-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CIJ3l9poKW18dsggPxSgc8cI4ubQ7KQHJixG/gcHCnluG5GUIdt98VCUy4SqkYWD XLoc0gWFPHWRUfl4ABqY4A== 0000012978-98-000017.txt : 19980513 0000012978-98-000017.hdr.sgml : 19980513 ACCESSION NUMBER: 0000012978-98-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 SROS: CSE SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOISE CASCADE CORP CENTRAL INDEX KEY: 0000012978 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 820100960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05057 FILM NUMBER: 98617052 BUSINESS ADDRESS: STREET 1: 1111 WEST JEFFERSON STREET STREET 2: P O BOX 50 CITY: BOISE STATE: ID ZIP: 83728-0001 BUSINESS PHONE: 2083846161 10-Q 1 BCC 10Q TEXT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 10 - Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1998 ( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Transition Period From ___________ to _____________ Commission file number 1-5057 BOISE CASCADE CORPORATION (Exact name of registrant as specified in its charter) Delaware 82-0100960 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1111 West Jefferson Street P.O. Box 50 Boise, Idaho 83728-0001 (Address of principal executive offices) (Zip Code) (208) 384-6161 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares Outstanding Class as of April 30, 1998 Common stock, $2.50 par value 56,323,967 PART I - FINANCIAL INFORMATION STATEMENTS OF LOSS BOISE CASCADE CORPORATION AND SUBSIDIARIES (expressed in thousands, except per share data) Item 1. Financial Statements Three Months Ended March 31 ________________________ 1998 1997 __________ __________ (unaudited) Revenues Sales $1,489,500 $1,273,610 Other income (expense), net (320) (270) __________ __________ 1,489,180 1,273,340 __________ __________ Costs and expenses Materials, labor, and other operating expenses 1,172,920 1,047,430 Depreciation, amortization, and cost of company timber harvested 71,460 60,460 Selling and distribution expenses 161,700 128,600 General and administrative expenses 36,590 31,490 __________ __________ 1,442,670 1,267,980 __________ __________ Equity in net income (loss) of affiliates (3,540) 30 __________ __________ Income from operations 42,970 5,390 __________ __________ Interest expense (40,100) (27,700) Interest income 600 2,090 Foreign exchange loss (50) (10) __________ __________ (39,550) (25,620) __________ __________ Income (loss) before income taxes and minority interest 3,420 (20,230) Income tax (provision) benefit (1,450) 7,890 __________ __________ Income (loss) before minority interest 1,970 (12,340) Minority interest, net of income tax (3,130) (2,870) __________ __________ Net loss $ (1,160) $ (15,210) Net loss per common share Basic $ (.18) $ (.51) Diluted $ (.18) $ (.51) Dividends declared per common share $ .15 $ .15 The accompanying notes are an integral part of these Financial Statements. SEGMENT INFORMATION BOISE CASCADE CORPORATION AND SUBSIDIARIES (expressed in thousands) Three Months Ended March 31 _________________________ 1998 1997 __________ __________ (unaudited) Segment sales Office products $ 759,808 $ 597,871 Building products 368,678 377,382 Paper and paper products 458,294 370,554 Intersegment eliminations and other (97,280) (72,197) __________ __________ $1,489,500 $1,273,610 Segment operating income (loss) Office products $ 37,592 $ 28,515 Building products 768 10,392 Paper and paper products 20,989 (22,667) Equity in net income (loss) of affiliates (3,540) 30 Corporate and other (12,839) (10,880) __________ __________ Income from operations $ 42,970 $ 5,390 The accompanying notes are an integral part of these Financial Statements. BOISE CASCADE CORPORATION AND SUBSIDIARIES BALANCE SHEETS (expressed in thousands) ASSETS March 31 December 31 _______________________ ___________ 1998 1997 1997 __________ __________ ___________ (unaudited) Current Cash $ 86,002 $ 70,913 $ 56,429 Cash equivalents 8,840 99,112 7,157 __________ __________ __________ 94,842 170,025 63,586 Receivables, less allowances of $8,874, $5,105, and $9,689 630,448 505,515 570,424 Inventories 614,772 512,854 633,290 Deferred income tax benefits 59,459 57,402 54,312 Other 27,223 26,676 32,061 __________ __________ __________ 1,426,744 1,272,472 1,353,673 __________ __________ __________ Property Property and equipment Land and land improvements 55,445 40,174 57,260 Buildings and improvements 559,732 470,570 554,712 Machinery and equipment 4,145,749 3,917,249 4,055,065 __________ __________ __________ 4,760,926 4,427,993 4,667,037 Accumulated depreciation (2,130,519) (1,849,420) (2,037,352) __________ __________ __________ 2,630,407 2,578,573 2,629,685 Timber, timberlands, and timber deposits 276,670 293,678 273,001 __________ __________ __________ 2,907,077 2,872,251 2,902,686 __________ __________ __________ Goodwill, net of amortization of $27,629, $15,365, and $24,020 446,646 265,310 445,722 Investments in equity affiliates 30,520 35,479 32,848 Other assets 238,826 230,686 234,995 __________ __________ __________ Total assets $5,049,813 $4,676,198 $4,969,924 The accompanying notes are an integral part of these Financial Statements. BOISE CASCADE CORPORATION AND SUBSIDIARIES BALANCE SHEETS (expressed in thousands, except share amounts) LIABILITIES AND SHAREHOLDERS' EQUITY March 31 December 31 _______________________ ___________ 1998 1997 1997 __________ __________ ___________ (unaudited) Current Notes payable $ 211,900 $ 25,600 $ 94,800 Current portion of long-term debt 52,839 