Exhibit 99.1
Potlatch Reports Fourth Quarter Results
SPOKANE, Wash.--(BUSINESS WIRE)--Feb. 5, 2007--Potlatch
Corporation (NYSE:PCH), a real estate investment trust (REIT), today
reported net earnings of $44.1 million, or $1.13 per diluted common
share, for the fourth quarter of 2006, compared to third quarter net
earnings of $24.2 million, or $.62 per diluted common share, and net
earnings of $9.9 million, or $.34 per diluted common share, for the
fourth quarter of 2005. Earnings for the fourth quarter of 2006
included $39.3 million, or $24.0 million net of tax ($.62 per diluted
common share), representing the company's total share of the
negotiated settlement of the softwood lumber trade dispute between the
U.S. and Canada. This was partially offset by an income tax adjustment
of $3.9 million, or $.10 per diluted common share, primarily related
to the transfer of assets from the REIT to the company's taxable REIT
subsidiary, which includes all of the manufacturing businesses. This
affected the company's deferred tax liability adjustment as a result
of the REIT conversion. Earnings for the third quarter of 2006
included a tax benefit of $9.2 million, or $.23 per diluted common
share, primarily related to an agreement reached with the Internal
Revenue Service regarding tax issues pertaining to open tax years,
which also affected the deferred tax liabilities adjusted as a result
of the REIT conversion.
Excluding the $39.3 million (and related tax effect) from the
settlement of the softwood lumber trade dispute, the $3.9 million
income tax adjustment in the fourth quarter and the $9.2 million tax
benefit in the third quarter, earnings for the fourth quarter of 2006
were higher than the third quarter due primarily to better results for
the Land Sales and Development and Consumer Products segments. The
favorable comparison to the third quarter was partially offset by
lower earnings for the Pulp and Paperboard segment. Fourth quarter
2006 earnings were better than the fourth quarter of 2005 due
primarily to improved results for the Resource and Pulp and Paperboard
segments.
Net revenues for the fourth quarter of 2006 were $390.0 million,
compared with $399.1 million for the third quarter of 2006 and $389.3
million for the fourth quarter of 2005, respectively.
Net earnings for the year ended December 31, 2006, totaled $139.1
million, or $3.79 per diluted common share, compared to net earnings
of $33.0 million, or $1.13 per diluted common share, for the year
ended December 31, 2005. Earnings for 2006 included a net tax benefit
of $56.5 million, or $1.55 per diluted common share, related primarily
to the company's January 1, 2006, conversion to a REIT. Net revenues
for 2006 were $1.61 billion, compared with net revenues of $1.50
billion for 2005.
Cash provided by operating activities for the year ended December
31, 2006, was $188.7 million, compared to $66.4 million for the same
period in 2005. During the fourth quarter of 2006, the company paid a
regular quarterly distribution of $19.0 million. The aggregate total
of Potlatch's regular quarterly distributions in 2006, its first year
as a REIT, was $76.1 million, compared to an aggregate total of $17.5
million for its regular quarterly dividends in 2005.
Resource
The Resource segment reported operating income of $19.6 million
for the fourth quarter of 2006, compared with $19.3 million in the
third quarter and $13.4 million earned in the fourth quarter of 2005.
Compared to the third quarter, segment income for the fourth quarter
of 2006 was slightly higher due primarily to higher Arkansas fee
harvest levels and a smaller loss for the company's Boardman, Oregon,
hybrid poplar operation in the fourth quarter. These improvements were
mostly offset by lower selling prices for logs in Idaho for the fourth
quarter of 2006 compared to the third quarter. The higher income for
the fourth quarter of 2006 compared to the same period in 2005 was due
primarily to a significantly higher harvest of fee timber in Idaho,
partially offset by decreased fee harvest levels and lower selling
prices for logs in Arkansas.
Land Sales and Development
The Land Sales and Development segment, which is a new segment
beginning in 2006, was created to provide more focus on maximizing the
value of Potlatch's land assets. The segment reported operating income
of $9.1 million for the fourth quarter of 2006, compared with
operating income of $0.8 million in the third quarter of 2006 and
$14.9 million for the fourth quarter of 2005. The higher income for
the fourth quarter of 2006 compared to the third quarter was due
largely to the sale of a conservation easement in Arkansas for $6.7
million during the fourth quarter. Income for the fourth quarter of
2006 was lower than the fourth quarter of 2005 because most of the
company's land sales activity was on hold in 2006 pending the initial
assessment of all its lands for alternative values, which was
completed in late 2006.
