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Boise Announces Third Quarter 2007 Financial Results
BOISE, Idaho, Nov. 7 /PRNewswire/ -- Boise Cascade Holdings, L.L.C. today reported net income of $49.2 million for the third quarter 2007, compared with net income of $36.4 million for the third quarter 2006 and $28.9 million for the second quarter 2007. Income from operations for the third quarter 2007 was $72.0 million, compared with $64.6 million in the same period of 2006 and $48.6 million for the second quarter 2007. In September, we announced the sale of our Paper and Packaging & Newsprint segments and recorded these assets as held for sale. We stopped depreciating and amortizing these assets as well as some assets included in our Corporate segment, resulting in approximately $10 million in lower depreciation and amortization expense in third quarter 2007. "The third quarter result in our Paper segment reflects the better supply-demand balance in that business," said Tom Stephens, chairman and chief executive officer. "While packaging markets were stronger, our Packaging & Newsprint segment financial results were negatively impacted by lower newsprint prices and the annual maintenance outage at our DeRidder mill. Our Building Materials Distribution and Wood Products businesses were both solidly profitable despite the continued challenges in the housing market. The agreement to sell our Paper and Packaging & Newsprint segments to Aldabra 2 Acquisition Corp. represents a major step forward for that business. The transaction will result in a focused building products business with a strong balance sheet, which will give us many options."
FINANCIAL HIGHLIGHTS
($ in millions)
3Q 2007 3Q 2006 2Q 2007
Sales $1,402.1 $1,480.3 $1,448.4
Income from operations $72.0 $64.6 $48.6
Net income $49.2 $36.4 $28.9
EBITDA(a) $106.6 $103.7 $91.4
(a) For reconciliation of net income to EBITDA, see "Segment Information"
in the financial section.
Sales Sales for the third quarter 2007 were $1.4 billion, compared to $1.5 billion in the third quarter 2006 and $1.4 billion in the second quarter 2007. Year-over-year sales were lower in our Building Materials Distribution, Wood Products, and Packaging & Newsprint segments offset, in part, by sales increases in our Paper segment. Comparing the third quarter 2007 to the same period of 2006, Building Materials Distribution segment sales decreased 9% due to lower sales volumes and lower sales prices. Wood Products segment sales were down 13% due primarily to lower sales volumes for all products and lower sales prices for engineered wood products, lumber, and particleboard offset, in part, by higher plywood prices. Paper segment sales were up 8% over the same period in 2006 due to higher sales prices and higher pulp sales volumes relative to the third quarter 2006. Packaging & Newsprint segment sales decreased 7% due to lower newsprint sales volumes and prices and lower linerboard sales volumes as we continued to increase the use of our own linerboard in our converting plants. Income From Operations Income from operations increased 11% in the third quarter 2007 to $72.0 million from $64.6 million in third quarter 2006. Segment income decreased in Building Materials Distribution driven by softer housing markets. Despite the soft housing market, segment income increased in Wood Products driven by higher plywood prices coupled with lower raw material costs. Segment income increased in Paper due to higher product prices and higher sales volumes of market pulp and reduced depreciation and amortization expense. Packaging & Newsprint segment income decreased due primarily to the annual maintenance shutdown at our mill in DeRidder, Louisiana, coupled with softer newsprint markets and higher fiber costs, offset by lower depreciation and amortization expense. Comparing third quarter 2007 with third quarter 2006, segment income in Building Materials Distribution decreased $3.3 million, from $19.4 million in 2006 to $16.1 million in 2007, due primarily to lower sales volumes and lower sales prices offset, in part, by lower purchased materials costs. Segment income in Wood Products increased $3.6 million, from $5.6 million in the third quarter 2006 to $9.2 million in the third quarter 2007, due primarily to higher plywood prices and lower raw material costs offset, in part, by lower product prices and volumes for engineered wood products and particleboard. Paper segment income increased $18.2 million, from $31.3 million in third quarter 2006 to $49.5 million in third quarter 2007, due primarily to higher product prices and higher pulp sales, coupled with lower energy costs and reduced depreciation and amortization expense associated with assets held for sale, offset in part, by higher fiber and chemical costs. Packaging & Newsprint segment income decreased $12.3 million, from $16.5 million in third quarter 2006 to $4.2 million in 2007, due primarily to costs associated with the annual maintenance shutdown at our DeRidder mill, lower newsprint prices, and higher fiber costs, offset in part, by higher linerboard and corrugated container and sheet prices and reduced amortization and depreciation expense associated with assets held for sale. About Boise Cascade Boise, headquartered in Boise, Idaho, manufactures engineered wood products, plywood, lumber, and particleboard and distributes a broad line of building materials, including wood products manufactured by the company. Boise also manufactures a wide range of specialty and premium papers, including imaging papers for the office and home and papers for pressure-sensitive applications, as well as printing and converting papers, containerboard and corrugated boxes, newsprint, and market