BCC 9.30.2013 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2013 |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File Number: 001-35805
Boise Cascade Company
(Exact name of registrant as specified in its charter)
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Delaware | 20-1496201 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1111 West Jefferson Street
Suite 300
Boise, Idaho 83702-5389
(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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
There were 39,365,350 shares of the registrant's $0.01 par value common stock outstanding on November 13, 2013.
Table of Contents
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| | 5. Acquisitions | | |
| | 6. Goodwill and Intangible Assets | | |
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PART I—FINANCIAL INFORMATION
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ITEM 1. | FINANCIAL STATEMENTS |
Boise Cascade Company Consolidated Statements of Operations (unaudited) |
| | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2013 | | 2012 | | 2013 | | 2012 |
| (thousands, except per-share data) |
Sales | $ | 877,979 |
| | $ | 764,596 |
| | $ | 2,475,152 |
| | $ | 2,084,482 |
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Costs and expenses | |
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Materials, labor, and other operating expenses (excluding depreciation) | 759,777 |
| | 653,125 |
| | 2,155,620 |
| | 1,795,856 |
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Depreciation and amortization | 8,962 |
| | 8,461 |
| | 26,205 |
| | 24,918 |
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Selling and distribution expenses | 66,244 |
| | 62,572 |
| | 183,350 |
| | 176,854 |
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General and administrative expenses | 12,867 |
| | 12,185 |
| | 33,164 |
| | 31,922 |
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Other (income) expense, net | (350 | ) | | 121 |
| | (523 | ) | | 406 |
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| 847,500 |
| | 736,464 |
| | 2,397,816 |
| | 2,029,956 |
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Income from operations | 30,479 |
| | 28,132 |
| | 77,336 |
| | 54,526 |
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| | | | | | | |
Foreign exchange gain (loss) | 69 |
| | 228 |
| | (302 | ) | | 125 |
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Interest expense | (5,174 | ) | | (4,840 | ) | | (14,846 | ) | | (14,471 | ) |
Interest income | 88 |
| | 87 |
| | 212 |
| | 281 |
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| (5,017 | ) | | (4,525 | ) | | (14,936 | ) | | (14,065 | ) |
| | | | | | | |
Income before income taxes | 25,462 |
| | 23,607 |
| | 62,400 |
| | 40,461 |
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Income tax (provision) benefit | (9,602 | ) | | (104 | ) | | 44,708 |
| | (243 | ) |
Net income | $ | 15,860 |
| | $ | 23,503 |
| | $ | 107,108 |
| | $ | 40,218 |
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Weighted average common shares outstanding: | | | | | | | |
Basic | 40,625 |
| | 29,700 |
| | 40,486 |
| | 29,700 |
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Diluted | 40,640 |
| | 29,700 |
| | 40,492 |
| | 29,700 |
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Net income per common share: | | | | | | | |
Basic | $ | 0.39 |
| | $ | 0.79 |
| | $ | 2.65 |
| | $ | 1.35 |
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Diluted | $ | 0.39 |
| | $ | 0.79 |
| | $ | 2.65 |
| | $ | 1.35 |
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See accompanying condensed notes to unaudited quarterly consolidated financial statements.
Boise Cascade Company Consolidated Statements of Comprehensive Income (unaudited) |
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| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2013 | | 2012 | | 2013 | | 2012 |
| (thousands) |
Net income | $ | 15,860 |
| | $ | 23,503 |
| | $ | 107,108 |
| | $ | 40,218 |
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Other comprehensive income, net of tax | | | | | | | |
Defined benefit pension plans | | | | | | | |
Amortization of actuarial loss, net of tax of $890, $0, $2,621, and $0, respectively | 1,443 |
| | 1,824 |
| | 4,249 |
| | 5,808 |
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Amortization of prior service costs and other, net of tax of $9, $0, $26, and $0, respectively | 14 |
| | 41 |
| | 42 |
| | 124 |
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Other comprehensive income, net of tax | 1,457 |
| | 1,865 |
| | 4,291 |
| | 5,932 |
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Comprehensive income | $ | 17,317 |
| | $ | 25,368 |
| | $ | 111,399 |
| | $ | 46,150 |
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See accompanying condensed notes to unaudited quarterly consolidated financial statements.
Boise Cascade Company Consolidated Balance Sheets (unaudited) |
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| | September 30, 2013 | | December 31, 2012 |
| | (thousands) |
ASSETS | | |
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Current | | |
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Cash and cash equivalents | | $ | 157,019 |
| | $ | 54,507 |
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Receivables | | | | |
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Trade, less allowances of $3,150 and $2,696 | | 203,935 |
| | 134,743 |
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Related parties | | 470 |
| | 674 |
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Other | | 8,643 |
| | 6,204 |
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Inventories | | 369,180 |
| | 325,806 |
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Deferred income taxes | | 21,324 |
| | 2 |
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Prepaid expenses and other | | 8,997 |
| | 5,521 |
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Total current assets | | 769,568 |
| | 527,457 |
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Property and equipment, net | | 355,091 |
| | 265,924 |
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Timber deposits | | 5,701 |
| | 6,221 |
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Deferred financing costs | | 8,437 |
| | 7,562 |
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Goodwill | | 20,477 |
| | 12,170 |
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Intangible assets | | 10,300 |
| | 8,900 |
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Deferred income taxes | | 41,133 |
| | — |
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Other assets | | 7,252 |
| | 8,164 |
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Total assets | | $ | 1,217,959 |
| | $ | 836,398 |
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See accompanying condensed notes to unaudited quarterly consolidated financial statements.
Boise Cascade Company Consolidated Balance Sheets (continued) (unaudited) |
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| | September 30, 2013 | | December 31, 2012 |
| | (thousands, except per-share data) |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
Current | | | | |
Accounts payable | | | | |
Trade | | $ | 191,613 |
| | $ | 140,192 |
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Related parties | | 2,159 |
| | 1,950 |
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Accrued liabilities | | | | |
Compensation and benefits | | 59,177 |
| | 61,814 |
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Interest payable | | 8,073 |
| | 3,188 |
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Other | | 40,793 |
| | 29,043 |
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Total current liabilities | | 301,815 |
| | 236,187 |
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Debt | | | | |
Long-term debt | | 326,694 |
| | 275,000 |
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Other | | | | |
Compensation and benefits | | 194,346 |
| | 206,668 |
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Other long-term liabilities | | 15,146 |
| | 14,336 |
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| | 209,492 |
| | 221,004 |
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Redeemable equity | | — |
| | 6,443 |
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Commitments and contingent liabilities | |
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Stockholders' equity | | | | |
Preferred stock, $0.01 par value per share; 50,000 shares authorized, no shares issued and outstanding | | — |
| | — |
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Common stock, $0.01 par value per share; 300,000 shares authorized, 43,229 issued and 39,365 outstanding, and 29,700 shares issued and outstanding | | 432 |
| | 297 |
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Treasury stock, 3,864 and 0 shares at cost | | (100,000 | ) | | — |
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Additional paid-in capital | | 495,587 |
| | 256,927 |
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Accumulated other comprehensive loss | | (116,938 | ) | | (121,229 | ) |
Retained earnings (accumulated deficit) | | 100,877 |
| | (38,231 | ) |
Total stockholders' equity | | 379,958 |
| | 97,764 |
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Total liabilities and stockholders' equity | | $ | 1,217,959 |
| | $ | 836,398 |
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See accompanying condensed notes to unaudited quarterly consolidated financial statements.
