Boise Cascade Company — Q1 2014 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2014, compared with Q1 2013. Boise Cascade manufactures wood products and distributes building materials. The Wood Products segment includes two plywood facilities acquired in September 2013; reported results are therefore not fully comparable with the prior year.
Key financial results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Sales | $767.2 million | $744.9 million |
| Income from operations | $14.6 million | $24.6 million |
| Operating margin | 1.9% | 3.3% |
| Net income | $5.6 million | $80.8 million |
| Diluted EPS | $0.14 | $2.15 |
| Net cash used for operations | $24.0 million | $57.4 million |
| Net cash used for capital investment | $8.0 million | $4.8 million |
Sales increased 3%, but management said sales excluding the plywood acquisition were relatively flat. Q1 2013 net income included a $68.7 million deferred-tax benefit recorded after the company converted to a corporation; excluding that discrete benefit, the prior-period tax expense was $7.6 million and the effective rate was 38.3%. The reported year-over-year net income comparison is consequently distorted.
Segments: Wood Products income fell to $13.0 million from $20.8 million; segment EBITDA was $23.0 million versus $27.1 million. Building Materials Distribution income declined to $5.9 million from $8.0 million; EBITDA was $8.2 million versus $10.2 million. Distribution gross margin was 10.6%, down from 11.0%.
Liquidity, debt and balance sheet
- At March 31, cash and equivalents were $86.0 million, versus $118.2 million at year-end. Management attributed the $32.3 million cash decline mainly to seasonal working-capital needs and capital spending.
- Available liquidity was $427.3 million: cash plus $341.3 million of unused revolving-credit availability. The $350 million asset-based revolver had no quarter-end borrowings; letters of credit totaled $8.7 million.
- Long-term debt was $301.6 million, principally $300 million face value of 6.375% senior notes due 2020. Interest expense rose to $5.5 million from $4.9 million.
- Operating cash use reflected working-capital growth, including increases in receivables and inventory. Capital expenditures were $12.5 million; proceeds from asset sales were $4.5 million.
Changes, outlook and risks
- Severe winter weather weakened demand and disrupted transportation in both segments. Q1 U.S. housing starts fell 2% year over year. Management cited lower plywood prices and higher wood-fiber costs as principal pressures on Wood Products results; distribution results were affected by lower sales prices and gross margin.
- A $1.6 million gain on sale of two surplus properties was included in other income. Average composite panel prices were 27% lower and composite lumber prices 5% lower year over year, according to the measures cited in the filing.
- Management expected 2014 housing starts to improve versus 2013, while demand remained below the historical 20-year average; it remained optimistic about an overall demand improvement. It anticipated managing production to sales demand and warned that commodity prices could be volatile.
- Excluding acquisitions, projected 2014 capital expenditures were approximately $50–$60 million. The company expected approximately $13 million of pension contributions for the remainder of 2014.
- Management believed cash, operating cash flows and borrowing availability would be sufficient for at least the next 12 months. Risks include housing-market cyclicality, commodity-price and wood-fiber-cost volatility, weather and transport disruption, customer credit/concentration, substantial debt, pension funding, and operational or regulatory exposures. One customer represented approximately 11% of receivables.
- The company reported no legal or environmental matters it believed would have a material adverse effect, no material off-balance-sheet arrangements, and no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- How much of sales and earnings performance reflects the acquired plywood facilities versus underlying demand and pricing.
- Whether seasonal working-capital needs unwind and operating cash flow improves; Q1 cash use was driven partly by receivables and inventory growth.
- Whether margins recover amid lower plywood prices, elevated wood-fiber costs, and volatile commodity pricing.
- Progress against the $50–$60 million capital-spending estimate and the remaining 2014 pension contribution expectation.
- Revolver availability, debt-service capacity, and the implications of the 6.375% notes due 2020.
- The effects of customer concentration and the March 2014 distribution of Boise Cascade shares by BC Holdings, which left BC Holdings with no shares.