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 January 31, 1999 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.)
300 Fibre Way, 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 January 31, 1999
Page 1<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (000 Omitted)
Jan. 31 Oct. 31 Jan. 31
1999 1998 1998
(Unaudited) (Unaudited)
ASSETS
Current assets:
Accounts and notes receivable $ 82,139 $ 99,823 $ 83,603
Allowance for doubtful accounts 1,100 1,100 1,100
Taxes on income, refundable 750 7,020 881
Inventories, at lower of cost or market;
costs are based on last-in, first-out method
except for supplies at current averages
Finished goods 20,254 19,628 24,718
Goods in process 14,564 15,110 21,276
Raw materials and supplies 43,451 49,221 48,660
Other 8,749 8,136 8,484
Total current assets 168,807 197,838 186,522
Capital assets:
Buildings, machinery and equipment
at cost 1,633,565 1,629,580 1,593,101
Accumulated depreciation 867,451 850,268 795,329
Costs to be depreciated in
future years 766,114 779,312 797,772
Plant sites at cost 3,237 3,041 3,041
769,351 782,353 800,813
Timber at cost less depletion 193,888 193,979 195,824
Roads at cost less amortization 9,132 9,298 8,768
Timberland at cost 19,218 19,207 19,702
222,238 222,484 224,294
Total capital assets 991,589 1,004,837 1,025,107
Other assets 63,382 60,668 54,089
$1,223,778 $1,263,343 $1,265,718
LIABILITIES AND SHAREHOLDERS'EQUITY
Current liabilities:
Payable to bank resulting from
checks in transit $ 6,667 $ 10,042 $ 11,219
Accounts payable 35,144 37,251 42,299
Short-term borrowings 7,600 50,500 59,000
Payrolls payable 12,098 14,309 11,641
Other taxes payable 9,816 10,299 10,837
Current installments of long-term debt 20,119 20,119 14,118
Total current liabilities 91,444 142,520 149,114
Long-term debt 561,018 547,018 529,137
Deferred taxes-net 142,129 142,827 138,532
Other liabilities 16,485 16,029 14,770
Shareholders' equity:
Common stock, ascribed value $1.50 per share;
authorized 150,000,000 shares; issued
51,676,567 shares 77,515 77,515 77,515
Additional paid-in capital 3,306 3,306 3,306
Retained earnings 331,881 334,128 353,344
Total shareholders' equity 412,702 414,949 434,165
$1,223,778 $1,263,343 $1,265,718
The accompanying note is an integral part of these financial statements.
Page 2<PAGE>
Consolidated Statement of Income (Unaudited)
(000 Omitted)
Three Months Ended
January 31
1999 1998
Net sales:
Timber $ 36,249 $ 35,395
Paper and paperboard 37,238 46,824
Converted products 89,837 93,998
163,324 176,217
Cost of products sold, including outward freight 140,993 162,183
Gross profit 22,331 14,034
Selling, administrative and general expenses 14,998 15,988
Operating profit (loss):
Timber 17,382 16,110
Paper and paperboard (2,945) (5,723)
Converted products (7,104) (12,341)
7,333 (1,954)
Other income (expense):
Interest income 121 152
Interest expensed (9,693) (9,443)
Miscellaneous 314 363
(1,925) (10,882)
Provision for taxes on income:
Current (14) (718)
Deferred (698) (3,091)
(712) (3,809)
Net income (loss) $ (1,213) $ (7,073)
Dollars per share:
Net income (loss) $ (0.02) $ (0.14)
Dividends 0.02 0.16
Average shares outstanding in the hands
of the public (000 omitted) 51,677 51,677
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
January 31
1999 1998
Cash provided by (used for) operations:
Net income $ (1,213) $ (7,073)
Charges to income not requiring cash -
Depreciation 20,049 21,176
Depletion and amortization 1,014 1,230
Deferred taxes - net (698) (3,091)
Loss on disposition of capital assets 163 439
Change in:
Accounts and notes receivable 17,684 22,247
Taxes on income, refundable 6,270 (188)
Inventories 5,690 (10,152)
Other (613) (745)
Other noncurrent assets (2,714) (4,231)
Accounts, payrolls and other taxes payable (2,616) (4,814)
Other noncurrent liabilities 456 436
Cash provided by operations 43,472 15,234
Cash provided by (used for) investing:
Additions to: Plant and equipment (7,507) (22,200)
Timber and timberlands (786) (12,458)
Proceeds from sale of capital assets 315 67
Cash used for investing (7,978) (34,591)
Cash provided by (used for) financing:
Long-term debt 14,000 31,000
Short-term borrowings (42,900) 3,000
Payable to bank resulting from checks in transit (3,375) 1,385
Accounts payable for construction (2,185) (7,760)
Cash dividends (1,034) (8,268)
Cash provided by (used for) financing (35,494) 19,357
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) $ 8,208 $ 7,933
Income taxes (6,306) (657)
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
January 31
1999 1998
Common stock:
Balance at beginning of period $ 77,515 $ 77,515
Balance at end of period $ 77,515 $ 77,515
Additional paid-in capital:
Balance at beginning of period $ 3,306 $ 3,306
Balance at end of period $ 3,306 $ 3,306
Retained earnings:
Balance at beginning of period $ 334,128 $ 368,685
Net income (1,213) (7,073)
Less cash dividends on common stock (1,034) (8,268)
Balance at end of period $ 331,881 $ 353,344
Dividends paid per share $ 0.02 $ 0.16
Common shares:
Balance at beginning of period 51,677 51,677
Balance at end of period 51,677 51,677
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 MONTHS ENDED JANUARY 31, 1999 COMPARED WITH
THREE MONTHS ENDED JANUARY 31, 1998
A net loss of $1.2 million was incurred in the first fiscal quarter of 1999 as
compared with net loss of $7.1 million in the first fiscal quarter of 1998.