pulp. Visit Boise's website at http://www.bc.com. Webcast and Conference Call Boise will host an audiovisual webcast and conference call on Wednesday, November 7, 2007, at 11:00 a.m. Eastern, at which time we will review the company's recent performance. You can join the webcast through the Boise website. Go to http://www.bc.com and click on the link to the webcast under the News & Events heading. Slides will be posted 15 minutes before the beginning of the webcast. Please go to the website at least 15 minutes before the start of the webcast to register and to download and install any necessary audio software. To join the conference call, dial (800) 374-0165 (international callers should dial (706) 634-0995) at least 10 minutes before the start of the call. The archived webcast will be available in News & Events (link in the About Boise section) of Boise's website. A replay of the conference call will be available from November 7 at 12:00 noon Eastern through December 7 at 11:59 p.m. Eastern. Playback numbers are (800) 642-1687 for U.S. calls and (706) 645-9291 for international calls, and the passcode will be 20651266. Basis of Presentation We present our consolidated financial statements in accordance with generally accepted accounting principles (GAAP). Our earnings release also supplements the GAAP presentations by reflecting EBITDA. EBITDA represents income (loss) before interest (interest expense, interest income, and change in fair value of interest rate swaps), income tax provision (benefit), and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of companies with substantial financial leverage. We believe EBITDA is a meaningful measure because it presents a transparent view of our recurring operating performance and allows management to readily view operating trends, perform analytical comparisons, and identify strategies to improve operating performance. For example, we believe that the inclusion of items such as taxes, interest expense, and interest income distorts management's ability to assess and view the core operating trends in our segments. EBITDA, however, is not a measure of our liquidity or financial performance under GAAP and should not be considered as an alternative to net income (loss), income (loss) from operations, or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of EBITDA instead of net income (loss) or segment income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest expense, interest income, change in the fair value of interest rate swaps, and associated significant cash requirements; and the exclusion of depreciation, amortization, and depletion, which represent significant and unavoidable operating costs, given the level of our indebtedness and the capital expenditures needed to maintain our businesses. Management compensates for these limitations by relying on our GAAP results. Our measures of EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation. Forward Looking Statements This news release contains statements that are "forward looking" within the Private Securities Litigation Reform Act of 1995. These statements speak only as of the date of this press release. While they are based on the current expectations and beliefs of management, they are subject to a number of uncertainties and assumptions that could cause actual results to differ from the expectations expressed in this release. The announced transaction with Aldabra 2 is subject to a number of risks and uncertainties, including the satisfaction of closing conditions and approval by Aldabra 2's stockholders, both of which affect the timing of and our ability to complete the transaction.
Boise Cascade Holdings, L.L.C.
Consolidated Statements of Income
(unaudited, in thousands)
Three Months Ended
September 30 June 30,
2007 2006 (a) 2007
Sales
Trade $1,247,563 $1,332,187 $1,288,921
Related parties 154,570 148,159 159,477
1,402,133 1,480,346 1,448,398
Costs and expenses
Materials, labor, and other
operating expenses 1,202,547 1,285,335 1,270,294
Depreciation, amortization, and
depletion 32,273 (b) 39,274 40,722
Selling and distribution
expenses 72,356 71,555 73,620
General and administrative
expenses 22,597 19,725 20,210
Other (income) expense, net 390 (105) (5,091)(c)
1,330,163 1,415,784 1,399,755
Income from operations 71,970 64,562 48,643
Foreign exchange gain (loss) 2,333 (89) 2,020
Change in fair value of interest
rate swaps (d) - - 5,395
Interest expense (23,356) (28,400) (24,352)(e)
Interest income 1,274 909 642
(19,749) (27,580) (16,295)
Income before income taxes 52,221 36,982 32,348
Income tax provision (3,056) (616) (3,450)
Net income $49,165 $36,366 $28,898
Segment Information
(unaudited, in thousands)
Three Months Ended
September 30 June 30,
2007 2006 (a) 2007
Segment sales
Building Materials Distribution $686,610 $756,608 $723,732
Wood Products 261,634 299,131 278,658
Paper 402,143 373,458 401,098
Packaging & Newsprint 193,018 206,797 192,933
Intersegment eliminations and
other (141,272) (155,648) (148,023)
$1,402,133 $1,480,346 $1,448,398
Segment income (loss)
Building Materials Distribution $16,146 $19,354 $20,386
Wood Products 9,161 5,606 15,740
Paper 49,492 (b) 31,294 13,198
Packaging & Newsprint 4,224 (b) 16,479 2,337
Corporate and Other (4,720)(b) (8,260) (998)(c)
74,303 64,473 50,663
Change in fair value of interest
rate swaps (d) - - 5,395
Interest expense (23,356) (28,400) (24,352)(e)
Interest income 1,274 909 642
Income before income taxes $52,221 $36,982 $32,348
EBITDA (f)
Building Materials Distribution $17,971 $21,720 $22,246
Wood Products 16,306 12,671 23,309
Paper 61,519 47,005 29,311
Packaging & Newsprint 14,519 29,249 16,228
Corporate and Other (3,739) (6,898) 291 (c)
$106,576 $103,747 $91,385
Boise Cascade Holdings, L.L.C.
