Financial Highlights
1993 1992 1991
_____________________________________________________________________________________________________
Sales $3,958,300,000 $3,715,590,000 $3,950,490,000
Net loss $ (77,140,000) $ (227,480,000)(1)$ (79,450,000)
Net loss per common share
Primary $(3.17) $(6.73) $(2.46)
Fully diluted(2) $(3.17) $(6.73) $(2.46)
Shareholders' equity per common share $25.92 $29.95 $37.49
Capital expenditures $ 221,481,000 $ 282,951,000 $ 298,674,000
Number of employees 17,362 17,222 19,619
Number of common shareholders 25,930 31,006 30,352
Number of shares of common stock
outstanding 37,987,529 37,940,312 37,944,725
_____________________________________________________________________________________________________
<FN>
(1) Includes a one-time noncash charge of $73,450,000 after tax, or $1.94 per fully diluted common
share, for the adoption of Financial Accounting Standards Board requirements to accrue
postretirement benefits other than pensions.
(2) The computation of fully diluted net loss per common share for the periods shown was antidilutive;
therefore, the amounts reported for primary and fully diluted net loss are the same.
FINANCIAL REVIEW
Income From Operations
Boise Cascade reported a net loss of $77.1 million, or $3.17 per
fully diluted common share, in 1993. This compares with a net loss
of $227.5 million, or $6.73 per fully diluted share, in 1992. The
1993 loss includes pretax gains on the sales of assets totaling
$13.9 million, or 23 cents per fully diluted share, and a net
charge of $2.1 million, or 6 cents per fully diluted share,
resulting from changes in statutory tax rates in the U.S. and
Canada.
The 1992 loss includes a charge of $73.5 million after tax, or
$1.94 per fully diluted share, for the adoption of Financial
Accounting Standards Board requirements to accrue the cost of
postretirement benefits other than pensions.
After excluding gains and charges in both years, the Company lost
$83.6 million, or $3.34 per share, in 1993, compared with a loss
of $154.0 million, or $4.79 per share, in 1992. Sales in 1993 were
$4.0 billion, compared with $3.7 billion in 1992. The increase in
sales was due primarily to higher lumber and plywood prices in the
Company's building products segment.
The Company's loss in 1993 was due principally to weak prices in
our paper business. All of the Company's grades of paper have
suffered in recent years, as domestic and overseas economies
weakened and paper consumption flattened or declined. At the same
time, significant new industry capacity started up over the last
several years.
The Company's paper and paper products segment reported an
operating loss of $138 million in 1993, compared with a loss of
$187 million in 1992. The improvement in paper-segment results
was due to significantly reduced manufacturing costs, an upgraded
product mix, and modestly stronger unit sales volume. Segment
sales were about flat, compared with those of a year ago.
Prices for uncoated business, printing, converting, and forms
papers, newsprint, and coated papers rose modestly on average from
year-ago levels, while average containerboard and market pulp
prices declined. The average price per ton for all of Boise
Cascade's pulp and paper sold in 1993 was about the same as in
1992. Prices declined 10 percent that year, 14 percent in 1991,
and 6 percent in 1990.
Offsetting the continued weak prices was the impact of the
Company's cost-reduction efforts. Through previous capital
investment and process improvements, the Company's unit
manufacturing costs in paper declined 4 percent in 1993 from 1992
levels.
Additionally, unit sales volume grew 2 percent to 3.6 million tons
in 1993, despite 68,000 tons of market-related machine downtime
taken throughout the year. The additional tonnage came mostly from
the new business and printing paper machine in International Falls,
Minnesota, which reached its rated production capacity in 1993.
Operating income for the office products segment was $36 million
in 1993, nearly twice the $19 million earned in 1992, as we added
sales volume and reduced operating costs to improve margins.
Profits were about the same as those in 1991, which, at that time,
included sales from our wholesale office products operations. In
early 1992, we sold our wholesale operations in order to expand in
the commercial channel.
After excluding the sales volume of the Company's former wholesale
operations, dollar sales volume for the office products segment
increased 10 percent to $683 million due to volume from new and
recently acquired facilities and additional volume from existing
facilities. Sales volume was up 5 percent on a comparable-unit
basis.
Operating income for the Company's building products segment was
a record $159 million in 1993, compared with $115 million in 1992.
Sales increased 21 percent to $1.5 billion. The improvement in
operating income was due to rising lumber and plywood prices,
which, on average, were 22 percent and 18 percent higher,
respectively, than they were a year earlier. Higher product prices
resulted from a constrained supply of timber available for
commercial harvest in the Pacific Northwest and concerns about
potential future supply constraints. The cost of logs delivered
to our wood products operations increased for the same reason --
up 22 percent in 1993 over 1992 costs.
Financial Condition
In 1993, operations provided $131 million in cash, compared with
$67 million in 1992. The working capital ratio was 1.3:1 at the
end of 1993, compared with 1.2:1 at the end of 1992.
The Company's effective tax rate increased to 40.3 percent in 1993
from 39.0 percent in 1992. Net interest expense in 1993 was
$148 million, down 11 percent from $166 million in 1992 due to
reduced interest rates and reduced debt.
On December 31, 1993, the Company's total debt amounted to
$2.0 billion, down from $2.2 billion a year ago. Our long-term
debt-to-equity ratio was 1.2:1, compared with 1.4:1 at the end of
1992. The improvement in debt and the debt-to-equity ratio
reflects improved cash flow from operations and equity offerings
during the year, offset by capital spending.
Our debt and debt-to-equity ratio include the guarantee by the
Company of the remaining $247 million of debt incurred by the
trustee of our leveraged Employee Stock Ownership Plan (ESOP).
While that guarantee has a negative impact on our debt-to-equity
ratio, it has virtually no effect on our cash coverage ratios or
on other measures of our financial strength.
In January 1993, $100 million of 11.875 percent notes were retired
when they came due, and the Company redeemed the $92 million of
10.25 percent notes due in 1996. In the fourth quarter, the
Company retired $50 million of medium-term notes.
In January 1993, the Standard & Poor's Corporation reduced the
Company's senior long-term debt rating to BB+ from BBB- with a
stable outlook. In July 1993, Moody's Investors Service reduced
the Company's senior long-term debt rating to Baa3 from Baa2 with
a stable outlook.
The Company has revolving credit totaling $880 million. We
maintain a committed revolving agreement of $750 million with a
group of banks. As of December 31, 1993, borrowings under the
existing agreement totaled $275 million. At the time of expiration
in May 1994, any amount outstanding will be payable in four
quarterly installments unless the agreement is replaced. At
year-end, the Company was negotiating a replacement revolving
credit agreement.
One of our Canadian subsidiaries also maintains committed revolving
credit of $130 million with a group of banks. As of December 31,
1993, borrowings under this agreement totaled $110 million. At the
time of expiration in 1995, any amount outstanding will be payable
in four quarterly installments.
The existing revolving credit agreements require the Company to
maintain a minimum ratio of assets to indebtedness and to exceed
certain minimum interest coverage tests. The Company believes it
will be able to maintain adequate liquidity to meet our various
financial requirements.
The amount of dividends that may be paid on the Company's common
stock is restricted by a covenant in the Company's revolving credit
agreements. Under this covenant, on December 31, 1992, and
December 31, 1993, $49 million and $60 million, respectively, of
retained earnings were available for the payment of dividends.
This covenant does not restrict the payment of dividends on the
preferred stock, but preferred stock dividends reduce the amount
available under the covenant for payment of dividends on the
Company's common stock. Additional equity and income add to the
amount available for payment of dividends, and losses reduce the
amount.
Additional information about the Company's credit agreements and
debt is contained in Note 4 accompanying the financial statements.
In February 1993, the Company issued $115 million, before costs of
issuance, of nonconvertible cumulative preferred stock. The
offering consisted of 4.6 million depositary shares, each
representing one-fortieth of a share of nonconvertible cumulative
preferred stock, Series F. The proceeds of the offering were
primarily used to reduce debt.
In September 1993, the Company issued $182 million, before costs
of issuance, of conversion preferred stock. The offering consisted
of 8.6 million depositary shares, each representing one-tenth of
a share of conversion preferred stock, Series G. The proceeds of
the offering were primarily used to pay down debt.
Additional information about the Company's preferred stock is
contained in Note 6 accompanying the financial statements.
Capital Investment
Capital investment in 1993 was $221 million, compared with $283
million in 1992. The Company's capital investment in 1994 is
expected to be approximately $300 million and will be allocated to
cost-saving, modernization, replacement, maintenance,
environmental, and safety projects.
Dividends
In 1993, Boise Cascade's quarterly cash dividend was 15 cents per
common share, the same as in 1992. The quarterly dividend was
44.75 cents on each depositary share of the Company's Series E
conversion preferred stock, 58.75 cents on each depositary share
of the Company's Series F cumulative preferred stock, and
39.5 cents on each depositary share of the Company's Series G
conversion preferred stock.
Postemployment Benefits
In the fourth quarter of 1993, the Company adopted Financial
Accounting Standards Board requirements to accrue certain
severance, disability, and other benefits provided to former or
inactive employees. The amount of that charge was immaterial.
Timber Supply
In recent years, heightened attention has been paid to developing
and implementing recovery plans throughout the U.S. for species
listed as threatened or endangered under the Endangered Species Act
of 1973. Some of these plans have caused or could cause sharp
curtailment in the use of public and private timberlands in the
Pacific Northwest. The case of the spotted owl is a highly visible
example of the negative impact of these plans on the paper and
forest products industry.
