SEC Filing | The ODP Corporation

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 10 - Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _____________ Commission File Number: 1-5057 BOISE CASCADE CORPORATION (Exact name of registrant as specified in its charter) Delaware 82-0100960 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1111 West Jefferson Street P.O. Box 50 Boise, Idaho 83728-0001 (Address of principal executive offices) (Zip Code) (208) 384-6161 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares Outstanding Class as of October 31, 1999 Common stock, $2.50 par value 57,138,591

PART I - FINANCIAL INFORMATION BOISE CASCADE CORPORATION AND SUBSIDIARIES STATEMENTS OF INCOME (LOSS) (expressed in thousands, except per share data) Item 1. Financial Statements Three Months Ended September 30 ________________________ 1999 1998 __________ __________ (unaudited) Sales $1,789,237 $1,597,990 __________ __________ Costs and expenses Materials, labor, and other operating expenses 1,385,602 1,268,120 Depreciation, amortization, and cost of company timber harvested 73,257 69,930 Selling and distribution expenses 179,988 164,860 General and administrative expenses 30,647 37,390 Other (income) expense, net 1,802 (51,860) __________ __________ 1,671,296 1,488,440 __________ __________ Equity in net income of affiliates 2,066 1,630 __________ __________ Income from operations 120,007 111,180 __________ __________ Interest expense (35,839) (40,970) Interest income 700 620 Foreign exchange gain (loss) 60 (210) __________ __________ (35,079) (40,560) __________ __________ Income before income taxes and minority interest 84,928 70,620 Income tax provision (32,868) (21,430) __________ __________ Income before minority interest 52,060 49,190 Minority interest, net of income tax (3,012) (2,140) __________ __________ Net income $ 49,048 $ 47,050 ========== ========== Net income per common share Basic $ 0.80 $ 0.77 ========== ========== Diluted $ 0.74 $ 0.72 ========== ========== The accompanying notes are an integral part of these Financial Statements.

BOISE CASCADE CORPORATION AND SUBSIDIARIES STATEMENTS OF INCOME (LOSS) (expressed in thousands, except per share data) Nine Months Ended September 30 ________________________ 1999 1998 __________ __________ (unaudited) Sales $5,078,398 $4,625,940 __________ __________ Costs and expenses Materials, labor, and other operating expenses 3,929,618 3,661,070 Depreciation, amortization, and cost of company timber harvested 213,735 211,320 Selling and distribution expenses 546,953 486,790 General and administrative expenses 94,310 111,520 Other (income) expense, net (30,904) 29,650 __________ __________ 4,753,712 4,500,350 __________ __________ Equity in net income (loss) of affiliates 6,024 (3,720) __________ __________ Income from operations 330,710 121,870 __________ __________ Interest expense (107,598) (121,930) Interest income 1,878 1,790 Foreign exchange gain (loss) 133 (300) __________ __________ (105,587) (120,440) __________ __________ Income before income taxes, minority interest, and cumulative effect of accounting change 225,123 1,430 Income tax provision (91,175) (11,050) __________ __________ Income (loss) before minority interest and cumulative effect of accounting change 133,948 (9,620) Minority interest, net of income tax (9,695) (7,730) __________ __________ Income (loss) before cumulative effect of accounting change 124,253 (17,350) Cumulative effect of accounting change, net of income tax - (8,590) __________ __________ Net income (loss) $ 124,253 $ (25,940) ========== ========== Net income (loss) per common share Basic before cumulative effect of accounting change $ 2.01 $ (0.60) Cumulative effect of accounting change - (0.15) __________ __________ Basic $ 2.01 $ (0.75) ========== ========== Diluted before cumulative effect of accounting change $ 1.88 $ (0.60) Cumulative effect of accounting change - (0.15) __________ __________ Diluted $ 1.88 $ (0.75) ========== ========== The accompanying notes are an integral part of these Financial Statements.

BOISE CASCADE CORPORATION AND SUBSIDIARIES BALANCE SHEETS (expressed in thousands) ASSETS September 30 December 31 ________________________ ___________ 1999 1998 1998 __________ __________ ___________ (unaudited) Current Cash $ 67,891 $ 69,048 $ 66,469 Cash equivalents 2,226 3,615 7,899 __________ __________ __________ 70,117 72,663 74,368 Receivables, less allowances of $11,722, $9,821, and $10,933 698,027 653,491 526,359 Inventories 652,825 601,967 625,218 Deferred income tax benefits 72,171 74,114 92,426 Other 48,536 27,101 50,035 __________ __________ __________ 1,541,676 1,429,336 1,368,406 __________ __________ __________ Property Property and equipment Land and land improvements 67,301 55,586 63,307 Buildings and improvements 600,934 568,045 575,509 Machinery and equipment 4,231,362 4,109,958 4,082,724 __________ __________ __________ 4,899,597 4,733,589 4,721,540 Accumulated depreciation (2,344,495) (2,152,326) (2,150,385) __________ __________ __________ 2,555,102 2,581,263 2,571,155 Timber, timberlands, and timber deposits 272,868 271,212 270,570 __________ __________ __________ 2,827,970 2,852,475 2,841,725 __________ __________ __________ Goodwill, net of amortization of $48,750, $34,091, and $37,327 505,088 449,385 501,691 Investments in equity affiliates 37,336 27,223 27,162 Other assets 232,424 227,706 232,115 ___________ __________ __________ Total assets $5,144,494 $4,986,125 $4,971,099 =========== ========== ========== The accompanying notes are an integral part of these Financial Statements.

BOISE CASCADE CORPORATION AND SUBSIDIARIES BALANCE SHEETS (expressed in thousands, except share amounts) LIABILITIES AND SHAREHOLDERS' EQUITY September 30 December 31 _______________________ __________ 1999 1998 1998 __________ __________ __________ (unaudited) Current Short-term borrowings $ 152,171 $ 167,465 $ 129,512 Current portion of long-term debt 107,951 57,143 161,473 Income taxes payable 687 - - Accounts payable 575,773 501,085 499,489 Accrued liabilities Compensation and benefits 153,589 137,730 130,480 Interest payable 27,566 39,999 36,166 Other 186,633 219,868 172,980 __________ __________ __________ 1,204,370 1,123,290 1,130,100 __________ __________ __________ Debt Long-term debt, less current portion 1,571,116 1,667,855 1,578,136 Guarantee of ESOP debt 149,506 171,513 155,731 __________ __________ __________ 1,720,622 1,839,368 1,733,867 __________ __________ __________ Other Deferred income taxes 301,384 243,493 257,360 Other long-term liabilities 252,170 219,339 301,920 __________ __________ __________ 553,554 462,832 559,280 __________ __________ __________ Minority interest 126,814 114,935 116,753 __________ __________ __________ Shareholders' equity Preferred stock -- no par value; 10,000,000 shares authorized; Series D ESOP: $.01 stated value; 5,032,492; 5,406,548; and 5,356,648 shares outstanding 226,462 243,295 241,049 Deferred ESOP benefit (149,506) (171,513) (155,731) Common stock -- $2.50 par value; 200,000,000 shares authorized; 57,136,920; 56,333,984; and 56,338,426 shares outstanding 142,842 140,835 140,846 Additional paid-in capital 448,267 420,724 420,890 Retained earnings 883,329 817,013 791,618 Accumulated other comprehensive income (loss) (12,260) (4,654) (7,573) __________ __________ __________ Total shareholders' equity 1,539,134 1,445,700 1,431,099 __________ __________ __________ Total liabilities and shareholders' equity $5,144,494 $4,986,125 $4,971,099 ========== ========== ========== The accompanying notes are an integral part of these Financial Statements.

