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F O R M 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1995
( ) 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
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 October 31, 1995
Common stock, $2.50 par value 48,134,408
PART I - FINANCIAL INFORMATION
STATEMENTS OF INCOME (LOSS)
BOISE CASCADE CORPORATION AND SUBSIDIARIES
(unaudited)
Item I. Financial Statements
Three Months Ended September 30
1995 1994
(expressed in thousands)
except per share data
Revenues
Sales $1,339,110 $1,089,960
Other income, net 3,940 2,370
__________ __________
1,343,050 1,092,330
__________ __________
Costs and expenses
Materials, labor, and other operating expenses 968,260 893,630
Depreciation and cost of company timber
harvested 61,630 59,350
Selling and administrative expenses 112,170 99,910
__________ __________
1,142,060 1,052,890
__________ __________
Equity in net income (loss) of affiliates 15,860 (11,040)
__________ __________
Income from operations 216,850 28,400
__________ __________
Interest expense (33,080) (38,350)
Interest income 930 270
Foreign exchange gain (loss) (20) 1,280
Gain (loss) on subsidiaries' issuance of stock 6,160 (10,200)
__________ __________
(26,010) (47,000)
__________ __________
Income (loss) before income taxes and
minority interest 190,840 (18,600)
Income tax provision 70,170 13,110
__________ __________
Income (loss) before minority interest 120,670 (31,710)
Minority interest, net of income tax (2,190) -
__________ __________
Net income (loss) $ 118,480 $ (31,710)
Net income (loss) per common share
Primary $ 2.03 $(1.19)
Fully diluted $ 1.83 $(1.19)
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 September 30
1995 1994
(expressed in thousands)
Segment sales
Paper and paper products $ 674,682 $ 467,196
Office products 332,037 246,171
Building products 428,679 434,121
Intersegment eliminations and other (96,288) (57,528)
__________ __________
$1,339,110 $1,089,960
Segment operating income
Paper and paper products $ 164,008 $ 2,273
Office products 21,240 10,733
Building products 29,631 34,311
Equity in net income (loss) of
affiliates 15,860 (11,040)
Corporate and other (13,889) (7,877)
__________ __________
Income from operations $ 216,850 $ 28,400
The accompanying notes are an integral part of these Financial Statements.
STATEMENTS OF INCOME (LOSS)
BOISE CASCADE CORPORATION AND SUBSIDIARIES
(Unaudited)
Nine months ended September 30
1995 1994
(expressed in thousands,
except per share data)
Revenues
Sales $3,832,270 $3,031,510
Other income (expense), net (17,310) 6,930
__________ __________
3,814,960 3,038,440
__________ __________
Costs and expenses
Materials, labor, and other
operating expenses 2,841,890 2,537,910
Depreciation and cost of company
timber harvested 182,750 176,380
Selling and administrative expenses 315,150 285,580
__________ __________
3,339,790 2,999,870
__________ __________
Equity in net income (loss) of affiliates 33,310 (24,160)
__________ __________
Income from operations 508,480 14,410
__________ __________
Interest expense (105,380) (110,030)
Interest income 2,210 790
Foreign exchange gain (loss) 20 (130)
Gain (loss) on subsidiaries' issuance of stock 66,160 (10,200)
__________ __________
(36,990) (119,570)
__________ __________
Income (loss) before income taxes
and minority interest 471,490 (105,160)
Income tax provision (benefit) 186,520 (16,690)
__________ __________
Income (loss) before minority interest 284,970 (88,470)
Minority interest, net of income tax (3,530) -
__________ __________
Net income (loss) $ 281,440 $ (88,470)
Net income (loss) per common share
Primary $ 4.78 $(3.40)
Fully diluted $ 4.32 $(3.40)
Dividends declared per common share $ .45 $ .45
The accompanying notes are an integral part of these Financial Statements.
