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BOISE INC. Reports Operating Results (10-Q)

November 03, 2009 | About:

BOISE INC. (BZ) filed Quarterly Report for the period ended 2009-09-30.

Headquartered in Boise Idaho Boise manufactures premium and specialty products including papers for pressure sensitive and flexible packaging applications containerboard and corrugated products imaging papers for the office and home printing and converting papers newsprint and market pulp. Boise Inc. has a market cap of $397.7 million; its shares were traded at around $4.71 with a P/E ratio of 36.2 and P/S ratio of 0.2.

Highlight of Business Operations:

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 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 include but are not limited to finance, accounting, legal, information technology, and human resources 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 and nine months ended September 30, 2009, segment sales primarily related to our rail and truck business were $16.7 million and $47.1 million.

In connection with the Acquisition, we entered into 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 initial term of the agreement is for three years. 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 and nine months ended September 30, 2009, we recorded $3.9 million and $11.1 million in Sales, Related parties and the same amounts in Costs and expenses in our Consolidated Statements of Income (Loss) related to this agreement.

and requirements of the Sustainable Forestry Initiative® (SFI®). The U.S. Internal Revenue Code allows an excise tax credit for taxpayers who use alternative fuels in the taxpayers trade or business. Each year, under normal operating conditions, we produce and use approximately 500 million gallons of liquid fuel (black liquor) produced from biomass to provide energy to four of our five paper mills. The credit, equal to $0.50 per gallon of the alternative fuel mixture, is refundable to the taxpayer. In first quarter 2009, we filed to be registered as an alternative fuel mixer and, in April, received notification that the registration was approved by the Internal Revenue Service. We became eligible to claim credits for black liquor produced at our four pulp and paper mills beginning at various dates from late January to late March 2009. Although there is some uncertainty as to the continued existence and availability of the alternative fuel mixture credit, we are reasonably assured that the credit for the alternative fuel mixture used by us through September 30, 2009, has been earned and will be collected from the U.S. government. Accordingly, during the three and nine months ended September 30, 2009, we recorded $59.6 million and $134.9 million, respectively, in Alternative fuel mixture credits, net in our Consolidated Statements of Income (Loss). As of September 30, 2009, we recorded a receivable of $29.2 million in Receivables, Other on our Consolidated Balance Sheet for alternative fuel mixture credits. The credits are scheduled to expire on December 31, 2009. The future amount of credits we ultimately file for, receive, and recognize as income is dependent on, among other things, our future production levels, tax legislation and regulation, and income recognition criteria under generally accepted accounting principles. We do not know whether the U.S. government will amend the credit to eliminate or reduce its benefits for pulp and paper companies, but there is the possibility that such action may be taken. Any such amendment of the credit could have a material effect on our financial position, results of operations, and cash flows.

In October 2009, we entered into agreements to amend our first and second lien secured debt credit agreements and issued $300 million in new unsecured debt. This debt restructuring increases our financial flexibility, extends our debt maturities, simplifies our capital structure, and reduces our overall total debt by approximately $110 million by allowing us to use our cash on hand and proceeds from the new debt to pay down current debt.

Read the The complete ReportBZ is in the portfolios of John Keeley of Keeley Fund Management.

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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