The loss resulted from operating losses incurred in the manufacturing segments
of the business.
TIMBER
Operating profits improved 8% in the first quarter 1999 as compared with the
first quarter 1998. The primary reason for the improvement was a 15% increase
in log footage sold. First quarter 1999 average log prices declined 7% as
compared with year-ago levels. Lumber footage sold decreased 18% while average
lumber prices held steady with first quarter 1998 levels.
Demand for export logs has been stable and the average price for export logs
remains comparable to year-ago levels. Domestic demand for logs was good
during the first quarter, but average prices declined due to depressed lumber
prices. However, lumber prices substantially improved late in the quarter due
to reduced supply in the marketplace. A modest domestic log price increase has
been implemented.
PAPER AND PAPERBOARD
Operating losses for paper and paperboard decreased to $2.9 million from $5.7
million in the first quarter 1999 compared with the first quarter 1998. The
improved results were primarily caused by lower labor costs and improved
operating efficiencies associated with the curtailed mill operating schedule
adopted last year and reduced raw material costs. Wood chip and old corrugated
containers (OCC) costs were 9% and 28% lower in the first quarter 1999 as
compared with the first quarter 1998. The volume of paper sold in the first
quarter 1999 held steady with first quarter 1998 levels, but average price
declined 6%. As a result of slow Asian markets, the volume of paperboard sold
declined 42% and average price declined 10%. An 11-day shutdown was taken to
improve the balance of incoming orders and machine production.
Export linerboard and paper markets, particularly in Asia, continued to be
slow. Domestic markets have been adversely affected by the soft Asian markets.
It appears the gap between linerboard supply and end user demand has been
reduced and that prices have bottomed out. Linerboard price increases have
been announced for domestic and export markets.
CONVERTED PRODUCTS
First quarter sales decreased 4% as a result of a 3% reduction in volume sold
and a 1% reduction in average price. Operating losses from converted products
decreased to $7.1 million in first quarter 1999 from $12.3 million in first
quarter 1998 due to lower costs for containerboard used to manufacture boxes
and lower box plant converting costs.
Page 7<PAGE>
Demand was at satisfactory levels during the first quarter 1999, but some box
price deterioration has occurred due to recent containerboard price decreases.
The company continues to develop its specialty and niche products and to reduce
costs in order to improve margins.
OTHER
Interest expensed increased 3% for the first quarter 1999 as compared with the
like period in 1998 due to proportionately less interest capitalized for
uncompleted capital projects.
During the quarter ended January 31, 1999, the company adjusted the estimated
useful lives of some capital assets. The estimated useful lives now range from
20 to 40 years for buildings and principally from 12 to 18 years for machinery
and equipment. The change contributed to the reduction of first quarter
depreciation expense of $1.1 million as compared with first quarter 1998.
INCOME TAXES
Taxes are approximately 37% and 35% of pretax income (loss) for fiscal 1999 and
1998, respectively.