SEGMENT INFORMATION
BOISE CASCADE CORPORATION AND SUBSIDIARIES
(unaudited)
Nine Months Ended September 30
1995 1994
(expressed in thousands)
Segment sales
Paper and paper products $1,927,760 $1,271,211
Office products 941,042 649,439
Building products 1,207,156 1,261,553
Intersegment eliminations and other (243,688) (150,693)
__________ __________
$3,832,270 $3,031,510
Segment operating income (loss)
Paper and paper products $ 394,279 $ (81,627)
Office products 47,440 31,730
Building products 75,911 113,268
Equity in net income (loss) of affiliates 33,310 (24,160)
Corporate and other (42,460) (24,801)
__________ __________
Income from operations $ 508,480 $ 14,410
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(unaudited)
ASSETS
September 30 December 31
1995 1994 1994
(expressed in thousands)
Current
Cash and cash items $ 45,778 $ 30,644 $ 22,447
Short-term investments at cost,
which approximates market 28,609 4,972 7,007
__________ __________ __________
74,387 35,616 29,454
Receivables, less allowances of
$3,377,000, $2,155,000 and
$1,987,000 509,236 575,364 405,661
Inventories 474,550 397,519 423,589
Deferred income tax benefits 79,356 44,522 42,487
Other 25,350 18,112 17,073
__________ __________ __________
1,162,879 1,071,133 918,264
__________ __________ __________
Property
Property and equipment
Land and land improvements 38,674 37,289 37,775
Buildings and improvements 447,741 437,847 439,936
Machinery and equipment 4,216,182 4,051,459 4,078,302
__________ __________ __________
4,702,597 4,526,595 4,556,013
Accumulated depreciation (2,193,494) (2,025,993) (2,062,106)
__________ __________ __________
2,509,103 2,500,602 2,493,907
Timber, timberlands, and timber
deposits 399,528 403,914 397,721
__________ __________ __________
2,908,631 2,904,516 2,891,628
__________ __________ __________
Investments in equity affiliates 251,446 214,585 204,498
Other assets 301,032 268,140 279,687
__________ __________ __________
Total assets $4,623,988 $4,458,374 $4,294,077
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
BALANCE SHEETS
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30 December 31
1995 1994 1994
(expressed in thousands)
Current
Notes payable $ 183,000 $ 62,000 $ 56,000
Current portion of long-term debt 609 83,010 58,534
Accounts payable 352,321 306,631 306,848
Accrued liabilities
Compensation and benefits 152,409 103,977 107,866
Interest payable 25,146 30,847 36,043
Other 145,753 105,983 92,552
__________ __________ __________
859,238 692,448 657,843
__________ __________ __________
Debt
Long-term debt, less current portion 1,268,423 1,768,527 1,625,148
Guarantee of ESOP debt 228,212 245,027 230,956
__________ __________ __________
1,496,635 2,013,554 1,856,104
__________ __________ __________
Other
Deferred income taxes 306,340 128,953 137,260
Other long-term liabilities 256,851 263,923 278,012
__________ __________ __________
563,191 392,876 415,272
__________ __________ __________
Minority interest 64,968 - -
__________ __________ __________
Shareholders' equity
Preferred stock -- no par value;
10,000,000 shares authorized;
Series D ESOP: $.01 stated
value; 6,143,333; 6,311,734
and 6,294,891 shares outstanding 276,450 284,028 283,270
Deferred ESOP benefit (228,212) (245,027) (230,956)
Series E: $.01 stated value;
862,500 shares outstanding at
September 30 and December 31, 1994 - 191,466 191,466
Series F: $.01 stated value;
115,000 shares outstanding
in each period 111,043 111,043 111,043
Series G: $.01 stated value;
862,500 shares outstanding
in each period 176,404 176,404 176,404
Common stock -- $2.50 par value;
200,000,000 shares authorized;
48,056,941; 38,232,914 and
38,284,186 shares outstanding 120,142 95,582 95,710
Additional paid-in capital 202,870 - -
Retained earnings 981,259 746,000 737,921
__________ __________ __________
Total shareholders' equity 1,639,956 1,359,496 1,364,858
__________ __________ __________
Total liabilities and shareholders'
equity $4,623,988 $4,458,374 $4,294,077
The accompanying notes are an integral part of these Financial Statements.
