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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File number 1-13662
BOISE CASCADE OFFICE PRODUCTS CORPORATION
800 West Bryn Mawr Avenue
Itasca, Illinois 60143
(630) 773 - 5000
A Delaware Corporation 82-0477390
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed by reference to the price at which the stock was sold as
of the close of business on February 28, 1997: $268,562,985.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Shares Outstanding
Class as of February 28, 1997
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Common Stock, $.01 par value 62,888,440
DOCUMENTS INCORPORATED BY REFERENCE
1. The registrant's annual report for the fiscal year ended December 31, 1996,
portions of which are incorporated by reference into Parts I, II, III, and IV
of this Form 10-K, and
2. Portions of the registrant's proxy statement relating to its 1997 annual
meeting of shareholders to be held on April 22, 1997, are incorporated by
reference into Part III of this Form 10-K ("the Company's proxy statement").
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BOISE CASCADE OFFICE PRODUCTS CORPORATION
TABLE OF CONTENTS
PART I
Item Page
- ---- ----
1. Business .............................................................. 3
2. Properties ............................................................ 15
3. Legal Proceedings ..................................................... 16
4. Submission of Matters to a Vote of Security Holders ................... 16
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.. 16
6. Selected Financial Data ............................................... 17
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................ 18
8. Financial Statements and Supplementary Data ........................... 18
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure ................................................. 18
PART III
10. Directors and Executive Officers of the Registrant .................... 19
11. Executive Compensation ................................................ 20
12. Security Ownership of Certain Beneficial Owners and Management ........ 21
13. Certain Relationships and Related Transactions ........................ 21
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....... 21
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This Form 10-K contains "forward-looking statements" that involve
uncertainties and risks. When used in this document, the words "believe,"
"intend," "expect," "plan," and similar expressions are intended to identify
forward-looking statements. There can be no assurance that actual results will
not differ from the results expressed in, or implied by, these forward-looking
statements. Factors which could cause or contribute to such differences
include, among others: the success of new product line introductions; the pace
of acquisitions; the availability of financing for future acquisitions; the mix
of our sales by product category and country; the integration of acquired
companies; the effect of continued competitive pressure on pricing and margins;
the pace of cost structure improvements; the effects of the paper cycle; the
capabilities of operating and computer systems; the number of business days per
month and other month-to-month variations in customer demand; the uncertainties
of expansion into international markets, including currency exchange rates,
legal and regulatory requirements, and other factors; and the possible
volatility of the Company's stock price.
PART I
ITEM 1. BUSINESS
OVERVIEW
Boise Cascade Office Products Corporation (with its subsidiaries, "the Company"
or "we") is one of the world's premier distributors of products for the office.
We sell a broad line of branded and private label office supplies, furniture,
paper, computer-related items, and promotional products. We purchase most of
our products directly from manufacturers and distribute them directly
to end-user customers.
Throughout our 33-year history, our primary marketing focus has been and
remains business customers. For much of that time, we have concentrated on
serving the commodity office supply needs of large businesses in the United
States. More recently, we have broadened our marketing focus to include small
and medium-sized businesses and home offices, expanded our array of products
and services, and entered the United Kingdom, Canada, Australia, and Germany.
Large and Small Business Customers. We market our products and services
to large business customers, including our rapidly growing national account
customers in the U.S., through our direct sales force, our annual full-line
catalog (including a CD-ROM version), and a variety of specialized catalogs.
This is traditionally referred to as the contract stationer channel.
We serve small business and home office customers through the direct
marketing channel. Operating under the name Reliable in the U.S., Grand & Toy
Connect in Canada, Neat Ideas in the United Kingdom, and Buro & Technik in
Germany, we use targeted catalogs and sophisticated database marketing programs
to sell our products. We market to medium-sized business customers using
service elements of both channels, depending upon the specific customer needs.
In 1996, approximately 86% of our total sales were derived from the contract
stationer channel and approximately 14% from the direct marketing channel.
Geographic Expansion. Until the beginning of 1996, we operated only in
the U.S., where we are one of the largest distributors of office products. We
are now one of the largest distributors of office products in Australia, Canada
(under the name "Grand & Toy"), and the United Kingdom (under the name "Neat
Ideas"). We also operate office products retail stores in Canada to support
Grand & Toy's service to its business customers.
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In 1996, foreign operations accounted for approximately 15% of our
total net sales and approximately 12% of our total operating income.
We expect our international operations to become increasingly important in 1997
and in future years. In December 1996, we purchased the Canadian customer list
of Quill Corporation, which was the only sizable direct marketer of office
products in Canada. In January 1997, we entered into a joint venture with Otto
Versand, a German company which is one of the world's largest direct marketers
of consumer products. Through this joint venture, in which we have a 50%
interest, we will sell office products via direct marketing in continental
Europe, initially in Germany. For further financial information about our
foreign operations, see Note 1, "Organization and Basis of Presentation," of
the Notes to Financial Statements in our 1996 Annual Report, which is
incorporated herein by reference.
Our integrated network of 47 distribution centers in the U.S. enables
us to provide consistent products, prices, and service to our national account
customers. It also enables us to provide next-day delivery of virtually all
orders to our large business customers and approximately 70% of orders to our
small and medium-sized customers. We added 13 distribution centers to our U.S.
network in 1996, 11 through acquisitions of existing businesses and two through
start-ups. We intend to open at least one new distribution center in 1997 and
may acquire a few others to supplement our extensive U.S. distribution network.
In Canada we have a national network of nine distribution centers. In
Australia we have a national network of eight distribution centers.
THE OFFICE PRODUCTS DISTRIBUTION INDUSTRY
United States. The office products distribution industry in the U.S. is
consolidating rapidly and undergoing other significant changes. The industry
consists of companies that operate in one or more of three broad channels for
the marketing and distribution of office products to end-users. Business
customers have the opportunity to purchase office products through any of the
channels.
The contract stationer channel. Contract stationers typically
serve large and medium-sized business customers through product
catalogs and sales forces, stocking products in distribution
centers, and delivering them to customers the next business day
against orders received electronically, by telephone or fax, or
taken by a salesperson on the customer's premises. Contract
stationers typically enter into contracts with their customers that
specify prices for items the customers may order, services to be
provided, and other terms. Major contract stationers purchase
directly from manufacturers, rely upon wholesaler intermediaries
only to a limited extent for inventory backup and increased product
breadth, and offer significant volume-related discounts and a high
level of service to their customers. Historically, contract
stationers operated in only one or a very few major metropolitan
areas. The Company has been a significant exception for many years.
In recent years, principally as a result of consolidation by
acquisition, several other major contract stationers have emerged,
each of which operates in a number of major metropolitan areas and,
in some cases, nationally.
The direct marketing channel. Direct marketers of office
products typically target small and medium-sized business customers
and home offices. While their procurement and order fulfillment
functions are similar to contract stationers, direct marketers rely
exclusively on catalogs and other database marketing programs,
rather than direct sales forces, to sell their product offerings.
Their marketing is based upon large, proprietary
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customer databases and sophisticated circulation strategies designed
to increase sales from catalog mailings to customers and
prospects. In addition to a few large direct marketing companies
which primarily distribute office products, several of the major
contract stationers and office products retailers now employ direct
marketing techniques to expand their customer bases. The Company
first entered this channel with its 1994 acquisition of the direct
marketing office products distribution operations of The Reliable
Corporation ("Reliable"), which at the time was the third largest
direct marketing distributor of office products in the United
States.
The retail channel. Office products retailers typically serve
small and medium-sized businesses, home offices, and individuals.
For many years, the retail channel consisted principally of a large
number of independent dealers, operating only one or a few
relatively small stores in a single local area and purchasing a
limited inventory of office supplies from wholesalers for resale at
or near manufacturers' list prices. Over the last decade, the
retail channel has undergone significant change, primarily as a
result of the emergence and rapid growth of the office products
superstores. The superstore concept typically involves a large
suburban strip mall or stand-alone store which employs a warehouse
format, is open for business seven days a week, stocks a large
number and broad range of items in inventory, purchases in volume
and takes delivery at the store direct from manufacturers, and
offers many products at discounts from manufacturers' list prices.
Every major metropolitan area in the U.S. is now served by at least
one, and most by several, office products superstores.
The changes described above have blurred the lines between these three
marketing and distribution channels and between the companies operating in
these channels. Several major industry participants operate across these
channels and/or serve all or a large part of the office products customer
spectrum.
Significant changes are also taking place in the way business customers
purchase office products. Large multi-site businesses increasingly recognize
the efficiency and cost-effectiveness of uniform system-wide purchasing of
their office products requirements under a national contract with a single
distributor. We believe this move on the part of customers to reduce suppliers
and consolidate purchasing power is gaining momentum. In addition, some major
businesses are beginning to use integrated procurement systems as they seek to
satisfy not only their office product needs but also their requirements for a
variety of other office-related services and supplies from a single source.
Small and medium-sized businesses are also focusing on ways to increase
efficiency and reduce costs in meeting their requirements for office products,
which has resulted in the development of sophisticated direct marketing
techniques tailored to their needs.
International. The office products markets in Canada, Australia, and the
United Kingdom are similar to the U.S. market. Some industry consolidation has
occurred, to a greater or lesser extent, in each country and the channels have
blurred.
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STRATEGY FOR GROWTH
Since we began implementing our strategy for accelerated growth in 1993, the
Company has grown rapidly. Our year-over-year increases in net sales, sales on
a same-location basis, and operating income have been as follows:
<TABLE>
<CAPTION>
Net Same location Operating
Year sales sales income
---- ----- ------------- ---------
<S> <C> <C> <C>
1996 51% 14% 46%
1995 45% 26% 65%
1994 33% 15% 47%
</TABLE>
We believe that the distribution of products to the office customer continues
to present significant growth opportunities. We intend to continue
exploiting such opportunities through our growth strategy, which includes the
following elements:
Expand Our Geographic Scope
We intend to enter the office products distribution business in
other foreign countries, as well as to expand our operations in
those countries where we currently operate. We expect to do this
through a combination of acquisitions, joint ventures, alliances,
and start-ups. We also expect to establish a presence in selected
additional cities in the U.S., through start-ups as well as through
acquisitions of contract stationers to enhance our domestic
distribution system.
Broaden Our Customer Base
- Increase national accounts. We define a "national account" as a
multi-site customer served by two or more of our distribution
centers under a single contract. Large businesses with many office
sites across the U.S. are increasingly seeking to reduce product and
process costs by purchasing all of their office products needs from
a single company with national distribution capability under one
centrally negotiated national contract.
We believe that we currently have a competitive advantage with
respect to such businesses in the U.S. because of the nationwide
coverage of our integrated distribution centers. This coverage
enables us to provide consistent delivery of products, prices, and
service across all customer locations. A key element of our
strategy is to exploit this advantage to expand our business with
national account customers.
In 1992 we established a specialized national account marketing
staff, which is dedicated to building and maintaining our business
with national accounts. The amount of our sales to such customers
has grown significantly, as the following table indicates:
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U.S. National Account Sales
<TABLE>
<CAPTION>
Amount % of total
Year (in millions) net sales
---- ------------- ----------
<S> <C> <C>
1996 $555 28%
1995 $406 31%
1994 $246 27%
</TABLE>
We are pursuing a similar national account strategy in our operations
outside the United States, which may serve multi-national accounts as
well.
- Increase our business with small and medium-sized businesses and
home offices. The office products distribution market for small and
medium-sized businesses and home offices is growing more rapidly
than the large business customer segment. These smaller customers
usually cannot be cost-effectively served through a direct sales
force. An important element in our growth strategy is to expand our
business with this segment of the market. We believe that the
direct marketing channel provides the most convenient and
cost-effective way for customers in this market segment to purchase
office products.
Starting with our April 1994 acquisition of the office products
distribution business of Reliable, we have expanded our direct
marketing business, both in the U.S. and abroad. In December 1995,
we acquired Neat Ideas, the United Kingdom's second largest office
products direct marketer. In December 1996, we purchased Quill
Corporation's Canadian customer list and began direct marketing in
Canada through Grand & Toy. With the formation of our joint venture
with Otto Versand in January 1997, we have begun direct marketing
operations in continental Europe, initially in Germany.
As the following table indicates, our worldwide direct marketing
business has grown significantly during the last three years:
<TABLE>
<CAPTION>
Direct Marketing Channel
---------------------------------------------
Sales
----------------------- Number of
Amount % of total active customers (1)
Year in millions net sales (at December 31)
-------- ----------- ---------- --------------------
<S> <C> <C> <C>
1996 $277 14% 573,000
1995 $201 15% 382,000
1994 (2) $105 12% 282,000
</TABLE>
_________
(1) An "active customer" is one which has made at least one
purchase during the preceding 12 months
(2) Reflects the results of Reliable during the eight months
after our acquisition in April 1994
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Increase Sales of Core Products and Add New Products and Services
We plan to increase sales of certain existing product categories,
such as office papers and office furniture, as well as the sales of
our newest product categories, such as computer-related items and
promotional products. As part of this element of our growth
strategy, we are offering customized procurement and product-related
support services to our customers, particularly in electronic
commerce. By broadening our product lines and services, we are
better able to meet the needs of those customers interested in
reducing their supplier base and taking advantage of "one-stop
shopping." This also leverages our distribution and systems
infrastructure.
- As a result of our efforts to broaden the product mix purchased by
current customers, our sales of office papers, measured by volume,
increased year-over-year by more than 40% in 1996 and more than 60%
in 1995. Our growth strategy also targets office furniture, with
the goal of increasing its sales across the system, especially at
those locations where sales have been modest. To do this, we are
using furniture sales specialists, showrooms, and targeted catalogs.
- In response to rapid increases in our customers' needs for
computer supplies, hardware, software, and peripherals, we acquired
Word Technology Systems, Inc., ("WTS") in September 1995. WTS,
which had 1994 sales of approximately $65 million, distributed
computer-related products to businesses throughout the United
States. These products often require a specialized selling effort.
Since the acquisition, we have nearly doubled (to approximately 90)
the total number of sales managers, technically-trained sales
associates, and certified network engineers dedicated to the
marketing of such products. They are located at 13 of our major
U.S. distribution centers, from which we now market computer-related
products under the name Boise Technology. In 1996 we also formed an
alliance with XL Connect Solutions, Inc., a technology-related
service company, which enables us to provide businesses with a wide
range of services that complement our computer-related products.
- Promotional products, such as jackets, T-shirts, coffee mugs, and
pen and pencil sets with corporate logos or unique designs, are used
by our customers for employee recognition and incentive programs and
for marketing and advertising. To bolster the range of such
products and related services which we offer in this large and
growing category, we acquired Oregon Wholesale Novelty Company,
Inc., ("OWNCO") in November 1996. OWNCO, which had sales of
approximately $30 million at the time of acquisition, is a premier
U.S. promotional products company.
Each of the foregoing elements of our growth strategy has both an acquisition
component and an internal growth component, the mix of which, for any given
element in any given year, can be expected to be different because of that
year's priorities, opportunities, capital availability, and other factors.
Acquisitions have been and are expected to continue to be an important means by
which we execute our strategy. The near-term focus of our acquisition program
is to increase our presence abroad in the contract stationer channel and to
broaden our product offerings in the United States. Direct marketing in Europe
through the joint venture with Otto Versand is also expected to grow via
acquisitions and internal
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growth initiatives. We may also acquire additional contract stationers in the
United States. We typically seek to retain management of each acquired
business and to draw upon its specialized knowledge. In addition, we intend to
integrate the acquired business into our nationwide distribution network to the
extent it is appropriate and cost-effective.
In the U.S., we have opened new distribution centers in selected
metropolitan areas where we wished to establish or expand our presence but
where we could not find an appropriate acquisition candidate. In 1996, we
started new distribution centers in Las Vegas, Nevada, and Miami, Florida.
During the second half of 1997, we expect to open at least one new distribution
center in the Southeast (in Charlotte, North Carolina) to further build our
presence in that rapidly growing part of the country. While a start-up
typically requires a smaller initial capital investment than an acquisition, it
may take two to four years to achieve profitability. We have transferred a
base of business from existing distribution centers to our recent start-ups in
order to speed up this process.
We may not be able to complete targeted acquisitions because of competition,
availability of suitable candidates, or capital availability. In addition, we
encounter various risks associated with each acquisition which we do complete,
including the possible inability to integrate the acquired business into our
distribution network, increased goodwill amortization, diversion of
management's attention, and unanticipated problems, costs, or liabilities, some
or all of which could have a material adverse effect on our operations and
financial performance. With our expansion through acquisition into foreign
markets, the management and integration risks associated with our acquisitions
will be larger. Additional risks arising out of our operations in foreign
countries include those associated with currency exchange rates, new and
different legal and regulatory requirements, and language and cultural
differences.
