SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: February 23, 1998
Date of Earliest Event Reported: December 31, 1997
Boise Cascade Corporation
____________________________________________________________
(Exact Name of Registrant as Specified in Its Charter)
Delaware 1-5057 82-0100960
______________________________________________________________________
(State or Other Jurisdiction of (Commission (I.R.S. Employer
Incorporation or Organization) File Number) Identification No.)
1111 W. Jefferson St., Boise, Idaho 83728
______________________________________________________________________
(Address of Principal Executive Offices) (ZIP Code)
Registrant's Telephone Number, Including Area Code: 208/384-6161
<PAGE>
Item 5. Other Events.
Boise Cascade Corporation and subsidiaries financial
information as of December 31, 1997 (including the Ratio of
Earnings to Fixed Charges for the years ended 1993 through
1997; Balance Sheets as of December 31, 1997 and 1996;
Statements of Income (Loss) for the years ended December 31,
1997, 1996, and 1995; Statements of Cash Flows for the years
ended December 31, 1997, 1996, and 1995; Statements of
Shareholders' Equity for the years ended December 31, 1997,
1996, and 1995; Notes to Financial Statements; Report of
Independent Public Accountants; and Report of Management),
is set forth in Exhibit 20 attached hereto and filed herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
BOISE CASCADE CORPORATION
/s/ Irving Littman
Irving Littman
Vice President and Treasurer
Date: February 23, 1998
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we consent to the
incorporation of our report dated January 29, 1998, included in
this Form 8-K, into Boise Cascade Corporation's previously filed
post-effective amendment No. 1 to Form S-8 registration statement
(File No. 33-28595); post-effective amendment No. 1 to Form S-8
registration statement (File No. 33-21964); the registration
statement on Form S-8 (File No. 33-31642); the registration
statement on Form S-8 (File No. 33-45675); the registration
statement on Form S-3 (File No. 33-54533); the registration
statement on Form S-3 (File No. 33-55396); the registration
statement on Form S-8 (File No. 33-62263); the registration
statement on Form S-8 (File No. 333-22707); and the registration
statement on Form S-3 (File No. 333-41033).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boise, Idaho
February 23, 1998
<PAGE>
Exhibit Index
Exhibit No. Description Page
20 Boise Cascade Corporation and
subsidiaries financial information
as of December 31, 1997, including:
Ratio of Earnings to Fixed Charges
for the years ended 1993 through 1997;
Balance Sheets as of December 31,
1997 and 1996; Statements of
Income (Loss) for the years ended
December 31, 1997, 1996, and 1995;
Statements of Cash Flows for the
years ended December 31, 1997,
1996, and 1995; Statements of
Shareholders' Equity for the years
ended December 31, 1997, 1996, and
1995; Notes to Financial Statements;
Report of Independent Public
Accountants; and Report of Management
23 Consent of Arthur Andersen LLP
(see page 3)
27 Financial Data Schedule
<PAGE>
STATEMENTS OF INCOME (LOSS) EXHIBIT 20
Boise Cascade Corporation and Subsidiaries
Year Ended December 31
____________________________________
1997 1996 1995
__________ __________ __________
(expressed in thousands)
Revenues
Sales $5,493,820 $5,108,220 $5,074,230
Other income (expense), net (710) 14,520 (16,560)
__________ __________ __________
5,493,110 5,122,740 5,057,670
__________ __________ __________
Costs and expenses
Materials, labor, and other
operating expenses 4,436,650 4,152,150 3,752,650
Depreciation, amortization,
and cost of company timber
harvested 256,570 255,000 260,760
Selling and distribution expenses 553,240 446,530 305,590
General and administrative expenses 139,060 119,860 123,140
__________ __________ __________
5,385,520 4,973,540 4,442,140
__________ __________ __________
Equity in net income (loss)
of affiliates (5,180) 2,940 40,070
__________ __________ __________
Income from operations 102,410 152,140 655,600
__________ __________ __________
Interest expense (137,350) (128,360) (135,130)
Interest income 6,000 3,430 2,970
Foreign exchange gain (loss) 10 (1,200) (300)
Gain on subsidiary's issuance of stock - 5,330 66,270
__________ __________ __________
(131,340) (120,800) (66,190)
__________ __________ __________
Income (loss) before income taxes
and minority interest (28,930) 31,340 589,410
Income tax (provision) benefit 9,260 (11,960) (231,290)
__________ __________ __________
Income (loss) before minority interest (19,670) 19,380 358,120
Minority interest, net of income tax (10,740) (10,330) (6,260)
__________ __________ __________
Net income (loss) $ (30,410) $ 9,050 $ 351,860
Net income (loss) per common share
Basic $(1.19) $(.63) $6.62
Diluted $(1.19) $(.63) $5.39
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
BALANCE SHEETS
Boise Cascade Corporation and Subsidiaries
December 31
_________________________
Assets 1997 1996
__________ __________
(expressed in thousands)
Current
Cash $ 56,429 $ 40,066
Cash equivalents 7,157 220,785
__________ __________
63,586 260,851
Receivables, less allowances
of $9,689,000 and $4,911,000 570,424 476,339
Inventories 633,290 540,433
Deferred income tax benefits 54,312 53,728
Other 32,061 24,053
__________ __________
1,353,673 1,355,404
__________ __________
Property
Property and equipment
Land and land improvements 57,260 40,393
Buildings and improvements 554,712 452,578
Machinery and equipment 4,055,065 3,859,124
__________ __________
4,667,037 4,352,095
Accumulated depreciation (2,037,352) (1,798,349)
__________ __________
2,629,685 2,553,746
Timber, timberlands, and timber deposits 273,001 293,028
_________ _________
2,902,686 2,846,774
_________ _________
Goodwill, net of amortization of
$24,020,000 and $13,139,000 445,722 262,533
Investments in equity affiliates 32,848 19,430
Other assets 234,995 226,568
__________ __________
Total assets $4,969,924 $4,710,709
<PAGE>
Liabilities and Shareholders' Equity
December 31
_________________________
1997 1996
__________ __________
(expressed in thousands)
Current
Notes payable $ 94,800 $ 36,700
Current portion of long-term debt 30,176 157,304
Income taxes payable 3,692 3,307
Accounts payable 470,445 427,224
Accrued liabilities
Compensation and benefits 126,780 119,282
Interest payable 39,141 31,585
Other 128,714 157,156
__________ __________
893,748 932,558
__________ __________
Debt
Long-term debt, less current portion 1,725,865 1,330,011
Guarantee of ESOP debt 176,823 196,116
__________ __________
1,902,688 1,526,127
__________ __________
Other
Deferred income taxes 230,840 249,676
Other long-term liabilities 224,663 240,323
__________ __________
455,503 489,999
__________ __________
Minority interest 105,445 81,534
__________ __________
Commitments and contingent liabilities
Shareholders' equity
Preferred stock - no par value;
10,000,000 shares authorized;
Series D ESOP: $.01 stated value;
5,569,684 and 5,904,788 shares outstanding 250,636 265,715
Deferred ESOP benefit (176,823) (196,116)
Series F: $.01 stated value; 115,000
shares outstanding in each period 111,043 111,043
Series G: $.01 stated value; 862,500
shares outstanding in 1996 - 176,404
Common stock - $2.50 par value;
200,000,000 shares authorized;
56,223,923 and 48,476,366 shares outstanding 140,560 121,191
Additional paid-in capital 416,691 230,728
Retained earnings 870,433 971,526
__________ __________
Total shareholders' equity 1,612,540 1,680,491
__________ __________
Total liabilities and shareholders' equity $4,969,924 $4,710,709
Shareholders' equity per common share $25.39 $27.30
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
STATEMENTS OF CASH FLOWS
Boise Cascade Corporation and Subsidiaries
Year Ended December 31
__________________________________
1997 1996 1995
________ _________ ________
(expressed in thousands)
Cash provided by (used for) operations
Net income (loss) $ (30,410) $ 9,050 $ 351,860
Items in income (loss) not using
(providing) cash
Equity in net (income) loss of
affiliates 5,180 (2,940) (40,070)
Depreciation, amortization, and cost
of company timber harvested 256,570 255,000 260,760
Deferred income tax provision
(benefit) (18,593) (13,498) 126,096
Minority interest, net of income tax 10,740 10,330 6,260
Write-down of assets - 9,955 78,491
Other 1,265 3,322 12,157
Gain on sales of assets - (25,054) (68,900)
Gain on subsidiary's issuance of stock - (5,330) (66,270)
Receivables (12,291) (3,298) (13,813)
Inventories (66,060) (15,914) (135,334)
Accounts payable and accrued
liabilities (10,523) 6,045 60,286
Current and deferred income taxes 2,735 (37,394) 25,239
Other (9,577) 3,229 (4,440)
__________ __________ _________
Cash provided by operations 129,036 193,503 592,322
__________ __________ _________
Cash provided by (used for) investment
Expenditures for property and
equipment (279,557) (595,253) (341,486)
Expenditures for timber and
timberlands (6,232) (5,510) (5,688)
