UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.   20549

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

 

BOISE CASCADE CORPORATION
(Exact name of registrant as specified in its charter)

 

 

 

Item 7.	Financial Statements and Exhibits
(c)	Exhibits.
	Exhibit 99.1	Boise Cascade Corporation earnings release dated July 17, 2003
	Exhibit 99.2	Selected pages from Boise Cascade Corporation’s Second Quarter 2003 Fact Book
Item 9.	Regulation FD Disclosure.

 

Boise Cascade Corporation is furnishing the information required by Item 12 of Form 8-K, “Results of Operations and Financial Condition,” under this Item 9 in accordance with SEC Release No. 33-8216.

 

On July 17, 2003, we issued an earnings release announcing our second-quarter 2003 financial results, a copy of which is attached as Exhibit 99.1.  Additionally, executive management will discuss our second-quarter earnings during a webcast and conference call to be held today, July 17, at 12 noon (ET).  To access the webcast or conference call, please go to our website at www.bc.com.

 

We will issue our Second Quarter 2003 Fact Book next week.  In the interim period, selected pages from the Fact Book (Financial Highlights, Summary of Operations, Statistical Review/2003, and Statistical Review/2002) are attached as Exhibit 99.2.

 

We present our consolidated financial statements in accordance with generally accepted accounting principles (GAAP).  To supplement the GAAP presentations, we also present the results of our operations before nonroutine gains and losses.  For example, in the attached press release, we present results from the first quarter of 2003 and second quarter of 2002 that exclude items such as asset write-downs, the effect of accounting changes, and other items we believe are not indicative of our ongoing operations.

 

We believe our presentation of results before nonroutine items provides useful information to both investors and management by excluding gains and losses that are not indicative of our core operating results.

 

We have reconciled the non-GAAP financial measures to our reported financial performance in the financial notes that accompany our press release.

 

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SIGNATURE

 

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 hereunto duly authorized.

 

	BOISE CASCADE CORPORATION
	By	/s/ Karen E. Gowland
		Karen E. Gowland
		Vice President and Corporate Secretary
Date:  July 17, 2003

 

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EXHIBIT INDEX

 

Number		Description
99.1		Boise Cascade Corporation earnings release dated July 17, 2003
99.2		Selected pages from Boise Cascade Corporation’s Second Quarter 2003 Fact Book

 

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		Exhibit 99.1
Boise Cascade Corporation
Corporate Communications Department
1111 West Jefferson Street   PO Box 50   Boise, ID 83728
News Release
Media Contact		Investor Contact
Ralph Poore		Vincent Hannity
Office 208 384 7294   Home 208 331 2023		Office 208 384 6390   Cell 208 890 6385
For Immediate Release:  July 17, 2003

 

BOISE ANNOUNCES SECOND QUARTER 2003 FINANCIAL RESULTS

 

BOISE, Idaho — Boise Cascade Corporation (NYSE:BCC) today reported a second quarter 2003 net loss of $3.9 million, or 12 cents per diluted share, compared with net income of $3.2 million, or 0 cents per diluted share, in second quarter 2002.  In first quarter 2003, Boise reported a net loss of $27.5 million, or 53 cents per diluted share.

 

FINANCIAL HIGHLIGHTS

($ in millions, except per-share amounts)

 

 

Sales in second quarter 2003 increased 2% to $1.93 billion, compared with $1.89 billion in the second quarter a year ago.  Sales in first quarter 2003 were $1.85 billion.

 

This release at times refers to our financial results before nonroutine items.  A more detailed explanation of these items and a reconciliation to our reported financial performance are included in the notes to the consolidated financial statements.

 

 

Boise Office Solutions

($ in millions)

 

 

Boise Office Solutions operating income in the second quarter was $23.9 million, up from $23.4 million in second quarter 2002 but down from $29.9 million, before a nonroutine item, in first quarter 2003.  Segment sales, income, and operating margin declined sequentially in the second quarter, as they typically do every year.  The operating margin was 2.6% in second quarter 2003, compared with 2.7% in second quarter 2002.  In first quarter 2003, the operating margin was 2.2% as reported, or 3.2% before the nonroutine item.

 

Second quarter 2003 sales, as well as sales for locations operating in both periods, increased 6% year over year to $905 million.  Sales of office supplies and paper rose 1%, technology products sales increased 14%, and furniture sales were up 11%.  Boise’s office papers sold through Boise Office Solutions increased 6% to 144,000 tons, compared with a year ago.

 

Boise Building Solutions

($ in millions)

 

 

Boise Building Solutions reported operating income of $9.8 million in second quarter 2003, compared with $14.0 million in the same quarter a year ago and an operating loss of $8.5 million in first quarter 2003.  After a long, wet, and cold spring, especially in the eastern United States, the building season finally got under way in the second quarter, led by strengthening oriented strand board (OSB) markets.  Plywood markets began to improve in late May and June.  However, the building season improved too late in the second quarter to yield consistently positive price comparisons for most of Boise’s products.