In July 1993, the Clinton Administration announced a forest
management plan that would reduce harvests in the so-called spotted
owl forests of western Washington, western Oregon, and northern
California to an average of 1.2 billion board feet annually for ten
years -- about a 75 percent reduction in harvest levels from those
of the mid-'80s.
If the plan is implemented as announced, as much as 50 percent of
the wood products manufacturing capacity in the owl forests could
be shut down over time, as compared with 1988 levels. In this
environment, Boise Cascade has a number of relative advantages.
An important share of our raw material needs is met by our own
timberland -- some 1.3 million acres in Washington, Oregon, and
Idaho. And our wood products facilities are among the most
efficient in the region, allowing us to bid competitively for any
timber that is available.
The Company's Northwest pulp and paper mills already receive
approximately 73 percent of their wood chip supply either directly
from or through trades with our wood products and whole-log
chipping operations. The Company is taking additional steps to
reduce our need for outside chip purchases. Our cottonwood tree
plantation near our Wallula, Washington, mill should be ready for
harvest in 1997, supplying a portion of our Northwest wood chip
needs. In addition, two of our Northwest paper mills are now using
recycled fiber -- and will use more -- to produce recycled-content
paper products.
Thus, the Company is better positioned than most Northwest
producers to compete in an era of reduced log supply. However,
because of further potential litigation, legislation, and
regulation related to this issue, we cannot predict how the next
several years will unfold. At year-end, the Company's lumber
capacity had been reduced 8.5 percent from the year-end 1992 level
to 756 million board feet, primarily reflecting shift reductions
due to limited log supply.
Also difficult to predict is the impact of these timber constraints
on the cost structure of the Northwest paper and forest products
industry. Log costs for wood products facilities have already
climbed dramatically over the last several years, while wood chip
costs for our Northwest pulp mills rose 75 percent from 1987 to
1991, before leveling off. Lumber and plywood prices, however,
have outpaced log cost increases, resulting in strong profit
margins in the wood products business. Because of excess industry
supply, paper prices have not climbed to meet higher wood chip
costs in the Northwest.
It is unclear what impact the developing recovery plans for various
threatened or endangered species will have on pricing and cost
trends in future years in the Northwest or across the nation.
Environmental Issues
The Environmental Protection Agency (EPA) has proposed new rules
to regulate air and water emissions from pulp and paper mills.
These proposed rules would, among other things, set extremely
stringent standards for color, chemical oxygen demand, and the
discharge of all chlorinated organics. "Chlorinated organics"
refers to a family of thousands of organic compounds that occur
naturally and are also produced as byproducts of pulp-bleaching
processes that use chlorine compounds.
Although the majority of these chemical compounds discharged are
environmentally benign, a small percentage, including the chemical
dioxin, are known to be toxic at sufficiently high concentrations.
With this knowledge, Boise Cascade has invested in new pulping and
bleaching equipment and has changed bleaching processes so that,
today, the level of dioxin in mill effluent at most of our pulp
mills is so small that it cannot be measured using acceptable
methodology.
Unfortunately, the proposed EPA rules do not discriminate between
known toxins and other chlorinated organics, but rather seek to
regulate the levels of all such compounds, regardless of their
actual impact on human health or the environment. This approach
is likely to require the elimination of elemental chlorine and may
require the elimination of all chlorine compounds from the
pulp-bleaching process, despite a lack of evidence that totally
chlorine-free bleaching would result in significant or
cost-effective improvement in the environment or public health.
Moreover, the estimated cost of changing bleaching processes and
capturing air emissions to accommodate the proposed regulations is
staggering -- as much as $12 billion for the U.S. pulp and paper
industry as a whole. For Boise Cascade, the cost of complying with
the proposed rules utilizing current technology could be several
hundred million dollars over the next four or five years. We are
working with industry associations and the EPA to achieve revisions
to the proposed regulations that would better reflect scientific
understanding of the effects, the risks of alternative
pulp-bleaching processes, and the costs.
As of December 31, 1993, the Company was notified that we are a
"potentially responsible party" under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) or
similar federal and state laws with respect to 53 sites where
hazardous substances or other contaminants are located. The
Company has resolved issues relating to several of these sites at
minimal cost and believes that we may have minimal or no
responsibility with regard to several other of these sites. In
most cases, the Company is one of many potentially responsible
parties, and our alleged contribution to these sites has been
minor. For those sites where a range of potential liability has
been determined, the Company has established appropriate reserves.
With respect to all of the currently outstanding sites, the Company
cannot predict with certainty the total response and remedial
costs, the Company's share of the total costs, the extent to which
contributions will be available from other parties, the amount of
time necessary to complete the cleanups, or the availability of
insurance coverage. However, based on our investigations, our
experience with respect to cleanup of hazardous substances, the
fact that expenditures will in many cases be incurred over extended
periods of time, and the number of solvent potentially responsible
parties, the Company does not presently believe that the known
actual and potential response costs will, in the aggregate, have
a material adverse effect on our financial condition or the results
of operations.
Common Stock Prices
1993 1992 1991
Quarter High Low High Low High Low
First $26 3/8 $19 1/2 $25 3/8 $20 7/8 $29 1/4 $23 7/8
Second 27 1/2 22 1/2 22 7/8 17 3/4 28 5/8 24
Third 24 19 5/8 20 1/2 16 3/8 28 3/8 24 1/4
Fourth 24 7/8 20 3/8 22 17 1/4 27 18 3/8
The Company's common stock is traded principally on the New York Stock Exchange.
Common Stock Dividends
1993 1992 1991
Paid Per Share
$.15 $.15 $.38
.15 .15 .38
.15 .15 .38
.15 .15 .38
1993 Capital Investment by Business
Replacement,
Quality/ Timber and Environmental,
Expansion Efficiency(1) Timberlands and Other Total
(expressed in millions)
Paper and paper products $ 25 $ 43 $ - $ 111 $ 179
Office products 1 1 - 1 3
Building products 8 7 - 14 29
Timber and
timberlands - - 4 - 4
Other 2 - - 4 6
________ ________ ________ ________ ________
Total $ 36 $ 51 $ 4 $ 130 $ 221
<FN>
(1) Quality and efficiency projects include quality improvements, modernization, energy, and
cost-saving projects.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
Year Ended December 31
1993 1992 1991
(expressed in thousands)
Revenues
Sales $3,958,300 $3,715,590 $3,950,490
Other income, net (Note 1) 24,140 14,800 93,220
__________ __________ __________
3,982,440 3,730,390 4,043,710
__________ __________ __________
Costs and expenses
Materials, labor, and other
operating expenses 3,373,300 3,223,910 3,345,230
Depreciation and cost of
company timber harvested 267,710 265,790 245,270
Selling and administrative
expenses 321,650 335,170 411,020
__________ __________ __________
3,962,660 3,824,870 4,001,520
__________ __________ __________
Income (loss) from operations 19,780 (94,480) 42,190
__________ __________ __________
Interest expense (148,310) (166,450) (175,340)
Interest income 1,330 1,830 4,700
Foreign exchange gain 1,610 6,590 310
__________ __________ __________
(145,370) (158,030) (170,330)
__________ __________ __________
Loss before income taxes (125,590) (252,510) (128,140)
Income tax benefit (Note 2) (48,450) (98,480) (48,690)
__________ __________ __________
Loss before cumulative
effect of accounting change (77,140) (154,030) (79,450)
Cumulative effect of accounting
change, net of tax (Note 5) - (73,450) -
__________ __________ __________
Net loss $ (77,140) $ (227,480) $ (79,450)
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF INCOME (LOSS)
Year Ended December 31
1993 1992 1991
(expressed in thousands)
Net loss per common
share (Note 1)
Primary
Loss before cumulative
effect of accounting change $(3.17) $(4.79) $(2.46)
Cumulative effect of accounting
change, net of tax (Note 5) - (1.94) -
______ ______ ______
Net loss per share $(3.17) $(6.73) $(2.46)
Fully diluted
Loss before cumulative
effect of accounting change $(3.17) $(4.79) $(2.46)
Cumulative effect of accounting
change, net of tax (Note 5) - (1.94) -
______ ______ _____
Net loss per share $(3.17) $(6.73) $(2.46)
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
December 31
Assets 1993 1992 1991
(expressed in thousands)
Current
Cash and cash items (Note 1) $ 14,860 $ 12,588 $ 15,156
Short-term investments at cost,
which approximates market (Note 1) 7,569 7,744 6,855
__________ __________ __________
22,429 20,332 22,011
Receivables, less allowances of
$1,264,000, $1,757,000, and
$4,891,000 366,187 366,891 367,218
Inventories (Note 1) 446,609 415,930 479,432
Deferred income tax benefits 38,831 49,518 47,894
Other 13,397 12,993 16,680
__________ __________ __________
887,453 865,664 933,235
__________ __________ __________
Property (Note 1)
Property and equipment
Land and land improvements 56,871 56,601 64,334
Buildings and improvements 571,712 556,266 593,649
Machinery and equipment 4,642,434 4,498,287 4,417,202