Boise Cascade Company Consolidated Statements of Cash Flows (unaudited) |
| | | | | | | | |
| | Nine Months Ended September 30 |
| | 2013 | | 2012 |
| | (thousands) |
Cash provided by (used for) operations | | | | |
Net income | | $ | 107,108 |
| | $ | 40,218 |
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Items in net income not using (providing) cash | | | | |
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Depreciation and amortization, including deferred financing costs and other | | 27,573 |
| | 26,732 |
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Stock-based compensation | | 1,862 |
| | — |
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Pension expense | | 8,104 |
| | 9,398 |
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Deferred income taxes | | (65,095 | ) | | — |
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Other | | (628 | ) | | (500 | ) |
Decrease (increase) in working capital, net of acquisitions | | | | |
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Receivables | | (63,987 | ) | | (53,308 | ) |
Inventories | | (36,440 | ) | | (34,599 | ) |
Prepaid expenses and other | | (1,624 | ) | | (1,973 | ) |
Accounts payable and accrued liabilities | | 54,200 |
| | 82,333 |
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Pension contributions | | (10,352 | ) | | (8,181 | ) |
Income taxes payable | | 2,218 |
| | 67 |
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Other | | (862 | ) | | 4,685 |
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Net cash provided by operations | | 22,077 |
| | 64,872 |
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| | | | |
Cash provided by (used for) investment | | |
| | |
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Expenditures for property and equipment | | (29,935 | ) | | (17,682 | ) |
Acquisitions of businesses and facilities | | (102,002 | ) | | (2,355 | ) |
Proceeds from sales of assets | | 1,536 |
| | 171 |
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Other | | 9 |
| | (3 | ) |
Net cash used for investment | | (130,392 | ) | | (19,869 | ) |
| | | | |
Cash provided by (used for) financing | | | | |
Net proceeds from issuance of common stock | | 262,488 |
| | — |
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Treasury stock purchased | | (100,000 | ) | | — |
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Issuances of long-term debt | | 130,000 |
| | — |
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Payments of long-term debt | | (80,000 | ) | | — |
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Distribution to Boise Cascade Holdings, L.L.C. | | — |
| | (2,790 | ) |
Financing costs | | (1,854 | ) | | (250 | ) |
Other | | 193 |
| | — |
|
Net cash provided by (used for) financing | | 210,827 |
| | (3,040 | ) |
| | | | |
Net increase in cash and cash equivalents | | 102,512 |
| | 41,963 |
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| | | | |
Balance at beginning of the period | | 54,507 |
| | 182,455 |
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| | | | |
Balance at end of the period | | $ | 157,019 |
| | $ | 224,418 |
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See accompanying condensed notes to unaudited quarterly consolidated financial statements.
Condensed Notes to Unaudited Quarterly Consolidated Financial Statements
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1. | Nature of Operations and Consolidation |
Nature of Operations
We are a building products company headquartered in Boise, Idaho. As used in this Form 10-Q, the terms "Boise Cascade," "we," and "our" refer to Boise Cascade, L.L.C., and its consolidated subsidiaries prior to our conversion to a Delaware corporation and to Boise Cascade Company and its consolidated subsidiaries on or after such conversion. On February 4, 2013, we converted to a Delaware corporation from a Delaware limited liability company by filing a certificate of conversion in Delaware. The common stock authorized and outstanding, par values, net income per share amounts, and other per-share disclosures for all periods presented have been adjusted to reflect the impact of this conversion. We are one of the largest producers of engineered wood products (EWP) and plywood in North America and a leading U.S. wholesale distributor of building products.
On February 11, 2013, we issued 13,529,412 shares of common stock in our initial public offering. Following our initial public offering, the common stock held by Boise Cascade Holdings, L.L.C. (BC Holdings) represented 68.7% of our outstanding common stock. On July 30, 2013, we registered 10,000,000 shares of common stock held by BC Holdings as part of a secondary offering. Concurrent with the close of the secondary offering, we repurchased 3,864,062 shares of common stock from BC Holdings (Repurchase). The common stock held by BC Holdings after the secondary offering and stock repurchase represented 40.2% of our outstanding common stock. On November 14, 2013, we registered 8,050,000 shares of common stock held by BC Holdings as part of another secondary offering. Following this secondary offering, the common stock held by BC Holdings represented 19.8% of our outstanding common stock. BC Holdings is controlled by Forest Products Holdings, L.L.C. (FPH).
We operate our business using three reportable segments: (1) Wood Products, which manufactures and sells EWP, plywood, studs, particleboard, and ponderosa pine lumber, (2) Building Materials Distribution, which is a wholesale distributor of building materials, and (3) Corporate and Other, which includes corporate support staff services, related assets and liabilities, and foreign exchange gains and losses. For more information, see Note 13, Segment Information.
Consolidation
The accompanying quarterly consolidated financial statements have not been audited by an independent registered public accounting firm but, in the opinion of management, include all adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods presented. Except as disclosed within these condensed notes to unaudited quarterly consolidated financial statements, the adjustments made were of a normal, recurring nature. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. The quarterly consolidated financial statements include the accounts of Boise Cascade and its subsidiaries after elimination of intercompany balances and transactions. Quarterly results are not necessarily indicative of results that may be expected for the full year. These condensed notes to unaudited quarterly consolidated financial statements should be read in conjunction with our 2012 Form 10-K and the other reports we file with the Securities and Exchange Commission (SEC).
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2. | Summary of Significant Accounting Policies |
Accounting Policies
The complete summary of significant accounting policies is included in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2012 Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, intangible assets, and other long-lived assets; legal contingencies; guarantee obligations; indemnifications; assumptions used in retirement benefits; income taxes; and vendor and customer rebates, among others. These estimates and
assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Vendor and Customer Rebates and Allowances
We receive rebates and allowances from our vendors under a number of different programs, including vendor marketing programs. At September 30, 2013 and December 31, 2012, we had $5.5 million and $4.1 million, respectively, of vendor rebates and allowances recorded in "Receivables, Other" on our Consolidated Balance Sheets. Rebates and allowances received from our vendors are recognized as a reduction of "Materials, labor, and other operating expenses (excluding depreciation)" when the product is sold, unless the rebates and allowances are linked to a specific incremental cost to sell a vendor's product. Amounts received from vendors that are linked to specific selling and distribution expenses are recognized as a reduction of "Selling and distribution expenses" in the period the expense is incurred.
We also provide rebates to our customers and our customers' customers based on the volume of their purchases. We provide the rebates to increase the sell-through of our products. The rebates are recorded as a decrease in "Sales." At September 30, 2013 and December 31, 2012, we had $26.2 million and $19.7 million, respectively, of rebates payable to our customers recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets.
Leases
We lease a portion of our distribution centers as well as other property and equipment under operating leases. For purposes of determining straight-line rent expense, the lease term is calculated from the date we first take possession of the facility, including any periods of free rent and any renewal option periods we are reasonably assured of exercising. Rental expense for operating leases was $3.8 million and $3.5 million for the three months ended September 30, 2013 and 2012, respectively, and $11.1 million and $10.7 million for the nine months ended September 30, 2013 and 2012, respectively. Sublease rental income was not material in any of the periods presented.
Inventories
Inventories included the following (work in process was not material):
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| | September 30, 2013 | | December 31, 2012 |
| | (thousands) |
Finished goods and work in process | | $ | 290,301 |
| | $ | 267,115 |
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Logs | | 52,439 |
| | 37,273 |
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Other raw materials and supplies | | 26,440 |
| | 21,418 |
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| | $ | 369,180 |
| | $ | 325,806 |
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Property and Equipment
Property and equipment consisted of the following asset classes:
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| | September 30, 2013 | | December 31, 2012 |
| | (thousands) |
Land | | $ | 37,345 |
| | $ | 35,662 |
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Buildings | | 101,150 |
| | 88,129 |
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Improvements | | 38,183 |
| | 34,526 |
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Office equipment and vehicles | | 88,816 |
| | 80,857 |
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Machinery and equipment | | 342,466 |
| | 264,084 |
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Construction in progress | | 17,719 |
| | 11,176 |
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| | 625,679 |
| | 514,434 |
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Less accumulated depreciation | | (270,588 | ) | | (248,510 | ) |
| | $ | 355,091 |
| | $ | 265,924 |
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As of September 30, 2013, $85.0 million of property and equipment relates to two plywood manufacturing facilities acquired by us on September 30, 2013. For more information, see Note 5, Acquisitions.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy under U.S. generally accepted accounting principles (GAAP) gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, and where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value (Level 1). If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, we use quoted prices for similar assets and liabilities or inputs that are observable either directly or indirectly (Level 2). If quoted prices for identical or similar assets are not available or are unobservable, we may use internally developed valuation models, whose inputs include bid prices, and third-party valuations utilizing underlying asset assumptions (Level 3).
