 | ) | — | 81,700 | |||||||||||
Foreign exchange (loss) gain | — | 200 | (104 | ) | (889 | ) | — | (793 | ) | ||||||||||
Change in fair value of interest rate swaps | — | 15,200 | — | — | — | 15,200 | |||||||||||||
Interest expense | — | (32,078 | ) | — | (1 | ) | — | (32,079 | ) | ||||||||||
Interest expense—intercompany | — | (3 | ) | — | (114 | ) | 117 | — | |||||||||||
Interest income | — | 1,272 | 68 | 10 | — | 1,350 | |||||||||||||
Interest income—intercompany | — | 100 | 17 | — | (117 | ) | — | ||||||||||||
— | (15,309 | ) | (19 | ) | (994 | ) | — | (16,322 | ) | ||||||||||
Income (loss) before income taxes and equity in net income (loss) of affiliates | — | (25,199 | ) | 94,007 | (3,430 | ) | — | 65,378 | |||||||||||
Income tax provision | — | (12 | ) | (597 | ) | (30 | ) | — | (639 | ) | |||||||||
Income (loss) before equity in net income (loss) of affiliates | — | (25,211 | ) | 93,410 | (3,460 | ) | (64,739 | ) | — | ||||||||||
Equity in net income of affiliates | 64,739 | 89,950 | — | — | (89,950 | ) | 64,739 | ||||||||||||
Net income (loss) | $ | 64,739 | $ | 64,739 | $ | 93,410 | $ | (3,460 | ) | $ | (154,689 | ) | $ | 64,739 | |||||
(dollars, in thousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non– guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Cash provided by (used for) operations | ||||||||||||||||||||||||
Net income (loss) | $ | (11,849 | ) | $ | (11,849 | ) | $ | 24,941 | $ | (28 | ) | $ | (13,064 | ) | $ | (11,849 | ) | |||||||
Items in net income (loss) not using (providing) cash | ||||||||||||||||||||||||
Equity in net (income) loss of affiliates | 11,849 | (24,913 | ) | — | — | 13,064 | — | |||||||||||||||||
Depreciation, depletion, and amortization of deferred financing costs and other | — | 3,759 | 31,307 | — | — | 35,066 | ||||||||||||||||||
Share-based compensation expense | — | 894 | — | — | — | 894 | ||||||||||||||||||
Pension and other postretirement benefit expense | — | 2,438 | — | — | — | 2,438 | ||||||||||||||||||
Deferred income taxes | — | (7,461 | ) | — | — | — | (7,461 | ) | ||||||||||||||||
Change in fair value of energy derivatives | — | — | 3,330 | — | — | 3,330 | ||||||||||||||||||
Change in fair value of interest rate derivatives | — | 29 | — | — | — | 29 | ||||||||||||||||||
(Gain) loss on sales of assets, net | — | — | (114 | ) | — | — | (114 | ) | ||||||||||||||||
Other | — | (432 | ) | (255 | ) | — | — | (687 | ) | |||||||||||||||
Loss on extinguishment of debt | — | 22,197 | — | — | — | 22,197 | ||||||||||||||||||
Decrease (increase) in working capital, net of aquisitions | ||||||||||||||||||||||||
Receivables | — | (576 | ) | 79,650 | (3,494 | ) | (17,367 | ) | 58,213 | |||||||||||||||
Inventories | — | 1 | (16,086 | ) | — | — | (16,085 | ) | ||||||||||||||||
Prepaid expenses | — | (1,697 | ) | 2,092 | (6 | ) | — | 389 | ||||||||||||||||
Accounts payable and accrued liabilities | — | (3,826 | ) | (30,064 | ) | 3,466 | 17,367 | (13,057 | ) | |||||||||||||||
Current and deferred income taxes | — | (43 | ) | 38 | — | — | (5 | ) | ||||||||||||||||
Pension and other postretirement benefit payments | — | (5,657 | ) | — | — | — | (5,657 | ) | ||||||||||||||||
Other | — | 577 | (256 | ) | — | — | 321 | |||||||||||||||||
Cash provided by (used for) operations | — | (26,559 | ) | 94,583 | (62 | ) | — | 67,962 | ||||||||||||||||
Cash provided by (used for) investment | ||||||||||||||||||||||||
Expenditures for property and equipment | — | (954 | ) | (13,780 | ) | — | — | (14,734 | ) | |||||||||||||||
Purchases of short-term investments | — | (2,388 | ) | — | — | — | (2,388 | ) | ||||||||||||||||
Maturities of short-term investments | — | 5,182 | — | — | — | 5,182 | ||||||||||||||||||
Sales of assets | — | — | 22 | — | — | 22 | ||||||||||||||||||
Other | — | 429 | 664 | — | — | 1,093 | ||||||||||||||||||
Cash provided by (used for) investment | — | 2,269 | (13,094 | ) | — | — | (10,825 | ) | ||||||||||||||||
Cash provided by (used for) financing | ||||||||||||||||||||||||
Issuances of long-term debt | — | 300,000 | — | — | — | 300,000 | ||||||||||||||||||
Payments of long-term debt | — | (323,683 | ) | — | — | — | (323,683 | ) | ||||||||||||||||
Payments of deferred financing fees | — | (11,779 | ) | — | — | — | (11,779 | ) | ||||||||||||||||
Due to (from) affiliates | — | 81,481 | (81,516 | ) | 35 | — | — | |||||||||||||||||
Cash provided by (used for) financing | — | 46,019 | (81,516 | ) | 35 | — | (35,462 | ) | ||||||||||||||||
Increase (decrease) in cash and cash equivalents | — | 21,729 | (27 | ) | (27 | ) | — | 21,675 | ||||||||||||||||
Balance at beginning of the period | — | 69,071 | 33 | 289 | — | 69,393 | ||||||||||||||||||
Balance at end of the period | $ | — | $ | 90,800 | $ | 6 | $ | 262 | $ | — | $ | 91,068 | ||||||||||||
Boise Cascade CompanyNotes to Unaudited Quarterly Consolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC and subsidiariesconsolidating statementsSubsidiaries
Consolidating Statements of cash flows forCash Flow
For thethree months ended Three Months Ended March 31, 20052009
| Boise Cascade Company (Parent) | Boise Cascade LLC | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | |||||||||||||||||||
Cash provided by (used for) operations | ||||||||||||||||||||
Net income (loss) | $ | — | $ | (25,211 | ) | $ | 93,410 | $ | (3,460 | ) | $ | (64,739 | ) | $ | — | |||||
Equity in net income (loss) of affiliates | 64,739 | 89,950 | — | — | (89,950 | ) | 64,739 | |||||||||||||
Items in net income not using (providing) cash | ||||||||||||||||||||
Depreciation, depletion and amortization of deferred financing costs and other costs | — | 4,246 | 29,145 | 768 | — | 34,159 | ||||||||||||||
Pension and other postretirement benefit expense | — | 929 | 6,201 | — | — | 7,130 | ||||||||||||||
Change in fair value of interest rate swaps | — | (15,200 | ) | — | — | — | (15,200 | ) | ||||||||||||
Management equity units expense | — | 782 | — | — | — | 782 | ||||||||||||||
Other | — | (200 | ) | 104 | 889 | — | 793 | |||||||||||||
Decrease (increase) in working capital | ||||||||||||||||||||
Receivables | — | 2,253 | (91,322 | ) | (6,086 | ) | 3,665 | (91,490 | ) | |||||||||||
Inventories | — | 1 | (48,711 | ) | (4,126 | ) | — | (52,836 | ) | |||||||||||
Accounts payable and accrued liabilities | — | 8,847 | 65,645 | 2,905 | (3,665 | ) | 73,732 | |||||||||||||
Pension and other postretirement benefit payments | — | (145 | ) | — | — | — | (145 | ) | ||||||||||||
Other | — | 271 | 716 | (65 | ) | — | 922 | |||||||||||||
Cash provided by operations | 64,739 | 66,523 | 55,188 | (9,175 | ) | (154,689 | ) | 22,586 | ||||||||||||
Cash provided by (used for) investment | ||||||||||||||||||||
Expenditures for property and equipment | — | (2,993 | ) | (26,353 | ) | (4,186 | ) | — | (33,532 | ) | ||||||||||
Repayment of note receivable from related party | — | 157,509 | — | — | — | 157,509 | ||||||||||||||
Other | — | 90 | (1,236 | ) | (845 | ) | — | (1,991 | ) | |||||||||||
Cash provided by (used for) investment | — | 154,606 | (27,589 | ) | (5,031 | ) | — | 121,986 | ||||||||||||
(dollars, in thousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Cash provided by (used for) operations | ||||||||||||||||||||||||
Net income (loss) | $ | 1,369 | $ | 1,369 | $ | 25,731 | $ | 12 | $ | (27,112 | ) | $ | 1,369 | |||||||||||
Items in net income (loss) not using (providing) cash | ||||||||||||||||||||||||
Equity in net (income) loss of affiliates | (1,369 | ) | (25,743 | ) | — | — | 27,112 | — | ||||||||||||||||
Depreciation, depletion, and amortization of deferred financing costs and other | — | 3,886 | 31,144 | — | — | 35,030 | ||||||||||||||||||
Share-based compensation expense | — | 857 | — | — | — | 857 | ||||||||||||||||||
Pension and other postretirement benefit expense | — | 2,450 | — | — | — | 2,450 | ||||||||||||||||||
Deferred income taxes | — | (506 | ) | — | — | — | (506 | ) | ||||||||||||||||
Change in fair value of energy derivatives | — | — | 2,191 | — | — | 2,191 | ||||||||||||||||||
Change in fair value of interest rate derivatives | — | 132 | — | — | — | 132 | ||||||||||||||||||
(Gain) loss on sales of assets, net | — | (1 | ) | (19 | ) | — | — | (20 | ) | |||||||||||||||
Other | — | 409 | 269 | — | — | 678 | ||||||||||||||||||
Decrease (increase) in working capital, net of aquisitions | ||||||||||||||||||||||||
Receivables | — | 197 | 37,859 | (619 | ) | 1,363 | 38,800 | |||||||||||||||||
Inventories | — | — | 25,258 | — | — | 25,258 | ||||||||||||||||||
Prepaid expenses | — | (2,619 | ) | 2,881 | (6 | ) | — | 256 | ||||||||||||||||
Accounts payable and accrued liabilities | — | (6,804 | ) | (11,492 | ) | 82 | (1,363 | ) | (19,577 | ) | ||||||||||||||
Current and deferred income taxes | — | (124 | ) | 85 | — | — | (39 | ) | ||||||||||||||||
Pension and other postretirement benefit payments | — | (1,319 | ) | — | — | — | (1,319 | ) | ||||||||||||||||
Other | — | 148 | (20 | ) | — | — | 128 | |||||||||||||||||
Cash provided by (used for) operations | — | (27,668 | ) | 113,887 | (531 | ) | — | 85,688 | ||||||||||||||||
Cash provided by (used for) investment | ||||||||||||||||||||||||
Acquisition of businesses and facilities | — | — | (543 | ) | — | — | (543 | ) | ||||||||||||||||
Expenditures for property and equipment | — | (677 | ) | (16,494 | ) | — | — | (17,171 | ) | |||||||||||||||
Sales of assets | — | — | 61 | — | — | 61 | ||||||||||||||||||
Other | — | (381 | ) | (31 | ) | — | — | (412 | ) | |||||||||||||||
Cash provided by (used for) investment | — | (1,058 | ) | (17,007 | ) | — | — | (18,065 | ) | |||||||||||||||
Cash provided by (used for) financing | ||||||||||||||||||||||||
Issuances of long-term debt | — | 10,000 | — | — | — | 10,000 | ||||||||||||||||||
Payments of long-term debt | — | (72,631 | ) | — | — | — | (72,631 | ) | ||||||||||||||||
Due to (from) affiliates | — | 96,865 | (96,881 | ) | 16 | — | — | |||||||||||||||||
Cash provided by (used for) financing | — | 34,234 | (96,881 | ) | 16 | — | (62,631 | ) | ||||||||||||||||
Increase (decrease) in cash and cash equivalents | — | 5,508 | (1 | ) | (515 | ) | — | 4,992 | ||||||||||||||||
Balance at beginning of the period | — | 19,866 | 7 | 2,645 | — | 22,518 | ||||||||||||||||||
Balance at end of the period | $ | — | $ | 25,374 | $ | 6 | $ | 2,130 | $ | — | $ | 27,510 | ||||||||||||
[THIS PAGE INTENTIONALLY LEFT BLANK]
Boise Cascade Company and subsidiariesconsolidating statements of cash flows for thethree months ended March 31, 2005 (Continued)
| Boise Cascade Company (Parent) | Boise Cascade LLC | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | |||||||||||||||||||
Cash provided by (used for) financing | ||||||||||||||||||||
Tax distribution to members | — | (9,425 | ) | — | — | — | (9,425 | ) | ||||||||||||
Note payable to related party | — | 256,123 | — | — | — | 256,123 | ||||||||||||||
Payments of long-term debt | — | (412,000 | ) | — | — | — | (412,000 | ) | ||||||||||||
Other | — | (1,541 | ) | — | 1,000 | — | (541 | ) | ||||||||||||
Cash provided by (used for) financing | — | (166,843 | ) | — | 1,000 | — | (165,843 | ) | ||||||||||||
Due to (from) affiliates | (64,739 | ) | (75,113 | ) | (27,603 | ) | 12,766 | 154,689 | — | |||||||||||
Decrease in cash and cash equivalents | — | (20,827 | ) | (4 | ) | (440 | ) | — | (21,271 | ) | ||||||||||
Balance at beginning of the period | — | 160,559 | 39 | 2,747 | — | 163,345 | ||||||||||||||
Balance at end of the period | $ | — | $ | 139,732 | $ | 35 | $ | 2,307 | $ | — | $ | 142,074 | ||||||||
ReportConsolidated Statements of Independent Registered Public Accounting Firm
Income (Loss)
To the Board of Directors and Shareholders of Boise Cascade Company (formerly Boise Cascade Holdings, L.L.C.):(dollars, in thousands)
We have audited the accompanying consolidated balance sheet of Boise Cascade Holdings, L.L.C. and subsidiaries as of December 31, 2004, and the related consolidated statements of income, capital, and cash flows for period from October 29, 2004 (inception) through December 31, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Boise Cascade Holdings, L.L.C. and subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for the period from October 29, 2004 (inception) through December 31, 2004, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Report of Independent Registered Public Accounting Firm
To the Board of Directors of OfficeMax Incorporated:
We have audited the accompanying balance sheet of Boise Forest Product Operations (formerly owned by OfficeMax Incorporated) as of December 31, 2003, and the related statements of income (loss), capital, and cash flows for the period from January 1, 2004 through October 28, 2004 and for each of the years in the two-year period ended December 31, 2003. These financial statements are the responsibility of the management of OfficeMax Incorporated. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Boise Forest Product Operations (formerly owned by OfficeMax Incorporated) as of December 31, 2003, and the results of its operations and its cash flows for the period from January 1, 2004 through October 28, 2004 and for each of the years in the two-year period ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 and Note 5 to the financial statements, in 2003, Boise Forest Product Operations (formerly owned by OfficeMax Incorporated) adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, and the fair-value-based method of accounting for stock-based employee compensation using the prospective method of transition under the provisions of SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure.
/s/ KPMG LLP
Boise, IdahoMarch 29, 2005
BOISE CASCADE HOLDINGS, L.L.C.CONSOLIDATED BALANCE SHEETS
| Boise Holdings | Predecessor | ||||||
---|---|---|---|---|---|---|---|---|
| December 31, 2004 | December 31, 2003 | ||||||
| (thousands) | |||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | $ | 163,345 | $ | — | ||||
Receivables | ||||||||
Trade, less allowances of $2,323 and $3,075 | 276,668 | 105,362 | ||||||
Related parties | 42,055 | 28,703 | ||||||
Other | 19,174 | 24,114 | ||||||
Inventories | 594,869 | 501,380 | ||||||
Deferred income taxes | — | 29,055 | ||||||
Other | 15,621 | 10,708 | ||||||
1,111,732 | 699,322 | |||||||
Property | ||||||||
Property and equipment | ||||||||
Land and land improvements | 83,123 | 31,325 | ||||||
Buildings and improvements | 204,704 | 577,083 | ||||||
Machinery and equipment | 1,196,978 | 4,315,741 | ||||||
1,484,805 | 4,924,149 | |||||||
Accumulated depreciation | (18,956 | ) | (2,758,806 | ) | ||||
1,465,849 | 2,165,343 | |||||||
Fiber farms and timber deposits | 44,646 | 86,547 | ||||||
1,510,495 | 2,251,890 | |||||||
Note receivable from related party | 157,509 | — | ||||||
Deferred financing costs | 84,054 | 8,465 | ||||||
Goodwill | 18,390 | 11,639 | ||||||
Intangible assets | 34,357 | 192 | ||||||
Investments in equity affiliates | — | 44,232 | ||||||
Other assets | 15,532 | 108,095 | ||||||
Total assets | $ | 2,932,069 | $ | 3,123,835 | ||||
BZ Intermediate Holdings LLC | Predecessor | |||||||||||||||||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2007 | |||||||||||||||
Sales | ||||||||||||||||||
Trade | $ | 1,935,410 | $ | 1,990,207 | $ | 258,430 | $ | 1,636,605 | ||||||||||
Related parties | 42,782 | 80,425 | 101,490 | 695,998 | ||||||||||||||
1,978,192 | 2,070,632 | 359,920 | 2,332,603 | |||||||||||||||
Costs and expenses | ||||||||||||||||||
Materials, labor, and other operating expenses | 1,596,214 | 1,756,826 | 313,931 | 1,948,230 | ||||||||||||||
Fiber costs from related parties | 36,858 | 54,628 | 7,662 | 39,352 | ||||||||||||||
Depreciation, depletion, and amortization | 131,500 | 109,988 | 477 | 84,649 | ||||||||||||||
Selling and distribution expenses | 55,524 | 48,278 | 9,097 | 59,488 | ||||||||||||||
General and administrative expenses | 50,250 | 34,318 | 6,606 | 44,549 | ||||||||||||||
St. Helens mill restructuring | 5,805 | 29,780 | — | — | ||||||||||||||
Alternative fuel mixture credits | (207,607 | ) | — | — | — | |||||||||||||
Other (income) expense, net | 4,005 | (2,980 | ) | (989 | ) | (4,142 | ) | |||||||||||
1,672,549 | 2,030,838 | 336,784 | 2,172,126 | |||||||||||||||
Income from operations | 305,643 | 39,794 | 23,136 | 160,477 | ||||||||||||||
Foreign exchange gain (loss) | 2,639 | (4,696 | ) | 54 | 1,184 | |||||||||||||
Change in fair value of interest rate derivatives | 568 | (479 | ) | — | — | |||||||||||||
Loss on extinguishment of debt | (66,784 | ) | — | — | — | |||||||||||||
Interest expense | (74,263 | ) | (82,945 | ) | (2 | ) | — | |||||||||||
Interest income | 367 | 617 | 161 | 697 | ||||||||||||||
(137,473 | ) | (87,503 | ) | 213 | 1,881 | |||||||||||||
Income (loss) before income taxes | 168,170 | (47,709 | ) | 23,349 | 162,358 | |||||||||||||
Income tax (provision) benefit | (20,356 | ) | 5,849 | (563 | ) | (2,767 | ) | |||||||||||
Net income (loss) | $ | 147,814 | $ | (41,860 | ) | $ | 22,786 | $ | 159,591 | |||||||||
See accompanying notes to consolidated financial statements.
BOISE CASCADE HOLDINGS, L.L.C.BZ Intermediate Holdings LLC
CONSOLIDATED BALANCE SHEETS (Continued)Consolidated Balance Sheets
| Boise Holdings | Predecessor | |||||
---|---|---|---|---|---|---|---|
| December 31, 2004 | December 31, 2003 | |||||
| (thousands) | ||||||
LIABILITIES AND CAPITAL | |||||||
Current | |||||||
Short-term borrowings | $ | — | $ | 2,894 | |||
Current portion of long-term debt | 13,300 | 46,296 | |||||
Accounts payable | |||||||
Trade | 310,148 | 274,584 | |||||
Related parties | 150 | 6,089 | |||||
Accrued liabilities | |||||||
Compensation and benefits | 62,495 | 90,655 | |||||
Interest payable | 8,584 | 19,034 | |||||
Other | 43,631 | 55,184 | |||||
438,308 | 494,736 | ||||||
Debt | |||||||
Long-term debt, less current portion | 1,966,700 | 1,222,127 | |||||
Other | |||||||
Deferred income taxes | — | 486,088 | |||||
Compensation and benefits | 133,648 | 148,470 | |||||
Other long-term liabilities | 23,573 | 43,720 | |||||
157,221 | 678,278 | ||||||
Commitments and contingent liabilities | |||||||
Capital | |||||||
Series A equity units—no par value; 66,000,000 units authorized and outstanding | 36,868 | — | |||||
Series B equity units—no par value; 549,000,000 units authorized and outstanding | 332,972 | — | |||||
Series C equity units—no par value; 38,165,775 units authorized; 35,600,120 outstanding | — | — | |||||
Retained losses | — | — | |||||
Business unit equity | — | 727,832 | |||||
Accumulated other comprehensive income | — | 862 | |||||
Total capital | 369,840 | 728,694 | |||||
Total liabilities and capital | $ | 2,932,069 | $ | 3,123,835 | |||
(dollars, in thousands)
December 31, 2009 | December 31, 2008 | |||||
ASSETS | ||||||
Current | ||||||
Cash and cash equivalents | $ | 69,393 | $ | 22,518 | ||
Short-term investments | 10,023 | — | ||||
Receivables | ||||||
Trade, less allowances of $839 and $961 | 185,110 | 220,204 | ||||
Related parties | 2,056 | 1,796 | ||||
Other | 62,410 | 4,937 | ||||
Inventories | 252,173 | 335,004 | ||||
Deferred income taxes | — | 2,108 | ||||
Prepaid and other | 4,819 | 6,289 | ||||
585,984 | 592,856 | |||||
Property | ||||||
Property and equipment, net | 1,205,679 | 1,262,810 | ||||
Fiber farms and deposits | 17,094 | 14,651 | ||||
1,222,773 | 1,277,461 | |||||
Deferred financing costs | 47,369 | 72,570 | ||||
Intangible assets, net | 32,358 | 35,075 | ||||
Other assets | 7,306 | 7,114 | ||||
Total assets | $ | 1,895,790 | $ | 1,985,076 | ||
See accompanying notes to consolidated financial statements.
BOISE CASCADE HOLDINGS, L.L.C.CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Consolidated Balance Sheets (continued)
| Boise Holdings | Predecessor | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| October 29 (inception) through December 31, 2004 | | Year Ended December 31, | ||||||||||
| January 1 through October 28, 2004 | ||||||||||||
| 2003 | 2002 | |||||||||||
| (thousands) | ||||||||||||
Sales | |||||||||||||
Trade | $ | 779,953 | $ | 4,417,440 | $ | 4,217,305 | $ | 3,864,312 | |||||
Related parties | 92,774 | 444,608 | 436,415 | 411,954 | |||||||||
872,727 | 4,862,048 | 4,653,720 | 4,276,266 | ||||||||||
Costs and expenses | |||||||||||||
Materials, labor and other operating expenses | 733,509 | 4,122,045 | 3,982,229 | 3,653,510 | |||||||||
Fiber costs from related parties | 24,451 | 95,537 | 113,818 | 110,775 | |||||||||
Depreciation, amortization and depletion | 20,037 | 193,816 | 229,820 | 233,811 | |||||||||
Selling and distribution expenses | 40,118 | 211,319 | 224,338 | 203,544 | |||||||||
General and administrative expenses | 10,608 | 79,317 | 69,703 | 73,572 | |||||||||
Other (income) expense, net | (23 | ) | 25,348 | 32,806 | 11,824 | ||||||||
828,700 | 4,727,382 | 4,652,714 | 4,287,036 | ||||||||||
Income (loss) from operations | 44,027 | 134,666 | 1,006 | (10,770 | ) | ||||||||
Equity in net income (loss) of affiliates | — | 6,308 | 8,716 | (1,454 | ) | ||||||||
Gain on sale of equity affiliate | — | 46,498 | — | — | |||||||||
Foreign exchange gain (loss) | 1,181 | 912 | 2,672 | (133 | ) | ||||||||
Interest expense | (22,182 | ) | (72,124 | ) | (92,935 | ) | (94,803 | ) | |||||
Interest income | 2,005 | 557 | 850 | 1,006 | |||||||||
(18,996 | ) | (17,849 | ) | (80,697 | ) | (95,384 | ) | ||||||
Income (loss) before income taxes and cumulative effect of accounting change | 25,031 | 116,817 | (79,691 | ) | (106,154 | ) | |||||||
Income tax (provision) benefit | (329 | ) | (47,351 | ) | 36,471 | 45,248 | |||||||
Income (loss) before cumulative effect of accounting change | 24,702 | 69,466 | (43,220 | ) | (60,906 | ) | |||||||
Cumulative effect of accounting change, net of income tax | — | — | (4,133 | ) | — | ||||||||
Net income (loss) | $ | 24,702 | $ | 69,466 | $ | (47,353 | ) | $ | (60,906 | ) | |||
(dollars, in thousands)
December 31, 2009 | December 31, 2008 | |||||
LIABILITIES AND CAPITAL | ||||||
Current | ||||||
Current portion of long-term debt | $ | 30,711 | $ | 25,822 | ||
Income taxes payable | 240 | 925 | ||||
Accounts payable | ||||||
Trade | 172,518 | 177,157 | ||||
Related parties | 2,598 | 3,107 | ||||
Accrued liabilities | ||||||
Compensation and benefits | 67,948 | 44,488 | ||||
Interest payable | 4,946 | 184 | ||||
Other | 23,735 | 17,402 | ||||
302,696 | 269,085 | |||||
Debt | ||||||
Long-term debt, less current portion | 785,216 | 1,011,628 | ||||
Other | ||||||
Deferred income taxes | 24,563 | 8,621 | ||||
Compensation and benefits | 123,889 | 149,691 | ||||
Other long-term liabilities | 30,836 | 33,007 | ||||
179,288 | 191,319 | |||||
Commitments and contingent liabilities | ||||||
Capital | 628,590 | 513,044 | ||||
Total liabilities and capital | $ | 1,895,790 | $ | 1,985,076 | ||
See accompanying notes to consolidated financial statements.
BOISE CASCADE HOLDINGS, L.L.C.CONSOLIDATED STATEMENTS OF CASH FLOWS
Consolidated Statements of Cash Flows
| Boise Holdings | | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Predecessor | |||||||||||||
| October 29 (inception) through December 31, 2004 | |||||||||||||
| January 1 through October 28, 2004 | Year Ended December 31 | �� | |||||||||||
| 2003 | 2002 | ||||||||||||
| (thousands) | |||||||||||||
Cash provided by (used for) operations | ||||||||||||||
Net income (loss) | $ | 24,702 | $ | 69,466 | $ | (47,353 | ) | $ | (60,906 | ) | ||||
Items in net income (loss) not using (providing) cash | ||||||||||||||
Equity in net (income) loss of affiliates | — | (6,308 | ) | (8,716 | ) | 1,454 | ||||||||
Depreciation, depletion and amortization of deferred financing costs and other costs | 22,361 | 193,816 | 229,820 | 233,811 | ||||||||||
Pension and other postretirement benefit expense | 2,907 | 66,623 | 58,927 | 25,266 | ||||||||||
Deferred income tax provision | — | — | 10,580 | 8,607 | ||||||||||
Cumulative effect of accounting change, net of income tax | — | — | 4,133 | — | ||||||||||
Restructuring activities | — | — | (806 | ) | (750 | ) | ||||||||
Sale and write-down of assets | — | (46,745 | ) | 14,699 | — | |||||||||
Other | (1,181 | ) | (912 | ) | (2,738 | ) | 134 | |||||||
Decrease (increase) in working capital, net of acquisitions | ||||||||||||||
Receivables | 121,952 | (320,901 | ) | (783 | ) | 13,095 | ||||||||
Inventories | (21,403 | ) | (15,433 | ) | (4,204 | ) | (46,905 | ) | ||||||
Accounts payable and accrued liabilities | 85,568 | 74,437 | 23,196 | 8,512 | ||||||||||
Pension and other postretirement benefit payments | (62 | ) | (66,623 | ) | (58,927 | ) | (25,266 | ) | ||||||
Current and deferred income taxes | — | 9,342 | (1,893 | ) | 1,343 | |||||||||
Other | (4,368 | ) | (4,548 | ) | 3,330 | 1,758 | ||||||||
Cash provided by (used for) operations | 230,476 | (47,786 | ) | 219,265 | 160,153 | |||||||||
Cash provided by (used for) investment | ||||||||||||||
Expenditures for property and equipment | (28,727 | ) | (139,638 | ) | (173,923 | ) | (144,984 | ) | ||||||
Expenditures for fiber farms | (173 | ) | (579 | ) | (1,173 | ) | (1,111 | ) | ||||||
Acquisition of businesses and facilities | (2,196,452 | ) | — | — | (6,073 | ) | ||||||||
Note receivable from related party | (157,509 | ) | — | — | — | |||||||||
Sale of assets | — | 103,229 | — | — | ||||||||||
Other | (2,627 | ) | (141 | ) | (17,528 | ) | 6,014 | |||||||
Cash used for investment | (2,385,488 | ) | (37,129 | ) | (192,624 | ) | (146,154 | ) | ||||||
Cash provided by (used for) financing | ||||||||||||||
Additions to long-term debt for acquisition | 2,020,000 | — | — | — | ||||||||||
Payments of long-term debt | (40,000 | ) | — | — | — | |||||||||
Issuance of equity units | 338,877 | — | — | — | ||||||||||
Net equity transactions with OfficeMax | — | 67,131 | (27,569 | ) | (7,585 | ) | ||||||||
Net debt issuances (payments) | — | 17,784 | 928 | (6,414 | ) | |||||||||
Other | (520 | ) | — | — | — | |||||||||
Cash provided by (used for) financing | 2,318,357 | 84,915 | (26,641 | ) | (13,999 | ) | ||||||||
Increase in cash and cash equivalents | 163,345 | — | — | — | ||||||||||
Balance at beginning of the period | — | — | — | — | ||||||||||
Balance at end of the period | $ | 163,345 | $ | — | $ | — | $ | — | ||||||
(dollars, in thousands)
BZ Intermediate Holdings LLC | Predecessor | |||||||||||||||||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2007 | |||||||||||||||
Cash provided by (used for) operations | ||||||||||||||||||
Net income (loss) | $ | 147,814 | $ | (41,860 | ) | $ | 22,786 | $ | 159,591 | |||||||||
Items in net income (loss) not using (providing) cash | ||||||||||||||||||
Depreciation, depletion, and amortization of deferred financing costs and other | 144,079 | 119,933 | 477 | 84,649 | ||||||||||||||
Share-based compensation expense | 3,518 | 3,096 | — | — | ||||||||||||||
Pension and other postretirement benefit expense | 7,376 | 8,388 | 1,826 | 13,334 | ||||||||||||||
Deferred income taxes | 20,020 | (6,439 | ) | 11 | 253 | |||||||||||||
Change in fair value of energy derivatives | (5,877 | ) | 7,445 | (37 | ) | 432 | ||||||||||||
Change in fair value of interest rate derivatives | (568 | ) | 479 | — | — | |||||||||||||
St. Helens mill restructuring | — | 35,998 | — | — | ||||||||||||||
Gain on changes in retiree healthcare programs | — | — | — | (4,367 | ) | |||||||||||||
(Gain) loss on sales of assets, net | 514 | — | (943 | ) | (112 | ) | ||||||||||||
Other | (2,639 | ) | 4,696 | (54 | ) | (1,184 | ) | |||||||||||
Loss on extinguishment of debt | 66,784 | — | — | — | ||||||||||||||
Decrease (increase) in working capital, net of acquisitions | ||||||||||||||||||
Receivables | (21,503 | ) | 25,296 | (23,522 | ) | (4,357 | ) | |||||||||||
Inventories | 83,037 | (28,950 | ) | 5,343 | (4,402 | ) | ||||||||||||
Prepaid expenses | 1,470 | (1,103 | ) | 875 | (833 | ) | ||||||||||||
Accounts payable and accrued liabilities | 25,710 | (16,785 | ) | (10,718 | ) | 18,414 | ||||||||||||
Current and deferred income taxes | (422 | ) | 222 | 335 | 509 | |||||||||||||
Pension and other postretirement benefit payments | (13,001 | ) | (636 | ) | (1,826 | ) | (13,334 | ) | ||||||||||
Other | (609 | ) | (1,848 | ) | 2,326 | 178 | ||||||||||||
Cash provided by (used for) operations | 455,703 | 107,932 | (3,121 | ) | 248,771 | |||||||||||||
Cash provided by (used for) investment | ||||||||||||||||||
Acquisition of businesses and facilities | (543 | ) | (1,216,459 | ) | — | — | ||||||||||||
Expenditures for property and equipment | (77,145 | ) | (90,597 | ) | (10,168 | ) | (141,801 | ) | ||||||||||
Purchases of short-term investments | (21,643 | ) | — | — | — | |||||||||||||
Maturities of short-term investments | 11,615 | — | — | — | ||||||||||||||
Sales of assets | 1,031 | 394 | 17,662 | 14,224 | ||||||||||||||
Additional consideration agreement payment | — | — | — | (32,542 | ) | |||||||||||||
Other | 2,168 | (5,703 | ) | 863 | 1,769 | |||||||||||||
Cash provided by (used for) investment | (84,517 | ) | (1,312,365 | ) | 8,357 | (158,350 | ) | |||||||||||
Cash provided by (used for) financing | ||||||||||||||||||
Issuances of long-term debt | 310,000 | 1,125,700 | — | — | ||||||||||||||
Payments of long-term debt | (531,523 | ) | (88,250 | ) | — | — | ||||||||||||
Payments (to) from Boise Inc., net | (49,915 | ) | 271,399 | — | — | |||||||||||||
Cash used for extinguishment of debt | (39,717 | ) | — | — | — | |||||||||||||
Payments of deferred financing fees | (13,156 | ) | (81,898 | ) | — | — | ||||||||||||
Net equity transactions with related parties | — | — | (5,237 | ) | (90,420 | ) | ||||||||||||
Cash provided by (used for) financing | (324,311 | ) | 1,226,951 | (5,237 | ) | (90,420 | ) | |||||||||||
Increase (decrease) in cash and cash equivalents | 46,875 | 22,518 | (1 | ) | 1 | |||||||||||||
Balance at beginning of the period | 22,518 | — | 8 | 7 | ||||||||||||||
Balance at end of the period | $ | 69,393 | $ | 22,518 | $ | 7 | $ | 8 | ||||||||||
See accompanying notes to consolidated financial statements.
BOISE CASCADE HOLDINGS, L.L.C.CONSOLIDATED STATEMENTS OF CAPITAL
Consolidated Statements of Capital
| Business Unit Equity | Accumulated Other Comprehensive Income (Loss) | Total Capital | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (thousands) | | |||||||||
Predecessor | ||||||||||||
Balance at December 31, 2001 | $ | 871,245 | $ | — | $ | 871,245 | ||||||
Comprehensive income (loss): | ||||||||||||
Net loss | (60,906 | ) | — | (60,906 | ) | |||||||
Other comprehensive income, net of tax | ||||||||||||
Cash flow hedges | — | 896 | 896 | |||||||||
Comprehensive income (loss) | (60,906 | ) | 896 | (60,010 | ) | |||||||
Net equity transactions with OfficeMax | (7,585 | ) | — | (7,585 | ) | |||||||
Balance at December 31, 2002 | $ | 802,754 | $ | 896 | $ | 803,650 | ||||||
Comprehensive (loss): | ||||||||||||
Net loss | (47,353 | ) | — | (47,353 | ) | |||||||
Other comprehensive loss, net of tax | ||||||||||||
Cash flow hedges | — | (34 | ) | (34 | ) | |||||||
Comprehensive loss | (47,353 | ) | (34 | ) | (47,387 | ) | ||||||
Net equity transactions with OfficeMax | (27,569 | ) | — | (27,569 | ) | |||||||
Balance at December 31, 2003 | $ | 727,832 | $ | 862 | $ | 728,694 | ||||||
| Series A Equity Units | Series B Equity Units | Series C Equity Units | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Capital | |||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | ||||||||||||
| (thousands) | |||||||||||||||||
Boise Holdings | ||||||||||||||||||
Balance at October 29, 2004 (inception) | — | $ | — | — | $ | — | — | $ | — | $ | — | |||||||
Equity issued for acquisition | 66,000 | 36,367 | 549,000 | 302,510 | — | — | 338,877 | |||||||||||
Net income | — | — | — | 24,702 | — | — | 24,702 | |||||||||||
Series C equity units issued | — | — | — | — | 35,600 | — | — | |||||||||||
Paid-in-kind dividend | — | 501 | — | (501 | ) | — | — | — | ||||||||||
Other comprehensive income Cash flow hedges | — | — | — | 6,261 | — | — | 6,261 | |||||||||||
Balance at December 31, 2004 | 66,000 | $ | 36,868 | 549,000 | $ | 332,972 | 35,600 | $ | — | $ | 369,840 | |||||||
(dollars, in thousands)
Total Capital | Business Unit Equity | Accumulated Other Comprehensive Income (Loss) | ||||||||||
Predecessor | ||||||||||||
Balance at December 31, 2006 | $ | 1,481,232 | $ | 1,490,608 | $ | (9,376 | ) | |||||
Comprehensive income: | ||||||||||||
Net income | 159,591 | 159,591 | — | |||||||||
Other comprehensive income, net of tax | ||||||||||||
Cash flow hedges | 9,376 | — | 9,376 | |||||||||
Comprehensive income | $ | 168,967 | ||||||||||
Net equity transactions with Boise Cascade Holdings, L.L.C. | (90,420 | ) | (90,420 | ) | — | |||||||
Balance at December 31, 2007 | $ | 1,559,779 | $ | 1,559,779 | $ | — | ||||||
BZ Intermediate Holdings LLC | ||||||||||||
Balance at January 18, 2008 (inception) | $ | — | $ | — | $ | — | ||||||
Issuance of 1,000 common units | 638,761 | 638,761 | — | |||||||||
Comprehensive loss: | ||||||||||||
Net loss | (41,860 | ) | (41,860 | ) | — | |||||||
Other comprehensive loss, net of tax | ||||||||||||
Cash flow hedges | (760 | ) | — | (760 | ) | |||||||
Unfunded accumulated benefit obligations | (84,922 | ) | — | (84,922 | ) | |||||||
Other comprehensive loss | (85,682 | ) | — | (85,682 | ) | |||||||
Comprehensive loss | $ | (127,542 | ) | |||||||||
Net equity transactions with Boise Inc. | 1,825 | 1,825 | — | |||||||||
Balance at December 31, 2008 | $ | 513,044 | $ | 598,726 | $ | (85,682 | ) | |||||
Comprehensive income: | ||||||||||||
Net income | 147,814 | 147,814 | — | |||||||||
Other comprehensive income (loss), net of tax | ||||||||||||
Cash flow hedges | 207 | — | 207 | |||||||||
Investment gains (losses) | (5 | ) | — | (5 | ) | |||||||
Unfunded accumulated benefit obligations | 13,927 | — | 13,927 | |||||||||
Other comprehensive income | 14,129 | — | 14,129 | |||||||||
Comprehensive income | $ | 161,943 | ||||||||||
Net equity transactions with Boise Inc. | (46,397 | ) | (46,397 | ) | — | |||||||
Balance at December 31, 2009 | $ | 628,590 | $ | 700,143 | $ | (71,553 | ) | |||||
See accompanying notes to consolidated financial statements.
BOISE CASCADE HOLDINGS, L.L.C.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements
1. SummaryNature of Significant Accounting Policies
Operations and Basis of Presentation
As usedOn February 22, 2008, Aldabra 2 Acquisition Corp. completed the acquisition (the Acquisition) of Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp. (collectively, the Paper Group), and other assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and part of the headquarters operations of Boise Cascade, L.L.C. (Boise Cascade). Subsequent to the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. BZ Intermediate Holdings LLC (formerly Aldabra Holding Sub LLC) or “the Company,” “we,” “us,” or “our” was created on January 18, 2008 (Inception), and we are a 100% owner of the Paper Group and are 100% owned by Boise Inc. We had no operating activity from the period of January 18, 2008 (Inception) through the period of the Acquisition on February 22, 2008. The business acquired is referred to in these consolidated financial statements as the terms "Boise Holdings" and "we" refer to“Predecessor.” The Acquisition was accomplished through the acquisition of Boise CascadePaper Holdings, L.L.C., See Note 15, Acquisition of Boise Cascade’s Paper and its consolidated subsidiaries and their predecessors in interest. The terms "Boise Forest Products Operations" and "predecessor" referPackaging Operations, for more information related to the paperAcquisition.
The following sets forth our corporate structure and forest products assets of OfficeMax Incorporated (OfficeMax) that we acquired on October 29, 2004, from OfficeMax. OfficeMax was formerly known as Boise Cascade Corporation. See Note 2, Purchase of OfficeMax's Paper and Forest Products Assets, for additional information.equity ownership at December 31, 2009:
We are a diversified North American paper and forest products company. We are
BZ Intermediate Holdings LLC, headquartered in Boise, Idaho. Idaho, operates its business in three reportable segments: Paper, Packaging, and Corporate and Other (support services). We manufacture packaging products and papers, including corrugated containers, containerboard, label and release and flexible packaging papers, imaging papers for the office and home, printing and converting papers, newsprint, and market pulp.
The financial statements presentaccompanying Consolidated Statement of Income (Loss) and Consolidated Statement of Cash Flows for the financial resultsyear ended December 31, 2008, include the activities of Boise Holdings forthe operations acquired from February 22, 2008, through December 31, 2008, and are referred to as the year ended December 31, 2008, as we had no operating activity from the period of October 29January 18, 2008 (Inception) through December 31, 2004,the period of the Acquisition on February 22, 2008. The Consolidated Statements of Income (Loss) and the resultsConsolidated Statements of Boise Forest Products Operations for the years prior to 2004 andCash Flows for the period of January 1 through October 28, 2004. We have five reportable segments: Paper, Packaging & Newsprint, Wood Products, Building Materials DistributionFebruary 21, 2008, and Corporate and Other. Historically, OfficeMax conducted Boise Forest Products Operations in three segments: Boise Paper Solutions, Boise Building Solutions and Corporate and Other. We have recastfor the financial statementsyear ended December 31, 2007, of our predecessor included hereinthe Predecessor are presented for comparative purposes.
Notes to conform to our current segment presentation. See Note 16, Segment Information, for additional information on our reportable segments.Consolidated Financial Statements—(Continued)
OfficeMax's paper and forest products operations included timberland assets, which were allocated to OfficeMax's Boise Paper Solutions and Boise Building Solutions. Since
For the timberland operations were not acquired by us, they are not included in these financial statements.
The predecessorPredecessor period presented, the consolidated financial statements include accounts attributed specifically attributed to Boise Forest Products Operationsthe Paper Group and a portion of OfficeMax'sBoise Cascade’s shared corporate general and administrative expenses. These shared services included,include, but wereare not limited to, finance, accounting, legal, information technology, and human resource functions. Some of OfficeMax's corporate costs related solely to Boise Forest Products Operationsthe Predecessor and were allocated in fulltotally to these operations. Shared corporate general and administrative expenses not specifically identifiable to Boise Forest Products Operations have beenthe Paper Group were allocated primarily based on average sales, assets, and labor costs. The predecessorPredecessor consolidated financial statements alsodo not include an allocation of OfficeMax's totalBoise Cascade’s debt, interest, and deferred financing costs, because none of these items were specifically identified as corporate advances to, or borrowings by, the Predecessor. Boise Cascade used interest rate swaps to hedge variable interest rate risk. Because debt and related interest expense based on average asset balances (see Note 11). The predecessor's results have been or will becosts are not allocated to the Predecessor, the effects of the interest rate swaps are not included in OfficeMax'sthe consolidated tax returns. Incomefinancial statements. During the Predecessor period presented, income taxes, in the predecessor periods of these financial statements have beenwhere applicable, were calculated as if Boise Forest Products Operations wasthe Predecessor were a separate taxable entity (see Note 6).entity. For the period of January 1 through February 21, 2008, and the year ended December 31, 2007, the majority of the businesses and assets of the Predecessor were held and operated by limited liability companies, which are not subject to entity-level federal or state income taxation. In addition to the businesses and assets held and operated by limited liability companies, the Predecessor had taxable corporations subject to federal, state, and local income taxes for which taxes were recorded. Information on the allocations and related-party transactions is included in Note 3,4, Transactions With Related Parties.
2. Summary of Significant Accounting Policies
Consolidation and Use of Estimates
The consolidated financial statements include the accounts of BoiseBZ Intermediate Holdings LLC and its subsidiaries after elimination of intercompany balances and transactions. The preparation of financial statements in conformity with U.S.accounting principles generally accepted accounting principlesin the United States of America requires management to make estimates and assumptions thatabout future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities at the date of the financial statementsreported, disclosures about contingent assets and theliabilities, and reported amounts of revenues and expenses. Such estimates include the determination and allocation of the fair values of assets acquired and liabilities assumed in an acquisition; the assessment of the recoverability of long-lived assets; the recognition, measurement, and valuation of current and deferred income taxes; valuation and recognition of pension expense and liabilities; and valuation of accounts receivable, inventories, and asset retirement obligations, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets; volatile equity, foreign currency, and energy markets; and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Revenue Recognition
We recognize revenue when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, our price to the buyer is fixed or determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. The timing of revenue recognition is dependent on shipping terms. Revenue is recorded at the time of shipment for terms designated freight on board (f.o.b.) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the
Notes to Consolidated Financial Statements—(Continued)
customer’s delivery site. Fees for shipping and handling charged to customers for sales transactions are included in “Sales.” Costs related to shipping and handling are included in “Materials, labor, and other operating expenses.”
Equity Compensation
We accrue compensation expense for the restricted stock and restricted stock units (collectively restricted stock) granted under the Boise Inc. Incentive and Performance Plan (the Plan) based on the fair value on the date of the grant. Compensation expense is recognized ratably over the vesting period for the restricted stock grants that vest over time and ratably over the award period for the restricted stock grants that vest based on the closing price of Boise Inc. stock. During the years ended December 31, 2009 and 2008, we recognized $3.5 million and $3.1 million, respectively, of compensation expense. Most of these costs were recorded in “General and administrative expenses” in our Consolidated Statements of Income (Loss). See Note 14, Capital, for a discussion of the Plan and the method we use to calculate compensation expense.
During the Predecessor period presented, equity compensation was granted to the Predecessor’s employees under Boise Cascade’s equity compensation plans. These equity compensation plans were accounted for in the same manner we account for our current plans. During the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor recognized $0.2 million and $1.7 million of compensation expense, most of which was recorded in “General and administrative expenses” in the Consolidated Statements of Income (Loss).
Research and Development Costs
We expense research and development costs as incurred, and they were immaterial for all periods presented.
Advertising Costs
We expense the cost of advertising as incurred, and it was immaterial for all periods presented. These expenses during the reporting period. Actual results may vary from those estimates.are generally recorded in “Selling and distribution expenses” in our Consolidated Statements of Income (Loss).
Foreign Currency Translation
The functional currency for ourany operations and transactions outside the United States is the U.S. dollar. Nonmonetary assets and liabilities and related depreciation and amortization for these foreign operations and transactions are remeasured into U.S. dollars using historical exchange rates. RemainingMonetary assets and liabilities are remeasured into U.S. dollars using the exchange rates as of the Consolidated Balance Sheet date. Revenue and expense items are remeasured into U.S. dollars using an average exchange rate forprevailing during the period.year. The foreign exchange gains (losses) reported in the Consolidated Statements of Income (Loss) aroseresulted from the remeasurements into the U.S. dollar.
Revenue Recognition
We recognize revenue when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, our price to the buyer is fixed and determinable and collectibility is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. The timing of revenue recognition is dependent on shipping terms. Revenue is recorded at the time of shipment for terms designated free on board (f.o.b.) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer's delivery site.