156,886 30,176 Income taxes payable - 5,261 3,692 Accounts payable 495,831 421,064 470,445 Accrued liabilities Compensation and benefits 121,001 118,240 126,780 Interest payable 35,526 26,880 39,141 Other 159,995 157,345 128,714 __________ __________ __________ 1,077,092 911,276 893,748 __________ __________ __________ Debt Long-term debt, less current portion 1,742,492 1,359,753 1,725,865 Guarantee of ESOP debt 176,823 196,116 176,823 __________ __________ __________ 1,919,315 1,555,869 1,902,688 __________ __________ __________ Other Deferred income taxes 234,557 239,665 230,840 Other long-term liabilities 223,971 242,601 224,663 __________ __________ __________ 458,528 482,266 455,503 __________ __________ __________ Minority interest 109,462 85,862 105,445 __________ __________ __________ Shareholders' equity Preferred stock -- no par value; 10,000,000 shares authorized; Series D ESOP: $.01 stated value; 5,521,442; 5,976,459; and 5,569,684 shares outstanding 248,465 256,296 250,636 Deferred ESOP benefit (176,823) (196,116) (176,823) Series F: $.01 stated value; 115,000 shares outstanding in 1997 - 111,043 111,043 Series G: $.01 stated value; 862,500 shares outstanding in 1997 - 176,404 - Common stock -- $2.50 par value; 200,000,000 shares authorized; 56,277,831; 48,531,267; and 56,223,923 shares outstanding 140,695 121,328 140,560 Additional paid-in capital 418,316 233,846 416,691 Retained earnings 861,658 940,941 879,043 Accumulated other comprehensive income (loss) (6,895) (2,817) (8,610) __________ __________ __________ Total shareholders' equity 1,485,416 1,640,925 1,612,540 __________ __________ __________ Total liabilities and shareholders' equity $5,049,813 $4,676,198 $4,969,924 The accompanying notes are an integral part of these Financial Statements. BOISE CASCADE CORPORATION AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (expressed in thousands) Three Months Ended March 31 _________________________ 1998 1997 ___________ __________ (unaudited) Cash provided by (used for) operations Net loss $ (1,160) $(15,210) Items in net loss not using (providing) cash Equity in net (income) loss of affiliates 3,540 (30) Depreciation, amortization, and cost of company timber harvested 71,460 60,460 Deferred income tax benefit (2,261) (9,742) Minority interest, net of income tax 3,130 2,870 Other (1,159) 991 Receivables (58,485) (26,644) Inventories 19,707 29,899 Accounts payable and accrued liabilities 35,463 (15,002) Current and deferred income taxes (955) 1,172 Other 12,576 487 ________ ________ Cash provided by operations 81,856 29,251 ________ ________ Cash used for investment Expenditures for property and equipment (62,548) (80,294) Expenditures for timber and timberlands (2,751) (1,797) Investments in equity affiliates, net - (16,014) Purchases of facilities (4,042) (7,748) Other (10,884) (11,168) ________ ________ Cash used for investment (80,225) (117,021) ________ ________ Cash provided by (used for) financing Cash dividends paid Common stock (8,433) (7,271) Preferred stock (3,722) (6,161) ________ ________ (12,155) (13,432) Notes payable 117,100 (11,100) Additions to long-term debt 90,000 30,000 Payments of long-term debt (50,246) (676) Series F Preferred Stock redemption (115,001) - Other (73) (7,848) ________ ________ Cash provided by (used for) financing 29,625 (3,056) ________ ________ Increase (decrease) in cash and cash equivalents 31,256 (90,826) Balance at beginning of the year 63,586 260,851 ________ ________ Balance at March 31 $ 94,842 $170,025 The accompanying notes are an integral part of these Financial Statements. Notes to Quarterly Financial Statements (1) BASIS OF PRESENTATION. We have prepared the quarterly financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These statements should be read together with the statements and the accompanying notes included in our 1997 Annual Report. The quarterly financial statements have not been audited by independent public accountants, but in the opinion of management, all adjustments necessary to present fairly the results for the periods have been included. The net loss for the three months ended March 31, 1998 and 1997, necessarily involved estimates and accruals. Except as may be disclosed within these "Notes to Quarterly Financial Statements," the adjustments made were of a normal, recurring nature. Quarterly results are not necessarily indicative of results that may be expected for the year. (2) NET LOSS PER COMMON SHARE. Net loss per common share was determined by dividing net loss, as adjusted, by applicable shares outstanding. For the three months ended March 31, 1998 and 1997, the computation of diluted net loss per share was antidilutive; therefore, amounts reported for basic and diluted loss were the same. Three Months Ended March 31 ______________________ 1998 1997 _________ _________ (expressed in thousands) Net loss as reported $ (1,160) $(15,210) Preferred dividends(1) (5,061) (9,713) Excess of Series F Preferred Stock redemption price over carrying value(2) (3,958) - ________ ________ Basic and diluted loss $(10,179) $(24,923) Average shares outstanding used to determine basic and diluted loss per common share 56,242 48,512 (1) Dividend attributable to our Series D convertible preferred stock held by our ESOP (Employee Stock Ownership Plan) is net of a tax benefit. (2) First quarter loss per share included a negative seven cents related to the redemption of the Series F Preferred Stock. The loss for the quarter used in the calculation of loss