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, 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 July 31, 1999
Page 1<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (000 Omitted)
Jul. 31 Oct. 31 Jul. 31
1999 1998 1998
(Unaudited) (Unaudited)
ASSETS
Current assets:
Accounts and notes receivable $ 88,957 $ 99,823 $ 89,189
Allowance for doubtful accounts 1,100 1,100 1,100
Taxes on income, refundable - 7,020 16
Inventories, at lower of cost or market;
costs are based on last-in, first-out method
except for supplies at current averages
Finished goods 19,009 19,628 25,616
Goods in process 14,188 15,110 17,958
Raw materials and supplies 40,726 49,221 48,644
Other 7,874 8,136 9,672
Total current assets 169,654 197,838 189,995
Capital assets:
Buildings, machinery and equipment at cost 1,634,982 1,629,580 1,621,978
Accumulated depreciation 901,618 850,268 834,273
Costs to be depreciated in future years 733,364 779,312 787,705
Plant sites at cost 3,116 3,041 3,041
736,480 782,353 790,746
Timber at cost less depletion 193,737 193,979 195,479
Roads at cost less amortization 8,852 9,298 9,034
Timberland at cost 19,233 19,207 18,469
221,822 222,484 222,982
Total capital assets 958,302 1,004,837 1,013,728
Other assets 69,453 60,668 59,351
$1,197,409 $1,263,343 $1,263,074
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank resulting from
checks in transit $ 3,281 $ 10,042 $ 4,860
Accounts payable 39,024 37,251 40,896
Short-term borrowings 20,000 50,500 60,500
Payrolls payable 12,020 14,309 11,507
Federal income taxes payable 929 - -
Other taxes payable 9,608 10,299 11,915
Current installments of long-term debt 10,118 20,119 14,118
Total current liabilities 94,980 142,520 143,796
Long-term debt 520,900 547,018 547,018
Deferred taxes-net 147,410 142,827 138,554
Other liabilities 17,397 16,029 15,644
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 335,901 334,128 337,241
Total shareholders' equity 416,722 414,949 418,062
$1,197,409 $1,263,343 $1,263,074
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
1999 1998 1999 1998
Net sales:
Timber $ 44,407 $ 42,931 $ 123,551 $ 121,976
Paper and paperboard 64,105 53,111 151,459 145,544
Converted products 89,081 98,161 272,332 288,838
197,593 194,203 547,342 556,358
Cost of products sold, including
outward freight 166,473 163,890 461,590 493,638
Gross profit 31,120 30,313 85,752 62,720
Selling, administrative
and general expenses 15,876 15,863 46,728 48,176
Operating profit (loss):
Timber 21,779 19,954 61,775 57,263
Paper and paperboard (1,823) 165 (7,509) (11,677)
Converted products (4,712) (5,669) (15,242) (31,042)
15,244 14,450 39,024 14,544
Other income (expense):
Interest income 94 156 389 493
Interest expensed (9,463) (10,454) (28,718) (29,468)
Miscellaneous 407 1,986 1,964 2,627
6,282 6,138 12,659 (11,804)
Provision for taxes on income:
Current 50 123 101 (1,062)
Deferred 2,274 2,026 4,583 (3,069)
2,324 2,149 4,684 (4,131)
Net income (loss) $ 3,958 $ 3,989 $ 7,975 $ (7,673)
Dollars per share:
Net income (loss) $ 0.08 $ 0.08 $ 0.15 $ (0.15)
Dividends 0.08 0.14 0.12 0.46
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 Nine Months Ended
July 31 July 31
1999 1998 1999 1998
Cash provided by (used for)
operations:
Net income (loss) $ 3,958 $ 3,989 $ 7,975 $ (7,673)
Charges to income not
requiring cash -
Depreciation 19,886 22,306 59,950 65,221
Depletion and amortization 1,067 1,664 3,032 4,401
Deferred taxes - net 2,274 2,026 4,583 (3,069)
(Gain) loss on disposition of
capital assets 82 (1,640) (373) (965)
Change in:
Accounts and notes receivable (1,232) (3,387) 10,866 16,661
Taxes on income, refundable - 48 7,020 677
Inventories 422 639 10,036 (7,716)