BOISE CASCADE CORPORATION AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (expressed in thousands) Nine Months Ended September 30 ________________________ 1999 1998 _________ _________ (unaudited) Cash provided by (used for) operations Net income (loss) $ 124,253 $ (25,940) Cumulative effect of accounting change, net of income tax - 8,590 Items in net income (loss) not using (providing) cash Equity in net (income) loss of affiliates (6,024) 3,720 Depreciation, amortization, and cost of company timber harvested 213,735 211,320 Deferred income tax provision 77,929 6,277 Minority interest, net of income tax 9,695 7,730 Restructuring activity (36,322) 80,903 Other (133) (47,399) Receivables (128,018) 4,444 Inventories 25,892 28,112 Accounts payable and accrued liabilities 49,358 49,151 Current and deferred income taxes (5,623) (15,667) Other 10,100 20,437 _________ _________ Cash provided by operations 334,842 331,678 _________ _________ Cash provided by (used for) investment Expenditures for property and equipment (161,032) (175,805) Expenditures for timber and timberlands (2,855) (6,973) Investments in equity affiliates, net (80) (429) Purchases of assets (97,842) (4,042) Other (16,728) (18,995) _________ _________ Cash used for investment (278,537) (206,244) _________ _________ Cash provided by (used for) financing Cash dividends paid Common stock (25,438) (25,324) Preferred stock (8,796) (12,911) _________ _________ (34,234) (38,235) Short-term borrowings 22,659 72,665 Additions to long-term debt 143,834 179,672 Payments of long-term debt (206,220) (212,308) Series F preferred stock redemption - (115,005) Other 13,405 (3,146) _________ _________ Cash used for financing (60,556) (116,357) _________ _________ Increase (decrease) in cash and cash equivalents (4,251) 9,077 Balance at beginning of the year 74,368 63,586 _________ _________ Balance at September 30 $ 70,117 $ 72,663 ========= ========= The accompanying notes are an integral part of these Financial Statements. NOTES TO QUARTERLY FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION. We have prepared the quarterly financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These statements should be read together with the statements and the accompanying notes included in our 1998 Annual Report. The quarterly financial statements have not been audited by independent public accountants, but in the opinion of management, all adjustments necessary to present fairly the results for the periods have been included. The net income (loss) for the three and nine months ended September 30, 1999 and 1998, necessarily involved estimates and accruals. Except as may be disclosed within these "Notes to Quarterly Financial Statements," the adjustments made were of a normal, recurring nature. Quarterly results are not necessarily indicative of results that may be expected for the year. (2) 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. The components of "Other (income) expense, net" in the Statements of Income (Loss) are as follows: Three Months Ended Nine Months Ended September 30 September 30 ___________________ _____________________ 1999 1998 1999 1998 ________ ________ ________ ________ (expressed in thousands) Restructuring activity $ - $ - $(35,526) $ 80,903 Medford fire - (45,000) - (45,000) Other, net 1,802 (6,860) 4,622 (6,253) ________ ________ ________ ________ $ 1,802 $(51,860) $(30,904) $ 29,650 ======== ======== ======== ======== 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 related to an insurance settlement for this fire. For discussion of the restructuring activity, see Note 13. (3) NET INCOME (LOSS) PER COMMON SHARE. Net income (loss) per common share was determined by dividing net income (loss), as adjusted, by applicable shares outstanding. For the nine months ended September 30, 1998, the computation of diluted net loss per share was antidilutive; therefore, amounts reported for basic and diluted loss were the same. Three Months Ended Nine Months Ended September 30 September 30 __________________ __________________ 1999 1998 1999 1998 ________ ________ ________ ________ (expressed in thousands) BASIC Net income (loss) as reported, before cumulative effect of accounting change $ 49,048 $ 47,050 $124,253 $(17,350) Preferred dividends(a) (3,429) (3,515) (10,284) (12,094) Excess of Series F Preferred Stock redemption price over carrying value(b) - - - (3,958) ________ ________ ________ ________ Basic income (loss) before cumulative effect of accounting change 45,619 43,535 113,969 (33,402) Cumulative effect of accounting change, net of income tax - - - (8,590) ________ ________ ________ ________ Basic income (loss) $ 45,619 $ 43,535 $113,969 $(41,992) ======== ======== ======== ======== Average shares outstanding used to determine basic income (loss) per common share 57,078 56,332 56,685 56,297 ======== ======== ======== ======== DILUTED Basic income (loss) before cumulative effect of accounting change $ 45,619 $ 43,535 $113,969 $(33,402) Preferred dividends eliminated 3,429 3,515 10,284 - Supplemental ESOP contribution (2,930) (3,001) (8,790) - ________ ________ ________ ________ Diluted income (loss) before cumulative effect of accounting change 46,118 44,049 115,463 (33,402) Cumulative effect of accounting change, net of income tax - - - (8,590) ________ ________ ________ ________ Diluted income (loss) $ 46,118 $ 44,049 $115,463 $(41,992) ======== ======== ======== ======== Average shares outstanding used to determine basic income (loss) per common share 57,078 56,332 56,685 56,297 Stock options and other 499 134 430 - Series D conversion preferred stock 4,090 4,383 4,178 - ________ ________ ________ ________ Average shares used to determine diluted income (loss) per common share 61,667 60,849 61,293 56,297 ======== ======== ======== ======== (a) 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. (b) Nine months ended September 30, 1998, included a negative seven 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. (4) COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) for the periods include the following: Three Months Ended Nine Months Ended September 30 September 30 ___________________ ___________________ 1999 1998 1999 1998 ________ ________ ________ ________ (expressed in thousands) Net income (loss) $ 49,048 $ 47,050 $124,253 $(25,940) Other comprehensive income (loss) Cumulative foreign currency translation adjustment, net of income taxes 3,108 2,721 (4,687) 3,956 ________ ________ ________ ________ Comprehensive income (loss), net of income taxes $ 52,156 $ 49,771 $119,566 $(21,984) ======== ======== ======== ======== (5) RECEIVABLES. In late September 1998, we sold fractional ownership interests in a defined pool of trade accounts receivable. At September 30, 1999, and December 31, 1998, $100.0 million and $79.0 million of sold accounts receivable were excluded from receivables in the accompanying balance sheets. The portion of fractional ownership interest retained by us is included in accounts receivable in the balance sheets. The increase in sold accounts receivable over the amount at December 31, 1998, also represents an increase in cash provided by operations for the nine months ended September 30, 1999. 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. (6) DEFERRED SOFTWARE COSTS. We defer certain software costs that benefit future years. These costs are amortized on the straight-line method over the expected useful life of the product. "Other assets" in the balance sheets include deferred software costs of $51.3 million, $36.9 million, and $47.1 million at September 30, 1999 and 1998, and December 31, 1998. AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," became effective beginning in 1999. We account for software costs in accordance with this statement. The implementation of this statement had no financial statement impact on us. (7) INVENTORIES. Inventories include the following: September 30 December 31 __________________ ___________ 1999 1998 1998 ________ ________ ___________ (expressed in thousands) Finished goods and work in process $506,614 $458,999 $456,577 Logs 63,246 74,097 87,688 Other raw materials and supplies 145,167 145,144 145,319 LIFO reserve (62,202) (76,273) (64,366) ________ ________ ________ $652,825 $601,967 $625,218 ======== ======== ======== (8) 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 $8.6 million, or 15 cents per basic and diluted loss per share, for the nine months ended September 30, 1998. (9) INCOME TAXES. We used an estimated annual tax provision rate of 40.5% for the nine months ended September 30, 1999. Due to low income levels, the tax benefit rate for the nine months ended September 30, 1998, was not