Wood Products
Excluding the $39.3 million from the settlement of the softwood
lumber trade dispute, the Wood Products segment recorded an operating
loss of $5.4 million for the fourth quarter of 2006, compared with a
loss of $5.2 million in the third quarter and income of $0.4 million
in the fourth quarter of 2005. "Although markets for our lumber
products, especially for our southern lumber, remained depressed
throughout the fourth quarter of 2006, we did experience some
improvement in pricing near the end of the quarter," noted Michael J.
Covey, Potlatch chairman, president and chief executive officer. Due
to the poor lumber markets in the South, the company's Warren,
Arkansas, lumber mill took temporary downtime during the fourth
quarter of 2006. Income from the company's plywood operation was lower
in the fourth quarter of 2006 due primarily to decreases in average
selling prices compared to the third quarter of 2006 and the fourth
quarter of 2005.
Pulp and Paperboard
For the fourth quarter of 2006, the Pulp and Paperboard segment
reported operating income of $7.0 million, versus income of $14.3
million in the third quarter and a loss of $4.3 million for the fourth
quarter of 2005. "Markets for our pulp and paperboard products
remained strong throughout the fourth quarter, and both pricing and
shipments for our paperboard were higher compared to the third quarter
and 2005's fourth quarter," Covey noted. "Unfortunately, very high
wood fiber costs for our Lewiston, Idaho, pulp and paperboard
operation had a significant unfavorable effect on fourth quarter 2006
earnings compared to the two comparable periods," Covey added. The
high wood fiber costs were due largely to very high chip prices
resulting mainly from sawmill curtailments in the West.
Consumer Products
The Consumer Products segment reported operating income of $7.2
million for the fourth quarter of 2006, compared with operating income
of $6.2 million and $7.4 million reported for the third quarter of
2006 and the fourth quarter of 2005, respectively. Compared to the
third quarter, the higher income for the fourth quarter of 2006 was
primarily due to lower freight, energy and maintenance costs, which
were partially offset by decreased shipments and higher pulp costs.
The slightly lower income for the fourth quarter of 2006 compared to
the fourth quarter of 2005 was due largely to significantly higher
pulp costs, combined with higher freight and packaging costs. These
unfavorable comparisons were mostly offset by a 22% increase in
shipments.
Other Items
Excluding the income tax adjustment of $3.9 million primarily
related to the transfer of assets from the REIT to the company's
taxable REIT subsidiary in the fourth quarter of 2006, the company
recorded an income tax provision of $12.4 million for the fourth
quarter of 2006. The income tax provision was due primarily to pre-tax
income for the company's taxable REIT subsidiary.
Outlook
In the fourth quarter of 2006, Potlatch completed its initial
assessment of all of its land for alternative values. "As a result of
the initial assessment of our lands, we identified 250,000 to 300,000
acres, or 17% to 20% of our total land holdings, as having values that
are potentially greater than for timberland," Covey said. "Sales of
these lands are expected to occur within the next ten years, with the
goal of utilizing Internal Revenue code section 1031 like-kind
exchange transactions for tax efficiency, thus maximizing cash flows,"
he added. The company expects to sell 15,000 to 20,000 acres in 2007.
In December 2006, the company announced an agreement to acquire
approximately 76,000 acres of high-value forestland in Wisconsin for
$64.5 million. The transaction was completed in January. The company
plans to match this purchase with sales of like-kind properties that
have recently closed and those that may occur in the first half of
2007 in our 1031 exchange program and thus not be subject to
built-in-gains taxes on those sales.
"The company expects overall timber harvest levels and revenue to
increase in 2007 due to an increased harvest in Arkansas and the
acquisition of the Wisconsin timberland," Covey added. "Harvest levels
in Arkansas were deferred in 2006 due to unfavorable market
conditions. We also expect results for 2007 to be favorably affected
by mix improvements for our consumer tissue products. For our Idaho
pulp and paperboard operation, we have seen some moderation of the
acute wood chip and residual shortage that drove wood fiber prices
significantly higher in 2006's fourth quarter, and we are cautiously
optimistic that this situation will continue to improve as we move
into the Spring period. Markets for paperboard are expected to remain
strong throughout the first quarter of 2007, while wood products
markets are expected to remain weak early in 2007, as high inventories
of unsold new homes continue to impact the level of new home
construction."
About Potlatch
Potlatch is a REIT with approximately 1.5 million acres of
forestland in Arkansas, Idaho, Minnesota, Wisconsin and Oregon.