__________ __________ __________
5,271,017 5,111,154 5,075,185
Accumulated depreciation (2,261,360) (2,044,189) (1,912,660)
__________ __________ __________
3,009,657 3,066,965 3,162,525
Timber, timberlands, and timber
deposits 366,054 385,955 389,454
__________ __________ __________
3,375,711 3,452,920 3,551,979
__________ __________ __________
Other assets (Note 1) 249,809 241,122 243,952
__________ __________ __________
Total assets $4,512,973 $4,559,706 $4,729,166
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
December 31
Liabilities and Shareholders' Equity 1993 1992 1991
(expressed in thousands)
Current
Notes payable $ 31,000 $ 4,000 $ 58,000
Current portion of long-term debt (Note 4) 145,185 243,723 41,443
Accounts payable 288,300 268,962 291,956
Accrued liabilities
Compensation and benefits 103,188 107,007 122,414
Interest payable 32,194 42,847 44,487
Other 88,568 83,192 93,212
__________ __________ __________
688,435 749,731 651,512
__________ __________ __________
Debt (Note 4)
Long-term debt, less current portion 1,593,348 1,680,183 1,915,997
Guarantee of ESOP debt 246,856 261,695 275,058
__________ __________ __________
1,840,204 1,941,878 2,191,055
__________ __________ __________
Other
Deferred income taxes (Note 2) 222,464 279,011 348,903
Other long-term liabilities 257,346 231,490 90,083
__________ __________ __________
479,810 510,501 438,986
__________ __________ __________
Commitments and contingent liabilities
(Notes 1, 2, 5, and 7)
Shareholders' equity (Note 6)
Preferred stock - no par value;
10,000,000 shares authorized;
Series D ESOP: $.01 stated value;
6,395,047, 6,475,198, and 6,672,496
shares outstanding 287,777 291,384 300,262
Deferred ESOP benefit (246,856) (261,695) (275,058)
Series E: $.01 stated value; 862,500
shares outstanding in 1993 and 1992 191,466 191,471 -
Series F: $.01 stated value; 115,000
shares outstanding in 1993 111,043 - -
Series G: $.01 stated value; 862,500
shares outstanding in 1993 176,404 - -
Common stock - $2.50 par value;
200,000,000 shares authorized;
37,987,529, 37,940,312, and
37,944,725 shares outstanding 94,969 94,851 94,862
Retained earnings (Notes 1 and 4) 889,721 1,041,585 1,327,547
__________ __________ __________
Total shareholders' equity 1,504,524 1,357,596 1,447,613
__________ __________ __________
Total liabilities and shareholders'
equity $4,512,973 $4,559,706 $4,729,166
Shareholders' equity per common share $25.92 $29.95 $37.49
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
Year Ended December 31
1993 1992 1991
(expressed in thousands)
Cash provided by (used for) operations
Net loss $ (77,140) $ (227,480) $ (79,450)
Items in loss not using
(providing) cash
Cumulative effect of accounting
change, net of tax - 73,450 -
Depreciation and cost of company timber
harvested 267,710 265,790 245,270
Deferred income tax benefit (46,243) (59,815) (42,059)
Amortization and other 11,547 28,549 11,841
Gain on sales of operating assets (Note 1) (8,300) (25,020) (99,716)
Receivables (116) (46,322) 65,551
Inventories (30,679) (3,319) 5,540
Accounts payable and accrued liabilities 15,696 9,216 (45,635)
Current and deferred income taxes 13,137 53,572 4,640
Other (14,391) (1,947) 3,019
__________ __________ __________
Cash provided by operations 131,221 66,674 69,001
__________ __________ __________
Cash provided by (used for) investment
Expenditures for property and equipment (216,818) (275,414) (293,609)
Expenditures for timber and timberlands (4,663) (7,537) (5,065)
Sales of operating assets (Note 1) 23,992 202,156 143,374
Other 8,867 (31,387) (24,831)
__________ __________ __________
Cash used for investment (188,622) (112,182) (180,131)
__________ __________ __________
Cash provided by (used for) financing
Cash dividends paid
Common stock (22,772) (22,765) (57,680)
Preferred stock (44,731) (32,712) (22,191)
__________ __________ __________
(67,503) (55,477) (79,871)
Notes payable 27,000 (54,000) 18,000
Additions to long-term debt 83,807 130,937 369,041
Payments of long-term debt (269,180) (164,380) (197,158)
Issuance of preferred stock (Note 6) 287,442 191,471 -
Other (2,068) (4,722) (2,817)
__________ __________ __________
Cash provided by financing 59,498 43,829 107,195
__________ __________ __________
Increase (decrease) in cash and short-term
investments 2,097 (1,679) (3,935)
Balance at beginning of the year 20,332 22,011 25,946
__________ __________ __________
Balance at end of the year $ 22,429 $ 20,332 $ 22,011
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1991, 1992, and 1993
________________________________________________________________________________________________________________
Total
Common Share- Deferred
Shares holders' Preferred ESOP Common Retained
Outstanding Notes 1, 4, 5, and 6 Equity Stock Benefit Stock Earnings
________________________________________________________________________________________________________________
(expressed in thousands)
37,948,511 Balance at December 31, 1990 $1,575,531 $ 302,807 $ (285,678) $ 94,871 $1,463,531
________________________________________________________________________________________________________________
Net loss (79,450) (79,450)
Cash dividends declared
Common stock (48,950) (48,950)
Preferred stock (22,191) (22,191)
(3,786) Other 22,673 (2,545) 10,620 (9) 14,607
________________________________________________________________________________________________________________
37,944,725 Balance at December 31, 1991 1,447,613 300,262 (275,058) 94,862 1,327,547
________________________________________________________________________________________________________________
Net loss (227,480) (227,480)
Cash dividends declared
Common stock (22,765) (22,765)
Preferred stock (36,571) (36,571)
Issuance of preferred stock 191,471 191,471
(4,413) Other 5,328 (8,878) 13,363 (11) 854
________________________________________________________________________________________________________________
37,940,312 Balance at December 31, 1992 1,357,596 482,855 (261,695) 94,851 1,041,585
________________________________________________________________________________________________________________
Net loss (77,140) (77,140)
Cash dividends declared
Common stock (22,813) (22,813)
Preferred stock (50,841) (50,841)
Issuance of preferred stock 287,442 287,442
47,217 Other 10,280 (3,607) 14,839 118 (1,070)
________________________________________________________________________________________________________________
37,987,529 Balance at December 31, 1993 $1,504,524 $ 766,690 $ (246,856) $ 94,969 $ 889,721
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION. The financial statements include the accounts of the
Company and all subsidiaries after elimination of intercompany balances
and transactions.
OTHER INCOME. "Other income, net" on the Statements of Income (Loss)
includes equity in earnings and losses of joint ventures, gains and
losses on the sale and disposition of property, and other miscellaneous
income and expense items. Results for 1993 include a net pretax gain
of $13,944,000, which was primarily attributable to sales of assets.
A 1993 adoption of Financial Accounting Standards Board requirements
to accrue certain severance, disability, and other benefits provided
to former or inactive employees did not have a material impact on
reported results. In 1992, strategic sales made by the Company
included the sale of essentially all of its wholesale office products
distribution operations at their approximate book value. Additionally,
the Company sold 11 corrugated container plants at a gain of
$25,020,000 and wrote off certain pulp and paper mill start-up costs
(see "Start-Up Costs" in this note). During 1991, the Company sold
timberlands at a gain of $62,648,000 and sold its 50% interest in a
joint venture which operated corrugated container plants in Austria and
Germany at a gain of $37,068,000. Partially offsetting these gains
were reserves of $12,257,000 related to costs associated with the
divestiture of certain assets.
FOREIGN CURRENCY TRANSLATION. Foreign exchange gains and losses
reported on the Statements of Income (Loss) arose primarily from
activities of the Company's Canadian subsidiaries. At December 31,
1993, contracts for the purchase of 50,000,000 Canadian dollars were
outstanding. Gains or losses in the market value of the forward
contracts are recorded as they are incurred during the year and
partially offset gains or losses arising from translation of the
Canadian subsidiaries' net liabilities.
NET LOSS PER COMMON SHARE. Net loss per common share was determined
by dividing net loss, as adjusted below, by applicable shares
outstanding. The computation of fully diluted net loss per share was
antidilutive in each of the periods presented; therefore, the amounts
reported for primary and fully diluted loss are the same.
Year Ended December 31
1993 1992 1991
(expressed in thousands)
Net loss as reported $ (77,140) $(227,480) $ (79,450)
Preferred dividends (43,076) (27,711) (13,767)
_________ _________ _________
Primary loss (120,216) (255,191) (93,217)
Assumed conversions:
Preferred dividends eliminated 33,407 27,711 13,767
Interest on 7% debentures
eliminated 3,644 4,108 4,468
Supplemental ESOP contribution (12,381) (10,285) (6,833)
_________ _________ _________
Fully diluted loss $ (95,546) $(233,657) $ (81,815)
Average number of common shares
Primary 37,958 37,942 37,946
Fully diluted 55,825 53,283 45,596
Primary loss includes the aggregate amount of dividends on the
Company's preferred stock. The dividend attributable to the Company's
Series D convertible preferred stock held by the Company's ESOP
(employee stock ownership plan) is net of a tax benefit. To determine
the fully diluted loss, dividends and interest, net of any applicable
taxes, have been added back to primary loss to reflect assumed
conversions. The fully diluted loss was increased by the after-tax
amount of additional contributions that the Company would be required
to make to its ESOP if the Series D ESOP preferred shares were
converted to common stock.