Investments in equity affiliates, net (20,276) (9,736) (3,894)
Purchases of assets (246,861) (188,463) (61,638)
Sales of assets - 781,401 183,482
Other (27,687) (26,271) 11,312
__________ __________ _________
Cash used for investment (580,613) (43,832) (217,912)
__________ __________ _________
Cash provided by (used for) financing
Cash dividends paid
Common stock (30,176) (28,909) (27,125)
Preferred stock (39,808) (44,389) (48,731)
__________ __________ _________
(69,984) (73,298) (75,856)
Notes payable 58,100 19,700 (39,000)
Additions to long-term debt 417,989 611,158 10,140
Payments of long-term debt (159,201) (509,456) (381,797)
Subsidiary's issuance of stock - - 123,076
Other 7,408 11,607 11,042
__________ __________ _________
Cash provided by (used for)
financing 254,312 59,711 (352,395)
__________ __________ _________
Increase (decrease) in cash and
cash equivalents (197,265) 209,382 22,015
Balance at beginning of the year 260,851 51,469 29,454
__________ __________ _________
Balance at end of the year $ 63,586 $ 260,851 $ 51,469
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
STATEMENTS OF SHAREHOLDERS' EQUITY
Boise Cascade Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995, 1996, and 1997
_________________________________________________________________________
Total
Common Share- Deferred Additional
Shares holders' Preferred ESOP Common Paid-In Retained
Outstanding Equity Stock Benefit Stock Capital Earnings
___________ __________ __________ ___________ __________ ___________ ___________
(expressed in thousands)
<C> <S> <C> <C> <C> <C> <C> <C>
38,284,186 Balance at December 31, 1994 $1,364,858 $ 762,183 $ (230,956) $ 95,710 $ - $ 737,921
__________ __________ __________ ___________ __________ ___________ __________
Net Income 351,860 - - - - 351,860
Cash dividends declared
Common stock (28,549) - - - - (28,549)
Preferred stock (44,872) - - - - (44,872)
Conversion of Series E
8,625,000 Preferred Stock - (191,466) - 21,563 169,903 -
1,264,503 Stock options exercised 38,018 - - 3,161 34,857 -
(448,396) Treasury stock cancellations (23,972) (7,970) - (1,121) (2,036) (12,845)
34,653 Other 37,095 - 17,022 87 2,383 17,603
__________ __________ __________ ___________ __________ ___________ __________
47,759,946 Balance at December 31, 1995 1,694,438 562,747 (213,934) 119,400 205,107 1,021,118
__________ __________ __________ ___________ __________ ___________ __________
Net income 9,050 - - - - 9,050
Cash dividends declared
Common stock (29,050) - - - - (29,050)
Preferred stock (44,389) - - - - (44,389)
894,981 Stock options exercised 28,531 - - 2,237 26,294 -
(178,561) Treasury stock cancellations (16,339) (9,585) - (446) (805) (5,503)
Other 38,250 - 17,818 - 132 20,300
__________ __________ __________ ___________ __________ ___________ __________
48,476,366 Balance at December 31, 1996 1,680,491 553,162 (196,116) 121,191 230,728 971,526
__________ __________ __________ ___________ __________ ___________ __________
Net loss (30,410) - - - - (30,410)
Cash dividends declared
Common stock (31,415) - - - - (31,415)
Preferred stock (36,402) - - - - (36,402)
Conversion of Series G
6,907,440 Preferred Stock - (176,404) - 17,269 159,135 -
842,153 Stock options exercised 28,092 - - 2,105 25,987 -
(3,092) Treasury stock cancellations (15,193) (15,079) - (8) (18) (88)
1,056 Other 17,377 - 19,293 3 859 (2,778)
__________ __________ __________ ___________ __________ ___________ __________
56,223,923 Balance at December 31, 1997 $1,612,540 $ 361,679 $ (176,823) $ 140,560 $ 416,691 $ 870,433
The accompanying notes are an integral part of these Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Boise Cascade Corporation and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 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.
OTHER INCOME. "Other income (expense), net" includes gains and losses
on the sale and disposition of property and other miscellaneous income
and expense items. In the fourth quarter of 1996, we completed the
sale of our coated publication paper business, consisting primarily of
our pulp and paper mill in Rumford, Maine, and 667,000 acres of
timberland, to The Mead Corporation for approximately $639,000,000 in
cash. After payment of certain related tax indemnification
requirements, net cash proceeds from the sale were used to reduce debt
and to improve the competitive position of our remaining paper
business. The transaction resulted in a pretax gain of approximately
$40,395,000. In addition, approximately $15,341,000 of pretax expense
arising from the related tax indemnification was recorded. The net
gain per diluted share was 32 cents. Sales and operating income for
the sold operations were $308,844,000 and $21,073,000 in 1996 and
$525,941,000 and $136,612,000 in 1995.
In 1995, we recorded a pretax gain of $68,900,000, or 70 cents per
diluted common share, for the sale of our remaining interest in an
equity affiliate, Rainy River Forest Products Inc. (Rainy River) (see
Note 8). Also in 1995, we recorded a pretax charge of $19,000,000, or
19 cents per diluted common share, for the establishment of reserves
for the write-down of certain assets in our paper and paper products
segment to their net realizable value. In 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." We adopted
the statement in the fourth quarter of 1995. Following a review of
the strategy for our paper business, a decision was made to
reconfigure the Vancouver, Washington, pulp and paper mill and reduce,
over time, its production. In the fourth quarter of 1995, our paper
and paper products segment recorded a pretax charge of $74,900,000, or
76 cents per diluted share. Most of this charge was related to the
write-down of certain of the mill's assets under the provisions of the
new accounting standard. In April 1996, we completed the
reconfiguration of the mill by permanently shutting down the mill's
three paper machines and its recycled wastepaper operations. The mill
operates as a paper converting facility, converting papers made
elsewhere by the company primarily into security papers.
NET INCOME (LOSS) PER COMMON SHARE. Net income (loss) per common
share was determined by dividing net income (loss), as adjusted, by
applicable shares outstanding. For 1997 and 1996, the computation of
diluted net loss per share was antidilutive; therefore, the amounts
reported for basic and diluted loss were the same.
<PAGE>
Year Ended December 31
________________________________
1997 1996 1995
_________ _________ ________
(expressed in thousands)
Net income (loss) as reported $ (30,410) $ 9,050 $ 351,860
Preferred dividends(1) (31,775) (39,248) (39,778)
_________ _________ _________
Basic income (loss) (62,185) (30,198) 312,082
Preferred dividends eliminated - - 28,968
Interest on 7% debentures
eliminated - - 2,501
Supplemental ESOP contribution(2) - - (12,599)
_________ _________ _________
Diluted income (loss)(3) $(62,185) $ (30,198) $ 330,952
Average shares outstanding used
to determine basic income
(loss) per common share 52,049 48,277 47,166
Stock options, net - - 703
Series E conversion preferred stock - - 331
Series G conversion preferred stock - - 6,909
7% debentures - - 1,277
Series D convertible preferred stock - - 4,965
_________ _________ _________
Average shares used to determine diluted
earnings (loss) per common share(3) $ 52,049 $ 48,277 $ 61,351
(1) The dividend attributable to our Series D convertible preferred stock
held by the company's ESOP (employee stock ownership plan) is net of a
tax benefit.
(2) Additional contributions we would be required to make to our ESOP if
the Series D ESOP preferred shares were converted to common stock.
(3) Adjustments reducing the net loss to arrive at diluted loss totaling
$8,851,000 and $15,779,000 in 1997 and 1996 were excluded because the
calculation of diluted loss per share was antidilutive. Also in 1997
and 1996, common shares of 8,572,000 and 12,234,000 were excluded from
average shares because they were antidilutive.
In 1997, we adopted SFAS No. 128, "Earnings per Share," effective
December 15, 1997. As a result, our basic earnings per share for 1995
increased 69 cents to $6.62 over the previously reported primary
income per common share. The accounting change had no effect on any
other previously reported 1995 or 1996 earnings (loss)-per-share
amounts.
By July 15, 1997, 8,625,000 depositary shares of our Series G
preferred stock were converted or redeemed for 6,907,440 shares of
common stock (see Note 7). Had the conversion occurred on January 1,
1997, the reported basic and diluted net loss per common share for the
year ended December 31, 1997, would have decreased 20 cents to 99
cents.
On September 27, 1995, we redeemed our 7% convertible subordinated
debentures for cash and by issuing shares of common stock. The
redemption resulted in the reduction of approximately 1,698,000
diluted shares. Had the conversion occurred on January 1, 1995, the
reported diluted net income per share would have increased 8 cents to
$5.47 for the year ended December 31, 1995.
