-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G5nKpvaAmsA+Js8ZeN+cek2pP3qLDrszYkJ+L42tKK+B/+/DdeFOH7cIKxT6XDve LxoRxMhjLoummehYXoWjMA== 0000938839-98-000006.txt : 19980513 0000938839-98-000006.hdr.sgml : 19980513 ACCESSION NUMBER: 0000938839-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOISE CASCADE OFFICE PRODUCTS CORP CENTRAL INDEX KEY: 0000938839 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 820477390 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13662 FILM NUMBER: 98617216 BUSINESS ADDRESS: STREET 1: 800 WEST BRYN MAWR AVE CITY: ITASCA STATE: IL ZIP: 60143 BUSINESS PHONE: 7087735000 MAIL ADDRESS: STREET 1: 800 WEST BRYN MAWR AVE STREET 2: 1111 WEST JEFFERSON STREET CITY: ITASCA STATE: IL ZIP: 60143 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1998 ( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Transition Period From ____________ to ____________ Commission File number 1-13662 BOISE CASCADE OFFICE PRODUCTS CORPORATION State of Incorporation IRS Employer Identification No. Delaware 82-0477390 800 West Bryn Mawr Avenue Itasca, Illinois 60143 (630) 773 - 5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares Outstanding Class as of April 30, 1998 Common Stock, $.01 par value 65,690,158 PART I - FINANCIAL INFORMATION Item 1. Financial Statements BOISE CASCADE OFFICE PRODUCTS CORPORATION AND SUBSIDIARIES STATEMENTS OF INCOME (expressed in thousands, except share information) (unaudited) Three Months Ended March 31 1998 1997 Net sales $ 759,808 $ 597,871 Cost of sales, including purchases from Boise Cascade Corporation of $67,243 and $48,041 564,230 446,999 __________ __________ Gross profit 195,578 150,872 __________ __________ Selling and warehouse operating expense 143,690 111,173 Corporate general and administrative expense, including amounts paid to Boise Cascade Corporation of $643 and $643 12,437 9,210 Goodwill amortization 3,170 2,194 __________ __________ 159,297 122,577 __________ __________ Income from operations 36,281 28,295 __________ __________ Interest expense 6,465 3,075 Other income, net 423 49 __________ _________ Income before income taxes 30,239 25,269 Income tax expense 12,650 10,360 __________ __________ Net income $ 17,589 $ 14,909 Earnings per share-basic $ .27 $ .24 Earnings per share-diluted $ .27 $ .23 The accompanying notes are an integral part of these Financial Statements. BOISE CASCADE OFFICE PRODUCTS CORPORATION AND SUBSIDIARIES BALANCE SHEETS (expressed in thousands) (unaudited) March 31 December 31 ASSETS 1998 1997 1997 Current Cash and cash equivalents $ 53,151 $ 22,762 $ 28,755 Receivables, less allowances of $7,707, $3,900, and $7,591 382,826 292,997 357,321 Inventories 203,733 164,748 197,990 Deferred income tax benefits 18,404 13,963 14,223 Other 20,816 19,856 23,808 ___________ __________ ___________ 678,930 514,326 622,097 ___________ __________ ___________ Property Land 27,677 13,488 28,913 Buildings and improvements 128,708 75,081 127,430 Furniture and equipment 195,735 150,407 175,778 Accumulated depreciation (140,054) (96,492) (129,951) ___________ __________ ___________ 212,066 142,484 202,170 ___________ __________ ___________ Goodwill, net of amortization of $27,575, $15,349, and $24,019 439,809 264,499 438,830 Other assets 33,117 21,798 28,391 ___________ __________ ___________ Total assets $1,363,922 $ 943,107 $1,291,488 The accompanying notes are an integral part of these Financial Statements. BOISE CASCADE OFFICE PRODUCTS CORPORATION AND SUBSIDIARIES BALANCE SHEETS (expressed in thousands, except share information) (unaudited) March 31 December 31 LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997 1997 Current Notes payable $ 73,800 $ 25,600 $ 23,300 Current portion of long-term debt 2,578 135 2,917 Accounts payable Trade and other 272,972 188,014 238,773 Boise Cascade Corporation 28,710 26,963 42,097 ___________ __________ ___________ 301,682 214,977 280,870 ___________ __________ ___________ Accrued liabilities Compensation and benefits 26,053 21,475 30,717 Income taxes payable 15,679 19,928 3,370 Taxes, other than income 20,161 8,698 18,718 Other 54,950 32,218 30,848 ___________ __________ ___________ 116,843 82,319 83,653 ___________ __________ ___________ 494,903 323,031 390,740 ___________ __________ ___________ Other Deferred income taxes - 195 - Long-term debt, less current portion 307,224 170,016 357,595 Other 35,827 28,467 37,518 ___________ __________ ___________ 343,051 198,678 395,113 ___________ __________ ___________ Shareholders' equity Common stock, $.01 par value, 200,000,000 shares authorized; 65,656,158, 62,904,575, and 65,588,258 shares issued and outstanding at each period 657 629 656 Additional paid-in capital 357,661 307,308 356,599 Retained earnings 172,968 113,436 155,412 Accumulated other comprehensive income (5,318) 25 (7,032) ___________ __________ ___________ Total shareholders' equity 525,968 421,398 505,635 ___________ __________ ___________ Total liabilities and shareholders' equity $1,363,922 $ 943,107 $1,291,488 The accompanying notes are an integral part of these Financial Statements. BOISE CASCADE OFFICE PRODUCTS CORPORATION AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (expressed in thousands) (unaudited) Three Months Ended March 31 1998 1997 Cash provided by (used for) operations Net income $ 17,589 $ 14,909 Items in income not using (providing) cash Depreciation and amortization 13,756 8,820 Deferred income taxes (4,499) (2,121) Receivables (23,966) (5,122) Inventories (4,554) 9,320 Accounts payable and accrued liabilities 36,397 (11,605) Current and deferred income taxes 12,679 11,539 Other, net 6,177 (5,399) __________ __________ Cash provided by operations 53,579 20,341 __________ __________ Cash provided by (used for) investment Expenditures for property and equipment (17,576) (15,697) Acquisitions (4,042) (14,912) Other, net (8,070) 1,128 __________ __________ Cash used for investment (29,688) (29,481) __________ __________ Cash provided by (used for) financing Long-term debt (50,266) 30,000 Notes payable 50,500 (11,100) Other, net 271 240 __________ __________ Cash provided by financing 505 19,140 __________ __________ Increase in cash and cash equivalents 24,396 10,000 Balance at beginning of the period 28,755 12,762 __________ __________ Balance at March 31 $ 53,151 $ 22,762 The accompanying notes are an integral part of these Financial Statements. BOISE CASCADE OFFICE PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (unaudited) (1) ORGANIZATION AND BASIS OF PRESENTATION. Boise Cascade Office Products Corporation (together with its subsidiaries, "the Company" or "we"), headquartered in Itasca, Illinois, is a distributor of products for the office through its contract stationer and direct marketing channels. At March 31, 1998, Boise Cascade Corporation owned 81.3% of our outstanding common