UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 1997
( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Transition Period From ___________ to _____________
Commission file number 1-5057
BOISE CASCADE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 82-0100960
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 West Jefferson Street
P.O. Box 50
Boise, Idaho 83728-0001
(Address of principal executive offices) (Zip Code)
(208) 384-6161
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class as of July 31, 1997
Common stock, $2.50 par value 55,606,454
PART I - FINANCIAL INFORMATION
STATEMENTS OF LOSS
BOISE CASCADE CORPORATION AND SUBSIDIARIES
(unaudited)
Item 1. Financial Statements
Three Months Ended June 30
1997 1996
(expressed in thousands,
except per share data)
Revenues
Sales $1,333,010 $1,261,510
Other income (expense), net (200) (620)
__________ __________
1,332,810 1,260,890
__________ __________
Costs and expenses
Materials, labor, and other operating expenses 1,100,500 1,057,730
Depreciation and cost of company timber
harvested 55,550 57,720
Selling and administrative expenses 168,100 139,520
__________ __________
1,324,150 1,254,970
__________ __________
Equity in net income (loss) of affiliates (1,610) 860
__________ __________
Income from operations 7,050 6,780
__________ __________
Interest expense (31,680) (32,890)
Interest income 1,740 410
Foreign exchange loss (40) (410)
Gain on subsidiary's issuance of stock - 1,590
__________ __________
(29,980) (31,300)
__________ __________
Loss before income taxes and minority interest (22,930) (24,520)
Income tax benefit (8,940) (10,180)
__________ __________
Loss before minority interest (13,990) (14,340)
Minority interest, net of income tax (2,240) (2,610)
__________ __________
Net loss $ (16,230) $ (16,950)
Net loss per common share
Primary $ (.53) $ (.55)
Fully diluted $ (.53) $ (.55)
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
(unaudited)
Three Months Ended June 30
1997 1996
(expressed in thousands)
Segment sales
Paper and paper products $ 385,500 $ 466,260
Office products 600,470 460,767
Building products 431,310 410,972
Intersegment eliminations and other (84,270) (76,489)
__________ __________
$1,333,010 $1,261,510
Segment operating income (loss)
Paper and paper products $ (18,804) $ (15,209)
Office products 24,855 24,941
Building products 17,591 6,378
Equity in net income (loss) of affiliates (1,610) 860
Corporate and other (14,982) (10,190)
__________ __________
Income from operations $ 7,050 $ 6,780
The accompanying notes are an integral part of these Financial Statements.
STATEMENTS OF INCOME (LOSS)
BOISE CASCADE CORPORATION AND SUBSIDIARIES
(unaudited)
Six Months Ended June 30
1997 1996
(expressed in thousands,
except per share data)
Revenues
Sales $2,606,620 $2,489,110
Other income (expense), net (460) 5,640
__________ __________
2,606,160 2,494,750
__________ __________
Costs and expenses
Materials, labor, and other operating expenses 2,148,520 2,025,350
Depreciation and cost of company timber
harvested 112,020 113,060
Selling and administrative expenses 331,600 275,330
__________ __________
2,592,140 2,413,740
__________ __________
Equity in net income (loss) of affiliates (1,580) 1,950
__________ __________
Income from operations 12,440 82,960
__________ __________
Interest expense (59,380) (63,450)
Interest income 3,830 750
Foreign exchange loss (50) (660)
Gain on subsidiary's issuance of stock - 2,020
__________ __________
(55,600) (61,340)
__________ __________
Income (loss) before income taxes and
minority interest (43,160) 21,620
Income tax provision (benefit) (16,830) 7,650
__________ __________
Income (loss) before minority interest (26,330) 13,970
Minority interest, net of income tax (5,110) (5,410)
__________ __________
Net income (loss) $ (31,440) $ 8,560
Net loss per common share
Primary $(1.04) $ (.23)
Fully diluted $(1.04) $ (.23)
Dividends declared per common share $ .30 $ .30
The accompanying notes are an integral part of these Financial Statements.
