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 June 30, 1999
( ) 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 July 31, 1999
Common stock, $2.50 par value 57,066,845
<PAGE>
PART I - FINANCIAL INFORMATION
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
(expressed in thousands, except per share data)
Item 1. Financial Statements
<TABLE>
<CAPTION>
Three Months Ended
June 30
________________________
1999 1998
__________ __________
(unaudited)
<S> <C> <C>
Sales $1,678,008 $1,538,450
__________ __________
Costs and expenses
Materials, labor, and other operating expenses 1,290,393 1,220,030
Depreciation, amortization, and cost of company
timber harvested 71,442 71,110
Selling and distribution expenses 184,069 160,230
General and administrative expenses 33,677 37,540
Other (income) expense, net (39,072) 81,170
__________ __________
1,540,509 1,570,080
__________ __________
Equity in net income (loss) of affiliates 3,212 (1,810)
__________ __________
Income (loss) from operations 140,711 (33,440)
__________ __________
Interest expense (34,642) (40,860)
Interest income 562 570
Foreign exchange gain (loss) 29 (40)
__________ __________
(34,051) (40,330)
__________ __________
Income (loss) before income taxes and
minority interest 106,660 (73,770)
Income tax (provision) benefit (44,264) 12,280
__________ __________
Income (loss) before minority interest 62,396 (61,490)
Minority interest, net of income tax (3,344) (2,460)
__________ __________
Net income (loss) $ 59,052 $ (63,950)
========== ==========
Net income (loss) per common share
Basic net income (loss) $ .98 $ (1.20)
========== ==========
Diluted net income (loss) $ .92 $ (1.20)
========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
(expressed in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30
________________________
1999 1998
__________ __________
(unaudited)
<S> <C> <C>
Sales $3,289,161 $3,027,950
__________ __________
Costs and expenses
Materials, labor, and other operating expenses 2,544,016 2,392,950
Depreciation, amortization, and cost of company
timber harvested 140,477 141,390
Selling and distribution expenses 366,965 321,930
General and administrative expenses 63,663 74,130
Other (income) expense, net (37,105) 81,510
__________ __________
3,078,016 3,011,910
__________ __________
Equity in net income (loss) of affiliates 3,958 (5,350)
__________ __________
Income from operations 215,103 10,690
__________ __________
Interest expense (71,759) (80,960)
Interest income 1,178 1,170
Foreign exchange gain (loss) 73 (90)
__________ __________
(70,508) (79,880)
__________ __________
Income (loss) before income taxes, minority interest,
and cumulative effect of accounting change 144,595 (69,190)
Income tax (provision) benefit (60,007) 10,380
__________ __________
Income (loss) before minority interest and cumulative
effect of accounting change 84,588 (58,810)
Minority interest, net of income tax (6,683) (5,590)
__________ __________
Income (loss) before cumulative effect of
accounting change 77,905 (64,400)
Cumulative effect of accounting change, net
of income tax - (8,590)
__________ __________
Net income (loss) $ 77,905 $ (72,990)
========== ==========
Net income (loss) per common share
Basic net income (loss) before cumulative
effect of accounting change $ 1.25 $ (1.37)
Cumulative effect of accounting change - (0.15)
__________ __________
Basic net income (loss) $ 1.25 $ (1.52)
========== ==========
Diluted net income (loss) before cumulative
effect of accounting change $ 1.18 $ (1.37)
Cumulative effect of accounting change - (0.15)
__________ __________
Diluted net income (loss) $ 1.18 $ (1.52)
========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
BOISE CASCADE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(expressed in thousands)
ASSETS
<TABLE>
<CAPTION>
June 30 December 31
_______________________ ___________
1999 1998 1998
__________ __________ ___________
(unaudited)
<S> <C> <C> <C>
Current
Cash $ 66,757 $ 82,668 $ 66,469
Cash equivalents 6,590 4,357 7,899
__________ __________ __________
73,347 87,025 74,368
Receivables, less allowances of
$10,536, $8,815, and $10,933 587,159 620,461 526,359
Inventories 552,291 586,758 625,218
Deferred income tax benefits 73,015 57,808 92,426
Other 55,754 33,870 50,035
__________ __________ __________
1,341,566 1,385,922 1,368,406
__________ __________ __________
Property
Property and equipment
Land and land improvements 63,777 55,542 63,307
Buildings and improvements 579,375 573,819 575,509
Machinery and equipment 4,200,392 4,148,885 4,082,724
__________ __________ __________
4,843,544 4,778,246 4,721,540
Accumulated depreciation (2,285,697) (2,187,540) (2,150,385)
__________ __________ __________
2,557,847 2,590,706 2,571,155
Timber, timberlands, and
timber deposits 270,433 276,714 270,570
__________ __________ __________
2,828,280 2,867,420 2,841,725
__________ __________ __________
Goodwill, net of amortization
of $44,965, $30,995, and $37,327 491,797 444,525 501,691
Investments in equity affiliates 35,219 25,739 27,162
Other assets 228,161 221,138 227,715
__________ __________ __________
Total assets $4,925,023 $4,944,744 $4,966,699
========== ========== ==========
</TABLE>
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
<TABLE>
<CAPTION>
June 30 December 31
_______________________ ___________
1999 1998 1998
__________ __________ ___________
(unaudited)
<S> <C> <C> <C>
Current
Short-term borrowings $ 137,511 $ 214,400 $ 129,512
Current portion of long-term debt 122,965 25,241 161,473
Accounts payable 515,734 476,279 499,489
Accrued liabilities
Compensation and benefits 136,528 124,267 130,480
Interest payable 30,244 42,478 36,166
Other 197,142 179,940 172,980
__________ __________ __________
1,140,124 1,062,605 1,130,100
__________ __________ __________
Debt
Long-term debt, less current
portion 1,488,844 1,752,170 1,578,136
Guarantee of ESOP debt 149,506 171,513 155,731
__________ __________ __________
1,638,350 1,923,683 1,733,867
__________ __________ __________
Other
Deferred income taxes 276,748 210,285 255,660
Other long-term liabilities 253,554 224,364 301,920
__________ __________ __________
530,302 434,649 557,580
__________ __________ __________
Minority interest 123,802 112,781 116,753
__________ __________ __________
Shareholders' equity
Preferred stock -- no par value;
10,000,000 shares authorized;
Series D ESOP: $.01 stated
value; 5,150,740; 5,485,292; and
5,356,648 shares outstanding 231,783 246,838 241,049
Deferred ESOP benefit (149,506) (171,513) (155,731)
Common stock -- $2.50 par value;
200,000,000 shares authorized;
56,851,188; 56,329,030; and
56,338,426 shares outstanding 142,128 140,823 140,846
Additional paid-in capital 437,120 420,556 420,890
Retained earnings 846,288 781,697 788,918
Accumulated other comprehensive
income (loss) (15,368) (7,375) (7,573)
__________ __________ __________
Total shareholders' equity 1,492,445 1,411,026 1,428,399
__________ __________ __________
Total liabilities and shareholders'
equity $4,925,023 $4,944,744 $4,966,699
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(expressed in thousands)
<TABLE>
<CAPTION> Six Months Ended
June 30
________________________
1999 1998
_________ _________
(unaudited)
<S> <C> <C>
Cash provided by (used for) operations
Net income (loss) $ 77,905 $ (72,990)
Cumulative effect of accounting change, net of
income tax - 8,590
Items in net income (loss) not using
(providing) cash
Equity in net (income) loss of affiliates (3,958) 5,350
Depreciation, amortization, and cost of
company timber harvested 140,477 141,390
Deferred income tax provision (benefit) 51,102 (14,704)
Minority interest, net of income tax 6,683 5,590
Restructuring reserves (40,722) 80,903
Other (73) (1,109)
Receivables (64,900) (54,526)
Inventories 74,341 47,721
Accounts payable and accrued liabilities 23,578 21,991
Current and deferred income taxes (1,464) (13,015)
Other (2,109) 10,293
_________ _________
Cash provided by operations 260,860 165,484
_________ _________
Cash provided by (used for) investment
Expenditures for property and equipment (107,096) (121,609)
Expenditures for timber and timberlands (1,683) (8,275)
Investments in equity affiliates, net - (429)
Purchases of assets (6,328) (4,042)
Other (10,001) (4,371)
_________ _________
Cash used for investment (125,108) (138,726)
_________ _________
Cash provided by (used for) financing
Cash dividends paid
Common stock (16,910) (16,875)
Preferred stock (8,741) (12,867)
_________ _________
(25,651) (29,742)
Short-term borrowings 7,999 119,600
Additions to long-term debt 88,671 239,672
Payments of long-term debt (215,743) (218,289)
Series F preferred stock redemption - (115,033)
Other 7,951 473
_________ _________
Cash used for financing (136,773) (3,319)
_________ _________
Increase (decrease) in cash and cash equivalents (1,021) 23,439
Balance at beginning of the year 74,368 63,586
_________ _________
Balance at June 30 $ 73,347 $ 87,025
========= =========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
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 1998 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 income (loss) for the three and six
months ended June 30, 1999 and 1998, 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 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 the three and six months ended
June 30, 1998, the computation of diluted net loss per share was
antidilutive; therefore, amounts reported for basic and diluted loss
were the same.
