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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995 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.)
Longview, Washington 98632
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (360) 425-1550
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1.50 Ascribed Value New York Stock Exchange
Rights to purchase Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
Market value per share $16.25 as of December 31, 1995 Total $731,848,861
Indicate the number of shares outstanding of each of the issuer's class of
common stock as of December 31, 1995. 51,744,847 shares outstanding
DOCUMENTS INCORPORATED BY REFERENCE
PART III - NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
dated December 14, 1995.
Page 1
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Longview Fibre Company was incorporated in the State of Washington in
1990 as a successor to a company of the same name incorporated in the
State of Delaware in 1926. No general development of material importance
has occurred during the past fiscal year.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
This item is completed by reference to Note 11 of Item 8 of this Form
10-K.
(c) NARRATIVE DESCRIPTION OF BUSINESS
(i-x) Principal Products, Markets and Methods of Distribution
TIMBER - Registrant owns and operates tree farms in Oregon and
Washington which produce logs for sale in the domestic and export
markets. The majority of domestic sales are to independent sawmills
and plywood plants within a reasonable hauling distance from our
tree farms. The company exports logs principally to Japan through
sales to U.S. exporters or directly to foreign importers. The
company does not believe that the loss of one customer or group of
customers would have a material effect on the company.
Environmental overregulation continues to plague our tree farm
operations. The company estimates that the loss does not exceed 10%
of realizable value.
At October 31, 1995, the company owned in fee 556,389 acres of tree
farms which are managed on a sustained yield basis with rotations of
40 years for hardwood and 60 to 70 years for coniferous species.
The company owns and operates a sawmill in Leavenworth, Washington.
Having an efficient small log sawmill in this region has resulted in
improved log realization on the Chelan tree farm. Residual wood
chips are used at the company's pulp and paper mill in Longview,
Washington.
PAPER AND PAPERBOARD - The company's pulp and paper mill in
Longview, Washington produces pulp which is manufactured into kraft
paper and containerboard.
Sales of paper are made primarily in the domestic market with some
grades of paper sold in the export market. Containerboard is sold
in the export market and in the Pacific Coast states. The loss of a
single customer, or a few customers, would not have a material
effect on the company. Products are sold by the company's sales
force working out of San Francisco, California; Longview,
Washington; Milwaukee, Wisconsin; and Atlanta, Georgia or through
paper merchants.
The mill's raw material fibers come primarily from purchased wood
chips and sawdust with important contributions from fiber reclaimed
Page 2
from post-consumer and post-industrial waste, purchased bleach pulp,
and augmented by log chipping operations owned by the company and
others.
Current high chip costs put the Pacific Northwest mills at a
disadvantage in competing with mills in other regions. The lockup
of federal and state timber for threatened species will tend to keep
chip costs up in the near term due to reduced log supply in the
region. The company expects that, over time, this disadvantage will
lessen due to reduced chip exports from the region, increased
imports, more recycling, pulp mill closures, pulp wood plantations
and the reduction in diameter of logs sawn (which increases the
ratio of chips to lumber). In an effort to reduce costs and take
advantage of marketing opportunities, the company continues to
maximize the use of reclaimed fibers, which is a lower cost fiber.
To spread risk, the company has been engaged in a long campaign to
increase value added products. Through the years, paper machines of
various trim widths and capabilities have been added while the
smaller and older machines have been kept in service to make small
lots of colors and other specialties. During the course of this
evolution, the commodity base (paperboard and bag paper) was not
neglected as this makes the volume great enough to lower pulp and
utility costs. Several machines are swing machines which can produce
paper or paperboard. Due to current market conditions, a greater
proportion of paperboard is being produced.
The company continues to emphasize quality, service, continuity and
design of products to meet customers needs. Accordingly the company
believes it is in an acceptable competitive posture as to its
primary products in spite of high wood fiber costs in the region.
CONVERTED PRODUCTS - The company's fifteen converting plants in ten
states produce shipping containers and merchandise and grocery bags.
The tonnage of paper and containerboard used in the converting
plants equals approximately 59% of the Longview mill production.
Bags are sold by the company's sales force working out of San
Francisco and Los Angeles, California; Longview, Washington; and
Waltham, Massachusetts. Sales are made directly or through paper
merchants.
Corrugated and solid fibre boxes are sold by the company's offices
located at Longview, Seattle and Yakima, Washington; Portland,
Oregon; San Francisco and Oakland, California; Twin Falls, Idaho;
Spanish Fork and Cedar City, Utah; Milwaukee, Wisconsin; Rockford,
Illinois; Cedar Rapids, Iowa; Minneapolis, Minnesota; Amsterdam, New
York; and Springfield, Massachusetts. The loss of a single
customer, or a few customers, would not have a material effect on
the business of the company.
Due to the higher cost of containerboard used to manufacture boxes,
caused primarily by high chip costs, the company has embarked on
major programs of installing improved and specialized equipment in
its box plants in order to make more specialized products as a means
to improve margins.
Page 3
The company believes it competes on even terms in highly competitive
markets avoiding large accounts which have reached excessive loss
levels.
The following table sets forth the contribution to sales by each
class of similar products which accounted for more than 10% of
sales.
1995 1994 1993
Paper and Paperboard 31% 28% 28%
Timber 21% 25% 24%
Converted Products 48% 47% 48%
No material portion of the business of the company is seasonal.
The practice of the company and the industry does not require an
abnormal amount of working capital.
(xi) The amount spent on research and development is completed by
reference to Note 4 of Item 8 of this Form 10-K.
(xii) This item is completed by reference to Item 7 of this Form 10-K.
(xiii) The company has approximately 3,800 employees.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Segment information (including amount of export sales) is completed by
reference to Note 11 of Item 8 of this Form 10-K.
ITEM 2. PROPERTIES
The principal plants and important physical properties of the company are held
without any major encumbrances and their respective locations by industry
segment are as follows:
TIMBER - As of October 31, 1995, the company owned in fee 556,389 acres of
tree farms located in various counties of Washington and Oregon. The company
as a matter of policy has consistently acquired and intends to continue to
acquire more timberlands whenever purchasable at acceptable prices dependent
on the location and quality of the site involved and the species and quality
of the merchantable timber and growing stock thereon. The company operates
its tree farms on a sustained yield basis with rotations of 40 years for
hardwood and 60 to 70 years for coniferous species. No large inventory of
mature trees is maintained.
PAPER AND PAPERBOARD - At Longview, Washington on a site of approximately 350
acres owned by the company with deep water frontage on the Columbia River and
featuring connections with two transcontinental railroads and adequate highway
access, there is an integrated operation for producing pulp and delivering it
to twelve paper and/or containerboard machines with full supporting
facilities.
Mill utilization was at 95% during fiscal 1995. Markets were strong for the
first two quarters with slowing in the last half of the year.
Page 4
CONVERTED PRODUCTS - On the same site at Longview there is a box factory for
production of solid fibre and corrugated boxes.
At each of the following thirteen locations, there are factories for the
production of converted products:
Oakland, California Corrugated Boxes Only
Twin Falls, Idaho " " "
Rockford, Illinois " " "
Cedar Rapids, Iowa " " "
Springfield, Massachusetts " " "
Minneapolis, Minnesota " " "
Amsterdam, New York " " "
Seattle, Washington " " "
Yakima, Washington " " "
Cedar City, Utah Corrugated Boxes from Corrugated Sheets
Spanish Fork, Utah Corrugated Boxes, Merchandise Bags,
Grocery Bags and Specialty Bags
Milwaukee, Wisconsin Corrugated and Solid Fibre Boxes
Waltham, Massachusetts Merchandise Bags and Specialty Bags
The volume of converted products sold increased during the past fiscal year.
