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 April 30, 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 April 30, 1999
Page 1<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (000 Omitted)
Apr. 30 Oct. 31 Apr. 30
1999 1998 1998
(Unaudited) (Unaudited)
ASSETS
Current assets:
Accounts and notes receivable $ 87,725 $ 99,823 $ 85,802
Allowance for doubtful accounts 1,100 1,100 1,100
Taxes on income, refundable - 7,020 64
Inventories, at lower of cost or market;
costs are based on last-in, first-out method
except for supplies at current averages
Finished goods 19,196 19,628 25,445
Goods in process 13,655 15,110 19,220
Raw materials and supplies 41,494 49,221 48,192
Other 8,278 8,136 8,253
Total current assets 169,248 197,838 185,876
Capital assets:
Buildings, machinery and equipment at cost 1,631,984 1,629,580 1,611,987
Accumulated depreciation 883,869 850,268 813,392
Costs to be depreciated in future years 748,115 779,312 798,595
Plant sites at cost 3,116 3,041 3,041
751,231 782,353 801,636
Timber at cost less depletion 194,250 193,979 197,014
Roads at cost less amortization 8,967 9,298 8,601
Timberland at cost 19,224 19,207 18,486
222,441 222,484 224,101
Total capital assets 973,672 1,004,837 1,025,737
Other assets 66,341 60,668 57,028
$1,209,261 $1,263,343 $1,268,641
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank resulting from
checks in transit $ 6,755 $ 10,042 $ 11,072
Accounts payable 33,214 37,251 39,695
Short-term borrowings 15,000 50,500 59,000
Payrolls payable 14,883 14,309 14,376
Federal income taxes payable 898 - -
Other taxes payable 8,398 10,299 10,201
Current installments of long-term debt 20,119 20,119 14,118
Total current liabilities 99,267 142,520 148,462
Long-term debt 531,018 547,018 547,137
Deferred taxes-net 145,136 142,827 136,528
Other liabilities 16,941 16,029 15,207
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 336,078 334,128 340,486
Total shareholders' equity 416,899 414,949 421,307
$1,209,261 $1,263,343 $1,268,641
The accompanying note is an integral part of these financial statements.
Page 2<PAGE>
Consolidated Statement of Income (Unaudited)
(000 Omitted)
Three Months Ended Six Months Ended
April 30 April 30
1999 1998 1999 1998
Net sales:
Timber $ 42,895 $ 43,650 $ 79,144 $ 79,045
Paper and paperboard 50,116 45,609 87,354 92,433
Converted products 93,414 96,679 183,251 190,677
186,425 185,938 349,749 362,155
Cost of products sold, including
outward freight 154,124 167,565 295,117 329,748
Gross profit 32,301 18,373 54,632 32,407
Selling, administrative
and general expenses 15,854 16,325 30,852 32,313
Operating profit (loss):
Timber 22,614 21,199 39,996 37,309
Paper and paperboard (2,741) (6,119) (5,686) (11,842)
Converted products (3,426) (13,032) (10,530) (25,373)
16,447 2,048 23,780 94
Other income (expense):
Interest income 174 185 295 337
Interest expensed (9,562) (9,571) (19,255) (19,014)
Miscellaneous 1,243 278 1,557 641
8,302 (7,060) 6,377 (17,942)
Provision for taxes on income:
Current 65 (467) 51 (1,185)
Deferred 3,007 (2,004) 2,309 (5,095)
3,072 (2,471) 2,360 (6,280)
Net income (loss) $ 5,230 $ (4,589) $ 4,017 $ (11,662)
Dollars per share:
Net income (loss) $ 0.10 $ (0.09) $ 0.08 $ (0.23)
Dividends 0.02 0.16 0.04 0.32
Average shares outstanding in the
hands of the public (000 omitted) 51,677 51,677 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 Six Months Ended
April 30 April 30
1999 1998 1999 1998
Cash provided by (used for)
operations:
Net income (loss) $ 5,230 $ (4,589) $ 4,017 $ (11,662)
Charges to income not
requiring cash -
Depreciation 20,015 21,739 40,064 42,915
Depletion and amortization 951 1,507 1,965 2,737
Deferred taxes - net 3,007 (2,004) 2,309 (5,095)
(Gain) loss on disposition of
capital assets (618) 236 (455) 675
Change in:
Accounts and notes receivable (5,586) (2,199) 12,098 20,048
Taxes on income, refundable 750 817 7,020 629
Inventories 3,924 1,797 9,614 (8,355)
Other 471 231 (142) (514)
Other noncurrent assets (2,959) (2,939) (5,673) (7,170)
Accounts, payrolls and other
taxes payable (311) 754 (2,927) (4,060)
Federal income taxes payable 898 - 898 -
Other noncurrent liabilities 456 437 912 873
Cash provided by operations 26,228 15,787 69,700 31,021
Cash provided by (used for)
investing:
Additions to: Plant and equipment (5,529) (24,908) (13,036) (47,108)
Timber and timberland (1,049) (1,333) (1,835) (13,791)
