Boise Cascade Holdings Reports First Quarter 2008 Financial Results

BOISE, Idaho, May. 08 /PRNewswire/ --

BOISE, Idaho, May 8 /PRNewswire/ -- Boise Cascade Holdings, L.L.C. (BC Holdings) today announced the successful completion of a number of milestone events since the beginning of the year:

* Sold its Paper and Packaging & Newsprint businesses for $1.6 billion, plus working capital adjustments. Consideration received in the transaction included approximately $1.28 billion in cash, as well as debt and equity securities of the buyer, Boise Inc.; * Repaid $926 million senior secured debt and terminated its existing senior secured credit facilities; * Entered into a new five-year, $350 million asset-based lending facility; and * Repurchased $160 million of its 7 1/8% senior subordinated notes due 2014 through an asset disposition tender offer completed April 15, 2008.

BC Holdings reported a net loss of $24 million for the quarter ended March 31, 2008, which included the results of its divested paper operations for the period from January 1 through February 21 and its partial ownership of Boise Inc. beginning February 22, as discussed in the footnotes to the financial statements below.

Current Operating Segments

BC Holdings' three reporting segments are now Building Materials Distribution, Wood Products, and Corporate and Other. Since the Paper and Packaging & Newsprint segments have been sold, the First Quarter Segment Results discussion below will focus on the retained operating businesses.

First Quarter Segment Results

U.S. housing starts declined 29.5% in the first quarter, dropping from an annualized rate of 1.46 million in first quarter 2007 to 1.03 million this year. In the first quarter, mortgage market dislocations, increases in foreclosures, higher inventories of unsold homes, falling median home prices and, in some areas, harsh winter weather, all contributed to a weak demand environment for the building products we manufacture and distribute.

Sales in our Building Materials Distribution ("BMD") business during the first quarter were $504 million, compared to $609 million in first quarter 2007 and $545 million in fourth quarter 2007. The 17% decline in sales resulted from a 12% decline in product volumes sold and a 6% decline in product prices relative to first quarter 2007. The earnings before interest, taxes, depreciation and amortization ("EBITDA") generated by BMD fell from $12.3 million in the year-ago quarter to $0.7 million this first quarter. BMD's lower sales activity resulted in fewer gross margin dollars being generated to cover cash operating costs, such as occupancy, payroll, and delivery.

Sales in our Wood Products segment during the first quarter were $199 million, compared to $254 million in the year-ago quarter and $216 million in the fourth quarter of 2007. Relative to first quarter 2007, sales of engineered wood products and lumber declined due to lower volumes and prices. Plywood sales volume and prices were roughly flat with the year-ago quarter. Particleboard sales volume fell, while pricing improved modestly. Our quarterly segment EBITDA for Wood Products went negative for the first time in this cyclical downturn in the first quarter, coming in at a negative $9.6 million, down $20.6 million from the positive $11.0 million reported in first quarter 2007. The decrease in EBITDA was driven principally by the pricing and sales volume declines noted above.

We have been taking rolling curtailments at a number of our Wood Products operations to maintain appropriate inventory levels, while trying to minimize the negative impact these curtailments have on our employees and our operating results. We decided to permanently close our White City, Oregon, lumber operation in January and our Guaiba, Brazil, veneer operation in April. We are pursuing a sale of our Brazilian assets.

Outlook

We expect a seasonal improvement in demand for the products we manufacture and distribute, but we are not anticipating a meaningful recovery in new residential construction during the year. Industry product sales volumes are likely to remain anemic and commodity wood product prices will largely depend on operating rates. Our need to take rolling production curtailments has continued in the second quarter. Energy costs show no sign of abating and we expect this to make our efforts to control manufacturing and distribution costs more challenging.

About Boise Cascade

BC Holdings is a privately held company headquartered in Boise, Idaho. Our wholly owned subsidiary, Boise Cascade, L.L.C., is a leading U.S. wholesale distributor of building products and one of the largest producers of engineered wood products and plywood in North America. We also own 49% of Boise Inc., a publicly traded North American paper and packaging producer listed on the New York Stock Exchange. For more information, please visit our website at http://www.bc.com.