per share was increased by the excess of the amount paid to redeem the preferred stock over its carrying value. (3) COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) for the periods include the following: Three Months Ended March 31 _______________________ 1998 1997 ___________ _________ (expressed in thousands) Net loss $ (1,160) $(15,210) Other comprehensive income (loss) Cumulative foreign currency translation adjustment, net of income taxes 1,715 (1,471) ________ ________ Comprehensive income (loss), net of income taxes $ 555 $(16,681) Accumulated other comprehensive income (loss) for each period ended was as follows: March 31 December 31 __________________ ___________ 1998 1997 1997 ________ ________ ___________ (expressed in thousands) Balances at beginning of period Minimum pension liability adjustment, net of income taxes $(1,995) $(2,866) $(2,866) Cumulative foreign currency translation adjustment, net of income taxes (6,615) 1,520 1,520 Changes within periods Minimum pension liability adjustment, net of income taxes - - 871 Cumulative foreign currency translation adjustment, net of income taxes 1,715 (1,471) (8,135) _______ _______ _______ Balance at end of period $(6,895) $(2,817) $(8,610) (4) INVENTORIES. Inventories include the following: March 31 December 31 __________________ ___________ 1998 1997 1997 ________ ________ ___________ (expressed in thousands) Finished goods and work in process $474,285 $391,133 $453,268 Logs 66,062 61,567 107,625 Other raw materials and supplies 152,198 141,229 149,870 LIFO reserve (77,773) (81,075) (77,473) ________ ________ ________ $614,772 $512,854 $633,290 (5) DEFERRED SOFTWARE COSTS. We defer purchased and internally developed software and related installation costs for computer systems that are used in our businesses. Deferral of costs begins when technological feasibility of the project has been established and it is determined that the software will benefit future years. These costs are amortized on the straight-line method over a maximum of five years or the useful life of the product, whichever is less. If the useful life of the product is shortened, the amortization period is adjusted. "Other assets" in the Balance Sheets includes deferred software costs of $33.0 million, $18.3 million, and $31.1 million at March 31, 1998 and 1997 and December 31, 1997. (6) INCOME TAXES. The estimated tax provision rate for the first three months of 1998 was 42%, compared with 39% used for the first three months of 1997. The actual annual 1997 tax benefit rate was 32%. For the three months ended March 31, 1998 and 1997, we paid income taxes, net of refunds received, of $2.4 million and $1.1 million. (7) DEBT. At March 31, 1998, we had a revolving credit agreement with a group of banks that permitted us to borrow as much as $600 million at variable interest rates based on customary indices. This agreement expires in June 2002. The revolving credit agreement contains financial covenants relating to minimum net worth, minimum interest coverage ratios, and ceiling ratios of debt to capitalization. Under this agreement, the payment of dividends is dependent upon the existence of and the amount of net worth in excess of the defined minimum. Our net worth at March 31, 1998, exceeded the defined minimum by $191 million. At March 31, 1998, there were $185 million of borrowings outstanding under this agreement. Our majority-owned subsidiary, Boise Cascade Office Products Corporation ("BCOP"), has a $450 million revolving credit agreement with a group of banks that expires in June 2001 and provides variable interest rates based on customary indices. The BCOP revolving credit facility contains customary restrictive financial and other covenants, including a negative pledge and covenants specifying a minimum fixed charge coverage ratio and a maximum leverage ratio. BCOP may, subject to the covenants contained in the credit agreement and to market conditions, raise additional funds through the agreement and through other external debt or equity financings in the future. Borrowings under BCOP's agreement were $290 million at March 31, 1998. Also at March 31, 1998, we had $138.1 million of short-term borrowings outstanding and BCOP had $73.8 million of short-term borrowings outstanding. At March 31, 1997, we had no short-term borrowings outstanding, while BCOP had $25.6 million of short-term borrowings outstanding. The maximum amount of short-term borrowings outstanding during the three months ended March 31, 1998 and 1997, were $275.3 million and $59.3 million. The average amount of short-term borrowings outstanding during the three months ended March 31, 1998 and 1997, were $198.9 million and $33.2 million. The average interest rate for these borrowings was 5.9% for 1998 and 5.6% for 1997. We filed a registration statement with the Securities and Exchange Commission for an additional $400 million of shelf capacity for debt securities. The effective date of our filing was March 25, 1998. Our total shelf capacity was $489.4 million at March 31, 1998. BCOP filed a registration statement with the Securities and Exchange Commission to register $300 million of shelf capacity for debt securities. The effective date of the filing was April 22, 1998. On May 12, 1998, BCOP issued $150.0 million of 7.05% Notes under this registration statement. The Notes are due May 15, 2005. Proceeds from the issuance will be used to repay borrowings under BCOP's revolving credit agreement. BCOP has $150.0 million of shelf