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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, 2003 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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No
51,076,567 Common Shares were outstanding as of July 31, 2003
Page 1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (000 Omitted)
Jul. 31 Oct. 31 Jul. 31
2003 2002 2002
(Unaudited) (Unaudited)
ASSETS
Current assets:
Accounts and notes receivable $ 90,857 $ 101,930 $ 90,128
Allowance for doubtful accounts 1,350 1,350 1,350
Taxes on income, refundable - 2,293 -
Inventories, at lower of cost or market;
costs are based on last-in, first-out method
except for supplies at current averages
Finished goods 14,736 17,134 16,092
Goods in process 7,769 11,691 13,229
Raw materials and supplies 40,389 42,764 42,954
Restricted cash - - 20,709
Other 9,192 7,458 7,045
Total current assets 161,593 181,920 188,807
Capital assets:
Buildings, machinery and equipment at cost 1,832,788 1,828,841 1,828,571
Accumulated depreciation 1,095,882 1,059,778 1,049,066
Costs to be depreciated in future years 736,906 769,063 779,505
Plant sites at cost 3,524 3,524 3,480
740,430 772,587 782,985
Timber at cost less depletion 187,114 187,597 189,151
Roads at cost less amortization 8,353 8,976 8,721
Timberland at cost 20,239 20,133 20,098
215,706 216,706 217,970
Total capital assets 956,136 989,293 1,000,955
Pension and other assets 143,786 135,229 135,190
$1,261,515 $1,306,442 $1,324,952
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank resulting from
checks in transit $ 10,136 $ 7,464 $ 4,197
Accounts payable 45,168 51,168 41,023
Short-term borrowings 26,000 2,000 20,000
Payrolls payable 14,571 12,138 13,018
Other taxes payable 9,979 9,634 10,126
Current installments of long-term debt 20,000 62,400 32,400
Total current liabilities 125,854 144,804 120,764
Long-term debt 479,955 510,195 573,758
Deferred taxes-net 192,730 191,742 184,809
Other liabilities 34,293 30,705 24,565
Shareholders' equity:
Common stock, ascribed value $1.50 per share;
authorized 150,000,000 shares;
issued 51,076,567 shares 76,615 76,615 76,615
Additional paid-in capital 3,306 3,306 3,306
Retained earnings 348,762 349,075 341,135
Total shareholders' equity 428,683 428,996 421,056
$1,261,515 $1,306,442 $1,324,952
The accompanying notes are an integral part of these financial statements.
Page 2
Consolidated Statement of Income (Unaudited)
(000 Omitted)
Three Months Ended Nine Months Ended
July 31 July 31
2003 2002 2003 2002
Net sales:
Timber $ 40,066 $ 43,290 $120,880 $125,165
Paper and paperboard 53,237 47,454 148,773 123,845
Converted products 100,962 102,428 295,856 303,087
Power sales - - - 1,881
194,265 193,172 565,509 553,978
Cost of Products sold, including
outward freight 165,164 158,697 482,067 478,994
Gross profit 29,101 34,475 83,442 74,984
Selling, administrative
and general expenses 18,672 17,792 53,297 54,295
Operating profit (loss):
Timber 14,882 16,873 48,083 53,779
Paper and paperboard (including
allocated power losses) (2,950) (2,472) (9,586) (19,347)
Converted products (including
allocated power losses) (1,503) 2,282 (8,352) (13,743)
10,429 16,683 30,145 20,689
Interest income 119 228 272 1,708
Interest expensed (11,062) (11,950) (32,940) (33,220)
Miscellaneous 233 61 5,269 2,399
Income (loss) before income taxes (281) 5,022 2,746 (8,424)
Provision for taxes on income:
Current (3) 41 28 (5,479)
Deferred (101) 1,817 988 (138)
(104) 1,858 1,016 (5,617)
Net income (loss) $ (177) $ 3,164 $ 1,730 $ (2,807)
Dollars per share:
Net income (loss) $ - $ 0.06 $ 0.03 $ (0.05)
Dividends 0.02 - 0.04 0.03
Average shares outstanding in the
hands of the public (000 omitted) 51,077 51,077 51,077 51,077
The accompanying notes are an integral part of these financial statements.