 

Relative to second quarter 2002, average plywood and lumber prices declined 4% and 14%, respectively, while average OSB prices increased 21%.  Unit sales volumes of structural panels rose 5%

 

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year over year, while lumber volume declined 14%.  Building materials distribution sales increased 9%, compared with second quarter 2002.  Sales of engineered wood products grew 12%.

 

Relative to first quarter 2003, average OSB and plywood prices increased 17% and 4%, while average lumber prices fell 3%.  Unit sales volumes were 3% higher in structural panels but were down slightly in lumber.

 

Boise Paper Solutions

($ in millions)

 

 

Operating income in Boise Paper Solutions was $1.0 million in second quarter 2003, compared with $8.8 million in second quarter 2002 and a slight loss in first quarter 2003.  Results were lower than those of a year ago because a 5% increase in average paper prices was more than offset by a 12% decline in sales volume and higher manufacturing costs.

 

Volume declined because of market-related curtailment of 67,000 tons during the second quarter.  Volume was further reduced by 35,000 tons due to major maintenance projects at our pulp and paper mills in Wallula, Washington, and DeRidder, Louisiana.  The reduced volume led to higher unit costs relative to a year ago.  In addition, combined energy and chemical unit costs were more than 10% higher than a year ago.  Fiber costs also rose, in part because of continued wet weather in the South during the second quarter.

 

Relative to first quarter 2003, costs and average prices were about the same, and volume declined modestly.

 

OUTLOOK

 

“We are very pleased with our agreement to acquire OfficeMax, which we announced on July 14.  However, because the acquisition will not be completed before fourth quarter 2003, we do not expect this transaction to have any effect on our third-quarter operating financial performance,” said George J. Harad, chairman and chief executive officer.

 

“We expect all three of Boise’s businesses to show improved results in the third quarter,” Harad said.  “Sales and income in our office products business typically strengthen from second-quarter levels and should again this year.  We also expect same-location sales growth comparisons to continue their positive trend of recent quarters.  In wood products markets, the building season should remain strong for

 

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at least the next few months.  Finally, in our paper business market conditions remain sluggish.  However, some pickup in volume and easing of unit costs should lead to modestly stronger results in this business in the third quarter.”

 

Boise delivers office, building, and paper solutions that help our customers manage productive offices and construct well-built homes — two of the most important activities in our society.  Boise’s 24,000 employees help people work more efficiently, build more effectively, and create new ways to meet business challenges. Boise also provides constructive solutions for environmental conservation by managing natural resources for the benefit of future generations.  Boise posted sales of $7.4 billion in 2002.  Visit the Boise website at http://www.bc.com.

 

WEBCAST AND CONFERENCE CALL

 

Boise will host an audiovisual webcast and conference call on Thursday, July 17, 2003, at noon Eastern Daylight Time, at which we will review the company’s recent performance and discuss the outlook for our businesses.  You can join the webcast through the Boise website. Go to http://www.bc.com, and click on Investor Relations to find the link to the webcast.  Please go to the website at least 15 minutes before the start of the webcast to register and to download and install any necessary audio software.  To join the conference call, dial (800) 374-0165 (International callers should dial (706) 634-0995) at least 10 minutes before the start of the call.  The archived webcast will be available on the Presentations page of the Investor Relations section of Boise’s website.

 

FORWARD-LOOKING STATEMENTS

 

This press release contains forward-looking statements.  Statements that are not historical or current facts, including statements about our expectations, are forward-looking statements.  These statements include the words “expect,” “should,” “probably,” or similar expressions.  These forward-looking statements cover our anticipated financial results and future business prospects. Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those projected.  Those risks and uncertainties include, in addition to those contained in our filings with the SEC:  i) general economic or industry conditions could be less favorable than expected, resulting in a decrease in the demand for our products or an increase in our costs; ii) competitive pressures, including changes in foreign and domestic production capacity, could change and affect our profitability particularly in our commodity paper and wood products businesses; iii) extreme weather or other natural disasters, such as fire, could impact our financial results, particularly our cost structure; and iv) our announced acquisition of OfficeMax and exploration of strategic alternatives for our other businesses could impact customer demand, increase our cost of procuring financing, or create other impacts on our financial results.  Forward-looking statements speak only as of the date of this release.  We undertake no obligation to update them in light of new information.

 

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BOISE CASCADE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

 

(Unaudited)

(thousands, except per-share amounts)

 