Capacity is available for increased sales.
ITEM 3. LEGAL PROCEEDINGS
The company is a party to various proceedings relating to the cleanup of
hazardous waste under the Comprehensive Environmental Response Compensation
and Liability Act, and similar state laws. The company is also a party to
other legal proceedings generally incidental to its business. Although the
final outcome of any legal proceeding cannot be predicted with any degree of
certainty, the company presently believes that any ultimate liability
resulting from any of the legal proceedings, or all of them combined, would
not have a material effect on the company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Nothing was submitted during the fourth quarter of the fiscal year to a vote
of the Shareholders.
Page 5
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Office and Year First Elected
R. P. Wollenberg 80 (1) Chairman of the Board, President and
Chief Executive Officer (1953)
R. E. Wertheimer 67 (2) Executive Vice President (1960)
R. J. Parker 47 (3) Senior Vice President-Production (1994)
D. L. Bowden 60 (4) Senior Vice President-Timber (1989)
L. J. Holbrook 40 (5) Senior Vice President-Finance,
Secretary and Treasurer (1989)
D. C. Stibich 64 (6) Senior Vice President-Paper Sales (1981)
R. B. Arkell 64 (7) Vice President-Industrial Relations
and General Council (1986)
(1) R. P. Wollenberg
From 1985 Chairman, President and Chief Executive Officer
1978-1985 President and Chief Executive Officer
1969-1978 President
1960-1969 Executive Vice President
(2) R. E. Wertheimer
From 1985 Executive Vice President
1975-1985 Vice President-Container Division
1974-1975 Vice President-Production
1963-1974 Vice President-Container Sales
(3) R. J. Parker
From 1994 Senior Vice President-Production
1993-1994 Vice President and Assistant to the President
1992-1993 Pulp Mill Superintendant
1985-1992 Assistant Pulp Mill Superintendant
(4) D. L. Bowden
From 1992 Senior Vice President-Timber
1989-1992 Vice President-Timber
1980-1989 Assistant Timber Manager
(5) L. J. Holbrook
From 1992 Senior Vice President-Finance, Secretary and Treasurer
1991-1992 Vice President-Finance, Secretary and Treasurer
1989-1991 Assistant Secretary and Assistant Treasurer
Page 6
(6) D. C. Stibich
From 1986 Senior Vice President Paper Sales
1981-1986 Vice President Paper Sales
1968-1981 Manager Paper Sales
(7) R. B. Arkell
From 1979 Vice President Industrial Relations and General Counsel
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Transaction prices per share as reported on the New York Stock Exchange are
reported below.
Fiscal 1995 1994
Quarter High Low High Low
1st $17.25 $14.88 $23.63 $17.13
2nd 18.00 15.50 23.00 16.75
3rd 19.63 15.63 21.25 16.75
4th 19.00 13.25 21.25 16.63
The company estimates it now has approximately 11,000 shareholders.
Dividends per share paid in fiscal 1995, 1994 and 1993:
1995 1994 1993
January $0.13 $0.13 $0.10
April 0.14 0.13 0.10
July 0.14 0.13 0.10
October 0.19 0.13 0.22
$0.60 $0.52 $0.52
The Directors declared a regular dividend of $0.15 per share which was paid on
January 10, 1996, to shareholders of record on December 22, 1995.
Restrictions on the company's ability to pay cash dividends are completed by
reference to Note 6 of Item 8 of this Form 10-K.
Page 7
ITEM 6. SELECTED FINANCIAL AND OTHER DATA
(dollars in thousands except per share)
1995 1994 1993 1992 1991
STATEMENT OF INCOME
Net Sales . . . . . . . . . . . . . . . . . $ 985,515 $ 790,874 $689,551 $690,998 $644,000
Timber. . . . . . . . . . . . . . . . . . 207,735 197,978 166,822 114,944 90,785
Paper and paperboard. . . . . . . . . . . 308,356 223,920 189,787 234,119 223,260
Converted products. . . . . . . . . . . . 469,424 368,976 332,942 341,935 329,955
Cost of products sold, including
outward freight . . . . . . . . . . . . . 778,032 659,309 554,984 571,453 556,329
Gross profit. . . . . . . . . . . . . . . . 207,483 131,565 134,567 119,545 87,671
Selling, administrative and general
expenses. . . . . . . . . . . . . . . . . 59,709 54,769 49,994 48,971 46,737
Operating profit. . . . . . . . . . . . . . 147,774 76,796 84,573 70,574 40,934
Timber. . . . . . . . . . . . . . . . . . 121,738 111,907 101,471 61,006 45,286
Paper and paperboard. . . . . . . . . . . 7,442 (15,703) (2,181) 14,398 15,183
Converted products. . . . . . . . . . . . 18,594 (19,408) (14,717) (4,830) (19,535)
Interest expensed . . . . . . . . . . . . . (29,447) (24,384) (22,772) (24,356) (24,211)
Other income. . . . . . . . . . . . . . . . 1,912 1,902 1,287 1,169 5,780
Income before income taxes. . . . . . . . . 120,239 54,314 63,088 47,387 22,503
Provision for income taxes. . . . . . . . . 44,200 20,900 22,800 15,300 5,860
Net income. . . . . . . . . . . . . . . . . 76,039 33,414 40,288 32,087 16,643
PER SHARE
Net income. . . . . . . . . . . . . . . . . $ 1.47 $ 0.64 $ 0.78 $ 0.62 $ 0.32
Dividends . . . . . . . . . . . . . . . . . 0.60 0.52 0.52 0.52 0.52
Earnings reinvested in the business . . . . 0.87 0.12 0.26 0.10 (0.20)
Shareholders' equity at year-end. . . . . . 8.65 7.80 7.69 7.39 7.29
Average shares outstanding (thousands). . . 51,787 51,861 51,785 51,688 51,698
Shares outstanding at year-end (thousands). 51,751 51,830 51,882 51,685 51,693
BALANCE SHEET DATA
Total assets. . . . . . . . . . . . . . . . $1,153,823 $1,022,049 $944,373 $950,768 $926,852
Working capital . . . . . . . . . . . . . . 42,559 35,761 34,308 30,119 27,791
Capital assets. . . . . . . . . . . . . . . 906,586 815,509 767,130 777,655 768,406
Deferred taxes. . . . . . . . . . . . . . . (119,205) (103,234) (97,693) (83,266) (79,569)
Long-term debt. . . . . . . . . . . . . . . 409,374 366,492 327,486 362,400 356,025
Shareholders' equity. . . . . . . . . . . . 447,899 404,253 398,795 382,117 377,035
OTHER DATA
Sales: Logs, thousands of board feet . . . 262,000 250,000 212,000 232,000 218,000
Lumber, thousands of board feet . . 32,000 36,000 25,000 11,000 -
Paper, tons . . . . . . . . . . . . 259,000 236,000 226,000 253,000 249,000
Paperboard, tons. . . . . . . . . . 212,000 181,000 96,000 174,000 119,000
Converted products, tons. . . . . . 572,000 549,000 506,000 525,000 520,000
Logs, $/thousand board feet . . . . $ 753 $ 743 $ 745 $ 486 $ 417
Lumber, $/thousand board feet . . . 313 352 347 208 -
Paper, $/ton FOB mill equivalent. . 698 592 608 607 625
Paperboard, $/ton FOB mill
equivalent. . . . . . . . . . . . 489 336 311 320 340
Converted products, $/ton . . . . . 821 672 658 651 635
Primary production, tons. . . . . . . . . . 1,058,000 968,000 822,000 894,000 831,000
Employees . . . . . . . . . . . . . . . . . 3,800 3,750 3,500 3,450 3,400
Funds: Used for plant and equipment. . . . $ 138,613 $ 81,544 $ 53,256 $ 66,744 $101,950
Used for timber and timberlands . . 35,046 43,494 4,700 7,579 1,730
Page 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1995 vs. 1994
Earnings in 1995 improved by 128% over the prior year. However, earnings
remained 21% below 1988, while shareholders' equity has increased by 27% since
1988. This shows a continuing need for improvement.
Timber profits increased from $111,907,000 to $121,738,000 in fiscal 1995 due
primarily to a 5% increase in log footage sold. Prices for logs in fiscal
1995 were flat as compared with fiscal 1994. Demand and prices remain at good
levels in both the export and domestic markets.
