UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998
( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Transition Period From ___________ to _____________
Commission file number 1-5057
BOISE CASCADE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 82-0100960
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 West Jefferson Street
P.O. Box 50
Boise, Idaho 83728-0001
(Address of principal executive offices) (Zip Code)
(208) 384-6161
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class as of April 30, 1998
Common stock, $2.50 par value 56,323,967
<PAGE>
PART I - FINANCIAL INFORMATION
STATEMENTS OF LOSS
BOISE CASCADE CORPORATION AND SUBSIDIARIES
(expressed in thousands, except per share data)
Item 1. Financial Statements
Three Months Ended
March 31
________________________
1998 1997
__________ __________
(unaudited)
Revenues
Sales $1,489,500 $1,273,610
Other income (expense), net (320) (270)
__________ __________
1,489,180 1,273,340
__________ __________
Costs and expenses
Materials, labor, and other operating expenses 1,172,920 1,047,430
Depreciation, amortization, and cost of
company timber harvested 71,460 60,460
Selling and distribution expenses 161,700 128,600
General and administrative expenses 36,590 31,490
__________ __________
1,442,670 1,267,980
__________ __________
Equity in net income (loss) of affiliates (3,540) 30
__________ __________
Income from operations 42,970 5,390
__________ __________
Interest expense (40,100) (27,700)
Interest income 600 2,090
Foreign exchange loss (50) (10)
__________ __________
(39,550) (25,620)
__________ __________
Income (loss) before income taxes and
minority interest 3,420 (20,230)
Income tax (provision) benefit (1,450) 7,890
__________ __________
Income (loss) before minority interest 1,970 (12,340)
Minority interest, net of income tax (3,130) (2,870)
__________ __________
Net loss $ (1,160) $ (15,210)
Net loss per common share
Basic $ (.18) $ (.51)
Diluted $ (.18) $ (.51)
Dividends declared per common share $ .15 $ .15
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
SEGMENT INFORMATION
BOISE CASCADE CORPORATION AND SUBSIDIARIES
(expressed in thousands)
Three Months Ended
March 31
_________________________
1998 1997
__________ __________
(unaudited)
Segment sales
Office products $ 759,808 $ 597,871
Building products 368,678 377,382
Paper and paper products 458,294 370,554
Intersegment eliminations and other (97,280) (72,197)
__________ __________
$1,489,500 $1,273,610
Segment operating income (loss)
Office products $ 37,592 $ 28,515
Building products 768 10,392
Paper and paper products 20,989 (22,667)
Equity in net income (loss) of affiliates (3,540) 30
Corporate and other (12,839) (10,880)
__________ __________
Income from operations $ 42,970 $ 5,390
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
BOISE CASCADE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(expressed in thousands)
ASSETS
March 31 December 31
_______________________ ___________
1998 1997 1997
__________ __________ ___________
(unaudited)
Current
Cash $ 86,002 $ 70,913 $ 56,429
Cash equivalents 8,840 99,112 7,157
__________ __________ __________
94,842 170,025 63,586
Receivables, less allowances
of $8,874, $5,105, and $9,689 630,448 505,515 570,424
Inventories 614,772 512,854 633,290
Deferred income tax benefits 59,459 57,402 54,312
Other 27,223 26,676 32,061
__________ __________ __________
1,426,744 1,272,472 1,353,673
__________ __________ __________
Property
Property and equipment
Land and land improvements 55,445 40,174 57,260
Buildings and improvements 559,732 470,570 554,712
Machinery and equipment 4,145,749 3,917,249 4,055,065
__________ __________ __________
4,760,926 4,427,993 4,667,037
Accumulated depreciation (2,130,519) (1,849,420) (2,037,352)
__________ __________ __________
2,630,407 2,578,573 2,629,685
Timber, timberlands, and
timber deposits 276,670 293,678 273,001
__________ __________ __________
2,907,077 2,872,251 2,902,686
__________ __________ __________
Goodwill, net of amortization
of $27,629, $15,365, and $24,020 446,646 265,310 445,722
Investments in equity affiliates 30,520 35,479 32,848
Other assets 238,826 230,686 234,995
__________ __________ __________
Total assets $5,049,813 $4,676,198 $4,969,924
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
BOISE CASCADE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(expressed in thousands, except share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31 December 31
_______________________ ___________
1998 1997 1997
__________ __________ ___________
(unaudited)
Current
Notes payable $ 211,900 $ 25,600 $ 94,800
Current portion of long-term debt 52,839 156,886 30,176
Income taxes payable - 5,261 3,692
Accounts payable 495,831 421,064 470,445
Accrued liabilities
Compensation and benefits 121,001 118,240 126,780
Interest payable 35,526 26,880 39,141
Other 159,995 157,345 128,714