Webcast and Conference Call

BC Holdings will host an audiovisual webcast and conference call on Thursday, May 8, 2008, at 11:00 a.m. Eastern, at which time we will review the company's recent performance. You can join the webcast through the BC Holdings website. Go to http://www.bc.com and click on the link to the webcast under the News & Events heading. Slides will be posted 15 minutes before the beginning of the webcast. Please go to the website at least 15 minutes before the start of the webcast to register and to download and install any necessary audio software. To join the conference call, dial 800-374-0165 (international callers should dial 706-902-1407) at least 10 minutes before the start of the call.

The archived webcast will be available in News & Events (link in the About Boise Cascade section) of Boise Cascade's website. A replay of the conference call will be available from May 8 at 2:00 p.m. Eastern through June 8 at 11:59 p.m. Eastern. Playback numbers are 800-642-1687 for U.S. calls and 706-645-9291 for international calls, and the passcode will be 46484838.

Basis of Presentation

We present our consolidated financial statements in accordance with generally accepted accounting principles (GAAP). Our earnings release also supplements the GAAP presentations by reflecting EBITDA. EBITDA represents income (loss) before interest (interest expense, interest income, and change in fair value of interest rate swaps and contingent value rights), income tax provision, and depreciation, amortization, and depletion. EBITDA is the primary measure used by our chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. We believe EBITDA is useful to investors because it provides a means to evaluate the operating performance of our segments and our company on an ongoing basis using criteria that are used by our internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of companies with substantial financial leverage. We believe EBITDA is a meaningful measure because it presents a transparent view of our recurring operating performance and allows management to readily view operating trends, perform analytical comparisons, and identify strategies to improve operating performance. For example, we believe that the inclusion of items such as taxes, interest expense, and interest income distorts management's ability to assess and view the core operating trends in our segments. EBITDA, however, is not a measure of our liquidity or financial performance under GAAP and should not be considered as an alternative to net income (loss), income (loss) from operations, or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of EBITDA instead of net income (loss) or segment income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest and associated significant cash requirements; and the exclusion of depreciation, amortization, and depletion, which represent significant and unavoidable operating costs, given the level of our indebtedness and the capital expenditures needed to maintain our businesses. Management compensates for these limitations by relying on our GAAP results. Our measures of EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.

Forward-Looking Statements

This news release contains statements that are "forward looking" within the Private Securities Litigation Reform Act of 1995. These statements speak only as of the date of this press release. While they are based on the current expectations and beliefs of management, they are subject to a number of uncertainties and assumptions that could cause actual results to differ from the expectations expressed in this release.