meaningful. Our actual 1998 benefit rate was 5.7%. Excluding nonroutine items in 1998, the annual tax provision rate would have been 44%. Our tax rate is subject to fluctuations due primarily to the sensitivity of the rate to low income levels, the impact of nonroutine items, and the mix of income sources. For the three and nine months ended September 30, 1999, we paid income taxes, net of refunds received, of $5.2 million and $12.5 million. We paid $1.2 million and $10.3 million for the same periods in 1998. (10) DEBT. At September 30, 1999, we had a revolving credit agreement with a group of banks that permits us to borrow as much as $600.0 million at variable interest rates based on customary indices. This agreement expires in June 2002. The revolving credit agreement contains financial covenants relating to minimum net worth, minimum interest coverage ratios, and ceiling ratios of debt to capitalization. Under this agreement, the payment of dividends is dependent upon the existence of and the amount of net worth in excess of the defined minimum. Our net worth at September 30, 1999, exceeded the defined minimum by $176.7 million. At September 30, 1999, there were $195.0 million of borrowings outstanding under this agreement. Our majority-owned subsidiary, Boise Cascade Office Products Corporation ("BCOP"), has a $450.0 million revolving credit agreement with a group of banks that expires in June 2001 and provides variable interest rates based on customary indices. 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 $155.0 million at September 30, 1999. In October 1998, we entered into an interest rate swap with a notional amount of $75.0 million and an effective fixed rate of 5.1% with respect to $75.0 million of our revolving credit agreement borrowings. BCOP also entered into an interest rate swap with a notional amount of $25.0 million and an effective fixed interest rate of 5.0% with respect to $25.0 million 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. Also at September 30, 1999, we had $82.1 million of short-term borrowings outstanding and BCOP had $70.1 million of short-term borrowings outstanding. At September 30, 1998, we had $93.5 million short-term borrowings outstanding, while BCOP had $74.0 million of short-term borrowings outstanding. The maximum amount of short-term borrowings outstanding during the nine months ended September 30, 1999 and 1998, was $293.3 million and $279.9 million. The average amount of short-term borrowings outstanding during the nine months ended September 30, 1999 and 1998, was $162.2 million and $205.9 million. The average interest rate for these borrowings was 5.4% for 1999 and 5.9% for 1998. At September 30, 1999, we had $430.0 million and BCOP had $150.0 million of unused borrowing capacity registered with the Securities and Exchange Commission for additional debt securities. In March 1999, we filed a registration statement covering $300.0 million in universal shelf capacity with the Securities and Exchange Commission. We have not yet requested final approval of this registration statement from the Securities and Exchange Commission. Once approved, this registration statement allows us to issue debt and/or equity securities in one or more offerings. Cash payments for interest, net of interest capitalized, were $38.5 million and $116.2 million for the three and nine months ended September 30, 1999, and $43.5 million and $121.1 million for the three and nine months ended September 30, 1998. (11) BOISE CASCADE OFFICE PRODUCTS CORPORATION. During the first nine months of both 1999 and 1998, BCOP completed two 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. On January 11, 1999, BCOP acquired the office supply business of Wallace Computer Services, based in Lisle, Illinois. In September 1999, BCOP acquired Supply West, based in Perth, Western Australia. The transactions were completed for cash of $7.6 million and the recording of $2.6 million of acquisition liabilities. 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. These transactions were completed for cash of $4.0 million, debt assumed of $0.2 million, and the recording of $3.8 million of acquisition liabilities. If the 1999 acquisitions had occurred on January 1, 1999, and if the 1999 and 1998 acquisitions had occurred on January 1, 1998, there would be no significant change in the results of operations for the first nine months of either 1999 or 1998. This unaudited pro forma financial information does not necessarily represent the actual results of operations that would have occurred if the acquisitions had taken place on the dates assumed. (12) NEW ACCOUNTING STANDARDS. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. This statement is effective for fiscal years beginning after June 15, 2000. We plan to adopt this statement in the first quarter of 2001. 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. (13) RESTRUCTURING ACTIVITIES. Late in the second quarter of 1998, we adopted a plan to restructure our wood products manufacturing business and announced the permanent closure of four facilities, including sawmills in Elgin, Oregon; Horseshoe Bend, Idaho; and Fisher, Louisiana; and a plywood plant in Yakima, Washington. Second quarter 1998 results were negatively impacted by $61.9 million for this restructuring charge. We closed the sawmills in Horseshoe Bend and Fisher in 1998. In late May 1999, we decided to indefinitely continue operations at the Elgin and Yakima mills. This decision was based on recent changes in wood supply and costs, product prices, improved plant operations, and the impact of a fire at our Elgin plywood plant in May 1999. As a result of this decision, in the second quarter of 1999, our building products segment reversed previously recorded restructuring charges totaling $35.5 million. Of this amount, $23.5 million reversed restructuring accruals as shown in the table that follows and $12.0 million related to the restoration of the net book value of these two facilities. This adjustment is recorded in "Other (income) expense, net" in the accompanying Statements of Income (Loss). The two closed plants had sales of $7.6 million and $30.4 million for the three and nine months ended September 30, 1998. Operating losses for the three and nine months ended September 30, 1998, totaled $2.4 million and $6.7 million. Also in the second quarter of 1998, our paper and paper products segment recorded a pretax charge of $19.0 million related to the revaluation of paper-related assets. Included in the revaluation was the $8.0 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 $5.0 million were the fixed assets of a small corrugating facility that was sold in March 1999 for its approximate remaining book value. We also wrote off $6.0 million in an investment in a bankrupt recycling joint venture and miscellaneous equipment that had no future value. In the fourth quarter of 1998, we announced a company-wide cost- reduction initiative and the restructuring of certain operations. Specific actions included the elimination of job positions in our manufacturing businesses and Boise headquarters through a combination of early retirements, layoffs, and attrition and the closure of our paper research and development facility in Portland, Oregon. These charges totaled $26.9 million. Also in the fourth quarter of 1998, BCOP announced the closure of eight facilities in the United Kingdom and the integration of selected functions of the operations with their other United Kingdom operations. These BCOP closures were expected to be completed during the first half of 1999 resulting in work force reductions of approximately 140 employees. BCOP also dissolved an unprofitable joint venture in Germany at a cost of about $4.0 million. BCOP restructuring charges totaled $11.1 million. During the first quarter 1999, we recorded $4.4 million of additional restructuring expense related to the early retirement program announced in fourth quarter 1998. The noncash charge was for the present value of unrecorded early retirement benefits. These charges were accrued when the retiring individuals legally accepted the early retirement offer. During the second quarter of 1999, BCOP revised the amount of the restructuring reserve established in the fourth quarter of 1998, for their United Kingdom operations. The restructuring program was less costly than originally anticipated due to lower legal and professional fees, a sublease of one of the facilities, a decision to retain a small printing portion of the business, and fewer terminations of employees. As a result, BCOP recorded an increase to operating income of approximately $4.0 million in the second quarter of 1999. The increase