UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - K/A
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 1-5057
A Delaware BOISE CASCADE CORPORATION I.R.S. Employer
Corporation 1111 West Jefferson Street Identification
P.O. Box 50 No. 82-0100960
Boise, Idaho 83728-0001
(208)384-6161
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $2.50 par value New York and Chicago
Stock Exchanges
American & Foreign Power Company Inc.
Debentures, 5% Series due 2030 New York Stock Exchange
Common Stock Purchase Rights New York and Chicago
Stock Exchanges
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K/A or any amendment to this Form 10-K/A [x].
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the price at which the stock was
sold as of the close of business on February 26, 1999: $1,751,052,982
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Shares Outstanding
Class as of February 26, 1999
Common Stock, $2.50 par value 56,371,927
Documents incorporated by reference
1. The registrant's annual report for the fiscal year ended December 31,
portions of which are incorporated by reference into Parts I, and IV
of this Form 10-K/A, and
2. Portions of the registrant's proxy statement relating to its 1999
annual meeting of shareholders to be held on April 15, 1999 ("Boise
Cascade's proxy statement"), are incorporated by reference into Part
III of this Form 10-K/A, and
3. The registrant's Income Statement from the fourth quarter fact book
for the three months ended December 31, 1998 is incorporated by
reference into Parts II and IV of this Form 10-K/A.
TABLE OF CONTENTS
PART I
Item Page
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About
Market Risk
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and
Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
PART I
ITEM 1. BUSINESS
As used in this annual report, the terms "Boise Cascade" and "we"
include Boise Cascade Corporation and its consolidated
subsidiaries and predecessors.
Boise Cascade Corporation is a major distributor of office
products and building materials and an integrated manufacturer
and distributor of paper and wood products. We are headquartered
in Boise, Idaho, with domestic and international operations. We
own and manage over 2 million acres of timberland in the United
States. We were incorporated under the laws of Delaware in 1931
under the name Boise Payette Lumber Company of Delaware, as a
successor to an Idaho corporation formed in 1913. In 1957, our
name was changed to its present form.
Financial information pertaining to each of our industry segments
and to each of our geographic areas for the years 1998, 1997, and
1996 is presented in Note 9, "Segment Information," of the Notes
to Financial Statements of our 1998 Annual Report and is
incorporated by reference.
Our sales and income are affected by the industry supply of
product relative to the level of demand and by changing economic
conditions in the markets we serve. Demand for paper and paper
products and for office products correlates closely with real
growth in the gross domestic product. Paper and paper products
operations are also affected by demand in international markets
and by inventory levels of users of these products. Our building
products businesses are dependent on repair-and-remodel activity,
housing starts, and commercial and industrial building, which in
turn are influenced by the availability and cost of mortgage
funds. Declines in building activity that may occur during
winter affect our building products businesses. In addition,
energy and some operating costs may increase at facilities
affected by cold weather. Seasonal influences, however, are
generally not significant.
We have no unusual working capital practices. We believe the
management practices followed by Boise Cascade and Boise Cascade
Office Products with respect to working capital conform to common
business practices in the United States.
We engage in acquisition and divestiture discussions with other
companies and make acquisitions and divestitures from time to
time. It is our policy to review our operations periodically and
to dispose of assets which fail to meet our criteria for return
on investment or which cease to warrant retention for other
reasons. (See Notes 1, 6, and 8 of the Notes to Financial
Statements of our 1998 Annual Report. This information is
incorporated by reference.)
OFFICE PRODUCTS
In April 1995, our then wholly owned subsidiary, Boise Cascade
Office Products Corporation ("BCOP"), completed an initial public
offering of 10,637,500 shares of common stock at a price of
$12.50 per share after giving effect to a two-for-one stock split
in the form of a dividend in May 1996. After the offering, Boise
Cascade owned 82.7% of BCOP's outstanding common stock. At
December 31, 1998, we owned 81.2% of BCOP's outstanding common
stock. (See Note 6 of the Notes to Financial Statements of our
1998 Annual Report. This information is incorporated by
reference.)
BCOP distributes a broad line of items for the office, including
office supplies, computer consumables, office furniture, paper
products, and promotional products. All of the products sold by
this segment are purchased from manufacturers or from industry
wholesalers, except office papers which are sourced primarily
from Boise Cascade's paper operations. BCOP sells these office
products directly to corporate, government, and small-and medium-
sized offices in the United States, Australia, Belgium, Canada,
France, Spain and the United Kingdom.
Customers with more than one location are sold to under the terms
of one contract (national contract). These national contracts
provide consistent pricing and product offerings to multiple
locations. If the customer desires, we also provide summary
billings, usage reporting, and other special services. At
February 26, 1999, BCOP operated 68 distribution centers. During
1998, BCOP completed acquisitions of six businesses. BCOP also
operates three retail office supply stores in Hawaii and
approximately 70 retail stores in Canada.
The following table sets forth sales dollars for BCOP for the
years indicated:
1998 1997 1996 1995 1994
______ ______ ______ ______ ______
Sales (millions) $3,067 $2,597 $1,986 $1,316 $ 909
BUILDING PRODUCTS
Boise Cascade is a major producer of lumber, plywood, and
particleboard, together with a variety of specialty wood
products. We also manufacture engineered wood products
consisting of laminated veneer lumber (LVL), which is a high-
strength engineered structural lumber product, and wood I-joists
that incorporate the LVL technology. Most of our production is
sold to independent wholesalers and dealers and through our own
wholesale building materials distribution outlets. Our wood
products are used primarily in housing, industrial construction,
and a variety of manufactured products. Wood products
manufacturing sales for 1998, 1997, 1996, 1995, and 1994 were
$861 million, $913 million, $867 million, $977 million, and
$997 million.
The following table sets forth annual practical capacities of our
wood products facilities as of December 31, 1998, and 1998
production:
Number Annual
of Practical
Mills Capacity(1) Production
______ __________ __________
(millions)
Plywood and veneer (sq. ft.) (3/8" basis)(2) 11 1,555 1,809
Lumber (board feet)(3) 8 520 566
Particleboard (sq. ft.) (3/4" basis) 1 200 190
Oriented strand board (sq. ft.)(4) 1 400 346
Laminated veneer lumber (LVL) (cubic feet)(5) 2 14 7.6
(1) Annual practical capacity is production assuming normal
operating shift configurations.
(2) Number of mills and practical capacity excludes the Medford
plywood plant which was severely damaged by fire in
September 1998. A portion of the plant is being rebuilt.
Production in 1998 includes Medford until the fire.
(3) Number of mills and practical capacity excludes the
Horseshoe Bend and Fisher sawmills which closed in September
1998. Production in 1998 includes these sawmills until the
closures.
(4) In 1995, we formed a joint venture to build an oriented
strand board (OSB) plant in Barwick, Ontario, Canada. We
own 47% of the joint venture and account for it on the
equity method. The 400 million square feet of annual
capacity represents 100% of the production volume. The
plant began production in 1997.
(5) A portion of LVL production is used in the manufacture of
I-joists.
Boise Cascade operates 16 wholesale building materials
distribution facilities. In January 1999, we started up a
facility in Chicago, Illinois. These operations market a wide
range of building materials, including lumber, plywood,
particleboard, engineered wood products, roofing, insulation,
doors, builders' hardware, and related products. These products
are distributed to retail lumber dealers, home centers
specializing in the do-it-yourself market, and industrial
customers. A portion (approximately 31% in 1998) of the wood
products required by our building materials distribution
facilities is provided by our manufacturing facilities, and the
balance is purchased from outside sources.
The following table sets forth sales volumes of our manufactured
wood products and sales dollars for building materials
distribution business for the years indicated:
1998 1997 1996 1995 1994
______ ______ ______ ______ ______
(millions)
Plywood (square feet -
3/8" basis) 1,815 1,836 1,873 1,865 1,894
Lumber (board feet) 572 657 692 711 754
Particleboard (square feet -
3/4" basis) 190 195 195 196 194
Oriented strand board (square
Feet-3/8" basis)(1) 347 151 - - -
Laminated veneer lumber
(cubic feet) 3.8 2.7 2.2 1.8 1.4
I-joists (eq. lineal feet) 106 82 74 61 55
Building materials distribution
(sales dollars) $861 $ 732 $ 690 $ 598 $ 657
(1) Includes 100% of the sales volume from our joint venture, of
which we own 47%.
TIMBER RESOURCES
Boise Cascade owns or controls approximately 2.4 million acres of
timberland in the U.S. The amount of timber we harvest each year
from our timber resources, compared with the amount we purchase
from outside sources, varies according to the price and supply of
timber for sale on the open market and according to what we deem
to be in the interest of sound management of our timberlands.
During 1998, our mills processed approximately 1.0 billion board
feet of sawtimber (timber used to make lumber and veneer) and 1.5
million cords of pulpwood (timber used in paper making); 35% of
the sawtimber and 42% of the pulpwood were harvested from our
timber resources, and the balance was acquired from various
private and government sources. Approximately 67% of the 1.0
million bone-dry units (a bone-dry unit is 2,400 dry pounds) of
hardwood and softwood chips consumed by our Northwest pulp and
paper mills in 1998 were provided from a whole-log chipping
facility, our cottonwood fiber farm, and our Northwest wood
products manufacturing facilities as residuals from the
processing of solid wood products. Of the 559,000 bone-dry units
of residual chips used in the South, 41% were provided by our
Southern wood products manufacturing facilities. Our timberlands
are managed as part of our building products and paper and paper
products segments. The impact of our timberlands on our results
of operations is included in these segments.
At December 31, 1998, 1997, and 1996 the acreages of owned or
controlled timber resources by geographic area and the
approximate percentages of total fiber requirements available
from our respective timber resources in these areas and from the
residuals from processed purchased logs are shown in the
following table:
Northwest(1) Midwest(2) South(3) Total(4)
___________________ ___________________ ___________________ ___________________
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
(thousands of acres)
Fee 1,333 1,331 1,328 308 308 308 418 418 419 2,059 2,057 2,055
Leases and contracts 44 51 51 - - - 285 284 290 329 335 341
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
1,377 1,382 1,379 308 308 308 703 702 709 2,388 2,392 2,396
Approximate % of
total fiber
requirements
available from:(5)
Owned and controlled
timber resources 29% 25% 21% 23% 23% 23% 39% 25% 25% 32% 25% 23%
Residuals from
processed purchased
logs 11 13 14 - - - 4 6 6 7 9 9
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Total 40% 38% 35% 23% 23% 23% 43% 31% 31% 39% 34% 32%
(1) Principally sawtimber.
(2) Principally pulpwood.
(3) Sawtimber and pulpwood.
(4) On December 31, 1998, our inventory of merchantable
sawtimber was approximately 7.7 billion board feet, and our
inventory of pulpwood was approximately 8.0 million cords.
At December 31, 1997, these inventories were approximately
7.7 billion board feet and approximately 7.8 million cords,
and at December 31, 1996, these inventories were
approximately 7.6 billion board feet and approximately
7.6 million cords.
(5) Assumes harvesting of company-owned and controlled timber
resources on a sustained timber yield basis and operation of
our paper and wood products manufacturing facilities at
practical capacity. Percentages shown represent weighted
average consumption on a cubic volume basis.
During 1998, 50% of our timber needs were received from private
sources, 11% were received from governmental sources, and 39%
were provided from internal sources. During 1997, these
percentages were 54%, 12%, and 34% and in 1996 were 54%, 14%, and
32%. Long-term leases generally provide Boise Cascade with
timber harvesting rights and carry with them the responsibility
for management of the timberlands. The average remaining life of
all leases and contracts is in excess of 40 years. In addition,
we have an option to purchase approximately 204,000 acres of
timberland under lease and/or contract in the South. We seek to
maximize the utilization of our timberlands through efficient
management so that the timberlands will provide a continuous
supply of wood for future needs. Site preparation, planting,
fertilizing, thinning, and logging techniques are being improved
through a variety of methods, including genetic research and
computerization.
We assume substantially all risks of loss from fire and other
casualties on all the standing timber we own, as do most owners
of timber tracts in the U.S.
Additional information pertaining to our timber resources is
presented under the caption "Timber Supply and Environmental
Issues" of the Financial Review of our 1998 Annual Report. This
information is incorporated by reference.
PAPER AND PAPER PRODUCTS
Boise Cascade is a major North American pulp and paper producer
with five paper mills. The total annual practical capacity of
the mills was approximately 2.8 million tons at December 31,
1998. Our products are sold to distributors and industrial
customers primarily by our own sales personnel.
The products manufactured by Boise Cascade, made both from virgin
and recycled fibers, include uncoated business, printing, forms,
and converting papers; newsprint; containerboard; and market
pulp. These products are available for sale to the related paper
markets, and certain of these products are sold through our
office products distribution operations. In addition,
containerboard is used by Boise Cascade in the manufacture of
corrugated containers.
Our paper mills are supplied with pulp principally from our own
integrated pulp mills. Pulp mills in the Northwest manufacture
chemical pulp primarily from wood waste produced as a by-product
of wood products manufacturing. Pulp mills in the Midwest and
South manufacture chemical, thermomechanical, and groundwood pulp
mainly from pulpwood logs and, to some extent, from purchased
wood waste and pulp from deinked recycled fiber. Wood waste is
provided by our sawmills and plywood mills in the Northwest and,
to a lesser extent, in the South, and the remainder is purchased
from outside sources. Boise Cascade currently manufactures
corrugated containers at seven plants, which have annual
practical capacity of approximately 5.0 billion square feet. The
containers produced at our plants are used to package fresh fruit
and vegetables, processed food, beverages, and many other
industrial and consumer products. We sell our corrugated
containers primarily through our own sales personnel.
The following table sets forth annual practical capacities of our
paper manufacturing locations as of December 31, 1998, and 1998
production:
Number Annual
of Practical
Machines Capacity(1) Production
________ __________ __________
(tons)
PULP AND PAPER MILLS
Jackson, Alabama
Uncoated free sheet 2 500,000 436,578
DeRidder, Louisiana
Containerboard 1 520,000 512,501
Newsprint 2 435,000 430,579
International Falls, Minnesota
Uncoated free sheet 4 550,000 511,188
St. Helens, Oregon
Uncoated free sheet 3 240,000 236,310
Market pulp - 95,000 88,266
Wallula, Washington
Uncoated free sheet 1 235,000 217,452
Market pulp 1 135,000 120,526
Containerboard 1 120,000 110,113
________ __________ __________
Total 15 2,830,000 2,663,513
======== ========== ==========
ANNUAL PRACTICAL CAPACITY BY
PRODUCT
Uncoated free sheet 1,525,000
Containerboard 640,000
Newsprint 435,000
Market pulp 230,000
_________
Total 2,830,000
=========
(1) Annual practical capacity assumes 24-hour days, 365 days per
year, except for days allotted for planned maintenance.
The following table sets forth sales volumes of paper and paper
products for the years indicated:
1998 1997 1996 1995 1994
______ ______ ______ ______ ______
(thousands of tons)
Paper
Uncoated free sheet 1,403 1,314 1,167 1,177 1,271
Containerboard 624 604 563 602 595
Newsprint 431 440 411 416 415
Market pulp 129 161 230 217 212
Discontinued grades - - 260 428 447
______ ______ ______ ______ ______
2,587 2,519 2,631 2,840 2,940
(millions of square feet)
Corrugated Containers 4,182 3,568 3,201 3,114 3,237
In November 1996, we completed the sale of our coated publication
paper business, consisting primarily of our pulp and paper mill
in Rumford, Maine, and 667,000 acres of timberlands, to The Mead
Corporation.
In October 1994, Rainy River Forest Products ("Rainy River"), our
former Canadian subsidiary, completed an initial offering of
units of its equity and debt securities. As a result of the
offering, we owned 49% of the outstanding voting common shares
and 60% of the total equity of Rainy River. Beginning January 1,
1994, we accounted for Rainy River on the equity method. In
November 1995, we divested our remaining interest in Rainy River
through Rainy River's merger with Stone-Consolidated Corporation
(now Abitibi-Consolidated).
COMPETITION
The markets we serve are highly competitive, with a number of
substantial companies operating in each. We compete in our
markets principally through price, service, quality, and value-
added products and services.
ENVIRONMENTAL ISSUES
Our discussion of environmental issues is presented under the
caption "Timber Supply and Environmental Issues" of the Financial
Review of our 1998 Annual Report. This information is
incorporated by reference. In addition, environmental issues are
discussed under "Item 3. Legal Proceedings," of this Form 10-K/A.
EMPLOYEES
As of December 31, 1998, we had 23,039 employees, 5,899 of whom
were covered under collective bargaining agreements. In 1998, we
obtained a labor contract extension effective until 2004 for our
West Coast paper employees. In April 1999, contracts covering
our International Falls, Minnesota, pulp and paper mill are
scheduled to expire.
IDENTIFICATION OF EXECUTIVE OFFICERS
Information with respect to our executive officers is set forth
in "Item 10. Directors and Executive Officers of the Registrant"
of this Form 10-K/A and is incorporated into this Part I by
reference.
CAPITAL INVESTMENT
Information concerning our capital expenditures is presented
under the caption "Investing Activities" and in the table titled
"1998 Capital Investment by Business" of the Financial Review
section of our 1998 Annual Report. This information is
incorporated by reference.
ENERGY
The paper and paper products segment is our primary energy user.
Self-generated energy sources in this segment, such as wood
wastes, pulping liquors, and hydroelectric power, provided 59% of
total 1998 energy requirements, compared with 57% in 1997 and 53%
in 1996. The energy requirements fulfilled by purchased sources
in 1998 were as follows: natural gas, 28%; electricity, 12%; and
residual fuel oil, 1%.
ITEM 2. PROPERTIES
We own substantially all of our facilities other than those in
our office products subsidiary. The majority of the office
products facilities are rented under operating leases. Regular
maintenance, renewal, and new construction programs have
preserved the operating suitability and adequacy of our
properties. Our properties are in good operating condition and
are suitable and adequate for the operations for which they are
used. We own substantially all equipment used in our facilities.
Information concerning productive capacity and the utilization of
our manufacturing facilities is presented in Item 1 of this Form
10-K/A.
Following is a list of our facilities by segment as of
February 26, 1999. Information concerning timber resources is
presented in Item 1 of this Form 10-K/A.
OFFICE PRODUCTS
68 distribution centers located in Arizona, California (2),
Colorado, Connecticut, Delaware, Florida (3), Georgia, Hawaii,
Idaho, Illinois, Indiana, Kentucky, Maine, Maryland,
Massachusetts, Michigan (3), Minnesota, Missouri (2), Nevada (2),
New Mexico, New York (2), North Carolina, Ohio (3), Oklahoma,
Oregon (2), Pennsylvania (2), Tennessee (2), Texas (2), Utah,
Vermont, Virginia, Washington (2), Wisconsin, Australia (7),
Canada (8), France (2), Spain, and the United Kingdom (2).
Approximately 73 retail outlets located in Hawaii and Canada.
BUILDING PRODUCTS
8 sawmills located in Alabama, Idaho, Oregon (3), and Washington
(3).
11 plywood and veneer plants located in Idaho, Louisiana (2),
Oregon (6), and Washington (2). Excludes the Medford, Oregon
plywood plant which was severely damaged by fire in 1998. A
portion of the plant is being rebuilt.
1 particleboard plant located in Oregon.
2 laminated veneer lumber/wood I-joists plants located in Oregon
and Louisiana.
1 wood beam plant located in Idaho.
47% owned oriented strand board joint venture located in Barwick,
Ontario, Canada.
16 wholesale building materials units located in Arizona,
Colorado (2), Idaho (2), Illinois, Minnesota, Montana, New
Mexico, Oklahoma, Texas, Utah, and Washington (4).
PAPER AND PAPER PRODUCTS
5 pulp and paper mills located in Alabama, Louisiana, Minnesota,
Oregon, and Washington. In 1996, we sold our mill in Rumford,
Maine.
6 regional service centers located in California, Georgia,
Illinois, New Jersey, Oregon, and Texas.
2 converting facilities located in Oregon and Washington. In
1996, we completed the reconfiguration of our Vancouver,
Washington, mill by shutting down its paper making abilities and
operating it only as a paper converting facility.
7 corrugated container plants located in Idaho (2), Nevada,
Oregon, Utah, and Washington (2).
ITEM 3. LEGAL PROCEEDINGS
We have been notified that we are a "potentially responsible
party" under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) or similar federal and
state laws with respect to 33 active sites where hazardous
substances or other contaminants are located. We cannot predict
with certainty the total response and remedial costs, our share
of the total costs, the extent to which contributions will be
available from other parties, or the amount of time necessary to
complete the cleanups. However, based on our investigations, our
experience with respect to cleanup of hazardous substances, the
fact that expenditures will, in many cases, be incurred over
extended periods of time, and the number of solvent potentially
responsible parties, we do not presently believe that the known
actual and potential response costs will, in the aggregate,
materially affect our financial condition or operations.