SEGMENT INFORMATION
BOISE CASCADE CORPORATION AND SUBSIDIARIES
(unaudited)
Six Months Ended June 30
1997 1996
(expressed in thousands)
Segment sales
Paper and paper products $ 756,054 $ 962,185
Office products 1,198,341 922,190
Building products 808,692 758,929
Intersegment eliminations and other (156,467) (154,194)
__________ __________
$2,606,620 $2,489,110
Segment operating income (loss)
Paper and paper products $ (41,471) $ 38,218
Office products 53,370 52,556
Building products 27,983 7,266
Equity in net income (loss) of affiliates (1,580) 1,950
Corporate and other (25,862) (17,030)
__________ __________
Income from operations $ 12,440 $ 82,960
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(unaudited)
ASSETS
June 30 December 31
1997 1996 1996
(expressed in thousands)
Current
Cash and cash items $ 80,538 $ 55,612 $ 40,066
Short-term investments at cost,
which approximates market 168,284 5,644 220,785
__________ __________ __________
248,822 61,256 260,851
Receivables, less allowances of
$6,030,000, $4,818,000, and
$4,911,000 516,931 495,349 476,339
Inventories 501,865 576,400 540,433
Deferred income tax benefits 60,910 59,468 53,728
Other 32,760 150,205 24,053
__________ __________ __________
1,361,288 1,342,678 1,355,404
__________ __________ __________
Property
Property and equipment
Land and land improvements 47,995 41,757 40,393
Buildings and improvements 492,006 483,043 452,578
Machinery and equipment 4,032,427 4,578,610 3,859,124
__________ __________ __________
4,572,428 5,103,410 4,352,095
Accumulated depreciation (1,967,638) (2,241,208) (1,798,349)
__________ __________ __________
2,604,790 2,862,202 2,553,746
Timber, timberlands, and timber
deposits 291,802 385,453 293,028
__________ __________ __________
2,896,592 3,247,655 2,846,774
__________ __________ __________
Investments in equity affiliates 31,566 31,142 19,430
Other assets 572,251 432,545 489,101
__________ __________ __________
Total assets $4,861,697 $5,054,020 $4,710,709
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30 December 31
1997 1996 1996
(expressed in thousands)
Current
Notes payable $ 53,200 $ 88,000 $ 36,700
Current portion of long-term debt 170,720 40,654 157,304
Income taxes payable 1,788 2,517 3,307
Accounts payable 443,096 416,470 427,224
Accrued liabilities
Compensation and benefits 117,072 145,506 119,282
Interest payable 31,889 31,227 31,585
Other 151,061 132,672 157,156
__________ __________ __________
968,826 857,046 932,558
__________ __________ __________
Debt
Long-term debt, less current portion 1,513,061 1,679,880 1,330,011
Guarantee of ESOP debt 191,868 210,453 196,116
__________ __________ __________
1,704,929 1,890,333 1,526,127
__________ __________ __________
Other
Deferred income taxes 233,631 279,331 249,676
Other long-term liabilities 242,337 259,808 240,323
__________ __________ __________
475,968 539,139 489,999
__________ __________ __________
Minority interest 91,454 73,807 81,534
__________ __________ __________
Shareholders' equity
Preferred stock -- no par value;
10,000,000 shares authorized;
Series D ESOP: $.01 stated
value; 5,658,513; 6,023,932;
and 5,904,788 shares outstanding 254,633 271,077 265,715
Deferred ESOP benefit (191,868) (210,453) (196,116)
Series F: $.01 stated value;
115,000 shares outstanding 111,043 111,043 111,043
Series G: $.01 stated value;
862,500 shares outstanding 175,314 176,404 176,404
Common stock -- $2.50 par value;
200,000,000 shares authorized;
48,717,500; 48,469,108; and
48,476,366 shares outstanding 121,794 121,173 121,191
Additional paid-in capital 239,818 230,557 230,728
Retained earnings 909,786 993,894 971,526
__________ __________ __________
Total shareholders' equity 1,620,520 1,693,695 1,680,491
__________ __________ __________
Total liabilities and shareholders'
equity $4,861,697 $5,054,020 $4,710,709
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30
1997 1996
(expressed in thousands)
