10-Q 1 second.txt 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, 2001 Commission File No. 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 51,076,567 Common Shares were outstanding as of June 13, 2001 Page 1 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet (000 Omitted) Apr. 30 Oct. 31 Apr. 30 2001 2000 2000 (Unaudited) (Unaudited) ASSETS Current assets: Accounts and notes receivable $ 95,852 $ 114,843 $ 100,168 Allowance for doubtful accounts 1,350 1,350 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 17,968 21,705 22,807 Goods in process 11,433 15,376 11,877 Raw materials and supplies 41,011 44,942 39,930 Other 10,011 9,532 9,629 Total current assets 174,925 205,048 183,311 Capital assets: Buildings, machinery and equipment at cost 1,754,032 1,717,587 1,656,095 Accumulated depreciation 979,504 961,379 939,550 Costs to be depreciated in future years 774,528 756,208 716,545 Plant sites at cost 3,444 3,444 3,116 777,972 759,652 719,661 Timber at cost less depletion 192,682 192,778 193,713 Roads at cost less amortization 9,211 9,627 8,851 Timberland at cost 20,218 19,880 19,302 222,111 222,285 221,866 Total capital assets 1,000,083 981,937 941,527 Pension and other assets 100,020 89,705 82,181 $1,275,028 $1,276,690 $1,207,019 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Payable to bank resulting from checks in transit $ 7,951 $ 9,385 $ 7,697 Accounts payable 47,513 61,388 46,131 Short-term borrowings 23,380 43,070 8,000 Payrolls payable 17,176 16,576 15,540 Federal income taxes payable 337 2,638 2,535 Other taxes payable 8,644 9,613 9,274 Current installments of long-term debt 45,000 20,000 30,118 Total current liabilities 150,001 162,670 119,295 Long-term debt 498,900 490,900 480,900 Deferred taxes-net 180,166 171,518 162,434 Other liabilities 20,430 19,560 18,620 Shareholders' equity: Common stock, ascribed value $1.50 per share; authorized 150,000,000 shares; issued 51,076,567, 51,576,567 and 51,676,567 shares, respectively 76,615 77,365 77,515 Additional paid-in capital 3,306 3,306 3,306 Retained earnings 345,610 351,371 344,949 Total shareholders' equity 425,531 432,042 425,770 $1,275,028 $1,276,690 $1,207,019 The accompanying note is an integral part of these financial statements. Page 2 Consolidated Statement of Income (Unaudited) (000 Omitted) Three Months Ended Six Months Ended April 30 April 30 2001 2000 2001 2000 Net sales: Timber $ 36,829 $ 44,329 $ 71,803 $ 82,475 Paper and paperboard 46,164 66,427 93,410 129,035 Converted products 104,561 106,047 216,333 210,739 Power sales 26,500 - 52,067 - 214,054 216,803 433,613 422,249 Cost of Products sold, including outward freight 179,455 170,022 357,667 341,509 Gross profit 34,599 46,781 75,946 80,740 Selling, administrative and general expenses 18,260 17,894 35,837 33,924 Operating profit Timber 15,625 23,532 28,121 39,136 Paper and paperboard (including allocated power sales) 670 1,849 4,258 1,059 Converted products (including allocated power sales) 44 3,506 7,730 6,621 16,339 28,887 40,109 46,816 Other income (expense): Interest income 90 97 185 190 Interest expensed (9,977) (9,820) (21,025) (19,401) Miscellaneous 458 131 642 504 6,910 19,295 19,911 28,109 Provision for taxes on income: Current (2,009) 1,030 (1,281) 1,911 Deferred 4,565 6,109 8,648 8,489 2,556 7,139 7,367 10,400 Net income $ 4,354 $ 12,156 $ 12,544 $ 17,709 Dollars per share: Net income $ 0.09 $ 0.24 $ 0.24 $ 0.34 Dividends 0.12 0.12 0.24 0.24 Average shares outstanding in the hands of the public (000 omitted) 51,077 51,677 51,227 51,677 The accompanying note is an integral part of these financial statements. Page 3 Consolidated Statement of Cash Flows (Unaudited) (000 Omitted) Three Months Ended Six Months Ended April 30 April 30 2001 2000 2001 2000 Cash provided by (used for) operations: Net income $ 4,354 $12,156 $12,544 $17,709 Charges to income not requiring cash - Depreciation 16,467 15,443 32,551 30,848 Depletion and amortization 950 1,148 2,383 2,596 Deferred taxes - net 4,565 6,109 8,648 8,489 Loss on disposition of capital assets 1,356 236 1,897 1,281 Change in: Accounts and notes receivable - net 9,218 (7,343) 18,991 5,927 Inventories 8,222 157 11,611 4,949 Other 229 (953) (479) (1,467) Pension and other noncurrent assets (5,323) (4,778) (10,315) (9,507) Accounts, payrolls and other taxes payable (2,261) 4,426 (5,996) 5,625 Federal income taxes payable (2,012) 841 (2,301) 1,609 Other noncurrent liabilities 435 447 870 894 Cash provided by operations 36,200 27,889 70,404 68,953 Cash provided by (used for) investing: Additions to: Plant and equipment (31,945) (16,973) (53,200) (26,153) Timber and timberlands (1,296) (1,293) (2,259) (3,239) Proceeds from sale of capital assets 327 173 482 499 Cash used for investing (32,914) (18,093) (54,977) (28,893) Cash provided by (used for) financing: Long-term debt 28,000 (5,000) 33,000 (15,000) Short-term borrowings (23,934) - (19,690) (10,000) Payable to bank resulting from checks in transit 1,097 1,151 (1,434) (1,195) Accounts payable for construction 428 254 (8,248) (1,463) Cash dividends (6,129) (6,201) (12,294) (12,402) Purchase of common stock (2,748) - (6,761) - Cash used for financing: (3,286) (9,796) (15,427) (40,060) 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) $11,791 $12,260 $20,905 $19,546 Income taxes 220 60 1,137 (57) The accompanying note is an integral part of these financial statements. Page 4 Consolidated Statement of Shareholders' Equity (Unaudited) (000 Omitted) Three Months Ended Six Months Ended April 30 April 30 2001 2000 2001 2000 Common stock: Balance at beginning of period $ 76,915 $ 77,515 $ 77,365 $ 77,515 Ascribed value of stock purchased (300) - (750) - Balance at end of period $ 76,615 $ 77,515 $ 76,615 $ 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 $349,833 $338,994 $351,371 $339,642 Net income 4,354 12,156 12,544 17,709 Less cash dividends on common stock (6,129) (6,201) (12,294) (12,402) Less purchase of common stock (2,448) - (6,011) - Balance at end of period $345,610 $344,949 $345,610 $344,949 Dividends paid per share $ 0.12 $ 0.12 $ 0.24 $ 0.24 Common shares: Balance at beginning of period 51,277 51,677 51,577 51,677 Purchases (200) - (500) - Balance at end of period 51,077 51,677 51,077 51,677 The accompanying note is an integral part of these financial statements. Page 5 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 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, 2001 COMPARED WITH THREE AND SIX MONTHS ENDED APRIL 30, 2000 Net income decreased 64% for the second quarter 2001 and 29% for the first six months of 2001 as compared with like periods in 2000. Operating profits for the second quarter declined in all segments of the business. TIMBER Second quarter 2001 and year-to-date 2001 operating profits decreased 34% and 28%, respectively, as compared with like periods in 2000 due primarily to lower log and lumber prices. Second quarter 2001 average log and lumber prices decreased 18% and 17%, respectively, and year-to-date 2001 average log and lumber prices decreased 14% and 17%, respectively. Log volume sold in the second quarter 2001 decreased 4% compared with the second quarter 2000, but held steady with year-ago levels for the first six months of 2001. Lumber volume sold increased 14% and 9% for the second quarter 2001 and year-to-date 2001, respectively, as compared with like periods in 2000. Export log price declined during the second quarter due primarily to the strength of the U.S. dollar while demand remained at adequate levels. Domestic log markets have been weak due to poor lumber markets but both markets are currently improving. PAPER AND PAPERBOARD Operating income for the second quarter 2001 was $0.7 million compared with $1.8 million for the second quarter 2000. Operating results were negatively affected by increased costs due to a 94% increase in natural gas costs, an 11% increase in power costs and reduced productivity due to mill downtime for market-related reasons. Fiber costs for the quarter increased modestly as wood chip costs increased 9%, but the cost of old corrugated containers decreased 32% compared with year-ago levels. During the quarter, the mill operated at 70% of capacity, which included an 8-day shutdown. Average paper prices increased 3% while average paperboard prices decreased 5% due to weak export pricing. The volume of paper and paperboard sold declined 37% for second quarter 2001 as compared with year-ago levels. During the quarter, the company sold power produced at the mill to mitigate the impact of higher energy costs. Power sales for the quarter were $26.5 million. 48% of the operating profits from the sale of electrical power was allocated to the paper and paperboard segment, and the balance was allocated to the converted products segment. The basis for this allocation was consistent with the method used to allocate identifiable assets and other costs between segments. The sale of power favorably impacted segment operating results by $7.0 million. Year-to-date 2001 operating results were $4.3 million compared with $1.1 million for year-to-date 2000. Operating results were favorably impacted by the profits from the sale of electrical power, offset in part by increased energy costs and lower productivity due to mill downtime. Average paper Page 7 prices increased 4% but average paperboard prices decreased 2% for year-to- date 2001 compared with year-to-date 2000. The volume of paper and paperboard sold decreased 33% for the first six months of 2001. Demand for paper and paperboard was weak during the second quarter and prices declined modestly from first quarter 2001 levels. Currently, the incoming order pattern has strengthened. Due to the volatility of the energy markets, the future selling price of electrical power is uncertain. CONVERTED PRODUCTS Operating income for the second quarter 2001 was $44 thousand compared with $3.5 million for the second quarter 2000. The primary reasons for the decline were the increased cost of containerboard produced at the mill which is used to manufacture boxes and increased converting costs. Compared to year-ago levels, average prices for the second quarter 2001 improved 2% while volume sold decreased 4%. Allocated operating profits from the sale of electrical power favorably impacted results by $7.7 million. Year-to-date 2001 operating results were $7.7 million compared with $6.6 million for year-to-date 2000. The primary reasons for the improvement were a 3% increase in average price and allocated profits from the sale of electrical power. Operating results were negatively affected by the higher costs of containerboard produced at