In December 1998, the Maine Environmental Protection Agency
issued Notices of Violation for air and water permit exceedances
at the Rumford, Maine, pulp and paper mill for the period 1994
until the mill was sold in 1996. We are investigating the
validity of these allegations. Should the allegations prove to
be valid, we do not expect the penalties to exceed $150,000.
We are involved in various litigation and administrative
proceedings arising in the normal course of our business. In the
opinion of management, our recovery, if any, or our liability, if
any, under any pending litigation or administrative proceeding,
including those described in the preceding paragraphs, would not
materially affect our financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our common stock is listed on the New York and Chicago Stock
Exchanges. In January 1999, we voluntarily delisted our common
stock and other securities from the Pacific Exchange due to the
lack of trading activity. The high and low sales prices for our
common stock, as well as the frequency and amount of dividends
paid on such stock, is included in Note 11, "Quarterly Results of
Operations," of the Notes to Financial Statements in our 1998
Annual Report. Additional information concerning dividends on
common stock is presented under the caption "Financing
Activities" of the Financial Review section of our 1998 Annual
Report, and information concerning restrictions on the payments
of dividends is included in Note 4, "Debt," of the Notes to
Financial Statements in our 1998 Annual Report. The approximate
number of common shareholders, based upon actual record holders
at year-end, is presented under the caption "Financial
Highlights" of our 1998 Annual Report. The information under
these captions is incorporated by reference.
SHAREHOLDER RIGHTS PLAN
The company has had a shareholder rights plan since January 1986.
The current plan took effect in December 1998. At that time, the
rights under the previous plan expired and we distributed to our
common stockholders one new right for each common share held.
The rights become exercisable ten days after a person or group
acquires 15% of our outstanding voting securities or ten business
days after a person or group commences or announces an intention
to commence a tender or exchange offer that could result in the
acquisition of 15% of these securities. Each full right, if it
becomes exercisable, entitles the holder to purchase one share of
common stock at a purchase price of $175 per share, subject to
adjustment. In addition, upon the occurrence of certain events,
and upon payment of the then-current purchase price, the rights
may "flip in" and entitle holders to buy common stock or "flip
over" and entitle holders to buy common stock in an acquiring
entity in such amount that the market value is equal to twice the
purchase price. The rights are nonvoting and may be redeemed by
the company for one cent per right at any time prior to the tenth
day after an individual or group acquires 15% of our voting
stock, unless extended, and expire in 2008. Additional details
are set forth in the Renewed Rights Agreement filed with the
Securities and Exchange Commission as Exhibit 4.2 in our Form 10-
Q dated September 30, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected financial data for
the years indicated and should be read in conjunction with the
disclosures in Item 7 and Item 8 of this Form 10-K/A:
1998(1) 1997 1996(2) 1995(3) 1994(4)
______ ______ ______ ______ ______
(expressed in millions, except
per-common-share amounts)
Assets
Current assets $1,368 $1,354 $1,355 $1,313 $ 918
Property and equipment, net 2,571 2,630 2,554 2,604 2,494
Other 1,032 986 802 739 882
______ ______ ______ ______ ______
$4,971 $4,970 $4,711 $4,656 $4,294
Liabilities and
Shareholders' Equity
Current liabilities $1,130 $ 894 $ 933 $ 770 $ 658
Long-term debt, less
current portion 1,578 1,726 1,330 1,365 1,625
Guarantee of ESOP debt 156 177 196 214 231
Minority interest 117 105 82 68 -
Other 559 455 490 545 415
Shareholders' equity 1,431 1,613 1,680 1,694 1,365
______ ______ ______ ______ ______
$4,971 $4,970 $4,711 $4,656 $4,294
Net sales $6,162 $5,494 $5,108 $5,074 $4,140
Net income (loss) before
cumulative effect of
accounting change $ (26) $ (30) $ 9 $ 352 $ (63)
Cumulative effect of
accounting change, net (8) - - - -
______ ______ ______ ______ ______
Net income (loss) $ (34) $ (30) $ 9 $ 352 $ (63)
Net income (loss) per
common share
Basic before cumulative
effect of accounting
change $ (.81) $(1.19) $ (.63) $ 6.62 $(3.08)
Cumulative effect of
accounting change (.15) - - - -
______ ______ ______ ______ ______
Basic (5) $ (.96) $(1.19) $ (.63) $ 6.62 $(3.08)
Net income (loss) per
common share
Diluted before cumulative
effect of accounting
change $ (.81) $(1.19) $ (.63) $ 5.39 $(3.08)
Cumulative effect of
accounting change (.15) - - - -
______ ______ ______ ______ ______
Diluted(5) $ (.96) $(1.19) $ (.63) $ 5.39 $(3.08)
Cash dividends declared
per common share $ .60 $ .60 $ .60 $ .60 $ .60
(1) 1998 includes a pretax charge of $37,982,000 for a company
wide cost-reduction initiative and the restructuring of
certain operations.
1998 includes a pretax gain of $45,000,000 related to an
insurance settlement for our Medford, Oregon, plywood plant
which was severely damaged by fire.
1998 includes a pretax charge of $61,900,000 for the
restructuring of our wood products manufacturing business
and a pretax charge of $19,000,000 for the revaluation of
paper-related assets.
1998 includes a net of tax charge of $8,590,000 for the
adoption of AICPA Statement of position 98-5, "Reporting on
the Costs of Start-Up Activities."
1998 net loss per common share includes a negative seven
cents related to the redemption of our Series F preferred
stock.
(2) 1996 includes a pretax gain of approximately $40,395,000 as
a result of the sale of our coated publication paper
business. In addition, approximately $15,341,000 of pretax
expense arising from related tax indemnification
requirements was recorded. Assets were reduced by
$632,246,000 as a result of the sale.
1996 includes $9,955,000 before taxes for the write-down of
paper assets.
1996 includes a gain of $2,880,000 as a result of shares
issued by BCOP for stock options and to effect various
acquisitions.
(3) 1995 includes a charge of $74,900,000 before taxes related
primarily to the write-down of certain paper assets under
the provisions of Financial Accounting Standards Board
Statement 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."
1995 includes a pretax gain of $68,900,000 as a result of
the sale of our remaining interest in Rainy River.
1995 includes a gain of $6,160,000 as a result of shares
issued by BCOP to effect various acquisitions. 1995
includes a gain of $60,000,000 from the BCOP initial public
offering.
1995 includes $32,500,000 of income taxes for the tax effect
of the difference in the book and tax bases of our stock
ownership in Rainy River.
1995 includes a pretax charge of $19,000,000 for the
establishment of reserves for the write-down of certain
paper assets. Also included is our addition to existing
reserves of $5,000,000 before taxes for environmental and
other contingencies.
(4) 1994 includes a charge of $10,200,000 before taxes as a
result of the sale of securities by Rainy River. It also
includes the recognition of a noncash charge of $20,200,000
for U.S. taxes on previously undistributed Canadian
earnings.
(5) The computation of diluted net loss per common share was
antidilutive in the years 1998, 1997, 1996, and 1994;
therefore, the amounts reported for basic and diluted loss
per share are the same. In 1997, we adopted SFAS No. 128,
"Earnings Per Share," effective December 15, 1997. As a
result, our basic earnings per share for 1995 increased
69 cents to $6.62 over the previously reported primary
income per common share. The accounting change had no
effect on any of the other reported amounts.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations are presented under the caption "Financial
Review" of our 1998 Annual Report and are incorporated by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Information concerning quantitative and qualitative disclosures
about market risk is included under the caption, "Disclosures of
Certain Financial Market Risks," in the Financial Review section
of our 1998 Annual Report and is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and related notes, together
with the report of the independent public accountants, are
presented in our 1998 Annual Report and are incorporated by
reference.
The consolidated income statement for the three months ended
December 31, 1998, is presented in our Fact Book for the fourth
quarter of 1998 and is incorporated by reference.
The 9.85% Notes issued in June 1990, the 9.9% Notes issued in
March 1990, and the 9.45% Debentures issued in October 1989 each
contain a provision under which in the event of the occurrence of
both a designated event (change of control), as defined, and a
rating decline, as defined, the holders of these securities may
require Boise Cascade to redeem the securities.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and nominees for directors are presented under the
caption "Board of Directors" in our proxy statement. This
information is incorporated by reference.
Executive Officers as of February 26, 1999
Date First
Elected as
Name Age Position or Office an Officer
________________________ ___ ____________________________ ________
George J. Harad(1) 54 Chairman of the Board and
Chief Executive Officer 5/11/82
Theodore Crumley 53 Senior Vice President and
Chief Financial Officer 5/10/90
A. Ben Groce 57 Senior Vice President 2/8/91
John W. Holleran 44 Senior Vice President and
General Counsel 7/30/91
Terry R. Lock 57 Senior Vice President 2/17/77
Christopher C. Milliken(2) 53 Senior Vice President 2/3/95
Richard B. Parrish 60 Senior Vice President 2/27/80
N. David Spence 63 Senior Vice President 12/8/87
A. James Balkins III(3) 46 Vice President 9/5/91
Stanley R. Bell 52 Vice President 9/25/90
John C. Bender 59 Vice President 2/13/90
Charles D. Blencke 55 Vice President 12/11/92
Tom E. Carlile 47 Vice President and Controller 2/4/94
Graham L. Covington 56 Vice President 9/24/98
Karen E. Gowland 40 Vice President and
Corporate Secretary 9/25/97
J. Michael Gwartney 58 Vice President 4/25/89
Vincent T. Hannity 54 Vice President 7/26/96
Guy G. Hurlbutt 56 Vice President 7/31/98
Irving Littman 58 Vice President and Treasurer 11/1/84
Jeffrey G. Lowe 57 Vice President 12/11/92
Richard W. Merson 56 Vice President 12/12/97
Carol B. Moerdyk(4) 48 Vice President 5/10/90
David A. New 48 Vice President 4/30/97
(1) Chairman of the Board, Boise Cascade Office Products
Corporation
(2) Chief Executive Officer, Boise Cascade Office Products
Corporation
(3) Senior Vice President, Chief Financial Officer, and Treasurer,
Boise Cascade Office Products Corporation
(4) Senior Vice President, North American and Australian Contract
Operations, Boise Cascade Office Products Corporation
All of the officers named above except for David A. New, who joined
the company in 1997, have been employees of Boise Cascade or one of
its subsidiaries for at least five years.
Terry M. Plummer, vice president, resigned from his position with
Boise Cascade effective October 31, 1998. J. Kirk Sullivan, vice
president, retired from his position with Boise Cascade effective
July 1, 1998. Gary M. Watson, vice president, resigned from his
position with Boise Cascade effective February 26, 1999. Terry R.
Lock, senior vice president, and J. Michael Gwartney, vice president,
will retire from their positions with Boise Cascade on March 31, 1999.
Graham L. Covington was elected vice president in September 1998.
Mr. Covington received a bachelor's degree in English from Williams
College and a MBA from the University of California at Berkeley.
Mr. Covington joined Boise Cascade in 1972 as a Paper Division sales
representative and held several managerial positions in the division's
sales and marketing organization before being named director of sales
and marketing.
Guy G. Hurlbutt was elected vice president in July 1998. Mr. Hurlbutt
received a bachelor's degree in forestry from the University of
Georgia, a law degree from the University of South Carolina, and a
master's degree in environmental law from George Washington
University. Mr. Hurlbutt joined Boise Cascade in 1984 as an associate
general counsel. He became director of environmental affairs in
August 1997 and assumed responsibility for public policy in June 1998.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning compensation of Boise Cascade's executive
officers for the year ended December 31, 1998, is presented under the
caption "Compensation Tables" in our proxy statement. This
information is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Information concerning the security ownership of
certain beneficial owners as of December 31, 1998, is
set forth under the caption "Ownership of More Than 5%
of Boise Cascade Stock" in Boise Cascade's proxy
statement and is incorporated by reference.
(b) Information concerning security ownership of management
as of December 31, 1998, is set forth under the caption
"Stock Ownership - Directors and Executive Officers" in
Boise Cascade's proxy statement and is incorporated by
reference.
(c) Information concerning compliance with Section 16 of
the Securities and Exchange Act of 1934 is set forth
under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in Boise Cascade's proxy
statement and is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
during 1998 is set forth under the caption "Business Relationships
with Directors" in Boise Cascade's proxy statement and is incorporated
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this
Form 10-K/A for Boise Cascade:
(1) Financial Statements
(i) The Income Statement for the three months ended
December 31, 1998, is incorporated by reference
from Boise Cascade's Fact Book for the fourth
quarter of 1998.
(ii) The Financial Statements, the Notes to Financial
Statements, and the Report of Independent Public
Accountants and the Report of Management are
incorporated by reference from Boise Cascade's
1998 Annual Report.
- Balance Sheets as of December 31, 1998 and
1997.
- Statements of Income (Loss) for the years
ended December 31, 1998, 1997, and 1996.
- Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996.
- Statements of Shareholders' Equity for the
years ended December 31, 1998, 1997, and
1996.
- Notes to Financial Statements.
- Report of Independent Public Accountants.
- Report of Management.
(2) Financial Statement Schedules.
None required.
(3) 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 by reference.
(b) Reports on Form 8-K.
On December 15, 1998, we filed a Form 8-K with the
Securities and Exchange Commission announcing a
company-wide cost-reduction initiative and the
restructuring of certain operations. No other
Form 8-K's were filed during the fourth quarter of
1998.
(c) Exhibits.
See Index to Exhibits.
SIGNATURES
Pursuant to the requirements of Section 12b-15 of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to
be signed on its behalf by the undersigned, thereunto duly authorized.
Boise Cascade Corporation
/s/ Tom E. Carlile
__________________________________
Tom E. Carlile
Chief Accounting Officer
Vice President and Controller
Dated: October 14, 1999
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we consent to the
incorporation of our report dated October 14, 1999, incorporated
by reference in this Form 10-K/A for the year ended December 31,
1998, into Boise Cascade Corporation's previously filed post-
effective amendment No. 1 to Form S-8 registration statement
(File No. 33-28595); post-effective amendment No. 1 to Form S-8
registration statement (File No. 33-21964); the registration
statement on Form S-8 (File No. 33-31642); the registration
statement on Form S-8 (File No. 33-45675); the registration
statement on Form S-3 (File No. 33-55396); the registration
statement on Form S-8 (File No. 33-62263); the registration
statement on Form S-8 (File No. 333-59273); the pre-effective
amendment No. 1 to Form S-3 registration statement (File No. 333-
41033); the registration statement on Form S-8 (File
No. 333-86425); and the registration statement on Form S-8
(File No. 333-86427.
ARTHUR ANDERSEN LLP
Boise, Idaho
October 14, 1999
BOISE CASCADE CORPORATION
INDEX TO EXHIBITS
Filed with the Annual Report
on Form 10-K/A for the
Year Ended December 31, 1998
Page
Number Description Number
_____ _____________________________________________ ______
11 Computation of Per Share Earnings
12 Ratio of Earnings to Fixed Charges
13.1 Incorporated sections of the Boise Cascade
Corporation 1998 Annual Report
13.2 Incorporated sections of the Boise Cascade
Corporation Fact Book for the fourth quarter
of 1998
27 Financial Data Schedule
EXHIBIT 11
Boise Cascade Corporation
Computation of Per Share Earnings
1998 1997 1996
_________ _________ _________
(expressed in thousands,
except per share amounts)
Net income (loss) as reported, before cumulative effect of accounting change $ (25,692) $ (30,410) $ 9,050
Preferred dividends (15,578) (31,775) (39,248)
Excess of Series F Preferred Stock redemption price over carrying value (3,958) - -
_________ _________ _________
Basic loss before cumulative effect of accounting change (45,228) (62,185) (30,198)
Cumulative effect of accounting change (8,590) - -
_________ _________ _________
Basic loss $ (53,818) $ (62,185) $ (30,198)
========= ========= =========
Average shares outstanding used to determine basic loss per common share 56,307 52,049 48,277
Net loss per common share
Basic loss before cumulative affect of accounting change $ (.81) $ (1.19) $ (.63)
Cumulative affect of accounting change (.15) - -
_________ _________ _________
Basic loss per common share (1) $ (.96) $ (1.19) $ (.63)
_________ _________ _________
Basic loss before cumulative effect of accounting change $ (45,228) $ (62,185) $ (30,198)
Preferred dividends eliminated 14,133 20,965 28,438
Supplemental ESOP contribution (12,079) (12,114) (12,659)
_________ _________ _________
Diluted loss before cumulative effect of accounting change (43,174) (53,334) (14,419)
Cumulative effect of accounting change (8,590) - -
_________ _________ _________
Diluted loss $ (51,764) $ (53,334) $ (14,419)
========= ========= =========
Average shares outstanding used to determine basic loss per common share 56,307 52,049 48,277
Stock options, net 204 615 735
Series G conversion preferred stock - 3,647 6,909
Series D convertible preferred stock 4,396 4,310 4,590
_________ _________ _________
Average shares used to determine diluted loss per common share 60,907 60,621 60,511
========= ========= =========
Diluted loss before cumulative effect of accounting change $ (.71) $ (.88) $ (.24)
Cumulative affect of accounting change (.14) - -
_________ _________ _________
Diluted loss per common share(1) $ (.85) $ (.88) $ (.24)
_________ _________ _________
(1) Because the computation of diluted loss per common share was antidilutive,
the diluted loss per common share reported for the years ended December 31, 1998,
1997, and 1996 were the same as basic loss per common share.
EXHIBIT 12
BOISE CASCADE CORPORATION AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
Year Ended December 31
__________________________________________________________
1998 1997 1996 1995 1994
_________ _________ _________ _________ _________
(dollar amounts expressed in thousands)
Interest costs $ 174,541 $ 153,691 $ 146,234 $ 154,469 $ 169,170
Interest capitalized
during the period 1,341 10,575 17,778 3,549 1,630
Interest factor related to
noncapitalized leases(1) 11,308 11,931 12,982 8,600 9,161
_________ _________ _________ _________ _________
Total fixed charges $ 187,190 $ 176,197 $ 176,994 $ 166,618 $ 179,961
Income (loss) before
income taxes, minority
interest, and cumulative
effect of accounting change $ (16,878) $ (28,930) $ 31,340 $ 589,410 $ (64,750)
Undistributed (earnings)
losses of less than 50%
owned persons, net of
distributions received 3,791 5,180 (1,290) (36,861) (1,110)
Total fixed charges 187,190 176,197 176,994 166,618 179,961
Less: Interest capitalized (1,341) (10,575) (17,778) (3,549) (1,630)
Guarantee of interest
on ESOP debt (14,671) (16,341) (17,874) (19,339) (20,717)
_________ _________ _________ _________ _________
Total earnings before
fixed charges $ 158,091 $ 125,531 $ 171,392 $ 696,279 $ 91,754
Ratio of earnings to
fixed charges - - - 4.18 -
Excess of fixed charges over
earnings before fixed
charges $ 29,099 $ 50,666 $ 5,602 $ - $ 88,207
(1) Interest expense for operating leases with terms of one year or longer is based on an imputed interest
rate for each lease.
EXHIBIT 13.1
FINANCIAL HIGHLIGHTS
1998 1997 1996
______________ ______________ ______________
Sales $6,162,123,000 $5,493,820,000 $5,108,220,000
Net income (loss) $ (34,282,000) $ (30,410,000) $ 9,050,000
Net income (loss)
per common share
Basic $ (.96) $(1.19) $(.63)
Diluted $ (.96) $(1.19) $(.63)
Shareholders' equity
per common share $23.89 $25.39 $27.30
Capital expenditures $313,660,000 $ 578,619,000 $ 832,167,000
Number of employees 23,039 22,514 19,976
Number of common
shareholders 17,842 19,045 20,370
Number of shares of
common stock
outstanding 56,338,426 56,223,923 48,476,366
STATEMENTS OF INCOME (LOSS)
Boise Cascade Corporation and Subsidiaries
Year Ended December 31
____________________________________
1998 1997 1996
__________ __________ __________
(expressed in thousands)
Revenues
Sales $6,162,123 $5,493,820 $5,108,220
__________ __________ __________
Costs and expenses
Materials, labor, and other
operating expenses 4,849,678 4,436,650 4,152,150
Depreciation, amortization, and
cost of company timber harvested 282,737 256,570 255,000
Selling and distribution expenses 666,759 553,240 446,530
General and administrative
expenses 150,455 139,060 119,860
Other (income) expense, net 67,443 710 (14,520)
__________ __________ __________
6,017,072 5,386,230 4,959,020
__________ __________ __________
Equity in net income (loss)
of affiliates (3,791) (5,180) 2,940
__________ __________ __________
Income from operations 141,260 102,410 152,140
__________ __________ __________
Interest expense (159,870) (137,350) (128,360)
Interest income 2,274 6,000 3,430
Foreign exchange gain (loss) (542) 10 (1,200)
Gain on subsidiary's issuance
of stock - - 5,330
__________ __________ __________
(158,138) (131,340) (120,800)
__________ __________ __________
Income (loss) before income taxes,
minority interest, and cumulative
effect of accounting change (16,878) (28,930) 31,340
Income tax (provision) benefit 959 9,260 (11,960)
__________ __________ __________
Income (loss) before minority
interest and cumulative effect
of accounting change (15,919) (19,670) 19,380
Minority interest, net of
income tax (9,773) (10,740) (10,330)
__________ __________ __________
Income (loss) before cumulative
effect of accounting change (25,692) (30,410) 9,050
Cumulative effect of accounting
change, net of income tax (8,590) - -
__________ __________ __________
Net income (loss) $ (34,282) $ (30,410) $ 9,050
========== ========== ==========
Net loss per common share
Basic and diluted before cumulative
effect of accounting change $ (.81) $(1.19) $(.63)
Cumulative effect of accounting
change (.15) - -
__________ __________ __________
Basic and diluted $ (.96) $(1.19) $(.63)
========== ========== ==========
The accompanying notes are an integral part of these Financial Statements.