For the years ended December 31, 1993, 1992, and 1991, primary average
shares include only common shares outstanding. For these periods,
common stock equivalents attributable to stock options, Series E
conversion preferred stock subsequent to issuance in January 1992, and
Series G conversion preferred stock subsequent to issuance in September
1993 were excluded because they were antidilutive. Excluded common
equivalent shares were 10,840,000 at December 31, 1993, compared with
7,998,000 shares and 16,695 shares at December 31, 1992 and 1991. In
addition to common and common equivalent shares, fully diluted average
shares include common shares that would be issuable upon conversion of
the Company's other convertible securities (see Notes 4 and 6).
CASH AND SHORT-TERM INVESTMENTS. Short-term investments consist of
investments that had a maturity of three months or less at the date of
purchase. At December 31, 1993, $9,371,000 of cash, short-term
investments, and certain receivables of a wholly owned insurance
subsidiary was committed for use in maintaining statutory liquidity
requirements of that subsidiary.
INVENTORY VALUATION. The Company uses the last-in, first-out (LIFO)
method of inventory valuation for raw materials and finished goods
inventories at substantially all of its domestic wood products and
paper manufacturing facilities. All other inventories are valued at
the lower of cost or market, with cost based on the average or first-
in, first-out (FIFO) valuation method. Manufactured inventories
include costs for materials, labor, and factory overhead.
Inventories include the following:
December 31
1993 1992 1991
(expressed in thousands)
Finished goods and work
in process $ 255,395 $ 237,603 $ 298,447
Logs 106,649 76,653 60,995
Other raw materials and
supplies 167,192 165,798 180,600
LIFO reserve (82,627) (64,124) (60,610)
__________ __________ __________
$ 446,609 $ 415,930 $ 479,432
PROPERTY. Property and equipment are recorded at cost. Cost includes
expenditures for major improvements and replacements and the net amount
of interest cost associated with significant capital additions.
Capitalized interest was $1,118,000 in 1993, $3,492,000 in 1992, and
$6,498,000 in 1991. Substantially all of the Company's paper and wood
products manufacturing facilities determine depreciation by the units-
of-production method, and other operations use the straight-line
method. Gains and losses from sales and retirements are included in
income as they occur except at certain pulp and paper mills that use
composite depreciation methods. At those facilities, gains and losses
are included in accumulated depreciation. Estimated service lives of
principal items of property and equipment range from 3 to 40 years.
Cost of company timber harvested and amortization of logging roads are
determined on the basis of the annual amount of timber cut in relation
to the total amount of recoverable timber. Timber and timberlands are
stated at cost, less the accumulated total of timber previously
harvested.
A portion of the Company's wood requirements are acquired from public
and private sources. Except for deposits required pursuant to wood
supply contracts, no amounts are recorded until such time as the
Company becomes liable for the timber. At December 31, 1993, based on
average prices at the time, the unrecorded amount of those contracts
was estimated to be approximately $210,000,000.
START-UP COSTS. Preoperating costs incurred during the construction
and start-up of major expansions or new manufacturing facilities are
capitalized. In mid-1992, the Company elected to write off certain
pulp and paper mill costs that had been capitalized prior to 1987 and
were being amortized over 15 years. The write-off reflected a change
in the estimated period benefited by such expenditures. The remaining
unamortized balance attributable to the expansion and modernization
project at the pulp and paper mill in International Falls, Minnesota,
is being amortized over a five-year period.
The unamortized balance of start-up costs, included in "Other assets"
on the Balance Sheets, is as follows:
December 31
1993 1992 1991
(expressed in thousands)
Balance at beginning of the year $ 32,475 $ 61,232 $ 50,460
Amortized (8,119) (9,789) (3,990)
Written off - (18,968) -
Capitalized - - 14,762
__________ __________ __________
Balance at end of the year $ 24,356 $ 32,475 $ 61,232
RESEARCH AND DEVELOPMENT COSTS. Research and development costs are
expensed as incurred. During 1993, research and development expenses
were $11,496,000, compared with $11,785,000 in 1992 and $10,982,000 in
1991.
2. INCOME TAXES
Effective as of January 1, 1993, the Company adopted Financial
Accounting Standards Board requirements that govern the way deferred
taxes are calculated and reported. The one-time adjustment made to
record the initial adoption of the standard had no effect on the
Company's 1993 net loss. The impact of changes in the statutory tax
rate on deferred taxes subsequent to the initial adoption are discussed
below. Financial statements for prior periods have not been restated.
The income tax benefit shown on the Statements of Income (Loss)
includes the following:
Year Ended December 31
1993 1992 1991
(expressed in thousands)
Current income tax refund $ (2,207) $ (38,665) $ (6,631)
Deferred income tax benefit (46,243) (59,815) (42,059)
__________ __________ __________
Total income tax benefit
before cumulative effect
of accounting change $ (48,450) $ (98,480) $ (48,690)
Deferred tax attributable
to cumulative effect
of accounting change $ - $ (44,950) $ -
During 1993, the Company received income tax refunds, net of cash
payments, of $48,025,000, compared with net refunds of $60,081,000 in
1992 and $45,451,000 in 1991.
A reconciliation of the statutory U.S. federal tax rate and the
Company's reported tax benefit rate is as follows:
Year Ended December 31
1993 1992 1991
Statutory tax rate 35.0% 34.0% 34.0%
Increases (decreases) in
tax rate resulting from:
State taxes 3.3 1.9 3.7
Foreign loss tax benefit
at more than theoretical
rate .9 2.9 1.4
Other 1.1 .2 (1.1)
__________ __________ __________
Effective tax rate 40.3 39.0 38.0
Tax rate adjustments to net
deferred tax liabilities (1.7) - -
__________ __________ __________
Reported tax rate 38.6% 39.0% 38.0%
During 1993, the U.S. federal government increased its statutory rate
from 34% to 35%. The increase in net deferred tax liabilities due to
that increase was partially offset by decreases due to reductions in
Canadian tax rates. The Canadian federal rate was decreased from 23.8%
to 22.8%, and a further decrease to 21.8% was effective for 1994. The
difference between the effective and reported tax rates shown above for
1993 resulted in a net increase in deferred tax liabilities of $2,100,000
at December 31, 1993.
The components of the net deferred tax liability on the Balance Sheet
at December 31, 1993, as determined in accordance with the new
standard, were as follows (expressed in thousands):
Deferred Tax
Assets Liabilities
Operating loss carryover $ 169,758 $ -
Employee benefits 98,262 17,359
Property and equipment and
timber and timberlands 89,025 589,380
Alternative minimum tax 79,775 -
Tax credit carryovers 47,268 -
Reserves 11,578 1,498
Inventories 9,767 412
State income taxes 3,892 29,026
Deferred charges 313 14,591
Differences in basis of
nonconsolidated entities - 17,909
Other 9,790 32,886
__________ __________
$ 519,428 $ 703,061
The components of the deferred tax benefit portion of the total income
tax benefit on the Statements of Income (Loss) for the years ended
December 31, 1992 and 1991, were determined in accordance with
accounting requirements used prior to January 1, 1993, and related to
differences in recognition of revenue and expense for tax and financial
reporting purposes. The nature and tax effect of each were as follows:
Year Ended December 31
1992 1991
(expressed in thousands)
Reduction of deferred tax liabilities
due to losses $(109,682) $(140,397)
Book depreciation less than tax
depreciation 59,745 85,832
Expenses deferred for book more (less)
than tax (12,560) 7,059
Provision for pensions less than
pension funding 1,376 6,944
Other 1,306 (1,497)
_________ _________
Deferred income tax benefit
before cumulative effect of
accounting change $ (59,815) $ (42,059)
At December 31, 1993, the Company had loss carryforwards for tax
purposes in the U.S. of $406,000,000 expiring in 2007 through 2008 and
$33,000,000 in Canada expiring in 2000. Additionally, the Company had
income tax credits in the U.S. of $35,300,000 expiring in 1997 through
2007 and $11,900,000 in Canada expiring in 1995 through 2003. The
Company also had $80,000,000 of U.S. minimum tax credits, which may be
carried forward indefinitely. The loss carryforwards, the Canadian
income tax credits, and the U.S. minimum tax credits are realizable
through future reversals of existing taxable temporary differences.
Management believes that the U.S. tax credits will be fully realized
based on future reversals of existing taxable temporary differences,
future earnings, or available tax planning strategies.
At December 31, 1993, Canadian subsidiaries of the Company had
$201,840,000 of undistributed earnings which have been indefinitely
reinvested. It is not practical to make a determination of the
additional U.S. income taxes that would be due upon remittance of these
earnings until the remittance occurs.
Pretax income (loss) from domestic and foreign sources is as follows:
Year Ended December 31
1993 1992 1991
(expressed in thousands)
Domestic $(100,319) $(214,696) $(158,842)
Foreign (25,271) (37,814) 30,702
_________ _________ _________
Pretax loss $(125,590) $(252,510) $(128,140)
The Company's federal income tax returns have been examined through
1989. Tax returns for 1990 and 1991 are currently under review.
Certain deficiencies have been proposed, but the amount of the
deficiencies, if any, that may result upon settlement of these years
cannot be determined at this time. The Company believes that it has
adequately provided for any such deficiencies and that settlements will
not have a material adverse effect on the Company's financial condition
or results of operations.
3. LEASES
Lease obligations for which the Company assumes substantially all
property rights and risks of ownership are capitalized. All other
leases are treated as operating leases. Rental expenses for operating
leases, net of sublease rentals, were $30,877,000 in 1993, $28,821,000
in 1992, and $27,808,000 in 1991.
