UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q/A
(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>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
(expressed in thousands, except per share data)
Item 1. Financial Statements
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 (32,705) 81,510
__________ __________
3,082,416 3,011,910
__________ __________
Equity in net income (loss) of affiliates 3,958 (5,350)
__________ __________
Income from operations 210,703 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 140,195 (69,190)
Income tax (provision) benefit (58,307) 10,380
__________ __________
Income (loss) before minority interest and cumulative
effect of accounting change 81,888 (58,810)
Minority interest, net of income tax (6,683) (5,590)
__________ __________
Income (loss) before cumulative effect of
accounting change 75,205 (64,400)
Cumulative effect of accounting change, net
of income tax - (8,590)
__________ __________
Net income (loss) $ 75,205 $ (72,990)
========== ==========
Net income (loss) per common share
Basic net income (loss) before cumulative
effect of accounting change $ 1.21 $ (1.37)
Cumulative effect of accounting change - (0.15)
__________ __________
Basic net income (loss) $ 1.21 $ (1.52)
========== ==========
Diluted net income (loss) before cumulative
effect of accounting change $ 1.14 $ (1.37)
Cumulative effect of accounting change - (0.15)
__________ __________
Diluted net income (loss) $ 1.14 $ (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)
<TABLE>
<CAPTION>
ASSETS
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 228,161 221,138 232,115
__________ __________ ___________
Total assets $4,925,023 $4,944,744 $4,971,099
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
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 276,748 210,285 257,360
Other long-term liabilities 253,554 224,364 301,920
__________ __________ ___________
530,302 434,649 559,280
__________ __________ ___________
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 846,288 781,697 791,618
Accumulated other comprehensive
income (loss) (15,368) (7,375) (7,573)
__________ __________ ___________
Total shareholders' equity 1,492,445 1,411,026 1,431,099
__________ __________ ___________
Total liabilities and shareholders'
equity $4,925,023 $4,944,744 $4,971,099
========== ========== ==========
</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) $ 75,205 $ (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) 49,402 (14,704)
Minority interest, net of income tax 6,683 5,590
Restructuring charges (36,322) 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) $ 75,205 $(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) 68,350 (76,937)
Cumulative effect of accounting
change, net of income tax - - - (8,590)
________ ________ ________ ________
Basic income (loss) $ 55,687 $(67,468) $ 68,350 $(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) $ 68,350 $(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) 69,345 (76,937)
Cumulative effect of accounting
change, net of income tax - - - (8,590)
________ ________ ________ ________
Diluted income (loss) $ 56,175 $(67,468) $ 69,345 $(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) $ 75,205 $(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) $ 67,409 $(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 41.6% for
the 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 5.7%. 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 $151.5 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.
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, most of which was paid in 1998.
During the first quarter 1999, we recorded $4.4 million of additional
restructuring expense related to the early retirement program announced in
fourth quarter 1998. This noncash charge was for the present value of
unrecorded early retirement benefits. These charges were accrued when the
retiring individuals legally accepted the early retirement offer.
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 1998 charges through June 30,
1999, and the reserve balances as of that date are as follows:
<TABLE>
<CAPTION>
Asset Employee- Other
Write- Related Exit
Downs Costs Costs Total
________ ________ ________ ________
(expressed in thousands)
<S> <C> <C> <C> <C>
SECOND QUARTER
BUILDING PRODUCTS
1998 expense recorded $ 27,200 $ 14,000 $ 20,700 $ 61,900
Assets written down (27,200) - - (27,200)
1998 charges against reserve - (4,500) (1,300) (5,800)
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 - 9,500 19,400 28,900
Reserves credited to income - (7,300) (16,200) (23,500)
1999 charges against reserve - (1,600) (1,000) (2,600)
________ ________ ________ ________
Restructuring reserve at
June 30, 1999 $ - $ 600 $ 2,200 $ 2,800
======== ======== ======== ========
PAPER AND PAPER PRODUCTS
1998 expense recorded $ 18,800 $ 200 $ - $ 19,000
Assets written down (18,800) - - (18,800)
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 - 200 - 200
1999 charges against reserve - (200) - (200)
________ ________ ________ ________
Restructuring reserve at
June 30, 1999 $ - $ - $ - $ -
======== ======== ======== ========
FOURTH QUARTER
OFFICE PRODUCTS
1998 expense recorded $ 300 $ 1,400 $ 9,400 $ 11,100
Assets written down (300) - - (300)
1998 charges against reserve - (200) (3,300) (3,500)
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 - 1,200 6,100 7,300
Reserves credited to income - (500) (3,500) (4,000)
1999 charges against reserve - (600) (1,000) (1,600)
________ ________ ________ ________
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)
1998 charges against reserve - - - -
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 - 600 - 600
1999 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)
1998 charges against reserve - (800) - (800)
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 - 6,000 - 6,000
Reserves credited to income - (100) - (100)
1999 charges against reserve - (2,500) - (2,500)
________ ________ ________ ________
Restructuring reserve at
June 30, 1999 $ - $ 3,400 $ - $ 3,400
======== ======== ======== ========
CORPORATE AND OTHER
1998 expense recorded $ - $ 5,200 $ 400 $ 5,600
Pension liability recorded - (3,200) - (3,200)
1998 charges against reserve - - - -
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 - 2,000 400 2,400
1999 expense recorded - 4,400 - 4,400
Pension liability recorded - (4,400) - (4,400)
Reclass from other accounts - 500 - 500
1999 charges against reserve - (1,600) (100) (1,700)
________ ________ ________ ________
Restructuring reserve at
June 30, 1999 $ - $ 900 $ 300 $ 1,200
======== ======== ======== ========
TOTAL SECOND AND FOURTH QUARTER
1998 expense recorded $ 53,500 $ 34,900 $ 30,500 $118,900
Assets written down (53,500) - - (53,500)
Pension liability recorded - (9,900) - (9,900)
1998 charges against reserve - (5,500) (4,600) (10,100)
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 - 19,500 25,900 45,400
1999 expense recorded - 4,400 - 4,400
Pension liability recorded - (4,400) - (4,400)
Reclass from other accounts - 500 - 500
Reserves credited to income - (7,900) (19,700) (27,600)
1999 charges against reserve - (6,500) (2,100) (8,600)
________ ________ ________ ________
Restructuring reserve at
June 30, 1999 $ - $ 5,600 $ 4,100 $ 9,700
======== ======== ======== ========
</TABLE>
Charges against the reserve in other exit costs included $4.0 million of
costs to dissolve the BCOP joint venture in Germany, the write-down of
contracts to their realizable value, and a small charge for tear-down
costs.