__________ __________ __________
1,077,092 911,276 893,748
__________ __________ __________
Debt
Long-term debt, less current portion 1,742,492 1,359,753 1,725,865
Guarantee of ESOP debt 176,823 196,116 176,823
__________ __________ __________
1,919,315 1,555,869 1,902,688
__________ __________ __________
Other
Deferred income taxes 234,557 239,665 230,840
Other long-term liabilities 223,971 242,601 224,663
__________ __________ __________
458,528 482,266 455,503
__________ __________ __________
Minority interest 109,462 85,862 105,445
__________ __________ __________
Shareholders' equity
Preferred stock -- no par value;
10,000,000 shares authorized;
Series D ESOP: $.01 stated value;
5,521,442; 5,976,459; and
5,569,684 shares outstanding 248,465 256,296 250,636
Deferred ESOP benefit (176,823) (196,116) (176,823)
Series F: $.01 stated value;
115,000 shares outstanding in 1997 - 111,043 111,043
Series G: $.01 stated value;
862,500 shares outstanding in 1997 - 176,404 -
Common stock -- $2.50 par value;
200,000,000 shares authorized;
56,277,831; 48,531,267; and
56,223,923 shares outstanding 140,695 121,328 140,560
Additional paid-in capital 418,316 233,846 416,691
Retained earnings 861,658 940,941 879,043
Accumulated other comprehensive
income (loss) (6,895) (2,817) (8,610)
__________ __________ __________
Total shareholders' equity 1,485,416 1,640,925 1,612,540
__________ __________ __________
Total liabilities and shareholders'
equity $5,049,813 $4,676,198 $4,969,924
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(expressed in thousands)
Three Months Ended
March 31
_________________________
1998 1997
___________ __________
(unaudited)
Cash provided by (used for) operations
Net loss $ (1,160) $(15,210)
Items in net loss not using (providing) cash
Equity in net (income) loss of affiliates 3,540 (30)
Depreciation, amortization, and cost of
company timber harvested 71,460 60,460
Deferred income tax benefit (2,261) (9,742)
Minority interest, net of income tax 3,130 2,870
Other (1,159) 991
Receivables (58,485) (26,644)
Inventories 19,707 29,899
Accounts payable and accrued liabilities 35,463 (15,002)
Current and deferred income taxes (955) 1,172
Other 12,576 487
________ ________
Cash provided by operations 81,856 29,251
________ ________
Cash used for investment
Expenditures for property and equipment (62,548) (80,294)
Expenditures for timber and timberlands (2,751) (1,797)
Investments in equity affiliates, net - (16,014)
Purchases of facilities (4,042) (7,748)
Other (10,884) (11,168)
________ ________
Cash used for investment (80,225) (117,021)
________ ________
Cash provided by (used for) financing
Cash dividends paid
Common stock (8,433) (7,271)
Preferred stock (3,722) (6,161)
________ ________
(12,155) (13,432)
Notes payable 117,100 (11,100)
Additions to long-term debt 90,000 30,000
Payments of long-term debt (50,246) (676)
Series F Preferred Stock redemption (115,001) -
Other (73) (7,848)
________ ________
Cash provided by (used for) financing 29,625 (3,056)
________ ________
Increase (decrease) in cash and cash equivalents 31,256 (90,826)
Balance at beginning of the year 63,586 260,851
________ ________
Balance at March 31 $ 94,842 $170,025
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
Notes to Quarterly Financial Statements
(1) BASIS OF PRESENTATION. We have prepared the quarterly financial
statements pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These statements should be read
together with the statements and the accompanying notes included in our
1997 Annual Report.
The quarterly financial statements have not been audited by independent
public accountants, but in the opinion of management, all adjustments
necessary to present fairly the results for the periods have been
included. The net loss for the three months ended March 31, 1998 and
1997, necessarily involved estimates and accruals. Except as may be
disclosed within these "Notes to 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.
(2) NET LOSS PER COMMON SHARE. Net loss per common share was determined by
dividing net loss, as adjusted, by applicable shares outstanding. For
the three months ended March 31, 1998 and 1997, the computation of
diluted net loss per share was antidilutive; therefore, amounts reported
for basic and diluted loss were the same.
Three Months Ended
March 31
______________________
1998 1997
_________ _________
(expressed in thousands)
Net loss as reported $ (1,160) $(15,210)
Preferred dividends(1) (5,061) (9,713)
Excess of Series F Preferred Stock
redemption price over carrying value(2) (3,958) -
________ ________
Basic and diluted loss $(10,179) $(24,923)
Average shares outstanding used to
determine basic and diluted loss per
common share 56,242 48,512
(1) Dividend attributable to our Series D convertible preferred stock
held by our ESOP (Employee Stock Ownership Plan) is net of a tax
benefit.