Three Months Ended Six Months Ended
June 30 June 30
__________________ __________________
1999 1998 1999 1998
________ ________ ________ ________
(expressed in thousands)
Basic
Net income (loss) as reported,
before cumulative effect of
accounting change $ 59,052 $(63,950) $ 77,905 $(64,400)
Preferred dividends(a) (3,365) (3,518) (6,855) (8,579)
Excess of Series F Preferred
Stock redemption price over
carrying value(b) - - - (3,958)
________ ________ ________ ________
Basic income (loss) before
cumulative effect of
accounting change 55,687 (67,468) 71,050 (76,937)
Cumulative effect of accounting
change, net of income tax - - - (8,590)
________ ________ ________ ________
Basic income (loss) $ 55,687 $(67,468) $ 71,050 $(85,527)
======== ======== ======== ========
Average shares outstanding used
to determine basic income
(loss) per common share 56,600 56,316 56,485 56,279
======== ======== ======== ========
Diluted
Basic income (loss) before
cumulative effect of
accounting change $ 55,687 $(67,468) $ 71,050 $(76,937)
Preferred dividends
eliminated 3,365 - 6,855 -
Supplemental ESOP
contribution (2,877) - (5,860) -
________ ________ ________ ________
Diluted income (loss) before
cumulative effect of
accounting change 56,175 (67,468) 72,045 (76,937)
Cumulative effect of accounting
change, net of income tax - - - (8,590)
________ ________ ________ ________
Diluted income (loss) $ 56,175 $(67,468) $ 72,045 $(85,527)
======== ======== ======== ========
Average shares outstanding used
to determine basic income
(loss) per common share 56,600 56,316 56,485 56,279
Stock options and other 543 - 395 -
Series D conversion preferred
stock 4,171 - 4,223 -
________ ________ ________ ________
Average shares used to
determine diluted income
(loss) per common share 61,314 56,316 61,103 56,279
======== ======== ======== ========
(a) Dividend attributable to the company's Series D convertible
preferred stock held by the company's ESOP (Employee Stock
Ownership Plan) is net of a tax benefit.
(b) Six months ended June 30, 1998, included a negative seven cents
related to the redemption of the Series F preferred stock. The
loss 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 Six Months Ended
June 30 June 30
___________________ ___________________
1999 1998 1999 1998
________ ________ ________ ________
(expressed in thousands)
Net income (loss) $ 59,052 $(63,950) $ 77,905 $(72,990)
Other comprehensive
income (loss)
Cumulative foreign
currency translation
adjustment, net of
income taxes (868) (480) (7,796) 1,235
________ ________ ________ ________
Comprehensive income (loss),
net of income taxes $ 58,184 $(64,430) $ 70,109 $(71,755)
======== ======== ======== ========
(4) RECEIVABLES. In late September 1998, we sold fractional ownership
interests in a defined pool of trade accounts receivable. At June 30,
1999, and December 31, 1998, $100.0 million and $79.0 million of sold
accounts receivable were excluded from receivables in the accompanying
balance sheets. The portion of fractional ownership interest retained
by us is included in accounts receivable in the balance sheets. The
increase in sold accounts receivable over the amount at December 31,
1998, also represents an increase in cash provided by operations for
the six months ended June 30, 1999. This program represents a
revolving sale of receivables committed to by the purchasers for 364
days and is subject to renewal. Costs related to the program are
included in "Other (income) expense, net" in the Statements of Income
(Loss). Under the accounts receivable sale agreement, the maximum
amount available from time to time is subject to change based on the
level of eligible receivables, restrictions on concentrations of
receivables, and the historical performance of the receivables we
sell.
(5) DEFERRED SOFTWARE COSTS. We defer certain software costs that benefit
future years. These costs are amortized on the straight-line method
over the expected useful life of the software. "Other assets" in the
balance sheets include deferred software costs of $50.1 million,
$34.5 million, and $47.1 million at June 30, 1999 and 1998, and
December 31, 1998.
AICPA Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," became
effective beginning in 1999. We account for software costs in
accordance with this statement. The implementation of this statement
had no financial statement impact on us.
(6) INVENTORIES. Inventories include the following:
June 30 December 31
__________________ ___________
1999 1998 1998
________ ________ ___________
(expressed in thousands)
Finished goods and work in process $436,753 $454,363 $456,577
Logs 40,299 60,610 87,688
Other raw materials and supplies 138,535 149,858 145,319
LIFO reserve (63,296) (78,073) (64,366)
________ ________ ________
$552,291 $586,758 $625,218
======== ======== ========
(7) CUMULATIVE EFFECT OF ACCOUNTING CHANGE. As of January 1, 1998, we
adopted the provisions of a new accounting standard, AICPA Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which required the write-off of previously capitalized preoperating
costs. Adoption of this standard resulted in a charge for the
cumulative effect of accounting change, net of tax, of $8.6 million,
or 15 cents per basic and diluted loss per share, for the six months
ended June 30, 1998.
(8) INCOME TAXES. We used an estimated annual tax provision rate of 41.5%
for the three and six months ended June 30, 1999. Our estimated
annual tax benefit rate was 15% for the six months ended June 30,
1998, and our actual 1998 benefit rate was 12.5%. Excluding
nonroutine items in 1998, the annual tax provision rate would have
been 44%. Our tax rate is subject to fluctuations due primarily to
the sensitivity of the rate to low income levels, the impact of
nonroutine items, and the mix of income sources.
For the three and six months ended June 30, 1999, we paid income
taxes, net of refunds received, of $1.8 million and $7.3 million. We
paid $6.6 million and $9.1 million for the same periods in 1998.
(9) DEBT. At June 30, 1999, we had a revolving credit agreement with a
group of banks that permits us to borrow as much as $600.0 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 June 30, 1999, exceeded the defined minimum
by $150.0 million. At June 30, 1999, there were $140.0 million of
borrowings outstanding under this agreement.
Our majority-owned subsidiary, Boise Cascade Office Products
Corporation ("BCOP"), has a $450.0 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 $125.0 million at June 30, 1999.