capacity remaining under this registration statement. In December 1997, BCOP entered into agreements to hedge against a rise in Treasury rates. BCOP entered into the transactions in anticipation of their issuance of these debt securities. The hedge agreements had a notional amount of $70 million. The settlement rate, based on the yield on 10-year U.S. Treasury bonds, was less than the agreed upon initial rate and BCOP made a cash payment of $0.6 million. The amount paid will be recognized as an increase in interest expense over the life of the debt securities issued. Cash payments for interest, net of interest capitalized, were $43.7 million and $32.4 million for the three months ended March 31, 1998 and 1997. (8) BOISE CASCADE OFFICE PRODUCTS CORPORATION. During the first three months of 1998, BCOP completed two acquisitions, and during the first three months of 1997, BCOP completed three acquisitions, all of which were accounted for under the purchase method of accounting. Accordingly, the purchase prices were allocated to the assets acquired and liabilities assumed based upon their estimated fair values. The initial purchase price allocations may be adjusted within one year of the date of purchase for changes in estimates of the fair values of assets and liabilities. Such adjustments are not expected to be significant to our results of operations or our financial position. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill and is being amortized over 40 years. The results of operations of the acquired businesses are included in our operations subsequent to the dates of acquisition. On January 12, 1998, BCOP acquired the direct marketing business of Fidelity Direct, based in Minneapolis, Minnesota. On February 28, 1998, BCOP acquired the direct marketing business of Sistemas Kalamazoo, based in Madrid, Spain. These transactions were completed for cash of $4.0 million, debt assumed of $0.2 million, and the recording of $3.8 million of acquisition liabilities. On January 31 and February 28, 1997, BCOP acquired contract stationer businesses in Montana and Florida. Also in January 1997, BCOP completed a joint venture with Otto Versand to direct market office products in Europe. These transactions, including the joint venture, were completed for cash of $14.9 million, $2.9 million of BCOP's common stock, and the recording of $1.0 million of acquisition liabilities. Unaudited pro forma results of operations reflecting the acquisitions would have been as follows. If the 1998 acquisitions had occurred on January 1, 1998, sales for the first three months of 1998 would have increased by $0.8 million, and net loss and basic and diluted loss per share would have been unchanged. If the 1998 and 1997 acquisitions had occurred on January 1, 1997, sales for the first three months of 1997 would have increased by $8.0 million, net loss, and basic and diluted loss per share would have been unchanged. This unaudited pro forma financial information does not necessarily represent the actual results of operations that would have occurred if the acquisitions had taken place on the dates assumed. (9) SHAREHOLDERS' EQUITY. We have a shareholder rights plan which was adopted in December 1988, amended in September 1990, and renewed in September 1997. The Renewed Rights Agreement becomes operative upon the expiration of the existing Rights Agreement. (10) NEW ACCOUNTING STANDARDS. In 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. We will adopt the statement at year-end 1998. We are still evaluating what impact it will have on our reportable segments. Adoption of this statement will have no impact on net income. In March 1998, the American Institute of Certified Public Accountants (AICPA), issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This SOP is effective for financial statements for fiscal years beginning after December 15, 1998, with earlier application encouraged. We currently account for software costs generally in accordance with this SOP. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." This SOP provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. This SOP is effective for financial statements for fiscal years beginning after December 15, 1998, with earlier application encouraged. Unamortized costs are required to be expensed at the time of adoption of the SOP. We are still evaluating when to implement this SOP. The unamortized balance of these costs was $12.9 million at March 31, 1998. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 1998, Compared With Three Months Ended March 31, 1997 Our net loss for the first quarter of 1998 was $1.2 million, compared with a net loss of $15.2 million for the first quarter of 1997. Basic loss and diluted loss per common share for the first quarter of 1998 were 18 cents. The first quarter 1998 loss per share included a negative seven cents related to the redemption of our Series F Preferred Stock, effective February 17, 1998. For the same quarter in 1997, basic loss and diluted loss per common share were 51 cents. Sales for the first quarter of 1998 were $1.5 billion and $1.3 billion in the first quarter of 1997. Operating income in the office products segment in the first quarter of 1998 was $37.6 million, compared to $28.5 million in the first quarter 1997. Net sales in the first quarter of 1998 increased 27% to $759.8 million, compared with $597.9 million in the first quarter of 1997. The growth in sales resulted from a combination of acquisitions and same-location sales