Consolidated Statements of Income
(unaudited, in thousands)
Nine Months Ended
September 30
2007 2006 (a)
Sales
Trade $3,699,657 $4,085,469
Related parties 471,842 424,929
4,171,499 4,510,398
Costs and expenses
Materials, labor, and other operating
expenses 3,629,740 3,958,664
Depreciation, amortization, and
depletion 113,355 (b) 114,390
Selling and distribution expenses 214,384 214,239
General and administrative expenses 62,302 67,345
Other (income) expense, net (2,155)(c) 1,003 (c)
4,017,626 4,355,641
Income from operations 153,873 154,757
Foreign exchange gain 4,595 1,650
Change in fair value of interest rate
swaps (d) 5,395 -
Interest expense (70,051)(e) (87,186)
Interest income 2,517 2,447
(57,544) (83,089)
Income before income taxes 96,329 71,668
Income tax provision (7,729) (2,139)
Net income $88,600 $69,529
Segment Information
(unaudited, in thousands)
Nine Months Ended
September 30
2007 2006 (a)
Segment sales
Building Materials Distribution $2,019,000 $2,351,154
Wood Products 794,215 926,426
Paper 1,198,275 1,125,517
Packaging & Newsprint 579,923 576,393
Intersegment eliminations and other (419,914) (469,092)
$4,171,499 $4,510,398
Segment income (loss)
Building Materials Distribution $46,987 $63,255
Wood Products 28,610 41,619
Paper 80,716 (b) 46,823
Packaging & Newsprint 14,644 (b) 30,731
Corporate and Other (12,489)(b) (26,021)(c)
158,468 156,407
Change in fair value of interest rate
swaps (d) 5,395 -
Interest expense (70,051)(e) (87,186)
Interest income 2,517 2,447
Income before income taxes $96,329 $71,668
EBITDA (f)
Building Materials Distribution $52,548 $70,373
Wood Products 50,608 61,671
Paper 125,429 92,604
Packaging & Newsprint 52,242 68,258
Corporate and Other (9,004)(c) (22,109)(c)
$271,823 $270,797
Boise Cascade Holdings, L.L.C.
Consolidated Balance Sheets
(unaudited, in thousands)
September 30, December 31,
2007 2006
ASSETS
Current
Cash and cash equivalents $65,608 $45,169
Receivables
Trade, less allowances of $1,065
and $1,734 200,130 327,138
Related parties 8 37,986
Other 6,927 19,027
Inventories 339,130 640,826
Assets held for sale 1,856,061 -
Restricted cash held for bond
redemption (g) 200,000 -
Other 6,868 13,027
2,674,732 1,083,173
Property
Property and equipment, net 305,897 1,462,315
Fiber farms and timber deposits 23,981 40,492
329,878 1,502,807
Deferred financing costs 28,485 31,474
Goodwill 12,170 21,846
Intangible assets, net 9,773 37,507
Other assets 10,307 28,390
Total assets $3,065,345 $2,705,197
Boise Cascade Holdings, L.L.C.