We have salvaged the bulk of the fire-killed trees from the 1994 Chelan County
fire. Because of checking in dry weather, any remaining fire-killed crop will
be primarily useful for chips.
The company operates its 556,389 acres on a sustained-yield basis with
rotations of 40 years for hardwood and 60 to 70 years for coniferous species.
Based on recent purchases and sales, we now estimate the value of the tree
farms to be between five and seven times book value.
Attempts are continuing to extend environmental overkill to private lands.
This effort increases our operating costs and can reduce the value of our
lands. We presently estimate this adverse effect to be not greater than 10%
of realizable value.
Operating results for paper and paperboard improved from $(15,703,000) to
$7,442,000 due to a 13% increase in volume sold and price increases that more
than covered cost increases. The average selling price for paper and
paperboard improved 18% and 46%, respectively. High labor and wood chip
costs continue to hold back earnings.
Chip costs increased 28% compared with the prior fiscal year, but it appears
that the peak has passed and further reductions can be expected. Vigorous
efforts to broaden the area tapped and to extend supply by more intensive
salvage have reduced the supply-demand imbalance. We continue to expect that
regional differences in chip costs will diminish.
The shutdown of our bleach plant in fiscal 1994 has turned out to be
unfortunate. Price of bleached market pulp has more than doubled, which has
caused a reduction in the amount of bleached product we can sell profitably.
We have started making a semi-bleached pulp utilizing hydrogen peroxide. This
product can be substituted for full bleached in some grades. It appears that
it may become possible to equip to extend hydrogen peroxide bleaching to
brighter grades. If this can be accomplished, we might be freed from the
purchase of market pulp and would have a totally chlorine-free product.
Old corrugated container prices declined in the last part of the fiscal year.
Markets were strong for the first two quarters with slowing in the last half
of the year. Mill operation was at about 95% of capacity. Paperboard and
packaging paper demand is currently fairly close to industry capacity which
should augur well for price stability; however, competitors often fail to
realize that when volume declines industry downtime is inevitable.
Page 9
Converting results improved from $(19,408,000) to $18,594,000 due to a 4%
increase in volume sold and price increases that more than covered cost
increases.
The company has invested very heavily in equipment to meet the needs of its
customers. These costs have necessitated moderate price increases. We are
confident that the improvements in quality, service, continuity and
specialized manufacturing ability achieved after equipment improvements have
met our customers' best interests.
The cogeneration plant came on line in June with a few minor difficulties and
delays. It is now operating well and is making a contribution to cost
reduction.
Sale of power continues to make a substantial contribution to results.
Selling, administrative and general expenses were 6% of sales in fiscal 1995
and 7% of sales in fiscal 1994. Interest expensed increased 21% in fiscal
1995 as compared with fiscal 1994 due to higher borrowing for capital
expenditures and higher interest rates.
The current market for the company's manufactured products is somewhat weak.
While this may be due in part to user's inventory corrections, the question
remains how soon the market will recover. The company will seek to keep
prices above costs as this is in the best long-term interest of our customers.
Log markets are expected to remain strong. Chip costs should respond
favorably to lower industry demand.
RESULTS OF OPERATIONS 1994 vs. 1993
1994 was the sixth consecutive unsatisfactory year. Earnings decreased by 17%
and were 65% below 1988 when shareholders' equity was 13% lower.
Timber profits increased from $101,471,000 to $111,907,000 in fiscal 1994.
The 10% improvement was primarily due to 21% increase in log and lumber
footage sold. Prices for logs and lumber held steady with year ago levels,
but operating results were adversely affected by fire losses. Demand and
prices remain at good levels in both the export and domestic markets.
Summer of 1994 was a period of devastating forest fires east of the Cascades
where we have about 80,000 acres. Parts of 9,000 acres were subject to fire.
We have charged to earnings $2 million which is our best current estimate of
the timber lost based on cost of that timber. Market value is, of course,
greater; potential profit lost will be reflected in later years.
The company operates its 545,193 acres of tree farms on a sustained yield
basis with rotations between 45 and 70 years. Based on recent purchases and
sales, we now estimate the value of the tree farms to be between five and
seven times book value. These multipliers are lower than the prior year
because of large purchases in fiscal 1994 at market prices. While actual
purchases reflect current market prices, we are confident that prices we paid
have adequate allowance for profit and risk.
Lockup of federal and state timber for so-called threatened species continues
to expand. The resulting reduced log supply in the marketplace keeps log
prices at very good levels. Attempts are continuing to extend environmental
overkill to private lands. This effort increases our operating costs and can
Page 10
reduce the value of our lands. We presently estimate this adverse effect to
be not greater than 6%.
For the year, sales of paper and paperboard increased 18% while operating
results declined from $(2,181,000) to $(15,703,000). Tonnage sold during the
year increased 30% while the average prices for paper declined 3% and the
average price for paperboard improved 8%. Increased costs which contributed
to the reduced results are discussed below.
Markets improved starting late in the second quarter; full operation and
improved prices were achieved in the fourth quarter of the year. Weak markets
in the early part of the fiscal year resulted in operations for the year at
about 87% of capacity.
Chip costs were about 1% lower than the prior year but continue to be high.
Increased demand for OCC (old corrugated containers) caused its price to
increase sharply; however, it is still cheaper than virgin pulp. Our
expectation is still, as reported last year, that in time chip cost
differences between the Pacific Northwest and other regions will diminish.
Market bleached pulp is now used for all bleached products and part of the
bleach plant has been written off. Bleached pulp prices are increasing which
necessitates higher prices for bleached products.
The company made a six-year labor settlement at the mill with moderate wage
increases, but accompanied by substantial retirement improvements. The cost
of the pension improvements reduced reported earnings by approximately
$2,000,000. While the settlement is expensive, it is not out of line with
regional competitors, but rates are high compared with other regions.
Converting results declined from $(14,717,000) in fiscal 1993 to $(19,408,000)
in fiscal 1994. Sales increased 11% due to an 8% increase in tonnage sold and
a 2% increase in average price. Operating losses increased due to higher
costs of containerboard used to manufacture boxes.
Paperboard demand increased so that the industry is now running at capacity.
The paper market improved slightly as swing machines shifted to paperboard.
Corrugated box prices improved as containerboard became scarce.
During weak markets some large buyers tend to hold auctions. Longview Fibre
will do its best to avoid such buyers and to have continuing long term
relationships with customers who see the necessity for paying compensatory
prices for quality, service, continuity, product design and specialized
manufacturing capability. In the long term, no user of our products can
expect to rely on producers who are forced to sell below cost.
Sale of power continues to make a substantial reduction in net cost of power
used. The new cogeneration plant is expected to be on-line by next summer.
Selling, administrative and general expenses were 7% of sales in fiscal 1994
and fiscal 1993. Interest expensed increased 7% in fiscal 1994 as compared
with fiscal 1993 due to higher borrowing for capital expenditures and higher
interest rates.