Financial Instruments
Our financial instruments are cash and cash equivalents, accounts receivable, accounts payable, and long-term debt. Our cash is recorded at cost, which approximates fair value, and our cash equivalents are money market funds measured at fair value. As of September 30, 2013 and December 31, 2012, we held $91.7 million and $10.6 million, respectively, in money market funds that are measured at fair value on a recurring basis using Level 1 inputs. The recorded values of accounts receivable and accounts payable approximate fair values based on their short-term nature. At September 30, 2013, the book value of our fixed-rate debt was $300.0 million, and the fair value was estimated to be $303.4 million. The difference between the book value and the fair value is derived from the difference between the period-end market interest rate and the stated rate of our fixed-rate, long-term debt. We estimated the fair value based on quoted market prices for our debt (Level 1 measurement). At September 30, 2013, we had $25.0 million outstanding under our revolving credit facility, for which the interest rate is based on market conditions such as the London Interbank Offered Rate (LIBOR) or a base rate. Because the interest rate on the revolving credit facility is based on current market conditions, we believe that the estimated fair value of the outstanding balance on our revolving credit facility approximates book value.
Concentration of Credit Risk
We are exposed to credit risk related to customer accounts receivable. In order to manage credit risk, we consider customer concentrations and current economic trends and monitor the creditworthiness of significant customers based on ongoing credit evaluations. At both September 30, 2013 and December 31, 2012, the receivables from a single customer accounted for approximately 14% of total receivables. No other customer accounted for 10% or more of total receivables.
New and Recently Adopted Accounting Standards
In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (Topic 740). This ASU requires that liabilities related to unrecognized tax benefits offset deferred tax assets for net operating loss carryforwards, a similar tax loss, or a tax credit carryforward, if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations in which a carryforward cannot be used or the deferred tax asset is not intended to be used for such purpose, the unrecognized tax benefit should be recorded as a liability and should not offset deferred tax assets. The guidance is effective for annual and interim reporting periods beginning after December 15, 2013. The provisions of this guidance are not expected to have a material effect on our financial statements.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU requires entities to disclose additional information about changes in and significant items reclassified out of accumulated other comprehensive income. We adopted the provisions of this guidance January 1, 2013, and it had no effect on our financial position and results of operations. For additional information, see Note 10, Stockholders' Equity.
In July 2012, the FASB issued ASU 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, which gives entities the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. We adopted the provisions of this guidance January 1, 2013, and it had no effect on our financial position and results of operations.
There were no other accounting standards recently issued that had or are expected to have a material impact on our consolidated financial statements and associated disclosures.
Income Tax Provision
On February 4, 2013, we converted from a limited liability company to a corporation. In addition, we elected to be treated as a corporation for federal and state income tax purposes effective as of January 1, 2013. Therefore, we became subject to federal and state income tax expense beginning January 1, 2013. As a limited liability company, we were treated as a disregarded entity for federal income tax purposes and, as such, were included in the income tax return for BC Holdings. Our income tax provision generally consisted of income taxes payable to state jurisdictions that did not allow for the income tax liability to be passed through to our former sole member as well as income taxes payable by our separate subsidiaries that are taxed as corporations. As a limited liability company, we had an effective tax rate of less than 1%. For the three months and nine months ended September 30, 2012, we recorded $0.1 million and $0.2 million of income tax expense, respectively.
For tax purposes, our conversion from a limited liability company to a corporation was deemed a nontaxable transfer of Boise Cascade, L.L.C., assets and liabilities to Boise Cascade Company. As a result of our conversion to a corporation, we recorded total deferred tax assets of $101.9 million and total deferred tax liabilities of $33.2 million on our Consolidated Balance Sheet, the effect of which was recorded as an income tax benefit in our Consolidated Statement of Operations. These deferred tax items largely consisted of a $69.8 million deferred tax asset related to the pension liability, a $27.4 million deferred tax liability related to property and equipment, and $18.0 million of deferred tax assets related to other employee benefits. No valuation allowance was recorded on our domestic deferred tax assets, except for capital loss carryforwards of $6.1 million, as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.
As a corporation, we are subject to typical corporate U.S. federal, state, and foreign income tax rates. Boise Cascade Company will file tax returns as a corporation for the year ending December 31, 2013. For the three months and nine months ended September 30, 2013, excluding the discrete establishment of net deferred tax assets, we recorded $9.6 million and $24.0 million, respectively, of income tax expense and had an effective rate of 37.7% and 38.4%, respectively. During the three months and nine months ended September 30, 2013, the primary reason for the difference from the federal statutory income tax rate of 35% and the effective tax rate, excluding the deferred discrete item, was the effect of state taxes.
During the nine months ended September 30, 2013 and 2012, cash paid for taxes, net of refunds received, was $17.8 million and $0.2 million, respectively.
A reconciliation of the statutory U.S. federal tax provision and the reported tax provision is as follows (dollars in thousands):
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| | | | |
| | Nine Months Ended September 30, 2013 |
| | |
Income before income taxes | | $ | 62,400 |
|
Statutory U.S. income tax rate | | 35.0 | % |
| | |
Statutory tax provision | | $ | 21,840 |
|
State taxes | | 2,013 |
|
Other | | 105 |
|
Total | | $ | 23,958 |
|
| | |
Effective income tax rate excluding discrete item | | 38.4 | % |
| | |
Recognition of beginning deferred tax balances | | $ | (68,666 | ) |
| | |
Income tax benefit with discrete item | | $ | (44,708 | ) |
| | |
Effective income tax rate with discrete item | | (71.6 | )% |
The income tax provision (benefit) shown in the Consolidated Statement of Operations includes the following (dollars in thousands):
|
| | | | |
| | Nine Months Ended September 30, 2013 |
| | |
Current income tax provision (benefit) | | |
Federal | | $ | 17,516 |
|
State | | 2,849 |
|
Foreign | | 22 |
|
Total current | | $ | 20,387 |
|
| | |
Deferred income tax provision (benefit) | | |
Federal | | $ | (59,648 | ) |
State | | (5,447 | ) |
Foreign | | — |
|
Total deferred | | $ | (65,095 | ) |
Income tax provision (benefit) | | $ | (44,708 | ) |
In September 2013, the Internal Revenue Service and Treasury Department released final 263(a) regulations regarding the deduction and capitalization of expenditures related to tangible property. In general, the final regulations apply to taxable years beginning on or after January 1, 2014. We do not anticipate that these new regulations will materially affect our income tax provision.
Income Tax Uncertainties
Boise Cascade, and/or one of its subsidiaries, files federal income tax returns in the U.S. and Canada and various state income tax returns. The significant state jurisdictions are California, Idaho, Oregon, and Texas.
We recognize tax liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available or as new uncertainties occur. As of September 30, 2013, we had an insignificant amount of unrecognized tax benefits recorded on our Consolidated Balance Sheets, and we do not expect a significant change to the
amount of unrecognized tax benefits over the next 12 months. We had no unrecognized tax benefits recorded as of December 31, 2012.
We recognize interest and penalties related to uncertain tax positions as income tax expense in our Consolidated Statements of Operations. During each of the three months and nine months ended September 30, 2013 and 2012, we recognized an insignificant amount of interest and penalties related to taxes.
| |
4. | Net Income Per Common Share |
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. For more information about common share activity during the period, see Note 10, Stockholders' Equity. Diluted net income per common share is computed by dividing net income by the combination of other potentially dilutive weighted average common shares and the weighted average number of common shares outstanding during the period. Other potentially dilutive weighted average common shares include the dilutive effect of stock options, restricted stock units (RSUs), and performance stock units (PSUs) for each period using the treasury stock method. Under the treasury stock method, the exercise price of a share, the amount of compensation expense, if any, for future service that has not yet been recognized, and the amount of tax benefits that would be recorded in additional paid-in capital, if any, when the share is exercised are assumed to be used to repurchase shares in the current period.