Page 3
Consolidated Statement of Cash Flows (Unaudited)
(000 Omitted)
Three Months Ended Nine Months Ended
July 31 July 31
2003 2002 2003 2002
Cash provided by (used for)
operations:
Net income (loss) $ (177) $ 3,164 $ 1,730 $ (2,807)
Charges to income not
requiring cash:
Depreciation 17,793 17,567 52,670 51,965
Depletion and amortization 1,639 1,339 4,972 4,050
Deferred taxes - net (101) 1,817 988 (138)
(Gain) loss on disposition of
capital assets 164 128 (2,860) (1,004)
Change in:
Accounts and notes receivable - net (4,967) (1,507) 11,073 9,291
Taxes on income refundable - - 2,293 -
Inventories 4,782 (450) 8,695 10,943
Other 4,913 627 (1,734) 1,550
Pension and other
noncurrent assets (7,306) (4,738) (8,940) (22,463)
Accounts, payrolls and other
taxes payable (1,635) (3,281) 2,497 (14,399)
Federal income taxes payable - - - (606)
Other noncurrent liabilities 2,930 1,119 3,588 2,682
Cash provided by operations 18,035 15,785 74,972 39,064
Cash provided by (used for)
investing:
Additions to: Plant and equipment (6,654) (6,161) (25,745) (31,126)
Timber and timberlands (1,897) (366) (4,069) (2,156)
Proceeds from sale of capital assets 194 148 8,189 3,149
Cash used for investing (8,357) (6,379) (21,625) (30,133)
Cash provided by (used for)
financing:
Long-term debt (34,952) 48 (72,257) 16,764
Short-term borrowings 23,000 (9,000) 24,000 12,000
Restricted cash - (102) - (20,709)
Payable to bank resulting from
checks in transit 4,109 (409) 2,672 (7,168)
Accounts payable for construction (814) 57 (5,719) (8,286)
Cash dividends (1,021) - (2,043) (1,532)
Cash used for financing (9,678) (9,406) (53,347) (8,931)
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) $16,115 $15,781 $36,710 $30,444
Income taxes (86) 11 (2,314) (4,760)
The accompanying notes are an integral part of these financial statements.
Page 4
Consolidated Statement of Shareholders' Equity (Unaudited)
(000 Omitted)
Three Months Ended Nine Months Ended
July 31 July 31
2003 2002 2003 2002
Common stock:
Balance at beginning of period $ 76,615 $ 76,615 $ 76,615 $ 76,615
Balance at end of period $ 76,615 $ 76,615 $ 76,615 $ 76,615
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 $349,960 $337,971 $349,075 $345,474
Net income (loss) (177) 3,164 1,730 (2,807)
Less cash dividends on common
stock (1,021) - (2,043) (1,532)
Balance at end of period $348,762 $341,135 $348,762 $341,135
Dividends paid per share $ 0.02 $ - $ 0.04 $ 0.03
Common shares:
Balance at beginning of period 51,077 51,077 51,077 51,077
Balance at end of period 51,077 51,077 51,077 51,077
The accompanying notes are 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.
NOTE 2: In May 2003, we terminated our two swap agreements related to $70
million of our Senior Subordinated Notes and received cash of $3.3 million
resulting in a deferred gain of $2.7 million. The deferred gain on all
terminated swaps is $7.3 million at July 31, 2003. This deferred gain is
included in other liabilities in the accompanying balance sheet and will
reduce interest expense over the term of our senior subordinated notes due
2009. In July, 2003, we entered into two new interest rate swap agreements
related to $70 million of our Senior Subordinated Notes (the "New Agreements")
with notional amounts of $70 million which mature on January 15, 2009 and
involve the exchange of fixed interest rate payments for variable interest
rate payments without the exchange of the underlying principal amounts.
Variable rates are based on LIBOR and are reset on a semi-annual basis. The
differential between fixed and variable rates to be paid or received is
accrued as interest rates change in accordance with the New Agreements and
recognized as an adjustment to interest expense. The mark-to market
adjustment at July 31, 2003 resulted in a derivative long-term liability of
$1.1 million, with a corresponding fair value adjustment to long-term debt.