Boise Cascade Holdings, L.L.C. Consolidated Statements of Income (Loss) (unaudited, in thousands) Three Months Ended March 31 December 31, 2008(a) 2007 2007 Sales Trade $880,800 $1,163,173 $1,098,138 Related parties 95,782 157,795 143,819 976,582 1,320,968 1,241,957 Costs and expenses Materials, labor, and other operating expenses 886,838 1,156,899 1,075,585 Depreciation, amortization, and depletion 10,035 (b) 40,360 10,554 (b) Selling and distribution expenses 63,365 68,408 71,249 General and administrative expenses 15,630 19,495 21,760 Gain on sale of Paper and Packaging & Newsprint assets (8,063) - - Other (income) expense, net (942) 2,546 (3,538) 966,863 1,287,708 1,175,610 Income from operations 9,719 33,260 66,347 Equity in net loss of affiliate (8,552) - - Foreign exchange gain (loss) (613) 242 (144) Change in fair value of contingent value rights (4,773) (c) - - Change in fair value of interest rate swaps (6,284) (c) - (1,662)(c) Interest expense (15,381) (22,343) (26,751)(d) Interest income 2,601 601 1,566 (33,002) (21,500) (26,991) Income (loss) before income taxes (23,283) 11,760 39,356 Income tax provision (1,155) (1,223) (259) Net income (loss) $(24,438) $10,537 $39,097 Segment Information (unaudited, in thousands) Three Months Ended March 31 December 31, 2008(a) 2007 2007 Segment sales Building Materials Distribution $503,884 $608,658 $545,007 Wood Products 198,733 253,923 215,952 Paper 253,508 395,034 397,949 Packaging & Newsprint 113,485 193,972 203,177 Intersegment eliminations and other (93,028) (130,619) (120,128) $976,582 $1,320,968 $1,241,957 Segment income (loss) Building Materials Distribution $(1,209) $10,455 $4,791 Wood Products (17,100) 3,709 (5,005) Paper 20,718 (b) 18,026 51,609 (b) Packaging & Newsprint 5,685 (b) 8,083 25,471 (b) Corporate and Other 1,012 (b) (6,771) (10,663)(b) 9,106 33,502 66,203 Equity in net loss of affiliate (8,552) - - Change in fair value of contingent value rights (4,773)(c) - - Change in fair value of interest rate swaps (6,284)(c) - (1,662)(c) Interest expense (15,381) (22,343) (26,751)(d) Interest income 2,601 601 1,566 Income (loss) before income taxes $(23,283) $11,760 $39,356 EBITDA (e) Building Materials Distribution $714 $12,331 $6,603 Wood Products (9,566) 10,993 3,042 Paper 21,066 34,599 51,857 Packaging & Newsprint 5,738 21,495 25,556 Corporate and Other 1,189 (5,556) (10,301) Equity in net loss of affiliate (8,552) - - $10,589 $73,862 $76,757 Boise Cascade Holdings, L.L.C. Consolidated Balance Sheets (unaudited, in thousands) March 31, December 31, 2008 2007 ASSETS Current Cash and cash equivalents $151,100 $57,623 Restricted cash (f) 183,290 - Receivables Trade, less allowances of $1,906 and $1,664 161,764 115,209 Related parties 7,172 9 Other 9,107 7,458 Inventories 334,906 342,015 Assets held for sale - 1,853,039 Other 7,803 5,426 855,142 2,380,779 Property Property and equipment, net 306,417 313,117 Fiber farms and timber deposits 25,890 24,010 332,307 337,127 Investment in equity affiliate 268,873 - Note receivable from related party 58,793 - Deferred financing costs 11,703 23,074 Goodwill 12,170 12,170 Intangible assets, net 9,563 9,668 Other assets 9,057 11,374 Total assets $1,557,608 $2,774,192 Boise Cascade Holdings, L.L.C. Consolidated Balance Sheets (continued) (unaudited, in thousands, except for equity units) March 31, December 31, 2008 2007 LIABILITIES AND CAPITAL Current Short-term borrowings $ - $10,500 Current portion of long-term debt (g) 160,000 47,250 Accounts payable Trade 154,902 141,459 Related parties 9,587 43 Accrued liabilities Compensation and benefits 36,464 36,909 Interest payable 13,418 7,140 Other 83,977 29,959 Liabilities related to assets held for sale - 331,636 458,348 604,896 Debt Long-term debt, less current portion 304,224 1,113,313 Other Compensation and benefits 43,508 46,981 Other long-term liabilities 10,587 17,097 54,095 64,078 Redeemable equity units Series B equity units - 9,822,162 and 16,622,421 units outstanding 9,891 16,992 Series C equity units - 22,784,727 and 39,069,411 units outstanding 6,317 9,489 16,208 26,481 Commitments and contingent liabilities Capital Series A equity units - no par value; 66,000,000 units authorized and outstanding 76,332 78,463 Series B equity units - no par value; 550,000,000 units authorized and 530,356,601 units outstanding 648,401 876,693 Series C equity units - no par value; 44,000,000 units and 44,000,000 units authorized - 10,268 Total capital 724,733 965,424 Total liabilities and capital $1,557,608 $2,774,192 Boise Cascade Holdings, L.L.C. Consolidated Statements of Cash Flows (unaudited, in thousands) Three Months Ended March 31 2008 2007 Cash provided by (used for) operations Net income (loss) $(24,438) $10,537 Items in net income (loss) not using (providing) cash Equity in net loss of affiliate 8,552 - Depreciation, depletion, and amortization of deferred financing costs and other 10,378 40,084 Related-party interest income (986) - Deferred income taxes 54 493 Pension and other postretirement benefit expense 5,007 6,066 Change in fair value of contingent value rights 4,773 - Change in fair value of interest rate swaps 6,284 - Management equity units expense 347 822 (Gain) loss on sale of assets, net (10,972) 999 Other 579 194 Decrease (increase) in working capital, net of dispositions Receivables (75,192) (56,662) Inventories 12,765 (20,309) Prepaid expenses (1,646) 4,234 Accounts payable and accrued liabilities 21,143 19,466 Pension and other postretirement benefit payments (20,716) (339) Current and deferred income taxes 1,403 771 Other (155) 4,397 Cash provided by (used for) operations (62,820) 10,753 Cash provided by (used for) investment Proceeds from sale of assets, net of cash contributed 1,227,327 3,384 Expenditures for property and equipment (18,219) (47,242) Increase in restricted cash (183,290) - Other (1,019) 166 Cash provided by (used for) investment 1,024,799 (43,692) Cash provided by (used for) financing Issuances of long-term debt 229,224 100,000 Payments of long-term debt (925,563) (40,000) Short-term borrowings (10,500) (3,200) Tax distributions to members (127,342) (2,753) Repurchase of management equity units (18,289) (94) Cash paid for termination of interest rate swaps (11,918) - Other (4,114) (7) Cash provided by (used for) financing (868,502) 53,946 Increase in cash and cash equivalents 93,477 21,007 Balance at beginning of the period 57,623 45,169 Balance at end of the period $151,100 $66,176 Summary Notes to Consolidated Financial Statements and Segment Information

