Boise Cascade Company (NYSE: BCC) — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also reports fourth-quarter results; it is an annual report, not a standalone Q4 filing. Boise Cascade manufactures wood products and distributes building materials, with Wood Products and Building Materials Distribution as its principal segments.
Key financial metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Sales | $3,273.5 million | $2,779.1 million |
| Income from operations | $98.8 million; 3.0% margin | $63.1 million; 2.3% margin |
| Net income | $116.9 million; $2.91 per share | $41.5 million; $1.40 per share |
| EBITDA (non-GAAP) | $136.4 million | $96.6 million |
| Cash from operations | $33.4 million | $77.6 million |
| Cash and cash equivalents, year-end | $118.2 million | $45.9 million |
| Long-term debt, year-end | $301.6 million | $275.0 million |
2013 net income included a $68.7 million deferred-tax benefit recorded upon conversion from an LLC to a corporation. Excluding that discrete benefit, the filing reports income tax expense of $29.9 million and an effective tax rate of 38.2%; net income on that basis was approximately $48.3 million. EBITDA is a company-defined non-GAAP measure and is not a substitute for cash flow or GAAP earnings.
At December 31, 2013, available liquidity was $376.6 million, comprising cash and unused revolving-credit capacity; revolver availability was $258.3 million, with no revolver borrowings outstanding. The company had $300 million face value of 6.375% senior notes due 2020. The 2013 operating cash flow decline reflected, among other items, a $61.3 million working-capital increase and higher cash taxes.
Fourth-quarter results
Fourth-quarter 2013 sales were $798.3 million, operating income was $21.4 million, net income was $9.8 million, and diluted EPS was $0.25. Compared with fourth-quarter 2012, sales of $694.6 million, operating income of $8.6 million, net income of $1.3 million, and EPS of $0.04 improved. Q4 2013 included the acquired Carolina plywood plants.
Changes versus 2012
- Sales rose 18%, supported by higher volumes and prices; U.S. housing starts increased 19% to 0.93 million.
- Wood Products segment income rose to $77.7 million from $55.8 million; Building Materials Distribution segment income rose to $39.9 million from $24.0 million.
- Building Materials Distribution gross margin percentage declined to 10.9% from 11.7%, partly due to a greater commodity-sales mix and a sharp commodity-price decline during Q2.
- Operating cash flow fell to $33.4 million from $77.6 million, despite improved operating results. Investment outflow increased to $146.7 million, primarily reflecting the $103.0 million acquisition and $45.8 million of property and equipment purchases.
- The company completed its February IPO, secondary offerings by its former controlling holder, and a $100 million share repurchase from that holder. The holder retained 19.8% ownership after the transactions.
Outlook, commentary, and risks
- Management cited a February 2014 consensus forecast of approximately 1.11 million U.S. housing starts for 2014, versus 0.93 million in 2013; this was an external consensus forecast, not company earnings guidance.
- Management expected 2014 capital expenditures, excluding acquisitions, of $50 million to $60 million, including approximately $7 million for environmental compliance. Boiler MACT compliance was expected to require $5 million to $10 million of capital over two years.
- Management expected approximately $13 million of 2014 pension contributions. Defined-benefit plans were underfunded by $86.0 million at year-end; pension expense was sensitive to discount rates and investment returns.
- Key risks include cyclical housing demand and commodity prices, wood-fiber availability and cost, competitive pressure, customer concentration, manufacturing interruptions, and the ability to service debt through downturns. Timber supply agreements providing about 28% of 2013 timber supply were due to expire at year-end 2014, subject to extension provisions.
- Home Depot represented about 11% of 2013 sales and 13% of year-end receivables; the top ten customers represented about 30% of sales. Boise Inc., acquired by PCA in October 2013, continued providing administrative services under an agreement currently set to expire in February 2016.
- The filing reports no legal proceedings or environmental claims believed likely to have a material adverse effect. It also reports no material off-balance-sheet arrangements. The company identified no goodwill impairment in its 2013 annual test.
Investor verification priorities
- Separate recurring earnings from the $68.7 million tax benefit; assess the effects of the company’s new corporate tax status.
- Review whether working-capital demands and operating cash generation can support capital spending, pension funding, and debt service.
- Track housing starts, commodity selling prices, timber and other input costs, and the resulting segment margins.
- Confirm renewal or replacement of timber supply agreements expiring in 2014 and evaluate the cost and availability of alternative supply.
- Assess integration and returns from the $103.0 million Carolina plants acquisition, and monitor customer concentration and reliance on outsourced administrative services.
- Review pension assumptions and funding needs, environmental compliance costs, and liquidity/covenant headroom under the revolving facility and senior-note indenture.