NOTE 3: Reclassifications - Prior year amounts have been reclassified to
conform to current year classifications. These reclassifications have no
impact upon net income or shareholders' equity.
Page 6
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, 2003 COMPARED WITH
THREE AND NINE MONTHS ENDED JULY 31, 2002
Net Sales - Third fiscal quarter 2003 net sales were $194.3 million,
compared with $193.2 million for third fiscal quarter of 2002. This 0.6%
increase resulted from an increase in paper and paperboard net sales of $5.8
million, or 12.2%, partially offset by decreases in timber net sales of $3.2
million, or 7.4%, and converted product net sales of $1.5 million, or 1.4%.
Cost of Products Sold - Third fiscal quarter 2003 cost of products sold was
$165.2 million, or 85.0% of net sales, compared with $158.7 million, or
82.2% of net sales, for third fiscal quarter 2002. Cost of products sold
were negatively affected by a 7% increase in logging costs, increased costs
associated with a 13.3% increase in labor hours per ton of primary
production, and reduced pension income of $2.6 million. Pension income has
a positive effect on cost of products sold in all of our segments by
reducing our accrued labor obligations. Cost of products sold was favorably
impacted by a 4% decrease in the cost of mill steam due to using
proportionately more biomass fuel, which is a lower cost fuel than natural
gas.
Our cost of products sold also includes depreciation, depletion and
amortization costs. Depreciation, depletion and amortization consist
primarily of depreciation of our plant and equipment, the depletion cost of
timber harvested and, to a lesser degree, amortization of logging roads.
This expense was $19.4 million for third fiscal quarter 2003 compared with
$18.9 million for third fiscal quarter 2002.
Selling, General and Administrative Expenses - Third fiscal quarter 2003
selling, general and administrative expenses were $18.7 million, or 9.6% of
net sales, compared with $17.8 million, or 9.2% of net sales, for third
fiscal quarter 2002. The modest increase was primarily caused by lower
pension income of $0.3 million and increased fees of $0.4 million to holders
of our senior debt.
Operating Profit (Loss) - Third fiscal quarter 2003 operating profit was $10.4
million compared with operating profit of $16.7 million for the third fiscal
quarter 2002. See "Selected Segment Results" below.
Provision for Taxes on Income - Third fiscal quarter 2003 provision for income
taxes was $(0.1) million reflecting a tax rate of 37%. Third fiscal quarter
2002 provision for income taxes was $1.9 million reflecting a tax rate of 37%.
Net Income (Loss) - For the reasons noted above, the company incurred a net
loss of $0.2 million for the third fiscal quarter 2003 compared with net
income of $3.2 million for third fiscal quarter 2002.
Page 7
Selected Segment Results
Timber Three Months Nine Months
Ended July 31 Ended July 31
% %
2003 2002 Change 2003 2002 Change
Timber net sales, $ millions $ 40.1 $ 43.3 (7.4) $120.9 $125.2 (3.4)
Timber operating profit,
$ millions 14.9 16.9 (11.8) 48.1 53.8 (10.6)
Logs, thousands of board
feet 61,612 67,979 (9.4) 192,118 200,495 (4.2)
Lumber, thousands of board
feet 26,443 26,607 (0.6) 69,933 67,478 3.6
Logs, $/thousand board feet $506 $505 0.2 $510 $514 (0.8)
Lumber, $/thousand board feet 336 336 - 327 327 -
Third fiscal quarter 2003 timber net sales were $40.1 million, compared with
$43.3 million for third fiscal quarter 2002. This 7.4% decrease was due
primarily to a decrease in log volume of 9.4%, partially offset by a greater
proportion of logs sold in the export market where prices tend to be higher.
Average log prices were comparable to year-ago levels. The log volume
decline was primarily the result of a 13.3% reduction in the volume sold in
the domestic market due to harvest restrictions caused by unusually dry
weather conditions and production difficulties related to steep and rugged
terrain experienced during the quarter.