The harsh government climate for manufacturing continues to make production
expensive; no improvement is in sight. The current very strong market for our
products will make manufacturing profitable; it will, nevertheless, take
considerable time to recover the large amount lost in manufacturing in the
Page 11
last four years. The current recovery has gone on for long enough to start
speculation as to when it may end. Modest expansion in the paper industry
leads one to the hope that the next downmarket will not be as bad as the
recent debacle.
It appears probable that the log market will stay fairly strong even in a
downturn.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations increased $45,892,000 in fiscal 1995 compared with
fiscal 1994 primarily due to increased earnings.
Working capital was $42,559,000 at October 31, 1995 compared to $35,761,000 at
October 31, 1994.
Long-term debt, current installments of long-term debt and short-term
borrowings increased by $66,007,000 in fiscal 1995 due primarily to increased
capital expenditures.
At October 31, 1995, the company had bank lines of credit totaling
$328,000,000. Of this amount, $186,000,000 was under a credit agreement with
a group of banks expiring February 28, 1997, with renewal provisions beyond
that date. The company had outstanding $170,000,000 of notes payable under
this agreement at October 31, 1995. Also available were $142,000,000 of bank
credit lines for additional borrowing needs. At October 31, 1995, the company
had an outstanding balance of $88,000,000 under these credit lines. The
unused portion of all bank lines of credit was $70,000,000 as of October 31,
1995, which is adequate for anticipated future needs.
Also outstanding at October 31, 1995 were senior notes of $192,000,000 and
revenue bonds of $28,900,000. For further details regarding borrowing, see
Notes 5 and 6 of Item 8 of this Form 10-K.
Expenditures for fiscal 1995 for plant and equipment were $138,613,000 and for
timberland $35,046,000. Expenditures for fiscal 1994 for plant and equipment
were $81,544,000 and for timberland $43,494,000. The backlog of approved
capital projects as of October 31, 1995 was $93,000,000.
Capital projects:
The company has accelerated its major programs of installing improved and
specialized equipment in its mill and box plants to permit manufacture of
premium products which should sell at improved margins.
The corrugated sheet plant in Cedar City, Utah is in operation.
Capital expenditures for plant and equipment are expected to range between
$80,000,000 and $120,000,000 per year. Purchase of timberlands will depend on
offerings, price levels and competition.
During fiscal 1995, the company purchased 79,265 shares of its stock for an
average price of $16.68 per share. During fiscal 1994, the company purchased
51,522 shares for an average price of $19.16 per share. Purchases began in
1964; the total number of shares acquired through fiscal 1995 is 21,329,168
shares for $95,828,368 at an average cost of $4.49 per share. Stock purchases
increase interest costs and thus reduce corporate earnings. In most years
when earnings are good, they increase earnings per share. In a bad year, the
interest cost can decrease earnings per share slightly.
Page 12
Dividends of $.60 and $.52 per share were paid in fiscal 1995 and 1994,
respectively. Shareholders' equity increased $43,646,000 in fiscal 1995 as
compared with an increase of $5,458,000 in fiscal 1994.
It is expected that near-term capital expenditures will be financed
principally from internally generated funds supplemented, if necessary, by
modest additional borrowing.
OTHER
The company continually reviews any known environmental exposures including
the costs of remediation. At the present time, the company is not aware of
any environmental liabilities that would have a material impact on the
consolidated financial statements.
The company believes it is in substantial compliance with Federal, State and
local laws regarding environmental quality. The Environmental Protection
Agency (EPA) has issued proposed rules regarding air and water quality
referred to as the "Cluster Rules" which are currently undergoing public
review. Depending upon the final form of these rules, the company estimates
that over the next 4 to 5 years required pollution control capital
expenditures could range from $10 million to $50 million. Although future
pollution control expenditures cannot be predicted with any certainty because
of continuing changes in laws, the company believes that compliance with these
requirements will not have a material impact on its capital expenditures,
earnings or competitive position.
The company's consolidated financial statements are prepared based on
historical costs and do not portray the effects of inflation. The impact of
inflation is most noticeable for inventories and capital assets, although most
of the inflationary effect on inventories is already portrayed in the
consolidated income statement by the use of the LIFO method of inventory
valuation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
Financial Statements:
Report of Independent Accountants . . . . . . . . . . . . . . . . . 14
Consolidated Statement of Income for the
three years ended October 31, 1995 . . . . . . . . . . . . . . . 15
Consolidated Statement of Shareholders'
Equity for the three years ended October 31, 1995. . . . . . . . 15
Consolidated Balance Sheet at October 31,
1995, 1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . 16
Consolidated Statement of Cash Flows for
the three years ended October 31, 1995 . . . . . . . . . . . . . 17
Notes to Consolidated Financial Statements. . . . . . . . . . . . . 18
Financial Statement Schedules:
Schedules have been omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes
thereto of this Form 10-K.
Page 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Longview Fibre Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Longview Fibre Company and its subsidiaries at October 31, 1995,
1994 and 1993 and the results of their operations and their cash flows for
each of the three years in the period ended October 31, 1995 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
\s\ Price Waterhouse LLP
Price Waterhouse LLP
Portland, Oregon
December 7, 1995
Page 14
CONSOLIDATED STATEMENT OF INCOME
Years Ended October 31
(thousands except per share) 1995 1994 1993
NET SALES. . . . . . . . . . . . . . . . . . . $985,515 $790,874 $689,551
Timber . . . . . . . . . . . . . . . . . 207,735 197,978 166,822
Paper and paperboard . . . . . . . . . . 308,356 223,920 189,787
Converted products . . . . . . . . . . . 469,424 368,976 332,942
Cost of products sold, including
outward freight . . . . . . . . . . . . . . . 778,032 659,309 554,984
GROSS PROFIT . . . . . . . . . . . . . . . . . 207,483 131,565 134,567
Selling, administrative and general expenses . 59,709 54,769 49,994
OPERATING PROFIT . . . . . . . . . . . . . . . 147,774 76,796 84,573
Timber . . . . . . . . . . . . . . . . . 121,738 111,907 101,471
Paper and paperboard . . . . . . . . . . 7,442 (15,703) (2,181)
Converted products . . . . . . . . . . . 18,594 (19,408) (14,717)
Interest income. . . . . . . . . . . . . . . . 594 539 329
Interest expensed. . . . . . . . . . . . . . . (29,447) (24,384) (22,772)
Miscellaneous. . . . . . . . . . . . . . . . . 1,318 1,363 958
INCOME BEFORE INCOME TAXES . . . . . . . . . . 120,239 54,314 63,088
PROVISION FOR TAXES ON INCOME (see Note 10)
Current. . . . . . . . . . . . . . . . . . . . 29,049 15,748 13,055
Deferred . . . . . . . . . . . . . . . . . . . 15,151 5,152 9,745
44,200 20,900 22,800
NET INCOME . . . . . . . . . . . . . . . . . . $ 76,039 $ 33,414 $ 40,288
Per share. . . . . . . . . . . . . . . . $ 1.47 $ 0.64 $ 0.78
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(thousands) 1995 1994 1993
COMMON STOCK:
Balance at beginning of year . . . . . . $ 77,745 $ 77,823 $ 77,527
Issued . . . . . . . . . . . . . . . . . - - 323
Ascribed value of stock purchased. . . . (118) (78) (27)
Balance at end of year . . . . . . . . . $ 77,627 $ 77,745 $ 77,823
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year . . . . . . $ 3,306 $ 3,306 $ -
On common stock issued . . . . . . . . . - - 3,306
Balance at end of year . . . . . . . . . $ 3,306 $ 3,306 $ 3,306
RETAINED EARNINGS:
Balance at beginning of year . . . . . . $323,202 $317,666 $304,590
Net income . . . . . . . . . . . . . . . 76,039 33,414 40,288
Less cash dividends on common stock
($0.60, $0.52, $0.52 per share,
respectively) . . . . . . . . . . . . (31,070) (26,968) (26,940)
Less purchases of common stock . . . . . (1,205) (910) (272)
Balance at end of year . . . . . . . . . $366,966 $323,202 $317,666
COMMON SHARES:
Balance at beginning of year . . . . . . 51,830 51,882 51,685
Issued . . . . . . . . . . . . . . . . . - - 215
Purchases. . . . . . . . . . . . . . . . (79) (52) (18)
Balance at end of year . . . . . . . . . 51,751 51,830 51,882
The accompanying notes are an integral part of the financial statements.