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 months ended June 30, 1999. These items
increased net income $21.9 million and basic and diluted income per share
$0.39 and $0.36 for the 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.
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.
(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
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 (24.7)
________ ________ ________ ________
Total 3,289.2 209.3 3,498.5 212.0
Intersegment eliminations - (209.3) (209.3) -
Interest expense - - - (71.8)
________ ________ ________ ________
Consolidated Totals $3,289.2 $ - $3,289.2 $ 140.2
======== ======== ======== ========
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) $ 75.2 $ (73.0)
Net income (loss) per
diluted share $ 0.92 $ (1.20) $ 1.14 $ (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
$40.7 million ($24.6 million after tax or 43 cents and 40 cents per basic and
diluted share) for the reversal of restructuring reserves established in 1998.
The six months ended June 30, 1999, included $4.4 million ($2.7 million after
tax or $0.04 per basic and diluted share) of additional restructuring expense
recorded in first quarter 1999 related to the early retirement program
announced in fourth quarter 1998. This noncash charge was for the present
value of unrecorded early retirement benefits. These charges were accrued when
the retiring individuals legally accepted the early retirement offer. 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 41.6% for the 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 5.7%.
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%.
Three Months Ended Six Months Ended
June 30 June 30
___________________ ___________________
1999 1998 1999 1998
________ ________ ________ ________
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 1.41:1 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 $151.5 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment 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: October 14, 1999
BOISE CASCADE CORPORATION
INDEX TO EXHIBITS
Filed With the Quarterly Report on Form 10-Q/A
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) $ 75,205 $ (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) 68,350 (76,937)
Cumulative effect of accounting change - - - (8,590)
Basic income (loss) $ 55,687 $ (67,468) $ 68,350 $ (85,527)
========= ========= ========= =========
Basic income (loss) before cumulative effect of accounting change $ 55,687 $ (67,468) $ 68,350 $ (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) 69,345 (75,904)
Cumulative effect of accounting change - - - (8,590)
_________ _________ _________ _________
Diluted income (loss) $ 56,175 $ (66,961) $ 69,345 $ (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) $ 1.21 $ (1.37)
Cumulative affect of accounting change - - - (.15)
_________ _________ _________ _________
Basic income (loss) per common share $ 0.98 $ (1.20) $ 1.21 $ (1.52)
========= ========= ========= =========
Diluted income (loss) before cumulative effect of accounting change $ 0.92 $ (1.10)(1) $ 1.14 $ (1.24)(1)
Cumulative effect of accounting change - - - (.14)(1)
_________ _________ _________ _________
Diluted loss $ 0.92 $ (1.10)(1) $ 1.14 $ (1.38)(1)
========= ========= ========= =========
</TABLE>
(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.
EXHIBIT 12
<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)
<S> <C> <C> <C> <C> <C> <C> <C>
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) $ (16,878) $ (69,190) $ 140,195
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 $ 158,091 $ 23,261 $ 216,212
Ratio of earnings to fixed charges - 4.18 - - - - 2.49
Excess of fixed charges over earnings
before fixed charges $ 88,207 $ - $ 5,602 $ 50,666 $ 29,099 $ 71,419 $ -
</TABLE>
(1) Interest expense for operating leases with terms of one year or
longer is based on an imputed interest rate for each lease.
EXHIBIT 12-A
<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)
<S> <C> <C> <C> <C> <C> <C> <C>
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) $ (16,878) $ (69,190) $ 140,195
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 $ 178,031 $ 33,065 $ 224,778
Ratio of earnings to combined fixed
charges and preferred dividend
requirements - 3.34 - - - - 2.36
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 $ 29,099 $ 71,419 $ -
</TABLE>
(1) Interest expense for operating leases with terms of one year or longer
is based on an imputed interest rate for each lease.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
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>
<RESTATED>
<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> 3,082,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,759
<INCOME-PRETAX> 140,195
<INCOME-TAX> (58,307)
<INCOME-CONTINUING> 75,205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,205
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.14
</TABLE>