BOISE CASCADE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30
1995 1994
(expressed in thousands)
Cash provided by (used for) operations
Net income (loss) $ 281,440 $ (88,470)
Items in income (loss) not using (providing) cash
Equity in net (income) loss of affiliates (33,310) 16,267
Depreciation and cost of company timber
harvested 182,750 176,380
Deferred income tax provision (benefit) 139,117 (16,724)
Minority interest, net of income tax 3,530 -
Amortization and other 36,835 12,434
(Gain) loss on subsidiaries' issuance of stock (66,160) 10,200
Receivables (79,238) (64,813)
Inventories (40,473) 32,048
Accounts payable and accrued liabilities 47,102 53,699
Current and deferred income taxes 3,418 6,053
Other 407 5,881
__________ __________
Cash provided by operations 475,418 142,955
__________ __________
Cash used for investment
Expenditures for property and equipment (191,612) (132,862)
Expenditures for timber and timberlands (3,974) (4,256)
Investments in equity affiliates, net (2,000) (32,068)
Purchase of facilities (37,095) (78,428)
Other (7,746) (47,825)
__________ __________
Cash used for investment (242,427) (295,439)
__________ __________
Cash provided by (used for) financing
Cash dividends paid
Common stock (19,916) (17,109)
Preferred stock (32,450) (40,449)
__________ __________
(52,366) (57,558)
Notes payable 127,000 31,000
Additions to long-term debt 10,140 247,335
Payments of long-term debt (423,462) (56,207)
Subsidiary's issuance of stock 123,076 -
Other 27,554 2,221
__________ __________
Cash provided by (used for) financing (188,058) 166,791
__________ __________
Increase in cash and short-term investments 44,933 14,307
Balance at beginning of the year 29,454 21,309
__________ __________
Balance at September 30 $ 74,387 $ 35,616
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 1994 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 nine months ended
September 30, 1995 and 1994, was subject to seasonal variations and
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) OPERATING HIGHLIGHTS. In April 1995, the Company's wholly owned
subsidiary, Boise Cascade Office Products Corporation ("BCOP"), completed
the initial public offering of 5,318,750 shares of common stock at a price
of $25 per share. After the offering, the Company owned 82.7% of the
outstanding BCOP common stock. The net proceeds of the offering to BCOP
were approximately $123 million, of which approximately $102 million was
indirectly (through retention of accounts receivable and a small dividend
payment) available to the Company for general corporate purposes. The
remainder of the proceeds was retained by BCOP for its general corporate
purposes.
From the BCOP offering, the Company recorded a gain of approximately
$60 million or 98 cents per fully diluted share in the second quarter of
1995. In the third quarter of 1995, BCOP issued 445,305 shares of its
stock to effect various acquisitions. As a result of these share
issuances, the Company recorded a gain of $6.2 million or 10 cents per
fully diluted share. In accordance with SFAS 109, Accounting for Income
Taxes, income taxes were not provided on the gains. At September 30,
1995, the Company owned 81.5% of the outstanding BCOP common stock.
In October 1994, the Company's Canadian subsidiary, Rainy River Forest
Products Inc. ("Rainy River"), completed the sale of units of common stock
and debentures in an initial public offering. Boise Cascade held
approximately 60% of Rainy River's economic equity and 49% of its voting
equity. The securities were sold at a premium to the net book value of
the Canadian company, but the translation into U.S. dollars and other
costs of the transaction resulted in a charge to the Company of $6.8
million after tax, or 18 cents per fully diluted common share, in the
third quarter of 1994. Also in the third quarter of 1994, recognition by
the Company of a noncash charge for U.S. taxes on previously undistributed
Canadian earnings amounted to $20.2 million, or 53 cents per fully diluted
common share. Rainy River was accounted for on the equity method
retroactive to January 1, 1994, in the Company's consolidated financial
statements. In the Company's Statements of Income (Loss) for the three
and nine months ended September 30, 1995 and 1994, Rainy River's results
of operations are included in "Equity in net income (loss) of affiliates."
In the second quarter of 1995, the Company provided $32.5 million of
income taxes, or 53 cents per fully diluted share, for the tax effect of
the difference in the book and tax bases of its stock ownership in Rainy
River.