Third fiscal quarter export sales were $11.1 million, or 27.7% of timber net
sales, compared with $10.6 million, or 24.5% of timber net sales for third
fiscal quarter 2002. This increase was the result of increased log export
volume of 2.8% and log export prices of 4.0%. Log export prices increased
as a result of the dollar remaining relatively weak compared to the yen
during the fiscal quarter.
Third fiscal quarter 2003 timber operating profit was $14.9 million,
compared with $16.9 million for the third fiscal quarter 2002. The primary
reasons for this 11.8% decline were a decrease in log volume sold and a 7%
increase in logging costs, partially offset by the export price increase.
Year-to-date 2003 sales were $120.9 million compared with $125.2 million for
year-to-date 2002. This 3.4% decrease was primarily due to decreases in log
volume of 4.2% and log prices of 0.8%, partially offset by a 3.6% increase
in lumber volume. The year-to-date decrease in log volume reflects the
continuing weakness in the Japanese economy. Year-to-date export sales were
$31.8 million, or 26.3% of timber net sales, compared with $36.2 million, or
28.9% of timber net sales for year-to-date 2002. This percentage decrease
was primarily the result of an 11.7% decrease in log volume sold in Japan.
Year-to-date 2003 operating profit was $48.1 million compared with $53.8
million for year-to-date 2002. The primary reasons for this 10.6% decline
were an 8% increase in logging costs, proportionately less volume sold in
the export market where margins tend to be higher, and reduced volume.
Page 8
Paper and Paperboard Three Months Nine Months
Ended July 31 Ended July 31
% %
2003 2002 Change 2003 2002 Change
Paper and Paperboard net sales,
$ millions $ 53.2 $ 47.5 12.2 $148.8 $ 123.8 20.1
Paper and Paperboard operating
profit (loss), $ millions (3.0) (2.5) - (9.6) (19.3) -
Paper, tons 74,918 64,877 15.5 211,226 170,345 24.0
Paperboard, tons 19,379 21,669 (10.6) 62,201 61,897 0.5
Paper, $/ton FOB mill
equivalent $579 $579 - $567 $569 (0.4)
Paperboard, $/ton FOB mill
equivalent 347 326 6.4 343 319 7.5
Third fiscal quarter 2003 paper and paperboard net sales were $53.2 million,
compared with $47.5 million for third fiscal quarter 2002. This 12.2%
increase is primarily due to a 15.5% increase in paper volume and a 6.4%
increase in paperboard price, partially offset by a 10.6% decrease in
paperboard volume. In first fiscal quarter 2003, we renegotiated a long-
standing barter agreement whereby we swapped equivalent units of paper for
paperboard. The new buy/sell agreement provides that we now sell paper to
our counterpart's converting facility, and we now purchase paperboard from
them for our Midwest converting facilities. As a result of the new
agreement, we had an 8.7% increase in paper and paperboard sales over third
quarter 2002 and a 10.0% increase in paper and paperboard volume over third
quarter 2002. The paperboard price increase resulted from price increases
implemented in the export market as a result of the weakening of the U.S.
dollar in our export markets.
Third fiscal quarter 2003 export sales in the paper and paperboard segment
were $13.4 million, or 25.1% of paper and paperboard net sales, compared
with $12.9 million, or 27.1%, for third fiscal quarter 2002. This decrease
as a percentage of segment net sales was primarily the result of 2.6% and
16.0% decreases in export paper and paperboard volume, respectively. Export
demand for our products declined in the third quarter as the Asian economy
was negatively affected, at least temporarily, by the SARS outbreak.
Partially offsetting the impact of reduced demand was the pricing impact of
the weaker U.S. dollar. Export paper prices increased 12.4% and export
paperboard prices improved 9.6%.
Third fiscal quarter 2003 paper and paperboard operating loss was $3.0
million, compared with an operating loss of $2.5 million for the third
fiscal quarter 2002. Operating results were negatively affected by our mill
operating at 68% of capacity as compared with 77% in the third fiscal
quarter 2002, resulting in a 13.3% increase in labor hours per ton of paper
and paperboard produced and a corresponding increase in per ton unit costs
with less volume. Reduced pension income also negatively affected operating
results. Operating results were positively affected by paperboard price
increases and a 4.0% decrease in steam costs resulting from using
proportionately more biomass fuel, which is a lower cost fuel than natural
gas. Our business process improvement initiatives to improve mill
optimization, improve customer service, reduce inventories and lower our
procurement costs have contributed favorably to the results.