growth. Same-location sales increased 13% in the first quarter of 1998, compared with sales in the first quarter of 1997. Gross margins were 25.7% in the first quarter of 1998, compared to 25.2% in the year-ago first quarter. The increase in the first quarter of 1998 was primarily due to increases in BCOP's U.S. contract stationer and direct marketing gross margins, offset slightly by lower margins in BCOP's other businesses. BCOP's operating expenses were 20.8% of net sales in the first quarter of 1998, compared with 20.5% in the first quarter of 1997. The increase in the first quarter of 1998 was due in part to BCOP's direct marketing business, which has both higher gross margins and higher operating expenses. Direct marketing acquisitions made in 1997 increased BCOP's cost average compared to the prior year. BCOP's operating margin was 4.9% in 1998 and 4.8% in 1997. Building products operating income decreased to $0.8 million in the first quarter of 1998, compared to $10.4 million in the first quarter of 1997. Sales decreased 2% to $368.7 million compared to $377.4 million a year ago. Results declined as a result of lower average prices and sales volumes. Plywood prices decreased 6%, while sales volumes decreased 3 million square feet. Lumber prices decreased 7%, while sales volumes decreased 26 million board feet. I-joists prices decreased 3%, while sales volumes increased 2 million equivalent lineal feet. Laminated veneer lumber prices were about flat, while sales volumes increased 100,000 cubic feet. Particleboard prices were down slightly, while sales volumes decreased 2 million square feet. The unfavorable sales prices and volume variances were partially offset by lower costs. Building products distribution sales were up 8% to $168 million, compared to $156 million for the first three months of 1997. Our paper and paper products segment reported operating income of $21.0 million in the first quarter of 1998, compared with an operating loss of $22.7 million in the first quarter of 1997. Sales increased 24% to $458.3 million in the first quarter of 1998 from $370.6 million in the first quarter of 1997. The increase in results was caused by higher average prices for all of our paper grades in the first quarter of 1998, compared with the first quarter of 1997. Uncoated free sheet prices increased 10%, containerboard prices increased 22%, newsprint prices increased 18%, and pulp prices increased 5%. Sales volumes for the first quarter of 1998 increased 18,000 tons to 652,000 tons, compared with 634,000 tons in the first quarter of 1997. Uncoated free sheet volumes increased 34,000 tons as our new world- class uncoated free sheet paper machine in Jackson, Alabama, is now operating at close to rated capacity. Containerboard sales volumes increased 14,000 tons. These increases were offset by a 6,000-ton sales volume reduction in newsprint and a 24,000-ton reduction in pulp sales volume reflecting our decreasing position in the market pulp business. Paper segment manufacturing costs per ton in the first quarter of 1998 were 2% higher than in the comparison quarter. The increase from quarter to quarter was due primarily to higher wood costs and the replacement of market pulp with higher margin, higher cost uncoated free sheet paper from the new machine at the Jackson mill. Interest expense was $40.1 million in the first quarter of 1998, compared with $27.7 million in the same period last year. Capitalized interest in the first quarter of 1998 was $68,000, compared to $6.4 million in the first quarter of 1997. With the start-up of the expansion of the Jackson pulp and paper mill in April 1997, the amount of interest capitalized has decreased significantly. The balance of the increase in interest expense was due to higher debt levels. Total long- and short-term debt outstanding was $2.2 billion at March 31, 1998, compared with $1.7 billion at March 31, 1997. Total long- and short- term debt outstanding was $2.0 billion at December 31, 1997. Financial Condition At March 31, 1998, we had working capital of $349.7 million. Working capital was $361.2 million at March 31, 1997, and $459.9 million at December 31, 1997. Cash provided by operations was $81.9 million for the first three months of 1998, compared with $29.3 million for the same period in 1997. At March 31, 1998, we had a revolving credit agreement with a group of banks that permitted us to borrow as much as $600 million at variable interest rates based on customary indices. This agreement expires in June 2002. The revolving credit agreement contains financial covenants relating to minimum net worth, minimum interest coverage ratios, and ceiling ratios of debt to capitalization. Under this agreement, the payment of dividends is dependent upon the existence of and the amount of net worth in excess of the defined minimum. Our net worth at March 31, 1998, exceeded the defined minimum by $191 million. At March 31, 1998, there were $185 million of borrowings outstanding under this agreement. Our majority-owned subsidiary, Boise Cascade Office Products Corporation ("BCOP"), has a $450 million revolving credit agreement with a group of banks that expires in June 2001 and provides variable interest rates based on customary indices. The BCOP revolving credit facility contains customary restrictive financial and other covenants, including a negative pledge and covenants specifying a minimum fixed charge coverage ratio and a maximum leverage ratio. BCOP may, subject to the covenants contained in