Cash and Cash Equivalents
At December 31, 2004, cash equivalents consistedIn general, we consider all highly liquid interest-earning investments, including time deposits and certificates of short-term investments that haddeposit, with a maturity of three months or less at the date of purchase.purchase to be cash equivalents unless designated as available for sale and classified as an investment. The fair value of these investments approximates their carrying value. Cash equivalents totaled $105.8$65.1 million and $15.3 million, respectively, at December 31, 2009 and 2008.
Notes to Consolidated Financial Statements—(Continued)
Short-term Investments
In general, investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. All cash equivalents and short-term investments are classified as available for sale and are recorded at market value. Changes in market value, unrealized losses not considered other than temporary, and unrealized gains are recorded in accumulated other comprehensive income (loss), which is included in “Capital” on our Consolidated Balance Sheets. Unrealized losses determined to be other than temporary are recorded in our Consolidated Statement of Income (Loss). The cost of marketable securities sold is determined based on the specific identification method. Short-term investments totaled $10.0 million at December 31, 2004. During2009. We did not have any short-term investments in 2008.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are stated at the predecessor periods presented,amount we expect to collect. Trade accounts receivable do not bear interest. The allowance for doubtful accounts is our predecessor participated in OfficeMax'sbest estimate of the losses we expect will result from the inability of our customers to make required payments. We generally determine the allowance based on a combination of actual historical write-off experience and an analysis of specific customer accounts. We periodically review our allowance for doubtful accounts, and adjustments to the valuation allowance are charged to income. Trade accounts receivable balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. We may, at times, insure or arrange for guarantees on our receivables.
Financial Instruments
Our financial instruments are cash management system. Cash receipts attributable to our predecessor's operations were collected by OfficeMax, and cash disbursements were funded by OfficeMax (see Note 3). Our predecessor did not record interest income or expense related to these transactions.equivalents, short-term investments, accounts receivable, accounts payable, and long-term debt. The net effect of these transactions was included in "Business unit equity" in the predecessor Balance Sheet. As such, the amountrecorded values of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate fair values based on their short-term nature. Our long-term debt is recorded at the face value of those obligations.
We are exposed to market risks, including changes in interest rates, energy prices, and foreign currency exchange rates. We employ a variety of practices to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. Derivative instruments are used only for risk management purposes and not for speculation or trading. Derivatives are such that a specific debt instrument, contract, or anticipated purchase determines the amount, maturity, and other specifics of the hedge. If a derivative contract is entered into, we either determine that it is an economic hedge or we designate the derivative as a cash flow or fair value hedge. We formally document all relationships between hedging instruments and the hedged items, as well as our risk management objectives and strategies for undertaking various hedged transactions. For those derivatives designated as cash flow or fair value hedges, we formally assess, both at the derivatives’ inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the hedged items. The ineffective portion of hedging transactions is recognized in income (loss).
We record all derivative instruments as assets or liabilities on our Consolidated Balance Sheets at fair value. The fair value of these instruments is determined by third parties. Changes in the fair value of derivatives are recorded in either “Net income (loss)” or “Other comprehensive income (loss)” as appropriate. The gain or loss on derivatives designated as cash flow hedges is included in “Other comprehensive income (loss)” in the predecessor period doesin which changes in fair value occur and is reclassified to income (loss) in the period in which the hedged item affects income (loss), and any ineffectiveness is recognized currently in our Consolidated Statements of Income (Loss). The fair value of the hedged exposure is presumed to be the market value of the hedging instrument when critical terms match. The gain or loss on derivatives designated as fair value hedges and the offsetting gain or
Notes to Consolidated Financial Statements—(Continued)
loss on the hedged item attributable to the hedged risk are included in income (loss) in the period in which changes in fair value occur. The gain or loss on derivatives that have not representbeen designated as hedging instruments is included in income (loss) in the amount required or generated by Boise Forest Products Operations.period in which changes in fair value occur.
VendorCustomer Rebates and Allowances
We receive rebates and allowances from our vendors under a number of different programs, including vendor marketing programs. These rebates and allowances are accounted for in accordance with Emerging Issues Task Force (EITF) 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received From a Vendor. Rebates and allowances received from our vendors are recognized as a reduction of "Materials, labor and other operating expenses" when the product is sold, unless the rebates and allowances are linked to a specific incremental cost to sell a vendor's product. Amounts received from vendors that are linked to specific selling and distribution expenses are recognized as a reduction of "Selling and distribution expenses" in the period the expense is incurred.
Included in the vendor rebate programs referred to above are various volume purchase rebate programs. These programs generally include annual purchase targets and may offer increasing tiered rebates based on our reaching defined purchase levels. For such tiered rebate programs, the company calculates an estimated consideration based on the probability of the rebate being earned
during the year. We review sales projections and related purchases on a quarterly basis and adjust the estimated consideration accordingly. We record consideration received for these programs as a reduction of "Materials, labor and other operating expenses" as the related inventory is sold.
We also provide rebates to our customers based on the volume of their purchases. We provide the rebates to increase the sell-through of our products. AsThe rebates are recorded as a decrease in “Sales, Trade” in our Consolidated Statements of December 31, 2004 and 2003, we had $20.4 million and $11.1 million, respectively, of rebates payable to our customers recorded in "Accrued liabilities, other" on the Balance Sheets.Income (Loss).
Inventory Valuation
Inventories are valued at the lower of cost or market. For the period ended December 31, 2004, costCost is based on the average or first-in, first-out (FIFO) methodsmethod of inventory valuation. During the predecessor periods, cost was based on the last-in, first-out (LIFO) method of inventory valuation for raw materials and finished goods inventories at most of the domestic building materials and paper manufacturing facilities. At December 31, 2003, approximately 45% of the inventories were accounted for under this method. For all other inventories, cost was based on the average or FIFO valuation methods. Manufactured inventories include costs for materials, labor, and factory overhead. Log inventories include the costs of harvesting the timber.
Inventories include the following:following (dollars, in thousands):
| Boise Holdings | Predecessor | |||||
---|---|---|---|---|---|---|---|
| December 31, 2004 | December 31, 2003 | |||||
| (thousands) | ||||||
Finished goods and work in process | $ | 384,772 | $ | 342,633 | |||
Logs | 62,406 | 58,170 | |||||
Other raw materials and supplies | 147,691 | 144,742 | |||||
LIFO reserve | — | (44,165 | ) | ||||
$ | 594,869 | $ | 501,380 | ||||
December 31 | ||||||
2009 | 2008 | |||||
Finished goods | $ | 120,817 | $ | 173,029 | ||
Work in process | 22,677 | 37,582 | ||||
Fiber | 34,557 | 41,241 | ||||
Other raw materials and supplies | 74,122 | 83,152 | ||||
$ | 252,173 | $ | 335,004 | |||
Property and Equipment, Net
Property and equipment acquired in the Acquisition were recorded at estimated fair value on the date of the Acquisition. Property and equipment acquired subsequent to the Acquisition are recorded at cost. Cost includes expenditures for major improvements and replacements and the amount of interest cost associated with significant capital additions. For the years ended December 31, 2009 and 2008, we recognized zero and $0.1 million, respectively, of capitalized interest. During the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor recognized $0.1 million and $1.7 million of capitalized interest. We expense all periods presented, capitalized interest was not material. Gainsrepair and lossesmaintenance costs as incurred. When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from salesthe accounts and retirements areany gain or loss is included in income (loss) as they occur.. In the predecessorall periods presented, our predecessor determined depreciation on the straight-line method over the useful lives of the assets or a units-of-production method that approximated straight-line over three to five years. For the period of October 29 through December 31, 2004, we used the straight-line method of depreciation.
Notes to Consolidated Financial Statements—(Continued)
The
Property and equipment consisted of the following asset classes and the following general range of estimated useful lives of depreciable assets are generally as follows: building and improvements, 15 to 40 years; furniture and equipment, 3 to 10 years; and machinery, equipment and delivery trucks, 2 to 20 years. Leasehold improvements are amortized over the lesser of the term of the lease, including option periods we are reasonably assured of exercising, or 20 years.(dollars, in thousands):
December 31 | General Range of Estimated Useful Lives in Years | |||||||||
2009 | 2008 | |||||||||
Land and land improvements | $ | 31,875 | $ | 31,875 | 17-20 | |||||
Buildings and improvements | 199,086 | 187,892 | 9-40 | |||||||
Machinery and equipment | 1,176,494 | 1,113,572 | 3-20 | |||||||
Construction in progress | 18,992 | 29,833 | N/A | |||||||
1,426,447 | 1,363,172 | |||||||||
Less accumulated depreciation | (220,768 | ) | (100,362 | ) | N/A | |||||
$ | 1,205,679 | $ | 1,262,810 | |||||||
Fiber Farms and Timber Deposits
The consolidated financial statements include ourthe cottonwood fiber farm operations in our Paper segment andsegment. Our cottonwood fiber farm has multiple locations near our eucalyptus plantation landmill in Brazil in our Wood Products segment. Wallula, Washington. They are short-rotation fiber farms that have a growing cycle averaging six to eight years.
Costs for activities related to the establishment of a new crop of trees, are capitalized, while costs for administration, insurance, property taxes and interest are expensed. We charge capitalized costs, excluding land, against revenue at the time the timber is sold, based on periodically determined depletion rates. These charges are included in "Depreciation, amortization and depletion" in the accompanying Statements of Income (Loss).
Our cottonwood fiber farm is a short-rotation fiber farm that has a growing cycle averaging six to seven years. The eucalyptus in Brazil has a growing cycle averaging 12 to 14 years. Costs forincluding planting, thinning, fertilization, pest control, herbicide application, irrigation, and irrigationland lease costs, are capitalized. Thesecapitalized, while costs for administration, harvesting, insurance, and property taxes are expensed. The capitalized costs are accumulated by specifically identifiable farms. As harvesting occurs, the accumulatedfarm or irrigation blocks. We charge capitalized costs, excluding land, to “Depreciation, amortization, and depletion” in the accompanying Consolidated Statements of Income (Loss) at the time the fiber is harvested based on actual accumulated costs associated with fiber cut.
We are charged against harvest revenues as depletion.
In all the periods presented, we acquired a portion of our fiber requirements from OfficeMax's timberlands operations (Boise Timberlands), which in October 2004 were sold by OfficeMaxparty to Boise Land & Timber Holdings Corp., or Timber Holdings, an affiliate that is majority owned by our majority equityholder. In February 2005, Timber Holdings sold all of its timberlands to Forest Capital Partners, LLC, an unaffiliated party, for $1.65 billion in cash (Timberlands Sale). In connection with the Timberlands Sale, we entered into a number of long-term log and fiber supply agreements with Forest Capital. Ouragreements. At December 31, 2009 and 2008, our total obligationsobligation for timberlog and fiber purchases under contracts with third parties including Forest Capital, are estimated to bewas approximately $1.0 billion.$76.4 million and $168.7 million, respectively. Except for deposits required pursuant to wood supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect. The obligations are subject to change based on, among other things, the effect of governmental laws and regulations, our manufacturing operations not operating in the normal course of business, timberlog and fiber availability, and the status of environmental appeals.
Long-Lived Asset Impairment
We account for the impairment of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An impairment of long-lived assets exists when the carrying value of an asset exceeds its fair value and when the carrying value is not recoverable through future undiscounted cash flows from operations. We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. In December 2003, our predecessor recorded a $14.7 million pretax charge for the write-down of impaired assets at its plywood and lumber operations in Yakima, Washington. For more information, see Note 4, Other (Income) Expense, Net.
GoodwillIntangible Assets
We account for goodwill and otherOur policy is to assess intangible assets with indefinite lives in accordance with Financial Accounting Standards Board (FASB) SFAS No. 142, Goodwillthe fourth quarter of each year, and Other Intangible Assets. Goodwill represents the excessimmediately if an indicator of purchase price and related costs over the value assigned to the net tangible and intangible assets of businesses acquired. We assess goodwill at least annuallypossible impairment exists, using a fair-value-based approach. Our predecessor completed its annual assessment in accordance with SFAS No. 142 in first quarter 2004 and 2003, and determined that there was no impairment.We also evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary.
Investments in Equity AffiliatesNotes to Consolidated Financial Statements—(Continued)
We use the equity method to account for investments that we do not control but in which we have significant influence. We periodically review the recoverability of investments in equity affiliates. The measurement of possible impairment is based on the estimated fair value of our investment (see Note 9).
Deferred Software Costs
We defer internal-use software costs that benefit future years. These costs are amortized onusing the straight-line method over the expected life of the software, typically three to five years. "Other assets"“Other assets” in the Consolidated Balance Sheets includesinclude $4.1 million and $3.9 million of deferred software costs of $5.5 million and $8.7 million at December 31, 20042009 and 2003,2008, respectively. For the periodsWe amortized $1.4 million and $0.7 million, respectively, of October 29 through December 31, 2004, and January 1 through October 28, 2004, anddeferred software costs for the years ended December 31, 20032009 and 2002,2008. For the Predecessor period of January 1 through February 21, 2008, and for the year ended December 31, 2007, amortization of deferred software costs totaled $0.4 million, $2.8 million, $3.4$0.1 million and $5.1$0.6 million, respectively.
Asset Retirement Obligations
We accountaccrue for asset retirement obligations in accordance with SFAS No. 143, Accounting for Asset Retirement Obligations,the period in which affectsthey are incurred if sufficient information is available to reasonably estimate the wayfair value of the obligation. When we account for landfill closure costs. This statement requires usrecord the liability, we capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to record an assetits settlement value, and a liability (discounted) for estimated closure and closed-site monitoring costs and to depreciate the assetcapitalized cost is depreciated over the landfill's expected useful life. Previously, we accrued for the closure costs over the life of the landfill and expensed monitoring costs as incurred. We record liabilities when assessments and/related asset. Upon settlement of the liability, we will recognize a gain or remedial efforts are probable and the cost can be reasonably estimated. At December 31, 2004 and 2003, $10.3 million and $11.5 million, respectively, of asset retirement obligations were recorded on the Balance Sheets. The liabilities are based on the best estimate of current costs and are updated periodically to reflect current technology, laws and regulations, inflation and other economic factors. Theloss for any difference between the periods was primarily attributablesettlement amount and the liability recorded.
Pension and Postretirement Benefits
Several estimates and assumptions are required to accretionrecord pension and postretirement net periodic benefit cost and liabilities, including discount rate, return on assets, salary increases, and longevity and service lives of employees. Generally, we review and update these assumptions annually unless a plan curtailment or other event occurs requiring we update the estimates on an interim basis. While we believe that the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.
Taxes Collected
We do not have any assets legally restricted for purposes of settling asset retirement obligations. See Note 5, Accounting Changes, for the impact of adopting SFAS No. 143present taxes collected from customers and remitted to governmental authorities on the Statementsa net basis in our Consolidated Statement of Income (Loss).
Equity Compensation
We account for our Management Equity Agreement under SFAS No. 123 (revised 2004), Share-Based Payment. Awards under our Management Equity Agreement vest over periods up to five years. See Note 15, Management Equity Agreement, for a discussion of the planNew and the method we use to calculate compensation expense.
During the predecessor periods presented, stock compensation was granted to our employees under OfficeMax's stock compensation plans. In 2003, our predecessor adopted the fair-value-based method of accounting for stock-based employee compensation using the prospective method of transition for all employee awards granted on or after January 1, 2003. Awards vested over periods of up to three years. Therefore, the cost related to stock-based employee compensation included in the determination of the Boise Forest Products Operations net loss in 2003 is less than that which would have been recognized if the fair-value-based method had been applied to all awards since the original effective date of SFAS No. 123. For more information, see Note 5, Accounting Changes.
The following table illustrates the effect on net income (loss) if we had applied the fair-value-based method to all outstanding and unvested awards in each period:
| Boise Holdings | Predecessor | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| October 29 (inception) through December 31, 2004 | | Year Ended December 31 | ||||||||||
| January 1 through October 28, 2004 | ||||||||||||
| 2003 | 2002 | |||||||||||
| (thousands) | ||||||||||||
Reported net income (loss) | $ | 24,702 | $ | 69,466 | $ | (47,353 | ) | $ | (60,906 | ) | |||
Add: Total stock-based employee compensation expense included in reported net income (loss), net of related tax effects | — | 8,924 | 2,618 | — | |||||||||
Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects | — | (8,924 | ) | (5,820 | ) | (6,716 | ) | ||||||
Pro forma net income (loss) | $ | 24,702 | $ | 69,466 | $ | (50,555 | ) | $ | (67,622 | ) | |||
To calculate stock-based employee compensation expense under SFAS No. 123, our predecessor estimated the fair value of each option grant on the date of grant, using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2003 and 2002: risk-free interest rates of 4.0% in each year, expected dividends of 60 cents per share per year, expected lives of 4.3 years and expected stock price volatility of 40% in each year.
OfficeMax allocated compensation expense for restricted stock awards based on the fair value of their stock on the date of grant. Our predecessor recognized the expense over the vesting period. See Note 14, Equity.
Research and Development Costs
We expense research and development costs as incurred. For the period of October 29 through December 31, 2004, research and development expenses were $0.2 million. For the period of January 1 through October 28, 2004, research and development expenses were $1.9 million, compared with $2.4 million and $2.3 million for the years ended December 31, 2003 and 2002, respectively.
Advertising Costs
We expense the cost of advertising as incurred. The costs are recorded in "Selling and distribution expenses." For the period of October 29 through December 31, 2004, advertising expense was $1.2 million. For the period of January 1 through October 28, 2004, advertising expense was $7.9 million, compared with $9.9 million and $7.4 million for the years ended December 31, 2003 and 2002, respectively.
Recently Adopted Accounting Standards
In December 2004,October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-12,Fair Value Measurements and Disclosures: Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)(FASB issued SFAS No. 123 (revised 2004), Share-Based Payment.ASC 820). This statement requires an entityASU allows investors to use the fair-value methodnet asset value (NAV) as a practical expedient to recognize in the income statement theestimate fair value of stock options and other equity-based compensation issued to employees on the grant date and eliminates an entity's ability to accountinvestments in investment companies that do not have readily determinable fair values. The ASU also sets forth disclosure requirements for share-based compensation transactions using the intrinsic-value method of accounting in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, which was permitted under SFAS No. 123 as originally issued.investments within its scope. We adopted this statement effective October 29, 2004.
In November 2004,ASU 2009-12 in December 2009, and the FASB's EITF reached a consensus on EITF 03-13, Applying the Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations. We adopted EITF 03-13 on January 1, 2005, and itadoption did not have a material impact on our financial position or results of operations.
In September 2004, the SEC staff made an announcement at the EITF meeting prohibiting the use of the residual method to value acquired assets other than goodwill. SEC Staff Announcement, Topic No. D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill, requires registrants to apply the guidance to business combinations completed after September 29, 2004. We did not use the residual method to value the assets we acquired from OfficeMax.
In January 2003,August 2009, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. In December 2003, theASU 2009-05,Measuring Liabilities at Fair Value. This update provides amendments to FASB issued a revised FASB Interpretation No. 46 (FIN 46R). FIN 46R requires some variable-interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at riskAccounting Standards Codification (ASC) 820,Fair Value Measurements and Disclosure, for the entity to finance its activities without additional subordinated financial support from other parties. Thefair value measurement of liabilities when a quoted price in an active market is not available. We adopted ASU 2009-05 on October 1, 2009, and the adoption of FIN 46R did not have a material effectimpact on our financial position or results of operationsoperations.
In June 2009, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 168 (ASU 2009-01),The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting
Notes to Consolidated Financial Statements—(Continued)
Principles,approving the FASB Accounting Standards Codification (Codification), which states that the Codification is the exclusive authoritative reference for anyU.S. generally accepted accounting principles (GAAP). The Codification does not change U.S. GAAP. We adopted ASU 2009-01 on September 15, 2009, and the adoption did not have a material impact on our financial position or results of operations.
In June 2009, the periods presented.
See Note 5, Accounting Changes, for a discussion ofFASB issued SFAS No. 143, Accounting167,Amendments to FASB Interpretation No. 46(R) (FASB ASC 810), which amends the consolidation guidance applicable to variable-interest entities (VIEs). This guidance requires that entities evaluate former qualified special-purpose entities for Asset Retirement Obligations, consolidation, changes the approach to determining a VIE’s primary beneficiary from a quantitative assessment to a qualitative assessment, and increases the frequency of required reassessment to determine whether a company is the primary beneficiary of a VIE. It also requires additional year-end and interim disclosures. We adopted this guidance on January 1, 2010, and the adoption did not have a material impact on our financial position or results of operations.
In December 2008, the FASB issued FASB Staff Position (FSP) FAS 132(R)-1,Employer’s Disclosures About Postretirement Benefit Plan Assets (FASB ASC 715). This FSP amends SFAS No. 132 (revised 2003),Employers’ Disclosures About Pensions and Other Postretirement Benefits,to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. We have incorporated the required disclosures in this Form 10-K. The adoption affected our disclosures only and had no impact on our financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (FASB ASC 805),and SFAS No. 148, 160,Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin No. 51 (FASB ASC 810). These new standards significantly changed the accounting for Stock-Based Compensation Transition and Disclosure,reporting of business combination transactions and their effectnoncontrolling (minority) interests in consolidated financial statements. We adopted SFAS No. 141(R) and SFAS No 160 on January 1, 2009.
There were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
Subsequent Events
We have evaluated events and transactions subsequent to December 31, 2009, through March 5, 2010, the date these consolidated financial statements and notes were issued. Except as disclosed in Note 15, Acquisition of Boise Cascade’s Paper and Packaging Operations, we have not identified any other events that would require recognition or disclosure in the consolidated financial statements or in the notes to the financial statements. In addition, see Note 13, Retirement
3. Alternative Fuel Mixture Credits, Net
The U.S. Internal Revenue Code allowed an excise tax credit for taxpayers using alternative fuels in the taxpayer’s trade or business. During the year ended December 31, 2009, we recorded $207.6 million in “Alternative fuel mixture credits, net” in our Consolidated Statements of Income (Loss). As of December 31, 2009, we recorded a receivable of $56.6 million in “Receivables, Other” on our Consolidated Balance Sheet for alternative fuel mixture credits. The credits expired on December 31, 2009. We are reasonably assured that the credit for the alternative fuel mixture used by us through December 31, 2009, has been earned and Benefit Plans,will be collected from the U.S. government.
Notes to Consolidated Financial Statements—(Continued)
4. Transactions With Related Parties
Related-Party Sales
BZ Intermediate Holdings LLC and the Predecessor provided transportation services to Boise Cascade. For the years ended December 31, 2009 and 2008, BZ Intermediate Holdings LLC recorded $2.3 million and $3.4 million, respectively, of sales for a discussiontransportation services. For the period of FASB Staff Position 106-2, AccountingJanuary 1 through February 21, 2008, and Disclosure Requirementsthe year ended December 31, 2007, the Predecessor recorded $0.6 million and $5.0 million, respectively, of sales for transportation services to Boise Cascade.
The Predecessor sold $10.8 million and $75.3 million of wood to Boise Cascade’s wood products business during the period of January 1 through February 21, 2008, and the year ended December 31, 2007, respectively. These sales are included in “Sales, Related parties” in the Consolidated Statements of Income (Loss). Subsequent to the Medicare Prescription Drug, ImprovementAcquisition, Louisiana Timber Procurement Company, L.L.C. (LTP), a variable-interest entity (VIE) that is 50% owned by Boise Inc. and Modernization Act50% owned by Boise Cascade, began selling wood to Boise Cascade and BZ Intermediate Holdings LLC at prices designed to approximate market prices. LTP procures saw timber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of 2003.
Reclassifications
Certain amountsBZ Intermediate Holdings LLC and Boise Cascade. We are the primary beneficiary of LTP, as we are the entity most closely associated with this VIE; therefore, we fully consolidate LTP in prior periodour financial statements have been reclassified to conform withstatements. During the current period presentation. These reclassifications did not affect net income (loss).
2. Purchase of OfficeMax's Paper and Forest Products Assets
On October 29, 2004,year ended December 31, 2009, we acquired OfficeMax's paper and forest products assets, other than its timberlands operations, for an aggregate purchase price of $2,196.5 million, including approximately $140recorded $25.5 million of related feessales to Boise Cascade in “Sales, Related parties” in the Consolidated Statements of Income (Loss) and expenses (the Acquisition). The purchase price was determined based on negotiations between Madison Dearborn Partners, LLC (MDP) and OfficeMax. As part ofapproximately the Acquisition, we entered into an Additional Consideration Agreement with OfficeMax,
pursuant to which we agreed to adjust the purchase price based on changes in paper prices over the six-year period following the closing of the Acquisition. Under the Additional Consideration Agreement, we could pay to OfficeMax, or OfficeMax could pay to us, a maximum aggregatesame amount of $125.0 million,expenses in each case net of payments received. The“Materials, labor, and other operating expenses.” During the year ended December 31, 2008, we recorded purchase price does not include the effect, if any, of this contingent consideration. We allocated the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. Estimated fair values were derived through consideration and application of standard valuation approaches and techniques.
We accounted for the Acquisition using the purchase method of accounting. Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the date of the Acquisition. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of October 29, 2004. The initial purchase price allocations may be adjusted within one year of the purchase date for changes in estimates of the fair value of assets as acquired and liabilities assumed. We have not completed the assessment of the fair value of our fiber farms and may allocate a higher portion of the purchase price to these assets. An increase in those values would reduce goodwill.
| October 29, 2004 | |||
---|---|---|---|---|
| (thousands) | |||
Current assets | $ | 1,045,797 | ||
Property and equipment | 1,456,216 | |||
Fiber farms and timber deposits | 43,534 | |||
Deferred financing costs | 85,858 | |||
Goodwill | 4,121 | |||
Intangible assets | 34,680 | |||
Other assets | 9,921 | |||
Assets acquired | 2,680,127 | |||
Current liabilities | 326,189 | |||
Long-term liabilities | 157,486 | |||
Liabilities assumed | 483,675 | |||
Net assets acquired | $ | 2,196,452 | ||
The excess of the purchase price over the fair value of assets acquired and liabilities assumed was allocated to goodwill. We recorded $1.5 million, $0.9 million, $1.4 million and $0.3$64.9 million of goodwill in our Paper, Packaging & Newsprint, Wood Products and Building Materials Distribution segments, respectively.
The amount allocatedsales to intangible assets was attributed to the following categories of intangibles:
| (thousands) | ||
---|---|---|---|
Trade names and trademarks | $ | 22,800 | |
Customer relationships | 6,800 | ||
Technology | 5,080 | ||
$ | 34,680 | ||
The trade name and trademark assets represent the fair value of the Boise Cascade name and other trade names and trademarks. This asset has an indefinite life and is not amortized. All other intangible assets are amortized over their expected useful lives. Customer relationships are amortized over five years, and technology is amortized over three to five years.Cascade.
On the Acquisition date, Forest Products Holdings, L.L.C. (Parent), a newly formed holding company controlled by MDP and OfficeMax made a cash equity investment in us of $338.9 million. This equity investment consisted of $242.4 million invested by Parent in exchange for 440 million of our Class B equity units and $96.5 million invested by OfficeMax in exchange for 109 million and 66 million of our Class B and Class A equity units, respectively. See the Statement of Capital and Note 14, Equity, for a discussion of the change in equity units and their holders since the date of the Acquisition and a discussion of the rights and privileges of the equity units.
The following table summarizes unaudited pro forma financial information assuming the Acquisition had occurred on January 1, 2004.
This unaudited pro forma financial information does not necessarily represent what would have occurred if the Acquisition had taken place on the date presented and should not be taken as representative of our future consolidated results of operations or financial position.
| 2004 | ||
---|---|---|---|
| (thousands) | ||
Sales | $ | 5,734,775 | |
Net income | $ | 258,388 |
Restructuring Activities
In connection with the Acquisition, we are evaluatingentered into a services agreement under which we provide a number of corporate staff services to Boise Cascade at our cost. These services include information technology, accounting, and human resource services. The initial term of the acquired facilitiesagreement is for three years and organizational structure. In accordance withwill expire on February 22, 2011. It will automatically renew for one-year terms unless either party provides notice of termination to the provisionsother party at least 12 months in advance of Emerging Issues Task Force (EITF) 95-3, Recognitionthe applicable term. For the years ended December 31, 2009 and 2008, we recognized $15.0 million and $12.1 million, respectively, in “Sales, Related parties” and the same amounts in “Costs and expenses” in our Consolidated Statements of Liabilities in Connection With a Purchase Business Combination, exit activitiesIncome (Loss) related to this agreement.
During the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor sold paper and paper products to OfficeMax Incorporated (OfficeMax) at sales prices that were designed to approximate market prices. Subsequent to the Acquisition, will increase goodwill. We have one yearOfficeMax is no longer a related party. For additional information concerning related-party sales to OfficeMax during the Predecessor period, see Note 8, Concentrations of Risk.
Related-Party Costs and Expenses
BZ Intermediate Holdings LLC and the Predecessor purchased fiber from related parties at prices that approximated market prices. For the acquisition date to develop our restructuring plans and adjust goodwill. As ofyears ended December 31, 2004, we had finalized a portion2009 and 2008, BZ Intermediate Holdings LLC recorded $36.9 million and $54.6 million, respectively, of our plans in sufficient detail to meetfiber purchases from related parties. During the requirementsPredecessor period of EITF 95-3 to record a liability. Accordingly, we recorded a reserve of $14.3January 1 through February 21, 2008, and the year ended December 31, 2007, fiber purchases from related parties were $7.7 million most of which related to severance costs for 310 employees. Of that amount, we recorded $7.3and $39.4 million, in our Paper segment, $0.6 million in our Packaging & Newsprint segment, $1.8 million in our Wood Products segment and $4.6 million in our Corporate and Other segment.respectively. Most of these costs will be paid in 2005.
At December 31, 2004, approximately $12.8 millionpurchases related to chip and log purchases from Boise Cascade’s wood products business. All of the 2004 restructuring reservescosts associated with these purchases were includedrecorded as “Fiber costs from related parties” in "Accrued liabilities, compensation and benefits," and $0.5 million was included in "Accrued liabilities, other." Restructuring reserve liability account activity related to these 2004 charges is as follows:
| Severance | Other | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | |||||||||
2004 restructuring reserve | $ | 13,768 | $ | 501 | $ | 14,269 | ||||
Charges against reserve | (1,012 | ) | (1 | ) | (1,013 | ) | ||||
Restructuring reserve at December 31, 2004 | $ | 12,756 | $ | 500 | $ | 13,256 | ||||
We have not completed our restructuring plans for the acquired businesses. We expect to complete our plans by the endConsolidated Statements of the second quarter of 2005. When those plans are finalized, we expect to record additional restructuring liabilities and increase goodwill.Income (Loss).
3. Transactions With Related Parties
During the predecessorPredecessor periods, presented, our predecessor participated in OfficeMax's cash management system. Cash receipts attributable to our predecessor's operations were collected by OfficeMax, and cash disbursements were funded by OfficeMax. The net effect of these transactions has been reflected as "Net equity transactions with OfficeMax" in the Statements of Cash Flows and has been included in "Business unit equity" in the Balance Sheet. The following table includes the components of net equity transactions with OfficeMax:
| Predecessor | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| January 1 through October 28, 2004 | Year Ended December 31 | ||||||||
| 2003 | 2002 | ||||||||
| (thousands) | |||||||||
Cash collections | $ | (4,644,933 | ) | $ | (4,653,787 | ) | $ | (4,290,367 | ) | |
Payment of accounts payable | 4,510,643 | 4,460,072 | 4,140,710 | |||||||
Capital expenditures and acquisitions | 140,217 | 175,096 | 152,168 | |||||||
Income taxes | 38,018 | (47,051 | ) | (53,855 | ) | |||||
Net debt (issuances) payments | (17,784 | ) | (928 | ) | 6,414 | |||||
Corporate general and administrative allocation | 42,621 | 44,238 | 42,674 | |||||||
Other | (1,651 | ) | (5,209 | ) | (5,329 | ) | ||||
Net equity transactions with OfficeMax | $ | 67,131 | $ | (27,569 | ) | $ | (7,585 | ) | ||
During the predecessor periods presented, our predecessorPredecessor used services and administrative staff of OfficeMax.Boise Cascade. These services included, but were not limited to, finance, accounting, legal, information technology, and human
Notes to Consolidated Financial Statements—(Continued)
resource functions. The costs not specifically identifiable to Boise Forest Products Operationsthe Predecessor were allocated based primarily on average sales, assets, and labor costs. For the predecessor period of January 1 through October 28, 2004, and the years ended December 31, 2003 and 2002, the allocated costs amounted to $42.6 million, $44.2 million and
$42.7 million, respectively. These costs are included in "General“General and administrative expenses"expenses” in the Consolidated Statements of Income (Loss). ManagementThe Predecessor believes thesethe allocations are a reasonable reflection of our predecessor'sits use of suchthe services. However, they may not necessarily be indicativehad the Predecessor operated on a stand-alone basis, it estimates that its Corporate and Other segment would have reported approximately $2.5 million and $18 million of costs to be incurred by us insegment expenses before interest, taxes, depreciation, and amortization for the future.
During each of the periods presented, we sold paper and paper products to OfficeMax at sales prices that approximated market. During October 29 through December 31, 2004, sales to OfficeMax were $92.7 million. For the predecessorPredecessor period of January 1 through October 28, 2004,February 21, 2008 and the yearsyear ended December 31, 2003 and 2002, sales to OfficeMax were $442.1 million, $431.5 million and $408.7 million,2007, respectively. These sales are included in "Sales, related parties" in
During the Statements of Income (Loss).
During eachPredecessor periods, some of the periods presented, we purchased fiber from related parties at prices that approximated market. During the period of October 29 through December 31, 2004, fiber purchases from Boise Land & Timber Corp. were $24.5 million. For the predecessor period of January 1 through October 28, 2004, and the years ended December 31, 2003 and 2002, fiber purchases from Boise Timberlands were $95.5 million, $113.8 million and $110.8 million, respectively. The costs associated with these purchases are recorded as "Fiber costs from related parties" in the Statements of Income (Loss).
During the predecessor periods, most Boise Forest Products OperationsPredecessor’s employees along with some employees of OfficeMax, participated in OfficeMax'sBoise Cascade’s noncontributory defined benefit pension plans. In addition, most employees of Boise Forest Products Operations were eligible for participation in OfficeMax'sand contributory defined contribution savings plans. During the predecessor periods, our predecessorThe Predecessor treated its participants in OfficeMax'sthe pension plans as participants in multiemployer plans. Accordingly, nothe Predecessor has not reflected any assets or liabilities related to OfficeMax's defined benefit pensionthe plans are reflected inon the predecessorConsolidated Balance Sheet. Boise Forest Products Operations did,Sheet at December 31, 2007. The Predecessor, however, incurrecorded costs associated with the employees who participated in OfficeMax'sthese plans in the Consolidated Statements of Income (Loss). For the periodsPredecessor period of October 29 through December 31, 2004, and January 1 through October 28, 2004,February 21, 2008, and the yearsyear ended December 31, 2003 and 2002,2007, the Statements of Income (Loss) included $4.5 million, $77.5 million, $74.7$3.9 million and $38.7$22.4 million, respectively, of expenses attributable to ourits participation in OfficeMax'sBoise Cascade’s defined benefit and defined contribution plans.
In connection withDuring the Acquisition, OfficeMax transferred to Boise LLC, our operating subsidiary,Predecessor periods presented, the portion of the pension plan liability that was attributable to active employees who became employed by Boise LLC immediately following the Acquisition. OfficeMax transferred sufficient assets to fund our accumulated benefit obligation at a 6.25% discount rate. At December 31, 2004, our Balance Sheet reflected a projected benefit obligation of $114.4 million, assuming a 5.75% discount rate and a 4.25% rate of compensation increase. In addition, OfficeMax also retained all pension costs related to employees who retired or were terminated on or before July 31, 2004, all postretirement benefits costs related to employees who retired or were terminated before the Acquisition, and all pension and postretirement benefit costs related to active OfficeMax employees.
Boise Forest Products OperationsPredecessor’s employees and former employees also participated in OfficeMax'sBoise Cascade’s other postretirement healthcare benefit plans. All of the Predecessor’s postretirement healthcare benefit plans arewere unfunded (see Note 13)13, Retirement and Benefit Plans). In addition, some of the Predecessor’s employees participated in OfficeMax's stockequity compensation programs. See Note 14, Equity, for a discussion
Predecessor
During the Predecessor periods of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor participated in Boise Cascade’s centralized cash management system. Cash receipts attributable to the Predecessor’s operations were collected by Boise Cascade, and cash disbursements were funded by Boise Cascade. The net effect of these programs.
transactions has been reflected as “Net equity transactions with related parties” in the Consolidated Statements of Cash Flows. The asset purchase agreement contains customary representations, warranties and covenants, including an obligation by OfficeMax to indemnify us for breachesfollowing table includes the components of representatives, warranties and covenants. OfficeMax's indemnification obligations with respect to such breaches generally survive until April 26, 2009, with indemnification obligations with respect to breaches relating to employee and environmental law matters surviving until October 29, 2009. OfficeMax's indemnification obligations for breaches of representations, warranties and covenants are, with certain exceptions, subject to a deductible of $20.7 million and an aggregate cap of $248.9 million. We are also indemnified with respect to certain pre-closing liabilities, including environmental, asbestos, tax, benefits and other legacy liabilities.these related-party transactions (dollars, in thousands):
Concurrently with the Acquisition, we and OfficeMax entered into a mutual administrative services agreement pursuant
Predecessor | ||||||||
January 1 Through February 21, 2008 | Year Ended December 31, 2007 | |||||||
Cash collections | $ | (354,222 | ) | $ | (2,343,598 | ) | ||
Payment of accounts payable | 336,605 | 2,094,226 | ||||||
Capital expenditures and acquisitions | 10,168 | 141,801 | ||||||
Income taxes | 217 | 1,990 | ||||||
Corporate general and administrative expense allocation | 1,995 | 15,161 | ||||||
Net equity transactions with related parties | $ | (5,237 | ) | $ | (90,420 | ) | ||
Notes to which we and OfficeMax exchange certain accounting and financial management, legal, human resources and transportation services for terms ranging from two to fourteen months after the Acquisition. Substantially all of the services to be performed under this agreement are provided by us for OfficeMax.Consolidated Financial Statements—(Continued)
4.5. Other (Income) Expense, Net
"Other“Other (income) expense, net"net” includes miscellaneous income and expense items. The components of "Other“Other (income) expense, net"net” in the Consolidated Statements of Income (Loss) are as follows:follows (dollars, in thousands):
| Boise Holdings | Predecessor | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Year Ended December 31 | |||||||||||
| October 29 (inception) through December 31, 2004 | January 1 through October 28, 2004 | |||||||||||
| 2003 | 2002 | |||||||||||
| (thousands) | ||||||||||||
Compensation expense(a) | $ | — | $ | 12,665 | $ | — | $ | — | |||||
Sale of plywood and lumber operations(b) | — | 7,123 | — | — | |||||||||
Write-down of impaired assets(c) | — | — | 14,699 | — | |||||||||
Restructuring activities(d) | — | — | (806 | ) | (750 | ) | |||||||
Sales of receivables (Note 8) | — | 2,176 | 1,948 | 2,311 | |||||||||
Loss on lease termination | — | — | 3,586 | — | |||||||||
Loss on sales of assets | 107 | 2,915 | 3,086 | 2,202 | |||||||||
Write-down of assets | — | 163 | 4,634 | 3,455 | |||||||||
Other, net | (130 | ) | 306 | 5,659 | 4,606 | ||||||||
$ | (23 | ) | $ | 25,348 | $ | 32,806 | $ | 11,824 | |||||
BZ Intermediate Holdings LLC | Predecessor | ||||||||||||||||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2007 | ||||||||||||||
Changes in supplemental pension plans | $ | — | $ | (2,914 | ) | $ | — | $ | — | ||||||||
Changes in retiree healthcare programs | — | — | — | (4,367 | ) | ||||||||||||
Sales of assets, net | 514 | — | (941 | ) | (231 | ) | |||||||||||
Closure costs | — | — | — | 119 | |||||||||||||
Project costs | 676 | 248 | — | 276 | |||||||||||||
Other, net | 2,815 | (314 | ) | (48 | ) | 61 | |||||||||||
$ | 4,005 | $ | (2,980 | ) | $ | (989 | ) | $ | (4,142 | ) | |||||||
The year ended December 31, 2009, included $3.5 million of expense related to the indefinite idling of the #2 newsprint machine at our mill in DeRidder, Louisiana, which was recorded in our Packaging segment. These charges included severance costs, preservation and maintenance costs, and other miscellaneous costs related to the machine idling. The machine idling resulted in the termination of 17 salaried employees at the DeRidder mill, as well as 95 hourly employees, some of whom have filled other positions within the Company, while the remaining are on layoff status as of December 31, 2009. We employ approximately 425 employees at the mill after the machine idling. At December 31, 2009, we had $0.1 million of severance liabilities recorded in “Accrued liabilities, Compensation and benefits” on the Consolidated Balance Sheet. We expect to pay the remainder of these severance costs by first quarter 2010.
6. Income Taxes
For the year ended December 31, 2009, our effective tax provision rate was 12.1%. The primary reason for the difference from the federal statutory income tax rate of 35.0% is the release of valuation allowances and the effect of state income taxes. We have released the valuation allowances recorded in the prior year because we expect to be able to utilize our deferred tax assets to offset deferred tax liabilities. For the year ended December 31, 2008, our effective tax benefit rate was 12.3%. The primary reason for the difference from the federal statutory income tax rate is the valuation allowance we recorded during 2008.
During the Predecessor period of January 1 through October 28, 2004 included $12.7 million of expense primarily for a one-time retention bonus OfficeMax granted to its employees.
October 28, 2004. However, the sale also resulted in a $7.4 million reduction in the estimated LIFO reserve, which was recorded in "Materials, labor and other operating expenses."
5. Accounting Changes
Asset Retirement Obligations
In January 2003, our predecessor adopted the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations, which affects the way we account for landfill closure costs. This statement requires us to record an asset and a liability (discounted) for estimated closure and closed-site monitoring costs and to depreciate the asset over the landfill's expected useful life. Previously, our predecessor accrued for the closure costs over the life of the landfill and expensed monitoring costs as incurred. Effective January 1, 2003, our predecessor recorded a one-time, after-tax charge of $4.1 million as a cumulative-effect adjustment for the difference between the amounts recognized in the financial statements prior to the adoption of SFAS No. 14321, 2008, and the amount recognized after the adoption of SFAS No. 143. On a pro forma basis, if the provisions of this statement had been in effect during 2002, the 2002 net loss would not have materially changed.
We record liabilities when assessments and/or remedial efforts are probable and the cost can be reasonably estimated. These liabilities are based on the best estimate of current costs and are updated periodically to reflect current technology, laws and regulations, inflation and other economic factors. On a pro forma basis, if the provisions of SFAS No. 143 had been in effect during 2002, the pro forma amount of our predecessor's liabilities, measured using current information, assumptions and interest rates, would not have materially changed. We do not have any assets legally restricted for purposes of settling asset retirement obligations. For more information, see Note 1, Summary of Significant Accounting Policies, under the caption "Asset Retirement Obligations."
Stock-Based Compensation
In 2003, our predecessor adopted the fair-value-based method of accounting for stock-based employee compensation using the prospective method of transition under the provisions of SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure (see Note 1, Summary of Significant Accounting Policies, under the caption "Equity Compensation"). The adoption did not materially affect their financial position or results of operations.
6. Income Taxes
Period of October 29 throughyear ended December 31, 2004
The2007, the majority of the Predecessor businesses and assets of Boise Holdings arewere held and operated by limited-liabilitylimited liability companies, which are not subject to entity-level federal or state income taxation. The taxesFor the separate Predecessor subsidiaries that are taxed as corporations, the effective tax rates were 37.6% and 44.1%, respectively. During these periods, the primary reason for the difference in respecttax rates is the effect of state income taxes.
Notes to these operations are payable by our equity holders in accordance with their respective ownership percentage. We expect that Boise Holdings and affiliates will make cash distributions to permitConsolidated Financial Statements—(Continued)
A reconciliation of the members of Boise Holdings and affiliates to pay these taxes. Both our senior credit facilitiesstatutory U.S. federal tax benefit (provision) and the indenture governing our notes permit these distributions.reported tax benefit (provision) is as follows (dollars, in thousands):
In addition to the businesses and assets held and operated by limited-liability companies, we have small corporations that are subject to state and local income taxes. These corporations accrued income taxes of $329,000, which consisted of $207,000 accrued for U.S. federal taxes, $58,000 accrued for U.S. state taxes and $64,000 accrued for Canadian taxes. There are no deferred tax assets or liabilities for these corporations.
Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||
Income (loss) before income taxes | $ | 168,170 | $ | (47,709 | ) | |||
Statutory U.S. income tax rate | 35.0 | % | 35.0 | % | ||||
Statutory tax benefit (provision) | $ | (58,859 | ) | $ | 16,698 | |||
State taxes | (6,858 | ) | 1,724 | |||||
Valuation allowance | 45,719 | (12,540 | ) | |||||
Other | (358 | ) | (33 | ) | ||||
Reported tax benefit (provision) | $ | (20,356 | ) | $ | 5,849 | |||
Effective income tax benefit (provision) rate | (12.1 | )% | 12.3 | % | ||||
Predecessor Periods
In the predecessor periods presented, Boise Forest Products Operations results were included in the consolidated income tax returns of OfficeMax. However, in the predecessor financial statements, income taxes were provided based on a calculation of the income tax expense that would have been incurred if our predecessor had operated as a separate taxpayer. Income taxes have been provided for all items included in the Statements of Income (Loss), regardless of when such items were reported for tax purposes or when the taxes were actually paid or refunded. Current tax liabilities and receivables were transferred to OfficeMax and are included in "Net equity transactions with OfficeMax." During the period of January 1 through October 28, 2004, and the years ended December 31, 2003 and 2002, the net current tax liability/(receivable) was $38.0 million, $(47.1) million and $(53.9) million, respectively.
The income tax (provision) benefit shown in the Consolidated Statements of Income (Loss) includes the following:following (dollars, in thousands):
| Predecessor | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | Year Ended December 31 | |||||||||
| January 1 through October 28, 2004 | ||||||||||
| 2003 | 2002 | |||||||||
| (thousands) | ||||||||||
Current income tax (provision) benefit | |||||||||||
Federal | $ | (32,152 | ) | $ | 40,952 | $ | 45,663 | ||||
State | (5,864 | ) | 6,155 | 8,328 | |||||||
Foreign | (2 | ) | (56 | ) | (136 | ) | |||||
(38,018 | ) | 47,051 | 53,855 | ||||||||
Deferred income tax (provision) benefit | |||||||||||
Federal | (7,894 | ) | (8,948 | ) | (7,279 | ) | |||||
State | (1,439 | ) | (1,632 | ) | (1,328 | ) | |||||
(9,333 | ) | (10,580 | ) | (8,607 | ) | ||||||
$ | (47,351 | ) | $ | 36,471 | $ | 45,248 | |||||
A reconciliation
Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||
Current income tax (provision) benefit | ||||||||
Federal | $ | 274 | $ | (589 | ) | |||
State | (599 | ) | 13 | |||||
Foreign | (12 | ) | (14 | ) | ||||
Total current | (337 | ) | (590 | ) | ||||
Deferred income tax (provision) benefit | ||||||||
Federal | (14,567 | ) | 5,854 | |||||
State | (5,452 | ) | 585 | |||||
Foreign | — | — | ||||||
Total deferred | (20,019 | ) | 6,439 | |||||
Total (provision) benefit for income taxes | $ | (20,356 | ) | $ | 5,849 | |||
During the year ended December 31, 2009, cash received for taxes, net of payments made, was $0.2 million. During the statutory U.S.year ended December 31, 2008, cash paid for taxes, net of refunds received, was $32,000. During the Predecessor period of January 1 through February 21, 2008, cash paid for taxes, net of refunds received, was immaterial. Cash paid for taxes, net of refunds received, was $2.3 million during the Predecessor year ended December 31, 2007.