(2) First quarter loss per share included a negative seven cents
related to the redemption of the Series F Preferred Stock. The loss for
the quarter used in the calculation of loss per share was increased by
the excess of the amount paid to redeem the preferred stock over its
carrying value.
(3) COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) for the
periods include the following:
Three Months Ended
March 31
_______________________
1998 1997
___________ _________
(expressed in thousands)
Net loss $ (1,160) $(15,210)
Other comprehensive income (loss)
Cumulative foreign currency translation
adjustment, net of income taxes 1,715 (1,471)
________ ________
Comprehensive income (loss), net of income
taxes $ 555 $(16,681)
Accumulated other comprehensive income (loss) for each period ended was
as follows:
March 31 December 31
__________________ ___________
1998 1997 1997
________ ________ ___________
(expressed in thousands)
Balances at beginning of period
Minimum pension liability
adjustment, net of income taxes $(1,995) $(2,866) $(2,866)
Cumulative foreign currency
translation adjustment, net of
income taxes (6,615) 1,520 1,520
Changes within periods
Minimum pension liability
adjustment, net of income taxes - - 871
Cumulative foreign currency
translation adjustment, net of
income taxes 1,715 (1,471) (8,135)
_______ _______ _______
Balance at end of period $(6,895) $(2,817) $(8,610)
(4) INVENTORIES. Inventories include the following:
March 31 December 31
__________________ ___________
1998 1997 1997
________ ________ ___________
(expressed in thousands)
Finished goods and work in process $474,285 $391,133 $453,268
Logs 66,062 61,567 107,625
Other raw materials and supplies 152,198 141,229 149,870
LIFO reserve (77,773) (81,075) (77,473)
________ ________ ________
$614,772 $512,854 $633,290
(5) DEFERRED SOFTWARE COSTS. We defer purchased and internally developed
software and related installation costs for computer systems that are
used in our businesses. Deferral of costs begins when technological
feasibility of the project has been established and it is determined
that the software will benefit future years. These costs are amortized
on the straight-line method over a maximum of five years or the useful
life of the product, whichever is less. If the useful life of the
product is shortened, the amortization period is adjusted. "Other
assets" in the Balance Sheets includes deferred software costs of
$33.0 million, $18.3 million, and $31.1 million at March 31, 1998 and
1997 and December 31, 1997.
(6) INCOME TAXES. The estimated tax provision rate for the first three
months of 1998 was 42%, compared with 39% used for the first three
months of 1997. The actual annual 1997 tax benefit rate was 32%.
For the three months ended March 31, 1998 and 1997, we paid income
taxes, net of refunds received, of $2.4 million and $1.1 million.
(7) DEBT. At March 31, 1998, we had a revolving credit agreement with a
group of banks that permitted us to borrow as much as $600 million at
variable interest rates based on customary indices. This agreement
expires in June 2002. The revolving credit agreement contains financial
covenants relating to minimum net worth, minimum interest coverage
ratios, and ceiling ratios of debt to capitalization. Under this
agreement, the payment of dividends is dependent upon the existence of
and the amount of net worth in excess of the defined minimum. Our net
worth at March 31, 1998, exceeded the defined minimum by $191 million.
At March 31, 1998, there were $185 million of borrowings outstanding
under this agreement.
Our majority-owned subsidiary, Boise Cascade Office Products Corporation
("BCOP"), has a $450 million revolving credit agreement with a group of
banks that expires in June 2001 and provides variable interest rates
based on customary indices. 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. Borrowings under BCOP's agreement
were $290 million at March 31, 1998.
Also at March 31, 1998, we had $138.1 million of short-term borrowings
outstanding and BCOP had $73.8 million of short-term borrowings
outstanding. At March 31, 1997, we had no short-term borrowings
outstanding, while BCOP had $25.6 million of short-term borrowings
outstanding. The maximum amount of short-term borrowings outstanding
during the three months ended March 31, 1998 and 1997, were
$275.3 million and $59.3 million. The average amount of short-term
borrowings outstanding during the three months ended March 31, 1998 and
1997, were $198.9 million and $33.2 million. The average interest rate
for these borrowings was 5.9% for 1998 and 5.6% for 1997.
We filed a registration statement with the Securities and Exchange
Commission for an additional $400 million of shelf capacity for debt
securities. The effective date of our filing was March 25, 1998. Our
total shelf capacity was $489.4 million at March 31, 1998.