Proceeds from sale of capital
assets 4,147 2,129 4,462 2,196
Cash used for investing (2,431) (24,112) (10,409) (58,703)
Cash provided by (used for)
financing:
Long-term debt (30,000) 18,000 (16,000) 49,000
Short-term borrowings 7,400 - (35,500) 3,000
Payable to bank resulting from
checks in transit 88 (147) (3,287) 1,238
Accounts payable for construction (252) (1,259) (2,437) (9,019)
Cash dividends (1,033) (8,269) (2,067) (16,537)
Cash provided by (used for)
financing (23,797) 8,325 (59,291) 27,682
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) $ 11,166 $ 10,868 $ 19,368 $ 18,801
Income taxes (1,617) (1,292) (7,923) (1,949)
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 Six Months Ended
April 30 April 30
1999 1998 1999 1998
Common stock:
Balance at beginning of period $ 77,515 $ 77,515 $ 77,515 $ 77,515
Balance at end of period $ 77,515 $ 77,515 $ 77,515 $ 77,515
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 $ 331,881 $ 353,344 $ 334,128 $ 368,685
Net income (loss) 5,230 (4,589) 4,017 (11,662)
Less cash dividends on common
stock (1,033) (8,269) (2,067) (16,537)
Balance at end of period $ 336,078 $ 340,486 $ 336,078 $ 340,486
Dividends paid per share $ 0.02 $ 0.16 $ 0.04 $ 0.32
Common shares:
Balance at beginning of period 51,677 51,677 51,677 51,677
Balance at end of period 51,677 51,677 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 AND SIX MONTHS ENDED APRIL 30, 1999 COMPARED WITH
THREE AND SIX MONTHS ENDED APRIL 30, 1998
Net income for the second quarter 1999 was $5.2 million as compared with a net
loss of $4.6 million in the second fiscal quarter of 1998. For the year-to-date
periods, net income of $4.0 million was incurred in 1999 versus a net loss of
$11.7 million in 1998. Operating results in all segments of the business
improved from year-ago levels.
TIMBER
Operating profits improved 7% for the second quarter 1999 as compared with the
second quarter 1998 due primarily to a 1% increase in average log price and a 4%
increase in average lumber prices. Log volume sold decreased 5% while lumber
volume sold increased 10%. For the year-to-date period, operating profits
improved 7% due primarily to a 4% increase in log volume sold and a 3% increase
in average lumber price.
During the second quarter, demand and prices were stable in the export market.
Domestic demand for logs was good and average price increased due to improved
lumber markets.
PAPER AND PAPERBOARD
Operating losses for paper and paperboard decreased to $2.7 million from $6.1
million in the second quarter 1999 compared with the second quarter 1998. The
primary reasons for the improvement were lower raw material costs, lower
operating costs and increased volume sold. Wood chip costs and old corrugated
container (OCC) costs were 12% and 24% lower in the second quarter 1999 as
compared with the second quarter 1998. The volume of paper and paperboard sold
in the second quarter 1999 increased 33% compared with year-ago levels. Due to
increased incoming order pattern from Asia, the mill operated at approximately
86% of capacity in the second quarter. Average paper and paperboard prices
declined 7% and 16% from year-ago levels. Operating losses for year-to-date
1999 were $5.7 million as compared with $11.8 million for year-to-date 1998.
The improved results were caused by a 10% and 26% decrease in the cost of wood
chips and OCC and lower operating costs.
Paper markets, both domestic and export, continue to be slow. The gap between
linerboard supply and end user demand has been substantially reduced and price
increases were implemented in steps during the second quarter. An additional
linerboard price increase for the export market has been announced.
CONVERTED PRODUCTS
Second quarter 1999 operating losses decreased to $3.4 million from $13.0
million in the second quarter 1998. The primary causes for the improvement were
lower costs for containerboard used to manufacture boxes and lower box plant
converting costs. The volume sold during the quarter held steady with year-ago
levels but average price declined 4%. Year-to-date operating losses decreased
to $10.5 million from $25.4 million.
Page 7<PAGE>
Demand was at satisfactory levels during the second quarter 1999 and price
increases were implemented in April. The company continues to develop its
specialty and niche products and to reduce costs in order to improve margins.