At December 31, 2009, we had federal net operating losses of $154.4 million, which expire in 2028 and 2029, with a tax (provision) benefitvalue of $54.1 million. At December 31, 2009, we had state net operating loss carryovers, which expire between 2013 and the reported2029, with a tax (provision) benefit is as follows:value of $5.4 million.
| Predecessor | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | Year Ended December 31 | |||||||||
| January 1 through October 28, 2004 | ||||||||||
| 2003 | 2002 | |||||||||
| (thousands) | ||||||||||
Statutory tax (provision) benefit | $ | (40,886 | ) | $ | 27,892 | $ | 37,154 | ||||
State taxes | (4,613 | ) | 3,197 | 4,490 | |||||||
Foreign tax provision different from theoretical rate | (3,998 | ) | (4,055 | ) | 126 | ||||||
Tax settlement, net of other charges | — | 7,200 | — | ||||||||
ESOP dividend deduction | 1,973 | 2,202 | 2,019 | ||||||||
Charitable contributions | — | (1,097 | ) | 129 | |||||||
Increase in cash surrender value of life insurance | 866 | 1,915 | 2,111 | ||||||||
Other, net | (693 | ) | (783 | ) | (781 | ) | |||||
Reported tax (provision) benefit | $ | (47,351 | ) | $ | 36,471 | $ | 45,248 | ||||
Notes to Consolidated Financial Statements—(Continued)
The components of the net deferred tax liabilityliability/asset in the Consolidated Balance SheetSheets are as follows:follows (dollars, in thousands):
| Predecessor | |||||
---|---|---|---|---|---|---|
| December 31, 2003 | |||||
| Assets | Liabilities | ||||
| (thousands) | |||||
Employee benefits | $ | 99,383 | $ | 9,783 | ||
Property and equipment and fiber farms | 590,197 | 1,153,995 | ||||
Reserves | 11,919 | 941 | ||||
Inventories | 9,236 | 1,912 | ||||
Deferred charges | 977 | 3,554 | ||||
Investments | 5,198 | 6,350 | ||||
Other | 3,447 | 855 | ||||
$ | 720,357 | $ | 1,177,390 | |||
Boise Forest Products Operations generated net operating losses during 2003
As of December 31 | |||||||||||||
2009 | 2008 | ||||||||||||
Assets | Liabilities | Assets | Liabilities | ||||||||||
Employee benefits | $ | 61,863 | $ | 477 | $ | 73,241 | $ | 31 | |||||
Property and equipment | — | 132,413 | — | 48,989 | |||||||||
Deferred financing costs | 1,906 | 2,989 | — | — | |||||||||
Intangible assets and other | 224 | 13,522 | 395 | 13,576 | |||||||||
Net operating loss | 59,456 | — | 14,176 | — | |||||||||
Alternative minimum tax | — | — | 843 | — | |||||||||
Reserves | 4,011 | — | 5,528 | — | |||||||||
Inventories | 4,163 | — | 7,249 | — | |||||||||
Unearned income | — | 21,860 | — | — | |||||||||
State income tax adjustments | 2,344 | 213 | — | — | |||||||||
Other | 3,168 | 1,763 | 2,280 | 1,910 | |||||||||
Valuation allowance | — | — | (45,719 | ) | — | ||||||||
$ | 137,135 | $ | 173,237 | $ | 57,993 | $ | 64,506 | ||||||
At December 31, 2009 and 2002. Net operating losses are not included as2008, we had the following deferred tax assets but were transferred to our predecessor and includedbalances on the Consolidated Balance Sheets (dollars, in "Net equity transactions with OfficeMax." Separate company net operating losses have been, or are expected to be, used in OfficeMax's consolidated financial statements.thousands):
As of December 31 | ||||||||
2009 | 2008 | |||||||
Current deferred tax assets (liabilities), net | $ | (11,539 | ) | $ | 2,108 | |||
Noncurrent deferred tax liabilities, net | (24,563 | ) | (8,621 | ) | ||||
Total deferred tax liabilities, net | $ | (36,102 | ) | $ | (6,513 | ) | ||
Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. Boise Forest Products Operations didDuring the year ended December 31, 2009, we released $45.7 million of valuation allowances recorded during the year ended December 31, 2008. During the fourth quarter of 2009, we determined that it was more likely than not record athat our deferred tax assets would be realized because of current year income from continuing operations. Therefore, we recognized our entire valuation allowance as an income tax benefit from continuing operations. At December 31, 2008, we recorded $12.5 million of valuation allowance to income from continuing operations and $32.9 million and $0.3 million to accumulated other comprehensive income (loss), which is included in any“Capital” on our Consolidated Balance Sheets, against our pension liability and cash flow hedges, respectively.
At December 31, 2007, the Predecessor had $661,000 of deferred tax liability related to its separate subsidiaries recorded on the periods presented.Consolidated Balance Sheet. Because of its pass-through tax structure, the Predecessor recorded tax expense related only to small subsidiaries that are taxed as corporations. At December 31, 2007, the Predecessor’s tax basis was $420.8 million lower than the reported amount of net assets recorded on the Consolidated Balance Sheet due primarily to accelerated depreciation recorded for tax purposes.
Notes to Consolidated Financial Statements—(Continued)
Pretax lossincome (loss) from domestic and foreign sources is a follows:as follows (dollars, in thousands):
| Predecessor | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| | Year Ended December 31 | ||||||||
| January 1 through October 28, 2004 | |||||||||
| 2003 | 2002 | ||||||||
| (thousands) | |||||||||
Domestic | $ | 124,426 | $ | (75,575 | ) | $ | (105,190 | ) | ||
Foreign | (7,609 | ) | (4,116 | ) | (964 | ) | ||||
Pretax income (loss) | $ | 116,817 | $ | (79,691 | ) | $ | (106,154 | ) | ||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | ||||||
Domestic | $ | 168,161 | $ | (47,720 | ) | ||
Foreign | 9 | 11 | |||||
Pretax income (loss) | $ | 168,170 | $ | (47,709 | ) | ||
At October 28, 2004,December 31, 2009 and 2008, our predecessor's foreign subsidiaries did not have anyhad no undistributed earnings that had been indefinitely reinvested.
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. For the year ended December 31, 2009, we increased the amount of our unrecognized tax benefit by $87.6 million, which was charged to income tax expense, as a result of excluding the alternative fuel mixture credits from income for tax purposes. If subsequently recognized, this unrecognized tax benefit would reduce our tax expense by $83.2 million. Exclusion of the alternative fuel mixture credits generated a deferred tax benefit of $82.8 million for the year ended December 31, 2009, (primarily a net operating loss carryforward).
A reconciliation of the unrecognized tax benefits is as follows (dollars, in thousands):
As of December 31 | ||||||
2009 | 2008 | |||||
Unrecognized tax benefits, beginning of year | $ | 256 | $ | 235 | ||
Gross increases related to prior-period tax positions | 11 | 21 | ||||
Gross decrease related to prior-period tax positions | — | — | ||||
Gross increases related to current-period tax positions | 87,553 | — | ||||
Settlements | — | — | ||||
Unrecognized tax benefits, end of year | $ | 87,820 | $ | 256 | ||
The unrecognized tax benefit net of federal benefit for state taxes is $83.2 million. We have determined that there is a filing position to exclude the alternative fuel mixture credits from taxable income. Accordingly, $82.8 million of the $83.2 million is recorded as a credit to our long-term deferred taxes to eliminate the benefit associated with the uncertain tax position. The remaining $0.4 million is recorded in “Other long-term liabilities” on our Consolidated Balance Sheet. Additional guidance may be issued by the IRS in the next 12 months, which could cause us to change our unrecognized tax benefits from the amounts currently recorded. It is not reasonably possible to know to what extent the total amounts of unrecognized benefits will increase or decrease within the next 12 months.
We recognize interest and penalties related to uncertain tax positions as income tax expense in our Consolidated Statement of Income (Loss). Interest expense related to uncertain tax positions was immaterial for both of the years ended December 31, 2009 and 2008. We did not record any penalties associated with our uncertain tax positions during the years ended December 31, 2009 and 2008.
In the normal course of business, we are subject to examination by taxing authorities. As we are a wholly owned, consolidated entity of Boise Inc., our tax return is filed under the consolidated tax return of Boise Inc. Boise Inc.’s open tax years are 2009, 2008, and 2007.
Notes to Consolidated Financial Statements—(Continued)
As part of the purchase price of the Acquisition, we acquired the stock of two separate corporate entities. These corporations are wholly owned, consolidated entities of Boise Inc. These entities are subject to audit by taxing authorities for the year 2006 and the years that follow. The statute of limitations for 2005 expired this year. We are responsible for any tax adjustments resulting from such audits. One of these entities, Boise Cascade Transportation Holdings Corp., has completed an examination for the 2006 tax year without any proposed adjustments.
7. Leases
We did not have any capital leases during any of the periods presented. We lease a portion of our distribution centers, as well as other property and equipment, under operating leases. During the Predecessor period presented, the Predecessor leased its distribution centers, as well as other property and equipment, under operating leases. For purposes of determining straight-line rent expense, the lease term is calculated from the date we first takeof possession of the facility, including any periods of free rent and any option periods wethat are reasonably assured of exercising.being exercised. Straight-line rent expense is also adjusted to reflect any
allowances or reimbursements provided by the lessor. Our straight-line rentRental expense calculation is consistent with generally accepted accounting principles as recently clarified by the chief accountant of the SEC. Rental expenseand sublease income for operating leases and sublease rental income received waswere as follows:follows (dollars, in thousands):
| Boise Holdings | | | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Predecessor | |||||||||||
| October 29 (inception) through December 31, 2004 | |||||||||||
| | Year Ended December 31 | ||||||||||
| January 1 through October 28, 2004 | |||||||||||
| 2003 | 2002 | ||||||||||
| (thousands) | |||||||||||
Rental expense | $ | 2,889 | $ | 14,679 | $ | 18,981 | $ | 20,457 | ||||
Sublease rental income | — | 28 | 14 | 39 |
BZ Intermediate Holdings LLC | Predecessor | |||||||||||||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2007 | |||||||||||
Rental expense | $ | 16,357 | $ | 13,523 | $ | 2,044 | $ | 13,314 | ||||||
Sublease rental income | — | — | — | 5 |
For thenoncancelable operating leases with remaining terms of more than one year, the minimum lease payment requirements are $12.4 million in 2010, $11.7 million for 2005, $9.9in 2011, $10.8 million for 2006, $8.5in 2012, $8.3 million for 2007, $7.7in 2013, $6.9 million for 2008in 2014, and $7.2$6.6 million for 2009,in 2015, with total payments thereafter of $26.5$12.5 million. TheseWe do not expect sublease rental income in the future to be material. Accordingly, our future minimum lease payment requirements have not been reduced by sublease rentals due in the future under noncancelable subleases. Minimum sublease income received in the future is not expected to be material.rental income.
Substantially all lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to purchase the leased property. Additionally, some agreements contain renewal options averaging 8.5six years, with fixed payment terms similar to those in the original lease agreements.
8. ReceivablesConcentrations of Risk
AtBusiness
Sales to OfficeMax represent a concentration in the volume of business transacted and revenue generated from these transactions. Sales to OfficeMax were $545.4 million and $494.6 million during the years ended December 31, 2004, we had a $157.5 million note receivable from Timber Holdings recorded as "Note receivable from related party" on our Balance Sheet. The note accrues interest at 6%2009 and is due October 2015. In 2004, we recorded $1.7 million2008, representing 28% and 24% of interest income from the note.
In the predecessor periods presented, Boise Forest Products Operations participated in OfficeMax's receivabletotal sales program. The program consisted of a revolving sale of receivables for 364 days and was subject to renewal. Boise Forest Products Operations' portion of the costs related to the program are included in "Other (income) expense, net" in the Statements of Income (Loss). See Note 4, Other (Income) Expense, Net. During third quarter 2004, in anticipation of the sale of the paper and forest products assets, OfficeMax stopped selling the receivables related to these businesses.
Under the sales program, OfficeMax sold fractional ownership interests in a defined pool of trade accounts receivable. At October 28, 2004, $0 of sold accounts receivable were excluded from "Receivables," compared with $148.8 million and $105.4 million at December 31, 2003 and 2002, respectively. The decrease of $148.8 million at October 28, 2004, from the amount at December 31, 2003, used cash from operations for the period ended October 28, 2004. The increase at December 31, 2003, in sold accounts receivable of $43.4 million, over the amount at December 31,
2002, provided cash from operations in 2003. The portion of fractional ownership interest we retain is included in "Receivables" in the Balance Sheet. After the Acquisition, we no longer participated in a receivables sale program.
9. Investments in Equity Affiliates
In May 2004, Boise Forest Products Operations sold its 47% interest in Voyageur Panel, which owned an oriented strand board plant in Barwick, Ontario, Canada, to Ainsworth Lumber Co. Ltd. for $91.2 million in cash. Boise Forest Products Operations recorded a $46.5 million pretax gain in "Other (income) expense, net," which is reflected in the Wood Products segment. This item increased net income $28.4 million after taxes forthose periods. For the period of January 1 through October 28, 2004.
PriorFebruary 21, 2008, and the year ended December 31, 2007, the Predecessor’s sales to OfficeMax were $90.1 million and $615.7 million, respectively. These sales are included in “Sales, Related parties” in the sale, Boise Forest Products OperationsConsolidated Statements of Income (Loss). During the Predecessor periods, sales to OfficeMax represented 25% and 26% of sales, respectively. At December 31, 2009 and 2008, we had $34.7 million and $30.3 million, respectively, of accounts receivable due from OfficeMax. No other single customer accounted for 10% or more of consolidated trade sales or of total sales.
Labor
As of December 31, 2009, we had approximately 4,100 employees. Approximately 60% of these employees work pursuant to collective bargaining agreements. As of December 31, 2009, approximately 33% of our
Notes to Consolidated Financial Statements—(Continued)
employees were working pursuant to collective bargaining agreements that have expired or will expire within one year, including agreements at the joint venture underfollowing facility locations: Wallula, Washington; DeRidder, Louisiana; Jackson, Alabama; St. Helens, Oregon; and Nampa, Idaho. The labor contract at our paper mill in Wallula, Washington (332 employees represented by the equity method. Accordingly,Association of Western Pulp & Paper Workers, or AWPPW) expired in March 2009 and was terminated by the results doAWPPW on October 31, 2009. In early February 2010, the union employees at Wallula rejected a new collective bargaining agreement that union leadership had recommended unanimously. On February 22, 2010, the company declared an impasse in the bargaining process and implemented the terms of the last contract offer. Our potential inability to reach a mutually acceptable labor contract at Wallula, or at any of our other facilities, could result in, among other things, strikes or other work stoppages or slowdowns by the affected employees.
9. Intangible Assets
Intangible assets represent primarily the values assigned to trademarks and trade names, customer relationships, and technology in connection with the Acquisition. Customer relationships are amortized over approximately ten years, and technology is amortized over five years. Trademarks and trade names are not includeamortized. During the joint venture's sales but do include $6.3years ended December 31, 2009 and 2008, intangible asset amortization was $2.8 million of equity in earnings duringand $2.3 million, respectively. During the Predecessor period of January 1 through October 28, 2004, $8.7February 21, 2008, and the Predecessor year ended December 31, 2007, intangible asset amortization was zero and $3.5 million, respectively. Our estimated amortization expense is $2.8 million in both 2010 and 2011, $2.7 million in 2012, $1.6 million in 2013, and $1.4 million in both 2014 and 2015. The gross carrying amount, accumulated amortization, and net carrying amount as of equityDecember 31, 2009 and 2008, were as follows (dollars, in earnings in 2003 and $0.6 million of equity in losses in 2002.
10. Goodwill and Intangible Assetsthousands):
Goodwill represents
Year Ended December 31, 2009 | ||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||
Trademarks and trade names | $ | 16,800 | $ | — | $ | 16,800 | ||||
Customer relationships | 13,700 | (2,512 | ) | 11,188 | ||||||
Technology and other | 6,895 | (2,525 | ) | 4,370 | ||||||
$ | 37,395 | $ | (5,037 | ) | $ | 32,358 | ||||
Year Ended December 31, 2008 | ||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||
Trademarks and trade names | $ | 16,800 | $ | — | $ | 16,800 | ||||
Customer relationships | 13,700 | (1,142 | ) | 12,558 | ||||||
Technology and other | 6,860 | (1,143 | ) | 5,717 | ||||||
$ | 37,360 | $ | (2,285 | ) | $ | 35,075 | ||||
We did not have any triggering events during 2009; therefore, we performed our annual impairment assessment for our indefinite-lived assets for all of our segments during fourth quarter 2009. Based on the excessresults of purchase priceour testing, we have concluded that our indefinite-lived intangible assets were not impaired. We have also performed an undiscounted cash flow analysis as of fourth quarter 2009 and related costs overdetermined that the value assigned to the net tangible and intangibleof our long-lived assets of businesses acquired.was not impaired. We account for goodwill in accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, which requires us to assess our acquired goodwill and intangible assets with indefinite lives for impairment at least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment. We will assess goodwill and intangible assets with indefinite lives at least annually using a fair-value-based approach. We will also evaluateevaluated the remaining useful lives of our finite-lived purchased intangible assets to determine if anycustomer relationships and technology and determined that no adjustments to the useful lives arewere necessary. The finite-lived purchased intangible assets consist of customer relationships and technology. These intangible assets are discussed in more detail below. Our predecessor completed its annual assessment in accordance with SFAS No. 142
Notes to Consolidated Financial Statements—(Continued)
10. Asset Retirement Obligations
We accrue for asset retirement obligations in the first quarter 2004 and 2003, and determined that there was no impairment.
Ofperiod in which they are incurred if sufficient information is available to reasonably estimate the $11.6 millionfair value of goodwill recorded in the 2003 predecessor Balance Sheet, $4.2 million was recorded inobligation. When we record the Wood Products segment and $7.4 million was recorded inliability, we capitalize the Building Materials Distribution segment.
Changes incost by increasing the carrying amount of Boise Holdings' goodwill by segmentthe related long-lived asset. Over time, the liability is accreted to its settlement value, and the capitalized cost is depreciated over the useful life of the related asset. Occasionally, we become aware of events or circumstances that require us to revise our future estimated cash flows. When revisions become necessary, we recalculate our obligation and adjust our asset and liability accounts utilizing appropriate discount rates. Upon settlement of the liability, we will recognize a gain or loss for any difference between the settlement amount and the liability recorded.
At December 31, 2009 and 2008, we had $10.4 million and $14.3 million, respectively, of asset retirement obligations recorded on the Consolidated Balance Sheet. These liabilities related primarily to landfill closure and closed-site monitoring costs. These liabilities are as follows:
| Paper | Packaging & Newsprint | Wood Products | Building Materials Distribution | Corporate and Other | Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | |||||||||||||||||
Balance at October 29, 2004 (inception) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||
Goodwill acquired during the year (Note 2) | 1,499 | 875 | 1,399 | 348 | — | 4,121 | ||||||||||||
Purchase price adjustments (Note 2) | 7,277 | 635 | 1,799 | — | 4,558 | 14,269 | ||||||||||||
Balance at December 31, 2004 | $ | 8,776 | $ | 1,510 | $ | 3,198 | $ | 348 | $ | 4,558 | $ | 18,390 | ||||||
Intangible assets representbased on the values assigned to trade names and trademarks, customer relationships and technology. The trade name and trademarks assets have an indefinite lifebest estimate of current costs and are not amortized. Allupdated periodically to reflect current technology, laws and regulations, inflation, and other intangibleeconomic factors. During 2009, our estimated future cash flows for retirement obligations relating to items at two of our mills were reduced as a result of discussions with third-party organizations. These changes reduced our expected asset retirement obligations. No assets are amortized over their expected useful lives. Customer relationships are amortized over five years, and technology is amortized over threelegally restricted for purposes of settling asset retirement obligations. The table below describes changes to five years. Intangible assets consisted of the following:
| Period Ended December 31, 2004 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||
| (thousands) | ||||||||
Trade names and trademarks | $ | 22,800 | $ | — | $ | 22,800 | |||
Customer relationships | 6,800 | (227 | ) | 6,573 | |||||
Technology | 5,080 | (96 | ) | 4,984 | |||||
$ | 34,680 | $ | (323 | ) | $ | 34,357 | |||
Intangible asset amortization expense was not materialretirement obligations for the periods of October 29 through December 31, 2004, January 1 through October 28, 2004, or during the years ended December 31, 20032009 and 2002.2008 (dollars, in thousands):
December 31, 2009 | December 31, 2008 | |||||||
Asset retirement obligation at beginning of period | $ | 14,283 | $ | — | ||||
Asset retirement liability recorded in the purchase price allocation | — | 13,655 | ||||||
Liabilities incurred | — | 58 | ||||||
Accretion expense | 1,165 | 921 | ||||||
Payments | (122 | ) | (542 | ) | ||||
Revisions in estimated cash flows | (4,964 | ) | 191 | |||||
Asset retirement obligation at end of period | $ | 10,362 | $ | 14,283 | ||||
We have additional asset retirement obligations with indeterminate settlement dates. The fair value of these asset retirement obligations cannot be estimated amortization expensedue to the lack of sufficient information to estimate the settlement dates of the obligations. These asset retirement obligations include, for example, (i) removal and disposal of potentially hazardous materials related to equipment and/or an operating facility if the equipment and/or facilities were to undergo major maintenance, renovation, or demolition; (ii) wastewater treatment ponds that may be required to be drained and/or cleaned if the related operating facility is $2.5 millionclosed; and (iii) storage sites or owned facilities for which removal and/or disposal of chemicals and other related materials are required if the operating facility is closed. We will recognize a liability in eachthe period in which sufficient information becomes available to reasonably estimate the fair value of 2005, 2006 and 2007, $2.3 million in 2008 and $1.8 million in 2009.these obligations.
Notes to Consolidated Financial Statements—(Continued)
11. Debt
As a result of the Acquisition, we incurred $2.0 billion of indebtedness. At December 31, 2004,2009 and 2008, our long-term debt and the interest rates on that debt were as follows (dollars, in thousands):
December 31, 2009 | December 31, 2008 | |||||||||||||
Amount | Interest Rate | Amount | Interest Rate | |||||||||||
Revolving credit facility, due 2013 | $ | — | — | % | $ | 60,000 | 4.33 | % | ||||||
Tranche A term loan, due 2013 | 203,706 | 3.25 | % | 245,313 | 4.75 | % | ||||||||
Tranche B term loan, due 2014 | 312,221 | 5.75 | % | 471,437 | 5.75 | % | ||||||||
Second lien term loan, due 2015 | — | — | % | 260,700 | 9.25 | % | ||||||||
9% Senior notes, due 2017 | 300,000 | 9.00 | % | — | — | % | ||||||||
Current portion of long-term debt | (30,711 | ) | 3.97 | % | (25,822 | ) | 5.33 | % | ||||||
Long-term debt, less current portion | 785,216 | 6.41 | % | 1,011,628 | 6.34 | % | ||||||||
Current portion of long-term debt | 30,711 | 3.97 | % | 25,822 | 5.33 | % | ||||||||
$ | 815,927 | 6.32 | % | $ | 1,037,450 | 6.31 | % | |||||||
As of December 31, 2009, our debt consisted of the following:
| December 31, 2004 | |||
---|---|---|---|---|
| (thousands) | |||
Revolving credit facility, due 2010 | $ | — | ||
Tranche B term loan, due 2011 | 1,330,000 | |||
Senior floating-rate notes, due 2012 | 250,000 | |||
7.125% senior subordinated notes, due 2014 | 400,000 | |||
1,980,000 | ||||
Less current portion | (13,300 | ) | ||
$ | 1,966,700 | |||
Our senior secured credit facilities, which we entered into in October 2004 in connection with the Acquisition, consist of a six-year
The Revolving Credit Facility: A five-year nonamortizing $250.0 million senior secured revolving credit facility with interest at either the London Interbank Offered Rate (LIBOR) plus an applicable margin, which is currently 300 basis points, or a calculated base rate plus an applicable margin, which is currently 200 basis points (collectively with the Tranche A term loan facility and a seven-year senior securedthe Tranche B term loan.loan facility, the Credit Facilities).
The Tranche A Term Loan Facility: A five-year loan facility with interest at LIBOR plus an applicable margin, which is currently 300 basis points, or a calculated base rate plus an applicable margin, which is currently 200 basis points. The Tranche A term loan facility was originally issued at $250.0 million.
The Tranche B Term Loan Facility: A six-year amortizing loan facility with interest at LIBOR (subject to a floor of 4%) plus 350 basis points or a calculated base rate plus 250 basis points. The Tranche B term loan facility was originally issued at $475.0 million.
The 9% Senior Notes: An eight-year nonamortizing $300.0 million senior unsecured debt obligation with annual interest at 9%.
The Credit Facilities are secured by a first-priority lien on all of the assets of our subsidiaries that guarantee or are borrowers, and in the event of default, the lenders generally would be entitled to seize the collateral. All borrowings under the Credit Facilities bear interest at a rate per annum equal to an applicable margin plus a calculated base rate or adjusted Eurodollar rate. The calculated base rate means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 0.50%. The adjusted Eurodollar rate means LIBOR rounded to the nearest 1/16 of 1.0% and adjusted for any applicable reserve requirements. In October 2004, Boise LLC and affiliates entered intoaddition to paying interest, the Company pays a six-year senior securedcommitment fee to the lenders under the revolving credit facility as partat a rate of 0.50% per annum (which shall be reduced to 0.375% when the leverage ratio is less than 2.25:1.00) times the daily average undrawn portion of the senior securedrevolving credit arrangements used to partially fundfacility (reduced by the Acquisition. The agreement permits us to borrow as much as $400 million at variable interest rates based on either the London InterBank Offered Rate (LIBOR), the prime rate or the federal funds effective rate. Borrowings under the agreement were $0 at December 31, 2004. At December 31, 2004, $68.3 millionamount of letters of credit were considered a draw on the revolver, thus reducing our borrowing capacity to $331.7 million. Lettersissued and outstanding), which fee is payable quarterly in arrears. The Company also pays letter of credit fees of 300 basis points times the average daily maximum outstanding amount of the letters of credit and a fronting fee of 15 basis points to the issuing bank of outstanding letters of credit. These fees are payable quarterly and in arrears.
At December 31, 2009 and 2008, we had zero and $60.0 million, respectively, of borrowings outstanding under the revolving credit facility. For the years ended December 31, 2009 and 2008, the average interest rates
Notes to Consolidated Financial Statements—(Continued)
for our borrowings under our revolving credit facility were 3.7% and 6.0%, respectively. The minimum and maximum borrowings under the revolving credit facility were zero and $60.0 million for the year ended December 31, 2009. The minimum and maximum borrowings under the Revolving Credit Facility were zero and $80.0 million for the year ended December 31, 2008. The weighted average amount of borrowings outstanding under the revolving credit facility during the year ended December 31, 2009, was $8.5 million. The weighted average amount of borrowings outstanding under the revolving credit facility during the year ended December 31, 2008, was $57.6 million. At December 31, 2009, we had availability of $227.8 million, which is net of outstanding letters of credit of $22.2 million.
Debt Restructuring
On October 26, 2009, Boise Paper Holdings, L.L.C. (Boise Paper Holdings) and Boise Finance Company (together, the Issuers), two of our wholly owned indirect subsidiaries, issued a $300 million aggregate principal amount of 9% senior notes due on November 1, 2017 (the 9% Senior Notes) through a private placement that is exempt from the registration requirements of the Securities Act of 1933, as amended. The 9% Senior Notes pay interest semiannually in arrears on May 1 and November 1, commencing on May 1, 2010.
Following the sale of the 9% Senior Notes, the Issuers used the net proceeds of the sale, as well as cash on hand, to retire a portion of the existing term loan indebtedness under Boise Paper Holdings’ Credit Facilities pursuant to the amendments of our Credit Facilities (Credit Agreement Amendments). The Credit Agreement Amendments became effective October 26, 2009, at which time Boise Paper Holdings repaid approximately $75 million of outstanding secured debt under its first lien term loan. In addition, pursuant to the Credit Agreement Amendments, Boise Paper Holdings used proceeds of the issuance to repurchase, in its entirety, the indebtedness outstanding under its second lien term loan. In consideration of the repurchase of indebtedness under the second lien term loan, Boise Paper Holdings paid a premium of 113% to the lender parties, plus accrued and unpaid interest. Upon the repurchase of all of the indebtedness outstanding under the second lien term loan, such debt was canceled and the second lien credit agreement was terminated.
The issuance of the 9% Senior Notes and the repurchase of our second lien term loan represented a substantial modification to our debt structure. Therefore, we wrote off the unamortized deferred financing fees for the second lien and recognized various other costs and fees incurred in connection with these transactions in our Consolidated Statements of Income (Loss). We also recorded $13.2 million of deferred financing costs related to the debt restructuring. In addition, in December 2009, we made a voluntary prepayment of $100 million on our Tranche B term loan at 101%. We recognized $66.8 million in “Loss on extinguishment of debt,” which consisted of the following (dollars, in thousands):
Write-off of second lien deferred financing fees | $ | 27,067 | |
Premium paid to second lien holders | 33,891 | ||
Other costs and fees | 5,826 | ||
$ | 66,784 | ||
In connection with the issuance of the 9% Senior Notes, we and the Issuers (together the 9% Senior Notes Guarantors) entered into the Registration Rights Agreement, dated as of October 26, 2009 (the Registration Rights Agreement). The Registration Rights Agreement requires the Company to register under the Securities Act the 9% Senior Notes due in 2017 (the Exchange Notes) having substantially identical terms to the 9% Senior Notes and to complete an exchange of the privately placed 9% Senior Notes for the publicly registered Exchange Notes or, in certain circumstances, to file and keep effective a shelf registration statement for resale of the privately placed 9% Senior Notes. If the Issuers fail to satisfy these obligations by October 26, 2010, the Issuers will pay additional interest up to 1% per annum to holders of the 9% Senior Notes.
Notes to Consolidated Financial Statements—(Continued)
The 9% Senior Notes are senior unsecured obligations and rank equally with all of the Issuers’ present and future senior indebtedness, senior to all of their future subordinated indebtedness, and effectively subordinated to all present and future senior secured indebtedness of the Issuers (including all borrowings with respect to the Credit Facilities to the extent of the value of the assets securing such indebtedness).
Covenants
The Credit Facilities require us and our subsidiaries to maintain financial covenant ratios. In connection with the October 2009 debt restructuring, we also entered into the Credit Agreement Amendments that modified our financial covenants under the Credit Facilities. The financial covenant modifications limit our total leverage ratio to 4.75:1.00, stepping down to 4.50:1.00 at September 30, 2011. We have a new secured leverage ratio of 3.25:1.00, stepping down to 3.00:1.00 at September 30, 2011. The total leverage ratio is defined in our loan agreements at the end of any fiscal quarter as the ratio of (i) consolidated total net debt as defined in our Credit Facilities debt agreement as of such day to (ii) consolidated adjusted EBITDA for the four-fiscal-quarter period ending on such date. The Credit Facilities secured leverage ratio is defined in our First Amendment to our loan agreement as the ratio as of the last day of any fiscal quarter of (i) consolidated first lien secured total net debt as defined in our credit agreement amendments as of such day to (ii) consolidated adjusted EBITDA for the four-fiscal-quarter period ending on such date. The Credit Facilities also limit our ability and our subsidiaries’ ability to make capital expenditures, generally to $150 million per year.
The 9% Senior Notes indenture contains covenants which, subject to certain exceptions, limit the ability of the Issuers and the 9% Senior Notes Guarantors to, among other things, incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with affiliates, and create liens on assets of the Issuers or 9% Senior Notes Guarantors. Upon a change of control, the Issuers must offer to repurchase the 9% Senior Notes at 101% of the principal amount, plus accrued and unpaid interest. If the Issuers sell certain assets and the Issuers do not use the proceeds from such sale for specified purposes, they must offer to repurchase the 9% Senior Notes at 100% of the principal amount, plus accrued and unpaid interest.
Guarantees
The Company’s obligations under its Credit Facilities are guaranteed by each of Boise Paper Holdings’ existing and subsequently acquired domestic subsidiaries (collectively, the Credit Facility Guarantors). The Credit Facilities are secured by a first-priority security interest in substantially all of the real, personal, and mixed property of Boise Paper Holdings and the Credit Facility Guarantors, including 100% of the equity interests of Boise Paper Holdings and each domestic subsidiary of Boise Paper Holdings, 65% of the equity interests of each of Boise Paper Holdings’ foreign subsidiaries (other than Boise Hong Kong Limited so long as Boise Hong Kong Limited does not account for more than $2.5 million of consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) during any fiscal year of Boise Paper Holdings), and all intercompany debt.
The 9% Senior Notes are jointly and severally guaranteed on a senior unsecured basis by us and each of our existing and future subsidiaries (other than the Issuers). The 9% Senior Notes guarantors do not include Louisiana Timber Procurement Company, L.L.C., or foreign subsidiaries.
Prepayments
We may redeem all or a portion of the 9% Senior Notes at any time on or after November 1, 2013, at a premium decreasing to zero by November 1, 2015, plus accrued and unpaid interest. In addition, prior to November 1, 2012, the Issuers may redeem up to 35% of the aggregate principal amount of the 9% Senior Notes at a redemption price of 109% of the principal amount thereof with the net proceeds of one or more qualified equity offerings.
Notes to Consolidated Financial Statements—(Continued)
Other Provisions
Subject to specified exceptions, the Credit Facilities require that the proceeds from certain asset sales, casualty insurance, certain debt issuances, and 75% (subject to step-downs based on certain leverage ratios) of the excess cash flow for each fiscal year must be used to pay down outstanding borrowings. As of December 31, 2009, required debt principal repayments under the Credit Facilities, including those from excess cash flows, total $30.7 million in 2010. Of this amount, $16.1 million is from our scheduled repayments, and $14.6 million relates to excess cash flows. Our debt principal repayment requirements are $48.3 million in 2011, $134.3 million in 2012, $13.0 million in 2013, $289.6 million in 2014, and $300.0 million thereafter.
Other
At December 31, 2009 and 2008, we had $47.4 million and $72.6 million, respectively, of costs recorded in “Deferred financing costs” on our Consolidated Balance Sheet. As noted above, we canceled the second lien with the proceeds from the debt restructuring, and as a result, we expensed approximately $27.1 million of deferred financing costs. We recorded this charge in “Loss on extinguishment of debt” in our Consolidated Statement of Income (Loss). In addition, the $13.2 million of financing costs related to the debt restructuring is included, net of amortization, in “Deferred financing costs” on our Consolidated Balance Sheet. The amortization of these costs is recorded in interest expense using the effective interest method over the life of the loans. We recorded $11.3 million and $9.3 million of amortization expense for the years ended December 31, 2009 and 2008, in “Interest expense” in our Consolidated Statements of Income (Loss).
In April 2008, we entered into interest rate derivative instruments to hedge a portion of our interest rate risk as required under the terms of the revolving credit facility were charged at a rate of 2.5%, including the fronting fee. In addition, we were charged a fee of 0.5% on the average daily unused portion of our revolving credit facility balance.
In October 2004, Boise LLCfirst and affiliates also entered into a seven-year senior secured floating-rate $1,330.0 million Tranche B term loan. The Tranche B term loan was available only to fund the Acquisition and was part of the senior secured creditsecond lien facilities. At December 31, 2004, our borrowing rate under the term loan2009, we had $515.9 million of variable-rate debt outstanding, all of which was 4.7%, and $1,330.0 million was outstanding. We have entered intohedged using interest rate swaps to hedge the cash flow risk from the variable interest payments on $550 million of the term loan, which gave us anderivatives. At December 31, 2009, our average effective interest rate of 5.0% at December 31, 2004 (see Note 12).
In October 2004, we issued $250.0 million of senior unsecured floating-rate notes due 2012 and $400.0 million of 7.125% senior subordinated notes due 2014. We may redeem all or part of the notes at any time at redemption prices defined in the indenture. Net proceeds from the notes were used to fund a portion of the purchase price for the Acquisition. If we sell specific assets or experience specific kinds of changes in control, we must offer to purchase the notes. At December 31, 2004,was not affected by our borrowing rate for the $250.0 million senior floating-rate notes was 5.0%. We have entered into interest rate swaps to hedgederivatives, as the cash flow risk fromeffective cap rates were above the variable interest paymentsrates on the $250.0 million senior floating-rate notes, which gave us an effectivehedged debt. For additional information on our interest rate of 6.6% at December 31, 2004 (seederivatives, see Note 12).
We paid approximately $85.9 million of fees and expenses associated with the forgoing debt transactions. The fees are being amortized over the shorter of the call period or the term of the loan, which ranges from three to eight years. At December 31, 2004, we had $84.1 million of costs recorded in "Deferred financing costs" on our Balance Sheet.12, Financial Instruments.
For the period of October 29 through December 31, 2004, our average interest rate was 5.6%.
At December 31, 2004, the scheduled payments of long-term debt were $13.3 million in each of 2005, 2006, 2007, 2008 and 2009 and $1.9 billion thereafter. In February 2005, however, we prepaid $412.0 million of our Tranche B term loan, primarily with the proceeds of a related-party loan from a subsidiary of Timber Holdings and the repayment by such subsidiary of a loan we had previously made to it. This prepayment eliminated our scheduled payments of long-term debt through 2009 and reduced the payments thereafter to $1.6 billion. The principal amount of the related-party loan we received from a subsidiary of Timber Holdings, which initially was $264.8 million, is subject to adjustment based on transactions between such subsidiary and us and matures on February 4, 2015.
For the periods of October 29 through December 31, 2004 and January 1 through October 28, 2004, and the years ended December 31, 20032009 and 2002,2008, cash payments for interest, net of interest capitalized, were $11.3 million, $64.8 million, $90.0$56.9 million and $91.6$72.8 million, respectively.
Predecessor Periods
In No payments were made during the predecessor periods presented, our predecessor participated in OfficeMax's centralized cash management system. Cash advances necessary to fund Boise Forest Products Operations' major improvements to, and replacements of, property and acquisitions and expansion, to the extent not provided through internally generated funds, were provided by OfficeMax's cash or funded with debt. At December 31, 2003, OfficeMax had $2.3 billion of debt outstanding. In the predecessor periods presented, debt and interest costs were allocated to our predecessor based on its average asset balances. The debt allocated from OfficeMax is included in our predecessor Balance Sheet, and the interest expense attributable to the debt allocated from OfficeMax is included in our Statements of Income (Loss). We calculated short-term borrowings and the current portion of long-term debt using the ratio of OfficeMax's total debt to current debt. For thePredecessor period of January 1 through October 28, 2004,February 21, 2008, and the yearsyear ended December 31, 2003 and 2002, our predecessor's average interest rates were 6.7%, 7.3% and 7.5%. We believe the allocations of debt and interest are a reasonable reflection of Boise Forest Products Operations' debt position and interest costs.2007.
12. Financial Instruments
We are exposed to market risks, including changes in interest rates, energy prices, and foreign currency exchange rates.
Interest Rate Risk—Debt
With the exception of the 9% Senior Notes maturing in November 2017, our debt is variable-rate debt. At December 31, 2004,2009, the estimated current marketvalue of the 9% Senior Notes, based on then-current interest rates for similar obligations with like maturities, was approximately $14.6 million more than the amount recorded on our Consolidated Balance Sheet. At December 31, 2009, the estimated value of our variable-rate debt, based on then-current interest rates for similar obligations with like maturities, was approximately $9.7$32.5 million moreless than the amount of debt reportedrecorded on our Consolidated Balance Sheet. The fair value of long-term debt is estimated fair valuesbased on quoted market prices for the same or similar issues or on the discounted value of the future cash flows expected to be paid using incremental rates of borrowing for similar liabilities.
In April 2008, we entered into interest rate derivative instruments to hedge a portion of our other financial instruments, cash and cash equivalents and receivables are the same as their carrying values. In 2004, $534.8 million, or 9% of our total sales, were to OfficeMax, which represents a concentration in the volume of business transacted and the revenue generated from these transactions. Apart from these sales, concentration of credit risks with respect to trade receivables is limited due to the
wide variety of customers and channels to and through which our products are sold, as well as their dispersion across many geographic areas.
Changes in interest and currency rates expose us to financial market risk. We occasionally use derivative financial instruments, such as interest rate swaps, risk as required under the terms of the Credit Facilities. At December 31, 2009, we had $515.9 million of variable-
Notes to Consolidated Financial Statements—(Continued)
rate hedge agreements, forward purchase contractsdebt outstanding, all of which was hedged using interest rate derivatives. We purchased interest rate caps with a term of three years and forward exchange contracts,a cap rate of 5.50% on a notional amount of $260.0 million to hedge underlying debt obligations or anticipated transactions. We do not use them for trading purposes. For qualifying interest hedges, the interest rate differentialon our second lien facility. These interest rate caps remain in place. We also purchased interest rate caps to hedge part of the interest rate risk on our Tranche B term loan facility with a LIBOR cap rate of 5.00% on a notional amount of $425.0 million for the period of April 21, 2008, through March 31, 2009; a notional amount of $350.0 million for the period of March 31, 2009, through March 31, 2010; and a notional amount of $300.0 million for the period of March 31, 2010, through March 31, 2011.
Credit Facilities.Effective December 31, 2008, we began utilizing the calculated base rate plus 250 basis points on the Tranche B term loan facility rather than the LIBOR plus 350 basis points (subject to a floor of 4%) used prior to December 31, 2008. As the interest rate on this debt no longer matched the rate on the interest rate derivatives used to hedge a portion of that debt, we account for them as economic hedges. The amounts recorded in accumulated other comprehensive income (loss), which is reflected as an adjustmentincluded in “Capital” on our Consolidated Balance Sheets, will be amortized to interest expense over the remaining life of the swap or underlying debt.
Our obligations under our senior credit facilities and senior notes expose us to changes in short-term interest rates since interest rates on this debt are variable. In November 2004, Boise Holdings entered into four interest rate swaps with a total notional amount of $550 million to hedge the exposure to floating-rate interest rate risks associated with our Tranche B term loan. The swaps on $300 million of our Tranche B term loan were fixed at an average pay rate of 3.3% and expire in December 2007, while the swaps on $250 million of our Tranche B term loan were fixed at an average pay rate of 3.5% and expire in December 2008. We also entered into two 3.7% interest rate swaps with an aggregate notional amount of $250 million to hedge the exposure to floating-rate interest rate risks associated with our senior floating rate notes. These swaps expire in October 2009. All of the swaps were designated as cash flow hedges. Accordingly, changesderivatives. Changes in the fair value of the swaps, net of taxes, werethese derivatives will be recorded in "Series B equity units"“Change in fair value of interest rate derivatives” in our Consolidated Statements of Income (Loss).
These derivatives have a cap rate of 5.00% on a notional amount of $425.0 million for the period of April 21, 2008, through March 31, 2009; a notional amount of $350.0 million for the period of March 31, 2009, through March 31, 2010; and a notional amount of $300.0 million for the period of March 31, 2010, through March 31, 2011. At December 31, 2009 and 2008, we recorded the fair value of the interest rate derivatives, or $0.1 million and $0.2 million, respectively, in “Other assets” on our Consolidated Balance Sheet. During the year ended December 31, 2009, we recorded the charge in fair value of these derivatives, or a $0.4 million gain, in “Changes in fair value of interest rate derivatives” in our Consolidated Statement of Income (Loss). During the year ended December 31, 2008, we recorded the change in fair value of these derivatives, or a $0.8 million loss, in accumulated other comprehensive income (loss), which is included in “Capital” on our Consolidated Balance Sheets. No amounts were reclassified to "Interest expense" as interest expense was recognized onexpense. During the LIBOR-based debt. Amounts reclassified in the period October 29 throughyears ended December 31, 2004 increased2009 and 2008, we recorded $0.5 million and $0.4 million, respectively, in “Interest expense” for the amortization of the premiums paid for the interest rate derivatives. At December 31, 2008, there was no ineffectiveness related to these hedges.
Second Lien Facility.We account for the interest rate derivatives with a notional amount of $260.0 million that hedged our exposure to interest rate fluctuations on our second lien facility as economic hedges. At December 31, 2009 and 2008, we recorded the fair value of the interest rate derivatives, or $0.1 million, in “Other assets” on our Consolidated Balance Sheet. During the years ended December 31, 2009 and 2008, we recorded the change in fair value of these derivatives, or $0.2 million and $0.5 million, respectively, of expense, in “Change in fair value of interest rate derivatives” in our Consolidated Statement of Income (Loss). During each year ended December 31, 2009 and 2008, we recorded $0.2 million in “Interest expense” for the amortization of the premiums paid for the interest rate derivatives.
Interest Rate Risk—Investments
Our exposure to market risk for changes in interest rates also relates to our cash, cash equivalents, and short-term investments. As of December 31, 2009, our cash, cash equivalents, and short-term investments consisted primarily of funds invested in money market accounts and certificates of deposit insured by $1.8 million. Assuming nothe Federal Deposit Insurance Corporation (FDIC). As the interest rates on a significant portion of our cash, cash equivalents, and short-term investments are variable, a change in interest rates $1.7earned would affect interest income along with cash flows but would not have a significant impact on the fair market value of the related underlying instruments.
Notes to Consolidated Financial Statements—(Continued)
The components of cash, cash equivalents, and short-term investments as of and for the year ended December 31, 2009, are as follows (dollars, in thousands):
Year Ended December 31, 2009 | |||||||||||||||||||
Cost Basis | Accrued Interest | Unrealized Gains (Losses) | Recorded Basis | Cash and Cash Equivalents | Short-Term Investments | ||||||||||||||
Cash | $ | 4,268 | $ | — | $ | — | $ | 4,268 | $ | 4,268 | $ | — | |||||||
Money market accounts | 65,125 | — | — | 65,125 | 65,125 | — | |||||||||||||
Certificates of deposit | 10,000 | 28 | (5 | ) | 10,023 | — | 10,023 | ||||||||||||
Total | $ | 79,393 | $ | 28 | $ | (5 | ) | $ | 79,416 | $ | 69,393 | $ | 10,023 | ||||||
At December 31, 2009, net unrealized losses of $5,000 are recorded in accumulated other comprehensive income (loss), which is included in “Capital” on our Consolidated Balance Sheets. During the year ended December 31, 2009, $11.6 million of certificates of deposit matured, all of which we subsequently reinvested. At December 31, 2009, we did not have any investments in individual securities that had been in a continual unrealized loss position for more than 12 months. The unrealized losses at December 31, 2009, represent a temporary condition due to the high quality of the investment securities, and we expect to recover the par value of these investments.
At December 31, 2008, we had $22.5 million in cash and cash equivalents, consisting of $7.2 million in cash and $15.3 million in money market accounts. We did not have any short-term investments as of or during the year ended December 31, 2008.
Energy Risk
We enter into natural gas swaps, options, or a combination of these instruments to hedge the variable cash flow risk of natural gas purchases at index prices. As of December 31, 2009, we had entered into derivative instruments related to approximately 50% of our forecasted natural gas purchases for the period of January 2010 through October 2010, approximately 16% of our forecasted natural gas purchases from November 2010 through March 2011, and approximately 6% of our forecasted natural gas purchases from April 2011 through October 2011. These derivatives include three-way collars and call spreads.