The Consolidated Statements of Income (Loss), Consolidated Balance Sheets, Consolidated Statements of Cash Flows, and Segment Information do not include all Notes to Consolidated Financial Statements and should be read in conjunction with the company's 2007 Annual Report on Form 10-K and the company's Quarterly Report on Form 10-Q for the period ended March 31, 2008. Net income (loss) for all periods presented involved estimates and accruals.

(a) On February 22, 2008, Boise Cascade, L.L.C., our wholly owned direct subsidiary, sold the Paper and Packaging & Newsprint assets, and most of our Corporate and Other assets (the Sale), to Boise Inc. (formerly Aldabra 2 Acquisition Corp.) for cash and securities equal to $1.6 billion, plus working capital adjustments. In connection with the Sale, we recorded an $8.1 million gain in "Gain on sale of Paper and Packaging & Newsprint assets" in the Corporate and Other segment in our Consolidated Statement of Loss. After the transaction, we continue to own 100% of our Building Materials Distribution and Wood Products segments. Immediately following the Sale, Boise Cascade, L.L.C., distributed the equity securities received in the transaction to us. The 49% equity interest that we own in Boise Inc. represents a significant continuing involvement. As a result, the operating results of the Paper and Packaging & Newsprint businesses are included in continuing operations through the transaction date. Subsequent to the transaction, we recorded our investment in Boise Inc. in "Investment in equity affiliate" on our Consolidated Balance Sheet and our share of Boise Inc.'s net loss in "Equity in net loss of affiliate" in our Consolidated Statement of Loss. For more information related to the Sale, see the Notes to Unaudited Quarterly Consolidated Financial Statements in our Form 10-Q for the period ended March 31, 2008. (b) In September 2007, in anticipation of the Sale, we reclassified the assets and liabilities of our Paper and Packaging & Newsprint segments, as well as some of the assets and liabilities included in our Corporate and Other segment, to "Assets held for sale" and "Liabilities related to assets held for sale" on our Consolidated Balance Sheet and stopped depreciating and amortizing those assets. As a result, the three months ended March 31, 2008, and December 31, 2007, included approximately $16.7 million and $31.4 million of lower depreciation and amortization expense. Of the $16.7 million and $31.4 million of lower depreciation and amortization expense, $9.4 million and $16.3 million related to our Paper segment, $6.9 million and $14.3 million related to our Packaging & Newsprint segment, and $0.4 million and $0.8 million related to our Corporate and Other segment, respectively. (c) The three months ended March 31, 2008, included $6.3 million of expense related to changes in the fair value of our interest rate swaps, which were terminated in February 2008, and $4.8 million of expense related to the fair value of the contingent value rights (CVRs) that we and Terrapin Partners Venture Partnership granted to certain Boise Inc. investors. For more information related to the CVRs, see the Notes to Unaudited Quarterly Consolidated Financial Statements in our Form 10-Q for the period ended March 31, 2008. The three months ended December 31, 2007, included $3.0 million of income related to the change in the fair value of interest rate swaps in connection with the repayment of the $250 million senior unsecured floating-rate notes, offset by $4.6 million of expense related to changes in the fair value of our interest rate swaps that we accounted for as economic hedges. (d) The three months ended December 31, 2007, included the write-off of $4.5 million of deferred financing costs related to the repayment of $250 million of senior unsecured floating-rate notes. (e) EBITDA represents income before interest (interest expense, interest income, and change in fair value of interest rate swaps and contingent value rights), income taxes, and depreciation, amortization, and depletion. The following table reconciles net income (loss) to EBITDA for the three months ended March 31, 2008 and 2007, and December 31, 2007: Three Months Ended March 31 December 31, 2008 2007 2007 (unaudited, in thousands) Net income (loss) $(24,438)(a) $10,537 $39,097 Change in fair value of contingent value rights 4,773 (c) - - Change in fair value of interest rate swaps 6,284 (c) - 1,662 (c) Interest expense 15,381 22,343 26,751 (d) Interest income (2,601) (601) (1,566) Income tax provision 1,155 1,223 259 Depreciation, amortization, and depletion 10,035 (b) 40,360 10,554 (b) EBITDA $10,589 $73,862 $76,757

The following tables reconcile segment income (loss) to EBITDA for the three months ended March 31, 2008 and 2007, and December 31, 2007:

Three Months Ended March 31, 2008 Building Corporate Materials Wood Packaging and Distribution Products Paper & Newsprint Other Total (unaudited, in thousands) Segment income (loss) $(1,209) $(17,100) $20,718 $5,685 $1,012 $9,106 Depreciation, amortization, and depletion 1,923 7,534 348 53 177 10,035 Equity in net loss of affiliate - - - - - (8,552) EBITDA $714 $(9,566) $21,066 $5,738 $1,189 $10,589 Three Months Ended March 31, 2007 Building Corporate Materials Wood Packaging and Distribution Products Paper & Newsprint Other Total (unaudited, in thousands) Segment income (loss) $10,455 $3,709 $18,026 $8,083 $(6,771) $33,502 Depreciation, amortization, and depletion 1,876 7,284 16,573 13,412 1,215 40,360 EBITDA $12,331 $10,993 $34,599 $21,495 $(5,556) $73,862 Three Months Ended December 31, 2007 Building Corporate Materials Wood Packaging and Distribution Products Paper & Newsprint Other Total (unaudited, in thousands) Segment income (loss) $4,791 $(5,005) $51,609 $25,471 $(10,663) $66,203 Depreciation, amortization, and depletion 1,812 8,047 248 85 362 10,554 EBITDA $6,603 $3,042 $51,857 $25,556 $(10,301) $76,757 (f) At March 31, 2008, we had $183.3 million of restricted cash recorded on our Consolidated Balance Sheet. Of the $183.3 million, $160 million related to our asset disposition tender offer for $160 million of our $400 million 7.125% senior subordinated notes and $23.3 million of restricted cash investments supported letters of credit outstanding. In April 2008, the issuing bank for the letters of credit became a participating lender in our revolving credit facility and it released the $23.3 million of cash collateral back to us. (g) In preparation for the repayment of the $160 million of our 7.125% senior subordinated notes in April 2008, we reclassified the $160 million to "Current portion of long-term debt" on our Consolidated Balance Sheet at March 31, 2008. We redeemed $160 million of the notes on April 15, 2008.