to income included $0.5 million for reduced employee-related costs and $3.5 million for other exit costs including lower lease costs and lower-than-expected inventory write-downs. The adjustment related to inventory of about $0.8 million is included in "Materials, labor, and other operating expenses" in the accompanying Statements of Income (Loss). The other adjustments are included in "Other (income) expense, net." Our paper and paper products segment also adjusted reserves recorded in fourth quarter 1998 for the elimination of job positions and the closure of our research and development facility in Portland, Oregon, to reflect our actual experience. These adjustments increased this segment's second quarter income by $1.2 million. These adjustments are also reflected in "Other (income) expense, net" in the Statements of Income (Loss). The following table shows that only $0.1 million of this adjustment reduced our restructuring liability reserve account. The balance of the adjustment was reflected as additional expense and pension liability of $1.1 million offset by gains of $2.2 million from the sale of the research and development building and equipment. Restructuring activities related to these 1998 charges through September 30, 1999, are as follows: Asset Employee- Other Write- Related Exit Downs Costs Costs Total ________ ________ ________ ________ (expressed in thousands) SECOND QUARTER 1998 BUILDING PRODUCTS 1998 expense recorded $ 27,200 $ 14,000 $ 20,700 $ 61,900 Assets written down (27,200) - - (27,200) Charges against reserve - (4,500) (1,300) (5,800) ________ ________ ________ ________ Restructuring reserve at December 31, 1998 - 9,500 19,400 28,900 Reserves credited to income - (7,300) (16,200) (23,500) Proceeds from sales of assets - - 400 400 Charges against reserve - (1,700) (1,000) (2,700) ________ ________ ________ ________ Restructuring reserve at September 30, 1999 $ - $ 500 $ 2,600 $ 3,100 ======== ======== ======== ======== 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 Charges against reserve - (200) - (200) ________ ________ ________ ________ Restructuring reserve at September 30, 1999 $ - $ - $ - $ - ======== ======== ======== ======== FOURTH QUARTER 1998 OFFICE PRODUCTS 1998 expense recorded $ 300 $ 1,400 $ 9,400 $ 11,100 Assets written down (300) - - (300) Charges against reserve - (200) (3,300) (3,500) ________ ________ ________ ________ Restructuring reserve at December 31, 1998 - 1,200 6,100 7,300 Reserves credited to income - (500) (3,500) (4,000) Charges against reserve - (600) (1,100) (1,700) ________ ________ ________ ________ Restructuring reserve at September 30, 1999 $ - $ 100 $ 1,500 $ 1,600 ======== ======== ======== ======== BUILDING PRODUCTS 1998 expense recorded $ - $ 2,800 $ - $ 2,800 Pension liability recorded - (2,200) - (2,200) ________ ________ ________ ________ Restructuring reserve at December 31, 1998 - 600 - 600 Charges against reserve - (300) - (300) ________ _______ ________ ________ Restructuring reserve at September 30, 1999 $ - $ 300 $ - $ 300 ======== ======== ======== ======== 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) Charges against reserve - (800) - (800) ________ ________ ________ ________ Restructuring reserve at December 31, 1998 - 6,000 - 6,000 Reserves credited to income - (100) - (100) Charges against reserve - (3,800) - (3,800) ________ ________ ________ ________ Restructuring reserve at September 30, 1999 $ - $ 2,100 $ - $ 2,100 ======== ======== ======== ======== CORPORATE AND OTHER 1998 expense recorded $ - $ 5,200 $ 400 $ 5,600 Pension liability recorded - (3,200) - (3,200) ________ ________ ________ ________ Restructuring reserve at December 31, 1998 - 2,000 400 2,400 Expense recorded - 4,400 - 4,400 Pension liability recorded - (4,400) - (4,400) Reclass from other accounts - 500 - 500 Charges against reserve - (2,000) (100) (2,100) ________ ________ ________ ________ Restructuring reserve at September 30, 1999 $ - $ 500 $ 300 $ 800 ======== ======== ======== ======== 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) Charges against reserve - (5,500) (4,600) (10,100) ________ ________ ________ ________ Restructuring reserve at December 31, 1998 - 19,500 25,900 45,400 Expense recorded - 4,400 - 4,400 Pension liability recorded - (4,400) - (4,400) Reclass from other accounts - 500 - 500 Reserve credited to income - (7,900) (19,700) (27,600) Proceeds from sale of assets - - 400 400 Charges against reserve - (8,600) (2,200) (10,800) ________ ________ ________ _______ Restructuring reserve at September 30, 1999 $ - $ 3,500 $ 4,400 $ 7,900 ======== ======== ======== ======= Charges against the reserve in other exit costs included $4.0 million of costs to dissolve the BCOP joint venture in Germany and the write- down of contracts to their realizable value. The impact of the 1999 restructuring charge adjustments described above increased net income $21.9 million and basic and diluted income per share $0.39 and $0.36 for the nine months ended September 30, 1999. Second quarter 1998 results were negatively impacted by the $61.9 million restructuring charge in the building products segment described above and a $19.0 million charge in the paper and paper products segment for the revaluation of paper-related assets. These charges reduced net income $65.2 million or $1.16 per basic and diluted share for the nine months ended September 30, 1998. The estimated number of employees impacted by the 1998 restructuring activities described above and the number who have left the company as of September 30, 1999, are as follows: Employees To Be Terminated Employees _____________________ Terminated Original Revised Through Estimate Estimate September 30, 1999 ________ ________ __________________ Second Quarter 1998 Building products 494 182 182 Fourth Quarter 1998 Office products 140 100 90 Building products 40 40 22 Paper and paper products 212 212 144 Corporate and other 92 92 51 ____ ____ ____ Total 978 626 489 ==== ==== ==== In addition to the employees discussed above, we have eliminated approximately another 100 positions by not filling already vacant positions or through normal attrition. No reserves were established related to these job eliminations. (14) ACQUISITION. On September 16, 1999, we completed the acquisition of Furman Lumber, Inc., a building supplies distributor headquartered in Billerica, Massachusetts, with 12 locations in the eastern, Midwestern, and southern states. The purchase price was approximately $92.7 million, including cash payments of $90.2 million and assumption of debt. This acquisition was accounted for under the purchase method of accounting. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values. The initial purchase price allocations may be adjusted within one year of the date of purchase for changes in estimates of the fair values of assets and liabilities. Such adjustments are not expected to be significant to our results of operations or our 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 business is included in our operations subsequent to the date of acquisition. If this acquisition had occurred on January 1, 1999, pro forma sales for the nine months ended September 30, 1999, would have been $5.6 billion, pro forma net income would have been $126.0 million, and pro forma basic and diluted earnings per share would have been $2.04 and $1.91. If this acquisition had occurred January 1, 1998, pro forma sales for the nine months ended September 30, 1998, would have been $5.1 billion, pro forma net loss would have been $25.0 million, and pro forma basic and diluted loss per share would have been $0.73. This unaudited pro forma financial information does not necessarily represent the actual results of operations that would have resulted if the acquisition had occurred on the dates assumed. (15) SEGMENT INFORMATION. We have had no differences from our last annual report in our basis of segmentation or in our basis of measurement of segment profit or loss. An analysis of our operations by segment is as follows. For a discussion of nonroutine items impacting our segments, see Note 13, Restructuring Activities. Income (Loss) Before Taxes, Minority Interest, and Cumu- Sales lative ______________________________ Effect of Inter- Accounting Trade Segment Total Change(a) ________ _______ ________ __________ (expressed in millions) Three Months Ended September 30, 1999 Office products $ 838.4 $ .1 $ 838.5 $ 34.8 Building products 585.2 9.0 594.2 60.2 Paper and paper products 357.6 91.7 449.3 35.3 Corporate and other 8.0 14.1 22.1 (9.6) ________ ________ ________ ________ Total 1,789.2 114.9 1,904.1 120.7 Intersegment eliminations - (114.9) (114.9) - Interest expense - - - (35.8) ________ ________ ________ ________ Consolidated Totals $1,789.2 $ - $1,789.2 $ 84.9 ======== ======== ======== ======== Three Months Ended September 30, 1998 Office products $ 760.2 $ .2 $ 760.4 $ 28.0 Building products 483.6 10.8 494.4 84.2 Paper and paper products 347.7 87.9 435.6 8.2 Corporate and other 6.5 12.9 19.4 (8.8) ________ ________ ________ ________ Total 1,598.0 111.8 1,709.8 111.6 Intersegment eliminations - (111.8) (111.8) - Interest expense - - - (41.0) ________ ________ ________ ________ Consolidated Totals $1,598.0 $ - $1,598.0 $ 70.6 ======== ======== ======== ======== Nine Months Ended September 30, 1999 Office products $2,488.1 $ .4 $2,488.5 $ 110.4 Building products 1,555.1 25.2 1,580.3 198.7 Paper and paper products 1,012.0 257.7 1,269.7 57.8 Corporate and other 23.2 40.9 64.1 (34.2) ________ ________ ________ ________ Total 5,078.4 324.2 5,402.6 332.7 Intersegment eliminations - (324.2) (324.2) - Interest expense - - - (107.6) ________ ________ ________ ________ Consolidated Totals $5,078.4 $ - $5,078.4 $ 225.1 ======== ======== ======== ======== Nine Months Ended September 30, 1998 Office products $2,252.2 $ .9 $2,253.1 $ 94.8 Building products 1,280.8 31.5 1,312.3 30.5 Paper and paper products 1,075.0 274.3 1,349.3 27.2 Corporate and other 17.9 42.4 60.3 (29.2) ________ ________ ________ ________ Total 4,625.9 349.1 4,975.0 123.3 Intersegment eliminations - (349.1) (349.1) - Interest expense - - - (121.9) ________ ________ ________ ________ Consolidated Totals $4,625.9 $ - $4,625.9 $ 1.4 ======== ======== ======== ======== (a) Interest income has been allocated to our segments in the amounts of $700,000 and $1,878,000 for the three and nine months ended September 30, 1999, and $620,000 and $1,790,000 for the three and nine months ended September 30, 1998. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three Months Ended Nine Months Ended September 30 September 30 _____________________ _____________________ 1999 1998 1999 1998 ________ ________ ________ _________ (expressed in millions, except per share data) Sales $1,789.2 $1,598.0 $5,078.4 $4,625.9 Net income (loss) $ 49.0 $ 47.1 $ 124.3 $ (25.9) Net income (loss) per diluted share $ 0.74 $ 0.72 $ 1.88 $ (0.75) Net income before nonroutine items $ 49.0 $ 12.4 $ 102.4 $ 13.2 Net income per diluted share before nonroutine items $ 0.74 $ 0.14 $ 1.52 $ 0.01 (percent of sales) Materials, labor, and other operating expenses 77.4% 79.4% 77.4% 79.1% Selling and distribution expenses 10.1% 10.3% 10.8% 10.5% General and administrative expenses 1.7% 2.3% 1.9% 2.4% In October 1999, we filed an amended 1998 Form 10-K and amended first and second quarter 1999 Form 10-Qs. The amendments decreased the reported net loss in the fourth quarter of 1998 by $2.7 million, or 4 cents per diluted share, and decreased reported net income and diluted income per share in the first quarter of 1999 and year-to-date 1999 by the same amounts. We amended our filings following discussions with the Securities and Exchange Commission concerning the timing of charges related to an early retirement program announced in the fourth quarter of 1998. Additional disclosure was also included in the amended filings. The increased 1999 pretax expense of $4.4 million is recorded in "Other (income) expense, net" in the nine months ended September 30, 1999, Statement of Income. Additionally, the results for the nine months ended September 30, 1999, included $24.6 million, or 43 cents and 40 cents per basic and diluted share for the reversal of restructuring reserves established in 1998. The results for the three and nine months ended September 30, 1998, included a gain of $34.7 million related to an insurance settlement for a fire at our Medford, Oregon, plywood plant. Basic income per share increased 62 cents and diluted income per share increased 58 cents for the three months ended September 30, 1998. Basic and diluted loss per share was reduced 62 cents for the nine months ended September 30, 1998. The results for the nine months ended September 30, 1998, included a charge of $65.2 million, or $1.16 per basic and diluted share for restructuring charges in the building products segment and the revaluation of paper-related assets in the paper and paper products segment. See Note 13 in the Notes to Quarterly Financial Statements for additional information on our restructuring activities. See also the discussion by segment in this MD&A. The improvement in materials, labor, and other operating expenses as a percent of sales for the periods presented is primarily due to the increased sales prices which increase sales without a corresponding increase in costs and reduced wood and conversion costs in our building products segment. The higher percentage in selling and distribution expenses for the nine months ended September 30, 1999, compared to the same period in 1998, is due primarily to the increased office products sales which have higher associated selling and distribution costs. General and administrative expenses have decreased as a percentage of sales due in part to our cost reduction efforts as well as leveraging fixed costs over higher sales. The restructuring and cost-saving efforts announced in 1998 have improved our 1999 results. The following table shows the estimated increase in 1999 operating income compared with the same periods in 1998 as a result of our restructurings and other cost saving initiatives. Three Months Ended Nine Months Ended September 30, 1999 September 30, 1999 __________________ __________________ Cash Noncash Cash Noncash _______ _______ _______ ________ (expressed in millions) Office products Improved operating results over 1998 for restructured European locations $ - $ 1.2 $ - $ 3.1 Building products 1998 operating losses for closed locations 2.4 - 5.7 1.0 Cost savings 1.0 - 2.0 - Paper and paper products Cost savings 13.6 .4 33.9 1.1 Corporate and other Cost savings 5.0 - 8.0 - _______ _______ _______ ________ Total $ 22.0 $ 1.6 $ 49.6 $ 5.2 ======= ======= ======= ======== 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 basic and diluted share for the nine months ended September 30, 1998. Also included in the nine months ended September 30, 1998, earnings per share is a negative seven cents per basic and diluted share related to the redemption of our Series F preferred stock. Interest expense was $35.8 million in the third quarter of 1999, compared with $41.0 million in the same period last year. Interest expense was $107.6 million for the first nine months of 1999, compared with $121.9 million in the same period last year. The decreases were due primarily to lower debt levels. We used an estimated annual tax provision rate of 40.5% for the nine months ended September 30, 1999. Due to low income levels, the tax benefit rate for the nine months ended September 30, 1998, was not meaningful. Our actual 1998 benefit rate was 5.7%. Excluding nonroutine items in 1998, the annual tax provision rate would have been 44%. Our tax rate is subject to fluctuations due primarily to the sensitivity of the rate to low income levels, the impact of nonroutine items, and the mix of income sources. Office Products Distribution Three Months Ended Nine Months Ended September 30 September 30 _____________________ _____________________ 1999 1998 1999 1998 ________ ________ ________ ________ (expressed in millions) Sales $ 838.5 $ 760.4 $2,488.5 $2,253.1 Segment income $ 34.8 $ 28.0 $ 110.4 $ 94.8 Segment income before nonroutine items $ 34.8 $ 28.0 $ 106.4 $ 94.8 (percent of sales) Gross profit 24.8% 24.8% 25.7% 25.4% Operating expenses 20.7% 21.1% 21.3% 21.2% Operating expenses before nonroutine items 20.7% 21.1% 21.5% 21.2% Operating profit 4.1% 3.7% 4.4% 4.2% Operating profit before nonroutine items 4.1% 3.7% 4.3% 4.2% During the second quarter of 1999, BCOP revised the amount of a restructuring reserve for its United Kingdom operations. The restructuring program was less costly than originally anticipated due to lower professional and legal fees, a sublease of one of the facilities, a decision to retain a small printing portion of the business, and fewer terminations of employees. As a result, they recorded an increase to operating income of approximately $4.0 million in the second quarter of 1999. The increase to income included $0.5 million for reduced employee-related costs and $3.5 million for other exit costs including lower lease costs and lower-than-expected inventory write-downs of $0.8 million. The growth in sales resulted primarily from same-location sales growth. Same-location sales increased 7% in the third quarter of 1999 and for the nine months ended September 30, 1999, compared with the same periods in 