Consolidated Balance Sheets (continued)
(unaudited, in thousands, except for equity units)
September 30, December 31,
2007 2006
LIABILITIES AND CAPITAL
Current
Short-term borrowings $- $3,200
Current portion of long-term debt (h) 257,250 -
Accounts payable 185,121 341,201
Accrued liabilities
Compensation and benefits 39,884 93,287
Interest payable 18,998 11,847
Other 58,840 54,600
Liabilities related to assets held
for sale 349,903 -
909,996 504,135
Debt
Long-term debt, less current portion 1,165,125 1,213,900
Other
Compensation and benefits 52,764 111,676
Other long-term liabilities 12,507 36,642
65,271 148,318
Redeemable equity units
Series B equity units - 16,995,889
and 17,107,889 units outstanding 17,365 17,477
Series C equity units - 39,527,950
and 39,576,540 units outstanding 8,771 6,434
26,136 23,911
Commitments and contingent
liabilities
Capital
Series A equity units - no par value;
66,000,000 and 66,000,000 units
authorized and outstanding 76,942 78,290
Series B equity units - no par value;
550,000,000 and 550,000,000 units
authorized; 530,356,601 and
530,356,601 units outstanding 814,222 724,988
Series C equity units - no par value;
44,000,000 and 44,000,000 units
authorized 7,653 11,655
Total capital 898,817 814,933
Total liabilities and capital $3,065,345 $2,705,197
Boise Cascade Holdings, L.L.C.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
Nine Months Ended
September 30
2007 2006
Cash provided by (used for)
operations
Net income $88,600 $69,529
Items in net income not using
(providing) cash
Depreciation, depletion, and
amortization of deferred financing
costs and other 114,034 116,629
Related-party interest expense - 12,559
Deferred income taxes 3,650 150
Pension and other postretirement
benefit expense 18,945 20,671
Gain on changes in retiree
healthcare programs (4,367) (3,741)
Change in fair value of interest
rate swaps (5,395) -
Management equity units expense 2,337 2,750
Other (4,944) (525)
Decrease (increase) in working
capital, net of acquisitions
Receivables (76,577) (54,524)
Inventories (30,193) (24,056)
Prepaid expenses 786 1,968
Accounts payable and accrued
liabilities 18,260 34,940
Pension and other postretirement
benefit payments (888) (842)
Current and deferred income taxes 2,578 (1,647)
Other 4,507 3,241
Cash provided by operations 131,333 177,102
Cash provided by (used for)
investment
Expenditures for property and
equipment (137,247) (105,095)
Increase in restricted cash held for
bond redemption (g) (200,000) -
Acquisitions of businesses and
facilities - (42,549)
Sales of assets 18,270 42,953
Other 6,378 2,263
Cash used for investment (312,599) (102,428)
Cash provided by (used for) financing
Issuances of long-term debt 960,000 293,300
Payments of long-term debt (751,525) (400,200)
Short-term borrowings (3,200) -
Note payable to related party, net - (2,536)
Proceeds from changes to interest
rate swaps 2,848 25,620
Tax distributions to members (2,753) (19,206)
Other (3,665) 53
Cash provided by (used for)
financing 201,705 (102,969)
Increase (decrease) in cash and cash
equivalents 20,439 (28,295)
Balance at beginning of the period 45,169 88,171
Balance at end of the period $65,608 $59,876
Summary Notes to Consolidated Financial Statements and Segment Information The Consolidated Statements of Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, and Segment Information do not include all Notes to Consolidated Financial Statements and should be read in conjunction with the company's 2006 Annual Report on Form 10-K. Net income for all periods presented involved estimates and accruals. In September 2007, Boise Cascade, L.L.C. (Boise LLC), our wholly owned direct subsidiary, entered into a purchase and sale agreement with Aldabra 2 Acquisition Corp. (Aldabra) for the sale of our Paper and Packaging & Newsprint segments, and most of our Corporate and Other segment, for cash and shares of Aldabra common stock equal to approximately $1.625 billion, plus working capital adjustments. As part of the transaction, Aldabra intends to change its name to Boise Paper Company (BPC). Following the transaction, Boise LLC will maintain 100% ownership of our Wood Products and Building Materials Distribution segments, and we expect to own approximately 40% of BPC's shares. The actual amount of our ownership in BPC is dependent on a number of factors, including the number of Aldabra shareholders, if any, that exercise their conversion rights. In any event, our ownership in BPC cannot exceed 49% of BPC's outstanding stock at the time of closing. Both companies will be headquartered in Boise, Idaho. In September 2007, in connection with the Aldabra transaction, we reclassified the assets and liabilities of our Paper and Packaging & Newsprint segments, as well as some of the assets and liabilities included in our Corporate and Other segment, to "Assets held for sale" and "Liabilities related to assets held for sale" on our Consolidated Balance Sheet and stopped depreciating and amortizing those assets. The equity interest that we expect to own in BPC after the transaction represents a significant continuing involvement. As a result, until the transaction is completed the operating results of the Paper and Packaging & Newsprint businesses will continue to be included in continuing operations in the Consolidated Statements of Income (Loss). For the carrying amounts of the major classes of assets and liabilities classified as "Assets held for sale" and "Liabilities related to assets held for sale" at September 30, 2007, see the Notes to the Unaudited Quarterly Financial Statements in the Form 10-Q for the period ended September 30, 2007.