In October 1998, we entered into an interest rate swap with a notional
amount of $75.0 million and an effective fixed rate of 5.1% with
respect to $75.0 million of our revolving credit agreement borrowings.
BCOP also entered into an interest rate swap with a notional amount of
$25.0 million and an effective fixed interest rate of 5.0% with
respect to $25.0 million of their revolving credit agreement
borrowings. Both swaps expire in 2000. We are exposed to credit-
related gains or losses in the event of nonperformance by
counterparties to these swaps; however, we do not expect any
counterparties to fail to meet their obligations.
Also at June 30, 1999, we had $77.1 million of short-term borrowings
outstanding and BCOP had $60.4 million of short-term borrowings
outstanding. At June 30, 1998, we had $132.2 million short-term
borrowings outstanding, while BCOP had $82.2 million of short-term
borrowings outstanding. The maximum amount of short-term borrowings
outstanding during the six months ended June 30, 1999 and 1998, was
$293.3 million and $275.3 million. The average amount of short-term
borrowings outstanding during the six months ended June 30, 1999 and
1998, was $167.8 million and $214.9 million. The average interest
rate for these borrowings was 5.4% for 1999 and 5.9% for 1998.
At June 30, 1999, we had $430.0 million and BCOP had $150.0 million of
unused borrowing capacity registered with the Securities and Exchange
Commission for additional debt securities.
In March 1999, we filed a registration statement covering
$300.0 million in universal shelf capacity with the Securities and
Exchange Commission. This filing is still under review by the
Securities and Exchange Commission. Once approved, we may issue debt
and/or equity securities in one or more offerings.
Cash payments for interest, net of interest capitalized, were
$37.1 million and $77.7 million for the three and six months ended
June 30, 1999, and $33.9 million and $77.6 million for the three and
six months ended June 30, 1998.
(10) BOISE CASCADE OFFICE PRODUCTS CORPORATION. During the first six
months of 1999, BCOP completed one acquisition, and during the first
six months of 1998, BCOP completed two 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 11, 1999, BCOP acquired the office supply business of
Wallace Computer Services, based in Lisle, Illinois. This transaction
was completed for cash of $6.3 million and the recording of
$0.2 million of acquisition liabilities.
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 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.
If the 1999 acquisition had occurred on January 1, 1999, and if the
1999 and 1998 acquisitions had occurred on January 1, 1998, there
would be no significant pro forma change in the results of operations for
the first six months of 1999 and 1998. 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.
(11) NEW ACCOUNTING STANDARDS. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. This statement is effective for
fiscal years beginning after June 15, 2000. We plan to adopt this
statement in the first quarter of 2001. We are in the process of
reviewing this new standard. Adoption of this statement is not
expected to have a significant impact on our results of operations or
financial position.
(12) RESTRUCTURING ACTIVITIES. Late in the second quarter of 1998, we
adopted a plan to restructure our wood products manufacturing business
and announced the permanent closure of four facilities, including
sawmills in Elgin, Oregon; Horseshoe Bend, Idaho; and Fisher,
Louisiana; and a plywood plant in Yakima, Washington. Second quarter
1998 results were negatively impacted by $61.9 million for this
restructuring charge. We closed the sawmills in Horseshoe Bend and
Fisher in 1998. In late May 1999, we decided to indefinitely continue
operations at the Elgin and Yakima mills. This decision was based on
recent changes in wood supply and costs, product prices, improved
plant operations, and the impact of a fire at our Elgin plywood plant
in May 1999. As a result of this decision, in the second quarter of
1999, our building products segment reversed previously recorded
restructuring charges totaling $35.5 million. Of this amount,
$23.5 million reflected the reversal of restructuring accruals as shown in
the table that follows and $12.0 million related to the restoration of the
net book value of these two facilities. This adjustment is recorded in
"Other (income) expense, net" in the accompanying Statements of Income
(Loss). The two closed plants had sales of $12.5 million and
$22.9 million for the three and six months ended June 30, 1998.
Operating losses for the three and six months ended June 30, 1998,
totaled $2.4 million and $4.3 million.
Restructuring activities related to these second quarter 1998 charges
through June 30, 1999, are as follows:
Asset Employee- Other
Write- Related Exit
Downs Costs Costs Total
________ ________ ________ ________
(expressed in thousands)
1998 expense recorded $ 27,200 $ 14,000 $ 20,700 $ 61,900
Assets written down (27,200) - - (27,200)
Pension liability recorded - (1,300) - (1,300)
Reserves credited to income - (7,300) (16,200) (23,500)
Charges against reserve - (4,800) (2,300) (7,100)
________ ________ ________ ________
Restructuring reserve at
June 30, 1999 $ - $ 600 $ 2,200 $ 2,800
======== ======== ======== ========
Charges against the reserve for other exit costs were primarily for
the write-down of contracts to their realizable values and a small
charge for tear-down costs.
Also in the second quarter of 1998, our paper and paper products
segment recorded a pretax charge of $19.0 million related to the
revaluation of paper-related assets. Included in the revaluation was
the $8.0 million write-down to zero of our investment in a now
terminated joint venture in China that produced carbonless paper.
Also written down by approximately $5.0 million were the fixed assets
of a small corrugating facility that was sold in March 1999 for its
approximate remaining book value. We also wrote off $6.0 million in
an investment in a bankrupt recycling joint venture and miscellaneous
equipment that had no future value.
In the fourth quarter of 1998, we announced a company-wide cost-
reduction initiative and the restructuring of certain operations.
Specific actions included the elimination of job positions in our
manufacturing businesses and Boise headquarters through a combination
of early retirements, layoffs, and attrition and the closure of our
paper research and development facility in Portland, Oregon. BCOP
announced the closure of eight facilities in the United Kingdom and
the integration of selected functions of the operations with their
other United Kingdom operations. These BCOP closures were expected to
be completed during the first half of 1999 resulting in work force
reductions of approximately 140 employees. BCOP also dissolved an
unprofitable joint venture in Germany at a cost of about $4.0 million
which was paid in 1998.
During the second quarter of 1999, BCOP revised the amount of a
restructuring reserve established in the fourth quarter of 1998, for
their United Kingdom operations. The restructuring program was less
costly than originally anticipated due to lower professional fees, a
sublease of one of the facilities, a decision to retain a small printing
portion of the business, and fewer terminations of employees. As a result,
BCOP recorded an increase to operating income of approximately $4.0 million
in the second quarter of 1999. The increase to income included
$0.5 million for reduced employee-related costs and $3.5 million for
other exit costs including lower lease costs and lower-than-expected
inventory write-downs. The adjustment related to inventory of about
$0.8 million is included in "Materials, labor, and other operating
expenses" in the accompanying Statements of Income (Loss). The other
adjustments are included in "Other (income) expense, net."
Our paper and paper products segment also adjusted reserves recorded
in fourth quarter 1998 for the elimination of job positions and the
closure of our research and development facility in Portland, Oregon,
to reflect our actual experience. These adjustments increased this
segment's second quarter income by $1.2 million. These adjustments
are also reflected in "Other (income) expense, net" in the Statements
of Income (Loss). The following table shows that only $0.1 million of
this adjustment reduced our restructuring liability reserve account.
The balance of the adjustment was reflected as additional expense and
pension liability of $1.1 million offset by gains of $2.2 million from
the sale of the research and development building and equipment.