BALANCE SHEETS
Boise Cascade Corporation and Subsidiaries
December 31
___________________________
Assets 1998 1997
____________ ____________
(expressed in thousands)
Current
Cash $ 66,469 $ 56,429
Cash equivalents 7,899 7,157
____________ ____________
74,368 63,586
Receivables, less allowances of $10,933,000
and $9,689,000 526,359 570,424
Inventories 625,218 633,290
Deferred income tax benefits 92,426 54,312
Other 50,035 32,061
____________ ____________
1,368,406 1,353,673
____________ ____________
Property
Property and equipment
Land and land improvements 63,307 57,260
Buildings and improvements 575,509 554,712
Machinery and equipment 4,082,724 4,055,065
____________ ____________
4,721,540 4,667,037
Accumulated depreciation (2,150,385) (2,037,352)
____________ ____________
2,571,155 2,629,685
Timber, timberlands, and timber deposits 270,570 273,001
____________ ____________
2,841,725 2,902,686
____________ ____________
Goodwill, net of amortization of $37,327,000
and $24,020,000 501,691 445,722
Investments in equity affiliates 27,162 32,848
Other assets 232,115 234,995
____________ ____________
Total assets $ 4,971,099 $ 4,969,924
============ ============
Liabilities and Shareholders' Equity
Current
Short-term borrowings $ 129,512 $ 94,800
Current portion of long-term debt 161,473 30,176
Income taxes payable - 3,692
Accounts payable 499,489 470,445
Accrued liabilities
Compensation and benefits 130,480 126,780
Interest payable 36,166 39,141
Other 172,980 128,714
____________ ____________
1,130,100 893,748
____________ ____________
Debt
Long-term debt, less current portion 1,578,136 1,725,865
Guarantee of ESOP debt 155,731 176,823
____________ ____________
1,733,867 1,902,688
____________ ____________
Other
Deferred income taxes 257,360 230,840
Other long-term liabilities 301,920 224,663
____________ ____________
559,280 455,503
____________ ____________
Minority interest 116,753 105,445
____________ ____________
Commitments and contingent liabilities
Shareholders' equity
Preferred stock - no par value; 10,000,000
shares authorized;
Series D ESOP: $.01 stated value;
5,356,648 and 5,569,684 shares
outstanding 241,049 250,636
Deferred ESOP benefit (155,731) (176,823)
Series F: $.01 stated value; 115,000
shares outstanding in 1997 - 111,043
Common stock - $2.50 par value;
200,000,000 shares authorized;
56,338,426 and 56,223,923 shares outstanding 140,846 140,560
Additional paid-in capital 420,890 416,691
Retained earnings 791,618 879,043
Accumulated other comprehensive income (loss) (7,573) (8,610)
____________ ____________
Total shareholders' equity 1,431,099 1,612,540
____________ ____________
Total liabilities and shareholders' equity $ 4,971,099 $ 4,969,924
============ ============
Shareholders' equity per common share $23.89 $25.39
============ ============
The accompanying notes are an integral part of these Financial Statements.
STATEMENTS OF CASH FLOWS
Boise Cascade Corporation and Subsidiaries
Year Ended December 31
______________________________________
1998 1997 1996
__________ __________ __________
(expressed in thousands)
Cash provided by (used for) operations
Net income (loss) $ (34,282) $ (30,410) $ 9,050
Cumulative effect of accounting
change, net of income tax 8,590 - -
Items in income (loss) not using
(providing) cash
Equity in net (income) loss
of affiliates 3,791 5,180 (2,940)
Depreciation, amortization, and
cost of company timber harvested 282,737 256,570 255,000
Deferred income tax provision
(benefit) (9,330) (18,593) (13,498)
Minority interest, net of
income tax 9,773 10,740 10,330
Restructuring charges and
write-down of assets 118,882 - 9,955
Other (654) 1,265 3,322
Gain on sales of assets - - (25,054)
Gain on subsidiary's issuance
of stock - - (5,330)
Receivables 44,331 (12,291) (3,298)
Inventories 11,030 (66,060) (15,914)
Accounts payable and accrued
liabilities 48,029 (10,523) 6,045
Current and deferred income taxes (5,480) 2,735 (37,394)
Other (8,676) (9,577) 3,229
__________ __________ __________
Cash provided by operations 468,741 129,036 193,503
__________ __________ __________
Cash provided by (used for) investment
Expenditures for property and
equipment (229,305) (279,557) (595,253)
Expenditures for timber and
timberlands (7,420) (6,232) (5,510)
Investments in equity affiliates,
net (429) (20,276) (9,736)
Purchases of assets (27,282) (246,861) (188,463)
Sales of assets - - 781,401
Other (33,672) (27,687) (26,271)
__________ __________ __________
Cash used for investment (298,108) (580,613) (43,832)
__________ __________ __________
Cash provided by (used for) financing
Cash dividends paid
Common stock (33,775) (30,176) (28,909)
Preferred stock (21,866) (39,808) (44,389)
__________ __________ __________
(55,641) (69,984) (73,298)
Short-term borrowings 34,712 58,100 19,700
Additions to long-term debt 170,122 417,989 611,158
Payments of long-term debt (187,823) (159,201) (509,456)
Series F Preferred Stock redemption (115,001) - -
Other (6,220) 7,408 11,607
__________ __________ __________
Cash provided by (used for)
financing (159,851) 254,312 59,711
__________ __________ __________
Increase (decrease) in cash and
cash equivalents 10,782 (197,265) 209,382
Balance at beginning of the year 63,586 260,851 51,469
__________ __________ __________
Balance at end of the year $ 74,368 $ 63,586 $ 260,851
========== ========== ==========
The accompanying notes are an integral part of these Financial Statements.
STATEMENTS OF SHAREHOLDERS' EQUITY
Boise Cascade Corporation and Subsidiaries
For the Years Ended December 31, 1996, 1997, and 1998
________________________________________________________________________________________________________________________________
Accumu-
lated
Other
Total Addi- Compre-
Common Share- Deferred tional hensive-
Shares holders' Preferred ESOP Common Paid-In Retained Income
Outstanding Equity Stock Benefit Stock Capital Earnings (Loss)
________________________________________________________________________________________________________________________________
(expressed in thousands)
47,759,946 Balance at December 31, 1995 $1,694,438 $ 562,747 $(213,934) $119,400 $205,107 $1,029,547 $(8,429)
_____________________________________________________________________________________________________________________________
Comprehensive income (loss)
Net income 9,050 - - - - 9,050 -
Other comprehensive income,
net of tax
Cumulative foreign currency
translation adjustment 1,520 - - - - - 1,520
Minimum pension liability
adjustment 5,563 - - - - - 5,563
_________________________________________________________________________________
Other comprehensive income 7,083 - - - - - 7,083
_________________________________________________________________________________
Comprehensive income $ 16,133
============
Cash dividends declared
Common stock (29,050) - - - - (29,050) -
Preferred stock (44,389) - - - - (44,389) -
894,981 Stock options exercised 28,531 - - 2,237 26,294 - -
(178,561) Treasury stock cancellations (16,339) (9,585) - (446) (805) (5,503) -
Other 31,167 - 17,818 - 132 13,217 -
_____________________________________________________________________________________________________________________________
48,476,366 Balance at December 31, 1996 1,680,491 553,162 (196,116) 121,191 230,728 972,872 (1,346)
_____________________________________________________________________________________________________________________________
Comprehensive income (loss)
Net loss (30,410) - - - - (30,410) -
Other comprehensive income
(loss), net of tax
Cumulative foreign currency
translation adjustment (8,135) - - - - - (8,135)
Minimum pension liability
adjustment 871 - - - - - 871
_________________________________________________________________________________
Other comprehensive loss (7,264) - - - - - (7,264)
_________________________________________________________________________________
Comprehensive loss $ (37,674)
============
Cash dividends declared
Common stock (31,415) - - - - (31,415) -
Preferred stock (36,402) - - - - (36,402) -
Conversion of Series G
6,907,440 Preferred Stock - (176,404) - 17,269 159,135 - -
842,153 Stock options exercised 28,092 - - 2,105 25,987 - -
(3,092) Treasury stock cancellations (15,193) (15,079) - (8) (18) (88) -
1,056 Other 24,641 - 19,293 3 859 4,486 -
_____________________________________________________________________________________________________________________________
56,223,923 Balance at December 31, 1997 1,612,540 361,679 (176,823) 140,560 416,691 879,043 (8,610)
_____________________________________________________________________________________________________________________________
Comprehensive income (loss)
Net loss (34,282) - - - - (34,282) -
Other comprehensive income
(loss), net of tax
Cumulative foreign currency
translation adjustment 2,181 - - - - - 2,181
Minimum pension liability
adjustment (1,144) - - - - - (1,144)
_________________________________________________________________________________
Other comprehensive income 1,037 - - - - - 1,037
_________________________________________________________________________________
Comprehensive loss $ (33,245)
============
Cash dividends declared
Common stock (33,792) - - - - (33,792) -
Preferred stock (19,161) - - - - (19,161) -
Redemption of Series F
Preferred Stock (115,001) (111,043) - - - (3,958) -
110,839 Stock options exercised 3,489 - - 277 3,212 - -
(1,433) Treasury stock cancellations (9,637) (9,587) - (4) (11) (35) -
5,097 Other 25,906 - 21,092 13 998 3,803 -
_____________________________________________________________________________________________________________________________
56,338,426 Balance at December 31, 1998 $1,431,099 $ 241,049 $(155,731) $140,846 $420,890 $ 791,618 $(7,573)
=============================================================================================================================
The accompanying notes are an integral part of these Financial Statements.
NOTES TO FINANCIAL STATEMENTS
Boise Cascade Corporation and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND USE OF ESTIMATES. The financial
statements include the accounts of the company and all
subsidiaries after elimination of intercompany balances and
transactions. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period.
OTHER (INCOME) EXPENSE, NET. "Other (income) expense, net"
includes gains and losses on the sale and disposition of
property and other miscellaneous income and expense items.
Late in the fourth quarter of 1998, we announced
companywide cost-reduction initiatives and the
restructuring of certain operations. Also, Boise Cascade
Office Products (BCOP), our 81.2%-held subsidiary, is
restructuring certain of its European operations. On
September 6, 1998, our Medford, Oregon, plywood plant was
severely damaged by fire. In the third quarter of 1998, we
recorded a net gain in the building products segment and a
loss in corporate and other related to an insurance
settlement for this fire. Late in the second quarter of
1998, we adopted a plan to restructure our wood products
manufacturing business by permanently closing four
facilities. Also in the second quarter of 1998, our paper
and paper products segment recorded a charge for the
revaluation of paper-related assets (see Note 8).
In the fourth quarter of 1996, we completed the sale of our
coated publication paper business, consisting primarily of
our pulp and paper mill in Rumford, Maine, and 667,000
acres of timberland, to The Mead Corporation. Also in
1996, we wrote down certain paper assets.
The components of "Other (income) expense, net" in the
Statements of Income (Loss) are as follows:
Year Ended December 31
______________________________
1998 1997 1996
________ ________ ________
(expressed in thousands)
Fourth-quarter restructuring charges $ 37,022 $ - $ -
Medford fire gain (45,000) - -
Second-quarter restructuring charges 80,900 - -
Asset write-down - - 9,955
Rumford sale - - (25,054)
Other, net (5,479) 710 579
________ ________ ________
$ 67,443 $ 710 $(14,520)
======== ======== ========
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
years, the computation of diluted net loss per share was
antidilutive; therefore, the amounts reported for basic and
diluted loss were the same.
Year Ended December 31
______________________________
1998 1997 1996
________ ________ ________
(expressed in thousands)
Net income (loss) as reported
before cumulative effect of
accounting change $(25,692) $(30,410) $ 9,050
Preferred dividends(1) (15,578) (31,775) (39,248)
Excess of Series F preferred
stock redemption price over
carrying value(2) (3,958) - -
________ ________ ________
Basic and diluted loss before
cumulative effect of
accounting change (45,228) (62,185) (30,198)
Cumulative effect of
accounting change,
net of income tax (8,590) - -
________ ________ ________
Basic and diluted loss(3) $(53,818) $(62,185) $(30,198)
======== ======== ========
Average shares outstanding
used to determine basic and
diluted loss per common share 56,307 52,049 48,277
======== ======== ========
(1) The dividend attributable to our Series D convertible
preferred stock held by the company's ESOP (employee
stock ownership plan) is net of a tax benefit.
(2) 1998 included a negative 7 cents related to the
redemption of the Series F preferred stock. The loss
used in the calculation of loss per share was
increased by the excess of the amount paid to redeem
the preferred stock over its carrying value.
(3) Adjustments reducing the net loss to arrive at diluted
loss totaling $2,054,000, $8,851,000, and $15,779,000
in 1998, 1997, and 1996 were excluded because the
calculation of diluted loss per share was
antidilutive. Also in 1998, 1997, and 1996, common
shares of 4,601,000, 8,572,000, and 12,234,000 were
excluded from average shares because they were
antidilutive.
In 1997, we adopted SFAS No. 128, "Earnings per Share,"
effective December 15, 1997. The accounting change had no
effect on any previously reported 1996 loss-per-share
amounts.
By July 15, 1997, 8,625,000 depositary shares of our
Series G preferred stock were converted or redeemed for
6,907,440 shares of common stock (see Note 7). Had the
conversion occurred on January 1, 1997, the reported basic
and diluted net loss per common share for the year ended
December 31, 1997, would have decreased 20 cents to 99
cents.
FOREIGN CURRENCY TRANSLATION. Local currencies are
considered the functional currencies for most of the
company's operations outside the United States. Assets and
liabilities are translated into U.S. dollars at the rate of
exchange in effect at the balance sheet date. Revenues and
expenses are translated into U.S. dollars at average
monthly exchange rates prevailing during the year.
Resulting translation adjustments are included in
"Accumulated other comprehensive income (loss)." The 1998,
1997, and 1996 foreign exchange gain and losses reported on
the Statements of Income (Loss) arose primarily from
translation adjustments where the U.S. dollar is the
functional currency.
REVENUE RECOGNITION. We recognize revenue when title to
the goods sold passes to the buyer, which is at the time of
shipment.
CASH AND CASH EQUIVALENTS. Cash equivalents consist of
short-term investments that had a maturity of three months
or less at the date of purchase. At December 31, 1998,
$18,795,000 of cash, cash equivalents, and certain
receivables of a wholly owned insurance subsidiary were
committed for use in maintaining statutory liquidity
requirements of that subsidiary.
RECEIVABLES. In late September 1998, we sold fractional
ownership interests in a defined pool of trade accounts
receivable. At December 31, 1998, $79,000,000 of sold
accounts receivable were excluded from receivables in the
accompanying balance sheet and represented an increase in
cash provided by operations. The portion of fractional
ownership interest retained by us is included in accounts
receivable in the balance sheet. This program represents a
revolving sale of receivables committed to by the
purchasers for 364 days and is subject to renewal. Costs
related to the program are included in "Other (income)
expense, net" in the Statements of Income (Loss). Under
the accounts receivable sale agreement, the maximum amount
available from time to time is subject to change based on
the level of eligible receivables, restrictions on
concentrations of receivables, and the historical
performance of the receivables we sell.
INVENTORY VALUATION. The company uses the last-in, first-
out (LIFO) method of inventory valuation for raw materials
and finished goods inventories at substantially all of our
domestic wood products and paper manufacturing facilities.
In 1998, our building products segment reduced certain
inventory quantities that were valued at lower LIFO costs
prevailing in prior years. The effect of this reduction
was to increase operating income by approximately
$6,100,000. All other inventories are valued at the lower
of cost or market, with cost based on the average or first-
in, first-out (FIFO) valuation method. Manufactured
inventories include costs for materials, labor, and factory
overhead.
Inventories include the following:
December 31
________________________
1998 1997
________ ________
(expressed in thousands)
Finished goods and work in process $456,577 $453,268
Logs 87,688 107,625
Other raw materials and supplies 145,319 149,870
LIFO reserve (64,366) (77,473)
________ ________
$625,218 $633,290
======== ========
PROPERTY. Property and equipment are recorded at cost.
Cost includes expenditures for major improvements and
replacements and the net amount of interest cost associated
with significant capital additions. Capitalized interest
was $1,341,000 in 1998, $10,575,000 in 1997, and
$17,778,000 in 1996. Substantially all of our paper and
wood products manufacturing facilities determine
depreciation by the units-of-production method, and other
operations use the straight-line method. Gains and losses
from sales and retirements are included in income as they
occur except at certain pulp and paper mills that use
composite depreciation methods. At those facilities, gains
and losses are included in accumulated depreciation.
Beginning in 1999, we will discontinue the use of composite
depreciation. This change is not expected to have a
material impact on our results of operations or financial
position. Depreciation is computed over the following
estimated useful lives:
Buildings and improvements 5 to 40 years
Furniture and fixtures 5 to 10 years
Machinery, equipment, and delivery trucks 3 to 20 years
Leasehold improvements 5 to 10 years
Cost of company timber harvested and amortization of
logging roads are determined on the basis of the annual
amount of timber cut in relation to the total amount of
recoverable timber. Timber and timberlands are stated at
cost, less the accumulated cost of timber previously
harvested.
A portion of our wood requirements are acquired from public
and private sources. Except for deposits required pursuant
to wood supply contracts, no amounts are recorded until
such time as we become liable to purchase the timber. At
December 31, 1998, based on average prices at the time, the
unrecorded amount of those contracts was estimated to be
approximately $82,000,000.
In recent years, the amount of government timber available
for commercial harvest has declined because of
environmental litigation, changes in government policy, and
other factors. More constraints on available timber supply
may be imposed. As a result, the company cannot accurately
predict future log supply. Curtailments or closures of
certain wood products manufacturing facilities are
possible.
GOODWILL. Goodwill represents the excess of purchase price
and related costs over the value assigned to the net
tangible assets of businesses acquired. Goodwill is
amortized on a straight-line basis over 40 years.
Periodically, the company reviews the recoverability of
goodwill. The measurement of possible impairment is based
primarily on the ability to recover the balance of the
goodwill from expected future operating cash flows on an
undiscounted basis. In management's opinion, no material
impairment existed at December 31, 1998. Amortization
expense was $12,893,000 in 1998, $11,037,000 in 1997, and
$6,830,000 in 1996.
INVESTMENTS IN EQUITY AFFILIATES. As of December 31, 1998,
our principal investment in affiliates accounted for using
the equity method was a 47% interest in Voyageur Panel,
which built an oriented strand board plant in Barwick,
Ontario, Canada. We have an agreement with Voyageur Panel
under which we operate the plant and market its product.
The debt of this affiliate has been issued without recourse
to the company.
DEFERRED SOFTWARE COSTS. We defer certain software costs
that benefit future years. These costs are amortized on
the straight-line method over a maximum of five years or
the expected life of the software, whichever is less.
"Other assets" in the Balance Sheets includes deferred
software costs of $47,128,000 and $31,137,000 at
December 31, 1998 and 1997. Amortization of deferred
software costs totaled $9,624,000, $4,499,000, and
$3,693,000 in 1998, 1997, and 1996. AICPA Statement of
Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," is
effective beginning in 1999. We currently account for
software costs in accordance with this statement.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE. Environmental
expenditures resulting in additions to property, plant, and
equipment that increase useful lives are capitalized, while
other environmental expenditures are charged to expense.
Liabilities are recorded when assessments and/or remedial
efforts are probable and the cost can be reasonably
estimated. For further information, see "Financial Review
- Timber Supply and Environmental Issues."
RESEARCH AND DEVELOPMENT COSTS. Research and development
costs are expensed as incurred. During 1998, research and
development expenses were $11,769,000, compared with
$10,482,000 in 1997 and $11,403,000 in 1996.