A three-way collar is a combination of options: a written put, a purchased call, and a written call. The purchased call establishes a maximum price unless the market price exceeds the written call, at which point the maximum price would be reclassified in 2005. IneffectivenessNew York Mercantile Exchange (NYMEX) price less the difference between the purchased call and the written call strike price. The written put establishes a minimum price (the floor) for the volumes under contract. This strategy enables us to decrease the floor and the ceiling price of the collar beyond the range of a traditional collar while offsetting the associated cost with the sale of the written call. The following tables summarize our position related to these hedges was not significant.instruments as of December 31, 2009 (in millions of British thermal units, or mmBtu, per day):
As described in Note 11, Debt, in each
Three-Way Collars | ||||||||||||
January 2010 Through March 2010 | ||||||||||||
Volume hedged | 6,000 | 8,500 | 4,000 | |||||||||
Strike price of call sold | $ | 12.00 | $ | 12.00 | $ | 11.00 | ||||||
Strike price of call bought | 9.00 | 9.00 | 8.00 | |||||||||
Strike price of put sold | 6.50 | 5.35 | 4.60 | |||||||||
Three-way collar premium | 0.17 | — | — | |||||||||
Approximate percent hedged | 16 | % | 23 | % | 11 | % |
Notes to Consolidated Financial Statements—(Continued)
Three-Way Collars | ||||||||||||||||
April 2010 Through October 2010 | November 2010 Through March 2011 | April 2011 Through October 2011 | ||||||||||||||
Volume hedged | 5,500 | 9,500 | 4,000 | 1,000 | ||||||||||||
Strike price of call sold | $ | 12.00 | $ | 11.00 | $ | 11.00 | $ | 11.00 | ||||||||
Strike price of call bought | 9.00 | 8.00 | 8.00 | 8.00 | ||||||||||||
Strike price of put sold | 5.90 | 5.03 | 5.66 | 5.33 | ||||||||||||
Three-way collar premium | — | — | — | — | ||||||||||||
Approximate percent hedged | 18 | % | 32 | % | 11 | % | 3 | % |
A call spread is a combination of a purchased call and a written call. The purchased call establishes a maximum price unless the market exceeds the written call, at which point the maximum price would be the NYMEX price less the difference between the purchased call and the written call strike price plus any applicable net premium associated with the two options. The following tables summarize our position related to these instruments as of December 31, 2009 (in mmBtu per day):
Call Spreads | ||||||||
November 2010 Through March 2011 | April 2011 Through October 2011 | |||||||
Volume hedged | 2,000 | 1,000 | ||||||
Strike price of call sold | $ | 11.00 | $ | 11.00 | ||||
Strike price of call bought | 8.00 | 8.00 | ||||||
Net cap premium | 0.54 | 0.40 | ||||||
Approximate percent hedged | 5 | % | 3 | % |
We have elected to account for these instruments as economic hedges. At December 31, 2009 and 2008, we recorded the fair value of the predecessor periodsderivatives, or $1.4 million and $7.3 million, respectively, in “Accrued liabilities, Other” on our Consolidated Balance Sheet. During the years ended December 31, 2009 and 2008, we recorded the change in fair value of the instruments, or a $5.9 million gain and a $7.4 million loss, respectively, in “Materials, labor, and other operating expenses” in our Consolidated Statements of Income (Loss).
Foreign Currency Risk
While we are exposed to foreign currency risk in our operations, none of this risk was material to our financial position or results of operations as of December 31, 2009 and 2008.
Predecessor
During the Predecessor period presented, OfficeMax allocatedBoise Cascade occasionally used interest rate swaps to hedge variable interest rate risk. Because debt and interest costs were not allocated to Boise Forest Products Operations based on its average asset balances. OfficeMax occasionally used derivative financial instruments, such asthe Predecessor, the effects of the interest rate swaps rate hedge agreements and forward exchange contracts, to hedge underlying debt obligations or anticipated transactions. The effects of these financial instruments arewere not included in the predecessorPredecessor consolidated financial statements other than through OfficeMax's allocationsstatements.
Fair Value Measurements
We record our financial assets and liabilities, which consist of cash equivalents, short-term investments, and derivative financial instruments that are used to hedge exposures to interest rate and energy risks, at fair value. The fair value hierarchy under U.S. GAAP gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, and where applicable, we use quoted prices in active
Notes to Consolidated Financial Statements—(Continued)
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). We enter into these hedges with large financial institutions, and we monitor their credit ratings to determine if any adjustments to fair value need to be made. No such adjustments were made in any period presented.
At December 31, 2009, fair value for these financial instruments was determined based on applicable interest rates, such as LIBOR, interest rate curves, and NYMEX price quotations under the terms of the contracts, using current market information as of the reporting date. The following table provides a summary of our predecessor.assets and liabilities measured at fair value on a recurring basis and the inputs used to develop these estimated fair values under the fair value hierarchy discussed above (dollars, in thousands):
Fair Value Measurements at December 31, 2009, Using: | ||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||
Assets: | ||||||||||||
Money market accounts (a) | $ | 65,125 | $ | 65,125 | $ | — | $ | — | ||||
Certificates of deposit (b) | 10,023 | 10,023 | — | — | ||||||||
Interest rate derivatives (c) | 163 | — | 163 | — | ||||||||
$ | 75,311 | $ | 75,148 | $ | 163 | $ | — | |||||
Liabilities: | ||||||||||||
Energy derivatives (d) | $ | 1,447 | $ | — | $ | 1,447 | $ | — | ||||
$ | 1,447 | $ | — | $ | 1,447 | $ | — | |||||
Fair Value Measurements at December 31, 2008, Using: | ||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||
Assets: | ||||||||||||
Interest rate derivatives (c) | $ | 341 | $ | — | $ | 341 | $ | — | ||||
$ | 341 | $ | — | $ | 341 | $ | — | |||||
Liabilities: | ||||||||||||
Energy derivatives (d) | $ | 7,324 | $ | — | $ | 7,324 | $ | — | ||||
$ | 7,324 | $ | — | $ | 7,324 | $ | — | |||||
(a) | Recorded in “Cash and cash equivalents” on our Consolidated Balance Sheet. |
(b) | Recorded in “Short-term investments” on our Consolidated Balance Sheet. |
(c) | Recorded in “Other assets” on our Consolidated Balance Sheet. |
(d) | Recorded in “Accrued liabilities, Other” on our Consolidated Balance Sheet. |
As of December 31, 2009 and 2008, we did not have any fair value measurements using significant unobservable inputs (Level 3).
Notes to Consolidated Financial Statements—(Continued)
Tabular Disclosure of the Fair Values of Derivative Instruments and the Effect of Those Instruments
(dollars, in thousands)
Fair Values of Derivative Instruments | ||||||||||
Asset Derivatives | Liability Derivatives | |||||||||
December 31, 2009 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||
Derivatives designated as economic hedging instruments (a) | ||||||||||
Interest rate contracts | Other assets | $ | 163 | Accrued liabilities | $ | — | ||||
Natural gas contracts | Other assets | — | Accrued liabilities | 1,447 | ||||||
Total derivatives designated as economic hedging instruments | $ | 163 | $ | 1,447 | ||||||
Total derivatives | $ | 163 | $ | 1,447 | ||||||
Fair Values of Derivative Instruments | ||||||||||
Asset Derivatives | Liability Derivatives | |||||||||
December 31, 2008 | ||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||
Derivatives designated as cash flow hedging instruments (b) | ||||||||||
Interest rate contracts | Other assets | $ | 250 | Accrued liabilities | $ | — | ||||
Total derivatives designated as cash flow hedging instruments | $ | 250 | $ | — | ||||||
Derivatives designated as economic hedging instruments (a) | ||||||||||
Interest rate contracts | Other assets | $ | 91 | Accrued liabilities | $ | — | ||||
Natural gas contracts | Other assets | — | Accrued liabilities | 7,324 | ||||||
Total derivatives designated as economic hedging instruments | $ | 91 | $ | 7,324 | ||||||
Total derivatives | $ | 341 | $ | 7,324 | ||||||
The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Year Ended December 31, 2009 | |||||||||||||||
Derivatives Designated as Cash Flow Hedging Instruments (b) | Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Derivatives Designated as Economic Hedging Instruments (a) | Location of Gain or (Loss) Recognized in Income on Derivative | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||
Interest rate contracts |
$ |
— | Interest income/expense |
$ |
338 | Interest rate contracts |
Change in fair value of interest rate derivatives |
$ |
568 | ||||||
Natural gas contracts |
Materials, labor, and other operating expenses |
|
5,877 | ||||||||||||
$ | — | $ | 338 | $ | 6,445 | ||||||||||
Notes to Consolidated Financial Statements—(Continued)
The Effect of Derivative Instruments on the Consolidated Statement of Income (Loss) for the Year Ended December 31, 2008 | |||||||||||||||||
Derivatives Designated as Cash Flow Hedging Instruments (b) | Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI Into Income (Effective Portion) | Derivatives Designated as Economic Hedging Instruments (a) | Location of Gain or (Loss) Recognized in Income on Derivative | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||||
Interest rate contracts |
$ |
(760 |
) | Interest income/expense |
$ |
— | Interest rate contracts |
Change in fair value of interest rate derivatives |
$ |
(479 |
) | ||||||
Natural gas contracts |
Materials, labor, and other operating expenses |
|
(7,445 |
) | |||||||||||||
$ | (760 | ) | $ | — | $ | (7,924 | ) | ||||||||||
(a) | See discussion above for additional information on our purpose for entering into derivatives designated as economic hedges and our overall risk management strategies. |
(b) | As of January 1, 2009, we no longer have interest rate derivatives designated as cash flow hedges. The amounts recorded in accumulated other comprehensive income (loss), which is included in “Capital” on our Consolidated Balance Sheets, are being amortized to interest over the remaining life of the interest rate derivatives. During the year ended December 31, 2009, these derivatives were accounted for as economic hedges. |
13. Retirement and Benefit Plans
PensionDuring all of the periods presented, some of our employees participated in our retirement plans, and Other Postretirementsome of the Predecessor’s employees participated in Boise Cascade’s retirement plans. These plans consist of noncontributory defined benefit pension plans, contributory defined contribution savings plans, deferred compensation plans, and postretirement healthcare benefit plans. Compensation expense was calculated based on costs directly attributable to our employees and, in the case of the Predecessor employees of the Paper Group, an allocation of expense related to corporate employees that serviced all Boise Cascade business units.
Defined Benefit Plans
Some of our employees are covered byparticipate in noncontributory defined benefit pension plans.plans that were either transferred to us or spun off from Boise Cascade. The salaried defined benefit pension plan is available only to employees who were formerly employed by OfficeMax (known at the time as Boise Cascade Corporation) before November 2003. The pension benefit for salaried employees is based primarily on the employees'employees’ years of service and highest five-year average compensation. The benefit for hourly employees is generally based on a fixed amount per year of service. We use aThe Predecessor recorded costs associated with the employees who participated in these plans in its Consolidated Statements of Income (Loss). Expenses attributable to participation in noncontributory defined benefit plans for the years ended December 31, measurement date2009 and 2008, the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, were $8.7 million, $8.3 million, $1.8 million, and $13.1 million, respectively.
In December 2008, we amended our defined benefit pension plan for our pension plans.salaried employees (Salaried Plan). This amendment freezes the accumulation of benefits and years of service for participants of the Salaried Plan effective April 15, 2009. This amendment also freezes benefits in the Boise Inc. Supplemental Plan (SUPP) and the Boise Inc. Supplemental Early Retirement Plan for Executive Officers (SERP). Because the Salaried Plan has unrecognized losses, the curtailment gain associated with this amendment was applied to partially offset those
Notes to Consolidated Financial Statements—(Continued)
We also sponsor
losses. However, we have recognized a $2.9 million gain on our SUPP and SERP plans because the curtailment gain exceeded our existing unrecognized losses. This gain is recognized in “Other (income) expense, net” in our Consolidated Statements of Income (Loss) for the year ended December 31, 2008.
Defined Contribution Plans
Some of our employees participate in contributory defined contribution savings plans, forwhich covered most of our salaried and hourly employees. For the periods of October 29 through December 31, 2004, and January 1 through October 28, 2004, andExpenses related to matching contributions attributable to participation in contributory defined contribution savings plans for the years ended December 31, 2009 and 2008, the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, were $10.0 million, $8.4 million, $2.1 million, and $9.3 million, respectively. Salaried employees hired after October 31, 2003, and 2002, total expense forwho are otherwise eligible to participate in these plans was $1.9 million, $16.6 million, $21.8are eligible for additional discretionary company matching contributions based on a percentage approved each plan year. Beginning April 16, 2009, the company contributions for eligible salaried employees consisted of a nondiscretionary, nonmatching base contribution of 3% of eligible compensation plus a matching contribution. In addition, the Company may make additional discretionary nonmatching contributions each year. The company contribution structure for hourly employees varies.
Deferred Compensation Plans
Some of our employees participate in deferred compensation plans, in which key managers and nonaffiliated directors may irrevocably elect to defer a portion of their base salary and bonus or director’s fees until termination of employment or beyond. A participant’s account is credited with imputed interest at a rate equal to 130% of Moody’s composite average of yields on corporate bonds. In addition, participants other than directors may elect to receive their company contributions in the deferred compensation plan in lieu of any company contribution in the contributory defined contribution savings plan. The deferred compensation plans are unfunded; therefore, benefits are paid from general assets of the Company. At December 31, 2009 and 2008, we had $0.9 million and $19.6$0.6 million, respectively.respectively, of liabilities attributable to participation in our deferred compensation plan on our Consolidated Balance Sheet. At December 31, 2007, the Predecessor had $3.8 million of liabilities attributable to participation in Boise Cascade’s deferred compensation plan recorded on the Predecessor’s Consolidated Balance Sheet. This liability is not an obligation of BZ Intermediate Holdings LLC and was not recorded on our Consolidated Balance Sheet at December 31, 2008.
We also havePostretirement Benefit Plans
Some of our and the Predecessor’s employees participated in Boise Cascade’s postretirement healthcare benefit plans. The type of retiree healthcare benefits and the extent of coverage vary based on employee classification, date of retirement, location, and
other factors. All of ourthe postretirement healthcare plans are unfunded. We explicitly reserveIn 2007, the rightPredecessor communicated to amend or terminate ouremployees changes to the retiree healthcare programs. The Predecessor discontinued healthcare coverage for most of the post-65 retirees. In addition, the Predecessor eliminated the company subsidy for some of the pre-65 hourly retirees. This change shifts retiree medical costs to the plan participants. As a result of this change, the Predecessor recorded a $4.4 million gain in the Consolidated Statement of Income (Loss) for the year ended December 31, 2007. The postretirement benefit plans at any time, subject only to constraints, if any, imposed by the terms of collective bargaining agreements. Accrual of costs pursuant to accounting standards does not affect, or reflect, our ability to amend or terminate these plans. Amendment or termination may significantly affect the amount of expense incurred. We usehave a December 31 measurement date for our postretirement benefit plans.
On December 8, 2003, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). The Act introduces a Medicare prescription drug benefit as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit. In May 2004, the FASB issued FASB Staff Position (FSP) 106-2, which supersedes FSP 106-1 and provides guidance on the accounting of the effects of the Act. We adopted FSP 106-2 on October 29, 2004, and it did not have a material effect on our financial position or results of operations.date.
Predecessor PeriodsObligations and Funded Status of Postretirement Benefits and Pensions
During the predecessor periods, most of Boise Forest Products Operations employees, along with some employees of OfficeMax, participated in OfficeMax's defined benefit pension plans. In addition, most employees of Boise Forest Products Operations were eligible for participation in OfficeMax's defined contribution plans. During the predecessor periods, Boise Forest Products OperationsThe Predecessor treated its participants in OfficeMax'sits pension plans as participants in multiemployer plans. Accordingly, noplans; accordingly, the Predecessor has not reflected any assets or liabilities related to OfficeMax'sthe noncontributory defined benefit pension plans are reflected in the predecessoron its Consolidated Balance Sheet. Boise Forest Products Operations did, however, incur costs associated with the employees who participated in OfficeMax's plans in the Statements of Income (Loss). For the periods of October 29 throughSheet at December 31, 2004, and January 1 through October 28, 2004, and the years ended December 31, 2003 and 2002, pension expense was $2.6 million, $60.9 million, $52.9 million and $19.2 million, respectively. In connection with the Acquisition, OfficeMax transferred2007.
Notes to Boise LLC, our operating subsidiary, the portion of the pension plan liability that was attributable to active employees who became employed by Boise LLC immediately following the Acquisition. OfficeMax also transferred sufficient assets to fund the accumulated benefit obligation at a 6.25% discount rate, and as a result, we are not required to make any contributions in 2005. At December 31, 2004, our Balance Sheet reflected a projected benefit obligation of $114.4 million, assuming a 5.75% discount rate and a 4.25% rate of compensation increase. In addition, OfficeMax retained all pension costs related to employees who retired or were terminated on or before July 31, 2004, all postretirement benefits costs related to employees who retired or were terminated prior to the Acquisition, and all pension and postretirement benefit costs related to active OfficeMax employees. As a result, we expect that our annual pension expense going forward will be less than amounts included in the predecessor financial statements.
Obligations and Funded StatusConsolidated Financial Statements—(Continued)
The following table, which includes only company-sponsored plans, reconciles the beginning (February 22, 2008, for 2008 plan year) and ending balances of our benefit obligation. It also shows the fair value of plan assets and aggregate funded status of our plans, including amounts not recognized and recognized.plans. The
funded status changes from year to year based on the investment return from plan assets, contributions, and benefit payments and the discount rate used to measure the liability.liability (dollars, in thousands):
| Pension Benefits | Other Benefits | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Boise Holdings | | |||||||||
| Boise Holdings | Predecessor | |||||||||
| 2004 | 2004 | 2003 | ||||||||
| (thousands) | ||||||||||
Change in benefit obligation | |||||||||||
Benefit obligation at beginning of year | $ | — | $ | — | $ | 94,061 | |||||
Benefit obligation assumed from OfficeMax | 531,775 | 18,789 | — | ||||||||
Service cost | 2,480 | 101 | 1,092 | ||||||||
Interest cost | 5,096 | 180 | 6,034 | ||||||||
Amendments | — | — | (1,366 | ) | |||||||
Actuarial loss | 3,787 | 504 | 3,419 | ||||||||
Special termination benefits | 663 | — | — | ||||||||
Benefits paid | (79 | ) | — | (9,111 | ) | ||||||
Benefit obligation at end of year | $ | 543,722 | $ | 19,574 | $ | 94,129 | |||||
Change in plan assets | |||||||||||
Fair value of plan assets at beginning of year | $ | — | $ | — | $ | — | |||||
Fair value of assets transferred from OfficeMax | 420,629 | — | — | ||||||||
Actual return on plan assets | 23,537 | — | — | ||||||||
Benefits paid | (79 | ) | — | — | |||||||
Fair value of plan assets at end of year | $ | 444,087 | $ | — | $ | — | |||||
Funded status | $ | (99,635 | ) | $ | (19,574 | ) | $ | (94,129 | ) | ||
Unrecognized actuarial loss (gain) | (14,743 | ) | 504 | 19,057 | |||||||
Unrecognized prior service benefit | — | — | (4,316 | ) | |||||||
Net amount recognized | $ | (114,378 | ) | $ | (19,070 | ) | $ | (79,388 | ) | ||
In 2004, we recognized $114.4 million and $19.1 million, respectively,
Pension Benefits | Other Benefits | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Change in benefit obligation | ||||||||||||||||
Benefit obligation at beginning of year (February 22, 2008, for 2008 plan year) | $ | 396,692 | $ | 379,390 | $ | 2,490 | $ | 2,723 | ||||||||
Service cost | 6,891 | 9,226 | 4 | 3 | ||||||||||||
Interest cost | 24,314 | 20,881 | 47 | 98 | ||||||||||||
Amendments | 145 | 364 | — | (77 | ) | |||||||||||
Actuarial (gain) loss | 9,138 | 31,715 | (1,725 | ) | — | |||||||||||
Closure and curtailment gain | — | (37,473 | ) | — | — | |||||||||||
Benefits paid | (13,218 | ) | (7,411 | ) | (44 | ) | (257 | ) | ||||||||
Benefit obligation at end of year | $ | 423,962 | $ | 396,692 | $ | 772 | $ | 2,490 | ||||||||
Change in plan assets | ||||||||||||||||
Fair value of plan assets at beginning of year (February 22, 2008, for 2008 plan year) | $ | 248,084 | $ | 323,640 | $ | — | $ | — | ||||||||
Actual return on plan assets | 54,358 | (68,210 | ) | — | — | |||||||||||
Employer contributions | 12,298 | 65 | — | — | ||||||||||||
Benefits paid | (13,218 | ) | (7,411 | ) | — | — | ||||||||||
Fair value of plan assets at end of year | $ | 301,522 | $ | 248,084 | $ | — | $ | — | ||||||||
Over (under) funded status | $ | (122,440 | ) | $ | (148,608 | ) | $ | (772 | ) | $ | (2,490 | ) | ||||
Amounts recognized on our Consolidated Balance Sheet | ||||||||||||||||
Current liabilities | $ | (143 | ) | $ | (1,317 | ) | $ | (182 | ) | $ | (670 | ) | ||||
Noncurrent liabilities | (122,297 | ) | (147,291 | ) | (590 | ) | (1,820 | ) | ||||||||
Net amount recognized | $ | (122,440 | ) | $ | (148,608 | ) | $ | (772 | ) | $ | (2,490 | ) | ||||
Amounts recorded in accumulated other comprehensive (income) loss (pretax) included in “Capital” on our Consolidated Balance Sheets consist of pension and other postretirement benefits accrued benefit liability, respectively,the following (dollars, in our Balance Sheet. In 2003, Boise Forest Products Operations recognized a $79.4 million of accrued benefit liability for other postretirement benefits. thousands):
Pension Benefits | Other Benefits | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||
Net (gain) loss | $ | 62,334 | $ | 84,600 | $ | (413 | ) | $ | (42 | ) | ||||
Prior service cost | 473 | 364 | — | — | ||||||||||
Net amount recognized | $ | 62,807 | $ | 84,964 | $ | (413 | ) | $ | (42 | ) | ||||
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for theall defined benefit pension plans withwas $423.8 million and $393.2 million as of December 31, 2009 and 2008. All of our defined benefit pension plans have accumulated benefit obligations in excess of plan assets were $543.7 million, $461.0 million and $444.1 million, respectively as of December 31, 2004.assets.
Notes to Consolidated Financial Statements—(Continued)
The amount of additional minimum pension liability is determined based on the value of plan assets, compared with the plans' accumulated benefit obligation. At December 31, 2004, we did not have a minimum pension liability recorded in our financial statements.
Components of Net Periodic Benefit Cost and Other Comprehensive (Income) Loss
The components of net periodic benefit cost and other comprehensive (income) loss (pretax) are as follows:follows (dollars, in thousands):
| | | | | Other Benefits | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pension Benefits | ||||||||||||||||||||||||
| | Predecessor | |||||||||||||||||||||||
| Boise Holdings | Predecessor | Boise Holdings | ||||||||||||||||||||||
| | Year Ended December 31 | | Year Ended December 31 | |||||||||||||||||||||
| Oct. 29 (inception) through Dec. 31, 2004 | Jan. 1 through Oct. 28, 2004 | Oct. 29 (inception) through Dec. 31, 2004 | Jan. 1 through Oct. 28, 2004 | |||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||
| (thousands) | ||||||||||||||||||||||||
Service cost | $ | 2,480 | $ | 24,046 | $ | 26,166 | $ | 22,930 | $ | 101 | $ | 992 | $ | 1,092 | $ | 1,012 | |||||||||
Interest cost | 5,096 | 69,223 | 81,225 | 80,489 | 180 | 4,635 | 6,034 | 6,310 | |||||||||||||||||
Expected return on plan assets | (5,007 | ) | (66,728 | ) | (79,281 | ) | (91,963 | ) | — | — | 1,228 | 854 | |||||||||||||
Recognized actuarial loss | — | 25,205 | 18,465 | 1,318 | — | 970 | — | — | |||||||||||||||||
Amortization of prior service costs and other | — | 8,658 | 5,769 | 5,778 | — | (838 | ) | (2,297 | ) | (2,080 | ) | ||||||||||||||
Company-sponsored plans | 2,569 | 60,404 | 52,344 | 18,552 | 281 | 5,759 | 6,057 | 6,096 | |||||||||||||||||
Multiemployer pension plans | 57 | 460 | 526 | 618 | — | — | — | — | |||||||||||||||||
Net periodic benefit cost | $ | 2,626 | $ | 60,864 | $ | 52,870 | $ | 19,170 | $ | 281 | $ | 5,759 | $ | 6,057 | $ | 6,096 | |||||||||
Pension Benefits | Other Benefits | |||||||||||||||||||||||||||||||
BZ Intermediate Holdings LLC | Predecessor | BZ Intermediate Holdings LLC | Predecessor | |||||||||||||||||||||||||||||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2007 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2007 | |||||||||||||||||||||||||
Service cost | $ | 6,891 | $ | 9,226 | $ | 1,566 | $ | 12,103 | $ | 4 | $ | 3 | $ | — | $ | 75 | ||||||||||||||||
Interest cost | 24,314 | 20,881 | 3,458 | 22,718 | 47 | 98 | 18 | 230 | ||||||||||||||||||||||||
Expected return on plan assets | (23,269 | ) | (20,398 | ) | (3,452 | ) | (23,173 | ) | — | — | — | — | ||||||||||||||||||||
Amortization of actuarial (gain) loss | 315 | — | (21 | ) | 271 | (1,344 | ) | — | (12 | ) | (34 | ) | ||||||||||||||||||||
Amortization of prior service costs and other | 36 | — | 194 | 1,190 | — | — | — | — | ||||||||||||||||||||||||
Plan settlement curtailment (gain) loss | — | (1,749 | ) | — | (46 | ) | — | — | — | — | ||||||||||||||||||||||
Company-sponsored plans | 8,287 | 7,960 | 1,745 | 13,063 | (1,293 | ) | 101 | 6 | 271 | |||||||||||||||||||||||
Multiemployer plans | 382 | 327 | 75 | — | — | — | — | — | ||||||||||||||||||||||||
Net periodic benefit costs | $ | 8,669 | $ | 8,287 | $ | 1,820 | 13,063 | $ | (1,293 | ) | $ | 101 | $ | 6 | 271 | |||||||||||||||||
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss | ||||||||||||||||||||||||||||||||
Net (gain) loss | $ | (21,951 | ) | $ | 84,600 | $ | — | — | $ | (1,715 | ) | $ | (42 | ) | $ | — | — | |||||||||||||||
Prior service cost | 145 | 364 | — | — | — | — | — | — | ||||||||||||||||||||||||
Amortization of actuarial gain (loss) | (315 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
Amortization of prior service cost | (36 | ) | — | — | — | 1,344 | — | — | — | |||||||||||||||||||||||
Total recognized in other compre-hensive (income) loss | (22,157 | ) | 84,964 | — | — | (371 | ) | (42 | ) | — | — | |||||||||||||||||||||
Total recognized in net periodic benefit cost and other compre-hensive | ||||||||||||||||||||||||||||||||
(income) loss | $ | (13,488 | ) | $ | 93,251 | $ | 1,820 | $ | 13,063 | $ | (1,664 | ) | $ | 59 | $ | 6 | $ | 271 | ||||||||||||||
In 2010, we estimate net periodic pension expense will be $10.2 million. The 2010 net periodic pension expense will include $1.8 million of net loss and $0.1 million of prior service cost that will be amortized from accumulated other comprehensive income (loss), which is included in “Capital” on our Consolidated Balance Sheets.
AssumptionsNotes to Consolidated Financial Statements—(Continued)
Assumptions
The assumptions used in accounting for ourthe plans are estimates of factors that will determine, among other things, the amount and timing of future benefit payments. The following table presents the assumptions used in the measurement of our benefit obligations:benefits obligation:
| Pension Benefits | Other Benefits | |||||||
---|---|---|---|---|---|---|---|---|---|
| Boise Holdings | Boise Holdings | Predecessor | ||||||
| 2004 | 2004 | 2003 | 2002 | |||||
Weighted average assumptions as of December 31 | |||||||||
Discount rate | 5.75 | % | 5.50 | % | 6.25 | % | 6.75 | % | |
Rate of compensation increase | 4.25 | % | — | — | — |
Pension Benefits | Other Benefits | ||||||||||||||||||||
BZ Intermediate Holdings LLC | BZ Intermediate Holdings LLC | Predecessor | |||||||||||||||||||
December 31, 2009 | December 31, 2008 | February 22, 2008 | December 31, 2009 | December 31, 2008 | February 22, 2008 | December 31 2007 | |||||||||||||||
Weighted average | |||||||||||||||||||||
Discount rate | 6.10 | % | 6.20 | % | 6.50 | % | 4.60 | % | 5.70 | % | 5.50 | % | 5.75 | % | |||||||
Rate of compensation increase | — | % | 4.25 | % | 4.25 | % | — | % | — | % | — | % | — | % |
The following table presents the assumptions used in the measurement of net periodic benefit cost:
| | | | | Other Benefits | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pension Benefits | ||||||||||||||||
| | Predecessor | |||||||||||||||
| Boise Holdings | Predecessor | Boise Holdings | ||||||||||||||
| | Year Ended December 31 | | Year Ended December 31 | |||||||||||||
| Oct. 29 (inception) through Dec. 31, 2004 | Jan. 1 through Oct. 28, 2004 | Oct. 29 (inception) through Dec. 31, 2004 | Jan. 1 through Oct. 28, 2004 | |||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Weighted average assumptions as of the last day in the presented period | |||||||||||||||||
Discount rate | 5.75 | % | 6.25 | % | 6.75 | % | 7.25 | % | 5.75 | % | 6.25 | % | 6.75 | % | 7.25 | % | |
Expected long-term rate of return on plan assets | 7.25 | % | 8.25 | % | 8.50 | % | 9.25 | % | — | — | — | — | |||||
Rate of compensation increase | 4.25 | % | 4.25 | % | 4.50 | % | 4.75 | % | — | — | — | — |
We base our
Pension Benefits | Other Benefits | |||||||||||||||||||||||
BZ Intermediate Holdings LLC | Predecessor | BZ Intermediate Holdings LLC | Predecessor | |||||||||||||||||||||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2007 | Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2007 | |||||||||||||||||
Weighted average assumptions as of the last day in the presented period | ||||||||||||||||||||||||
Discount rate | 6.20 | % | 6.50 | % | 6.40 | % | 5.90 | % | 5.70 | % | 5.70 | % | 5.50 | % | 5.75 | % | ||||||||
Expected long-term rate of return on plan assets | 7.25 | % | 7.25 | % | 7.25 | % | 7.25 | % | — | % | — | % | — | % | — | % | ||||||||
Rate of compensation Increase | — | % | 4.25 | % | 4.25 | % | 4.25 | % | — | % | — | % | — | % | — | % |
Discount Rate Assumption. In all periods presented, the discount rate assumption was determined using a spot rate yield curve constructed to replicate Aa-graded corporate bonds. The Aa-graded bonds included in the yield curve reflect anticipated investments that would be made to match the expected monthly benefit payments over time and do not include all Aa-graded corporate bonds. The plan’s projected cash flows were duration-matched to this yield curve to develop an appropriate discount rate.
Asset Return Assumption. The expected long-term rate of return on plan assets was based on a weighted average of ourthe expected returns for the major investment asset classes in which we invest.classes. Expected returns for the asset classes are based on long-term historical returns, inflation expectations, forecasted gross domestic product, and earnings growth, and other economic factors. The weights we assignassigned to each asset class arewere based on ourthe investment strategy. Our weighted-averageThe weighted average expected return on plan assets usedwe will use in our calculation of 20052010 net periodic benefit cost is 7.25%. In 2009, plan assets performed well above the long-term return assumption.
Rate of Compensation Increases. Salaried pension benefits are frozen, so the compensation increase assumption is not applicable. Negotiated compensation increases are reflected in the projected benefit obligation
Notes to Consolidated Financial Statements—(Continued)
for certain hourly employees with salary-related benefits. Historically, this assumption reflected long-term actual experience, the near-term outlook, and assumed inflation.
The following table presents our assumed healthcare cost trend rates at December 31, 2004,2009 and our predecessor's rate at December 31, 2003.2008:
| 2004 | 2003 | |||
---|---|---|---|---|---|
Weighted average assumptions as of December 31 | |||||
Healthcare cost trend rate assumed for next year | 8.00 | % | 9.00 | % | |
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.00 | % | 5.00 | % | |
Year that the rate reaches the ultimate trend rate | 2008 | 2008 |
2009 | 2008 | |||||
Weighted average assumptions: | ||||||
Healthcare cost trend rate assumed for next year | 8.50 | % | 9.00 | % | ||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 6.50 | % | 5.00 | % | ||
Year that the rate reaches the ultimate trend rate | 2025 | 2017 |
Assumed healthcare cost trend rates have a significant effect onaffect the amounts reported for the healthcare plans. At December 31, 2004,2009, a one-percentage-point change in our assumed healthcare cost trend ratesrate would have the following effects:not significantly affect our total service or interest costs or our postretirement benefit obligation.
| One-Percentage- Point Increase | One-Percentage- Point Decrease | |||||
---|---|---|---|---|---|---|---|
| (thousands) | ||||||
Effect on total of service and interest cost | $ | 4 | $ | (4 | ) | ||
Effect on postretirement benefit obligation | 245 | (216 | ) |
Plan AssetsInvestment Policies and Strategies
OurAt December 31, 2009, 52% of our pension plan asset allocations by asset category at December 31, 2004, are as follows:
Our Retirement Funds Investment Committee is responsibleassets were invested in equity securities, and 48% were invested in fixed-income securities. The general investment objective for establishing and overseeing the implementationall of our investment policy. The investment policyplan assets is structured to optimize growth of the pension plan trust assets, while minimizing the risk of significant losses in order to enable the plans to satisfy their benefit payment obligations over time. We currently invest primarilyThe objectives take into account the long-term nature of the benefit obligations, the liquidity needs of the plans, and the expected risk/return trade-offs of the asset classes in which the plans may choose to invest. The Retirement Funds Investment Committee is responsible for establishing and overseeing the implementation of our investment policy. Russell Investments (Russell) oversees the active management of our pension investments in order to achieve broad diversification in a cost-effective manner. At December 31, 2009, our investment policy governing our relationship with Russell allocated 48% to long-duration fixed-income securities, 33% to large-capitalization U.S. equity securities, 12% to international equity securities, and fixed income7% to small- and mid-capitalization U.S. equity securities. We useOur arrangement with Russell requires monthly rebalancing to the policy targets noted above.
Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk, all of which are subject to change. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term, and such changes could materially affect the reported amounts.
Fair Value Measurements of Plan Assets
The defined benefit paymentsplans hold an interest in the Boise Paper Holdings, L.L.C., Master Pension Trust (Master Trust). The assets in the Master Trust are invested in common and sponsor contributions as our primary rebalancing mechanismscollective trusts that hold several mutual funds invested in U.S. equities, international equities, and fixed-income securities managed by Russell Trust Company.
Notes to maintain our asset class exposuresConsolidated Financial Statements—(Continued)
The following table sets forth by level, within the guideline ranges established underfair value hierarchy, the investment policy.pension plan assets, by major asset category, at fair value at December 31, 2009 (dollars, in thousands):
Our current guidelines set forth a U.S. equity range of 45% to 60%, an international equity range of 12.5% to 17.5% and a fixed-income range of 25% to 40%. We adjust our asset class positions within the ranges based on our expectations for future returns, our funded position and market risks. Occasionally, we utilize futures or other financial instruments to alter our exposure to various asset classes in a lower-cost manner than trading securities in the underlying portfolios.
Quoted Prices in Active Market for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) (a) | Significant Unobservable Inputs (Level 3) | Total | |||||||||
Equity securities: | ||||||||||||
Large cap U.S. equity securities (b) | $ | — | $ | 99,614 | $ | — | $ | 99,614 | ||||
Small- and mid-cap U.S. equity securities (c) | — | 21,262 | — | 21,262 | ||||||||
International equity securities (d) | — | 35,861 | — | 35,861 | ||||||||
Fixed-income securities (e) | — | 144,011 | — | 144,011 | ||||||||
Total securities at fair value | — | 300,748 | — | 300,748 | ||||||||
Receivables and accruals, net | 774 | |||||||||||
Total fair value of plan assets | $ | 301,522 | ||||||||||
(a) | Investments are mutual funds managed by Russell Trust Company. The funds are valued at the net asset value (NAV) provided by Russell Trust Company, the administrator of the funds. The NAV is based on the value of the assets owned by the fund, less liabilities at year-end. While the underlying assets are actively traded on an exchange, the funds are not. |
(b) | Our investments in this category are invested in the Russell Equity I Fund. The fund seeks higher long-term returns that exceed the Russell 1000 Index by investing in common stocks that rank among the largest 1,000 companies in the U.S. stock market. |
(c) | Our investments in this category are invested in the Russell Equity II Fund. The fund seeks high, long-term returns that exceed the Russell 2500 Index by investing in the smaller capitalization stocks of the U.S. stock market. |
(d) | Our investments in this category are invested in the Russell International Fund. The fund benchmarks against the MSCI European, Australian, and Far East (EAFE) Index and seeks high, long-term returns comparable to the broad international stock market by investing in non-U.S. companies from the developed countries around the world. The fund participates primarily in the stock markets of Europe and the Pacific Rim. |
(e) | Our investments in this category are invested in the Russell Long Duration Fixed Income Fund (Long Duration Fund) and Russell Long Credit Fixed Income Fund (Long Credit Fund). The Long Duration Fund seeks to achieve above-average consistency in performance relative to the Barclays Capital U.S. Long Government/Credit Bond Index by combining manager styles and strategies with different payoffs over various phases of an investment cycle. The Long Credit Fund seeks to achieve above-average consistency in performance relative to the Barclays Capital Long Credit Index and is generally used with other bond funds, such as the Long Duration Fund, to gain additional credit exposure to asset portfolios. Both funds are designed to provide maximum total return through diversified strategies, including sector rotation, modest interest rate timing, security selection, and tactical use of high-yield and emerging markets bonds. |
Cash Flows
In connection with the Acquisition, OfficeMaxBoise Cascade transferred sufficient assets to fund Boise Holdings'BZ Intermediate Holdings LLC’s accumulated benefit obligation at a 6.25%6.5% discount rate, and as a result, we arewere not required to and did not make anycontributions to the qualified pension plans during 2008. Pension funding requirements depend in part on returns on plan assets. As of December 31, 2009 and 2008, our pension assets had a market value of $302 million and $248 million, respectively. Assuming a rate of return on plan assets of 7.25% in 2010 and 2011, we estimate that we would be required to contribute approximately $2 million in 2010 and approximately $22 million in 2011. The amount of required contributions during 2005. However, wewill depend, among other things, on actual returns on plan
Notes to Consolidated Financial Statements—(Continued)
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. Changes in the financial markets may require us to make larger than previously anticipated contributions to our pension plans. We may also elect to make additional voluntary contributions in 2005.any year, which could reduce the amount of required contributions in future years. For the year ended December 31, 2009, we made $11 million of cash contributions to our qualified pension plans. Additionally, we made cash contributions and certain benefit payments to our nonqualified pension plans and other postretirement benefit plans totaling $2.0 million.
The following benefit payments (dollars, in thousands), which reflect expected future service as appropriate, are expected to be paid. Qualified pension benefit payments are paid from plan assets, while nonqualified pension and other benefit payments are paid by the company.Company.
| Pension Benefits | Other Benefits | ||||
---|---|---|---|---|---|---|
| (thousands) | |||||
2005 | $ | 4,100 | $ | 400 | ||
2006 | 7,800 | 700 | ||||
2007 | 11,800 | 1,000 | ||||
2008 | 15,900 | 1,200 | ||||
2009 | 20,400 | 1,400 | ||||
Years 2010-2014 | 173,600 | 9,100 |
Pension Benefits | Other Benefits | |||||
2010 | $ | 14,536 | $ | 183 | ||
2011 | 16,879 | 142 | ||||
2012 | 19,451 | 117 | ||||
2013 | 21,842 | 100 | ||||
2014 | 24,284 | 71 | ||||
Years 2015-2019 | 152,493 | 174 |
14. EquityCapital
AtBZ Intermediate Holdings LLC has authorized 1,000 voting common units with a par value of $0.01. All of these units have been issued to Boise Inc. “Capital” on our Consolidated Balance Sheets represents our equity transactions with Boise Inc., net income (loss) from the operations of our subsidiaries, the effect of changes in other comprehensive income, and restricted stock. Share-based compensation costs in our financial statements represent expenses for restricted stock of Boise Inc., which have been pushed down to us for accounting purposes and are explained in more detail below. During 2008, we received a $638.8 million equity contribution from Boise Inc. in connection with the Acquisition. During 2009, we distributed $49.9 million of cash to Boise Inc. This distribution consisted primarily of $52.9 million for the repurchase of notes payable, net of $2.9 million in cash received from income tax refunds.
Net income (loss) per common share is not applicable as BZ Intermediate Holdings LLC and the Predecessor do not have common shares.
Restricted Stock and Restricted Stock Units
In our consolidated financial statements, we evaluate share-based compensation for awards granted under the Boise Inc. Incentive and Performance Plan (the Plan) on a quarterly basis based on our estimate of expected restricted stock forfeiture, review of recent forfeiture activity, and expected future turnover. We recognize the effect of adjusting the forfeiture rate for all expense amortization in the period that we change the forfeiture estimate. The effect of forfeiture adjustments during the years ended December 31, 2004,2009 and 2008, was zero.
On April 23, 2009, a Plan Amendment was approved by Boise Holdings was capitalized with $369.8 millionInc. stockholders that increased the number of equity capital allocated among three series of common equity units as follows:
Equity Unit Series | Units Outstanding | Amount | |||
---|---|---|---|---|---|
| (thousands) | ||||
A | 66,000 | $ | 36,868 | ||
B | 549,000 | 332,972 | |||
C | 35,600 | — |
At December 31, 2004, OfficeMax owned all ofshares available for issuance under the Series A common units. Parent and OfficeMax owned 440.0 million and 109.0 million Series B common units, reflecting $266.9 million and $66.1 million of equity, respectively. The Series C common units were issuedPlan from 5,175,000 to Parent without additional capital contributions17,175,000.
Service-Condition Vesting Awards
In March 2009, pursuant to the provisions of the management equity plan discussed in Note 15, Management Equity Agreement. The holders of the equity units, or thePlan, Boise Inc. granted to directors and members of the limited-liability company, are not liable for any of the obligations of the company.
Series A Common Units. The Series A common units have no voting rights. They accrue dividends daily at a rate of 8% per annum on the holders capital contributions (net of any distributions previously received by such holder) plus any accumulated dividends. Accrued and unpaid dividends accumulate on the Series A common units on June 30 and December 31 of each year. At December 31, 2004, $0.5 million of dividends were accrued in our Balance Sheet. Series A common units participate in distributions as described below. Other than through the receipt of dividends the Series A common units do not participate in the earnings of the company.
Series B Common Units. The Series B equity units entitle each holder to one vote on matters to be voted on by the members of Boise Holdings. The Series B common units participate in distributions as described below.
Series C Common Units. The Series C common units have no voting rights. Series C common units were issued to Parent without capital contributions in accordance with the arrangements described in Note 15, Management Equity Agreement. They have no right to participate in earnings of the company until capital is returned to the holders of the Series A and Series B common units. Accordingly, none of the net income of the company for the period October 29 through December 31, 2004, was allocated to the Series C common units. They participate in distributions as described below.
Distributions. The allocation of distributions (liquidating and otherwise) among the three series of units are made as follows: first to Series A and Series B common unit holders ratably, based on the number of units outstanding, until each has received distributions in an amount equal to its capital contributions (plus, in the case of Series A common units, its accumulated dividends and accrued and unpaid dividends) and then to Series B and Series C common unit holders ratably, based on the number of units of each series outstanding. In addition, the Boise Holdings' Operating Agreement provides for tax distributions to be made annually (or quarterly at the discretion of the board of directors) to the holders of its equity units of all classes in an amount equal to the estimated combined federal and state income taxes incurred by such holders on their allocable share of the taxable income of Boise Holdings for such period. See Note 6, Income Taxes.
Finally, in the event that Parent redeems its Series B or Series C common units issued by it to participants in its Management Equity Agreement (see Note 15), Boise Holdings is required to redeem a like number of Series B or Series C common units held by Parent at a price equal to the redemption price to be paid by Parent for the common units redeemed by it. Notwithstanding this redemption feature, we believe that the redemption of these units is within the control of Boise Holdings due to the interlocking boards of Parent and Boise Holdings and because Parent was organized solely for the purpose of establishing Boise Holdings to acquire the paper and forest products assets of OfficeMax. Tax distributions and redemptions of Series B common units pursuant to the Management Equity Agreement arrangements are counted as distributions for purposes of the calculation of the allocation of other distributions.
In connection with the Acquisition, we entered into a registration rights agreement with Parent and OfficeMax with respect to the equity interests they own in us. Under the Registration Rights Agreement, (a) Parent has the right to demand that we effect an unlimited number of registrations of its equity interests, whether pursuant to a long-form registration statement or a short-form registration, and pay all expenses, other than underwriting discounts and commissions, related to such registrations and (b) after the earlier of the fifth anniversary of the completion of the Acquisition or completion of an initial public offering by us, OfficeMax has the right to demand that we effect (1) seven registrations of its equity interests on a long-form registration statement and pay all expenses, other than underwriting discounts and commissions, related to any two of such registrations (with OfficeMax paying all expenses relating to the other five of such registrations) and (2) an unlimited number of registrations of its equity interests on a short-form registration statement and pay all expenses, other than underwriting discounts and commissions, related to such registrations. In addition, Parent and OfficeMax have the right to participate in registrations of our equity interests effected by us, whether such registrations relate to an offering by us or by our stockholders. Parent and OfficeMax have agreed not to effect any public sale or private placement of any of our equity interests during the period beginning seven days prior to, and ending 180 days after, the effective date of the registration statement for any underwritten public offering of our equity interests in which Parent or OfficeMax participate.
Predecessor Periods
During the predecessor periods presented, stock compensation was granted to our employees under OfficeMax's stock compensation plans. Depending on the award, stock compensation awards were exercisable one to three years after the grant date.
Restricted Stock. In 2003, OfficeMax granted employees of Boise Forest Products Operations and corporate employees servicing all OfficeMax business units 1.0management 4.6 million shares of restricted stock. The weighted-average fair value of thestock and 1.2 million restricted stock atunits (collectively restricted stock) subject to the grant date was $25.17.Plan Amendment described above. The restricted stock vested at the end of July 2006, provided, however, that if specific performance criteria were met, some or all of the restricted stock could vest earlier than July 2006, but generally no earlier than the end of January 2005. Under the terms of the original grant, all of the restricted stock awards granted to our employees under OfficeMax's stock compensation plan were 100% vested upon the Acquisition, resulting in the acceleration of the recognition of $3.72.0 million of expense in October 2004.
We recognized compensation expense over the vesting period based on closing stock prices on the dates of grant. For the period of January 1 through October 28, 2004, and the year ended December 31, 2003, Boise Forest Products Operations recognized $14.6 million and $4.3 million of pretax compensation expense, respectively. Compensation expense was calculated based on shares of restricted stock granted to employeesthe directors are earned on a pro rata basis through March 15, 2010, and vest upon the earlier of Boise Forest Products Operations plus an allocation(i) their departure from the board (vesting pro
Notes to Consolidated Financial Statements—(Continued)
rata based on time served) or (ii) March 15, 2010 (full vesting). The grants to members of expense relatedmanagement vest as follows: one-fifth on March 15, 2010, one-fifth on March 15, 2011, and three-fifths on March 15, 2012, subject to EBITDA goals. Any shares not vested on or before March 15, 2012, will be forfeited.
In May 2008, directors and members of management were granted awards of 0.4 million and 0.8 million shares, respectively, of restricted stock subject to service-condition vesting. The restricted stock granted to corporate employees that serviced all business units.directors vested on March 2, 2009. Additionally, one-third of the management grants subject to service-condition vesting restrictions also vested on March 2, 2009. The allocation was basedremaining grants subject to service-condition vesting restrictions vest equally on average sales, assetsFebruary 28, 2010, and labor costs. Management believes these allocations are reasonable. However, they areFebruary 28, 2011, subject to EBITDA goals. Any shares not necessarily indicativevested on or before February 28, 2011, will be forfeited.
Market-Condition Vesting Awards
In May 2008, members of costsmanagement were granted 1.9 million shares of restricted stock, subject to be incurredmarket-based vesting restrictions. Of this 1.9 million, 0.7 million will vest on February 28, 2011, if the closing price of Boise Inc. stock has been at least $10 per share for at least 20 trading days in the future.