FOREIGN CURRENCY TRANSLATION. Local currencies are considered the
functional currencies for most of the company's operations outside the
United States. Assets and liabilities are translated into U.S.
dollars at the rate of exchange in effect at the balance sheet date.
Revenues and expenses are translated into U.S. dollars at average
monthly exchange rates prevailing during the year. Resulting
translation adjustments are reflected in "Retained earnings." At
December 31, 1997, "Retained earnings" was decreased by $8,135,000 and
at December 31, 1996, was increased by $1,520,000 as a result of these
translation adjustments. The 1997, 1996, and 1995 foreign exchange
gain and losses reported on the Statements of Income (Loss) arose
primarily from translation adjustments where the U.S. dollar is the
functional currency.
REVENUE RECOGNITION. We recognize revenue when title to the goods
sold passes to the buyer, which is generally at the time of shipment.
CASH AND CASH EQUIVALENTS. Cash equivalents consist of short-term
investments that had a maturity of three months or less at the date of
purchase. At December 31, 1997, $9,676,000 of cash, cash equivalents,
and certain receivables of a wholly owned insurance subsidiary were
committed for use in maintaining statutory liquidity requirements of
that subsidiary.
INVENTORY VALUATION. The company uses the last-in, first-out (LIFO)
method of inventory valuation for raw materials and finished goods
inventories at substantially all of its domestic wood products and
paper manufacturing facilities. All other inventories are valued at
the lower of cost or market, with cost based on the average or first-
in, first-out (FIFO) valuation method. Manufactured inventories
include costs for materials, labor, and factory overhead.
<PAGE>
Inventories include the following:
December 31
_____________________
1997 1996
________ ________
(expressed in thousands)
Finished goods and work in process $453,268 $390,694
Logs 107,625 98,883
Other raw materials and supplies 149,870 131,631
LIFO reserve (77,473) (80,775)
________ ________
$633,290 $540,433
PROPERTY. Property and equipment are recorded at cost. Cost includes
expenditures for major improvements and replacements and the net
amount of interest cost associated with significant capital additions.
Capitalized interest was $10,575,000 in 1997, $17,778,000 in 1996, and
$1,884,000 in 1995. Substantially all of our paper and wood products
manufacturing facilities determine depreciation by the units-of-
production method, and other operations use the straight-line method.
Gains and losses from sales and retirements are included in income as
they occur except at certain pulp and paper mills that use composite
depreciation methods. At those facilities, gains and losses are
included in accumulated depreciation. Estimated service lives of
principal items of property and equipment range from three to 40
years.
Cost of company timber harvested and amortization of logging roads are
determined on the basis of the annual amount of timber cut in relation
to the total amount of recoverable timber. Timber and timberlands are
stated at cost, less the accumulated total of timber previously
harvested.
A portion of our wood requirements are acquired from public and
private sources. Except for deposits required pursuant to wood supply
contracts, no amounts are recorded until such time as we become liable
for the timber. At December 31, 1997, based on average prices at the
time, the unrecorded amount of those contracts was estimated to be
approximately $113,000,000.
In recent years, the amount of government timber available for
commercial harvest in the Northwest has declined because of
environmental litigation, changes in government policy, and other
factors. More constraints on available timber supply may be imposed.
As a result, the company cannot accurately predict future log supply.
Curtailments or closures of certain wood products manufacturing
facilities are possible.
PREOPERATING COSTS. Certain preoperating costs incurred during the
construction of major expansions or new manufacturing facilities are
capitalized. The remaining unamortized balance is being amortized
over its expected useful life, not to exceed three years. The
unamortized balance of these costs, included in "Other assets" on the
Balance Sheets, was $14,065,000 at December 31, 1997, and $8,776,000
at December 31, 1996.
GOODWILL. Goodwill represents the excess of purchase price and
related costs over the value assigned to the net tangible assets of
businesses acquired. Goodwill is amortized on a straight-line basis
over 40 years. Periodically, the company reviews the recoverability
of goodwill. The measurement of possible impairment is based
primarily on the ability to recover the balance of the goodwill from
expected future operating cash flows on an undiscounted basis. In
management's opinion, no material impairment exists at December 31,
1997. Amortization expense was $11,037,000 in 1997, $6,830,000 in
1996, and $2,299,000 in 1995.
DEFERRED SOFTWARE COSTS. We defer certain software costs that benefit
future years. These costs are amortized on the straight-line method
over a maximum of five years or the expected life of the product,
whichever is less. "Other assets" in the Balance Sheets includes
deferred software costs of $31,137,000 and $16,760,000 at December 31,
1997 and 1996. Amortization of deferred software costs totaled
$4,499,000,$3,693,000, and $4,350,000 in 1997, 1996, and 1995.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE. Generally, environmental
expenditures resulting in additions to property, plant, and equipment
that increase useful lives are capitalized, while other environmental
expenditures are charged to expense. Liabilities are recorded when
assessments and/or remedial efforts are probable and the cost can be
reasonably estimated. For further information, see "Financial Review
- - Environmental Issues."
RESEARCH AND DEVELOPMENT COSTS. Research and development costs are
expensed as incurred. During 1997, research and development expenses
were $10,482,000, compared with $11,403,000 in 1996 and $10,756,000 in
1995.
SUBSIDIARY'S ISSUANCE OF STOCK. Changes in the company's
proportionate interest in its subsidiaries from the subsidiaries'
issuance of stock to third parties are recorded in income at the time
the stock is issued by the subsidiaries. Because we anticipated
purchasing shares of a subsidiary's stock in 1997, the change in our
proportionate interest was included in "Additional paid-in capital" in
1997.
FINANCIAL INSTRUMENTS. At December 31, 1997, the estimated current
market value of the company's debt, based on then current interest
rates for similar obligations with like maturities, was approximately
$128,000,000 greater than the amount of debt reported on the Balance
Sheet. The estimated fair values of our other financial instruments,
cash and cash equivalents, and notes payable are the same as their
carrying values. In the opinion of management, we do not have any
significant concentration of credit risks. 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.
We have only limited involvement with derivative financial instruments
and do not use them for trading purposes. Financial instruments such
as interest rate swaps, rate hedge agreements, and forward exchange
contracts are used periodically to manage well-defined risks.
Interest rate swaps and rate hedge agreements are used to hedge
underlying debt obligations or anticipated transactions. For
qualifying hedges, the interest rate differential is reflected as an
adjustment to interest expense over the life of the swap or underlying
debt. Gains and losses related to qualifying hedges of foreign
currency firm commitments and anticipated transactions are deferred
and recognized in income or as adjustments of carrying amounts when
the hedged transaction occurs. All other forward exchange contracts
are marked-to-market, and unrealized gains and losses are included in
current period net income. At December 31, 1997, we had no material
exposure to losses from derivative financial instruments (see Note 4).
NEW ACCOUNTING STANDARDS. In 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of
comprehensive income and its components in a full set of financial
statements. We will adopt this statement in the first quarter of
1998. Also issued was SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement establishes
standards for the way public business enterprises report information
about operating segments in annual financial statements and requires
that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. We will
adopt this statement at year-end 1998. We are still evaluating what
impact this statement will have on our reportable segments. Adoption
of these statements will have no impact on net income.
RECLASSIFICATIONS. Certain amounts in the prior years' financial
statements have been reclassified to conform with the current year's
presentation. These reclassifications did not affect net income
(loss).
<PAGE>
2. INCOME TAXES
The income tax (provision) benefit shown on the Statements of Income
(Loss) includes the following:
Year Ended December 31
________________________________
1997 1996 1995
_________ _________ ________
(expressed in thousands)
Current income tax (provision) benefit
Federal $ - $ (10,807) $ (98,195)
State - (11,510) (7,012)
Foreign (9,333) (3,141) 13
________ _________ _________
(9,333) (25,458) (105,194)
________ _________ _________
Deferred income tax (provision) benefit
Federal 12,597 4,189 (102,931)
State 2,292 10,430 (23,165)
Foreign 3,704 (1,121) -
________ _________ _________
18,593 13,498 (126,096)
________ _________ _________
Total income tax (provision) benefit $ 9,260 $(11,960) $(231,290)
During 1997, we received income tax refunds net of cash payments of
$1,332,000, compared with cash payments net of refunds received of
$55,368,000 in 1996 and $73,609,000 in 1995.