The following table sets forth the computation of basic and diluted net income per common share:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2013 | | 2012 | | 2013 | | 2012 |
| (thousands, except per-share data) |
Net income | $ | 15,860 |
| | $ | 23,503 |
| | $ | 107,108 |
| | $ | 40,218 |
|
Weighted average common shares outstanding during the period (for basic calculation) | 40,625 |
| | 29,700 |
| | 40,486 |
| | 29,700 |
|
Dilutive effect of other potential common shares | 15 |
| | — |
| | 6 |
| | — |
|
Weighted average common shares and potential common shares (for diluted calculation) | 40,640 |
| | 29,700 |
| | 40,492 |
| | 29,700 |
|
| | | | | | | |
Net income per common share - Basic | $ | 0.39 |
| | $ | 0.79 |
| | $ | 2.65 |
| | $ | 1.35 |
|
Net income per common share - Diluted | $ | 0.39 |
| | $ | 0.79 |
| | $ | 2.65 |
| | $ | 1.35 |
|
The computation of the dilutive effect of other potential common shares excludes options and PSUs representing 0.2 million shares and no shares of common stock, respectively, in the three months ended September 30, 2013 and 2012, and 0.2 million and no shares of common stock, respectively, in the nine months ended September 30, 2013 and 2012. Under the treasury stock method, the inclusion of these stock awards would have been antidilutive.
On September 30, 2013, our wholly owned subsidiary, Boise Cascade Wood Products, L.L.C., completed the acquisition of 100% of the outstanding limited liability company interests of both Chester Wood Products LLC and Moncure Plywood LLC (Wood Resources LLC Southeast Operations) for an aggregate purchase price of $102.0 million, subject to post-closing adjustments based upon a working capital target (Acquisition). Of the purchase price, $5.1 million was placed into escrow at closing to satisfy any claims for indemnification, 50% of which is eligible to be released after one year with the balance released after two years (assuming no pending claims). We financed the Acquisition with $77.0 million of cash on hand and a $25.0 million draw under our revolving credit facility. We also incurred acquisition-related costs of $0.5 million, which are recorded in "General and administrative expenses" in our Consolidated Statement of Operations.
These facilities will complement our existing Wood Products business and enable us to better serve our customers in the eastern and southeastern United States. Revenues and earnings from the businesses will be reported as part of the Wood Products segment beginning in fourth quarter 2013.
Goodwill represents the excess of the purchase price and related costs over the fair value of the net tangible and intangible assets of businesses acquired. The primary qualitative factor that contributed to the recognition of goodwill relates to
obtaining future customers. All of the goodwill was assigned to the Wood Products segment and is deductible for U.S. income tax purposes.
The Acquisition purchase price allocations are preliminary and subject to post-closing adjustments. The following table summarizes the allocations of the purchase price to the assets acquired and liabilities assumed, based on our current estimates of the fair value at the date of the Acquisition (dollars in thousands):
|
| | | | |
| | Acquisition Date Fair Value |
| | |
Accounts receivable | | $ | 7,735 |
|
Inventories | | 6,934 |
|
Prepaid expenses and other | | 22 |
|
Property and equipment | | 84,988 |
|
Timber deposits | | 164 |
|
Intangible assets: | | |
Customer relationships | | 1,400 |
|
Goodwill | | 8,307 |
|
Assets acquired | | 109,550 |
|
| | |
Accounts payable and accrued liabilities | | 7,534 |
|
Other long-term liabilities | | 14 |
|
Liabilities assumed | | 7,548 |
|
| | |
Net assets acquired | | $ | 102,002 |
|
Pro Forma Financial Information
The following pro forma financial information presents the combined results of operations as if the Wood Resources LLC Southeast Operations had been combined with us on January 1, 2012. The pro forma financial information also gives effect to the issuance of $50 million in aggregate principal amount of our 6.375% senior notes due November 1, 2020 (Senior Notes) on August 15, 2013, and the $25.0 million borrowed under our revolving credit facility to partially finance the Acquisition, as if such transactions had occurred on January 1, 2012. The pro forma results are intended for information purposes only and do not purport to represent what the combined companies' results of operations would actually have been had the related transactions in fact occurred on January 1, 2012. They also do not reflect any cost savings, operating synergies, or revenue enhancements that we may achieve or the costs necessary to achieve those cost savings, operating synergies, revenue enhancements, or integration efforts.
|
| | | | | | | | | | | | | | | | |
| | Pro Forma |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| | 2013 | | 2012 | | 2013 | | 2012 |
| | (unaudited, thousands) |
Sales | | $ | 911,481 |
| | $ | 795,924 |
| | $ | 2,581,828 |
| | $ | 2,178,986 |
|
Net income (a)(b) | | 17,639 |
| | 24,493 |
| | 114,254 |
| | 43,432 |
|
___________________________________
| |
(a) | The pro forma financial information for three and nine months ended September 30, 2013 was adjusted to exclude $0.5 million of acquisition-related costs for legal, accounting, and other advisory-related services and $0.9 million of secondary offering expenses. |
| |
(b) | The nine months ended September 30, 2013 includes a $68.7 million income tax benefit associated with the recording of net deferred tax assets upon our conversion to a corporation in connection with our initial public offering. |
On October 1, 2013, we entered into a supplemental indenture to add Chester Wood Products LLC and Moncure Plywood LLC as guarantors of the Senior Notes and our revolving credit facility. For additional information, see Note 15, Consolidating Guarantor and Nonguarantor Financial Information.
| |
6. | Goodwill and Intangible Assets |
Goodwill represents the excess of the purchase price and related costs over the fair value of the net tangible and intangible assets of businesses acquired.
The carrying amount of our goodwill by segment is as follows:
|
| | | | | | | | | | | | | | | | |
| | Building Materials Distribution | |
Wood Products | | Corporate and Other | | Total |
| | (thousands) |
Balance at December 31, 2012 | | $ | 5,593 |
| | $ | 6,577 |
| | $ | — |
| | $ | 12,170 |
|
Additions | | — |
| | 8,307 |
| (a) | — |
| | 8,307 |
|
Balance at September 30, 2013 | | $ | 5,593 |
| | $ | 14,884 |
| | $ | — |
| | $ | 20,477 |
|
___________________________________
(a) Represents the acquisition of Wood Resources LLC Southeast Operations. For additional information, see Note 5, Acquisitions.
At September 30, 2013, intangible assets represent the values assigned to trade names and trademarks and customer relationships. At December 31, 2012, intangible assets represent the values assigned to trade names and trademarks. The trade names and trademarks have indefinite lives and are not amortized. The customer relationships, which were acquired through the acquisition of Wood Resources LLC Southeast Operations on September 30, 2013, are expected to be amortized over 15 years. Amortization expense is expected to be approximately $0.1 million per year for the next 15 years.