		Three Months Ended
		June 30						March 31,
		2003			2002			2003
Sales		$	1,928,984		$	1,888,027		$	1,853,243
Costs and expenses
Materials, labor, and other operating expenses		1,578,445			1,540,027			1,515,189
Depreciation, amortization, and cost of company timber harvested		73,730			78,690			75,582
Selling and distribution expenses		217,472			195,085			214,162
General and administrative expenses		35,297			40,866			35,373
Other (income) expense, net		1,836			25,669			11,152
		1,906,780			1,880,337			1,851,458
Equity in net income (loss) of affiliates		474			(482		)	(59		)
Income from operations		22,678			7,208			1,726
Interest expense		(27,753		)	(30,010		)	(28,880		)
Interest income		318			800			114
Foreign exchange gain		1,860			371			956
		(25,575		)	(28,839		)	(27,810		)
Loss before income taxes, minority interest, and cumulative effect of accounting changes		(2,897		)	(21,631		)	(26,084		)
Income tax benefit		985			26,891			9,364
Income (loss) before minority interest and cumulative effect of accounting changes		(1,912		)	5,260			(16,720		)
Minority interest, net of income tax		(2,022		)	(2,017		)	(2,023		)
Income (loss) before cumulative effect of accounting changes		(3,934		)	3,243			(18,743		)
Cumulative effect of accounting changes, net of income tax		—			—			(8,803		)
Net income (loss)		(3,934		)	3,243			(27,546		)
Preferred dividends		(3,287		)	(3,288		)	(3,266		)
Net loss applicable to common shareholders		$	(7,221	)	$	(45	)	$	(30,812	)
Net income (loss) per common share
Basic and diluted before cumulative effect of accounting changes		$	(0.12	)	$	0.00		$	(0.38	)
Cumulative effect of accounting changes		—			—			(0.15		)
Basic and diluted		$	(0.12	)	$	0.00		$	(0.53	)

 

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SEGMENT INFORMATION

 

		Three Months Ended
		June 30						March 31,
		2003			2002			2003
		(thousands)
Segment sales
Boise Office Solutions		$	904,929		$	855,537		$	938,279
Boise Building Solutions		692,843			669,877			574,644
Boise Paper Solutions		459,376			481,571			468,213
Intersegment eliminations and other		(128,164		)	(118,958		)	(127,893		)
		$	1,928,984		$	1,888,027		$	1,853,243
Segment income (loss)
Boise Office Solutions		$	23,883		$	23,397		$	20,672
Boise Building Solutions		9,820			14,045			(8,453		)
Boise Paper Solutions		1,023			8,808			(685		)
Corporate and Other		(9,870		)	(37,871		)	(8,738		)
		24,856			8,379			2,796
Interest expense		(27,753		)	(30,010		)	(28,880		)
Loss before income taxes, minority interest, and cumulative effect of accounting changes		$	(2,897	)	$	(21,631	)	$	(26,084	)
Before nonroutine items
Segment income (loss)
Boise Office Solutions		$	23,883		$	23,397		$	29,895
Boise Building Solutions		9,820			14,045			(8,453		)
Boise Paper Solutions		1,023			8,808			(484		)
Corporate and Other		(9,870		)	(14,225		)	(8,048		)
		24,856			32,025			12,910
Interest expense		(27,753		)	(30,010		)	(28,880		)
Income (loss) before income taxes, minority interest, and cumulative effect of accounting changes		$	(2,897	)	$	2,015		$	(15,970	)

 

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BOISE CASCADE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF LOSS

 

(Unaudited)

(thousands, except per-share amounts)

 

		Six Months Ended June 30
		2003			2002
Sales		$	3,782,227		$	3,676,250
Costs and expenses
Materials, labor, and other operating expenses		3,093,634			3,001,011
Depreciation, amortization, and cost of company timber harvested		149,312			151,424
Selling and distribution expenses		431,634			386,772
General and administrative expenses		70,670			75,869
Other (income) expense, net		12,988			29,289
		3,758,238			3,644,365
Equity in net income (loss) of affiliates		415			(2,055		)
Income from operations		24,404			29,830
Interest expense		(56,633		)	(60,058		)
Interest income		432			1,055
Foreign exchange gain		2,816			143
		(53,385		)	(58,860		)
Loss before income taxes, minority interest, and cumulative effect of accounting changes		(28,981		)	(29,030		)
Income tax benefit		10,349			29,666
Income (loss) before minority interest and cumulative effect of accounting changes		(18,632		)	636
Minority interest, net of income tax		(4,045		)	(4,013		)
Loss before cumulative effect of accounting changes		(22,677		)	(3,377		)
Cumulative effect of accounting changes, net of income tax		(8,803		)	—
Net loss		(31,480		)	(3,377		)
Preferred dividends		(6,553		)	(6,550		)
Net loss applicable to common shareholders		$	(38,033	)	$	(9,927	)
Net loss per common share
Basic and diluted before cumulative effect of accounting changes		$	(0.50	)	$	(0.17	)
Cumulative effect of accounting changes		(0.15		)	—
Basic and diluted		$	(0.65	)	$	(0.17	)

 

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SEGMENT INFORMATION (1)

 

		Six Months Ended June 30
		2003			2002
		(thousands)
Segment sales
Boise Office Solutions		$	1,843,208		$	1,739,991
Boise Building Solutions		1,267,487			1,230,043
Boise Paper Solutions		927,589			937,546
Intersegment eliminations and other		(256,057		)	(231,330		)
		$	3,782,227		$	3,676,250
Segment income (loss)
Boise Office Solutions		$	44,555		$	60,820
Boise Building Solutions		1,367			22,826
Boise Paper Solutions		338			(1,995		)
Corporate and Other		(18,608		)	(50,623		)
		27,652			31,028
Interest expense		(56,633		)	(60,058		)
Loss before income taxes, minority interest, and cumulative effect of accounting changes		$	(28,981	)	$	(29,030	)
Before nonroutine items
Segment income (loss)
Boise Office Solutions		$	53,778		$	60,820
Boise Building Solutions		1,367			22,826
Boise Paper Solutions		539			(1,995		)
Corporate and Other		(17,918		)	(26,977		)
		37,766			54,674
Interest expense		(56,633		)	(60,058		)
Loss before income taxes, minority interest, and cumulative effect of accounting changes		$	(18,867	)	$	(5,384	)