BUSINESS MODEL
United States. Our objective is to be the preferred supplier of office
products to business customers of all sizes by outperforming our competitors at
all levels -- to "out-national" our national competitors and "out-local" our
local competitors. To achieve this, our business model is designed to take
maximum advantage of both our centralized national capabilities and our local
presence in major markets across the country. We manage centrally where it is
efficient and cost effective to do so or where there is value to our customers
in nationwide consistency, and we manage locally where it is responsive to
local market needs and opportunities or local customer requirements.
The large majority of our U.S. distribution centers are linked through a common
computer system with our headquarters and with our other distribution centers.
This integrated distribution network enables us to provide next-day consistent
delivery of virtually the entire range of products offered in our full-line
catalog, at agreed-upon prices and levels of service, to all of our large
business customers and approximately 70% of orders to our small and
medium-sized business customers throughout the country. It also facilitates
the delivery of consistent products, pricing, service, and reporting to our
many national account customers. In addition, it enables us to centralize
certain administrative, logistical, and other management functions, thereby
reducing operating costs. For example, we are able to centrally monitor
inventory levels and forecast future demand for items stocked at our
distribution centers. As a result, the responsibility for rebuying our most
frequently ordered items is now a centralized function. This has reduced our
inventory restocking costs and improved our annual inventory turn rate. Since
the product overlap between our contract stationer and direct marketing
businesses is high, centralized rebuying for
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both channels has resulted in economies of scale. We plan to continue
converting recently and newly acquired distribution centers to this common
system.
Our merchandising activities are centralized, including product selection;
catalog preparation; and vendor selection, management, and evaluation. Sales
training, marketing programs, activity-based cost management programs,
accounting, logistics, and human resources management are other functions that
are primarily or totally managed centrally and can benefit from economies of
scale as we grow. The provision of customer service which is both responsive
and cost effective is another important element of our business model,
requiring an appropriate balance between centralization and local autonomy. We
provide customer service at each distribution center to handle
location-specific matters, and we operate centralized call centers which enter
customer orders and respond to customer inquiries about product alternatives,
order status, billing, and other matters. We have centralized call centers at
Peru and Ottawa, Illinois, to handle inbound orders and inquiries for our
contract stationer and direct marketing customers. During 1997, we plan to
open another call center at Bristol, Virginia. Our integrated computer system
enables us to organize certain customer support functions in a centralized,
cost-effective manner without compromising customer focus.
A substantial part of our internal capital spending is intended to make our
operations more efficient and cost effective. In addition to seeking to
improve the efficiency of our individual distribution centers, our logistics
experts focus on the efficiency of our distribution network as a whole in each
of the countries where we operate. Stocking strategies, distribution center
configurations, and delivery methods are all being designed to serve customers
better while minimizing our investment and controlling our operating costs. We
began a major initiative in the U.S. to consolidate the order fulfillment
operations of our direct marketing business with those of our contract
stationer business. We closed two (of four) stand-alone direct marketing
distribution centers and moved their order fulfillment operations into five of
our major contract stationer distribution centers across the country.
Eventually, we expect to use approximately 15 of our distribution centers to
fill orders for our direct marketing customers in the United States. Our steps
to date have increased the next-day delivery coverage of our direct marketing
operations and reduced our overall occupancy and delivery costs (as a percent
of sales).
We believe that a local distribution center presence is important to many of
our customers and can provide a competitive advantage within a specific
metropolitan area. While national accounts are coordinated centrally, our
sales force is distributed across our national network and supervised locally.
Each distribution center is a profit center; its general manager is responsible
for local account targeting, pricing, and servicing; distribution center
productivity; sales management; and location-specific or customer-specific
products and services, alliances, and promotions. In each local market, our
business model draws on the local market knowledge of our management team and
sales representatives to develop and offer customized services -- from stocking
customer-unique products to special reporting and delivery services.
Our business model is data intensive. Through our activity-based cost
management system ("ABCM"), we measure our costs by activity, and then by
customer and by product. ABCM facilitates cost comparisons across all
distribution centers so that "best practices" can be identified at one location
and replicated at all locations where appropriate. The ABCM system enables us
to directly attribute over 90% of our actual costs to specific customer-related
activities. Other important measurements which we make on an ongoing basis
include on-time delivery, order accuracy and completeness, supplier performance
by location, customer satisfaction, associate satisfaction, and key process
stability and capability. We believe that these measurement systems, including
ABCM, provide us with a competitive advantage.
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International. In each of the foreign countries where we have an extensive
system of distribution centers, currently Australia and Canada, we plan to
apply the major elements of our domestic business model: to link each of the
facilities via computer, offer similar products across the entire system, serve
the full range of customers from each facility, and centralize a variety of
functions where it is efficient and cost effective to do so, while performing
certain other functions locally. We completed upgrades to our distribution
center and computer system in the United Kingdom to accommodate additional
volume growth in that country. We have also purchased land and started
designing a new and more efficient distribution facility for Toronto, Ontario,
Canada.
PRODUCTS
Our net sales by product category through all distribution channels, expressed
as a percentage of our total net sales, during each of the last three years
were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Office supplies (1) 84% 80% 79%
Office furniture (2) 8% 9% 9%
Other products (3) 8% 11% 12%
-------- -------- --------
100% 100% 100%
======== ======== ========
</TABLE>
__________
(1) Includes, among many other products, pens, staples, file
folders, binders, office papers, envelopes, tablets, calculators,
and computer-related products
(2) Includes desks, chairs, file cabinets, computer stations, and
furniture accessories
(3) Includes lunchroom supplies, janitorial supplies, and
special items, including promotional products
SALES AND MARKETING
Electronic Commerce. As part of our overall program of providing expanded
opportunities for electronic data interchange with our large business
customers, we developed and offer a CD-ROM version of our annual full-line
catalog. Interactive features of the CD-ROM catalog provide customers, by
computer, the same information on each item as the printed version of the
catalog. The features also permit a customer to view complementary items, see
prices specific to that customer, and order electronically.
We have also recently developed and offer Internet '97 ("I-97"), an
Internet-based ordering system that allows customers to order our complete
range of products "on-line." I-97 provides customers with unlimited levels of
security and authorizations to ensure that each order has the proper approval.
Features of I-97 include: unlimited, multi-tiered approvals; user-customized
security; credit card capabilities; a variety of reporting options; and true
EDI capabilities. To use I-97, customers only need access to the Internet and
browser software such as Netscape Navigator or Microsoft Internet Explorer.
Electronic data interchange between our mainframe computer and our customers'
systems, local-area-network-based electronic commerce systems, and the systems
mentioned above accounted for approximately 20% of our inbound order volume in
1996.
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OPERATIONS
Logistics and systems support. Advanced information technology is critical in
a nationwide distribution business involving thousands of different items under
tight time constraints. We were a pioneer in the use of computer systems to
facilitate this process. We have developed and use customized software
applications to carry out or assist in performing a great variety of business
functions. These functions include, among many others: order entry; order
processing; receiving, storing, and "picking" inventory; routing delivery
vehicles; measuring productivity and transaction quality; generating customized
reports; preparing accounting statements; and tracking product and customer
data.
To provide additional domestic systems flexibility and capacity, we are
converting part of our principal computer network in the U.S. from a mainframe
to a distributed system. The system employs a new software applications
package developed by and licensed from an outside contractor which specializes
in distribution companies. The software is a combination of pre-existing
modules and custom applications developed specifically for us and tailored to
our needs.
Order entry. We offer a wide range of order entry options to our large
business customers. Customers wishing to place an order with us in the U.S.
may: (i) give the order in person to a sales associate; (ii) convey the order
by telephone or facsimile transmission to a customer service representative at
its local distribution center or, using a toll-free number, at a central
customer service facility; or (iii) enter the order by using a personal
computer or other computer interface, including on-line ordering using I-97.
Ease in ordering is also a key component of customer service in our direct
marketing operations. To facilitate order placement and entry, we maintain
24-hour, seven-day-a-week, toll-free numbers for ordering by telephone or fax.
These lines are linked to our central order reception and customer service
centers in Illinois, where customer service associates receive orders and enter
them into a computerized order processing system. A credit check is performed
electronically and, if credit is approved, each order is transmitted to the
appropriate distribution center based on a pre-programmed ordering system which
uses customer zip codes and other factors to assure rapid fulfillment and
delivery.
Stocking, order fulfillment, and delivery. Our distribution centers receive
and store inventory and fill customer orders. Most of our distribution centers
regularly stock all of the core items offered in our full-line catalog. Our
stocking strategy at each distribution center is designed to ensure our ability
to provide delivery of all catalog items at the lowest cost on a next-day basis
to large business customers and on a next- or second-day basis to our other
customers. Our stocking strategy reflects a rigorous economic tradeoff between
carrying a particular item in inventory at a particular distribution center or
sourcing it from a nearby distribution center or wholesaler.
Orders received during the day are picked, packed, and assembled using a
variety of automated equipment. This is performed at the appropriate
distribution center for delivery the following day to customers within the
next-day service area for that center. Depending on population density and
other logistical factors, the next-day service area of a given distribution
center can cover an area of up to a 400-mile radius from the distribution
center. Based on an optimized route structure allowing us to schedule specific
vehicles and delivery times, our software can determine the optimal sequence in
which orders are to be loaded onto delivery vehicles. The vehicles may be
either owned or leased by us or operated by common or contract carriers,
depending on the cost effectiveness of each alternative.
12
<PAGE> 13
Procurement. Our computer system monitors inventory levels and forecasts
demand for each item which we stock and recommends the timing and amount of
future purchases. We have centralized the rebuying function for those items
most frequently ordered by our customers, which we believe contributes to more
efficient purchasing decisions and lower procurement costs. Our inventory
turns increased to 10.0 in 1996, from 9.7 in 1995 and 8.7 in 1994.
To assist in making vendor selection decisions and in reducing inventory cost,
we have developed and now use a detailed vendor management and evaluation
program. This program enables our central purchasing staff to measure the
performance of each of our vendors in a number of areas and then evaluate them
based upon such measurements.
Foreign operations. Our operations outside the U.S. are structured similarly to
our domestic operations. Within each country, distribution facilities are
integrated on the same computer systems. This allows us to take advantage of
efficiencies and centralize many common administrative processes. It also
positions our foreign operations to serve large corporate customers on a
coordinated national basis.
EMPLOYEES
At December 31, 1996, we had a worldwide total of approximately 8,500 full- and
part-time employees ("associates"). Of these, approximately 3,200 were
employed primarily in marketing and sales, order processing, and customer
service; approximately 2,800 were located at our distribution centers in
inventory receipt and storage, order filling, and as drivers of delivery
vehicles; and approximately 2,500 were employed in other operations,
management, and administration. Part-time employees supplement our associates
in customer service and order filling during those periods each day when there
are surges in incoming calls or outgoing orders.
COMPETITION
We face a highly competitive environment in each of the office products
distribution channels in which we operate. Competition is based principally on
price, service, and customer relationships. We are one of the premier
distributors of office products through the contract stationer channel in the
United States, Canada, and Australia. We are the third largest distributor of
office products through the direct marketing channel in the U.S., the second
largest in the United Kingdom, and currently the only major distributor in
Canada.
United States. In the contract stationer channel, the consolidation of the
industry into a relatively small number of major publicly held participants,
each seeking to establish a national distribution network similar to our own,
is largely complete. A number of these participants, which include some of the
major superstore companies, have grown at rapid rates, principally through the
acquisition of local or regional contract stationers. Some of our competitors
have greater financial resources and purchasing power than we do. The contract
stationer operations of the major superstore companies also benefit from their
national advertising and franchising programs. We also compete with the
smaller local and regional contract stationers, many of which have
long-standing customer relationships.
Our superior ability, to date, to link together our network of domestic
distribution centers, including those which we have recently acquired, into an
integrated national system enables us to deliver consistent
13
<PAGE> 14
products, prices, and service across all locations of multi-site customers. We
believe that this gives us a competitive advantage with this important segment
of business customers.
In the direct marketing channel, we compete for the small and medium-sized
business customer and the home office customer primarily against two larger
direct marketers of office products as well as the office products superstores
and small retail dealers. We believe the synergies between our direct
marketing business and our contract stationer business are beginning to give us
a competitive advantage, in terms of service and cost, over the other direct
marketing companies. We also believe that we have a competitive advantage over
the superstores and small retail dealers in that our customers are able to
avoid the time and cost associated with store visits and the need to transport
purchased merchandise from the store to their offices. As part of the blurring
of the lines between distribution channels which has occurred in recent years,
several of the major contract stationers and office products superstores now
employ direct marketing techniques to expand their customer bases.
As we indicated earlier, some large companies are starting to use
integrated procurement systems to purchase office products and office-related
services and supplies. Other companies that provide office-related services and
supplies, including document management; printing services; industrial
supplies; and information technology and computer supplies, are providing some
competition today and will likely provide increased competition in
the future.
International. In Canada, we are one of the largest contract stationers and we
have a strong position in retail. Through its long operating history in
Canada, Grand & Toy has developed excellent name recognition. In the contract
stationer channel in Canada, we compete with several major companies who have
made acquisitions in Canada similar to the consolidation process in the U.S.,
in addition to numerous local competitors. Two of the U.S.-based superstores
have retail operations in Canada. We are the only sizable direct marketer of
office products in Canada.
In Australia, we compete with two of the large U.S.-based office
products distribution companies in the contract stationer channel and with many
local distributors. We do not currently have direct marketing operations in
Australia.
In the United Kingdom, we currently do business in the direct marketing
channel, where we compete with a larger direct marketing company, with
companies in the retail channel, and with contract stationers.
ENVIRONMENTAL MATTERS
We are subject to federal and state and local laws, regulations, and ordinances
which govern activities which might have adverse environmental effects, such as
discharges to air and water, as well as the handling and storage of hazardous
wastes. None of our facilities typically engage in activities or generate
discharges of the types generally covered by these laws and regulations. We
believe we are in substantial compliance with all such applicable laws and
regulations.
We are also subject to federal laws and regulations which impose liability for
the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals, or other forms of environmental damage, including those
which might have occurred prior to our ownership of particular sites. We are
currently not aware of any environmental conditions at any of the sites which
we operate which, individually or in the aggregate, would be likely to have a
material adverse effect on our financial condition or results of operations.
Nevertheless, there can be no assurance that any such environmental conditions
in the future will not have a material adverse effect on our financial
condition or results of operations.
14
<PAGE> 15
ITEM 2. PROPERTIES
Our corporate headquarters, together with our Chicago metropolitan area
distribution center, is located in a combined facility that we own at 800 W.
Bryn Mawr Avenue in Itasca, Illinois, a suburb northwest of Chicago. As of
February 28, 1997, we operated 65 distribution centers, including the suburban
Chicago distribution center, at the following locations:
AUSTRALIA CANADA (4)
--------- ------
Adelaide, South Australia Calgary, Alberta
Brisbane, Queensland Fredericton, New Brunswick
Canberra, New South Wales Montreal, Quebec
Kalgoorlie, Western Australia North Bay, Ontario
Melbourne, Victoria (1) Ottawa, Ontario
Perth, Western Australia Toronto, Ontario (1)
Sydney, New South Wales (Don Mills and Bermondsey)
Vancouver, British Columbia
UNITED KINGDOM Winnipeg, Manitoba
--------------
Doncaster, England (2)
UNITED STATES
-------------
Albuquerque, New Mexico Milwaukee (New Berlin), Wisconsin
Atlanta (Smyrna), Georgia Minneapolis/St. Paul
Boise, Idaho (Golden Valley), Minnesota
Boston (Billerica), Massachusetts Nashville, Tennessee
Burlington, Vermont New Castle, Delaware
Butte, Montana New York (Carlstadt, New Jersey),
Chicago (Itasca), Illinois New York
Cleveland (Independence), Ohio Norfolk (Chesapeake), Virginia
Columbus, Ohio Oklahoma City, Oklahoma
Dallas (Garland), Texas Orlando, Florida
Denver, Colorado Philadelphia (Bristol), Pennsylvania
Detroit (Warren), Michigan Phoenix, Arizona
Grand Rapids, Michigan Pittsburgh, Pennsylvania
Greenville, South Carolina Portland, Maine
Hartford (Naugatuck), Connecticut Portland, Oregon (1)
Honolulu, Hawaii (3) Reno, Nevada
Houston, Texas Rochester, New York
Jacksonville, Florida St. Louis, Missouri
Kalamazoo, Michigan Salt Lake City, Utah
Kansas City, Missouri San Francisco (Menlo Park),
Las Vegas, Nevada California
Los Angeles (Garden Grove), California Seattle (Kent), Washington (1)
Louisville, Kentucky Spokane, Washington
Miami, Florida Washington (Elkridge, Maryland), DC
15
<PAGE> 16
(1) Consists of two facilities.