BCOP filed a registration statement with the Securities and Exchange
Commission to register $300 million of shelf capacity for debt
securities. The effective date of the filing was April 22, 1998. On
May 12, 1998, BCOP issued $150.0 million of 7.05% Notes under this
registration statement. The Notes are due May 15, 2005. Proceeds from
the issuance will be used to repay borrowings under BCOP's revolving
credit agreement. BCOP has $150.0 million of shelf capacity remaining
under this registration statement. In December 1997, BCOP entered into
agreements to hedge against a rise in Treasury rates. BCOP entered into
the transactions in anticipation of their issuance of these debt
securities. The hedge agreements had a notional amount of $70 million.
The settlement rate, based on the yield on 10-year U.S. Treasury bonds,
was less than the agreed upon initial rate and BCOP made a cash payment
of $0.6 million. The amount paid will be recognized as an increase in
interest expense over the life of the debt securities issued.
Cash payments for interest, net of interest capitalized, were $43.7
million and $32.4 million for the three months ended March 31, 1998 and
1997.
(8) BOISE CASCADE OFFICE PRODUCTS CORPORATION. During the first three
months of 1998, BCOP completed two acquisitions, and during the first
three months of 1997, BCOP completed three 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 values of
assets and liabilities. Such adjustments are not expected to be
significant to our results of operations or our 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 acquisition.
On January 12, 1998, BCOP acquired the direct marketing business of
Fidelity Direct, based in Minneapolis, Minnesota. On February 28, 1998,
BCOP acquired the direct marketing business of Sistemas Kalamazoo, based
in Madrid, Spain. These transactions were completed for cash of
$4.0 million, debt assumed of $0.2 million, and the recording of
$3.8 million of acquisition liabilities.
On January 31 and February 28, 1997, BCOP acquired contract stationer
businesses in Montana and Florida. Also in January 1997, BCOP completed
a joint venture with Otto Versand to direct market office products in
Europe. These transactions, including the joint venture, were completed
for cash of $14.9 million, $2.9 million of BCOP's common stock, and the
recording of $1.0 million of acquisition liabilities.
Unaudited pro forma results of operations reflecting the acquisitions
would have been as follows. If the 1998 acquisitions had occurred on
January 1, 1998, sales for the first three months of 1998 would have
increased by $0.8 million, and net loss and basic and diluted loss per
share would have been unchanged. If the 1998 and 1997 acquisitions had
occurred on January 1, 1997, sales for the first three months of 1997
would have increased by $8.0 million, net loss, and basic and diluted
loss per share would have been unchanged. This unaudited pro forma
financial information does not necessarily represent the actual results
of operations that would have occurred if the acquisitions had taken
place on the dates assumed.
(9) SHAREHOLDERS' EQUITY. We have a shareholder rights plan which was
adopted in December 1988, amended in September 1990, and renewed in
September 1997. The Renewed Rights Agreement becomes operative upon the
expiration of the existing Rights Agreement.
(10) NEW ACCOUNTING STANDARDS. In 1997, the Financial Accounting Standards
Board issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," which 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 the statement at year-end
1998. We are still evaluating what impact it will have on our
reportable segments. Adoption of this statement will have no impact on
net income.
In March 1998, the American Institute of Certified Public Accountants
(AICPA), issued Statement of Position 98-1 (SOP 98-1), "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use."
This SOP is effective for financial statements for fiscal years
beginning after December 15, 1998, with earlier application encouraged.
We currently account for software costs generally in accordance with this
SOP. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This SOP provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. This SOP is
effective for financial statements for fiscal years beginning after
December 15, 1998, with earlier application encouraged. Unamortized costs
are required to be expensed at the time of adoption of the SOP. We are
still evaluating when to implement this SOP. The unamortized balance of
these costs was $12.9 million at March 31, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended March 31, 1998, Compared With Three Months Ended
March 31, 1997
Our net loss for the first quarter of 1998 was $1.2 million, compared with a
net loss of $15.2 million for the first quarter of 1997. Basic loss and
diluted loss per common share for the first quarter of 1998 were 18 cents.
The first quarter 1998 loss per share included a negative seven cents related
to the redemption of our Series F Preferred Stock, effective February 17,
1998. For the same quarter in 1997, basic loss and diluted loss per common
share were 51 cents. Sales for the first quarter of 1998 were $1.5 billion
and $1.3 billion in the first quarter of 1997.
Operating income in the office products segment in the first quarter of 1998
was $37.6 million, compared to $28.5 million in the first quarter 1997. Net
sales in the first quarter of 1998 increased 27% to $759.8 million, compared
with $597.9 million in the first quarter of 1997. The growth in sales
resulted from a combination of acquisitions and same-location sales growth.