Page 15
CONSOLIDATED BALANCE SHEET
October 31
(dollars in thousands except per share) 1995 1994 1993
ASSETS
Current assets:
Accounts and notes receivable. . . . . . . . $ 118,164 $ 101,190 $ 82,563
Allowance for doubtful accounts. . . . . . (1,100) (1,000) (1,000)
Inventories (see Note 2) . . . . . . . . . . 82,534 67,305 59,674
Other. . . . . . . . . . . . . . . . . . . . 9,372 7,597 7,081
Total current assets . . . . . . 208,970 175,092 148,318
Capital assets:
Buildings, machinery and equipment at cost . 1,355,740 1,230,784 1,164,411
Accumulated depreciation . . . . . . . . . 655,822 599,342 548,538
Costs to be depreciated in future
years (see Note 3). . . . . . . . . . . 699,918 631,442 615,873
Plant sites at cost. . . . . . . . . . . . . 2,834 2,423 2,423
702,752 633,865 618,296
Timber at cost less depletion. . . . . . . . 178,494 158,659 129,372
Roads at cost less amortization. . . . . . . 9,291 9,415 9,198
Timberland at cost . . . . . . . . . . . . . 16,049 13,570 10,264
203,834 181,644 148,834
Total capital assets . . . . . . 906,586 815,509 767,130
Other assets . . . . . . . . . . . . . . . . 38,267 31,448 28,925
$1,153,823 $1,022,049 $ 944,373
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Payable to bank resulting from
checks in transit . . . . . . . . . . . . . $ 10,272 $ 12,505 $ 8,363
Accounts payable . . . . . . . . . . . . . . 60,730 52,361 40,219
Short-term borrowings (see Note 5) . . . . . 36,000 1,000 20,000
Payrolls payable . . . . . . . . . . . . . . 10,703 9,862 8,973
Federal income taxes payable . . . . . . . . 2,475 2,929 1,502
Other taxes payable. . . . . . . . . . . . . 12,112 14,680 15,010
Current installments of long-term debt . . . 34,119 45,994 19,943
Total current liabilities . . . 166,411 139,331 114,010
Long-term debt (see Note 6). . . . . . . . . 409,374 366,492 327,486
Deferred taxes - net (see Note 10) . . . . . 119,205 103,234 97,693
Other liabilities. . . . . . . . . . . . . . 10,934 8,739 6,389
Commitments (see Note 13). . . . . . . . . . - - -
Shareholders' equity:
Preferred stock; authorized 2,000,000 shares - - -
Common stock, ascribed value $1.50 per share;
authorized 150,000,000 shares; issued
51,751,032, 51,830,297 and 51,881,819
shares, respectively (see Note 12). . . . . 77,627 77,745 77,823
Additional paid-in capital . . . . . . . . . 3,306 3,306 3,306
Retained earnings. . . . . . . . . . . . . . 366,966 323,202 317,666
Total shareholders' equity . . . 447,899 404,253 398,795
$1,153,823 $1,022,049 $ 944,373
The accompanying notes are an integral part of the financial statements.
Page 16
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended October 31
(thousands) 1995 1994 1993
CASH PROVIDED BY (USED FOR) OPERATIONS:
Net income . . . . . . . . . . . . . . . . . $ 76,039 $ 33,414 $ 40,288
Charges to income not requiring cash:
Depreciation . . . . . . . . . . . . . . 66,719 62,144 60,859
Depletion and amortization . . . . . . . 12,684 10,546 8,166
Deferred taxes - net . . . . . . . . . . 15,971 5,541 9,745
Loss on disposition of capital assets . . 1,428 2,679 1,437
Change in:
Accounts and notes receivable - net . . . (16,874) (18,627) 9,358
Inventories . . . . . . . . . . . . . . . (15,229) (7,631) (3,190)
Other . . . . . . . . . . . . . . . . . . (1,775) (516) (516)
Other noncurrent assets . . . . . . . . . (6,819) (2,523) (4,357)
Accounts, payrolls and other
taxes payable . . . . . . . . . . . . . 7,886 7,075 (3,049)
Federal income taxes payable. . . . . . . (454) 1,427 (2,555)
Other noncurrent liabilities. . . . . . . 2,195 2,350 1,830
Cash provided by operations. . . . . . . . . 141,771 95,879 118,016
CASH PROVIDED BY (USED FOR) INVESTING:
Additions to: Plant and equipment.. . . . . (138,613) (81,544) (53,256)
Timber and timberlands. . . . (35,046) (43,494) (4,700)
Proceeds from sale of capital assets . . . . 1,751 1,290 905
Cash used for investing. . . . . . . . . . . (171,908) (123,748) (57,051)
CASH PROVIDED BY (USED FOR) FINANCING:
Additions to long-term debt. . . . . . . . . 77,000 85,000 21,029
Reduction in long-term debt. . . . . . . . . (45,993) (19,943) (41,625)
Short-term borrowings. . . . . . . . . . . . (35,000) (19,000) (15,000)
Payable to bank resulting from
checks in transit . . . . . . . . . . . . . (2,233) 4,142 1,170
Accounts payable for construction. . . . . . (1,244) 5,626 700
Cash dividends . . . . . . . . . . . . . . . (31,070) (26,968) (26,940)
Purchase of common stock . . . . . . . . . . (1,323) (988) (299)
Cash provided by (used for) financing. . . . 30,137 27,869 (60,965)
Change in cash position. . . . . . . . . . . - - -
Cash position, beginning of year . . . . . . - - -
Cash position, end of year . . . . . . . . . $ - $ - $ -
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) . . . $ 28,718 $ 23,912 $ 23,231
Capitalized interest . . . . . . . . . . . 3,442 1,486 548
Income taxes . . . . . . . . . . . . . . . 30,109 14,500 16,134
The accompanying notes are an integral part of the financial statements.
Page 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the company and all
subsidiaries after elimination of intercompany balances and transactions.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
a last-in, first-out method except for supplies at current averages.
PROPERTY AND DEPRECIATION
Buildings, machinery and equipment are recorded at cost and include those
additions and improvements that add to production capacity or extend useful
life. Cost includes interest capitalized during the construction period on
all significant asset acquisitions. When properties are sold or otherwise
disposed, the cost and the related accumulated depreciation are removed from
the respective accounts and the resulting profit or loss is recorded in
income. The costs of maintenance and repairs are charged to income when
incurred.
Depreciation for financial accounting purposes is computed on the straight-
line basis over the estimated useful lives of the assets. The estimated
useful lives of assets range from 20 to 60 years for buildings and principally
from 12 to 16 years for machinery and equipment.
TIMBERLANDS, DEPLETION AND AMORTIZATION
Timber, timberlands and timber roads are stated at cost. Provision for
depletion of timber and amortization of logging roads represents charges per
unit of production (footage cut) based on the estimated recoverable timber.
No gain or loss is recognized on timberland exchanges since the earnings
process is not considered complete until timber is harvested and marketed.