Stock Options. For theany period of January 1 through October30 consecutive trading days between the grant date and February 28, 2004, and the year ended December 31, 2003, no options were granted to our employees. In 2002, OfficeMax granted our employees 1,243,550 options.2011. The weighted average exercisegrant-date fair value of these awards was $2.03 per share. The remaining 1.2 million shares of the restricted stock grants will vest on February 28, 2011, if the closing price of these options was $35.60. In connection withBoise Inc. stock has been at least $12.50 per share for at least 20 trading days in any period of 30 consecutive trading days between the sale, the stock options granted to employees that were terminated from OfficeMax became 100% vested,grant date and employees have three years after termination to exercise their stock options.
15. Management Equity Agreement
We account for awards granted under our Management Equity Agreement in accordance with SFAS No. 123, (revised 2004). In December 2004, key managers purchased 18.6 million Series B common units in Parent at $1.00 per unit, which was approximately equal to the estimatedFebruary 28, 2011. The weighted average grant-date fair value (after marketability discount)of these awards was $1.57 per share. Any shares not vested on the date of purchase of $0.99. Those who purchased Series B common units received a grant of 35.6 million Series C common units (profit interests) that represent the right to participate in profits after capital is returned to the holders of the Parent Series B common units. The Series C common units have no value to the holder until the equity value appreciates above a specified level. Generally, the Series B common units and 50% of the Series C common units vest 20% each year on December 31, 2005 through 2009. Upon either the sale of the company as defined in the agreement or an initial public offering, vesting is accelerated. The other 50% of the Series C common units vest at the end of 2009 if specific criteria tied to internal rates of return are met or based on the increase in the market price of our common stock subsequent to a public offering of our equity. The vesting schedules are shortened for managers who were at least 60 years old as of December 31, 2004, so that the units fully vest by December 31 of the year in which the manager reaches age 65 and at least two vesting periods have been met. February 28, 2011, will be forfeited.
Compensation Expense
We did not recognize compensation expense on the date of grant for the Series B common units because the fair value of the units was equal to or less than the amount each employee was required to pay. The Series C common units are accounted for as restricted stock. We will accrue compensation expense over the vesting periods for the Series C common unitsstock based on the fair value on the date of the grant.grant, as described below. Compensation expense is recognized ratably over the vesting period for the restricted stock grants that vest over time and ratably over the award period for the restricted stock grants that vest based on the closing price of Boise Inc. stock, as discussed above. During the years ended December 31, 2009 and 2008, we recognized $3.5 million and $3.1 million, respectively, of compensation expense. Most of these costs were recorded in “General and administrative expenses” in our Consolidated Statement of Income (Loss).
Fair Value Measurement
The fair value of service-condition restricted stock is determined based on the number of shares or units granted and the quoted price of our stock at the date of grant and is expensed on a straight-line basis over the vesting period. The fair value on the date of grant was $0.43 per share for the 2009 restricted stock grants and $4.16 per share for the 2008 grants. Compensation expense is adjusted if the service condition is not met.
The equity grants that vest based on the stock price of Boise Inc. are market-condition grants. Because the market-based restrictions represent a more difficult threshold to meet before payout, with greater uncertainty that the market condition will be satisfied, these awards have a lower fair value than those that vest based primarily on the passage of time. However, compensation expense is required to be recognized for an award regardless of when, if ever, the market condition is satisfied. We determined the fair value on the date of grant of the Series C common unitsmarket-condition awards that vest over timebased on the stock price of Boise Inc. at $10 per share and $12.50 per share to be $8.2 million.approximately $2.03 per share and $1.57 per share, respectively. The fair value of market condition restricted stock or units is estimated at the grant date using a Monte Carlo simulation. We determined the fairassumed a risk-free rate of 2.59%, an expected stock volatility of 58.60%, and a stock price for Boise Inc.’s common shares of $4.16 per share. The $4.16-per-share value is based on Boise Inc.’s closing stock price on the date of grantgrant. Expense is recognized on a straight-line basis over the service period.
Notes to Consolidated Financial Statements—(Continued)
The following summarizes the activity of our outstanding service- and market-condition restricted stock and units awarded under the Plan as of December 31, 2009 and 2008, and changes during the years ended December 31, 2009 and 2008 (number of shares and aggregate fair value, in thousands):
Service-Condition Vesting Awards | Market-Condition Vesting Awards | |||||||||||||||||||
Number of Shares | Weighted Average Grant-Date Fair Value | Aggregate Fair Value | Number of Shares | Weighted Average Grant-Date Fair Value | Aggregate Fair Value | |||||||||||||||
Outstanding at January 1, 2008 | — | $ | — | $ | — | — | $ | — | $ | — | ||||||||||
Granted | 1,185 | 4.16 | 4,927 | 1,929 | 1.75 | 3,368 | ||||||||||||||
Vested (a) | (30 | ) | 4.16 | (125 | ) | — | — | — | ||||||||||||
Forfeited | (12 | ) | 4.16 | (48 | ) | (13 | ) | 1.75 | (23 | ) | ||||||||||
Outstanding at December 31, 2008 (b) | 1,143 | $ | 4.16 | $ | 4,754 | 1,916 | $ | 1.75 | $ | 3,345 | ||||||||||
Granted | 5,841 | 0.43 | 2,512 | — | — | — | ||||||||||||||
Vested (a) | (604 | ) | 4.16 | (2,511 | ) | — | — | — | ||||||||||||
Forfeited | (49 | ) | 1.27 | (63 | ) | (32 | ) | 1.75 | (56 | ) | ||||||||||
Outstanding at December 31, 2009 (b) (c) | 6,331 | $ | 0.74 | $ | 4,692 | 1,884 | $ | 1.75 | $ | 3,289 | ||||||||||
(a) | We repurchase for cash any fractional shares as they vest. During the years ended December 31, 2009 and 2008, we repurchased 24.33 shares and no shares, respectively. |
(b) | Outstanding awards included all nonvested and nonforfeited awards |
(c) | The remaining weighted average contractual term is approximately 1.6 years for the service-condition awards and 1.3 years for the market-condition awards. |
At December 31, 2009, we had approximately $2.6 million and $1.3 million of total unrecognized compensation cost related to the nonvested service-condition and market-condition restricted stock grants, respectively, under the Plan. The cost is expected to be recognized generally over a weighted average period of 2.3 years and 3.0 years for the service-condition and market-condition awards, respectively. Unrecognized compensation expense is calculated net of estimated forfeitures of $0.1 million. During the year ended December 31, 2009, we recognized $3.5 million of compensation expense, of which $2.4 million related to the grant-date fair value of service-condition awards vested through December 31, 2009, and $1.1 million related to the market-condition awards that generally vest on February 28, 2011. During the year ended December 31, 2008, we recognized $3.1 million of compensation expense, of which $2.2 million related to the grant-date fair value of service-condition awards vested through December 31, 2008, and $0.9 million related to the market-condition awards that generally vest on February 28, 2011. The net income tax benefit associated with restricted stock awards was $0.3 million and $0.4 million for the years ended December 31, 2009 and 2008, respectively.
Notes to Consolidated Financial Statements—(Continued)
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes the following (dollars, in thousands):
Investment Gains (Losses) | Cash Flow Hedges | Unfunded Accumulated Benefit Obligation | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||
Actuarial Loss (a) | Prior Service Cost (a) | |||||||||||||||||||
Balance at December 31, 2007, net of taxes | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Current-period changes, before taxes | — | (760 | ) | (84,558 | ) | (364 | ) | (85,682 | ) | |||||||||||
Reclassifications to earnings, before taxes | — | — | — | — | — | |||||||||||||||
Income taxes | — | — | — | — | — | |||||||||||||||
Balance at December 31, 2008, net of taxes | $ | — | $ | (760 | ) | $ | (84,558 | ) | $ | (364 | ) | $ | (85,682 | ) | ||||||
Current-period changes, before taxes | (5 | ) | — | 23,665 | (145 | ) | 23,515 | |||||||||||||
Reclassifications to earnings, before taxes | — | 338 | (1,029 | ) | 36 | (655 | ) | |||||||||||||
Income taxes | — | (131 | ) | (8,656 | ) | 56 | (8,731 | ) | ||||||||||||
Balance at December 31, 2009, net of taxes | $ | (5 | ) | $ | (553 | ) | $ | (70,578 | ) | $ | (417 | ) | $ | (71,553 | ) | |||||
(a) | The 2010 net periodic pension expense will include $1.8million of net loss and $0.1 million of prior service cost that will be amortized from accumulated other comprehensive income (loss), which is included in “Capital” on our Consolidated Balance Sheets. |
Equity Transactions with Boise Inc.
Equity transactions with Boise Inc. consist of the Series Cpush down of share-based compensation, cash payments or receipts for income taxes and payments to Boise Inc. for the retirement of notes payable. Those amounts are as follows (dollars, in thousands):
Year Ended December 31, 2009 | Year Ended December 31, 2008 | |||||||
Share-based compensation | $ | 3,518 | $ | 3,096 | ||||
Income tax refunds (payments) | 3,009 | (1,271 | ) | |||||
Cash paid for notes payable | (52,924 | ) | — | |||||
$ | (46,397 | ) | $ | 1,825 | ||||
Predecessor
During the Predecessor period presented, equity compensation was granted to the Predecessor’s employees under Boise Cascade’s equity compensation plans. During the Predecessor period of January 1 through February 21, 2008, and the year ended December 31, 2007, the Predecessor recognized $0.2 million and $1.7 million, respectively, of compensation expense, most of which was recorded in “General and administrative expenses” in the Consolidated Statements of Income (Loss).
15. Acquisition of Boise Cascade’s Paper and Packaging Operations
On February 22, 2008, Aldabra 2 Acquisition Corp. completed the Acquisition the Paper Group and other assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and part of the headquarters operations of Boise Cascade for cash and securities. Aldabra 2
Notes to Consolidated Financial Statements—(Continued)
Acquisition Corp. acquired four pulp and paper mills, one paper mill, five corrugated container plants, a corrugated sheet feeder plant, and two paper distribution facilities, all located in the U.S. Subsequent to the Acquisition, Aldabra 2 Acquisition Corp. changed its name to Boise Inc. We are a 100% wholly owned consolidated entity of Boise Inc.
The purchase price was paid with cash, the issuance of shares of our common units that vest based on internal rates of return to be $4.2 million. stock, and a note payable. These costs, including direct transaction costs and purchase price adjustments, are summarized as follows (dollars, in thousands):
February 22, 2008 | ||||
Cash paid to Boise Cascade | $ | 1,252,281 | ||
Cash paid to Boise Cascade for financing and other fees | 24,915 | |||
Less: cash contributed by Boise Cascade | (38,000 | ) | ||
Net cash | 1,239,196 | |||
Equity at $9.15 average price per share | 346,395 | |||
Lack of marketability discount | (41,567 | ) | ||
Total equity | 304,828 | |||
Note payable to Boise Cascade at closing | 41,000 | |||
Working capital adjustment | 17,334 | |||
Total note payable to Boise Cascade | 58,334 | |||
Fees and expenses | 61,785 | |||
Total purchase price | $ | 1,664,143 | ||
The valuations used to determinefollowing table summarizes the fair valuesvalue allocation of the Series Bassets acquired and Series Cliabilities assumed in the Acquisition as adjusted (dollars, in thousands):
February 22, 2008, Fair Value | ||||
Current assets | $ | 571,936 | ||
Property and equipment | 1,306,070 | |||
Fiber farms and deposits | 11,006 | |||
Intangible assets: | ||||
Trademarks and trade names | 16,800 | |||
Customer list | 13,700 | |||
Technology | 6,860 | |||
Deferred financing costs | 81,898 | |||
Other long-term assets | 4,465 | |||
Current liabilities | (246,928 | ) | ||
Long-term liabilities | (101,664 | ) | ||
Total purchase price | $ | 1,664,143 | ||
Upon completion of the transaction, Boise Cascade owned 37.9 million, or 49%, of Boise Inc.’s outstanding shares. Boise Cascade continues to hold a significant interest in Boise Inc. At December 31, 2009, Boise Cascade owned 21.7% of Boise Inc.’s common unitsstock. On December 15, 2009, Boise Cascade announced its intention to further reduce its holdings by an additional 8 million shares by entering into a trading plan under SEC rules. Sales under this trading plan commenced February 16, 2010. As of March 3, 2010, Boise Cascade has sold all of its outstanding shares of Boise Inc. These sales resulted from its announced trading plan and two block trades.
Notes to Consolidated Financial Statements—(Continued)
16. St. Helens Mill Restructuring
In November 2008, we announced the restructuring of our paper mill in St. Helens, Oregon, permanently halting pulp production at the plant and reducing annual paper production capacity by approximately 200,000 short tons and market pulp capacity at the St. Helens and Wallula, Washington, mills. The restructuring was primarily the result of declining product demand coupled with continuing high costs. The restructuring was substantially complete in January 2009. We have permanently ceased paper production on machines #1 and #4 at the mill. Paper machine #2 at St. Helens continues to operate, manufacturing primarily printing papers and flexible packaging papers. The #3 machine, which is owned by Cascades Tissue Group, also continues to operate. The permanent capacity reductions resulted in the loss of approximately 330 jobs at the St. Helens mill and 36 jobs in related sales, marketing, and logistics functions elsewhere in the Company. Eligible salaried employees were retrospective.offered severance packages and outplacement assistance. We will employ approximately 140 employees at the mill after restructuring. At December 31, 2009, we had terminated approximately 360 employees.
Approximately $5.5For the years ended December 31, 2009 and 2008, we recorded a pretax charge of $5.8 million and $37.6 million, respectively, associated with the restructuring in “St. Helens mill restructuring” in the Consolidated Statements of Income (Loss). These costs are recorded in our Paper segment. For the year ended December 31, 2009, these charges included decommissioning costs and other miscellaneous costs related to the restructuring of the mill. For the year ended December 31, 2008, $28.8 million related to noncash expenses. Of the $37.6 million of the $18.6expense in 2008, $7.8 million invested by management was funded by the early payment by OfficeMax of retention bonuses owedrelated to the executives by OfficeMax. Inwrite-down of inventory and was recorded in “Materials, labor, and other operating expenses” in the eventConsolidated Statement of Income (Loss). We recorded the remaining $29.8 million of restructuring costs in “St. Helens mill restructuring” in the Consolidated Statement of Income (Loss). For the year ended December 31, 2008, the costs included asset write-downs for plant and equipment at the St. Helens mill, employee-related severance costs, pension curtailment losses, and other miscellaneous costs related to the restructuring of the mill. At December 31, 2009, we had $0.5 million of severance liabilities included in “Accrued liabilities, Compensation and benefits” on the Consolidated Balance Sheet.
an executive voluntarily terminates employment with us, orAn analysis of total restructuring-related activity as of December 31, 2009, is involuntarily terminatedas follows (dollars, in thousands):
Noncash Expense | Cash Expense | Total Expenses | |||||||
Inventory write-down | $ | 7,788 | $ | — | $ | 7,788 | |||
Asset write-down | 19,825 | — | 19,825 | ||||||
Employee-related costs | — | 8,433 | 8,433 | ||||||
Pension curtailment loss | 1,165 | — | 1,165 | ||||||
Other | — | 357 | 357 | ||||||
December 31, 2008 | 28,778 | 8,790 | 37,568 | ||||||
Decommissioning costs | — | 5,490 | 5,490 | ||||||
Other | — | 315 | 315 | ||||||
December 31, 2009 | — | 5,805 | 5,805 | ||||||
Total activity as of December 31, 2009 | $ | 28,778 | $ | 14,595 | $ | 43,373 | |||
We expect to spend approximately $1.6 million during 2010 and $1.0 million in 2011 in decommissioning and other costs. During the year ended December 31, 2009, we spent $5.8 million for disciplinary reasons, priorthese costs, which are recorded in “St. Helens mill restructuring” in our Consolidated Statements of Income (Loss). These expenses are recorded when the liability is incurred.
Notes to October 29, 2005, the executive must repay the bonus to Parent.Consolidated Financial Statements—(Continued)
16.17. Segment Information
We operate our business using fivein three reportable segments: Paper, Packaging, & Newsprint, Wood Products, Building Materials Distribution and Corporate and Other.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 companyCompany based on these segments. Historically, OfficeMax conducted the Boise Forest Products Operations in three segments: Boise Building Solutions, Boise Paper Solutions and Corporate and Other. We have recast the financial statements of our predecessor included herein to conform with our current segments. OfficeMax historically allocated the results of Boise Timberlands to each of its Boise Paper Solutions and Boise Building Solutions segments. Since we did not acquire the timberlands operations, they are not included in these financial statements.
Paper.Our Paper segment manufactures and sells uncoated free sheetfreesheet paper (including commodity and premium cut-size office papers); a range of packaging papers (including label and release papers, flexible packaging papers, and corrugating medium); commodity and premium printing and converting papers (including commercial printing papers, envelope papers, and form-related products); and market pulp. Many of these paper business formsproducts are commodity products, while others have specialized features that make these products premium and envelope papers), a wide range of value-added papers, market pulp and containerboard (corrugating medium).specialty grades. Our value-addedpremium grades include bright100% recycled, high-bright, and colored cut-size office papers, and our specialty grades include custom-developed specialty papers for such uses as label and release security and flexible food wrap applications.packaging. We sellship to end userscustomers both directly from our mills and through distribution centers. In 2004,2009, approximately 47%41% of our uncoated free sheetfreesheet paper sales volume, including about 84%approximately 63% of our office papers sales volume, was sold throughto OfficeMax.
Packaging. Our Packaging & Newsprint segment manufactures and sells containerboard (linerboard) and newsprint at our mill in DeRidder, Louisiana. We also operate five corrugated container plants in the Pacific Northwest. TheNorthwest, a sheet plant in Reno, Nevada, and a sheet feeder plant in Waco, Texas. Our corrugated containers that we manufacture are used to packageprimarily in the packaging of fresh fruit and vegetables, processed food, and beverages, and otheras well as industrial and consumer products. Our Waco, Texas, plant, known as Central Texas Corrugated (“CTC”), produces corrugated sheets that are sold to sheet plants in the Southwest, where they are converted into corrugated containers for a variety of customers. Our containerboard and corrugated container products are sold by brokers or our own sales personnel. We marketpersonnel and by brokers.
Until late February 2009, we marketed our newsprint through Abitibi-ConsolidatedAbitibi Consolidated Sales Corporation (“ACSC”), an indirect subsidiary of AbitibiBowater Inc. (AbitibiBowater), pursuant to an arrangement whereby Abitibi purchasesACSC purchased all of the newsprint we produce, at a price equalproduce. ACSC sold our newsprint primarily in regional markets near our DeRidder, Louisiana, manufacturing facility. In late February 2009, we terminated our arrangement with ACSC and since that time have sold our newsprint production through our own sales personnel primarily to the price at which Abitibi sells newsprint produced at its mills locatednewspaper publishers in the southern United States, less associated expensesU.S.
Corporate and a sales and marketing discount. The newsprint price is verified through a third-party audit.
Our Wood Products segment manufactures and sells engineered wood products (EWP), comprised of laminated veneer lumber, a high-strength engineered lumber often used in beams; I-joists, a structural support typically used in floors and roofs; and laminated beams. We also produce plywood, dimension lumber and high-quality ponderosa pine lumber, a premium lumber grade sold primarily to manufacturers of specialty wood windows, moldings and doors. Our wood products are used in new residential and light commercial construction and in residential repair and remodeling. Most of these products are sold to independent wholesalers and dealers or through our own wholesale building materials distribution outlets. During 2004, approximately 37% of the wood products we manufactured, including more than 58% of our EWP, were sold to Building Materials Distribution.
Our Building Materials Distribution segment is a national inventory-carrying wholesale distributor of building materials. We distribute a broad line of building materials, including EWP, oriented strand board, plywood, lumber, siding and general line items such as framing accessories,
composite decking, roofing and insulation. We purchase most of these building materials from third parties and market them primarily to customers that resell building materials to professional builders in the residential, light commercial construction and repair-and-remodeling markets.
Other. Our Corporate and Other segment includes primarily corporate support staff services, and related assets and liabilities, and foreign exchange gains and losses. During the Predecessor period presented, the Corporate and Other segment included primarily an allocation of Boise Cascade corporate support services and related assets and liabilities. These support services included, but were not limited to, finance, accounting, legal, information technology, and human resource functions. This segment also includes transportation assets, such as rail cars and trucks, which we use to transport our products from our manufacturing sites. Rail cars and trucks are generally leased. 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. During the years ended December 31, 2009 and 2008, segment sales related primarily to our rail and truck business were $63.8 million and $67.7 million, respectively. During the Predecessor period of January 1 through February 21, 2008, and for the year ended December 31, 2007, these sales were $8.5 million and $58.9 million, respectively.
In connection with the Acquisition, we entered into a services agreement under which we provide a number of corporate staff services to Boise Cascade at our cost. These services include information technology, accounting, and human resource services. The initial term of the agreement is for three years and will expire on February 22, 2011. It will automatically renew for one-year terms unless either party provides notice of termination to the other party at least 12 months in advance of the applicable term. For the years ended December 31, 2009 and 2008, we recorded $15.0 million and $12.1 million, respectively, in “Sales, Related parties.”
Notes to Consolidated Financial Statements—(Continued)
The segments'segments’ profits and losses are measured on operating profits before change in fair value of interest rate derivatives, interest expense, and interest income. Specified expenses are allocated to the segments. For many of these allocated expenses, the related assets and liabilities remain in the Corporate and Other segment.
The segments follow the accounting principles described in Note 1,2, Summary of Significant Accounting Policies.
Sales to OfficeMax were $534.8 million during the year ended December 31, 2004. For the period of October 29 through December 31, sales to OfficeMax represented 11% of total sales. In the predecessor periods, sales to OfficeMax were just over 9% of total sales. No other single customer accounted for 10% or more of consolidated trade sales. Export sales to foreign unaffiliated customers were $30.7$180.3 million forin 2009, $212.8 million in 2008, and $40.8 million and $222.1 million during the period of October 29 through December 31, 2004. For thePredecessor period of January 1 through October 28, 2004, our predecessor's exportFebruary 21, 2008, and the year ended December 31, 2007, respectively. In all periods presented, net sales were $104.0 million, compared with $126.9 million in 2003 and $120.7 million in 2002.
Our Wood Products segment has a small wood I-joist plant in Canada and a plywood plant in Brazil. Our predecessor had a 47% interest in an oriented strand board plant in Canada, which it sold in May 2004 and which it accounted for under the equity method.
The following table summarizes net salesgenerated domestically, and long-lived assets were held by geography:domestic operations.
| Boise Holdings | Predecessor | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| October 29 (inception) through December 31, 2004 | | Year Ended December 31 | ||||||||||
| January 1 through October 28, 2004 | ||||||||||||
| 2003 | 2002 | |||||||||||
| | (millions) | | ||||||||||
Net Sales | |||||||||||||
United States | $ | 866.4 | $ | 4,829.7 | $ | 4,619.9 | $ | 4,253.5 | |||||
Foreign | 6.3 | 32.3 | 33.8 | 22.8 | |||||||||
$ | 872.7 | $ | 4,862.0 | $ | 4,653.7 | $ | 4,276.3 | ||||||
Long-lived assets | |||||||||||||
United States | $ | 1,778.0 | $ | 2,167.4 | $ | 2,384.1 | $ | 2,424.6 | |||||
Foreign | 42.3 | 48.1 | 40.4 | 36.4 | |||||||||
$ | 1,820.3 | $ | 2,215.5 | $ | 2,424.5 | $ | 2,461.0 | ||||||
Segment sales to external customers by product linesline are as follows:follows (dollars, in millions):
| Boise Holdings | Predecessor | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| October 29 (inception) through December 31, 2004 | | Year Ended December 31 | ||||||||||
| January 1 through October 28, 2004 | ||||||||||||
| 2003 | 2002 | |||||||||||
| (millions) | ||||||||||||
Paper | |||||||||||||
Uncoated free sheet | $ | 195.1 | $ | 972.4 | $ | 1,096.4 | $ | 1,122.7 | |||||
Containerboard (medium) | 1.3 | 8.4 | 6.0 | 7.4 | |||||||||
Market pulp and other | 22.7 | 113.6 | 110.2 | 112.2 | |||||||||
219.1 | 1,094.4 | 1,212.6 | 1,242.3 | ||||||||||
Packaging & Newsprint | |||||||||||||
Containerboard (linerboard) | 75.9 | 339.9 | 380.4 | 394.4 | |||||||||
Newsprint | 38.6 | 158.2 | 173.5 | 155.4 | |||||||||
Other | 1.5 | 10.7 | 17.4 | 14.2 | |||||||||
116.0 | 508.8 | 571.3 | 564.0 | ||||||||||
Wood Products | |||||||||||||
Plywood and veneer | 62.0 | 387.4 | 401.4 | 328.3 | |||||||||
Engineered wood products | 28.9 | 168.4 | 160.4 | 139.8 | |||||||||
Lumber | 24.1 | 132.2 | 151.6 | 190.3 | |||||||||
Particleboard | 5.7 | 42.1 | 39.3 | 49.9 | |||||||||
Building supplies and other | 10.1 | 60.1 | 46.3 | 41.3 | |||||||||
130.8 | 790.2 | 799.0 | 749.6 | ||||||||||
Building Materials Distribution | |||||||||||||
Structural panels | 88.9 | 655.0 | 539.4 | 336.9 | |||||||||
Engineered wood products | 61.5 | 318.6 | 273.4 | 214.8 | |||||||||
Lumber | 117.3 | 727.3 | 590.8 | 589.1 | |||||||||
Particleboard | 3.4 | 16.7 | 15.1 | 9.6 | |||||||||
Building supplies and other | 130.5 | 724.8 | 629.1 | 545.7 | |||||||||
401.6 | 2,442.4 | 2,047.8 | 1,696.1 | ||||||||||
Corporate and Other | 5.2 | 26.2 | 23.0 | 24.3 | |||||||||
$ | 872.7 | $ | 4,862.0 | $ | 4,653.7 | $ | 4,276.3 | ||||||
BZ Intermediate Holdings LLC | Predecessor | |||||||||||||
Year Ended December 31, 2009 | Year Ended December 31, 2008 | January 1 Through February 21, 2008 | Year Ended December 31, 2007 | |||||||||||
Paper | ||||||||||||||
Uncoated freesheet | $ | 1,289.8 | $ | 1,240.9 | $ | 224.2 | $ | 1,392.1 | ||||||
Containerboard (medium) | 0.1 | 0.2 | 0.1 | 1.5 | ||||||||||
Market pulp and other | 73.5 | 101.9 | 20.1 | 139.3 | ||||||||||
1,363.4 | 1,343.0 | 244.4 | 1,532.9 | |||||||||||
Packaging | ||||||||||||||
Containerboard (linerboard) | 88.6 | 88.6 | 16.5 | 104.3 | ||||||||||
Newsprint | 98.4 | 203.2 | 29.8 | 217.1 | ||||||||||
Corrugated containers and sheets | 347.7 | 324.3 | 53.1 | 364.5 | ||||||||||
Other | 51.2 | 84.3 | 13.7 | 94.5 | ||||||||||
585.9 | 700.4 | 113.1 | 780.4 | |||||||||||
Corporate and Other | 28.9 | 27.2 | 2.4 | 19.3 | ||||||||||
$ | 1,978.2 | $ | 2,070.6 | $ | 359.9 | $ | 2,332.6 | |||||||
Notes to Consolidated Financial Statements—(Continued)
An analysis of our operations by segment is as follows:follows (dollars, in millions):
| Boise Holdings | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales | | | | | | ||||||||||||||||||||||
| Income (Loss) Before Taxes(a) | | | | | |||||||||||||||||||||||
| Trade | Related Parties | Intersegment | Total | Depreciation, Amortization and Depletion | EBITDA (a)(d) | Capital Expenditures | Assets | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||
October 29 (inception) through December 31, 2004 | ||||||||||||||||||||||||||||
Paper | $ | 126.4 | $ | 92.7 | $ | 11.0 | $ | 230.1 | $ | 19.0 | $ | 8.3 | $ | 27.3 | $ | 16.5 | $ | 1,079.2 | ||||||||||
Packaging & Newsprint | 116.0 | — | 12.9 | 128.9 | 7.3 | 6.0 | 13.3 | 2.8 | 550.1 | |||||||||||||||||||
Wood Products | 130.8 | — | 69.3 | 200.1 | 15.6 | 3.3 | 18.9 | 7.6 | 456.9 | |||||||||||||||||||
Building Materials Distribution | 401.6 | — | 0.1 | 401.7 | 10.1 | 1.5 | 11.6 | 1.1 | 396.6 | |||||||||||||||||||
Corporate and Other | 5.2 | — | 7.9 | 13.1 | (6.8 | ) | 0.9 | (5.9 | ) | 0.9 | 615.0 | |||||||||||||||||
Acquisition of paper and forest products businesses | — | — | — | — | — | — | — | 2,196.5 | — | |||||||||||||||||||
Loan to related party | — | — | — | — | — | — | — | 157.5 | — | |||||||||||||||||||
780.0 | 92.7 | 101.2 | 973.9 | 45.2 | 20.0 | 65.2 | 2,382.9 | 3,097.8 | ||||||||||||||||||||
Intersegment eliminations | — | — | (101.2 | ) | (101.2 | ) | — | — | — | — | (165.7 | ) | ||||||||||||||||
Interest expense | — | — | — | — | (22.2 | ) | — | — | — | — | ||||||||||||||||||
Interest income | — | — | — | — | 2.0 | — | — | — | — | |||||||||||||||||||
$ | 780.0 | $ | 92.7 | $ | — | $ | 872.7 | $ | 25.0 | $ | 20.0 | $ | 65.2 | $ | 2,382.9 | $ | 2,932.1 | |||||||||||
| Predecessor | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales | | | | | | | | |||||||||||||||||||||||||
| Income (Loss) Before Taxes(b)(c) | Depreciation, Amortization and Depletion | | Equity in Net Income of Affiliates | | | | ||||||||||||||||||||||||||
| Trade | Related Parties | Intersegment | Total | EBITDA (b)(c)(d) | Capital Expenditures | Assets | Investments in Equity Affiliates(b) | |||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
January 1 through October 28, 2004 | |||||||||||||||||||||||||||||||||
Paper | $ | 652.4 | $ | 442.0 | $ | 46.0 | $ | 1,140.4 | $ | (35.4 | ) | $ | 118.5 | $ | 83.1 | $ | — | $ | 56.2 | $ | 1,767.1 | $ | — | ||||||||||
Packaging & Newsprint | 508.7 | 0.1 | 56.8 | 565.6 | (1.2 | ) | 34.7 | 33.5 | — | 27.1 | 549.6 | — | |||||||||||||||||||||
Wood Products | 787.7 | 2.5 | 369.7 | 1,159.9 | 203.0 | 23.5 | 226.5 | 6.3 | 41.3 | 437.9 | — | ||||||||||||||||||||||
Building Materials Distribution | 2,442.4 | — | — | 2,442.4 | 78.8 | 6.1 | 84.9 | — | 9.8 | 442.9 | — | ||||||||||||||||||||||
Corporate and Other | 26.2 | — | 51.2 | 77.4 | (56.8 | ) | 11.0 | (45.8 | ) | — | 5.8 | 375.7 | — | ||||||||||||||||||||
4,417.4 | 444.6 | 523.7 | 5,385.7 | 188.4 | 193.8 | 382.2 | 6.3 | 140.2 | 3,573.2 | — | |||||||||||||||||||||||
Intersegment eliminations | — | — | (523.7 | ) | (523.7 | ) | — | — | — | — | — | (207.7 | ) | — | |||||||||||||||||||
Interest expense | — | — | — | — | (72.1 | ) | — | — | — | — | — | ||||||||||||||||||||||
Interest income | — | — | — | — | 0.5 | — | — | — | — | — | |||||||||||||||||||||||
$ | 4,417.4 | $ | 444.6 | $ | — | $ | 4,862.0 | $ | 116.8 | $ | 193.8 | $ | 382.2 | $ | 6.3 | $ | 140.2 | $ | 3,365.5 | $ | — | ||||||||||||
Year Ended December 31, 2003 | |||||||||||||||||||||||||||||||||
Paper | $ | 781.1 | $ | 431.5 | $ | 44.5 | $ | 1,257.1 | $ | (23.7 | ) | $ | 136.3 | $ | 112.6 | $ | — | $ | 84.6 | $ | 1,818.1 | $ | |||||||||||
Packaging & Newsprint | 571.3 | — | 66.8 | 638.1 | (15.0 | ) | 40.4 | 25.4 | — | 36.3 | 534.6 | — | |||||||||||||||||||||
Wood Products | 794.1 | 4.9 | 316.7 | 1,115.7 | 43.5 | 34.2 | 77.7 | 8.7 | 33.8 | 450.9 | 44.2 | ||||||||||||||||||||||
Building Materials | |||||||||||||||||||||||||||||||||
Distribution | 2,047.8 | — | — | 2,047.8 | 47.7 | 7.1 | 54.8 | — | 13.6 | 299.9 | — | ||||||||||||||||||||||
Corporate and Other | 23.0 | — | 54.9 | 77.9 | (40.1 | ) | 11.8 | (28.3 | ) | — | 6.8 | 210.9 | — | ||||||||||||||||||||
4,217.3 | 436.4 | 482.9 | 5,136.6 | 12.4 | 229.8 | 242.2 | 8.7 | 175.1 | 3,314.4 | 44.2 | |||||||||||||||||||||||
Intersegment eliminations | — | — | (482.9 | ) | (482.9 | ) | — | — | — | — | — | (190.6 | ) | — | |||||||||||||||||||
Interest expense | — | — | — | — | (92.9 | ) | — | — | — | — | — | — | |||||||||||||||||||||
Interest income | — | — | — | — | 0.8 | — | — | — | — | — | — | ||||||||||||||||||||||
Cumulative effect of accounting change, net of income tax | — | — | — | — | — | — | (4.1 | ) | — | — | — | — | |||||||||||||||||||||
$ | 4,217.3 | $ | 436.4 | $ | — | $ | 4,653.7 | $ | (79.7 | ) | $ | 229.8 | $ | 238.1 | $ | 8.7 | $ | 175.1 | $ | 3,123.8 | $ | 44.2 | |||||||||||
Year Ended December 31, 2002 | |||||||||||||||||||||||||||||||||
Paper | $ | 833.6 | $ | 408.7 | $ | 42.8 | $ | 1,285.1 | $ | 33.9 | $ | 140.6 | $ | 174.5 | $ | — | $ | 66.5 | $ | 1,851.5 | $ | — | |||||||||||
Packaging & Newsprint | 564.0 | — | 69.4 | 633.4 | (20.1 | ) | 38.5 | 18.4 | — | 32.7 | 540.5 | — | |||||||||||||||||||||
Wood Products | 746.3 | 3.3 | 254.6 | 1,004.2 | 1.2 | 35.9 | 37.1 | (0.6 | ) | 27.8 | 467.5 | 35.5 | |||||||||||||||||||||
Building Materials Distribution | 1,696.1 | — | — | 1,696.1 | 25.1 | 7.1 | 32.2 | — | 16.6 | 253.9 | — | ||||||||||||||||||||||
Corporate and Other | 24.3 | — | 51.8 | 76.1 | (52.5 | ) | 11.7 | (40.8 | ) | (0.9 | ) | 8.6 | 253.0 | — | |||||||||||||||||||
3,864.3 | 412.0 | 418.6 | 4,694.9 | (12.4 | ) | 233.8 | 221.4 | (1.5 | ) | 152.2 | 3,366.4 | 35.5 | |||||||||||||||||||||
Intersegment eliminations | — | — | (418.6 | ) | (418.6 | ) | — | — | — | — | — | (201.6 | ) | — | |||||||||||||||||||
Interest expense | — | — | — | — | (94.8 | ) | — | — | — | — | — | — | |||||||||||||||||||||
Interest income | — | — | — | — | 1.0 | — | — | — | — | — | — | ||||||||||||||||||||||
$ | 3,864.3 | $ | 412.0 | $ | — | $ | 4,276.3 | $ | (106.2 | ) | $ | 233.8 | $ | 221.4 | $ | (1.5 | ) | $ | 152.2 | $ | 3,164.8 | $ | 35.5 | ||||||||||
BZ Intermediate Holdings LLC | ||||||||||||||||||||||||||||||||
Sales | Income (Loss) Before Taxes | Depre- ciation, Amorti- zation, and Depletion | EBITDA(e) | Capital Expendi- tures | Assets | |||||||||||||||||||||||||||
Trade | Related Parties | Inter- segment | Total | |||||||||||||||||||||||||||||
Year Ended December 31, 2009 | ||||||||||||||||||||||||||||||||
Paper | $ | 1,363.4 | $ | — | $ | 56.6 | $ | 1,420.0 | $ | 262.7 | (a) | $ | 85.2 | $ | 347.8 | (a) | $ | 51.0 | $ | 1,249.8 | ||||||||||||
Packaging | 560.4 | 25.5 | 2.5 | 588.4 | 67.1 | (a) | 42.2 | 109.3 | (a) | 23.1 | 497.9 | |||||||||||||||||||||
Corporate and Other | 11.6 | 17.3 | 34.9 | 63.8 | (21.5 | )(a) | 4.1 | (17.3 | )(a) | 3.0 | 239.5 | |||||||||||||||||||||
1,935.4 | 42.8 | 94.0 | 2,072.2 | 308.3 | 131.5 | 439.8 | 77.1 | 1,987.2 | ||||||||||||||||||||||||
Intersegment eliminations | — | — | (94.0 | ) | (94.0 | ) | — | — | — | — | (91.4 | ) | ||||||||||||||||||||
Change in fair value of interest rate derivatives | — | — | — | — | 0.6 | — | — | — | — | |||||||||||||||||||||||
Loss on extinguishment of debt | — | — | — | — | (66.8 | ) | — | (66.8 | ) | — | — | |||||||||||||||||||||
Interest expense | — | — | — | — | (74.3 | ) | — | — | — | — | ||||||||||||||||||||||
Interest income | — | — | — | — | 0.4 | — | — | — | — | |||||||||||||||||||||||
$ | 1,935.4 | $ | 42.8 | $ | — | $ | 1,978.2 | $ | 168.2 | $ | 131.5 | $ | 373.0 | $ | 77.1 | $ | 1,895.8 | |||||||||||||||
Year Ended December 31, 2008 | ||||||||||||||||||||||||||||||||
Paper | $ | 1,343.0 | $ | — | $ | 60.7 | $ | 1,403.7 | $ | 32.7 | (b) | $ | 71.7 | $ | 104.3 | (b) | $ | 42.8 | $ | 1,310.4 | ||||||||||||
Packaging | 635.5 | 64.9 | 3.3 | 703.7 | 21.1 | (b) | 35.1 | 56.2 | (b) | 43.5 | 558.3 | |||||||||||||||||||||
Corporate and Other | 11.7 | 15.5 | 40.5 | 67.7 | (18.7 | )(b) | 3.2 | (15.4 | )(b) | 4.3 | 153.2 | |||||||||||||||||||||
1,990.2 | 80.4 | 104.5 | 2,175.1 | 35.1 | 110.0 | 145.1 | 90.6 | 2,021.9 | ||||||||||||||||||||||||
Intersegment eliminations | — | — | (104.5 | ) | (104.5 | ) | — | — | — | — | (36.8 | ) | ||||||||||||||||||||
Change in fair value of interest rate derivatives | — | — | — | — | (0.5 | ) | — | — | — | — | ||||||||||||||||||||||
Interest expense | — | — | — | — | (82.9 | ) | — | — | — | — | ||||||||||||||||||||||
Interest income | — | — | — | — | 0.6 | — | — | — | — | |||||||||||||||||||||||
$ | 1,990.2 | $ | 80.4 | $ | — | $ | 2,070.6 | $ | (47.7 | ) | $ | 110.0 | $ | 145.1 | $ | 90.6 | $ | 1,985.1 | ||||||||||||||
Notes to Consolidated Financial Statements—(Continued)
Predecessor | |||||||||||||||||||||||||||||||||
Sales | Income (Loss) Before Taxes | Depre- ciation, Amorti- zation, and Depletion | EBITDA(e) | Capital Expendi- tures | Assets | ||||||||||||||||||||||||||||
Trade | Related Parties | Inter- segment | Total | ||||||||||||||||||||||||||||||
January 1 Through February 21, 2008 | |||||||||||||||||||||||||||||||||
Paper | $ | 154.4 | $ | 90.0 | $ | 9.1 | $ | 253.5 | $ | 20.7 | $ | 0.3 | $ | 21.1 | $ | 5.0 | |||||||||||||||||
Packaging | 102.2 | 10.9 | 0.4 | 113.5 | 5.7 | 0.1 | 5.7 | 5.2 | |||||||||||||||||||||||||
Corporate and Other | 1.8 | 0.6 | 6.1 | 8.5 | (3.2 | ) | 0.1 | (3.1 | ) | — | |||||||||||||||||||||||
258.4 | 101.5 | 15.6 | 375.5 | 23.2 | 0.5 | 23.7 | 10.2 | ||||||||||||||||||||||||||
Intersegment eliminations | — | — | (15.6 | ) | (15.6 | ) | — | — | — | — | |||||||||||||||||||||||
Interest income | — | — | — | 0.2 | — | — | — | ||||||||||||||||||||||||||
$ | 258.4 | $ | 101.5 | $ | — | $ | 359.9 | $ | 23.4 | $ | 0.5 | $ | 23.7 | $ | 10.2 | ||||||||||||||||||
Year Ended December 31, 2007 | |||||||||||||||||||||||||||||||||
Paper | $ | 917.2 | $ | 615.7 | $ | 63.3 | $ | 1,596.2 | $ | 133.5 | (d) | $ | 45.0 | (c) | $ | 178.5 | (d) | $ | 103.4 | $ | 1,265.6 | ||||||||||||
Packaging | 705.1 | 75.3 | 2.7 | 783.1 | 40.1 | (d) | 37.7 | (c) | 77.8 | (d) | 38.2 | 579.1 | |||||||||||||||||||||
Corporate and Other | 14.3 | 5.0 | 39.6 | 58.9 | (11.9 | )(d) | 1.9 | (c) | (10.0 | )(d) | 0.2 | 12.4 | |||||||||||||||||||||
1,636.6 | 696.0 | 105.6 | 2,438.2 | 161.7 | 84.6 | 246.3 | 141.8 | 1,857.1 | |||||||||||||||||||||||||
Intersegment eliminations | — | — | (105.6 | ) | (105.6 | ) | — | — | — | — | (11.4 | ) | |||||||||||||||||||||
Interest income | — | — | — | — | 0.7 | — | — | — | — | ||||||||||||||||||||||||
$ | 1,636.6 | $ | 696.0 | $ | — | $ | 2,332.6 | $ | 162.4 | $ | 84.6 | $ | 246.3 | $ | 141.8 | $ | 1,845.7 | ||||||||||||||||
(a) | Included $5.8 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens mill. |
Included $5.9 million of income related to the impact of energy hedges, of which $4.8 million was recorded in the Paper segment and $1.1 million was recorded in the Packaging segment.
Included $149.9 million of income recorded in the Paper segment, $61.6 million of income recorded in the Packaging segment, and $3.9 million of expenses recorded in the Corporate and Other segment relating to alternative fuel mixture credits. These amounts are net of fees and expenses and before taxes.
Included $66.8 million of expense recorded in the Corporate and Other segment associated with the restructuring of our debt.
(b) | Included $37.6 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens mill. |
Included $7.4 million of expense related to the impact of energy hedges, of which $6.1 million was recorded in the Paper segment and $1.3 million was recorded in the Packaging segment.
Notes to Consolidated Financial Statements—(Continued)
Included $5.5 million of expense recorded in the Packaging segment related to lost production and costs incurred as a result of Hurricanes Gustav and Ike.
Included $10.2 million related to inventory purchase accounting adjustments, of which $7.4 million was recorded in the Paper segment and $2.8 million was recorded in the Packaging segment.
Included $19.8 million of expense recorded in the Packaging segment related to the outage at the DeRidder, Louisiana, mill.
Included a $2.9 million gain on changes in supplemental pension plans recorded in the Corporate and Other segment.
(c) | Included approximately $21.7 million, $19.1 million, and $1.0 million of lower depreciation and amortization expense in the Paper, Packaging, and Corporate and Other segments as a result of discontinuing depreciation and amortization on the assets recorded as held for sale. |
(d) | Included a $4.4 million gain for changes in retiree healthcare programs recorded in the Corporate and Other segment. |
Included $8.7 million of expense related to the impact of purchase accounting on our inventory values, we recognized an additional $20.2energy hedges. Of the $8.7 million, of costs$7.3 million was recorded in "Materials, laborthe Paper segment and other operating expenses" during$1.4 million was recorded in the period of October 29 through December 31, 2004, in our statement of income (loss) before taxes and in EBITDA.
Included $4.0 million of expense primarily for a one-time retention bonus OfficeMax granted to our employees and (iv) $14.6 million of noncash restricted stock expense.
(e) | EBITDA represents income (loss) before interest (interest expense, interest income, and change in fair value of interest rate derivatives), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers 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 with substantial financial leverage. 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, change in fair value of interest rate derivatives, 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. |
Notes to Consolidated Financial Statements—(Continued)
The following is a reconciliation 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 and 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 primarily on our GAAP results and by using EBITDA only supplementally. 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. EBITDA also closely tracks, after specified adjustments, the defined term "Consolidated EBITDA" that is the basis for calculating our financial debt covenants and restrictions under our senior credit facilities and the indenture governing our senior floating rate notes and senior subordinated notes. For example, our senior credit facilities and the indenture governing our notes permit us to add to EBITDA payments that are received by us from OfficeMax under the Additional Consideration Agreement, although such payments are treated as a purchase price adjustment rather than income(dollars, in our financial statements.
BZ Intermediate Holdings LLC | Predecessor | |||||||||||||||||
Year Ended December 31, 2009 | Year Ended December 31, 2009 | January 1 Through February 22, 2008 | Year Ended December 31, 2007 | |||||||||||||||
Net income (loss) | $ | 147.8 | $ | (41.9 | ) | $ | 22.8 | $ | 159.6 | |||||||||
Change in fair value of interest rate derivatives | (0.6 | ) | 0.5 | — | — | |||||||||||||
Interest expense | 74.3 | 82.9 | — | — | ||||||||||||||
Interest income | (0.4 | ) | (0.6 | ) | (0.2 | ) | (0.7 | ) | ||||||||||
Income tax provision (benefit) | 20.4 | (5.8 | ) | 0.6 | 2.8 | |||||||||||||
Depreciation, amortization, and depletion | 131.5 | 110.0 | 0.5 | 84.6 | ||||||||||||||
EBITDA | $ | 373.0 | $ | 145.1 | $ | 23.7 | $ | 246.3 | ||||||||||
17.18. Commitments and Guarantees
Commitments
We have financial commitments for leaseslease payments and long-term debtfor the purchase of logs, wood fiber, and utilities. In addition, we have other financial obligations that we enter into in the normal course of our business to purchase goods and services and to make capital improvements to our facilities.
Our lease commitments are discussed further in Note 7, Leases,Leases.
We are a party to a number of long-term log and Note 11, Debt. We also have commitments for raw materialsfiber supply agreements. At December 31, 2009 and utilities. Most of2008, our raw material commitments are for contracts to purchase timber. We estimate that we have a contractualtotal obligation for log and fiber purchases under contracts with third parties was approximately $1.0 billion to purchase timber. This includes$76.4 million and $168.7 million, respectively. Under most of the obligations related to the long-termlog and fiber supply agreements, entered into in February 2005 in connection with the Timberlands Sale. Under these supply contracts, we have the right to cancel or reduce our commitmentcommitments in the event of a mill curtailment or shutdown. The price forFuture purchase prices under most of these contracts isagreements are set quarterly or semiannually based on regional market prices. The $1.0 billionprices, and the estimate is based on contract terms or first quarter 20052010 pricing. Our timberlog and fiber obligations are subject to change based on, among other things, the effect of governmental laws and regulations, our manufacturing operations not operating in the normal course of business, timber availability and the status of environmental appeals.log and fiber availability. Except for deposits required pursuant to wood supply contracts, these obligations are not recorded in our consolidated financial statements until contract payment terms take effect.