1998. Gross profit increased for the first nine months of 1999 due to higher gross margins in many of BCOP's businesses, with particular strength in BCOP's domestic operations. BCOP's higher margins were primarily the result of lower procurement costs. The decrease in operating expenses in the third quarter resulted, in part, from lower operating costs in Canada as BCOP resolved the warehouse integration issues in its new distribution center. Excluding nonroutine items, the year-to-date increase in operating expenses resulted, in part, from increased investment in growth initiatives and a modest employee-wide bonus program implemented during the last half of 1998. The improvement in operations from the restructuring shown in the previous table was primarily due to the elimination of losses from the disposed of German joint venture. Building Products Three Months Ended Nine Months Ended September 30 September 30 _____________________ _____________________ 1999 1998 1999 1998 ________ ________ ________ ________ (expressed in millions) Sales $ 594.2 $ 494.4 $1,580.3 $1,312.3 Segment income $ 60.2 $ 84.2 $ 198.7 $ 30.5 Segment income before nonroutine items $ 60.2 $ 37.7 $ 163.2 $ 45.9 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. Year-to-date 1998 results were negatively impacted by $61.9 million for this restructuring charge. We closed the sawmills in Horseshoe Bend and Fisher in 1998. In late May 1999, we decided to indefinitely continue operations at the Elgin and Yakima mills. This decision was based on recent changes in wood supply and costs, product prices, improved plant operations, and the impact of a fire at our Elgin plywood plant in May 1999. As a result of this decision, in the second quarter of 1999, our building products segment reversed previously recorded restructuring charges totaling $35.5 million. On September 6, 1998, our Medford, Oregon, plywood plant and lumber storage area were severely damaged by fire. In the third quarter of 1998, the building products segment recorded a gain of $46.5 million related to an insurance settlement for this fire. Excluding these nonroutine items, the increase in results for the three and nine months ended September 30, 1999, is due to improved sales prices, very strong structural panel markets, increases in engineered wood products sales, significant sales growth in building materials distribution, an improved product mix through a reduction in commodity lumber volume, and stable log costs. The increase in operating income for the year was also due to lower wood and conversion costs and our restructuring activities. (See table in this section showing the estimated increase in 1999 operating income compared with the same periods in 1998 as a result of our restructurings and other cost saving initiatives.) The increase in distribution sales was due to higher prices, expansion, and increased market share. The tables below present our sales volumes and prices for selected products. Three Months Ended Nine Months Ended September 30 September 30 ___________________ ____________________ 1999 1998 1999 1998 ________ ________ _________ _________ Sales Volumes Plywood (1,000 sq. ft. 3/8" basis) 358,092 480,900 1,137,649 1,427,508 OSB (1,000 sq. ft. 3/8" basis)(a) 96,880 88,409 284,327 253,691 Lumber (1,000 board ft.) 138,398 142,693 395,849 440,834 LVL (100 cubic ft.) 16,086 11,520 43,068 28,783 I-joists (1000 equivalent lineal ft.) 37,885 32,541 104,628 81,331 Particleboard (1,000 sq. ft. 3/4" basis) 46,367 47,523 142,819 146,226 Building materials distribution (millions of sales dollars) $ 344 $ 263 $ 874 $ 659 (a) Includes 100% of the sales of Voyageur Panel, of which we own 47%. Average Net Selling Prices Plywood (per 1,000 sq. ft. 3/8" basis) $ 310 $ 260 $ 288 $ 239 OSB (per 1,000 sq. ft. 3/8" basis) 239 214 205 164 Lumber (per 1,000 board ft.) 538 469 521 475 LVL (per 100 cubic ft.) 1,596 1,600 1,594 1,596 I-joists (per 1,000 equivalent lineal ft.) 1,015 1,001 1,006 995 On September 16, 1999, we completed the acquisition of Furman Lumber, Inc., a privately held building supplies distributor headquartered in Billerica, Massachusetts. The 12 Furman locations, which are located in the eastern, Midwestern, and southern states, will bring us closer to our goal of achieving national coverage in the building distribution business. Had this acquisition occurred on January 1, 1999, the building products segment pro forma sales for the nine months ended September 30, 1999, would have increased approximately $500.0 million. Had the acquisition occurred on January 1, 1998, pro forma sales for the nine months ended September 30, 1998, would have increased $430.0 million. This unaudited pro forma financial information does not necessarily represent the actual results of operations that would have occurred if the acquisitions had taken place on the dates assumed. The purchase price was approximately $92.7 million, including cash payments of $90.2 million and assumption of debt. In May 1999, a fire damaged our Elgin plywood plant. The plant is being rebuilt and is expected to be operating by the end of the year. After paying a $1.5 million deductible which was recorded in corporate and other, the loss is fully insured, including coverage for business interruption losses. This fire and a fire at our Medford plywood plant in September 1998 caused the decrease between periods in plywood sales volume. However, because of the business interruption insurance, there has not been a corresponding decrease in operating income. The Medford plant is being rebuilt and began limited production in September 1999. Paper and Paper Products Three Months Ended Nine Months Ended September 30 September 30 _____________________ _____________________ 1999 1998 1999 1998 ________ ________ ________ ________ (expressed in millions) Sales $ 449.3 $ 435.6 $1,269.7 $1,349.3 Segment income $ 35.3 $ 8.2 $ 57.8 $ 27.2 Segment income before nonroutine items $ 35.3 $ 8.2 $ 56.6 $ 46.2 In second quarter 1999, our paper and paper products segment also adjusted reserves recorded in fourth quarter 1998 for the elimination of job positions and the closure of our research and development facility in Portland, Oregon, to reflect our actual experience. These adjustments increased this segment's year-to-date income $1.2 million. Results for the nine months ended September 30, 1998, were negatively impacted by a $19.0 million charge for the revaluation of paper-related assets. Excluding the nonroutine items, performance improved in the third quarter due to a 3% increase in unit sales volume and reduced unit costs. Prices, on average, were about flat quarter to quarter. For the year, lower paper prices were offset by slightly increased sales volume and reduced unit costs. Paper segment manufacturing costs per ton in the third quarter of 1999 were 5% lower than in the comparison quarter and 5% lower than in the prior year. These decreases were due to lower fiber costs and our cost reduction efforts. (See table in this section showing the estimated increase in 1999 operating income compared with the same periods in 1998 as a result of our restructurings and other cost saving initiatives.) The tables below present our sales volumes and prices for our paper grades. Three Months Ended Nine Months Ended September 30 September 30 _____________________ _____________________ 1999 1998 1999 1998 ________ ________ ________ ________ Sales Volumes (1,000s of short tons) Uncoated free sheet 362 354 1,061 1,058 Containerboard 164 154 481 469 Newsprint 110 110 314 319 Market pulp 36 32 111 107 ________ ________ ________ ________ Total 672 650 1,967 1,953 ======== ======== ======== ======== Average Net Selling Prices Per Short Ton Uncoated free sheet $ 709 $ 695 $ 681 $ 722 Containerboard 354 316 322 327 Newsprint 383 485 415 492 Market pulp 372 375 350 368 FINANCIAL CONDITION AND LIQUIDITY Operating Activities. Cash provided by operations was $334.8 million for the first nine months of 1999, compared with $331.7 million for the same period in 1998. Improved operating results provided $383.1 million of cash flows from net income items in 1999, offset by $48.3 million of unfavorable changes in working capital items, primarily receivables. In 1998, net income items provided $245.2 million of positive cash flows, and changes in working capital items provided another $86.5 million of positive cash flows. In September 1998, we sold fractional ownership interests in a defined pool of trade accounts receivable. At September 30, 1999, $100 million of the sold accounts receivable were excluded from receivables in the balance sheet. This is an increase of $21.0 million from the December 31, 1998, balance of $79.0 