A reconciliation of the statutory U.S. federal tax (provision) benefit
and our reported tax (provision) benefit is as follows:
Year Ended December 31
________________________________
1997 1996 1995
_________ _________ ________
(expressed in thousands)
Statutory tax (provision) benefit $ 10,128 $(10,969) $(206,293)
Changes resulting from:
State taxes 1,490 (702) (19,615)
Foreign tax provision different
than theoretical rate (4,599) (2,364) (588)
Provision for difference in
book and tax bases of
Rainy River stock - - (32,500)
Effect of nontaxable gain on
BCOP's issuance of stock - 1,866 27,279
Other, net 2,241 209 427
_________ ________ _________
Reported tax (provision) benefit $ 9,260 $(11,960) $(231,290)
At December 31, 1997, we had U.S. federal loss carryforwards of
$139,224,000 expiring in 2012. We believe that the loss carryforwards
will be fully realized based on future reversals of existing temporary
differences in taxable income. We also had $144,687,000 of
alternative minimum tax credits, which may be carried forward
indefinitely.
<PAGE>
The components of the net deferred tax liability on the Balance Sheets
are as follows:
December 31
________________________________________________
1997 1996
______________________ _______________________
(expressed in thousands)
Assets Liabilities Assets Liabilities
_________ ___________ ________ ___________
Employee benefits $ 92,139 $ 25,250 $ 89,616 $ 24,545
Property and equipment
and timber and
timberlands 63,875 459,982 33,907 454,444
Net operating losses 50,419 - - -
Alternative minimum tax 144,687 - 146,361 -
Reserves 21,421 909 27,620 6,295
Inventories 12,266 274 12,859 363
State income taxes 26,596 38,677 22,961 33,341
Deferred charges 404 2,776 891 1,103
Differences in bases
of nonconsolidated
entities 8,382 55,574 3,634 1,893
Other 9,561 22,836 10,045 21,858
________ ________ ________ ________
$429,750 $606,278 $347,894 $543,842
Pretax income (loss) from domestic and foreign sources is as follows:
Year Ended December 31
__________________________________
1997 1996 1995
________ ________ _________
(expressed in thousands)
Domestic $(26,189) $ 32,452 $ 554,325
Foreign (2,741) (1,112) 35,085
________ ________ _________
Pretax income (loss) $(28,930) $ 31,340 $ 589,410
At December 31, 1997, our foreign subsidiaries had $24,839,000 of
undistributed earnings which have been indefinitely reinvested. It is
not practical to make a determination of the additional U.S. income
taxes, if any, that would be due upon remittance of these earnings
until the remittance occurs.
Our federal income tax returns have been examined through 1993.
Certain deficiencies have been proposed, but the amount of the
deficiencies, if any, that may result upon settlement of these years
cannot be determined at this time. We believe that we have adequately
provided for any such deficiencies and that settlements will not have
a material adverse effect on our financial condition or results of
operations.
3. LEASES
Lease obligations for which we assume substantially all property
rights and risks of ownership are capitalized. All other leases are
treated as operating leases. Rental expenses for operating leases,
net of sublease rentals, were $61,422,000 in 1997, $52,090,000 in
1996, and $36,354,000 in 1995. For operating leases with remaining
terms of more than one year, the minimum lease payment requirements,
net of sublease rentals, are $37,250,000 for 1998, $27,433,000 for
1999, $22,948,000 for 2000, $17,609,000 for 2001, and $11,976,000 for
2002, with total payments thereafter of $155,450,000.
Substantially all lease agreements have fixed payment terms based upon
the passage of time. Some lease agreements provide us with the option
to purchase the leased property. Additionally, certain agreements
contain renewal options averaging seven years, with fixed payment
terms similar to those in the original lease agreements.
4. DEBT
On March 11, 1997, we signed a new revolving credit agreement with a
group of banks. The new agreement allows us to borrow as much as
$600,000,000 at variable interest rates based on customary indices and
expires in June 2002. The revolving credit agreement contains
financial covenants relating to minimum net worth, minimum interest
coverage ratio, and ceiling ratio of debt to capitalization. Under
this agreement, the payment of dividends by the company is dependent
upon the existence of and the amount of net worth in excess of the
defined minimum. Our net worth at December 31, 1997, exceeded the
defined minimum by $314,370,000. The new agreement replaces our
previous $600,000,000 revolving credit agreement that would have
expired in June 2000. At December 31, 1997, there was $95,000,000
outstanding under this agreement. Also at December 31, 1997, we had
$71,500,000 of short-term borrowings outstanding.
Our majority-owned subsidiary, Boise Cascade Office Products
Corporation (BCOP), signed a new revolving credit agreement with a
group of banks on June 26, 1997. The new agreement allows BCOP to
borrow as much as $450,000,000 at variable interest rates based on
customary indices and expires in June 2001. The BCOP revolving credit
facility contains customary restrictive financial and other covenants,
including a negative pledge and covenants specifying a minimum fixed
charge coverage ratio and a maximum leverage ratio. BCOP may, subject
to the covenants contained in the credit agreement and to market
conditions, raise additional funds through the agreement and through
other external debt or equity financings in the future. The new
agreement replaces BCOP's previous $350,000,000 revolving credit
agreement. Borrowings under BCOP's agreement were $340,000,000 at
December 31, 1997. Also at December 31, 1997, BCOP had $23,300,000 of
short-term borrowings outstanding.
The maximum amount of short-term borrowings outstanding during the
year ended December 31, 1997, was $164,400,000. The average amount of
short-term borrowings outstanding during the year ended December 31,
1997, was $52,554,000. The average interest rate for these borrowings
was 5.9%.
In December 1997, BCOP entered into agreements to hedge against a rise
in Treasury rates. The transactions were entered into in anticipation
of the issuance of debt securities by BCOP in the first half of 1998.
The hedge agreements have a notional amount of $70,000,000 and will be
settled in late March 1998. If the settlement rate, based on the
yield on ten-year U.S. Treasury bonds, is greater than the agreed-upon
initial rate, BCOP will receive a cash payment. If the difference is
less, BCOP will make a cash payment. The amount paid or received will
be recognized as an adjustment to interest expense over the life of
the to-be-issued debt securities. The settlement amount of $259,000
as of December 31, 1997, was recorded as a deferred loss.
At December 31, 1997, we had $89,400,000 of unused shelf capacity
registered with the Securities and Exchange Commission for additional
debt securities. We recently filed a registration statement with the
Securities and Exchange Commission for an additional $400,000,000 of
shelf capacity.
The scheduled payments of long-term debt are $30,176,000 in 1998,
$44,814,000 in 1999, $116,804,000 in 2000, $480,506,000 in 2001, and
$232,568,000 in 2002. Of the total amount shown in 2001, $340,000,000
represents the amount outstanding under BCOP's revolving credit
agreement. Of the total amount shown in 2002, $95,000,000 represents
the amount outstanding under our revolving credit agreement.
Cash payments for interest, net of interest capitalized, were
$129,794,000 in 1997, $124,317,000 in 1996, and $143,631,000 in 1995.
We have guaranteed the debt used to fund an employee stock ownership
plan that is part of the Savings and Supplemental Retirement Plan for
the company's U.S. salaried employees (see Note 5). We have recorded
the debt on our Balance Sheets, along with an offset in the
shareholders' equity section that is titled "Deferred ESOP benefit."
We have guaranteed certain tax indemnities on the ESOP debt, and the
interest rate on the guaranteed debt is subject to adjustment for
events described in the loan agreement.
During 1997 and 1996, we made open-market purchases of approximately
$481,000 and $30,800,000 principal amount of our public debt
securities.
<PAGE>
Long-term debt, almost all of which is unsecured, consists of the
following:
<TABLE>
<CAPTION>
December 31
______________________
1997(1) 1996
__________ __________
(expressed in thousands)
<S> <C> <C>
9.9% notes, due in 2000, net of unamortized discount of $121,000 $ 99,879 $ 99,824
9.875% notes, due in 2001, callable in 1999 100,000 100,000
9.85% notes, due in 2002 125,000 125,000
9.45% debentures, due in 2009, net of unamortized discount
of $266,000 149,734 149,711
7.35% debentures, due in 2016, net of unamortized discount
of $97,000 124,903 124,898
Medium-term notes, Series A, with interest rates averaging
8.2% and 8.4%, due in varying amounts through 2013 415,405 317,905
Revenue bonds and other indebtedness, with interest rates
averaging 6.9% and 6.3%, due in varying amounts annually
through 2027, net of unamortized discount of $824,000 285,301 265,649
American & Foreign Power Company Inc. 5% debentures, due in
2030, net of unamortized discount of $1,053,000 20,819 21,244
Revolving credit borrowings, with interest rates averaging
6.3% and 5.8% 435,000 140,000
Debt paid at maturity(2) - 143,084
_________ __________
1,756,041 1,487,315
Less current portion 30,176 157,304
_________ __________
1,725,865 1,330,011
Guarantee of ESOP debt, due in installments through 2004 176,823 196,116
_________ __________
$1,902,688 $1,526,127
(1) The amount of net unamortized discount disclosed applies to long-term
debt outstanding at December 31, 1997.
(2) In August 1997 and December 1997, our 7.375% notes and 10.125% notes
were redeemed.