Restructuring activities related to these fourth quarter 1998 charges
through June 30, 1999, are as follows:
Asset Employee- Other
Write- Related Exit
Downs Costs Costs Total
_______ _______ _______ _______
(expressed in thousands)
OFFICE PRODUCTS
1998 expense recorded $ 300 $ 1,400 $ 9,400 $11,100
Assets written down (300) - - (300)
Reserves credited to income - (500) (3,500) (4,000)
Charges against reserve - (800) (4,300) (5,100)
_______ _______ _______ _______
Restructuring reserve at
June 30, 1999 $ - $ 100 $ 1,600 $ 1,700
======= ======= ======= =======
BUILDING PRODUCTS
1998 expense recorded $ - $ 2,800 $ - $ 2,800
Pension liability recorded - (2,200) - (2,200)
Charges against reserve - - - -
_______ _______ _______ _______
Restructuring reserve at
June 30, 1999 $ - $ 600 $ - $ 600
======= ======= ======= =======
PAPER AND PAPER PRODUCTS
1998 expense recorded $ 7,200 $11,300 $ - $18,500
Assets written down (7,200) - - (7,200)
Pension liability recorded - (4,500) - (4,500)
Reserves credited to income - (100) - (100)
Charges against reserve - (3,300) - (3,300)
_______ _______ _______ _______
Restructuring reserve at
June 30, 1999 $ - $ 3,400 $ - $ 3,400
======= ======= ======= =======
CORPORATE AND OTHER
1998 expense recorded $ - $ 9,600 $ 400 $10,000
Pension liability recorded - (7,600) - (7,600)
Reclass from other accounts - 500 - 500
Charges against reserve - (1,600) (100) (1,700)
_______ _______ _______ _______
Restructuring reserve at
June 30, 1999 $ - $ 900 $ 300 $ 1,200
======= ======= ======= =======
In office products, charges against the reserve in other exit costs
included $4.0 million of payments to dissolve the joint venture in
Germany.
The estimated number of employees impacted by the 1998 restructuring
activities described above and the number who have left the company as
of June 30, 1999, are as follows:
Employees To Be
Terminated Employees
_____________________ Terminated
Original Revised Through
Estimate Estimate June 30, 1999
________ ________ _____________
Second Quarter 1998
Building products 494 182 182
Fourth Quarter 1998
Office products 140 100 90
Building products 40 40 19
Paper and paper products 212 212 134
Corporate and other 92 92 49
____ ____ ____
Total 978 626 474
==== ==== ====
In addition to the employees discussed above, we have eliminated
approximately another 100 positions by not filling already vacant
positions or through normal attrition. No reserves were established
related to these job eliminations.
The impact of the restructuring charge adjustments described above
increased net income $24.6 million and basic and diluted income per
share $0.43 and $0.40 for the three and six months ended June 30,
1999.
Second quarter 1998 results were negatively impacted by the
$61.9 million restructuring charge in the building products segment
described above and a $19.0 million charge in the paper and paper
products segment for the revaluation of paper-related assets. These
charges reduced net income $65.2 million or $1.16 per basic and
diluted share for the three and six months ended June 30, 1998.
(13) SEGMENT INFORMATION. We have had no differences from our last annual
report in our basis of segmentation or in our basis of measurement of
segment profit or loss. An analysis of our operations by segment is
as follows. For a discussion of nonroutine items impacting our
segments, see Note 12, Restructuring Activities.
Income
(Loss)
Before
Taxes,
Minority
Interest,
and Cumu-
Sales lative
______________________________ Effect of
Inter- Accounting
Trade Segment Total Change(a)
Three Months Ended ________ _______ ________ __________
June 30, 1999 (expressed in millions)
Office products $ 801.4 $ .2 $ 801.6 $ 37.0
Building products 533.4 9.2 542.6 98.2
Paper and paper products 334.5 86.5 421.0 17.7
Corporate and other 8.7 12.7 21.4 (11.6)
________ ________ ________ ________
Total 1,678.0 108.6 1,786.6 141.3
Intersegment eliminations - (108.6) (108.6) -
Interest expense - - - (34.6)
________ ________ ________ ________
Consolidated Totals $1,678.0 $ - $1,678.0 $ 106.7
======== ======== ======== ========
Three Months Ended
June 30, 1998
Office products $ 732.6 $ .3 $ 732.9 $ 30.3
Building products 439.1 10.1 449.2 (53.5)
Paper and paper products 360.2 95.2 455.4 (1.6)
Corporate and other 6.6 14.5 21.1 (8.1)
________ ________ ________ ________
Total 1,538.5 120.1 1,658.6 (32.9)
Intersegment eliminations - (120.1) (120.1) -
Interest expense - - - (40.9)
________ ________ ________ ________
Consolidated Totals $1,538.5 $ - $1,538.5 $ (73.8)
======== ======== ======== ========
Six Months Ended
June 30, 1999
Office products $1,649.7 $ .2 $1,649.9 $ 75.7
Building products 969.9 16.2 986.1 138.5
Paper and paper products 654.4 166.0 820.4 22.5
Corporate and other 15.2 26.9 42.1 (20.3)
________ ________ ________ ________
Total 3,289.2 209.3 3,498.5 216.4
Intersegment eliminations - (209.3) (209.3) -
Interest expense - - - (71.8)
________ ________ ________ ________
Consolidated Totals $3,289.2 $ - $3,289.2 $ 144.6
======== ======== ======== ========
Six Months Ended
June 30, 1998
Office products $1,492.0 $ .7 $1,492.7 $ 66.8
Building products 797.2 20.6 817.8 (53.7)
Paper and paper products 727.3 186.4 913.7 19.0
Corporate and other 11.5 29.5 41.0 (20.3)
________ ________ ________ ________
Total 3,028.0 237.2 3,265.2 11.8
Intersegment eliminations - (237.2) (237.2) -
Interest expense - - - (81.0)
________ ________ ________ ________
Consolidated Totals $3,028.0 $ - $3,028.0 $ (69.2)
======== ======== ======== ========
(a) Interest income has been allocated to our segments in the amounts
of approximately $0.6 million and $1.2 million for the three and
six months ended June 30, 1999 and 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30 June 30
_____________________ _____________________
1999 1998 1999 1998
________ ________ ________ ________
(expressed in millions)
Sales $1,678.0 $1,538.5 $3,289.2 $3,028.0
Net income (loss) $ 59.1 $ (64.0) $ 77.9 $ (73.0)
Net income (loss) per
diluted share $ 0.92 $ (1.20) $ 1.18 $ (1.52)
Net income (loss) before
nonroutine items $ 34.4 $ 1.2 $ 53.3 $ 0.8
Net income (loss) per
diluted share before
nonroutine items $ 0.52 $ (0.04) $ 0.78 $ (0.14)
(percent of sales)
Materials, labor, and other
operating expenses 76.9% 79.3% 77.3% 79.0%
Selling and distribution
expenses 11.0% 10.4% 11.2% 10.6%
General and administrative
expenses 2.0% 2.4% 1.9% 2.4%
The results for the three and six months ended June 30, 1999, included
$24.6 million, or 43 cents, and 40 cents per basic and diluted share for
the reversal of restructuring reserves established in 1998. The results
for the three and six months ended June 30, 1998, included a charge of
$65.2 million, or $1.16 per basic and diluted share for restructuring
charges in the building products segment and the revaluation of paper-
related assets in the paper and paper products segment. See Note 12 in the
Notes to Quarterly Financial Statements for additional information on our
restructuring activities. See also the discussion by segment in this MD&A.
The improvement in materials, labor, and other operating expenses as a
percent of sales is primarily due to the increased sales prices which
increase sales without a corresponding increase in costs, and reduced wood
and conversion costs in our building products segment. The higher
percentage in selling and distribution expenses is due primarily to the
increasing office products sales which have higher associated selling and
distribution costs. General and administrative expenses have decreased as
a percentage of sales due in part to our cost reduction efforts as well as
leveraging fixed costs over higher sales.