Also, in the second quarter of 1995, the Company established reserves for
the write-down of certain assets in its paper and paper products segment
to their net realizable value with a pretax charge of $19 million, or 19
cents per fully diluted share after taxes. The Company also added to its
existing reserves $5 million before taxes, or 5 cents per fully diluted
share after taxes, for environmental and other contingencies.
The net effect of the gain on the issuance of BCOP stock, the tax
provision for Rainy River, and the establishment of the above reserves
increased net income $18.8 million and fully diluted earnings per share 31
cents for the nine months ended September 30, 1995.
(3) NET INCOME (LOSS) PER COMMON SHARE. Net income (loss) per common share
was determined by dividing net income (loss), as adjusted, by applicable
shares outstanding. For the three and nine months ended September 30,
1994, the computation of fully diluted net loss per share was
antidilutive; therefore, the amounts reported for primary and fully
diluted loss were the same.
For the nine months ended September 30, 1995 and 1994, primary average
shares included common shares outstanding and, if dilutive, common stock
equivalents attributable to stock options, Series E conversion preferred
stock prior to converting to shares of the Company's common stock on
January 15, 1995, and Series G conversion preferred stock. Excluded
common equivalent shares were 16,496,000 at September 30, 1994. 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 Note 6).
Nine Months Ended September 30
1995 1994
(expressed in thousands)
Net income (loss) as reported $ 281,440 $ (88,470)
Preferred dividends (19,180) (40,955)
_________ _________
Primary income (loss) 262,260 (129,425)
Assumed conversions:
Preferred dividends eliminated 11,072 32,847
Interest on 7% debentures eliminated 2,502 2,577
Supplemental ESOP contribution (9,464) (9,442)
_________ _________
Fully diluted income (loss) $ 266,370 $(103,443)
Average number of common shares
Primary 54,886 38,057
Fully diluted 61,667 61,471
Primary income excludes, and the 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 income (loss), dividends on convertible
preferred stock and interest, net of any applicable taxes, have been
added back to primary income (loss) to reflect assumed conversions. The
fully diluted income was reduced by, and the 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.
(4) INVENTORIES. Inventories include the following:
September 30 December 31
1995 1994 1994
(expressed in thousands)
Finished goods and work in process $317,893 $242,196 $256,732
Logs 84,786 94,342 107,095
Other raw materials and supplies 177,086 148,621 147,211
LIFO reserve (105,215) (87,640) (87,449)
________ ________ ________
$474,550 $397,519 $423,589
(5) INCOME TAXES. The components of the net deferred tax liability on the
Company's Balance Sheets were determined as follows:
September 30 December 31
1995 1994 1994
Assets Liabil. Assets Liabil. Assets Liabil.
(expressed in millions)
Operating loss
carryover $ 60.3 $ - $192.5 $ - $200.5 $ -
Employee benefits 109.2 14.9 102.8 7.1 106.2 17.8
Property and equipment
and timber and
timberlands 78.5 548.4 85.4 521.4 81.6 531.4
Alternative minimum tax 139.3 - 79.8 - 79.6 -
Tax credit carryovers 22.9 - 35.3 - 35.7 -
Reserves 22.1 2.6 12.3 1.9 14.6 2.0
Inventories 10.2 .2 9.8 .4 10.1 .2
State income taxes - 33.8 4.7 30.9 - 33.4
Deferred charges .4 5.7 .3 10.4 .2 7.9
Differences in basis
of nonconsolidated
entities 4.3 56.6 8.7 33.6 11.5 28.5
Other 18.1 30.0 11.1 21.4 10.3 23.9
______ ______ ______ ______ ______ ______
$465.3 $692.2 $542.7 $627.1 $550.3 $645.1
The estimated tax provision rate for the first nine months of 1995,
before the effects of unusual items, was 38%, compared with a tax
benefit rate of 35% for the same period in the prior year. The change
in the rate is primarily due to increased income from the Company's U.S.
operations. These rates were based on actual year-to-date results and
projected results for the remainder of the year.