The Company has various operating leases with remaining terms of more
than one year. These leases have minimum lease payment requirements,
net of sublease rentals, of $17,533,000 for 1994, $15,527,000 for 1995,
$13,912,000 for 1996, $12,053,000 for 1997, and $11,566,000 for 1998,
with total payments thereafter of $171,987,000.
Substantially all lease agreements have fixed payment terms based upon
the passage of time. Some lease agreements provide the Company with
the option to purchase the leased property. Additionally, certain
agreements contain renewal options ranging up to 15 years, with fixed
payment terms similar to those in the original lease agreements.
4. DEBT
At December 31, 1993, the Company had an unsecured revolving credit
agreement that permitted it to borrow up to $750,000,000, $275,000,000
of which was outstanding at that date. One of the Company's Canadian
subsidiaries had a $130,000,000 unsecured revolving credit agreement
that permitted borrowing in either U.S. or Canadian dollars. Amounts
drawn under this revolver are guaranteed by the Company and are
consolidated with borrowings of the Company for reporting purposes.
On December 31, 1993, borrowings of US$110,000,000 were outstanding
under the Canadian revolver.
The revolving credit agreements provide a choice of several pricing
formulas. At December 31, 1993, the interest rates would have ranged
from 3.9% to 6.5% for borrowings in U.S. dollars and from 4.5% to 5.5%
for borrowings in Canadian dollars. Commitment fees are required on
the unused portion of the credits. The revolving period on the
$750,000,000 lending commitment expires in May 1994, and any borrowings
outstanding at that time are payable in quarterly installments ending
in May 1995. The revolving period on the $130,000,000 Canadian lending
commitment expires in May 1995, and any amounts outstanding at that
time are payable in quarterly installments ending in June 1996.
Compensating balances are not required.
The revolving credit agreements limit the amount of common dividends
that may be declared by the Company. In general, the amount available
under this restriction will be increased (or decreased) by an amount
equal to 75% of net income (or loss) before adjustments for
extraordinary items and certain noncash accounting adjustments,
increased by an amount equal to 50% of the proceeds from the sale of
any stock, reduced by the amount of any dividends or distributions of
cash, assets, or securities (other than common stock), and reduced by
the amount expended to repurchase, redeem, or retire any shares of
Company stock. These restrictions do not apply to the payment of
dividends on preferred stock, although any dividends paid on preferred
stock reduce the amount available under the restrictions for payment
of dividends on common stock. The aggregate dividend limitation was
$60,016,000 at December 31, 1993. The limitation was $49,142,000 at
December 31, 1992, and $133,703,000 at December 31, 1991. The
revolving credit agreements also require the Company to maintain a
minimum ratio of assets to indebtedness and to exceed a defined minimum
interest coverage. The Company believes it will be able to maintain
adequate liquidity to meet its various financial requirements. At
year-end, the Company was in the process of renegotiating its revolving
credit agreements.
At December 31, 1993, the Company had $115,900,000 of shelf capacity
registered with the Securities and Exchange Commission for additional
debt securities.
In 1993, the Company entered into a ten-year, $100,000,000 notional
amount "interest rate swap" agreement under which the Company pays 7.1%
and receives 9.625% until 1995 and a variable interest rate thereafter
until 2003. The interest payments made or received pursuant to the
swap are netted for reporting purposes. In the event the swap is
terminated before its expiration, the Company would no longer pay or
receive interest payments pursuant to the swap. At December 31, 1993,
the liquidation value to the Company, based on interest rates available
for instruments with similar characteristics, would have been
approximately $1,100,000.
The Company has guaranteed debt used to fund an employee stock
ownership plan that is part of the Savings and Supplemental Retirement
Plan for the Company's U.S. salaried employees (see Note 5). The
Company has recorded the debt on its Balance Sheets, along with an
offset in the shareholders' equity section that is titled "Deferred
ESOP benefit." The Company has guaranteed certain tax indemnities on
the ESOP debt, and the interest rate on the guaranteed debt is subject
to adjustment for events described in the loan agreement.
The Company may redeem all or part of the 7% unsecured convertible
subordinated debentures at specified amounts that decline to $50 par
value per debenture on May 1, 1996. Sinking fund payments are required
after May 1, 1996. At December 31, 1993, $16,957,000 of these
debentures had been purchased by the Company for application to the
sinking fund requirements. Each debenture is convertible into 1.1415
shares of the Company's common stock.
Long-term debt, almost all of which is unsecured, consists of the
following:
December 31
1993(1) 1992 1991
(expressed in thousands)
7.375% notes, due in 1997, net of
unamortized discount of $310,000 $ 99,690 $ 99,604 $ -
10.125% notes, due in 1997, net of
unamortized discount of $209,000 119,791 119,738 119,685
9.625% notes, due in 1998, callable in
1995, net of unamortized discount of
$88,000 99,912 99,855 99,798
9.9% notes, due in 2000, net of
unamortized discount of $341,000 99,659 99,604 99,549
9.875% notes, due in 2001, callable in
1999 100,000 100,000 100,000
9.85% notes, due in 2002 125,000 125,000 125,000
9.45% debentures, due in 2009, net of
unamortized discount of $356,000 149,644 149,621 149,599
7% convertible subordinated debentures,
due in 2016, net of unamortized
discount of $640,000 76,308 79,986 96,375
Medium-term notes, Series A, with
interest rates averaging 9.3%,
9.5%, and 9.6%, due in varying
amounts through 2013 239,100 245,300 239,000
Revenue bonds and other indebtedness,
with interest rates averaging 7.6%,
8%, and 8.2%, due in varying
amounts annually through 2023, net of
unamortized discount of $1,459,000 219,870 187,137 230,360
American & Foreign Power Company Inc.
5% debentures, due in 2030, net of
unamortized discount of $1,405,000 24,559 25,814 30,951
Revolving credit borrowings, with
interest rates averaging 4%, 4.1%,
and 5.3% 385,000 400,000 375,000
Debt called or paid at maturity - 192,247 292,123
__________ __________ __________
1,738,533 1,923,906 1,957,440
Less current portion 145,185 243,723 41,443
__________ __________ __________
1,593,348 1,680,183 1,915,997
Guarantee of ESOP debt, due in
installments through 2004 246,856 261,695 275,058
__________ __________ __________
$1,840,204 $1,941,878 $2,191,055
(1) The amount of net unamortized discount disclosed applies to long-
term debt outstanding at December 31, 1993.
The scheduled payments of long-term debt are $145,185,000 in 1994,
$267,899,000 in 1995, $73,558,000 in 1996, $250,682,000 in 1997, and
$125,238,000 in 1998. The payments include amounts attributable to
the Company's revolving credit agreements for 1994, 1995, and 1996 of
$137,500,000, $192,500,000, and $55,000,000.
Cash payments for interest, net of interest capitalized, were
$158,963,000 in 1993, $168,090,000 in 1992, and $169,313,000 in 1991.
The estimated current market value of the Company's debt, based on
current interest rates for similar obligations with like maturities,
is approximately $82,000,000 greater than the amount of debt reported.
5. RETIREMENT AND BENEFIT PLANS
Substantially all of the Company's employees are covered by pension
plans. The plans are primarily noncontributory defined benefit plans.
The pension benefit for salaried employees is based primarily on years
of service and the highest five-year average compensation, and the
benefit for hourly employees is generally based on a fixed amount per
year of service. The Company's contributions to its pension plans vary
from year to year, but the Company has made at least the minimum
contribution required by law in each year. The assets of the pension
plans are invested primarily in common stocks, fixed-income securities,
and cash and cash equivalents.
The assumptions used by the Company's actuaries in the calculations of
pension (income) expense and plan obligations are estimates of factors
that will determine, among other things, the amount and timing of
future benefit payments. The return on assets assumption used during
the periods presented was 10%. The discount rate assumption was
decreased from 8.25% to 7.5% for the Company's U.S. pension plans
effective as of year-end 1993. The discount rate for the Company's
Canadian plans remained at 8.25%, which was the rate that had been
adopted for all of the Company's plans at December 31, 1992. Previous
to that date, an 8.5% discount rate assumption had been used. Also
effective at year-end 1993, a salary escalation assumption of 5% for
U.S. plans and 5.5% for Canadian plans was adopted. A salary
escalation of 6% had been adopted for U.S. salaried employees at
December 31, 1992, and the rate otherwise applicable during 1992 and
1991 was 6.5%. Pension income for 1993 and 1992 was primarily
attributable to earnings from plan assets in recent years.