SUBSIDIARY'S ISSUANCE OF STOCK. Changes in the company's
proportionate interest in its subsidiaries from the
subsidiaries' issuance of stock to third parties are
recorded in income at the time the stock is issued by the
subsidiaries. Because we anticipated purchasing shares of
a subsidiary's stock, the change in our proportionate
interest was included in "Additional paid-in capital" in
1998 and 1997.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. As of January 1,
1998, we adopted the provisions of a new accounting
standard, AICPA Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities," which required the
write-off of previously capitalized preoperating costs.
Adoption of this standard resulted in a charge for the
cumulative effect of accounting change, net of tax, of
$8,590,000, or 15 cents per basic and diluted loss per
share, for the year ended December 31, 1998.
FINANCIAL INSTRUMENTS. At December 31, 1998, the estimated
current market value of the company's debt, based on then
current interest rates for similar obligations with like
maturities, was approximately $25,000,000 greater than the
amount of debt reported on the Balance Sheet. At
December 31, 1998, we had two interest rate swaps. The
liquidation value of the swaps, based on interest rates
available for instruments with similar characteristics,
would have been approximately $776,000. The estimated fair
values of our other financial instruments, cash and cash
equivalents, and short-term borrowings are the same as
their carrying values. In the opinion of management, we do
not have any significant concentration of credit risks.
Concentration of credit risks with respect to trade
receivables is limited due to the wide variety of customers
and channels to and through which our products are sold, as
well as their dispersion across many geographic areas. We
have only limited involvement with derivative financial
instruments and do not use them for trading purposes.
Financial instruments such as interest rate swaps, rate
hedge agreements, and forward exchange contracts are used
periodically to manage well-defined risks. Interest rate
swaps and rate hedge agreements are used to hedge
underlying debt obligations or anticipated transactions.
For qualifying hedges, the interest rate differential is
reflected as an adjustment to interest expense over the
life of the swap or underlying debt. Gains and losses
related to qualifying hedges of foreign currency firm
commitments and anticipated transactions are deferred and
recognized in income or as adjustments of carrying amounts
when the hedged transaction occurs. All other forward
exchange contracts are marked-to-market, and unrealized
gains and losses are included in current period net income.
At December 31, 1998, we had no material exposure to losses
from derivative financial instruments (see Note 4).
NEW ACCOUNTING STANDARDS. In June 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." We plan
to adopt this statement in the first quarter of 2000. We
are in the process of reviewing this new standard.
Adoption of this statement is not expected to have a
significant impact on our results of operations or
financial position.
2. INCOME TAXES
The income tax (provision) benefit shown on the Statements
of Income (Loss) includes the following:
Year Ended December 31
______________________________
1998 1997 1996
________ ________ ________
(expressed in thousands)
Current income tax (provision) benefit
Federal $ - $ - $(10,807)
State - - (11,510)
Foreign (8,371) (9,333) (3,141)
________ ________ ________
(8,371) (9,333) (25,458)
________ ________ ________
Deferred income tax(provision) benefit
Federal 410 12,597 4,189
State 1,630 2,292 10,430
Foreign 7,290 3,704 (1,121)
________ ________ ________
9,330 18,593 13,498
________ ________ ________
Total income tax (provision) benefit $ 959 $ 9,260 $(11,960)
======== ======== ========
During 1998, we made cash payments net of refunds received
of $13,033,000. In 1997, we received income tax refunds
net of cash payments of $1,332,000. In 1996, we made cash
payments net of refunds received of $55,368,000.
A reconciliation of the statutory U.S. federal tax
(provision) benefit and our reported tax (provision)
benefit is as follows:
Year Ended December 31
______________________________
1998 1997 1996
________ ________ ________
(expressed in thousands)
Statutory tax (provision) benefit $ 5,907 $ 10,128 $(10,969)
Changes resulting from:
State taxes 512 1,490 (702)
Foreign tax provision different
than theoretical rate (3,166) (4,599) (2,364)
Effect of nontaxable gain on BCOP's
issuance of stock - - 1,866
Other, net (2,294) 2,241 209
________ ________ ________
Reported tax (provision) benefit $ 959 $ 9,260 $(11,960)
======== ======== ========
At December 31, 1998, we had U.S. federal loss
carryforwards of $168,752,000 expiring in 2012 and 2018.
We believe that the loss carryforwards will be fully
realized based on future reversals of existing temporary
differences in taxable income. We also had $138,649,000 of
alternative minimum tax credits, which may be carried
forward indefinitely.
The components of the net deferred tax liability on the
Balance Sheets are as follows:
December 31
__________________________________________
1998 1997
__________________________________________
(expressed in thousands)
__________________________________________
Assets Liabil- Assets Liabil-
ities ities
_________ _________ _________ _________
Employee benefits $ 89,131 $ 22,974 $ 92,139 $ 25,250
Property and equipment and
timber and timberlands 33,299 511,528 63,875 459,982
Net operating losses 63,268 - 50,419 -
Alternative minimum tax 138,649 - 144,687 -
Reserves 60,704 8,288 21,421 909
Inventories 13,555 - 12,266 274
State income taxes 23,490 37,043 26,596 38,677
Deferred charges 6,584 6,174 404 2,776
Differences in bases
of investments 3,365 959 8,382 55,574
Other 17,500 27,513 9,561 22,836
_________ _________ _________ _________
$ 449,545 $ 614,479 $ 429,750 $ 606,278
========= ========= ========= =========
Pretax income (loss) from domestic and foreign sources is as follows:
Year Ended December 31
___________________________________
1998 1997 1996
_________ _________ _________
(expressed in thousands)
Domestic $ 2,348 $ (26,189) $ 32,452
Foreign (19,226) (2,741) (1,112)
_________ _________ _________
Pretax income (loss) $ (16,878) $ (28,930) $ 31,340
========= ========= =========
At December 31, 1998, our foreign subsidiaries had
$6,561,000 of undistributed earnings which have been
indefinitely reinvested. It is not practical to make a
determination of the additional U.S. income taxes, if any,
that would be due upon remittance of these earnings until
the remittance occurs.
Our federal income tax returns have been examined through
1993. Federal income tax returns for 1994 and 1995 are
presently under examination. Certain deficiencies have
been proposed, but we believe that we have adequately
provided for any such deficiencies and that settlements
will not have a material adverse effect on our financial
condition or results of operations.
3. LEASES
Lease obligations for which we assume substantially all
property rights and risks of ownership are capitalized.
All other leases are treated as operating leases. The
company did not have any material capital leases during any
of the periods presented. Rental expenses for operating
leases, net of sublease rentals, were $61,709,000 in 1998,
$61,422,000 in 1997, and $52,090,000 in 1996. For
operating leases with remaining terms of more than one
year, the minimum lease payment requirements, net of
sublease rentals, are $32,637,000 for 1999, $25,885,000 for
2000, $21,273,000 for 2001, $15,827,000 for 2002, and
$13,248,000 for 2003, with total payments thereafter of
$160,794,000.
Substantially all lease agreements have fixed payment terms
based upon the passage of time. Some lease agreements
provide us with the option to purchase the leased property.
Additionally, certain agreements contain renewal options
averaging seven years, with fixed payment terms similar to
those in the original lease agreements.
4. DEBT
At December 31, 1998, we had a revolving credit agreement
with a group of banks. The agreement allows us to borrow
as much as $600,000,000 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 ratio, and
ceiling ratio of debt to capitalization. Under this
agreement, the payment of dividends by the company is
dependent upon the amount of net worth in excess of the
defined minimum. Our net worth at December 31, 1998,
exceeded the defined minimum by $120,712,000. At
December 31, 1998, there was $115,000,000 outstanding under
this agreement.
BCOP has a revolving credit agreement with a group of banks
that allows them to borrow as much as $450,000,000 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.
Borrowings under BCOP's agreement were $200,000,000 at
December 31, 1998.
In October 1998, we entered into an interest rate swap with
a notional amount of $75,000,000 and an effective fixed
interest rate of 5.1% with respect to $75,000,000 of our
revolving credit agreement borrowings. BCOP also entered
into an interest rate swap with a notional amount of
$25,000,000 and an effective fixed interest rate of 5.0%
with respect to $25,000,000 of their revolving credit
agreement borrowings. Both swaps expire in 2000. We are
exposed to credit-related gains or losses in the event of
nonperformance by counterparties to these swaps; however,
we do not expect any counterparties to fail to meet their
obligations.
At December 31, 1998 and 1997, we had $57,412,000 and
$71,500,000 of short-term borrowings outstanding, and BCOP
had $72,100,000 and $23,300,000 of short-term borrowings
outstanding. The maximum amounts of short-term borrowings
outstanding during the years ended December 31, 1998 and
1997, were $279,900,000 and $164,400,000. The average
amount of short-term borrowings outstanding during the
years ended December 31, 1998 and 1997, were $190,715,000
and $52,554,000. For 1998 and 1997, the average interest
rates for these borrowings were 5.8% and 5.9%.
In May 1998, BCOP issued $150,000,000 of 7.05% notes due in
May 2005.
In February 1999, we will redeem $100,000,000 of our 9.875%
notes that were due in 2001.
At December 31, 1998, we had $489,400,000 and BCOP had
$150,000,000 of unused borrowing capacity registered with
the Securities and Exchange Commission for additional debt
securities.
The scheduled payments of long-term debt are $161,473,000
in 1999, $116,982,000 in 2000, $240,574,000 in 2001,
$240,609,000 in 2002, and $125,270,000 in 2003. Of the
total amount shown in 2001, $200,000,000 represents the
amount outstanding under BCOP's revolving credit agreement.
Of the total amount shown in 2002, $115,000,000 represents
the amount outstanding under our revolving credit
agreement.
Cash payments for interest, net of interest capitalized,
were $162,844,000 in 1998, $129,794,000 in 1997, and
$124,317,000 in 1996.
We have guaranteed the debt used to fund an employee stock
ownership plan that is part of the Savings and Supplemental
Retirement Plan for the company's U.S. salaried employees
(see Note 5). We have recorded the debt on our Balance
Sheets, along with an offset in the shareholders' equity
section that is titled "Deferred ESOP benefit." We have
guaranteed certain tax indemnities on the ESOP debt, and
the interest rate on the guaranteed debt is subject to
adjustment for events described in the loan agreement.
Long-term debt, almost all of which is unsecured, consists
of the following:
December 31
__________________________
1998(1) 1997
__________ __________
(expressed in thousands)
9.9% notes, due in 2000, net of unamortized
discount of $66,000 $ 99,934 $ 99,879
9.875% notes, due in 2001, redeemed 1999 100,000 100,000
9.85% notes, due in 2002 125,000 125,000
7.05% notes, due in 2005, net of unamortized
discount of $299,000 149,701 -
9.45% debentures, due in 2009, net of
unamortized discount of $244,000 149,756 149,734
7.35% debentures, due in 2016, net of
unamortized discount of $91,000 124,909 124,903
Medium-term notes, Series A, with interest
rates averaging 8.1% and 8.2%, due in varying
amounts through 2013 383,100 415,405
Revenue bonds and other indebtedness, with
interest rates averaging 6.7% and 6.9%,
due in varying amounts annually through
2027, net of unamortized discount of $669,000 271,357 285,301
American & Foreign Power Company Inc. 5%
debentures, due in 2030, net of unamortized
discount of $1,020,000 20,852 20,819
Revolving credit borrowings, with interest
rates averaging 5.6% and 6.3% 315,000 435,000
__________ __________
1,739,609 1,756,041
Less current portion 161,473 30,176
__________ __________
1,578,136 1,725,865
Guarantee of ESOP debt, due in
installments through 2004 155,731 176,823
__________ __________
$1,733,867 $1,902,688
========== ==========
(1) The amount of net unamortized discount disclosed
applies to long-term debt outstanding at December 31, 1998.
5. RETIREMENT AND BENEFIT PLANS
In February 1998, the Financial Accounting Standards Board
issued SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." This statement
standardizes the disclosure requirements for pensions and
other postretirement benefits. We adopted this standard at
December 31, 1998.
Substantially all of our employees are covered by
noncontributory defined benefit pension plans. The pension
benefit for salaried employees is based primarily on the
employees' years of service and highest five-year average
compensation. The benefit for hourly employees is
generally based on a fixed amount per year of service. Our
contributions to our pension plans vary from year to year,
but we have made at least the minimum contribution required
by law in each year. The assets of the pension plans are
invested primarily in common stocks, fixed-income
securities, and cash and cash equivalents.
We also sponsor contributory savings and supplemental
retirement plans for most of our salaried and hourly
employees. The program for salaried employees includes an
employee stock ownership plan. Under that plan, our
Series D ESOP convertible preferred stock (see Note 7) is
being allocated to eligible participants through 2004, as
principal and interest payments are made on the ESOP debt
guaranteed by the company. Total expense for these plans
was $22,197,000 in 1998, compared with $20,910,000 in 1997
and 20,128,000 in 1996.
The type of retiree health care benefits provided and the
extent of coverage vary based on employee classification,
date of retirement, location, and other factors. The
portion of the cost of coverage we pay for salaried
employees retiring in each year since 1986 has decreased.
Beginning in 1998, new retirees pay 100% of the cost of
their health care coverage premium. All of our
postretirement health care plans are unfunded. We
explicitly reserve the right to amend or terminate our
retiree medical plans at any time, subject only to
constraints, if any, imposed by the terms of collective
bargaining agreements. Accrual of costs pursuant to
accounting standards does not affect, or reflect, our
ability to amend or terminate these plans. Amendment or
termination may significantly impact the amount of expense
incurred.
The following table, which includes only company-sponsored
plans, reconciles the beginning and ending balances of our
benefit obligation:
Pension Benefits Other Benefits
_________________________________
1998 1997 1998 1997
______ ______ ______ ______
(expressed in millions)
Change in benefit obligation
Benefit obligation at
beginning of year $1,179 $1,089 $ 83 $ 84
Service cost 29 26 1 1
Interest cost 83 79 5 6
Amendments 10 1 - -
Actuarial (gain) loss 32 49 (1) 2
Closures and curtailments 12(1) - - -
Benefits paid (68) (65) (10) (10)
______ ______ ______ ______
Benefit obligation at
end of year $1,277 $1,179 $ 78 $ 83
====== ====== ====== ======
(1) See Note 8.
The following table reconciles the beginning and ending balances
of the fair value of plan assets:
Pension Benefits Other Benefits
_________________________________
1998 1997 1998 1997
______ ______ ______ ______
(expressed in millions)
Change in plan assets
Fair value of plan assets
at beginning of year $1,227 $1,103 $ - $ -
Actual return on plan assets 128 177 - -
Employer contribution 3 10 - -
Benefits paid (65) (63) - -
______ ______ ______ ______
Fair value of plan assets at
end of year $1,293 $1,227 $ - $ -
====== ====== ====== ======
The following table shows the funded status of our pension
plans, including amounts not recognized and recognized in
our Statements of Income (Loss). Our other benefit plans
are unfunded.
Pension Benefits
________________
1998 1997
_____ _____
(expressed in
millions)
Funded status $ 12 $ 48
Unrecognized actuarial (gain) loss (16) (30)
Unrecognized prior service cost 27 21
Unrecognized net initial asset - (1)
_____ _____
Net amount recognized $ 23 $ 38
===== =====
The following table shows the amounts recognized in our
Balance Sheets:
Pension Benefits Other Benefits
_________________________________
1998 1997 1998 1997
______ ______ ______ ______
(expressed in millions)
(Accrued)/prepaid benefit cost $ 54 $ 69 $ (92) $ (99)
Accrued benefit liability (48) (41) - -
Intangible asset 11 6 - -
Accumulated other
comprehensive income 6 4 - -
______ ______ ______ ______
Net amount recognized $ 23 $ 38 $ (92) $ (99)
====== ====== ====== ======
The assumptions used by our actuaries in the accounting for
our plans are estimates of factors that will determine
among other things, the amount and timing of future benefit
payments. We also accrue postretirement benefit costs.
The following table presents the assumptions used:
Pension Benefits Other Benefits
_____________________ _____________________
1998 1997 1996 1998 1997 1996
_____ _____ _____ _____ _____ _____
Weighted average
assumptions as
of December 31
Discount rate 7.00% 7.25% 7.50% 7.00% 7.25% 7.50%
Expected return
on plan assets 9.75% 9.75% 9.75% - - -
Rate of compensation
increase 4.50% 5.00% 5.00% - - -
For measurement purposes, a 7.0% annual rate of increase in
the per capita cost of covered health care benefits was
assumed for 1998. The initial 1992 trend rate for medical
care costs was 8.5%, which was assumed to decrease ratably
over the subsequent ten years to 6%. A 1% increase in the
trend rate for medical care costs would have increased the
December 31, 1998, benefit obligation by $1,705,000 and
postretirement health care expense for the year ended
December 31, 1998, by $146,000. A 1% decrease in the trend
rate for medical care costs would have decreased the
December 31, 1998, benefit obligation by $1,666,000 and
postretirement health care expense for the year ended
December 31, 1998, by $140,000.
The components of net periodic benefit cost are as follows:
Pension Benefits Other Benefits
_______________________________ _______________________________
Year Ended December 31 Year Ended December 31
_______________________________ _______________________________
1998 1997 1996 1998 1997 1996
_________ _________ _________ _________ _________ _________
(expressed in thousands) (expressed in thousands)
Service cost $ 28,876 $ 25,845 $ 25,843 $ 790 $ 730 $ 920
Interest cost 82,972 79,279 76,168 5,380 5,930 6,350
Expected return on plan assets (110,587) (98,739) (91,712) - - -
Recognized net initial asset (611) (2,571) (2,119) - - -
Recognized actuarial loss (gain) 531 179 568 (310) (310) (280)
Amortization of prior service
costs 3,607 3,726 4,085 (2,320) (2,320) (2,820)
_________ _________ _________ _________ _________ _________
Company-sponsored plans 4,788 7,719 12,833 3,540 4,030 4,170
Multiemployer pension plans 544 592 593 - - -
_________ _________ _________ _________ _________ _________
Net periodic benefit cost $ 5,332 $ 8,311 $ 13,426 $ 3,540 $ 4,030 $ 4,170
========= ========= ========= ========= ========= =========
The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for the pension
plans with accumulated benefit obligations in excess of
plan assets were $354,000,000, $338,000,000, and
$290,000,000 as of December 31, 1998 and $325,000,000,
$316,000,000, and $279,000,000 as of December 31, 1997.
6. BOISE CASCADE OFFICE PRODUCTS CORPORATION
On September 25, 1997, BCOP issued 2,250,000 shares of
unregistered common stock, all of which was purchased by
Boise Cascade. The transaction was completed at a price of
$21.5495 per share, for a total of $48,486,375. At
December 31, 1998, we owned 53,398,724 shares, or 81.2% of
BCOP's outstanding common stock.
In 1998, 1997, and 1996, BCOP made various acquisitions,
all of which were accounted for under the purchase method
of accounting. Accordingly, the purchase prices were
allocated to the assets acquired and liabilities assumed
based upon their estimated fair values. The initial
purchase price allocations may be adjusted within one year
of the date of purchase for changes in estimates of the
fair value of assets and liabilities. Such adjustments are
not expected to be significant to our results of operations
or financial position. The excess of the purchase price
over the estimated fair value of the net assets acquired
was recorded as goodwill and is being amortized over 40
years. The results of operations of the acquired
businesses are included in our operations subsequent to the
dates of acquisitions.
BCOP acquired six businesses during 1998, eight businesses
during 1997, and 19 businesses during 1996. Amounts paid,
acquisition liabilities recorded, debt assumed, and stock
issued for these acquisitions were as follows:
1998 1997 1996
________ ________ ________
(expressed in thousands,
except share amounts)
Cash paid $ 27,282 $254,025 $180,139
Acquisition liabilities recorded $ 49,062 $ 12,674 $ 35,346
Debt assumed $ 162 $ 10,137 $ -
Stock issued
Shares - 135,842 321,652
Value $ - $ 2,882 $ 6,886
On January 12, 1998, BCOP acquired the direct-marketing
business of Fidelity Direct, based in Minneapolis,
Minnesota. On February 28, 1998, BCOP acquired the direct-
marketing business of Sistemas Kalamazoo, based in Spain.
On August 14, 1998, BCOP acquired the contract stationer
business of Wilson's, based in Canada. On October 1, 1998,
they acquired the contract stationer business of Atlas
Office Supplies, based in Indianapolis, Indiana. On
November 2, 1998, they acquired the contract stationer
business of Midesha Enterprises, based in Memphis,
Tennessee. On November 27, 1998, they acquired the
computer consumables business of Canadisc, based in Canada.
These transactions were completed for cash of $19,897,000,
debt assumed of $162,000, and the recording of $8,062,000
of acquisition liabilities.