Year-to-date paper and paperboard sales were $148.8 million, compared with
$123.8 million for year-to-date 2002. This 20.1% increase was the result of
a 24.0% increase in paper volume, a 0.5% increase in paperboard volume and a
7.5% increase in paperboard price. The new buy/sell agreement and increased
export paper shipments represented 13.2% and 10.0% of the paper volume
increase, respectively.
Page 9
Year-to-date export sales in the paper and paperboard segment were $47.4
million, or 31.8% of paper and paperboard net sales, compared with $34.3
million, or 27.7% of paper and paperboard net sales, for year-to-date 2002.
Export paper and paperboard volumes increased 35.7% and 5.0%, respectively,
and export paper and paperboard prices increased 10.1% and 12.6%,
respectively, compared to year-ago levels. Improved demand for our products
and the weaker U.S. dollar were the drivers for the improvement.
Year-to-date 2003 paper and paperboard operating loss was $9.6 million,
compared with an operating loss of $19.3 million for year-to-date 2002.
Contributing to the improvement was an 8% reduction in the cost of mill
steam due to a 10% reduction in the cost of natural gas and using
proportionately more biomass fuel which is a lower cost fuel than natural
gas. Additional contributions came from the 7.5% increase in paperboard
price, the 24.0% increase in paper volume, and the ongoing contributions of
our business process improvement initiatives. In addition, the results for
year-to-date 2002 were negatively affected by the loss on the sale of power
of $2.2 million.
Converted Products
Three Months Nine Months
Ended July 31 Ended July 31
% %
2003 2002 Change 2003 2002 Change
Converted Products sales,
$ millions $101.0 $102.4 (1.4) $295.9 $303.1 (2.4)
Converted Products
operating profit (loss),
$ millions (1.5) 2.3 - (8.4) (13.7) -
Converted Products, tons 124,586 128,228 (2.8) 367,102 376,092 (2.4)
Converted Products, $/ton $811 $799 1.5 $806 $806 -
Third fiscal quarter 2003 converted products net sales were $101.0 million,
compared with $102.4 million for third fiscal quarter 2002. This 1.4%
decline was primarily due to a 2.8% decrease in volume partially offset by a
1.5% increase in price. Demand for our products remained weak due to the
slow U.S. economy and soft food processing markets. Third fiscal quarter
operating loss was $1.5 million, compared with operating income of $2.3
million for third fiscal quarter 2002. The primary reasons for the decrease
in operating results were the volume decrease, a small increase in the cost
of paperboard of 0.7%, and labor cost increase of 7.9%. The labor cost
increase was due primarily to decreased pension income and increases in
other indirect payroll costs, despite a 5.1% decrease in labor hours per ton
of production. Operating results were favorably impacted by our business
process improvement initiative to improve customer service, reduce
inventories, and lower procurement costs.
Year-to-date fiscal 2003 converted product sales were $295.9 million, compared
with $303.1 million for year-to-date 2002. This 2.4% decrease was primarily
due to a 2.4% decrease in volume. Average prices over the period were steady
with year-ago levels. The decrease in volume was due to reduced demand caused
by the slow U.S. economy and soft food processing markets. Year-to-date 2003
operating loss was $8.4 million, compared with $13.7 million for year-to-date
2002. The improvement was primarily the result of decreased cost of paper and
paperboard supplied to us in the first quarter by the mill and third party
suppliers. The average cost of paper and paperboard supplied to our
converting plants decreased 2.7% for year-to-date 2003, compared with year-to-
date 2002. Year-to-date results were favorably impacted by our business
process improvement initiatives. Operating results for year-to-date 2002 were
negatively affected by the allocated loss associated with the sale of
electrical power of $3.2 million.
Page 10
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2003, our borrowed debt included long-term debt of $500.0 million,
including current installments of long-term debt of $20.0 million. Short-term
borrowings at July 31, 2003 were $26.0 million.