the credit agreement and to market conditions, raise additional funds through the agreement and through other external debt or equity financings in the future. Borrowings under BCOP's agreement were $290 million at March 31, 1998. At March 31, 1998, we and BCOP met all of the financial covenants related to our debt. Also at March 31, 1998, we had $138.1 million of short-term borrowings outstanding and BCOP had $73.8 million of short-term borrowings outstanding. At March 31, 1997, we had no short-term borrowings outstanding, while BCOP had $25.6 million of short-term borrowings outstanding. The maximum amount of short-term borrowings outstanding during the three months ended March 31, 1998 and 1997, were $275.3 million and $59.3 million. The average amount of short- term borrowings outstanding during the three months ended March 31, 1998 and 1997, were $198.9 million and $33.2 million. The average interest rate for these borrowings was 5.9% for 1998 and 5.6% for 1997. We filed a registration statement with the Securities and Exchange Commission for an additional $400 million of shelf capacity for debt securities. The effective date of our filing was March 25, 1998. Our total shelf capacity was $489.4 million at March 31, 1998. BCOP filed a registration statement with the Securities and Exchange Commission to register $300 million of shelf capacity for debt securities. The effective date of the filing was April 22, 1998. On May 12, 1998, BCOP issued $150.0 million of 7.05% Notes under this registration statement. The Notes are due May 15, 2005. Proceeds from the issuance will be used to repay borrowings under BCOP's revolving credit agreement. BCOP has $150.0 million of shelf capacity remaining under this registration statement. In December 1997, BCOP entered into agreements to hedge against a rise in Treasury rates. BCOP entered into the transactions in anticipation of their issuance of these debt securities. The hedge agreements had a notional amount of $70 million. The settlement rate, based on the yield on 10-year U.S. Treasury bonds, was less than the agreed upon initial rate and BCOP made a cash payment of $0.6 million. The amount paid will be recognized as an increase in interest expense over the life of the debt securities issued. Capital expenditures for the first three months of 1998 and 1997 were $73.4 million and $109.7 million. Capital expenditures for the year ended December 31, 1997, were $578.6 million. The decrease in capital expenditures quarter to quarter is primarily due to the completion of the Jackson pulp and paper mill expansion in May 1997. An expanded discussion and analysis of financial condition is presented on pages 18 and 19 of the Company's 1997 Annual Report under the captions "Financial Condition" and "Capital Investment." Market Conditions We expect BCOP sales to continue to grow at a healthy rate. Internal growth has been strong, and we continue to look for acquisitions that will strengthen our market position, both domestically and in Europe. Earnings should also continue to improve as infrastructure investments begin to pay off and our product line extensions accelerate their contributions to growth. The outlook for our building products business this year continues to be mixed. On the one hand, North American lumber markets are currently hampered by excess supply due to weak net export demand, particularly in Japan. In structural panel markets, OSB capacity installed over the last few years has yet to be fully absorbed. On the other hand, with low interest rates and strong housing starts, demand for wood products in North America continues to grow. In that environment, our wood products operations should improve in the remaining quarters of this year. The overall cost of wood delivered to our converting facilities in the Northwest and South should be comparable to last year. We expect increasing benefits from the investments we have made in LVL/I-joist and OSB capacity. The near-term outlook for paper markets and our paper business has been clouded by the recent financial crisis in Asia. The positive momentum that was built in the last half of 1997 was largely lost in the first quarter of this year. Given currency devaluations and local economic contractions, U.S. imports of Asian paper are likely to be higher than last year and exports to Asia may decline until Asian economies stabilize. Whether that stability is reestablished in a few months or over a much longer period remains to be seen. We expect to see difficult market conditions for our paper business at least through the summer of this year. However, we are quite positive about the fundamental condition of the paper markets over the mid to longer term. Very little new capacity is scheduled to come on line in North America over the next few years, virtually none in uncoated free sheet after this quarter and only modest amounts in other grades. In Europe, the capacity forecast is equally modest. And in Asia, the same financial disruption that will increase net imports in the near term has already caused delays and outright cancellations of announced new capacity. New Accounting Standards In 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. We will adopt the statement at year-end 1998. We are still evaluating what impact it will have on our reportable segments. Adoption of this statement will have no impact on net income. In March 1998, the American Institute of Certified Public Accountants (AICPA), issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This SOP is effective for financial statements for fiscal years beginning after December 15, 1998, with earlier application encouraged. We currently account for software costs generally in accordance with this SOP. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." This SOP provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. This SOP is effective for financial statements for fiscal years beginning after December 15, 1998, with earlier application encouraged. Unamortized costs are required to be expensed at the time of adoption of the SOP. We are still evaluating when to implement this SOP. The unamortized balance of these costs was $12.9 million at March 31, 1998. Year 2000 Computer Issue Many computer systems in use today were designed and developed using two digits, rather than four, to specify the year. As a result, such systems will recognize the year 2000 as "00." This could cause many computer applications to fail completely or to create erroneous results unless corrective measures are taken. We utilize software and related computer technologies that will be affected by this issue. We are currently implementing, or planning to implement, several computer system replacements or upgrades before the year 2000, all of which will be year 2000 compliant. Many of the costs associated with these replacements and upgrades have been and will be deferred. (See Note 5 in "Notes to Quarterly Financial Statements.") We are evaluating what actions will be necessary to make our remaining computer systems year 2000 compliant. Maintenance and modification costs not meeting the criteria for deferral are expensed as incurred. While we believe that our computer systems will be year 2000 compliant and that the costs required to achieve this will not materially impact our financial position, results of operations or cash flows, there can be no guarantee that all systems will be compliant by the year 2000 or that the systems of other companies on which we rely will be converted within the same timeframe. Forward-Looking Statements This Management's Discussion and Analysis includes forward-looking statements. Because these forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed in or implied by the statements. Factors that could cause actual results to differ include, among other things, increased domestic or foreign competition, increases in capacity through construction of new mills or conversion of older facilities to produce competitive products, variations in demand for our products, changes in our cost for or the availability of raw materials, particularly market pulp and wood, the cost of compliance with new environmental laws and regulations, the pace of acquisitions, same-location sales, cost structure improvements, the success of new initiatives, integration of systems, the success of computer- based system enhancements, and general economic conditions. Item 3. Quantitative and Qualitative Disclosures About Market Risk Changes in interest rates and currency rates expose us to financial market risk. Our debt is predominantly fixed-rate. We experience only modest changes in interest expense when market interest rates change. Most foreign currency transactions have been conducted in the local currency, limiting our exposure to changes in currency rates. Consequently, our market risk- sensitive instruments do not subject us to material market risk exposure. Changes in our debt and our continued international expansion could increase these risks. To manage volatility relating to these exposures, we may enter into various derivative transactions such as interest rate swaps, rate hedge agreements, and forward exchange contracts. Interest rate swaps and rate hedge agreements are used to hedge underlying debt obligations or anticipated transactions. For qualifying hedges, the interest rate differential is reflected as an adjustment to interest expense over the life of the swap or underlying debt. Gains and losses related to qualifying hedges of foreign currency firm commitments and anticipated transactions are deferred and are recognized in income or as adjustments of carrying amounts when the hedged transaction occurs. All other forward exchange contracts are marked to market, and unrealized gains and losses are included in current period net income. We had no material exposure to losses from derivative financial instruments held at March 31, 1998. We do not use derivative financial instruments for trading purposes. PART II - OTHER INFORMATION Item 1. Legal Proceedings Reference is made to our annual report on Form 10-K for the year ended December 31, 1997, for information concerning legal proceedings. Item 2. Changes in Securities The payment of dividends is dependent upon the existence of and the amount of net worth in excess of the defined minimum under our revolving credit agreement. Our net worth at March 31, 1998, exceeded the defined minimum by $191 million. At March 31, 1998, there were $185 million of borrowings outstanding under the agreement. Item 3. Defaults Upon Senior Securities At March 31, 1998, there were no existing defaults. Item 4. Submission of Matters to a Vote of Security Holders We held our annual shareholders meeting on April 17, 1998. A total of 61,783,187 shares of common and preferred stock were outstanding and entitled to vote at the meeting. Of the total outstanding, 54,244,160 shares were represented at the meeting. Shareholders cast votes for election of the following directors whose