EARNINGS PER SHARE
Net income per common share is computed on the basis of weighted average
shares outstanding of 51,786,698, 51,861,365, and 51,785,201 for 1995, 1994
and 1993, respectively.
PENSION AND OTHER BENEFIT PLAN COSTS
The company's policy is to accrue as cost an amount computed by the actuary
and to fund at least the minimum amount required by ERISA.
REVENUE RECOGNITION
The company generally recognizes revenues when goods are shipped.
NOTE 2 - INVENTORIES:
Inventories consist of the following:
October 31
(thousands) 1995 1994 1993
Finished goods . . . . . . . . $ 38,973 $ 33,254 $ 32,805
Goods in process. . . . . . . . 39,905 25,332 25,071
Raw materials and supplies. . . 35,350 17,516 9,675
Supplies (at average cost). . . 38,707 36,908 31,429
152,935 113,010 98,980
LIFO Reserve. . . . . . . . . . (70,401) (45,705) (39,306)
$ 82,534 $ 67,305 $ 59,674
Page 18
NOTE 3 - BUILDINGS, MACHINERY AND EQUIPMENT:
At cost - net of accumulated depreciation consist of the following:
October 31
(thousands) 1995 1994 1993
Buildings - net . . . . . . . . $ 54,115 $ 46,963 $ 39,644
Machinery and equipment - net . 645,803 584,479 576,229
$699,918 $631,442 $615,873
NOTE 4 - SUPPLEMENTAL EXPENSE INFORMATION:
(thousands) 1995 1994 1993
Maintenance & repairs. . . . . . . . $78,557 $68,795 $63,556
Taxes, other than income taxes:
Payroll. . . . . . . . . . . . 11,873 10,949 10,206
Property . . . . . . . . . . . 9,392 10,114 10,689
Sales and use. . . . . . . . . 4,227 3,866 3,548
Other. . . . . . . . . . . . . 10,650 10,706 7,823
Research and development . . . . . . 570 471 462
NOTE 5 - SHORT-TERM BORROWINGS:
At October 31, 1995, the company had bank lines of credit totaling $328
million. Of this amount, $186 million was under a credit agreement with a
group of banks providing various methods of borrowing. The agreement provides
for borrowings at the Euro Dollar Rate plus 3/8% or the bank's prime rate,
whichever the company selects. Also, the company can request a "Competitive
Bid" specifying dollar amounts and loan duration. The various banks may then
bid, specifying rates and amounts, which the company may accept or reject.
The credit agreement contains certain financial covenants and provides for a
1/4% facility fee. This agreement has an expiration date of February 28, 1997
with renewal provisions beyond that date. At October 31, 1995, the company
had loans of $170 million under the credit agreement.
The company also has an agreement whereby it can borrow money by issuing notes
in the commercial paper market. The $186 million credit agreement above
provides credit back-up for commercial paper issued, therefore the combined
borrowing under the credit agreement and the commercial paper agreement cannot
exceed $186 million. During the year, no commercial paper was issued.
Also available was $142 million of bank credit lines for additional borrowing
needs. Included in this amount are committed lines of credit of $45 million,
$20 million and $10 million which expire November 1, 1997, March 31, 1997 and
May 31, 1997, respectively. Each of these lines is subject to a nominal
commitment fee. The other $67 million is uncommitted. At October 31, 1995,
the company had an outstanding balance of $88 million under these credit
lines.
Short-term borrowings of $222 million, $205 million and $160 million at
October 31, 1995, 1994 and 1993, respectively, under the above agreements,
have been reclassified as long-term debt because they are to be renewed and
replaced with borrowings due beyond one year and into future periods.
Page 19
Short-term borrowing activity including the amount reclassified as long-term
is summarized as follows:
(thousands) 1995 1994 1993
Notes payable October 31 . . . . $258,000 $206,000 $180,000
Interest rate October 31 . . . . 6.4% 5.6% 4.0%
Average daily amount of
notes payable outstanding
during year . . . . . . . . . . $250,512 $196,547 $179,601
Average* interest rate
during year . . . . . . . . . . 6.5% 4.6% 4.2%
Maximum amount of notes
payable at any month end. . . . $272,000 $213,000 $195,000
*Computed by dividing interest incurred by average notes payable outstanding.
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of the following:
October 31
(thousands) 1995 1994 1993
Senior notes due through 2001
(6.17%-9.80%) - Note (a) . . . . $192,000 $177,875 $157,500
Revenue bonds payable through
2015 (floating rates, currently
3.9%-4.2%) - Note (b) . . . . . 28,900 28,900 28,900
Other. . . . . . . . . . . . . . 593 711 1,029
Notes payable - banks -
Note 5 above . . . . . . . . . . 222,000 205,000 160,000
443,493 412,486 347,429
Less current installments . . 34,119 45,994 19,943
Net long-term debt. . . . . . . . $409,374 $366,492 $327,486
Scheduled maturities
1997 $256,119
1998 14,119
1999 30,118
2000 30,118
2001-2015 78,900
$409,374
Note (a) Covenants of the senior notes include tests of minimum net worth,
short-term borrowing, long-term borrowing, current ratio and restrictions on
payments of dividends. Accordingly, at October 31, 1995, approximately $68
million of consolidated retained earnings was unrestricted as to the payment
of dividends.
Note (b) Primarily incurred upon the purchase of manufacturing equipment. At
October 31, 1995, $28,900,000 was secured by liens on the equipment.
Page 20
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
Accounts receivable, revenue bonds and notes payable to banks approximate fair
value as reported in the balance sheet. The fair value of senior notes is
estimated using discounted cash flow analyses, based on the company's
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the company's long-term debt exceeded the stated value by
approximately $7 million at October 31, 1995. The difference between the fair
value of the company's long-term debt and the stated value was not material at
October 31, 1994 and exceeded the stated value by approximately $9 million at
October 31, 1993.
NOTE 8 - RETIREMENT AND SAVINGS PLANS:
The company has two trusteed defined benefit pension programs which cover a
majority of employees who have completed one year of continuous service. The
plans provide benefits of a stated amount for each year of service with an
option for some employees to receive benefits based on an average earnings
formula.
The weighted-average discount rate and rate of increase in the future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 8% and 5.25% for 1995 and 1994, and 7% and
5.25% for 1993. The expected long-term rate of return on assets was 9%.
The following table sets forth the plans' funded status and amounts recognized
in the company's consolidated financial statements at October 31:
(thousands) 1995 1994 1993
Actuarial present value of benefit
obligations:
Vested . . . . . . . . . . . . . $139,308 $132,175 $132,030
Vested and nonvested . . . . . . $140,608 $133,190 $132,803
Projected for service
rendered . . . . . . . . . . . $165,042 $157,549 $147,395
Plan assets at fair value,
primarily listed stocks. . . . . . 269,785 237,109 235,763
Excess plan assets. . . . . . . . . 104,743 79,560 88,368
Items not recognized in earnings:
Net (asset) at adoption of FAS 87. (7,425) (8,795) (10,164)
Unrecognized prior service cost. . 20,699 24,363 7,487
Unrecognized net (gain) . . . . . (91,950) (71,034) (63,095)
Pension asset recognized in the
consolidated balance sheet . . . . $ 26,067 $ 24,094 $ 22,596
Net pension (income) includes
the following:
Service cost . . . . . . . . . . $ 4,220 $ 4,334 $ 3,203
Interest cost. . . . . . . . . . 12,211 10,800 9,770
Actual (return) on plan assets . (41,200) (8,920) (45,229)
Net amortization and deferral. . 22,795 (7,711) 28,392
Net pension (income). . . . . . . . $ (1,974) $ (1,497) $ (3,864)
Voluntary savings plans are maintained for all employees who have completed
one year of continuous service. The plans allow salary deferrals in
accordance with IRC section 401(k) provisions. The company contribution as a
matching incentive during 1995, 1994 and 1993 was $1,151,000, $916,000 and
$857,000, respectively.
Page 21
NOTE 9 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The company provides postretirement health care insurance benefits for all
salaried and certain non-salaried employees and their dependents. Individual
benefits generally continue until age 65. The company does not pre-fund these
benefits.
Postretirement benefit expense was $2,589,000, $2,679,000, and $2,274,000 in
1995, 1994 and 1993, respectively.
The components of expense were as follows:
(thousands) 1995 1994 1993
Service cost . . . . . . . . . . . . . . . $ 717 $ 850 $ 639
Interest cost. . . . . . . . . . . . . . . 1,373 1,331 1,137
Amortization of transition obligation. . . 499 498 498
Net periodic postretirement benefit cost . $ 2,589 $ 2,679 $ 2,274
The accumulated postretirement benefit obligation consists of the following:
(thousands) 1995 1994 1993
Retirees . . . . . . . . . . . . . . . . . $ (3,448) $ (2,658) $ (2,245)
Fully eligible active plan participants. . (3,836) (3,898) (3,025)
Other active plan participants . . . . . . (11,519) (11,833) (11,268)
Total accumulated postretirement
benefit obligation . . . . . . . . . . . (18,803) (18,389) (16,538)
Unrecognized net(gain)loss . . . . . . . . (606) 676 677
Unrecognized transition obligation . . . . 8,475 8,974 9,472
Accrued postretirement benefit cost. . . . $(10,934) $ (8,739) $ (6,389)
Future benefit costs were calculated using a health care cost trend rate of
14% for the indemnity plan and 8% for the HMO plan. The trend rate declines
each year until the ultimate health care cost trend rate, 5.5%, is reached in
the year 2003 for the indemnity plan and the year 1999 for the HMO plan. A
one percent change in the health care cost trend rate assumption has a
$2,076,000 effect on the accumulated postretirement benefit obligation as of
October 31, 1995 and a $272,000 effect on the net periodic postretirement
benefit cost. The weighted-average discount rate used was 8% at October 31,
1995 and 1994, and 7.5% at October 31, 1993.
NOTE 10 - INCOME TAXES:
Provision for taxes on income is made up of the following components:
(thousands) 1995 1994 1993
Current:
Federal. . . . . . . . . . . . . . $26,495 $14,553 $12,601
State. . . . . . . . . . . . . . . 2,554 1,195 454
29,049 15,748 13,055
Deferred:
Federal. . . . . . . . . . . . . . 14,405 4,647 8,699
State. . . . . . . . . . . . . . . 746 505 1,046
15,151 5,152 9,745
$44,200 $20,900 $22,800
Page 22
An analysis of the effective income tax rate as compared to the expected
federal income tax rate is as follows:
1995 1994 1993
Expected federal income tax rate . . 35% 35% 35%
Foreign Sales Corporation. . . . . . (1) - (5)
State income taxes less
federal income tax benefit . . . . 2 2 1
Enacted rate change impacting
deferred taxes . . . . . . . . . . - - 5
Other. . . . . . . . . . . . . . . . 1 1 -
37% 38% 36%
The deferred income tax liabilities (assets) recorded in the Consolidated
Balance Sheet as of October 31, are as follows:
(thousands) 1995 1994 1993
Current:
Non-deductible accruals. . . . . . $ (5,891) $ (5,071) $ (4,682)
Non-current:
Depreciation . . . . . . . . . . . $135,146 $128,371 $119,667
Employee Benefit Plans . . . . . . 9,648 8,917 8,363
Alternative Minimum Tax. . . . . . (20,547) (26,844) (24,235)
Other. . . . . . . . . . . . . . . (5,042) (7,210) (6,102)
Non-current deferred tax . . . . . $119,205 $103,234 $ 97,693
Federal income tax returns through 1991 have been settled with the Internal
Revenue Service.
NOTE 11 - SEGMENT INFORMATION:
The company owns and operates tree farms in Oregon and Washington which
produce logs for sale. Its pulp and paper mill at Longview, Washington
produces pulp which is manufactured into kraft paper and containerboard. The
raw material fibers come primarily from purchased wood chips and sawdust with
important contributions from fiber reclaimed from post-consumer and post-
industrial waste, purchased bleach pulp, and augmented by log chipping
operations owned by the company and others. The company's fifteen converting
plants in ten states produce shipping containers, and merchandise and grocery
bags. The tonnage of paper and containerboard used in the converting plants
equals approximately 59% of the Longview mill production.
Included in sales to customers are export sales, principally to Japan, Hong
Kong and Southeast Asia in 1995, 1994 and 1993 of $229,984,000, $161,622,000
and $124,195,000, respectively. All sales are made in U. S. dollars.
There are no intersegment sales as all manufacturing operations to produce
primary or converted products for sale are considered integrated from the
purchased wood to the sale of the finished product.
Identifiable assets are segregated or allocated to segments as follows:
1. Assets used wholly within a segment are assigned to that segment.
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2. Assets used jointly by two segments are allocated to each segment on a
percentage determined by dividing total cost of product into cost of
product produced for each segment. Paper and paperboard assets of
$253,674,000, $252,844,000 and $275,417,000 have been allocated to
converted products at October 31, 1995, 1994 and 1993, respectively.
Depreciation, depletion and amortization and additions to capital assets have
been segregated and allocated similarly to the method used for identifiable
assets.
(thousands) 1995 1994 1993
SALES TO CUSTOMERS:
Timber . . . . . . . . . . . . . . . $ 207,735 $ 197,978 $166,822
Paper and paperboard . . . . . . . . 308,356 223,920 189,787
Converted products . . . . . . . . . 469,424 368,976 332,942
Total. . . . . . . . . . . . . . . 985,515 790,874 689,551
INCOME (LOSS) ON SALES:
Timber . . . . . . . . . . . . . . . 121,738 111,907 101,471
Paper and paperboard . . . . . . . . 7,442 (15,703) (2,181)
Converted products . . . . . . . . . 18,594 (19,408) (14,717)
Interest expensed and other. . . . . (27,535) (22,482) (21,485)
Income before income taxes . . . . 120,239 54,314 63,088
IDENTIFIABLE ASSETS AT OCTOBER 31:
Timber . . . . . . . . . . . . . . . 254,586 225,656 188,450
Paper and paperboard . . . . . . . . 313,778 304,819 278,981
Converted products . . . . . . . . . 585,459 491,574 476,942
Total. . . . . . . . . . . . . . . 1,153,823 1,022,049 944,373
DEPRECIATION, DEPLETION AND
AMORTIZATION:
Timber . . . . . . . . . . . . . . . 15,740 13,350 11,010
Paper and paperboard . . . . . . . . 22,964 21,767 19,907
Converted products . . . . . . . . . 40,699 37,573 38,108
Total. . . . . . . . . . . . . . . 79,403 72,690 69,025
ADDITIONS TO CAPITAL ASSETS:
Timber . . . . . . . . . . . . . . . 38,289 48,810 5,453
Paper and paperboard . . . . . . . . 26,721 19,890 15,162
Converted products . . . . . . . . . 108,649 56,338 37,341
Total. . . . . . . . . . . . . . . $ 173,659 $ 125,038 $ 57,956
NOTE 12 - SHAREHOLDER RIGHTS PLAN:
A Shareholder Rights Plan provides one right for each share of common stock.