We enter into utility contracts for the purchase of electricity and natural gas. We also purchase these services under utility tariffs. The contractual and tariff arrangements include multiple-year commitments and minimum annual purchase requirements. At December 31, 2004,2009 and 2008, we estimate that we havehad approximately $118.2$36.8 million and $24.0 million, respectively, of utility purchase commitments. These payment obligations were valued at prices in effect on December 31, 2004,2009 or contract language,2008, respectively, or determined pursuant to contractual terms, if available. TheseBecause we consume the energy in the manufacture of our products, these obligations represent the face value of the contracts, and do not consider resale value as we use the energy to manufacture our products.
Pursuant to an Additional Consideration Agreement between us and OfficeMax, we may be required to make substantial cash payments to, or receive substantial cash payments from, OfficeMax. Under the Additional Consideration Agreement, the purchase price paid for the paper, forest products and timberland assets may be adjusted upward or downward based on paper prices during the six years following the closing date, subject to annual and aggregate caps. Neither party will be obligated to make a payment under the Additional Consideration Agreement in excess of $45 million in any one year. Payments are also subject to an aggregate cap of $125 million that declines to $115 million in the fifth year and $105 million in the sixth year.value.
Guarantees
We provide guarantees, indemnifications, and assurances to others which constitute guarantees as defined under FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirementsin the normal course of our business. See Note 11, Debt, for Guarantees, Including Indirect Guarantees of Indebtedness of Others.
Boise Holdings and Timber Holdings (collectively the "Holding Companies") and their respective direct and indirect domestic subsidiaries are parties to a Credit Agreement dated as of October 29, 2004, with JPMorgan Chase Bank, N.A., as Administrative Agent, and certain Lenders named therein and a related Guarantee and Collateral Agreementdescription of the same date (collectivelyguarantees, including the Bank Credit Agreements). Boise Cascade, L.L.C. (Boise LLC), a wholly owned direct subsidiaryapproximate terms of Boise Holdings, acts as borrowerthe guarantees, how the guarantees arose, the events or circumstances that would require us to perform under the Bank Credit Agreements for the Tranche B term loan in the amount of $1,330.0 millionguarantees, and a $400.0 million revolving credit facility which had no outstanding balance at December 31, 2004 other than reimbursement obligations in respect of $68.3 million of standby letters of credit issued under the revolving facility. In addition, Boise Land &
Timber Corp., a wholly owned direct subsidiary of Timber Holdings, acts as borrower under the Bank Credit Agreements for the Tranche C term loan in the amount of $1,225.0 million, which was paid in full in February 2005 with the proceeds of the Timberlands Sale. Boise LLC's loans and reimbursement obligations are guaranteed by both Holding Companies and each of their domestic subsidiaries (other than Boise LLC). Prior to the repayment by Boise Land & Timber Corp. of the Tranche C term loan, both Holding Companies and each of their domestic subsidiaries (other than Boise Land & Timber Corp.) also guaranteed such loan.
Boise LLC and its wholly owned subsidiary, Boise Cascade Finance Corporation, have jointly issued $250.0 million of senior floating-rate notes due in 2012 and $400.0 million of 7.125% senior subordinated notes due in 2014. The senior notes are guaranteed on a senior basis and the subordinated notes on a subordinated basis by the Holding Companies and each of the domestic subsidiaries of the Holding Companies other than Boise LLC and Boise Cascade Finance Corporation, which are the issuers of the notes.
Boise LLC guarantees the obligations and performance of its wholly owned subsidiary, Boise Cascade do Brasil Ltda., under the terms of timber and stumpage purchase agreements in Brazil. These agreements extend through 2014. Boise LLC's exposure is effectively limited to the loss of its investment in Boise Cascade do Brasil Ltda., which was approximately $34.3 million at December 31, 2004.
Boise LLC has issued guarantees to a limited number of trade creditors of one or more of its principal operating subsidiaries, Boise Building Solutions Manufacturing, L.L.C., Boise Building Solutions Distribution, L.L.C., Boise White Paper, L.L.C., and Boise Packaging & Newsprint, L.L.C., for trade credit obligations arising in the ordinary course of the business of such operating subsidiaries. This includes guarantees of the obligations of both Boise White Paper, L.L.C., and of Boise Building Solutions Manufacturing, L.L.C., in respect to present and future timber sale agreements and several facility leases entered into by such subsidiaries. We also enter into guarantees of various raw material or energy supply contracts, arising in the ordinary course of business.
Boise LLC provides credit support for its principal operating subsidiaries in the form of reimbursement or indemnity obligations to the issuers of surety bonds and standby letters of credit supporting obligations of its operating subsidiaries arising in the ordinary course of business to suppliers of goods and services and to government entities regulating such subsidiaries' environmental obligations.
We enter into a wide range of indemnification arrangements in the ordinary course of business. These include tort indemnifications, tax indemnifications, financing transactions, indemnifications against third-party claims arising out of arrangements to provide services to us and indemnifications in merger and acquisition agreements. It is impossible to quantify the maximum potential liability under these indemnifications. At December 31, 2004,undiscounted amounts of future payments we were not aware of any material liabilities arising from these indemnifications.could be required to make.
18.Notes to Consolidated Financial Statements—(Continued)
19. Legal Proceedings and Contingencies
Legal Proceedings
We have retained responsibility forare a small number of claims and litigation mattersparty to routine proceedings that arose prior to the Acquisitionarise in the ordinary course of our business. ThereWe are not currently no materiala party to any legal proceedings pending against us. Additionally, OfficeMax has agreed to retain allor environmental claims and litigation not explicitly assumed by us pursuant to the Acquisition, including all litigation with respect to asbestos claims.that we believe would have a material adverse effect on our financial position, results of operations, or cash flows.
Environmental Contingencies
OfficeMax retains responsibility for environmental liabilities incurred with respect to businesses, facilities and other assets not purchased by us in connection with the Acquisition, and indemnifies us for hazardous substance releases and other environmental regulatory violations related to our business that occurred prior to the closing of the Acquisition or arise out of pre-closing operations. However, OfficeMax may not have sufficient funds to satisfy in full its indemnification obligations when required, and, in some cases, we may not be entitled to indemnification under the asset purchase agreement.
19.20. Quarterly Results of Operations (unaudited)(unaudited, in millions)
| Predecessor | Boise Holdings | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | October 29 (inception) through December 31, 2004(d) | |||||||||||||
| First Quarter(a) | Second Quarter(b) | Third Quarter | October 1 through October 28(c) | |||||||||||
| (millions) | ||||||||||||||
Net sales | $ | 1,308.0 | $ | 1,531.6 | $ | 1,559.3 | $ | 463.1 | $ | 872.7 | |||||
Income (loss) from operations | 18.6 | 51.4 | 79.9 | (15.2 | ) | 44.0 | |||||||||
Net income (loss) | 2.1 | 46.5 | 35.2 | (14.3 | ) | 24.7 |
Predecessor | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | ||||||||||||
| First Quarter | Second Quarter | Third Quarter(e) | Fourth Quarter(f) | |||||||||
| (millions) | ||||||||||||
Net sales | $ | 1,026.9 | $ | 1,134.4 | $ | 1,284.0 | $ | 1,208.4 | |||||
Income (loss) from operations | (22.8 | ) | (5.6 | ) | 31.3 | (1.9 | ) | ||||||
Income (loss) before cumulative effect of accounting change | (28.1 | ) | (15.5 | ) | 13.2 | (12.8 | ) | ||||||
Net income (loss) | (32.3 | ) | (15.5 | ) | 13.2 | (12.8 | ) |
BZ Intermediate Holdings LLC | ||||||||||||
2009 | ||||||||||||
First Quarter (a) | Second Quarter (b) | Third Quarter (c) | Fourth Quarter (d) | |||||||||
Net sales | $ | 500.3 | $ | 479.4 | $ | 508.3 | $ | 490.3 | ||||
Income (loss) from operations | 21.4 | 96.6 | 93.5 | 94.2 | ||||||||
Net income (loss) | 1.4 | 54.2 | 50.2 | 42.1 |
Predecessor | BZ Intermediate Holdings LLC | |||||||||||||||||
January 1 Through February 21, 2008 | 2008 | |||||||||||||||||
First Quarter (e) | Second Quarter (f) | Third Quarter (g) | Fourth Quarter (h) | |||||||||||||||
Net Sales | $ | 359.9 | $ | 228.0 | $ | 618.4 | $ | 633.1 | $ | 591.1 | ||||||||
Income (loss) from operations | 23.1 | (9.4 | ) | 7.7 | 30.1 | 11.4 | ||||||||||||
Net income (loss) | 22.8 | (20.5 | ) | (15.7 | ) | 10.9 | (16.6 | ) |
Predecessor | ||||||||||||
2007 | ||||||||||||
First Quarter (i) | Second Quarter (j) | Third Quarter (k) | Fourth Quarter (k) | |||||||||
Net sales | $ | 578.7 | $ | 582.6 | $ | 583.7 | $ | 587.6 | ||||
Income from operations | 22.8 | 16.6 | 50.7 | 70.4 | ||||||||
Net income | 22.0 | 16.5 | 50.2 | 70.8 |
(a) | First quarter 2009 included $3.6 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens mill. |
First quarter 2009 included $2.2 million of expense primarily for a one-time retention bonus OfficeMax grantedrelated to our employees.
Included $14.6the impact of energy hedges, $1.8 million of noncash restricted stock expenses.which was recorded in the Paper segment and $0.4 million in the Packaging segment.
(b) | Second quarter 2009 included $57.0 million of income recorded in the Paper segment, $19.9 million of income recorded in the Packaging segment, and $1.6 million of expenses recorded in the Corporate and Other segment relating to alternative fuel mixture credits. These amounts are net of fees and expenses and before taxes. |
Second quarter 2009 included $1.1 million of noncashexpense recorded in the Paper segment associated with the restructuring of the St. Helens mill.
Second quarter 2009 included $3.5 million of income related to the impact of energy hedges, $2.8 million of which was recorded in the Paper segment and $0.7 million in the Packaging segment.
(c) | Third quarter 2009 included $42.9 million of income recorded in the Paper segment, $19.4 million of income recorded in the Packaging segment, and $2.7 million of expenses recorded in the Corporate and Other segment relating to alternative fuel mixture credits. These amounts are net of fees and expenses and before taxes. |
Notes to Consolidated Financial Statements—(Continued)
Third quarter 2009 included $1.4 million of expense recorded in the Paper segment associated with the restructuring of the St. Helens mill.
Third quarter 2009 included $3.6 million of income related to the impact of energy hedges, $2.9 million of which was recorded in the Paper segment and $0.7 million in the Packaging segment.
(d) | Fourth quarter 2009 included $50.1 million of income recorded in the Paper segment, $22.2 million of income recorded in the Packaging segment, and $0.4 million of income recorded in the Corporate and Other segment relating to alternative fuel mixture credits. These amounts are net of fees and expenses and before taxes. |
Fourth quarter 2009 included $66.8 million of expense recorded in the Corporate and Other segment associated with the restructuring of our debt.
Fourth quarter 2009 included $1.0 million of income related to the impact of energy hedges, $0.9 million of which was recorded in the Paper segment and $0.1 million in the Packaging segment.
(e) | First quarter 2008 included $19.8 million of expense related to the outage at the DeRidder, Louisiana, mill. |
First quarter 2008 included $6.5 million of expense related to inventory purchase price adjustments in connection with the Acquisition.
(f) | Second quarter 2008 included $3.7 million of expense related to inventory purchase accounting adjustments. |
Second quarter 2008 included $3.7 million one-time tax benefitof income related to a favorable tax ruling, netthe impact of changes in other tax items.
Included a $3.6energy hedges, $3.0 million charge for the early termination of an operating lease used in connection with our predecessor's paper business.
20. Subsequent Events
On April 18, 2005, we amended and restated our senior credit facilities (the Facilities). These Facilities consist of an $840.0 million Tranche D term loan and a $475.0 million revolving credit facility. In connection with this transaction, we repaid all amounts outstanding under our Tranche B term loan. We are required to make scheduled principal payments on the Tranche D term loanwhich was recorded in the amount of $6.3Paper segment and $0.7 million in 2005the Packaging segment.
(g) | Third quarter 2008 included $11.3 million of expense related to the impact of energy hedges, $9.5 million of which was recorded in the Paper segment and $1.8 million in the Packaging segment. |
Third quarter 2008 included $5.5 million of expense related to lost production and $8.4 million in each of 2006 through 2009. The Tranche D term loan matures on October 28, 2011. Borrowings under the amended and restated credit facility are based on the prime rate, the Fed Funds Effective Rate plus 50 basis points, or the London Interbank Offering Rate (LIBOR) plus 175 basis points. At April 18, 2005, our borrowing under the new term loan was at a rate of 4.7%. The maturity of the revolving credit facility did not changecosts incurred as a result of this amendmentHurricanes Gustav and restatement. We could no longer treat certain interest rate swaps as hedges as of March 31, 2005 due to our decision to enter into the Facilities. AsIke.
(h) | Fourth quarter 2008 included $37.6 million of expenses related to the restructuring of our pulp and paper mill in St. Helens, Oregon, which we announced in November 2008. |
Fourth quarter 2008 included a result, the swaps were required to be revalued at fair value, with the change$2.9 million gain for changes in fair value recognized in our statement of income (loss) in the first quarter of 2005. On April 28, 2005, these interest swaps were redesignated as hedges of the cash flow risk from the LIBOR-based variable interest payments on term loans borrowed under our credit facilities. As a result of the accounting treatment of these hedges, we will recognize $15.2 million of noncash income in the first quarter of 2005 and $5.3 million of noncash expense in the second quarter of 2005. The net $9.9 million of income recognized during these periods will result in higher interest expense over the remaining life of the interest rate swaps.supplemental pension plans.
In addition, the Facilities permit us to pay dividends equal to 50% of consolidated net income, as defined in the credit agreement, that accumulated since October 29, 2004. If consolidated net income is less than $70.0 million, the agreement permits the payment of up to $35.0 million in dividends.
(i) | First quarter 2007 included $8.7 million of expense related to the impact of energy hedges. |
On May 9, 2005 we converted from a limited liability company to a corporation and changed our name to Boise Cascade Company. In connection with the conversion, the Series A equity units were exchanged for shares of Series A preferred stock, the Series B equity units were exchanged
(j) | Second quarter 2007 included a $4.4 million gain for changes in retiree healthcare programs. |
for shares of Class B common stock and the Series C equity units were exchanged for shares of Class C common stock.
(k) | In third quarter 2007 and fourth quarter 2007, the Predecessor had approximately $10.2 million and $31.6 million of lower depreciation and amortization expense as a result of discontinuing depreciation and amortization on the assets Boise Cascade recorded as held for sale. |
21. Consolidating Guarantor and Non-GuarantorNon-guarantor Financial Information
The following consolidating financial information presents balance sheets, statements of operationsOur 9% Senior Notes are jointly and cash flow information related to the Company's business. The senior notes areseverally guaranteed on a senior unsecured basis and the senior subordinated notes are guaranteed on a senior subordinated basis, in each case jointly and severally by Boise Cascade Company, TimberBZ Intermediate Holdings and by each of theirits existing and future subsidiaries (other thanthan: (i) the co-issuers,Co-issuers, Boise Cascade LLCPaper Holdings and Boise Cascade Finance Corporation)Company; (ii) Louisiana Timber Procurement Company, L.L.C.; and (iii) our foreign subsidiaries). The Non-Guarantors are the Company's foreign subsidiaries. Other than the consolidated financial statements and footnotes for Boise Cascade Company and Boise Land & Timber Holdings Corp., financial statements and other disclosures concerning the Guarantors have not been presented because management believes that such information is not material to investors.
Boise Cascade Company and subsidiaries
following consolidating balance sheets at December 31, 2004
| Boise Cascade Company (Parent) | Boise Cascade LLC | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | |||||||||||||||||||
ASSETS | ||||||||||||||||||||
Current | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 160,559 | $ | 39 | $ | 2,747 | $ | — | $ | 163,345 | ||||||||
Receivables | ||||||||||||||||||||
Trade, less allowances | — | — | 272,825 | 3,843 | — | 276,668 | ||||||||||||||
Intercompany | — | 1 | 1,910 | 935 | (2,846 | ) | — | |||||||||||||
Related parties | — | — | 42,055 | — | — | 42,055 | ||||||||||||||
Other | — | 4,951 | 10,413 | 3,810 | — | 19,174 | ||||||||||||||
Inventories | — | 18 | 577,746 | 17,105 | — | 594,869 | ||||||||||||||
Other | — | 12,362 | 2,903 | 356 | — | 15,621 | ||||||||||||||
— | 177,891 | 907,891 | 28,796 | (2,846 | ) | 1,111,732 | ||||||||||||||
Property | ||||||||||||||||||||
Property and equipment | ||||||||||||||||||||
Land and land improvements | — | 7,600 | 75,076 | 447 | — | 83,123 | ||||||||||||||
Buildings and improvements | — | 24,446 | 173,740 | 6,518 | — | 204,704 | ||||||||||||||
Machinery and equipment | — | 3,997 | 1,162,150 | 30,831 | — | 1,196,978 | ||||||||||||||
— | 36,043 | 1,410,966 | 37,796 | — | 1,484,805 | |||||||||||||||
Accumulated depreciation | — | (318 | ) | (11,151 | ) | (7,487 | ) | — | (18,956 | ) | ||||||||||
— | 35,725 | 1,399,815 | 30,309 | — | 1,465,849 | |||||||||||||||
Fiber farms and timber deposits | — | — | 33,135 | 11,511 | — | 44,646 | ||||||||||||||
— | 35,725 | 1,432,950 | 41,820 | — | 1,510,495 | |||||||||||||||
Note receivable from related party | — | 157,509 | — | — | — | 157,509 | ||||||||||||||
Deferred financing costs | — | 84,054 | — | — | — | 84,054 | ||||||||||||||
Goodwill | — | 4,558 | 13,832 | — | — | 18,390 | ||||||||||||||
Intangible assets | — | — | 34,357 | — | — | 34,357 | ||||||||||||||
Investments in equity affiliates | 369,840 | 115,650 | — | — | (485,490 | ) | — | |||||||||||||
Other assets | — | 9,679 | 5,339 | 514 | — | 15,532 | ||||||||||||||
Total assets | $ | 369,840 | $ | 585,066 | $ | 2,394,369 | $ | 71,130 | $ | (488,336 | ) | $ | 2,932,069 | |||||||
Boise Cascade Company and subsidiariesconsolidating balance sheets at December 31, 2004 (Continued)
| Boise Cascade Company (Parent) | Boise Cascade LLC | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | ||||||||||||||||||
LIABILITIES AND CAPITAL | |||||||||||||||||||
Current | |||||||||||||||||||
Current portion of long-term debt | $ | — | $ | 13,300 | $ | — | $ | — | $ | — | $ | 13,300 | |||||||
Accounts payable | |||||||||||||||||||
Trade | — | 45,951 | 260,737 | 3,460 | — | 310,148 | |||||||||||||
Intercompany | — | — | 936 | 1,910 | (2,846 | ) | — | ||||||||||||
Related parties | — | 27 | 123 | — | — | 150 | |||||||||||||
Accrued liabilities | |||||||||||||||||||
Compensation and benefits | — | 18,684 | 43,219 | 592 | — | 62,495 | |||||||||||||
Interest payable | — | 8,584 | — | — | — | 8,584 | |||||||||||||
Other | — | 6,323 | 35,074 | 2,234 | — | 43,631 | |||||||||||||
— | 92,869 | 340,089 | 8,196 | (2,846 | ) | 438,308 | |||||||||||||
Debt | |||||||||||||||||||
Long-term debt, less current portion | — | 1,966,700 | — | — | — | 1,966,700 | |||||||||||||
Other | |||||||||||||||||||
Compensation and benefits | — | 133,648 | — | — | — | 133,648 | |||||||||||||
Other long-term liabilities | — | 13,157 | 10,416 | — | — | 23,573 | |||||||||||||
— | 146,805 | 10,416 | — | — | 157,221 | ||||||||||||||
Due to (from) affiliates | — | (1,991,148 | ) | 1,986,736 | 4,412 | — | — | ||||||||||||
Capital | |||||||||||||||||||
Series A equity units | 36,868 | — | — | — | — | 36,868 | |||||||||||||
Series B equity units | 332,972 | — | — | — | — | 332,972 | |||||||||||||
Series C equity units | — | — | — | — | — | — | |||||||||||||
Subsidiary equity | — | 369,840 | 57,128 | 58,522 | (485,490 | ) | — | ||||||||||||
Total capital | 369,840 | 369,840 | 57,128 | 58,522 | (485,490 | ) | 369,840 | ||||||||||||
Total liabilities and capital | $ | 369,840 | $ | 585,066 | $ | 2,394,369 | $ | 71,130 | $ | (488,336 | ) | $ | 2,932,069 | ||||||
Boise Cascade Company and subsidiariesconsolidating statements of operationsfor the period October 29, 2004 (inception) through December 31, 2004
| Boise Cascade Company (Parent) | Boise Cascade LLC | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | ||||||||||||||||||
Sales | |||||||||||||||||||
Trade | $ | — | $ | — | $ | 773,636 | $ | 6,317 | $ | — | $ | 779,953 | |||||||
Intercompany | — | — | — | 6,642 | (6,642 | ) | — | ||||||||||||
Related parties | — | — | 92,774 | — | — | 92,774 | |||||||||||||
— | — | 866,410 | 12,959 | (6,642 | ) | 872,727 | |||||||||||||
Costs and expenses | |||||||||||||||||||
Materials, labor and other operating expenses | — | 1,320 | 725,400 | 13,431 | (6,642 | ) | 733,509 | ||||||||||||
Fiber costs from related parties | — | — | 24,451 | — | — | 24,451 | |||||||||||||
Depreciation, amortization and depletion | — | 590 | 18,904 | 543 | — | 20,037 | |||||||||||||
Selling and distribution expenses | — | — | 39,798 | 320 | — | 40,118 | |||||||||||||
General and administrative expenses | — | 6,115 | 4,493 | — | — | 10,608 | |||||||||||||
Other (income) expense, net | — | 196 | (482 | ) | 263 | — | (23 | ) | |||||||||||
— | 8,221 | 812,564 | 14,557 | (6,642 | ) | 828,700 | |||||||||||||
Income (loss) from operations | — | (8,221 | ) | 53,846 | (1,598 | ) | — | 44,027 | |||||||||||
Foreign exchange gain (loss) | — | 87 | 276 | 818 | — | 1,181 | |||||||||||||
Interest expense | — | (22,182 | ) | — | — | — | (22,182 | ) | |||||||||||
Interest expense—intercompany | — | (51 | ) | — | (194 | ) | 245 | — | |||||||||||
Interest income | — | 1,960 | 41 | 4 | — | 2,005 | |||||||||||||
Interest income—intercompany | — | 194 | 51 | — | (245 | ) | — | ||||||||||||
— | (19,992 | ) | 368 | 628 | — | (18,996 | ) | ||||||||||||
Income (loss) before income taxes and equity in net income (loss) of affiliates | — | (28,213 | ) | 54,214 | (970 | ) | — | 25,031 | |||||||||||
Income tax provision | — | (18 | ) | (266 | ) | (45 | ) | — | (329 | ) | |||||||||
Income (loss) before equity in net income (loss) of affiliates | — | (28,231 | ) | 53,948 | (1,015 | ) | (24,702 | ) | — | ||||||||||
Equity in net income (loss) of affiliates | 24,702 | 52,933 | — | — | (52,933 | ) | 24,702 | ||||||||||||
Net income (loss) | $ | 24,702 | $ | 24,702 | $ | 53,948 | $ | (1,015 | ) | $ | (77,635 | ) | $ | 24,702 | |||||
Boise Cascade Company and subsidiariesconsolidating statements of cash flowsfor the period October 29, 2004 (inception) through December 31, 2004
| Boise Cascade Company (Parent) | Boise Cascade LLC | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | |||||||||||||||||||
Cash provided by (used for) operations | ||||||||||||||||||||
Net income (loss) | $ | — | $ | (28,231 | ) | $ | 53,948 | $ | (1,015 | ) | $ | (24,702 | ) | $ | — | |||||
Equity in net (income) loss of affiliates | 24,702 | 52,933 | — | — | (52,933 | ) | 24,702 | |||||||||||||
Items in net income (loss) not using (providing) cash | ||||||||||||||||||||
Depreciation, depletion and amortization of deferred financing costs and other costs | — | 2,915 | 18,903 | 543 | — | 22,361 | ||||||||||||||
Pension and other postretirement benefit expense | — | 441 | 2,466 | — | — | 2,907 | ||||||||||||||
Other | — | (87 | ) | (276 | ) | (818 | ) | — | (1,181 | ) | ||||||||||
Decrease (increase) in working capital, net of acquisitions | ||||||||||||||||||||
Receivables | — | (3,453 | ) | 125,871 | 1,315 | (1,781 | ) | 121,952 | ||||||||||||
Inventories | — | (2,299 | ) | (15,787 | ) | (3,317 | ) | — | (21,403 | ) | ||||||||||
Accounts payable and accrued liabilities | — | 69,697 | 14,858 | (768 | ) | 1,781 | 85,568 | |||||||||||||
Pension and other postretirement benefit payments | — | (62 | ) | — | — | — | (62 | ) | ||||||||||||
Other | — | (5,459 | ) | 1,300 | (8 | ) | (201 | ) | (4,368 | ) | ||||||||||
Cash provided by (used for) operations | 24,702 | 86,395 | 201,283 | (4,068 | ) | (77,836 | ) | 230,476 | ||||||||||||
Cash provided by (used for) investment | ||||||||||||||||||||
Expenditures for property and equipment | — | (470 | ) | (27,409 | ) | (1,021 | ) | — | (28,900 | ) | ||||||||||
Acquisition of businesses and facilities | — | 25,074 | (2,162,989 | ) | (58,537 | ) | — | (2,196,452 | ) | |||||||||||
Note receivable from related party | — | (157,509 | ) | — | — | — | (157,509 | ) | ||||||||||||
Investment in affiliate | (338,877 | ) | — | — | — | 338,877 | — | |||||||||||||
Other | — | (5,059 | ) | 2,432 | — | — | (2,627 | ) | ||||||||||||
Cash provided by (used for) investment | (338,877 | ) | (137,964 | ) | (2,187,966 | ) | (59,558 | ) | 338,877 | (2,385,488 | ) | |||||||||
Cash provided by (used for) financing | ||||||||||||||||||||
Additions to long-term debt for acquisition | — | 2,020,000 | — | — | — | 2,020,000 | ||||||||||||||
Payments of long-term debt | — | (40,000 | ) | — | — | — | (40,000 | ) | ||||||||||||
Issuance of equity units | 338,877 | 338,877 | (338,877 | ) | 338,877 | |||||||||||||||
Other | — | (520 | ) | — | — | — | (520 | ) | ||||||||||||
Cash provided by (used for) financing | 338,877 | 2,318,357 | — | — | (338,877 | ) | 2,318,357 | |||||||||||||
Boise Cascade Company and subsidiariesconsolidating statements of cash flowsfor the period October 29, 2004 (inception) through December 31, 2004 (Continued)
| Boise Cascade Company (Parent) | Boise Cascade LLC | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (thousands) | |||||||||||||||||
Due to (from) affiliates | (24,702 | ) | (2,106,229 | ) | 1,986,722 | 66,373 | 77,836 | — | ||||||||||
Increase in cash and cash equivalents | — | 160,559 | 39 | 2,747 | — | 163,345 | ||||||||||||
Balance at beginning of the period | — | — | — | — | — | — | ||||||||||||
Balance at end of the period | $ | — | $ | 160,559 | $ | 39 | $ | 2,747 | $ | — | $ | 163,345 | ||||||
BOISE LAND & TIMBER HOLDINGS CORP.CONSOLIDATED STATEMENTS OF INCOME (LOSS)(unaudited, in thousands)
| Timber Holdings | Predecessor | ||||||
---|---|---|---|---|---|---|---|---|
| Three Months Ended March 31 | |||||||
| 2005 | 2004 | ||||||
Sales | ||||||||
Fiber | ||||||||
Trade | $ | 5 | $ | 11 | ||||
Related parties | 17,609 | 27,842 | ||||||
Timberlands | — | 85,488 | ||||||
17,614 | 113,341 | |||||||
Costs and expenses | ||||||||
Materials, labor and other operating expenses | 2,303 | 11,089 | ||||||
Depreciation, amortization and depletion | 10,854 | 2,013 | ||||||
Cost of timberlands sold | — | 24,392 | ||||||
General and administrative expenses | 2,330 | 1,928 | ||||||
Other (income) expense, net | (174 | ) | (1,022 | ) | ||||
15,313 | 38,400 | |||||||
Gain on sale of timberland assets | 4,894 | — | ||||||
Income from operations | 7,195 | 74,941 | ||||||
Interest expense | (11,519 | ) | (1,415 | ) | ||||
Interest income | 3,123 | — | ||||||
(8,396 | ) | (1,415 | ) | |||||
Income (loss) before income taxes | (1,201 | ) | 73,526 | |||||
Income tax provision | — | (28,635 | ) | |||||
Net income (loss) | $ | (1,201 | ) | $ | 44,891 | |||
See accompanying notes to unaudited quarterly consolidated financial statements.
BOISE LAND & TIMBER HOLDINGS CORP.CONSOLIDATED BALANCE SHEETS(unaudited, in thousands)
| March 31, 2005 | December 31, 2004 | ||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | $ | — | $ | 1 | ||||
Receivables | — | 4 | ||||||
Inventories | — | 828 | ||||||
Prepaid assets | — | 1,809 | ||||||
— | 2,642 | |||||||
Property | ||||||||
Property and equipment | ||||||||
Land and land improvements | — | 4,744 | ||||||
Buildings and improvements | — | 715 | ||||||
Machinery and equipment | — | 949 | ||||||
— | 6,408 | |||||||
Accumulated depreciation | — | (138 | ) | |||||
— | 6,270 | |||||||
Timber and timberlands | — | 1,628,426 | ||||||
— | 1,634,696 | |||||||
Deferred financing costs | — | 4,833 | ||||||
Investments in affiliates | 250 | 250 | ||||||
Note receivable from related party | 256,123 | — | ||||||
Other assets | — | 300 | ||||||
Total assets | $ | 256,373 | $ | 1,642,721 | ||||
See accompanying notes to unaudited quarterly consolidated financial statements.
BOISE LAND & TIMBER HOLDINGS CORP.CONSOLIDATED BALANCE SHEETS (Continued)(unaudited, in thousands)
| March 31, 2005 | December 31, 2004 | |||||
---|---|---|---|---|---|---|---|
LIABILITIES AND CAPITAL | |||||||
Current | |||||||
Current portion of long-term debt | $ | — | $ | 12,250 | |||
Accounts payable | 59 | 2,500 | |||||
Taxes payable | 1,675 | 1,840 | |||||
1,734 | 16,590 | ||||||
Debt | |||||||
Long-term debt, less current portion | — | 1,212,750 | |||||
Note payable to related party | — | 157,509 | |||||
— | 1,370,259 | ||||||
Commitments and contingent liabilities | |||||||
Capital | |||||||
Common stock — par value $.01; 65,317 shares authorized; 65,049 and 65,060 shares outstanding | 1 | 1 | |||||
Additional paid-in capital | 276,090 | 276,122 | |||||
Retained losses | (21,452 | ) | (20,251 | ) | |||
Total capital | 254,639 | 255,872 | |||||
Total liabilities and capital | $ | 256,373 | $ | 1,642,721 | |||
See accompanying notes to unaudited quarterly consolidated financial statements.
BOISE LAND & TIMBER HOLDINGS CORP.CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited, in thousands)
| Timber Holdings | Predecessor | ||||||
---|---|---|---|---|---|---|---|---|
| Three Months Ended March 31 | |||||||
| 2005 | 2004 | ||||||
Cash provided by (used for) operations | ||||||||
Net income (loss) | $ | (1,201 | ) | $ | 44,891 | |||
Items in net income not using (providing) cash | ||||||||
Depreciation, depletion and amortization of deferred financing costs and other costs | 15,852 | 2,013 | ||||||
Gain on sale of Louisiana timberlands | — | (59,915 | ) | |||||
Gain on sale of timberland assets | (4,894 | ) | — | |||||
Receivables | 4 | 24 | ||||||
Inventories | (118 | ) | 372 | |||||
Accounts payable and accrued liabilities | (2,085 | ) | 462 | |||||
Current and deferred income taxes | — | (185 | ) | |||||
Other | (170 | ) | (697 | ) | ||||
Cash provided by (used for) operations | 7,388 | (13,035 | ) | |||||
Cash provided by (used for) investment | ||||||||
Expenditures for property and equipment | (25 | ) | (395 | ) | ||||
Expenditures for timber and timberlands | (540 | ) | (2,418 | ) | ||||
Proceeds from sale of Louisiana timberlands | — | 83,717 | ||||||
Sale of timberland assets | 1,632,005 | — | ||||||
Note receivable from related party | (256,123 | ) | — | |||||
Other | — | 1,020 | ||||||
Cash provided by investment | 1,375,317 | 81,924 | ||||||
Cash provided by (used for) financing | ||||||||
Payments of long-term debt | (1,225,000 | ) | (6,455 | ) | ||||
Note payable to related party | (157,509 | ) | — | |||||
Net equity transactions with OfficeMax | — | (62,433 | ) | |||||
Other | (197 | ) | — | |||||
Cash used for financing | (1,382,706 | ) | (68,888 | ) | ||||
Increase (decrease) in cash and cash equivalents | (1 | ) | 1 | |||||
Balance at beginning of the period | 1 | — | ||||||
Balance at end of the period | $ | — | $ | 1 | ||||
See accompanying notes to unaudited quarterly consolidated financial statements.
BOISE LAND & TIMBER HOLDINGS CORP.CONSOLIDATED STATEMENTS OF CAPITAL(unaudited, in thousands)
| | Additional Paid-In Capital | | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Series A Common Stock | Series B Common Stock | Series C Common Stock | | | |||||||||||||||||||
| Common Stock | Shares | Amount | Shares | Amount | Shares | Amount | Retained Losses | Total Capital | ||||||||||||||||
Balance at December 31, 2004 | $ | 1 | 7 | $ | 30,040 | 55 | $ | 246,082 | 4 | $ | — | $ | (20,251 | ) | $ | 255,872 | |||||||||
Net loss | — | — | — | — | — | — | — | (1,201 | ) | (1,201 | ) | ||||||||||||||
Repurchase of equity units | — | — | — | — | (32 | ) | — | — | — | (32 | ) | ||||||||||||||
Paid-in-kind dividend | — | — | 584 | — | (584 | ) | — | — | — | — | |||||||||||||||
Balance at March 31, 2005 | $ | 1 | 7 | $ | 30,624 | 55 | $ | 245,466 | 4 | $ | — | $ | (21,452 | ) | $ | 254,639 | |||||||||
See accompanying notes to unaudited quarterly consolidated financial statements.
NOTES TO UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS
Discontinued Operations
At December 31, 2004, our timberland assets were held for sale, and the operations of Boise Land & Timber Holding Corp. (Timber Holdings) met the definition of discontinued operations. In the accompanying financial statements, we have not shown our assets as "Assets held for sale" or our liabilities as "Liabilities related to assets held for sale" on our Consolidated Balance Sheet. Since almost all of the assets and liabilities were disposed of, we believe that we are providing more useful information by presenting the information as shown.
In February 2005, we sold all of our timberlands located across the Pacific Northwest, Louisiana, Alabama and Minnesota to Forest Capital Partners, LLC, for $1.65 billion in cash (Timberlands Sale) and recorded a $4.9 million gain. Proceeds from the sale were used to eliminate all of our debt, including a related-party loan from Boise Cascade, L.L.C. (Boise LLC), the wholly owned operating subsidiary of Boise Cascade Holdings, L.L.C. (Boise Holdings), and to make a related-party loan to Boise LLC. After the Timberlands Sale, our assets consisted of an investment of $0.3 million in unconsolidated affiliates and a related-party receivable of $264.8 million from Boise Holdings. The amount of the receivable will fluctuate with related-party activity.
1. Basis of Presentation
As used in these financial statements, the terms "Timber Holdings" and "we" include Boise Land & Timber Holdings Corp. and its consolidated subsidiaries. The term "predecessor" refers to the results of the timberland assets of OfficeMax Incorporated (OfficeMax) or Boise Timberlands. OfficeMax was formerly Boise Cascade Corporation, the company that owned the timberlands through October 28, 2004; see Note 2 "Purchase of OfficeMax's Paper, Forest Products and Timberland Assets," in our 2004 Consolidated Financial Information for additional information. In the predecessor periods, we refer to OfficeMax's paper and forest products businesses as Boise Forest Products Operations.
We are not a registrant with the Securities and Exchange Commission (SEC). Accordingly, we have not filed these financial statements with them. We have, however, prepared these financial statements pursuant to the rules and regulations of the SEC.
The quarterly consolidated financial statements have not been audited by an independent registered public accounting firm, but in the opinion of management, we have included all adjustments necessary to present fairly the results for the periods. Net income (loss) for the three months ended March 31, 2005 and 2004, involved estimates and accruals. Actual results may vary from those estimates. Except as may be disclosed within these "Notes to Consolidated Quarterly Financial Statements," the adjustments made were of a normal, recurring nature. Quarterly results are not necessarily indicative of results that may be expected for the year.
The consolidated financial statements present our operating results for the three months ended March 31, 2005, and the results of OfficeMax's timberland operations for the three months ended March 31, 2004. OfficeMax historically managed its timberlands as part of its Boise Paper Solutions and Boise Building Solutions segments. These financial statements present the timberlandresults of operations, asfinancial position and cash flows of (i) BZ Intermediate Holdings LLC (parent); (ii) Co-issuers; (iii) Guarantor subsidiaries; (iv) Non-guarantor subsidiaries; and (v) eliminations to arrive at the information on a separate entity.consolidated basis.
The predecessor financial statements include accounts specifically attributed
Notes to Boise Timberlands and a portion of OfficeMax's shared corporate general and administrative expenses. The shared services included, but were not limited to, finance, accounting, legal, information technology and human resource functions. OfficeMax's corporate general and administrative
expenses were allocated to the predecessor period based on specifically identifiable services used by Boise Timberlands.
The predecessor financial statements also include an allocation of OfficeMax's total debt and related interest expense based on average asset balances (see Note 6). The predecessor's results have been or will be included in OfficeMax's consolidated tax returns. Income taxes in the predecessor periods of these financial statements have been calculated as if Boise Timberlands were a separate taxable entity (see Note 4).
Information about the allocations and related-party transactions are included in Note 3, Transactions With Related Parties.
ReclassificationsConsolidated Financial Statements—(Continued)
Certain amounts in prior period financial statements have been reclassified to conform with the current-period presentation. These reclassifications did not affect net income (loss).
2. Purchase and Sale of Timberland Assets
On October 29, 2004, we acquired OfficeMax's timberland assets for an aggregate consideration of $1,650.0 million, excluding fees and expenses (the Acquisition). We paid for the Acquisition with $15.0 million of cash and made contributions to affiliates of $1,635.0 million, who in turn issued $1,635.0 million of timber installment notes to OfficeMax and an affiliate of OfficeMax. See Note 1, Investment in Affiliates, in our 2004 Consolidated Financial Information, for more information. The $1,635.0 million in installment notes issued to OfficeMax were nonrecourse with respect to Forest ProductsBZ Intermediate Holdings L.L.C. (Parent), a newly formed holding company controlled by Madison Dearborn Partners, LLC and its consolidated subsidiaries, and mature on January 29, 2020. In addition, we incurred $14.8 million of deferred financing costs and assumed $3.3 million of liabilities, net of current assets acquired, for a net purchase price of $1,661.6 million.
On the Acquisition date, Parent and an affiliate of OfficeMax made an aggregate cash equity investment of $276.1 million in us. The equity investment consisted of $197.6 million invested by Parent in exchange for 44,000 shares of Series B common stock and $78.5 million invested by an affiliate of OfficeMax in exchange for 7,000 and 11,000 shares of Series A and Series B common stock, respectively. See the Consolidated Statement of Capital and Note 8, Equity, in our 2004 Consolidated Financial Information, for a discussion of the rights and privileges of each class of common stock.