The following table shows the estimated increase in 1999 operating income
compared with the same periods in 1998 as a result of our restructurings
and other cost saving initiatives.
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
__________________ _________________
Cash Noncash Cash Noncash
_______ _______ _______ _______
(expressed in millions)
Office products
Improved operating results over 1998
for restructured European locations $ - $ 0.9 $ - $ 2.2
Building products
1998 operating losses for closed
locations 1.8 0.6 3.3 1.0
Cost savings 1.0 - 1.0 -
Paper and paper products
Cost savings 11.6 0.4 20.3 0.7
Corporate and other
Cost savings 2.0 - 3.0 -
_______ _______ _______ _______
Total $ 16.4 $ 1.9 $ 27.6 $ 3.9
======= ======= ======= =======
As of January 1, 1998, we adopted the provisions of a new accounting
standard, AICPA Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities." This statement required the write-off of previously
capitalized preoperating costs, which resulted in an after-tax charge of
$8.6 million, or 15 cents per basic and diluted share for the six months
ended June 30, 1998. Also included in the six months ended June 30, 1998,
earnings per share is a negative seven cents per basic and diluted share
related to the redemption of our Series F preferred stock.
Interest expense was $34.6 million in the second quarter of 1999, compared
with $40.9 million in the same period last year. Interest expense was
$71.8 million for the first six months of 1999, compared with $81.0 million
in the same period last year. The decreases were due primarily to lower
debt levels.
We used an estimated annual tax provision rate of 41.5% for the three and
six months ended June 30, 1999. Our estimated annual tax benefit rate was
15% for the six months ended June 30, 1998, and our actual 1998 benefit
rate was 12.5%. Excluding nonroutine items in 1998, the annual tax
provision rate would have been 44%. Our tax rate is subject to
fluctuations due primarily to the sensitivity of the rate to low income
levels, the impact of nonroutine items, and the mix of income sources.
Office Products Distribution
Three Months Ended Six Months Ended
June 30 June 30
_____________________ _____________________
1999 1998 1999 1998
________ ________ ________ ________
(expressed in millions)
Sales $ 801.6 $ 732.9 $1,649.9 $1,492.7
Segment income $ 37.0 $ 30.3 $ 75.7 $ 66.8
Segment income before
nonroutine items $ 33.0 $ 30.3 $ 71.7 $ 66.8
(percent of sales)
Gross profit 26.6% 25.7% 26.2% 25.7%
Operating expenses 22.0% 21.6% 21.6% 21.2%
Operating expenses before
nonroutine items 22.4% 21.6% 21.8% 21.2%
Operating profit 4.6% 4.1% 4.6% 4.5%
Operating profit before
nonroutine items 4.1% 4.1% 4.3% 4.5%
During the second quarter of 1999, BCOP revised the amount of a
restructuring reserve for their United Kingdom operations. The
restructuring program was less costly than originally anticipated due to
lower professional fees, a sublease of one of the facilities, a decision to
retain a small printing portion of the business, and fewer terminations of
employees. As a result, they recorded an increase to operating income of
approximately $4.0 million in the second quarter of 1999. The increase to
income included $0.5 million for reduced employee-related costs and
$3.5 million for other exit costs including lower lease costs and lower-than-
expected inventory write-downs of about $0.8 million.
The growth in sales resulted primarily from same-location sales growth.
Same-location sales increased 7% in the second quarter of 1999 and for the
six months ended June 30, 1999, compared with the same periods in 1998.
Excluding the negative impact of paper price changes and foreign currency
changes, same-location sales increased 8% and 9% for the three and six
months ended June 30, 1999, compared with the same periods in 1998.
Gross profit increased in the second quarter and for the first six months
of 1999 primarily because of higher margins in many of BCOP's businesses,
particularly in BCOP's domestic operations. BCOP's higher margins were
primarily the result of lower procurement costs. The increase in operating
expenses resulted, in part, from higher payroll and benefits as a percent
of sales, increased investment in growth initiatives, and start-up
operating costs associated with BCOP's Casper, Wyoming, customer service
center. The improvement in operations from the restructuring shown in the
table in this section was primarily due to the elimination of losses from
the disposed of German joint venture.
Building Products
Three Months Ended Six Months Ended
June 30 June 30
_____________________ _____________________
1999 1998 1999 1998
________ ________ ________ ________
(expressed in millions)
Sales $ 542.6 $ 449.2 $ 986.1 $ 817.8
Segment income (loss) $ 98.2 $ (53.5) $ 138.5 $ (53.7)
Segment income before
nonroutine items $ 62.6 $ 8.4 $ 102.9 $ 8.2
Late in the second quarter of 1998, we adopted a plan to restructure our
wood products manufacturing business by permanently closing four
facilities, including sawmills in Elgin, Oregon; Horseshoe Bend, Idaho; and
Fisher, Louisiana; and a plywood plant in Yakima, Washington. Second
quarter 1998 results were negatively impacted by $61.9 million for this
restructuring charge. We closed the sawmills in Horseshoe Bend and Fisher
in 1998. In late May 1999, we decided to indefinitely continue operations
at the Elgin and Yakima mills. This decision was based on recent changes
in wood supply and costs, product prices, improved plant operations, and
the impact of a fire at our Elgin plywood plant in May 1999. As a result
of this decision, in the second quarter of 1999, our building products
segment reversed previously recorded restructuring charges totaling
$35.5 million.
Excluding nonroutine items, the increase in results for the three and six
months ended June 30, 1999, is due to improved sales prices, very strong
structural panel markets, increases in engineered wood products sales,
significant sales growth in building materials distribution, an improved
product mix through a reduction in commodity lumber volume, and stable log
costs. The increase in operating income was also due to lower wood and
conversion costs and our restructuring activities. (See table in this
section showing the estimated increase in 1999 operating income compared
with the same periods in 1998 as a result of our restructurings and other
cost saving initiatives.) The increase in distribution sales was due both
to higher prices and increased market share. The tables below present our
sales volumes and prices for selected products.
Three Months Ended Six Months Ended
June 30 June 30
___________________ ___________________
1999 1998 1999 1998
________ ________ ________ ________
Sales Volumes
Plywood (1,000 sq. ft. 3/8" basis) 380,999 485,931 779,557 946,608
OSB (1,000 sq. ft. 3/8" basis)(a) 96,070 76,661 187,447 165,282
Lumber (1,000 board ft.) 134,685 156,786 257,451 298,141
LVL (100 cubic ft.) 14,234 10,183 26,982 17,263
I-joists (1000 equivalent
lineal ft.) 37,242 31,163 66,743 48,790
Particleboard (1,000 sq. ft.
3/4" basis) 49,957 50,677 96,452 98,703
Building materials distribution
(millions of sales dollars) $ 305.6 $ 228.2 $ 529.8 $ 395.9
(a) Includes 100% of the sales of Voyageur Panel, of which we own 47%.
Average Net Selling Prices
Plywood (per 1,000 sq. ft. 3/8"
basis) $ 288 $ 229 $ 277 $ 228
OSB (per 1,000 sq. ft. 3/8" basis) 217 149 187 134
Lumber (per 1,000 board ft.) 521 468 512 478
LVL (per 100 cubic ft.) 1,603 1,590 1,593 1,592
I-joists (per 1,000 equivalent
lineal ft.) 1,007 991 1,001 990
In May 1999, a fire damaged our Elgin plywood plant. The plant is being
rebuilt and is expected to be operating by the end of the year. After
paying a $1.5 million deductible which was recorded in corporate and other,
the loss is fully insured, including coverage for business interruption
losses. This fire and a fire at our Medford plywood plant in September
1998 caused the decrease between periods in plywood sales volume. However,
because of the business interruption insurance, there has not been a
corresponding decrease in operating income. The Medford plant is being
rebuilt and will come on line in the second half of 1999.