 

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(1)           Financial Information

 

The Consolidated Statements of Income (Loss) and Segment Information are unaudited statements, which do not include all Notes to Consolidated Financial Statements, and should be read in conjunction with the company’s 2002 Annual Report on Form 10-K.  In all periods presented, net income (loss) involved estimates and accruals.

 

(2)                                 Reconciliation of Net Income (Loss) and Diluted Income (Loss) Per Share Before Nonroutine Items and Cumulative Effect of Accounting Changes

 

We evaluate our results of operations both before and after nonroutine gains and losses.  We believe our presentation of financial measures before nonroutine items enhances our investors’ overall understanding of our recurring operational performance and our prospects for the future.  Specifically, we believe the results before nonroutine items provide useful information to both investors and management by excluding gains and losses that are not indicative of our core operating results.

 

There were no nonroutine items during the quarter ended June 30, 2003.  In the following tables, we reconcile our financial measures before nonroutine items to our reported financial results for the three months ended March 31, 2003, and June 30, 2002, and the six months ended June 30, 2003 and 2002 (see Notes 3, 4, and 5).

 

		Three Months Ended
		March 31, 2003									June 30, 2002
		As Reported			Non- routine Items			Before Non- routine Items			As Reported			Non- routine Items			Before Non- routine Items
		(millions, except per-share amounts)
Boise Office Solutions (a)		$	20.7		$	9.2		$	29.9		$	23.4		$	—		$	23.4
Boise Building Solutions		(8.5		)	—			(8.5		)	14.0			—			14.0
Boise Paper Solutions		(0.7		)	0.2			(0.5		)	8.8			—			8.8
Corporate and Other		(8.7		)	0.7			(8.0		)	(37.9		)	23.6			(14.3		)
		2.8			10.1			12.9			8.3			23.6			31.9
Interest expense		(28.9		)	—			(28.9		)	(30.0		)	—			(30.0		)
Income (loss) before income taxes, minority interest, and cumulative effect of accounting changes		(26.1		)	10.1			(16.0		)	(21.7		)	23.6			1.9
Income tax (provision) benefit		9.4			(4.0		)	5.4			26.9			(27.6		)	(0.7		)
Income (loss) before minority interest and cumulative effect of accounting changes		(16.7		)	6.1			(10.6		)	5.2			(4.0		)	1.2
Minority interest, net of income tax		(2.0		)	—			(2.0		)	(2.0		)	—			(2.0		)
Income (loss) before cumulative effect of accounting changes		(18.7		)	6.1			(12.6		)	3.2			(4.0		)	(0.8		)
Cumulative effect of accounting changes, net of income tax		(8.8		)	8.8			—			—			—			—
Net income (loss)		$	(27.5	)	$	14.9		$	(12.6	)	$	3.2		$	(4.0	)	$	(0.8	)
Net income (loss) per common share (b)
Diluted before cumulative effect of accounting changes		$	(0.38	)	$	0.11		$	(0.27	)	$	0.00		$	(0.07	)	$	(0.07	)
Cumulative effect of accounting changes		(0.15		)	0.15			—			—			—			—
Diluted		$	(0.53	)	$	0.26		$	(0.27	)	$	0.00		$	(0.07	)	$	(0.07	)

 

(a)                                  For the three months ended March 31, 2003, Boise Office Solutions operating margin of 2.2%, as reported, was calculated based on $20.7 million of segment income, and the operating margin of 3.2%, before the nonroutine item, was calculated based on $29.9 million of segment income.

 

(b)                                 Calculated using 58.3 million and 58.2 million average diluted shares outstanding for the three months ended March 31, 2003, and June 30, 2002 (see Note 7).

 