Cash provided by (used for) operations
Net income (loss) $ (31,440) $ 8,560
Items in income (loss) not using (providing) cash
Equity in net (income) loss of affiliates 1,580 (1,950)
Depreciation and cost of company timber
harvested 112,020 113,060
Deferred income tax provision (benefit) (19,348) 6,785
Minority interest, net of income tax 5,110 5,410
Amortization and other 8,859 11,048
Gain on subsidiary's issuance of stock - (2,020)
Receivables (18,986) 2,538
Inventories 53,488 19,610
Accounts payable and accrued liabilities (4,389) (19,105)
Current and deferred income taxes (1,609) (51,297)
Other (3,444) 191
__________ __________
Cash provided by operations 101,841 92,830
__________ __________
Cash provided by (used for) investment
Expenditures for property and equipment (151,721) (346,449)
Expenditures for timber and timberlands (3,776) (3,668)
Investments in equity affiliates, net (15,227) (3,009)
Purchase of facilities (92,530) (139,188)
Other (17,366) 23,081
__________ __________
Cash used for investment (280,620) (469,233)
__________ __________
Cash provided by (used for) financing
Cash dividends paid
Common stock (14,474) (14,368)
Preferred stock (21,708) (22,261)
__________ __________
(36,182) (36,629)
Notes payable 16,500 71,000
Additions to long-term debt 211,000 424,693
Payments of long-term debt (14,534) (89,772)
Other (10,034) 16,898
__________ __________
Cash provided by financing 166,750 386,190
__________ __________
Increase (decrease) in cash and short-term
investments (12,029) 9,787
Balance at beginning of the year 260,851 51,469
__________ __________
Balance at June 30 $ 248,822 $ 61,256
The accompanying notes are an integral part of these Financial Statements.
Notes to Quarterly Financial Statements
(1) BASIS OF PRESENTATION. The quarterly financial statements have been
prepared by the Company 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 accom-
panying notes included in the Company's 1996 Annual Report.
The quarterly financial statements have not been audited by independent
public accountants, but in the opinion of management, all adjustments
necessary to present fairly the results for the periods have been
included. The net income (loss) for the three and six months ended
June 30, 1997 and 1996, 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 and six months ended June 30, 1997, the computation of fully
diluted net loss per share was antidilutive; therefore, amounts reported
for primary and fully diluted loss were the same.
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
(expressed in thousands)
Net income (loss)
as reported $(16,230) $(16,950) $(31,440) $ 8,560
Preferred dividends (9,584) (9,791) (19,297) (19,640)
________ ________ ________ ________
Primary and fully diluted $(25,814) $(26,741) $(50,737) $(11,080)
Average number of common
shares outstanding 48,601 48,303 48,557 48,080
Average number of common shares
if all convertible securities
were dilutive
Primary shares 55,852 55,750 55,812 55,530
Fully diluted shares 60,507 60,672 60,467 60,492
Primary and fully diluted loss includes the aggregate amount of
dividends on the Company's preferred stock, if dilutive. 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.
For the three and six months ended June 30, 1997 and 1996, primary
average shares included common shares outstanding and, if dilutive,
common stock equivalents attributable to stock options and Series G
conversion preferred stock. For the three and six months ended June 30,
1997 and 1996, common stock equivalents attributable to stock options
and the Series G conversion preferred stock were antidilutive.
Accordingly, 7,251,000 and 7,255,000 common stock equivalent shares for
the three and six months ended June 30, 1997, and 7,447,000 and
7,450,000 common stock equivalent shares for the three and six months
ended June 30, 1996, were excluded from the average number of primary
common shares.