The 1997 amounts include the acquisition of 100% of the
shares of Jean-Paul Guisset S.A. (JPG) for approximately
FF850,000,000 (US$144,000,000) plus a price supplement
payable in the year 2000, if certain earnings and sales
growth targets are reached. The maximum amount of the
price supplement is FF300,000,000 or approximately
US$51,000,000. At the time of purchase, no liability was
recorded for the price supplement, as the amount of
payment, if any, was not assured beyond a reasonable doubt.
In 1998, a payment of US$4,430,000 was made and a payable
of US$41,000,000 was recorded based on results in 1998 and
1997. Approximately FF128,500,000 (US$20,500,000) was
repatriated to BCOP from JPG during the third quarter of
1997. In 1997, in addition to the cash paid, BCOP recorded
approximately US$5,800,000 of acquisition liabilities and
assumed US$10,137,000 of long-term debt. JPG is a direct
marketer of office products in France.
In January 1997, BCOP formed a joint venture with Otto
Versand (Otto) to begin direct marketing office products in
Europe, initially in Germany. In December 1997, Otto
purchased a 10% interest in JPG for approximately
FF72,200,000 (US$13,000,000). The sale of BCOP's interest
to Otto was at book value. In December 1998, BCOP and Otto
dissolved the joint venture. Otto acquired BCOP's 50%
interest in the joint venture. In addition, BCOP
repurchased Otto's 10% interest in JPG for $2,955,000, plus
the repayment of a loan and accrued interest from Otto of
approximately $13,700,000. JPG is now 100% owned by BCOP.
Also in 1997, BCOP acquired the assets of the promotional
products business of OstermanAPI, Inc. (Osterman), based in
Maumee, Ohio, for cash of $56,000,000 and the recording of
$882,000 of liabilities. In conjunction with the
acquisition of Osterman, 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.
The 1996 amounts include the acquisition of 100% of the
shares of Grand & Toy Limited (Grand & Toy) from Cara
Operations Limited (Toronto) for approximately
C$140,000,000 (US$102,084,000). In addition, BCOP recorded
acquisition liabilities of approximately US$9,907,000.
Grand & Toy owns and operates office products distribution
centers and approximately 70 retail stores across Canada.
Unaudited pro forma results of operations reflecting the
acquisitions, net of the impact of the minority interest,
are as follows. If the 1998 acquisitions had occurred
January 1, 1998, sales for the year ended December 31,
1998, would have increased $39,000,000, net loss would have
decreased $490,000, and basic and diluted loss per share
would have decreased 1 cent. If the 1998 and 1997
acquisitions had occurred January 1, 1997, sales for the
year ended December 31, 1997, would have increased
$217,000,000, and net loss and basic and diluted loss per
share would have been unchanged. If the 1997 and 1996
acquisitions had occurred January 1, 1996, sales for the
year ended December 31, 1996, would have increased
$417,000,000, net income would have increased $1,158,000,
and basic and diluted loss per share would have decreased 2
cents. This unaudited pro forma financial information does
not necessarily represent the actual results of operations
that would have resulted if the acquisitions had occurred
on the dates assumed.
As a result of BCOP's acquisition activity, short-term
acquisition liabilities of $5,710,000 and $14,642,000 at
December 31, 1998 and 1997, were included in "Other current
liabilities." Additionally, long-term acquisition
liabilities of $51,621,000, primarily for the JPG price
supplement, and $15,869,000 at December 31, 1998 and 1997,
were included in "Other long-term liabilities."
7. SHAREHOLDERS' EQUITY
PREFERRED STOCK. At December 31, 1998, 5,356,648 shares of
7.375% Series D ESOP convertible preferred stock were
outstanding. The stock is shown on the Balance Sheets at
its liquidation preference of $45 per share. The stock was
sold in 1989 to the trustee of our Savings and Supplemental
Retirement Plan for salaried employees (see Note 5). Each
ESOP preferred share is entitled to one vote, bears an
annual cumulative dividend of $3.31875, and is convertible
at any time by the trustee to 0.80357 share of common
stock. The ESOP preferred shares may not be redeemed for
less than the liquidation preference.
In February 1998, we redeemed 115,000 shares of our Series
F preferred stock at a price of $1,000 per preferred
share($25 per depositary share) plus accrued but unpaid
dividends.
By July 15, 1997, 8,625,000 of our depositary shares of
Series G preferred stock were converted or redeemed for
6,907,440 shares of our common stock.
COMMON STOCK. We are authorized to issue 200,000,000
shares of common stock, of which 56,338,426 shares were
issued and outstanding at December 31, 1998. Of the
unissued shares, a total of 10,022,604 shares were reserved
for the following:
Conversion of Series D ESOP preferred stock 4,304,441
Issuance under Key Executive Stock Option Plan 5,529,278
Issuance under Director Stock Compensation Plan 88,885
Issuance under Director Stock Option Plan 100,000
We have a shareholder rights plan which was adopted in
December 1988, amended in September 1990, and renewed in
September 1997. The renewed rights plan became effective
in December 1998. Details are set forth in the Renewed
Rights Agreement filed with the Securities and Exchange
Commission on November 12, 1997.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS). At
December 31, 1998, the balance shown on the Statements of
Shareholders' Equity for "Accumulated other comprehensive
income (loss)," consisted of a minimum pension liability
adjustment of $3,138,000 and a cumulative foreign currency
translation adjustment of $4,435,000. These amounts are
net of income taxes calculated at a rate of approximately
39%.
STOCK OPTIONS. We have three stock option plans, the BCC
Key Executive Stock Option Plan (KESOP), the BCC Director
Stock Compensation Plan (DSCP), and the BCC Director Stock
Option Plan (DSOP). In addition, BCOP has two stock option
plans, the BCOP Key Executive Stock Option Plan (KESOP) and
the BCOP Director Stock Option Plan (DSOP). Both the
company and BCOP account for these plans under APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Under
this opinion, the only compensation cost recognized is for
grants under the BCC DSCP and for grants under terms of
which the number of options exercisable is based on future
performance. Compensation costs recognized in 1998, 1997,
and 1996 were $244,000, $227,000, and $810,000.
Had compensation costs for these five plans been determined
consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," our 1998 net loss would have been increased
pro forma by $7,661,000, and basic and diluted loss per
share would have increased pro forma by 14 cents. The pro
forma increase to net loss in 1997 would have been
$7,222,000, and basic and diluted loss per share would have
increased 14 cents. The pro forma reductions in 1996 would
have decreased net income $7,574,000, and basic and diluted
loss per share would have increased 16 cents. The pro
forma compensation cost may not be representative of that
to be expected in future years.
The BCC KESOP provides for the grant of options to purchase
shares of our common stock to key employees of the company.
The exercise price is equal to the fair market value of our
common stock on the date the options are granted. Options
expire, at the latest, ten years and one day following the
grant date.
The 4,321,756 options outstanding at December 31, 1998,
have exercise prices between $18.125 and $43.75 and a
weighted average remaining contractual life of 6.6 years.
The fair value of each BCC option grant is estimated on the
date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for
grants in 1998, 1997, and 1996: risk-free interest rates of
5.4%, 6.0%, and 6.6%; expected dividends of 60 cents for
each year; expected lives of 4.2 years for each year, and
expected stock price volatility of 30% for each year.
A summary of the status of the BCC KESOP at December 31,
1998, 1997, and 1996, and the changes during the years then
ended is presented in the table below:
1998 1997 1996
_____________________________________________________________________
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
_____________________________________________________________________
Balance at beginning
of year 3,649,966 $33.19 4,228,736 $32.55 4,340,033 $31.28
Options granted 841,890 28.88 751,100 36.88 804,900 31.38
Options exercised (109,000) 25.30 (839,333) 28.25 (894,981) 25.02
Options expired (61,100) 39.14 (490,537) 41.80 (21,216) 44.11
_________ _________ _________
Balance at end of year 4,321,756 32.47 3,649,966 33.19 4,228,736 32.55
========= ========= =========
Exercisable at end of year 3,479,866 33.33 2,898,866 32.24 3,423,836 32.83
Weighted average fair value
of options granted
(Black-Scholes) $7.89 $10.88 $9.30
The BCC DSOP, available only to nonemployee directors,
provides for annual grants of options. The exercise price
of these options is equal to the fair market value of our
common stock on the date the options are granted. The
options expire the earlier of three years after the
director ceases to be a director or ten years after the
grant date. Total shares subject to options at
December 31, 1998, 1997, and 1996, were 70,500, 49,500, and
30,000, with weighted average exercise prices of $34.07,
$36.57, and $36.25.
The BCC DSCP permits nonemployee directors to elect to
receive grants of options to purchase shares of our common
stock in lieu of cash compensation. The difference between
the $2.50-per-share exercise price of DSCP options and the
market value of the common stock subject to the options is
intended to offset the cash compensation that participating
directors have elected not to receive. Options expire
three years after the holder ceases to be a director.
Total shares subject to options at December 31, 1998, 1997,
and 1996, were 43,172, 34,542, and 30,245.
The BCOP KESOP provides for the grant of options to
purchase shares of BCOP's common stock to key employees of
BCOP. The exercise price is equal to the fair market value
of BCOP's common stock on the date the options are granted.
One-third of the options become exercisable in each of the
three years following the grant date and expire, at the
latest, ten years following the grant date.
The 2,021,105 options outstanding at December 31, 1998,
have exercise prices between $12.50 and $26.625 and a
weighted average remaining contractual life of nine years.
The fair value of each BCOP option grant is estimated on
the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used
for grants in 1998, 1997, and 1996: risk-free interest
rates of 5.5%, 6.1%, and 5.2%; no expected dividends;
expected lives of 4.2 years for each year; and expected
stock price volatility of 35% for each year.
A summary of the status of the BCOP KESOP at December 31,
1998, 1997, and 1996, and the changes during the years then
ended is presented in the table below:
1998 1997 1996
_____________________________________________________________________
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
_____________________________________________________________________
Balance at beginning
of the year 1,490,139 $20.10 1,059,442 $18.66 647,400 $12.57
Options granted 782,200 18.22 495,700 23.08 501,200 25.54
Options exercised (152,334) 12.50 (24,468) 12.50 (75,225) 12.50
Options expired (98,900) 21.92 (40,535) 22.38 (13,933) 19.78
_________ _________ _________
Balance at end of the year 2,021,105 19.86 1,490,139 20.10 1,059,442 18.66
========= ========= =========
Exercisable at end
of the year 826,305 19.13 483,039 16.72 140,569 12.60
Weighted average fair value
of options granted
(Black-Scholes) $6.78 $8.61 $9.14
The BCOP DSOP, available only to nonemployee directors,
provides for annual grants of options. The exercise price
of options under this plan is equal to the fair market
value of BCOP's common stock on the date the options are
granted. Options expire the earlier of three years after
the director ceases to be a director or ten years after the
grant date. Total shares outstanding at December 31, 1998,
1997, and 1996, were 64,000, 39,000, and 24,000, with
weighted average exercise prices of $16.99, $18.58, and
$17.50.
Under each of the plans, options may not, except under
unusual circumstances, be exercised until one year
following the grant date.
8. RESTRUCTURING ACTIVITIES
Late in the second quarter of 1998, we adopted a plan to
restructure our wood products manufacturing business by
permanently closing four facilities, including sawmills in
Elgin, Oregon; Horseshoe Bend, Idaho; and Fisher,
Louisiana; and a plywood plant in Yakima, Washington.
These closures are due to poor financial results and a
decrease in wood supply. The Horseshoe Bend and Fisher
sawmills have closed. These closures resulted in the
termination of 182 employees. We plan to close the Elgin
sawmill and Yakima plywood plant in 1999. Approximately 312
employees will be affected by the closure of the Elgin and
Yakima facilities. The Horseshoe Bend and Fisher
facilities had sales of $30,595,000, $52,293,000, and
$49,433,000 for the years ended December 31, 1998, 1997,
and 1996, and operating losses of $7,015,000, $698,000, and
$4,659,000 for the years ended December 31, 1998, 1997, and
1996. The Elgin and Yakima facilities had sales of
$46,108,000, $46,498,000, and $57,796,000 for the years
ended December 31, 1998, 1997, and 1996, and operating
income of $3,637,000 in 1998 and operating losses of
$9,028,000, and $2,425,000 for the years ended December 31,
1997 and 1996. Future operating results will benefit from
the elimination of these losses.
The assets still to be shut down were written down to zero,
their estimated net realizable value at the expected date
of closure. Had we continued to depreciate these assets,
1998 operating expense would have increased approximately
$2,000,000.
Also in the second quarter of 1998, our paper and paper
products segment recorded a pretax charge related to the
revaluation of paper-related assets. Included in the
revaluation was the $8,000,000 write-down to zero of our
investment in a now terminated joint venture in China that
produced carbonless paper. Also written down by
approximately $5,000,000 were the fixed assets of a small
corrugating facility. We also wrote off $6,000,000 in an
investment in a bankrupt joint venture and miscellaneous
equipment that had no future value.
In the fourth quarter of 1998, we announced a companywide
cost-reduction initiative and the restructuring of certain
operations. Specific actions include the elimination of
job positions in our paper and building products
manufacturing businesses and Boise headquarters through a
combination of early retirements, layoffs, and attrition.
Our paper research and development facility in Portland,
Oregon, will close by June 1999. BCOP will close eight
facilities in the United Kingdom and integrate selected
functions of the operations with their other United Kingdom
operations. These BCOP closures are expected to be
completed during the first half of 1999 and will result in
work force reductions of approximately 140 employees. BCOP
also dissolved an unprofitable joint venture in Germany at
a cost of approximately $4,000,000.
We recorded pretax charges in 1998 as shown in the
following table. Except for $960,000 of inventory write-
downs recorded in "Material, labor, and other operating
expenses," these charges were recorded in "Other (income)
expense, net."
1998 Restructuring Charges
_________________________________________
Asset Employee- Other
Write- Related Exit
Downs Costs Costs Total
________ ________ ________ ________
(expressed in thousands)
Second Quarter
Building products $ 27,200 $ 14,000 $ 20,700 $ 61,900
Paper and paper products 18,800 200 - 19,000
Fourth Quarter
Office products 300 1,400 9,400 11,100
Building products - 2,800 - 2,800
Paper and paper products 7,200 11,300 - 18,500
Corporate and other - 5,200 400 5,600
________ ________ ________ ________
$ 53,500 $ 34,900 $ 30,500 $118,900
Asset write-downs were for plant and equipment and
investment in joint ventures. No intangible assets were
written down. Employee-related costs are primarily for
severance payments and the present value of unrecorded
early retirement benefits. Approximately $12,000,000 of
the employee-related costs will be paid by our retirement
plans and will require no cash expenditures. Other exit
costs include tear-down and environmental clean up costs
related to the closing facilities, operating lease costs
after operations cease, the write-down of contracts to
their net realizable value, and the cost to dissolve the
BCOP joint venture.
In addition to the charges recorded in 1998, we will record
another $4,400,000 of restructuring expense in first
quarter 1999. This additional noncash charge is for the
present value of unrecorded early retirement benefits. The
charges will not be accrued until the retiring individuals
legally accept the retirement offer.
Restructuring activities related to these 1998 charges
through December 31, 1998, and the reserve balances as of
that date are as follows:
Asset Employee- Other
Write- Related Exit
Downs Costs Costs Total
________ ________ ________ ________
(expressed in thousands)
SECOND QUARTER
BUILDING PRODUCTS
1998 expense recorded $ 27,200 $ 14,000 $ 20,700 $ 61,900
Assets written down (27,200) - - (27,200)
1998 charges against reserve - (4,500) (1,300) (5,800)
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 $ - $ 9,500 $ 19,400 $ 28,900
======== ======== ======== ========
PAPER AND PAPER PRODUCTS
1998 expense recorded $ 18,800 $ 200 $ - $ 19,000
Assets written down (18,800) - - (18,800)
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 $ - $ 200 $ - $ 200
======== ======== ======== ========
FOURTH QUARTER
OFFICE PRODUCTS
1998 expense recorded $ 300 $ 1,400 $ 9,400 $ 11,100
Assets written down (300) - - (300)
1998 charges against reserve - (200) (3,300) (3,500)
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 $ - $ 1,200 $ 6,100 $ 7,300
======== ======== ======== ========
BUILDING PRODUCTS
1998 expense recorded $ - $ 2,800 $ - $ 2,800
Pension liability recorded - (2,200) - (2,200)
1998 charges against reserve - - - -
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 $ - $ 600 $ - $ 600
======== ======== ======== ========
PAPER AND PAPER PRODUCTS
1998 expense recorded $ 7,200 $ 11,300 $ - $ 18,500
Assets written down (7,200) - - (7,200)
Pension liability recorded - (4,500) - (4,500)
1998 charges against reserve - (800) - (800)
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 $ - $ 6,000 $ - $ 6,000
======== ======== ======== ========
CORPORATE AND OTHER
1998 expense recorded $ - $ 5,200 $ 400 $ 5,600
Pension liability recorded - (3,200) - (3,200)
1998 charges against reserve - - - -
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 $ - $ 2,000 $ 400 $ 2,400
======== ======== ======== ========
TOTAL SECOND AND FOURTH QUARTER
1998 expense recorded $ 53,500 $ 34,900 $ 30,500 $118,900
Assets written down (53,500) - - (53,500)
Pension liability recorded - (9,900) - (9,900)
________ ________ ________ ________
Current year reserves
charged to income - 25,000 30,500 55,500
1998 charges against reserve - (5,500) (4,600) (10,100)
________ ________ ________ ________
Restructuring reserve at
December 31, 1998 $ - $ 19,500 $ 25,900 $ 45,400
======== ======== ======== ========
Charges against the reserve for other exit costs were
primarily a payment to dissolve the BCOP joint venture and
the write-down of contracts to their realizable value.
Restructuring reserve liabilities are included in "Accrued
liabilities, other" in the accompanying Balance Sheets. An
analysis of total restructuring reserve activity is as
follows:
Year Ended December 31
______________________________
1998 1997 1996
________ _______ _________
(expressed in thousands)
Balance at beginning of year $ 1,400 $ 2,300 $ 18,400
Current-year reserves
Charged to income 55,500 1,000 200
Reclassed from other accounts - - -
Charges against reserves (10,700) (1,700) (16,300)
Reserves credited to income - (200) -
________ _______ _________
Balance at end of year $ 46,200 $ 1,400 $ 2,300
The activity in 1996 and 1997 primarily relates to the
reconfiguration of our Vancouver mill which began in 1995.
The estimated number of employees impacted by the 1998
restructuring activities described above and the number who
have left the company as of December 31, 1998, are as
follows:
Employees
Employees Terminated
To Be Through
Terminated December 31, 1998
__________ _________________
Second Quarter 1998
Building products 494 182
Fourth Quarter 1998
Office products 140 -
Building products 40 -
Paper and paper products 212 47
Corporate and other 92 -
_____ _____
Total 978 229
In addition to the employees discussed above, we expect to
eliminate up to another 100 positions by not filling
already vacant positions or through normal attrition. No
reserves were established related to these job
eliminations.
9. SEGMENT INFORMATION
In 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." We adopted this statement at
December 31, 1998. Adoption of the standard had no impact
on our net income. Previously reported segment information
has been restated to conform to the new standard.
We operate our business using four reportable segments.
The segments include office products, building products,
paper and paper products, and corporate and other. These
segments represent distinct businesses that are managed
separately because of the differing products and services.
Each of these businesses requires distinct operating and
marketing strategies. Management reviews the performance
of the company based on these operating segments.
The office products segment (BCOP) is engaged in the
marketing and selling of office supplies, computer
consumables, office furniture, paper products, and
promotional products. All of the products sold by this
segment are purchased from manufacturers or from industry
wholesalers, except office papers, which are sourced
primarily from our paper operations. This segment has
operations in the United States, Australia, Canada, France,
Spain, and the United Kingdom.
The building products segment manufactures, markets, and
distributes various products that are used for
construction. These products include lumber, structural
panels, particleboard, and engineered wood products. Most
of these products are sold to independent wholesalers and
dealers and through our own wholesale building materials
distribution outlets.
The paper and paper products segment manufactures, markets,
and distributes various paper products, including uncoated
free sheet, packaging papers, newsprint, corrugated
containers, and market pulp. These products are sold to
distributors and industrial customers primarily by our own
sales personnel.
The corporate and other segment includes corporate support
staff services and related assets and liabilities.
The segments are measured on operating profits before
interest expense, income taxes, minority interest,
extraordinary items, and cumulative effect of accounting
changes. Certain expenses are allocated to the operating
segments. For some of these allocated expenses, the
related assets and liabilities remain in the corporate and
other segment. The segments follow the same accounting
principles described in the Summary of Significant
Accounting Policies. Sales between the segments are
recorded primarily at market prices.
No single customer accounts for 10% or more of consolidated
trade sales. Boise Cascade's export sales to foreign
unaffiliated customers were $163,005,000 in 1998,
$177,071,000 in 1997, and $182,889,000 in 1996.