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		Six Months Ended
		June 30, 2003									June 30, 2002
		As Reported			Non- routine Items			Before Non- routine Items			As Reported			Non- routine Items			Before Non- routine Items
		(millions, except per-share amounts)
Boise Office Solutions		$	44.6		$	9.2		$	53.8		$	60.8		$	—		$	60.8
Boise Building Solutions		1.4			—			1.4			22.8			—			22.8
Boise Paper Solutions		0.3			0.2			0.5			(2.0		)	—			(2.0		)
Corporate and Other		(18.6		)	0.7			(17.9		)	(50.6		)	23.6			(27.0		)
		27.7			10.1			37.8			31.0			23.6			54.6
Interest expense		(56.6		)	—			(56.6		)	(60.1		)	—			(60.1		)
Loss before income taxes, minority interest, and cumulative effect of accounting changes		(28.9		)	10.1			(18.8		)	(29.1		)	23.6			(5.5		)
Income tax benefit		10.3			(4.0		)	6.3			29.7			(27.6		)	2.1
Income (loss) before minority interest and cumulative effect of accounting changes		(18.6		)	6.1			(12.5		)	0.6			(4.0		)	(3.4		)
Minority interest, net of income tax		(4.1		)	—			(4.1		)	(4.0		)	—			(4.0		)
Loss before cumulative effect of accounting changes		(22.7		)	6.1			(16.6		)	(3.4		)	(4.0		)	(7.4		)
Cumulative effect of accounting changes, net of income tax		(8.8		)	8.8			—			—			—			—
Net loss		$	(31.5	)	$	14.9		$	(16.6	)	$	(3.4	)	$	(4.0	)	$	(7.4	)
Net loss per common share (a)
Diluted before cumulative effect of accounting changes		$	(0.50	)	$	0.11		$	(0.39	)	$	(0.17	)	$	(0.07	)	$	(0.24	)
Cumulative effect of accounting changes		(0.15		)	0.15			—			—			—			—
Diluted		$	(0.65	)	$	0.26		$	(0.39	)	$	(0.17	)	$	(0.07	)	$	(0.24	)

 

(a)                                  Calculated using 58.3 million and 58.2 million average diluted shares outstanding for the six months ended June 30, 2003, and June 30, 2002 (see Note 7).

 

(3)           First Quarter 2003 Nonroutine Item

 

In March 2003, we announced measures to reduce 2003 operating costs by approximately $45 million, net of severance costs, and to hold capital spending to approximately $245 million, before acquisitions.  We took these actions because of continued economic weakness, higher pension costs, higher energy costs, business disruptions from severe winter weather in the eastern United States, and global political uncertainty.  We are reducing operating costs by freezing salaries, severely restricting hiring, reducing discretionary spending at all levels of the company, and eliminating about 700 job positions.  We will eliminate these positions by terminating approximately 550 employees and leaving vacant positions unfilled.  At June 30, 2003, we had terminated about 370 employees.

 

Under our severance policy, in first quarter 2003, we recorded a pretax charge of $10.1 million for employee-related costs in “Other (income) expense, net” in the Consolidated Statement of Loss.  We recorded these costs in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 112, Employers’ Accounting for Postemployment Benefits.  We recorded $9.2 million in Boise Office Solutions, $0.2 million in Boise Paper Solutions, and $0.7 million in our Corporate and Other segment.  Employee-related costs are primarily for severance payments, most of which will be paid in 2003 with the remainder in 2004.  This nonroutine item increased our net loss $6.1 million and diluted loss per share 11 cents for the three months ended March 31, 2003, and the six months ended June 30, 2003.

 

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(4)           Second Quarter 2002 Nonroutine Item

 

In December 2001, we wrote down our 29% investment in IdentityNow by $54.3 million to its estimated fair value of $25 million and recorded $4.6 million of tax benefits associated with the write-down.  In May 2002, we sold all of the stock of our wholly owned subsidiary that held our investment in IdentityNow.  In second quarter 2002, we recorded a $23.6 million pretax loss related to this sale in our Corporate and Other segment and in “Other (income) expense, net” in the Statements of Income (Loss) for the three and six months ended June 30, 2002.  We also recorded $27.6 million of tax benefits associated with this sale and our previous write-down in “Income tax (provision) benefit.”  For the three and six months ended June 30, 2002, this transaction resulted in a net after-tax gain of $4 million, or 7 cents per basic and diluted share.

 

(5)           Cumulative Effect of Accounting Changes

 

Effective January 1, 2003, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, which affects the way we account for landfill closure costs.  This statement requires us to record an asset and a liability (discounted) for estimated closure and closed-site monitoring costs and to depreciate the asset over the landfill’s expected useful life.  Previously, we accrued for the closure costs over the life of the landfill and expensed monitoring costs as incurred.  On January 1, 2003, we recorded a one-time after-tax charge of $4.1 million, or 7 cents per share, as a cumulative-effect adjustment for the difference between the amounts recognized in our consolidated financial statements prior to the adoption of this statement and the amount recognized after adopting the provisions of SFAS No. 143.

 

Effective January 1, 2003, we adopted an accounting change for vendor allowances to comply with the guidelines issued by the Financial Accounting Standards Board’s (FASB) Emerging Issues Task Force (EITF) 02-16, Accounting by a Reseller for Cash Consideration Received From a Vendor.  Under EITF 02-16, consideration received from a vendor is presumed to be a reduction of the cost of the vendor’s products or services, unless it is for a specific incremental cost to sell the product.  As a result, for the three months ended March 31, and June 30, 2003, and the six months ended June 30, 2003, approximately $10 million, $11 million, and $21 million of vendor allowances reduced “Materials, labor, and other operating expenses” that would have previously been recognized primarily as a reduction of “Selling and distribution expenses.”  In accordance with the provisions of EITF 02-16, prior-period financial statements have not been reclassified to conform with the current year’s presentation.