In addition to common and common equivalent shares, fully diluted
average shares include common shares that would be issuable upon con-
version of the Company's other convertible securities, if dilutive. For
the three and six months ended June 30, 1997 and 1996, all adjustments
to arrive at the average number of fully diluted common shares were
antidilutive. Accordingly, 11,906,000 and 11,910,000 common equivalent
and other convertible shares were excluded from the average number of
fully diluted common shares for the three and six months ended June 30,
1997. For the three and six months ended June 30, 1996, 12,369,000 and
12,412,000 common equivalent shares and other convertible shares were
excluded from the average number of fully diluted common shares.
In February 1997, the Financial Accounting Standards Board issued
Statement 128, Earnings Per Share, which will be implemented in the
fourth quarter of 1997. The statement will have no impact on previously
reported fully diluted earnings per share which will be renamed diluted
earnings (loss) per share. Primary earnings (loss) per share will be
replaced with basic earnings (loss) per share which will not be
significantly different than the previously reported primary earnings
(loss) per share.
(3) INVENTORIES. Inventories include the following:
June 30 December 31
1997 1996 1996
(expressed in thousands)
Finished goods and work in process $395,284 $431,917 $390,694
Logs 46,955 87,383 98,883
Other raw materials and supplies 140,886 167,850 131,631
LIFO reserve (81,260) (110,750) (80,775)
________ ________ ________
$501,865 $576,400 $540,443
(4) INCOME TAXES. The estimated tax benefit rate for the first six months
of 1997 and 1996 was 39%. The actual annual 1996 tax provision rate,
excluding the effect of not providing taxes related to "Gain on
subsidiary's issuance of stock" was 46%. The change in the rate was due
primarily to the sensitivity of the rate to lower income levels and the
mix of income sources.
(5) DEBT. On March 11, 1997, the Company signed a new revolving credit
agreement with a group of banks. The new agreement allows the Company
to borrow as much as $600 million at variable interest rates based on
customary indices and 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. The new agreement replaces the Company's previous
$600 million revolving credit agreement that would have expired in
June 2000. At June 30, 1997, there were no borrowings under this
agreement. The Company's majority-owned subsidiary, Boise Cascade
Office Products Corporation ("BCOP"), signed a new revolving credit
agreement with a group of banks on June 26, 1997. The new agreement
allows BCOP to borrow as much as $450 million at variable interest rates
based on customary indices and expires in June 2001. 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. The new
agreement replaces BCOP's previous $350 million revolving credit
agreement. Borrowings under BCOP's agreement were $240 million at
June 30, 1997 and $390 million at July 31, 1997. Also at June 30, 1997,
BCOP had $53.2 million of short-term borrowings outstanding.
(6) BOISE CASCADE OFFICE PRODUCTS CORPORATION. During the first six months
of 1997, BCOP, the Company's majority-owned subsidiary, made seven
acquisitions which were accounted for under the purchase method of
accounting. Accordingly, the purchase prices were allocated to the
assets acquired and liabilities assumed based upon their estimated fair
values. The initial purchase price allocations may be adjusted within
one year of the date of purchase for changes in estimates of the fair
values of assets and liabilities. Such adjustments are not expected to
be significant to results of operations or the financial position of the
Company. The excess of the purchase price over the estimated fair value
of the net assets acquired was recorded as goodwill and is being
amortized over 40 years. The results of operations of the acquired
businesses are included in BCOP's operations subsequent to the dates of
acquisition.
On January 31, 1997, BCOP acquired the stock of the contract stationer
business of The Office Stop, based in Butte, Montana. On February 28,
1997, BCOP acquired the assets of the contract stationer business of
Florida Ribbon and Carbon, based in Jacksonville, Florida. On April 17,
1997, BCOP acquired the assets of the contract stationer business of
Winter Bulk Business Suppliers, Ltd., based in Bolton, England. On
April 30, 1997, BCOP acquired the assets of the computer consumables
business of TDI, based in Raleigh-Durham, North Carolina. On May 30,
1997, BCOP acquired the assets of the computer consumables business of
Carlyle Computer Products, Ltd., based in Winnipeg, Manitoba, Canada.
