Notes to Consolidated Financial Statements
1.
Nature of Operations and Basis of Presentation
Boise Cascade Company is a building products company headquartered in Boise, Idaho. Our operations began on October 29, 2004 (inception), when we acquired the forest products assets of OfficeMax. As used in these consolidated financial statements, the terms "Boise Cascade," "we," and "our" refer to Boise Cascade Company and its consolidated subsidiaries. We are one of the largest producers of engineered wood products (EWP) and plywood in North America and a leading United States (U.S.) wholesale distributor of building products.
We operate our business using
three
reportable segments: (1) Wood Products, which manufactures EWP, plywood, ponderosa pine lumber, studs, and particleboard, (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, pension plan activity, and foreign currency exchange gains and losses. For more information, see Note 14, Segment Information.
2.
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Boise Cascade and its subsidiaries. Intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) 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, medical, and workers' compensation benefits; stock-based compensation; fair value measurements; 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.
Revenue Recognition
We recognize revenue when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our price to the buyer is fixed or determinable, and collectibility is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. The timing of revenue recognition is dependent on shipping terms. Revenue is recorded at the time of shipment for terms designated free on board (fob) shipping point. For sales transactions designated fob destination, revenue is recorded when the product is delivered to the customer's delivery site.
Fees for shipping and handling charged to customers for sales transactions are included in "Sales." For our Wood Products segment, costs related to shipping and handling are included in "Materials, labor, and other operating expenses (excluding depreciation)." In our Wood Products segment, we view our shipping and handling costs as a cost of the manufacturing process and the movement of product to our end customers. For our Building Materials Distribution segment, costs related to shipping and handling of
$121.6 million
,
$109.2 million
, and
$104.8 million
are included in "Selling and distribution expenses" for the years ended
December 31, 2016
,
2015
, and
2014
, respectively. In our Building Materials Distribution segment, our activities relate to the purchase and resale of finished product, and excluding shipping and handling costs from “Materials, labor, and other operating expenses (excluding depreciation)” provides us a clearer view of our operating performance and the effectiveness of our sales and purchasing functions.
Cash and Cash Equivalents
Cash equivalents consist of short-term investments that have a maturity of three months or less at the date of purchase. At
December 31, 2016
and
2015
, the majority of our cash and cash equivalents were invested in money market funds that are broadly diversified and invested in high-quality, short-duration securities, including commercial paper, certificates of deposit, U.S. government agency securities, and similar instruments. We have significant amounts of cash and cash equivalents that are in excess of federally insured limits. Though we have not experienced any losses on our cash and cash equivalents to date and we do not anticipate incurring any losses, we cannot be assured that we will not experience losses on our cash and cash equivalents.
Trade Accounts Receivables and Allowance for Doubtful Accounts
Trade accounts receivable are stated at the amount we expect to collect. Trade accounts receivable do not bear interest. We make ongoing estimates relating to the collectibility of our accounts receivable and maintain a reserve for estimated losses resulting from the inability of our customers to meet their financial obligations to us. At
December 31, 2016
and
2015
, we had
$1.5 million
and
$1.7 million
, respectively, recorded as allowances for doubtful accounts. In determining the amount of the reserve and in order to manage credit risk, we consider our historical level of credit losses, customer concentrations, and current economic trends and monitor the creditworthiness of significant customers based on ongoing credit evaluations. Our sales are principally to customers in the building products industry located in the U.S. and Canada. A significant portion of our sales are concentrated with a relatively small number of customers. In
2016
, our top ten customers represented approximately
33%
of sales. At
December 31, 2016
, receivables from two customers accounted for approximately
11%
and
12%
, respectively, of total receivables. At
December 31, 2015
, receivables from two customers each accounted for approximately
10%
of total receivables. No other customer accounted for 10% or more of total receivables. Adjustments to the valuation allowance are charged to income. Trade accounts receivable balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Although we have not experienced material credit losses in recent years, our actual future losses from uncollectible accounts may differ materially from our current estimates. As additional information becomes known, we may change our estimates. In the event we determine that a change in the reserve is appropriate, we will record a charge to "Selling and distribution expenses" in our Consolidated Statements of Operations in the period we make such a determination.
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 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). See Note 9, Retirement and Benefit Plans, for the fair value measurements of our defined benefit plans' assets.
Financial Instruments
Our financial instruments are cash and cash equivalents, accounts receivable, accounts payable, long-term debt, and interest rate swaps. Our cash is recorded at cost, which approximates fair value, and our cash equivalents are money market funds measured at fair value. As of
December 31, 2016
and
2015
, we held
$78.1 million
and
$170.2 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
December 31, 2016
and
2015
, the book value of our fixed-rate debt was
$350.0 million
and
$300.0 million
, respectively, and the fair value was estimated to be
$347.4 million
and
$309.0 million
, respectively. 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 of our fixed-rate debt using quoted market prices of our debt in inactive markets (Level 2 inputs). The interest rate on our term loans is based on market conditions such as the London Interbank Offered Rate (LIBOR) or a base rate. Because the interest rate on the term loans is based on current market conditions, we believe that the estimated fair value of the outstanding balance on our term loans approximates book value.
We are exposed to financial risks such as changes in interest rates, foreign currency exchange rates, and commodity price risk. We employ a variety of practices to manage these risks, including operating and financing activities and, where deemed appropriate, the use of derivative instruments. As discussed in Note 13, Financial Instrument Risk, we use interest rate swaps to mitigate our variable interest rate exposure, the fair value of which is measured based on Level 2 inputs.
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
December 31, 2016
and
2015
, we had
$7.0 million
and
$7.7 million
, respectively, of vendor rebates and allowances recorded in "Receivables, Other" on the 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
December 31, 2016
and
2015
, we had
$31.6 million
and
$27.7 million
, respectively, of rebates payable to our customers recorded in "Accrued liabilities, Other" on our Consolidated Balance Sheets.
Foreign Currency
The functional currency for our operations outside the United States is the U.S. dollar. Nonmonetary assets and liabilities and related depreciation and amortization for these foreign operations are remeasured into U.S. dollars using historical exchange rates. Monetary assets and liabilities are remeasured into U.S. dollars using the exchange rates as of the Consolidated Balance Sheet date. Revenue and expense items are remeasured into U.S. dollars using an average exchange rate prevailing during the year.
Leases
We assess lease classification as either capital or operating at lease inception or upon modification. We lease a portion of our distribution centers as well as other property and equipment under operating leases. Substantially all lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to purchase the leased property. Additionally, some agreements contain renewal options generally ranging from one to ten years, with fixed payment terms similar to those in the original lease agreements. 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.
Inventory Valuation
Inventories are valued at the lower of cost or market. Cost is based on the first-in, first-out (FIFO) method of inventory valuation or average cost. Wholesale distribution inventories include costs incurred in bringing inventory to its existing location. Manufactured inventories include costs for materials, labor, and factory overhead. Log inventories include costs to harvest and deliver the logs.
Inventories included the following (work in process is not material):
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|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
|
(thousands)
|
Finished goods and work in process
|
|
$
|
330,026
|
|
|
$
|
292,826
|
|
Logs
|
|
63,208
|
|
|
58,299
|
|
Other raw materials and supplies
|
|
40,217
|
|
|
33,732
|
|
|
|
$
|
433,451
|
|
|
$
|
384,857
|
|
Property and Equipment
Property and equipment are recorded at cost. Cost includes expenditures for major improvements and replacements and the amount of interest cost associated with significant capital additions. For the years ended
December 31, 2016
,
2015
, and
2014
, we did not capitalize any interest. We expense all repair and maintenance costs as incurred. When property and equipment are retired, sold, or otherwise disposed of, the asset's carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in income (loss). We use the straight-line method of depreciation.
Property and equipment consisted of the following asset classes with the following general range of estimated useful lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
General Range of Estimated Useful Lives in Years
|
|
|
(thousands)
|
|
|
|
|
Land
|
|
$
|
38,700
|
|
|
$
|
36,876
|
|
|
|
|
|
Buildings
|
|
136,087
|
|
|
106,269
|
|
|
20
|
|
-
|
40
|
Improvements
|
|
50,655
|
|
|
46,205
|
|
|
10
|
|
-
|
15
|
Mobile equipment, information technology, and office furniture
|
|
125,486
|
|
|
109,702
|
|
|
3
|
|
-
|
7
|
Machinery and equipment
|
|
613,060
|
|
|
437,433
|
|
|
7
|
|
-
|
12
|
Construction in progress
|
|
34,877
|
|
|
34,661
|
|
|
|
|
|
|
|
998,865
|
|
|
771,146
|
|
|
|
|
|
Less accumulated depreciation
|
|
(430,163
|
)
|
|
(368,480
|
)
|
|
|
|
|
|
|
$
|
568,702
|
|
|
$
|
402,666
|
|
|
|
|
|
As of
December 31, 2016
, property and equipment includes two EWP facilities acquired by us on March 31, 2016. For more information, see Note 5, Acquisitions.
Long-Lived Asset Impairment
We review long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. An impairment of long-lived assets exists when the carrying value is not recoverable through future undiscounted cash flows from operations and when the carrying value of an asset or asset group exceeds its fair value.
Goodwill and Intangible Assets
We maintain two reporting units for purposes of our goodwill impairment testing, Wood Products and Building Materials Distribution, which are the same as our operating segments discussed in Note 14, Segment Information. We test goodwill in each of our reporting units and intangible assets with indefinite lives for impairment annually in the fourth quarter or sooner if events or changes in circumstances indicate that the carrying value of the asset may exceed fair value. We also evaluate the remaining useful lives of our finite-lived purchased intangible assets to determine whether any adjustments to the useful lives are necessary.
We completed our annual assessment of goodwill in fourth quarter
2016
using a qualitative approach. The qualitative goodwill impairment assessment requires evaluating factors, based on the weight of evidence, to determine whether a reporting unit's carrying value would more likely than not exceed its fair value. As part of our goodwill qualitative testing process for each reporting unit, we evaluate various factors that are specific to the reporting unit as well as industry and macroeconomic factors in order to determine whether it is reasonably likely to have a material impact on the fair value of our reporting units. Examples of the factors that were considered include the results of the most recent quantitative impairment test, current and long-term forecasted financial results, changes in the discount rate between current and prior years, and operating strategy for each reporting unit. Based on the qualitative analysis performed in
2016
, we concluded that there were no changes that were reasonably likely to cause the fair value of the reporting units to be less than the reporting units' carrying value and determined that there was no impairment of our goodwill. In the event we were to determine that a reporting unit's carrying value would
more likely than not exceed its fair value, quantitative testing would be performed comparing carrying values to estimated fair values.
For our intangible asset impairment testing, we use a discounted cash flow approach, based on a relief from royalty method (Level 3 measurement). This method assumes that, through ownership of trademarks and trade names, we avoid royalty expenses associated with licensing, resulting in cost savings. An estimated royalty rate, determined as a percentage of the related net sales, is used to estimate the value of the intangible assets. Based on the impairment tests of our intangible assets with indefinite lives performed in fourth quarter
2016
, we determined that the fair value of our intangible assets exceeds their carrying value.
See Note 6, Goodwill and Intangible Assets, for additional information.
Asset Retirement Obligations
We recognize our asset retirement obligations in the period in which they are incurred if sufficient information is available to reasonably estimate the fair value of the obligation. Fair value estimates are determined using Level 3 inputs in the fair value hierarchy. The fair values of our asset retirement obligations are measured using expected future cash outflows discounted using the company's credit-adjusted risk-free interest rate. When we record the liability, we capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its settlement value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, we will recognize a gain or loss for any difference between the settlement amount and the liability recorded.
At
December 31, 2016
and
2015
, we had
$1.0 million
and
$0.2 million
, respectively, of asset retirement obligations recorded in "Other long-term liabilities" on our Consolidated Balance Sheets. At
December 31, 2016
, these liabilities related primarily to a waste treatment pond and landfill closure costs. The liabilities are based on the best estimate of current costs and are updated periodically to reflect current technology, laws and regulations, inflation, and other economic factors. We do not have any assets legally restricted for purposes of settling asset retirement obligations.
We have additional asset retirement obligations with indeterminate settlement dates. The fair value of these asset retirement obligations cannot be estimated due to the lack of sufficient information to estimate the settlement dates of the obligations. These asset retirement obligations include, for example, (i) removal and disposal of potentially hazardous materials on equipment and/or an operating facility if the equipment and/or facility were to undergo major maintenance, renovation, or demolition; (ii) retention ponds that may be required to be drained and/or cleaned if the related operating facility is closed; and (iii) storage sites or owned facilities for which removal and/or disposal of chemicals and other related materials are required if the operating facility is closed. We will recognize a liability in the period in which sufficient information becomes available to reasonably estimate the fair value of these obligations.
Pension Benefits
Several estimates and assumptions are required to record pension costs and liabilities, including discount rates, expected return on plan assets, expected rate of compensation increases, retirement and mortality rates, expected contributions, and other factors. We review and update these assumptions annually unless a plan curtailment or other event occurs requiring that we update the estimates on an interim basis. See Note 9, Retirement and Benefit Plans, for additional information related to our pension plan. While we believe that the assumptions used to measure our pension obligations are reasonable, differences in actual experience or changes in assumptions may materially affect our pension obligations and future expense.
Deferred Software Costs
We defer internal-use software costs that benefit future years. These costs are amortized using the straight-line method over the expected life of the software, typically
three
to
five
years. "Other assets" in the Consolidated Balance Sheets includes
$6.5 million
of deferred software costs at both
December 31, 2016
and
2015
. We amortized
$2.1 million
,
$1.6 million
, and
$1.3 million
of deferred software costs for the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
Labor Concentration and Unions
As of
December 31, 2016
, we had approximately
6,210
employees. Approximately
24%
of these employees work pursuant to collective bargaining agreements. As of
December 31, 2016
, we had
nine
collective bargaining agreements.
Four
agreements, covering approximately
658
employees at our Elgin plywood plant and sawmill, La Grande particleboard plant, Kettle Falls plywood plant, and Woodinville BMD facility, originally expired on May 31, 2016, but were subsequently renewed
in January 2017. In addition, we have
two
agreements, covering approximately
47
employees at our Billings BMD facility and Vancouver BMD facility, that are scheduled to expire on March 31, 2017, as well as an agreement, covering approximately
712
employees at our Oakdale and Florien plywood plants, that is scheduled to expire on July 15, 2017. We also have an agreement, covering approximately
87
employees at our Canadian EWP facility that is scheduled to expire on December 31, 2017. If these agreements are not renewed or extended upon their termination, we could experience a material labor disruption or significantly increased labor costs, which could prevent us from meeting customer demand or reduce our sales and profitability.
Self-Insurance
We are self-insured for certain losses related to workers' compensation and medical claims as well as general and auto liability. The expected ultimate costs for claims incurred are recognized as liabilities in the Consolidated Balance Sheets and are estimated based principally on an analysis of historical claims data and estimates of claims incurred but not reported. Losses are accrued and charged to operations when it is probable that a loss has been incurred and the amount can be reasonably estimated. We maintain third-party stop-loss insurance policies to cover these liability costs in excess of predetermined retained amounts. Costs related to the administration of the plans and related claims are expensed as incurred. At
December 31, 2016
and
2015
, self-insurance related liabilities of
$8.4 million
and
$9.7 million
, respectively, were classified within "Accrued liabilities," and
$10.0 million
and
$9.8 million
, respectively, were classified within "Other long-term liabilities" on our Consolidated Balance Sheets.
New and Recently Adopted Accounting Standards
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
. This ASU is intended to simplify the accounting for goodwill impairment by removing the requirement to perform a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which the reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. This new standard will be applied prospectively and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted after January 1, 2017. We do not expect this guidance to have a material effect on our financial statements.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
. This ASU is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This new standard is effective for annual periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. We are evaluating the effect that this guidance will have on our consolidated statements of cash flows.
In March 2016, the FASB issued ASU 2016-09,
Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This new standard is effective for annual periods beginning after December 15, 2016, and interim periods within that reporting period. We will adopt this standard in the first quarter of 2017, under the modified retrospective method, with the cumulative effect of adoption recorded as an adjustment to 2017 beginning retained earnings. The new standard will result in excess tax benefits and deficiencies on share-based transactions being recorded as income tax expense or benefit rather than in additional-paid-in-capital. We will also classify excess tax benefits on share-based payments in the operating section of our consolidated statement of cash flows. Furthermore, we expect to record an adjustment to beginning retained earnings of approximately
$0.2 million
as we have made an election to account for share-based award forfeitures as they occur, rather than making estimates of future forfeitures.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. This amendment requires a lessee to recognize substantially all leases (whether operating or finance leases) on the balance sheet as a right-of-use asset and an associated lease liability. Short-term leases of 12 months or less are excluded from this amendment. For leases defined as finance leases under the new standard, the lessee subsequently recognizes interest expense and amortization of the right-of-use asset, similar to accounting for capital leases under current GAAP. For leases defined as operating leases under the new standard, the lessee subsequently recognizes straight-line lease expense over the life of the lease. This new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The guidance is to be applied using a modified retrospective transition method with the option to elect a package of practical expedients. The adoption of this ASU will result in a significant increase to our balance sheet for lease liabilities and
right-of-use assets, which has not yet been quantified. We are currently evaluating this and the other effects of this ASU on our financial statements.
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
. This ASU requires entities to measure most inventory "at the lower of cost or net realizable value," thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. The new standard is effective for annual and interim reporting periods beginning after December 15, 2016. We will adopt this standard in first quarter of 2017 and do not expect this guidance to have a material effect on our financial statements.
In May 2015, the FASB issued ASU 2015-07,
Fair Value Measurement (Topic 820): Disclosures of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).
This ASU removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. This ASU also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. We adopted the new standard on January 1, 2016 although there was no effect on our interim reporting periods. The adoption of this standard had no impact on our financial statements except for certain pension asset disclosures in "Fair Value Measurements of Plan Assets" of Note 9, Retirement and Benefit Plans.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. This ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The guidance also requires additional disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Furthermore, numerous updates were issued in 2016 that provide clarification on a number of specific issues. The new standard is effective for annual and interim reporting periods beginning after December 15, 2017 and we currently anticipate adopting it effective January 1, 2018. The standard permits the use of either the retrospective or cumulative effect transition method. We are still evaluating the transition method we will elect upon implementation. As a result of our preliminary assessment, we do not anticipate a material impact on the revenue recognition practices of our Building Materials Distribution segment. We have not yet completed our preliminary assessment of the revenue recognition practices of our Wood Products segment. We continue to evaluate the standard as well as additional changes, modifications or interpretations which may impact our current conclusions.
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.
Reclassifications
Certain amounts in prior years' consolidated financial statements have been reclassified to conform with current year's presentation, none of which were considered material.
3.
Income Taxes
Income Tax Provision
Income before income taxes includes the following components:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(thousands)
|
Domestic
|
|
$
|
41,703
|
|
|
$
|
79,414
|
|
|
$
|
122,727
|
|
Foreign
|
|
1,598
|
|
|
1,268
|
|
|
578
|
|
Income before income taxes
|
|
$
|
43,301
|
|
|
$
|
80,682
|
|
|
$
|
123,305
|
|
The income tax provision shown in the Consolidated Statements of Operations includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(thousands)
|
Current income tax provision (benefit)
|
|
|
|
|
|
|
Federal
|
|
$
|
10,664
|
|
|
$
|
(2,938
|
)
|
|
$
|
27,568
|
|
State
|
|
2,201
|
|
|
555
|
|
|
5,023
|
|
Foreign
|
|
5
|
|
|
—
|
|
|
—
|
|
Total current
|
|
12,870
|
|
|
(2,383
|
)
|
|
32,591
|
|
|
|
|
|
|
|
|
Deferred income tax provision (benefit)
|
|
|
|
|
|
|
Federal
|
|
2,549
|
|
|
27,011
|
|
|
9,740
|
|
State
|
|
(1,536
|
)
|
|
3,872
|
|
|
965
|
|
Foreign
|
|
(8,836
|
)
|
|
—
|
|
|
—
|
|
Total deferred
|
|
(7,823
|
)
|
|
30,883
|
|
|
10,705
|
|
Income tax provision
|
|
$
|
5,047
|
|
|
$
|
28,500
|
|
|
$
|
43,296
|
|
The effective tax rate varies from the U.S. Federal statutory income tax rate principally due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(thousands, except percentages)
|
Income before income taxes
|
|
$
|
43,301
|
|
|
$
|
80,682
|
|
|
$
|
123,305
|
|
Statutory U.S. income tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
|
|
|
|
|
|
Statutory tax provision
|
|
$
|
15,155
|
|
|
$
|
28,239
|
|
|
$
|
43,157
|
|
State taxes
|
|
1,370
|
|
|
3,006
|
|
|
4,097
|
|
Domestic production activities deduction
|
|
(165
|
)
|
|
(299
|
)
|
|
(2,031
|
)
|
Unrecognized tax benefits
|
|
1,717
|
|
|
433
|
|
|
313
|
|
Change in valuation allowance
|
|
(9,884
|
)
|
|
—
|
|
|
—
|
|
Tax credits
|
|
(2,904
|
)
|
|
(2,043
|
)
|
|
(2,581
|
)
|
Other
|
|
(242
|
)
|
|
(836
|
)
|
|
341
|
|
Total
|
|
$
|
5,047
|
|
|
$
|
28,500
|
|
|
$
|
43,296
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
11.7
|
%
|
|
35.3
|
%
|
|
35.1
|
%
|
During the years ended
December 31, 2016
,
2015
, and
2014
, cash paid for taxes, net of refunds received, was
$6.7 million
,
$0.7 million
, and
$40.3 million
, respectively.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The components of our net deferred tax assets and liabilities at
December 31, 2016
and
2015
, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
|
(thousands)
|
Deferred tax assets
|
|
|
|
|
Employee benefits
|
|
$
|
54,895
|
|
|
$
|
52,840
|
|
Inventories
|
|
5,237
|
|
|
6,618
|
|
Foreign net operating loss carryforward
|
|
5,383
|
|
|
5,440
|
|
Other
|
|
7,628
|
|
|
8,070
|
|
Gross deferred tax assets
|
|
73,143
|
|
|
72,968
|
|
Valuation allowance (a)
|
|
—
|
|
|
(9,884
|
)
|
Net deferred tax assets
|
|
$
|
73,143
|
|
|
$
|
63,084
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
Property and equipment
|
|
$
|
62,948
|
|
|
$
|
56,061
|
|
Intangible assets and other
|
|
5,039
|
|
|
5,264
|
|
Other
|
|
2,655
|
|
|
851
|
|
Deferred tax liabilities
|
|
$
|
70,642
|
|
|
$
|
62,176
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
2,501
|
|
|
$
|
908
|
|
______________________________________
|
|
(a)
|
As of
December 31, 2016
and
2015
, the deferred tax assets in our foreign subsidiaries were primarily the result of net operating losses. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. During fourth quarter 2016, because we achieved three years of cumulative pretax income in the Canadian tax jurisdiction and due to the implementation of a tax-planning strategy, management determined that there is sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets are realizable and therefore released the valuation allowance in the amount of
$9.9 million
.
|
As of
December 31, 2016
, we have foreign net operating loss carryforwards of
$24.0 million
, which if unused, will expire in years 2026 through 2036. The foreign net operating loss carryforwards in the income tax returns filed included unrecognized tax benefits. The deferred tax assets recognized for those net operating losses are presented net of these unrecognized tax benefits. We have state income tax credits totaling
$1.4 million
as of
December 31, 2016
, which if unused will expire in years 2020-2026.
Income Tax Uncertainties
The following table summarizes the changes related to our gross unrecognized tax benefits excluding interest and penalties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(thousands)
|
Balance as of January 1
|
|
$
|
878
|
|
|
$
|
309
|
|
|
$
|
—
|
|
Increases related to prior years' tax positions
|
|
1,657
|
|
|
431
|
|
|
172
|
|
Increases related to current year tax positions
|
|
104
|
|
|
145
|
|
|
137
|
|
Decreases related to prior years' tax positions
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
Settlements
|
|
(415
|
)
|
|
—
|
|
|
—
|
|
Balance as of December 31
|
|
$
|
2,224
|
|
|
$
|
878
|
|
|
$
|
309
|
|
As of
December 31, 2016
,
2015
and
2014
, we had
$2.2 million
,
$0.9 million
, and
$0.3 million
respectively, of unrecognized tax benefits recorded on our Consolidated Balance Sheets, excluding interest and penalties. Of the total unrecognized tax benefits recorded,
$2.1 million
,
$0.7 million
, and
$0.3 million
(net of the federal benefit for state taxes), respectively, would impact the effective tax rate if recognized.
We recognize interest and penalties related to uncertain tax positions as income tax expense in our Consolidated Statements of Operations. For the years ended
December 31, 2016
,
2015
, and
2014
, we recognized an insignificant amount of interest and penalties related to taxes. 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. We do not expect the unrecognized tax benefits to change significantly over the next twelve months.
We file federal income tax returns in the U.S. and various state and foreign jurisdictions. Tax years 2013 to present remain open to examination in the U.S. and tax years 2012 to present remain open to examination in Canada and various states. We recorded net operating losses in Canada beginning in 2006 that are subject to examinations and adjustments up to four years following the year in which they are utilized.
|
|
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. Weighted average common shares outstanding for the basic net income per common share calculation includes certain vested restricted stock units (RSUs) as there are no conditions under which those shares will not be issued. For more information about common share activity during the period, see Note 11, 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, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
2016
|
|
2015
|
|
2014
|
|
(thousands, except per-share data)
|
Net income
|
$
|
38,254
|
|
|
$
|
52,182
|
|
|
$
|
80,009
|
|
Weighted average common shares outstanding during the period (for basic calculation)
|
38,761
|
|
|
39,239
|
|
|
39,412
|
|
Dilutive effect of other potential common shares
|
164
|
|
|
116
|
|
|
80
|
|
Weighted average common shares and potential common shares (for diluted calculation)
|
38,925
|
|
|
39,355
|
|
|
39,492
|
|
|
|
|
|
|
|
Net income per common share - Basic
|
$
|
0.99
|
|
|
$
|
1.33
|
|
|
$
|
2.03
|
|
Net income per common share - Diluted
|
$
|
0.98
|
|
|
$
|
1.33
|
|
|
$
|
2.03
|
|
The computation of the dilutive effect of other potential common shares excludes stock awards representing
0.2 million
,
0.1 million
, and
0.2 million
shares of common stock in the years ended
December 31, 2016
,
2015
, and
2014
, respectively. Under the treasury stock method, the inclusion of these stock awards would have been antidilutive.
5.
Acquisitions
On March 31, 2016, our wholly owned subsidiary, Boise Cascade Wood Products, L.L.C., completed the acquisition of Georgia-Pacific LLC's and certain of its affiliates' (collectively, GP) EWP facilities located in Thorsby, Alabama, and Roxboro, North Carolina, for an aggregate purchase price of
$215.9 million
, including a post-closing adjustment of
$0.3 million
based upon a working capital target (the Acquisition). We funded the Acquisition and related costs with cash on hand, a new
$75.0 million
term loan, and a
$55.0 million
draw under our revolving credit facility. For additional information on the new term loan and draw under our revolving credit facility, see Note 7, Debt. Acquisition-related costs of
$3.6 million
are recorded in "General and administrative expenses" in our Consolidated Statements of Operations for the year ended December 31, 2016.
These facilities complement our existing EWP business and position us to support customers as the U.S. housing recovery continues in the years ahead. The additional EWP capacity will also help us cost effectively deliver products to our customers in the eastern and southeastern U.S. Sales, including sales to our Building Materials Distribution segment, and net operating loss (excluding sales and marketing costs) from these facilities of
$68.3 million
and
$2.4 million
, respectively, were reported as part of the Wood Products segment for the period from April 1, 2016 through December 31, 2016.
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 additional capacity and an assembled workforce in key product lines to serve future and existing customers. The facilities are geographically located in a high growth housing area that allows us to optimize our mill system and realize freight and other cost synergies. All of the goodwill was assigned to the Wood Products segment and is deductible for U.S. income tax purposes.
The following table summarizes the final allocations of the purchase price to the assets acquired and liabilities assumed, based on our estimates of the fair value at the date of the Acquisition:
|
|
|
|
|
|
|
|
Acquisition Date Fair Value
|
|
|
(thousands)
|
Accounts receivable
|
|
$
|
10,467
|
|
Inventories
|
|
17,837
|
|
Property and equipment
|
|
149,135
|
|
Other assets
|
|
619
|
|
Intangible assets:
|
|
|
Customer relationships
|
|
6,000
|
|
Goodwill
|
|
33,610
|
|
Assets acquired
|
|
217,668
|
|
|
|
|
Accrued liabilities
|
|
1,768
|
|
Liabilities assumed
|
|
1,768
|
|
|
|
|
Net assets acquired
|
|
$
|
215,900
|
|
Pro Forma Financial Information
The following pro forma financial information gives effect to the Acquisition as if it had occurred on January 1, 2015. The pro forma financial information also gives effect to the issuance of a
$75.0 million
term loan due March 30, 2026 and a
$55.0 million
draw under our revolving credit facility incurred to partially finance the Acquisition, as if such transactions had occurred on January 1, 2015. The pro forma results are intended for informational purposes only and do not purport to represent what our results of operations would actually have been had the Acquisition and related financing transactions occurred on January 1, 2015. They also do not reflect any revenue enhancements or cost savings, operating synergies, customer attrition, or incremental depreciation upon the restart of laminated veneer lumber assets at Roxboro.
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
|
(unaudited, thousands, except per-share data)
|
Sales
|
|
$
|
3,938,409
|
|
|
$
|
3,726,477
|
|
Net income (a)
|
|
$
|
41,400
|
|
|
$
|
54,425
|
|
Net income per common share - Basic
|
|
$
|
1.07
|
|
|
$
|
1.39
|
|
Net income per common share - Diluted
|
|
$
|
1.06
|
|
|
$
|
1.38
|
|
______________________________________
|
|
(a)
|
The pro forma financial information for the years ended December 31, 2016 and 2015, was adjusted to exclude
$3.6 million
and
$1.6 million
, respectively, of pre-tax acquisition-related costs for legal, accounting, and other advisory-related services.
|
|
|
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, 2015
|
|
$
|
5,593
|
|
|
$
|
16,230
|
|
|
$
|
—
|
|
|
$
|
21,823
|
|
Additions
|
|
—
|
|
|
33,610
|
|
(a)
|
—
|
|
|
33,610
|
|
Balance at December 31, 2016
|
|
$
|
5,593
|
|
|
$
|
49,840
|
|
|
$
|
—
|
|
|
$
|
55,433
|
|
______________________________________
|
|
(a)
|
Represents the acquisition of GP's two EWP facilities. For additional information, see Note 5, Acquisitions.
|
At
December 31, 2016
and
2015
, intangible assets represent the values assigned to trade names and trademarks and customer relationships. The trade names and trademarks have indefinite lives and are not amortized. The weighted-average useful life for customer relationships from the date of purchase is approximately
11
years. Amortization expense is expected to be approximately
$0.7 million
per year for the next five years.
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
|
(thousands)
|
Trade names and trademarks
|
|
$
|
8,900
|
|
|
$
|
—
|
|
|
$
|
8,900
|
|
Customer relationships
|
|
7,400
|
|
|
(753
|
)
|
|
6,647
|
|
|
|
$
|
16,300
|
|
|
$
|
(753
|
)
|
|
$
|
15,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
|
(thousands)
|
Trade names and trademarks
|
|
$
|
8,900
|
|
|
$
|
—
|
|
|
$
|
8,900
|
|
Customer relationships
|
|
1,400
|
|
|
(210
|
)
|
|
1,190
|
|
|
|
$
|
10,300
|
|
|
$
|
(210
|
)
|
|
$
|
10,090
|
|
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
December 31,
2015
|
|
|
(thousands)
|
Asset-based revolving credit facility
|
|
$
|
—
|
|
|
$
|
—
|
|
Asset-based credit facility term loan
|
|
50,000
|
|
|
50,000
|
|
Term loan
|
|
45,000
|
|
|
—
|
|
6.375% senior notes
|
|
—
|
|
|
299,990
|
|
Unamortized premium on 6.375% senior notes
|
|
—
|
|
|
1,215
|
|
5.625% senior notes due 2024
|
|
350,000
|
|
|
—
|
|
Deferred financing costs
|
|
(7,371
|
)
|
|
(6,616
|
)
|
Long-term debt
|
|
$
|
437,629
|
|
|
$
|
344,589
|
|
At
December 31, 2016
, the maturities for the aggregate amount of long-term debt outstanding were as follows (in thousands):
|
|
|
|
|
|
2017
|
|
$
|
—
|
|
2018
|
|
—
|
|
2019
|
|
—
|
|
2020
|
|
—
|
|
2021
|
|
—
|
|
Thereafter
|
|
445,000
|
|
Asset-Based Credit Facility
On May 15, 2015, Boise Cascade and its principal operating subsidiaries, Boise Cascade Wood Products, L.L.C., and Boise Cascade Building Materials Distribution, L.L.C., as borrowers, and Boise Cascade Wood Products Holdings Corp., Chester Wood Products LLC, and Moncure Plywood LLC, as guarantors, entered into an Amended and Restated Credit Agreement (Amended Agreement) with Wells Fargo Capital Finance, LLC, as administrative agent, and the banks named therein as lenders. The Amended Agreement includes a
$350 million
senior secured asset-based revolving credit facility (Revolving Credit Facility) maturing on April 30, 2020 and a
$50.0 million
term loan (ABL Term Loan) maturing on May 1, 2022. Interest on borrowings under our Revolving Credit Facility and ABL Term Loan are payable monthly. Borrowings under the Amended Agreement 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 February 11, 2016, we entered into the second amendment to the Amended Agreement so that the LIBOR rate for the ABL Term Loan is determined and adjusted on a monthly basis rather than a daily basis. On June 30, 2016, we entered into a joinder and revolver increase agreement that increased the aggregate revolving commitments from
$350 million
to
$370 million
. Also on June 30, 2016, we entered into the third amendment to the Amended Agreement to make certain modifications to the definition of eligible accounts in the Amended Agreement to increase the concentration limit related to certain accounts owed to the borrowers for purposes of determining borrowing base. Furthermore, on December 8, 2016, we entered into the fourth amendment to the Amended Agreement to increase our ability to issue other unsecured indebtedness to
$100 million
from
$25 million
provided that we are in compliance with certain financial covenants after giving effect to the debt incurrence on a pro forma basis.
The Amended Agreement 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.
The Amended Agreement 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 Amended Agreement also contains a requirement that
we meet a
1
:1 fixed-charge coverage ratio (FCCR), applicable only if Availability falls below
10%
of the aggregate revolving lending commitments (or
$37 million
). Availability exceeded the minimum threshold amounts required for testing of the FCCR at all times since entering into the Amended Agreement, and Availability at
December 31, 2016
, was
$297.2 million
.
The Amended Agreement generally permits dividends only if certain conditions are met, including complying with either (i) pro forma Excess Availability (as defined in the Amended Agreement) equal to or exceeding
25%
of the aggregate Revolver Commitments (as defined in the Amended Agreement) 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.
Revolving Credit Facility
Interest rates under the Revolving Credit Facility are based, at our election, on either LIBOR or a base rate, as defined in the Amended Agreement, plus a spread over the index elected that ranges from
1.25%
to
1.75%
for loans based on LIBOR and from
0.25%
to
0.75%
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.
At both
December 31, 2016
and
2015
, we had
no
borrowings outstanding under the Revolving Credit Facility and
$5.9 million
and
$5.6 million
, respectively, of letters of credit outstanding. These letters of credit and borrowings, if any, reduce Availability under the Revolving Credit Facility by an equivalent amount. During the year ended
December 31, 2016
, the minimum and maximum borrowings under the Revolving Credit Facility were
zero
and
$101.5 million
, respectively, and the average interest rate on borrowings was approximately
1.72%
.
ABL Term Loan
The ABL Term Loan was provided by institutions within the Farm Credit system. Borrowings under the ABL Term Loan may be repaid from time to time at the discretion of the borrowers without premium or penalty. However, any principal amount of ABL Term Loan repaid, may not be subsequently re-borrowed.
Interest rates under the ABL Term Loan are based, at our election, on either LIBOR or a base rate, as defined in the Amended Agreement, plus a spread over the index elected that ranges from
1.75%
to
2.25%
for LIBOR rate loans and from
0.75%
to
1.25%
for base rate loans, both dependent on the amount of Average Excess Availability (as defined in the Amended Agreement). During the year ended
December 31, 2016
, the average interest rate on the ABL Term Loan was approximately
2.23%
.
We have received and expect to continue receiving patronage credits under the ABL Term Loan. Patronage credits are distributions of profits from banks in the Farm Credit system, which are cooperatives that are required to distribute profits to their members. Patronage distributions, which are generally made in cash, are received in the year after they are earned. Patronage credits are recorded as a reduction to interest expense in the year earned. After giving effect to expected patronage distributions, the effective net interest rate on the ABL Term Loan was approximately
1.5%
.
Term Loan
On March 30, 2016 (Closing Date), Boise Cascade and its principal operating subsidiaries, Boise Cascade Wood Products, L.L.C., and Boise Cascade Building Materials Distribution, L.L.C., as borrowers, and the guarantors party thereto, entered into a term loan agreement (Term Loan Agreement) with American AgCredit, PCA, as administrative agent and sole lead arranger, and other banks in the Farm Credit system named therein as lenders. The Term Loan Agreement was for a
$75.0 million
secured term loan (Term Loan). The outstanding principal balance of the Term Loan amortizes and is payable in equal installments of
$10 million
per year on each of the sixth, seventh, eighth, and ninth anniversaries of the Closing Date. The remaining principal balance is due and payable on March 30, 2026. The Term Loan may be repaid from time to time at the discretion of the borrowers without premium or penalty. However, any principal amount of the Term Loan repaid may not be subsequently re-borrowed, except as discussed below. Interest on our Term Loan is payable monthly.
On December 8, 2016, we entered into the first amendment to the Term Loan Agreement which allows us to prepay the Term Loan and subsequently reborrow amounts prepaid on or before December 31, 2018. The option to reborrow applicable prepaid principal amounts expires on December 31, 2019. Reborrowings may be made in up to
three
instances in minimum amounts of
$10 million
each. In addition, amounts prepaid and eligible for reborrowing are subject to an unused line
fee of
0.325%
per annum times the average daily amount of the unused commitments. Subsequent to our entry into the first amendment, we prepaid
$30 million
of the Term Loan, which became available to reborrow pursuant to the first amendment. This prepayment satisfied our principal obligations due on the sixth, seventh, and eighth anniversaries of the Closing Date.
Pursuant to the Term Loan Agreement, the borrowers are required to maintain, as of the end of any fiscal quarter, a Capitalization Ratio lower than
60%
, a Consolidated Net Worth greater than
$350 million
, and Available Liquidity greater than
$100 million
(each as defined in the Term Loan Agreement). In addition, under the Term Loan Agreement, and subject to certain exceptions, the borrowers may not, among other things, (i) incur indebtedness, (ii) incur liens, (iii) make junior payments, (iv) make certain investments, and (v) under certain circumstances, make capital expenditures in excess of
$50 million
during four consecutive quarters. The Term Loan Agreement also includes customary representations of the borrowers and provides for certain events of default customary for similar facilities.
Interest rates under the Term Loan Agreement are based, at our election, on either the LIBOR or a base rate, as defined in the Term Loan Agreement, plus a spread over the index. The applicable spread for the Term Loan ranges from
1.875%
to
2.125%
for LIBOR rate loans, and
0.875%
to
1.125%
for base rate loans, both dependent on our Interest Coverage Ratio (as defined in the Term Loan Agreement). The Term Loan was issued by three institutions within the Farm Credit system and will be eligible for patronage credits. During the period for which the Term Loan was outstanding, the average interest rate on the Term Loan was approximately
2.37%
. We expect to receive patronage credits under the Term Loan. After giving effect to expected patronage distributions, the effective average net interest rate on the Term Loan was approximately
1.6%
.
Proceeds from the Term Loan were used to partially finance the Acquisition. The Term Loan is secured by a first priority mortgage on the Acquired Facilities and a first priority security interest on the equipment and certain tangible personal property located therein. For additional information on the Acquired Facilities, see Note 5, Acquisitions.
2020 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
6.375%
senior notes due November 1, 2020 (2020 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 2020 Notes was payable semiannually in arrears on May 1 and November 1. 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 2020 Notes.
On August 15, 2013, we issued an additional
$50 million
in aggregate principal amount of 2020 Notes in a private offering that was exempt from registration under the Securities Act. The additional
$50 million
of 2020 Notes were priced at
103.5%
of their principal amount plus accrued interest from May 1, 2013, and were issued as additional 2020 Notes under the related indenture dated as of October 22, 2012.
On May 8, 2013 and November 26, 2013, we completed an offer to exchange any and all of our
$250 million
and
$50 million
, respectively, outstanding 2020 Notes for a like principal amount of new
6.375%
Senior Notes due 2020 having substantially identical terms to those of the 2020 Notes.
$250 million
and
$49,990,000
in aggregate principal amount (or
100%
and
99.98%
, respectively) of the outstanding 2020 Notes were tendered and accepted for exchange upon closing of the related exchange offers and were registered under the Securities Act.
In connection with the issuance of the
$350 million
of
5.625%
senior notes due September 1, 2024 (2024 Notes) described below, we commenced a tender offer to purchase any and all of our
$300.0 million
aggregate principal amount of 2020 Notes then outstanding. On August 29, 2016, we accepted for purchase an aggregate principal amount of
$184.5 million
of the 2020 Notes that were tendered. On November 1, 2016, we redeemed the remaining
$115.5 million
in aggregate principal amount of the 2020 Notes outstanding and our obligations under the indenture, pursuant to which the 2020 Notes were issued, were satisfied and discharged. In connection with these transactions, we recognized a pre-tax loss on the extinguishment of debt of
$14.3 million
during 2016. The loss includes
$11.3 million
of debt extinguishment premium payments and
$3.0 million
for the net write-off of a portion of the unamortized deferred financing costs and unamortized premium related to the 2020 Notes.
2024 Notes
On August 29, 2016, Boise Cascade issued the 2024 Notes through a private placement that was exempt from the registration requirements of the Securities Act. The 2024 Notes mature on September 1, 2024 with interest payable semiannually in arrears on March 1 and September 1, commencing on March 1, 2017. The 2024 Notes are guaranteed by each of our existing and future direct or indirect domestic subsidiaries that is a guarantor under our Amended Agreement.
Following the sale of our 2024 Notes, as noted above, we used the net proceeds of the sale to repurchase or redeem any and all of the 2020 Notes, to pay fees and expenses related to the offering of the 2024 Notes and incurred in connection with the repurchase or redemption of the 2020 Notes, and for general corporate purposes.
The 2024 Notes are senior unsecured obligations and rank equally with all of the existing and future senior indebtedness of Boise Cascade Company and of the guarantors, senior to all of their existing and future subordinated indebtedness, effectively subordinated to all of their present and future senior secured indebtedness (including all borrowings with respect to our Amended Agreement to the extent of the value of the assets securing such indebtedness), and structurally subordinated to the indebtedness of any subsidiaries that do not guarantee the 2024 Notes.
The terms of the indenture governing the 2024 Notes, among other things, limit the ability of Boise Cascade and our restricted subsidiaries to: incur additional debt; declare or pay dividends; redeem stock or make other distributions to stockholders; make investments; create liens on assets; consolidate, merge or transfer substantially all of their assets; enter into transactions with affiliates; and sell or transfer certain assets.
The indenture governing the 2024 Notes provides for customary events of default and remedies.
Interest Rate Swaps
For information on interest rate swaps, see Interest Rate Risk and Interest Rate Swaps of Note 13, Financial Instrument Risk.
Cash Paid for Interest
For the years ended
December 31, 2016
,
2015
, and
2014
, cash payments for interest were
$21.0 million
,
$20.6 million
, and
$20.2 million
, respectively.
8.
Leases
Rental expense for operating leases was
$18.2 million
,
$18.1 million
, and
$17.5 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively. Sublease rental income was not material in any of the periods presented.
As of
December 31, 2016
, our minimum lease payment requirements for noncancelable operating leases with remaining terms of more than one year are as follows (in thousands):
|
|
|
|
|
|
2017
|
|
$
|
15,132
|
|
2018
|
|
14,697
|
|
2019
|
|
14,078
|
|
2020
|
|
13,850
|
|
2021
|
|
12,881
|
|
Thereafter
|
|
67,602
|
|
Total
|
|
$
|
138,240
|
|
These future minimum lease payment requirements have not been reduced by sublease income due in the future under noncancelable subleases. Minimum sublease income expected to be received in the future is not material.
9.
Retirement and Benefit Plans
Our retirement plans consist of noncontributory defined benefit pension plans, contributory defined contribution savings plans, a deferred compensation plan, and a multiemployer health and welfare plan.
Defined Benefit Plans
Some of our employees are covered by noncontributory defined benefit pension plans. We have
one
qualified defined benefit pension plan, which includes the merging of a salaried plan and
two
plans for hourly employees to simplify administration of the plans. The following summarizes recent activity of each individual plan:
|
|
•
|
Benefits for salaried employees were frozen so that no future benefits have accrued since December 31, 2009.
|
|
|
•
|
From 2011 through 2015, plan amendments affected certain union and non-union hourly employees by closing participation and freezing future benefits. The benefit for hourly employees is generally based on a fixed amount per year of service (years of service determined as of the freeze dates). As a result, only certain hourly employees continue to accrue benefits after the effective dates of these amendments.
|
|
|
•
|
On March 9, 2015 and May 15, 2015, we made discretionary contributions to our qualified defined benefit pension plan (Pension Plan) of
$10.0 million
and
$40.0 million
, respectively. Due to the significant voluntary contributions made (not anticipated in our year end measurement), we elected to remeasure our Pension Plan on May 15, 2015. See "Assumptions" below for the impact on our discount rate and expected return on plan asset assumptions.
|
|
|
•
|
During the third quarter 2016, we offered a program whereby certain terminated vested participants and active employees of the Boise Cascade Company Pension Plan could elect to take a one-time voluntary lump-sum payment equal to the present value of future benefits. Active employees were required to retire on or before November 1, 2016 to receive their lump-sum benefits. This program closed on September 30, 2016 with participants electing lump-sum payments totaling approximately
$21 million
. Plan participants who elected to participate in the program received their lump-sum benefits on November 1, 2016. We remeasured the Pension Plan on November 1, 2016 and recorded settlement expense of
$3.9 million
in fourth quarter 2016. See "Assumptions" below for the impact on our discount rate and expected return on plan asset assumptions.
|
We also have nonqualified salaried pension plans, which were frozen so that no future benefits have accrued since December 31, 2009.
Defined Contribution Plans
We sponsor contributory defined contribution savings plans for most of our salaried and hourly employees, and we generally provide company contributions to the savings plans. Since March 1, 2010, we have contributed
4%
of each salaried participant's eligible compensation to the plan as a nondiscretionary company contribution. In addition, beginning in 2012, for the years that a performance target is met, we contribute an additional amount of the employee's eligible compensation, depending on company performance and the employee's years of service. During the years ended
December 31, 2016
and
2015
, company performance resulted in no additional contributions. During the year ended
December 31, 2014
, company performance resulted in additional contributions in the range of
1%
to
2%
of eligible compensation. The company contributions for union and nonunion hourly employees vary by location. Company contributions paid, or to be paid, to our defined contribution savings plans for the years ended
December 31, 2016
,
2015
, and
2014
, were
$11.4 million
,
$10.1 million
, and
$13.6 million
, respectively.
Defined Contributory Trust
We have participated in a multiemployer defined contributory trust plan for certain union hourly employees since 2013. As of
December 31, 2016
,
2015
, and
2014
approximately
1,369
,
1,431
and
1,378
, respectively, of our employees participated in this plan. For certain of these employees, per the terms of the representative collective bargaining agreements, we were required to contribute
$0.80
,
$0.75
and
$0.50
, respectively, per hour per active employee during
2016
,
2015
, and
2014
. For certain other of these employees, we were required to contribute approximately
4%
of the employee's earnings during
2016
,
2015
, and
2014
. Company contributions to the multiemployer defined contributory trust plan for each of the years ended
December 31, 2016
and
2015
were
$2.8 million
. During the year ended
December 31, 2014
, company contributions to the multiemployer defined contributory trust plan were
$2.1 million
. After required contributions, we have no further obligation to the plan. The plan and its assets are managed by a joint board of trustees.
Deferred Compensation Plan
We sponsor a deferred compensation plan. Under the plan, participating employees irrevocably elect each year to defer receipt of a portion of their base salary and incentive compensation. A participant's account is credited with imputed interest at a rate equal to
130%
of Moody's Composite Average of Yields on Corporate Bonds. Participants may receive payment of their deferred compensation plan balance in a lump sum or in monthly installments over a specified period of years following the termination of their employment with the company. The deferred compensation plan is unfunded; therefore, benefits are paid from our general assets.
We recognized
$0.7 million
of interest expense related to the plan for the year ended
December 31, 2016
. During each of the years ended
December 31, 2015
and
2014
, we recognized
$0.6 million
of interest expense related to the plan. At
December 31, 2016
and
2015
, we had
$13.7 million
and
$11.7 million
, respectively, of liabilities related to the plan. At both
December 31, 2016
and
2015
, we had
$0.5 million
recorded in "Accrued liabilities, Compensation and benefits" and
$13.2 million
and
$11.2 million
, respectively, were recorded at
December 31, 2016
and
2015
, in "Other, Compensation and benefits" on our Consolidated Balance Sheets.
Multiemployer Health and Welfare Plan
We participate in a multiemployer health and welfare plan that covers medical, dental, and life insurance benefits for certain active employees as well as benefits for retired employees. As of
December 31, 2016
,
2015
, and
2014
, approximately
658
,
651
, and
652
, respectively, of our employees participated in this plan. Per the terms of the representative collective bargaining agreements, we were required to contribute
$5.00
per hour per active employee in 2013 and through May 31, 2014. From June 1, 2014 to May 31, 2015, we were required to contribute
$5.25
per hour per active employee. Since June 1, 2015, we are required to contribute
$5.50
per hour per active employee. Company contributions to the multiemployer health and welfare plan for both of the years ended
December 31, 2016
and
2015
, were
$7.6 million
. During
December 31, 2014
, company contributions to the multiemployer health and welfare plan were
$7.3 million
. After required contributions, we have no further obligation to the plan. The trustees of the plan determine the allocation of benefits between active and retired employees.
Defined Benefit Obligations and Funded Status
The following table, which includes only company-sponsored defined benefit plans, reconciles the beginning and ending balances of our projected benefit obligation and fair value of plan assets. We recognize the underfunded status of our defined benefit pension plans on our Consolidated Balance Sheets. We recognize changes in funded status in the year changes occur through other comprehensive income (loss).
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2016
|
|
2015
|
|
|
(thousands)
|
Change in benefit obligation
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
484,079
|
|
|
$
|
513,798
|
|
Service cost
|
|
1,127
|
|
|
739
|
|
Interest cost
|
|
18,798
|
|
|
19,067
|
|
Actuarial (gain) loss
|
|
154
|
|
|
(27,817
|
)
|
Benefits paid (a)
|
|
(43,966
|
)
|
|
(21,708
|
)
|
Benefit obligation at end of year
|
|
460,192
|
|
|
484,079
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
399,462
|
|
|
363,959
|
|
Actual return on plan assets
|
|
30,100
|
|
|
2,954
|
|
Employer contributions
|
|
3,844
|
|
|
54,257
|
|
Benefits paid (a)
|
|
(43,966
|
)
|
|
(21,708
|
)
|
Fair value of plan assets at end of year
|
|
389,440
|
|
|
399,462
|
|
|
|
|
|
|
Underfunded status
|
|
$
|
(70,752
|
)
|
|
$
|
(84,617
|
)
|
|
|
|
|
|
Amounts recognized on our Consolidated Balance Sheets
|
|
|
|
|
Current liabilities
|
|
$
|
(804
|
)
|
|
$
|
(2,510
|
)
|
Noncurrent liabilities
|
|
(69,948
|
)
|
|
(82,107
|
)
|
Net liability
|
|
$
|
(70,752
|
)
|
|
$
|
(84,617
|
)
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
|
|
|
|
|
Net actuarial loss
|
|
$
|
59,540
|
|
|
$
|
75,801
|
|
Prior service cost
|
|
—
|
|
|
—
|
|
Net loss recognized
|
|
$
|
59,540
|
|
|
$
|
75,801
|
|
______________________________________
|
|
(a)
|
Benefits paid during the year ended December 31, 2016 include approximately
$21 million
of lump-sum cash payments to certain terminated vested participants in settlement of pension obligations.
|
The accumulated benefit obligation for all defined benefit pension plans was
$460.2 million
and
$484.1 million
at
December 31, 2016
and
2015
, respectively. All of our defined benefit pension plans have accumulated benefit obligations that exceed the fair value of plan assets.
Net Periodic Benefit Cost and Other Comprehensive (Income) Loss
The components of net periodic benefit cost and other amounts recognized in other comprehensive (income) loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
2016
|
|
2015
|
|
2014
|
|
(thousands)
|
Net periodic benefit cost
|
|
|
|
|
|
Service cost
|
$
|
1,127
|
|
|
$
|
739
|
|
|
$
|
1,682
|
|
Interest cost
|
18,798
|
|
|
19,067
|
|
|
20,179
|
|
Expected return on plan assets
|
(20,324
|
)
|
|
(22,366
|
)
|
|
(21,000
|
)
|
Amortization of actuarial (gain) loss
|
2,484
|
|
|
4,884
|
|
|
(23
|
)
|
Plan settlement expense (a)
|
4,155
|
|
|
501
|
|
|
—
|
|
Net periodic benefit cost
|
6,240
|
|
|
2,825
|
|
|
838
|
|
|
|
|
|
|
|
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
|
|
|
|
|
|
Net actuarial (gain) loss
|
(9,622
|
)
|
|
(8,406
|
)
|
|
75,016
|
|
Amortization of actuarial gain (loss)
|
(2,484
|
)
|
|
(4,884
|
)
|
|
23
|
|
Effect of settlements
|
(4,155
|
)
|
|
(501
|
)
|
|
—
|
|
Total recognized in other comprehensive (income) loss
|
(16,261
|
)
|
|
(13,791
|
)
|
|
75,039
|
|
Total recognized in net periodic cost and other comprehensive (income) loss
|
$
|
(10,021
|
)
|
|
$
|
(10,966
|
)
|
|
$
|
75,877
|
|
______________________________________
|
|
(a)
|
Plan settlement expense during the year ended December 31, 2016 includes a
$3.9 million
settlement charge related to lump-sum cash payments to certain terminated vested participants in settlement of pension obligations.
|
In
2017
, we estimate net periodic pension expense will be approximately
$1.3 million
, including
$1.6 million
of net actuarial loss that will be amortized from accumulated other comprehensive loss.
Assumptions
The assumptions used in accounting for our plans are estimates of factors that will determine, among other things, the amount and timing of future contributions. The following table presents the assumptions used in the measurement of our benefit obligations:
|
|
|
|
|
|
|
|
December 31
|
|
2016
|
|
2015
|
Weighted average assumptions
|
|
|
|
Discount rate
|
3.90
|
%
|
|
4.05
|
%
|
Rate of compensation increases (c)
|
—
|
%
|
|
—
|
%
|
The following table presents the assumptions used in the measurement of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2016
|
|
2015
|
|
2014
|
Weighted average assumptions
|
|
|
|
|
|
|
|
|
|
|
Discount rate (a)(b)
|
|
4.05
|
%
|
/
|
3.45
|
%
|
|
3.75
|
%
|
/
|
3.90
|
%
|
|
4.65
|
%
|
Expected long-term rate of return on plan assets (a)(b)
|
|
5.10
|
%
|
/
|
5.10
|
%
|
|
6.15
|
%
|
/
|
5.85
|
%
|
|
6.50
|
%
|
Rate of compensation increases (c)
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
_______________________________________
|
|
(a)
|
Prior to the remeasurement of our qualified defined benefit pension plan on November 1, 2016, the discount rate and expected rate of return on plan assets were
4.05%
and
5.10%
. The discount rate and expected rate of return on plan assets after the November 1, 2016 remeasurement were
3.45%
and
5.10%
, respectively.
|
|
|
(b)
|
Prior to the remeasurement of our qualified defined benefit pension plan on May 15, 2015, the discount rate and expected rate of return on plan assets were
3.75%
and
6.15%
. The discount rate and expected rate of return on plan assets after the May 15, 2015 remeasurement were
3.90%
and
5.85%
, respectively.
|
|
|
(c)
|
Pension benefits for all salaried employees are frozen, resulting in an assumption for the rate of compensation increase of zero. In addition to the salaried benefits being frozen, there are currently no scheduled increases in pension benefit rates applicable to past service covering hourly employees who continue to accrue benefits.
|
Discount Rate Assumption
. The discount rate reflects the current rate at which the pension obligations could be settled based on the measurement date of the plans — December 31. In all years presented, the discount rates were determined by matching the expected plan benefit payments against a spot rate yield curve constructed to replicate the yields of Aa-graded corporate bonds.
Asset Return Assumption
. We base our expected long-term rate of return on plan assets on a weighted average of our expected returns for the major asset classes (equities, fixed-income securities, a hedge fund, and real estate) in which we invest. The weights we assign each asset class are based on our investment strategy. Expected returns for the asset classes are based on long-term historical returns, inflation expectations, forecasted gross domestic product, earnings growth, and other economic factors. We developed our return assumption based on a review of the fund manager's estimates of future market expectations by broad asset class, actuarial projections, and expected long-term rates of return from external investment managers. The weighted average expected return on plan assets we will use in our calculation of
2017
net periodic benefit cost is
5.00%
.
Retirement and Mortality Rates
. These rates are developed to reflect actual and projected plan experience. In
2016
, we used the RP-2014 mortality tables adjusted to reflect the new two-dimensional mortality improvement scale MP-2016. In
2015
, we used the RP-2014 mortality tables along with the two-dimensional mortality improvement scale MP-2015.
Investment Policies and Strategies
At
December 31, 2016
,
42%
of our pension plan assets were invested in equity securities,
45%
in fixed-income securities,
7%
in a hedge fund, and
6%
in real estate. The general investment objective for all of our plan assets is to optimize growth of the pension plan trust assets, while minimizing the risk of significant losses in order to enable the plans to satisfy their benefit payment obligations over time. The objectives take into account the long-term nature of the benefit obligations, the liquidity needs of the plans, and the expected risk/return trade-offs of the asset classes in which the plans may choose to invest. As our funded status improves, we may rebalance our plan assets to decrease our proportion of equity securities and increase our fixed-income securities consistent with a de-risking glide path established by our Retirement Funds Investment Committee (RFIC). The RFIC is responsible for establishing and overseeing the implementation of our investment policy. Russell Investments (Russell) oversees the active management of our pension investments through its manager of managers program in order to achieve broad diversification in a cost-effective manner. At
December 31, 2016
, our investment policy governing our relationship with Russell allocated
23%
to large-capitalization U.S. equity securities,
4%
to small- and mid-capitalization U.S. equity securities,
16%
to international equity securities,
46%
to fixed-income securities,
6%
to a hedge fund, and
5%
to real estate. Our arrangement with Russell allows monthly rebalancing to the policy targets noted above.
Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk, all of which are subject to change. In addition, our overall investment strategy and related allocations between equity and fixed-income securities may change from time to time based on market conditions, external economic factors, and the funded status of our plans. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term, and such changes could materially affect the reported amounts.
Fair Value Measurements of Plan Assets
The following table sets forth by level, within the fair value hierarchy, the pension plan assets, by major asset category, at fair value at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
(a)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
|
|
(thousands)
|
Equity securities
|
|
|
|
|
|
|
|
|
Large-cap U.S. equity securities (b)
|
|
$
|
—
|
|
|
$
|
88,686
|
|
|
$
|
—
|
|
|
$
|
88,686
|
|
Small- and mid-cap U.S. equity securities (c)
|
|
—
|
|
|
16,021
|
|
|
—
|
|
|
16,021
|
|
International equity securities (d)
|
|
—
|
|
|
59,675
|
|
|
—
|
|
|
59,675
|
|
Fixed-income securities (e)
|
|
—
|
|
|
173,679
|
|
|
—
|
|
|
173,679
|
|
Total investments at fair value
|
|
$
|
—
|
|
|
$
|
338,061
|
|
|
$
|
—
|
|
|
338,061
|
|
Hedge fund measured at NAV (f)
|
|
|
|
|
|
|
|
25,823
|
|
Real estate fund measured at NAV (g)
|
|
|
|
|
|
|
|
24,263
|
|
Receivables and accrued expenses, net
|
|
|
|
|
|
|
|
1,293
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
$
|
389,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
(a)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total
|
|
|
(thousands)
|
Equity securities
|
|
|
|
|
|
|
|
|
Large-cap U.S. equity securities (b)
|
|
$
|
—
|
|
|
$
|
91,622
|
|
|
$
|
—
|
|
|
$
|
91,622
|
|
Small- and mid-cap U.S. equity securities (c)
|
|
—
|
|
|
16,338
|
|
|
—
|
|
|
16,338
|
|
International equity securities (d)
|
|
—
|
|
|
61,414
|
|
|
—
|
|
|
61,414
|
|
Fixed-income securities (e)
|
|
—
|
|
|
178,019
|
|
|
—
|
|
|
178,019
|
|
Total investments at fair value
|
|
$
|
—
|
|
|
$
|
347,393
|
|
|
$
|
—
|
|
|
347,393
|
|
Hedge fund measured at NAV (f)
|
|
|
|
|
|
|
|
25,566
|
|
Real estate fund measured at NAV (g)
|
|
|
|
|
|
|
|
24,906
|
|
Receivables and accrued expenses, net
|
|
|
|
|
|
|
|
1,597
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
$
|
399,462
|
|
_______________________________________
|
|
(a)
|
Equity and fixed-income securities represent common collective trusts managed and valued by Russell Trust Company, the administrator of the funds. While the underlying assets are actively traded on an exchange, the funds are not. The investments in equity and fixed-income securities are considered to have a readily determinable fair value because the fair value per share (unit) is determined and published and is the basis for current transactions. We have the ability to redeem these equity and fixed-income securities with a one-day notice.
|
|
|
(b)
|
Invested in the Russell Large Cap U.S. Equity Fund at
December 31, 2016
and
2015
. The fund seeks returns that exceed the Russell 1000 Index by investing in large-capitalization stocks of the U.S. stock market. In addition, at
December 31, 2016
and
2015
, our investments in this category included the Russell 1000 Index Fund, which seeks to track the investment results of an index composed of large- and mid-capitalization stocks of the U.S. stock market.
|
|
|
(c)
|
Invested in the Russell Equity II Fund. The fund seeks returns that exceed the Russell 2500 Index by investing in the small- and mid-capitalization stocks of the U.S. stock market.
|
|
|
(d)
|
Invested in the Russell International Fund with Active Currency at
December 31, 2016
and
2015
, which benchmarks against the Russell Developed ex-U.S. Large Cap Index Net and seeks favorable total returns and additional diversification through investment in non-U.S. equity securities and active currency management. The fund participates primarily in the stock markets of Europe and the Pacific Rim and seeks to opportunistically add value through active investment in foreign currencies. In addition, at
December 31, 2016
and
2015
, our investments in this category included the Russell Emerging Market Fund, which benchmarks against the Russell Emerging Markets Index and is designed to maintain a broadly diversified exposure to emerging market countries.
|
|
|
(e)
|
Invested in the Russell Multi-Manager Bond Fund at
December 31, 2016
and
2015
. The fund seeks to outperform the Barclays Capital U.S. Aggregate Bond Index over a full market cycle. The fund is designed to provide current income and, as a secondary objective, capital appreciation through a variety of diversified strategies, including sector rotation, modest interest rate timing, security selection, and tactical use of high-yield and emerging market bonds. In addition, at
December 31, 2016
and
2015
, our investments in this category included the Russell Long Duration Fixed Income Fund, which is designed to provide maximum total return through diversified strategies including sector rotation, modest interest rate timing, security selection, and tactical use of high-yield, emerging market bonds and other non-index securities.
|
|
|
(f)
|
Invested in the AQR Delta Offshore Fund. The fund seeks to produce high risk-adjusted returns while targeting a low long-term average correlation to traditional markets. The fund invests internationally in a broad range of instruments, including, but not limited to, equities, currencies, convertible securities, futures, forwards, options, swaps, and other derivative products. The fair value of the hedge fund is estimated using the net asset value (NAV) of the investment as a practical expedient for fair value. We have the ability to redeem these investments at NAV within the near term. During 2016, we adopted ASU 2015-07, which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. As such, the AQR Delta Offshore Fund has not been classified within the fair value hierarchy tables as of December 31, 2016 and 2015.
|
|
|
(g)
|
Invested in the Russell Real Estate Equity Fund. The fund seeks to obtain favorable total return through income and growth, and to outperform the NCREIF Open-End Diversified Core Equity Fund Index - Equal Weight. Real estate investments include those in limited partnerships, limited liability companies, and real estate investment trusts consisting of private real estate investments including office, apartment, retail, industrial, and other commercial properties. The fair value of the real estate fund is estimated using NAV of the investment as a practical expedient for fair value. Amounts realized on the sale of these investments may differ from the calculated values. We have the ability to redeem the real estate investments with a 110-calendar-day written notice prior to a quarterly trade date. During 2016, we adopted ASU 2015-07, which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. As such, the Russell Real Estate Equity Fund has not been classified within the fair value hierarchy tables as of December 31, 2016 and 2015.
|
Cash Flows
As of
December 31, 2016
, we have contributed a total of
four
company-owned real property locations from our Building Materials Distribution segment to our qualified defined benefit pension plan. These contributions constitute related party transactions. We are leasing back the contributed properties for initial terms of
ten
years ending between 2022 and 2025 with
two
five
-year extension options and continue to use the properties in our distribution operations. Rent payments are made quarterly and include
2%
annual escalation rates. Each lease provides us a right of first refusal on any subsequent sale by the pension plan, as well as repurchase options at the end of the initial term and extension periods. The plan engaged an independent fiduciary who negotiated the lease terms and also manages the properties on behalf of the plan.
We determined that the contribution of the properties does not meet the accounting definition of a plan asset within the scope of Accounting Standards Codification 715,
Compensation — Retirement Benefits
. Accordingly, the contributed properties are not considered a contribution for accounting purposes and, as a result, are not included in plan assets and have no impact on the net pension liability recorded on our Consolidated Balance Sheets. We continue to depreciate the carrying value of the properties 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.
Our practice is to fund the pension plans in amounts sufficient to meet the minimum requirements of U.S. federal laws and regulations. Additional discretionary funding may be provided as deemed appropriate. For the years ended
December 31, 2016
,
2015
, and
2014
, we made cash contributions to our pension plans totaling
$3.8 million
,
$54.3 million
, and
$12.1 million
, respectively. Cash contributions in
2016
,
2015
, and
2014
include
$1.4 million
,
$1.3 million
, and
$1.1 million
, respectively, of lease payments. While we have no federally required contributions for
2017
, we expect to make cash contributions of approximately
$2 million
to our pension plans. These contributions reflect benefit payments to plan participants of our
nonqualified salaried pension plans and lease payments for properties we have contributed to our qualified defined benefit pension plan.
Qualified pension benefit payments are paid from plan assets, while nonqualified pension benefit payments are paid by the company. The following benefit payments are expected to be paid to plan participants (in thousands):
|
|
|
|
|
|
2017
|
|
$
|
21,710
|
|
2018
|
|
22,820
|
|
2019
|
|
23,643
|
|
2020
|
|
24,544
|
|
2021
|
|
25,296
|
|
Years 2022-2026
|
|
133,317
|
|
10.
Stock-Based Compensation
In February 2013, we adopted the 2013 Incentive Compensation Plan (2013 Incentive Plan), which was superseded by the 2016 Boise Cascade Omnibus Incentive Plan (2016 Incentive Plan), which was approved by our stockholders and became effective in April 2016. The 2016 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 2016 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 2016 Incentive Plan, other than stock options or stock appreciation rights, are eligible to participate in dividend or dividend equivalent payments, if any, which we would accrue to be paid when the awards vest. We issue new shares of common stock upon exercise of stock options and vesting of other stock-based awards. Shares issued pursuant to awards under the 2016 Incentive Plan are from our authorized but unissued shares. The maximum number of shares approved for grant under the 2016 Incentive Plan is
3.7 million
shares.
In February 2016, 2015, and 2014, we granted
two
types of stock-based awards under the 2013 Incentive Plan: performance stock units (PSUs) and restricted stock units (RSUs). After the effective date of the 2016 Incentive Plan in April 2016, no awards may be granted under the 2013 Incentive Plan. Pursuant to the terms of the 2016 Incentive Plan approved by our stockholders, all stock-based awards granted in 2016 under the 2013 Incentive Plan reduced the amount of shares available for issuance under the 2016 Incentive Plan. Therefore, as of
December 31, 2016
,
3.0 million
shares remained available for future issuance under the 2016 Incentive Plan.
PSU and RSU Awards
In 2016, we granted
418,344
PSUs to our officers and other employees, subject to performance and service conditions, at a weighted average grant date fair market value of
$16.56
. For the officers, the number of shares actually awarded will range from
0%
and
200%
of the target amount, depending upon Boise Cascade's 2016 return on invested capital (ROIC), determined in accordance with the related grant agreement. For the other employees, the number of shares actually awarded will range from
0%
to
200%
of the target amount, depending upon Boise Cascade's 2016 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 ROIC and EBITDA components contain 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.
In 2015 and 2014, we granted
116,636
and
100,692
PSUs, at a weighted average grant date fair market value of
$36.17
and
$30.32
, respectively, to our officers and other employees, subject to performance and service conditions. During the 2015 and 2014 performance period, participants earned
63%
and
129%
, respectively, of the target based on Boise Cascade’s 2015 and 2014 EBITDA, determined by our Compensation Committee in accordance with the related grant agreements.
In 2016, 2015, and 2014, we granted an aggregate of
335,820
,
140,167
, and
128,497
RSUs, at a weighted average grant date fair market value of
$16.73
,
$36.16
, and
$30.41
, respectively, to our officers, other employees, and nonemployee directors with only service conditions.
The PSUs granted to officers, if earned, generally vest over
one
to
three
year periods from the date of grant, while the PSUs granted to other employees vest in
three
equal tranches each year after the grant date. All PSU grants are subject to final determination of meeting the performance condition by the Compensation Committee of our board of directors. The RSUs granted to officers and other employees vest in
three
equal tranches each year after the grant date. The RSUs granted to nonemployee directors vest over a
one
-year period, provided that such vested shares will not be delivered to the directors until
six
months following termination from the board of directors.
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. During the years ended
December 31, 2016
,
2015
, and
2014
, the total fair value of PSUs and RSUs vested was
$2.8 million
,
$4.9 million
,
$4.6 million
, respectively.
The following summarizes the activity of our PSUs and RSUs awarded under our incentive plans for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs
|
|
RSUs
|
|
|
Number of shares
|
|
Weighted Average Grant-Date Fair Value
|
|
Number of shares
|
|
Weighted Average Grant-Date Fair Value
|
Outstanding, December 31, 2015
|
|
134,786
|
|
|
$
|
35.09
|
|
|
153,343
|
|
|
$
|
35.41
|
|
Granted
|
|
418,344
|
|
|
16.56
|
|
|
335,820
|
|
|
16.73
|
|
Vested
|
|
(56,609
|
)
|
|
33.65
|
|
|
(93,383
|
)
|
|
34.71
|
|
Forfeited (a)
|
|
(48,021
|
)
|
|
33.50
|
|
|
(8,493
|
)
|
|
19.35
|
|
Outstanding, December 31, 2016
|
|
448,500
|
|
|
$
|
18.16
|
|
|
$
|
387,287
|
|
|
$
|
19.73
|
|
__________________
|
|
(a)
|
Total PSUs forfeited during the year ended December 31, 2016 includes
40,726
shares related to the performance condition adjustment, as participants earned
63%
of the target based on Boise Cascade’s 2015 EBITDA.
|
Stock Options
In February 2013, we granted
161,257
nonqualified stock options to our officers and other employees. Our stock options 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. 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, 2015
|
|
117,282
|
|
|
$
|
27.19
|
|
|
|
|
|
Forfeited
|
|
(2,359
|
)
|
|
27.19
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
114,923
|
|
|
$
|
27.19
|
|
|
5.3
|
|
$
|
—
|
|
Vested and expected to vest, December 31, 2016
|
|
114,923
|
|
|
$
|
27.19
|
|
|
5.3
|
|
$
|
—
|
|
Exercisable, December 31, 2016
|
|
114,923
|
|
|
$
|
27.19
|
|
|
5.3
|
|
$
|
—
|
|
There were no stock options exercised during the year ended
December 31, 2016
. During both the years ended
December 31, 2015
and
2014
, the total intrinsic value of stock options exercised was
$0.1 million
. Cash received from stock options exercised was
$0.2 million
for both the years ended
December 31, 2015
and
2014
, with an immaterial amount of actual tax benefit realized from stock options exercised.
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. We recognize stock awards with only service conditions on a straight-line basis over the requisite service period. Most of our share-based compensation expense was recorded in "General and administrative expenses" in our Consolidated Statements of Operations. Total stock-based compensation recognized from PSUs, RSUs, and stock options net of estimated forfeitures, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
2016
|
|
2015
|
|
2014
|
|
(thousands)
|
PSUs
|
$
|
4,114
|
|
|
$
|
2,295
|
|
|
$
|
3,169
|
|
RSUs
|
3,982
|
|
|
2,995
|
|
|
2,018
|
|
Stock options
|
81
|
|
|
535
|
|
|
729
|
|
Total
|
$
|
8,177
|
|
|
$
|
5,825
|
|
|
$
|
5,916
|
|
The related tax benefit was
$3.1 million
for the year ended
December 31, 2016
, and
$2.2 million
for the years ended
December 31, 2015
and
2014
. As of
December 31, 2016
, total unrecognized compensation expense related to nonvested share-based compensation arrangements was
$8.5 million
, net of estimated forfeitures. This expense is expected to be recognized over a weighted-average period of
1.7
years.
11.
Stockholders'
Equity
Our certificate of incorporation has 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
December 31, 2016
and
2015
. We had
43,519,647
and
43,412,660
shares of common stock issued and
38,352,574
and
38,825,687
shares of common stock outstanding as of
December 31, 2016
and
2015
, respectively. Each share of common stock entitles the holder to one vote on matters to be voted on by the stockholders of Boise Cascade.
Stock Repurchase
On February 25, 2015, our Board of Directors (Board) authorized a
two million
share repurchase program (Program) pursuant to which we may, from time to time, purchase shares of our common stock through various means including, without limitation, open market transactions, privately negotiated transactions, or accelerated share repurchase transactions. We are not obligated to purchase any shares and there is no set date that the Program will expire. The Board may increase or decrease the number of shares under the Program or terminate the Program in its discretion at any time. During 2016, we repurchased
580,100
shares under the Program at a cost of
$10.3 million
, or an average of
$17.70
per share. During 2015, we repurchased
722,911
shares under the Program at a cost of
$23.7 million
, or
$32.80
per share. The shares were purchased with cash on hand and are recorded as "Treasury stock" on our Consolidated Balance Sheet. As of
December 31, 2016
, there were
696,989
shares of common stock that may yet be purchased under the Program.
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accumulated Other Comprehensive Loss
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(thousands)
|
Beginning Balance, net of taxes
|
|
$
|
(93,015
|
)
|
|
$
|
(101,498
|
)
|
|
$
|
(55,249
|
)
|
Net actuarial gain (loss), current-period changes, before taxes
|
|
9,622
|
|
|
8,406
|
|
|
(75,016
|
)
|
Amortization of actuarial (gain) loss, amounts reclassified from accumulated other comprehensive loss, before taxes (a)
|
|
2,484
|
|
|
4,884
|
|
|
(23
|
)
|
Effect of settlements, amounts reclassified from accumulated other comprehensive loss, before taxes (a)
|
|
4,155
|
|
|
501
|
|
|
—
|
|
Income taxes
|
|
(6,258
|
)
|
|
(5,308
|
)
|
|
28,790
|
|
Ending Balance, net of taxes
|
|
$
|
(83,012
|
)
|
|
$
|
(93,015
|
)
|
|
$
|
(101,498
|
)
|
___________________________________
|
|
(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 9, Retirement and Benefit Plans.
|
12.
Transactions With Related Parties
Louisiana Timber Procurement Company, L.L.C. (LTP) is an unconsolidated variable-interest entity that is
50%
owned by us and
50%
owned by Packaging Corporation of America (PCA). LTP procures sawtimber, pulpwood, residual chips, and other residual wood fiber to meet the log and fiber requirements of us and PCA 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
$17.4 million
,
$20.7 million
, and
$28.7 million
, respectively, during the years ended
December 31, 2016
,
2015
, and
2014
. These sales are recorded in "Sales" in our Consolidated Statements of Operations.
Costs and Expenses
Related-party wood fiber purchases from LTP were
$87.2 million
,
$88.8 million
, and
$75.8 million
, respectively, during the years ended
December 31, 2016
,
2015
, and
2014
. These costs are recorded in "Materials, labor, and other operating expenses (excluding depreciation)" in our Consolidated Statements of Operations.
13.
Financial Instrument Risk
In the normal course of business, we are exposed to financial risks such as changes in interest rates, foreign currency exchange rates, and commodity prices. In
2016
,
2015
, and
2014
, we did not use derivative instruments to manage these risks, except for interest rate swaps entered into in 2016 as discussed below.
Interest Rate Risk and Interest Rate Swaps
We are exposed to interest rate risk arising from fluctuations in variable-rate LIBOR on our term loans and when we have loan amounts outstanding on our Revolving Credit Facility. Our objective is to limit the variability of interest payments on our debt. To meet this objective, in 2016 we entered into receive-variable, pay-fixed interest rate swaps to change the variable-rate cash flow exposure to fixed-rate cash flows. In accordance with our risk management strategy, we actively monitor our interest rate exposure and consider using derivative instruments from time to time to manage the related risk.
On February 16, 2016, and March 31, 2016, we entered into interest rate swap agreements with notional principal amounts of
$50.0 million
and
$75.0 million
, respectively, to offset risks associated with the variability in cash flows relating to interest payments that are based on one-month LIBOR. We do not speculate using derivative instruments. At
December 31, 2016
, the notional principal amount of our interest rate swap agreements exceeded the
$95.0 million
of variable-rate debt outstanding after paying down
$30.0 million
of variable rate debt on our Term Loan in December 2016. The excess notional
principal amount of our interest rate swaps over our variable-rate debt is within our management strategy as we expect to partially fund seasonal and intra-month working capital requirements in 2017 from borrowings under our Revolving Credit Facility.
Under the interest rate swaps, we receive LIBOR-based variable interest rate payments and make fixed interest rate payments, thereby fixing the interest rate on
$125.0 million
of debt. Payments on the interest rate swaps with notional principal amounts of
$50.0 million
and
$75.0 million
are due on a monthly basis at a fixed rate of
1.007%
and
1.256%
, respectively, and expire in February 2022 and March 2022, respectively. The interest rate swap agreements were not designated as cash flow hedges, and as a result, all changes in the fair value are recognized in "Change in fair value of interest rate swaps" in the Consolidated Statements of Operations rather than through other comprehensive income. At
December 31, 2016
, we recorded a long-term asset of
$4.2 million
in "Other assets" on our Consolidated Balance Sheets, representing the fair value of the interest rate swap agreements. The swaps were valued based on observable inputs for similar assets and liabilities and other observable inputs for interest rates and yield curves (Level 2 inputs).
Foreign Currency Risk
We have sales in countries outside the U.S. As a result, we are exposed to movements in foreign currency exchange rates, primarily in Canada, but we do not believe our exposure to currency fluctuations is significant.
Commodity Price Risk
Many of the products we manufacture or purchase and resell and some of our key production inputs are commodities whose price is determined by the market's supply and demand for such products. Price fluctuations in our selling prices and key costs have a significant effect on our financial performance. The markets for most of these commodities are cyclical and are primarily affected by various economic and industry factors, including the strength of the U.S. housing market, net import and export activity, changes in or disruptions to industry production capacity, changes in inventory levels, and other factors beyond our control.
14.
Segment Information
We operate our business using
three
reportable segments: Wood Products, Building Materials Distribution, and Corporate and Other. These segments represent distinct businesses that are managed separately because of differing products and services. Each of these businesses requires distinct operating and marketing strategies. Management reviews the performance of the company based on these segments.
Our Wood Products segment manufactures EWP, consisting of laminated veneer lumber (LVL), I-joists, and laminated beams, which are structural products used in applications where extra strength and consistent quality are required, such as headers and beams. LVL is also used in the manufacture of I-joists, which are assembled by combining a vertical web of oriented strand board (OSB) with top and bottom LVL or solid wood flanges. In addition, we manufacture structural, appearance, and industrial plywood panels. We also produce ponderosa pine lumber, studs, and particleboard. Our wood products are used primarily in new residential construction, residential repair-and-remodeling markets, and light commercial construction. The majority of our wood products are sold to leading wholesalers (including our Building Materials Distribution segment), home improvement centers, retail lumberyards, and industrial converters. During
2016
, approximately
47%
of Wood Products' overall sales were to our Building Materials Distribution segment.
Our Building Materials Distribution segment is a leading national stocking wholesale distributor of building materials. We distribute a broad line of building materials, including EWP, OSB, plywood, lumber, and general line items such as siding, metal products, insulation, roofing, and composite decking. Except for EWP, we purchase most of these building materials from third-party suppliers and market them primarily to retail lumberyards, home improvement centers, and specialty distributors that then sell the products to the final end customers, who are typically professional builders, independent contractors, and homeowners engaged in residential construction projects.
Our Corporate and Other segment includes corporate support staff services, related assets and liabilities, pension plan activity, and foreign currency exchange gains and losses. Support services include, but are not limited to, information technology, human resources, finance, accounting, and legal functions.
The segments' profits and losses are measured on operating profits and losses before interest expense and interest income. Specified expenses are allocated to the segments. For many of these allocated expenses, the related assets and liabilities remain in the Corporate and Other segment.
The segments follow the accounting principles described in Note 2, Summary of Significant Accounting Policies.
For the years ended
December 31, 2016
,
2015
, and
2014
, no customers accounted for 10% or more of total sales. Sales to foreign unaffiliated customers were approximately
$71 million
,
$85 million
, and
$76 million
, respectively, for the years ended
December 31, 2016
,
2015
, and
2014
.
At
December 31, 2016
,
2015
, and
2014
, and for the years then ended, long-lived assets located in foreign countries and net sales originating in foreign countries were not material.
Wood Products and Building Materials Distribution segment sales to external customers, including related parties, by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(millions)
|
Wood Products
|
|
|
|
|
|
|
Engineered wood products
|
|
$
|
154.4
|
|
|
$
|
127.2
|
|
|
$
|
125.9
|
|
Plywood and veneer
|
|
316.8
|
|
|
385.5
|
|
|
413.6
|
|
Lumber
|
|
87.2
|
|
|
96.5
|
|
|
113.7
|
|
Byproducts
|
|
56.0
|
|
|
62.0
|
|
|
56.1
|
|
Particleboard
|
|
49.3
|
|
|
51.6
|
|
|
52.3
|
|
Other
|
|
19.9
|
|
|
19.5
|
|
|
25.7
|
|
|
|
683.6
|
|
|
742.3
|
|
|
787.2
|
|
|
|
|
|
|
|
|
Building Materials Distribution
|
|
|
|
|
|
|
Commodity
|
|
1,503.0
|
|
|
1,343.4
|
|
|
1,376.1
|
|
General line
|
|
1,141.9
|
|
|
1,037.8
|
|
|
937.3
|
|
Engineered wood products
|
|
582.3
|
|
|
509.9
|
|
|
473.1
|
|
|
|
3,227.2
|
|
|
2,891.1
|
|
|
2,786.5
|
|
|
|
$
|
3,910.8
|
|
|
$
|
3,633.4
|
|
|
$
|
3,573.7
|
|
An analysis of our operations by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
|
|
|
|
|
|
Sales
|
|
Before
|
|
Depreciation
|
|
Capital
|
|
|
|
|
|
|
Inter-
|
|
|
|
Income
|
|
and
|
|
Expenditures
|
|
|
|
|
Trade
|
|
segment
|
|
Total
|
|
Taxes
|
|
Amortization
|
|
(a)
|
|
Assets
|
|
|
(millions)
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wood Products
|
|
$
|
683.6
|
|
|
$
|
596.8
|
|
|
$
|
1,280.4
|
|
|
$
|
25.9
|
|
|
$
|
57.5
|
|
|
$
|
282.4
|
|
|
$
|
781.7
|
|
Building Materials Distribution
|
|
3,227.2
|
|
|
—
|
|
|
3,227.2
|
|
|
84.4
|
|
|
13.8
|
|
|
15.8
|
|
|
548.1
|
|
Corporate and Other
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
|
(30.6
|
)
|
|
1.6
|
|
|
1.2
|
|
|
109.4
|
|
Intersegment eliminations
|
|
—
|
|
|
(596.8
|
)
|
|
(596.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
3,911.2
|
|
|
$
|
—
|
|
|
$
|
3,911.2
|
|
|
79.7
|
|
|
$
|
72.8
|
|
|
$
|
299.5
|
|
|
$
|
1,439.2
|
|
Interest expense
|
|
|
|
|
|
|
|
(26.7
|
)
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
Change in fair value of interest rate swaps
|
|
|
|
|
|
|
|
4.2
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
(14.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
|
|
|
|
|
|
Sales
|
|
Before
|
|
Depreciation
|
|
|
|
|
|
|
|
|
Inter-
|
|
|
|
Income
|
|
and
|
|
Capital
|
|
|
|
|
Trade
|
|
segment
|
|
Total
|
|
Taxes
|
|
Amortization
|
|
Expenditures
|
|
Assets
|
|
|
(millions)
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wood Products
|
|
$
|
742.3
|
|
|
$
|
539.8
|
|
|
$
|
1,282.1
|
|
|
$
|
64.2
|
|
|
$
|
43.3
|
|
|
$
|
68.8
|
|
|
$
|
556.0
|
|
Building Materials Distribution
|
|
2,891.1
|
|
|
0.2
|
|
|
2,891.3
|
|
|
60.8
|
|
|
11.9
|
|
|
14.5
|
|
|
506.3
|
|
Corporate and Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22.1
|
)
|
|
0.4
|
|
|
4.3
|
|
|
186.3
|
|
Intersegment eliminations
|
|
—
|
|
|
(540.0
|
)
|
|
(540.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
3,633.4
|
|
|
$
|
—
|
|
|
$
|
3,633.4
|
|
|
102.9
|
|
|
$
|
55.6
|
|
|
$
|
87.5
|
|
|
$
|
1,248.6
|
|
Interest expense
|
|
|
|
|
|
|
|
(22.5
|
)
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
|
|
|
|
|
|
|
|
|
Sales
|
|
Before
|
|
Depreciation
|
|
|
|
|
|
|
|
|
Inter-
|
|
|
|
Income
|
|
and
|
|
Capital
|
|
|
|
|
Trade
|
|
segment
|
|
Total
|
|
Taxes
|
|
Amortization
|
|
Expenditures
|
|
Assets
|
|
|
(millions)
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wood Products
|
|
$
|
787.2
|
|
|
$
|
529.8
|
|
|
$
|
1,317.0
|
|
|
$
|
108.4
|
|
|
$
|
41.5
|
|
|
$
|
40.3
|
|
|
$
|
533.1
|
|
Building Materials Distribution
|
|
2,786.5
|
|
|
0.1
|
|
|
2,786.7
|
|
|
56.7
|
|
|
9.8
|
|
|
20.3
|
|
|
483.6
|
|
Corporate and Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19.9
|
)
|
|
0.2
|
|
|
0.6
|
|
|
196.7
|
|
Intersegment eliminations
|
|
—
|
|
|
(529.9
|
)
|
|
(529.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
3,573.7
|
|
|
$
|
—
|
|
|
$
|
3,573.7
|
|
|
145.1
|
|
|
$
|
51.4
|
|
|
$
|
61.2
|
|
|
$
|
1,213.3
|
|
Interest expense
|
|
|
|
|
|
|
|
(22.0
|
)
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123.3
|
|
|
|
|
|
|
|
|
___________________________________
|
|
(a)
|
Capital spending in 2016 for Wood Products includes
$215.9 million
for the acquisition of
two
EWP facilities.
|
15.
Commitments, Legal Proceedings and Contingencies, and Guarantees
Commitments
We have commitments for leases and long-term debt that are discussed further in Note 7, Debt, and Note 8, Leases. In addition, we have purchase obligations for goods and services, capital expenditures, and raw materials entered into in the normal course of business.
We are a party to a number of long-term log supply agreements. At
December 31, 2016
, our total obligation for log purchases under contracts with third parties was approximately
$65 million
based on fixed contract pricing or first quarter
2017
pricing for variable contracts. Under certain log supply agreements, we have the right to cancel or reduce our commitments in the event of a mill curtailment or shutdown. Future purchase prices under most of the variable-price agreements will be set quarterly or semiannually based on regional market prices. Our log obligations are subject to change based on, among other things, the effect of governmental laws and regulations, our manufacturing operations not operating in the normal course of business, log availability, and the status of environmental appeals. Except for deposits required pursuant to log supply contracts, these obligations are not recorded in our consolidated financial statements until the contract payment terms take effect.
We enter into contracts for the purchase of electricity and natural gas. We also purchase these services under utility tariffs. At
December 31, 2016
, we had approximately
$12.7 million
of energy purchase commitments.
T
hese payment obligations were valued either at market prices as of
December 31, 2016
,
or at a fixed price, in each case in accordance with the terms of the related contract or tariff. Because we consume the energy in the manufacture of our products, these obligations represent the face value of the contracts, not resale value.
Legal Proceedings and Contingencies
We are a party to routine legal proceedings that arise in the ordinary course of our business, including commercial liability claims, premises claims, environmental claims, and employment-related claims, among others. As of the date of this filing, we believe it is not reasonably possible that any of the legal actions against us will, 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.
Boise Cascade Company and its subsidiaries (Boise Cascade Building Materials Distribution, L.L.C., and Boise Cascade Wood Products, L.L.C.) act as co-borrowers under our Revolving Credit Facility, ABL Term Loan, and Term Loan, described in Note 7, Debt. Their obligations are guaranteed by each of our remaining domestic subsidiaries.
Boise Cascade has issued
$350.0 million
of
5.625%
senior notes due in 2024. At
December 31, 2016
,
$350.0 million
of the 2024 Notes were outstanding. The 2024 Notes are guaranteed by each of Boise Cascade Company's existing and future direct or indirect domestic subsidiaries that is a guarantor or co-borrower under our Revolving Credit Facility. See Note 7, Debt, for more information.
Boise Cascade issued guarantees to a limited number of trade creditors of one or more of its principal operating subsidiaries, Boise Cascade Building Materials Distribution, L.L.C., and Boise Cascade Wood Products, L.L.C., for trade credit obligations arising in the ordinary course of the business of such operating subsidiaries. These included guarantees of the obligations of Boise Cascade Wood Products, L.L.C., with respect to present and future log sale agreements and several facility and rolling stock leases entered into by such subsidiaries and by Boise Cascade Building Materials Distribution, L.L.C. Boise Cascade's exposure under these agreements is limited to future log purchases and the minimum lease payment requirements under the agreements. Boise Cascade also enters into guarantees of various raw material or energy supply agreements arising in the ordinary course of business.
All surety bonds and most letters of credit supporting obligations of subsidiaries sold or liabilities assumed by Boise Inc., which became a wholly-owned subsidiary of PCA, in connection with the sale of our Paper and Packaging & Newsprint assets in 2008 have been replaced by new surety bonds or letters of credit issued without our credit support. The principal exception is letters of credit supporting workers' compensation obligations assumed by Boise Inc., which as a matter of state law must remain in our name even though the underlying liabilities and exposures have been assumed by Boise Inc. We are entitled to an indemnification from the purchaser for liabilities with respect to such letters of credit arising from workers' compensation claims assumed by Boise Inc. and for our costs of maintaining Boise Inc.'s share of any such letter of credit.
We enter into a wide range of indemnification arrangements in the ordinary course of business. These include tort indemnifications, tax indemnifications, financing transactions, indemnifications against third-party claims arising out of arrangements to provide services to us, and indemnifications in merger and acquisition agreements. At
December 31, 2016
, we are unable to estimate the maximum potential liability under these indemnifications, and we are not aware of any material liabilities arising from these indemnifications.
16.
Quarterly Results of Operations (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
|
(millions, except per-share amounts)
|
Net sales
|
|
$
|
880.7
|
|
|
$
|
1,043.8
|
|
|
$
|
1,067.2
|
|
|
$
|
919.5
|
|
Income (loss) from operations
|
|
$
|
13.4
|
|
|
$
|
37.9
|
|
|
$
|
31.3
|
|
|
$
|
(3.0
|
)
|
Net income
|
|
$
|
5.0
|
|
|
$
|
19.2
|
|
|
$
|
10.0
|
|
|
$
|
4.1
|
|
Net income per common share – Basic
|
|
$
|
0.13
|
|
|
$
|
0.50
|
|
|
$
|
0.26
|
|
|
$
|
0.11
|
|
Net income per common share – Diluted
|
|
$
|
0.13
|
|
|
$
|
0.49
|
|
|
$
|
0.26
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
|
(millions, except per-share amounts)
|
Net sales
|
|
$
|
809.9
|
|
|
$
|
955.4
|
|
|
$
|
991.6
|
|
|
$
|
876.5
|
|
Income from operations
|
|
$
|
17.7
|
|
|
$
|
37.4
|
|
|
$
|
40.4
|
|
|
$
|
7.7
|
|
Net income
|
|
$
|
7.6
|
|
|
$
|
20.2
|
|
|
$
|
22.0
|
|
|
$
|
2.3
|
|
Net income per common share – Basic and Diluted
|
|
$
|
0.19
|
|
|
$
|
0.51
|
|
|
$
|
0.56
|
|
|
$
|
0.06
|
|