In February 2005, we sold all of our timberland assets for $1,650.0 million in cash, and recorded a $4.9 million gain after $18.0 million of transaction costs. Proceeds from the sale were used to eliminate all of our debt, including a related-party loan from Boise LLC, and to make a related-party loan to Boise LLC. After the Timberlands Sale, our assets consisted of an investment of $0.3 million in unconsolidated affiliates and a related-party receivable of $264.8 million from Boise Holdings. The amount of the receivable will fluctuate with related-party activity. At March 31, 2005, this loan receivable balance was $256.1 million.Subsidiaries
3. Transactions With Related Parties
For the three months ended March 31, 2005, we participated in Boise LLC's centralized cash management system. During the predecessor period presented, we participated in OfficeMax's
centralized cash management system. Cash receipts attributable to our operations were collected by Boise LLC and OfficeMax, and cash disbursements were funded by Boise LLC and OfficeMax. For the three months ended March 31, 2005, the net effect of these transactions has been reflected in our Consolidated Statement of Cash Flows as "Note payable to related party" and "Note receivable from related party." For the three months ended March 31, 2004, the net effect of these transactions has been reflected in our predecessor financial statements as "Net equity transactions with OfficeMax" in the Consolidated Statement of Cash Flows. The following table includes the components of these related-party transactions (in thousands):
| Timber Holdings | Predecessor | |||||
---|---|---|---|---|---|---|---|
| Three Months Ended March 31 | ||||||
| 2005 | 2004 | |||||
Cash collections | $ | (21,065 | ) | $ | (111,752 | ) | |
Payment of accounts payable | 13,507 | 13,166 | |||||
Capital expenditures | 565 | 2,813 | |||||
Income taxes | — | 28,635 | |||||
Net debt (issuances) payments with OfficeMax | — | 6,455 | |||||
Cash from sale of timberlands | (1,632,005 | ) | — | ||||
Payments of long-term debt | 1,225,000 | — | |||||
Other | 366 | (1,750 | ) | ||||
Related-party notes payable and receivable | $ | (413,632 | ) | ||||
Net equity transactions with OfficeMax | $ | (62,433 | ) | ||||
During the three months ended March 31, 2005, and the predecessor period presented, we used services and administrative staff of Boise LLC and OfficeMax, respectively. These included, but were not limited to, finance, accounting, legal, information technology and human resource functions. The costs allocated to Timber Holdings and our predecessor were specifically identifiable as services used by us and our predecessor. These costs are included in "General and administrative expenses" in the ConsolidatedConsolidating Statements of Income (Loss). All cash advances necessary
For the Year Ended December 31, 2009
(dollars, in thousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Sales | |||||||||||||||||||||||
Trade | $ | — | $ | — | $ | 1,930,526 | $ | 4,884 | $ | — | $ | 1,935,410 | |||||||||||
Intercompany | — | — | 5 | 90,906 | (90,911 | ) | — | ||||||||||||||||
Related parties | — | 14,966 | 2,317 | 25,499 | — | 42,782 | |||||||||||||||||
— | 14,966 | 1,932,848 | 121,289 | (90,911 | ) | 1,978,192 | |||||||||||||||||
Costs and expenses | |||||||||||||||||||||||
Materials, labor, and other operating expenses | — | 14,080 | 1,551,756 | 121,289 | (90,911 | ) | 1,596,214 | ||||||||||||||||
Fiber costs from related parties | — | — | 36,858 | — | — | 36,858 | |||||||||||||||||
Depreciation, amortization, and depletion | — | 3,583 | 127,917 | — | — | 131,500 | |||||||||||||||||
Selling and distribution expenses | — | — | 55,318 | 206 | — | 55,524 | |||||||||||||||||
General and administrative expenses | — | 18,286 | 31,964 | — | — | 50,250 | |||||||||||||||||
St. Helens mill restructuring | — | — | 5,805 | — | — | 5,805 | |||||||||||||||||
Alternative fuel mixture credits | — | 3,933 | (211,540 | ) | — | — | (207,607 | ) | |||||||||||||||
Other (income) expense, net | — | 695 | 3,540 | (230 | ) | — | 4,005 | ||||||||||||||||
— | 40,577 | 1,601,618 | 121,265 | (90,911 | ) | 1,672,549 | |||||||||||||||||
Income (loss) from operations | — | (25,611 | ) | 331,230 | 24 | — | 305,643 | ||||||||||||||||
Foreign exchange gain (loss) | — | 1,529 | 1,110 | — | — | 2,639 | |||||||||||||||||
Change in fair value of interest rate derivatives | — | 568 | — | — | — | 568 | |||||||||||||||||
Loss on extinguishment of debt | — | (66,784 | ) | — | — | — | (66,784 | ) | |||||||||||||||
Interest expense | — | (74,263 | ) | — | — | — | (74,263 | ) | |||||||||||||||
Interest expense—intercompany | — | (171 | ) | — | (15 | ) | 186 | — | |||||||||||||||
Interest income | — | 364 | 3 | — | — | 367 | |||||||||||||||||
Interest income—intercompany | — | 15 | 171 | — | (186 | ) | — | ||||||||||||||||
— | (138,742 | ) | 1,284 | (15 | ) | — | (137,473 | ) | |||||||||||||||
Income (loss) before income taxes | — | (164,353 | ) | 332,514 | 9 | — | 168,170 | ||||||||||||||||
Income tax (provision) benefit | — | (19,546 | ) | (810 | ) | — | — | (20,356 | ) | ||||||||||||||
Income (loss) before equity in net income (loss) of affiliates | — | (183,899 | ) | 331,704 | 9 | — | 147,814 | ||||||||||||||||
Equity in net income (loss) of affiliates | 147,814 | 331,713 | — | — | (479,527 | ) | — | ||||||||||||||||
Net income (loss) | $ | 147,814 | $ | 147,814 | $ | 331,704 | $ | 9 | $ | (479,527 | ) | $ | 147,814 | ||||||||||
Notes to fundConsolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Statements of Income (Loss)
For the lease and/or purchase of timberlandsYear Ended December 31, 2008
(dollars, in thousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Sales | ||||||||||||||||||||||||
Trade | $ | — | $ | — | $ | 1,979,955 | $ | 10,252 | $ | — | $ | 1,990,207 | ||||||||||||
Intercompany | — | — | 1 | 102,006 | (102,007 | ) | — | |||||||||||||||||
Related parties | — | 12,092 | 3,450 | 64,883 | — | 80,425 | ||||||||||||||||||
— | 12,092 | 1,983,406 | 177,141 | (102,007 | ) | 2,070,632 | ||||||||||||||||||
Costs and expenses | ||||||||||||||||||||||||
Materials, labor, and other operating expenses | — | 11,166 | 1,670,526 | 177,141 | (102,007 | ) | 1,756,826 | |||||||||||||||||
Fiber costs from related parties | — | — | 54,628 | — | — | 54,628 | ||||||||||||||||||
Depreciation, amortization, and depletion | — | 2,707 | 107,281 | — | — | 109,988 | ||||||||||||||||||
Selling and distribution expenses | — | — | 48,032 | 246 | — | 48,278 | ||||||||||||||||||
General and administrative expenses | — | 18,450 | 15,868 | — | — | 34,318 | ||||||||||||||||||
St. Helens mill restructuring | — | �� | — | 29,780 | — | — | 29,780 | |||||||||||||||||
Other (income) expense, net | — | (2,666 | ) | (36 | ) | (278 | ) | — | (2,980 | ) | ||||||||||||||
— | 29,657 | 1,926,079 | 177,109 | (102,007 | ) | 2,030,838 | ||||||||||||||||||
Income (loss) from operations | — | (17,565 | ) | 57,327 | 32 | — | 39,794 | |||||||||||||||||
Foreign exchange gain (loss) | — | (3,187 | ) | (1,509 | ) | — | — | (4,696 | ) | |||||||||||||||
Change in fair value of interest rate derivatives | — | (479 | ) | — | — | — | (479 | ) | ||||||||||||||||
Interest expense | — | (82,945 | ) | — | — | — | (82,945 | ) | ||||||||||||||||
Interest expense—intercompany | — | (136 | ) | — | (21 | ) | 157 | — | ||||||||||||||||
Interest income | — | 611 | 6 | — | — | 617 | ||||||||||||||||||
Interest income—intercompany | — | 21 | 136 | — | (157 | ) | — | |||||||||||||||||
— | (86,115 | ) | (1,367 | ) | (21 | ) | — | (87,503 | ) | |||||||||||||||
Income (loss) before income taxes | — | (103,680 | ) | 55,960 | 11 | — | (47,709 | ) | ||||||||||||||||
Income tax (provision) benefit | — | 7,393 | (1,542 | ) | (2 | ) | — | 5,849 | ||||||||||||||||
Income (loss) before equity in net income (loss) of affiliates | — | (96,287 | ) | 54,418 | 9 | — | (41,860 | ) | ||||||||||||||||
Equity in net income (loss) of affiliates | (41,860 | ) | 54,427 | — | — | (12,567 | ) | — | ||||||||||||||||
Net income (loss) | $ | (41,860 | ) | $ | (41,860 | ) | $ | 54,418 | $ | 9 | $ | (12,567 | ) | $ | (41,860 | ) | ||||||||
Notes to Consolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC and other expenditures,Subsidiaries
Consolidating Balance Sheets at December 31, 2009
(dollars, in thousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
ASSETS | |||||||||||||||||||
Current | |||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 69,071 | $ | 33 | $ | 289 | $ | — | $ | 69,393 | |||||||
Short-term investments | — | 10,023 | — | — | — | 10,023 | |||||||||||||
Receivables | |||||||||||||||||||
Trade, less allowances | — | — | 185,087 | 23 | — | 185,110 | |||||||||||||
Intercompany | — | — | — | 1,254 | (1,254 | ) | — | ||||||||||||
Related parties | — | 1,626 | — | 430 | — | 2,056 | |||||||||||||
Other | — | 828 | 61,581 | 1 | — | 62,410 | |||||||||||||
Inventories | — | 18 | 252,155 | — | — | 252,173 | |||||||||||||
Prepaid and other | — | 4,049 | 770 | — | — | 4,819 | |||||||||||||
— | 85,615 | 499,626 | 1,997 | (1,254 | ) | 585,984 | |||||||||||||
Property | |||||||||||||||||||
Property and equipment, net | — | 6,408 | 1,199,271 | — | — | 1,205,679 | |||||||||||||
Fiber farms and deposits | — | — | 17,094 | — | — | 17,094 | |||||||||||||
— | 6,408 | 1,216,365 | — | — | 1,222,773 | ||||||||||||||
Deferred financing costs | — | 47,369 | — | — | — | 47,369 | |||||||||||||
Intangible assets, net | — | — | 32,358 | — | — | 32,358 | |||||||||||||
Investments in affiliates | 628,590 | 1,522,807 | — | — | (2,151,397 | ) | — | ||||||||||||
Other assets | — | 4,106 | 3,200 | — | — | 7,306 | |||||||||||||
Total assets | $ | 628,590 | $ | 1,666,305 | $ | 1,751,549 | $ | 1,997 | $ | (2,152,651 | ) | $ | 1,895,790 | ||||||
Notes to the extent not provided through internally generated funds, were provided by BoiseConsolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC for the three months ended Marchand Subsidiaries
Consolidating Balance Sheets at December 31, 2005,2009
(dollars, in thousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
LIABILITIES AND CAPITAL | ||||||||||||||||||||
Current | ||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | 30,711 | $ | — | $ | — | $ | — | $ | 30,711 | ||||||||
Income taxes payable | — | (2,058 | ) | 2,296 | 2 | — | 240 | |||||||||||||
Accounts payable | ||||||||||||||||||||
Trade | — | 11,983 | 158,795 | 1,740 | — | 172,518 | ||||||||||||||
Intercompany | — | — | 1,254 | — | (1,254 | ) | — | |||||||||||||
Related parties | — | 17 | 2,445 | 136 | — | 2,598 | ||||||||||||||
Accrued liabilities | ||||||||||||||||||||
Compensation and benefits | — | 23,789 | 44,159 | — | — | 67,948 | ||||||||||||||
Interest payable | — | 4,946 | — | — | — | 4,946 | ||||||||||||||
Other | — | 13,558 | 10,058 | 119 | — | 23,735 | ||||||||||||||
— | 82,946 | 219,007 | 1,997 | (1,254 | ) | 302,696 | ||||||||||||||
Debt | ||||||||||||||||||||
Long-term debt, less current portion | — | 785,216 | — | — | — | 785,216 | ||||||||||||||
Other | ||||||||||||||||||||
Deferred income taxes | — | 24,283 | 280 | — | — | 24,563 | ||||||||||||||
Compensation and benefits | — | 123,889 | — | — | — | 123,889 | ||||||||||||||
Other long-term liabilities | — | 21,381 | 9,455 | — | — | 30,836 | ||||||||||||||
— | 169,553 | 9,735 | — | — | 179,288 | |||||||||||||||
Commitments and contingent liabilities | ||||||||||||||||||||
Capital | 628,590 | 628,590 | 1,522,807 | — | (2,151,397 | ) | 628,590 | |||||||||||||
Total liabilities and capital | $ | 628,590 | $ | 1,666,305 | $ | 1,751,549 | $ | 1,997 | $ | (2,152,651 | ) | $ | 1,895,790 | |||||||
Notes to Consolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC and by OfficeMaxSubsidiaries
Consolidating Balance Sheets at December 31, 2008
(dollars, in the predecessor periods. These amounts have been reflectedthousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non- guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||
ASSETS | |||||||||||||||||||
Current | |||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 19,866 | $ | 7 | $ | 2,645 | $ | — | $ | 22,518 | |||||||
Receivables | |||||||||||||||||||
Trade, less allowances | — | — | 220,163 | 41 | — | 220,204 | |||||||||||||
Intercompany | — | — | 1 | 789 | (790 | ) | — | ||||||||||||
Related parties | — | 1,023 | 24 | 749 | — | 1,796 | |||||||||||||
Other | — | 2,228 | 1,601 | 1,108 | — | 4,937 | |||||||||||||
Inventories | — | 22 | 334,982 | — | — | 335,004 | |||||||||||||
Deferred income taxes | — | 2,108 | — | — | — | 2,108 | |||||||||||||
Prepaid and other | — | 2,708 | 2,810 | 771 | — | 6,289 | |||||||||||||
— | 27,955 | 559,588 | 6,103 | (790 | ) | 592,856 | |||||||||||||
Property | |||||||||||||||||||
Property and equipment, net | — | 7,627 | 1,255,183 | — | — | 1,262,810 | |||||||||||||
Fiber farms and deposits | — | — | 14,651 | — | — | 14,651 | |||||||||||||
— | 7,627 | 1,269,834 | — | — | 1,277,461 | ||||||||||||||
Deferred financing costs | — | 72,570 | — | — | — | 72,570 | |||||||||||||
Intangible assets, net | — | — | 35,075 | — | — | 35,075 | |||||||||||||
Investments in affiliates | 513,044 | 1,646,798 | — | — | (2,159,842 | ) | — | ||||||||||||
Other assets | — | 3,574 | 3,540 | — | — | 7,114 | |||||||||||||
Total assets | $ | 513,044 | $ | 1,758,524 | $ | 1,868,037 | $ | 6,103 | $ | (2,160,632 | ) | $ | 1,985,076 | ||||||
Notes to Consolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC and Subsidiaries
Consolidating Balance Sheets at December 31, 2008
(dollars, in ourthousands)
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
LIABILITIES AND CAPITAL | ||||||||||||||||||||
Current | ||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | 25,822 | $ | — | $ | — | $ | — | $ | 25,822 | ||||||||
Income taxes payable | — | (1,396 | ) | 2,319 | 2 | — | 925 | |||||||||||||
Accounts payable | ||||||||||||||||||||
Trade | — | 13,893 | 160,844 | 2,420 | — | 177,157 | ||||||||||||||
Intercompany | — | — | 789 | 1 | (790 | ) | — | |||||||||||||
Related parties | — | 121 | 2,574 | 412 | — | 3,107 | ||||||||||||||
Accrued liabilities | ||||||||||||||||||||
Compensation and benefits | — | 15,164 | 29,324 | — | — | 44,488 | ||||||||||||||
Interest payable | — | 184 | — | — | — | 184 | ||||||||||||||
Other | — | 2,077 | 15,176 | 149 | — | 17,402 | ||||||||||||||
— | 55,865 | 211,026 | 2,984 | (790 | ) | 269,085 | ||||||||||||||
Debt | ||||||||||||||||||||
Long-term debt, less current portion | — | 1,011,628 | — | — | — | 1,011,628 | ||||||||||||||
Other | ||||||||||||||||||||
Deferred income taxes | — | 8,497 | 124 | — | — | 8,621 | ||||||||||||||
Compensation and benefits | — | 149,691 | — | — | — | 149,691 | ||||||||||||||
Other long-term liabilities | — | 19,799 | 13,208 | — | — | 33,007 | ||||||||||||||
— | 177,987 | 13,332 | — | — | 191,319 | |||||||||||||||
Commitments and contingent liabilities | ||||||||||||||||||||
Capital | 513,044 | 513,044 | 1,643,679 | 3,119 | (2,159,842 | ) | 513,044 | |||||||||||||
Total liabilities and capital | $ | 513,044 | $ | 1,758,524 | $ | 1,868,037 | $ | 6,103 | $ | (2,160,632 | ) | $ | 1,985,076 | |||||||
Notes to Consolidated Statement of Cash Flows as "Note payable to related party"Financial Statements—(Continued)
BZ Intermediate Holdings LLC and "Note receivable from related party" and in the predecessor ConsolidatedSubsidiaries
Consolidating Statements of Cash Flows as "Net equity transactions with OfficeMax."
For the Year Ended December 31, 2009
(dollars, in thousands)
Prior
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Cash provided by (used for) operations | ||||||||||||||||||||||||
Net income (loss) | $ | 147,814 | $ | 147,814 | $ | 331,704 | $ | 9 | $ | (479,527 | ) | $ | 147,814 | |||||||||||
Items in net income (loss) not using (providing) cash | ||||||||||||||||||||||||
Equity in net (income) loss of affiliates | (147,814 | ) | (331,713 | ) | — | — | 479,527 | — | ||||||||||||||||
Depreciation, depletion, and amortization of deferred financing costs and other | — | 16,162 | 127,917 | — | — | 144,079 | ||||||||||||||||||
Share-based compensation expense | — | 3,518 | — | — | — | 3,518 | ||||||||||||||||||
Pension and other postretirement benefit expense | — | 7,376 | — | — | — | 7,376 | ||||||||||||||||||
Deferred income taxes | — | 19,863 | 157 | — | — | 20,020 | ||||||||||||||||||
Change in fair value of energy derivatives | — | — | (5,877 | ) | — | — | (5,877 | ) | ||||||||||||||||
Change in fair value of interest rate derivatives | — | (568 | ) | — | — | — | (568 | ) | ||||||||||||||||
(Gain) loss on sales of assets, net | — | 19 | 495 | — | — | 514 | ||||||||||||||||||
Other | — | (1,529 | ) | (1,110 | ) | — | — | (2,639 | ) | |||||||||||||||
Loss on extinguishment of debt | — | 66,784 | — | — | — | 66,784 | ||||||||||||||||||
Decrease (increase) in working capital, net of acquisitions | ||||||||||||||||||||||||
Receivables | — | 1,800 | (24,744 | ) | 978 | 463 | (21,503 | ) | ||||||||||||||||
Inventories | — | 4 | 83,033 | — | — | 83,037 | ||||||||||||||||||
Prepaid expenses | — | (1,340 | ) | 2,040 | 770 | — | 1,470 | |||||||||||||||||
Accounts payable and accrued liabilities | — | 13,723 | 13,435 | (985 | ) | (463 | ) | 25,710 | ||||||||||||||||
Current and deferred income taxes | — | (395 | ) | (27 | ) | — | — | (422 | ) | |||||||||||||||
Pension and other postretirement benefit payments | — | (13,001 | ) | — | — | — | (13,001 | ) | ||||||||||||||||
Other | — | 754 | (1,363 | ) | — | — | (609 | ) | ||||||||||||||||
Cash provided by (used for) operations | — | (70,729 | ) | 525,660 | 772 | — | 455,703 | |||||||||||||||||
Cash provided by (used for) investment | ||||||||||||||||||||||||
Acquisition of businesses and facilities | — | — | (543 | ) | — | — | (543 | ) | ||||||||||||||||
Expenditures for property and equipment | — | (2,789 | ) | (74,356 | ) | — | — | (77,145 | ) | |||||||||||||||
Purchases of short-term investments | — | (21,643 | ) | — | — | — | (21,643 | ) | ||||||||||||||||
Maturities of short-term investments | — | 11,615 | — | — | — | 11,615 | ||||||||||||||||||
Sales of assets | — | 1 | 1,030 | — | — | 1,031 | ||||||||||||||||||
Other | — | 1,357 | 811 | — | — | 2,168 | ||||||||||||||||||
Cash provided by (used for) investment | — | (11,459 | ) | (73,058 | ) | — | — | (84,517 | ) | |||||||||||||||
Cash provided by (used for) financing | ||||||||||||||||||||||||
Issuances of long-term debt | — | 310,000 | — | — | — | 310,000 | ||||||||||||||||||
Payments of long-term debt | — | (531,523 | ) | — | — | — | (531,523 | ) | ||||||||||||||||
Payments (to) from Boise Inc., net | (49,915 | ) | — | — | — | — | (49,915 | ) | ||||||||||||||||
Cash used for extinguishment of debt | — | (39,717 | ) | — | — | — | (39,717 | ) | ||||||||||||||||
Payments of deferred financing fees | — | (13,156 | ) | — | — | — | (13,156 | ) | ||||||||||||||||
Due to (from) affiliates | 49,915 | 405,789 | (452,576 | ) | (3,128 | ) | — | — | ||||||||||||||||
Cash provided by (used for) financing | — | 131,393 | (452,576 | ) | (3,128 | ) | — | (324,311 | ) | |||||||||||||||
Increase (decrease) in cash and cash equivalents | — | 49,205 | 26 | (2,356 | ) | — | 46,875 | |||||||||||||||||
Balance at beginning of the period | — | 19,866 | 7 | 2,645 | — | 22,518 | ||||||||||||||||||
Balance at end of the period | $ | — | $ | 69,071 | $ | 33 | $ | 289 | $ | — | $ | 69,393 | ||||||||||||
Notes to the Timberlands Sale, we were a major supplier of fiber to BoiseConsolidated Financial Statements—(Continued)
BZ Intermediate Holdings LLC and in the predecessor period, were a major supplier of fiber to Boise Forest Products Operations. Sales of fiber to Boise LLC and Boise Forest Products Operations are reported as fiber sales to related parties on the ConsolidatedSubsidiaries
Consolidating Statements of Income (Loss) and were based on prices that approximated market.Cash Flows
For the three months ended MarchYear Ended December 31, 2005, Boise Land & Timber Corp. leased employees from Boise LLC. During this period, most of the leased employees participated2008
(dollars, in Boise LLC's defined benefit plans, and most of the employees were eligible for participation in Boise LLC's defined contribution plans. During the predecessor period, most of Boise Timberlands' employees participated in OfficeMax's defined benefit pension plans, and most of the employees were eligible
for participation in OfficeMax's defined contribution plans. In all periods presented, we have treated participants in Boise LLC's and OfficeMax's plans as participants in multiemployer plans. Accordingly, we have not reflected any assets or liabilities related to the defined benefit pension plans in the Consolidated Balance Sheets. We have, however, included the costs associated with employees who participated in the plans in the Consolidated Statements of Income (Loss). These costs were not material in any of the periods presented.
4. Income Taxesthousands)
For federal income tax purposes, the acquisition of Boise Timberlands was treated as an asset purchase, and as a result, we had a tax basis in the acquired assets equal to the purchase price. As a result, we depleted assets with a higher tax basis after the date of the Acquisition. Because of the step-up in the tax basis of the timberlands and the losses recorded for the three months ended March 31, 2005, our income tax benefit was fully offset by a valuation allowance for that period. Since Timber Holdings does not have a history of reporting income, and based on projected losses for the subsequent year, Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, did not allow us to book benefits toward those losses.
BZ Intermediate Holdings LLC (Parent) | Co-issuers | Guarantor Subsidiaries | Non– guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||
Cash provided by (used for) operations | ||||||||||||||||||||||||
Net income (loss) | $ | (41,860 | ) | $ | (41,860 | ) | $ | 54,418 | $ | 9 | $ | (12,567 | ) | $ | (41,860 | ) | ||||||||
Items in net income (loss) not using (providing) cash | ||||||||||||||||||||||||
Equity in net (income) loss of affiliates | 41,860 | (54,427 | ) | — | — | 12,567 | — | |||||||||||||||||
Depreciation, depletion, and amortization of deferred financing costs and other | — | 12,652 | 107,281 | — | — | 119,933 | ||||||||||||||||||
Share-based compensation expense | — | 3,096 | — | — | — | 3,096 | ||||||||||||||||||
Pension and other postretirement benefit expense | — | 8,388 | — | — | — | 8,388 | ||||||||||||||||||
Deferred income taxes | — | (6,289 | ) | (150 | ) | — | — | (6,439 | ) | |||||||||||||||
Change in fair value of energy derivatives | — | — | 7,445 | — | — | 7,445 | ||||||||||||||||||
Change in fair value of interest rate derivatives | — | 479 | — | — | — | 479 | ||||||||||||||||||
St. Helens mill restructuring | — | — | 35,998 | — | — | 35,998 | ||||||||||||||||||
Other | — | 3,187 | 1,509 | — | — | 4,696 | ||||||||||||||||||
Decrease (increase) in working capital, net of aquisitions | ||||||||||||||||||||||||
Receivables | — | 6,201 | 20,991 | (2,686 | ) | 790 | 25,296 | |||||||||||||||||
Inventories | — | (2 | ) | (28,948 | ) | — | — | (28,950 | ) | |||||||||||||||
Prepaid expenses | — | 8 | (346 | ) | (765 | ) | — | (1,103 | ) | |||||||||||||||
Accounts payable and accrued liabilities | — | 8,958 | (27,933 | ) | 2,980 | (790 | ) | (16,785 | ) | |||||||||||||||
Current and deferred income taxes | — | (1,409 | ) | 1,629 | 2 | — | 222 | |||||||||||||||||
Pension and other postretirement benefit payments | — | (636 | ) | — | — | — | (636 | ) | ||||||||||||||||
Other | — | (426 | ) | (1,422 | ) | — | — | (1,848 | ) | |||||||||||||||
Cash provided by (used for) operations | — | (62,080 | ) | 170,472 | (460 | ) | — | 107,932 | ||||||||||||||||
Cash provided by (used for) investment | ||||||||||||||||||||||||
Acquisition of businesses and facilities | — | 100,152 | (1,316,606 | ) | (5 | ) | — | (1,216,459 | ) | |||||||||||||||
Expenditures for property and equipment | — | (4,200 | ) | (86,397 | ) | — | — | (90,597 | ) | |||||||||||||||
Sales of assets | — | — | 394 | — | — | 394 | ||||||||||||||||||
Other | — | (3,099 | ) | (2,604 | ) | — | — | (5,703 | ) | |||||||||||||||
Cash provided by (used for) investment | — | 92,853 | (1,405,213 | ) | (5 | ) | — | (1,312,365 | ) | |||||||||||||||
Cash provided by (used for) financing | ||||||||||||||||||||||||
Issuances of long-term debt | — | 1,125,700 | — | — | — | 1,125,700 | ||||||||||||||||||
Payments of long-term debt | — | (88,250 | ) | — | — | — | (88,250 | ) | ||||||||||||||||
Payments (to) from Boise Inc., net | 271,399 | — | — | — | — | 271,399 | ||||||||||||||||||
Payments of deferred financing fees | — | (81,898 | ) | — | — | — | (81,898 | ) | ||||||||||||||||
Due to (from) affiliates | (271,399 | ) | (966,459 | ) | 1,234,748 | 3,110 | — | — | ||||||||||||||||
Cash provided by (used for) financing | — | (10,907 | ) | 1,234,748 | 3,110 | — | 1,226,951 | |||||||||||||||||
Increase (decrease) in cash and cash equivalents | — | 19,866 | 7 | 2,645 | — | 22,518 | ||||||||||||||||||
Balance at beginning of the period | — | — | — | — | — | — | ||||||||||||||||||
Balance at end of the period | $ | — | $ | 19,866 | $ | 7 | $ | 2,645 | $ | — | $ | 22,518 | ||||||||||||
In the predecessor period presented, Boise Timberlands' results have been or will be included in the consolidated income tax returns of OfficeMax. However, in the predecessor financial statements, income taxes have been provided based on a calculation of the income tax expense that would have been incurred if Boise Timberlands had operated as a separate taxpayer. Income taxes were provided for all items included in the Consolidated Statement of Income, regardless of when such items were reported for tax purposes or when the taxes were actually paid. Current tax liabilities were transferred to OfficeMax and are included in "Net equity transactions with OfficeMax."
5. Leases
As a result of the Timberlands Sale, we are no longer a party to any lease obligations and have no contingent liability for any leases held by our subsidiaries that were sold to Forest Capital.
6. Debt
In October 2004, we entered into a six-year, $1,225.0 million Tranche C term loan. Borrowings under the term loan bore interest at floating rates. We paid approximately $14.8 million of fees and expenses associated with obtaining the term loan. The fees were amortized over three months, the period the debt was outstanding before being paid in full with the proceeds from the Timberlands Sale in February 2005. Accordingly, at March 31, 2005, we had no "Deferred financing costs" recorded on our Consolidated Balance Sheet.
In October 2004, we also obtained a $164 million, 6% related-party loan from Boise Holdings that was due to mature in October 2015. Proceeds from the Timberlands Sale were used to repay this related-party loan. Due to related-party activity (see Note 3, Transactions With Related Parties), the balance on this loan was $157.5 million at the time we repaid it in February 2005.
In the predecessor period presented, we participated in OfficeMax's centralized cash management system. Cash advances necessary to fund the purchase of timberlands and major improvements to and replacements of property, to the extent not provided through internally
generated funds, were provided by OfficeMax's cash or funded with debt. In the predecessor period presented, interest cost was allocated to us based on our average asset balances. The interest expense attributable to the debt allocated from OfficeMax is included in our predecessor Consolidated Statement of Income.
7. Financial Instruments
The estimated fair values of our financial instruments, such as receivables, payables and debt, are the same as their carrying values. For the three months ended March 31, 2005, essentially all of our sales were to Boise LLC, which represents a concentration in the volume of business transacted and the revenue generated from these transactions.
Concurrent with the Timberlands Sale, we made a related-party loan to Boise LLC of $264.8 million. The principal amount of this loan is subject to adjustment based on transactions between us and Boise LLC and had a balance at March 31, 2005, of $256.1 million. This note bears interest of 8% per annum, compounded semi-annually, and matures on February 4, 2015.
Prior to the Timberlands Sale, changes in interest rates exposed us to financial market risk. For the three months ended March 31, 2005, we did not use any derivative financial instruments, such as interest rate swaps, rate hedge agreements or forward purchase contracts, to hedge underlying debt obligations or anticipated transactions. In the predecessor period, OfficeMax allocated debt and interest costs to us based on our average asset balances. OfficeMax occasionally used derivative financial instruments, such as interest rate swaps, rate hedge agreements and forward exchange contracts, to hedge underlying debt obligations or anticipated transactions. The effects of these financial instruments are not included in our predecessor financial statements other than through OfficeMax's allocations to us.
8. Commitments and Guarantees
Commitments
As a result of the Timberlands Sale, we are no longer subject to commitments previously disclosed in Note 9, Commitments and Guarantees, in our 2004 Consolidated Financial Information.
Guarantees
For information on our guarantees, see Note 9, Commitments and Guarantees, in our 2004 Consolidated Financial Information. As a result of the Timberlands Sale, all indemnification arrangements entered into in the normal course of business, as described in that note, no longer exist. We continue to guarantee other obligations described in Note 9, including those of Boise LLC and its co-borrower, Boise Cascade Finance Corporation, in respect of their $250 million of outstanding senior floating-rate notes due in 2012 and $400 million of senior subordinated notes due in 2014 and the obligations of Boise LLC under the October 29, 2004, Credit Agreement. The Credit Agreement was amended and restated on April 18, 2005. At that time, the Tranche B term loan to Boise LLC, with a balance of $918 million, was replaced in total with an $840 million Tranche D term loan, and the credit limit on the revolving credit facility was increased to $475 million from $400 million.
In connection with the Timberlands Sale, we, along with Boise Holdings, have agreed to indemnify the purchasers for any breach of representation or warranty or covenant contained in the
purchase agreement. Our indemnification obligations, with certain exceptions, survive until February 4, 2006, and are subject to a deductible of $16.5 million and an aggregate cap of $100.0 million. In addition, the purchasers have agreed that, if the events giving rise to an indemnification claim against us and Boise Holdings also give rise to an indemnification claim against OfficeMax under OfficeMax's indemnification obligations arising from its sale of the timberlands operations, the purchasers will pursue remedies directly and exclusively against OfficeMax. In connection with the foregoing, Parent assigned to the purchasers all of its rights to indemnification by OfficeMax with respect to the timberlands operations.
9. Legal Proceedings and Contingencies
We are not aware of any litigation or administrative proceedings involving Boise Timberlands.
Report of Independent Registered Public Accounting FirmAuditors’ Report
To theThe Board of Directors
of Boise Land & Timber Holdings Corp.Inc.:
We have audited the accompanying consolidated balance sheetsheets of Boise Land & TimberBZ Intermediate Holdings Corp.LLC and subsidiaries (formerly known as Aldabra Holding Sub LLC) as of December 31, 2004,2009 and 2008, and the related consolidated statementsstatement of income (loss), capital, and cash flows for the year ended December 31, 2009 and for the period from October 29, 2004January 18, 2008 (inception) through December 31, 2004.2008. These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.audits.
We conducted our auditaudits in accordance with auditing standards generally accepted in the standardsUnited States of the Public Company Accounting Oversight Board (United States).America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, onconsideration of internal control over financial reporting as a test basis evidence supporting the amounts and disclosuresfor designing audit procedures that are appropriate in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Boise Land & Timber Holdings Corp. and subsidiaries as of December 31, 2004, and the results of their operations and their cash flowscircumstances, but not for the period from October 29, 2004 (inception) through December 31, 2004, in conformity with U.S. generally accepted accounting principles.
Reportpurpose of Independent Registered Public Accounting Firm
To the Board of Directors of OfficeMax Incorporated:
We have audited the accompanying balance sheet of Boise Timberlands (formerly owned by OfficeMax Incorporated) as of December 31, 2003, and the related statements of income (loss), capital, and cash flows for the period from January 1, 2004 through October 28, 2004 and for each of the years in the two-year period ended December 31, 2003. These financial statements are the responsibility of the management of OfficeMax Incorporated. Our responsibility is to expressexpressing an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standardseffectiveness of the Public Company Accounting Oversight Board (United States). Those standards require thatCompany’s internal control over financial reporting. Accordingly, we plan and perform theexpress no such opinion. An audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Boise Timberlands (formerly owned by OfficeMax Incorporated)BZ Intermediate Holdings LLC and subsidiaries as of December 31, 2003,2009 and 2008, and the results of itstheir operations and itstheir cash flows for the year ended December 31, 2009 and for the period from January 18, 2008 (inception) through December 31, 2008, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boise, Idaho
March 5, 2010, except for Note 21,
as to which the date is May 18, 2010
Independent Auditors’ Report
The Board of Directors
of Boise Inc.:
We have audited the accompanying consolidated statements of income and cash flows for the period from January 1, 20042008 through October 28, 2004February 21, 2008, and the consolidated statements of income, capital, and cash flows for each of the years in the two-year periodyear ended December 31, 20032007, of Boise Paper Products and subsidiaries. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of Boise Paper Products and subsidiaries operations and their cash flows for the period from January 1, 2008 through February 21, 2008, and for the year ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP | |
BOISE LAND & TIMBER HOLDINGS CORP.CONSOLIDATED STATEMENTS OF INCOME (LOSS)
| Timber Holdings | Predecessor | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| October 29 (inception) through December 31, 2004 | | | | ||||||||||
| January 1 through October 28, 2004 | Year Ended December 31 | ||||||||||||
| 2003 | 2002 | ||||||||||||
| (thousands) | |||||||||||||
Sales | ||||||||||||||
Fiber | ||||||||||||||
Trade | $ | 16 | $ | 143 | $ | 136 | $ | 344 | ||||||
Related parties | 24,451 | 95,537 | 113,818 | 110,775 | ||||||||||
Timberlands | — | 101,009 | 12,747 | 6,931 | ||||||||||
24,467 | 196,689 | 126,701 | 118,050 | |||||||||||
Costs and expenses | ||||||||||||||
Materials, labor and other operating expenses | 6,055 | 38,149 | 46,092 | 43,844 | ||||||||||
Depreciation, amortization and depletion | 16,639 | 7,175 | 9,066 | 9,468 | ||||||||||
Cost of timberlands sold | — | 25,035 | 3,110 | 3,845 | ||||||||||
General and administrative expenses | 998 | 6,269 | 8,279 | 7,479 | ||||||||||
Other (income) expense, net | (196 | ) | (1,897 | ) | (3,441 | ) | (3,219 | ) | ||||||
23,496 | 74,731 | 63,106 | 61,417 | |||||||||||
Income from operations | 971 | 121,958 | 63,595 | 56,633 | ||||||||||
Interest expense | (21,222 | ) | (4,609 | ) | (6,368 | ) | (6,384 | ) | ||||||
Income (loss) before income taxes | (20,251 | ) | 117,349 | 57,227 | 50,249 | |||||||||
Income tax provision | — | (45,680 | ) | (22,281 | ) | (19,579 | ) | |||||||
Net income (loss) | $ | (20,251 | ) | $ | 71,669 | $ | 34,946 | $ | 30,670 | |||||
See accompanying notes to consolidated financial statements.
BOISE LAND & TIMBER HOLDINGS CORP.CONSOLIDATED BALANCE SHEETS
| Timber Holdings | Predecessor | ||||||
---|---|---|---|---|---|---|---|---|
| December 31, 2004 | December 31, 2003 | ||||||
| (thousands) | |||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | $ | 1 | $ | — | ||||
Receivables | 4 | 24 | ||||||
Inventories | 828 | 835 | ||||||
Prepaid assets | 1,809 | 177 | ||||||
2,642 | 1,036 | |||||||
Property | ||||||||
Property and equipment | ||||||||
Land and land improvements | 4,744 | 15,448 | ||||||
Buildings and improvements | 715 | 2,668 | ||||||
Machinery and equipment | 949 | 8,740 | ||||||
6,408 | 26,856 | |||||||
Accumulated depreciation | (138 | ) | (17,668 | ) | ||||
6,270 | 9,188 | |||||||
Timber and timberlands | 1,628,426 | 244,120 | ||||||
1,634,696 | 253,308 | |||||||
Deferred financing costs | 4,833 | 579 | ||||||
Investments in affiliates | 250 | — | ||||||
Deferred taxes | — | 950 | ||||||
Other assets | 300 | 451 | ||||||
Total assets | $ | 1,642,721 | $ | 256,324 | ||||
See accompanying notes to consolidated financial statements.
| Timber Holdings | Predecessor | |||||
---|---|---|---|---|---|---|---|
| December 31, 2004 | December 31, 2003 | |||||
| (thousands) | ||||||
LIABILITIES AND CAPITAL | |||||||
Current | |||||||
Short-term borrowings | $ | — | $ | 198 | |||
Current portion of long-term debt | 12,250 | 3,168 | |||||
Accounts payable | 2,500 | 1,237 | |||||
Accrued liabilities | |||||||
Compensation and benefits | — | 187 | |||||
Deferred income taxes | — | 185 | |||||
Taxes payable | 1,840 | 2,054 | |||||
Interest payable | — | 1,302 | |||||
Other | — | 1 | |||||
16,590 | 8,332 | ||||||
Debt | |||||||
Long-term debt, less current portion | 1,212,750 | 83,629 | |||||
Note payable to related party, net | 157,509 | — | |||||
1,370,259 | 83,629 | ||||||
Commitments and contingent liabilities | |||||||
Capital | |||||||
Common stock—par value $.01; 65,317 shares authorized; 65,060 shares outstanding | 1 | — | |||||
Additional paid-in capital | 276,122 | — | |||||
Retained losses | (20,251 | ) | — | ||||
Business unit equity | — | 164,363 | |||||
Total capital | 255,872 | 164,363 | |||||
Total liabilities and capital | $ | 1,642,721 | $ | 256,324 | |||
See accompanying notes to consolidated financial statements.
BOISE LAND & TIMBER HOLDINGS CORP.CONSOLIDATED STATEMENTS OF CASH FLOWS
February 23, 2009
| Timber Holdings | Predecessor | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| October 29 (inception) through December 31, 2004 | | Year Ended December 31 | |||||||||||
| January 1 through October 28, 2004 | |||||||||||||
| 2003 | 2002 | ||||||||||||
| (thousands) | |||||||||||||
Cash provided by (used for) operations | ||||||||||||||
Net income (loss) | $ | (20,251 | ) | $ | 71,669 | $ | 34,946 | $ | 30,670 | |||||
Items in net income not using (providing) cash | ||||||||||||||
Depreciation, depletion and amortization of deferred financing costs and other costs | 26,636 | 7,175 | 9,066 | 9,468 | ||||||||||
Deferred income tax provision (benefit) | — | 661 | 2,091 | (273 | ) | |||||||||
Gain on sale of Louisiana timberlands | — | (59,915 | ) | — | — | |||||||||
Receivables | (4 | ) | 8 | 58 | 917 | |||||||||
Inventories | 256 | (250 | ) | 21 | (434 | ) | ||||||||
Accounts payable and accrued liabilities | (3,020 | ) | 3,163 | (968 | ) | 548 | ||||||||
Current and deferred income taxes | — | (1,134 | ) | (1,968 | ) | 305 | ||||||||
Other | 599 | (375 | ) | (203 | ) | 93 | ||||||||
Cash provided by operations | 4,216 | 21,002 | 43,043 | 41,294 | ||||||||||
Cash provided by (used for) investment | ||||||||||||||
Expenditures for property and equipment | (111 | ) | (1,841 | ) | (1,584 | ) | (1,847 | ) | ||||||
Expenditures for timber and timberlands | (812 | ) | (7,063 | ) | (9,083 | ) | (17,073 | ) | ||||||
Acquisitions of businesses and facilities | (1,661,557 | ) | — | — | — | |||||||||
Proceeds from sale of Louisiana timberlands | — | 83,717 | — | — | ||||||||||
Other | (367 | ) | 2,654 | 3,385 | 1,929 | |||||||||
Cash provided by (used for) investment | (1,662,847 | ) | 77,467 | (7,282 | ) | (16,991 | ) | |||||||
Cash provided by (used for) financing | ||||||||||||||
Additions to long-term debt | 1,225,000 | — | — | — | ||||||||||
Related-party note payable | 157,509 | — | — | — | ||||||||||
Issuance of common stock | 276,123 | — | — | — | ||||||||||
Net equity transactions with OfficeMax | — | (93,851 | ) | (37,204 | ) | (32,182 | ) | |||||||
Net debt issuances (payments) with OfficeMax | — | (4,618 | ) | 1,443 | 7,879 | |||||||||
Cash provided by (used for) financing | 1,658,632 | (98,469 | ) | (35,761 | ) | (24,303 | ) | |||||||
Increase in cash and cash equivalents | 1 | — | — | — | ||||||||||
Balance at beginning of the period | — | — | — | — | ||||||||||
Balance at end of the period | $ | 1 | $ | — | $ | — | $ | — | ||||||
See accompanying notes to consolidated financial statements.
BOISE LAND & TIMBER HOLDINGS CORP.CONSOLIDATED STATEMENTS OF CAPITAL
| Business Unit Equity | |||
---|---|---|---|---|
| (thousands) | |||
Predecessor | ||||
Balance at December 31, 2001 | $ | 168,133 | ||
Net equity transactions with OfficeMax | (32,182 | ) | ||
Net income | 30,670 | |||
Balance at December 31, 2002 | $ | 166,621 | ||
Net equity transactions with OfficeMax | (37,204 | ) | ||
Net income | 34,946 | |||
Balance at December 31, 2003 | $ | 164,363 | ||
| | Additional Paid-In Capital | | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Series A Common Stock | Series B Common Stock | Series C Common Stock | | | |||||||||||||||||||
| Common Stock | Retained Losses | Total Capital | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| (thousands) | ||||||||||||||||||||||||
Timber Holdings | |||||||||||||||||||||||||
Balance at October 29, 2004 (inception) | $ | — | — | $ | — | — | $ | — | — | $ | — | $ | — | $ | — | ||||||||||
Equity issued for acquisition | 1 | 7 | 29,633 | 55 | 246,489 | — | — | — | 276,123 | ||||||||||||||||
Net loss | — | — | — | — | — | — | — | (20,251 | ) | (20,251 | ) | ||||||||||||||
Series C units issued | — | — | — | — | — | 4 | — | — | — | ||||||||||||||||
Paid-in-kind dividend | — | — | 407 | — | (407 | ) | — | — | — | — | |||||||||||||||
Balance at December 31, 2004 | $ | 1 | 7 | $ | 30,040 | 55 | $ | 246,082 | 4 | $ | — | $ | (20,251 | ) | $ | 255,872 | |||||||||
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Discontinued Operations
At December 31, 2004, our timberland assets were held for sale and the results of Boise Land & Timber Holding Corp.'s (Timber Holdings) operations met the definition of discontinued operations. In the accompanying financial statements, we have not shown Timber Holdings assets as "Assets held for sale" and liabilities as "Liabilities related to assets held for sale" on our Balance Sheet. Nor have we collapsed
Until , all of the operations into "discontinued operations" on the Statement of Income (Loss). Since almost all of the assets and liabilities were disposed of, we believedealers that we are providing more useful information by presenting the information as shown.
In February 2005, we sold all of our timberlands located across the Pacific Northwest, Louisiana, Alabama and Minnesota to Forest Capital Partners, LLC, for $1.65 billion in cash (Timberlands Sale) and recorded a $5.2 million gain. Proceeds from the sale were used to eliminate all of Timber Holding's debt, including a related-party loan from Boise Cascade Holdings, L.L.C. (Boise Holdings), and to make a related-party loan to Boise Holdings. After the Timberlands Sale, Timber Holdings' assets consist of a $0.3 million investment in unconsolidated affiliates and a $264.8 million related party receivable from Boise Holdings. The amount of the receivable will fluctuate with related-party activity.
1. Summary of Significant Accounting Policies
Basis of Presentation
As usedeffect transactions in these financial statements, the terms "Timber Holdings" and "we" include Boise Land & Timber Holdings Corp. and its consolidated subsidiaries. The term "predecessor" referssecurities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the results of the timberland assets of OfficeMax Incorporated (OfficeMax) or Boise Timberlands. OfficeMax was formerly Boise Cascade Corporation, the company that owned the timberlands through October 28, 2004; see "Purchase of OfficeMax's Paper, Forest Productsdealers’ obligation to deliver a prospectus when acting as underwriters and Timberland Assets" below for additional information. In the predecessor periods, we refer to OfficeMax's paper and forest products businesses as Boise Forest Products Operations. At December 31, 2004, we owned or controlled approximately 2.2 million acres of timberland in the United States.
We are not a registrant with the Securities and Exchange Commission (SEC). Accordingly, we have not filed these financial statements with them. We have, however, prepared these financial statements pursuant to the rules and regulations of the SEC.
The financial statements present the operating results of Timber Holdings for the period of October 29 through December 31, 2004, and the results of OfficeMax's timberland operations for the period of January 1 through October 28, 2004. The financial statements for the years prior to 2004 present the financial results of Boise Timberlands. OfficeMax historically managed its timberlands as part of its Boise Building Solutions and Boise Paper Solutions segments. These financial statements present the timberland operations as a separate entity.
The predecessor financial statements include accounts specifically attributed to Boise Timberlands and a portion of OfficeMax's shared corporate general and administrative expenses. The shared services included, but were not limited to, finance, accounting, legal, information technology and human resource functions. OfficeMax's corporate general and administrative expenses were allocated to the predecessor periods based on specifically identifiable services used by Boise Timberlands.
The predecessor financial statements also include an allocation of OfficeMax's total debt and related interest expense based on average asset balances (see Note 6). The predecessor's results have been or will be included in OfficeMax's consolidated tax returns. Income taxes in the
predecessor periods of these financial statements have been calculated as if Boise Timberlands were a separate taxable entity (see Note 4).
Information on the allocations and related-party transactions are included in Note 3, Transactions With Related Parties.
Consolidation and Use of Estimates
The financial statements include the accounts of the Company and all subsidiaries after elimination of intercompany balances and transactions. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may vary from those estimates.
Revenue Recognition
Most of our fiber sales are to Boise Cascade, LLC (Boise LLC). During the predecessor periods, most of the sales were to Boise Forest Products Operations. These sales were recorded as sales to related parties in our Statements of Income (Loss). Most of the fiber is used by Boise LLC in its manufacturing operations. We recognize the sale when the timber is harvested and scaled. We also sell a small amount of timber to third parties. These sales are recorded as trade sales in the Statements of Income (Loss). For these sales, revenue is recognized consistent with that described for sales to related parties, or revenue may be recognized for timber deed agreements when the buyer purchases and takes title to contractually designated timber on a tract of land. When title passes, revenue is recognized for the full value of timber designated for sale on the tract.
We also occasionally sell timberlands. During the period of January 1 through October 28, 2004, we sold approximately 79,000 acres of timberland in western Louisiana for $83.9 million and recorded $59.9 million of pretax income. In the same period, we also recorded $16.1 million of pretax income for the sale of timberlands that were mostly in Idaho.
Other (Income) Expense
We receive miscellaneous income from a variety of activities related to managing our timberlands, including surface and subsurface mineral exploration and royalties, grazing leases, hunting leases and campsite leases. This income is reflected in "Other (income) expense, net."
Inventory Valuation
Inventories consist of seeds and supplies and are valued at the lower of cost or market. Cost is based on the average cost method.
Property and Equipment
Property and equipment are recorded at cost. Cost includes expenditures for major improvements and replacements and the amount of interest cost associated with significant capital additions. For all periods presented, capitalized interest was not material. Gains and losses from sales and retirements are included in income as they occur. We determine depreciation by the straight-line method over the useful lives of the assets.
The estimated useful lives of depreciable assets are generally as follows: building and improvements, 15 to 40 years, and machinery and equipment, three to 30 years.
Timber and Timberlands
Timber and timberlands are stated at cost, less the accumulated cost of timber previously harvested. Our timberland rotations vary by tree species and geographic region, and their growing cycles average over 40 years. Costs for activities related to the establishment of a new crop of trees are capitalized. These capitalized costs include activities such as site preparation, seeding and planting. Costs for activities conducted following new crop establishment are expensed as incurred. These include activities such as thinning, fertilizing, pest control and herbicide applications. Operating lease payments for timberlands are expensed as incurred. Costs for administration, insurance, property taxes and interest are expensed. We charge capitalized costs, excluding land, against revenue at the time the timber is sold, based on periodically determined depletion rates.
We determine timberland depletion rates for identifiable geographic areas. We calculate depletion rates at the end of each year based on capitalized costs divided by the total estimated volume of timber that is mature enough to be harvested and processed. We compute the estimated timber inventory volume by adding an estimate of current-year growth to the prior-year ending balance, less the current-year harvest. We test the volume and growth estimates periodically, using statistical sampling techniques and data, and we revise them when appropriate. We use the depletion rate calculated at the end of the year to calculate the cost of timber harvested in the subsequent year. We do not change our accounting when the timber reaches maturity or when harvesting begins. We amortize logging roads over their expected useful lives or as related timber is harvested.
Compared with the predecessor periods presented, the allocation of the purchase price of the assets acquired resulted in an increase in depletion expense attributable to our timberland assets because these assets had a higher basis upon completion of the Acquisition (see Note 2).
Investment in Affiliates
In conjunction with the Acquisition, we formed two special purpose entities (SPE) to issue installment notes to OfficeMax and an affiliate of OfficeMax as part of the transaction consideration. The SPEs, Boise Land & Timber, L.L.C., and Boise Land & Timber II, L.LC., were initially capitalized with $125,000 each. We made additional cash contributions to the SPEs totaling $1,635.0 million. The SPEs issued notes totaling $1,635.0 million supported by guarantees issued by Wachovia Corporation and Lehman Brothers Holdings, Inc. The SPEs used the amounts contributed by us to purchase collateral notes totaling $1,635.0 million from the guarantors and pledged the collateral notes in support of the guarantees. The notes issued by the SPEs are non-recourse to Boise Land & and Timber Corp. and the SPEs have not been consolidated under generally accepted accounting principles. Interest and principal payments received under the collateral notes are expected to be sufficient to service the SPE note obligations.
Long-Lived Asset Impairment
We account for the impairment of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An impairment of a long-lived asset exists when the carrying value of an asset exceeds its
fair value and when the carrying value is not recoverable through future operations. We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.
Research and Development Costs
We expense research and development costs as incurred. In all periods presented, research and development costs were not material.
Recently Adopted Accounting Standards
In November 2004, the Financial Accounting Standards Board (FASB's) Emerging Issues Task Force (EITF) reached a consensus on EITF 03-13, Applying the Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations. We adopted EITF 03-13 on January 1, 2005, and it did not have a material impact on our financial position or results of operations.
In September 2004, the SEC staff made an announcement at the EITF meeting prohibiting the use of the residual method to value acquired assets other than goodwill. SEC Staff Announcement, Topic No. D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill, requires registrants to apply the guidance to business combinations completed after September 29, 2004. We did not use the residual method to value the assets we acquired from OfficeMax.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. In December 2003, the FASB issued a revised FASB Interpretation No. 46 (FIN 46R). FIN 46R requires some variable-interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. We evaluated the two SPEs mentioned above under FIN 46R and concluded that they were unconsolidated entities.
Reclassifications
Certain amounts in prior period financial statements have been reclassified to conform with the current period presentation. These reclassifications did not affect net income (loss).
2. Purchase of OfficeMax's Timberland Assets
On October 29, 2004, we acquired OfficeMax's timberland assets (the Acquisition). The aggregate consideration Timber Holdings paid for the Acquisition was $1,650.0 million, excluding fees and expenses. Timber Holdings paid for the Acquisition with $15.0 million of cash and made contributions to affiliates of $1,635.0 million, who in turn issued $1,635.0 million of timber installment notes to OfficeMax and an affiliate of OfficeMax. See Note 1, Investment in Affiliates, for more information. The $1,635.0 million in installment notes issued to OfficeMax are nonrecourse with respect to Forest Productstheir unsold allotments or subscriptions
$300,000,000
Boise Paper Holdings, L.L.C.
Boise Co-Issuer Company
8% Senior Notes due 2020
Offer to exchange 8% Senior Notes due 2020 with CUSIPs 09747G AA1 and U7743P AA6 for 8% Senior Notes due 2020 with CUSIP 09747G AB9 which have been registered under the Securities Act of 1933, as amended
May , a newly formed holding company controlled by Madison Dearborn Partners, LLC (Parent) and its consolidated subsidiaries, and mature on January 29, 2020. In addition, Timber Holdings incurred $14.8 million of deferred financing costs and assumed $3.3 million of liabilities, net of assets acquired, for a net purchase price of $1,661.6 million.