</TABLE>
5. RETIREMENT AND BENEFIT PLANS
Substantially all of our employees are covered by pension plans. The
plans are primarily noncontributory defined benefit plans. The
pension benefit for salaried employees is based primarily on years of
service and the highest five-year average compensation, and the
benefit for hourly employees is generally based on a fixed amount per
year of service. Our contributions to our pension plans vary from
year to year, but we have made at least the minimum contribution
required by law in each year. The assets of the pension plans are
invested primarily in common stocks, fixed-income securities, and cash
and cash equivalents.
The assumptions used by our actuaries in the calculations of pension
expense and plan obligations for the plans are estimates of factors
that will determine, among other things, the amount and timing of
future benefit payments. The asset return assumption was 9.75% in
1997, 1996, and 1995. The discount rate assumption was 7.25% at
December 31, 1997, and 7.5% at December 31, 1996 and 1995. The salary
escalation assumption used at December 31, 1997, 1996, and 1995 was
5%.
<PAGE>
The following table, which includes only company-sponsored plans,
compares the pension obligation with assets available to meet that
obligation:
<TABLE>
<CAPTION>
Plans With Assets in Plans With an Accumulated
Excess of the Accumulated Benefit Obligation in
Benefit Obligation Excess of Assets
December 31 December 31
_____________________ ________________________
1997 1996 1997 1996
________ __________ ___________ ___________
(expressed in millions) (expressed in millions)
<S> <C> <C> <C> <C>
Accumulated benefit obligation
Vested $(750.1) $(765.4) $(302.7) $(217.1)
Nonvested (29.9) (26.6) (12.8) (6.1)
Provision for salary escalation (73.8) (65.8) (9.3) (8.2)
_______ _______ _______ _______
Projected benefit obligation (853.8) (857.8) (324.8) (231.4)
Plan assets at fair market value 948.7 931.1 278.6 172.2
_______ _______ _______ _______
Net plan assets (obligation) $ 94.9 $ 73.3 $ (46.2) $ (59.2)
</TABLE>
The following table reconciles the net plan assets (obligation) to the
prepayment (obligation) recorded on the company's Balance Sheets:
<TABLE>
<CAPTION>
Plans With Assets in Plans With an Accumulated
Excess of the Accumulated Benefit Obligation in
Benefit Obligation Excess of Assets
December 31 December 31
_____________________ ________________________
1997 1996 1997 1996
________ __________ ___________ ___________
(expressed in millions) (expressed in millions)
<S> <C> <C> <C> <C>
Net plan assets (obligation) $ 94.9 $ 73.3 $ (46.2) $ (59.2)
Remainder of unrecognized
initial asset(1) - (3.0) (.6) (.2)
Other unrecognized items(2) (25.9) 5.2 16.4 18.0
Adjustment to record minimum liability - - (10.2) (11.4)
________ _______ ________ ________
Net recorded prepayment (obligation) $ 69.0 $ 75.5 $ (40.6) $ (52.8)
(1) The unrecognized initial asset calculated at January 1, 1986, is being
amortized over a weighted average of 11 years.
(2) "Other unrecognized items" reflects changes in actuarial assumptions,
net changes in prior service costs, and net experience gains and losses
since January 1, 1986.
</TABLE>
The components of pension expense are as follows:
Year Ended December 31
____________________________________
1997 1996 1995
__________ __________ __________
(expressed in thousands)
Benefits earned by employees $ 25,845 $ 25,843 $ 20,003
Interest cost on projected
benefit obligation 79,279 76,168 72,606
Earnings from plan assets (173,624) (119,977) (217,429)
Assumed earnings from plan assets
less than actual earnings 74,885 28,265 131,883
Amortization of unrecognized net
initial asset (2,571) (2,119) (9,898)
Amortization of net experience gains
and losses from prior periods 179 568 (6)
Amortization of unrecognized prior
service costs 3,726 4,085 3,873
_________ _________ _________
Company-sponsored plans 7,719 12,833 1,032
Multiemployer pension plans 592 593 587
_________ _________ _________
Total pension expense $ 8,311 $ 13,426 $ 1,619
We sponsor savings and supplemental retirement programs for our
salaried and some hourly employees. The program for salaried
employees includes an employee stock ownership plan. Under that plan,
our Series D ESOP convertible preferred stock (see Note 7) is being
allocated to eligible participants through 2004, as principal and
interest payments are made on the ESOP debt guaranteed by the company.
Total expense for these plans was $20,910,000 in 1997, compared with
$20,128,000 in 1996 and $20,236,000 in 1995.
The company and our retired employees currently share in the cost of
retiree health care costs. The type of benefit provided and the
extent of coverage vary based on employee classification, date of
retirement, location, and other factors. The portion of the cost of
coverage we pay for salaried employees retiring in each year since
1986 has decreased, and we will eventually cease to share in the cost
of health care benefits for retired salaried employees. All of our
postretirement health care 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
impact the amount of expense incurred.
We accrue postretirement benefit costs, including retiree health care
costs. A discount rate of 7.25% was adopted effective as of
December 31, 1997. A discount rate of 7.5% was adopted effective as
of December 31, 1996 and 1995. The initial 1992 trend rate for
medical care costs was 8.5%, which was assumed to decrease ratably
over the subsequent ten years to 6%. A 1% increase in the trend rate
for medical care costs would have increased the December 31, 1997,
benefit obligation by $2,899,000 and postretirement health care
expense for the year ended December 31, 1997, by $220,000.
<PAGE>
The components of postretirement health care expense are as follows:
Year Ended December 31
____________________________________
1997 1996 1995
__________ __________ __________
(expressed in thousands)
Benefits earned by employees $ 730 $ 920 $ 1,180
Interest cost on accumulated
postretirement health care
benefit obligation 5,930 6,350 8,140
Amortization of unrecognized
actuarial (gain) loss (310) (280) 120
Amortization of unrecognized items (2,320) (2,820) (3,720)
_________ _________ _________
Total postretirement health care
expense $ 4,030 $ 4,170 $ 5,720
The accrued postretirement health care benefit obligation is included
in "Other long-term liabilities" on the Balance Sheets. The
components of the obligation are as follows:
December 31
________________________
1997 1996
_________ _________
(expressed in thousands)
Retirees $ 63,770 $ 64,670
Fully eligible active employees 8,280 8,400
Other active employees 10,770 10,920
_________ _________
Accumulated postretirement health care
benefit obligation 82,820 83,990
Unrecognized items 15,230 17,550
Unrecognized actuarial gain 500 2,580
_________ _________
Accrued postretirement health care
benefit obligation $ 98,550 $ 104,120
6. BOISE CASCADE OFFICE PRODUCTS CORPORATION
In April 1995, our wholly owned subsidiary, BCOP, completed the
initial public offering of 10,637,500 shares of common stock at a
price of $12.50 per share. After the offering, we owned 82.7% of the
outstanding BCOP common stock. The net proceeds of the offering to
BCOP were approximately $123,076,000, of which approximately
$101,859,000 was indirectly (through retention of accounts receivable
and a small dividend payment) available to us for general corporate
purposes. The remainder of the proceeds were retained by BCOP for its
general corporate purposes.
From the BCOP offering, we recorded a gain of approximately
$60,000,000, or 98 cents per diluted share. In 1995, BCOP also issued
905,276 shares of its stock to effect various acquisitions. As a
result of these share issuances, we recorded a gain of $6,270,000, or
10 cents per diluted share. In 1996, BCOP issued 457,542 shares of
its stock to effect various acquisitions and for stock options
exercised. As a result of these share issuances, we recorded a gain
of $5,330,000, or 11 cents per diluted share. In accordance with FASB
Statement 109, "Accounting for Income Taxes," income taxes were not
provided on the gains. In 1997, BCOP issued 587,940 shares of its
stock to effect various acquisitions and for stock options exercised.
No gains were recorded (see Note 1, Subsidiary's Issuance of Stock).
On September 25, 1997, BCOP issued 2,250,000 shares of unregistered
common stock, all of which was purchased by Boise Cascade. The
transaction was completed at a price of $21.5495 per share, for a
total of $48,486,375. At December 31, 1997, we owned 53,398,724
shares, or 81.4% of BCOP's outstanding common stock.
In April 1996, BCOP's board of directors authorized a two-for-one
split of BCOP common stock in the form of a 100% stock dividend. Each
BCOP shareholder of record at the close of business on May 6, 1996,
received one additional share for each share held on that date. The
new shares were distributed on May 20, 1996. All references to
numbers of shares of common stock of BCOP and common stock prices have
been adjusted to reflect the stock split.
In 1997, 1996, and 1995, BCOP made various acquisitions, all of which
were accounted for under the purchase method of accounting.