million. This increase represents an increase in cash provided by operations. Our working capital ratio was 1.28:1 at September 30, 1999, compared with 1.27:1 at September 30, 1998. Our working capital ratio was 1.21:1 at December 31, 1998. Investing Activities. Cash used for investment was $278.5 million and $206.2 million for the first nine months of 1999 and 1998. Cash expenditures for property and equipment and timber and timberlands totaled $163.9 million and $182.8 million for the first nine months of 1999 and 1998. This reduction reflects our focus on reducing our overall level of non-acquisition capital spending. Cash purchases of assets totaled $97.8 million for the first nine months of 1999, of which $90.2 million was for the purchase of Furman Lumber, Inc. Cash purchases of assets totaled $4.0 million for the first nine months of 1998. Financing Activities. Cash used for financing was $60.6 million and $116.4 million for the first nine months of 1999 and 1998. Dividend payments totaled $34.2 million and $38.2 million for the first nine months of 1999 and 1998. The decrease is due to the redemption of our Series F preferred stock in February 1998. In both years, our quarterly dividend was 15 cents per common share. For the first nine months of 1999, short- term borrowings, primarily notes payable and commercial paper, provided cash of $22.7 million compared with $72.7 million for the first nine months of 1998. The higher short-term borrowings in the first nine months of 1998 were used to fund the redemption of the Series F preferred stock for $115 million in cash. Net payments of long-term debt used $62.4 million in the first nine months of 1999 compared with $32.6 million for the same period in 1998. In February 1999, we redeemed our $100.0 million, 9.875% notes. At September 30, 1999 and 1998, we had $2.0 billion and $2.1 billion of debt outstanding. At December 31, 1998, we had $2.0 billion of debt outstanding. Our debt-to-equity ratio was 1.29:1 and 1.43:1 at September 30, 1999 and 1998. Our debt-to-equity ratio was 1.41:1 at December 31, 1998. Our debt and debt-to-equity ratio include the guarantee by the company of the remaining $149.5 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 $600.0 million based on customary indices. As of September 30, 1999, borrowings under the agreement totaled $195.0 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 $75.0 million that expires in 2000. This swap results in an effective fixed interest rate with respect to $75.0 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 September 30, 1999, we were in compliance with our debt covenants, and our net worth exceeded the defined minimum by $176.7 million. BCOP has a $450.0 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 $25.0 million that expires in 2000. This swap results in an effective fixed interest rate with respect to $25.0 million of BCOP's revolving credit agreement borrowings. As of September 30, 1999, BCOP had outstanding borrowings of $155.0 million under this agreement and was in compliance with its debt covenants. At September 30, 1999, we had $430.0 million and BCOP had $150.0 million of unused borrowing capacity registered with the Securities and Exchange Commission. In March 1999, we filed a registration statement covering $300.0 million in universal shelf capacity with the Securities and Exchange Commission. We have not yet requested final approval of this registration statement from the Securities and Exchange Commission. Once approved, this registration statement allows us to issue debt and/or equity securities in one or more offerings. At September 30, 1999, we had $82.1 million of short-term borrowings outstanding, and BCOP had $70.1 million of short-term borrowings outstanding. At September 30, 1998, we had $93.5 million of short-term borrowings outstanding, while BCOP had $74.0 million of short-term borrowings outstanding. At December 31, 1998, we had $57.4 million of short-term borrowings outstanding, while BCOP had $72.1 million of short- term borrowings outstanding. During early October 1999, we completed the sale of 56,000 acres of timberland in Central Washington to U.S. Timberlands Yakima L.L.C., an affiliate of U.S. Timberlands Company L.P. The pretax gain on the sale was $47.0 million and will be recorded in fourth quarter 1999. The net cash proceeds after transaction costs and adjustments for timber harvested were $50.2 million. 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 $12.0 million in 1999. These expected cash payments in 1999 include $10.0 million for employee-related costs and $2.0 million for lease and other contract terminations. We spent approximately $10.0 million in the first nine months of 1999, including $8.0 million for employee-related costs and $2.0 million for lease and other contract terminations. Cash requirements related to our restructuring in 2000 and beyond are expected to total $4.0 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. Our results of operations are not materially effected by seasonal sales variances or inflation. OUTLOOK Our paper and office products distribution segments should continue to strengthen over the remainder of the year. Our building products segment should also perform well but at a lower level than in the third quarter due to seasonal falloff in product prices. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. We plan to adopt this statement in the first quarter of 2001. 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. TIMBER SUPPLY 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, partly because of reductions in timber supply and consequent increases in timber costs. Additional curtailments or closures of our wood products manufacturing facilities are possible. We are currently able to meet our timber requirements through a combination of public and private sources and our more than two million acres of owned or controlled timberland. 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 6 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 implemented appropriate modifications of the noncompliant systems. We expect to complete all necessary changes before year-end 1999. We have surveyed our critical suppliers and customers to determine whether critical processes may be impacted by a lack of year 2000 compliance. 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 be about $10.0 million. These costs are being expensed as incurred. Approximately $8.4 million had been spent through September 30, 1999. 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 have developed or are developing contingency options in the event that critical systems or suppliers encounter unforeseen year 2000 problems. These contingency plans include alternative processes using a combination of computerized and manual systems. 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 and our ability to successfully identify and correct all systems affected by the year 2000 issue. FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis includes 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 disruptions; 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 ability to implement operating strategies and integration plans and realize cost savings and efficiencies; fluctuations in foreign currency exchange rates; fluctuations in paper prices; 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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. 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 are 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. We had no material changes in market risk since December 31, 1998. We had no material exposure to losses from derivative financial instruments held at September 30, 1999. We do not use derivative financial instruments for trading purposes. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In December 1998, the Maine Department of Environmental Protection 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 have reached a settlement in principle with the Maine DEP, and we expect to finalize the agreement in the fourth quarter. Penalties were agreed upon at $115,950. Reference is made to our annual report on Form 10-K/A for the year ended December 31, 1998, and to our quarterly report on Form 10-Q/A for the quarter ended June 30, 1999, for information concerning other legal proceedings. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Required exhibits are listed in the Index to Exhibits and are incorporated by reference. (b) Reports on Form 8-K. We issued a news release on September 16, 1999, announcing the completion of the Furman Lumber, Inc. acquisition. No other Form 8-Ks were filed during the third quarter of 1999.