The components of pension (income) expense are as follows:
Year Ended December 31
1993 1992 1991
(expressed in thousands)
Benefits earned by employees $ 20,253 $ 19,446 $ 20,136
Interest cost on projected
benefit obligation 76,076 73,210 71,249
Earnings from plan assets (134,679) (64,607) (229,445)
Assumed earnings from plan
assets (more) less than actual
earnings 44,338 (21,042) 150,992
Amortization of unrecognized
net initial asset (12,145) (12,233) (12,549)
Amortization of net experience
gains and losses from prior
periods 1,149 888 1,230
Amortization of unrecognized
prior service costs 3,547 3,462 3,637
__________ __________ __________
Company-sponsored plans (1,461) (876) 5,250
Multiemployer pension plans 546 625 686
__________ __________ __________
Total pension (income) expense $ (915)$ (251) $ 5,936
The following table, which includes only Company-sponsored plans,
compares the pension obligation with assets available to meet that
obligation:
Plans With Assets in Excess of the Plans With an Accumulated Benefit
Accumulated Benefit Obligation Obligation in Excess of Assets
December 31 December 31
1993 1992 1991 1993 1992 1991
(expressed in millions)
Accumulated benefit obligation
Vested $(674.5) $(652.6) $(604.8) $(255.2) $(178.9) $(170.9)
Nonvested (29.3) (27.0) (27.7) (14.7) (10.6) (10.4)
Provision for salary escalation (72.6) (84.9) (89.1) (3.0) (2.2) (1.8)
_______ _______ _______ _______ _______ _______
Projected benefit obligation (776.4) (764.5) (721.6) (272.9) (191.7) (183.1)
Plan assets at fair market value 842.9 829.1 820.5 207.1 138.6 137.8
_______ _______ _______ _______ _______ _______
Net plan assets (obligation) $ 66.5 $ 64.6 $ 98.9 $ (65.8) $ (53.1) $ (45.3)
The following table reconciles the net plan assets (obligation) to the
prepayment (obligation) recorded on the Balance Sheets:
Plans With Assets in Excess of the Plans With an Accumulated Benefit
Accumulated Benefit Obligation Obligation in Excess of Assets
December 31 December 31
1993 1992 1991 1993 1992 1991
(expressed in millions)
Net plan assets (obligation) $ 66.5 $ 64.6 $ 98.9 $ (65.8) $ (53.1) $ (45.3)
Remainder of unrecognized
initial (asset) obligation (1) (28.9) (44.8) (58.5) (2.3) 1.1 1.5
Other unrecognized items (2) 17.0 23.0 (14.1) 30.6 15.9 8.9
Adjustment to record minimum
liability - - - (25.7) (15.5) (10.5)
_______ _______ _______ _______ _______ _______
Net recorded prepayment
(obligation) $ 54.6 $ 42.8 $ 26.3 $ (63.2) $ (51.6) $ (45.4)
<FN>
(1) The unrecognized initial (asset) obligation calculated at
January 1, 1986, is being amortized over a weighted average of
11 years.
(2) "Other unrecognized items" reflects changes in actuarial
assumptions, net changes in prior service costs, and net
experience gains and losses since January 1, 1986.
The Company and its retired employees currently share in the cost of
retiree health care costs. The type of benefit provided and the extent
of coverage vary based on employee classification, date of retirement,
location, and other factors. The portion of the cost of coverage paid
by the Company for U.S. salaried employees retiring in each year since
1986 has decreased, and the Company will eventually cease to share in
the cost of health care benefits for retired salaried employees. All
of the Company's postretirement health care plans are unfunded. The
Company explicitly reserves the right to amend or terminate its retiree
medical plans at any time, subject only to constraints, if any, imposed
by the terms of collective bargaining agreements. Accrual of costs
pursuant to accounting standards does not affect, or reflect, the
Company's ability to amend or terminate these plans. Amendment or
termination may significantly impact the amount of expense incurred.
Effective as of January 1, 1992, the Company adopted Financial
Accounting Standards Board requirements to accrue postretirement
benefit costs, including retiree health care costs. The cumulative
cost of these benefits attributable to employee service prior to
January 1, 1992, was $118,400,000 before taxes, or $73,450,000 after
taxes. As a result, the 1992 net loss per fully diluted common share
was increased by $1.94. Prior to 1992, retiree health care costs were
recorded at the time they were paid.
A discount rate of 7.5% was adopted effective as of December 31, 1993,
down from an 8.25% rate that had been adopted at the end of the
previous year. A discount rate of 8.5% was used at the time the new
accounting standard was adopted. The initial 1992 trend rate for
medical care costs, was 8.5%, which is assumed to decrease ratably over
the next ten years to 6%. A 1% increase in the trend rate for medical
care costs would have increased the December 31, 1993, benefit
obligation by $7,800,000 and postretirement health care expense for the
year ended December 31, 1993, by $1,400,000.
The components of postretirement health care expense are as follows:
Year Ended December 31
1993 1992
(expressed in thousands)
Benefits earned by employees $ 2,300 $ 2,080
Interest cost on accumulated postretirement
health care benefit obligation 11,700 10,920
__________ __________
Total postretirement health care expense $ 14,000 $ 13,000
The accrued postretirement health care benefit obligation is included
primarily in "Other long-term liabilities" on the Balance Sheets. The
components of the obligation are as follows:
December 31
1993 1992
(expressed in thousands)
Retirees $ 79,800 $ 84,700
Fully eligible active employees 18,700 19,900
Other active employees 33,200 35,300
__________ __________
Accumulated postretirement health care
benefit obligation 131,700 139,900
Unrecognized prior service costs 17,600 -
Unrecognized actuarial loss (6,500) (3,500)
__________ __________
Accrued postretirement health care
benefit obligation $ 142,800 $ 136,400
The Company sponsors savings and supplemental retirement programs for
its salaried and some hourly employees. The program for U.S. salaried
employees includes an employee stock ownership plan. Under that plan,
the Company's Series D ESOP convertible preferred stock (see Note 6)
is being allocated to eligible participants through 2004, as principal
and interest payments are made on the ESOP debt guaranteed by the
Company. Total expense for these plans was $13,598,000 in 1993,
compared with $12,038,000 in 1992 and $12,361,000 in 1991.
6. SHAREHOLDERS' EQUITY
PREFERRED STOCK. At December 31, 1993, 6,395,047 shares of 7.375%
Series D ESOP convertible preferred stock were outstanding. The stock
is shown on the Balance Sheets at its liquidation preference of $45 per
share. The stock was sold to the trustee of the Company's Savings and
Supplemental Retirement Plan for U.S. salaried employees (see Note 5).
Each ESOP preferred share is entitled to one vote, bears an annual
cumulative dividend of $3.31875, and is convertible at any time by the
trustee to .80357 share of common stock. The ESOP preferred shares may
not be redeemed for less than the liquidation preference.
At December 31, 1993, there were three series of preferred stock
outstanding that were represented by depositary shares. These
preferred issues are shown on the Balance Sheets at their respective
liquidation preference, net of the costs of issuance. The details of
the issues are as follows:
Series E Series F Series G
Date of issuance First quarter First quarter Third quarter
1992 1993 1993
Preferred shares outstanding 862,500 115,000 862,500
Depositary shares
outstanding 8,625,000 4,600,000 8,625,000
Cumulative annual dividend:
Per preferred share $17.90 $94.00 $15.80
Per depositary share $1.79 $2.35 $1.58
Liquidation preference:
Per preferred share $228.75 $1,000.00 $211.25
Per depositary share $22.875 $25.00 $21.125
Votes:
Per preferred share 1 Limited 1
Per depositary share 1/10 voting rights 1/10
Automatic conversion
(unless previously
redeemed or converted):
Date Jan. 1995 Not convertible Oct. 1997
Common shares issued
per depositary share 1 - 1
(see below) (see below)
On January 15, 1995, each depositary share of Series E preferred stock
will automatically convert to one share of the Company's common stock
unless the Series E preferred stock and related depositary shares have
been previously redeemed by the Company. The Company may elect to
redeem the Series E preferred stock and related depositary shares for
common stock any time prior to January 15, 1995. The total number of
common shares issuable upon redemption is determined by dividing the
call price by a defined then-current market price for the Company's
common stock and multiplying the result by the 8,625,000 depositary
shares. The initial call price is $34.45 per Series E depositary
share, which declines ratably to $31.08 on November 15, 1994, and will
be $30.88 for the period thereafter through January 14, 1995.
Redemption is not anticipated when the defined average market price of
the Company's common stock is less than the call price of the Series E
depositary shares.
The Series F preferred stock and related depositary shares may be
redeemed on or after February 15, 1998, at a price of $1,000 per
preferred share ($25 per depositary share) plus accrued but unpaid
dividends.
On October 15, 1997, each depositary share of Series G preferred stock
will automatically convert to one share of the Company's common stock
unless the Series G preferred stock and related depositary shares have
been previously redeemed by the Company or converted by the
shareholders. The Company may elect to redeem the Series G preferred
stock and related depositary shares for common stock on or after
July 15, 1997, until October 15, 1997. The total number of common
shares issuable upon redemption between July 15, 1997, and
September 15, 1997, is determined by dividing $21.225 by a defined
then-current average market price for the Company's common stock and
multiplying the result by the 8,625,000 depositary shares. For the
period on or after September 15, 1997, through October 14, 1997, the
numerator in the preceding calculation is reduced from $21.225 to
$21.125. In the event the market price of the Company's common stock
exceeds $26.375 upon an announced redemption, it is anticipated that
the holders of the Series G depositary shares would elect to convert
their depositary shares to common stock. Upon conversion, which is
permitted at any time prior to redemption, .801 share of common stock
(subject to adjustment in certain events) would be issuable for each
Series G depositary share so converted.
Examples of common stock issuances upon redemptions of the Series E
and G preferred stock are as follows:
Series E Preferred Stock Series G Preferred Stock
(Subsequent to November 15, 1994) (Subsequent to September 15, 1997)
Common Stock Common Shares Common Stock Common Shares
Market Price Expected to be Market Price Expected to be
at Time of Issued Upon at Time of Issued Upon
Redemption Redemption Redemption Redemption
$0-$30.88 (1) 8,625,000 $0-$21.125 (1) 8,625,000
$32.50 8,195,076 $22.50 8,097,916
$35.00 7,609,714 $25.00 7,288,125
$37.50 7,102,400 $26.375 (2) 6,908,175
$40.00 (2) 6,658,500
(1) Call price. (1) Call price.