On May 31, 1997, BCOP acquired the assets of the promotional products
business of OstermanAPI, Inc., based in Maumee, Ohio. In conjunction
with the acquisition of Ostermann, BCOP formed a majority-owned
subsidiary, Boise Marketing Services, Inc. ("BMSI"), of which BCOP owns
88%. BCOP's previously acquired promotional products company, OWNCO,
also became part of BMSI. In January 1997, BCOP also completed a joint
venture with Otto Versand, of which BCOP owns 50%, to direct market
office products in Europe, initially in Germany. These transactions,
including the joint venture with Otto and the formation of the majority-
owned promotional products subsidiary, were completed for cash of
$99.7 million, $2.9 million of BCOP common stock, and the recording of
$14.2 million of acquisition liabilities.
On July 7, 1997, BCOP acquired 100% of the shares of Jean-Paul Guisset,
S.A. ("JPG"), a French corporation. JPG is a direct marketer of office
products in France. The negotiated purchase price was FF850.0 million
(US$144.0 million) plus a price supplement payable in the year 2000, if
certain earnings and sales growth targets are reached. No liability has
been recorded for the price supplement as the amount of payment, if any,
is not assured beyond a reasonable doubt. Approximately FF100.0 million
(US$17.0 million) is available to be repatriated to BCOP out of existing
cash in JPG as of closing. In addition to the cash paid, BCOP recorded
$5.8 million of acquisition liabilities. The acquisition was funded by
cash flow from operations and borrowings under BCOP's revolving credit
agreement.
On February 5, 1996, BCOP completed the acquisition of 100% of the
shares of Grand & Toy Limited ("Grand & Toy") from Cara Operations
Limited (Toronto). On January 31, February 9, March 29, April 26, and
May 31, 1996, BCOP acquired businesses in New Mexico, Maine, Vermont,
Wisconsin, Washington, and Michigan. These businesses were acquired for
cash of $130.9 million, $1.6 million of BCOP's common stock, and the
recording of $19.3 million of acquisition liabilities.
Unaudited pro forma results of operations for the Company reflecting the
acquisitions, including JPG, would have been as follows. If the 1997
acquisitions had occurred on January 1, 1997, sales for the first six
months of 1997 would have increased by $100 million, net loss would have
increased $1.4 million, and primary and fully diluted loss per share
would have increased $.03. If the 1997 and 1996 acquisitions had
occurred on January 1, 1996, sales for the first six months of 1996
would have increased by $178 million, net loss would have increased $.8
million and primary and fully diluted loss per share would have
increased $.02. This unaudited pro forma financial information does not
necessarily represent the actual consolidated results of operations that
would have resulted if the acquisitions had occurred on the dates
assumed.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended June 30, 1997, Compared With Three Months Ended June 30,
1996
Boise Cascade Corporation's net loss for the second quarter of 1997 was
$16.2 million, compared with a net loss of $17.0 million for the second
quarter of 1996. Primary and fully diluted loss per common share for the
second quarter of 1997 was 53 cents. For the same quarter in 1996, primary
and fully diluted loss per common share was 55 cents. Sales for the second
quarter of 1997 and 1996 were $1.3 billion.
The Company's paper and paper products segment reported an operating loss of
$18.8 million in the second quarter of 1997, compared with an operating loss
of $15.2 million in the second quarter of 1996. Sales fell 17% to
$385.5 million in the second quarter of 1997 from $466.3 million in the second
quarter of 1996. The decline in results was caused by continued weak paper
prices. Average prices for all of the Company's paper grades declined from
second-quarter 1996 levels by $72 a ton, or 12%. Sales volumes for the second
quarter of 1997 were 621,000 tons, compared with 656,000 tons in the second
quarter of 1996. The Company's coated paper publication business, which was
sold November 1, 1996, contributed 68,000 tons of sales volume, $85.7 million
of sales, and $4.4 million of operating income in the second quarter of 1996.