the mill which is used to manufacture boxes. Demand was at satisfactory levels during the second quarter and prices were relatively stable. The company continues to develop its specialty products and to reduce costs in order to improve margins. OTHER Selling, administrative and general expenses were 8% of sales for the six months ended April 30, 2001 and 2000. Interest expensed in the second quarter 2001 increased 2% due to a higher level of borrowing partially offset by lower interest rates and proportionately more interest capitalized for uncompleted capital projects. INCOME TAXES Taxes are approximately 37% of pretax income for fiscal 2001 and 2000. OTHER DATA Three Months Six Months Ended April 30 Ended April 30 % % 2001 2000 Change 2001 2000 Change Sales Logs, thousands of board feet 55,000 57,000 - 4 104,000 104,000 - Lumber, thousand of board feet 24,000 21,000 + 14 49,000 45,000 + 9 Paper, tons 61,000 70,000 - 13 119,000 147,000 - 19 Paperboard, tons 22,000 61,000 - 64 52,000 108,000 - 52 Converted products, tons 127,000 132,000 - 4 261,000 263,000 - 1 Logs, $/thousand board feet $ 531 $ 645 - 18 $ 544 $ 632 - 14 Lumber, $/thousand board feet 310 372 - 17 312 374 - 17 Paper, $/ton FOB mill equivalent 585 568 + 3 585 562 + 4 Paperboard, $/ton FOB mill equiv. 362 383 - 5 367 373 - 2 Converted products, $/ton 824 804 + 2 828 801 + 3 Page 8 LIQUIDITY AND CAPITAL RESOURCES During the second quarter 2001, total borrowing increased $4 million. Capital expenditures for plant and equipment are expected to be between $100 million and $110 million for fiscal 2001. The current backlog of approved projects is $78 million and new appropriations are expected to be modest (below depreciation levels). During the quarter, the company purchased 200,000 shares of its common stock in the aggregate of $2.7 million. Cash dividends of $0.12 per share were declared and paid in the second quarter in the aggregate of $6.1 million. Due to market conditions and debt levels, restoration of the dividend does not appear probable in the near term. The restoration will be accomplished when operating results and debt levels make increased dividends prudent. At April 30, 2001, the company had bank lines of credit totaling $370 million. Of this amount $320 million was under a credit agreement with a group of banks expiring February 24, 2003. The agreement provides for borrowing at the Offshore Rate (LIBOR based) plus a spread, 1.875% at April 30, 2001, or the bank's Reference Rate. The credit agreement contains certain financial covenants and provides for a commitment fee on the unused commitment, 0.40% per year at April 30, 2001. At the end of the second fiscal quarter 2001, the company had outstanding $249 million of notes payable under this agreement. Also available was a commercial paper agreement providing a line of credit totaling $50 million. The company must maintain unused borrowing capacity under an unsecured bank borrowing facility sufficient to cover the commercial paper outstanding. At April 30, 2001 the company had loans of $49.4 million under this commercial paper agreement. At April 30, 2001, the company had an outstanding balance of $45 million under the remaining $50 million of lines of credit. Also outstanding at April 30, 2001, were senior notes of $197 million and revenue bonds of $26.9 million. For the quarter ended April 30, 2001, 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 current ratio. The amendments reducing the current ratio are effective for the quarter ended April 30, 2001 through the quarter ending July 31, 2001. The company expects to close a senior note offering by the end of June at which time the company expects to be in compliance with all financial covenants of the original note agreements without regard to the amendments. As a result of amendments to certain senior notes obtained in 1999, the company continues to pay an additional 0.75% per annum over the original note coupon rates until an investment grade credit rating is obtained for its unsecured senior debt. FORWARD-LOOKING STATEMENTS This Form 10-Q contains forward-looking statements, including statements concerning anticipated pricing and market conditions for the company's products and certain raw materials, anticipated competitive conditions and the actions of competitors, the expected results of planned paper mill improvement projects and operating schedules, anticipated cost of as well as sales prices for and market conditions for energy and the anticipated cost of and availability of financing for capital improvement projects. 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 Page 9 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 of availability of energy, changes in currency exchange rates between the U.S. dollar and the currencies of important export markets, capital project delay 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. 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. 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: Nothing to report. (b) Reports of Form 8-K - Nothing to report. Page 10 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 6-14-01 L. J. HOLBROOK -------------- L. J. HOLBROOK Senior Vice President-Finance, Secretary and Treasurer Date 6-14-01 A. G. HIGGENS ------------- A. G. HIGGENS Assistant Treasurer Page 11