 

In addition, under the new guidance, vendor allowances reside in inventory with the product and are recognized when the product is sold, changing the timing of our recognition of these items.  For the three months ended March 31, 2003, and the six months ended June 30, 2003, this change resulted in a one-time, noncash, after-tax charge of $4.7 million, or 8 cents per share.

 

(6)           Income Taxes

 

Our estimated tax benefit rate for the six months ended June 30, 2003, was 35.7%, compared with an effective tax benefit rate of 102.2% for the six months ended June 30, 2002.  Before the nonroutine items discussed in Notes 3 and 4 above, our estimated tax benefit rates for the six months ended June 30, 2003 and 2002, were 34% and 37.5%.  The difference between the estimated tax benefit rates, before nonroutine items, was due to the sensitivity of the rate to changing income levels and the mix of domestic and foreign sources of income.

 

11

 

(7)           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 all periods presented, the computation of diluted net income (loss) per share was antidilutive; therefore, amounts reported for basic and diluted income (loss) were the same.

 

		Three Months Ended
		June 30						March 31,
		2003			2002			2003
		(thousands, except per-share amounts)
Income (loss) before cumulative effect of accounting changes		$	(3,934	)	$	3,243		$	(18,743	)
Preferred dividends (a)		(3,287		)	(3,288		)	(3,266		)
Basic and diluted loss before cumulative effect of accounting changes		(7,221		)	(45		)	(22,009		)
Cumulative effect of accounting changes, net of income tax		—			—			(8,803		)
Basic and diluted loss		$	(7,221	)	$	(45	)	$	(30,812	)
Average shares used to determine basic income (loss) per common share		58,300			58,212			58,289
Basic and diluted income (loss) per common share before cumulative effect of accounting changes		$	(0.12	)	$	0.00		$	(0.38	)
Cumulative effect of accounting changes		—			—			(0.15		)
Basic and diluted income (loss) per common share		$	(0.12	)	$	0.00		$	(0.53	)

 

		Six Months Ended June 30
		2003			2002
		(thousands, except per-share amounts)
Loss before cumulative effect of accounting changes		$	(22,677	)	$	(3,377	)
Preferred dividends (a)		(6,553		)	(6,550		)
Basic and diluted loss before cumulative effect of accounting changes		(29,230		)	(9,927		)
Cumulative effect of accounting changes, net of income tax		(8,803		)	—
Basic and diluted loss		$	(38,033	)	$	(9,927	)
Average shares used to determine basic and diluted loss per common share		58,295			58,156
Basic and diluted loss per common share before cumulative effect of accounting changes		$	(0.50	)	$	(0.17	)
Cumulative effect of accounting changes		(0.15		)	—
Basic and diluted loss per common share		$	(0.65	)	$	(0.17	)

 

(a)                                  The dividend attributable to our Series D Convertible Preferred Stock held by our ESOP (employee stock ownership plan) is net of a tax benefit.

 

12

Exhibit 99.2

 

Financial Highlights                               Boise and Subsidiaries

 

											2003
		2000			2001			2002			First Quarter			Second Quarter			Third Quarter		Fourth Quarter		Year
		(millions, except per-share amounts)
Sales and Income
Sales		$	7,806.7		$	7,422.2		$	7,412.3		$	1,853.2		$	1,929.0						$	3,782.2
Income from operations		444.0			81.1			118.3			1.7			22.7							24.4
Net income (loss) before cumulative effect of accounting changes		178.6			(42.5		)	11.3			(18.7		)	(4.0		)					(22.7		)
Cumulative effect of accounting changes, net of income tax		—			—			—			(8.8		)	—							(8.8		)
Net income (loss)		$	178.6		$	(42.5	)	$	11.3		$	(27.5	)	$	(4.0	)					$	(31.5	)
Net income (loss) per common share
Diluted before cumulative effect of accounting changes		$	2.73		$	(.96	)	$	(.03	)	$	(.38	)	$	(.12	)					$	(.50	)
Cumulative effect of accounting changes		—			—			—			(.15		)	—							(.15		)
Diluted		$	2.73		$	(.96	)	$	(.03	)	$	(.53	)	$	(.12	)					$	(.65	)
Cash dividends paid per common share		$	.60		$	.60		$	.60		$	.15		$	.15						$	.30
Financial Condition
Capital expenditures		485.8			380.0			266.2			48.5
Total assets		5,266.9			4,934.0			4,947.4			4,970.9			4,989.9
Long-term debt, less current portion		$	1,714.8		$	1,062.9		$	1,387.4		$	1,472.7		$	1,494.4
Current portion of long-term debt and short-term borrowings		93.3			440.0			153.7			105.5			76.5
Guarantee of ESOP debt		107.9			80.9			51.4			51.4			40.5
Total debt		$	1,916.0		$	1,583.8		$	1,592.5		$	1,629.6		$	1,611.4
Shareholders’ equity		$	1,757.0		$	1,578.4		$	1,399.5		$	1,372.1		$	1,384.2
Shareholders’ equity per common share		$	28.85		$	25.10		$	21.59		$	21.17		$	21.23
Financial Ratios
Return on sales		2.3		%	(.6		)%	.2		%	(1.5		)%	(.2		)%					(.8		)%
Debt to equity		1.09:1			1.00:1			1.14:1			1.19:1			1.16:1
Debt to total capitalization		52.0		%	47.5		%	50.3		%	51.3		%	50.9		%
Other Information
Effective tax (provision) benefit rate		(39.0		)%	11.5		%	NM		(1)	35.9		%	34.0		%					35.7		%
Number of common shares outstanding at the end of the period (thousands)		57,337			58,062			58,284			58,292			58,314
Average number of common shares (thousands)
Basic		57,288			57,680			58,216			58,289			58,300							58,295
Diluted(2)		61,413			61,797			62,090			61,880			61,844							61,862
Common stock price
High		$	43.94		$	38.00		$	38.81		$	28.15		$	26.30
Low		$	21.75		$	26.99		$	19.61		$	20.72		$	21.48
Close		$	33.63		$	34.01		$	25.22		$	21.85		$	23.90