(6) DEBT. At September 30, 1995, the Company had a $600 million revolving
credit agreement with a group of banks. Borrowing under the agreement
was $70 million. On September 27, 1995, the Company redeemed its
$75.9 million principal amount, 7.00% convertible subordinated
debentures, that were due May 1, 2016, at a price of 100.70% plus
accrued interest. Alternatively, holders of the debentures could
convert them to Boise Cascade common stock through September 27, 1995,
at the rate of 1.1415 shares of common stock for each $50 principal
amount of debentures. Common shares issued upon conversion totaled
34,653. The redemption will result in an approximately 1.7 million
share reduction in fully diluted shares.
(7) SERIES E PREFERRED STOCK. On January 15, 1995, the Company's Series E
preferred stock converted to 8,625,000 shares of common stock.
(8) INVESTMENTS IN EQUITY AFFILIATES. The Company's principal equity
affiliate is Rainy River. The Company had a 59.66% equity interest and
a 49% voting interest. Rainy River was accounted for on the equity
method. Other investments include a 30% interest in Rumford
Cogeneration Company Limited Partnership, a 50% interest in the general
partnership of Pine City Fiber Company, and a 25% interest in Ponderosa
Fibres of Washington (see Note 9).
SUMMARIZED FINANCIAL INFORMATION
Nine Months Ended September 30
1995 1994
(expressed in thousands)
Sales $ 662,383 $ 297,270
Gross profit 127,075 3,880
Net income (loss) 60,249 (18,659)
(9) SUBSEQUENT EVENTS. On October 16, 1995, the Company announced the
signing of a letter of intent by Boise Cascade and Companhia Suzano de
Papel e Celulose, a major Brazilian pulp and paper producer, to form a
joint venture to acquire and operate the Company's Jackson, Alabama,
pulp and paper mill complex. The joint venture also intends to build a
new uncoated free sheet paper machine at the Jackson facility.
Also on October 16, 1995, the Company announced that its board of
directors has authorized the Company to purchase up to 4.3 million
shares of its common stock or common stock equivalents. The
authorization, which supersedes all previous stock buyback
authorizations, is expected to be used from time to time over the next
12 to 18 months, depending on market conditions, the Company's cash
flow, and other corporate conditions.
On November 1, 1995, the Company announced that the merger of Rainy
River and Stone-Consolidated Corporation was completed. Boise Cascade
held approximately 49% of the voting shares and 60% of the total equity
in Rainy River. As a result of the transaction, Boise Cascade received
approximately US$183 million. The Company will use the proceeds from
this transaction to reduce debt, make capital investments, and enhance
shareholder returns.
The Company holds approximately 6.6 million shares of Stone-Consolidated
common stock, representing approximately 6.4% of Stone-Consolidated's
outstanding common stock. In addition, the Company holds approximately
2.8 million shares of Stone-Consolidated's redeemable preferred stock.
(10) FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS. The Financial
Accounting Standards Board (FASB) issued Statement 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." The Company is required to adopt the Statement no later
than 1996, but may elect to adopt it in 1995. The Company is currently
evaluating when to adopt the Statement and its impact upon adoption.
The FASB also issued Statement 123 "Accounting for Stock-Based
Compensation." The Company does not expect this Statement to have any
effect on its results of operations but it will make additional
disclosure in its 1996 financial statements.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Third Quarter of 1995, Compared With Third Quarter of 1994
Boise Cascade Corporation's net income for the third quarter of 1995 was
$118.5 million, compared with a net loss of $31.7 million for the third
quarter of 1994. Primary earnings per common share for the third quarter of
1995 were $2.03 and fully diluted earnings per common share were $1.83. For
the same quarter in 1994, primary and fully diluted loss per common share was
$1.19.
Results for the third quarter of 1995 included a gain of $6.2 million, or 10
cents per fully diluted share, related to the issuance of common shares by
Boise Cascade Office Products Corporation ("BCOP"). In October 1994, the
Company's Canadian subsidiary, Rainy River Forest Products Inc. ("Rainy
River"), completed the sale of units of common stock and debentures in an
initial public offering. Boise Cascade held approximately 60% of Rainy
River's economic equity and 49% of its voting equity. The securities were
sold at a premium to the net book value of the Canadian Company, but the
translation into U.S. dollars and other costs of the transaction resulted in a
charge to the Company of $6.8 million after tax, or 18 cents per fully diluted
common share, in the third quarter of 1994. Also in the third quarter of
1994, recognition by the Company of a noncash charge for U.S. taxes on
previously undistributed Canadian earnings amounted to $20.2 million, or 53
cents per fully diluted common share. Rainy River was accounted for on the
equity method retroactive to January 1, 1994, in the Company's consolidated
financial statements.