Accordingly, the purchase prices were allocated to the assets acquired
and liabilities assumed based upon their estimated fair values. The
initial purchase price allocations may be adjusted within one year of
the date of purchase for changes in estimates of the fair value of
assets and liabilities. Such adjustments are not expected to be
significant to our results of operations or financial position. The
excess of the purchase price over the estimated fair value of the net
assets acquired was recorded as goodwill and is being amortized over
40 years. The results of operations of the acquired businesses are
included in our operations subsequent to the dates of acquisitions.
<PAGE>
BCOP acquired eight businesses during 1997, 19 businesses during 1996,
and ten businesses during 1995. Amounts paid, acquisition liabilities
recorded, debt assumed, and stock issued for these acquisitions were
as follows:
1997 1996 1995
__________ __________ __________
(expressed in thousands, except
share amounts)
Cash paid $ 246,861 $ 180,139 $ 62,138
Acquisition liabilities recorded $ 12,674 $ 35,346 $ 8,571
Debt assumed $ 10,137 $ - $ -
Stock issued
Shares 135,842 321,652 1,339,666
Value $ 2,882 $ 6,886 $ 18,185
The 1997 amounts include the acquisition of 100% of the shares of
Jean-Paul Guisset S.A. (JPG) for approximately FF850,000,000
(US$144,000,000) plus a price supplement payable in the year 2000 if
certain earnings and sales growth targets are reached. If 1997
results are duplicated in 1998 and 1999, the price supplement to be
paid would be approximately US$16,000,000. No liability has been
recorded for the price supplement, as the amount of payment, if any,
is not assured beyond a reasonable doubt. Approximately FF128,500,000
(US$20,500,000) was repatriated to BCOP from JPG during the third
quarter of 1997. In addition to the cash paid, BCOP recorded
approximately US$5,800,000 of acquisition liabilities and assumed
US$10,100,000 of long-term debt. JPG is a direct marketer of office
products in France.
Also in 1997, BCOP acquired the assets of the promotional products
business of OstermanAPI, Inc. (Osterman), based in Maumee, Ohio, for
cash of $56,000,000 and the recording of $882,000 of liabilities. In
conjunction with the acquisition of Osterman, BCOP formed a majority-
owned subsidiary, Boise Marketing Services, Inc. (BMSI), of which
BCOP owns 88%. BCOP's previously acquired promotional products
company, OWNCO, also became part of BMSI.
The 1996 amounts include the acquisition of 100% of the shares of
Grand & Toy Limited (Grand & Toy) from Cara Operations Limited
(Toronto) for approximately C$140,000,000 (US$102,084,000). In
addition, BCOP recorded acquisition liabilities of approximately
US$9,907,000. Grand & Toy owns and operates office products
distribution centers and approximately 70 retail stores across Canada.
The 1995 amounts include $21,747,000 of cash paid; the issuance of
431,352 shares of common stock and the equivalent of 434,390 shares of
common stock in a stock note, payable by issuing the shares at the end
of two years; and the recording of $2,999,000 of acquisition
liabilities. These were part of the purchase of the net assets of
office supply and computer distribution businesses in New York and
Missouri.
Unaudited pro forma results of operations reflecting the acquisitions,
net of the impact of the minority interest, are as follows. If the
1997 acquisitions had occurred January 1, 1997, sales for the year
ended December 31, 1997, would have increased $152,000,000, net loss
would have increased $406,000, and basic and diluted loss per share
would have increased 1 cent. If the 1997 and 1996 acquisitions had
occurred January 1, 1996, sales for the year ended December 31, 1996,
would have increased $417,000,000, net income would have increased
$1,158,000, and basic and diluted loss per share would have decreased
2 cents. If the 1996 and 1995 acquisitions had occurred January 1,
1995, sales for the year ended December 31, 1995, would have increased
$580,000,000, net income would have been essentially the same as the
historical amount reported, and basic and diluted earnings per share
would have been unchanged. This unaudited pro forma financial
information does not necessarily represent the actual results of
operations that would have resulted if the acquisitions had occurred
on the dates assumed.
In January 1997, BCOP formed a joint venture with Otto Versand (Otto)
to begin direct marketing office products in Europe, initially in
Germany. BCOP and Otto each have a 50% equity interest in the new
company. In December 1997, Otto purchased a 10% interest in JPG for
approximately FF72,200,000 (US$13,000,000). Otto has an option to
purchase an additional 40% interest in JPG. The option may be
exercised at any time between December 15, 1998, and January 15, 1999.
If Otto elects not to exercise the option, BCOP will reacquire the 10%
interest from Otto.
As a result of BCOP's acquisition activity, short-term acquisition
liabilities of $14,642,000 and $21,538,000 at December 31, 1997 and
1996, were included in "Other current liabilities." Additionally,
long-term acquisition liabilities of $15,869,000 and $15,192,000 at
December 31, 1997 and 1996, were included in "Other long-term
liabilities."
7. SHAREHOLDERS' EQUITY
PREFERRED STOCK. At December 31, 1997, 5,569,684 shares of 7.375%
Series D ESOP convertible preferred stock were outstanding. The stock
is shown on the Balance Sheets at its liquidation preference of $45
per share. The stock was sold in 1989 to the trustee of our Savings
and Supplemental Retirement Plan for salaried employees (see Note 5).
Each ESOP preferred share is entitled to one vote, bears an annual
cumulative dividend of $3.31875, and is convertible at any time by the
trustee to 0.80357 share of common stock. The ESOP preferred shares
may not be redeemed for less than the liquidation preference.
In January 1993, we sold 115,000 shares of 9.4% Series F cumulative
preferred stock represented by 4,600,000 depositary shares. The stock
is shown on the Balance Sheets at its liquidation preference of $1,000
per preferred share ($25 per depositary share), net of the costs of
issuance. Each Series F share has limited voting rights and bears a
cumulative dividend at an annual rate of $94.00 ($2.35 per depositary
share).
The Series F preferred stock and related depositary shares may be
redeemed on or after February 15, 1998, at a price of $1,000 per
preferred share ($25 per depositary share) plus accrued but unpaid
dividends. In January 1998, we announced that we would redeem the
Series F preferred stock on February 17, 1998.
By July 15, 1997, 8,625,000 of our depositary shares of Series G
preferred stock were converted or redeemed for 6,907,440 shares of our
common stock.
On January 15, 1995, our depositary shares of Series E preferred stock
converted to 8,625,000 shares of our common stock.
COMMON STOCK. We are authorized to issue 200,000,000 shares of common
stock, of which 56,223,923 shares were issued and outstanding at
December 31, 1997. Of the unissued shares, a total of 8,804,633
shares were reserved for the following:
Conversion of Series D ESOP preferred stock 4,475,631
Issuance under Key Executive Stock Option Plan 4,138,278
Issuance under Director Stock Compensation Plan 90,724
Issuance under Director Stock Option Plan 100,000
We have a shareholder rights plan which was adopted in December 1988,
amended in September 1990, and renewed in September 1997. Details are
set forth in the Renewed Rights Agreement filed with the Securities
and Exchange Commission on November 12, 1997.
STOCK OPTIONS. We have three stock option plans, the BCC Key
Executive Stock Option Plan (KESOP), the BCC Director Stock
Compensation Plan (DSCP), and the BCC Director Stock Option Plan
(DSOP). In addition, BCOP has two stock option plans, the BCOP Key
Executive Stock Option Plan (KESOP) and the BCOP Director Stock Option
Plan (DSOP). Both the company and BCOP account for these plans under
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under
this opinion, the only compensation cost recognized is for grants
under the BCC DSCP and for grants under terms of which the number of
options exercisable is based on future performance. Compensation
costs recognized in 1997, 1996, and 1995 were $227,000, $810,000, and
$1,759,000.
Had compensation costs for these five plans been determined consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation," our 1997
net income would have been reduced pro forma by $7,222,000 and basic
and diluted loss per share would have increased pro forma by 14 cents.
The pro forma reduction to net income in 1996 would have been
$7,574,000, and basic and diluted loss per share would have increased
16 cents. The pro forma reductions in 1995 would have been net
income, $3,458,000, and basic and diluted earnings per share, 6 cents.
The pro forma compensation cost may not be representative of that to
be expected in future years.
The BCC KESOP provides for the grant of options to purchase shares of
our common stock to key employees of the company. The exercise price
is equal to the fair market value of our common stock on the date the
options are granted. Options expire, at the latest, ten years and one
day following the grant date.
The 3,649,966 options outstanding at December 31, 1997, have exercise
prices between $18.125 and $46.65 and a weighted average remaining
contractual life of 6.6 years.
Beginning in 1995, the fair value of each BCC option grant is
estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants
in 1997, 1996, and 1995: risk-free interest rates of 6.0%, 6.6%, and
6.2%; expected dividends of 60 cents for each year; expected lives of
4.2 years for each year, and expected stock price volatility of 30%
for each year.