Also during the second quarter of 1997, the Company's paper segment incurred
start-up expenses related to the initial production from the new 330,000-ton-
per-year uncoated free sheet machine in Jackson, Alabama. Sales from this
machine, which started up in late April, totaled 36,000 tons of paper in the
second quarter of 1997.
Paper segment manufacturing costs in the second quarter of 1997 were $518 per
ton compared with $594 per ton in the comparison quarter. Excluding
manufacturing costs associated with the sold coated paper publication
business, second quarter 1996 costs were $560 per ton. The decrease from
quarter to quarter was due primarily to lower fiber costs and fixed costs.
Operating income in the office products segment in the second quarter of 1997
and 1996 was $24.9 million. Net sales in the second quarter of 1997 increased
30% to $600.5 million, compared with $460.8 million in the second quarter of
1996. The growth in sales resulted primarily from acquisitions and product
line extensions. Same location sales increased 16% in the second quarter of
1997, compared with sales in the second quarter of 1996. Gross margins were
24.8% in the second quarter of 1997 relative to 26.8% in the year-ago second
quarter. The decrease in gross margins was primarily because of competitive
pressures, particularly in BCOP's national accounts business, and a weak paper
market.
Building products operating income increased from $6.4 million for the
year-ago second quarter to $17.6 million in the second quarter of 1997.
Results for the quarter just ended were stronger than those of a year ago,
largely because of improved prices for lumber and plywood. Relative to the
year-ago quarter, average prices for lumber increased 21% and plywood prices
increased 6%. Sales for the building products segment were $431.3 million in
the second quarter of 1997 up 5% compared with the $411.0 million reported in
the second quarter of 1996. Unit sales volumes in this segment were mixed,
relative to those of a year ago. Plywood unit sales volume decreased 9%,
lumber was down 11%, particleboard was down 2%, laminated veneer lumber was
flat, and I-joists were up 4%. In the engineered wood products business,
total net sales dollars increased 8% compared with last year. In the second
quarter of 1997, the Company's 47% joint venture in Barwick, Ontario, Canada,
started up a new oriented strand board facility and sold 12,000,000 square
feet of oriented strand board. The Company operates the facility and markets
the product. For the second quarter of 1997, building materials distribution
sales were up 8% from the comparison quarter. The improvement in sales
resulted primarily from the addition of three new distribution centers in 1996
and one distribution center that started up in 1997.
Interest expense was $31.7 million in the second quarter of 1997, compared
with $32.9 million in the same period last year. Capitalized interest in the
second quarter of 1997 was $3.8 million compared to $4.3 million in the second
quarter of 1996. With the start-up of the expansion of the Jackson pulp and
paper mill in April 1997, the amount of interest capitalized will decrease
significantly. The Company's debt is predominately fixed rate. Consequently,
we experience only modest changes in interest expense when market interest
rates change.
Six Months Ended June 30, 1997, Compared With Six Months Ended June 30, 1996.
The Company had a net loss of $31.4 million for the first six months of 1997,
compared with net income of $8.6 million for the first six months of 1996.
Primary and fully diluted loss per common share for the first six months of
1997 was $1.04 compared to $.23 for the first six months of the prior year.
Sales for the first six months of 1997 were $2.6 billion, compared with sales
of $2.5 billion for the same period in 1996.
The Company's paper and paper products segment had an operating loss of
$41.5 million for the first six months of 1997 compared with income of $38.2
million in the same period of the prior year. Sales decreased 21% to $756.1
million for the six months ended June 30, 1997, compared with sales of $962.2
million in the same period of last year. The decline was caused by continued
weak paper prices. Average prices for all of the Company's paper grades
decreased by $125 a ton, or 20%, during the first six months of 1997, compared
with a year ago. Sales volumes for the first six months of 1997 were
1,255,000 tons. This compares to 1,258,000 tons in 1996. The Company's
coated paper publication business, which was sold November 1, 1996,
contributed 134,000 tons of sales volume, $175.8 million of sales, and
$23.2 million of operating income in the first six months of 1996.