Sales for the third quarter of 1995 were $1.34 billion, compared with
$1.09 billion in the third quarter of last year.
Spurred by further improvements in product prices, the Company's paper segment
reported operating income of $164.0 million in the third quarter of 1995. By
contrast, paper operations earned $2.3 million in the third quarter of 1994.
Higher third-quarter results were achieved despite taking approximately 20,000
tons of market-related downtime to balance a modest slowdown in demand.
During the quarter, the Company also incurred scheduled maintenance downtime
totaling approximately 7,000 tons. Between the third quarter of 1994 and the
third quarter of 1995, average prices for uncoated freesheet rose 65%,
containerboard rose 44%, newsprint rose 62%, coated rose 53%, and market pulp
rose 68%.
Paper segment manufacturing costs per ton increased considerably between the
comparison quarters. The increase was due in large part to higher fiber costs.
Paper segment sales rose 44% to $674.7 million in the third quarter of 1995
from $467.2 million in the third quarter of 1994. Sales volumes for the third
quarter of 1995 were 726,000 tons, compared with 749,000 tons in the third
quarter of 1994.
Operating income in the office products segment improved in the third quarter
of 1995 to $21.2 million, compared with $10.7 million in the prior-year
quarter. Total sales rose 35% to $332.0 million, compared with $246.2 million
in the third quarter of 1994. The growth in sales resulted from higher paper
prices and volumes, increased national accounts, rapid growth in the Company's
direct-mail business, and acquisitions. Excluding the effect of acquisitions
since June 30, 1994, sales increased 27% in the third quarter of 1995 compared
with sales in the third quarter of 1994. Gross and operating margins improved
substantially in the third quarter relative to the year-ago third quarter.
Margins improved in the Company's national accounts business over the last
year, and the Company continued to pass through higher paper prices.
Building products operating income decreased from $34.3 million for the year-
ago third quarter to $29.6 million in the third quarter of 1995. Contributing
to the decrease in income was a slowdown in home construction as a result of
consumer caution concerning the future direction of the U.S. economy.
Relative to the year-ago quarter, average prices for lumber decreased 10%,
while plywood prices increased 4%. Unit sales volume for lumber decreased 4%,
while plywood sales volume was the same as the sales volume in the third
quarter of 1994. The segment's results continued to be enhanced by a
contribution from its growing engineered wood products business. Sales for
the building products segment declined 1% to $428.7 million in the third
quarter of 1995 from $434.1 million in the third quarter of 1994. Building
materials distribution sales were down 7%, while income was down 6%.
Interest expense was $33.1 million in the third quarter of 1995, compared with
$38.4 million in the same period last year. The decrease was primarily due to
the Company's reduction of debt. From December 31, 1994, to September 30,
1995, debt reduction totaled $290.4 million. The Company's debt is
predominately fixed rate. Consequently, when there are changes in short-term
market interest rates, the Company experiences only modest changes in interest
expense.
Nine Months Ended September 30, 1995, Compared With Nine Months Ended
September 30, 1994
The Company had net income of $281.4 million for the first nine months of
1995, compared with a net loss of $88.5 million for the first nine months of
1994. Primary earnings per common share for 1995 were $4.78, and fully
diluted earnings per common share were $4.32. For the first nine months of
1994, primary and fully diluted loss per common share was $3.40.
Sales for the first nine months of 1995 were $3.83 billion, compared with
$3.03 billion for the same period in 1994.
In April 1995, the Company's wholly owned subsidiary, Boise Cascade Office
Products Corporation ("BCOP"), completed the initial public offering of
5,318,750 shares of common stock at a price of $25 per share. After the
offering, the Company owned 82.7% of the outstanding BCOP common stock. The
net proceeds of the offering to BCOP were approximately $123 million, of which
approximately $102 million was indirectly (through retention of accounts
receivable and a small dividend payment) available to the Company for general
corporate purposes. The remainder of the proceeds was retained by BCOP for
its general corporate purposes.