Intangible assets consisted of the following:
|
| | | | | | | | | | | | |
| | September 30, 2013 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | (thousands) |
Trade names and trademarks | | $ | 8,900 |
| | $ | — |
| | $ | 8,900 |
|
Customer relationships | | 1,400 |
| | — |
| | 1,400 |
|
| | $ | 10,300 |
| | $ | — |
| | $ | 10,300 |
|
|
| | | | | | | | | | | | |
| | December 31, 2012 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | (thousands) |
Trade names and trademarks | | $ | 8,900 |
| | $ | — |
| | $ | 8,900 |
|
Customer relationships | | — |
| | — |
| | — |
|
| | $ | 8,900 |
| | $ | — |
| | $ | 8,900 |
|
Long-term debt consisted of the following:
|
| | | | | | | | |
| | September 30, 2013 | | December 31, 2012 |
| | (thousands) |
Asset-based revolving credit facility | | $ | 25,000 |
| | $ | 25,000 |
|
6.375% senior notes | | 300,000 |
| | 250,000 |
|
Unamortized premium on 6.375% senior notes | | 1,694 |
| | — |
|
Long-term debt | | $ | 326,694 |
| | $ | 275,000 |
|
Asset-Based Revolving Credit Facility
Boise Cascade and its principal operating subsidiaries, Boise Cascade Wood Products, L.L.C., and Boise Cascade Building Materials Distribution, L.L.C., are borrowers, and Boise Cascade Wood Products Holdings Corp. is guarantor under a $350 million senior secured asset-based revolving credit facility (Revolving Credit Facility). Borrowings under the Revolving Credit Facility are constrained by a borrowing base formula dependent upon levels of eligible receivables and inventory reduced by outstanding borrowings and letters of credit (Availability). On May 15, 2013, we entered into a third amendment to the credit agreement governing the Revolving Credit Facility, which reduced unused commitment fee rates as described below. We entered into a fourth amendment to our Revolving Credit Facility on July 19, 2013, to permit the repurchase of $100.0 million of our common stock from BC Holdings in the Repurchase. On August 15, 2013, we entered into a fifth amendment to our Revolving Credit Facility that increased the aggregate revolving commitments from $300 million to $350 million, extended the maturity date to July 31, 2018, reduced the spread for calculating the interest rates payable on outstanding borrowings, and provided additional flexibility under certain covenants by reducing the threshold Availability of the revolving commitments required in order to, among other things, make certain restricted payments and investments.
The Revolving Credit Facility is secured by a first-priority security interest in substantially all of our assets, except for property and equipment. The proceeds of borrowings under the agreement are available for working capital and other general corporate purposes.
Interest rates under the Revolving Credit Facility are based, at the company's election, on either LIBOR or a base rate, as defined in the agreement, plus a spread over the index elected that ranges from 1.50% to 2.00% for loans based on LIBOR and from 0.50% to 1.00% for loans based on the base rate. The spread is determined on the basis of a pricing grid that results in a higher spread as average quarterly Availability declines. Letters of credit are subject to a fronting fee payable to the issuing bank and a fee payable to the lenders equal to the LIBOR margin rate. In addition, we are required to pay an unused commitment fee at a rate ranging from 0.25% to 0.375% per annum (based on facility utilization) of the average unused portion of the lending commitments.
The Revolving Credit Facility contains customary nonfinancial covenants, including a negative pledge covenant and restrictions on new indebtedness, investments, distributions to equity holders, asset sales, and affiliate transactions, the scope of which are dependent on the Availability existing from time to time. The Revolving Credit Facility also contains a requirement that we meet a 1:1 fixed-charge coverage ratio (FCCR) if Availability falls below 10% of the aggregate lending commitments (or $35 million). Availability exceeded the minimum threshold amounts required for testing of the FCCR at all times since entering into the Revolving Credit Facility, and Availability at September 30, 2013, was $274.7 million. At September 30, 2013, our aggregate liquidity from cash and cash equivalents and unused borrowing capacity (net of the Availability threshold amount for testing of the FCCR, as applicable) under the Revolving Credit Facility totaled $431.7 million.
The Revolving Credit Facility generally permits dividends only if certain conditions are met, including complying with either (i) pro forma Excess Availability (as defined in the Revolving Credit Facility) equal to or exceeding 25% of the aggregate Revolver Commitments (as defined in the Revolving Credit Facility) or (ii) (x) pro forma Excess Availability equal to or exceeding 15% of the aggregate Revolver Commitment and (y) a fixed-charge coverage ratio of 1:1 on a pro forma basis.
We borrowed $25.0 million under the Revolving Credit Facility to partially finance the acquisition of Wood Resources LLC Southeast Operations. For more information, see Note 5, Acquisitions. At both September 30, 2013, and December 31, 2012, we had $25.0 million outstanding under the Revolving Credit Facility and $10.2 million and $10.0 million, respectively, of letters of credit outstanding. These letters of credit and borrowings reduced our borrowing capacity under the Revolving Credit Facility by an equivalent amount. The maximum borrowings outstanding under the Revolving Credit Facility were $75.0 million during the nine months ended September 30, 2013.
Senior Notes
On October 22, 2012, Boise Cascade and its wholly owned subsidiary, Boise Cascade Finance Corporation (Boise Finance and together with Boise Cascade, the Co-issuers), issued $250 million of Senior Notes through a private placement that was exempt from the registration requirements of the Securities Act of 1933, as amended (Securities Act). Interest on our Senior Notes is payable semiannually in arrears on May 1 and November 1, commencing on May 1, 2013. On March 28, 2013, Boise Finance was merged with and into Boise Cascade, with Boise Cascade as the surviving entity and sole issuer of the Senior Notes. The Senior Notes are guaranteed by each of our existing and future direct or indirect domestic subsidiaries that is a guarantor or co-borrower under our Revolving Credit Facility.
On May 8, 2013, we completed an offer to exchange any and all of our $250 million outstanding Senior Notes for a like principal amount of new 6.375% Senior Notes due 2020, which have been registered under the Securities Act. $250 million in aggregate principal amount (or 100%) of the outstanding Senior Notes were tendered upon closing of the exchange offer for an equivalent amount of registered Senior Notes.
On August 15, 2013, we issued an additional $50 million in aggregate principal amount of Senior Notes in a private offering that was exempt from registration under the Securities Act. The additional $50 million of Senior Notes were priced at 103.5% of their principal amount plus accrued interest from May 1, 2013, and were issued as additional Senior Notes under the indenture dated as of October 22, 2012. On October 28, 2013, we completed the registration of the $50 million of Senior Notes under the Securities Act, which are being offered in an exchange offer for the existing $50 million of Senior Notes.
Cash Paid for Interest
For the nine months ended September 30, 2013 and 2012, cash payments for interest were $8.5 million and $8.7 million, respectively.
| |
8. | Retirement and Benefit Plans |
The following table presents the pension benefit costs:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2013 | | 2012 | | 2013 | | 2012 |
| (thousands) |
Service cost | $ | 672 |
| | $ | 1,206 |
| | $ | 2,014 |
| | $ | 3,557 |
|
Interest cost | 4,667 |
| | 4,783 |
| | 13,959 |
| | 14,450 |
|
Expected return on plan assets | (5,025 | ) | | (4,850 | ) | | (14,807 | ) | | (14,541 | ) |
Amortization of actuarial loss | 2,333 |
| | 1,824 |
| | 6,870 |
| | 5,808 |
|
Amortization of prior service costs | 23 |
| | 41 |
| | 68 |
| | 124 |
|
Net periodic benefit cost | $ | 2,670 |
| | $ | 3,004 |
| | $ | 8,104 |
| | $ | 9,398 |
|
On August 26, 2013, we contributed company-owned real property to the pension plans from one location in our Building Materials Distribution segment. The pension plans obtained an independent appraisal of the property, and based on the appraisal, the plans recorded the contribution at fair value of approximately $4 million.
We are leasing back the contributed property for an initial term of ten years with two five-year extension options and continue to use the property in our distribution operations. Rent payments are made quarterly, with first-year annual rent of $0.3 million and 2% annual escalation rates thereafter. The lease provides us a right of first refusal on any subsequent sale by the pension plans, as well as repurchase options at the end of the initial term and extension periods. The plans engaged an independent fiduciary who negotiated the lease terms and also manages the property on behalf of the plans.
We determined that the contribution of the property does not meet the accounting definition of a plan asset within the scope of Accounting Standards Codification 715, Compensation — Retirement Benefits. Accordingly, the contributed property is not considered a contribution for accounting purposes and, as a result, is not included in plan assets and has no impact on the net pension liability recorded on our Consolidated Balance Sheets. We continue to depreciate the carrying value of the property in our financial statements, and no gain or loss was recognized at the contribution date for accounting purposes. Lease payments are recorded as pension contributions.
In the first nine months of 2013, we contributed $10.4 million in cash to the pension plans. For the remainder of 2013, we expect to make approximately $0.4 million in additional cash contributions to the pension plans.
| |
9. | Stock-Based Compensation |
In connection with our initial public offering, we adopted the 2013 Incentive Compensation Plan (2013 Incentive Plan). The 2013 Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards, other cash-based compensation, and performance awards. Directors, officers, and other employees, as well as others performing consulting or advisory services for us, are eligible for grants under the 2013 Incentive Plan. These awards are
at the discretion of the Compensation Committee of our board of directors, and they vest and expire in accordance with terms established at the time of grant. All awards under the 2013 Incentive Plan are eligible to participate in dividend or dividend equivalent payments, if any, which we would accrue to be paid when the awards vest.
Shares issued pursuant to awards under the 2013 Incentive Plan are from our authorized but unissued shares. The maximum number of shares approved for grant under the 2013 Incentive Plan is 3.1 million shares. As of September 30, 2013, 2.8 million shares remained available for future issuance under the 2013 Incentive Plan.
In February 2013, we granted three types of stock-based awards under the 2013 Incentive Plan: stock options, performance stock units (PSUs), and restricted stock units (RSUs).
Stock Options
In February 2013, we granted 161,257 nonqualified stock options to our officers and other employees, subject to service conditions. The stock options generally vest and become exercisable on a pro rata basis over a three-year period from the date of grant. Our stock options generally have a contractual term of ten years, meaning the option must be exercised by the holder before the tenth anniversary of the grant date, subject to earlier expiration for vested options not exercised following termination of employment. No options were vested and exercisable at September 30, 2013. The following is a summary of our stock option activity:
|
| | | | | | | | | | | | | | |
| | Number of Options | | Weighted Average Exercise Price Per Option | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| | | | | | (years) | | (thousands) |
Outstanding, December 31, 2012 | | — |
| | $ | — |
| | | | |
Granted | | 161,257 |
| | 27.19 |
| | | | |
Outstanding, September 30, 2013 | | 161,257 |
| | $ | 27.19 |
| | 9.4 |
| | $ | — |
|
Vested and expected to vest, September 30, 2013 | | 132,484 |
| | $ | 27.19 |
| | 9.4 |
| | $ | — |
|
Exercisable, September 30, 2013 | | — |
| | $ | — |
| | — |
| | $ | — |
|
The fair value for stock option awards was estimated at the grant date using the Black-Scholes option valuation model with the following weighted average assumptions:
|
| | | |
| Nine Months Ended September 30, 2013 |
Expected volatility | 60.9 | % |
Expected life (in years) | 6.0 |
|
Risk-free interest rate | 1.0 | % |
Expected dividends | — |
|
Weighted average fair value per option granted | $ | 14.87 |
|
The expected volatility of our stock price was based on the volatility of related industry stocks. As these 2013 grants were our first issuances of stock options and our equity shares have been traded for a short period of time, we did not have sufficient historical data to provide a reasonable basis upon which to estimate the expected life. Therefore, we used the simplified method as allowed by the SEC. The risk-free interest rate was based on the yields of U.S. Treasury issues with terms similar to the expected life of the options.
PSU and RSU Awards
In February 2013, we granted 90,124 PSUs to our officers and other employees, subject to performance and service conditions. The number of shares actually awarded will range from 0% to 200% of the target amount, depending upon the Company’s 2013 EBITDA, defined as income before interest (interest expense and interest income), income taxes, and depreciation and amortization, determined in accordance with the related grant agreement. Because the EBITDA component contains a performance condition, we record compensation expense, net of estimated forfeitures, over the requisite service period based on the most probable number of shares expected to vest. The PSUs, if earned, will vest in three equal tranches on December 31, 2013, 2014, and 2015.
In February 2013, we granted 14,161 RSUs to our directors with only service conditions. The RSUs vest at the end of the one-year period.
We based the fair value of PSU and RSU awards on the closing market price of our common stock on the grant date, and we record compensation expense over the awards' vesting period. Any shares not vested are forfeited.
The following summarizes the activity of our PSUs and RSUs awarded under the 2013 Incentive Plan for the nine months ended September 30, 2013:
|
| | | | | | | |
| | Number of shares | | Weighted Average Grant-Date Fair Value |
Unvested, December 31, 2012 | | — |
| | $ | — |
|
Granted | | 104,285 |
| | 26.65 |
|
Unvested, September 30, 2013 | | 104,285 |
| | $ | 26.65 |
|
Compensation Expense
Stock-based compensation expense is recognized only for those awards that are expected to vest, with forfeitures estimated at the date of grant based on our historical experience and future expectations. We recognize the effect of adjusting the estimated forfeiture rates in the period in which we change such estimated rates. Most of our share-based compensation expense was recorded in "General and administrative expenses" in our Consolidated Statement of Operations. Total stock-based compensation recognized from stock options, PSUs, and RSUs, net of estimated forfeitures, was as follows: |
| | | | | | | | |
| | Three Months Ended September 30, 2013 | | Nine Months Ended September 30, 2013 |
| | (thousands) |
Stock options | | $ | 197 |
| | $ | 465 |
|
PSUs and RSUs | | 592 |
| | 1,397 |
|
Total | | $ | 789 |
| | $ | 1,862 |
|
The related tax benefit for the nine months ended September 30, 2013, was $0.7 million. As of September 30, 2013, total unrecognized compensation expense related to nonvested share-based compensation arrangements was $2.8 million, net of estimated forfeitures. This expense is expected to be recognized over a weighted-average period of 2.2 years.
10. Stockholders' Equity
On February 11, 2013, we issued 13,529,412 shares of common stock in our initial public offering. Following this initial public offering, we received proceeds of $262.5 million, after deducting underwriting discounts and commissions of approximately $19.2 million and offering expenses of approximately $2.5 million. On July 30, 2013 we registered 10,000,000 shares of common stock held by BC Holdings as part of a secondary offering. Concurrent with the close of the secondary offering, we repurchased 3,864,062 shares of common stock from BC Holdings for $100.0 million, which shares are recorded as "Treasury stock" on our Consolidated Balance Sheet. The Repurchase was funded with cash on hand.
Upon our conversion from a limited liability company to a corporation, our certificate of incorporation authorized 300,000,000 shares of common stock and 50,000,000 shares of preferred stock. No preferred stock was issued or outstanding as of September 30, 2013 and December 31, 2012. We had 43,229,412 and 29,700,000 shares of common stock issued and 39,365,350 and 29,700,000 shares of common stock outstanding as of September 30, 2013 and December 31, 2012, respectively. Each share of common stock entitles the holder to one vote on matters to be voted on by the stockholders of Boise Cascade.
See Note 3, Income Taxes, for a discussion of our conversion from a limited liability company to a corporation. The common stock authorized and outstanding, par values, net income per share amounts, and other per-share disclosures for all periods presented have been adjusted to reflect the impact of this conversion. Upon this conversion, we reclassified $32.0 million of accumulated deficits through February 4, 2013, to additional paid-in capital.
Redeemable Equity
Redeemable equity represented equity units of FPH held by certain members of our senior management team, which units were redeemable at the option of the holder in the event of death or disability or the sale of a division resulting in the termination of his or her employment. We had historically classified these units outside of our permanent equity because these units were subject to mandatory redemption (and could have been subject to repayment by us) upon an event outside our control (i.e., death or disability). Following our initial public offering, we reclassified these equity units as permanent equity because we no longer have an obligation to satisfy this redemption obligation on FPH's behalf.