(2) The total number of common (2) The total number of common
shares issuable will continue shares issuable at this
to decline at common stock market price are equal to
market prices above $40. shares issuable upon exercise
of the Series G preferred
stock conversion rights.
The remaining authorized but unissued preferred shares may be issued
with such voting rights, dividend rates, conversion privileges, sinking
fund requirements, and redemption prices as the board of directors may
determine, without action by the shareholders.
COMMON STOCK. The Company is authorized to issue 200,000,000 shares
of common stock, of which 37,987,529 shares were issued and outstanding
at December 31, 1993. Of the unissued shares, a total of 30,628,175
shares were reserved for the following:
Conversion of Series D ESOP preferred stock 5,138,868
Conversion of Series E preferred stock 8,625,000
Conversion of Series G preferred stock 8,625,000
Conversion of 7% convertible subordinated debentures 1,756,716
Issuance under Key Executive Stock Option Plan 6,382,591
Issuance under Director Stock Option Plan 100,000
Pursuant to the shareholder rights plan adopted in December 1988 and
as amended in September 1990, holders of common stock received a
distribution of one right for each common share held. The rights
become exercisable ten days after a person or group acquires 15% of
the Company's outstanding voting securities or ten business days after
a person or group commences or announces an intention to commence a
tender or exchange offer that could result in the acquisition of 15%
of these securities. If a person acquires 15% or more of the Company's
outstanding voting securities, on the tenth day thereafter, unless this
time period is extended by the board of directors, each right would,
subject to certain adjustments and alternatives, entitle the
rightholder to purchase common stock of the Company or the acquiring
company having a market value of twice the $175 exercise price of the
right (except that the acquiring person or group and other related
holders would not be able to purchase common stock of the Company on
these terms). The rights are nonvoting, may be redeemed by the Company
at a price of 1 cent per right at any time prior to the tenth day after
an individual or group acquires 15% of the Company's voting stock,
unless extended, and expire in 1998. Additional details are set forth
in the Amended and Restated Rights Agreement filed with the Securities
and Exchange Commission on September 26, 1990.
The Key Executive Stock Option Plan provides for the granting of
options to purchase shares of the Company's common stock. The exercise
price is equal to the fair market value of the Company's common stock
on the date the options were granted.
Additional information relating to the Key Executive Stock Option Plan
is as follows:
Year Ended December 31
1993 1992 1991
Balance at beginning
of the year 4,131,952 3,692,357 2,806,502
Options granted 919,200 622,600 1,016,050
Options exercised (50,067) - -
Options canceled (292,703) (183,005) (130,195)
_________ _________ _________
Balance at end of the year 4,708,382(1) 4,131,952 3,692,357
Price range of:
Options granted $21 $18-$21 $20-$27
Options exercised $18-$25 - -
Options outstanding $18-$47 $18-$47 $20-$47
(1) At December 31, 1993, options for 3,795,482 shares were
exercisable.
The Director Stock Option Plan, which is only available to nonemployee
directors, provides for granting options to purchase shares of the
Company's common stock. The difference between the $2.50 per share
exercise price and the market value of the common stock subject to
option is intended to offset certain compensation that participating
directors have elected not to receive in cash. A total of 10,194
options were granted with respect to cash compensation not taken and
dividends accrued during 1993, compared with 6,322 options granted for
cash compensation not taken in 1992. All of these options were
outstanding at December 31, 1993.
During 1993, the Company purchased 2,850 shares of its common stock
under a program approved by the board of directors and, at December 31,
1993, was authorized to purchase up to 5,424,845 additional shares.
In 1992 and 1991, 4,413 and 3,786 shares were purchased.
7. LITIGATION AND LEGAL MATTERS
The Company is involved in litigation and administrative proceedings
primarily arising in the normal course of its business. In the opinion
of management, the Company's recovery, if any, or the Company's
liability, if any, under any pending litigation or administrative
proceeding would not materially affect its financial condition or
operations.
8. SEGMENT INFORMATION
Boise Cascade Corporation is an integrated paper and forest products
company headquartered in Boise, Idaho, with operations located in the
United States and Canada. The Company manufactures and distributes
paper and paper products, office products, and building products and
owns and manages timberland to support these operations.
No single customer accounts for 10% of consolidated trade sales.
Export sales to foreign unaffiliated customers are immaterial. During
1993, the Company's Canadian paper operations made sales of $37,292,000
to Company paper operations in the U.S., and similar sales in 1992 and
1991 were $40,643,000 and $32,788,000.
SUMMARY OF SIGNIFICANT SEGMENT ACCOUNTING POLICIES. Intersegment sales
are recorded primarily at market prices. Corporate assets are
primarily cash and short-term investments, deferred income tax
benefits, prepaid expenses, certain receivables, and property and
equipment.
The Company's segments exclude timber-related assets and capital expen-
ditures, because any allocation of these assets would be arbitrary.
Company timber harvested is included in segment results at cost.
An analysis of the Company's operations by segment and by geographic area is as follows:
Depreciation
and Cost of
Sales Operating Company Capital
Inter- Income Timber Expendi-
Trade segment Total (Loss)(1) Harvested tures Assets
Year Ended December 31, 1993 (expressed in thousands)
Paper and paper products
United States $1,548,788 $ 125,007 $1,673,795 $ (124,865) $ 181,060 $ 144,062 $2,700,246
Canada 246,855 3 246,858 (12,905) 29,095 34,962 452,739
__________ __________ __________ __________ __________ __________ __________
1,795,643 125,010 1,920,653 (137,770) 210,155 179,024 3,152,985
Office products 681,654 1,165 682,819 35,631 10,100 2,907 234,751
Building products 1,468,724 62,100 1,530,824 158,773 38,477 28,534 447,831
Other operations 12,279 57,524 69,803 3,136 5,618 5,301 71,994
__________ __________ __________ __________ __________ __________ __________
Total 3,958,300 245,799 4,204,099 59,770 264,350 215,766 3,907,561
__________ __________ __________ __________ __________ __________ __________
Intersegment eliminations - (245,799) (245,799) (935) - - (24,144)
Timber, timberlands, and
timber deposits - - - - - 4,663 366,054
Corporate and other - - - (38,193) 3,360 1,052 263,502
__________ __________ __________ __________ __________ __________ __________
Consolidated totals $3,958,300 $ - $3,958,300 $ 20,642 $ 267,710 $ 221,481 $4,512,973
Year Ended December 31, 1992
Paper and paper products
United States $1,575,837 $ 105,394 $1,681,231 $ (157,651) $ 178,569 $ 210,262 $2,733,037
Canada 249,009 3 249,012 (28,886) 27,832 28,420 451,835
__________ __________ __________ __________ __________ __________ __________
1,824,846 105,397 1,930,243 (186,537) 206,401 238,682 3,184,872
Office products 671,164 1,056 672,220 18,847 11,989 5,537 245,483
Building products 1,207,799 61,666 1,269,465 114,891 37,462 27,239 415,287
Other operations 11,781 54,278 66,059 1,989 6,385 3,079 68,535
__________ __________ __________ __________ __________ __________ __________
Total 3,715,590 222,397 3,937,987 (50,810) 262,237 274,537 3,914,177
__________ __________ __________ __________ __________ __________ __________
Intersegment eliminations - (222,397) (222,397) (742) - - (22,350)
Timber, timberlands, and
timber deposits - - - - - 7,537 385,955
Corporate and other - - - (41,669) 3,553 877 281,924
__________ __________ __________ __________ __________ __________ __________
Consolidated totals $3,715,590 $ - $3,715,590 $ (93,221) $ 265,790 $ 282,951 $4,559,706
Year Ended December 31, 1991
Paper and paper products
United States $1,663,639 $ 113,649 $1,777,288 $ (102,295) $ 159,565 $ 222,874 $2,802,981
Canada 293,265 2 293,267 10,374 25,810 31,797 454,842
__________ __________ __________ __________ __________ __________ __________
1,956,904 113,651 2,070,555 (91,921) 185,375 254,671 3,257,823
Office products 1,037,484 1,320 1,038,804 34,608 16,030 4,324 384,456
Building products 943,337 57,482 1,000,819 103,866 33,277 29,389 379,602
Other operations 12,765 53,282 66,047 5,163 6,951 4,602 89,620
__________ __________ __________ __________ __________ __________ __________
Total 3,950,490 225,735 4,176,225 51,716 241,633 292,986 4,111,501
__________ __________ __________ __________ __________ __________ __________
Intersegment eliminations - (225,735) (225,735) 67 - - (20,381)
Timber, timberlands, and
timber deposits - - - - - 5,065 389,454
Corporate and other - - - (5,975) 3,637 623 248,592
__________ __________ __________ __________ __________ __________ __________
Consolidated totals $3,950,490 $ - $3,950,490 $ 45,808 $ 245,270 $ 298,674 $4,729,166
<FN>
(1) Operating income (loss) includes gains from sales and dispositions (see Note 1). In addition, interest income has been
allocated to the Company's segments in the amounts of $862,000 for 1993, $1,259,000 for 1992, and $3,618,000 for 1991.