Through its taxable REIT subsidiary, the company also operates 13
manufacturing facilities that produce lumber and panel products and
bleached pulp products, including paperboard and tissue. The company
also conducts a land sales and development business through its
taxable REIT subsidiary. Potlatch, a verified forest practices leader,
is committed to providing superior returns to stockholders through
long-term stewardship of its resources.
A conference call and live webcast will be held today, February 5,
at 8 a.m. Pacific time (11 a.m. Eastern). Those interested can access
the conference call by dialing 1-866-383-8009 for U.S./Canada and
1-617-597-5342 for calls outside the U.S./Canada. Participants will be
asked to provide passcode number 65659071. The conference call and
live webcast may also be accessed through the Potlatch Corporation
website at www.potlatchcorp.com. Supplemental materials that will be
discussed on the call will be available at the website.
For those unable to participate in the live call, an archived
recording will be available through the Potlatch Corporation website
for approximately one year following the conference call. A telephone
replay of the conference call will be available until February 12,
2007, by calling 1-888-286-8010 for U.S./Canada, or 1-617-801-6888 for
calls outside the U.S./Canada, and entering passcode number 89124002.
Forward-Looking Statements
This press release contains certain forward-looking statements
within the meaning of the Private Litigation Reform Act of 1995 as
amended, including without limitation, statements about future land
values, land sales, like-kind exchanges and tax consequences,
direction of markets and wood chip availability. These forward-looking
statements are based on current expectations, estimates, assumptions
and projections that are subject to change, and actual results may
differ materially from the forward-looking statements. Factors that
could cause actual results to differ materially include, but are not
limited to, changes in timberland values; changes in timber harvest
levels on our lands; changes in timber prices; changes in policy
regarding governmental timber sales; changes in the United States and
international economies; changes in exchange rates between the U.S.
dollar and other currencies; changes in the level of construction
activity; changes in tariffs, quotas and trade agreements involving
wood products; changes in worldwide demand for Potlatch's products;
changes in worldwide production and production capacity in the forest
products industry; competitive pricing pressures for the company's
products; unanticipated manufacturing disruptions; changes in general
and industry-specific environmental laws and regulations; unforeseen
environmental liabilities or expenditures; weather conditions; changes
in raw material, energy, and other costs; the ability to satisfy
complex rules in order to remain qualified as a REIT; changes in tax
laws that could reduce the benefits associated with REIT status; and
other risks and uncertainties described from time to time in the
company's public filings with the Securities and Exchange Commission.
The company does not undertake to update any forward-looking
statements.
Potlatch Corporation and Consolidated Subsidiaries
Consolidated Statements of Operations
Unaudited (Dollars in thousands - except per-share amounts)
Three Months Ended
----------------------------------------
December 31, September 30, December 31,
2006 2006 2005
- ----------------------------------------------------------------------
Revenues $ 390,008 $ 399,125 $ 389,263
- ----------------------------------------------------------------------
Costs and expenses:
Depreciation, depletion and
amortization 23,026 22,989 22,807
Materials, labor and other
operating expenses 316,395 335,642 325,524
Selling, general and
administrative expenses 22,706 23,206 23,819
- ----------------------------------------------------------------------
362,127 381,837 372,150
- ----------------------------------------------------------------------
Income from Canadian lumber
settlement 39,320 - -
- ----------------------------------------------------------------------
Earnings from operations 67,201 17,288 17,113
Interest expense (7,209) (7,229) (7,323)
Debt retirement costs - 53 -
Interest income 424 355 679
- ----------------------------------------------------------------------
Earnings before taxes 60,416 10,467 10,469
Provision (benefit) for taxes 16,309 (13,765) 551
- ----------------------------------------------------------------------
Net earnings $ 44,107 $ 24,232 $ 9,918
======================================================================
Net earnings per common share:
(1)
Basic $ 1.14 $.63 $ .34
Diluted 1.13 .62 .34
Average shares outstanding (in
thousands):
Basic 38,781 38,724 29,313
Diluted 38,973 38,858 29,425
- ----------------------------------------------------------------------
Year Ended
------------------------
December 31,
2006 2005
- ----------------------------------------------------------------------
Revenues $1,607,827 $1,501,881
- ----------------------------------------------------------------------
Costs and expenses:
Depreciation, depletion and amortization 91,021 83,210
Materials, labor and other operating
expenses 1,347,250 1,259,389
Selling, general and administrative expenses
91,652 85,103
- ----------------------------------------------------------------------
1,529,923 1,427,702
- ----------------------------------------------------------------------
Income from Canadian lumber settlement 39,320 -
- ----------------------------------------------------------------------
Earnings from operations 117,224 74,179
Interest expense (29,120) (29,045)
Debt retirement costs 53 -
Interest income 1,876 2,506
- ----------------------------------------------------------------------
Earnings before taxes 90,033 47,640
Provision (benefit) for taxes (49,077) 14,676
- ----------------------------------------------------------------------
Net earnings $ 139,110 $ 32,964
======================================================================
Net earnings per common share: (1)
Basic $ 3.81 $ 1.13
Diluted 3.79 1.13
Average shares outstanding (in thousands):
Basic 36,465 29,120
Diluted 36,672 29,252
- ----------------------------------------------------------------------
Certain prior period amounts have been reclassified to conform to the
current period presentation.
(1) On March 31, 2006, the Company paid a special earnings and profit
distribution, consisting of approximately 9.1 million shares of
common stock and $89 million in cash, in association with the REIT
conversion. Reflected below are pro forma results giving effect to
the common stock distribution for diluted earnings per common share
for all periods presented, as if the common stock portion of the
distribution had occurred at the beginning of each period:
Three Months Ended Year Ended
------------------------------------- --------------
December 31,September 30,December 31, December 31,
2006 2006 2005 2006 2005
----------------------------------------------------
Diluted earnings
per common share
As reported $1.13 $ .62 $.34 $3.79 $1.13
Pro forma 1.13 .62 .26 3.58 .86
Potlatch Corporation and Consolidated Subsidiaries
Consolidated Condensed Balance Sheets
Unaudited (Dollars in thousands - except per-share amounts)
December 31, December 31,
2006 2005
- ----------------------------------------------------------------------
Assets
Current assets:
Cash and short-term investments $ 35,996 $ 63,833
Receivables, net 135,105 114,641
Inventories 168,816 209,696
Prepaid expenses 16,602 14,386
- ----------------------------------------------------------------------
Total current assets 356,519 402,556
Land other than timberlands 8,554 8,507
Plant and equipment, at cost less
accumulated depreciation 562,387 589,161
Timber, timberlands and related logging
facilities 391,577 400,595
Other assets 138,570 227,358
- ----------------------------------------------------------------------
$ 1,457,607 $ 1,628,177
======================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current installments on long-term debt $ 6,157 $ 2,357
Accounts payable and accrued liabilities 190,107 144,943
- ----------------------------------------------------------------------
Total current liabilities 196,264 147,300
Long-term debt 321,474 333,097
Other long-term obligations 308,850 245,867
Deferred taxes 53,160 196,765
Stockholders' equity 577,859 705,148
- ----------------------------------------------------------------------
$ 1,457,607 $ 1,628,177
======================================================================
Stockholders' equity per common share $ 14.88 $ 24.01
Working capital $ 160,255 $ 255,256
Current ratio 1.8:1 2.7:1
- ----------------------------------------------------------------------
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Potlatch Corporation and Consolidated Subsidiaries
Consolidated Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
Year Ended
December 31,
2006 2005
- ----------------------------------------------------------------------
Cash Flows From Operations
Net earnings $ 139,110 $ 32,964
Adjustments to reconcile net earnings to
net operating cash flows:
Depreciation, depletion and amortization 91,021 83,210
Debt retirement costs (53) -
Deferred taxes (70,572) (2,018)
Cost of permit timber harvested 3,343 6,176
Equity-based compensation expense 4,096 2,257
Employee benefit plans (1,191) (4,458)
Working capital changes 39,330 (54,215)
Excess tax benefit from share-based payment
arrangements (890) -
Income tax benefit related to stock issued
in conjunction with stock compensation
plans 2,556 2,491
Funding of qualified pension plans (18,092) -
- ----------------------------------------------------------------------
Net cash provided by operating activities 188,658 66,407
- ----------------------------------------------------------------------
Cash Flows From Investing
Increase in restricted cash (6,673) -
Decrease in short-term investments 36,136 54,275
Additions to plant and properties (53,684) (105,574)
Other, net (5,270) (6,425)
- ----------------------------------------------------------------------
Net cash used for investing activities (29,491) (57,724)
- ----------------------------------------------------------------------
Cash Flows From Financing
Change in book overdrafts 6,066 (6,534)
Issuance of common stock 8,503 -
Repayment of long-term debt (7,823) (1,068)
Premiums and fees on debt retirement (275) -
Issuance of treasury stock 513 16,137
Purchase of treasury stock - (1,868)
Distributions to common stockholders (165,116) (17,503)
Excess tax benefit from share-based
payment arrangements 890 -
Other, net (299) (360)
- ----------------------------------------------------------------------
Net cash used for financing activities (157,541) (11,196)
- ----------------------------------------------------------------------
Increase (decrease) in cash 1,626 (2,513)
Cash at beginning of period 6,133 8,646
- ----------------------------------------------------------------------
Cash at end of period $ 7,759 $ 6,133
======================================================================
Certain 2005 amounts have been reclassified to conform to the 2006
presentation.