Paper and Paper Products
Three Months Ended Six Months Ended
June 30 June 30
_____________________ _____________________
1999 1998 1999 1998
________ ________ ________ ________
(expressed in millions)
Sales $ 421.0 $ 455.4 $ 820.4 $ 913.7
Segment income $ 17.7 $ (1.6) $ 22.5 $ 19.0
Segment income before
nonroutine items $ 16.5 $ 17.4 $ 21.3 $ 38.0
Our paper and paper products segment also adjusted reserves recorded in
fourth quarter 1998 for the elimination of job positions and the closure of
our research and development facility in Portland, Oregon, to reflect our
actual experience. These adjustments increased this segment's second
quarter and year-to-date income $1.2 million. Second quarter 1998 results
were negatively impacted by a $19.0 million charge for the revaluation of
paper-related assets.
Excluding the nonroutine items, performance decreased only modestly despite
lower average paper prices for all of our paper grades. The lower paper
prices were offset by a modest growth in unit sales volume in the second
quarter, and for the year we have continued to reduce our unit costs.
Paper segment manufacturing costs per ton in the second quarter of 1999
were 5% lower than in the comparison quarter and 6% lower than in the prior
year. The decrease was due to lower fiber costs and our cost reduction
efforts. (See table in this section showing the estimated increase in 1999
operating income compared with the same periods in 1998 as a result of our
restructurings and other cost saving initiatives.)
The tables below present our sales volumes and prices for our selected
paper grades.
Three Months Ended Six Months Ended
June 30 June 30
_____________________ _____________________
1999 1998 1999 1998
________ ________ ________ ________
Sales Volumes
(1,000s of short tons)
Uncoated free sheet 354 351 700 704
Containerboard 164 154 317 315
Newsprint 108 106 203 210
Market pulp 35 40 75 74
________ ________ ________ ________
Total 661 651 1,295 1,303
======== ======== ======== ========
Average Net Selling Prices
Per Short Ton
Uncoated free sheet $ 674 $ 725 $ 666 $ 736
Containerboard 326 329 306 332
Newsprint 402 500 432 495
Market pulp 360 376 339 365
FINANCIAL CONDITION AND LIQUIDITY
Operating Activities. Cash provided by operations was $260.9 million for
the first six months of 1999, compared with $165.5 million for the same
period in 1998. The increase in 1999 was due to improved operating results
and cash provided by working capital items. In September 1998, we sold
fractional ownership interests in a defined pool of trade accounts
receivable. At June 30, 1999, $100 million of the sold accounts receivable
were excluded from receivables in the balance sheet. This is an increase
of $21.0 million from the December 31, 1998, balance of $79.0 million.
This increase represents an increase in cash provided by operations. Our
working capital ratio was 1.18:1 at June 30, 1999, compared with 1.30:1 at
June 30, 1998. Our working capital ratio was 1.21:1 at December 31, 1998.
Investing Activities. Cash used for investment was $125.1 million and
$138.7 million for the first six months of 1999 and 1998. Cash
expenditures for property and equipment and timber and timberlands totaled
$108.8 million and $129.9 million for the first six months of 1999 and
1998. This reduction reflects our focus on reducing our overall level of
capital spending. Cash purchases of assets, primarily due to BCOP's
expansion program, totaled $6.3 million for the first six months of 1999
and $4.0 million for the first six months of 1998.
Financing Activities. Cash used for financing was $136.8 million and
$3.3 million for the first six months of 1999 and 1998. Dividend payments
totaled $25.7 million and $29.7 million for the first six months of 1999
and 1998. The decrease is due to the redemption of our Series F preferred
stock in February 1998. In both years, our quarterly dividend was 15 cents
per common share. For the first six months of 1999, short-term borrowings,
primarily notes payable and commercial paper, increased $8.0 million
compared with an increase of $119.6 million for the first six months of
1998. The increase in short-term borrowings in the first six months of
1998 was used to fund the redemption of the Series F preferred stock for
$115 million in cash. Long-term debt decreased $127.1 million in the first
six months of 1999 and increased $21.4 million in the first six months of
1998. In February 1999, we redeemed our $100.0 million, 9.875% notes.
At June 30, 1999 and 1998, we had $1.9 billion and $2.2 billion of debt
outstanding. At December 31, 1998, we had $2.0 billion of debt
outstanding. Our debt-to-equity ratio was 1.27:1 and 1.53:1 at June 30,
1999 and 1998. Our debt-to-equity ratio was 1.42:1 at December 31, 1998.
Our debt and debt-to-equity ratio include the guarantee by the company of
the remaining $149.5 million of debt incurred by the trustee of our
leveraged Employee Stock Ownership Plan. While that guarantee has a
negative impact on our debt-to-equity ratio, it has virtually no effect on
our cash coverage ratios or on other measures of our financial strength.
We have a revolving credit agreement with a group of banks that permits us
to borrow as much as $600.0 million based on customary indices. As of
June 30, 1999, borrowings under the agreement totaled $140.0 million. When
the agreement expires in June 2002, any amount outstanding will be due and
payable. In October 1998, we entered into an interest rate swap with a
notional amount of $75.0 million that expires in 2000. This swap results
in an effective fixed interest rate with respect to $75.0 million of our
revolving credit agreement borrowings. The payment of dividends is
dependent on the existence of and the amount of net worth in excess of the
defined minimum under the agreement. As of June 30, 1999, we were in
compliance with our debt covenants, and our net worth exceeded the defined
minimum by $150.0 million.
BCOP has a $450.0 million revolving credit agreement with a group of banks
that expires in June 2001 and provides variable interest rates based on
customary indices. In October 1998, BCOP entered into an interest rate
swap with a notional amount of $25.0 million that expires in 2000. This
swap results in an effective fixed interest rate with respect to
$25.0 million of BCOP's revolving credit agreement borrowings. As of
June 30, 1999, BCOP had outstanding borrowings of $125.0 million under this
agreement and was in compliance with its debt covenants.
At June 30, 1999, we had $430.0 million and BCOP had $150.0 million of
unused borrowing capacity registered with the Securities and Exchange
Commission.
In March 1999, we filed a registration statement covering $300.0 million in
universal shelf capacity with the Securities and Exchange Commission. This
filing is still under review by the Securities and Exchange Commission.
Once approved, we may issue debt and/or equity securities in one or more
offerings.
At June 30, 1999, we had $77.1 million of short-term borrowings
outstanding, and BCOP had $60.4 million of short-term borrowings
outstanding. At June 30, 1998, we had $132.2 million of short-term
borrowings outstanding, while BCOP had $82.2 million of short-term
borrowings outstanding. At December 31, 1998, we had $57.4 million of
short-term borrowings outstanding, while BCOP had $72.1 million of short-
term borrowings outstanding.
We expect the restructuring programs announced in 1998 to be cash flow
positive in 1999. We estimate that the programs will require cash outlays
before any savings of approximately $13.0 million in 1999. These expected
cash payments in 1999 include $10.0 million for employee-related costs,
$3.0 million for other exit costs including $2.0 million for lease and
other contract terminations, and $1.0 million for tear-down and
environmental costs. We spent approximately $8.0 million in the first six
months of 1999, including $6.0 million for employee-related costs and
$2.0 million for lease and other contract terminations. Cash requirements
related to our restructuring in 2000 and beyond are expected to total
$3.0 million with most of that occurring in 2000 or early 2001. This and
our other cash requirements, including those discussed in the Outlook
section, will be funded through a combination of cash flows from
operations, borrowings under our existing credit facilities, and issuance
of new debt or equity securities.