OTHER
Interest expensed in the second quarter 1999 held steady with year-ago levels.
Total borrowing was reduced but the resulting reduction in interest expensed was
substantially offset by proportionately less interest capitalized for
uncompleted capital projects.
The company adjusted the estimated useful lives of some capital assets at the
beginning of the fiscal year. 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 second quarter
depreciation expense of $1.7 million as compared with second quarter 1998 and
the reduction of year-to-date 1999 depreciation expense of $2.9 million as
compared with year-to-date 1998.
INCOME TAXES
Taxes are approximately 37% and 35% of pretax income (loss) for fiscal 1999 and
1998, respectively.
OTHER DATA Three Months Six Months
Ended April 30 Ended April 30
% %
1999 1998 Change 1999 1998 Change
Sales
Logs, thousands of board feet 57,000 60,000 - 5 111,000 107,000 + 4
Lumber, thousand of board feet 22,000 20,000 +10 36,000 37,000 - 3
Paper, tons 52,000 54,000 - 4 101,000 103,000 - 2
Paperboard, tons 61,000 31,000 +97 86,000 74,000 +16
Converted products, tons 128,000 128,000 -- 251,000 255,000 - 2
Logs, $/thousand board feet $ 615 $ 610 + 1 $ 602 $ 621 - 3
Lumber, $/thousand board feet 357 343 + 4 349 339 + 3
Paper, $/ton FOB mill equivalent 549 593 - 7 560 599 - 7
Paperboard, $/ton FOB mill equiv. 315 373 -16 314 356 -12
Converted products, $/ton 729 757 - 4 731 749 - 2
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1999, the company had bank lines of credit totaling $377 million.
Of this amount $260 million was under a credit agreement with a group of banks
expiring February 28, 2001. The agreement provides for borrowing 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
second fiscal quarter 1999, the company had outstanding $230 million of notes
payable under this agreement. At April 30, 1999, the company had an outstanding
balance of $60 million under the remaining $117 million of lines of credit.
Also outstanding at April 30, 1999, were senior notes of $247 million and
revenue bonds of $28.9 million.
The company has obtained amendments from the holders of certain senior notes
with respect to compliance with covenants that require the company to maintain a
Page 8<PAGE>
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 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 $51.5 million from the end of fiscal year
1998. Capital expenditures for plant and equipment are expected to be
approximately $30 million for fiscal 1999. The current backlog of approved
projects is $16 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 second quarter in the aggregate of $1,033,000. Restoration of dividends
to the prior levels is a high priority, which will be accomplished when
operating results and debt levels make increased dividends prudent.
YEAR 2000 ISSUES
Y2K compliance is not an issue for our products. We are committed to
eliminating or reducing the effects of the Y2K issues on our information systems
and production processes. 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 program is designed to assess
current readiness and to implement corrective measures for non-compliant systems
and equipment. The identification and inventory phases are complete.
Departmental action plans have been developed and are being executed. 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 90% of
identified inventory is Y2K ready or has been corrected by our efforts. We plan
to have most of our systems that are material and critical to the conduct of our
business Y2K ready by September 1, 1999. The company plans to be Y2K ready by
December 31, 1999. We are addressing Y2K readiness with our vendors, principal
customers and business partners. The estimated remediation cost is
approximately $2,900,000 of which $1,700,000 has been incurred to date.
While the company believes that its sytems will be Y2K ready by January 1, 2000,
there can be no guarantee that problems will not arise pertaining to Y2K
readiness of our systems or that vendors, utility and transportation providers,
business partners, banks, communication providers or customers will adequately
address their Y2K readiness. At this time, the company's view of the most
reasonably likely worst case scenario is the occurrence of temporary unscheduled
down-time at its facilities resulting from internal system difficulties or third
party failures that could have an adverse affect on our operations and financial
results. We are currently developing contingency plans in the event that
systems that are material and critical to the conduct of our business or our
providers encounter unforeseen Y2K related problems. Though it is impossible to
predict all potential Y2K uncertainties, the company believes that its Y2K
project will significantly reduce our risk of potential loss.
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 capital improvement projects and niche market development, paper mill
Page 9<PAGE>
operating rates, the anticipated cost of and availability of financing, 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, 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.
No disclosure is required under this item.
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.
Nothing to report.
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 10<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 6-10-99 \s\ L. J. Holbrook
L. J. Holbrook, Senior Vice President-Finance,
Secretary and Treasurer
Date 6-10-99 \s\ A. G. Higgens
A. G. Higgens, Assistant Treasurer
Page 11
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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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<PERIOD-END> APR-30-1999
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0
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<COMMON> 77,515
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