At July 31, 2003, we had $113 million outstanding under the $250 million
revolving credit facility, excluding letters of credit of $15.5 million. Also
outstanding at July 31, 2003, were various senior notes totaling $174.5
million, revenue bonds of $14.5 million and $214.0 million of senior
subordinated notes, net of original issuance discount. We also had $10.0
million outstanding on a $15 million uncommitted line of credit. As of July
31, 2003, we had $126.5 million available under our bank lines of credit. Our
financing arrangements require us to be in compliance with certain financial
covenants, including minimum net worth, short- and long-term borrowing ratio,
current ratio and fixed charge coverage ratio requirements and restrict our
payment of dividends. At July 31, 2003, we were in compliance with such
covenants as amended or waived.
During the quarter ended July 31, 2003, we obtained a limited waiver from the
holders of certain senior notes with respect to compliance with covenants that
require us to maintain a specified ratio of net income available for fixed
charges to fixed charges. Subsequent to the quarter end, we obtained
amendments from those holders that changed the coverage requirements and the
specified ratio to match a similar covenant in our agreement governing our
revolving credit facility. The company has been and remains in compliance
with the revolving credit facility covenant. In connection with the grant of
the amendments, we agreed to pay certain fees to the holders of the senior
notes.
In the fourth fiscal quarter 2002, we entered into two fixed-to-floating
interest rate swaps, covering $70 million of our $215 million of senior
subordinated notes. In May 2003, we unwound the two swaps resulting in a
benefit to the company of cash of $3.3 million. We will amortize $2.7 million
of that amount over the remaining life of the senior subordinated notes as a
reduction of interest expense, with the balance of $0.6 million being recorded
as cash interest. Subsequently, in July 2003, we entered into two new fixed-
to-floating interest rate swaps, for a total of $70 million underlying
principal amount. The purpose of the swaps is to manage interest being paid
on the underlying senior subordinated notes that have a fixed 10% interest
rate. The new floating rate swaps, effective July 31, 2003, have rates of
approximately 7.25%.
In the third fiscal quarter 2003 we paid off a 7.55% Senior Note of $30
million due October 21, 2003, with available funds from our revolving credit
facility.
Net cash provided by operations was $18.0 million in the third fiscal
quarter 2003 and $15.8 million for the third fiscal quarter 2002.
Net cash used for investing was $8.4 million in the third fiscal quarter 2003
and $6.4 million in the third fiscal quarter 2002. Our capital expenditures,
including timberland acquisitions, were $8.6 million in the third fiscal
quarter 2003 and $6.5 million in the third fiscal quarter 2002. Capital
expenditures are expected to be approximately $43 million for fiscal year 2003
including expenditures for timberland purchases, plant and equipment, and
environmental compliance.
Net cash used for financing in the third fiscal quarter 2003 was $9.7 million
while net cash used for financing was $9.4 million for the third fiscal
quarter 2002. Borrowed debt decreased during the third fiscal quarter 2003 by
$12.0 million due partially to continued reduced capital expenditures and the
monetization of the previous interest rate swap.
Page 11
Each quarter we determine the amount of our dividend based on, among other
things, operating results, current market conditions, debt levels and
covenants of financing agreements. Cash dividends of $0.02 per share were
declared and paid in both the second and third fiscal quarters of 2003 in the
amount of $1.0 million each.
We believe that our cash flow generated from operations and available
borrowings under our revolving credit facility and our other line of credit
provide sufficient resources to fund operations and to meet our debt payment
obligations and foreseeable capital expenditure requirements.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements, including statements
concerning anticipated pricing and market conditions for the company's
products, energy and certain raw materials; expected capital expenditures;
expected resources to fund operations, meet debt payment obligations and
foreseeable capital expenditures; expected results of planned capital
expenditure projects for the converted product segment and paper mill
improvement projects; anticipated cost of and market conditions for energy;
and the effects of currency exchange rates on the company.