(2) Land subject to a long leasehold, with a lease term in excess of 50 years.
(3) Consists of three owned facilities located on the islands of Oahu, Maui,
and Hawaii and two leased facilities on the islands of Oahu and Kauai. We
also lease and operate four retail stores on the island of Oahu.
(4) With the acquisition of Grand & Toy, we also operate approximately 70
retail stores throughout Canada.
The majority of our distribution centers are leased with lease terms expiring
between 1997 and 2006. We own facilities in Arizona, California, Georgia,
Hawaii, Illinois, Kansas, Massachusetts, Michigan, Pennsylvania, and Washington
and in Canada and the United Kingdom.
In addition to the distribution centers listed above, we lease office space in
Ottawa, Illinois, and own a facility in Peru, Illinois, where we operate
central telephone calling centers for incoming orders and customer service.
We own substantially all equipment used in our facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any legal or administrative
proceedings that it believes could have, either individually or in the
aggregate, a material adverse effect on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter
of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed on the New York Stock Exchange. The high and low
sales prices for our common stock are presented in Note 11, "Quarterly Results
of Operations (unaudited)," of the Notes to Financial Statements in our 1996
Annual Report and is incorporated herein by reference. At February 28, 1997,
the approximate number of common shareholders of record was 426.
We intend to retain our earnings to finance our growth and for general
corporate purposes and, therefore, do not anticipate paying cash dividends in
the foreseeable future.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data for the
Company for each of the five years 1996 through 1992. The selected historical
income statement data and balance sheet data as of December 31, 1996, 1995,
1994, and 1993, have been derived from our audited financial statements. The
selected historical balance sheet data as of December 31, 1992, have been
derived from our unaudited financial statements which, in the opinion of
management, includes all adjustments (consisting solely of normal recurring
adjustments, except as noted on the following page) necessary to present fairly
the financial information as of that date. The data set forth below should be
read in conjunction with, and are qualified in their entirety by reference to,
the disclosures in Items 7 and 8 of this Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 (1) 1995 (2) 1994 (3) 1993 1992 (4)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(in thousands, except share and operating data)
INCOME STATEMENT DATA
Net Sales $1,985,564 $1,315,953 $908,520 $682,819 $625,860
Income from operations 101,300 69,467 42,199 28,777 13,678
Income before cumulative effect of
accounting change 55,349 43,179 26,465 18,046 8,765
Cumulative effect of accounting
change, net of tax (5) -- -- -- -- (2,444)
---------- ---------- ---------- ---------- ----------
Net income $ 55,349 $ 43,179 $ 26,465 $ 18,046 $ 6,321
========== ========== ========== ========== ==========
Earnings per share and pro
forma earnings per share (6):
(based upon 62,444,170 actual average
common shares outstanding for the year
ended December 31, 1996; 61,660,100
pro forma average common shares
outstanding for the year ended
December 31, 1995; and 61,387,500
pro forma average common shares
outstanding for the years ended
December 31, 1994, 1993, and 1992 $.89 $.70 $.43 $.29 $.10
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
December 31,
----------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Working capital $168,641 $145,824 $104,835 $ 77,475 $ 75,133
Total assets 905,362 544,124 352,369 227,959 234,119
Total long-term obligations 170,030 14,358 5,511 3,892 7,034
Shareholders' equity 404,785 339,417 233,432 149,819 159,566
</TABLE>
17
<PAGE> 18
(1) During 1996, we acquired 19 businesses. The acquisitions were accounted
for as purchases. Data for the year ended December 31, 1996, include the
results of operations of the acquired businesses for the periods subsequent
to their acquisitions.
(2) During 1995, we acquired 10 businesses. The acquisitions were accounted
for as purchases. Data for the year ended December 31, 1995, include the
results of operations of the acquired businesses for the periods subsequent
to their acquisitions.
(3) Effective April 30, 1994, we acquired the direct marketing office products
distribution business of Reliable. Also during 1994 we acquired two other
businesses. The acquisitions were accounted for as purchases. Data for
the year ended December 31, 1994, include the results of operations of the
acquired businesses subsequent to their acquisitions.
(4) Excludes our wholesale office products distribution operations that were
sold in early 1992.
(5) Effective January 1, 1992, we adopted Financial Accounting Standards Board
requirements to accrue postretirement benefit costs.
(6) Information concerning pro forma earnings per share is included in Note 2,
"Summary of Significant Accounting Policies" of the Notes to Financial
Statements in our 1996 Annual Report and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations are presented under the caption "Financial Review" in our 1996
Annual Report and are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and related notes, together with the report of
independent public accountants, are presented in our 1996 Annual Report and are
incorporated herein by reference.
The unaudited income statement for the three months ended December 31, 1996, is
presented in our Fact Book for the fourth quarter of 1996 and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The directors and nominees for directors of the Company are presented under the
caption "Election of Directors" in the Company's proxy statement. This
information is incorporated herein by reference.
<TABLE>
Executive Officers as of February 28, 1997:
- ------------------------------------------
Date
First Elected
Name Age Position as an Officer
- ---- --- -------- -------------
<S> <C> <C> <C>
Peter G. Danis Jr. (1) 65 President, Chief Executive
Officer and Director 4/1/95
Christopher C. Milliken (2) 51 Senior Vice President,
Operations 4/1/95
Carol B. Moerdyk (3) 46 Senior Vice President,
Chief Financial Officer,
and Treasurer 4/1/95
Richard L. Black 51 President, The Reliable
Corporation 4/1/95
Lawrence E. Beeson 53 Vice President, Marketing 4/1/95
Darrell R. Elfeldt 53 Vice President and Controller 4/1/95
John A. Love 56 Vice President, Human Resources 4/1/95
Stephen M. Thompson 54 Vice President and
Region Manager 4/1/95
A. James Balkins III (4) 44 Corporate Secretary 4/1/95
</TABLE>
(1) Executive Vice President and General Manager, Office Products Distribution,
Boise Cascade Corporation.
(2) Vice President, Operations, Office Products Distribution, Boise Cascade
Corporation.
(3) Vice President, Finance, Office Products Distribution, Boise Cascade
Corporation.
(4) Vice President, Corporate Planning and Development, and Corporate
Secretary, Boise Cascade Corporation.
19
<PAGE> 20
Prior to being elected an officer of the Company, Peter G. Danis Jr. served as
Executive Vice President and General Manager, Office Products Distribution
Division of Boise Cascade Corporation since 1993. Prior thereto, Mr. Danis
served in various capacities at Boise Cascade Corporation including as
Executive Vice President, Office Products and Building Products from 1989 to
1993; Senior Vice President from 1981 to 1989; and Vice President, Office
Products from 1977 to 1981.
Prior to being elected an officer of the Company, Christopher C. Milliken
served as a Region Manager of Boise Cascade Office Products Distribution
Division since 1991. He has served in various positions with the Division
since 1977.
Prior to being elected an officer of the Company, Carol B. Moerdyk served as
Vice President and Assistant to the General Manager of Office Products of Boise
Cascade Corporation since 1992. Previously, Ms. Moerdyk served in various
capacities at Boise Cascade Corporation including Vice President, Corporate
Planning and Development from 1990 to 1992 and Corporate Planning and
Development Director from 1986 to 1990.
Richard L. Black became President of The Reliable Corporation, a wholly-owned
subsidiary of the Company, in 1994. Mr. Black served as Vice President,
Marketing of Rivertown Trading Company from 1992 to 1994 and, prior thereto, as
Vice President, New Business Development of Fingerhut Corporation, both direct
marketing companies.
Lawrence E. Beeson served as Vice President, Marketing of Hallmark Cards, Inc.
from 1990 to March 1995 and as Senior Vice President, Marketing for KFC Corp.,
a subsidiary of Pepsico Inc., prior thereto.
Prior to being elected an officer of the Company, Darrell R. Elfeldt served as
Finance and Distribution Director of Boise Cascade Office Products Distribution
Division since 1993. He has served in various positions with the division
since 1980.
Prior to being elected an officer of the Company, John A. Love served as the
Human Resources Director of Boise Cascade Office Products Distribution Division
since 1978.
Prior to being elected an officer of the Company, Stephen M. Thompson served as
a Region Manager of Boise Cascade Office Products Distribution Division since
1976, where he has served with the Division since 1970.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning compensation of our executive officers for the year
ended December 31, 1996, is presented under the caption "Compensation Tables"
in the Company's proxy statement. This information is incorporated herein by
reference.
20
<PAGE> 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Information concerning the security ownership of certain beneficial
owners as of December 31, 1996, is set forth under the caption
"Beneficial Ownership" in the Company's proxy statement and is
incorporated herein by reference.
(b) Information concerning security ownership of management as of December
31, 1996, is set forth under the caption "Security Ownership of
Directors and Executive Officers" in the Company's proxy statement and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions during
1996 is set forth under the caption "Related Party Transactions" in the
Company's proxy statement and in Note 5, "Transactions With Boise Cascade
Corporation," of the Notes to Financial Statements in our 1996 Annual Report
and are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Form 10-K for
Boise Cascade Office Products Corporation:
(1) Financial Statements
(i) The Income Statement for the three months ended December 31,
1996, is incorporated herein by reference from our Fact Book
for the fourth quarter of 1996.
(ii) The Financial Statements, the Notes to Financial Statements,
and the Report of Independent Public Accountants listed below
are incorporated herein by reference from our 1996 Annual
Report.
- Balance Sheets as of December 31, 1996 and 1995.
- Statements of Income for the years ended December 31, 1996,
1995, and 1994.
- Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994.
- Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995, and 1994.
- Notes to Financial Statements
- Report of Independent Public Accountants
21
<PAGE> 22
(2) Financial Statement Schedules.
None required.
(3) Exhibits.
A list of the exhibits required to be filed as part of this report
is set forth in the Index to Exhibits, which immediately precedes
such exhibits, and is incorporated herein by reference.
(b) Reports on Form 8-K
No Form 8-K's were filed during the last quarter covered by
this report.
(c) Exhibits.
See Index to Exhibits.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 OFFICE PRODUCTS CORPORATION
By /s/Peter G. Danis Jr.
---------------------------
Peter G. Danis Jr.
President and
Chief Executive Officer
Dated: March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 1997.
SIGNATURE CAPACITY
(i) Principal Executive Officer:
/s/ Peter G. Danis Jr. President and
------------------------- Chief Executive Officer
PETER G. DANIS JR.
(ii) Principal Financial Officer:
/s/ Carol B. Moerdyk Senior Vice President and
------------------------- Chief Financial Officer
CAROL B. MOERDYK
(iii) Principal Accounting Officer:
/s/ Darrell R. Elfeldt Vice President and Controller
-------------------------
DARRELL R. ELFELDT
(iv) Directors:
/s/ Peter G. Danis Jr.
-------------------------
PETER G. DANIS JR.
/s/ George J. Harad
-------------------------
GEORGE J. HARAD
/s/ John B. Carley
-------------------------
JOHN B. CARLEY
/s/ James G. Connelly III
-------------------------
JAMES G. CONNELLY III
/s/ Theodore Crumley
-------------------------
THEODORE CRUMLEY
/s/ A. William Reynolds
-------------------------
A. WILLIAM REYNOLDS
23
<PAGE> 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated January 28, 1997, included or incorporated by reference in this
Form 10-K for the year ended December 31, 1996, into Boise Cascade Office
Products Corporation's registration statement on Form S-8 (File No. 33-96348);
registration statement on Form S-8 (File No. 33-96512); registration statement
on Form S-8 (file No. 333-1132); registration statement on Form S-8 (File No.
333-1134); registration statement on Form S-8 (File No. 333-1152); and
post-effective amendment No. 1 to registration statement on Form S-1 (File No.
333-3660).
Arthur Andersen LLP
Boise, Idaho
March 24, 1997
24
<PAGE> 25
BOISE CASCADE OFFICE PRODUCTS CORPORATION
INDEX TO EXHIBITS
Filed With the Annual Report on Form 10-K
for the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Number Description Page Number
------ ----------- -----------
<S> <C> <C> <C>
2.1 (1) Asset Transfer and Subscription Agreement
dated April 1, 1995 --
3.1 (2) Restated Certificate of Incorporation --
3.2 (3) Bylaws, as amended October 11, 1995 --
4.1 (1) Specimen Certificate Representing Shares of
Common Stock --
4.2 (4) Credit Agreement, as amended by the Form of
Amendment No. 1 to Credit Agreement dated
January 12, 1996 --
4.3 (4) Amended and Restated Credit Agreement
dated June 5, 1996 --
9 Inapplicable --
10.1 (3) Form of Executive Officer Severance Agreement,
adopted January 30, 1996 --
10.2 (2) Administrative Services Agreement dated
April 1, 1995 --
10.3 (5) Paper Sales Agreement dated April 1, 1995 --
10.4 (2) License Agreement dated April 1, 1995 --
10.5 (2) Shareholder Agreement dated April 1, 1995 --
10.6 (2) Tax Matters Agreement dated April 1, 1995 --
10.7 (6) Key Executive Stock Option Plan, adopted
February 20, 1995 --
10.8 Director Stock Option Plan, as amended through
December 17, 1996 28
10.9 (2) Form of Confidential Information and Noncompetitive
Agreement, approved February 20, 1995 --
10.10 (2) Early Retirement Plan for Executive Officers,
effective February 20, 1995 --
10.11 (2) Supplemental Pension Plan, effective
February 20, 1995 --
10.12 (2) Key Executive Deferred Compensation Plan,
effective February 20, 1995 --
10.13 (2) Executive Officer Financial Counseling Program,
adopted February 20, 1995 --
10.14 (3) Split-Dollar Life Insurance Plan, as amended
July 27, 1995 --
10.15 Supplemental Health Care Plan for Executive
Officers, revised July 31, 1996 33
10.16 (2) Executive Officer Severance Pay Policy, adopted
February 20, 1995 --
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C> <C> <C>
10.17 (2) Key Executive Performance Plan, adopted
February 20, 1995 --
10.18 1996 and 1997 Performance Criteria for the Key
Executive Performance Plan 38
10.19 (2) Board of Directors Deferred Compensation Plan,
effective February 14, 1995 --
10.20 (3) 1995 Executive Officer Deferred Compensation
Plan, effective January 1, 1996 --
10.21 (3) 1995 Board of Directors Deferred Compensation
Plan, effective January 1, 1996 --
10.22 (7) Form of Deferred Compensation and
Benefits Trust dated January 30, 1996 --
11 Computation of Per Share Earnings 40
12 Ratio of Earnings to Fixed Charges 41
13.1 Incorporated sections of the Boise Cascade Office
Products Corporation 1996 Annual Report 42
13.2 Incorporated sections of the Boise Cascade Office
Products Corporation Fact Book for the fourth
quarter of 1996 59
16 Inapplicable --
18 Inapplicable --
21 Significant subsidiaries of the registrant 64
22 Inapplicable --
23 Consent of Arthur Andersen LLP (see page 24)
24 Inapplicable --
27 Financial Data Schedule 65
99 Inapplicable --
</TABLE>
(1) Exhibits 2.1 and 4.1 were filed under the same exhibit numbers in the
Company's Amendment No. 1 to the Registration Statement on Form S-1 filed
on March 28, 1995, and are incorporated herein by reference.
(2) Exhibits 3.1, 10.2, 10.4, 10.5, 10.6, 10.9, 10.10, 10.11, 10.12, 10.13,
10.16, 10.17, and 10.19 were filed under the same exhibit numbers in the
Company's Registration Statement on Form S-1 filed on February 22, 1995,
and are incorporated herein by reference.
(3) Exhibits 3.2, 10.1, 10.14, 10.20, and 10.21 were filed under the same
exhibit numbers in the Company's 1995 Annual Report on Form 10-K and are
incorporated herein by reference.
(4) The Credit Agreement dated March 30, 1995, was filed as Exhibit 10.1 in the
Company's Amendment No. 1 to the Registration Statement on Form S-1 filed
on March 28, 1995. The Form of Amendment No. 1 to Credit Agreement dated
January 12, 1996, was filed as Exhibit 4.2 in the Company's 1995 Annual
Report on Form 10-K. The Amended and Restated Credit Agreement dated June
5, 1996, was filed as Exhibit 4 in the Company's Current Report on Form 8-K
filed on June 10, 1996. Each of the documents referenced in this footnote
is incorporated herein by reference.