From the BCOP offering, the Company recorded a gain of approximately
$60 million or 98 cents per fully diluted share in the second quarter of 1995.
In the third quarter of 1995, BCOP issued 445,305 shares of its stock to
effect various acquisitions. As a result of these share issuances, the
Company recorded a gain of $6.2 million or 10 cents per fully diluted share.
In accordance with SFAS 109, Accounting for Income Taxes, income taxes were
not provided on the gains. At September 30, 1995, the Company owned 81.5% of
the outstanding BCOP common stock.
In October 1994, Rainy River completed the sale of units of common stock and
debentures in an initial public offering. Boise Cascade held approximately
60% of Rainy River's economic equity and 49% of its voting equity. The
securities were sold at a premium to the net book value of the Canadian
Company, but the translation into U.S. dollars and other costs of the
transaction resulted in a charge to the Company of $6.8 million after tax, or
18 cents per fully diluted common share, in the third quarter of 1994. Also
in the third quarter of 1994, recognition by the Company of a noncash charge
for U.S. taxes on previously undistributed Canadian earnings amounted to $20.2
million, or 53 cents per fully diluted common share. Rainy River was
accounted for on the equity method retroactive to January 1, 1994, in the
Company's consolidated financial statements. In the second quarter of 1995,
the Company provided $32.5 million of income taxes, or 53 cents per fully
diluted share, for the tax effect of the difference in the book and tax bases
of its stock ownership in Rainy River.
Also, in the second quarter of 1995, the Company established reserves for the
write-down of certain assets in its paper and paper products segment to their
net realizable value with a pretax charge of $19 million, or 19 cents per
fully diluted share after taxes. The Company also added to its existing
reserves $5 million before taxes, or 5 cents per fully diluted share after
taxes, for environmental and other contingencies.
The net effect of the gain on the issuance of BCOP stock, the tax provision
for Rainy River, and the establishment of the above reserves increased net
income $18.8 million and fully diluted earnings per share 31 cents for the
nine months ended September 30, 1995.
Before considering the $19 million reserve for the write-down of certain
paper-related assets, operating income in the Company's paper and paper
products segment was $413.3 million for the first nine months of 1995,
compared with a loss of $81.6 million for the same period in 1994. Average
prices for all of the Company's paper grades increased sharply during the
first nine months of 1995, compared with a year ago.
Paper segment manufacturing costs for the first nine months were up
considerably from those of the comparison period. The increase was due in
large part to higher fiber costs.
Paper segment sales of $1.93 billion for the nine months ended September 30,
1995, were up 52% from $1.27 billion for the nine months ended September 30,
1994. Sales volumes for the first nine months of 1995 were 2,207,000 tons
compared with 2,193,000 tons for the first nine months of 1994.
Office products segment income for the first nine months of 1995 was
$47.4 million compared to $31.7 million in the first nine months of 1994.
Segment sales were up 45% to $941.0 million for the first nine months of 1995,
compared with $649.4 million for the first nine months of 1994. Excluding the
effect of acquisitions since December 31, 1993, sales increased 27%. The
increase in sales resulted from higher paper prices and volumes, increased
national accounts, rapid growth in the Company's direct-mail business, and
acquisitions. Gross and operating margins were about flat compared to year-
ago levels, but improved substantially in the third quarter relative to the
year-ago third quarter and to second quarter 1995.
Operating income for the Company's Building Products segment dropped from
$113.3 million in the first nine months of 1994, to $75.9 million in the first
nine months of 1995. The decrease was due primarily to a slowdown in home
construction as a result of consumer caution concerning the future direction
of the U.S. economy. However, results have improved since the first of the
year in response to an improvement in home construction, leading to an
increase in demand for wood products and higher plywood prices. Segment sales
decreased 5% in the first nine months of 1995 to $1.21 billion, compared with
sales in the first nine months of 1994 of $1.26 billion. Plywood and lumber
sales volumes were down 2% and 5%, compared with those of the same period last
year. Building materials distribution sales were down 12%, while income was
down 26%.