 

(1)          NM = not meaningful.

(2)          For the first and second quarters of 2003, the six months ended June 30, 2003, and the years ended December 31, 2001 and 2002, the computation of diluted net loss per share was antidilutive; accordingly, diluted net loss per share was calculated using the average basic shares outstanding.

 

 

Summary of Operations              Boise and Subsidiaries

 

		2002
Quarterly Results by Segment (Unaudited)(1)		First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Year
		(millions, except per-share amounts)
Sales by Segment
Boise Office Solutions		$	884.5		$	855.5		$	899.9		$	905.9		$	3,545.8
Boise Building Solutions		560.2			669.9			671.5			568.2			2,469.7
Boise Paper Solutions		456.0			481.6			485.2			455.3			1,878.0
Other		18.3			19.4			19.4			18.9			76.0
		1,919.0			2,026.4			2,075.9			1,948.3			7,969.5
Intersegment eliminations		(130.8		)	(138.4		)	(140.7		)	(147.4		)	(557.2		)
Trade sales		$	1,788.2		$	1,888.0		$	1,935.3		$	1,800.8		$	7,412.3
Income (Loss) by Segment
Boise Office Solutions		$	37.4		$	23.4		$	29.8		$	32.4		$	123.0
Boise Building Solutions		8.8			14.0			14.5			2.3			39.7
Boise Paper Solutions		(10.8		)	8.8			17.2			23.4			38.6
Corporate and Other		(12.8		)	(37.9		)	(15.9		)	(15.3		)	(81.8		)
		22.6			8.4			45.6			42.9			119.5
Interest expense		(30.0		)	(30.0		)	(28.7		)	(29.7		)	(118.5		)
Income (loss) before income taxes and minority interest		(7.4		)	(21.6		)	16.9			13.2			1.0
Income tax (provision) benefit		2.8			26.9			(6.3		)	(4.9		)	18.4
Income (loss) before minority interest		(4.6		)	5.3			10.5			8.2			19.4
Minority interest, net of income tax		(2.0		)	(2.0		)	(2.0		)	(2.0		)	(8.1		)
Net income (loss)		$	(6.6	)	$	3.2		$	8.5		$	6.2		$	11.3
Net income (loss) per common share
Basic		$	(.17	)	$	.00		$	.09		$	.05		$	(.03	)
Diluted		$	(.17	)	$	.00		$	.09		$	.05		$	(.03	)

 

		2003
		First Quarter			Second Quarter			Third Quarter		Fourth Quarter		Year
		(millions, except per-share amounts)
Sales by Segment
Boise Office Solutions		$	938.3		$	904.9						$	1,843.2
Boise Building Solutions		574.6			692.8							1,267.5
Boise Paper Solutions		468.2			459.4							927.6
Other		19.4			18.8							38.2
		2,000.5			2,075.9							4,076.5
Intersegment eliminations		(147.3		)	(146.9		)					(294.2		)
Trade sales		$	1,853.2		$	1,929.0						$	3,782.2
Income (Loss) by Segment
Boise Office Solutions		$	20.7		$	23.9						$	44.6
Boise Building Solutions		(8.5		)	9.8							1.4
Boise Paper Solutions		(.7		)	1.0							0.3
Corporate and Other		(8.7		)	(9.9		)					(18.6		)
		2.8			24.9							27.7
Interest expense		(28.9		)	(27.8		)					(56.6		)
Loss before income taxes, minority interest, and cumulative effect of accounting changes		(26.1		)	(2.9		)					(28.9		)
Income tax benefit		9.4			1.0							10.3
Loss before minority interest and cumulative effect of accounting changes		(16.7		)	(1.9		)					(18.6		)
Minority interest, net of income tax		(2.0		)	(2.0		)					(4.1		)
Loss before cumulative effect of accounting changes		(18.7		)	(4.0		)					(22.7		)
Cumulative effect of accounting changes, net of income tax		(8.8		)	—							(8.8		)
Net loss		$	(27.5	)	$	(4.0	)					$	(31.5	)
Net loss per common share
Basic and diluted before cumulative effect of accounting changes		$	(.38	)	$	(.12	)					$	(.50	)
Cumulative effect of accounting changes		(.15		)	—							(.15		)
Basic and diluted		$	(.53	)	$	(.12	)					$	(.65	)

 

(1)  Columns may not add due to rounding.