26
<PAGE> 27
(5) Exhibit 10.3 was filed under the same exhibit number in the Company's
Amendment No. 1 to the Registration Statement on Form S-1 filed on March
28, 1995, and is incorporated herein by reference. The Company has been
granted an order of confidential treatment with respect to a portion of
Exhibit 10.3.
(6) The Key Executive Stock Option Plan, as amended through April 23, 1996, was
filed as Exhibit 10.1 in the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and is incorporated herein by reference.
(7) The Form of Deferred Compensation and Benefits Trust dated January 30,
1996, was filed as Exhibit 10 in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, and is incorporated herein by
reference.
27
<PAGE> 1
EXHIBIT 10.8
BOISE CASCADE OFFICE PRODUCTS CORPORATION
DIRECTOR STOCK OPTION PLAN
(As Amended Through December 17, 1996)
<PAGE> 2
BOISE CASCADE OFFICE PRODUCTS CORPORATION
DIRECTOR STOCK OPTION PLAN
1. PLAN ADMINISTRATION AND ELIGIBILITY
1.1 Purpose. The purpose of the Boise Cascade Office Products Corporation
(the "Company") Director Stock Option Plan (the "Plan") is to encourage
ownership of the Company's common stock by its nonemployee directors.
1.2 Administration. This Plan shall be administered by the Board of
Directors of the Company (the "Board"). The Board shall have full authority to
administer this Plan, including authority to interpret and construe any
provision of this Plan and to adopt such rules for administration of this Plan
as it may deem necessary or appropriate. Decisions of the Board shall be final
and binding on all persons who have an interest in this Plan.
1.3 Participation in the Plan. Directors of the Company who are not
employees of the Company, its parent, or any of its subsidiaries are eligible
to participate in this Plan ("Eligible Directors").
2. STOCK SUBJECT TO THE PLAN
2.1 Number of Shares. The maximum number of shares of the Company's $.01
par value Common Stock ("Common Stock" or "Shares") which may be issued
pursuant to options granted under this Plan shall be 150,000 Shares, subject to
adjustment as provided in Section 4.4.
2.2 Nonexercised Shares. If any outstanding option under this Plan for
any reason expires or is terminated without having been exercised in full, the
Shares allocable to the unexercised portion of the option shall again become
available for issuance under options granted pursuant to this Plan.
2.3 Share Issuance. Upon the exercise of an option, the Company may issue
new Shares or reissue Shares previously repurchased by or on behalf of the
Company.
3. OPTIONS
3.1 Option Grant Dates. Options shall be granted automatically to each
Eligible Director on July 31 of each year (or, if July 31 is not a business
day, on the immediately preceding trading day) (the "Grant Date"). Any
Eligible Director first elected as a director after July 31 but prior to
December 31 in any year shall be granted an option covering the same number of
shares as options granted to other Eligible Directors on the Grant Date
immediately preceding the newly elected director's election. The Grant Date
for options granted to newly elected directors hereunder shall be the date of
such
1
<PAGE> 3
director's election to the board, and the Option Price shall be determined as
of such Grant Date.
3.2 Option Price. The purchase price per share for the Shares covered by
each option shall be the closing price for a share of Common Stock as reported
on the composite tape by the New York Stock Exchange on the Grant Date (the
"Option Price").
3.3 Number of Option Shares. The number of Shares subject to options
granted to each participating director on each Grant Date will be 5,000. The
Board may increase or decrease this number, not more frequently than once each
year, by action taken at least six months prior to the Grant Date for which
such increase or decrease is effective.
3.4 Director Terminations. If a director participating in this Plan
retires, resigns, dies, or otherwise terminates his or her position on the
Company's Board of Directors prior to July 31, he or she shall not be eligible
to receive a grant of an option in the year he or she so terminates.
3.5 Written Documentation. Each grant of an option under this Plan shall
be evidenced in writing, which shall comply with and be subject to the terms
and conditions contained in this Plan.
3.6 Nonstatutory Stock Options. Options granted under this Plan shall not
be entitled to special tax treatment under Section 422A of the Internal Revenue
Code of 1986.
3.7 Period of Option. Options may be exercised 12 months after their
Grant Date, provided, however, that options held by a director shall be
immediately exercisable upon the occurrence of any of the events described in
Section 3.11, recognizing that Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Act"), may limit a director's ability to resell the
Shares acquired upon the exercise until six months after the Grant Date. No
option shall be exercisable after the earlier to occur of (a) three years from
the date upon which the option holder terminates his or her position as a
director of the Company or (b) ten years from the option's Grant Date.
3.8 Exercise of Options. Options may be exercised only by written notice
to the secretary of the Company and payment of the exercise price in (i) cash,
(ii) Shares, (iii) a loan from the Company, or (iv) delivery of an irrevocable
written notice instructing the Company to deliver the Shares being purchased to
a broker selected by the Company, subject to the broker's written guarantee to
deliver cash to the Company, in each case equal to the full consideration of
the Option Price for the Shares which are being exercised. Options may be
exercised in whole or in part.
2
<PAGE> 4
3.9 Options Nontransferable. Each option granted under this Plan shall
not be transferable by the optionee other than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Internal Revenue Code of 1986, as amended, or Title I of the
Employee Retirement Income Security Act of 1974, as amended, and the rules and
regulations thereunder. No option granted under this Plan, or any interest
therein, may be otherwise transferred, assigned, pledged, or hypothecated by
the director to which the option was granted during his or her lifetime,
whether by operation of law or otherwise, or be made subject to execution,
attachment, or similar process.
3.10 Exercise by Representative Following Death of Director. A director,
by written notice to the Company, may designate one or more persons (and from
time to time change such designation), including his or her legal
representative, who, by reason of the director's death, shall acquire the right
to exercise all or a portion of an option granted under this Plan. Any
exercise by a representative shall be subject to the provisions of this Plan.
3.11 Acceleration of Stock Options. Notwithstanding Section 3.7, in the
event of a dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving corporation, any
unexercised options granted prior to the date of the merger or consolidation
shall become exercisable immediately prior to the date of the merger or
consolidation.
3.12 Initial Grant. In addition to the grant under Section 3.1, and
notwithstanding Section 3.2, options shall be granted to each Eligible Director
to purchase 2,000 shares of Common Stock at the initial public offering price
of the Common Stock.
4. GENERAL PROVISIONS
4.1 Effective Date of This Plan. This Plan shall be effective February
20, 1995, subject to approval by the shareholders of the Company.
4.2 Duration of This Plan. This Plan shall remain in effect until all
Shares subject to option grants have been purchased or all unexercised options
have expired. Notwithstanding the foregoing, no options may be granted
pursuant to this Plan on or after the tenth anniversary of this Plan's
effective date.
4.3 Amendment of This Plan. The Board may suspend or discontinue this
Plan or revise or amend it in any respect, provided, however, that without
approval of a majority of the Company's shareholders no revision or amendment
shall (i) change the number of Shares subject to this Plan (except as provided
in Section 4.4), (ii) change the designation of the class of directors eligible
to participate in the Plan, (iii) change the
3
<PAGE> 5
exercise price of the options, or (iv) materially increase the cost of this
Plan to the Company. Moreover, in no event may Plan provisions be amended more
than once every six months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act, or the rules and
regulations thereunder. No amendment, modification, or termination of this
Plan shall in any manner adversely affect the rights of any director holding
options granted under this Plan without his or her consent.
4.4 Changes in Shares. In the event of any merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, or other change
in the corporate structure or capitalization affecting the Shares, appropriate
adjustment shall be made in the number (including the aggregate numbers
specified in Section 2.1) and kind of Shares or other securities which are or
may become subject to options granted under this Plan prior to and subsequent
to the date of the change.
4.5 Limitation of Rights.
4.5.1 No Right to Continue as a Director. Neither this Plan, nor the
granting of an option under this Plan, nor any other action taken pursuant to
this Plan shall constitute or be evidence of any agreement or understanding,
express or implied, that the Company will retain a director for any period of
time, or at any particular rate of compensation.
4.5.2 No Shareholders' Rights for Options. An optionee shall have no
rights as a shareholder with respect to the Shares covered by his or her
options until the date of the issuance to him or her of a stock certificate
therefor.
4.6 Assignments. The rights and benefits under this Plan may not be
assigned except as provided in Sections 3.9 and 3.10.
4.7 Notice. Any written notice to the Company required by any of the
provisions of this Plan shall be addressed to the secretary of the Company and
shall become effective when it is received.
4.8 Shareholder Approval and Registration Statement. This Plan shall be
approved by the Board of Directors and submitted to the Company's shareholders
for approval. Any options granted under this Plan prior to effectiveness of a
registration statement filed with the Securities and Exchange Commission
covering the Shares to be issued hereunder shall not be exercisable until, and
are expressly conditional upon, the effectiveness of a registration statement
covering the Shares.
4.9 Governing Law. This Plan and all determinations made and actions
taken pursuant hereto shall be governed by and construed in accordance with the
laws of the state of Delaware.
4
<PAGE> 1
EXHIBIT 10.15
BOISE CASCADE OFFICE PRODUCTS CORPORATION
SUPPLEMENTAL HEALTH CARE PLAN FOR EXECUTIVE OFFICERS
<PAGE> 2
SUPPLEMENTAL HEALTH CARE PLAN FOR EXECUTIVE OFFICERS
INTRODUCTION
Boise Cascade Office Products Corporation (the "Company") has adopted a
Supplemental Health Care Plan for Executive Officers (the "Plan") in addition
to the Company's Preferred Provider Network Medical Plan, Dental Plan, Vision
Plan, and Prescription Drug Plan. While you share in the cost of your medical
care by paying a monthly contribution, a deductible, and a percentage of the
remaining expenses, the combination of the plans pays most of the major charges
for covered health care expenses for you and your dependents.
WHO IS ELIGIBLE
As an executive officer of the Company who also serves as an executive officer
of Boise Cascade Corporation, you are automatically eligible for coverage under
the Plan. Your dependents' coverage under the Plan will become effective on
the same date that your own coverage begins.
Your dependents who are eligible for coverage under this Plan include your
spouse plus any unmarried children under age 23, if they do not regularly work
full-time and are dependent on you for support. Under certain circumstances, a
child with disabilities may be covered beyond age 23.
HOW BENEFITS BECOME PAYABLE
Medical benefits become payable under this Plan after benefits for covered
charges under the Preferred Provider Network Medical Plan have been applied to
medical expenses incurred by you or your covered dependent. The Plan will pay
100% of the remaining charges for the treatment, services, and supplies listed
under "What the Plan Covers." Amounts applied to the deductible and copayments
under the Preferred Provider Network Medical Plan are not covered under this
Plan.
Dental and vision benefits become payable under this Plan after benefits for
scheduled amounts covered under the Dental Plan or the Vision Plan have been
applied to dental or vision expenses incurred by you or your covered dependent.
The Plan will pay 100% of the remaining charges for the services and supplies
shown under "What the Plan Covers."
The deductible and copayment amounts under the Prescription Drug Plan are not
covered under this Plan.
WHAT THE PLAN COVERS
Medical expenses incurred will be reduced by the amount considered as covered
charges under the Preferred Provider Network Medical Plan. The Plan will pay
100% of the remaining charges for the following medical expenses:
2
<PAGE> 3
- - Hospital room and board charges.
- - Hospital intensive care (ICU) and cardiac care unit (CCU) charges.
- - Hospital services and supplies (inpatient or outpatient).
- - Medical treatment or surgery by a physician.
- - Outpatient surgical facility services and supplies.
- - Private-duty nursing by a registered nurse (R.N.), a licensed vocational
nurse (L.V.N.), or a licensed practical nurse (L.P.N.) upon the written
recommendation of a physician.
- - Ambulance service.
- - Prescription drugs and medicines.
- - Immunizations.
- - Anesthetics and oxygen and their administration.
- - Rental or purchase (at the Company's option) of approved durable medical
equipment and appliances.
- - Physical therapy by a licensed physiotherapist for treatment by physical
or mechanical means only.
- - Outpatient rehabilitative speech and occupational therapy. Care must be
provided by a licensed therapist who is referred and supervised by a
licensed physician.
- - Blood and blood plasma which are not replaced by donation, and their
administration.
- - Diagnostic x-rays and laboratory tests.
- - Extended-care facility confinement, including services and supplies.
- - Medical social services while a patient is in an extended-care facility.
- - Psychiatric care provided by a physician.
- - Mammograms.
The Plan will also pay 100% of the remaining charges for vision exams,
eyeglasses, contact lenses, hearing aids, and dental expenses (including
orthodontia and expenses for repair and maintenance of covered items) after
benefits under the Dental Plan, the Vision Plan, or the Preferred Provider
Network Medical Plan, have been applied.
WHAT THE PLAN DOES NOT COVER
Expenses for items shown in the list that follows are not covered under the
Plan:
- - Injury or illness resulting from war or an act of war, whether declared or
undeclared.
- - Items payable by workers' compensation or any other government program.
- - Items for which no charge would have been made in the absence of medical
coverage, or items for which you are not legally obligated to pay.
- - Prescription drugs obtained through the Company's Prescription Drug Plan.
- - Items for which the Company, by law or regulation, may not provide
benefits.
- - Medical services rendered prior to the date your coverage by this Plan
began.
- - Charges which are applied to the deductible and copayments under the
Preferred Provider Network Medical Plan.
- - Charges which are applied to additional deductibles under the HRM Care
Management Program.
3
<PAGE> 4
HEALTH CARE CLAIMS
The necessary forms to file a claim for covered health care expenses under this
Plan are available from the Boise Cascade Corporation Group Benefits Office in
Boise, Idaho.
PLAN ADMINISTRATION, ERISA RIGHTS
The BCOP Benefits Health Care booklet (the Summary Plan Description) identifies
the Plan administrator and explains your ERISA rights under this Plan. If a
dispute or disagreement arises regarding terms of coverage, or benefits
provided under this Plan, you must use the "claims/appeal" processes described
in that booklet.
CONTINUATION OF COVERAGE/QUALIFIED MEDICAL CHILD SUPPORT ORDERS
The Plan is subject to the requirements of federal law as they relate to
continuation of medical benefits pursuant to provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") and to "Qualified Medical
Child Support Orders" under the Omnibus Budget Reconciliation Act of 1993.
These requirements are described in more detail in the BCOP Benefits Health
Care booklet.
SOURCE OF FUNDING
This Plan is self-insured by the Company. Payments for benefits under this
Plan are made from the general assets of the Company as benefits become
payable.
TAXABILITY
All benefits payable under this Plan are considered taxable income to you, are
subject to tax withholding requirements, and will be reflected in you Form W-2
earnings.
COVERAGE DURING A LEAVE OF ABSENCE
Your medical coverages may be continued while you are still employed by the
Company but are not actively at work because of an accident or illness or
certain other company-approved leaves of absence. Under such conditions,
coverage will continue in keeping with the provisions of the leave.
WHEN YOUR COVERAGE ENDS
Your coverage under the Plan ends on the earliest of the following dates:
- - On the date your employment with Boise Cascade Office Products Corporation
ends.
4
<PAGE> 5
- - On the date you become ineligible to participate in these coverages -- for
example, if you cease to be an executive officer of
the Company or of Boise Cascade Corporation.
- - On the date the Company elects to discontinue this Plan.
WHEN YOUR DEPENDENTS' COVERAGE ENDS
Your dependents' coverage under this Plan ends on the earliest of the following
dates:
- - On the date your coverage ends.
- - On the date your dependent ceases to be eligible because of a change
in age or dependent status as defined under the Preferred Provider
Network Medical Plan.
- - On the date your dependent begins active duty in the armed forces of
any country, state, or international organization.
- - On the date the Company elects to discontinue this Plan.
THE COMPANY EXPRESSLY RESERVES THE RIGHT TO AMEND OR TERMINATE THIS PLAN AT
ANY TIME. COVERAGE UNDER THIS PLAN IS NOT AND SHOULD NOT BE DEEMED TO
CREATE A CONTRACT OF EMPLOYMENT AND UNDER NO CIRCUMSTANCES SHALL BE
CONSTRUED TO GIVE ANY PARTICIPANT A RIGHT TO REMAIN AN EMPLOYEE OR OFFICER
OF THE COMPANY FOR ANY PERIOD. ANY PARTICIPANT IN THIS PLAN IS EMPLOYED
SOLELY AT THE WILL OF THE COMPANY.
TO THE EXTENT NOT GOVERNED BY FEDERAL LAW, THIS PLAN WILL BE CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF IDAHO. IN THE EVENT ANY LAWSUIT OR
LEGAL ACTION IS BROUGHT (BY ANY PARTY, PERSON, OR ENTITY REGARDING THIS
PLAN, BENEFITS HEREUNDER, OR ANY RELATED ISSUE), SUCH ACTION OR SUIT MAY BE
BROUGHT ONLY IN FEDERAL DISTRICT COURT IN THE DISTRICT OF IDAHO.
5
<PAGE> 1
EXHIBIT 10.18
BOISE CASCADE OFFICE PRODUCTS CORPORATION
KEY EXECUTIVE PERFORMANCE PLAN
1996 Payout Criteria Based on Economic Value Added (EVA)
Economic Value Added (EVA(R)) is a registered trademark of Stern
Stewart & Co., and they have assisted Boise Cascade Office Products
in developing this incentive plan.
<TABLE>
<CAPTION>
PAYOUT AS A PERCENT OF SALARY
Improvement PRESIDENT
in EVA CEO COO/CFO RELIABLE VP
- --------------- ------- -------- -------- -----
<S> <C> <C> <C> <C>
Less than
$(34,054,000) 0.0% 0.0% 0.0% 0.0%
$(26,000,000) 12.6% 9.5% 8.4% 7.4%
$(22,884,000) 17.4% 13.1% 11.6% 10.2%
$(22,883,999) 47.4% 35.6% 31.6% 27.7%
$(13,000,000) 62.4% 46.8% 41.6% 36.4%
$ 0 122.4% 91.8% 81.6% 71.4%
$ 6,500,000 152.4% 114.3% 101.6% 88.9%
$ 13,000,000 162.4% 121.8% 108.2% 94.7%
</TABLE>
- - For Improvement in EVA in excess of $13 Million, the payout
increases proportionally to the increase from $6.5 Million
to $13 Million.
- - The payout is interpolated on a straight line for
Improvement in EVA not shown in the table.
EVA = Net Operating Profit Before Tax -
Capital Charge
Net Operating Profit
Before Tax (NOPBT)* = Income from operating assets
+ Imputed interest of capitalized
lease obligations
- Amortization of restructuring
losses
* Unusual nonrecurring and nonoperating income or expense items do not affect
NOPBT
Capital Charge = EVA Capital x 16%
EVA Capital** = Operating Capital
+ Imputed capital value of lease
obligations
- Gain from the sale of assets
+ Unamortized restructuring losses
** Nonrecurring and nonoperating losses do not affect Operating
Capital. There may be adjustments to Operating Capital for
strategic investments subject to approval by the Compensation
Committee of the Board.
<PAGE> 2
EXHIBIT 10.18
BOISE CASCADE OFFICE PRODUCTS CORPORATION
KEY EXECUTIVE PERFORMANCE PLAN
1997 Payout Criteria Based on Economic Value Added (EVA)
Economic Value Added (EVA(R)) is a registered trademark of Stern
Stewart & Co., and they have assisted Boise Cascade Office Products
in developing this incentive plan.
<TABLE>
<CAPTION>
PAYOUT AS A PERCENT OF SALARY
Improvement PRESIDENT
in EVA CEO COO/CFO RELIABLE VP
- -------------- ------- ------- -------- -----
<S> <C> <C> <C> <C>
Less than
$(47,329,996) 0.0% 0.0% 0.0% 0.0%
$(23,729,000) 19.9% 14.9% 13.2% 11.6%
$(23,728,999) 49.9% 37.4% 33.2% 29.1%
$(21,000,000) 52.5% 39.3% 35.0% 30.6%
$ 0 112.5% 84.3% 75.0% 65.6%
$ 10,500,000 122.4% 91.8% 81.6% 71.4%
</TABLE>
- - For Improvement in EVA in excess of $10.5 Million, the payout
increases proportionally to the increase from $0 Million
to $10.5 Million.
- - The payout is interpolated on a straight line for
Improvement in EVA not shown in the table.
EVA = Net Operating Profit Before Tax -
Capital Charge
Net Operating Profit
Before Tax (NOPBT)* = Income from operating assets
+ Imputed interest of capitalized
lease obligations
- Amortization of restructuring
losses
* Unusual nonrecurring and nonoperating income or expense
items do not affect NOPBT
Capital Charge = EVA Capital x 16%
EVA Capital** = Operating Capital
+ Imputed capital value of lease
obligations
- Gain from the sale of assets
+ Unamortized restructuring losses
** Nonrecurring and nonoperating losses do not affect Operating
Capital. There may be adjustments to Operating Capital for
strategic investments subject to approval by the Compensation
Committee of the Board.
<PAGE> 1
EXHIBIT 11
BOISE CASCADE OFFICE PRODUCTS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
For the Year Ended December 31
------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
(in thousands, except share information)
PRIMARY EARNINGS PER SHARE
Shares of Common Stock:
Weighted average shares outstanding ... 62,444,170 61,660,100 61,387,500
============== ============== ==============
Net income ............................. $ 55,349 $ 43,179 $ 26,465
============== ============== ==============
Primary earnings per share
(pro forma 1995 and 1994) (1) .......... $ .89 $ $.70 $ .43
============== ============== ==============
FULLY DILUTED EARNINGS PER SHARE
Shares of Common Stock:
Weighted average shares outstanding ... 62,444,170 61,660,100 61,387,500
Dilutive effect of options ............ 236,517 47,730 -
Dilutive effect of contingent shares .. 475,828 139,340 -
Fully Diluted Weighted Average
Shares Outstanding ..................... 63,156,515 61,847,170 61,387,500
============== ============== ==============
Net income ............................. $ 55,349 $ 43,179 $ 26,465
============== ============== ==============
Fully diluted earnings per share
(pro forma 1995 and 1994) (1) and (2) .. $ .88 $ .70 $ .43
============== ============== ==============
</TABLE>
(1) Information concerning pro forma earnings per share is included in Note 2,
"Summary of Significant Accounting Policies," of the Notes to Financial
Statements in the Company's 1996 Annual Report and is incorporated herein by
reference.
(2) Fully diluted earnings per share for all years presented are not disclosed
in the financial statements because the amounts are not considered dilutive
under the provisions of Accounting Principles Board Opinion No. 15,
"Earnings Per Share."
<PAGE> 1
EXHIBIT 12
BOISE CASCADE OFFICE PRODUCTS CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the Year Ended December 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(dollars in thousands)
Interest costs and amortization
of debt costs $ 7,868 $ 725 $ -
Interest factor related to
noncapitalized leases (1) 4,839 2,203 1,632
---------- ---------- ----------
Total fixed charges $ 12,707 $ 2,928 $ 1,632
---------- ---------- ----------
Income before income taxes $ 93,812 $71,370 $43,194
Total fixed charges 12,707 2,928 1,632
---------- ---------- ----------
Total earnings before
fixed charges $ 106,519 $74,298 $44,826
---------- ---------- ----------
Ratio of earnings to fixed charges 8.4 25.4 27.5
</TABLE>
(1) Interest expense for operating leases with terms of one year or longer is
based on an imputed interest rate for each lease.
<PAGE> 1
EXHIBIT 13.1
p. 22
FINANCIAL REVIEW
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995 Net sales in 1996 increased 51% to $2.0 billion, from
$1.3 billion in 1995. The growth in sales resulted primarily from acquisitions.
Businesses acquired during 1995 had sales in 1995 of $90 million. Sales for the
1995 acquisitions increased to $264 million for 1996 because they were owned
for the full calendar year and the Company had begun to implement its business
model in these acquisitions, including increasing sales to national accounts
and broadening product offerings. Businesses acquired during 1996 had sales in
1996 of $332 million. Excluding the incremental effect of the 1995 and 1996
acquisitions, net sales increased $200 million, primarily as a result of growth
in national account sales, the Company's broader product offering, and growth
in direct marketing sales.
Cost of sales, which includes the costs of merchandise sold, delivery, and
occupancy, increased in 1996 to $1.5 billion, which was 73.9% of net sales.
This compares with $981 million, which represented 74.5% of net sales, in
1995. The 0.6% increase in gross margins for 1996 compared to 1995 resulted
primarily from the Company's acquisition of Neat Ideas, a direct marketing
company based in the United Kingdom, and Grand & Toy Limited, one of Canada's
largest contract stationers. Both of these companies have gross margins which
are higher than the average gross margin of the Company's other business. In
addition, the Company's average gross margin on copy paper sales was higher in
1996 than in 1995, when the Company experienced difficulty in passing through
cost increases early in the year. The Company believes that the increasingly
competitive nature of the industry and the increasing price sensitivity of
customers will continue to put downward pressure on gross margins. In
addition, changes in the Company's product mix or marketing strategy could,
from time to time, affect gross margins. For example, the Company continues to
increase its sales of computer-related consumables, a product line that had
significantly lower gross margins and associated operating expenses than the
Company's more traditional office products line in 1996.
Operating expense was 21.0% of net sales in 1996, compared with 20.2% in 1995.
This increase was primarily the result of the Company's increased presence in
direct marketing and the international contract stationer business, both of
which have higher operating expenses than the average of the Company's other
business. Sharply lower paper prices in 1996 also reduced overall revenue
growth, negatively impacting the Company's ability to leverage its operating
expenses. Within the operating expense category, selling and warehouse
operating expense was 18.9% of net sales in 1996, compared with 18.2% in 1995.
In addition to the factors discussed above, the Company added more than 40
associates to its sales force dedicated to computer-related products; started
up a centralized call center in Peru, Illinois; and centralized the majority of
its domestic inventory rebuying function. These activities also contributed to
the increase in selling and warehouse operating expenses in 1996. Corporate
general and administrative expense declined to 1.7% of net sales in 1996 from
1.9% in 1995, because the Company was able to spread the cost of centralized
functions over its higher revenues. Goodwill amortization was 0.3% of net sales
in 1996, compared to 0.2% in 1995. The increase in goodwill amortization
between 1995 and 1996 resulted from the Company's acquisition activity in 1995
and 1996.
As a result of the factors discussed above, income from operations was $101
million in 1996, a 46% increase over $69 million in 1995. The Company's
operating margin decreased to 5.1% from 5.3% of net sales.
The Company's interest expense was $8 million in 1996, compared to $1 million
in 1995. The increase in interest expense resulted from debt incurred in
conjunction with the Company's acquisition and capital spending programs.
Income tax expense was $38 million in 1996, compared to $28 million in 1995.
The increase resulted from the Company's higher taxable income in 1996. The
Company's effective tax rate also increased to 41.0% in 1996, from 39.5% in
1995, primarily as a result of increased foreign income, including
nondeductible goodwill, taxed at a higher rate.
FINANCIAL REVIEW
<PAGE> 2
p. 23
Net income increased 28% to $55 million, or 2.8% of net sales, compared with
$43 million, or 3.3% of net sales, in 1995.
1995 COMPARED WITH 1994 Net sales in 1995 increased 45% to $1.3 billion, from
$909 million in 1994. The growth in sales resulted primarily from higher paper
prices and paper volumes, increased sales to national accounts, rapid growth
of the Company's direct marketing business, and acquisitions. Excluding the
effect of acquisitions since December 31, 1993, sales increased 26% in 1995.
Of that 26%, approximately one-fourth of the increase was due to higher paper
prices.
Cost of sales increased in 1995 to $981 million, which was 74.5% of net sales.
This compares with $677 million, which also represented 74.5% of net sales, in
1994. The overall industry and Company trend with gross margins was flat to
declining from 1994 to 1995. The Company reported sequentially improving
margins in the second, third, and fourth quarters of 1995, mostly due to
passing through previous paper cost increases, resulting in a flat gross
margin for the year compared to 1994.
Operating expense was 20.2% of net sales in 1995, compared with 20.9% in 1994.
This decline was primarily the result of the Company's cost controls and
operating efficiency initiatives and the leveraging of its operating expenses
over higher sales volume. Within the operating expense category, selling and
warehouse operating expense was 18.2% of net sales in 1995, compared with
19.0% in 1994. Corporate general and administrative expense was 1.9% of net
sales, compared with 1.7%.
As a result of the factors discussed above, income from operations in 1995
increased to $69 million, 65% over 1994 operating income of $42 million. The
Company's operating margin increased to 5.3% from 4.6% of net sales. Net income
increased 63% to $43 million, or 3.3% of net sales, compared with $26 million,
or 2.9% of net sales, in 1994.
PUBLIC OFFERING
On April 13, 1995, the Company completed the sale of 10,637,500 shares of
common stock, at a price of $12.50 per share, in an initial public offering.
After the offering, Boise Cascade Corporation owned 82.7% of the Company's
outstanding common stock. Net proceeds were approximately $123 million, $102
million of which was used by the Company to pay a small dividend to Boise
Cascade Corporation and to replace working capital retained by Boise Cascade
Corporation. The remainder of the proceeds--approximately $21 million--was
retained by the Company for general corporate purposes. At December 31, 1996,
Boise Cascade Corporation owned 80.9% of the Company's outstanding common
stock.
In May 1996, the Company effected a two-for-one stock split of its common
stock in the form of a 100% stock dividend. Each shareholder of record at the
close of business on May 6, 1996, received one additional share for each share
held on that date. The new shares were distributed on May 20, 1996. All
references in this financial review to share amounts, earnings per share,
average shares outstanding, and common stock prices have been adjusted to
reflect the stock split.
On June 17, 1996, the Company filed a registration statement with the
Securities and Exchange Commission for 4.4 million shares of common stock to
be offered by the Company from time to time in connection with future
acquisitions. At year-end, 4.0 million shares remained unissued under this
registration statement.
ACQUISITIONS
In 1996, the Company acquired 19 businesses, including four companies in
Canada and three in Australia, for cash of $180 million, acquisition
liabilities of $35 million, and issuance of BCOP stock valued at $7 million at
the time of issuance. The annualized sales of the acquisitions completed in
1996 were $460 million at the time of announcement. In addition, in January
1997, the Company formed a joint venture with Otto Versand, an international
direct marketer of consumer products, to commence direct marketing office
products in Europe.
In 1995, the Company acquired 10 office products businesses, including one in
the United Kingdom, for cash of $62 million, payables to the sellers of $11
million, and issuance of BCOP stock and a stock note valued at $18 million at
the time of
FINANCIAL REVIEW
<PAGE> 3
P. 24
issuance. The annualized sales of the acquisitions completed in 1995 were $235
million at the time of announcement.
In April 1994, the Company purchased the net assets of the direct marketing
office supply business of The Reliable Corporation for $71 million in cash.
Goodwill, net of amortization, was $262 million at December 31, 1996, and $115
million at December 31, 1995. The increase was the result of acquisitions. The
Company used purchase accounting to record its acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal requirements for cash have been to make acquisitions,
fund working capital needs, upgrade and expand facilities at existing
locations, and open new distribution centers. The funding of the Company's
strategy for growth, including acquisitions and the relocation of several
existing distribution centers into new and larger facilities, is expected to
require capital outlays by the Company over the next several years. The
Company expects total capital expenditures in 1997 of $80 million, exclusive
of amounts attributable to acquisitions. In 1996, such capital expenditures
were $43 million.
To finance its capital requirements, the Company expects to rely upon funds
from a combination of sources. In addition to cash flow from operations, the
Company has a $350 million revolving credit agreement that expires in 2001 and
provides for variable rates of interest based on customary indices. The
revolving credit agreement is available for acquisitions and general corporate
purposes. It contains financial and other covenants, including a negative
pledge and covenants specifying a minimum net worth, a minimum fixed charge
coverage ratio, and a maximum leverage ratio. The lending banks may terminate
the revolving credit agreement, and accelerate the payment of any amounts
borrowed thereunder, in the event a Change in Control (as defined) of the
Company occurs. Amounts outstanding under this agreement totaled $140 million
at December 31, 1996. The Company may, subject to the covenants contained in
the revolving credit agreement and to market conditions, raise additional funds
through the agreement and through other external debt or equity financings in
the future.
In addition to the amount outstanding under the revolving credit agreement,
the Company had short-term notes payable of $37 million at December 31, 1996.
FINANCIAL CONDITION
Cash provided by operations in 1996 was $60 million. This was the result of
$81 million of net income, depreciation and amortization, and other noncash
items, offset by a $21 million net increase in working capital. Net cash used
for investment was $239 million, which included $43 million for capital
expenditures and $180 million for acquisitions. Net cash provided by financing
was $177 million, which included $140 million borrowed under the revolving
credit agreement and $37 million borrowed through short-term borrowing lines.
Cash provided by operations in 1995 was $50 million. This was the result of
$57 million of net income, depreciation and amortization, and other noncash
items, offset by a $7 million net increase in working capital. Net cash used
for investment was $80 million, which included $22 million for capital
expenditures and $62 million for acquisitions. Net cash provided by financing
was $44 million, which included $123 million from the Company's sale of stock,
offset in part by a $78 million net equity transaction with Boise Cascade
Corporation.
Cash provided by operations in 1994 was $32 million. This was the result of
$39 million of net income, depreciation and amortization, and other noncash
items, offset by a $7 million net increase in working capital. Cash used for
investment in 1994 was $88 million, which included $78 million for
acquisitions and $6 million for capital expenditures. Boise Cascade
Corporation made equity contributions aggregating approximately $57 million in
1994.
EFFECTS OF FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES
Approximately 15% of the Company's 1996 revenues were generated from
operations outside the United States. The Company's operations in Australia,
Canada, the United Kingdom, and its recently announced joint venture with Otto
Versand in
FINANCIAL REVIEW
<PAGE> 4
P. 25
Germany are denominated in currencies other than U.S. dollars. Each of the
Company's operations conducts substantially all of its business in its local
currency with minimal cross-border product movement. As a result, these
operations are not subject to material operational risks associated with
fluctuations in exchange rates. Furthermore, the Company's results of
operations were not materially impacted by the translation of its other
operations' currencies into U.S. dollars. Because the Company intends to
expand the size and scope of its international operations, this exposure to
fluctuations in exchange rates may increase. Accordingly, no assurance can be
given that the Company's future results of operations will not be adversely
affected by fluctuations in foreign currency exchange rates. Although the
Company currently does not engage in any foreign currency hedging activities,
it may consider doing so in the future. Such future hedges would be intended to
minimize the effects of foreign exchange rate fluctuations on its investment
and would not be done for speculative purposes.
IMPACT OF INFLATION, SEASONALITY, AND
BUSINESS CYCLES
Management believes inflation has not had a material effect on the Company's
financial condition or results of operations. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
Although the sale of particular items sold by the Company is seasonal (i.e.,
calendars and specialty gift items), the Company's sales overall are not
subject to significant seasonal variations.
A significant portion of the Company's sales mix is represented by copy paper
and other paper products. In late 1994 and early 1995, the Company's gross
margin was adversely affected by the Company's inability to immediately adjust
prices to its customers to reflect rapid increases in the cost of paper during
that time period. The Company subsequently revised its contracts with
customers to improve its ability to pass on cost increases. In 1996, paper
prices were lower than in 1995, negatively impacting the Company's revenue
growth and operating expense leverage. Looking to the future, it is uncertain
to what extent or when paper prices might significantly rise or fall and what
favorable or adverse impact those changes might have on BCOP's sales and
margins.
The Company's multifaceted growth strategy, including its acquisition program,
was successful during 1996. The Company believes that this growth strategy
will continue to be successful, but the year-to-year results of this strategy
will depend in part on market conditions outside the Company's control. In
addition, the pace of the Company's acquisition program will reflect the
extent of opportunities available to the Company.
FORWARD LOOKING STATEMENTS
This annual report includes "forward looking statements" that involve
uncertainties and risks. There can be no assurance that actual results will
not differ from the Company's expectations. Factors which could cause
materially different results include, among others, the success of new product
introductions, the pace of acquisitions and cost structure improvements,
competitive and general economic conditions, and the other risks set forth in
the Company's filings with the Securities and Exchange Commission.
FINANCIAL REVIEW
<PAGE> 5
P. 26
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
<S> <C> <C> <C>
Year ended December 31 (in thousands, except share information) 1996 1995 1994
Net sales $1,985,564 $1,315,953 $908,520
Cost of sales, including inventory purchased from Boise Cascade
Corporation of $189,429, $158,512, and $69,566 (Note 5) 1,467,368 980,564 676,515
- -------------------------------------------------------------------------------------------------------
Gross profit 518,196 335,389 232,005
- -------------------------------------------------------------------------------------------------------
Selling and warehouse operating expense (Note 2) 375,700 238,885 172,876
Corporate general and administrative expense,
including amounts paid to Boise Cascade Corporation
of $2,362, $2,382, and $2,710 (Note 5) 34,409 24,750 15,541
Goodwill amortization (Note 2) 6,787 2,287 1,389
- -------------------------------------------------------------------------------------------------------
416,896 265,922 189,806
- -------------------------------------------------------------------------------------------------------
Income from operations 101,300 69,467 42,199
Interest expense 7,766 685 --
Other income, net 278 2,588 995
- -------------------------------------------------------------------------------------------------------
Income before income taxes 93,812 71,370 43,194
Income tax expense (Note 3) 38,463 28,191 16,729
- -------------------------------------------------------------------------------------------------------
Net income $55,349 $43,179 $26,465
=======================================================================================================
Earnings per share and pro forma earnings per share (Note 2)
(based upon 62,444,170 actual average common shares
outstanding for the year ended December 31, 1996;
61,660,100 pro forma average common shares outstanding
for the year ended December 31, 1995; and 61,387,500
pro forma average common shares outstanding for the year
ended December 31, 1994) $ .89 $ .70 $ .43
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
STATEMENTS OF INCOME
<PAGE> 6
P. 27
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31 (in thousands, except share information) 1996 1995
<S> <C> <C>
ASSETS
Current
Cash and short-term investments $12,762 $14,082
Receivables, less allowances of $3,887 and $2,889 285,337 189,260
Inventories (Note 2) 171,748 112,538
Deferred income tax benefits (Note 3) 13,963 7,588
Other 15,378 12,705
- ----------------------------------------------------------------------------------
499,188 336,173
- ----------------------------------------------------------------------------------
Property (Note 2)
Land 13,488 12,411
Buildings and improvements 72,917 66,217
Furniture and equipment 137,137 102,074
Accumulated depreciation (90,980) (91,941)
- ----------------------------------------------------------------------------------
132,562 88,761
- ----------------------------------------------------------------------------------
Goodwill, net of amortization of $13,138 and $5,650 (Note 2) 261,706 114,919
Other assets (Note 2) 11,906 4,271
- ----------------------------------------------------------------------------------
Total assets $905,362 $544,124
==================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable $ 36,700 $ --
Current portion of long-term debt 180 214
- ----------------------------------------------------------------------------------
Accounts payable
Trade and other 185,370 116,363
Boise Cascade Corporation (Note 5) 21,926 23,906
- ----------------------------------------------------------------------------------
207,296 140,269
- ----------------------------------------------------------------------------------
Accrued liabilities
Compensation and benefits 31,120 17,959
Income taxes payable (Note 3) 7,100 4,712
Taxes, other than income 8,351 6,813
Other (Note 9) 39,800 20,382
- ----------------------------------------------------------------------------------
86,371 49,866
- ----------------------------------------------------------------------------------
330,547 190,349
- ----------------------------------------------------------------------------------
Other
Deferred income taxes (Note 3) 4,470 2,534
Long-term debt, less current portion (Note 4) 140,024 198
Other (Note 9) 25,536 11,626
- ----------------------------------------------------------------------------------
170,030 14,358
- ----------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 8, 9, and 10)
Shareholders' equity (Notes 2 and 6)
Common stock, $.01 par value, 200,000,000 shares authorized;
62,750,318 and 62,292,776 shares issued and outstanding at
December 31, 1996 and 1995 628 623
Additional paid-in capital 304,134 295,615
Retained earnings 100,023 43,179
- ----------------------------------------------------------------------------------
Total shareholders' equity 404,785 339,417
- ----------------------------------------------------------------------------------
Total liabilities and shareholders' equity $905,362 $544,124
==================================================================================
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
BALANCE SHEETS
<PAGE> 7
P. 28
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year ended December 31 (in thousands) 1996 1995 1994
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income $55,349 $43,179 $26,465
Items in income not using (providing) cash
Depreciation and amortization 27,198 15,355 12,985
Deferred income tax benefit (1,635) (1,914) (321)
Receivables (39,036) (34,006) (16,224)
Inventories (25,111) (14,529) (9,321)
Other current assets 4,312 (5,405) (272)
Accounts payable and accrued liabilities 40,688 45,579 18,417
Current and deferred income taxes (1,419) 1,463 (24)
- -------------------------------------------------------------------------------------------
Cash provided by operations 60,346 49,722 31,705
- -------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTMENT
Expenditures for property and equipment (42,711) (22,246) (6,487)
Acquisitions (Note 9) (180,139) (61,638) (78,454)
Other, net (16,080) 4,309 (3,355)
- -------------------------------------------------------------------------------------------
Cash used for investment (238,930) (79,575) (88,296)
- -------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING
Additions to long-term debt 140,000 -- --
Notes payable 36,700 -- --
Sale of stock -- 123,076 --
Net equity transactions with Boise Cascade Corporation (Note 5) -- (78,447) 57,148
Other, net 564 (717) (554)
- -------------------------------------------------------------------------------------------
Cash provided by financing 177,264 43,912 56,594
- -------------------------------------------------------------------------------------------
Increase (decrease) in cash and short-term investments (1,320) 14,059 3
Balance at beginning of the year 14,082 23 20
- -------------------------------------------------------------------------------------------
Balance at end of the year $12,762 $14,082 $ 23
===========================================================================================
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
STATEMENTS OF CASH FLOWS
<PAGE> 8
P. 29
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share information)
Total Additional
Shares For the years ended Shareholders' Common Paid-In Retained
Outstanding December 31, 1994, 1995, and 1996 Equity Stock Capital Earnings
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $149,819 $ -- $149,819 $ --
- ------------------------------------------------------------------------------------------------------
Net income 26,465 26,465
Net equity transactions with
Boise Cascade Corporation 57,148 57,148
- ------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 233,432 233,432
- ------------------------------------------------------------------------------------------------------
Net income 43,179 43,179
Net equity transactions with
Boise Cascade Corporation (78,447) (78,447)
62,292,776 Issuance of stock 135,262 623 134,639
Other 5,991 5,991
- ------------------------------------------------------------------------------------------------------
62,292,776 Balance at December 31, 1995 339,417 623 295,615 43,179
- ------------------------------------------------------------------------------------------------------
Net income 55,349 55,349
382,317 Stock issued for acquisitions 7,235 4 7,231
75,225 Stock options exercised 1,576 1 1,575
Translation adjustments 1,520 1,520
Other (312) (287) (25)
- ------------------------------------------------------------------------------------------------------
62,750,318 Balance at December 31, 1996 $404,785 $628 $304,134 $100,023
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
STATEMENTS OF SHAREHOLDERS' EQUITY
<PAGE> 9
P. 30
NOTES TO FINANCIAL STATEMENTS
1.) ORGANIZATION AND BASIS OF PRESENTATION
Boise Cascade Office Products Corporation (together with its subsidiaries, the
"Company"), headquartered in Itasca, Illinois, is one of the world's premier
business-to-business distributors of products for the office through its
contract stationer business, as well as through its direct marketing channel.
The Company was incorporated on January 3, 1995, and until April 13, 1995, was
a wholly-owned subsidiary of Boise Cascade Corporation ("BCC"). The Company
consists of the former Boise Cascade Office Products Distribution Division (the
"Division") whose assets (including the stock of two wholly-owned subsidiaries
of BCC but excluding certain accounts receivable) and liabilities (see Note 6)
were transferred to the Company (the "Transfer of Assets") effective
April 1, 1995 (the "Transfer Date") and subsequent acquisitions made by the
Company.
The accompanying historical financial statements include the financial
position and results of operations of the Division prior to the Transfer Date.
BCC's net investment in the Company prior to the Transfer Date, including net
cash transfers of the Division, has been reflected in "Additional paid-in
capital" in the financial statements. Results of operations of the Company
prior to 1995 are also included in "Additional paid-in capital." All significant
intercompany transactions have been eliminated. These financial statements may
not necessarily be representative of results that would have been attained if
the above entities had operated within a separate consolidated entity.
During 1996, the Company had operations in Australia, Canada, the United
Kingdom, and the United States. For the year ended December 31, 1996, the
Company's Canadian operations had sales of $225,162,000 and operating income
of $10,896,000, and the Company's other foreign operations had combined sales
of $71,234,000 and combined operating income of $1,614,000. At December 31,
1996, identifiable assets of the Company's Canadian operations were
$148,036,000 and of the Company's other foreign operations combined were
$73,707,000. The Company did not have any significant foreign operations prior
to 1996. Export sales to foreign unaffiliated customers are immaterial. No
single customer accounts for 10% or more of consolidated net sales.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.
2.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND SHORT-TERM INVESTMENTS Cash and short-term investments include time
deposits and highly liquid investments with original maturities of three
months or less.
INVENTORIES Inventories consist of finished goods and are valued at the lower
of cost or market, with cost based on an approximation of the first-in,
first-out valuation method.
CATALOGS Costs of producing and distributing sales catalogs are capitalized
and charged to expense in the periods in which the related sales occur.
PROPERTY Property and equipment are recorded at cost. Cost consists of
expenditures for major improvements and replacements including interest cost
associated with capital additions. No interest was capitalized in 1996, 1995,
or 1994. Depreciation is computed using the straight-line method. Gains and
losses from sales and retirements are included in income as they occur.
Estimated service lives of principal items of property and equipment range
from 3 to 40 years.
DEFERRED SOFTWARE COSTS The Company defers certain software costs that
benefit future years. These costs are amortized on the straight-line method
over a maximum of five years or the expected life of the product, whichever is
less. "Other assets" in the Balance Sheets include deferred software costs of
$9,420,000 and $3,070,000 at December 31, 1996 and 1995. Amortization of
deferred software costs totaled $1,685,000, $907,000, and $1,146,000 in 1996,
1995, and 1994 and is included in "Selling and warehouse operating expense."
COST OF SALES Cost of sales related to merchandise inventory is primarily
determined using estimated
NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
P.31
product costs and adjusted to actual at the time of physical inventories, which
are taken at all locations at least annually. Additional adjustments to reflect
actual experience are recognized as appropriate throughout the year. Cost of
sales also includes delivery and occupancy expenses.
EARNINGS PER SHARE In May 1996, the Company effected a two-for-one split of
its common stock in the form of a 100% stock dividend. Each shareholder of
record at the close of business on May 6, 1996, received one additional share
for each share held on that date. The new shares were distributed on May 20,
1996. All references in these financial statements and notes to share amounts,
earnings per share, average shares outstanding, and common stock prices have
been adjusted to reflect the stock split.
Earnings per share of $.89 for the year ended December 31, 1996, is based upon
the weighted average number of common shares outstanding, including shares
issued to effect acquisitions made by the Company and shares issued as a result
of stock options exercised. Pro forma earnings per share of $.70 for the year
ended December 31, 1995, has been presented assuming the 50,750,000 common
shares issued to BCC and the 10,637,500 common shares issued in the Offerings
(see Note 6) had taken place on January 1, 1995, and 905,276 common shares were
issued during the year to effect various acquisitions, for a total of
61,660,100 average common shares outstanding. Pro forma earnings per share of
$.43 for the year ended December 31, 1994, has been presented assuming the
50,750,000 common shares issued to BCC and the 10,637,500 common shares issued
in the Offerings, for a total of 61,387,500, were issued at the beginning of
the year. The pro forma earnings per share data are not necessarily indicative
of what actual earnings per share would have been had these issuances of common
shares occurred on the basis assumed.
GOODWILL Costs in excess of values assigned to the underlying net assets of
acquired companies are generally being amortized on the straight-line method
over 40 years. Annually, the Company reviews the recoverability of goodwill.
The measurement of possible impairment is based primarily on the ability to
recover the balance of the goodwill from expected future operating cash flows
of the businesses acquired on an undiscounted basis. In management's opinion,
no material impairment exists at December 31, 1996.
FOREIGN CURRENCY TRANSLATION Local currencies are considered the functional
currencies for the Company's operations outside the United States. Assets and
liabilities are translated into U.S. dollars at the rate of exchange in effect
at the balance sheet date. Revenues and expenses are translated into U.S.
dollars at average monthly exchange rates prevailing during the year.
Resulting translation adjustments are reflected in Shareholders' equity. At
December 31, 1996, "Retained earnings" were increased by $1,520,000 as a
result of these translation adjustments. No translation adjustment existed at
December 31, 1995.
PRE-OPENING COSTS Costs associated with opening new locations are expensed as
incurred.
FINANCIAL INSTRUMENTS The recorded value of the Company's financial
instruments, which include accounts receivable and accounts payable,
approximates market value. In the opinion of management, the Company does not
have any significant concentration of credit risks. Concentration of credit
risks with respect to trade receivables is limited due to the wide variety of
customers and channels to and through which the Company's products are sold,
as well as their dispersion across many geographic areas. At December 31,
1996, the Company had no derivative financial instruments.
RECLASSIFICATION Certain previously reported amounts have been reclassified
to conform with the current period presentation.
3.) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires that deferred taxes be provided on temporary
differences between the book and tax bases of assets and liabilities. In
addition, the standard requires adjustment of deferred tax liabilities to
reflect enacted changes in statutory income tax rates.
NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
p. 32
Income taxes are provided based on a calculation of the income tax expense that
would be incurred if the Company operated as an independent entity. However, as
long as BCC owns at least 80% of the Company's outstanding common stock,
the Company will be included in the consolidated federal income tax return of
the BCC affiliated group. Accordingly, the Company and BCC have entered into a
tax matters agreement whereby the Company remits to BCC amounts representing
the current tax liability that the Company would incur if it were an
independent taxpayer. Pursuant to this agreement, the Company paid BCC
$37,633,000 in 1996. In 1995, the Company paid BCC $20,453,000, representing
current tax liabilities incurred after the Transfer Date. Amounts for periods
before the Transfer Date were included in "Net equity transactions with Boise
Cascade Corporation" and were $6,550,000 and $17,074,000 in 1995 and 1994.
<TABLE>
<CAPTION>
The income tax expense included the following:
Year ended December 31 (in thousands) 1996 1995 1994
<S> <C> <C> <C>
Current income tax provision $40,098 $30,105 $17,050
Deferred income tax benefit (1,635) (1,914) (321)
- ---------------------------------------------------------------------------
Total income tax expense $38,463 $28,191 $16,729
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of the statutory U.S. federal tax expense and the Company's actual tax expense was as follows:
Year ended December 31 (in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AMOUNT PRETAX INCOME AMOUNT PRETAX INCOME AMOUNT PRETAX INCOME
<S> <C> <C> <C> <C> <C> <C>
Statutory expense $32,834 35.0% $24,980 35.0% $15,118 35.0%
Increases (decreases)
in tax resulting from:
Foreign income
taxed at rate higher
than U.S. rate 1,362 1.4 - - - -
State tax expense 3,522 3.8 2,809 3.9 1,675 3.9
All other, net 745 .8 402 .6 (64) (.2)
- --------------------------------------------------------------------------------------------
Actual tax expense $38,463 41.0% $28,191 39.5% $16,729 38.7%
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
The components of the deferred tax assets and liabilities on the Balance Sheets at December 31, 1996 and 1995, were as follows:
December 31 (in thousands) 1996 1995
- ----------------------------------------------------------------------------------------
Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Property and equiptment $ - $ 4,420 $ - $3,125
Accounts receivable and unearned revenue 6,167 - 3,933 -
Deferred charges 67 12 41 -
Inventories 1,712 - 140 -
Accrued liabilities 5,555 - 806 14
Compensation 7,366 281 1,988 -
Goodwill - 10,741 - 1,103
State taxes 788 - 1,934 -
Other 4,770 1,478 695 241
- ---------------------------------------------------------------------------------------
$26,425 $16,932 $9,537 $4,483
=======================================================================================
</TABLE>
At December 31, 1996, foreign subsidiaries of the Company had approximately
$5,700,000 of undistributed earnings which are intended to be be indefinitely
reinvested. If these earnings were distributed, foreign tax credits should
become available under current law to reduce or eliminate the resulting U.S.
income tax liability. For the year ended December 31, 1996, the Company's
pretax domestic income was
NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
p. 33
$88,295,000 and pretax foreign income was $5,517,000.
4.) DEBT
On June 5, 1996, the Company amended its revolving credit agreement with a
group of banks to increase the aggregate of all commitments that can be
outstanding to $350,000,000 from $225,000,000 and to extend the termination
date to June 30, 2001, from June 30, 1999. The agreement provides for variable
rates of interest based upon customary indices. Cash paid for interest for the
year ended December 31, 1996, was $7,382,000. For the years ended December 31,
1995 and 1994, cash paid for interest was not material. The revolving credit
facility is available for general corporate purposes, and contains financial
and other covenants, including a negative pledge and covenants specifying a
minimum net worth, a minimum fixed charge coverage ratio, and a maximum
leverage ratio. The lending banks may terminate the revolving credit
agreement, and accelerate the payment of any amounts borrowed thereunder, in
the event a Change of Control (as defined) of the Company occurs. As of
December 31, 1996, borrowings under the agreement totaled $140,000,000. The
weighted average interest rate of borrowings under the agreement was 5.8% at
December 31, 1996. In addition to amounts outstanding under the revolving
credit agreement, short-term borrowings at December 31, 1996, totaled
$36,700,000. The weighted average interest rate of these short-term borrowings
was 7.7% at December 31, 1996. Substantially all of the Company's debt is
unsecured.
5.) TRANSACTIONS WITH BOISE CASCADE CORPORATION
The Company participated in BCC's centralized cash management system prior to
the Transfer Date. Cash receipts attributable to the Company's operations were
collected by BCC, and most cash disbursements, including those attributable to
capital improvements and acquisitions and expansion, were funded by BCC. The
net effect of these transactions prior to the Transfer Date has been reflected
in the Company's financial statements as "Net equity transactions with Boise
Cascade Corporation" and is included in "Additional paid-in capital" in the
Balance Sheets, as no common shares were issued to BCC.
A summarization of net equity transactions by type is as follows:
(in thousands)
<TABLE>
<CAPTION> 1995 1994
Period Ended Year Ended
April 13 December 31
<S> <C> <C>
Cash collections $(287,313) $(893,291)
Working capital retained by Boise Cascade Corporation
in the transfer of assets (100,000) -
Payment of accounts payable 293,592 841,530
Capital expenditures and acquisitions 9,186 84,941
Income taxes 6,550 17,074
Cash dividend to Boise Cascade Corporation (1,859) -
Corporate general and administrative allocation 698 2,710
Other 699 4,184
- ----------------------------------------------------------------------------------
Net equity transactions with Boise Cascade Corporation $ (78,447) $ 57,148
- ----------------------------------------------------------------------------------
Average balance for the period $ 84,506 $ 41,323
- ----------------------------------------------------------------------------------
</TABLE>
In conjunction with the Offerings, the Company and BCC have entered into
intercompany agreements pursuant to which BCC, among other things, provides to
the Company certain administrative support functions, certain paper and paper
products under a long-term sales agreement, and use (without charge) of the
trade names and trademark of BCC.
Under the Administrative Services Agreement, BCC provides various services to
the Company that had been previously performed by BCC for the Division. The
services will be provided for varying periods, from one to five years, as
identified in the Administrative Services Agreement, subject to renewal or
termination in accordance with the terms of such
NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
p.34
agreement. The Company will pay for each of these services at rates set forth
in the agreement. These rates are generally consistent with amounts that have
been charged by BCC in the past. Prior to the Administrative Services
Agreement, the costs of similar services were allocated to the Company by BCC
based on estimations of BCC's costs for such services. For the years ended
December 31, 1996, 1995, and 1994, charged or allocated costs amounted to
$2,362,000, $2,382,000, and $2,710,000 and have been included in "Corporate
general and administrative expense" in the Statements of Income.
Under the Paper Sales Agreement, the Company agreed to purchase, and BCC
agreed to sell, subject to certain exceptions, all of the Company's cut-size
paper requirements. The price to be paid by the Company is based upon a
formula meant to approximate prevailing market prices for the paper. The
agreement has an initial term of 20 years, and will be automatically renewed
for five-year periods thereafter, subject to certain conditions.
The Company supplied office products to BCC and purchased certain paper and
paper products from BCC. During the year ended December 31, 1996, the
Company's sales to BCC were $2,047,000, and its purchases from BCC were
$192,837,000. Sales and purchases during the same period of 1995 were
$2,046,000 and $164,417,000 and in 1994 were $1,244,000 and $69,566,000.
The Company is included as a participating employer in certain broad-based
employee benefit plans sponsored by BCC which cover the Company's work force.
Most assets and liabilities under BCC's employee benefit plans for retirement
and postretirement costs arising out of service with the Company were not
transferred to the Company by BCC. Accordingly, no significant assets or
liabilities related to retirement and postretirement benefits are included in
these financial statements.
During each of the years presented, most employees of the Company participated
in a defined benefit pension plan sponsored by BCC. In addition, certain
employees of the Company were eligible for participation in defined
contribution plans sponsored by BCC. The Statements of Income for the years
ended December 31, 1996, 1995, and 1994, include expenses of $6,079,000,
$4,159,000, and $3,754,000 attributable to participation by the employees of
the Company in these plans. Postretirement expenses attributable to
participation in BCC's postretirement plans included in the Statements of
Income totaled $92,000, $140,000, and $201,000 for the years ended December
31, 1996, 1995, and 1994.
6.) SHAREHOLDERS' EQUITY
BCC's net investment in the Company prior to the Transfer Date, including
results of operations and net cash transfers of the Division, has been
reflected as "Additional paid-in capital" in the financial statements. On
January 3, 1995, the Company was incorporated and has authorized capital
consisting of 200,000,000 shares of common stock, $.01 par value, and
20,000,000 shares of preferred stock, $.01 par value. BCC was issued
50,750,000 shares of common stock in connection with the incorporation of the
Company and Transfer of Assets on April 1, 1995.
On April 13, 1995, the Company completed the sale of 10,637,500 of shares of
common stock at a price of $12.50 per share in an initial public offering in
the United States and in a concurrent international offering (the
"Offerings"). After the Offerings, BCC owned 82.7% of the Company's
outstanding common stock. The net proceeds to the Company were approximately
$123,076,000. A total of $100,000,000 of such net proceeds were used by the
Company to replace the working capital retained by BCC in the Transfer of
Assets. Of the remaining proceeds, $21,217,000 was retained by the Company for
general corporate purposes, and $1,859,000 was paid as a dividend to BCC. At
December 31, 1996, BCC owned 80.9% of the Company's outstanding common stock.
On June 17, 1996, the Company filed a registration statement with the
Securities and Exchange Commission covering approximately 4,400,000 shares of
common stock to be offered by the Company from time to time in connection with
acquisitions. As of December 31, 1996, the Company had 4,006,630 unissued
shares remaining under this registration statement.
7.) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has two stock option plans, the Key Executive Stock Option Plan
(KESOP) and the Director Stock Option Plan (DSOP). The Company
NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
p.35
accounts for these plans under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Under this opinion, no
compensation cost has been recognized.
If the Company had determined compensation cost for these plans consistent
with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," 1996 net income would have been reduced pro forma
by $2,064,000 and earnings per share would have been reduced pro forma by
$.03. The Company's 1995 net income would have been reduced pro forma by
$914,000 and earnings per share would have been reduced pro forma by $.01. The
Company granted no options prior to January 1, 1995. The pro forma
compensation cost may not be representative of that to be expected in future
years.
The KESOP provides for the granting of options to purchase shares of the
Company's common stock to key employees of the Company. The exercise price of
the options is equal to the fair market value of the Company's common stock on
the date the options are granted. The options are vested upon grant; however,
except under unusual circumstances, only one-third of the options become
exercisable in each of the three years following the grant date. The options
expire, at the latest, 10 years after the grant date. As of December 31, 1996,
a total of 3,000,000 shares of the Company's common stock was authorized for
issuance under the KESOP.
A summary of the status of the KESOP at December 31, 1996 and 1995, and
changes during the years then ended is presented in the table and narrative
below.
<TABLE>
<CAPTION>
1996 1995
Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price
<S> <C> <C> <C> <C>
Balance at beginning of the year 647,400 $12.57 - $ -
Options granted 501,200 25.54 647,400 12.57
Options exercised (75,225) 12.50 - -
Options expired (13,933) 19.78 - -
Balance at end of the year 1,059,442 18.66 647,400 12.57
Exercisable at end of the year 140,569 12.60 - -
Weighted average fair value of
options granted (Black-Scholes) $9.14 $4.87
</TABLE>
The 1,059,442 options outstanding at December 31, 1996, have exercise prices
between $12.50 and $26.63 and a weighted average remaining contractual life of
8.3 years.
Beginning in 1995, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model, with the following
weighted average assumptions used for grants in 1996 and 1995: risk-free
interest rates of 5.2% and 7.3%; no expected dividends; expected lives
of 4.2 years for both years; and expected stock price volatility of 35% for
both years.
The DSOP, available only to the Company's nonemployee directors, provides for
annual grants of options. The exercise price of options under this plan is
equal to the fair market value of the Company's common stock on the date the
options are granted. The options are vested upon grant, and except under
unusual circumstances may not be exercised until one year following the date
of grant, and expire the earlier of three years after the director ceases to
be a director or 10 years after the grant date. Total shares outstanding at
December 31, 1996 and 1995, were 24,000 and 12,000, with weighted average
exercise prices of $17.50 and $12.50. As of December 31, 1996, a total of
150,000 shares of the Company's common stock was authorized for issuance under
the DSOP.
8.) LEASES
Rental expenses for operating leases, net of sublease rentals, were
$22,698,000 in 1996, $10,682,000 in 1995, and $8,354,000 in 1994.
The Company has various operating leases with
NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
p. 36
remaining terms of more than one year. These leases have minimum lease payment
requirements, net of sublease rentals, of $19,045,000 for 1997, $16,432,000
for 1998, $9,969,000 for 1999, $7,182,000 for 2000, and $5,501,000 for 2001,
with total payments thereafter of $18,959,000.
Substantially all lease agreements have fixed payment terms based upon the
lapse of time. Certain lease agreements provide the Company with the option to
purchase the leased property. In addition, certain lease agreements contain
renewal options exercisable by the Company ranging up to 15 years, with fixed
payment terms similar to those in the original lease agreements.
The Company also leases certain equipment and buildings under capital leases;
aggregate obligations under capital leases were not material at December 31,
1996 and 1995.
9.) ACQUISITIONS
In 1996, 1995, and 1994, the Company made various acquisitions, all of which
were accounted for under the purchase method of accounting. Accordingly, the
purchase prices were allocated to the assets acquired and liabilities assumed
based upon their estimated fair values. The initial purchase price allocations
may be adjusted within one year of the date of purchase for changes in
estimates of the fair values of assets and liabilities. Such adjustments are
not expected to be significant to results of operations or the financial
position of the Company. The excess of the purchase price over the estimated
fair value of the net assets acquired was recorded as goodwill and is
generally being amortized over 40 years. The results of operations of the
acquired businesses are included in the Company's operations subsequent to the
dates of acquisitions.
The Company acquired 19 businesses during 1996, 10 businesses during 1995, and
three businesses during 1994. Amounts paid, acquisition liabilities recorded,
and stock issued for these acquisitions were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
ACQUISTIONS OF NET ASSETS:
Cash paid $ 35,161,000 $61,136,000 $78,454,000
Acquisition liabilities recorded $ 13,683,000 $ 8,128,000 $ -
Stock issued
shares - 865,742 -
value $ - $11,985,000 $ -
ACQUISITIONS OF STOCK:
Cash paid $144,978,000 $ 1,002,000 $ -
Acquisition liabilities recorded $ 21,663,000 $ 443,000 $ -
Stock issued
shares 321,652 473,924 $ -
value $ 6,886,000 $ 6,200,000 $ -
</TABLE>
The 1996 amounts include the acquisition of 100% of the shares of Grand
& Toy Limited ("Grand & Toy") from Cara Operations Limited (Toronto) for
approximately C$140,000,000 (US$102,084,000). In addition, the Company recorded
acquisition liabilities of approximately US$9,907,000. At December 31, 1996,
Grand & Toy owned and operated six office products distribution centers and
approximately 70 retail stores across Canada.
The 1995 amounts include $21,747,000 of cash paid; the issuance of 431,352
shares of common stock and the equivalent of 434,390 shares of common stock in
a stock note, payable by issuing the shares at the end of two years; and the
recording of $2,999,000 of acquisition liabilities. These were part of the
purchase of the net assets of office supply and computer distribution
businesses in New York and Missouri.
Unaudited pro forma results of the Company's operations for the year ended
December 31, 1996, assuming the 1996 acquisitions had occurred January 1,
1996, would have been net sales of
NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
p. 37
$2,131,341,000, net income of $57,913,000, and earnings per share of $.93.