During 1998, BCOP had foreign operations in Australia,
Canada, France, Germany, Spain, and the United Kingdom.
During 1997, BCOP had foreign operations in Australia,
Canada, France, Germany, and the United Kingdom. During
1996, BCOP had operations in Australia, Canada, and the
United Kingdom. For the years ended December 31, 1998,
1997, and 1996, BCOP's foreign operations had sales of
$695,688,000, $517,202,000, and $296,396,000. Revenues are
attributed to geographic regions based on the location of
the business. At December 31, 1998, 1997, and 1996, long-
lived assets of BCOP's foreign operations were
$344,099,000, $290,966,000, and $130,963,000.
An analysis of segment sales by product line is as follows:
Year Ended December 31
______________________________
1998 1997 1996
________ ________ ________
(expressed in thousands)
Office products
Office supplies $1,875.4 $1,723.1 $1,353.1
Office papers 394.7 334.4 286.0
Computer consumables 313.5 180.9 126.5
Office furniture 378.3 284.2 215.1
Promotional products 105.4 74.1 4.8
________ ________ ________
3,067.3 2,596.7 1,985.5
________ ________ ________
Building products
Structural panels 620.3 539.6 454.8
Lumber 513.5 608.8 538.4
Building supplies 218.1 185.8 261.2
Engineered wood products 210.1 161.6 120.8
Particleboard 58.6 61.1 64.0
Other 101.9 88.3 117.9
________ ________ ________
1,722.5 1,645.2 1,557.1
________ ________ ________
Paper and paper products
Uncoated free sheet 1,024.9 933.5 928.9
Containerboard and corrugated
containers 339.2 285.1 304.3
Newsprint 201.8 193.3 205.6
Market pulp 47.0 81.5 111.2
Other 138.7 111.2 323.2
________ ________ ________
1,751.6 1,604.6 1,873.2
________ ________ ________
Corporate and other 79.8 76.3 74.7
Intersegment eliminations (459.1) (429.0) (382.3)
________ ________ ________
Total $6,162.1 $5,493.8 $5,108.2
======== ======== ========
An analysis of our operations by segment is as follows:
Selected
Components of
Income (Loss)
________________
Depreci-
ation,
Amorti-
Equity zation,
Income in Net and Invest-
(Loss) Income Cost of ment
Sales Before (Loss) Company in
_____________________________ Taxes and of Timber Capital Equity
Inter- Minority Affil- Har- Expendi- Affil-
Trade segment Total Interest(1)(2) iates vested tures(3) Assets iates
____________________________________________________________________________________________
(expressed in millions)
YEAR ENDED DECEMBER 31, 1998
Office products $3,066.2 $ 1.1 $3,067.3 $ 121.5 $(4.2) $ 51.2 $142.5 $1,461.3 $ -
Building products 1,682.5 40.0 1,722.5 57.7 1.9 41.3 45.7 611.6 27.2
Paper and paper products 1,389.3 362.3 1,751.6 10.0 (1.5) 181.1 119.7 2,646.7 -
Corporate and other 24.1 55.7 79.8 (46.2) - 9.1 5.8 401.4 -
____________________________________________________________________________________________
Total 6,162.1 459.1 6,621.2 143.0 (3.8) 282.7 313.7 5,121.0 27.2
____________________________________________________________________________________________
Intersegment eliminations - (459.1) (459.1) - - - - (154.3) -
Interest expense - - - (159.9) - - - - -
____________________________________________________________________________________________
Consolidated totals $6,162.1 $ - $6,162.1 $ (16.9) $(3.8) $282.7 $313.7 $4,966.7 $27.2
============================================================================================
YEAR ENDED DECEMBER 31, 1997
Office products $2,595.1 $ 1.6 $2,596.7 $ 119.8 $(2.5) $ 41.1 $346.6 $1,291.5 $ 4.3
Building products 1,603.6 41.6 1,645.2 45.0 (2.7) 42.0 53.2 653.7 23.6
Paper and paper products 1,275.2 329.4 1,604.6 (11.6) - 166.2 173.0 2,760.0 4.9
Corporate and other 19.9 56.4 76.3 (44.8) - 7.3 5.8 330.0 -
____________________________________________________________________________________________
Total 5,493.8 429.0 5,922.8 108.4 (5.2) 256.6 578.6 5,035.2 32.8
_____________________________________________________________________________________________
Intersegment eliminations - (429.0) (429.0) - - - - (65.3) -
Interest expense - - - (137.3) - - - - -
____________________________________________________________________________________________
Consolidated totals $5,493.8 $ - $5,493.8 $ (28.9) $(5.2) $256.6 $578.6 $4,969.9 $32.8
============================================================================================
YEAR ENDED DECEMBER 31, 1996
Office products $1,983.5 $ 2.0 $1,985.5 $ 101.5 $ - $ 27.2 $265.1 $ 905.3 $ -
Building products 1,505.5 51.6 1,557.1 36.0 - 40.4 88.4 661.9 13.6
Paper and paper products 1,601.6 271.6 1,873.2 77.9 2.9 179.6 472.7 2,648.9 5.8
Corporate and other 17.6 57.1 74.7 (55.7) - 7.8 6.0 540.1 -
____________________________________________________________________________________________
Total 5,108.2 382.3 5,490.5 159.7 2.9 255.0 832.2 4,756.2 19.4
____________________________________________________________________________________________
Intersegment eliminations - (382.3) (382.3) - - - - (45.5) -
Interest expense - - - (128.4) - - - - -
_____________________________________________________________________________________________
Consolidated totals $5,108.2 $ - $5,108.2 $ 31.3 $ 2.9 $255.0 $832.2 $4,710.7 $19.4
============================================================================================
(1) Interest income has been allocated to our segments in
the amounts of $2,274,000 for 1998, $6,000,000 for
1997, and $3,430,000 for 1996.
(2) See Note 1 "Other (income) expense, net" and Note 8
"Restructuring activities" for an explanation of
nonroutine items affecting our segments. Significant
noncash items are discussed in Note 8.
(3) Capital expenditures include acquisitions made by BCOP
through the issuance of common stock, assumption of
debt, and recording of liabilities.
10. LITIGATION AND LEGAL MATTERS
We are involved in litigation and administrative
proceedings primarily arising in the normal course of our
business. In the opinion of management, our recovery, if
any, or our liability, if any, under any pending litigation
or administrative proceeding would not materially affect
our financial condition or operations.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
1998 1997
____________________________________ __________________________________
Fourth Third Second First Fourth Third Second First
(1) (2) (3) (4)
____________________________________ __________________________________
(expressed in millions, except per-share
and stock price information)
________________________________________________________________________________________________________________
Net sales $1,536 $1,598 $1,538 $1,490 $1,445 $1,442 $1,333 $1,274
Income from operations 19 111 (33) 44 57 33 7 5
Net income (loss) before cumulative
effect of accounting change (8) 47 (64) (1) 7 (6) (16) (15)
Cumulative effect of accounting
change, net of tax - - - (8) - - - -
Net income (loss) (8) 47 (64) (9) 7 (6) (16) (15)
Net income (loss) per share
before cumulative effect of
accounting change
Basic (.21) .77 (1.20) (.17)(5) .02 (.23) (.53) (.51)
Diluted (.21) .72 (1.20) (.17)(5) .02 (.23) (.53) (.51)
Cumulative effect of accounting
change, net of tax - - - (.15) - - - -
Net income (loss) per share
Basic (.21) .77 (1.20) (.32)(5) .02 (.23) (.53) (.51)
Diluted (.21) .72 (1.20) (.32)(5) .02 (.23) (.53) (.51)
Common stock dividends
paid per share .15 .15 .15 .15 .15 .15 .15 .15
Common stock prices(6)
High 32-3/4 33-5/8 40-3/8 37-1/8 45-9/16 43-1/4 38-3/4 38-1/8
Low 22-1/4 23-1/8 30-7/8 27-13/16 27-3/4 34-7/8 28-3/8 30-3/8
==========================================================================
(1) Includes a pretax charge of $37,982,000 for a companywide
cost-reduction initiative and the restructuring of certain
operations (see Note 8).
(2) Includes a pretax gain of $45,000,000 related to an
insurance settlement for our Medford, Oregon, plywood
plant, which was severely damaged by fire (see Note 1).
(3) Includes a pretax charge of $61,900,000 for the
restructuring of our wood products manufacturing business
and a pretax charge of $19,000,000 for the revaluation of
paper-related assets (see Note 8).
(4) Includes a net of tax charge of $8,590,000 for the adoption
of AICPA Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" (see Note 1).
(5) Includes a negative 7 cents related to the redemption of
the Series F preferred stock.
(6) Our common stock is traded principally on the New York
Stock Exchange.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Boise Cascade Corporation:
We have audited the accompanying balance sheets of Boise Cascade
Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1998 (as restated) and 1997, and the related
statements of income (loss), cash flows, and shareholders'
equity for the years ended December 31, 1998 (as restated),
1997, and 1996. These financial statements are the
responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Boise Cascade Corporation and subsidiaries as of December 31,
1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boise, Idaho
October 14, 1999
REPORT OF MANAGEMENT
The management of Boise Cascade Corporation is primarily
responsible for the information and representations contained in
this annual report. The financial statements and related notes
were prepared in conformity with generally accepted accounting
principles appropriate in the circumstances. In preparing the
financial statements, management has, when necessary, made
judgments and estimates based on currently available
information.
Management maintains a comprehensive system of internal controls
based on written policies and procedures and the careful
selection and training of employees. The system is designed to
provide reasonable assurance that assets are safeguarded against
loss or unauthorized use and that transactions are executed in
accordance with management's authorization. The concept of
reasonable assurance is based on recognition that the cost of a
particular accounting control should not exceed the benefit
expected to be derived.
Our Internal Audit staff monitors our financial reporting system
and the related internal accounting controls, which are also
selectively tested by Arthur Andersen LLP, Boise Cascade's
independent public accountants, for purposes of planning and
performing their audit of our financial statements.
The Audit Committee of the board of directors, which is composed
solely of nonemployee directors, meets periodically with
management, representatives of our Internal Audit Department,
and Arthur Andersen LLP representatives to assure that each
group is carrying out its responsibilities. The Internal Audit
staff and the independent public accountants have access to the
Audit Committee, without the presence of management, to discuss
the results of their audits, recommendations concerning the
system of internal accounting controls, and the quality of
financial reporting.
FINANCIAL REVIEW
Results of Operations
1998 1997 1996
__________________________________________________
Sales $ 6.2 billion $ 5.5 billion $ 5.1 billion
Net income (loss) $(34.3) million $(30.4) million $ 9.1 million
Net income (loss)
per diluted share $(0.96) $(1.19) $(0.63)
Net income (loss)
before nonroutine items $ 20.7 million $(30.4) million $(5.4) million
Net income (loss)
per diluted share before
nonroutine items $0.09 $(1.19) $(0.93)
(percent of sales)
Materials, labor, and other
operating expenses 78.7% 80.8% 81.3%
Selling and distribution
expenses 10.8% 10.1% 8.7%
General and administrative
expenses 2.4% 2.5% 2.3%
The net loss in 1998 includes a fourth quarter pretax charge of
$38.0 million for the elimination of job positions in our paper
and building products manufacturing businesses and Boise
headquarters, through a combination of early retirements,
layoffs, and attrition. Our paper research and development
facility in Portland, Oregon, will close by June 1999. Boise
Cascade Office Products will close eight facilities in the
United Kingdom and integrate selected functions of the
operations with their other United Kingdom operations. BCOP
also dissolved an unprofitable joint venture in Germany. The
1998 net loss also includes a second quarter pretax charge of
$80.9 million for the closure of four wood products
manufacturing facilities and the revaluation of paper-related
assets. The impact of these charges on our segments is included
in the discussion by segment that follows in this Financial
Review and in the table below. Included in the fourth quarter
charge is $5.6 million related to our Corporate and Other
segment. In addition to the charges recorded in 1998, we will
record another $4.4 million of restructuring expense in this
segment in first quarter 1999. This additional noncash charge
is for the present value of unrecorded early retirement
benefits. The charges will not be accrued until the retiring
individuals legally accept the retirement offer. For more
information on these 1998 restructuring charges, see Note 8 in
the Notes to Financial Statements and "Financial Condition and
Liquidity," and the discussion by segment in this Financial
Review.
Additionally, 1998 results include a pretax gain of
$45.0 million related to an insurance settlement for the
company's plywood plant in Medford, Oregon, which was severely
damaged by fire on September 6, 1998. This nonroutine item and
almost all of the restructuring charges discussed above are
included in "Other (income) expense, net" in the Statement of
Income (Loss). As of January 1, 1998, we adopted the provisions
of a new accounting standard, AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities." This statement
required the write-off of previously capitalized preoperating
costs, which resulted in an after-tax charge of $8.6 million, or
15 cents per diluted share. Also included in 1998 earnings per
share is a negative 7 cents per diluted share related to the
redemption of our Series F preferred stock. The after-tax and
after-minority-interest effect of these nonroutine items
negatively affected 1998 net income by $55.0 million, or $1.05
per diluted share.
Earnings in 1996 included a net pretax gain of approximately
$25.1 million from the sale of our coated publication paper
business based in Rumford, Maine. Also included in 1996
earnings was a pretax write-down of $10.0 million for paper
assets and gains of $5.3 million from a subsidiary's issuance of
stock. These items resulted in an after-tax gain of $14.5
million, or 30 cents per diluted share.
The following table shows income (loss) before taxes and
minority interest as reported and adjusted for unusual items.
Year Ended December 31
___________________________________________________________________
1998 1997 1996
____________________ ____________________ ____________________
Before Before Before
Non- Non- Non-
As routine As routine As routine
Reported Items Reported Items Reported Items
________ ________ ________ ________ ________ ________
Office products $ 121.5 $ 132.6 $ 119.8 $ 119.8 $ 101.5 $ 101.5
Building products 57.7 75.9 45.0 45.0 36.0 36.0
Paper and paper products 10.0 47.5 (11.6) (11.6) 77.9 47.5
Corporate and other (46.2) (39.1) (44.8) (44.8) (55.7) (45.7)
_______ _______ _______ _______ _______ _______
Total 143.0 216.9 108.4 108.4 159.7 139.3
_______ _______ _______ _______ _______ _______
Interest expense (159.9) (159.9) (137.3) (137.3) (128.4) (128.4)
_______ _______ _______ _______ _______ _______
Consolidated totals $ (16.9) $ 57.0 $ (28.9) $ (28.9) $ 31.3 $ 10.9
======= ======= ======= ======= ======= =======
On an overall basis, sales have increased over the last three
years, primarily as a result of growth in our office products
distribution business. This has been accomplished principally
by increasing sales in existing operations and completing
acquisitions. There has been a corresponding increase in
selling and distribution expense as a percent of sales since
office products sales have higher associated selling and
distribution costs. In 1998, materials, labor, and other
operating expenses decreased as a percent of sales primarily due
to increased sales prices in the paper and paper products
segment without a corresponding increase in costs, and lower net
wood costs in our building products segment. Depreciation
expense increased in 1998 over 1997 and 1996 due to a full year
of depreciation for our new Jackson, Alabama, paper machine.
Interest expense was $159.9 million in 1998, $137.4 million in
1997, and $128.4 million in 1996. Part of the increase in
interest expense was due to lower interest capitalized in
conjunction with significant capital additions. Capitalized
interest was $1.3 million in 1998, $10.6 million in 1997, and
$17.8 million in 1996. The amount of interest capitalized has
decreased significantly since the completion of the expansion of
the Jackson, Alabama, pulp and paper mill in April 1997. The
balance of the increase in interest expense was due primarily to
higher debt levels.
Our 1998 tax benefit rate was 5.7%. Excluding the nonroutine
items described above, the tax provision rate would have been
44%. Our 1997 tax benefit rate was 32%. We had a tax provision
rate of 46% in 1996 excluding nonroutine items. The changes in
our tax rates were due primarily to the sensitivity of the rate
to lower income levels and the mix of income sources.
We continue to improve the competitive position of our
businesses. For a discussion of the progress we've made in
achieving our business strategies, see "Strategic Progress . . .
In a Difficult Business Environment."
Office Products Distribution
1998 1997 1996
________________________________________________
Sales $ 3.1 billion $ 2.6 billion $ 2.0 billion
Segment income $121.5 million $119.8 million $101.5 million
Segment income
before nonroutine items $132.6 million $119.8 million $101.5 million
(percentage of sales)
Gross profit 25.7% 25.2% 26.1%
Operating expenses 21.7% 20.6% 21.0%
Operating expenses
before nonroutine items 21.4% 20.6% 21.0%
Operating profit 4.0% 4.6% 5.1%
Operating profit before
nonroutine items 4.3% 4.6% 5.1%
In the fourth quarter of 1998, Boise Cascade Office Products
(BCOP) entered into a plan for restructuring their operations in
the United Kingdom. The restructuring involves closing seven
small contract stationer facilities and an administrative office
and integrating selected functions with their other United
Kingdom operations. These closures are expected to be completed
during the first half of 1999.
Also during December 1998, BCOP terminated their joint venture
with Otto Versand (Otto) at a cost of about $4.0 million. As a
result of the dissolution of the joint venture, Otto acquired
BCOP's 50% interest in the joint venture. In addition, BCOP
repurchased Otto's 10% ownership interest in its French direct-
marketing subsidiary, Jean Paul Guisset S.A. (JPG). Now, JPG is
100% owned by BCOP.
As a result of the restructuring and joint-venture dissolution,
BCOP recorded charges of $11.1 million in the fourth quarter.
Going forward, BCOP will benefit from the more efficient
operations in the United Kingdom and the elimination of the
joint venture losses which totaled approximately $4.2 million
pretax in 1998.
BCOP's business strategy over the past three years has included
aggressive sales growth. This has been accomplished principally
by increasing sales in existing operations and completing
acquisitions. Same-location sales grew 11% in 1998, compared
with 1997, and 14% in 1997, compared with 1996. Both paper
price changes and foreign currency fluctuations impact same-
location sales growth. Holding paper prices constant and
excluding the impact of foreign currency changes, BCOP's same-
location sales growth would have been 12% in 1998 and 17% in
1997. BCOP completed six acquisitions in 1998, eight
acquisitions in 1997, and 19 acquisitions in 1996. In 1998,
sales of the businesses acquired during 1997 grew about $189
million. In 1997, sales of the businesses acquired during 1996
increased approximately $192 million.
The 1998 increase in gross profit as a percent of net sales,
compared with 1997, was due in part to having a full calendar
year of results for JPG. JPG has higher gross margins and
higher operating expenses than BCOP's other operations. The
1998 increase was also due to lower procurement costs and to
leveraging fixed occupancy costs over higher sales volume.
The 1997 decrease in gross profit as a percent of net sales,
compared with 1996, resulted in part from competitive pressures
on gross margins. Additionally, 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 profit in the first half
of 1996. In 1997, paper costs were more stable but
significantly lower, constraining 1997 margins.
The 1998 increase in operating expenses as a percent of sales,
compared with 1997, was partly due to having a full year of
operating expenses for JPG. The increase was also due to higher
operating cost structures, relative to revenues, for several
other European operations; additional costs associated with the
move into a new Toronto warehouse; and costs for customer
prospecting as part of BCOP's entry into Belgium. In addition,
operating expenses were negatively impacted by the European
restructuring charge and dissolution of the joint venture.
The 1997 decrease in operating expenses as a percent of sales,
compared with 1996, resulted in part from leveraging expenses
across a larger revenue base and from specific initiatives to
increase efficiency, for example, by increasing central
procurement and integrating distribution programs. The decrease
also resulted from efficiencies gained from centralized customer
service centers and centralization of the inventory rebuying
function.
In January 1999, BCOP acquired the contract stationer business
of Wallace Computer Services with annualized sales of about $40
million at the time of announcement.
In 1998, BCOP acquired six businesses, including one in Spain
and two in Canada. The annualized sales of the acquisitions
completed in 1998 were approximately $62 million at the time of
announcement.
In 1997, BCOP acquired eight businesses, including two companies
in France and one in the United Kingdom and entered into a joint
venture. The annualized sales of the acquisitions completed in
1997 were $340 million at the time of announcement.
In 1996, BCOP acquired 19 businesses, including four companies
in Canada and three in Australia. The annualized sales of the
acquisitions completed in 1996 were $460 million at the time of
announcement. Additional information about BCOP acquisitions is
in Note 6 accompanying the financial statements.
Boise Cascade holds 81.2% of BCOP's common stock.
Building Products
1998 1997 1996
_________________________________________________
Sales $ 1.7 billion $ 1.6 billion $ 1.5 billion
Segment income $57.7 million $45.0 million $36.0 million
Segment income
before nonroutine items $75.9 million $45.0 million $36.0 million
In the fourth quarter of 1998, the building products segment
recorded a pretax charge of $2.8 million, primarily for the
elimination of job positions through early retirements and
layoffs.