terms expire in 2001: In Favor Withheld Not Voted Anne L. Armstrong 52,850,459 1,393,701 - Philip J. Carroll 52,404,107 1,840,053 - Gary G. Michael 53,277,064 967,096 - A. William Reynolds 52,959,245 1,284,915 - Continuing in office are Edward E. Hagenlocker, George J. Harad, Donald S. Macdonald, Jane E. Shaw, and Edson W. Spencer, whose terms expire in 2000, and Robert K. Jaedicke, Paul J. Phoenix, Frank A. Shrontz, and Ward W. Woods, Jr., whose terms expire in 1999. The shareholders also ratified the appointment of Arthur Anderson LLP, as our independent auditor for the year 1998 with 53,689,699 votes cast for, 400,794 against, and 153,667 abstained. Shareholders approved an amendment, adopted by the board of directors in December 1997, to our 1984 Key Executive Stock Option Plan (the "KESOP"). This amendment increased the number of shares available under the plan by 1,500,000 shares. The shareholder votes were 49,661,932 cast for, 3,886,548 against, and 695,680 abstained. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Required exhibits are listed in the Index to Exhibits and are incorporated by reference. (b) Reports on Form 8-K. On February 23, 1998, we filed a Form 8-K to file our financial information as of December 31, 1997. This was included as an exhibit in our 1997 Form 10-K. No other Form 8-Ks were filed during the first quarter of 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOISE CASCADE CORPORATION As Duly Authorized Officer and Chief Accounting Officer: /s/ Tom E. Carlile Tom E. Carlile Vice President and Controller Date: May 12, 1998 BOISE CASCADE CORPORATION INDEX TO EXHIBITS Filed With the Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1998 Number Description Page Number 11 Computation of Per Share Earnings 12 Ratio of Earnings to Fixed Charges 27 Financial Data Schedule EX-11 2 Exhibit 11 Boise Cascade Corporation Computation of Per Share Earnings Three Months Ended March 31 _______________________ 1998 1997 __________ _________ (expressed in thousands, except per share amounts) Net loss as reported $ (1,160) $ (15,210) Preferred dividends (5,061) (9,713) Series F Preferred Stock redemption price over carrying value (3,958) - _________ _________ Basic loss (10,179) (24,923) Preferred dividends eliminated 3,620 7,010 Supplemental ESOP contribution (3,094) (3,079) _________ _________ Diluted loss $ (9,653) $ (20,992) Average shares outstanding used to determine basic loss per common share 56,242 48,512 Stock options, net 242 382 Series G conversion preferred stock - 6,908 Series D convertible preferred stock 4,461 4,625 _________ _________ Average shares used to determine diluted loss per common share 60,945 60,427 Net loss per common share Basic $(.18) $(.51) Diluted(1) $(.16) $(.35) (1) Because the computation of diluted loss per common share was antidilutive, the diluted loss per common share reported for the three months ended March 31, 1998 and 1997, was the same as basic loss per common share. EX-12 3 EXHIBIT 12
BOISE CASCADE CORPORATION AND SUBSIDIARIES Ratio of Earnings to Fixed Charges Three Months Year Ended December 31 Ended March 31 ________________________________________________________ ____________________ 1993 1994 1995 1996 1997 1997 1998 ________ ________ ________ ________ ________ ________ ________ (dollar amounts expressed in thousands) Interest costs $ 172,170 $ 169,170 $ 154,469 $ 146,234 $ 153,691 $ 31,830 $ 43,824 Interest capitalized during the period 2,036 1,630 3,549 17,778 10,575 6,362 68 Interest factor related to noncapitalized leases(1) 7,485 9,161 8,600 12,982 11,931 3,486 2,851 _________ _________ _________ _________ _________ ________ ________ Total fixed charges $ 181,691 $ 179,961 $ 166,618 $ 176,994 $ 176,197 $ 41,678 $ 46,743 Income (loss) before income taxes and minority interest $(125,590) $ (64,750) $ 589,410 $ 31,340 $(28,930) $(20,230) $ 3,420 Undistributed (earnings) losses of less than 50% owned persons, net of distributions received (922) (1,110) (36,861) (1,290) 5,180 (30) 3,540 Total fixed charges 181,691 179,961 166,618 176,994 176,197 41,678 46,743 Less: Interest capitalized (2,036) (1,630) (3,549) (17,778) (10,575) (6,362) (68) Guarantee of interest on ESOP debt (22,208) (20,717) (19,339) (17,874) (16,341) (4,130) (3,724) _________ _________ _________ _________ _________ ________ ________ Total earnings (losses) before fixed charges $ 30,935 $ 91,754 $ 696,279 $ 171,392 $ 125,531 $ 10,926 $ 49,911 Ratio of earnings to fixed charges(2) - - 4.18 - - - 1.07 (1) Interest expense for operating leases with terms of one year or longer is based on an imputed interest rate for each lease. (2) Earnings before fixed charges were inadequate to cover total fixed charges by $150,756,000, $88,207,000, $5,602,000, and $50,666,000 for the years ended December 31, 1993, 1994, 1996, and 1997 and $30,752,000 for the three months ended March 31, 1997.
EX-27 4
5 EXHIBIT 27 The data schedule contains summary financial information extracted from Boise Cascade Corporation's Balance Sheet at March 31, 1998, and from its Statement of Loss for the three months ended March 31, 1998. The information presented is qualified in its entirety by reference to such financial statements. 1,000 3-Mos Dec-31-1998 Mar-31-1998 86,002 8,840 630,448 8,874 614,772 1,426,744 5,037,596 2,130,519 5,049,813 1,077,092 1,919,315 140,695 0 248,465 1,096,256 5,049,813 1,489,500 1,489,180 1,244,380 1,442,670 0 0 40,100 3,420 1,450 (1,160) 0 0 0 (1,160) (.18) (.18)
-----END PRIVACY-ENHANCED MESSAGE-----