Paper segment manufacturing costs for the first six months of 1997 were $514
per ton compared with $593 per ton in the comparison period. Excluding
manufacturing costs associated with the sold coated paper publication
business, year-to-date 1996 costs were $560 per ton. The decrease is
primarily due to lower fiber costs and lower fixed costs.
Office products segment income for the first six months of 1997 was
$53.4 million compared with $52.6 million in 1996. Segment sales were up 30%
in 1997 to $1.2 billion compared to $922.2 million in 1996. Same location
sales increased 14% year to year. Gross margins were 25.0% and 26.7% for the
first six months of 1997 and 1996. In the first half of 1996, paper costs to
BCOP were declining rapidly from the peak reached late in 1995, which raised
BCOP's gross margin in the first half of 1996. Paper costs were more stable
and significantly lower in the first half of 1997. Sales growth in
technology-related products and competitive pressures on gross profits also
contributed to the lower gross profit level in the first half of 1997.
Operating income for the Company's Building Products segment was $28.0 million
in 1997, compared to $7.3 million in 1996. The increase was largely because of
rising plywood and lumber prices. Plywood prices were up 5% from the prior
year, while lumber prices were up 22%. Segment sales increased 7% to
$808.7 million in the first six months of 1997, compared to $758.9 million in
the first six months of 1996. Compared to the prior year, plywood sales
volumes were down 6%, lumber sales volumes were down 8%, particleboard volumes
were flat, laminated veneer lumber sales volumes were up 18%, and I-joists
sales volumes were up 8%. In the engineered wood products business, total net
sales dollars increased 15% compared with the prior year. In the second
quarter of 1997 the Company's 47% owned joint venture in Barwick, Ontario,
Canada, started up a new oriented strand board facility and sold 12,000,000
square feet of oriented strand board. The Company operates the facility and
markets the product. Building materials distribution sales were up 12%. The
increase in sales resulted primarily from the addition of three new
distribution centers in 1996 and one distribution center that started up in
1997.
Interest expense was $59.4 million for the first six months of 1997, compared
with $63.5 million in the same period last year. However, capitalized
interest was $10.2 million in 1997, compared with $7.2 million in 1996. The
increase was due primarily to the expansion of the Jackson pulp and paper
mill. With the start-up of the expansion in April 1997, the amount of
interest capitalized will decrease significantly.
Total long- and short-term debt outstanding was $1.9 billion at June 30, 1997,
compared with $1.7 billion at December 31, 1996.
Financial Condition
At June 30, 1997, the Company had working capital of $392.5 million. Working
capital was $485.6 million at June 30, 1996, and $422.8 million at
December 31, 1996. Cash provided by operations was $101.8 million for the
first six months of 1997, compared with $92.8 million for the same period in
1996.
On March 11, 1997, the Company signed a new revolving credit agreement with a
group of banks. The new agreement allows the Company to borrow as much as
$600 million at variable interest rates based on customary indices and expires
in June 2002. The Company's revolving credit agreement contains financial
covenants relating to minimum net worth, minimum interest coverage ratios, and
ceiling ratios of debt to capitalization. The payment of dividends by the
Company is dependent upon the existence of and the amount of net worth in
excess of the defined minimum under this agreement. The new agreement
replaces the Company's previous $600 million revolving credit agreement that
would have expired in June 2000. At June 30, 1997, there were no borrowings
under the new agreement.
On June 26, 1997, BCOP signed a new revolving credit agreement with a group of
banks. The new agreement allows BCOP to borrow as much as $450 million at
variable interest rates based on customary indices and expires in June 2001.
As of June 30, 1997, borrowings under the agreement totaled $240 million and
$390 million at July 31, 1997. 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.
This agreement replaced BCOP's $350 million revolving credit agreement. Also
at June 30, 1997, BCOP had $53.2 million of short-term borrowings outstanding.