On September 6, 1998, our Medford, Oregon, plywood plant was
severely damaged by fire. The Medford plant fire temporarily
reduced our plywood capacity by 20%. The building products
segment realized a $46.5 million pretax gain as the result of an
insurance settlement for the loss. We are also insured for
business interruption losses while the plant is being rebuilt.
The rebuild of the plant with 200 million square feet of
capacity should be completed by the end of 1999.
Late in the second quarter of 1998, we adopted a plan to
restructure our wood products manufacturing business by
permanently closing sawmills in Elgin, Oregon; Horseshoe Bend,
Idaho; and Fisher, Louisiana; and a plywood plant in Yakima,
Washington. The building products segment recorded a pretax
charge of $61.9 million related to these closures. At year-end,
the sawmills in Fisher and Horseshoe Bend had been closed. We
will close the Elgin sawmill and the Yakima plywood plant in
1999. The effect of these closures will be to reduce our
plywood capacity by about 11% and our lumber capacity by about
28%. The Horseshoe Bend and Fisher facilities had sales of
$30,595,000, $52,293,000, and $49,433,000 for the years ended
December 31, 1998, 1997, and 1996, and operating losses of
$7,015,000, $698,000, and $4,659,000 for the years ended
December 31, 1998, 1997, and 1996. The Elgin and Yakima
facilities had sales of $46,108,000, $46,498,000, and
$57,796,000 for the years ended December 31, 1998, 1997, and
1996, and operating income of $3,637,000 in 1998 and operating
losses of $9,028,000, and $2,425,000 for the years ended
December 31, 1997 and 1996. Future operating results will
benefit from the elimination of these losses.
Sales increased in 1998, relative to the prior years, primarily
because of growth in building materials distribution. Building
materials distribution sales were $861 million in 1998, $732
million in 1997, and $690 million in 1996. The sales growth
increase resulted partly from the addition of three facilities
in 1996 and one in 1997, as well as increasing sales at existing
locations. Sales growth in engineered wood products and
structural panels also contributed to the increase. Price
declines of 8% in lumber and 2% in plywood, along with a 13%
decline in lumber sales volume, partially offset the overall
increase in sales in 1998, compared with 1997. In 1997, prices
for lumber were up 10%, and prices for plywood were up 3% over
those of 1996, while sales volumes for plywood and lumber were
down slightly, compared with 1996.
Excluding nonroutine items, the increase in operating income in
1998 over 1997 was due to lower net wood costs and positive LIFO
reserve adjustments arising primarily from lower log inventory
levels. Increased contributions from our growing engineered
wood products and building materials distribution businesses and
oriented strand board (OSB) joint venture also contributed to
the improved performance. However, decreasing sales prices in
1998, compared with 1997, as discussed above, partially offset
these favorable variances.
The improvement in 1997 segment income, compared with 1996, was
primarily due to higher average annual prices for lumber and
plywood. These favorable price variances were partially offset
by unfavorable net wood and conversion costs and less favorable
LIFO reserve adjustments.
Late in 1996, we started up an engineered wood products facility
in Alexandria, Louisiana, with the capacity to produce 4.4
million cubic feet of laminated veneer lumber and wood I-joists
annually. In 1998, the facility ran at 41% of capacity, and in
1997, the facility ran at 27% of capacity. In 1998, we added
3.6 million cubic feet of capacity, for a total of 8.0 million
cubic feet.
In May 1997, our joint venture, Voyageur Panel, started up an
OSB plant in Barwick, Ontario, Canada. At year-end 1998, the
plant was operating at full capacity. The plant has the
capacity to produce 400 million square feet of OSB panels
annually. Boise Cascade holds 47% of the equity, operates the
plant, and markets the product. We account for the joint
venture on the equity method. Accordingly, its sales are not
included in the building products segment sales. Segment
results do include $1.9 million of equity in earnings in 1998
and $2.7 million of equity in losses in 1997 from this joint
venture.
Paper and Paper Products
1998 1997 1996
___________________________________________________
Sales $ 1.8 billion $ 1.6 billion $ 1.9 billion
Segment income (loss) $10.0 million $(11.6) million $77.9 million
Segment income (loss)
before nonroutine items $47.5 million $(11.6) million $47.5 million
In the fourth quarter of 1998, the paper and paper products
segment recorded a pretax charge of $18.5 million for the
restructuring of the paper manufacturing business, primarily by
eliminating positions through a combination of early retirements
and layoffs, and the closure of our paper research and
development facility in Portland, Oregon, in 1999.
In the second quarter of 1998, our paper and paper products
segment recorded a pretax charge related to the revaluation of
paper-related assets. Included in the revaluation was the
$8 million write-down to zero of our investment in a now
terminated joint venture in China that produced carbonless
paper. Also written down by approximately $5 million were the
fixed assets of a small corrugating facility. We also wrote off
$6 million in an investment in a bankrupt joint venture and
miscellaneous equipment that had no future value.
In 1996, this segment recorded a nonroutine gain of
approximately $40.4 million from the sale of our coated
publication paper business in Rumford, Maine, on November 1,
1996, offset by a $10.0 million write-down of certain other
paper assets. In 1996, Rumford contributed $21.1 million of
operating income.
Segment sales increased 9% in 1998. Contributing to this
increase was a 3% increase in weighted average product prices,
along with nearly a 3% increase in overall sales volume. The
increase in volume in 1998 was due primarily to operating our
new Jackson, Alabama, paper machine at close to full capacity,
offset in part by 84,000 tons of market- and weather-related
production curtailments taken during the year. Sales volume
from the new Jackson machine totaled 308,000 tons in 1998. In
1998, a significant amount of our uncoated free sheet sales
volume from our smaller paper machines -- 21%, or 298,000 tons -
- - was from value-added grades, a 7% increase over 1997. Value-
added grades generally have higher unit costs than commodities
but also higher net sales prices and profit margins. Overall,
the net selling price of the 302,000 tons of value-added grades
we sold in 1998 was $257 per ton higher than the net selling
price of our commodities. The spread in 1997 was $287 per ton,
and in 1996, excluding Rumford, $268 per ton.
Sales declined 14% in 1997, compared with 1996, primarily
because of the sale of our Rumford facility. In 1996, the
Rumford facility contributed $308.8 million of sales. Also in
1997, weighted average product prices were down 10%, and unit
sales volumes were down 4%. The decrease in unit sales volume
from 1996 to 1997 was the result of the sale of Rumford, which
contributed 365,000 tons of sales volume in 1996, offset in part
by increased production from our existing machines and the
start-up of the new Jackson machine in April 1997. Sales volume
from the new Jackson machine totaled 174,000 tons of uncoated
free sheet paper in 1997.
Excluding nonroutine items, operating income increased in 1998
because of higher average paper prices and a modest increase in
unit sales volume. The decrease between adjusted operating
income in 1996 and the loss reported in 1997 was due primarily
to lower paper prices, modestly lower sales volumes, and the
1996 contribution from the Rumford mill. Offsetting price and
volume declines in 1997 was a 5% decrease in unit manufacturing
costs, excluding costs at Rumford.
Financial Condition and Liquidity
Operating Activities. Cash provided by operations was $468.7
million in 1998, $129.0 million in 1997, and $193.5 million in
1996. The increase in 1998 was due, in part, to improved
operating results, including the Medford fire insurance
settlement gain and changes in working capital. In late
September 1998, we sold fractional ownership interests in a
defined pool of trade accounts receivable. At December 31,
1998, $79,000,000 of the sold accounts receivable were excluded
from receivables in the balance sheet and represent an increase
in cash provided by operations. The lower amounts in 1997 and
1996 were primarily due to lower income levels, after adjusting
for noncash items, and higher inventory and receivable balances.
Our working capital ratio was 1.21:1 in 1998, compared with
1.51:1 in 1997.
Investing Activities. Total capital investment in 1998 was
$313.7 million, compared with total capital investments of
$578.6 million in 1997 and $832.2 million in 1996. Amounts
include acquisitions made by BCOP through the issuance of its
common stock, assumption of debt, and recording of liabilities.
Capital investment in 1999 is expected to be approximately $300
million, excluding acquisitions, and will be allocated to cost-
saving, modernization, expansion, replacement, maintenance, and
environmental and safety projects. Cash used for investment was
$298.1 million in 1998, $580.6 million in 1997, and
$43.8 million in 1996. Cash expenditures for property and
equipment, timber and timberlands, and investments in equity
affiliates totaled $237.2 million in 1998, $306.1 million in
1997, and $610.5 million in 1996. The decreasing amounts are
primarily due to the completion of the Jackson pulp and paper
mill expansion in 1997. Cash purchases of assets, primarily due
to BCOP's expansion program, totaled $27.3 million in 1998,
$246.9 million in 1997, and $188.5 million in 1996. Sources of
cash in 1996 include cash proceeds totaling $781.4 million from
sales of assets, primarily Rumford.
Financing Activities. Cash used for financing was
$159.9 million in 1998. Cash provided by financing was
$254.3 million in 1997 and $59.7 million in 1996. Dividend
payments totaled $55.6 million in 1998, compared with
$70.0 million and $73.3 million in 1997 and 1996. The decrease
is due to the conversion of our Series G preferred stock into
6.9 million shares of common stock in 1997 and the redemption of
our Series F preferred stock for $115 million in cash in early
1998. In all three years, our quarterly cash dividend was 15
cents per common share. In 1998, short-term borrowings,
primarily notes payable, increased $34.7 million, compared with
increases of $58.1 million and $19.7 million in 1997 and 1996.
At December 31, 1998, we had $57.4 million of short-term
borrowings outstanding, and BCOP had $72.1 million of short-term
borrowings outstanding. At December 31, 1997, we had
$71.5 million of short-term borrowings outstanding, while BCOP
had $23.3 million outstanding. Long-term debt decreased
$17.7 million in 1998 and increased $258.8 million and
$101.7 million in 1997 and 1996. The increases in 1997 and 1996
were primarily due to our expansion at the Jackson mill and
BCOP's acquisition program.
At December 31, 1998 and 1997, we had $2.0 billion of debt
outstanding. Our debt-to-equity ratio was 1.41:1 and 1.26:1 at
December 31, 1998 and 1997.
Our debt and debt-to-equity ratio include the guarantee by the
company of the remaining $155.7 million of debt incurred by the
trustee of our leveraged Employee Stock Ownership Plan. While
that guarantee has a negative impact on our debt-to-equity
ratio, it has virtually no effect on our cash coverage ratios or
on other measures of our financial strength.
We have a revolving credit agreement with a group of banks that
permits us to borrow as much as $600 million based on customary
indices. As of December 31, 1998, borrowings under the
agreement totaled $115 million. When the agreement expires in
June 2002, any amount outstanding will be due and payable. In
October 1998, we entered into an interest rate swap with a
notional amount of $75 million that expires in 2000. This swap
results in an effective fixed interest rate with respect to
$75 million of our revolving credit agreement borrowings. The
payment of dividends is dependent on the existence of and the
amount of net worth in excess of the defined minimum under the
agreement. As of December 31, 1998, we were in compliance with
our debt covenants, and our net worth exceeded the defined
minimum by $121 million.
At December 31, 1998, we had $489.4 million of borrowing
capacity for additional debt securities registered with the
Securities and Exchange Commission.
BCOP has a $450 million revolving credit agreement with a group
of banks that expires in June 2001 and provides variable
interest rates based on customary indices. In October 1998,
BCOP entered into an interest rate swap with a notional amount
of $25 million that expires in 2000. This swap results in an
effective fixed interest rate with respect to $25 million of
BCOP's revolving credit agreement borrowings. As of
December 31, 1998, BCOP had outstanding borrowings of
$200 million under this agreement and was in compliance with its
debt covenants.
1998 Capital Investment by Business
Replace-
ment,
Timber Environ-
Quality/ and mental,
Expan- Effi- Timber- and
sion ciency(1) lands Other Total
_____________________________________________________________________________
(expressed in millions)
_____________________________________________________________________________
Office products(2) $ 82 $ 56 $- $ 5 $143
Building products 12 14 4 16 46
Paper and paper products 18 25 3 73 119
Corporate and other - - - 6 6
_______________________________________________
Total $112 $ 95 $ 7 $100 $314
===============================================
(1) Quality and efficiency projects include quality
improvements, modernization, energy, and cost-saving
projects.
(2) Capital expenditures include acquisitions made by BCOP
through the issuance of common stock, assumption of debt,
and recording of liabilities.
In April 1998, BCOP registered $300 million of shelf capacity
with the Securities and Exchange Commission. On May 12, 1998,
BCOP issued $150 million of 7.05% notes under this registration
statement. The notes are due May 15, 2005. Proceeds from the
issuance were used to repay borrowings under BCOP's revolving
credit agreement. BCOP has $150 million of borrowing capacity
remaining under this registration statement.
Additional information about our credit agreements and debt is
in Note 4 accompanying the financial statements.
In February 1998, we redeemed 115,000 shares of our Series F
preferred stock at a price of $1,000 per preferred share ($25
per depositary share) plus accrued but unpaid dividends. By
July 15, 1997, we converted or redeemed 8.625 million depositary
shares of our Series G conversion preferred stock for
6.907 million shares of common stock.
In February 1999, we redeemed $100 million of our 9.875% notes
that were due in 2001. In addition we estimate that the
restructuring programs announced in 1998 will require cash
outlays of approximately $23 million in 1999. These and our
other cash requirements will be funded through a combination of
cash flows from operations, borrowings under our existing credit
facilities, and issuance of new debt or equity securities.
Cash expenditures for the restructuring programs announced in
1998 totaled approximately $8.8 million in 1998, including
$4.2 million for employee-related costs and $4.6 million for
other exit costs, primarily the payment to dissolve the BCOP
German joint venture.
We expect the restructuring programs announced in 1998 to be
cash flow positive in 1999. We estimate that the programs will
require cash outlays before any savings of approximately
$23.0 million in 1999. These expected cash payments in 1999
include $13.0 million for employee-related costs, $10.0 million
for other exit costs including $7.0 million for lease and other
contract terminations, and $2.0 million for tear-down and
environmental costs. Cash requirements related to our
restructuring in 2000 and beyond are expected to total
$17.0 million with most of that occurring in 2000 or early 2001.
This and our other cash requirements, will be funded through a
combination of cash flows from operations, borrowings under our
existing credit facilities, and issuance of new debt or equity
securities.
As we implement our restructuring initiatives and other cost
saving measures, we anticipate annualized pretax cost savings of
approximately $70.0 million by 2000. We estimate that about
$64.0 million of that savings will be cash savings. About 60%
of the savings is expected in our paper and paper products
segment with the balance spread among our other three segments.
We believe inflation has not had a material effect on our
financial condition or results of operations. However, there
can be no assurance that we will not be affected by inflation in
the future. Our sales overall are not subject to significant
seasonal variations.
Disclosures of Certain Financial Market Risks
Changes in interest rates and currency rates expose the company
to financial market risk. Our debt is predominantly fixed-rate.
We experience only modest changes in interest expense when
market interest rates change. Most foreign currency
transactions have been conducted in the local currencies,
limiting our exposure to changes in currency rates.
Consequently, our market risk-sensitive instruments do not
subject us to material market risk exposure. Changes in our
debt and our continued international expansion could increase
these risks. To manage volatility relating to these exposures,
we may enter into various derivative transactions such as
interest rate swaps, rate hedge agreements, and forward exchange
contracts. We had no material exposure to losses from
derivative financial instruments held at December 31, 1998. We
do not use derivative financial instruments for trading
purposes.
The following table provides information about our derivative
financial instruments and other financial instruments that are
sensitive to changes in interest rates, including interest rate
swaps and debt obligations. For debt obligations, the table
presents principal cash flows and related weighted average
interest rates by expected maturity dates. For interest rate
swaps, the table presents notional amounts and weighted average
interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments
to be exchanged under the contract. For obligations with
variable interest rates, the table sets forth payout amounts
based on current rates and does not attempt to project future
interest rates. We have other instruments that are subject to
market risk, such as obligations for pension plans and other
postretirement benefits, that are not reflected in the table.
December 31
__________________________________________
1998 1997
_____________________ ___________________
There- Fair Fair
1999 2000 2001 2002 2003 after Total Value Total Value
________________________________________________________________________________________________________________________________
(in millions)
Debt (excludes ESOP debt
guarantee)
Short-term borrowings $129.5 - - - - - $ 129.5 $ 129.5 $ 94.8 $ 94.8
Average interest rates 6.1% - - - - - 6.1% - 7.0% -
Long-term debt
Fixed-rate debt $160.7 $116.2 $ 64.8 $199.8 $124.9 $854.6 $1,521.0 $1,544.9 $1,305.1 $1,424.6
Average interest rates 9.0% 9.8% 7.0% 8.1% 9.0% 7.4% 8.0% - 8.3% -
Variable-rate debt $ 0.8 $ 0.8 $175.8 $ 40.8 $ 0.4 - $ 218.6 $ 218.6 $ 450.9 $ 450.9
Average interest rates 3.7% 3.7% 5.8% 5.9% 3.6% - 5.8% - 6.1% -
Interest rate swaps
Notional principal amount of
interest rate exchange
agreements (variable to
fixed) - $100.0 - - - - $ 100.0 $ 0.8 - -
Average pay rate - 4.7% - - - - 4.7% - - -
Average receive rate - 5.1% - - - - 5.1% - - -
Timber Supply and Environmental Issues
In recent years, the amount of timber available for commercial
harvest in the United States has declined due to environmental
litigation, changes in government policy, and other factors.
More constraints on available timber supply may be imposed. As
a result, we cannot accurately predict future log supply. In
1998, we closed sawmills in Fisher, Louisiana, and Horseshoe
Bend, Idaho, largely because of reductions in timber supply and
consequent increases in timber costs. We announced closures of
a sawmill in Elgin, Oregon, and a plywood plant in Yakima,
Washington, in part for the same reasons. In 1997, we reduced
the number of work shifts at two wood products manufacturing
facilities, partly because of limited log supply. Additional
curtailments or closures of our wood products manufacturing
facilities are possible.
With less federal timber available than in years past, we meet
an important share of our raw material needs with our
approximately 2.4 million acres of owned or controlled
timberland. Our Northwest pulp and paper mills receive
approximately 83% of their softwood chips either directly from
or through trades with our wood products and whole-log chipping
operations. We have also taken steps to reduce our need for
externally purchased softwood chips. In 1997, we began
harvesting fast-growing hybrid cottonwood trees at our fiber
farm near Wallula, Washington. Roughly 25% of the pulp used by
our Wallula white paper machine during 1998 was made from this
cottonwood fiber.
We invest substantial capital to comply with federal, state, and
local environmental laws and regulations. During 1998,
expenditures for our ongoing environmental compliance program
amounted to $16 million. We expect to spend approximately
$35 million in 1999 for this purpose. Failure to comply with
pollution control standards could result in interruption or
suspension of our operations at affected facilities or could
require additional expenditures. We expect that our operating
procedures and expenditures for ongoing pollution prevention
will allow us to continue to meet applicable environmental
standards.
The Environmental Protection Agency issued rules in 1997 that
further regulate air and water emissions from pulp and paper
mills. These rules, among other things, set standards for the
discharge of chlorinated organics. We estimate that the capital
investment needed to meet the rule requirements will be
approximately $120 million over the next four years. We have
begun to substitute chlorine dioxide for elemental chlorine in
the pulp-bleaching process. Chlorine dioxide is a chemical with
a name similar to that of elemental chlorine but with very
different chemical and physical properties. Over time, we will
continue to reduce elemental chlorine in our pulp-bleaching
processes.
As of December 31, 1998, we had open issues with respect to 33
sites where we have been notified that we are a "potentially
responsible party" under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) or similar
federal and state laws or where we have received a demand or
claim by a private party regarding hazardous substances or other
contaminants. In most cases, Boise Cascade is one of many
potentially responsible parties, and our alleged contribution to
these sites is relatively minor. For sites where a range of
potential liability can be determined, we have established
appropriate reserves. We believe we have minimal or no
responsibility with regard to several other sites. We cannot
predict with certainty the total response and remedial costs,
our share of the total costs, the extent to which contributions
will be available from other parties, or the amount of time
necessary to complete the cleanups. However, based on our
investigations, our experience with respect to cleanup of
hazardous substances, the fact that expenditures will, in many
cases, be incurred over extended periods of time, and the number
of solvent potentially responsible parties, we do not believe
that the known actual and potential response costs will, in the
aggregate, have a material adverse effect on our financial
condition or the results of operations.