<PAGE>
A summary of the status of the BCC KESOP at December 31, 1997, 1996, and 1995,
and the changes during the years then ended is presented in the table below:
<TABLE>
<CAPTION>
1997 1996 1995
____________________ ____________________ ____________________
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
_________ _________ _________ _________ _________ _________
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of the year 4,228,736 $ 32.55 4,340,033 $ 31.28 4,995,052 $ 27.72
Options granted 751,100 36.88 804,900 31.38 748,800 43.82
Options exercised (839,333) 28.25 (894,981) 25.02 (1,262,328) 24.20
Options expired (490,537) 41.80 (21,216) 44.11 (141,491) 37.88
_________ _________ _________
Balance at end of
the year 3,649,966 33.19 4,228,736 32.55 4,340,033 31.28
Exercisable at end
of the year 2,898,866 32.24 3,423,836 32.83 3,595,433 28.68
Weighted average fair
value of options
granted
(Black-Scholes) $ 10.88 $ 9.30 $ 13.36
</TABLE>
The BCC DSOP, available only to nonemployee directors, provides for
annual grants of options. The exercise price of these options is
equal to the fair market value of our common stock on the date the
options are granted. The options expire the earlier of three years
after the director ceases to be a director or ten years after the
grant date. Total shares subject to options at December 31, 1997,
1996, and 1995, were 49,500, 30,000, and 12,000, with weighted average
exercise prices of $36.57, $36.25, and $41.88.
The BCC DSCP permits nonemployee directors to elect to receive grants
of options to purchase shares of our common stock in lieu of cash
compensation. The difference between the $2.50-per-share exercise
price of DSCP options and the market value of the common stock subject
to the options is intended to offset the cash compensation that
participating directors have elected not to receive. Options expire
three years after the holder ceases to be a director. Total shares
subject to options at December 31, 1997, 1996, and 1995, were 34,542,
30,245, and 22,893, with weighted average exercise prices of $27.39,
$27.59, and $26.01.
The BCOP KESOP provides for the grant of options to purchase shares of
BCOP's common stock to key employees of BCOP. The exercise price is
equal to the fair market value of BCOP's common stock on the date the
options were granted. One-third of the options become exercisable in
each of the three years following the grant date and expire, at the
latest, ten years following the grant date.
The 1,490,139 options outstanding at December 31, 1997, have exercise
prices between $12.50 and $26.625 and a weighted average remaining
contractual life of nine years.
Beginning in 1995, the fair value of each BCOP option grant is
estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants
in 1997, 1996, and 1995: risk-free interest rates of 6.1%, 5.2%, and
7.3%; no expected dividends; expected lives of 4.2 years for each
year; and expected stock price volatility of 35% for each year.
<PAGE>
A summary of the status of the BCOP KESOP at December 31, 1997, 1996, and 1995,
and the changes during the years then ended is presented in the table below:
<TABLE>
<CAPTION>
1997 1996 1995
____________________ ____________________ ____________________
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
_________ _________ _________ _________ _________ _________
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of the year 1,059,442 $ 18.66 647,400 $ 12.57 - $ -
Options granted 495,700 23.08 501,200 25.54 647,400 12.57
Options exercised (24,468) 12.50 (75,225) 12.50 - -
Options expired (40,535) 22.38 (13,933) 19.78 - -
_________ _________ _________
Balance at end of
the year 1,490,139 20.10 1,059,442 18.66 647,400 12.57
Exercisable at end
of the year 483,039 16.72 140,569 12.60 - -
Weighted average fair
value of options
granted
(Black-Scholes) $ 8.61 $ 9.14 $ 4.87
</TABLE>
The BCOP DSOP, available only to nonemployee directors, provides for
annual grants of options. The exercise price of options under this
plan is equal to the fair market value of BCOP's common stock on the
date the options are granted. Options expire the earlier of three
years after the director ceases to be a director or ten years after
the grant date. Total shares outstanding at December 31, 1997, 1996,
and 1995, were 39,000, 24,000, and 12,000, with weighted average
exercise prices of $18.58, $17.50, and $12.50.
Under each of the plans, options may not, except under unusual
circumstances, be exercised until one year following the grant date.
OTHER. In October 1995, we announced our intention to purchase up to
4,300,000 shares of our common stock, subject to market price, cash
flow, and other considerations. Since that announcement, we have
purchased 626,204 shares of common stock under this authorization.
Because of weaker operating conditions in our paper and wood products
businesses, we have temporarily suspended our common stock purchases.
8. INVESTMENTS IN EQUITY AFFILIATES
As of December 31, 1997, our principal investments in affiliates
accounted for using the equity method included a 47% interest in
Voyageur Panel, which built an oriented strand board plant in Barwick,
Ontario, Canada, and a 25% interest in Ponderosa Fibres of Washington,
which built a recycled pulp production facility adjacent to our
Wallula, Washington, pulp and paper mill. We have an agreement with
Voyageur Panel under which we operate and market the product. The
debt of each affiliate has been issued without recourse to the
company. Additionally, BCOP has a 50% interest in Otto Versand, which
direct markets office products in Europe.
Prior to November 1, 1996, we had a 30% interest in Rumford
Cogeneration Limited Partnership, which operates a cogeneration
facility. This interest was sold along with the sale of our coated
publication paper business.
We had a 50% interest in the general partnership of Pine City Fiber
Company, a wastepaper recycling plant located adjacent to our Jackson,
Alabama, pulp and paper mill. In December 1995, we entered into an
agreement to purchase the other 50% interest. This transaction closed
shortly after year-end 1995. Accordingly, as of December 31, 1995,
this entity was consolidated with our Financial Statements, resulting
in additions of $78,290,000 of assets, primarily property and
equipment, and $77,090,000 of liabilities, primarily long-term debt.
These noncash additions were not reflected in the company's 1995
Statement of Cash Flows.
In November 1995, we divested our remaining interest in our equity
affiliate, Rainy River, through Rainy River's merger with Stone-
Consolidated Corporation and received cash of approximately
$183,482,000 and Stone-Consolidated stock. We used the proceeds from
this transaction to reduce debt. In 1996, we sold the Stone-
Consolidated stock for $133,628,000. After consideration of a
previously recorded bulk-sale reserve, the transaction was at
approximately book value.
For 1997 and 1996, financial information related to our equity
affiliates is not required.
A summary of transactions between us and our equity affiliates for the
year ended December 31, 1995, is as follows:
Fees charged by and expenses reimbursable to the company $ 23,420
Purchases from equity affiliates 111,590
Sales to equity affiliates 198,030
Amounts payable to equity affiliates 3,437
Amounts receivable from equity affiliates 6,333
Summarized financial information of the equity affiliates for the year
ended December 31, 1995, is as follows:
Condensed income statement information:
Sales $770,240
Gross profit 154,380
Net income 73,200
9. LITIGATION AND LEGAL MATTERS
We are involved in litigation and administrative proceedings primarily
arising in the normal course of our business. 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 operations.
10. SEGMENT INFORMATION
We are an integrated paper and forest products company headquartered
in Boise, Idaho, with domestic and international operations. We
manufacture and distribute paper and wood products, distribute office
products and building materials, and own and manage more than 2
million acres of timberland in the U.S.
No single customer accounts for 10% or more of consolidated trade
sales.
SUMMARY OF SIGNIFICANT SEGMENT ACCOUNTING POLICIES. Intersegment
sales are recorded primarily at market prices. Corporate assets are
primarily cash and cash equivalents, deferred income tax benefits,
prepaid expenses, certain receivables, and property and equipment.
Our segments exclude timber-related assets and capital expenditures,
because any allocation of these assets would be arbitrary. Our timber
harvested is included in segment results at cost.
Boise Cascade's export sales to foreign unaffiliated customers were
$177,071,000 in 1997, $182,889,000 in 1996, and $231,209,000 in 1995.
During 1997, BCOP had operations in Australia, Canada, France,
Germany, and the United Kingdom. During 1996, BCOP had operations in
Australia, Canada, and the United Kingdom. For the years ended
December 31, 1997 and 1996, BCOP's foreign operations had sales of
$518,126,000 and $296,396,000 and operating income of $21,610,000 and
$12,510,000. At December 31, 1997 and 1996, identifiable assets of
BCOP's foreign operations were $467,968,000 and $221,743,000. BCOP
did not have any significant foreign operations prior to 1996.