Our results of operations are not materially effected by seasonal sales
variances or inflation.
OUTLOOK
The strong results by our building products business should continue
through the year, and double-digit sales growth should continue for
engineered wood products this year. Office products should continue its
pattern of solid growth in sales and income. Our paper business is
gradually improving as the combination of our focus on reducing costs and
slowly strengthening markets pays off more each quarter.
In June 1999, we agreed to acquire Furman Lumber, Inc., a privately held
building supplies distributor headquartered in Billerica, Massachusetts.
The 12 locations, which are located in the eastern, midwestern, and
southern states, will bring us closer to our goal of achieving national
coverage in the building distribution business. The Furman transaction
should add approximately $600.0 million of annual sales to our business.
We expect this transition to be immediately additive to earnings. The
transaction should close in the third quarter of 1999, subject to approval
under the Hart-Scott-Rodino Act, approval by the shareholders, and
completion of definitive agreements. The expected purchase price is
approximately $100.0 million including a cash payment of $30 million and
assumption of debt.
Also in June 1999, we announced we have an agreement to sell 56,000 acres
of timberland in central Washington to U.S. Timberlands Yakima, L.L.C., an
affiliate of U.S. Timberlands Company, L.P., for about $60 million in cash.
This tract represents only about 4% of our fee-owned timberland in the
Northwest. This sale has been approved under the Hart-Scott-Rodino Act and
is expected to close in the third quarter of 1999.
In August 1999, we made an offer to pay up to Can$33 per share for all of the
shares of Le Groupe Forex Inc., the leading producer of oriented strand
board (OSB) in Canada. Subsequently, Le Groupe Forex Inc. accepted a competing
bid from another company. On August 13, we announced that we would not submit
another bid.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an
asset or liability measured at its fair value. We plan to adopt this
statement in the first quarter of 2001. We are in the process of reviewing
this new standard. Adoption of this statement is not expected to have a
significant impact on our results of operations or financial position.
TIMBER SUPPLY
In recent years, the amount of timber available for commercial harvest in
the United States has declined due to environmental litigation, changes in
government policy, and other factors. More constraints on available timber
supply may be imposed. As a result, we cannot accurately predict future
log supply. In 1998, we closed sawmills in Fisher, Louisiana, and
Horseshoe Bend, Idaho, partly because of reductions in timber supply and
consequent increases in timber costs. Additional curtailments or closures
of our wood products manufacturing facilities are possible. We are
currently able to meet our timber requirements through a combination of
public and private sources and our 2.4 million acres of owned or controlled
timberland.
YEAR 2000 COMPUTER ISSUE
Over the last two years, we have been replacing many of our business
computer systems to realize cost savings and process improvements. These
replacements, all of which are year 2000-compliant, will be completed
before the year 2000. Many of the costs associated with these replacements
have been and will be deferred and amortized over approximately five years.
(See Note 5 in the Notes to Financial Statements.) A year 2000-compliance
assessment was completed in 1998. Many of the existing systems were found
to be compliant. We have begun appropriate modifications of the
noncompliant systems. We expect to complete all necessary changes before
year-end 1999.
We have surveyed our critical suppliers and customers to determine whether
critical processes may be impacted by a lack of year 2000 compliance. Most
of our critical suppliers and customers have confirmed that they are or
have plans to be compliant by year-end 1999.
Incremental costs to make our systems compliant are expected to range from
$10.0 million to $13.0 million. These costs are being expensed as
incurred. Approximately $6.6 million had been spent through June 30, 1999.
The most reasonably likely worst-case scenario of failure by us or our
suppliers or customers to be year 2000-compliant would be a temporary
slowdown of manufacturing operations at one or more of our locations and a
temporary inability to process orders and billings in a timely manner and
to deliver products to our customers in a timely manner. We have developed
or are developing contingency options in the event that critical systems or
suppliers encounter unforeseen year 2000 problems. These contingency plans
include alternative processes using a combination of computerized and
manual systems.
Our discussion of the year 2000 computer issue contains forward-looking
information. We believe that our critical computer systems will be year
2000-compliant and that the costs to achieve compliance will not materially
affect our financial condition, operating results, or cash flows.
Nevertheless, factors that could cause actual results to differ from our
expectations include the successful implementation of year 2000 initiatives
by our customers and suppliers, changes in the availability and costs of
resources to implement year 2000 changes, and our ability to successfully
identify and correct all systems affected by the year 2000 issue.
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, changes in domestic or foreign
competition; the severity and longevity of global economic disruptions;
increases in capacity through construction of new manufacturing facilities
or conversion of older facilities to produce competitive products; changes
in production capacity across paper and wood products markets; 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 and the success of
acquisitions; changes in same-location sales; cost structure improvements;
the ability to implement operating strategies and integration plans and
realize cost savings and efficiencies; fluctuations in foreign currency
exchange rates; fluctuations in paper prices; the success and integration
of new initiatives and acquisitions; the successful 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 the company 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 currencies, 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 changes in market risk since December 31, 1998.
We had no material exposure to losses from derivative financial instruments
held at June 30, 1999. We do not use derivative financial instruments for
trading purposes.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A number of lawsuits have been filed against the company arising out of its
former manufacture and sale of hardboard siding products. These lawsuits
allege that siding manufactured by the company was inherently defective
when used as exterior cladding for buildings. Five of these lawsuits seek
certification as class actions. These actions claim that the requested
class of litigants consists of owners of structures bearing hardboard
siding manufactured by the company. Four of these five cases seek
certification of statewide classes of plaintiffs (Illinois, Oregon, and
Texas), while the fifth case seeks certification of a nationwide class of
mobile home owners. To date, no court has granted class certification.
The lawsuits seek to declare the company financially responsible for the
repair and replacement of the siding, to make restitution to the class
members, and to award each class member compensatory and enhanced damages.
The company discontinued manufacturing the hardboard siding product that is
the subject of these lawsuits in 1984. We believe there are valid factual
and legal defenses to these cases and will resist the certification of any
class and vigorously defend all claims alleged by the plaintiffs.
Reference is made to our annual report on Form 10-K for the year ended
December 31, 1998, for information concerning other legal proceedings.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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.
No Form 8-Ks were filed during the second quarter of 1999.