Same-location sales increased 13% in the first quarter of 1998, compared with
sales in the first quarter of 1997. Gross margins were 25.7% in the first
quarter of 1998, compared to 25.2% in the year-ago first quarter. The
increase in the first quarter of 1998 was primarily due to increases in BCOP's
U.S. contract stationer and direct marketing gross margins, offset slightly by
lower margins in BCOP's other businesses. BCOP's operating expenses were
20.8% of net sales in the first quarter of 1998, compared with 20.5% in the
first quarter of 1997. The increase in the first quarter of 1998 was due in
part to BCOP's direct marketing business, which has both higher gross margins
and higher operating expenses. Direct marketing acquisitions made in 1997
increased BCOP's cost average compared to the prior year. BCOP's operating
margin was 4.9% in 1998 and 4.8% in 1997.
Building products operating income decreased to $0.8 million in the first
quarter of 1998, compared to $10.4 million in the first quarter of 1997.
Sales decreased 2% to $368.7 million compared to $377.4 million a year ago.
Results declined as a result of lower average prices and sales volumes.
Plywood prices decreased 6%, while sales volumes decreased 3 million square
feet. Lumber prices decreased 7%, while sales volumes decreased 26 million
board feet. I-joists prices decreased 3%, while sales volumes increased
2 million equivalent lineal feet. Laminated veneer lumber prices were about
flat, while sales volumes increased 100,000 cubic feet. Particleboard prices
were down slightly, while sales volumes decreased 2 million square feet. The
unfavorable sales prices and volume variances were partially offset by lower
costs. Building products distribution sales were up 8% to $168 million,
compared to $156 million for the first three months of 1997.
Our paper and paper products segment reported operating income of
$21.0 million in the first quarter of 1998, compared with an operating loss of
$22.7 million in the first quarter of 1997. Sales increased 24% to
$458.3 million in the first quarter of 1998 from $370.6 million in the first
quarter of 1997. The increase in results was caused by higher average prices
for all of our paper grades in the first quarter of 1998, compared with the
first quarter of 1997. Uncoated free sheet prices increased 10%,
containerboard prices increased 22%, newsprint prices increased 18%, and pulp
prices increased 5%. Sales volumes for the first quarter of 1998 increased
18,000 tons to 652,000 tons, compared with 634,000 tons in the first quarter
of 1997. Uncoated free sheet volumes increased 34,000 tons as our new world-
class uncoated free sheet paper machine in Jackson, Alabama, is now operating
at close to rated capacity. Containerboard sales volumes increased 14,000
tons. These increases were offset by a 6,000-ton sales volume reduction in
newsprint and a 24,000-ton reduction in pulp sales volume reflecting our
decreasing position in the market pulp business.
Paper segment manufacturing costs per ton in the first quarter of 1998 were 2%
higher than in the comparison quarter. The increase from quarter to quarter
was due primarily to higher wood costs and the replacement of market pulp with
higher margin, higher cost uncoated free sheet paper from the new machine at
the Jackson mill.
Interest expense was $40.1 million in the first quarter of 1998, compared with
$27.7 million in the same period last year. Capitalized interest in the first
quarter of 1998 was $68,000, compared to $6.4 million in the first quarter of
1997. With the start-up of the expansion of the Jackson pulp and paper mill
in April 1997, the amount of interest capitalized has decreased significantly.
The balance of the increase in interest expense was due to higher debt levels.
Total long- and short-term debt outstanding was $2.2 billion at March 31,
1998, compared with $1.7 billion at March 31, 1997. Total long- and short-
term debt outstanding was $2.0 billion at December 31, 1997.
Financial Condition
At March 31, 1998, we had working capital of $349.7 million. Working capital
was $361.2 million at March 31, 1997, and $459.9 million at December 31, 1997.
Cash provided by operations was $81.9 million for the first three months of
1998, compared with $29.3 million for the same period in 1997.
At March 31, 1998, we had a revolving credit agreement with a group of banks
that permitted us to borrow as much as $600 million at variable interest rates
based on customary indices. This agreement expires in June 2002. The
revolving credit agreement contains financial covenants relating to minimum
net worth, minimum interest coverage ratios, and ceiling ratios of debt to
capitalization. Under this agreement, the payment of dividends is dependent
upon the existence of and the amount of net worth in excess of the defined
minimum. Our net worth at March 31, 1998, exceeded the defined minimum by
$191 million. At March 31, 1998, there were $185 million of borrowings
outstanding under this agreement.
Our majority-owned subsidiary, Boise Cascade Office Products Corporation
("BCOP"), has a $450 million revolving credit agreement with a group of banks
that expires in June 2001 and provides variable interest rates based on
customary indices. 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.
Borrowings under BCOP's agreement were $290 million at March 31, 1998.
At March 31, 1998, we and BCOP met all of the financial covenants related to
our debt.
Also at March 31, 1998, we had $138.1 million of short-term borrowings
outstanding and BCOP had $73.8 million of short-term borrowings outstanding.
At March 31, 1997, we had no short-term borrowings outstanding, while BCOP had
$25.6 million of short-term borrowings outstanding. The maximum amount of
short-term borrowings outstanding during the three months ended March 31, 1998
and 1997, were $275.3 million and $59.3 million. The average amount of short-
term borrowings outstanding during the three months ended March 31, 1998 and
1997, were $198.9 million and $33.2 million. The average interest rate for
these borrowings was 5.9% for 1998 and 5.6% for 1997.
We filed a registration statement with the Securities and Exchange Commission
for an additional $400 million of shelf capacity for debt securities. The
effective date of our filing was March 25, 1998. Our total shelf capacity was
$489.4 million at March 31, 1998.
BCOP filed a registration statement with the Securities and Exchange
Commission to register $300 million of shelf capacity for debt securities.
The effective date of the filing was April 22, 1998. On May 12, 1998, BCOP
issued $150.0 million of 7.05% Notes under this registration statement. The
Notes are due May 15, 2005. Proceeds from the issuance will be used to repay
borrowings under BCOP's revolving credit agreement. BCOP has $150.0 million
of shelf capacity remaining under this registration statement. In December
1997, BCOP entered into agreements to hedge against a rise in Treasury rates.
BCOP entered into the transactions in anticipation of their issuance of these
debt securities. The hedge agreements had a notional amount of $70 million.
The settlement rate, based on the yield on 10-year U.S. Treasury bonds, was
less than the agreed upon initial rate and BCOP made a cash payment of $0.6
million. The amount paid will be recognized as an increase in interest
expense over the life of the debt securities issued.
Capital expenditures for the first three months of 1998 and 1997 were
$73.4 million and $109.7 million. Capital expenditures for the year ended
December 31, 1997, were $578.6 million. The decrease in capital expenditures
quarter to quarter is primarily due to the completion of the Jackson pulp and
paper mill expansion in May 1997.
An expanded discussion and analysis of financial condition is presented on
pages 18 and 19 of the Company's 1997 Annual Report under the captions
"Financial Condition" and "Capital Investment."
Market Conditions
We expect BCOP sales to continue to grow at a healthy rate. Internal growth
has been strong, and we continue to look for acquisitions that will strengthen
our market position, both domestically and in Europe. Earnings should also
continue to improve as infrastructure investments begin to pay off and our
product line extensions accelerate their contributions to growth.
The outlook for our building products business this year continues to be
mixed. On the one hand, North American lumber markets are currently hampered
by excess supply due to weak net export demand, particularly in Japan. In
structural panel markets, OSB capacity installed over the last few years has
yet to be fully absorbed. On the other hand, with low interest rates and
strong housing starts, demand for wood products in North America continues to
grow. In that environment, our wood products operations should improve in the
remaining quarters of this year. The overall cost of wood delivered to our
converting facilities in the Northwest and South should be comparable to last
year. We expect increasing benefits from the investments we have made in
LVL/I-joist and OSB capacity.
The near-term outlook for paper markets and our paper business has been
clouded by the recent financial crisis in Asia. The positive momentum that
was built in the last half of 1997 was largely lost in the first quarter of
this year. Given currency devaluations and local economic contractions, U.S.
imports of Asian paper are likely to be higher than last year and exports to
Asia may decline until Asian economies stabilize. Whether that stability is
reestablished in a few months or over a much longer period remains to be seen.
We expect to see difficult market conditions for our paper business at least
through the summer of this year. However, we are quite positive about the
fundamental condition of the paper markets over the mid to longer term. Very
little new capacity is scheduled to come on line in North America over the
next few years, virtually none in uncoated free sheet after this quarter and
only modest amounts in other grades. In Europe, the capacity forecast is
equally modest. And in Asia, the same financial disruption that will increase
net imports in the near term has already caused delays and outright
cancellations of announced new capacity.
New Accounting Standards
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
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
the statement at year-end 1998. We are still evaluating what impact it will
have on our reportable segments. Adoption of this statement will have no
impact on net income.
In March 1998, the American Institute of Certified Public Accountants (AICPA),
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP is
effective for financial statements for fiscal years beginning after
December 15, 1998, with earlier application encouraged. We currently account
for software costs generally in accordance with this SOP. In April 1998,
the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities."
This SOP provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. This SOP is effective for
financial statements for fiscal years beginning after December 15, 1998, with
earlier application encouraged. Unamortized costs are required to be expensed
at the time of adoption of the SOP. We are still evaluating when to implement
this SOP. The unamortized balance of these costs was $12.9 million at
March 31, 1998.
Year 2000 Computer Issue
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the year 2000 as "00." This could cause many computer applications
to fail completely or to create erroneous results unless corrective measures
are taken. We utilize software and related computer technologies that will be
affected by this issue. We are currently implementing, or planning to
implement, several computer system replacements or upgrades before the year
2000, all of which will be year 2000 compliant. Many of the costs associated
with these replacements and upgrades have been and will be deferred. (See
Note 5 in "Notes to Quarterly Financial Statements.") We are evaluating what
actions will be necessary to make our remaining computer systems year 2000
compliant. Maintenance and modification costs not meeting the criteria for
deferral are expensed as incurred. While we believe that our computer systems
will be year 2000 compliant and that the costs required to achieve this will
not materially impact our financial position, results of operations or cash
flows, there can be no guarantee that all systems will be compliant by the
year 2000 or that the systems of other companies on which we rely will be
converted within the same timeframe.
Forward-Looking Statements
This Management's Discussion and Analysis includes forward-looking statements.
Because these forward-looking statements include risks and uncertainties,
actual results may differ materially from those expressed in or implied by the
statements. Factors that could cause actual results to differ include, among
other things, increased domestic or foreign competition, increases in capacity
through construction of new mills or conversion of older facilities to produce
competitive products, variations in demand for our products, changes in our
cost for or the availability of raw materials, particularly market pulp and
wood, the cost of compliance with new environmental laws and regulations, the
pace of acquisitions, same-location sales, cost structure improvements, the
success of new initiatives, integration of systems, the success of computer-
based system enhancements, and general economic conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Changes in interest rates and currency rates expose us to financial market
risk. Our debt is predominantly fixed-rate. We experience only modest
changes in interest expense when market interest rates change. Most foreign
currency transactions have been conducted in the local currency, limiting our
exposure to changes in currency rates. Consequently, our market risk-
sensitive instruments do not subject us to material market risk exposure.
Changes in our debt and our continued international expansion could increase
these risks. To manage volatility relating to these exposures, we may enter
into various derivative transactions such as interest rate swaps, rate hedge
agreements, and forward exchange contracts. 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 are
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. We had no material exposure to losses from derivative financial
instruments held at March 31, 1998. We do not use derivative financial
instruments for trading purposes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to our annual report on Form 10-K for the year ended
December 31, 1997, for information concerning legal proceedings.
Item 2. Changes in Securities
The payment of dividends is dependent upon the existence of and the amount of
net worth in excess of the defined minimum under our revolving credit
agreement. Our net worth at March 31, 1998, exceeded the defined minimum by
$191 million. At March 31, 1998, there were $185 million of borrowings
outstanding under the agreement.
Item 3. Defaults Upon Senior Securities
At March 31, 1998, there were no existing defaults.
Item 4. Submission of Matters to a Vote of Security Holders
We held our annual shareholders meeting on April 17, 1998. A total of
61,783,187 shares of common and preferred stock were outstanding and entitled
to vote at the meeting. Of the total outstanding, 54,244,160 shares were
represented at the meeting.
Shareholders cast votes for election of the following directors whose terms
expire in 2001:
In Favor Withheld Not Voted
Anne L. Armstrong 52,850,459 1,393,701 -
Philip J. Carroll 52,404,107 1,840,053 -
Gary G. Michael 53,277,064 967,096 -
A. William Reynolds 52,959,245 1,284,915 -
Continuing in office are Edward E. Hagenlocker, George J. Harad, Donald S.
Macdonald, Jane E. Shaw, and Edson W. Spencer, whose terms expire in 2000, and
Robert K. Jaedicke, Paul J. Phoenix, Frank A. Shrontz, and Ward W. Woods, Jr.,
whose terms expire in 1999.
The shareholders also ratified the appointment of Arthur Anderson LLP, as our
independent auditor for the year 1998 with 53,689,699 votes cast for, 400,794
against, and 153,667 abstained.
Shareholders approved an amendment, adopted by the board of directors in
December 1997, to our 1984 Key Executive Stock Option Plan (the "KESOP").
This amendment increased the number of shares available under the plan by
1,500,000 shares. The shareholder votes were 49,661,932 cast for, 3,886,548
against, and 695,680 abstained.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Required exhibits are listed in the Index to Exhibits and are
incorporated by reference.