Forward-looking statements are based on the company's estimates and
projections on the date 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, energy or raw materials, changes in product, energy or raw
material prices; capital project delay, cost overruns or unforeseen
maintenance on capital assets or advantageous capital acquisitions; changes in
currency exchange rates between the U.S. dollar and the currencies of
important export markets; weather; labor disputes; unforeseen adverse
developments involving environmental matters or other legal proceedings or the
assertion of additional claims; 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
Our exposure to market risks on our financial instruments is limited to
interest rate changes on variable rate debt, including debt under our
revolving credit facility. The interest rates applied to our variable rate
borrowings are adjusted often and therefore react quickly to any movement in
the general trend of market interest rates. Interest expense incurred
annually related to our variable rate debt is dependent upon the amount
outstanding during the year and the extent to which interest rates rise and
fall. The company terminated the $70 million interest rate swaps in May 2003
and entered into new interest rate swap agreements in July 2003. Otherwise,
we did not engage in commodity, currency or interest rate hedging arrangements
or engage in transactions involving derivatives during the quarter, however we
may do so in the future, on a non-speculative basis, if business conditions
warrant.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Control and Procedures
Our management, with the participation of our Chief Executive Officer and
Senior Vice President-Finance, evaluated the effectiveness of our disclosure
controls and procedures, as of the end of the period covered by this report.
Based on that evaluation, our Chief Executive Officer and Senior Vice
President-Finance concluded that our disclosure controls and procedures, as of
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the end of the period covered by this report, were effective to provide
reasonable assurance that the information required to be disclosed by the
company in reports we file under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within time periods specified in
the SEC's rules and forms.
Our Chief Executive Officer and Senior Vice President-Finance do not expect
that our disclosure controls or our internal controls will prevent all error
and all fraud. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of
the system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that we have detected all our control issues and instances of fraud, if any.
The design of any system of controls also is based partly on certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions.
(b) Changes in Internal Controls
As part of our business process improvement initiative, we are implementing a
new Enterprise Resource Planning (ERP) system. During the third fiscal
quarter 2003 the accounts payable, purchasing, receiving and inventory modules
were implemented. Among other purposes, this wave of the ERP system is
designed to enhance the efficiency of our procurement, receiving and
disbursement functions, and will affect internal control over these functions
as well as supply inventory management.
No other change in our internal control over financial reporting occurred
during the fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As we previously reported, in 2002 we were named a defendant in numerous
asbestos-related actions in Madison County, Illinois and St. Louis, Missouri,
along with numerous other defendants. In January 2003, the Madison County,
Illinois and St. Louis, Missouri plaintiffs agreed to dismiss us from all
pending lawsuits in those jurisdictions. In each instance, we were dismissed
without any payment or liability to the plaintiffs. However, each of the
dismissals was without prejudice, meaning that the plaintiffs could re-
institute those cases.
In July and August of 2003, we were again named as a defendant in 23
asbestos-related actions in Madison County, Illinois. Given the relatively
recent filing of these lawsuits and our past dismissal of asbestos-related
claims in Madison County, we are attempting to determine more specifically the
nature of the claims and the reasons why we were named as a defendant. At
this time, we believe that these claims will not result in our having material
liability, if any, for damages. It is not possible, however, to predict with
certainty the outcome of these matters. Predictions as to the outcome of
pending litigation are inherently subject to substantial uncertainties with
respect to, among other things, factual and judicial determinations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Nothing to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report.
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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:
The Exhibits to this report on Form 10-Q are listed on the
accompanying Exhibit Index.
(b) A Form 8-K was filed on May 27, 2003 reporting information under
Items 7 and 9.
A Form 8-K was filed on July 10, 2003 reporting information under
Items 5 and 7.
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)
L. J. McLAUGHLIN 09/12/03
L. J. McLAUGHLIN
Senior Vice President-Finance,
Secretary and Treasurer
A. G. HIGGENS 09/12/03
A. G. HIGGENS
Assistant Treasurer
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EXHIBIT INDEX
Exhibit No. Description
31.1 Rule 13a-14(a)/15d-14(a) Certification by R. H. Wollenberg,
President and Chief Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification by L. J. McLaughlin,
Sr. Vice President-Finance, Secretary and Treasurer.
32.1 Section 1350 Certification by R. H. Wollenberg,
President and Chief Executive Officer.
32.2 Section 1350 Certification by L. J. McLaughlin,
Sr. Vice President-Finance, Secretary and Treasurer.
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