Three Months
Ended January 31
OTHER DATA %
1999 1998 CHANGE
Sales
Logs, thousands of board feet 54,000 47,000 + 15
Lumber, thousands of board feet 14,000 17,000 - 18
Paper, tons 49,000 49,000 -
Paperboard, tons 25,000 43,000 - 42
Converted products, tons 123,000 127,000 - 3
Logs, $/thousand board feet $ 589 $ 635 - 7
Lumber, $/thousand board feet 336 335 -
Paper, $/ton FOB mill equivalent 571 606 - 6
Paperboard, $/ton FOB mill equivalent 310 343 - 10
Converted products, $/ton 733 741 - 1
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, 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 the
first fiscal quarter 1999, the company had outstanding $240 million of notes
payable under this agreement. At January 31, 1999, the company had an
outstanding balance of $72.6 million under the remaining $120 million of lines
of credit. Also outstanding at January 31, 1999, were senior notes of $247
million and revenue bonds of $28.9 million.
For the quarter ended January 31, 1999, the company obtained amendments 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 available
for fixed charges to fixed charges. The amendments reducing the coverage
requirements are effective for the quarter ending January 31, 1999 through the
Page 8<PAGE>
quarter ending January 31, 2000. In connection with the grant of the
amendments, the company agreed to pay 0.75% per annum over the original note
coupon rates until certain conditions are met and to pay certain additional
fees.
In an effort to reduce the high level of total debt incurred in fiscal 1998,
the company significantly reduced capital expenditures and its cash dividend.
As a result, total borrowing was reduced by $28.9 million from the end of
fiscal year 1998. Capital expenditures for plant and equipment is expected to
be approximately $30 million for fiscal 1999. The current backlog of approved
projects is $15 million. During the quarter, the company did not purchase any
of its common stock. Cash dividends of $0.02 per share were declared and paid
in the first quarter in the aggregate of $1,034,000. Restoration of dividends
to the prior level is a high priority, which will be accomplished when
operating results and debt levels make increased dividends prudent.
YEAR 2000 ISSUES
The company is committed to reducing or eliminating the effects of the Year
2000 ("Y2K") issues on its information 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 readiness and to implement corrective measures for
non-compliant systems and equipment. We plan to have most of our systems that
are material and critical to the conduct of our business ready by September 1,
1999. The company plans to be Y2K ready by December 31, 1999. The
identification and inventory phases are complete and departmental action plans
have been developed and are being executed. The formal documentation of these
plans is in progress. The program is designed to assess current readiness, to
implement corrective measures for systems and equipment that are not ready,
test systems where possible, assess risks, and establish contingency plans. We
estimate that over 80% of identified inventory is ready or has been corrected
by our efforts. We are addressing Y2K readiness with our vendors, principal
customers and business partners. The estimated remediation cost is
approximately $2,500,000 of which $1,200,000 has been incurred to date. Some
aspects of the Y2K situation are beyond our reasonable control; for example,
readiness by our customers, vendors, utility and transportation providers,
business partners and the possible effects of Y2K issues on national and
worldwide communications and banking services.
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 capital projects and paper mill operating schedules, 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,
Page 9<PAGE>
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. The company does not undertake any
obligation to update forward-looking statements should circumstances or the
company's estimates or projections change.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
The company has not engaged in commodity, currency or interest rate hedging
arrangements or engaged in transactions involving derivatives.
Accounts receivable, revenue bonds and notes payable to banks approximate fair
value as reported in the balance sheet. The fair value of senior notes is
estimated using discounted cash flow analyses, based on the company's
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the company's long-term debt exceeded the stated value by
approximately $1 million at January 31, 1999.
Page 10<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.
The Annual Meeting of Shareholders of Longview Fibre Company was held
on January 26, 1999 at which time three Class III directors were
elected.
CLASS III DIRECTORS ELECTED
(Terms to Expire in 2002) Votes Cast
For Withheld Abstentions
Richard P. Wollenberg 45,892,441 234,560 990,065
Robert B. Arkell 45,952,117 174,884 990,065
M. Alexis Dow 45,925,090 201,911 990,065
DIRECTORS WHOSE TERM CONTINUES
CLASS I DIRECTORS
(Terms to Expire in 2000)
David A. Wollenberg
David L. Bowden
Richard H. Wollenberg
Richard J. Parker
CLASS II DIRECTORS
(Terms to Expire in 2001)
Robert E. Wertheimer
Donald C. Stibich
Lisa J. Holbrook
John R. Kretchmer
ITEM 5. OTHER INFORMATION.
Nothing to report.
Page 11<PAGE>
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) A Form 8-K was filed on December 18,1998 listing Item 5 and
Item 7.
A Form 8-A/A was filed on December 18, 1998 listing Item 1 and
Item 2.
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 3-17-99 \s\ L. J. Holbrook
L. J. Holbrook, Senior Vice President-Finance,
Secretary and Treasurer
Date 3-17-99 \s\ A. G. Higgens
A. G. Higgens, Assistant Treasurer
Page 13
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<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.
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<BONDS> 561,018
0
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<COMMON> 77,515
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