Accumulated Other Comprehensive Loss
The following table details the changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2013 and 2012:
|
| | | | | | | | | | | | | | | | |
| | Changes in Accumulated Other Comprehensive Loss |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| | 2013 | | 2012 | | 2013 | | 2012 |
| | (thousands) |
Beginning Balance | | $ | (118,395 | ) | | $ | (116,778 | ) | | $ | (121,229 | ) | | $ | (120,845 | ) |
Defined benefit pension plans, amounts reclassified from accumulated other comprehensive loss, net of tax of $899, $0, $2,647, and $0, respectively (a) | | 1,457 |
| | 1,865 |
| | 4,291 |
| | 5,932 |
|
Ending Balance | | $ | (116,938 | ) | | $ | (114,913 | ) | | $ | (116,938 | ) | | $ | (114,913 | ) |
___________________________________
| |
(a) | Represents amounts reclassified from accumulated other comprehensive loss. These amounts are included in the computation of net periodic pension cost. For additional information, see Note 8, Retirement and Benefit Plans. |
| |
11. | Outsourcing Services Agreement |
Under an Outsourcing Services Agreement, Boise Inc. provides a number of corporate staff services to us. These services include information technology, accounting, and human resource transactional services. On October 25, 2013, Packaging Corporation of America (PCA) acquired all of the outstanding common shares of Boise Inc. The Outsourcing Services Agreement remains in place after PCA's acquisition of Boise Inc. and is currently set to expire on February 22, 2015. The agreement automatically renews for successive one-year terms unless either party provides notice of termination to the other party at least 12 months in advance of the expiration date. The Outsourcing Services Agreement gives us (but not Boise Inc.) the right to terminate all or any portion of the services provided to us on 30 days' notice. Total expenses incurred under the Outsourcing Services Agreement were $4.0 million and $3.7 million, respectively, for the three months ended September 30, 2013 and 2012, and $11.9 million and $11.0 million, respectively, for the nine months ended September 30, 2013 and 2012.
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12. | Transactions With Related Party |
Louisiana Timber Procurement Company, L.L.C. (LTP) is an unconsolidated variable-interest entity that is 50% owned by us and 50% owned by Boise Inc. LTP procures sawtimber, pulpwood, residual chips, and other residual wood fiber to meet the wood and fiber requirements of us and Boise Inc. in Louisiana. We are not the primary beneficiary of LTP, as we do not have power to direct the activities that most significantly affect the economic performance of LTP. Accordingly, we do not consolidate LTP's results in our financial statements.
Sales
Related-party sales to LTP from our Wood Products segment in our Consolidated Statements of Operations were $5.0 million and $5.3 million, respectively, during the three months ended September 30, 2013 and 2012, and $16.5 million and $14.7 million, respectively, during the nine months ended September 30, 2013 and 2012. These pulpwood and chip sales were made at prices designed to approximate market. These sales are recorded in "Sales" in our Consolidated Statements of Operations.
Costs and Expenses
Related-party wood fiber purchases from LTP were $18.1 million and $14.1 million, respectively, during the three months ended September 30, 2013 and 2012, and $50.7 million and $44.7 million, respectively, during the nine months ended September 30, 2013 and 2012. We purchased wood fiber at prices designed to approximate market. These costs are recorded in "Materials, labor, and other operating expenses (excluding depreciation)" in our Consolidated Statements of Operations.
Equity
On July 30, 2013, we repurchased 3,864,062 shares of our common stock from BC Holdings, our principal stockholder, for $100.0 million. We funded the Repurchase with cash on hand.
We operate our business using three reportable segments: Wood Products, Building Materials Distribution, and Corporate and Other. There are no differences in our basis of measurement of segment profit or loss from those disclosed in Note 15, Segment Information, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2012 Form 10-K.
An analysis of our operations by segment is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Income | | | | |
| | | | | | | | (Loss) | | | | |
| | Sales | | Before | | Depreciation | | |
| | | | Inter- | | | | Income | | and | | EBITDA |
| | Trade | | segment | | Total | | Taxes | | Amortization | | (a) |
| | (millions) |
Three Months Ended September 30, 2013 | | |
| | |
| | |
| | |
| | |
|
Wood Products | | $ | 156.5 |
| | $ | 126.7 |
| | $ | 283.2 |
| | $ | 17.9 |
| | $ | 6.7 |
| | $ | 24.6 |
|
Building Materials Distribution | | 721.5 |
| | — |
| | 721.5 |
| | 17.9 |
| | 2.2 |
| | 20.1 |
|
Corporate and Other | | — |
| | — |
| | — |
| | (5.2 | ) | | — |
| | (5.2 | ) |
Intersegment eliminations | | — |
| | (126.7 | ) | | (126.7 | ) | | — |
| | — |
| | — |
|
| | $ | 878.0 |
| | $ | — |
| | $ | 878.0 |
| | 30.5 |
| | $ | 9.0 |
| | $ | 39.5 |
|
Interest expense | | | | | | | | (5.2 | ) | | | |
|
|
Interest income | | | | | | | | 0.1 |
| | | |
|
|
| |
| |
|
| |
|
| | $ | 25.5 |
| |
|
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Income | | | | |
| | | | | | | | (Loss) | | | | |
| | Sales | | Before | | Depreciation | | |
| | | | Inter- | | | | Income | | and | | EBITDA |
| | Trade | | segment | | Total | | Taxes | | Amortization | | (a) |
| | (millions) |
Three Months Ended September 30, 2012 | | |
| | |
| | |
| | |
| | |
|
Wood Products | | $ | 159.4 |
| | $ | 100.4 |
| | $ | 259.8 |
| | $ | 22.5 |
| | $ | 6.2 |
| | $ | 28.6 |
|
Building Materials Distribution | | 605.2 |
| | — |
| | 605.2 |
| | 10.3 |
| | 2.3 |
| | 12.6 |
|
Corporate and Other | | — |
| | — |
| | — |
| | (4.4 | ) | | — |
| | (4.4 | ) |
Intersegment eliminations | | — |
| | (100.4 | ) | | (100.4 | ) | | — |
| | — |
| | — |
|
| | $ | 764.6 |
| | $ | — |
| | $ | 764.6 |
| | 28.4 |
| | $ | 8.5 |
| | $ | 36.8 |
|
Interest expense | | | | | | | | (4.8 | ) | | | | |
Interest income | | | | | | | | 0.1 |
| | | | |
| |
|
| |
|
| |
|
| | $ | 23.6 |
| |
|
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Income | | | | |
| | | | | | | | (Loss) | | | | |
| | Sales | | Before | | Depreciation | | |
| | | | Inter- | | | | Income | | and | | EBITDA |
| | Trade | | segment | | Total | | Taxes | | Amortization | | (a) |
| | (millions) |
Nine Months Ended September 30, 2013 | | |
| | |
| | |
| | |
| | |
|
Wood Products | | $ | 491.1 |
| | $ | 341.8 |
| | $ | 832.8 |
| | $ | 61.8 |
| | $ | 19.5 |
| | $ | 81.2 |
|
Building Materials Distribution | | 1,984.1 |
| | — |
| | 1,984.1 |
| | 29.1 |
| | 6.6 |
| | 35.8 |
|
Corporate and Other | | — |
| | — |
| | — |
| | (13.9 | ) | | 0.1 |
| | (13.8 | ) |
Intersegment eliminations | | — |
| | (341.8 | ) | | (341.8 | ) | | — |
| | — |
| | — |
|
| | $ | 2,475.2 |
| | $ | — |
| | $ | 2,475.2 |
| | 77.0 |
| | $ | 26.2 |
| | $ | 103.2 |
|
Interest expense | | | | | | | | (14.8 | ) | | | | |
Interest income | | | | | | | | 0.2 |
| | | | |
| | | | | | | | $ | 62.4 |
| | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Income | | | | |
| | | | | | | | (Loss) | | | | |
| | Sales | | Before | | Depreciation | | |
| | | | Inter- | | | | Income | | and | | EBITDA |
| | Trade | | segment | | Total | | Taxes | | Amortization | | (a) |
| | (millions) |
Nine Months Ended September 30, 2012 | | |
| | |
| | |
| | |
| | |
|
Wood Products | | $ | 447.4 |
| | $ | 265.4 |
| | $ | 712.7 |
| | $ | 48.8 |
| | $ | 18.2 |
| | $ | 67.0 |
|
Building Materials Distribution | | 1,637.2 |
| | — |
| | 1,637.2 |
| | 18.2 |
| | 6.6 |
| | 24.8 |
|
Corporate and Other | | — |
| | — |
| | — |
| | (12.4 | ) | | 0.1 |
| | (12.3 | ) |
Intersegment eliminations | | — |
| | (265.4 | ) | | (265.4 | ) | | — |