<PAGE>
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: August 13, 1999
<PAGE>
BOISE CASCADE CORPORATION
INDEX TO EXHIBITS
Filed With the Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1999
Number Description Page Number
______ ___________ ___________
11 Computation of Per Share Earnings
12 Ratio of Earnings to Fixed Charges
12A Ratio of Earnings to Combined Fixed
Charges and Preferred Dividend Requirements
27 Financial Data Schedule
EXHIBIT 11
<TABLE>
<CAPTION>
Boise Cascade Corporation
Computation of Per Share Earnings
Three Months Ended Six Months Ended
June 30 June 30
______________________ ______________________
1999 1998 1999 1998
_________ _________ _________ _________
(expressed in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net income (loss) as reported, before cumulative effect of
accounting change $ 59,052 $ (63,950) $ 77,905 $ (64,400)
Preferred dividends (3,365) (3,518) (6,855) (8,579)
Excess of Series F Preferred Stock redemption price over carrying value - - - (3,958)
_________ _________ _________ _________
Basic income (loss) before cumulative effect of accounting change 55,687 (67,468) 71,050 (76,937)
Cumulative effect of accounting change - - - (8,590)
_________ _________ _________ _________
Basic income (loss) $ 55,687 $ (67,468) $ 71,050 $ (85,527)
========= ========= ========= =========
Basic income (loss) before cumulative effect of accounting change $ 55,687 $ (67,468) $ 71,050 $ (76,937)
Preferred dividends eliminated 3,365 3,486 6,855 7,106
Supplemental ESOP contribution (2,877) (2,979) (5,860) (6,073)
_________ _________ _________ _________
Diluted income (loss) before cumulative effect of accounting change 56,175 (66,961) 72,045 (75,904)
Cumulative effect of accounting change - - - (8,590)
_________ _________ _________ _________
Diluted income (loss) $ 56,175 $ (66,961) $ 72,045 $ (84,494)
========= ========= ========= =========
Average shares outstanding used to determine basic income (loss)
per common share 56,600 56,316 56,485 56,279
Stock options and other 543 304 395 274
Series D convertible preferred stock 4,171 4,418 4,223 4,439
_________ _________ _________ _________
Average shares used to determine diluted income (loss) per common share 61,314 61,038 61,103 60,992
========= ========= ========= =========
Net income (loss) per common share
Basic income (loss) before cumulative affect of accounting change $ 0.98 $ (1.20) $ 1.25 $ (1.37)
Cumulative affect of accounting change - - - (.15)
_________ _________ _________ _________
Basic income (loss) per common share $ 0.98 $ (1.20) $ 1.25 $ (1.52)
========= ========= ========= =========
Diluted income (loss) before cumulative effect of accounting change $ 0.92 $ (1.10)(1) $ 1.18 $ (1.24)(1)
Cumulative effect of accounting change - - - (.14)(1)
_________ _________ _________ _________
Diluted loss $ 0.92 $ (1.10)(1) $ 1.18 $ (1.38)(1)
========= ========= ========= =========
(1) Because the computation of diluted loss per common share was antidilutive, the diluted loss per common share reported for
the three and six months ended June 30, 1998, was the same as basic loss per common share.
</TABLE>
<TABLE>
<CAPTION>
BOISE CASCADE CORPORATION AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
Six Months
Year Ended December 31 Ended June 30
_________________________________________________________ ______________________
1994 1995 1996 1997 1998 1998 1999
_________ _________ _________ _________ _________ _________ _________
(dollar amounts expressed in thousands)
<C> <S> <S> <S> <S> <S> <S> <S>
Interest costs $ 169,170 $ 154,469 $ 146,234 $ 153,691 $ 174,541 $ 88,407 $ 79,324
Interest capitalized during the period 1,630 3,549 17,778 10,575 1,341 132 154
Interest factor related to noncapitalized
leases(1) 9,161 8,600 12,982 11,931 11,308 6,141 7,210
_________ _________ _________ _________ _________ _________ _________
Total fixed charges $ 179,961 $ 166,618 $ 176,994 $ 176,197 $ 187,190 $ 94,680 $ 86,688
Income (loss) before income taxes,
minority interest, and cumulative effect
of accounting change $ (64,750) $ 589,410 $ 31,340 $ (28,930) $ (21,278) $ (69,190) $ 144,595
Undistributed (earnings) losses of less
than 50% owned persons, net of
distributions received (1,110) (36,861) (1,290) 5,180 3,791 5,350 (3,958)
Total fixed charges 179,961 166,618 176,994 176,197 187,190 94,680 86,688
Less: Interest capitalized (1,630) (3,549) (17,778) (10,575) (1,341) (132) (154)
Guarantee of interest on ESOP debt (20,717) (19,339) (17,874) (16,341) (14,671) (7,447) (6,559)
_________ _________ _________ _________ _________ _________ _________
Total earnings before fixed charges $ 91,754 $ 696,279 $ 171,392 $ 125,531 $ 153,691 $ 23,261 $ 220,612
Ratio of earnings to fixed charges - 4.18 - - - - 2.54
Excess of fixed charges over earnings
before fixed charges $ 88,207 $ - $ 5,602 $ 50,666 $ 33,499 $ 71,419 $ -
(1) Interest expense for operating leases with terms of one year or longer is based on an imputed interest rate for each
lease.
</TABLE>
<TABLE>
<CAPTION>
BOISE CASCADE CORPORATION AND SUBSIDIARIES
Ratio of Earnings to Combined Fixed Charges
and Preferred Dividend Requirements
Six Months
Year Ended December 31 Ended June 30
_________________________________________________________ ______________________
1994 1995 1996 1997 1998 1998 1999
_________ _________ _________ _________ _________ _________ _________
(dollar amounts expressed in thousands)
<C> <S> <S> <S> <S> <S> <S> <S>
Interest costs $ 169,170 $ 154,469 $ 146,234 $ 153,691 $ 174,541 $ 88,407 $ 79,324
Interest capitalized during the period 1,630 3,549 17,778 10,575 1,341 132 154
Interest factor related to
noncapitalized leases(1) 9,161 8,600 12,982 11,931 11,308 6,141 7,210
Preferred stock dividend
requirements - pretax 81,876 59,850 65,207 44,686 19,940 9,804 8,566
_________ _________ _________ _________ _________ _________ _________
Combined fixed charges and
preferred dividend requirements $ 261,837 $ 226,468 $ 242,201 $ 220,883 $ 207,130 $ 104,484 $ 95,254
Income (loss) before income taxes,
minority interest, and cumulative
effect of accounting change $ (64,750) $ 589,410 $ 31,340 $ (28,930) $ (21,278) $ (69,190) $ 144,595
Undistributed (earnings) losses of
less than 50% owned persons, net of
distributions received (1,110) (36,861) (1,290) 5,180 3,791 5,350 (3,958)
Combined fixed charges and preferred
dividend requirements 261,837 226,468 242,201 220,883 207,130 104,484 95,254
Less: Interest capitalized (1,630) (3,549) (17,778) (10,575) (1,341) (132) (154)
Guarantee of interest on ESOP debt (20,717) (19,339) (17,874) (16,341) (14,671) (7,447) (6,559)
_________ _________ _________ _________ _________ _________ _________
Total earnings before combined fixed
charges and preferred dividend
requirements $ 173,630 $ 756,129 $ 236,599 $ 170,217 $ 173,631 $ 33,065 $ 229,178
Ratio of earnings to combined fixed
charges and preferred dividend
requirements - 3.34 - - - - 2.41
Excess of combined fixed charges and
preferred dividend requirements over
earnings before combined fixed
charges and preferred dividend
requirements $ 88,207 $ - $ 5,602 $ 50,666 $ 33,499 $ 71,419 $ -
(1) Interest expense for operating leases with terms of one year or longer is based on an imputed interest rate for each lease.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The data schedule contains summary financial information extracted from Boise
Cascade Corporation's Balance Sheet at June 30, 1999, and from its Statement of
Income for the six months ended June 30, 1999. the information presented is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 66,757
<SECURITIES> 6,590
<RECEIVABLES> 587,159
<ALLOWANCES> 10,536
<INVENTORY> 552,291
<CURRENT-ASSETS> 1,341,566
<PP&E> 5,113,977
<DEPRECIATION> 2,285,697
<TOTAL-ASSETS> 4,925,023
<CURRENT-LIABILITIES> 1,140,124
<BONDS> 1,638,350
0
231,783
<COMMON> 142,128
<OTHER-SE> 1,118,534
<TOTAL-LIABILITY-AND-EQUITY> 4,925,023
<SALES> 3,289,161
<TOTAL-REVENUES> 3,289,161
<CGS> 2,684,493
<TOTAL-COSTS> 3,078,016
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,759
<INCOME-PRETAX> 144,595
<INCOME-TAX> (60,007)
<INCOME-CONTINUING> 77,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,905
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.18
</TABLE>