 

2

 

Statistical Review / 2003

 

		2003
		First Quarter			Second Quarter					Third Quarter				Fourth Quarter				Year
Boise Office Solutions
Sales by Product Line (millions)
Office supplies and paper		$	567		$	539
Technology products		277			275
Office furniture		94			91
Sales by Geography (millions)
United States		$	709		$	683
International		229			222
Sales Growth
Sales growth		6		%	6			%
Same-location sales growth		6		%	6			%
Margins (percentage of sales)
Gross profit margin		23.8		%	23.8			%
Operating profit		2.2		%	2.6			%
Boise Building Solutions
Sales Volumes
Plywood (thousand square feet) (3/8" basis)		466,537			476,896
OSB (thousand square feet) (3/8" basis) (1)		106,851			112,652
Particleboard (thousand square feet) (3/4" basis)		41,192			38,609
Lumber (thousand board feet)		93,524			93,113
LVL (hundred cubic feet)		20,685			25,063
I-joists (thousand equivalent lineal feet)		40,534			53,271
Engineered wood products (millions)		$	68		$	85
Building materials distribution (millions)		$	391		$	505
Selected Prices (average net selling prices)
Plywood (thousand square feet) (3/8" basis)		$	220		$	228
OSB (thousand square feet) (3/8" basis)		141			165
Particleboard (thousand square feet) (3/4" basis)		219			230
Lumber (thousand board feet)		412			400
LVL (hundred cubic feet)		1,453			1,447
I-joists (thousand equivalent lineal feet)		867			861
Boise Paper Solutions
Sales Volumes (thousands of short tons)
Uncoated free sheet		353			351
Containerboard		158			154
Newsprint		106			89
Other		33			31
		650			625
Corrugated containers (millions of square feet)		1,122			1,151
Selected Prices (average net selling prices per short ton)
Uncoated free sheet		$	747		$	734
Containerboard		341			347
Newsprint		374			399

 

(1)  Represents 100% of the sales volume of Voyageur Panel, of which we own 47%.

 

3

 

Statistical Review / 2002

 

		2002
		First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Year
Boise Office Solutions
Sales by Product Line (millions)
Office supplies and paper		$	552		$	534		$	550		$	559		$	2,195
Technology products		246			240			265			259			1,010
Office furniture		86			82			85			88			341
Sales by Geography (millions)
United States		$	686		$	665		$	707		$	701		$	2,759
International		198			191			193			205			787
Sales Growth
Sales growth		(9		)%	(1		)%	6		%	6		%	0		%
Same-location sales growth		(8		)%	(1		)%	6		%	5		%	0		%
Margins (percentage of sales)
Gross profit margin		23.6		%	23.1		%	22.4		%	23.5		%	23.1		%
Operating profit		4.2		%	2.7		%	3.3		%	3.6		%	3.5		%
Boise Building Solutions
Sales Volumes
Plywood (thousand square feet) (3/8" basis)		440,525			462,648			460,952			424,078			1,788,203
OSB (thousand square feet) (3/8" basis) (1)		100,161			98,273			107,176			111,076			416,686
Particleboard (thousand square feet) (3/4" basis)		49,749			51,182			47,617			40,675			189,223
Lumber (thousand board feet)		95,911			108,455			99,858			91,057			395,281
LVL (hundred cubic feet)		17,895			20,844			20,879			17,925			77,543
I-joists (thousand equivalent lineal feet)		34,995			47,102			46,954			36,714			165,765
Engineered wood products (millions)		$	60		$	76		$	77		$	61		$	274
Building materials distribution (millions)		$	375		$	464		$	470		$	387		$	1,696
Selected Prices (average net selling prices)
Plywood (thousand square feet) (3/8" basis)		$	231		$	238		$	227		$	220		$	229
OSB (thousand square feet) (3/8" basis)		131			136			127			128			130
Particleboard (thousand square feet) (3/4" basis)		230			248			254			223			239
Lumber (thousand board feet)		481			465			470			446			466
LVL (hundred cubic feet)		1,491			1,485			1,498			1,454			1,483
I-joists (thousand equivalent lineal feet)		896			886			890			872			886
Boise Paper Solutions
Sales Volumes (thousands of short tons)
Uncoated free sheet		355			370			364			336			1,425
Containerboard		160			167			168			159			654
Newsprint		84			111			110			101			406
Other		49			62			37			31			179
		648			710			679			627			2,664
Corrugated containers (millions of square feet)		1,061			1,065			1,205			1,132			4,463
Selected Prices (average net selling prices per short ton)
Uncoated free sheet		$	712		$	712		$	722		$	746		$	722
Containerboard		327			332			351			361			343
Newsprint		368			349			367			371			363

 

(1)  Includes 100% of the sales volume of Voyageur Panel, of which we own 47%.

 

4