Boise Cascade Company — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. Boise Cascade manufactures engineered wood products and other wood products and distributes building materials. It completed its initial public offering (IPO) in February and converted from an LLC to a corporation.
Financial results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Sales | $744.9 million | $587.0 million |
| Income from operations | $24.6 million | $6.2 million |
| Operating margin | 3.3% | 1.1% |
| Income before taxes | $19.7 million | $1.7 million |
| Net income | $80.8 million | $1.7 million |
| EBITDA | $33.0 million | $14.6 million |
| Cash used for operations | $53.7 million | $10.0 million |
Sales rose 27%, reflecting higher volumes and prices. U.S. housing starts increased 36% year over year. Wood Products sales grew 28% and segment income reached $20.8 million, up from $10.8 million. Building Materials Distribution sales rose 29%; the segment returned to income of $8.0 million from a $0.8 million loss. Its gross margin percentage declined 50 basis points to 11.0%.
Reported net income included a $68.7 million noncash income tax benefit from recognizing net deferred tax assets upon the corporate conversion. Excluding that discrete item, the company reported $7.6 million of income tax expense at a 38.3% effective rate. The prior-year tax comparison is not directly comparable because the company was previously generally treated as a pass-through entity.
Liquidity, debt and cash flow
- Cash and cash equivalents were $233.5 million at quarter-end, versus $54.5 million at December 31, 2012.
- Total debt was $250.0 million: $250.0 million of 6.375% senior notes due November 2020, with no revolver borrowings outstanding. The company reported $290.2 million of revolving-credit availability and $523.8 million of aggregate liquidity including cash.
- Operating cash use of $53.7 million was driven mainly by a $72.8 million working-capital increase and $9.7 million of pension contributions. Capital expenditures were $5.3 million.
- IPO proceeds were $262.7 million net of underwriting discounts and offering expenses. The company used $25.0 million to repay revolver borrowings.
- Stockholders’ equity rose to $449.4 million from $97.8 million at year-end, reflecting the IPO, conversion-related equity changes and quarterly earnings.
Outlook, risks and notable items
- Management expected 2013 U.S. housing starts of about 1.00 million, based on an external consensus forecast, but anticipated demand would remain below the prior 20-year average. Management was optimistic that recent demand improvement would continue, while noting commodity wood-product prices could be volatile.
- The company expects to manage production to sales demand, potentially operating engineered-wood facilities below capacity. It estimated 2013 capital expenditures of $40 million to $45 million, excluding acquisitions.
- Management believed cash, operating cash flows and available borrowing capacity would be adequate for at least the next 12 months to fund operations, debt service, capital expenditures and other obligations.
- Risks include housing-market cyclicality, commodity prices, raw-material and energy costs, customer concentration and creditworthiness, substantial indebtedness, environmental compliance, and reliance on Boise Inc. for administrative services. Two Louisiana collective bargaining agreements covering 639 employees were due to expire July 15, 2013; nonrenewal could disrupt operations or raise costs.
- The company reported no material changes to its previously disclosed risk factors, no material legal or environmental claims, and no material off-balance-sheet arrangements. It reported disclosure controls were effective.
Investor verification priorities
- Separate recurring operating performance and cash generation from the one-time $68.7 million tax benefit; assess cash conversion as working capital expands.
- Track housing starts, product prices and volumes, and whether segment margins hold as commodity prices and input costs change.
- Verify planned capital spending, pension contributions and progress in generating positive operating cash flow.
- Monitor revolver availability, debt service and the July 2013 labor-contract negotiations.
- Review IPO share dilution and ownership: Boise Cascade Holdings retained 68.7% of common stock after the offering.