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOISE CASCADE CORPORATION As Duly Authorized Officer and Chief Accounting Officer: /s/ Tom E. Carlile __________________________ Tom E. Carlile Vice President and Controller Date: November 12, 1999

BOISE CASCADE CORPORATION INDEX TO EXHIBITS Filed With the Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1999 Number Description Page Number ______ ___________ ___________ 11 Computation of Per Share Earnings 12.1 Ratio of Earnings to Fixed Charges 12.2 Ratio of Earnings to Combined Fixed Charges and Preferred Dividend Requirements 27 Financial Data Schedule

EXHIBIT 11 Boise Cascade Corporation Computation of Per Share Earnings Three Months Ended Nine Months Ended September 30 September 30 ______________________ ______________________ 1999 1998 1999 1998 _________ _________ _________ _________ (expressed in thousands, except per share amounts) Net income (loss) as reported, before cumulative effect of accounting change $ 49,048 $ 47,050 $ 124,253 $ (17,350) Preferred dividends (3,429) (3,515) (10,284) (12,094) Excess of Series F Preferred Stock redemption price over carrying value - - - (3,958) _________ _________ _________ _________ Basic income (loss) before cumulative effect of accounting change 45,619 43,535 113,969 (33,402) Cumulative effect of accounting change, net of tax - - - (8,590) _________ _________ _________ _________ Basic income (loss) $ 45,619 $ 43,535 $ 113,969 $ (41,992) ========= ========= ========= ========= Basic income (loss) before cumulative effect of accounting change $ 45,619 $ 43,535 $ 113,969 $ (33,402) Preferred dividends eliminated 3,429 3,515 10,284 10,649 Supplemental ESOP contribution (2,930) (3,001) (8,790) (9,102) _________ _________ _________ _________ Diluted income (loss) before cumulative effect of accounting change 46,118 44,049 115,463 (31,855) Cumulative effect of accounting change - - - (8,590) _________ _________ _________ _________ Diluted income (loss) $ 46,118 $ 44,049 $ 115,463 $ (40,445) ========= ========= ========= ========= Average shares outstanding used to determine basic income (loss) per common share 57,078 56,332 56,685 56,297 Stock options and other 499 134 430 227 Series D convertible preferred stock 4,090 4,383 4,178 4,420 _________ _________ _________ _________ Average shares used to determine diluted income (loss) per common share 61,667 60,849 61,293 60,944 ========= ========= ========= ========= Net income (loss) per common share Basic income (loss) before cumulative affect of accounting change $ 0.80 $ 0.77 $ 2.01 $ (0.60) Cumulative affect of accounting change - - - (0.15) _________ _________ _________ _________ Basic income (loss) per common share $ 0.80 $ 0.77 $ 2.01 $ (0.75) ========= ========= ========= ========= Diluted income (loss) before cumulative effect of accounting change $ 0.74 $ 0.72 $ 1.88 $ (0.52)(a) Cumulative effect of accounting change - - - (0.14)(a) _________ _________ _________ _________ Diluted income (loss) $ 0.74 $ 0.72 $ 1.88 $ (0.66)(a) ========= ========= ========= ========= (a) Because the computation of diluted loss per common share was antidilutive, the diluted loss per common share reported for the nine months ended September 30, 1998, was the same as basic loss per common share.

EXHIBIT 12.1 BOISE CASCADE CORPORATION AND SUBSIDIARIES Ratio of Earnings to Fixed Charges Nine Months Year Ended December 31 Ended September 30 _________________________________________________________ ______________________ 1994 1995 1996 1997 1998 1998 1999 _________ _________ _________ _________ _________ _________ _________ (dollar amounts expressed in thousands) Interest costs $ 169,170 $ 154,469 $ 146,234 $ 153,691 $ 174,541 $ 132,989 $ 118,803 Interest capitalized during the period 1,630 3,549 17,778 10,575 1,341 537 212 Interest factor related to noncapitalized leases(a) 9,161 8,600 12,982 11,931 11,308 9,212 9,571 _________ _________ _________ _________ _________ _________ _________ Total fixed charges $ 179,961 $ 166,618 $ 176,994 $ 176,197 $ 187,190 $ 142,738 $ 128,586 Income (loss) before income taxes, minority interest, and cumulative effect of accounting change $ (64,750) $ 589,410 $ 31,340 $ (28,930) $ (16,878) $ 1,430 $ 225,123 Undistributed (earnings) losses of less than 50% owned persons, net of distributions received (1,110) (36,861) (1,290) 5,180 3,791 3,718 (6,024) Total fixed charges 179,961 166,618 176,994 176,197 187,190 142,738 128,586 Less: Interest capitalized (1,630) (3,549) (17,778) (10,575) (1,341) (537) (212) Guarantee of interest on ESOP debt (20,717) (19,339) (17,874) (16,341) (14,671) (11,059) (9,707) _________ _________ _________ _________ _________ _________ _________ Total earnings before fixed charges $ 91,754 $ 696,279 $ 171,392 $ 125,531 $ 158,091 $ 136,290 $ 337,766 Ratio of earnings to fixed charges - 4.18 - - - - 2.63 Excess of fixed charges over earnings before fixed charges $ 88,207 $ - $ 5,602 $ 50,666 $ 29,099 $ 6,448 $ - (a) Interest expense for operating leases with terms of one year or longer is based on an imputed interest rate for each lease.

EXHIBIT 12.2 BOISE CASCADE CORPORATION AND SUBSIDIARIES Ratio of Earnings to Combined Fixed Charges and Preferred Dividend Requirements Nine Months Year Ended December 31 Ended September 30 _________________________________________________________ ______________________ 1994 1995 1996 1997 1998 1998 1999 _________ _________ _________ _________ _________ _________ _________ (dollar amounts expressed in thousands) Interest costs $ 169,170 $ 154,469 $ 146,234 $ 153,691 $ 174,541 $ 132,989 $ 118,803 Interest capitalized during the period 1,630 3,549 17,778 10,575 1,341 537 212 Interest factor related to noncapitalized leases(a) 9,161 8,600 12,982 11,931 11,308 9,212 9,571 Preferred stock dividend requirements - pretax 81,876 59,850 65,207 44,686 19,940 19,931 16,940 _________ _________ _________ _________ _________ _________ _________ Combined fixed charges and preferred dividend requirements $ 261,837 $ 226,468 $ 242,201 $ 220,883 $ 207,130 $ 162,669 $ 145,526 Income (loss) before income taxes, minority interest, and cumulative effect of accounting change $ (64,750) $ 589,410 $ 31,340 $ (28,930) $ (16,878) $ 1,430 $ 225,123 Undistributed (earnings) losses of less than 50% owned persons, net of distributions received (1,110) (36,861) (1,290) 5,180 3,791 3,718 (6,024) Combined fixed charges and preferred dividend requirements 261,837 226,468 242,201 220,883 207,130 162,669 145,526 Less: Interest capitalized (1,630) (3,549) (17,778) (10,575) (1,341) (537) (212) Guarantee of interest on ESOP debt (20,717) (19,339) (17,874) (16,341) (14,671) (11,059) (9,707) _________ _________ _________ _________ _________ _________ _________ Total earnings before combined fixed charges and preferred dividend requirements $ 173,630 $ 756,129 $ 236,599 $ 170,217 $ 178,031 $ 156,221 $ 354,706 Ratio of earnings to combined fixed charges and preferred dividend requirements - 3.34 - - - - 2.44 Excess of combined fixed charges and preferred dividend requirements over earnings before combined fixed charges and preferred dividend requirements $ 88,207 $ - $ 5,602 $ 50,666 $ 29,099 $ 6,448 $ - (a) Interest expense for operating leases with terms of one year or longer is based on an imputed interest rate for each lease.

5 The data schedule contains summary financial information extracted from Boise Cascade Corporation's Balance Sheet at September 30, 1999, and from its Statement of Income for the nine months ended September 30, 1999. The information presented is qualified in its entirety by reference to such financial statements.

9-MOS DEC-31-1999 SEP-30-1999 67,891 2,226 698,027 11,722 652,825 1,541,676 5,172,465 2,344,495 5,144,494 1,204,370 1,720,622 0 226,462 142,842 1,169,830 5,144,494 5,078,398 5,078,398 4,143,353 4,753,712 0 0 107,598 225,123 (91,175) 124,253 0 0 0 124,253 2.01 1.88