| | — |
| | — |
|
| | $ | 2,084.5 |
| | $ | — |
| | $ | 2,084.5 |
| | 54.7 |
| | $ | 24.9 |
| | $ | 79.6 |
|
Interest expense | | | | | | | | (14.5 | ) | | | | |
Interest income | | | | | | | | 0.3 |
| | | | |
| | | | | | | | $ | 40.5 |
| | | | |
| | | | | | | | | | | | |
___________________________________
| |
(a) | EBITDA is defined as income (loss) before interest (interest expense and interest income), income taxes, and depreciation and amortization. EBITDA is the primary measure used by our chief operating decision maker 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 when comparing companies in our industry that have different financing and capital structures and/or tax rates. 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. EBITDA, however, is not a measure of our liquidity or financial performance under generally accepted accounting principles (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, and associated significant cash requirements; and the exclusion of depreciation and amortization, which represent unavoidable operating costs. Management compensates for the limitations of EBITDA by relying on our GAAP results. Our measure of EBITDA is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation. |
The following is a reconciliation of net income to EBITDA:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| | 2013 | | 2012 | | 2013 | | 2012 |
| | (millions) |
Net income(1) | | $ | 15.9 |
| | $ | 23.5 |
| | $ | 107.1 |
| | $ | 40.2 |
|
Interest expense | | 5.2 |
| | 4.8 |
| | 14.8 |
| | 14.5 |
|
Interest income | | (0.1 | ) | | (0.1 | ) | | (0.2 | ) | | (0.3 | ) |
Income tax provision (benefit)(1) | | 9.6 |
| | 0.1 |
| | (44.7 | ) | | 0.2 |
|
Depreciation and amortization | | 9.0 |
| | 8.5 |
| | 26.2 |
| | 24.9 |
|
EBITDA | | $ | 39.5 |
| | $ | 36.8 |
| | $ | 103.2 |
| | $ | 79.6 |
|
_______________________________________
| |
(1) | The nine months ended September 30, 2013, includes $68.7 million of income tax benefit associated with the recording of net deferred tax assets upon our conversion to a corporation. |
14. Commitments, Legal Proceedings and Contingencies, and Guarantees
Commitments
We have commitments for leases and long-term debt that are discussed further under "Leases" in Note 2, Summary of Significant Accounting Policies, and Note 7, Debt. We are a party to a number of long-term log and wood fiber supply agreements that are discussed in Note 15, Commitments, Legal Proceedings and Contingencies, and Guarantees, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2012 Form 10-K. In addition, we have purchase obligations for goods and services, capital expenditures, and raw materials entered into in the normal course of business. At September 30, 2013, there have been no material changes to the commitments disclosed in the 2012 Form 10-K, except as disclosed in Note 7, Debt.
Legal Proceedings and Contingencies
We are a party to routine legal proceedings that arise in the ordinary course of our business. We are not currently a party to any legal proceedings or environmental claims that we believe would, individually or in the aggregate, have a material adverse effect on our financial position, results of operations, or cash flows.
Guarantees
We provide guarantees, indemnifications, and assurances to others. Note 15, Commitments, Legal Proceedings and Contingencies, and Guarantees, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in our 2012 Form 10-K describes the nature of our guarantees, including the approximate terms of the guarantees, how the guarantees arose, the events or circumstances that would require us to perform under the guarantees, and the maximum potential undiscounted amounts of future payments we could be required to make. As of September 30, 2013, there have been no material changes to the guarantees disclosed in the 2012 Form 10-K.
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15. | Consolidating Guarantor and Nonguarantor Financial Information |
The following consolidating financial information presents the Statements of Comprehensive Income (Loss), Balance Sheets, and Cash Flows related to Boise Cascade. The Senior Notes are guaranteed fully and unconditionally and jointly and severally by each of our existing and future subsidiaries (other than our foreign subsidiaries). Each of our existing subsidiaries that is a guarantor of the Senior Notes is 100% owned by Boise Cascade. Other than the consolidated financial statements and footnotes for Boise Cascade and the consolidating financial information, financial statements and other disclosures concerning the guarantors have not been presented because management believes that such information is not material to investors. The reclassifications to net income from accumulated other comprehensive loss are recorded primarily in our guarantor subsidiaries.
Furthermore, the cancellation provisions in the related indenture regarding guarantor subsidiaries are customary, and they do not include an arrangement that permits a guarantor subsidiary to opt out of the obligation prior to or during the term of the debt. Each guarantor subsidiary is automatically released from its obligations as a guarantor upon the sale of the subsidiary or substantially all of its assets to a third party, the designation of the subsidiary as an unrestricted subsidiary for purposes of the covenants included in the indenture, the release of the indebtedness under the indenture, or if the issuer exercises its legal defeasance option or the discharge of its obligations in accordance with the indenture governing the Senior Notes.
On October 1, 2013, we entered into a supplemental indenture (Supplemental Indenture) with certain of our subsidiaries and U.S. Bank National Association, the trustee for our Senior Notes, to add Chester Wood Products LLC and Moncure Plywood LLC as guarantors of the Senior Notes. Entry into the Supplemental Indenture was consummated in connection with the Acquisition on September 30, 2013, as described in Note 5, Acquisitions. Additionally, Chester Wood Products LLC and Moncure Plywood LLC executed guarantees to our Revolving Credit Facility. As such, Chester Wood Products LLC and Moncure Plywood LLC will be included as guarantor subsidiaries in the consolidating guarantor and nonguarantor financial statements effective October 1, 2013.
Boise Cascade Company and Subsidiaries
Consolidating Statements of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2013
(unaudited) |
| | | | | | | | | | | | | | | | | | | | |
| | Boise Cascade Company (Parent) | | Guarantor Subsidiaries | | Non- guarantor Subsidiaries | | Eliminations | | Consolidated |
| | (thousands) |
Sales | | |
| | |
| | |
| | |
| | |
|
Trade | | $ | — |
| | $ | 873,834 |
| | $ | 4,145 |
| | $ | — |
| | $ | 877,979 |
|
Intercompany | | — |
| | — |
| | 3,462 |
| | (3,462 | ) | | — |
|
| | — |
| | 873,834 |
| | 7,607 |
| | (3,462 | ) | | 877,979 |
|
| | | | | | | | | | |
Costs and expenses | | |
| | |
| | |
| | |
| | |
|
Materials, labor, and other operating expenses (excluding depreciation) | | — |
| | 755,757 |
| | 7,713 |
| | (3,693 | ) | | 759,777 |
|
Depreciation and amortization | | 30 |
| | 8,632 |
| | 300 |
| | — |
| | 8,962 |
|
Selling and distribution expenses | | — |
| | 65,635 |
| | 609 |
| | — |
| | 66,244 |
|
General and administrative expenses | | 5,422 |
| | 7,214 |
| | — |
| | 231 |
| | 12,867 |
|
Other (income) expense, net | | (158 | ) | | 3 |
| | (195 | ) | | — |
| | (350 | ) |
| | 5,294 |
| | 837,241 |
| | 8,427 |
| | (3,462 | ) | | 847,500 |
|
| | | | | | | | | | |
Income (loss) from operations | | (5,294 | ) | | 36,593 |
| | (820 | ) | | — |
| | 30,479 |
|
| | | | | | | | | | |
Foreign exchange gain (loss) | | (3 | ) | | 39 |
| | 33 |
| | — |
| | 69 |
|
Interest expense | | (5,174 | ) | | — |
| | — |
| | — |
| | (5,174 | ) |
Interest income | | 18 | |