<PAGE>
An analysis of our operations by segment is as follows:
<TABLE>
<CAPTION>
Depreciation,
Amortization,
and Cost of
Sales Operating Company Capital
_________________________________ Income Timber Expendi-
Trade segment Total (Loss)(1) Harvested tures Assets
_________ __________ __________ ________ ________ ________ __________
YEAR ENDED DECEMBER 31, 1997 (expressed in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Paper and paper products $1,275,151 $ 329,449 $1,604,600 $(11,551) $166,199 $169,948 $2,602,383
Office products 2,595,144 1,588 2,596,732 122,249 41,088 346,592(4) 1,287,196
Building products 1,603,641 41,595 1,645,236 47,742 41,948 50,031 509,756
Other operations 19,884 56,427 76,311 (2,285) 4,188 4,150 50,411
_________ __________ __________ ________ ________ ________ __________
Total 5,493,820 429,059 5,922,879 156,155 253,423 570,721 4,449,746
_________ __________ __________ ________ ________ ________ __________
Intersegment eliminations - (429,059) (429,059) (4) - - (65,281)
Timber, timberlands, and
timber deposits - - - - - 6,232 273,001
Equity affiliates - - - (5,180) - - 32,848
Corporate and other - - - (46,872) 3,147 1,666 279,610
_________ __________ __________ ________ ________ ________ __________
Consolidated totals $5,493,820 $ - $5,493,820 $104,099 $256,570 $578,619 $4,969,924
__________ __________ __________ _________ ________ ________ __________
YEAR ENDED DECEMBER 31, 1996
Paper and paper products $1,601,638 $ 271,609 $1,873,247 $ 74,894(2)(3) $179,632 $470,059 $2,497,908
Office products 1,983,518 2,046 1,985,564 101,533 27,198 265,081(4) 905,361
Building products 1,505,538 51,589 1,557,127 36,074 40,357 85,565 500,456
Other operations 17,526 57,070 74,596 (2,609) 4,472 4,246 54,850
_________ __________ __________ ________ ________ ________ __________
Total 5,108,220 382,314 5,490,534 209,892 251,659 824,951 3,958,575
_________ __________ __________ ________ ________ ________ __________
Intersegment eliminations - (382,314) (382,314) 1,018 - - (45,546)
Timber, timberlands, and
timber deposits - - - - - 5,510 293,028
Equity affiliates - - - 2,940 - - 19,430
Corporate and other - - - (60,269)(2) 3,341 1,706 485,222
_________ __________ __________ ________ ________ ________ __________
Consolidated totals $5,108,220 $ - $5,108,220 $153,581 $255,000 $832,167 $4,710,709
_________ __________ __________ ________ ________ ________ __________
YEAR ENDED DECEMBER 31, 1995
Paper and paper products $2,255,643 $ 262,530 $2,518,173 $435,988(5)(7) $197,456 $242,518 $2,793,621
Office products 1,313,908 2,045 1,315,953 72,055 15,355 102,569(4) 544,124
Building products 1,482,340 93,080 1,575,420 89,178 39,332 68,756 468,786
Other operations 22,339 54,301 76,640 299 4,801 6,035 61,263
Total 5,074,230 411,956 5,486,186 597,520 256,944 419,878 3,867,794
Intersegment eliminations - (411,956) (411,956) (1,209) - - (50,084)
Timber, timberlands, and
timber deposits - - - - - 5,688 383,394
Equity affiliates - - - 40,070 - - 25,803
Corporate and other - - - 22,048(6)(7) 3,816 1,931 429,279
_________ __________ __________ ________ ________ ________ __________
Consolidated totals $5,074,230 $ - $5,074,230 $658,429 $260,760 $427,497 $4,656,186
(1) Operating income (loss) includes gains from sales and dispositions (see
Note 1). In addition, interest income has been allocated to our segments
in the amounts of $1,689,000 for 1997, $1,441,000 for 1996, and $2,829,000
for 1995.
(2) As a result of the sale of our coated publication paper business in
1996, paper and paper products includes a pretax gain of approximately
$40,395,000. In addition approximately $15,341,000 of pretax expense
arising from related tax indemnification requirements is included in
"Corporate and other." Assets were reduced by $632,246,000 as a result of
the sale.
(3) 1996 includes $9,955,000 before taxes for the write-down of certain
paper assets (see Note 1).
(4) Capital expenditures include acquisitions made by BCOP through the
issuance of common stock, assumption of debt, and recording of liabilities.
(5) 1995 includes a charge of $74,900,000 before taxes related primarily to
the write-down of certain paper assets under the provisions of SFAS No. 121
(see Note 1).
(6) In 1995 Corporate and other operating income includes a gain of
$68,900,000 for the sale of our remaining interest in Rainy River (see Note 1).
(7) 1995 includes a pretax charge of $19,000,000 for the establishment of
reserves for the write-down of certain paper assets (see Note 1). Also
included is our addition to existing reserves of $5,000,000 before taxes
for environmental and other contingencies.
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Boise Cascade Corporation:
We have audited the accompanying balance sheets of Boise Cascade
Corporation (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1996, and the related statements of income (loss), cash flows, and
shareholders' equity for the years ended December 31, 1997, 1996, and 1995.
These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Cascade
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boise, Idaho
January 29, 1998
REPORT OF MANAGEMENT
The management of Boise Cascade Corporation is primarily responsible for
the information and representations contained in this annual report. The
financial statements and related notes were prepared in conformity with
generally accepted accounting principles appropriate in the circumstances.
In preparing the financial statements, management has, when necessary, made
judgments and estimates based on currently available information.
Management maintains a comprehensive system of internal controls based on
written policies and procedures and the careful selection and training of
employees. The system is designed to provide reasonable assurance that
assets are safeguarded against loss or unauthorized use and that
transactions are executed in accordance with management's authorization.
The concept of reasonable assurance is based on recognition that the cost
of a particular accounting control should not exceed the benefit expected
to be derived.
Our Internal Audit staff monitors our financial reporting system and the
related internal accounting controls, which are also selectively tested by
Arthur Andersen LLP, Boise Cascade's independent public accountants, for
purposes of planning and performing their audit of our financial
statements.
The Audit Committee of the board of directors, which is composed solely of
nonemployee directors, meets periodically with management, representatives
of our Internal Audit Department, and Arthur Andersen LLP representatives
to assure that each group is carrying out its responsibilities. The
Internal Audit staff and the independent public accountants have access to
the Audit Committee, without the presence of management, to discuss the
results of their audits, recommendations concerning the system of internal
accounting controls, and the quality of financial reporting.
<PAGE>
<TABLE>
<CAPTION>
BOISE CASCADE CORPORATION AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
Year Ended December 31
________________________________________________________
1993 1994 1995 1996 1997
________ ________ ________ ________ ________
(dollar amounts expressed in thousands)
<S> <C> <C> <C> <C> <C>
Interest costs $ 172,170 $ 169,170 $ 154,469 $ 146,234 $ 153,691
Interest capitalized
during the period 2,036 1,630 3,549 17,778 10,575
Interest factor related to
noncapitalized leases(1) 7,485 9,161 8,600 12,982 11,931
_________ _________ _________ _________ _________
Total fixed charges $ 181,691 $ 179,961 $ 166,618 $ 176,994 $ 176,197
Income (loss) before
income taxes and
minority interest $(125,590) $ (64,750) $ 589,410 $ 31,340 $(28,930)
Undistributed (earnings)
losses of less than 50%
owned persons, net of
distributions received (922) (1,110) (36,861) (1,290) 5,180
Total fixed charges 181,691 179,961 166,618 176,994 176,197
Less: Interest capitalized (2,036) (1,630) (3,549) (17,778) (10,575)
Guarantee of interest
on ESOP debt (22,208) (20,717) (19,339) (17,874) (16,341)
_________ _________ _________ _________ _________
Total earnings (losses)
before fixed charges $ 30,935 $ 91,754 $ 696,279 $ 171,392 $ 125,531
Ratio of earnings to
fixed charges(2) - - 4.18 - -
(1) Interest expense for operating leases with terms of one year or longer is based on an imputed interest
rate for each lease.
(2) Earnings before fixed charges were inadequate to cover total fixed charges by $150,756,000,
$88,207,000, $5,602,000, and $50,666,000 for the years ended December 31, 1993, 1994, 1996, and 1997.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
The data schedule contains summary financial information
extracted from Boise Cascade Corporation's Balance Sheet at
December 31, 1997, and from its Statement of Loss for the
year ended December 31, 1997. The information presented is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 56,429
<SECURITIES> 7,157
<RECEIVABLES> 570,424
<ALLOWANCES> 9,689
<INVENTORY> 633,290
<CURRENT-ASSETS> 1,353,673
<PP&E> 4,940,038
<DEPRECIATION> 2,037,352
<TOTAL-ASSETS> 4,969,924
<CURRENT-LIABILITIES> 893,748
<BONDS> 1,902,688
0
361,679
<COMMON> 140,560
<OTHER-SE> 1,110,301
<TOTAL-LIABILITY-AND-EQUITY> 4,969,924
<SALES> 5,493,820
<TOTAL-REVENUES> 5,493,110
<CGS> 4,693,220
<TOTAL-COSTS> 5,385,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,350
<INCOME-PRETAX> (28,930)
<INCOME-TAX> 9,260
<INCOME-CONTINUING> (30,410)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,410)
<EPS-PRIMARY> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