(a) In January 2007, we adopted Financial Accounting Standards Board
Staff Position (FSP) No. AUG AIR-1, Accounting for Planned Major
Maintenance Activities. Prior to adopting this FSP, we charged
planned shutdown maintenance costs in our Paper and Packaging &
Newsprint segments to income (loss) ratably over the year. The FSP
prohibits this, and as a result, we recast our 2006 interim financial
information using the direct expense method. The FSP increases the
volatility of earnings in the period a planned shutdown occurs, but
it has no impact on our annual results of operations. For the three
and nine months ended September 30, 2006, income increased
(decreased) by the following amounts:
Three Months Nine Months
Ended Ended
September 30, 2006
(unaudited, in thousands)
Paper $473 $2,057
Packaging & Newsprint 955 (956)
$1,428 $1,101
(b) The three and nine months ended September 30, 2007, included
approximately $10.4 million of lower depreciation and amortization
expense as a result of discontinuing depreciation and amortization on
the assets recorded as held for sale. Of the $10.4 million of lower
depreciation and amortization expense, $5.4 million related to our
Paper segment, $4.8 million related to our Packaging & Newsprint
segment, and $0.2 million related to our Corporate and Other segment.
(c) The nine months ended September 30, 2007, and the three months ended
June 30, 2007, includes a $4.4 million gain for changes in our
retiree healthcare programs. The nine months ended September 30,
2006, included a $3.7 million gain for changes in our retiree
healthcare programs.
(d) During second quarter 2007, in connection with the amendment and
restatement of our credit facilities, we concluded that the interest
payments on our senior unsecured floating-rate notes were no longer
probable of occurring after October 2007, when the notes became
callable at par. As a result, during second quarter 2007, we
recorded the fair value of the interest rate swaps, or $5.4 million
of income, in "Change in fair value of interest rate swaps" in our
Consolidated Statement of Income.
(e) The nine months ended September 30, 2007, and the three months ended
June 30, 2007, includes the write-off of $1.8 million of deferred
financing costs resulting from the repayment of our Tranche D term
loan and reduction in borrowing capacity under our revolving credit
facility.
(f) EBITDA represents income before interest (interest expense, interest
income, and change in fair value of interest rate swaps), income
taxes, and depreciation, amortization, and depletion. The following
table reconciles net income to EBITDA for the three months ended
September 30, 2007 and 2006, and June 30, 2007:
Three Months Ended
September 30 June 30,
2007 2006 (a) 2007
(unaudited, in thousands)
Net income $49,165 (b) $36,366 $28,898 (c)
Change in fair value of interest
rate swaps (d) - - (5,395)
Interest expense 23,356 28,400 24,352 (e)
Interest income (1,274) (909) (642)
Income tax provision 3,056 616 3,450
Depreciation, amortization, and
depletion 32,273 39,274 40,722
EBITDA $106,576 $103,747 $91,385
The following table reconciles net income to EBITDA for the nine months ended September 30, 2007 and 2006:
Nine Months Ended
September 30
2007 2006 (a)
(unaudited, in thousands)
Net income $88,600 (b)(c) $69,529 (c)
Change in fair value of interest
rate swaps (d) (5,395) -
Interest expense 70,051 (e) 87,186
Interest income (2,517) (2,447)
Income tax provision 7,729 2,139
Depreciation, amortization, and
depletion 113,355 114,390
EBITDA $271,823 $270,797
(g) In connection with the amendment and restatement of our credit
facilities during second quarter 2007, we obtained $200 million of
commitments for a delayed-draw term loan, which we borrowed against
in September 2007. At September 30, 2007, the $200 million received
from the delayed-draw term loan was recorded in "Restricted cash held
for bond redemption" on our Consolidated Balance Sheet. The $200
million was invested in preparation for the repayment of the $250
million senior unsecured floating-rate notes in October 2007.
(h) In preparation for the repayment of the $250 million senior unsecured
floating-rate notes in October 2007, we reclassified the $250 million
to "Current portion of long-term debt" on our Consolidated Balance
Sheet at September 30, 2007. Additionally, we recorded $5.3 million
and $2.0 million in "Current portion of long-term debt" on our
Consolidated Balance sheet at September 30, 2007, related to required
principal payments on the Tranche E term loan and the delayed-draw
term loan, respectively. We redeemed the notes on October 15, 2007.
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