Year 2000 Computer Issue
Over the last two years, we have been replacing many of our
business computer systems to realize cost savings and process
improvements. These replacements, all of which are year 2000-
compliant, will be completed before the year 2000. Many of the
costs associated with these replacements have been and will be
deferred and amortized over approximately five years. (See
Note 1 in the Notes to Financial Statements.) A year 2000
compliance assessment was completed in 1998. Many of the
existing systems were found to be compliant. We have begun
appropriate modifications of the noncompliant systems. We
expect to complete all necessary changes before year-end 1999.
We are currently surveying our critical suppliers and customers
to determine whether critical processes may be impacted by a
lack of year 2000 compliance. Most of our critical suppliers
and customers have confirmed that they are or have plans to be
compliant by year-end 1999.
Incremental costs to make our systems compliant are expected to
range from $10 million to $13 million. These costs are being
expensed as incurred. Approximately $5.7 million had been spent
through December 31, 1998.
The most reasonably likely worst-case scenario of failure by us
or our suppliers or customers to be year 2000-compliant would be
a temporary slowdown of manufacturing operations at one or more
of our locations and a temporary inability to process orders and
billings in a timely manner and to deliver products to our
customers in a timely manner. We are currently developing
contingency options in the event that critical systems or
suppliers encounter unforeseen year 2000 problems. Those
contingency options will be completed by mid-1999.
Our discussion of the year 2000 computer issue contains forward-
looking information. We believe that our critical computer
systems will be year 2000-compliant and that the costs to
achieve compliance will not materially affect our financial
condition, operating results, or cash flows. Nevertheless,
factors that could cause actual results to differ from our
expectations include the successful implementation of year 2000
initiatives by our customers and suppliers, changes in the
availability and costs of resources to implement year 2000
changes, and our ability to successfully identify and correct
all systems affected by the year 2000 issue.
Euro Conversion
In Europe, the conversion to the Euro required certain changes
to BCOP's information technology and other systems to
accommodate Euro-denominated transactions. The cost of these
changes was not material. All of BCOP's European operations
affected were Euro-compliant by the end of 1998.
While the competitive impact of the Euro conversion remains
uncertain, BCOP does not anticipate a negative effect on its
European operations. Rather, the conversion to the Euro may
provide additional marketing opportunities for BCOP's European
operations.
New Accounting Standards
New accounting standards are discussed under the caption New
Accounting Standards in Note 1 of the Notes to Financial
Statements.
Outlook
BCOP expects to post significant growth in the year ahead, as
they continue their efforts to increase sales to their existing
customers and expand their customer base through expanded
prospecting efforts. BCOP continues to evaluate acquisition
candidates in the United States and internationally. BCOP's
margins will be affected by the competitive environment in which
they operate, as well as by their continued efforts to lower
costs.
The performance of our building products business will continue
to improve, as we shift our product mix to more engineered wood
products and continue to grow our distribution business at a
healthy rate.
We expect continued weakness in pulp and paper markets early in
1999, with supply and demand gradually coming back into balance
during the course of the year. The rate of pulp and paper
capacity additions in North America is at its lowest level in 40
years. Additions in Europe are almost as modest, and the longer
global economic turmoil persists, the more difficult it will be
to realize planned capacity additions in other parts of the
world.
Forward-Looking Statements
Certain statements in the Financial Review and elsewhere in our
Annual Report to Shareholders may constitute forward-looking
statements. Because these forward-looking statements include
risks and uncertainties, actual results may differ materially
from those expressed in or implied by the statements. Factors
that could cause actual results to differ include, among other
things, changes in domestic or foreign competition; the severity
and longevity of global economic turmoil; increases in capacity
through construction of new manufacturing facilities or
conversion of older facilities to produce competitive products;
changes in production capacity across paper and wood products
markets; variations in demand for our products; changes in our
cost for or the availability of raw materials, particularly
market pulp and wood; the cost of compliance with new
environmental laws and regulations; the pace and the success of
acquisitions; changes in same-location sales; cost-structure
improvements; the success and integration of new initiatives and
acquisitions; the successful integration of systems; the success
of computer-based system enhancements; and general economic
conditions.
STRATEGIC PROGRESS . . . IN A DIFFICULT BUSINESS ENVIRONMENT
As Boise Cascade makes progress toward accomplishing our
business strategies, we are also making progress toward reaching
our financial objectives: to be consistently profitable and to
earn our cost of capital over the course of the business cycle.
In 1998, we continued the fundamental shift in our business mix
and in the mix of our products and services and made substantial
progress toward improving the competitive position of each of
our businesses.
Our orientation toward distribution continued to increase, and
we expect our growth in distribution to continue to outpace our
growth in manufacturing. In addition, both our manufacturing
and distribution operations added more value-added products and
services, which complement, and in some cases replace, commodity
production.
BOISE CASCADE OFFICE PRODUCTS (BCOP)
BCOP sells office supplies, computer consumables, paper, office
furniture, and promotional products. Sales occur primarily
through the contract stationer channel, which includes midsize
and large offices and national accounts, and the direct-
marketing channel, which includes small and medium-sized
offices. BCOP's growth was 18% in 1998.
BCOP's active acquisition program has helped its segment sales
more than double in the last three years, from $1.3 billion in
1995 to $3.1 billion in 1998. Since the beginning of 1995, BCOP
has made 43 acquisitions with total annualized revenues of over
$1.1 billion at the time of acquisition. The pace of
acquisitions slowed in 1998, as BCOP purchased six companies
with annualized sales of approximately $62.0 million. Although
most of our European acquisitions performed well in 1998, the
underperformance of some caused BCOP to dissolve a German joint
venture and announce the restructuring of operations in the
United Kingdom. However, BCOP continues to look for
acquisitions that will strengthen its market position.
During 1998, BCOP acquired a direct-marketing office products
business in Spain, the largest regional computer supply company
in Toronto, and a small office furniture business in Canada.
BCOP's direct-marketing subsidiary, The Reliable Corporation,
also expanded its domestic product offerings with the purchase
of a mail-order business that sells packing, shipping, and
graphic arts products. BCOP realized double-digit growth in
direct-marketing sales in 1998 on the strength of improving
domestic sales and growth in JPG in France.
Sales to U.S. national accounts -- large multisite customers --
increased 25% to over $1 billion in 1998. BCOP continues to
stand out as the premier business-to-business distributor of
office products today that can provide truly consistent national
service for multisite operations. National accounts will
continue to be a major component of our business.
Boise Marketing Services, Inc. (BMSI), a BCOP subsidiary that
sells customized clothing, gifts, and other promotional
merchandise, is one of the top U.S. companies in this industry.
BMSI is working with BCOP's national accounts to promote and
develop business. BMSI's revenues increased to $105 million in
1998.
BCOP continues to become more competitive and to expand its
value-added services, such as comprehensive usage reporting and
electronic commerce. The number of orders received
electronically grew over 30% in 1998 and now represents 20% of
BCOP's total orders. BCOP is also expanding its approach to the
midsize market -- businesses of 25 to 100 employees -- with a
custom-designed sales effort that includes specialized catalogs
and an Internet-based ordering system.
BUILDING PRODUCTS
Our wholesale building materials distribution business sells a
full line of building supplies to traditional building materials
centers, consumer-oriented home centers, and industrial
customers. Our distribution facilities sell about 40% of our
laminated veneer lumber and wood I-joists and are a major
channel for our traditional wood products as well. This
business has grown significantly since 1995, expanding into the
South and Midwest. In January 1999, we started up a
distribution facility in the Chicago area, bringing the number
of distribution facilities to 16. Sales volume grew 18% to
$861 million in 1998.
We manufacture structural panels, lumber, and engineered wood
products such as laminated veneer lumber (LVL) and wood I-
joists. Increasingly, we are shifting our product mix in this
business to engineered wood products. Sales of engineered wood
products grew 32% in 1998, following a 17% increase in 1997.
During 1998, we increased annual LVL capacity 35% to about
14 million cubic feet. And our joint-venture oriented strand
board plant in Barwick, Ontario, Canada, which started up in May
1997, operated near full capacity during 1998.
In 1998, we closed sawmills in Fisher, Louisiana, and Horseshoe
Bend, Idaho. We also announced that a sawmill in Elgin, Oregon,
and a plywood plant in Yakima, Washington, will be closed in
1999. These facilities were unable to generate acceptable
financial returns. The closures will reduce our lumber capacity
by 28% and plywood capacity by 11%. In addition, our Medford,
Oregon, plywood plant was severely damaged by fire in September
1998, reducing our plywood capacity an additional 20%. We plan
to rebuild a portion of the plant with a smaller operation,
which will supply raw material to our engineered wood products
operations in nearby White City. The new plant should be
completed in 1999.
Finally, as timber in North America becomes increasingly
unavailable for harvest, we are taking steps to access foreign
wood baskets. We began construction of a joint-venture lumber
operation in Chile and recently received approval of our
environmental impact statement for an OSB project there with the
same partner. We have also signed an agreement to develop a
joint-venture lumber operation in Brazil.
PAPER AND PAPER PRODUCTS
Boise Cascade manufactures uncoated free sheet papers (which
include office papers, printing grades, forms bond, envelope
papers, and value-added papers), packaging papers, corrugated
containers, and newsprint. Our uncoated free sheet paper
machine in Jackson, Alabama, which started up in 1997, would
have operated at full capacity in 1998 but for market- and
weather-related curtailments. As a result, our sales volume of
uncoated free sheet paper increased 7% to 1.4 million tons. In
addition, our corrugated container sales volume increased 17% to
4.2 billion square feet.
We continued to shift production on our smaller paper machines
from commodity papers to value-added grades. We sold 302,000
tons of value-added papers in 1998, 298,000 of which were
produced on our smaller machines, an increase of 7% over 1997
levels. Sales prices for our value-added grades averaged about
$257 a ton more than for our commodity papers. Late in 1998, we
installed an additional printing press at our paper converting
facility in Vancouver, Washington, which will increase the
plant's annual production capacity for value-added security
grades by 3,500 tons.
The increased emphasis on uncoated free sheet paper and the
shift to value-added grades on our smaller machines has helped
to improve the competitive position of our business. Part of
that improvement can be seen in the relative machine size of our
uncoated free sheet system. In 1995, we had 17 uncoated free
sheet machines with an average of 79,000 tons of capacity per
machine. Ten other major North American producers had more
capacity per machine. In 1998, we had ten uncoated free sheet
machines with 153,000 tons of capacity per machine, the third-
highest capacity per machine in the North American industry.
When we've completed our switch to value-added grades on our
smaller machines, most of our commodity uncoated free sheet will
be produced on world-class machines.
Our employees' efforts to increase efficiency have also had an
important impact on improving our competitive position. In
1998, after adjusting for market- and weather-related
curtailments, our cash manufacturing costs were nearly 5% less
than they were in 1995.
Integration also makes Boise Cascade a more efficient company.
Boise Cascade Office Products is the single largest customer of
our paper business. In 1998, BCOP bought 361,000 tons of our
office papers, a 13% increase over the amount purchased in 1997.
Our packaging plants used 52% of the containerboard we made,
moving us closer to our goal of 55% integration with our
existing container plants and our ultimate goal of 80%
integration.
We also continue to work to improve our fiber base. Our paper
mill in Wallula, Washington, is using more of the cottonwood
fiber from our 18,000-acre fiber farm. And the growth rates on
the fiber farm are higher than we thought they would be. We
have established fiber farm assessment projects in Alabama,
Louisiana, and Minnesota. In addition, we're increasing the
amount of hardwood fiber used at our paper mill in St. Helens,
Oregon. And our Louisiana foresters have adopted improved
silvicultural methods that will increase the fiber yield from
our forests there.
EXHIBIT 13.2
STATEMENTS OF INCOME (LOSS) (Unaudited)
Boise Cascade Corporation and Subsidiaries
Three Months Ended Year Ended
December 31 December 31
______________________ ______________________
1998 1997 1998 1997
__________ __________ __________ __________
(expressed in thousands)
Revenues
Sales $1,536,183 $1,444,860 $6,162,123 $5,493,820
__________ __________ __________ __________
Costs and expenses
Materials, labor, and
other operating expenses 1,188,609 1,129,610 4,849,678 4,436,650
Depreciation, amortiza-
tion, and cost of
company timber harvested 71,417 70,780 282,737 256,570
Selling and distribution
expenses 179,969 148,600 666,759 553,240
General and adminis-
trative expenses 38,934 36,800 150,455 139,060
Other (income)
expense, net 37,793 (110) 67,443 710
__________ __________ __________ __________
1,516,722 1,385,680 6,017,072 5,386,230
__________ __________ __________ __________
Equity in net loss
of affiliates (71) (1,820) (3,791) (5,180)
__________ __________ __________ __________
Income from operations 19,390 57,360 141,260 102,410
__________ __________ __________ __________
Interest expense (37,940) (39,160) (159,870) (137,350)
Interest income 484 640 2,274 6,000
Foreign exchange gain
(loss) (242) 130 (542) 10
__________ __________ __________ __________
(37,698) (38,390) (158,138) (131,340)
__________ __________ __________ __________
Loss before income
taxes, minority interest,
and cumulative effect of
accounting change (18,308) 18,970 (16,878) (28,930)
Income tax (provision)
benefit 12,009 (8,460) 959 9,260
__________ __________ __________ __________
Income (loss) before
minority interest and
cumulative effect of
accounting change (6,299) 10,510 (15,919) (19,670)
Minority interest, net
of income tax (2,043) (3,280) (9,773) (10,740)
__________ __________ __________ __________
Income (loss) before
cumulative effect of
accounting change (8,342) 7,230 (25,692) (30,410)
Cumulative effect
of accounting change,
net of income taxes - - (8,590) -
__________ __________ __________ __________
Net income (loss) $ (8,342) $ 7,230 $ (34,282) $ (30,410)
========== ========== ========== ==========
Net income (loss) per
common share
Diluted before cumulative
effect of accounting
change $ (.21) $ .02 $ (.81) $ (1.19)
Cumulative effect of
accounting change - - (.15) -
__________ __________ __________ __________
Diluted income (loss) $ (.21) $ .02 $ (.96) $ (1.19)
========== ========== ========== ==========
Segment Information
Segment sales
Office products $ 814,218 $ 718,514 $3,067,326 $2,596,732
Building products 410,215 382,404 1,722,496 1,645,236
Paper products 402,255 442,484 1,751,574 1,604,600
Intersegment eliminations
and other (90,505) (98,542) (379,273) (352,748)
__________ __________ __________ __________
$1,536,183 $1,444,860 $6,162,123 $5,493,820
========== ========== ========== ==========
Segment income (loss)
Office products $ 26,626 $ 38,501 $ 121,459 $ 119,802
Building products 27,197 4,814 57,720 45,009
Paper products (17,193) 25,060 10,005 (11,551)
Corporate and other (16,998) (10,245) (46,192) (44,840)
__________ __________ __________ __________
Total 19,632 58,130 142,992 108,420
Interest expense (37,940) (39,160) (159,870) (137,350)
__________ __________ __________ __________
Loss before income taxes,
minority interest, and
cumulative effect of
accounting change $ (18,308) $ 18,970 $ (16,878) $ (28,930)
========== ========== ========== ==========
NOTES TO QUARTERLY FINANCIAL STATEMENTS
Boise Cascade Corporation and Subsidiaries
FINANCIAL INFORMATION. The Statements of Income (Loss) and
Segment Information are unaudited statements that do not include
all Notes to Financial Statements and should be read in
conjunction with the 1998 Annual Report of the company. The
annual report will be available in March 1999. Net income
(loss) for the three months and year ended December 31, 1998 and
1997, involved estimates and accruals.
In December 1998, we announced a companywide cost-reduction
initiative and the restructuring of certain operations as a
result of the ongoing global financial crisis and the weak
business environment. These initiatives include restructuring
work, streamlining processes, and consolidating functions that
will eliminate approximately 400 job positions, primarily in our
manufacturing businesses and at our Boise headquarters. Staff
reductions will occur through early retirements, layoffs, and
attrition. Our paper research and development facility in
Portland, Oregon, will close. Additionally, selected portions
of our timberlands associated with facilities to be closed will
be sold. Boise Cascade Office Products (BCOP), our 81%-held
subsidiary, announced that they would restructure certain of
their European operations. Related to these initiatives, we
recorded a pretax loss in the fourth quarter of 1998 of
approximately $38.0 million. Of this charge, all but $1.0
million for inventory write-offs is recorded in "Other (income)
expense, net" in the accompanying Statements of Income (Loss).
The impact of the above items and related tax effects increased
net loss $15.9 million, or 29 cents per basic and diluted share,
for the three months ended December 31, 1998. Segment results
decreased as follows: office products, $11.1 million; building
products, $2.8 million; paper and paper products, $18.5 million;
and corporate and other, $5.6 million.
On September 6, 1998, our Medford, Oregon, plywood plant was
severely damaged by fire. In the third quarter of 1998, we
recorded a net pretax gain of $46.5 million in the building
products segment and a loss in corporate and other of $1.5
million related to an insurance settlement for this fire. This
gain is recorded in "Other (income) expense, net" in the
accompanying Statements of Income (Loss).
Late in the second quarter of 1998, we adopted a plan to
restructure our wood products manufacturing business by
permanently closing four facilities, including sawmills in
Elgin, Oregon; Horseshoe Bend, Idaho; and Fisher, Louisiana; and
a plywood plant in Yakima, Washington. At year-end, the
sawmills in Fisher and Horseshoe Bend had been closed. We will
close the Elgin sawmill and Yakima plywood plant in 1999.
Related to these closures, our building products segment
recorded a pretax loss in the second quarter of 1998 of
approximately $61.9 million. This charge is recorded in "Other
(income) expense, net" in the accompanying Statements of Income
(Loss).
Also in the second quarter of 1998, our paper and paper products
segment recorded a pretax charge of $19.0 million for the
revaluation of certain paper-related assets. Included in the
revaluation is an $8.0 million write-down of a 60%-owned joint
venture in China that produced carbonless paper. This charge is
also recorded in "Other (income) expense, net" in the
accompanying Statements of Income (Loss).
As of January 1, 1998, we adopted the provisions of a new
accounting standard, AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities," which required
the write-off of previously capitalized preoperating costs.
Adoption of this standard resulted in a charge for the
cumulative effect of accounting change, net of tax, of $8.6
million, or 15 cents per basic and diluted loss per share, for
the year ended December 31, 1998. Also in the first quarter of
1998 we redeemed our Series F Preferred Stock. While this
redemption had no impact on net loss, it increased net loss per
share 7 cents.
The impact of the nonroutine items described above, together
with the related impact on our 1998 taxes, increased net loss
$55.0 million, or $1.05 per basic and diluted share, for the
year ended December 31, 1998.
In 1998, our actual annual tax benefit rate was 5.7%. Excluding
the nonroutine items, the tax provision rate would have been
44%. In 1997, we used an actual annual tax benefit rate of 32%.
The tax rate percentage is subject to fluctuations due primarily
to the sensitivity of the rate to low income levels, the impact
of the nonroutine items described above, and the mix of income
sources.
In 1997, the Financial Accounting Standards Board issued SFAS
NO. 131, "Disclosures About Segments of an Enterprise and
Related Information." We adopted this statement at December 31,
1998. Previously reported segment information has been restated
to conform to the new standard.
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
months and year ended December 31, 1998, and for the three
months and year ended December 31, 1997, the computation of
diluted net income (loss) per share was antidilutive; therefore,
amounts reported for basic and diluted loss were the same.
Three Months Ended Year Ended
December 31 December 31
____________________ ____________________
1998 1997 1998 1997
________ ________ ________ ________
(expressed in thousands)
BASIC AND DILUTED
Net income (loss) as reported before cumulative effect of accounting change $ (8,342) $ 7,230 $(25,692) $(30,410)
Preferred dividends(1) (3,484) (6,229) (15,578) (31,775)
Excess of Series F Preferred Stock redemption price over carrying value(2) - - (3,958) -
________ ________ ________ ________
Basic and diluted income (loss) before cumulative effect of accounting change (11,826) 1,001 (45,228) (62,185)
Cumulative effect of accounting change, net of income tax - - (8,590) -
________ ________ ________ ________
Basic and diluted income (loss) $(11,826) $ 1,001 $(53,818) $(62,185)
======== ======== ======== ========
Average shares outstanding used to determine basic and diluted income (loss)
per common share 56,335 56,191 56,307 52,049
======== ======== ======== ========
(1) 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.
(2) Year ended December 31, 1998, included a negative 7 cents
related to the redemption of the Series F Preferred Stock. The
loss used in the calculation of loss per share was increased by
the excess of the amount paid to redeem the preferred stock over
its carrying value.
5
12-MOS
DEC-31-1998
DEC-31-1998
66,469
7,899
526,359
10,933
625,218
1,368,406
4,992,110
2,150,385
4,971,099
1,130,100
1,733,867
0
241,049
140,846
1,049,204
4,971,099
6,162,123
6,162,123
5,132,415
6,017,072
0
0
159,870
(16,878)
959
(25,692)
0
0
(8,590)
(34,282)
(.96)
(.96)