Interest expense was $105.4 million for the first nine months of 1995,
compared with $110.0 million for the first nine months of 1994. The decrease
was primarily due to the Company's reduction of debt. From December 31, 1994,
to September 30, 1995, debt reduction totaled $290.4 million. The Company's
debt is predominately fixed rate. Consequently, when there are changes in
short-term market interest rates, the Company experiences only modest changes
in interest expense.
Total long- and short-term debt outstanding was $1.68 billion at September 30,
1995, compared with $1.97 billion at December 31, 1994.
Financial Condition
At September 30, 1995, the Company had working capital of $303.6 million.
Working capital was $378.7 million at September 30, 1994, and $260.4 million
at December 31, 1994. Cash provided by operations was $475.4 million for the
first nine months of 1995, compared with $143.0 million for the same period in
1994.
The Company's revolving credit agreement requires the Company to maintain a
minimum amount of net worth and not to exceed a maximum ratio of debt to net
worth. The Company's net worth at September 30, 1995, exceeded the defined
minimum amount by $130.8 million. 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 Company is also required to
maintain a defined minimum interest coverage in each successive four-quarter
period, which the Company met at September 30, 1995.
Capital expenditures, including purchases of facilities and related debt
assumption, for the first nine months of 1995 and 1994 were $232.7 million and
$216.7 million. Capital expenditures for the year ended December 31, 1994,
were $271.9 million.
An expanded discussion and analysis of financial condition is presented on
pages 19 and 20 of the Company's 1994 Annual Report under the captions
"Financial Condition" and "Capital Investment."
Market Conditions
The modest slowdown in demand for certain of the Company's paper products
experienced during the third quarter appears to be continuing into the fourth
quarter. If this trend continues, Boise Cascade may take further market-
related downtime in the manufacture of those paper grades and it may lead to
the reduction or discounting of product prices.
In addition, the supply-demand balance for certain building products
manufactured by the Company may continue to put downward pressure on prices
for those products.
It is uncertain to what extent or when these market conditions may improve or
further deteriorate. It is also uncertain to what extent these market
conditions or further deteriorating conditions may adversely affect the
Company's financial performance.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the registrant's annual report on Form 10-K for the year
ended December 31, 1994, for information concerning certain legal proceedings.
Item 2. Changes in 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 September 30, 1995, under this agreement, the
Company's net worth exceeded the defined minimum amount by $130.8 million.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
On October 16, 1995, the Company announced the signing of a letter of intent
by Boise Cascade and Companhia Suzano de Papel e Celulose, a major Brazilian
pulp and paper producer, to form a joint venture to acquire and operate the
Company's Jackson, Alabama, pulp and paper mill complex. The joint venture
also intends to build a new uncoated free sheet paper machine at the Jackson
facility.
Also on October 16, 1995, the Company announced that its board of directors
has authorized the Company to purchase up to 4.3 million shares of its common
stock or common stock equivalents. The authorization, which supersedes all
previous stock buyback authorizations, is expected to be used from time to
time over the next 12 to 18 months, depending on market conditions, the
Company's cash flow, and other corporate conditions.
On November 1, 1995, the Company announced that the merger of Rainy River
Forest Products Inc. and Stone-Consolidated Corporation was completed. Boise
Cascade held approximately 49% of the voting shares and 60% of the total
equity in Rainy River. As a result of the transaction, Boise Cascade received
approximately US$183 million. The Company will use the proceeds from this
transaction to reduce debt, make capital investments, and enhance shareholder
returns.
The Company holds approximately 6.6 million shares of Stone-Consolidated
common stock, representing approximately 6.4% of Stone-Consolidated's
outstanding common stock. In addition, the Company holds approximately
2.8 million shares of Stone-Consolidated's redeemable preferred stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
A list of the exhibits required to be filed as part of this report
is set forth in the Index to Exhibits, which immediately precedes
such exhibits, and is incorporated herein by this reference.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
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: November 9, 1995
BOISE CASCADE CORPORATION
INDEX TO EXHIBITS
Filed With the Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 1995
Number Description Page Number
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule