UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended July 31, 1998 Commission File Number 0-1370
-------------------------- ------------
Longview Fibre Company
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-0298760
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
P. O. Box 639, Longview, Washington 98632
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (360) 425-1550
---------------------------------
Not Applicable
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year,if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
51,676,567 Common Shares were outstanding as of July 31, 1998
Page 1<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEET
- -------------------------- (000 Omitted)
Jul. 31 Oct. 31 Jul. 31
1998 1997 1997
(Unaudited) (Unaudited)
A S S E T S ----------- ----------- -----------
CURRENT ASSETS:
Accounts and notes receivable $89,189 $105,850 $83,796
Allowance for doubtful accounts 1,100 1,100 1,100
Inventories, at lower of cost or market; costs
are based on last-in, first-out method except
for supplies at current averages
Finished goods 25,616 24,832 18,634
Goods in process 17,958 13,868 14,083
Raw materials and supplies 48,644 45,802 54,232
Other 9,688 8,432 10,504
----------- ----------- -----------
Total current assets 189,995 197,684 180,149
----------- ----------- -----------
CAPITAL ASSETS:
Buildings, machinery and equipment at cost 1,621,978 1,572,089 1,543,270
Accumulated depreciation 834,273 774,852 763,733
----------- ----------- -----------
Costs to be depreciated in future years 787,705 797,237 779,537
Plant sites at cost 3,041 3,041 3,041
----------- ----------- -----------
790,746 800,278 782,578
Timber at cost less depletion 195,479 187,141 177,980
Roads at cost less amortization 9,034 8,866 8,525
Timberland at cost 18,469 17,076 16,232
----------- ----------- -----------
222,982 213,083 202,737
----------- ----------- -----------
Total capital assets 1,013,728 1,013,361 985,315
----------- ----------- -----------
OTHER ASSETS 59,351 49,858 46,882
----------- ----------- -----------
$1,263,074 $1,260,903 $1,212,346
=========== =========== ===========
L I A B I L I T I E S A N D S H A R E H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES:
Payable to bank resulting from
checks in transit $4,860 $9,834 $6,719
Accounts payable 40,896 53,647 40,544
Short-term borrowings 60,500 56,000 59,600
Payrolls payable 11,507 13,206 10,502
Other taxes payable 11,915 10,498 12,596
Current installments of long-term debt 14,118 14,118 14,119
----------- ----------- -----------
Total current liabilities 143,796 157,303 144,080
----------- ----------- -----------
LONG-TERM DEBT 547,018 498,137 461,537
----------- ----------- -----------
DEFERRED TAXES - NET 138,554 141,623 138,432
----------- ----------- -----------
OTHER LIABILITIES 15,644 14,334 14,237
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common stock, ascribed value $1.50 per share;
authorized 150,000,000 shares; issued
51,676,567; 51,676,567 and 51,685,757
shares respectively 77,515 77,515 77,529
Additional paid-in capital 3,306 3,306 3,306
Retained earnings 337,241 368,685 373,225
----------- ----------- -----------
Total shareholders' equity 418,062 449,506 454,060
----------- ----------- -----------
$1,263,074 $1,260,903 $1,212,346
=========== =========== ===========
The accompanying note is an integral part of these financial statements.
Page 2<PAGE>
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
- --------------------------------------------
(000 Omitted)
Three Months Ended Nine Months Ended
July 31 July 31
--------------------- -----------------------
1998 1997 1998 1997
--------- ----------- ----------- -----------
Net sales:
Timber $42,931 $51,830 $121,976 $149,304
Paper and paperboard 53,111 51,496 145,544 135,279
Converted products 98,161 94,059 288,838 280,873
--------- ----------- ----------- -----------
194,203 197,385 556,358 565,456
--------- ----------- ----------- -----------
Cost of products sold, including
outward freight 163,890 166,546 493,638 482,425
--------- ----------- ----------- -----------
Gross profit 30,313 30,839 62,720 83,031
--------- ----------- ----------- -----------
Selling, administrative
and general expenses 15,863 16,566 48,176 47,542
--------- ----------- ----------- -----------
Operating profit:
Timber 19,954 27,869 57,263 85,302
Paper and paperboard 165 (1,679) (11,677) (6,697)
Converted products (5,669) (11,917) (31,042) (43,116)
--------- ----------- ----------- -----------
14,450 14,273 14,544 35,489
--------- ----------- ----------- -----------
Other income (expense):
Interest income 156 107 493 381
Interest expensed (10,454) (8,191) (29,468) (22,880)
Miscellaneous 1,986 282 2,627 753
--------- ----------- ----------- -----------
6,138 6,471 (11,804) 13,743
Provision for taxes on income:
Current 123 720 (1,062) 1,621
Deferred 2,026 1,609 (3,069) 3,326
--------- ----------- ----------- -----------
2,149 2,329 (4,131) 4,947
--------- ----------- ----------- -----------
Net income $3,989 $4,142 ($7,673) $8,796
========= =========== =========== ===========
Dollars per share:
Net income $0.08 $0.08 ($0.15) $0.17
Dividends $0.14 $0.16 $0.46 $0.48
Average shares outstanding in the
hands of the public (000 omitted) 51,677 51,689 51,677 51,695
The accompanying note is an integral part of these financial statements.
Page 3<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
- ------------------------------------------------
(000 Omitted)
Three Months Ended Nine Months Ended
July 31 July 31
--------------------- -----------------------
1998 1997 1998 1997
--------- ----------- ----------- -----------
Cash provided by (used for) operations:
Net income $3,989 $4,142 ($7,673) $8,796
Charges to income not
requiring cash -
Depreciation 22,306 20,429 65,221 59,945
Depletion and amortization 1,664 1,329 4,401 3,573
Deferred taxes - net 2,026 1,610 (3,069) 3,326
(Gain) loss on disposition of
capital assets (1,640) 1,455 (965) 2,697
Change in:
Accounts and notes receivable (3,387) 322 16,661 15,351
Inventories 639 (1,042) (7,716) 6,769
Other (1,371) 425 (1,256) 1,419
Other noncurrent assets (2,323) (1,241) (9,493) (4,427)
Accounts, payrolls and other
taxes payable (32) (878) (4,092) 754
Other noncurrent liabilities 437 503 1,310 1,444
--------- ----------- ----------- -----------
Cash provided by operations 22,308 27,054 53,329 99,647
--------- ----------- ----------- -----------
Cash provided by (used for) investing:
Additions to: Plant and equipment (11,699) (29,745) (58,807) (97,297)
Timber and timberlands (789) (777) (14,580) (3,624)
Proceeds from sale
of capital assets 2,167 345 4,363 528
--------- ----------- ----------- -----------
Cash used for investing (10,321) (30,177) (69,024) (100,393)
--------- ----------- ----------- -----------
Cash provided by (used for) financing:
Long-term debt (119) 10,282 48,881 15,282
Short-term borrowings 1,500 2,600 4,500 21,600
Payable to bank resulting from
checks in transit (6,212) (2,049) (4,974) (6,312)
Accounts payable for construction 78 714 (8,941) (4,676)
Cash dividends (7,234) (8,270) (23,771) (24,814)
Purchase of common stock -- (154) -- (334)
--------- ----------- ----------- -----------
Cash provided by (used for)
financing (11,987) 3,123 15,695 746
--------- ----------- ----------- -----------
Change in cash position -- -- -- --
Cash position, beginning of period -- -- -- --
--------- ----------- ----------- -----------
Cash position, end of period $ -- $ -- $ -- $ --
========= =========== =========== ===========
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest (net of amount
capitalized) $8,991 $8,567 $27,792 $23,682
Income taxes 1 87 (1,948) (72)
The accompanying note is an integral part of these financial statements.
Page 4<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
- ----------------------------------------------------------
(000 Omitted)
Three Months Ended Nine Months Ended
July 31 July 31
--------------------- -----------------------
1998 1997 1998 1997
--------- ----------- ----------- -----------
Common stock:
Balance at beginning of period $77,515 $77,542 $77,515 $77,558
Ascribed value of stock
purchased -- (13) -- (29)
--------- ----------- ----------- -----------
Balance at end of period $77,515 $77,529 $77,515 $77,529
========= =========== =========== ===========
Additional paid-in capital:
Balance at beginning of period $3,306 $3,306 $3,306 $3,306
--------- ----------- ----------- -----------
Balance at end of period $3,306 $3,306 $3,306 $3,306
========= =========== =========== ===========
Retained earnings:
Balance at beginning of period $340,486 $377,494 $368,685 $389,548
Net income 3,989 4,142 (7,673) 8,796
Cash dividends on common stock (7,234) (8,270) (23,771) (24,814)
Purchases of common stock -- (141) -- (305)
--------- ----------- ----------- -----------
Balance at end of period $337,241 $373,225 $337,241 $373,225
========= =========== =========== ===========
Dividends paid per share $0.14 $0.16 $0.46 $0.48
========= =========== =========== ===========
Common shares:
Balance at beginning of period 51,677 51,695 51,677 51,706
Purchases -- (9) -- (20)
--------- ----------- ----------- -----------
Balance at end of period 51,677 51,686 51,677 51,686
========= =========== =========== ===========
The accompanying note is an integral part of these financial statements.
Page 5<PAGE>
NOTE 1: The consolidated interim financial statements have been prepared by
the company, without audit and subject to year-end adjustment, in accordance
with generally accepted accounting principles, except that certain
information and footnote disclosure made in the latest annual report have
been condensed or omitted for the interim statements. Accordingly, these
statements should be read in conjunction with the company's latest annual
report. Certain costs of a normal recurring nature are estimated for the
full year and allocated in interim periods based on estimates of operating
time expired, benefit received, or activity associated with the interim
period. The consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary for fair presentation.
Page 6<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Consolidated Statement of Income
--------------------------------
Three and Nine Months Ended July 31, 1998 compared with
-------------------------------------------------------
Three and Nine Months Ended July 31, 1997
-----------------------------------------
Net income decreased 3.7% for the third quarter 1998 compared with the third
quarter 1997 due to a decrease in timber operating profits offset in part by
improved operating results in the manufacturing segments of the business.
For the year-to-date periods, a net loss of $7.7 million was incurred in 1998
versus net income of $8.8 million in 1997. The year-to-date loss resulted
from a decrease in timber operating profits and operating losses in the
manufacturing segments.
Timber
- ------
Third quarter 1998 and year-to-date 1998 operating profit deteriorated by 28%
and 33%, respectively, as compared with like periods in 1997 due primarily to
lower log and lumber prices. Third quarter 1998 average log and lumber
prices decreased 15% and 23%, respectively, and year-to-date 1998 average log
and lumber prices decreased 18% and 29%, respectively. As compared with
year-ago periods, log volume sold in the third quarter 1998 declined 2% but
held steady for year-to-date 1998.
Export log prices deteriorated during the latter half of 1997 due to an
increase in the supply of export quality logs, reduced end user demand in
Japan and the strengthening of the U.S. dollar. Export demand improved
substantially early in the year and export log prices stabilized. Export log
prices remain below recent peak levels experienced in the first quarter 1997
but held steady with second quarter 1998 levels.
Demand in the domestic log market is good but excess supply caused average
price to deteriorate in the third quarter. Modest price increases have
recently been implemented.
Paper and Paperboard
- --------------------
The third quarter 1998 operating profit for paper and paperboard was $0.2
million compared with the third quarter 1997 operating loss of $1.7 million.
The primary reason for the improvement was an increase in average selling
price caused by proportionately more paper (as opposed to paperboard) tonnage
sold and a 13% increase in average paperboard prices. The volume of paper
sold increased 19% while the volume of paperboard sold decreased 26% in the
third quarter 1998 as compared with the third quarter 1997. A nine-day
shutdown was taken to improve the balance of incoming orders and machine
production. The mill operated at approximately 78% of capacity. Operating
losses for year-to-date 1998 were $11.7 million as compared with $6.7 million
for the year-ago period. The increased loss was caused primarily by higher
wood chip costs and lower average paper prices.
Export linerboard and paper markets, particularly in Asia, continue to be
slow. Domestic markets have been fair but have been impacted by the soft
Asian markets. Due to current market conditions, mill operations in the
Page 7<PAGE>
fourth quarter have been rescheduled by shutting down the equivalent of two
machines and leveling production at approximately 75% of total capacity. The
new operating schedule should improve operating efficiencies, reduce costs
and allow us to maintain high levels of customer service.
Converted Products
- ------------------
Third quarter 1998 sales improved 4% compared with third quarter 1997 due to
a 10% increase in average price and a 5% reduction in tonnage sold. The
third quarter 1998 operating loss decreased to $5.7 million from $11.9
million in the third quarter 1997. The primary reason for the improvement
was the increase in average price. For year-to-date 1998 the operating loss
was $31 million compared with $43 million for year-to-date 1997; the decrease
in the operating loss was primarily caused by a 5% increase in average price.
Demand was at satisfactory levels during the third quarter and prices held
steady. The company continues to develop its specialty and niche products to
improve margins.
Other
- -----
Interest expensed increased 28% for the third quarter 1998 and 29% for
year-to-date 1998 as compared with like periods in 1997 due primarily to a
higher level of borrowing and proportionately less interest capitalized for
uncompleted capital projects.
Income Taxes
- ------------
Taxes are approximately 35% and 36% of pretax income for fiscal 1998 and
1997, respectively.
Three Months Nine Months
Ended July 31 Ended July 31
% %
Other Data 1998 1997 Change 1998 1997 Change
- ---------- --------------------- ----------------------
Sales
Logs, thousands of board feet 64,000 65,000 - 2 171,000 171,000 -
Lumber, thousands of board feet 16,000 16,000 - 53,000 46,000 +15
Paper, tons 62,000 52,000 +19 165,000 139,000 +19
Paperboard, tons 35,000 47,000 -26 109,000 122,000 -11
Converted products, tons 128,000 135,000 - 5 383,000 390,000 - 2
Logs, $/thousand board feet $ 587 $ 691 -15 $ 608 $ 745 -18
Lumber, $/thousand board feet 328 424 -23 336 474 -29
Paper, $/ton FOB mill equivalent 613 654 - 6 604 646 - 7
Paperboard, $/ton FOB mill equiv. 368 325 +13 360 327 +10
Converted products, $/ton 766 698 +10 754 721 + 5
Liquidity and Capital Resources
-------------------------------
At July 31, 1998, the company had bank lines of credit totaling $380 million.
Of this amount $260 million was under a credit agreement with a group of
banks expiring February 28, 2001. The agreement provides for borrowings at
the Offshore Rate (LIBOR based) plus a spread, currently 0.60%, or the bank's
Reference Rate. The credit agreement contains certain financial covenants
and provides for a facility fee, currently 0.275% per year. At the end of
Page 8<PAGE>
the third fiscal quarter 1998, the company had outstanding $220 million of
notes payable under this agreement. At July 31, 1998, the company had an
outstanding balance of $91.5 million under the remaining $120 million of bank
lines of credit. $68.5 million of bank lines of credit are available for
future borrowing needs. Also outstanding at July 31, 1998, were senior notes
of $281 million and revenue bonds of $28.9 million.
During the quarter ended July 31, 1998, the company obtained waivers from the
holders of certain senior notes with respect to compliance with covenants
that require the company to maintain a specified ratio of net income to fixed
charges. The waiver reducing the coverage requirement is effective beginning
on July 31, 1998 until the date that the company makes publicly available its
financial statements for the quarter ending January 31, 1999. In connection
with the grant of the waivers, the company agreed to increase the interest
rate of the notes by 0.25% during the waiver period and to pay certain
additional fees. In September 1998 the company prepaid, through the use of
existing bank credit lines, $30 million of senior notes.
For the year, capital expenditures for plant and equipment and timberland
purchases exceeded available funds generated by operations and were funded by
increased borrowings. Due to the completion of major capital projects and
reduced cash flow, capital expenditures are being reduced and should not
exceed available funds generated by operations. While much remains to be
done to optimize our manufacturing capabilities, the most urgent projects
have been completed. Capital expenditures for plant and equipment are
expected to be approximately $75 million for fiscal 1998 of which $59 million
was incurred during the nine months ended July 31, 1998. The current backlog
of approved projects is $26 million. During the quarter, the company did not
purchase any of its common stock. Cash dividends of $0.14 per share, a
reduction from $0.16 per share, were declared and paid in the third quarter
in the aggregate of $7,234,000.
Year 2000 Issues
----------------
The company is committed to reducing or eliminating the effects of the Year
2000 (Y2K) issues on its systems and production processes. Y2K compliance
is not an issue for our products. In 1996 a company-wide program was started
to identify all aspects of our operations subject to Y2K issues and to
provide for a smooth transition into the next millennium. The plan is
designed to assess current compliance and to implement corrective measures
for non-compliant systems and equipment. We plan to achieve complete
compliance by September 1, 1999. The identification phase, inventory, and
action plan are complete. Of the systems and equipment identified and
inventoried, an estimated 78% of the inventory has been found to be compliant
or has been corrected. We are also in the process of surveying our vendors,
principal customers and business partners regarding their Y2K compliance.
The estimated remediation cost is approximately $2 million of which $0.5
million has been incurred to date. Some aspects of the Y2K situation are
beyond our reasonable control; for example, compliance by our vendors,
customers, business partners and the possible effects of Y2K issues on
national and worldwide communications and banking services. As part of this
process, we are assessing possible Y2K risks and developing contingency plans.
Forward Looking Statements
--------------------------
This Form 10-Q contains forward-looking statements concerning anticipated
pricing and market conditions for the company's products, the expected
results of planned paper mill improvement projects and operating schedules,
Page 9<PAGE>
the anticipated cost of and availability of financing for planned capital
improvement projects, and the estimated cost, completion date and success of
the company's Y2K compliance program. Forward-looking statements are based
on the company's estimates and projections on the date when they are made,
and are subject to a variety of risks and uncertainties. Actual events could
differ materially from those anticipated by the company due to a variety of
factors, including, among others, developments in the world, national or
regional economy or involving the company's customers or competitors
affecting supply of or demand for the company's products or raw materials,
changes in product or raw material prices, changes in currency exchange rates
between the U.S. dollar and the currencies of important export markets,
capital project delays or cost overruns, weather, labor disputes, unforeseen
adverse developments involving environmental matters or other legal
proceedings or the assertion of additional claims, significant unforeseen
developments in the company's business, adverse changes in the capital
markets or interest rates affecting the cost or availability of financing or
other unforeseen events.
Page 11<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Nothing to report.
Item 2. CHANGES IN SECURITIES.
Nothing to report.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Nothing to report.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Nothing to report.
Item 5. OTHER INFORMATION.
Timely Submission of Shareholder Proposals:
The Securities and Exchange Commission (the "SEC") requires a
registrant to give shareholders notice of deadlines for timely
submission of certain types of shareholder proposals that
shareholders wish to present for a vote at a registrant's annual
meeting. These deadlines are set based on certain SEC rules as they
relate to the registrant's annual meeting date and relevant
provisions of its articles and by-laws. Set forth below are the
deadlines applicable to the company's shareholders. The Board of
Directors has not yet acted to set the annual meeting date; the
following dates are based on an assumed meeting date of January 26,
1999 for the company's annual meeting.
As stated in last year's proxy statement, the deadline for
submission by shareholders of proposals they wished included in the
company's proxy statement was August 17, 1998. No shareholder
proposals were received by the company.
The Bylaws of the company require that advance notice of proposed
business at an annual meeting must be submitted in writing and
received by the Secretary of the company not later than 90 days in
advance of the annual meeting. If a shareholder does not notify the
company by October 29, 1998 of an intent to be present at the
Page 11<PAGE>
annual meeting in order to present a proposal for a vote (other than
a proposal for the nomination of a director), the company will have
the right to exercise its discretionary authority to vote against
the proposal, if presented, without including any information about
the proposal in its proxy materials.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
27 Financial Data Schedule
(b) Reports of Form 8-K - Nothing to report.
Page 12<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LONGVIEW FIBRE COMPANY
----------------------------------------------
(Registrant)
Date 9-11-98 \s\ L. J. Holbrook
----------------------- ----------------------------------------------
L. J. Holbrook, Senior Vice President-Finance,
Secretary and Treasurer
Date 9-11-98 \s\ A. G. Higgens
----------------------- ----------------------------------------------
A. G. Higgens, Assistant Treasurer
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PART I OF THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 89,189
<ALLOWANCES> 1,100
<INVENTORY> 92,218
<CURRENT-ASSETS> 189,995
<PP&E> 1,848,001
<DEPRECIATION> 834,273
<TOTAL-ASSETS> 1,263,074
<CURRENT-LIABILITIES> 143,796
<BONDS> 547,018
0
0
<COMMON> 77,515
<OTHER-SE> 340,547
<TOTAL-LIABILITY-AND-EQUITY> 1,263,074
<SALES> 556,358
<TOTAL-REVENUES> 556,358
<CGS> 493,638
<TOTAL-COSTS> 493,638
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,468
<INCOME-PRETAX> (11,804)
<INCOME-TAX> (4,131)
<INCOME-CONTINUING> (7,673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,673)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