Quarterly Results of Operations (unaudited)
1993 1992(5)
4th Qtr.(1) 3rd Qtr.(2) 2nd Qtr.(3) 1st Qtr.(4) 4th Qtr. 3rd Qtr. 2nd Qtr.(6) 1st Qtr.
(expressed in millions, except per-common-share amounts)
Net sales $ 997 $1,003 $ 974 $ 984 $ 905 $ 935 $ 922 $ 954
Gross profit 76 76 77 88 74 52 41 59
Loss before income taxes $ (40) $ (30) $ (36) $ (19) $ (49) $ (59) $ (75) $ (70)
Income tax benefit (16) (6) (19) (7) (19) (23) (30) (27)
______ ______ ______ ______ ______ ______ ______ ______
Loss before accounting
change (24) (24) (17) (12) (30) (36) (45) (43)
Cumulative effect of
accounting change, net - - - - - - - (73)
______ ______ ______ ______ ______ ______ ______ ______
Net loss $ (24) $ (24) $ (17) $ (12) $ (30) $ (36) $ (45) $ (116)
Net loss per share
Primary and fully diluted(7)
Loss before accounting
change $ (.98) $ (.91) $ (.72) $ (.56) $ (.97) $(1.13) $(1.39) $(1.30)
Cumulative effect of
accounting change, net - - - - - - - (1.94)
______ ______ ______ ______ ______ ______ ______ ______
Net loss per share $ (.98) $ (.91) $ (.72) $ (.56) $ (.97) $(1.13) $(1.39) $(3.24)
<FN>
(1)In the fourth quarter of 1993, the Company adopted Financial Accounting Standards Board requirements to accrue certain
severance, disability, and other benefits provided to former or inactive employees. Adoption of these requirements did
not have a material effect on the fourth-quarter loss.
(2)In the third quarter of 1993, the U.S. federal government increased the statutory tax rate from 34% to 35%, effective as
of the beginning of 1993. Income tax benefits reported for the quarter have been decreased by $7,120,000, or 19 cents per
fully diluted common share, as a result of adjusting net deferred tax liabilities for the change in rates. Also included
in the third quarter of 1993 was a net pretax gain of $5,300,000, or 9 cents per fully diluted common share after tax,
which was primarily attributable to an asset sale.
(3)In the second quarter of 1993, the Canadian federal government reduced the statutory tax rate applicable to the Company.
Effective as of the beginning of 1993, the rate decreased from 23.8% to 22.8%, and a further reduction to 21.8% was
effective at the beginning of 1994. Income tax benefits reported for the quarter have been increased by $5,020,000, or
13 cents per fully diluted common share, as a result of adjusting net Canadian deferred tax liabilities for the changes in
rates.
(4)During the first quarter of 1993, the Company sold its interest in a specialty paper producer at a pretax gain of
$8,644,000, or 14 cents per fully diluted common share after taxes.
(5)The Company adopted Financial Accounting Standards Board requirements applicable to accounting for postretirement benefits
other than pensions effective as of January 1, 1992. The "Cumulative effect of accounting change, net" represents the
cumulative present value of postretirement health care costs payable in the future that were attributable to employee
service prior to January 1, 1992. The Company's 1992 retiree health care costs increased by $3,000,000 before taxes, or
5 cents per fully diluted common share after taxes, as a result of adoption of the new requirements. Net loss reported for
each of the first three quarters of 1992 has been restated to include a proportionate share of these costs.
(6)At the end of the second quarter of 1992, the Company completed the sale of 11 corrugated container plants. The pretax
gain of $25,020,000, or 41 cents per fully diluted common share after taxes, from that sale was largely offset by the write-
off of certain pulp and paper mill start-up costs that had been capitalized prior to 1987.
(7)The computation of fully diluted net loss per common share was antidilutive in the periods shown; therefore, primary and
fully diluted net loss per share are the same.
See Notes to Financial Statements for additional information.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Boise Cascade Corporation:
We have audited the accompanying balance sheets of Boise Cascade Corporation
(a Delaware corporation) and subsidiaries as of December 31, 1993, 1992 and
1991, and the related statements of income (loss), cash flows, and
shareholders' equity for the years then ended. 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 signifi-
cant estimates made by management, as well as evaluating the overall finan-
cial 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 Corporation
and subsidiaries as of December 31, 1993, 1992 and 1991, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As explained in Note 5 to the financial statements, effective January 1,
1992, the Company changed its method of accounting for postretirement
benefits other than pensions in accordance with Standard No. 106 of the
Financial Accounting Standards Board.
Boise, Idaho
January 26, 1994
Arthur Andersen & Co.
REPORT OF MANAGEMENT
The management of Boise Cascade Corporation is primarily responsible for the
information and representations contained in this annual report. The finan-
cial statements and related notes were prepared in conformity with generally
accepted accounting principles appropriate in the circumstances. In prepar-
ing the financial statements, management has, when necessary, made judgments
and estimates based on currently available information.
Management maintains a comprehensive system of internal controls based on
written policies and procedures and the careful selection and training of
employees. The system is designed to provide reasonable assurance that
assets are safeguarded against loss or unauthorized use and that transac-
tions are executed in accordance with management's authorization. The
concept of reasonable assurance is based on recognition that the cost of a
particular accounting control should not exceed the benefit expected to be
derived.
The Company's Internal Audit staff monitors the Company's financial report-
ing system and the related internal accounting controls, which are also
selectively tested by Arthur Andersen & Co., Boise Cascade's independent
public accountants, for purposes of planning and performing their audit of
the Company's financial statements.
The Audit Committee of the board of directors, which is composed solely of
nonemployee directors, meets periodically with management, representatives
of the Company's Internal Audit Department, and Arthur Andersen & Co.
representatives to assure that each group is carrying out its
responsibilities. The Internal Audit staff and the independent public
accountants have access to the Audit Committee, without the presence of
management, to discuss the results of their audits, recommendations
concerning the system of internal accounting controls, and the quality of
financial reporting.
Discussion and Analysis
The following discussion and analysis of operations for 1992, compared with
1991 and 1990, should be read in conjunction with the discussion and analysis
of operations for 1993, compared with 1992, contained in the "Financial
Review" section of this annual report and with the financial statements and
accompanying notes.
Boise Cascade reported a net loss of $227 million, or $6.73 per fully diluted
share, in 1992. This compares with a net loss of $79 million, or $2.46 per
fully diluted common share, in 1991 and net income of $75 million, or $1.62
per fully diluted share, in 1990.
The 1992 loss includes a charge of $73 million after tax, or $1.94 per share,
for the adoption of Financial Accounting Standards Board requirements to
accrue the cost of postretirement benefits other than pensions. In addition,
the Company reported a pretax gain of approximately $25 million on the sale
of 11 corrugated container plants, which was largely offset by the write-
off of certain pulp and paper mill start-up costs that had been capitalized
prior to 1987. In 1991, the Company sold its 50 percent interest in a
European corrugated container joint venture for $50 million.
Sales in 1992 were $3.7 billion, compared with $4.0 billion in 1991 and
$4.2 billion in 1990. Sales declined because of the divestiture of the
Company's wholesale office products distribution operations, the sale of
certain nonstrategic corrugated container facilities, and falling paper
prices.
Our paper and paper products segment had an operating loss of $187 million
in 1992, compared with a loss of $92 million in 1991 and income of
$187 million in 1990. The decline was due to progressively weakening prices
for most grades of pulp and paper that we manufacture. For example, the
weighted average price per ton for all of Boise Cascade's tons of paper sold
in 1992 was down nearly 10 percent from 1991 levels, after declining
14 percent in 1991 and 6 percent in 1990. Additionally, new uncoated free
sheet and newsprint capacity came on stream over the three-year period in the
face of a U.S. recession, causing a sharp imbalance between supply and
demand.
Offsetting the effect of weakening prices was the impact of the Company's
cost-reduction efforts. Through process improvement, process elimination,
and previous capital investment, the Company's pulp and paper manufacturing
costs per ton, excluding depreciation, have declined. Additionally, unit
sales volume grew to 3.5 million tons in 1992 from 3.4 million tons in 1991
and from 3.3 million tons in 1990. The increase is primarily because of
tonnage from the new business and printing paper machine in International
Falls, Minnesota.
Operating income for Boise Cascade's office products segment was $19 million
in 1992, compared with $35 million in 1991 and $58 million in 1990. Sales
volume and profitability declined due to the divestiture of the wholesale
portion of that business early in 1992, as the Company prepared for
accelerated growth in the commercial distribution channel. The decline in
profitability over the three-year period was also a reflection of a generally
weak economy as well as increased competition.
Income for the Company's building products segment was $115 million in 1992,
compared with $104 million in 1991, which included a pretax gain of
$63 million from the sale of nonstrategic western Oregon timberland. After
adjusting for that sale and for reserves taken during 1991, income in 1992
was sharply higher than in 1991 on a 27 percent increase in sales. Income
for 1991, as adjusted, was up from $42 million in 1990. The improvement in
operating income over the periods reflected rising lumber and plywood prices.
Higher prices resulted from moderately stronger demand, the constrained
supply of timber available for commercial harvest in the Pacific Northwest,
and unusual events, such as hurricanes in the South and in Hawaii, which
exacerbated an already tight supply-demand balance. The cost of logs
delivered to our wood products operations in the Pacific Northwest continued
to increase, as preservationist-inspired efforts led to constraints on
available timber supply.