stock. The quarterly financial statements of the Company and its subsidiaries have not been audited by independent public accountants, but in the opinion of management, all adjustments necessary to present fairly the results for the periods have been included. Except as may be disclosed in the notes to the Financial Statements, the adjustments made were of a normal, recurring nature. Quarterly results are not necessarily indicative of results that may be expected for the year. We have prepared the statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These quarterly financial statements should be read together with the statements and the accompanying notes included in our 1997 Annual Report. (2) EARNINGS PER SHARE. Basic earnings per share of $.27 and $.24 for the three months ended March 31, 1998 and 1997, were computed by dividing net income by the weighted average number of shares of common stock outstanding for the periods. Diluted earnings per share of $.27 and $.23 for the three months ended March 31, 1998 and 1997, include the weighted average impact of stock options assumed exercised using the treasury method. In 1997, we adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." Earnings per share for 1997 have been restated to reflect SFAS 128. (3) COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) for the periods include the following: Three Months Ended March 31 1998 1997 (expressed in thousands) Net income $ 17,589 $ 14,909 Other comprehensive income (loss) Cumulative foreign currency translation adjustment, net of income taxes 1,714 (1,471) _________ _________ Comprehensive income, net of income taxes $ 19,303 $ 13,438 Accumulated other comprehensive income (loss) for each period was as follows: March 31 December 31 1998 1997 1997 (expressed in thousands) Balance at beginning of period Minimum pension liability adjustment, net of income taxes $ (417) $ (24) $ (24) Cumulative foreign currency translation adjustment, net of income taxes (6,615) 1,520 1,520 Changes within periods Minimum pension liability adjustment, net of income taxes - - (393) Cumulative foreign currency translation adjustment, net of income taxes 1,714 (1,471) (8,135) _________ _________ _________ Balance at end of period $ (5,318) $ 25 $ (7,032) (4) DEFERRED SOFTWARE COSTS. We defer purchased and internally developed software and related installation costs for computer systems that are used in our business. Deferral of costs begins when technological feasibility of the project has been established and it is determined that the software will benefit future years. These costs are amortized on the straight-line method over a maximum of five years or the useful life of the product, whichever is less. If the useful life of the product is shortened, the amortization period is adjusted. "Other assets" in the Balance Sheets includes deferred software costs of $20.1 million, $10.8 million, and $17.5 million at March 31, 1998 and 1997 and December 31, 1997. (5) DEBT. On June 26, 1997, we entered into a $450 million revolving credit agreement with a group of banks that expires on June 29, 2001, and provides for variable rates of interest based on customary indices. It contains customary restrictive financial and other covenants, including a negative pledge and covenants specifying a minimum fixed charge coverage ratio and a maximum leverage ratio. This agreement replaced our $350 million revolving credit agreement. We may, subject to the covenants contained in the credit agreement and to market conditions, refinance existing debt or raise additional funds through the agreement and through other external debt or equity financings in the future. At March 31, 1998, borrowing under the revolving credit agreement was $290 million. In addition to the amount outstanding under the revolving credit agreement, we had $73.8 million and $25.6 million of short-term notes payable at March 31, 1998 and 1997. The maximum amount of short-term notes payable during the three months ended March 31, 1998 and 1997, was $104.6 million and $59.3 million. The average amount of short-term notes payable during the three months ended March 31, 1998 and 1997, were $63.7 million and $33.2 million. The weighted average interest rates for these borrowings was 5.9% and 5.6% for the periods. We filed a registration statement with the Securities and Exchange Commission to register $300 million of shelf capacity for debt securities. The effective date of the filing was April 22, 1998. On May 12, 1998, we issued $150.0 million of 7.05% Notes under this registration statement. The Notes are due May 15, 2005. Proceeds from the issuance will be used to repay borrowings under our revolving credit agreement. We have $150.0 million of shelf capacity remaining under this registration statement. In December 1997, we entered into agreements to hedge against a rise in Treasury rates. We entered into the transactions in anticipation of our issuance of these debt securities. The hedge agreements had a notional amount of $70 million. The settlement rate, based on the yield on 10-year U.S. Treasury bonds, was less than the agreed upon initial rate, and we made a cash payment of $0.6 million. The amount paid will be recognized as an increase in interest expense over the life of the debt securities issued. Cash payments for interest were $6.7 million and $3.0 million for the three months ended March 31, 1998 and 1997. (6) TAXES. The estimated tax provision rate for the first three months of 1998 was 42.0%, compared with a tax provision rate of 41.0% for the same period in the prior year. The increase is primarily due to increased nondeductible goodwill and foreign income, taxed at a higher rate. For the three months ended March 31, 1998 and 1997, we paid income taxes, net of refunds received, of $3.1 million and $0.9 million. (7) ACQUISITIONS. During the first three months of 1998 we completed two acquisitions, and during the first three months of 1997 we completed three acquisitions, all of which were accounted for under the purchase method of accounting. Accordingly, the purchase prices were allocated to the assets acquired and liabilities assumed based upon their estimated fair values. The initial purchase price allocations may be adjusted within one year of the date of purchase for changes in estimates of the fair values of assets and liabilities. Such adjustments are not expected to be significant to results of operations or the financial position of the Company. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill and is being amortized over 40 years. The results of operations of the acquired businesses are included in our operations subsequent to the dates of acquisition. On January 12, 1998, we acquired the direct marketing business of Fidelity Direct, based in Minneapolis, Minnesota. On February 28, 1998, we acquired the direct marketing business of Sistemas Kalamazoo, based in Madrid, Spain. These transactions were completed for cash of $4.0 million, debt assumed of $0.2 million, and the recording of $3.8 million of acquisition liabilities. On January 31 and February 28, 1997, we acquired contract stationer businesses in Montana and Florida. Also in January 1997, we completed a joint venture with Otto Versand to direct market office products in Europe. These transactions, including the joint venture, were completed for cash of $14.9 million, $2.9 million of our common stock, and the recording of $1.0 million of acquisition liabilities. Unaudited pro forma results of operations reflecting the acquisitions would have been as follows. If the 1998 acquisitions had occurred January 1, 1998, sales for the first three months of 1998 would have increased to $760.6 million, net income would have remained $17.6 million, and basic earnings per share would have remained $.27. If the 1998 and 1997 acquisitions had occurred January 1, 1997, sales for the first three months of 1997 would have increased to $605.9 million, net income would have remained $14.9 million, and basic earnings per share would have remained $.24. This unaudited pro forma financial information does not necessarily represent the actual results of operations that would have occurred if the acquisitions had taken place on the dates assumed. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 1998, Compared with Three Months Ended March 31, 1997 Results of Operations Net sales in the first quarter of 1998 increased 27% to $759.8 million, compared with $597.9 million in the first quarter of 1997. The growth in sales resulted from a combination of acquisitions and same-location sales growth. Same-location sales increased 13% in the first quarter of 1998, compared with sales in the first quarter of 1997. Cost of sales, which includes the cost of merchandise sold and delivery and occupancy costs, increased to $564.2 million in the first quarter of 1998, which was 74.3% of net sales. This compares with $447.0 million reported in the same period of the prior year, which represented 74.8% of net sales. Gross profit as a percentage of net sales was 25.7% and 25.2% for the first quarters of 1998 and 1997. The increase in the first quarter of 1998 was primarily due to increases in our U.S. contract stationer and direct marketing gross margins, offset slightly by lower margins in our other businesses. Operating expense was 21.0% of net sales in the first quarter of 1998, compared with 20.5% in the first quarter of 1997. Within the operating expense category, selling and warehouse operating expense was 18.9% of net sales in the first quarter of 1998, compared with 18.6% in 1997. The increase in the first quarter of 1998 was due in part to our direct marketing business, which has both higher gross margins and higher operating expenses. Direct marketing acquisitions made in 1997 increased our cost average compared to the prior year. Corporate general and administrative expense was 1.6% of net sales in the first quarter of 1998, compared with 1.5% in 1997. Goodwill amortization increased to $3.2 million in the first quarter of 1998, compared with $2.2 million in the first quarter of 1997. The increase in goodwill amortization was the result of recording goodwill arising from our acquisitions. Income from operations in the first quarter of 1998 increased to $36.3 million, or 4.8% of net sales, compared to our first quarter 1997 operating income of $28.3 million, or 4.7% of net sales. Interest expense was $6.5 million in the first quarter of 1998, compared with $3.1 million in the first quarter of 1997. The increase in interest expense resulted from debt incurred in conjunction with our acquisition and capital spending programs. Net income in the first quarter of 1998 increased to $17.6 million, or 2.3% of net sales, compared with $14.9 million, or 2.5% of net sales in the same period of the prior year. Liquidity and Capital Resources Our principal requirements for cash have been to make acquisitions, fund technology development and working capital needs, upgrade and expand our facilities at existing locations, and open new distribution centers. The execution of our strategy for growth, including acquisitions and the relocation of several existing distribution centers into new and larger facilities, is expected to require capital outlays over the next several years. To finance our capital requirements, we expect to rely upon funds from a combination of sources. In addition to cash flow from operations, we have a $450 million revolving credit agreement that expires in 2001 and provides for variable rates of interest based on customary indices. The credit agreement is available for acquisitions and general corporate purposes. It contains customary restrictive financial and other covenants, including a negative pledge and covenants specifying a minimum fixed charge coverage ratio and a maximum leverage ratio. At March 31, 1998, $290 million was outstanding under this agreement. We may, subject to the covenants contained in the credit agreement and to market conditions, refinance existing debt or raise additional funds through the agreement and through other external debt or equity financings in the future. In addition to the amount outstanding under the revolving credit agreement, we had short-term notes payable of $73.8 million at March 31, 1998. The maximum amount of short-term notes payable during the three months ended March 31, 1998, was $104.6 million. The average amount of short-term notes payable during the three months ended March 31, 1998, was $63.7 million. The weighted average interest rate for these borrowings was 5.9%. We filed a registration statement with the Securities and Exchange Commission to register $300 million of shelf capacity for debt securities. The effective date of the filing was April 22, 1998. On May 12, 1998, we issued $150.0 million of 7.05% Notes under this registration statement. The Notes are due May 15, 2005. Proceeds from the issuance will be used to repay borrowings under our revolving credit agreement. We have $150.0 million of shelf capacity remaining under this registration statement. In June 1996, we filed a registration statement with the Securities and Exchange Commission for 4.4 million shares of common stock to be offered from time to time in connection with future acquisitions. As of March 31, 1998, 3.5 million shares remained unissued under this registration statement. On September 25, 1997, we issued 2.25 million shares of common stock at $21.55 per share to Boise Cascade Corporation for total proceeds of $48.5 million. At March 31, 1998, Boise Cascade Corporation owned 81.3% of our outstanding common stock. Net cash provided by operations in the first three months of 1998 was $53.6 million. This was the result of $26.8 million of net income, depreciation and amortization, and other noncash items, and a $26.7 million decrease in working capital. Net cash used for investment in the first three months of 1998 was $29.7 million, which included $17.6 million of expenditures for property and equipment, and $4.0 million for acquisitions. Net cash provided by financing was $0.5 million for the first three months of 1998. Net cash provided by operations in the first three months of 1997 was $20.3 million. This was primarily the result of $21.6 million of net income, depreciation and amortization, and other noncash items, offset by a $1.3 million increase in working capital. Net cash used for investment in the first three months of 1997 was $29.5 million, which included $15.7 million of expenditures for property and equipment, and $14.9 million for acquisitions. Net cash provided by financing was $19.1 million for the first three months of 1997, resulting primarily from borrowings we made to fund acquisitions. The majority of our 1998 and 1997 acquisitions have been completed for cash, resulting in higher outstanding balances under our credit agreement and short-term borrowing capacity. The increase in borrowings has caused interest expense to increase for the first three months of 1998 compared to the same period of 1997. New Accounting Standards In 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." This Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. We are still evaluating what impact, if any, this Statement will have on us. We will adopt this Statement at year- end 1998. Adoption of this Statement will have no impact on net income. In March 1998, the American Institute of Certified Public Accountants (AICPA), issued Statement of Position 98-1 (SOP 98- 1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This SOP is effective for financial statements for fiscal years beginning after December 31, 1998, with earlier application encouraged. We currently account for software costs generally in accordance with this SOP. Year 2000 Computer Issue Many computer systems in use today were designed and developed using two digits, rather than four, to specify the year. As a result, such systems will recognize the year 2000 as "00." This could cause many computer applications to fail completely or to create erroneous results unless corrective measures are taken. We utilize software and related computer technologies that will be affected by this issue. We are currently implementing, or planning to implement, several computer system replacements or upgrades before the year 2000, all of which will be year 2000 compliant. Most of the costs associated with these replacements and upgrades have been or will be deferred. (See Note 4 in "Notes to Quarterly Financial Statements.") We are evaluating what actions will be necessary to make our remaining computer systems year 2000 compliant. The expense associated with these actions is not expected to be material to the Company. We have discussed this issue with our significant suppliers and large customers to determine the extent to which we could be affected if their systems are not year 2000 compliant. While there can be no guarantee that systems of other companies will be corrected on a timely basis, we do not expect any material adverse effects to the Company. Business Outlook We expect our cross-selling efforts in furniture, computer- related consumables, promotional products, and office papers to result in additional sales to our existing customers. We also expect to grow sales by developing business with new customers. The pace of our revenue growth will partially depend on the success of these initiatives. It will also depend, in part, on our plans to make further acquisitions in the U.S. and internationally. Our level of future acquisition activity will reflect the extent of economically acceptable opportunities available to us. Our gross margins and operating expense ratios vary among our product categories, distribution channels, and geographic locations. As a result, we expect fluctuations in these ratios as our sales mix evolves over time. Office papers and converted paper products represent a significant portion of our sales. It is unclear to what extent or when prices might significantly rise or fall and what favorable or adverse impact those changes might have on our future financial results. Risk Factors Associated With Forward Looking Statements The Management's Discussion and Analysis of Financial Condition and Results of Operations includes "forward looking statements" which involve uncertainties and risks. There can be no assurance that actual results will not differ from the Company's expectations. Factors which could cause materially different results include, among others, continued same-location sales growth; the timing and amount of paper price recovery; the changing mix of products sold to our customers; the pace and success of our acquisition program; the success of cost structure improvements; the success of new product line introductions; the uncertainties of expansion into international markets, including currency exchange rates, legal and regulatory requirements, and other factors; and competitive and general economic conditions. Item 3. Quantitative and Qualitative Disclosures About Market Risks Changes in interest rates and currency rates expose us to financial market risks. To date, these risks have not been significant and are not expected to be so in the near term. Changes in our debt and our continued international expansion could increase these risks. To manage volatility relating to these risks, we may enter into various derivative transactions such as interest rate swaps, rate hedge agreements, and forward exchange contracts. We do not use derivative financial instruments for trading purposes. In December 1997, we entered into agreements to hedge against a rise in Treasury rates. We entered into the transactions in anticipation of our issuance of debt securities in the first half of 1998. The hedge agreements had a notional amount of $70 million and were settled with our issuance of debt securities on May 12, 1998. The settlement rate, based on the yield on 10-year U.S. Treasury bonds, was less than the agreed upon initial rate, and we made a cash payment of $0.6 million. The amount paid will be recognized as an increase in interest expense over the life of the debt securities issued. Our operations in Australia, Canada, France, Germany, Spain, and the United Kingdom are denominated in currencies other than U.S. dollars. Each of our operations conducts substantially all of its business in its local currency with minimal cross-border product movement. As a result, these operations are not subject to material operational risks associated with fluctuations in exchange rates. Furthermore, our results of operations were not materially impacted by the translation of our other operations' currencies into U.S. dollars. Because we intend to expand the size and scope of our international operations, this exposure to fluctuations in exchange rates may increase. Accordingly, no assurance can be given that our future results of operations will not be adversely affected by fluctuations in foreign currency exchange rates. Although we currently are not engaged in any foreign currency hedging activities, we may consider doing so in the future. Such future hedges would be intended to minimize the effects of foreign exchange rate fluctuations on our investment and would not be done for speculative purposes. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently involved in any legal or administrative proceedings that it believes could have, either individually or in the aggregate, a material adverse effect on its business or financial condition. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Required exhibits are listed in the Index to Exhibits and are incorporated by reference. (b) No Form 8-K's were filed during the quarter covered by this report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOISE CASCADE OFFICE PRODUCTS CORPORATION As Duly Authorized Officer and Chief Accounting Officer: /s/Darrell R. Elfeldt Darrell R. Elfeldt Vice President and Controller Date: May 12, 1998 BOISE CASCADE OFFICE PRODUCTS CORPORATION INDEX TO EXHIBITS Filed With the Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1998 Number Description Page 10 Key Executive Stock Option Plan and Form of Agreement, as amended through April 2, 1998 11 Computation of Per Share Earnings 27 Financial Data Schedule EX-10 2 Exhibit 10 BOISE CASCADE OFFICE PRODUCTS CORPORATION KEY EXECUTIVE STOCK OPTION PLAN (As Amended Through April 2, 1998) SECTION 1 PURPOSE 1.1 Establishment and Purpose. Boise Cascade Office Products Corporation, a Delaware corporation (the "Company"), hereby establishes the Boise Cascade Office Products Corporation Key Executive Stock Option Plan (the "Plan") as a vehicle by which a portion of the compensation of certain employees of the Company may be provided in the form of long- term, equity-based incentives that are designed to attract, retain, and motivate key employees of the Company and to focus the employee's attention on the long-term growth of the Company. Each Option issued under this Plan is issued solely in respect of the Participant's employment with the Company. SECTION 2 DEFINITIONS 2.1 Act. "Act" means the Securities Exchange Act of 1934, as amended, and any rules and regulations thereunder. 2.2 Board. "Board" means the Board of Directors of the Company as the same may be constituted from time to time. 2.3 Company. "Company" means Boise Cascade Office Products Corporation, a Delaware corporation, and its subsidiaries and their respective successors and assigns. 2.4 Compensation Committee. "Compensation Committee" means the committee composed of members of the Board, or any successor to such committee, who have been appointed by the Board to such position from time to time with the purpose of making recommendations concerning executive compensation. 2.5 Competitor. "Competitor" means any business, foreign or domestic, which is engaged at any time relevant to the provisions of this Plan, in the distribution of products or in the providing of services in competition with products sold or distributed, or services provided by the Company. The determination of whether a business is a Competitor shall be made by the Company's General Counsel, in his/her sole discretion. 2.6 Disability. "Disability" means a physical or mental impairment that prevents the Participant from performing the duties of the employment in which the Participant was engaged before the commencement of impairment, subject to the written certification of a medical doctor. 2.7 Eligible Individual. "Eligible Individual" means an employee of the Company who, by virtue of his or her position with the Company or the nature of the services he or she provides to the Company, has been identified by the senior management of the Company and selected by the Compensation Committee as being eligible for consideration to receive grant(s) of Options under this Plan. 2.8 Employment with any Competitor. "Employment with any Competitor" means providing significant services as an employee or consultant, or otherwise rendering services of a significant nature for remuneration, to a Competitor. 2.9 Exercise Price. "Exercise Price" means, for any Option, the Fair Market Value of the Shares on the Grant Date of such Option. 2.10 Fair Market Value. "Fair Market Value" means, until the Shares are listed on the New York Stock Exchange, the fair value of the Shares on the Grant Date as determined by the Compensation Committee. Once the Shares are so listed, "Fair Market Value" shall mean the closing price of a Share as reported on the consolidated tape of the New York Stock Exchange on the date with respect to which the Fair Market Value is being determined. In the event there are no transactions in Shares on the date in question, the Fair Market Value shall be determined as of the next immediately preceding date on which there were transactions in Shares on the New York Stock Exchange. 2.11 Grant Date. "Grant Date" means the date on which an Option is granted under this Plan. 2.12 Internal Revenue Code or Code. "Internal Revenue Code" or "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations thereunder. 2.13 Option. "Option" means an option to purchase Shares granted in accordance with the terms of the Plan, as described more fully in Section 4. 2.14 Participant. "Participant" means an Eligible Individual to whom the Compensation Committee has granted an Option under this Plan, provided such Eligible Individual has elected to participate in the Plan by completing and submitting a stock option agreement as contemplated by Section 3.1 hereof. 2.15 Retirement. "Retirement" means an Employee's termination of employment with the Company, other than as a result of death, total and permanent disability, or for disciplinary reasons (as defined for purposes of the Company's Corporate Policy Manual) at any time after the Employee has reached age 55 with ten or more Years of Service with the Company as defined in the Company's Pension Plan for Salaried Employees. 2.16 Share. "Share" means a share, duly authorized, of the Company's common stock, $.01 par value. SECTION 3 ELIGIBILITY 3.1 Eligibility. An individual who is an Eligible Individual shall be eligible to receive grant(s) of Options provided he or she signs a stock option agreement in such form as is prescribed by the Compensation Committee from time to time for such purposes. SECTION 4 OPTIONS 4.1 Shares Subject to the Plan. Options may be granted to Participants by the Company under this Plan, pursuant to Section 4.2, in respect of authorized and unissued Shares, provided that the aggregate number of Shares reserved for issuance under this Plan, subject to adjustment or increase of such number, pursuant to the provisions of Section 4.11, shall not exceed 3,000,000 Shares. If any Shares are subject to an Option which expires or is terminated unexercised, such Shares shall be available for issuance with respect to subsequent Options granted under the Plan. No fractional shares may be purchased or issued under the Plan. 4.2 Grant of Options. An Eligible Individual may be granted, by the Compensation Committee, an Option to purchase a number of Shares from the Company at the Exercise Price per Share. The number of Shares subject to an Option, those Eligible Individuals chosen to receive Options, and the Grant Date for an Option are matters solely within the discretion of the Compensation Committee. The Compensation Committee shall determine whether an Option is to be an Incentive Stock Option (within the meaning of Section 422A of the Code) or a nonstatutory Option. In no event shall any grant of an Incentive Stock Option provide for such Option to be or become exercisable in amounts in excess of $100,000 per calendar year. 4.3 Option Agreement. As determined by the Compensation Committee, each Option shall be evidenced by a stock option agreement that specifies: (a) Grant price; (b) Duration of the Option; (c) Number of shares of Stock to which the Option pertains; (d) Vesting requirements, if any; (e) Whether the Option is an incentive stock option or a nonstatutory option; (f) Restrictions on exercisability, if any; (g) Rights of the Optionees upon termination of employment with the Company, provided that the termination rights for Optionees receiving incentive stock options shall conform with Section 422A of the Code; (h) The terms of the loan, if any, that will be made available in connection with the exercise of an Option; and (I) Such other information as the Committee deems desirable. No Option shall have an expiration date later than the first day following the tenth anniversary of the date of its grant. 4.4 Exercise of Options. Subject to any restrictions set out in any policy of the Company that may be adopted to provide guidelines as to when Participants and others may engage in transactions involving securities of the Company, an Option may be exercised by delivery to the Company of a completed stock option exercise form, in the form approved by the Company from time to time, specifying the number of Shares with respect to which the Option is being exercised and accompanied by payment in full of the Exercise Price of the Shares then being purchased in (i) cash, (ii) Shares, (iii) a loan from the Company, or (iv) delivery of an irrevocable written notice instructing the Company to deliver the Shares being purchased to a broker selected by the Company, subject to the broker's written guarantee to deliver cash to the Company, in each case equal to the full consideration of the Exercise Price for the Shares being purchased. Options may be exercised in whole or in part. Certificates for such Shares, or such other proof of purchase as is appropriate, shall be delivered to the Participant within a reasonable time following the receipt of such notice and payment. 4.5 Vesting of Options. The vesting of any Option shall be determined by the Compensation Committee at the time that the Option is granted and shall be specified in the applicable stock option agreement. 4.6 Exercise Price. Options shall be exercised under this Plan only at the Exercise Price. 4.7 Limit on Options to any Person. The total number of Options to be granted to any one Participant under the Plan shall not exceed 20% of the total number of shares authorized for issuance pursuant to the Plan. 4.8 Options Nonassignable. Each Option is personal to the Participant and shall not be transferable by the Participant other than by will or the laws of descent and distribution. No Option granted under this Plan, nor any interest therein, may be otherwise transferred, assigned, pledged, or hypothecated by the Participant to whom the Option was granted in such Participant's lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment, levy, or similar process. A Participant, by written notice to the Company, may designate one or more persons (and from time to time change such designation), including his or her legal representative, who, by reason of the Participant's death, shall acquire the right to exercise all or a portion of an Option granted under this Plan. Any exercise by a representative shall be subject to the provisions of this Plan. 4.9 Change of Employment. Notwithstanding any other provisions of the Plan, Options already granted shall not be affected by any change of employment of the Participant where the Participant continues to be employed by the Company. For purposes of the Plan, neither (i) a transfer of a Participant to or from the Company or to or from a subsidiary or parent or from one subsidiary to another, or (ii) a leave of absence duly authorized by the Company shall be deemed a termination of employment. However, a Participant may not exercise an Option or any applicable stock appreciation right during any leave of absence unless authorized to do so by the Committee. 4.10 Conditions Precedent to Issuance of Shares. Notwithstanding any of the provisions contained in the Plan or in any Option, the Company's obligation to issue Shares to a Participant pursuant to the exercise of an Option under the Plan shall be subject to: (a) Completion of such registration or other qualification of such Shares or obtaining approval of such governmental authority as shall be determined to be necessary or advisable in connection with the authorization, issuance, or sale thereof; (b) The listing of such Shares on the New York Stock Exchange and, if required, the preclearance of the Plan with such Exchange; (c) The receipt from the Participant of such representations, agreements, and undertakings as to future dealings in such Shares as the Company determines to be necessary or advisable; and (d) Such shareholder approval as may be required under the Act, other applicable securities laws, the Code, and the New York Stock Exchange. In this connection, the Company shall, to the extent necessary, take all reasonable steps to obtain such approvals, registrations, and qualifications as may be necessary for issuance of such Shares in compliance with applicable laws and for the listing of such Shares on the New York Stock Exchange. 4.11 Adjustments. Subsequent to the adoption of the Plan by the Compensation Committee, appropriate adjustments in the number of Shares subject to the Plan, Options granted or to be granted, Shares subject to an Option, and Exercise Price shall be made by the Compensation Committee to give effect to adjustments in the number of Shares resulting from subdivision, split, consolidation, exchange, merger, recapitalization, or reclassification of the Shares, the payment of stock dividends by the Company (other than dividends in the ordinary course) or other similar changes in the capital stock of the Company. The purpose of such adjustments shall be to ensure that any Participant exercising an Option after such change in the capital stock of the Company shall be in the same position as he or she would have been if he or she had exercised the Option prior to such change, except with respect to the receipt of income on the Shares. Fractional shares resulting from such adjustment shall be rounded up to the nearest whole number. No adjustment shall be made in connection with the issuance by the Company of any warrants, rights, or options to acquire additional shares or of securities convertible into Shares. 4.12 Acceleration of Stock Options. Notwithstanding any other provision of this Plan, in the event of a dissolution or a liquidation of the Company or a merger and consolidation in which the Company is not the surviving corporation, any unexercised Options granted prior to the date of the merger or consolidation shall become exercisable on the day immediately preceding the date of the merger or consolidation. SECTION 5 EVENTS AFFECTING ENTITLEMENT 5.1 Events Affecting Entitlement to Options. If the Participant dies, terminates employment, retires, or suffers a Disability before Options granted to such Participant are exercised, such Options shall expire on the date specified in the governing stock option agreement, unless the Compensation Committee extends, in whole or in part, the expiration date. SECTION 6 DURATION OF THE PLAN 6.1 Duration. The Plan shall remain in effect until all Shares subject to Options granted pursuant to the Plan have been purchased pursuant to exercise of such Options. Notwithstanding the foregoing, no Options may be granted pursuant to the Plan after the tenth anniversary of the Plan's effective date. SECTION 7 PARTICIPANTS' RIGHTS 7.1 Employment. Nothing in this Plan shall interfere with or limit in any way the right to the Company to terminate the employment of an any Eligible Employee or Participant at any time. Nothing in this Plan shall confer upon any employee, any Eligible Employee, or any Participant any right to continue in the employ of the Company, the employment of such individuals being expressly "at will" and subject to termination at any time in the Company's sole discretion. 7.2 Rights as Shareholders. Prior to the exercise of their Options, Participants shall have no rights whatsoever as shareholders in respect of any of the Shares (including, without limitation, any right to receive dividends or other distribution therefrom, voting rights, warrants, or rights under any rights offering). Following the exercise of their Options, Participants shall have the same rights with respect to the Shares as other shareholders of like Shares. 7.3 No Extension of Rights. Participation in this Plan shall not give any Participant any right or claim to any benefit except to the extent provided in the Plan. SECTION 8 VALUATION 8.1 Method of Valuation. Options granted under this Plan shall be valued at Fair Market Value or, should it not be possible to determine Fair Market Value as provided hereunder, in accordance with such other valuation methodology as is determined by the Compensation Committee from time to time to be appropriate and which is acceptable to applicable regulatory authorities. SECTION 9 NOTICES 9.1 Delivery. Any notice or other document to be delivered to a Participant shall be validly sent, given, or delivered if it is delivered by hand to the Participant or it is mailed by first class prepaid mail to the latest address shown on the records of the Company for the Participant. SECTION 10 ADMINISTRATION AND TERMINATION 10.1 Administration. This Plan shall be administered by the Compensation Committee of the Board of Directors of the Company. The Compensation Committee shall have full authority to administer this Plan, including authority to interpret and construe any provision of this Plan, to adopt such rules for administration of this Plan as it may deem necessary or appropriate, and to delegate duties hereunder to such persons or entities as it deems appropriate. Decisions of the Compensation Committee shall be final and binding on all persons who have an interest in this Plan. 10.2 Amendment. The Compensation Committee may amend the Plan at any time, with or without notice to the Participants, provided, however, that no amendment shall reduce the interests of the Participants under any Options earlier granted to a Participant under the Plan without the written consent of the Participants. Without approval of a majority of the Company's shareholders, no revision or amendment shall (i) change the number of Shares subject to this Plan (except as provided in Section 4.11), (ii) change the designation of the class of employees eligible to participate in the Plan, (iii) change the Exercise Price of the Options, or (iv) materially increase the benefits accruing to Participants under the Plan or the cost of this Plan to the Company. Moreover, in no event may Plan provisions be amended more than once every six months other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules and regulations thereunder. No amendment, modification, or termination of this Plan shall in any manner adversely affect the rights of any Participant holding Options granted under this Plan without his or her consent. 10.3 Termination. The Company may terminate the Plan at any time, with or without notice to the Participants, in which case all Options granted to Participants shall vest fully in those Participants. 10.4 Shareholder Approval and Registration Statement. This Plan shall be approved by the Compensation Committee and submitted to the Company's shareholders for approval. Any Options granted under this Plan, prior to effectiveness of a registration statement filed with the Securities and Exchange Commission covering the Shares to be issued hereunder, shall not be exercisable until, and are expressly conditional upon, the effectiveness of a registration statement covering the Shares. 10.5 Expenses. The Company shall pay all costs of administering and operating the Plan. 10.6 Records. The Company shall maintain, or cause to be maintained, records indicating the amount credited to the Participant's account under the Plan, from time to time, and the number of Options granted to each Participant. Such records shall be conclusive as to all matters involved in the administration of the Plan. 10.7 Statements. The Company shall furnish, or cause to be furnished, to each Participant periodical statements indicating the vested status of his or her Options and any other information which the Company considers to be relevant to the Participant. Such statements shall be given at times determined by the Company. 10.8 Tax Information Returns. The Company will issue, or cause to be issued, to each Participant all tax information required to be delivered under United States tax laws within the time periods specified in those laws. 10.9 Withholding Taxes. Whenever Shares are issued on the exercise of an Option under the Plan, the Company shall (a) require the recipient of the Shares to remit to the Company an amount sufficient to satisfy all withholding taxes, (b) deduct from any cash payment pursuant to any broker-assisted option exercise (net to optionee in cash or shares) an amount sufficient to satisfy any withholding tax requirements, or (c) withhold from or require surrender by the recipient, as appropriate, Shares otherwise issuable or issued upon exercise of the Option, the number of Shares sufficient to satisfy, to the extent permitted under applicable law, federal and state withholding tax requirements resulting from the exercise, provided, however, that the Company shall not withhold or accept surrender of Shares under this paragraph unless the recipient of the Shares has made an irrevocable election to have Shares withheld or surrendered for this purpose at least six months after the date of grant of the Option and either (i) six months or (ii) within a window period prior to the date the amount of withholding tax is determined. The Committee may, at any time subsequent to an election under this paragraph, disapprove the election and require satisfaction of withholding taxes by other means permitted under the Plan. Shares withheld or surrendered under this paragraph shall be valued at their Fair Market Value on the date the amount of withholding tax is determined. 10.10 Effective Date of This Plan. This Plan shall be effective February 20, 1995, subject to approval by the shareholder of the Company. 10.11 Law of Delaware. The Plan shall be governed by and construed in accordance with the laws of the state of Delaware. BOISE CASCADE OFFICE PRODUCTS CORPORATION NONSTATUTORY STOCK OPTION AGREEMENT This Nonstatutory Stock Option (the "Option") is granted ____________, 19__, ("Grant Date"), by BOISE CASCADE OFFICE PRODUCTS CORPORATION (the "Company") to ____________________ ("Optionee") pursuant to the Key Executive Stock Option Plan (the "Plan"), a copy of which is attached as Exhibit A, subject to the following terms and conditions. 1. This Agreement is subject to all the terms and conditions of the Plan, and all capitalized terms not otherwise defined in this Agreement shall have the meaning given them in the Plan. 2. The Company hereby grants the Optionee a nonstatutory stock option to purchase up to _________ Shares of stock at a price of $________ per share. 3. The Option shall expire on the first to occur of (a) ten years and one day from the date of this Agreement; (b) five years after Optionee's termination of employment as a result of Retirement, death, or total and permanent disability, provided that Optionee has not, as of the date of the exercise of the Option, commenced employment with any Competitor of the Company; or (c) three years following termination of Optionee's employment with the Company provided (i) the termination is the direct result of the sale or permanent closure of any facility or operating unit of the Company, and (ii) Optionee has not, as of the date of the exercise of the Option, commenced employment with any competitor of the Company; or (d) three months following termination of Optionee's employment with the Company for any other reason, except that the Option shall be canceled in the event of termination of employment for disciplinary reasons. 4. One-third of the Shares of this Option shall be exercisable after one year from the Grant Date; two-thirds of the Shares shall be exercisable after two years from the Grant Date; and all of the Shares shall be exercisable after three years from the Grant Date. In the event of death or disability of the Optionee, all of the Shares may be exercisable after the first anniversary of the date of this agreement. 5. "Competitor" means any business, foreign or domestic, which is engaged at any time relevant to the provisions of this Plan, in the distribution of products or in the providing of services in competition with products sold or distributed, or services provided by the Company. The determination of whether a business is a Competitor shall be made by the Company's General Counsel, in his/her sole discretion. 6. "Employment with any Competitor" means providing significant services as an employee or consultant, or otherwise rendering services of a significant nature for remuneration, to a Competitor. 7. This Option may be exercised from time to time by delivery of written notice to the Company specifying the number of Shares of stock to be purchased. Payment of the Grant Price shall be made as provided in Section 4.4 of the Plan. BOISE CASCADE OFFICE PRODUCTS CORPORATION By ____________________________________________ John Love Vice President, Human Resources Accepted: By ______________________________ Optionee EX-11 3 EXHIBIT 11 BOISE CASCADE OFFICE PRODUCTS CORPORATION COMPUTATION OF PER SHARE EARNINGS For the Three Months Ended March 31 1998 1997 (in thousands, except share information) BASIC EARNINGS PER SHARE Net income $ 17,589 $ 14,909 Shares of Common Stock: Weighted average shares outstanding 65,618,760 62,844,398 Effect of contingent shares 28,180 458,094 65,646,940 63,302,492 Basic earnings per share (1) $ .27 $ .24 DILUTED EARNINGS PER SHARE Net income $ 17,589 $ 14,909 Shares of Common Stock: Weighted average shares outstanding 65,618,760 62,844,398 Effect of contingent shares 28,180 458,094 Effect of options 92,535 142,427 65,739,475 63,444,919 Diluted earnings per share (1) $ .27 $ .23 (1) In 1997, we adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." Earnings per share for 1997 have been restated to reflect SFAS 128. The impact of the adoption was to reduce diluted earnings per share by $.01. EX-27 4
5 The data schedule contains summary financial information extracted from Boise Cascade Office Products Corporation's Balance Sheet at March 31, 1998, and from its Statement of Income for the three months ended March 31, 1998. The information presented is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1998 MAR-31-1998 53,151 0 390,533 7,707 203,733 678,930 352,120 140,054 1,363,922 494,903 307,224 0 0 657 525,311 1,363,922 759,808 759,808 564,230 564,230 159,297 0 6,465 30,239 12,650 17,589 0 0 0 17,589 .27 .27
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