Other 404 (1,419) 262 (1,933)
Other noncurrent assets (3,112) (2,323) (8,785) (9,493)
Accounts, payrolls and other
taxes payable 4,119 (32) 1,192 (4,092)
Federal income taxes payable 31 - 929 -
Other noncurrent liabilities 456 437 1,368 1,310
Cash provided by operations 28,355 22,308 98,055 53,329
Cash provided by (used for)
investing:
Additions to: Plant and equipment (5,379) (11,699) (18,415) (58,807)
Timber and timberland (463) (789) (2,298) (14,580)
Proceeds from sale of capital
assets 177 2,167 4,639 4,363
Cash used for investing (5,665) (10,321) (16,074) (69,024)
Cash provided by (used for)
financing:
Long-term debt (20,119) (119) (36,119) 48,881
Short-term borrowings 5,000 1,500 (30,500) 4,500
Payable to bank resulting from
checks in transit (3,474) (6,212) (6,761) (4,974)
Accounts payable for construction 38 78 (2,399) (8,941)
Cash dividends (4,135) (7,234) (6,202) (23,771)
Cash provided by (used for)
financing (22,690) (11,987) (81,981) 15,695
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) $ 7,710 $ 8,991 $ 27,078 $ 27,792
Income taxes 19 1 (7,904) (1,948)
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
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 $ 336,078 $ 340,486 $ 334,128 $ 368,685
Net income (loss) 3,958 3,989 7,975 (7,673)
Less cash dividends on common
stock (4,135) (7,234) (6,202) (23,771)
Balance at end of period $ 335,901 $ 337,241 $ 335,901 $ 337,241
Dividends paid per share $ 0.08 $ 0.14 $ 0.12 $ 0.46
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 NINE MONTHS ENDED JULY 31, 1999 COMPARED WITH
THREE AND NINE MONTHS ENDED JULY 31, 1998
Operating profits improved 5% for the third quarter 1999 compared with the third
quarter 1998, but net income declined 1% due primarily to an 80% decrease in
miscellaneous income. Net income for year-to-date 1999 was $8.0 million as
compared with a net loss of $7.7 million for year-to-date 1998. Year-to-date
operating results in all segments of the business improved.
TIMBER
Operating profits improved 9% for the third quarter 1999 as compared with the
third quarter 1998 due primarily to a 3% increase in average log price and a 25%
increase in average lumber price. Log volume sold decreased 13%, while lumber
volume sold increased 56%. For the year-to-date period, operating profits
improved 8% due primarily to a 15% increase in lumber volume sold and an 11%
increase in average lumber price.
During the third quarter, demand and prices were stable in the export market.
Domestic demand for logs was good during the third quarter and average price
improved due to increased lumber prices.
PAPER AND PAPERBOARD
The third quarter 1999 operating loss for paper and paperboard was $1.8 million
compared with the third quarter 1998 operating profit of $0.2 million. The
primary reason for the reduced results was a decrease in average selling price
caused by proportionately more paperboard tonnage sold (product mix) and average
paper prices decreasing 8%. Average paperboard prices were comparable to
year-ago levels. The volume of paper and paperboard sold increased 3% and 114%,
respectively, in the third quarter 1999 as compared with the third quarter 1998.
The mill operated at about 86% capacity which included a 7-day shutdown for
mechanical and annual maintenance purposes. Wood chip costs were 9% lower while
old corrugated containers (OCC) costs were 2% higher in the third quarter 1999
as compared with year-ago levels. Operating losses for year-to-date 1999 were
$7.5 million as compared with $11.7 million for the year-ago period. The
improved results were caused primarily by a 10% and 17% decrease in the cost of
wood chips and OCC, respectively, and lower operating costs.