On the Acquisition date, Parent and an affiliate of OfficeMax made an aggregate cash equity investment of $276.1 million in Timber Holdings. The equity investment consisted of $197.6 million invested by Parent in exchange for 44,000 shares of Series B common stock and $78.5 million invested by an affiliate of OfficeMax in exchange for 7,000 and 11,000 shares of Series A and Series B common stock, respectively. See the Statement of Capital and Note 8, Equity, for a discussion of the rights and privileges of each class of common stock.2010
TheBOISE® trademark used in our prospectus
is the property of Boise Cascade, L.L.C., or its affiliates.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on October 29, 2004. The initial purchase price allocations may be adjusted within one year of the purchase date for changes in estimates of the fair value of assets acquired and liabilities assumed.
| October 29, 2004 | | |||
---|---|---|---|---|---|
| (thousands) | | |||
Current assets | $ | 1,653 | |||
Property and equipment | 6,342 | ||||
Timber and timberlands | 1,643,703 | ||||
Deferred financing costs | 14,829 | ||||
Other assets | 550 | ||||
Assets acquired | 1,667,077 | ||||
Current liabilities | 5,520 | ||||
Liabilities assumed | 5,520 | ||||
Net assets acquired | $ | 1,661,557 | |||
The following table summarizes unaudited pro forma financial information assuming the purchase had occurred on January 1, 2004. This unaudited pro forma financial information does not necessarily represent what would have occurred if the transaction had taken place on the dates presented and should not be taken as representativecover of our future consolidated results of operations or financial position.
| 2004 | | ||||
---|---|---|---|---|---|---|
| (thousands) | | ||||
Sales | $ | 221,156 | ||||
Net loss | $ | (26,842 | ) |
3. Transactions With Related Parties
For the period of October 29 through December 31, 2004, we participated in Boise LLC's centralized cash management system. During the predecessor periods presented, we participated in OfficeMax's centralized cash management system. Cash receipts attributable to our operations were collected by Boise LLC and OfficeMax, and cash disbursements were funded by Boise LLC and OfficeMax. For the period from October 29 through December 31, 2004, the net effect of these transactions has been reflected in our Statement of Cash Flows as "Related-party note payable." The net effect of these transactions has been reflected in our predecessor financial statements as "Net equity transactions with OfficeMax" in the Statements of Cash Flows and has been included in
"Business unit equity" in the Balance Sheet. The following table includes the components of these related-party transactions:
| Timber Holdings | | | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Predecessor | ||||||||||||
| October 29 (inception) through December 31, 2004 | ||||||||||||
| January 1 through October 28, 2004 | Year Ended December 31 | |||||||||||
| 2003 | 2002 | |||||||||||
| (thousands) | ||||||||||||
Cash collections | $ | (24,675 | ) | $ | (198,889 | ) | $ | (129,829 | ) | $ | (121,717 | ) | |
Payment of accounts payable | 21,058 | 46,173 | 61,040 | 59,040 | |||||||||
Capital expenditures and acquisitions | 161,357 | 8,904 | 10,667 | 18,920 | |||||||||
Income taxes | — | 45,681 | 20,190 | 19,852 | |||||||||
Net debt (issuances) payments with OfficeMax | — | 4,618 | (1,443 | ) | (7,879 | ) | |||||||
Other | (231 | ) | (338 | ) | 2,171 | (398 | ) | ||||||
Related-party note payable | $ | 157,509 | |||||||||||
Net equity transactions with OfficeMax | $ | (93,851 | ) | $ | (37,204 | ) | $ | (32,182 | ) | ||||
During the period of October 29 through December 31, 2004, and the predecessor periods presented, we used services and administrative staff of Boise Holdings and OfficeMax, respectively. These included, but were not limited to, finance, accounting, legal, information technology and human resource functions. The costs allocated to Timber Holdings and our predecessor were specifically identifiable as services used by Timber Holdings and our predecessor. These costs are included in "General and administrative expenses" in the Statements of Income (Loss). All cash advances necessary to fund the lease and/or purchase of timberlands and other expenditures, to the extent not provided through internally generated funds, were provided by Boise Holdings during the period of October 29 through December 31, 2004, and by OfficeMax in the predecessor periods. These amounts have been reflected in Timber Holdings' Statement of Cash Flows as "Related-party note payable" and in the predecessor Statements of Cash Flows as "Net equity transactions with OfficeMax."
We are a major supplier of fiber to Boise LLC and, in the predecessor periods, were a major supplier of fiber to Boise Forest Products Operations. Sales of fiber to Boise LLC and Boise Forest Products Operations are reported as fiber sales to related parties on the Statements of Income (Loss) and were based on prices that approximated market.
During the period of October 29 through December 31, 2004, Boise Land & Timber Corp. leased employees from Boise LLC. During this period, most of the leased employees participated in Boise LLC's defined benefit plans, and most of the employees were eligible for participation in Boise LLC's defined contribution plans. During the predecessor periods, most of Boise Timberlands employees participated in OfficeMax's defined benefit pension plans, and most of the employees were eligible for participation in OfficeMax's defined contribution plans. In all periods presented, we have treated participants in Boise LLC and OfficeMax's plans as participants in multiemployer plans. Accordingly, we have not reflected any assets or liabilities related to the defined benefit pension plans in the Balance Sheets. We have, however, included the costs associated with employees who participated in the plans in the Statements of Income (Loss). These costs were not material in any of the periods presented.
4. Income Taxes
Period of October 29 through December 31, 2004
For federal income tax purposes, the acquisition of Boise Timberlands was treated as an asset purchase, and we have a tax basis in the acquired assets equal to the purchase price. As a result, we are depleting assets with a higher tax basis after the date of the Acquisition. Because of the step-up in the tax basis of our timberlands and the losses recorded for the period of October 29 through December 31, 2004, our income tax benefit was fully offset by a valuation allowance. Since Timber Holdings does not have a history of reporting income, and based on projected losses for the subsequent year, SFAS No. 109, Accounting for Income Taxes, does not allow us to book benefits toward the losses.
Predecessor Periods
In the predecessor periods presented, Boise Timberlands results have been or will be included in the consolidated income tax returns of OfficeMax. However, in the predecessor financial statements, income taxes have been provided based on a calculation of the income tax expense that would have been incurred if Boise Timberlands had operated as a separate taxpayer. Income taxes were provided for all items included in the Statements of Income, regardless of when such items were reported for tax purposes or when the taxes were actually paid. Current tax liabilities were transferred to OfficeMax and are included in "Net equity transactions with OfficeMax." During the period of January 1 through October 28, 2004, the net current tax liability transferred to OfficeMax was $45.0 million. During 2003 and 2002, the net current tax liability transferred to OfficeMax was $20.2 million and $19.9 million.
The income tax provision shown in the Statements of Income includes the following:
| Timber Holdings | | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Predecessor | |||||||||||||
| October 29 (inception) through December 31, 2004 | |||||||||||||
| January 1 through October 28, 2004 | Year Ended December 31 | ||||||||||||
| 2003 | 2002 | ||||||||||||
| (thousands) | |||||||||||||
Current income tax provision | ||||||||||||||
Federal | $ | — | $ | (38,075 | ) | $ | (17,076 | ) | $ | (16,790 | ) | |||
State | — | (6,944 | ) | (3,114 | ) | (3,062 | ) | |||||||
— | (45,019 | ) | (20,190 | ) | (19,852 | ) | ||||||||
Deferred income tax (provision) benefit | ||||||||||||||
Federal | — | (559 | ) | (1,768 | ) | 231 | ||||||||
State | — | (102 | ) | (323 | ) | 42 | ||||||||
— | (661 | ) | (2,091 | ) | 273 | |||||||||
$ | — | $ | (45,680 | ) | $ | (22,281 | ) | $ | (19,579 | ) | ||||
A reconciliation of the statutory U.S. federal tax provision and our reported tax provision is as follows:
| Timber Holdings | | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Predecessor | |||||||||||||
| October 29 (inception) through December 31, 2004 | |||||||||||||
| January 1 through October 28, 2004 | Year Ended December 31 | ||||||||||||
| 2003 | 2002 | ||||||||||||
| (thousands) | |||||||||||||
Statutory tax provision | $ | 7,088 | $ | (41,072 | ) | $ | (20,029 | ) | $ | (17,587 | ) | |||
State taxes | 790 | (4,580 | ) | (2,234 | ) | (1,963 | ) | |||||||
Valuation allowance | (7,878 | ) | — | — | — | |||||||||
Other, net | — | (28 | ) | (18 | ) | (29 | ) | |||||||
Reported tax provision | $ | — | $ | (45,680 | ) | $ | (22,281 | ) | $ | (19,579 | ) | |||
The components of the net deferred tax liability in the Balance Sheet is as follows:
| Predecessor | |||||
---|---|---|---|---|---|---|
| December 31, 2003 | |||||
| Assets | Liabilities | ||||
| (thousands) | |||||
Property and equipment and timber and timberlands | $ | 20,568 | $ | 19,632 | ||
Employee benefits | 69 | 258 | ||||
Deferred charges | 14 | — | ||||
Other | 4 | — | ||||
$ | 20,655 | $ | 19,890 | |||
As of December 31, 2004, we had deferred tax assets of $7.9 million offset fully with a valuation allowance. Since Timber Holdings does not have a history of reporting income, and based on projected losses for the subsequent year, SFAS No. 109, Accounting for Income Taxes, does not allow us to book benefits toward the losses. The deferred tax assets consist mainly of a federal net operating loss carry forward of approximately $20 million that expires in 2024.
In each of the predecessor periods presented, all of our pretax income was from domestic sources.
5. Leases
We do not have any capital leases. Rental expense for operating leases, primarily timberland leases, amounted to $0.5 million during the period of October 29 through December 31, 2004. Rental expenses were $2.5 million during the period of January 1 through October 28, 2004, and $3.1 million and $3.4 million during 2003 and 2002. For operating leases with remaining terms of more than one year, the minimum lease payment requirements are $4.2 million each year for 2005, 2006, 2007, 2008 and 2009, with total payments thereafter of $113.7 million.
Long-term leases of private timberlands generally provide us with timber harvesting rights and carry with them the responsibility for managing the timberlands. At December 31, 2004, the remaining life of all leases, including renewal terms, ranged from 12 to 61 years.
6. Debt
In October 2004, we entered into a six-year $1,225.0 million Tranche C term loan. Borrowings under the term loan bear interest at floating rates. At December 31, 2004, our borrowing rate for the Tranche C term loan was 4.7%, and $1,225.0 million was outstanding, $12.3 million of which is recorded in current portion of long-term debt. We paid approximately $14.8 million of fees and expenses associated with the transaction. The fees are being amortized over three months, the period the debt was outstanding before being paid in full with the proceeds from the Timberlands Sale. At December 31, 2004, we had $4.8 million of costs recorded in "Deferred financing costs" on our Balance Sheet.
In October 2004, we also entered into a $218.7 million 6% related-party loan that matures in October 2015. At December 31, 2004, $157.5 million was outstanding under the loan. The balance of the related-party loan changes with related-party activity with Boise Holdings. In 2004, we recorded $1.7 million of interest expense related to the loan.
At December 31, 2004, the scheduled payments of long-term debt were $12.3 million each year for 2005, 2006, 2007, 2008 and 2009. However in February 2005, we paid all of our debt in full with the proceeds of the Timberlands Sale. For the periods of October 29 through December 31, 2004, and January 1 through October 28, 2004, and the years ended December 31, 2003 and 2002, cash payments for interest, net of interest capitalized, were $11.2 million, $4.1 million, $6.2 million and $6.2 million.
In the predecessor periods presented, we participated in OfficeMax's centralized cash management system. Cash advances necessary to fund the purchase of timberlands and major improvements to and replacements of property, to the extent not provided through internally generated funds, were provided by OfficeMax's cash or funded with debt. At December 31, 2003, OfficeMax had $2.3 billion of debt outstanding. In each of the periods presented, debt and interest costs were allocated to us based on our average asset balances. The debt allocated from OfficeMax is included in our predecessor Balance Sheet, and the interest expense attributable to the debt allocated from OfficeMax is included in our predecessor Statements of Income. We calculated short-term borrowings and the current portion of long-term debt using the ratio of OfficeMax's total debt to current debt.
For the periods of October 29 through December 31, 2004, and January 1 through October 28, 2004, and the years ended December 31, 2003 and 2002, our average interest rates were 4.8%, 6.7%, 7.3% and 7.5%. OfficeMax's management believes the allocations of debt and interest are a reasonable reflection of the Boise Timberlands debt position and interest costs.
7. Financial Instruments
The estimated fair values of our financial instruments, such as receivables, payables and debt, are the same as their carrying values. Including the predecessor period, in 2004, 54% of our sales were to Boise LLC, which represents a concentration in the volume of business transacted and the revenue generated from these transactions.
Changes in interest rates expose us to financial market risk. For the period of October 29 through December 31, 2004, we did not use any derivative financial instruments, such as interest rate swaps, rate hedge agreements or forward purchase contracts, to hedge underlying debt obligations or anticipated transactions. As described in Note 6, Debt, in the predecessor financial statements, OfficeMax allocated debt and interest costs to us based on our average asset balances. OfficeMax occasionally uses derivative financial instruments, such as interest rate swaps, rate hedge agreements and forward exchange contracts, to hedge underlying debt obligations or anticipated transactions. The effects of these financial instruments are not included in our predecessor financial statements other than through OfficeMax's allocations to us.
8. Equity
At December 31, 2004, Timber Holdings was capitalized with $1,000 of common stock and $276.1 million of additional paid-in capital, allocated among three series of common stock as follows:
| Shares | Shares Outstanding | Amount | | |||||
---|---|---|---|---|---|---|---|---|---|
| (thousands) | | |||||||
A | 7 | $ | 30,040 | ||||||
B | 55 | 246,082 | |||||||
C | 4 | — |
At December 31, 2004, an affiliate of OfficeMax owned all of the Series A common stock. Parent and an affiliate of OfficeMax owned 44,000 and 11,000 of the Series B common stock reflecting $197.2 million and $48.9 million of additional paid-in capital. The Series C common stock was issued to Parent without additional capital contributions.
Series A Common Stock. The Series A common stock has no voting rights. It accrues dividends daily at a rate of 8% per annum on the holder's capital contributions (net of any distributions previously received by such holder) plus any accumulated dividends. Accrued and unpaid dividends accumulate on the Series A common stock on December 31 and June 30 of each year. At December 31, 2004, $0.4 million of dividends were accrued in our Balance Sheet. Series A common stock participates in distributions as described below.
Series B Common Stock. The Series B common stock entitles each holder to one vote on matters to be voted on by the members of Timber Holdings. The Series B common stock participates in distributions as described below.
Series C Common Stock. The Series C common stock has no voting rights. Series C common stock was issued to Parent without capital contribution. The Series C common stock participates in distributions as described below.
Distributions. The allocation of distributions (liquidating and otherwise) among the three series of common stock are made as follows: first to Series A and Series B common stockholders ratably, based on the number of shares outstanding, until each has received distributions in an amount equal to its capital contributions (plus in the case of Series A common stock, its accumulated dividends and accrued and unpaid dividends) and then to Series B and Series C common stockholders ratably, based on the number of units of each series outstanding.
The company has no items of other comprehensive income, therefore comprehensive income and net income are the same.
9. Commitments and Guarantees
Commitments
We have commitments for leases and long-term debt that are discussed further in Note 5, Leases, and Note 6, Debt. In addition, we have purchase obligations for inventories and capital expenditures entered into in the normal course of business.
Guarantees
We provide indemnifications and assurances to others, which constitute guarantees as defined under FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. We also enter into indemnification arrangements in the ordinary course of business. These include tort indemnifications, tax indemnifications and indemnifications against third-party claims arising out of arrangements to provide services to us. It is impossible to quantify the maximum potential liability under these indemnifications. At December 31, 2004, we were not aware of any material liabilities arising from these indemnifications.
Boise Holdings and Timber Holdings (collectively the "Holding Companies") and their respective direct and indirect domestic subsidiaries are parties to a Credit Agreement dated as of October 29, 2004, with JPMorgan Chase Bank, as Administrative Agent, and certain Lenders named therein and a related Guarantee and Collateral Agreement of the same date (collectively the Bank Credit Agreements). Boise LLC, a wholly owned direct subsidiary of Boise Holdings, acts as borrower under the Bank Credit Agreements for the Tranche B term loan in the amount of $1,330.0 million and a $400.0 million revolving credit facility which had no outstanding balance at December 31, 2004, other than reimbursement obligations in respect of $68.3 million of standby letters of credit issued under the revolving facility. In addition, Boise Land & Timber Corp., a wholly owned direct subsidiary of Timber Holdings, acts as borrower under the Bank Credit Agreements for the Tranche C term loan in the amount of $1,225.0 million. All of these loans and reimbursement obligations are guaranteed by both Holding Companies and each of their domestic subsidiaries (other than Boise LLC, Boise Land & Timber Corp., Boise Land & Timber L.L.C., and Boise Land &Timber II, L.L.C. to the extent they are acting as the borrower for a particular loan or reimbursement obligation).
Boise LLC and its wholly owned subsidiary, Boise Cascade Finance Corporation, have jointly issued $250.0 million of senior floating-rate notes due in 2012 and $400.0 million of 7.125% senior subordinated notes due in 2014. The senior notes are guaranteed on a senior basis and the subordinated notes on a subordinated basis by the Holding Companies and each of the domestic subsidiaries of the Holding Companies other than Boise LLC, Boise Cascade Finance Corporation, Boise Land & Timber L.L.C., and Boise Land & Timber II, L.L.C. which are the issuers of the notes.
10. Legal Proceedings and Contingencies
We are involved in litigation and administrative proceedings primarily arising in the normal course of our business; however, none of these claims or proceedings are material. In the opinion
of management, our recovery, if any, or our liability, if any, under any pending litigation or administrative proceeding would not materially affect our financial condition or results of operations.
11. Quarterly Results of Operations (unaudited)
| Predecessor | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | Timber Holdings | ||||||||||||||
| First Quarter (a) | Second Quarter | Third Quarter (b) | October 1 through October 28 | October 29 (inception) through December 31, 2004 | |||||||||||
| (millions) | |||||||||||||||
Net sales | $ | 113.4 | $ | 29.7 | $ | 44.5 | $ | 9.1 | $ | 24.5 | ||||||
Income from operations | 74.9 | 18.7 | 27.2 | 1.2 | 1.0 | |||||||||||
Net income (loss) | 44.9 | 10.6 | 15.8 | 0.4 | (20.3 | ) |
| Predecessor | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | |||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||
| (millions) | |||||||||||
Net sales | $ | 28.8 | $ | 23.6 | $ | 37.1 | $ | 37.2 | ||||
Income from operations | 12.5 | 12.8 | 18.8 | 19.5 | ||||||||
Net income | 6.7 | 6.8 | 10.4 | 11.0 |
The text of this documentprospectus is printed on 27# Lightweight Opaque
125 lb. Boise® OCR Laser Tag-X™ paper produced by Boise's
Boise’s papermakers at our International Falls, Minnesota, mill.
The contents of our prospectus are printed on
27 lb. Boise® Smooth Lightweight Opaque Offset paper produced by
Boise’s papermakers at our St. Helens, Oregon, mill.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Item 20. | Indemnification of Directors, Officers, Managers and Members |
Delaware General Corporation Law
Boise Cascade Company, Boise Cascade Finance Corporatin, Boise Land & Timber Holdings Corp., Boise Land & Timber Corp., Boise Building Solutions Manufacturing Holdings Corp., BC Chile Investment Corporation, BC Brazil Investment Corporation, Boise White Paper Holdings Corp., International Falls Power Company, BC China Corporation, Boise Cascade Transportation Holdings Corp. and BCT, Inc., a Delaware corporation are incorporated under the laws of the State of Delaware. Section 145 ("Section 145") of the Delaware General Corporation Law as the same exists or may hereafter be amended (the "General Corporation Law"),inter alia,provides that a Delaware corporation may indemnify any person who was, isdirectors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding,proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation)the corporation—a derivative action), by reason of the fact that the person is or was an officer, director, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, provided the personif they acted in good faith and in a manner hethey reasonably believed to be in or not opposed to the corporation's best interests of the corporation and, with respect to any criminal action or proceeding,proceedings, had no reasonable cause to believe that histheir conduct was unlawful. A Delaware corporation may indemnify any person who was,similar standard is or is threatened to be made a party to any threatened, pending or completed action or suit by orapplicable in the rightcase of the corporationderivative actions, except that indemnification only extends to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys'attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action, or suit, providedand the statute requires court approval before there can be any indemnification where the person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests, provided that noseeking indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to behas been found liable to the corporation. WhereThe statute provides that it is not exclusive of other indemnification that may be granted by a presentcorporation’s certificate of incorporation, bylaws, disinterested director vote, stockholder vote, agreement or former director or officer is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against expenses (including attorneys' fees) which such director or officer has actually and reasonably incurred.otherwise.
Section 145 further authorizesof the Delaware General Corporation Law permits a corporation to purchase and maintain, insurance on behalf of any person who is or was a director, officer, employee or agent of thea corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise,insurance against any liability asserted against him andliabilities incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would otherwise have the power to indemnify him undercapacities. Section 145.
Delaware Limited Liability Company Act
Boise Cascade, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Building Solutions Manufacturing, L.L.C., Boise Building Solutions Distribution, L.L.C. and Boise Cascade Aviation, L.L.C. are limited liability companies organized under the laws of the State of Delaware. Section 18-108145 of the Delaware Limited Liability Company Act,General Corporation Law also permits a corporation to pay expenses incurred by a director or the DLLC Act, provides that a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands
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whatsoever, subject to the standards and restrictions, if any, set forthofficer in its limited liability company agreement.
Minnesota Business Corporation Act
Minnesota, Dakota & Western Railway Company is incorporated under the lawsadvance of the Statefinal disposition of Minnesota. Unless prohibited in a corporation's articlesan action, suit, or bylaws, Section 302A.521proceeding, upon receipt of an undertaking by the Minnesota Business Corporation Act (MBCA) requires indemnification of officers, directors, employees and agents, under certain circumstances, against judgments, penalties, fines, settlements and reasonable expenses (including attorney's fees and disbursements) incurred bydirector or officer to repay such amount if it is determined that such person in connection with a threatened or pending proceeding with respectis not entitled to the acts or omissionsindemnification.
Our Second Amended and Restated Certificate of such person in his official capacity. The general effect of Section 302A.521 of the MBCA is to require the company to reimburse (or pay on behalf of) its directorsIncorporation and officers any personal liabilityour Bylaws provide that may be imposed for certain acts performed in their capacity as directors and officers, except where such persons have not acted in good faith.
Charter Documents
The certificate of incorporation and by-laws of Boise Cascade Company, Boise Cascade Finance Corporation, Boise Land & Timber Holdings Corp., Boise Land & Timber Corp. Boise Building Solutions Manufacturing Holdings Corp., BC Chile Investment Corporation, BC Brazil Investment Corporation, Boise White Paper Holdings Corp., International Falls Power Company, BC China Corporation, Boise Cascade Transportation Holdings Corp. and BCT, Inc., a Delaware corporation each provide for the indemnification of officers and directorswe shall indemnify, to the fullest extent permittedauthorized by the Delaware General Corporation Law, the directors and officers of the company against all expense, liability and loss, including attorneys’ fees, incurred by them in connection with any actual or threatened action, suit, or proceeding to which they are or may become parties and which arises out of their status as directors or officers of the company. Our Second Amended and Restated Certificate of Incorporation provides that these indemnification rights are deemed to be a contract between the company and each director or officer to indemnify him or her to the fullest extent authorized by the Delaware General Corporation Law.
The operating agreement of Boise Cascade, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Building Solutions Manufacturing, L.L.C., Boise Building Solutions Distribution, L.L.C. and Boise Cascade Aviation, L.L.C. provide for the indemnification of officers and managers to the fullest extent permitted by the DLLC Act.
The articles of incorporation of Minnesota, Dakota & Western Railway Company provide for indemnification of its directors and officers to the maximum extent permitted by the Minnesota Business Corporation Act.
Liability Insurance
Our directors and officers are covered by insurance policies maintained by us against certain liabilities for actions taken in their capacities as such, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors officers and controlling persons of the registrantofficers pursuant to the foregoingabove provisions, or otherwise, the registrant haswe have been advised that in the opinion of the Securities and Exchange CommissionSEC, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment
Our directors and officers are insured, under insurance policies maintained by the registrant ofcompany, against expenses incurred in the defense of actions, suits, or paidproceedings and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by a director, officerreason of being or controlling personhaving been directors or officers.
The foregoing statements are subject to the detailed provisions of Section 145 of the registrant in the successful defenseDelaware General Corporation Law and Article Ninth of any action, suit or proceeding) is assertedour Second Amended and Restated Certificate of Incorporation.
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Item 21. | Exhibits and Financial Statement Schedules. |
Item 21(a). | Exhibits. |
Unless otherwise indicated, exhibits not filed herewith have been filed by such director, officer or controlling person in connectionBoise Inc. with the securities being registered,form and on the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.date indicated.
Exhibit | Exhibit | Incorporated by Reference | Filed Herewith | |||||||
Form | Exhibit Number | Filing Date | ||||||||
1 | Not applicable | |||||||||
2.1 | Purchase and Sale Agreement dated September 7, 2007, between Boise Cascade, L.L.C., Boise Paper Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2 Acquisition Corp., and Aldabra Sub LLC | DEFM14A | 1/23/08 | |||||||
2.2 | Amendment No. 1 to Purchase and Sale Agreement dated October 8, 2007, between Boise Cascade, L.L.C., Boise Paper Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2 Acquisition Corp., and Aldabra Sub LLC | DEFM14A | 1/23/08 | |||||||
2.3 | Amendment No. 2 to Purchase and Sale Agreement dated February 22, 2008, between Boise Cascade, L.L.C., Boise Paper Holdings, L.L.C., Boise White Paper, L.L.C., Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp., Aldabra 2 Acquisition Corp., and Aldabra Sub LLC | 8-K | 10.2 | 2/28/08 | ||||||
3.1 | Second Amended and Restated Certificate of Incorporation of Boise Inc. | 8-K | 3.1 | 2/28/08 | ||||||
3.2 | Bylaws of Boise Inc., Amended and Restated Effective as of July 11, 2008 | 8-K | 3.1 | 7/14/08 | ||||||
3.3 | Certificate of Formation of Aldabra Holding Sub LLC. (BZ Intermediate Holdings LLC) and amendment | X | ||||||||
3.4 | Limited Liability Company Agreement of Aldabra Holding Sub LLC. (BZ Intermediate Holdings LLC) effective as of February 12, 2008 and amendment | X | ||||||||
3.5 | Certificate of Formation of Boise Paper Holdings, L.L.C. and amendment | X | ||||||||
3.6 | Limited Liability Company Agreement of Boise Paper Holdings, L.L.C. effective as of February 22, 2008 and amendment | X | ||||||||
3.7 | Certificate of Incorporation of Boise Finance Company | X |
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Item 21. Exhibits and Financial Statement Schedules.
• Exhibits
Exhibit | Exhibit | Incorporated by Reference | Filed Herewith | |||||||
Form | Exhibit Number | Filing Date | ||||||||
3.8 | Bylaws of Boise Finance Company | X | ||||||||
3.9 | Certificate of Incorporation of Boise Co-Issuer Company | X | ||||||||
3.10 | Bylaws of Boise Co-Issuer Company | X | ||||||||
3.11 | Certificate of Formation of Boise Packaging & Newsprint, L.L.C. and amendment | X | ||||||||
3.12 | Operating Agreement of Boise Packaging & Newsprint, L.L.C. effective as of September 20, 2004 and amendment | X | ||||||||
3.13 | Certificate of Formation of Boise White Paper, L.L.C. and amendment | X | ||||||||
3.14 | Operating Agreement of Boise White Paper, L.L.C. effective as of September 20, 2004 and amendment | X | ||||||||
3.15 | Certificate of Incorporation of Birch Creek Funding Corporation (Boise White Paper Sales Corp.) and amendment | X | ||||||||
3.16 | Bylaws of Boise White Paper Sales Corp. | X | ||||||||
3.17 | Certificate of Incorporation of Boise Cascade Transportation, Inc.(Boise White Paper Holdings Corp.) and amendments | X | ||||||||
3.18 | Bylaws of Boise White Paper Holdings Corp. | X | ||||||||
3.19 | Amended and Restated Certificate of Incorporation of International Falls Power Company and amendment | X | ||||||||
3.20 | Amended and Restated Bylaws of International Falls Power Company | X | ||||||||
3.21 | Amended and Restated Articles of Incorporation of Minnesota, Dakota & Western Railway Company | X | ||||||||
3.22 | Amended and Restated Bylaws of Minnesota, Dakota & Western Railway Company | X | ||||||||
3.23 | Certificate of Incorporation of Bemis Corporation | X | ||||||||
3.24 | Bylaws of Bemis Corporation | X | ||||||||
3.25 | Amended and Restated Certificate of Incorporation of B C T, Inc. and amendment | X | ||||||||
3.26 | Amended and Restated Bylaws of B C T, Inc. | X | ||||||||
3.27 | Certificate of Incorporation of Boise Cascade Transportation Holdings Corp. | X | ||||||||
3.28 | Bylaws of Boise Cascade Transportation Holdings Corp. | X | ||||||||
4.1 | Specimen Unit Certificate | S-1 | 4.1 | 3/19/07 |
Reference is made to the attached Exhibit Index, which is herein incorporated by reference.
• Financial Statement SchedulesII-3
Exhibit | Exhibit | Incorporated by Reference | Filed Herewith | |||||||
Form | Exhibit Number | Filing Date | ||||||||
4.2 | Specimen Common Stock Certificate | S-1 POS AM | 4.2 | 6/13/08 | ||||||
4.3 | Specimen Warrant Certificate | S-1 POS AM No. 1 | 4.3 | 6/13/08 | ||||||
4.4 | Warrant Agreement dated June 19, 2007, between Boise Inc. (formerly Aldabra 2 Acquisition Corp.) and Continental Stock Transfer & Trust Company. | 10-Q | 4.1 | 5/4/10 | ||||||
4.5 | Investor Rights Agreement dated February 22, 2008, between Aldabra 2 Acquisition Corp. (now Boise Inc.), Boise Cascade, L.L.C., Boise Cascade Holdings, L.L.C., certain directors and officers of Aldabra 2 Acquisition Corp., the Aldabra Shareholders, and each other Person who becomes a party to this Agreement after February 22, 2008 | 8-K | 4.1 | 2/28/08 | ||||||
4.6 | Indenture dated October 26, 2009, between Boise Paper Holdings, L.L.C., Boise Finance Company, the Guarantors set forth therein, and Wells Fargo Bank, National Association, as Trustee | 8-K | 4.1 | 10/28/09 | ||||||
4.7 | Form of 9% Senior Note due 2017 | 8-K | 4.1 | 10/28/09 | ||||||
4.8 | Indenture dated March 19, 2010, between Boise Paper Holdings, L.L.C., Boise Co-Issuer Company, the Guarantors set forth therein, and Wells Fargo Bank, National Association, as Trustee | 8-K | 4.1 | 3/22/10 | ||||||
4.9 | Form of 8% Senior Note due 2020 | 8-K | 4.1 | 3/22/10 | ||||||
5.1 | Opinion of Skadden, Arps, Slate, Meagher & Flom LLP | X | ||||||||
9 | None | |||||||||
10.1 | Form of Subscription Agreements between Aldabra 2 Acquisition Corp., Graubard Miller, and each of Nathan D. Leight and Jason G. Weiss | S-1 | 10.11 | 3/19/07 | ||||||
10.2(a) | Amended and Restated Paper Purchase Agreement dated April 28, 2004, between Boise White Paper, L.L.C. and Boise Cascade Corporation (now OfficeMax Incorporated), together with the Assignment Assumption and Consent Agreement dated October 29, 2004, between Boise Cascade Corporation (now OfficeMax Incorporated), Boise White Paper, L.L.C., OfficeMax Contract, Inc., and OfficeMax North America, Inc. | 8-K | 10.1 | 2/28/08 |
All other
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Exhibit | Exhibit | Incorporated by Reference | Filed Herewith | |||||||
Form | Exhibit Number | Filing Date | ||||||||
10.3 | Registration Rights Agreement dated October 26, 2009, between Boise Paper Holdings, L.L.C., Boise Finance Company, the Guarantors set forth therein, and J.P. Morgan Securities Inc. | 8-K | 99.1 | 10/28/09 | ||||||
10.4 | Registration Rights Agreement dated March 19, 2010, between Boise Paper Holdings, L.L.C., Boise Co-Issuer Company, the Guarantors set forth therein, and Banc of America Securities LLC | 8-K | 4.1 | 3/22/10 | ||||||
10.5 | Credit and Guaranty Agreement dated February 22, 2008, between Aldabra Sub LLC (subsequently merged with and into Boise Paper Holdings, L.L.C.), Aldabra Holding Sub LLC, certain subsidiaries of Aldabra Sub LLC (as Guarantors), Various Lenders, Goldman Sachs Credit Partners L.P. (as Joint Lead Arranger, Joint Bookrunner, Administrative Agent and Collateral Agent), Toronto Dominion (Texas) LLC (as Syndication Agent), Bank of America, N.A. and Cobank, ACB (as Co-Documentation Agents), and Lehman Brothers Inc. (as Joint Lead Arranger and Joint Bookrunner)—$975,000,000 Senior Secured First Priority Credit Facilities | 8-K | 10.5 | 2/28/08 | ||||||
10.6 | First Amendment to Credit and Guaranty Agreement dated October 13, 2009, between the Company, the Guarantors set forth therein, Goldman Sachs Credit Partners L.P., as Administrative and Collateral Agent, and J.P. Morgan Securities Inc. | 8-K | 99.2 | 10/28/09 | ||||||
10.7 | Pledge and Security Agreement (First Lien) dated February 22, 2008, between each of the Grantors party thereto and Goldman Sachs Credit Partners L.P. (as Collateral Agent) | 8-K | 10.7 | 2/28/08 | ||||||
10.8 | Trademark Security Agreement (First Lien) dated February 22, 2008, between Aldabra Sub LLC (subsequently merged with and into Boise Paper Holdings, L.L.C.), Aldabra Holding Sub LLC, certain subsidiaries of Aldabra Sub LLC (as Guarantors), and Goldman Sachs Credit Partners L.P. (as Collateral Agent) | 8-K | 10.9 | 2/28/08 | ||||||
10.9 | Patent Security Agreement (First Lien) dated February 22, 2008, between Aldabra Sub LLC (subsequently merged with and into Boise Paper Holdings, L.L.C.), Aldabra Holding Sub LLC, certain subsidiaries of Aldabra Sub LLC (as Guarantors), and Goldman Sachs Credit Partners L.P. (as Collateral Agent) | 8-K | 10.11 | 2/28/08 |
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Exhibit | Exhibit | Incorporated by Reference | Filed Herewith | |||||||
Form | Exhibit Number | Filing Date | ||||||||
10.10 | Tranche A Term Loan Note dated February 22, 2008, issued to The Bank of Nova Scotia in the amount of $12,500,000 | 8-K | 10.13 | 2/28/08 | ||||||
10.11 | Tranche A Term Loan Note dated February 22, 2008, issued to RZB Finance LLC in the amount of $2,500,000 | 8-K | 10.14 | 2/28/08 | ||||||
10.12 | Revolving Loan Note dated February 22, 2008, issued to The Bank of Nova Scotia in the amount of $12,500,000 | 8-K | 10.15 | 2/28/08 | ||||||
10.13 | Revolving Loan Note dated February 22, 2008, issued to RZB Finance LLC in the amount of $2,500,000 | 8-K | 10.16 | 2/28/08 | ||||||
10.14 | Outsourcing Services Agreement dated February 22, 2008, between Boise Cascade, L.L.C. and Boise Paper Holdings, L.L.C. | 8-K | 10.17 | 2/28/08 | ||||||
10.15 | Intellectual Property License Agreement dated February 22, 2008, between Boise Cascade, L.L.C. and Boise Paper Holdings, L.L.C. | 8-K | 10.18 | 2/28/08 | ||||||
10.16* | Severance Agreement dated February 6, 2008, between Boise Cascade, L.L.C. and Alexander Toeldte | 8-K | 10.20 | 2/28/08 | ||||||
10.17* | Form of Boise Inc. Officer Severance Agreement | 8-K | 10.19 | 2/28/08 | ||||||
10.18* | Boise Inc. Directors Deferred Compensation Plan effective April 4, 2008 | 10-Q | 10 | 5/5/08 | ||||||
10.19* | Boise Paper Holdings, L.L.C. Deferred Compensation Plan effective February 22, 2008, amended as of October 27, 2009 | 10-Q | 10 | 5/4/10 | ||||||
10.20* | Boise Paper Holdings, L.L.C. Supplemental Life Plan effective February 22, 2008 | 10-K | 10.35 | 2/24/09 | ||||||
10.21* | Boise Paper Holdings, L.L.C. Financial Counseling Program effective February 22, 2008 | 10-K | 10.36 | 2/24/09 | ||||||
10.22* | Boise Paper Holdings, L.L.C. Supplemental Pension Plan (SUPP) effective February 22, 2008 | 10-K | 10.37 | 2/24/09 | ||||||
10.23* | Boise Paper Holdings, L.L.C. Supplemental Early Retirement Plan (SERP) for Certain Elected Officers effective February 22, 2008 | 10-K | 10.38 | 2/24/09 | ||||||
10.24* | Boise Inc. Incentive and Performance Plan effective February 22, 2008, amended as of April 29, 2010 | 8-K | 99.1 | 5/3/10 | ||||||
10.25* | Form of 2008 Restricted Stock Award Agreement (Officers) | 8-K | 99.1 | 5/6/08 | ||||||
10.26* | Form of 2008 Restricted Stock Unit Award Agreement (Officers) | 8-K | 99.2 | 5/6/08 |
II-6
Exhibit | Exhibit | Incorporated by Reference | Filed Herewith | |||||||
Form | Exhibit Number | Filing Date | ||||||||
10.27* | Form of 2008 Restricted Stock Award Agreement (Nonemployee Directors) | 10-Q | 10.2 | 8/6/08 | ||||||
10.28* | Form of 2008 Restricted Stock Unit Award Agreement (Nonemployee Directors) | 10-Q | 10.3 | 8/6/08 | ||||||
10.29* | Form of 2009 Restricted Stock Award Agreement (Officers) | 8-K | 99.2 | 4/24/09 | ||||||
10.30* | Form of 2009 Restricted Stock Unit Award Agreement (Officers) | 8-K | 99.3 | 4/24/09 | ||||||
10.31* | Form of 2009 Restricted Stock Award Agreement (Nonemployee Directors) | 10-Q | 10.4 | 5/5/09 | ||||||
10.32* | Form of 2009 Restricted Stock Unit Award Agreement (Nonemployee Directors) | 10-Q | 10.5 | 5/5/09 | ||||||
10.33* | Form of 2010 Restricted Stock Award Agreement (Nonemployee Directors) | 10-Q | 10.3 | 5/4/10 | ||||||
11 | Not applicable | |||||||||
12.1 | Statements re; Computation of Ratios | X | ||||||||
13 | None | |||||||||
16.1 | Letter dated January 25, 2008, regarding change in certifying accountant from Goldstein Golub Kessler LLP to McGladrey & Pullen, LLP effective January 25, 2008 | 8-K | 99.1 | 1/25/08 | ||||||
16.2 | Letter dated February 28, 2008, regarding change in certifying accountant from McGladrey & Pullen, LLP to KPMG LLP effective February 22, 2008 | 8-K | 16.1 | 2/28/08 | ||||||
21 | List of Subsidiaries | X | ||||||||
23.1 | Consent of Independent Auditor—KPMG LLP | X | ||||||||
23.2 | Consent of Independent Auditor—KPMG LLP | X | ||||||||
25.1 | Statement of Eligibility on Form T-1 of Wells Fargo Bank, National Association, as trustee under the Indenture for Boise Paper Holdings, L.L.C. and Boise Co-Issuer 8% Senior Notes due 2020 | X | ||||||||
26 | Not applicable | |||||||||
99.1 | Form of Letter of Transmittal | X | ||||||||
99.2 | Form of Notice of Guaranteed Delivery | X | ||||||||
99.3 | Form of Letter to Clients | X | ||||||||
99.4 | Form of Letter to Brokers, Dealers, Commercial Bankers, Trust Companies and Other Nominees. | X |
* | Indicates exhibits that constitute management contracts or compensatory plans or arrangements. |
(a) | Confidential information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 406 of the Securities Act of 1933, as amended. |
(b) | Our Code of Ethics can be found on our website at www.boiseinc.com by selectingInvestors,Corporate Governance, and thenCode of Ethics. |
II-7
Item 21(b). | Financial Statement Schedules. |
None. We have omitted financial statement schedules for which provision is made in the applicable accounting regulations of the Commissionbecause they are not required under the related instructions,or are inapplicable or not material,applicable, or the required information called for thereby is otherwise includedshown in the financial statements and therefore has been omitted.or notes to the financial statements.
Item 22. Undertakings.
Item 22. | Undertakings |
(a)
provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply if the registration statement is on Form S-3 or Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
(1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
(i) | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
(ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and |
(iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
(2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof. |
(3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
(4) | That, for purposes of determining any liability under the Securities Act of 1933 to any purchaser, each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement and or made in any such document immediately prior to such effective date; and |
II-8
(5) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
(iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(b)
II-3
indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of such registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
II-4
(1) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. |
(2) | The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. |
(3) | The undersigned registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. |
II-9
Pursuant to the requirements of the Securities Act of 1933, Boise Cascade Companyas amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
Boise Paper Holdings, L.L.C. | |||||
By | /s/ ALEXANDER TOELDTE | ||||
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
II-5
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
| Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ ALEXANDER TOELDTE | ||||||
Alexander Toeldte | ||||||
(ii) | Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell | ||||||
| Sole Manager: | |||||
| ||||||
II-6
II-10
Pursuant to the requirements of the Securities Act of 1933, Boise Cascade, LLCas amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
Boise Co-Issuer Company | |||||
By | /s/ ALEXANDER TOELDTE | ||||
Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
Signature | Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ | Chief Executive Officer | |||||
| Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell | ||||||
|
| |||||
/s/ KAREN E. | ||||||
Karen E. Gowland |
II-7
II-11
Pursuant to the requirements of the Securities Act of 1933, Boise Cascade Finance Corporationas amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
BZ Intermediate Holdings LLC | |||||
By | /s/ ALEXANDER TOELDTE | ||||
Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
Signature | Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ | Chief Executive Officer | |||||
| Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell | ||||||
(iv) | Sole Manager: | |||||
/s/ KAREN E. GOWLAND | ||||||
Karen E. Gowland |
II-8
II-12
Pursuant to the requirements of the Securities Act of 1933, Boise Land & Timber Holdings Corp.as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
Boise Packaging & Newsprint, L.L.C. | |||||
By | /s/ ALEXANDER TOELDTE | ||||
Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
II-9
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
Signature | Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ | Chief Executive Officer | |||||
| Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell | ||||||
| Sole Manager: | |||||
| ||||||
II-10
II-13
Pursuant to the requirements of the Securities Act of 1933, Boise Land & Timber Corp.as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
Boise White Paper, L.L.C. | |||||
By | /s/ ALEXANDER TOELDTE | ||||
Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
Signature | Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ | Chief Executive Officer | |||||
| Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell | ||||||
|
| |||||
/s/ KAREN E. | ||||||
Karen E. Gowland |
II-11
II-14
Pursuant to the requirements of the Securities Act of 1933, Boise White Paper, L.L.C.as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
Boise Cascade Transportation Holdings Corp. | |||||
By | /s/ ALEXANDER TOELDTE | ||||
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
Signature | Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ | Chief Executive Officer | |||||
| Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell |
(iv) | Sole Director: | |||||
/s/ KAREN E. GOWLAND | ||||||
II-12
II-15
Pursuant to the requirements of the Securities Act of 1933, Boise Packaging & Newsprint, L.L.C.as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
Boise White Paper Sales Corp. | |||||
By | /s/ ALEXANDER TOELDTE | ||||
Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
| Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ ALEXANDER TOELDTE | Chief Executive Officer | |||||
Alexander Toeldte | ||||||
(ii) | Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell |
(iv) | Sole Director: | |||||
/s/ KAREN E. GOWLAND | ||||||
II-13
II-16
Pursuant to the requirements of the Securities Act of 1933, Boise Building Solutions Manufacturing, L.L.C.as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
Boise White Paper Holdings Corp. | |||||
By | /s/ ALEXANDER TOELDTE | ||||
Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
| Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ ALEXANDER TOELDTE | Chief Executive Officer | |||||
Alexander Toeldte | ||||||
(ii) | Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell |
(iv) | Sole Director: | |||||
/s/ KAREN E. GOWLAND | ||||||
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II-17
Pursuant to the requirements of the Securities Act of 1933, Boise Building Solutions Distribution, L.L.C.as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
Bemis Corporation | |||||
By | /s/ ALEXANDER TOELDTE | ||||
Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
| Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ ALEXANDER TOELDTE | Chief Executive Officer | |||||
Alexander Toeldte | ||||||
(ii) | Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell |
(iv) | Sole Director: | |||||
/s/ KAREN E. GOWLAND | ||||||
II-15
II-18
Pursuant to the requirements of the Securities Act of 1933, Boise Building Solutions Manufacturing Holdings Corp.as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
B C T, Inc. | |||||
By | /s/ ALEXANDER TOELDTE | ||||
Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
| Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ ALEXANDER TOELDTE | Chief Executive Officer | |||||
Alexander Toeldte | ||||||
(ii) | Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell | ||||||
| Sole Director: | |||||
/s/ | ||||||
Karen E. Gowland |
II-16
II-19
Pursuant to the requirements of the Securities Act of 1933, BC Chile Investment Corporationas amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
International Falls Power Company | |||||
By | /s/ ALEXANDER TOELDTE | ||||
Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.indicated.
| Capacity | |||||
(i) | Principal Executive Officer: | |||||
/s/ ALEXANDER TOELDTE | Chief Executive Officer | |||||
Alexander Toeldte | ||||||
(ii) | Principal Financial Officer: | |||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | |||||
Robert M. McNutt | ||||||
(iii) | Principal Accounting Officer: | |||||
/s/ | Vice President and Controller | |||||
Samuel K. Cotterell | ||||||
| Sole Director: | |||||
/s/ | ||||||
Karen E. Gowland |
II-17
II-20
Pursuant to the requirements of the Securities Act of 1933, BC Brazil Investment Corporationas amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.May 18, 2010.
Minnesota, Dakota & Western Railway Company | |||||
By | /s/ ALEXANDER TOELDTE | ||||
Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and power of attorney havehas been signed on May 18, 2010, by the following persons on behalf of the registrant and in the capacities indicated on the 13th day of June, 2005.
II-18
Pursuant to the requirements of the Securities Act of 1933, Boise White Paper Holdings Corp. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and power of attorney have been signed by the following persons in the capacities indicated on the 13th day of June, 2005.
II-19
Pursuant to the requirements of the Securities Act of 1933, Minnesota, Dakota & Western Railway Company has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and power of attorney have been signed by the following persons in the capacities indicated on the 13th day of June, 2005.
II-20
Pursuant to the requirements of the Securities Act of 1933, International Falls Power Company has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and power of attorney have been signed by the following persons in the capacities indicated on the 13th day of June, 2005.
II-21
Pursuant to the requirements of the Securities Act of 1933, BC China Corporation has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and power of attorney have been signed by the following persons in the capacities indicated on the 13th day of June, 2005.
II-22
Pursuant to the requirements of the Securities Act of 1933, Boise Cascade Transportation Holdings Corp. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and power of attorney have been signed by the following persons in the capacities indicated on the 13th day of June, 2005.
II-23
Pursuant to the requirements of the Securities Act of 1933, BCT, Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and power of attorney have been signed by the following persons in the capacities indicated on the 13th day of June, 2005.
II-24
Pursuant to the requirements of the Securities Act of 1933, Boise Cascade Aviation, L.L.C. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boise, State of Idaho, on June 13, 2005.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Messrs. W. Thomas Stephens, Thomas S. Souleles, Christopher J. McGowan, Karen E. Gowland and J.W. Holleran and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and power of attorney have been signed by the following persons in the capacities indicated on the 13th day of June, 2005.
II-25
Signature |
Capacity
(i) | Principal Executive Officer: | ||||
/s/ ALEXANDER TOELDTE | Chief Executive Officer | ||||
Alexander Toeldte | |||||
(ii) | Principal Financial Officer: | ||||
/s/ ROBERT M. MCNUTT | Senior Vice President and Chief Financial Officer | ||||
Robert M. McNutt | |||||
(iii) | Principal Accounting Officer: | ||||
/s/ SAMUEL K. COTTERELL | Vice President and Controller | ||||
(iv) | Sole Director: | ||||
/s/ KAREN E. GOWLAND | |||||
Karen E. Gowland | |||||
II-21