With certain exceptions, the rights will become exercisable only in the event
that an acquiring party accumulates 20% or more of the company's voting stock
or a party announces an offer to acquire 30% or more of the voting stock. The
rights expire on March 1, 1999, if not previously redeemed or exercised. Each
right entitles the holder to purchase one-tenth of one common share at a price
of $4.00 ($40 per whole share), subject to adjustment under certain
circumstances. In addition, upon the occurrence of certain events, holders of
the rights will be entitled to purchase a defined number of shares of an
acquiring entity or the company's common shares at half their then current
market value. The company will generally be entitled to redeem the rights at
$0.01 per right at any time until the tenth day following the acquisition of
20% or more, or an offer to acquire 30% or more, of the company's voting
stock.
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NOTE 13 - COMMITMENTS AND CONTINGENCIES:
Estimated costs to complete approved capital projects were approximately $93
million, $65 million and $56 million at October 31, 1995, 1994 and 1993,
respectively.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal Year Quarters Total
Fiscal
(thousands except per share) 1st 2nd 3rd 4th Year
1995
Net sales. . . . . . . . . . $227,519 $234,215 $253,363 $270,418 $985,515
Gross profit . . . . . . . . 48,051 57,697 51,436 50,299 207,483
Net income . . . . . . . . . 16,548 22,542 18,912 18,037 76,039
Net income per share (1) . . 0.32 0.43 0.37 0.35 1.47
1994
Net sales. . . . . . . . . . $166,085 $189,183 $207,341 $228,265 $790,874
Gross profit . . . . . . . . 21,360 40,101 32,184 37,920 131,565
Net income . . . . . . . . . 1,778 13,986 7,491 10,159 33,414
Net income per share (1) . . 0.03 0.27 0.14 0.20 0.64
1993
Net sales . . . . . . . . . $155,873 $179,045 $175,826 $178,807 $689,551
Gross profit . . . . . . . . 25,026 37,916 40,380 31,245 134,567
Net income . . . . . . . . . 5,089 13,363 14,625 7,211 40,288
Net income per share (1) . . 0.10 0.26 0.28 0.14 0.78
(1) Per share statistics have been computed on the average of number of shares
outstanding in the hands of the public. Per share statistics for the first
three quarters may vary slightly from amounts reported on an interim basis due
to changes in the number of shares outstanding.
Page 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change of accountants or disagreements on any matter of
accounting principles, practices or financial statement disclosures required
to be reported under this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 10 is contained in the Notice of Annual Meeting of Shareholders and Proxy
Statement which is incorporated as part of this Form 10-K. See Part I of this
Form 10-K for a listing of the executive officers of the company.
ITEM 11. EXECUTIVE COMPENSATION
This item is completed by reference to Notice of Annual Meeting of
Shareholders and Proxy Statement which is incorporated as part of this Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This item is completed by reference to Notice of Annual Meeting of
Shareholders and Proxy Statement which is incorporated as part of this Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and others. There have been no known
transactions in an amount in excess of $60,000 involving any of the
specified persons.
(b) Certain business relationships. No director or nominee for director is
known to be involved in any of the specified relationships with the
company.
(c) Indebtedness of management. None of the specified persons is indebted to
the company in an amount in excess of $60,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements, schedules and exhibits are filed as
part of this Form 10-K.
(1) Financial Statements:
The 1995, 1994 and 1993 consolidated financial statements are
included in Item 8 of this Form 10-K.
The individual financial statements of the company have been omitted
since the company is primarily an operating company and all
subsidiaries included in the consolidated financial statements, in
Page 26
the aggregate, do not have minority equity interest and/or
indebtedness to any person other than the company or its
consolidated subsidiaries in amounts which together exceed 5% of
total consolidated assets at October 31, 1995.
(2) Financial Statement Schedules:
Schedules have been omitted because they are not applicable or the
required information is shown in the consolidated financial
statements or notes thereto in Item 8 of this Form 10-K.
(3) Exhibits required to be filed by Item 601 of Regulation S-K:
3.1 Articles of Incorporation of Longview Fibre Company (c)
3.2 Bylaws of Longview Fibre Company (c)
4.1 Commercial Paper Facility (a)
4.2 Rights Agreement (b)
4.7 Long-term debts that do not exceed 10% of the total assets of
the company, details of which will be supplied to the
Commission upon request:
Senior Notes due through 2004 (6.17% - 9.80%) $192,000,000
Revenue Bonds payable through 2015 (floating rates,
3.9% through 4.2% at October 31, 1995) $ 28,900,000
Other $ 593,000
10.1 Form of Termination Protection Agreement (e)(*)
10.2 $170,000,000 Credit Agreement (d)
10.3 First Amendment to Credit Agreement (d)
10.4 Second Amendment to Credit Agreement (e)
10.5 Third Amendment to Credit Agreement (e)
10.6 Fourth Amendment to Credit Agreement
23 Consent of Independent Accountants
27 Financial Data Schedule
99.1 Salary Savings Plan - Amendment No. 1 (e)
99.2 Salary Savings Plan - Amendment No. 2 (e)
99.3 Salary Savings Plan - Amendment No. 3 (e)
99.4 Salary Savings Plan - Amendment No. 4
99.5 Salary Savings Plan - Amendment No. 5
Page 27
99.6 Salary Savings Plan - Amendment No. 6
99.7 Salary Savings Plan - Amendment No. 7
99.8 Hourly Savings Plan - Amendment No. 1 (e)
99.9 Hourly Savings Plan - Amendment No. 2 (e)
99.10 Hourly Savings Plan - Amendment No. 3 (e)
99.11 Hourly Savings Plan - Amendment No. 4
99.12 Hourly Savings Plan - Amendment No. 5
99.13 Branch Hourly Savings Plan - Amendment No. 1 (e)
99.14 Branch Hourly Savings Plan - Amendment No. 2 (e)
99.15 Branch Hourly Savings Plan - Amendment No. 3
99.16 Branch Hourly Savings Plan - Amendment No. 4
(a) Incorporated by reference to company's Annual Report on Form
10-K for the year ended October 31, 1988.
(b) Incorporated by reference to company's Annual Report on Form
10-K for the year ended October 31, 1989.
(c) Incorporated by reference to company's Annual Report on Form
10-K for the year ended October 31, 1990.
(d) Incorporated by reference to company's Annual Report on Form
10-K for the year ended October 31, 1993.
(e) Incorporated by reference to company's Annual Report on Form
10-K for the year ended October 31, 1994.
(*) Indicates management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended October 31,
1995.
Page 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LONGVIEW FIBRE COMPANY
Registrant
\s\ L. J. Holbrook 1-23-96
L. J. Holbrook, Vice President-Finance, Date
Secretary and Treasurer
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the company
and in the capacities and on the dates indicated.
\s\ R. P. Wollenberg 1-23-96
R. P. Wollenberg, Chief Executive Officer Date
and Director
\s\ L. J. Holbrook 1-23-96
L. J. Holbrook, Chief Financial Officer Date
and Director
\s\ A. G. Higgens 1-23-96
A. G. Higgens, Chief Accounting Officer Date
\s\ R. B. Arkell 1-23-96
R. B. Arkell, Director Date
\s\ D. L. Bowden 1-23-96
D. L. Bowden, Director Date
\s\ M. A. Dow 1-23-96
M. A. Dow, Director Date
\s\ C. H. Monroe 1-23-96
C. H. Monroe, Director Date
\s\ G. E. Schwartz 1-23-96
G. E. Schwartz, Director Date
\s\ R. E. Wertheimer 1-23-96
R. E. Wertheimer, Director Date
\s\ D. A. Wollenberg 1-23-96
D. A. Wollenberg, Director Date
\s\ R. H. Wollenberg 1-23-96
R. H. Wollenberg, Director Date
Page 29