Highlights
Unaudited (Dollars in thousands - except per-share amounts)
Three Months Ended Year Ended
-------------------------------------- --------------
December 31,September 30, December 31, December 31,
2006 2006 2005 2006 2005
- ----------------------------------------------------------------------
Distributions
per common
share $.49 $.49 $.15 $1.96(1) $.60
======================================================================
(1) Distributions shown above for the year ended December 31, 2006,
represent our current annualized rate. In addition to our regular
quarterly distributions, 2006 distributions included a special
earnings and profit distribution of $15.15 per common share paid in
the first quarter.
Segment Information
Unaudited (Dollars in thousands)
Three Months Ended
---------------------------------------
December 31,September 30, December 31,
2006 2006 2005
- ----------------------------------------------------------------------
Revenues
Resource $75,518 $84,710 $71,489
- ----------------------------------------------------------------------
Land sales and development 9,807 1,139 16,964
- ----------------------------------------------------------------------
Wood products
Lumber 74,833 89,703 95,025
Plywood 12,650 12,657 12,280
Particleboard 5,281 5,928 4,360
Other 11,226 10,226 10,167
- ----------------------------------------------------------------------
Total wood products revenues 103,990 118,514 121,832
- ----------------------------------------------------------------------
Pulp and paperboard
Paperboard 140,053 131,080 127,942
Pulp 23,480 23,004 19,252
Other 198 302 241
- ----------------------------------------------------------------------
Total pulp and paperboard
revenues 163,731 154,386 147,435
- ----------------------------------------------------------------------
Consumer products 106,974 113,232 87,215
- ----------------------------------------------------------------------
460,020 471,981 444,935
Intersegment revenues (70,012) (72,856) (55,672)
- ----------------------------------------------------------------------
Total revenues $390,008 $399,125 $389,263
======================================================================
Operating income (loss)
Resource $19,628 $19,262 $13,433
Land sales and development 9,149 788 14,945
Wood products 33,884 (5,161) 382
Pulp and paperboard 7,002 14,302 (4,316)
Consumer products 7,210 6,186 7,398
Eliminations 1,107 (6,578) (1,935)
- ----------------------------------------------------------------------
77,980 28,799 29,907
Corporate (17,564) (18,332) (19,438)
- ----------------------------------------------------------------------
Earnings before taxes $60,416 $10,467 $10,469
======================================================================
Year Ended
------------------------
December 31,
2006 2005
- ----------------------------------------------------------------------
Revenues
Resource $294,207 $280,684
- ----------------------------------------------------------------------
Land sales and development 13,617 26,466
- ----------------------------------------------------------------------
Wood products
Lumber 377,604 384,627
Plywood 55,102 52,477
Particleboard 20,419 17,646
Other 43,886 38,787
- ----------------------------------------------------------------------
Total wood products revenues 497,011 493,537
- ----------------------------------------------------------------------
Pulp and paperboard
Paperboard 535,796 500,624
Pulp 77,291 64,569
Other 1,113 922
- ----------------------------------------------------------------------
Total pulp and paperboard revenues 614,200 566,115
- ----------------------------------------------------------------------
Consumer products 436,883 368,418
- ----------------------------------------------------------------------
1,855,918 1,735,220
Intersegment revenues (248,091) (233,339)
- ----------------------------------------------------------------------
Total revenues $1,607,827 $1,501,881
======================================================================
Operating income (loss)
Resource $63,036 $56,387
Land sales and development 11,917 22,441
Wood products 39,465 28,594
Pulp and paperboard 23,562 (1,621)
Consumer products 27,269 10,628
Eliminations (3,752) (1,310)
- ----------------------------------------------------------------------
161,497 115,119
Corporate (71,464) (67,479)
- ----------------------------------------------------------------------
Earnings before taxes $90,033 $47,640
======================================================================
Certain prior period amounts have been reclassified to conform to the
current period presentation.
CONTACT: Potlatch Corporation
Mark J. Benson, 509-835-1513 (Media)
Douglas D. Spedden, 509-835-1549 (Investors)