Domestic linerboard markets strengthened as a result of reduced supply and
increased end user demand. Export linerboard markets improved due to improved
demand and reduced availability of linerboard caused by certain suppliers
exiting the market. Price increases for the domestic linerboard market were
announced for August. Third quarter 1999 average export linerboard prices
improved 9% from second quarter 1999 levels.
CONVERTED PRODUCTS
Third quarter 1999 operating losses decreased to $4.7 million from $5.7 million
in the third quarter 1998 due to a 1% increase in average price. The volume of
product sold decreased 10% for the third quarter as compared with year-ago
levels. Year-to-date 1999 operating losses decreased to $15.2 million from
Page 7<PAGE>
$31.0 million. The primary reasons for the improvement were lower costs for
containerboard used to manufacture boxes and lower box plant converting costs.
Demand was at satisfactory levels during the third quarter 1999 although certain
regions were slow. The company has announced a second price increase for fiscal
1999, effective August 1999. The company continues to develop its specialty and
niche products and to reduce costs in order to improve margins.
OTHER
Interest expensed in the third quarter 1999 decreased 9% as compared with third
quarter 1998 due to a lower level of borrowing. For the year-to-date period,
interest expensed decreased 3%.
Included in miscellaneous income for the third quarter 1998 was a gain on
timberland sales in the amount of $1.5 million.
The company adjusted the estimated useful lives of certain capital assets at the
beginning of the fiscal year which contributed to the 8% year-to-date decrease
in depreciation expense.
INCOME TAXES
Taxes are approximately 37% and 35% of pretax income for fiscal 1999 and 1998,
respectively.
OTHER DATA Three Months Nine Months
Ended July 31 Ended July 31
% %
1999 1998 Change 1999 1998 Change
Sales
Logs, thousands of board feet 56,000 64,000 - 13 167,000 171,000 - 2
Lumber, thousand of board feet 25,000 16,000 + 56 61,000 53,000 +15
Paper, tons 64,000 62,000 + 3 165,000 165,000 --
Paperboard, tons 75,000 35,000 +114 161,000 109,000 +48
Converted products, tons 115,000 128,000 - 10 366,000 383,000 - 4
Logs, $/thousand board feet $ 605 $ 587 + 3 $ 603 $ 608 - 1
Lumber, $/thousand board feet 411 328 + 25 374 336 +11
Paper, $/ton FOB mill equivalent 567 613 - 8 563 604 - 7
Paperboard, $/ton FOB mill equiv. 367 368 -- 325 360 -10
Converted products, $/ton 774 766 + 1 744 754 - 1
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1999, the company had bank lines of credit totaling $347 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 third
fiscal quarter 1999, the company had outstanding $220 million of notes payable
under this agreement. At July 31, 1999, the company had an outstanding balance
of $65 million under the remaining $87 million of lines of credit. Also
outstanding at July 31, 1999, were senior notes of $237 million and revenue
bonds of $28.9 million.
Page 8<PAGE>
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
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
has paid an additional one time fee.
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 $66.6 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 $23 million. During the quarter, the company did not purchase any
of its common stock. Cash dividends of $0.08 per share were declared and paid
in the third quarter in the aggregate of $4,135,000. 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
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 92% 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 30, 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 $2,600,000 of which $1,900,000 has been incurred to date.
While the company believes that its systems 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.
Page 9<PAGE>
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements concerning anticipated
pricing and market conditions for the company's products, the expected amount of
and results of capital improvement projects and niche market development, paper
mill 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 9-10-99 \s\ L. J. Holbrook
L. J. Holbrook, Senior Vice President-Finance,
Secretary and Treasurer
Date 9-10-99 \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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<PP&E> 1,859,920
<DEPRECIATION> 901,618
<TOTAL-ASSETS> 1,197,409
<CURRENT-LIABILITIES> 94,980
<BONDS> 520,900
0
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<COMMON> 77,515
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