(b) Reports on Form 8-K.
On February 23, 1998, we filed a Form 8-K to file our financial
information as of December 31, 1997. This was included as an
exhibit in our 1997 Form 10-K. No other Form 8-Ks were filed
during the first quarter of 1998.
SIGNATURES
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
As Duly Authorized Officer and
Chief Accounting Officer: /s/ Tom E. Carlile
Tom E. Carlile
Vice President and
Controller
Date: May 12, 1998
BOISE CASCADE CORPORATION
INDEX TO EXHIBITS
Filed With the Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 1998
Number Description Page Number
11 Computation of Per Share Earnings
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
Exhibit 11
Boise Cascade Corporation
Computation of Per Share Earnings
Three Months Ended
March 31
_______________________
1998 1997
__________ _________
(expressed in thousands,
except per share amounts)
Net loss as reported $ (1,160) $ (15,210)
Preferred dividends (5,061) (9,713)
Series F Preferred Stock redemption price
over carrying value (3,958) -
_________ _________
Basic loss (10,179) (24,923)
Preferred dividends eliminated 3,620 7,010
Supplemental ESOP contribution (3,094) (3,079)
_________ _________
Diluted loss $ (9,653) $ (20,992)
Average shares outstanding used to determine
basic loss per common share 56,242 48,512
Stock options, net 242 382
Series G conversion preferred stock - 6,908
Series D convertible preferred stock 4,461 4,625
_________ _________
Average shares used to determine diluted
loss per common share 60,945 60,427
Net loss per common share
Basic $(.18) $(.51)
Diluted(1) $(.16) $(.35)
(1) Because the computation of diluted loss per common share was antidilutive,
the diluted loss per common share reported for the three months ended
March 31, 1998 and 1997, was the same as basic loss per common share.
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
BOISE CASCADE CORPORATION AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
Three Months
Year Ended December 31 Ended March 31
________________________________________________________ ____________________
1993 1994 1995 1996 1997 1997 1998
________ ________ ________ ________ ________ ________ ________
(dollar amounts expressed in thousands)
<C> <S> <S> <S> <S> <S> <S> <S>
Interest costs $ 172,170 $ 169,170 $ 154,469 $ 146,234 $ 153,691 $ 31,830 $ 43,824
Interest capitalized
during the period 2,036 1,630 3,549 17,778 10,575 6,362 68
Interest factor related to
noncapitalized leases(1) 7,485 9,161 8,600 12,982 11,931 3,486 2,851
_________ _________ _________ _________ _________ ________ ________
Total fixed charges $ 181,691 $ 179,961 $ 166,618 $ 176,994 $ 176,197 $ 41,678 $ 46,743
Income (loss) before
income taxes and
minority interest $(125,590) $ (64,750) $ 589,410 $ 31,340 $(28,930) $(20,230) $ 3,420
Undistributed (earnings)
losses of less than 50%
owned persons, net of
distributions received (922) (1,110) (36,861) (1,290) 5,180 (30) 3,540
Total fixed charges 181,691 179,961 166,618 176,994 176,197 41,678 46,743
Less: Interest capitalized (2,036) (1,630) (3,549) (17,778) (10,575) (6,362) (68)
Guarantee of interest
on ESOP debt (22,208) (20,717) (19,339) (17,874) (16,341) (4,130) (3,724)
_________ _________ _________ _________ _________ ________ ________
Total earnings (losses)
before fixed charges $ 30,935 $ 91,754 $ 696,279 $ 171,392 $ 125,531 $ 10,926 $ 49,911
Ratio of earnings to
fixed charges(2) - - 4.18 - - - 1.07
(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 and $30,752,000 for the
three months ended March 31, 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 March 31, 1998, and from its Statement of Loss for the
three months ended March 31, 1998. The information presented is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 86,002
<SECURITIES> 8,840
<RECEIVABLES> 630,448
<ALLOWANCES> 8,874
<INVENTORY> 614,772
<CURRENT-ASSETS> 1,426,744
<PP&E> 5,037,596
<DEPRECIATION> 2,130,519
<TOTAL-ASSETS> 5,049,813
<CURRENT-LIABILITIES> 1,077,092
<BONDS> 1,919,315
<COMMON> 140,695
0
248,465
<OTHER-SE> 1,096,256
<TOTAL-LIABILITY-AND-EQUITY> 5,049,813
<SALES> 1,489,500
<TOTAL-REVENUES> 1,489,180
<CGS> 1,244,380
<TOTAL-COSTS> 1,442,670
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,100
<INCOME-PRETAX> 3,420
<INCOME-TAX> 1,450
<INCOME-CONTINUING> (1,160)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,160)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