Unaudited pro forma results of the Company's operations for the year ended
December 31, 1995, assuming the 1996 and 1995 acquisitions had occurred
January 1, 1995, would have been net sales of $1,895,061,000, net income of
$43,082,000 and earnings per share of $.69. Prior to its acquisition by the
Company, Grand & Toy recorded a restructuring charge. Excluding the impact of
this charge, the Company's pro forma net income for the year ended December
31, 1995, would have been $45,624,000 and earnings per share would have been
$.73.
The 1994 amounts include the acquisition of the net assets of the direct
marketing office supply business of The Reliable Corporation ("Reliable") for
$71,306,000 in cash. Unaudited pro forma results of the Company's operations
for the year ended December 31, 1994, assuming the acquisition of Reliable and
the 1995 acquisitions had occurred on January 1, 1994, would have been sales of
$1,122,560,000, net income of $30,395,000, and earnings per share of $.49. Also
during 1994, the Company purchased the net assets of two office supply
distribution businesses. The pro forma impact of these acquisitions was not
significant to the Company's results of operations.
The above referenced unaudited pro forma financial information does not
necessarily represent the actual consolidated results of operations that would
have resulted if the acquisitions had occurred on the dates assumed.
In January 1997, the Company formed a joint venture with Otto Versand ("Otto")
to begin direct marketing office products in Europe. The Company and Otto will
each have a 50% equity interest in the new company.
As a result of its acquisition activity, the Company had short-term
acquisition liabilities of $21,538,000 and $7,362,000 at December 31, 1996 and
1995, which were included in "Other current liabilities." Additionally, the
Company had long-term acquisition liabilities of $15,192,000 and $3,595,000 at
December 31, 1996 and 1995, which were included in "Other long-term
liabilities."
10.) LITIGATION AND LEGAL MATTERS
The Company is not currently involved in any legal or administrative
proceedings that it believes could have, either individually or in the
aggregate, a material adverse effect on its business or financial condition.
11.) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except share information)
1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $556,680 $506,694 $460,767 $461,423 $374,911 $332,037 $305,718 $303,287
Cost of sales 412,220 379,193 337,429 338,526 274,791 244,237 230,070 231,466
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit 144,460 127,501 123,338 122,897 100,120 87,800 75,648 71,821
- --------------------------------------------------------------------------------------------------------------------------------
Operating expenses 117,833 105,369 98,365 95,329 76,042 67,435 62,933 59,512
- --------------------------------------------------------------------------------------------------------------------------------
Income from operations 26,627 22,132 24,973 27,568 24,078 20,365 12,715 12,309
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense 2,476 2,126 1,875 1,289 217 164 304 -
Other income
(expense), net 378 (142) (6) 48 537 874 934 243
- --------------------------------------------------------------------------------------------------------------------------------
Income before
income taxes 24,529 19,864 23,092 26,327 24,398 21,075 13,345 12,552
Income tax expense 10,057 8,144 9,498 10,764 9,637 8,584 5,137 4,833
- --------------------------------------------------------------------------------------------------------------------------------
Net Income $ 14,472 $ 11,720 $ 13,594 $ 15,563 $ 14,761 $ 12,491 $ 8,208 $ 7,719
=================================================================================================================================
Earnings per share(1) $ .23 $ .19 $ .22 $ .25 $ .24 $ .20 $ .13 $ .13
Common stock prices(2)
High $ 21 1/4 $ 35 1/4 $ 48 $ 35 1/4 $ 21 3/8 $ 14 7/8 $13 5/16 N/A
Low $ 17 5/8 $ 17 1/8 $ 31 1/16 $ 21 1/8 $ 13 3/8 $11 3/16 $ 11 N/A
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The 1995 earnings per share assumes that the shares issued in the initial
public offerings and the shares issued to BCC were issued at the beginning of
1995 (see Note 2).
(2) The Company's common stock is traded principally on the New York Stock
Exchange.
NOTES TO FINANCIAL STATEMENTS
<PAGE> 17
p. 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF BOISE CASCADE OFFICE PRODUCTS CORPORATION:
We have audited the accompanying balance sheets of Boise Cascade Office
Products Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related statements of income, cash
flows, and shareholders' equity for the years ended December 31, 1996, 1995,
and 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boise Cascade Office Products
Corporation as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
Arthur Anderson LLP
Boise, Idaho
January 28, 1997
<PAGE> 1
Exhibit 13.2
EXHIBIT 13.2
<PAGE> 2
STATEMENTS OF INCOME (Unaudited) Boise Cascade Office Products Corporation
===========================================================================
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31 December 31
------------------ -----------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
(expressed in thousands, except per-share data)
Net sales ....................................................... $ 556,680 $ 374,911 $ 1,985,564 $ 1,315,953
Cost of sales ................................................... 412,220 274,791 1,467,368 980,564
------------ ------------ ------------ ------------
Gross profit .................................................... 144,460 100,120 518,196 335,389
------------ ------------ ------------ ------------
Selling and warehouse operating expense ......................... 105,175 67,823 375,700 238,885
Corporate general and administrative expense .................... 10,686 7,409 34,409 24,750
Goodwill amortization ........................................... 1,972 810 6,787 2,287
------------ ------------ ------------ ------------
117,833 76,042 416,896 265,922
------------ ------------ ------------ ------------
Income from operations .......................................... 26,627 24,078 101,300 69,467
Interest expense ................................................ 2,476 217 7,766 685
Other income, net ............................................... 378 537 278 2,588
------------ ------------ ------------ ------------
Income before income taxes ...................................... 24,529 24,398 93,812 71,370
Income tax expense .............................................. 10,057 9,637 38,463 28,191
------------ ------------ ------------ ------------
Net income ...................................................... $ 14,472 $ 14,761 $ 55,349 $ 43,179
============ ============ ============ ============
Earnings per common share and pro forma earnings per
common share (based upon 62,658,813 and 62,444,170 actual
average common shares outstanding for the three months and year
ended December 31, 1996; 62,286,202 actual average common
shares outstanding for the three months ended December 31, 1995,
and 61,660,100 pro forma average common shares outstanding for
the year ended December 31, 1995 ............................... $ .23 $ .24 $ .89 $ .70
============ ============ ============ ============
</TABLE>
9
<PAGE> 3
BALANCE SHEETS Boise Cascade Office Products Corporation
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
December 31
-----------------------
Assets 1996 1995
- -------------------------------------------------------------------------------------------
(expressed in thousands,
except share information)
<S> <C> <C>
Current
Cash and short-term investments ............................ $ 12,762 $ 14,082
Receivables, less allowances of $3,887 and $2,889 .......... 285,337 189,260
Inventories ................................................ 171,748 112,538
Deferred income tax benefits ............................... 13,963 7,588
Other ...................................................... 15,378 12,705
-------- --------
499,188 336,173
-------- --------
Property
Land ....................................................... 13,488 12,411
Buildings and improvements ................................. 72,917 66,217
Furniture and equipment .................................... 137,137 102,074
Accumulated depreciation ................................... (90,980) (91,941)
-------- --------
132,562 88,761
-------- --------
Goodwill, net of amortization of $13,138 and $5,650 ......... 261,706 114,919
Other assets ................................................ 11,906 4,271
-------- --------
Total assets ................................................ $905,362 $544,124
======== ========
- -------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- -------------------------------------------------------------------------------------------
Current
Notes payable .............................................. $ 36,700 $ --
Current portion of long-term debt .......................... 180 214
-------- --------
Accounts payable
Trade and other ........................................... 185,370 116,363
Boise Cascade Corporation ................................. 21,926 23,906
-------- --------
207,296 140,269
-------- --------
Accrued liabilities
Compensation and benefits ................................. 31,120 17,959
Income taxes payable ...................................... 7,100 4,712
Taxes, other than income .................................. 8,351 6,813
Other ..................................................... 39,800 20,382
-------- --------
86,371 49,866
-------- --------
330,547 190,349
-------- --------
Other
Deferred income taxes ...................................... 4,470 2,534
Long-term debt, less current portion ....................... 140,024 198
Other ...................................................... 25,536 11,626
-------- --------
170,030 14,358
-------- --------
Shareholders' equity
Common stock, $.01 par value, 200,000,000 shares authorized;
62,750,318 and 62,292,776 shares issued and outstanding ... 628 623
Additional paid-in capital ................................. 304,134 295,615
Retained earnings .......................................... 100,023 43,179
-------- --------
Total shareholders' equity ................................ 404,785 339,417
-------- --------
Total liabilities and shareholders' equity .................. $905,362 $544,124
======== ========
</TABLE>
10
<PAGE> 4
STATEMENTS OF CASH FLOWS (Unaudited) Boise Cascade Office Products Corporation
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1996 1995
- --------------------------------------------------------------------------------------
(expressed in thousands)
<S> <C> <C>
Cash provided by (used for) operations
Net income .............................................. $ 55,349 $ 43,179
Items in income not using (providing) cash
Depreciation and amortization ......................... 27,198 15,355
Deferred income tax benefit ........................... (1,635) (1,914)
Receivables ............................................. (39,036) (34,006)
Inventories ............................................. (25,111) (14,529)
Other current assets .................................... 4,312 (5,405)
Accounts payable and accrued liabilities ................ 40,688 45,579
Current and deferred income taxes ....................... (1,419) 1,463
--------- ---------
Cash provided by operations ........................... 60,346 49,722
--------- ---------
Cash provided by (used for) investment
Expenditures for property and equipment ................. (42,711) (22,246)
Acquisitions ............................................ (180,139) (61,638)
Other, net .............................................. (16,080) 4,309
--------- ---------
Cash used for investment .............................. (238,930) (79,575)
--------- ---------
Cash provided by (used for) financing
Additions to long-term debt ............................. 140,000 --
Notes payable ........................................... 36,700 --
Sale of stock ........................................... -- 123,076
Net equity transactions with Boise Cascade Corporation .. -- (78,447)
Other, net .............................................. 564 (717)
--------- ---------
Cash provided by financing ............................ 177,264 43,912
--------- ---------
Increase (decrease) in cash ............................. (1,320) 14,059
Balance at beginning of the period ...................... 14,082 23
--------- ---------
Balance at December 31 .................................. $ 12,762 $ 14,082
========= =========
</TABLE>
11
<PAGE> 5
NOTES TO QUARTERLY FINANCIAL STATEMENTS Boise Cascade Office Products
Corporation
================================================================================
Organization and Basis of Presentation. Boise Cascade Office Products
Corporation (together with its subsidiaries, "the Company") was operated as the
Boise Cascade Office Products Distribution Division ("the Division") of Boise
Cascade Corporation ("BCC") prior to April 1, 1995. Effective on that date,
pursuant to an Asset Transfer and Subscription Agreement between the Company
and BCC, BCC transferred to the Company substantially all of the assets and
liabilities associated with the Division, other than $100,000,000 of accounts
receivable, in exchange for common stock of the Company. After the transfer,
BCC holds a total of 50,750,000 shares. The accompanying historical income
statements include the consolidated results of operations of the Division.
These statements are unaudited statements which do not include all Notes to
Financial Statements and should be read in conjunction with the Company's 1996
Annual Report. The 1996 Annual Report will be available in March 1997.
Public Offerings. On April 13, 1995, the Company completed the sale of
10,637,500 shares of common stock at a price of $12.50 per share in an initial
public offering in the United States and in a concurrent international offering
("the Offerings"). After the Offerings, BCC owned 82.7% of the Company's
outstanding common stock. The net proceeds to the Company were approximately
$123,076,000. A total of $100,000,000 of such net proceeds was used by the
Company to replace the working capital retained by BCC in the transfer of
assets. Of the remaining proceeds, $21,217,000 was retained by the Company and
was available for general corporate purposes and $1,859,000 was paid as a
dividend to BCC.
Earnings Per Common Share. The unaudited actual earnings per common share of
$.23 and $.89 for the three months and year ended December 31, 1996, and $.24
for the three months ended December 31, 1995, are based upon the actual average
number of common shares outstanding, including common shares issued to effect
acquisitions made by the Company and shares issued as a result of stock options
exercised. The unaudited pro forma earnings per common share of $.70 for the
year ended December 31, 1995, are presented assuming the 50,750,000 common
shares issued to BCC in the organization of the Company and the 10,637,500
common shares issued in the Offerings were issued on January 1, 1995.
Stock Split. The Company effected a two-for-one split of the Company's common
stock in the form of a 100% stock dividend on May 20, 1996, to
shareholders of record at the close of business on May 6, 1996. All references
in these financial statements to numbers of shares of common stock of the
Company and to per share amounts and common stock prices have been adjusted to
reflect the stock split.
Other. On January 31, 1996, the Company acquired the contract stationer
business of Sierra Vista Office Products, Inc., based in Albuquerque, New
Mexico. On February 5, 1996, the Company acquired Grand & Toy Limited, a
Canadian office products distributor. On February 9, 1996, the Company
acquired the contract stationer businesses of Loring, Short & Harmon, Inc.,
based in Portland, Maine, and McAuliffe's based in Burlington, Vermont. On
March 29, 1996, the Company acquired the contract stationer and office
furniture business of Office Essentials based in Milwaukee, Wisconsin. On
April 26, 1996, the Company acquired the contract stationer business of
Crawford's Office Supplies, based in Seattle, Washington. On May 31, 1996, the
Company acquired the contract stationer business of Zemlick Brothers, Inc.,
based in Kalamazoo, Michigan. On July 1, 1996, the Company acquired the
contract stationer business of Pedersen Contact, based in Melbourne, Australia.
On July 31, 1996, the Company acquired the contract stationer business of Mike
Bryan Office Products, Inc., based in Oklahoma City, Oklahoma. On October 31,
1996, the Company acquired the contract stationer businesses of Copytek, based
in Burlington, Vermont; Independent EDP, based in Melbourne, Australia; Pacific
Data Products based in Spokane, Washington and Smith's Office Products based
in Nashville, Tennessee. On November 1, 1996, the Company acquired Oregon
Wholesale Novelty Company, Inc., an advertising specialties company based in
Portland, Oregon. Additionally, on November 1, 1996, the Company acquired the
contract stationer businesses of Bixby Office Supply, based in Grand Rapids,
Michigan; J.B. Allisons based in Fredericton, Canada; and Produit De Bureau
Parallele based in Montreal, Canada. On November 30, 1996, the Company
acquired the contract stationer business of Brissons based in North Bay,
Canada. On December 6, 1996, the Company acquired the contract stationer
business of Thompson's Office Products based in Kalgoorlie, Australia. The
combined annual sales of these acquisitions at the time of announcement were
approximately $460,000,000. The results of operations of the acquired
businesses are included in the Company's operations subsequent to the dates of
acquisition. The Company also started up office products distribution centers
in Las Vegas, Nevada, and Miami, Florida, during the second quarter of 1996.
The effective annual tax provision rate for the year ended December 31, 1996
was 41.0% compared with a tax provision rate of 39.5% for the same period in
the prior year. The increase is primarily due to the amortization of goodwill
arising from certain acquisitions that is not deductible for tax purposes.
<PAGE> 1
EXHIBIT 21
BOISE CASCADE OFFICE PRODUCTS CORPORATION
SIGNIFICANT SUBSIDIARIES
<TABLE>
<CAPTION>
State or Other
Jurisdiction Percentage of
of Incorporation Voting Securities
or Organization Owned
---------------- -----------------
<S> <C> <C>
The Reliable Corporation Delaware 100.0
Grand & Toy Limited Ontario, Canada 100.0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BOISE
CASCADE OFFICE PRODUCTS CORPORATION'S BALANCE SHEET AT DECEMBER 31, 1996, AND
FROM ITS STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,762
<SECURITIES> 0
<RECEIVABLES> 289,224
<ALLOWANCES> 3,887
<INVENTORY> 171,748
<CURRENT-ASSETS> 499,188
<PP&E> 223,542
<DEPRECIATION> (90,980)
<TOTAL-ASSETS> 095,362
<CURRENT-LIABILITIES> 330,547
<BONDS> 140,024
0
0
<COMMON> 628
<OTHER-SE> 404,157
<TOTAL-LIABILITY-AND-EQUITY> 905,362
<SALES> 1,985,564
<TOTAL-REVENUES> 1,985,564
<CGS> 1,467,368
<TOTAL-COSTS> 1,467,368
<OTHER-EXPENSES> 416,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,766
<INCOME-PRETAX> 93,812
<INCOME-TAX> 38,463
<INCOME-CONTINUING> 55,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,349
<EPS-PRIMARY> .89
<EPS-DILUTED> 0
</TABLE>