At June 30, 1997, the Company and BCOP met all of the financial covenants
related to their debt.
Capital expenditures for the first six months of 1997 and 1996 were
$270.3 million and $510.9 million. Capital expenditures for the year ended
December 31, 1996, were $832.2 million. The decrease in capital expenditures
is primarily due to nearing completion of the Jackson pulp and paper mill
expansion and lower acquisition spending by BCOP.
An expanded discussion and analysis of financial condition is presented on
pages 18 and 19 of the Company's 1996 Annual Report under the captions
"Financial Condition" and "Capital Investment."
Market Conditions
The Company's paper business is expected to post stronger results in the
second half of 1997. Paper industry fundamentals have strengthened recently,
and operating rates for the Company's key grades have been rising. In
addition, the start-up in April of the 330,000 tons-per-year uncoated free
sheet paper machine at Jackson, Alabama, should lead to a positive swing in
paper segment performance, as the facility exits the market pulp business and
produces more uncoated free sheet paper.
BCOP should likewise record stronger second-half results, as sales continue to
grow, paper prices gradually rise, and recently won national accounts mature.
The building products business should also perform well, with growing volumes
from new engineered wood products operations.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
128, Earnings Per Share, which will be implemented in the fourth quarter of
1997. The statement will have no impact on previously reported fully diluted
earnings (loss) per share which will be renamed diluted earnings (loss) per
share. Primary earnings (loss) per share will be replaced with basic earnings
(loss) per share which will not be significantly different than the previously
reported primary earnings (loss) per share.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the Company's annual report on Form 10-K for the year
ended December 31, 1996, for information concerning legal proceedings.
As reported in the Company's 1996 Form 10-K, on March 12, 1996, a lawsuit
purporting to be a nationwide class action was filed against the Company in
the Fourth Judicial District Court, Ada County, Idaho. This lawsuit alleges,
among other allegations, that hardboard siding manufactured by the Company,
which was used as exterior cladding for buildings, was inherently defective.
The purported class, which has not been certified, is alleged to consist of
all owners of buildings or structures in the United States on which hardboard
siding manufactured by the Company is installed. The District Court is
expected to decide the issue of class certification sometime between September
and December 1997. The Complaint seeks, among other items, to declare the
Company financially responsible for the repair and replacement of all such
siding, to make restitution to the class members, and to award each class
member compensatory and punitive damages. The Company discontinued
manufacturing the hardboard siding product which is the subject of this
litigation in 1984. The Company believes that there are valid factual and
legal defenses to this case and will vigorously defend all claims asserted by
the Plaintiffs.
In May 1997, the Company, together with two other potentially responsible
parties, negotiated a consent decree with the U.S. Environmental Protection
Agency, Region IV, to implement a remedy for environmental contamination at
the THAN National Priorities List Site near Albany, Georgia. The total
remedial cost is estimated at $2.5 million, of which 80-85% will be the
Company's approximate share. The Company had previously reserved for this
cost.
The Company is involved in other litigation and administrative proceedings
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, including that described in
the preceding paragraphs, would not materially affect its financial condition
or operations.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
The payment of dividends by the Company is dependent upon the existence of and
the amount of net worth in excess of the defined minimum under the Company's
revolving credit agreement. At June 30, 1997, there were no borrowings under
the agreement.
Item 4. Submission of Matters to a Vote of Security Holders
Results of the Company's annual shareholder meeting on April 18, 1997, were
reported in the Company's first quarter Form 10-Q.
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.
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOISE CASCADE CORPORATION
As Duly Authorized Officer and
Chief Accounting Officer: /s/Tom E. Carlile
Tom E. Carlile
Vice President and Controller
Date: August 12, 1997
BOISE CASCADE CORPORATION
INDEX TO EXHIBITS
Filed With the Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1997
Number Description Page Number
10 Form of Directors' Indemnification
Agreement, as revised June 1997
11 Computation of Per Share Earnings
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule