Exhibit 99.1
Potlatch Reports Second Quarter Results
SPOKANE, Wash.--(BUSINESS WIRE)--July 26, 2007--Potlatch
Corporation (NYSE:PCH) today reported financial results for the second
quarter ended June 30, 2007.
Financial Highlights
-- Second quarter earnings from continuing operations were
$35.4 million, or $0.90 per diluted common share
-- Earnings from continuing operations for the first half of
2007 were $40.8 million, or $1.04 per diluted common share
-- Cash provided by operating activities from continuing
operations was $73.1 million for the six months ended June
30, 2007
"Log pricing during the second quarter remained strong despite a
persistent weakness in lumber pricing caused by the continued slump in
U.S. housing starts," said Michael J. Covey, chairman, president and
chief executive officer.
"During the second quarter, Potlatch made significant progress
toward achieving its 2007 goal of selling 15,000-20,000 acres of
non-strategic land. The company sold nearly 7,500 acres of non-core
lands with revenue of $8.6 million. Although timing of real estate
closings is difficult to forecast, the market for rural recreation
property remains strong.
"In addition, second quarter results were augmented by exceptional
results in the Pulp and Paperboard division, where we had record
production and strong pricing. Market prices for pulp are as strong as
they have been in the past 12 years.
"Finally, sales for all of Potlatch's Forest Stewardship Council
(FSC) certified solid wood and paperboard products showed continued
growth during the quarter."
Q2 2007 Financial Summary
-- Earnings from continuing operations were $35.4 million, or
$0.90 per diluted common share, compared to $8.2 million
or $0.21 per diluted common share for the second quarter
2006. Second quarter 2007 results included a one-time
payment of $1.4 million for retroactive pay associated
with the settlement of the union contracts for the
company's pulp and paperboard and consumer products
operations in Lewiston.
-- Net earnings for the second quarter 2007 were $34.0
million, or $0.87 per diluted common share, compared to
$2.4 million, or $0.06 per diluted common share, for the
second quarter 2006. During the second quarter 2007, the
company completed the sale of its hybrid poplar tree farm
in Boardman, Oregon, to a private-equity tree farm
investment fund for approximately $65 million in cash.
Results for the hybrid poplar tree farm, which are
included in net earnings and are classified as
discontinued operations in the Statements of Operations
and Comprehensive Income, were a net loss of $1.4 million
for the second quarter 2007, compared to a net loss of
$5.8 million in the second quarter 2006.
First Half 2007 Financial Summary
-- Earnings from continuing operations were $40.8 million, or
$1.04 per diluted common share, compared to $77.6 million
or $2.26 per diluted common share for the first half of
last year. Results from continuing operations for the
first half of 2006 included a net tax benefit of $51.2
million related to the company's conversion to a real
estate investment trust.
-- Cash provided by operating activities from continuing
operations for the first half of 2007 was $73.1 million,
compared to $108.6 million for the same period in 2006.
-- Net earnings were $4.2 million, or $0.11 per diluted
common share, compared to net earnings of $68.1 million,
or $1.98 per diluted common share, for the first half of
2006. First half results included an after-tax loss on
disposal of $33.0 million for the sale of the company's
hybrid poplar tree farm in 2007 and after-tax operating
losses for the tree farm of $3.7 million and $9.4 million
for 2007 and 2006, respectively.
Second Quarter 2007 Business Performance
Resource
-- Operating income for the segment was $19.9 million,
compared to $16.1 million earned in the second quarter
2006.
-- Potlatch capitalized on improving markets in the southern
region and sold more volume compared to 2006, when harvest
levels were partially curtailed due to poor market
conditions.
- Fee harvest increased 116 percent in the quarter compared to
the second quarter 2006.
- Prices rose 2.5 percent in the southern region compared to
first quarter 2007 and 7.7 percent compared to the second
quarter 2006.
-- Harvest levels in the northern region were up overall
compared to the same period last year. Increased harvest
levels in Idaho were the primary contributor.
- Fee harvest declined 9.2 percent from the first quarter
2007, primarily due to seasonal logging curtailments; however,
harvest levels were up 9.9 percent compared to the second
quarter 2006.
- Prices rose 13 percent in the northern region compared to
the first quarter 2007 but were down 10 percent compared to
the second quarter 2006. Species variability and general price
erosion in Minnesota contributed to the year-over-year
unfavorable variance.
Real Estate
(formerly known as Land Sales and Development)
-- Operating income for the segment was $7.4 million,
compared with $1.5 million for the second quarter 2006.
The improved results were attributable primarily to the
sale of non-core lands. These non-strategic lands require
less market preparation than our higher and better use
(HBU) lands, and therefore are more readily available for
sale, but also carry lower average retail values per acre
than our expected HBU sales will bring.
-- With establishment of the real estate infrastructure
during the first quarter of 2007, Potlatch was able to
successfully complete the sale of 7,472 acres of non-core
land primarily in Minnesota and Idaho at an average price
of $1,146 per acre.
-- During the second quarter, Potlatch deferred approximately
$20 million in built-in-gain taxes from REIT land sales by
matching land sales with acquisitions such as our
76,000-acre Wisconsin purchase.
As noted, progress continues on Potlatch's intensive land value
stratification process, which was announced on December 11, 2006.
Through the stratification process, the company identified
250,000-300,000 acres that are non-strategic to its core forestland
operations that it expects to sell over the next 10 years.
Wood Products
-- Operating income for the segment was $6.4 million,
compared to $3.6 million for the second quarter 2006.
Lumber results continued to be buoyed by sales of inland red cedar
even though cedar logs comprised a smaller portion of lumber
production than in previous quarters, due primarily to seasonality.
Even in a difficult pricing environment, Potlatch continues to
generate positive cash flow in the Wood Products segment. The Potlatch
FSC lumber business is growing rapidly from year to year, as evidenced
by second quarter FSC sales and volume figures increasing three-fold
over last year's second quarter.
Pulp and Paperboard
-- Operating income for the segment was $17.0 million,
compared to an operating loss of $5.4 million for the
second quarter 2006.
-- Shipments increased 5 percent compared to the second
quarter 2006 as both mills ran very well.
-- Pulp prices are as strong as they have been at any time in
the last 12 years.
-- Market prices for paperboard products were 7 percent
higher in the quarter compared to the second quarter 2006.
Furthermore, the results were augmented by the sale of
increased volumes of higher quality products to an
expanded customer mix.
The division's success in commercial markets is enhanced by
Potlatch's ability to provide paperboard that is FSC certified.
Customers recognize that this certification means that the fiber being
used in producing Potlatch's products is sustainable in nature, the
methods used to harvest are sensitive to the environment, and that is
of value to them.
Consumer Products (or "Tissue")
-- Operating income for the segment was $4.1 million,
compared to $7.0 million for the same period last year.
Pulp prices increased by 23 percent with a $5.7 million negative
cost impact for the quarter compared to the same period last year, but
the segment has not seen a corresponding increase in retail pricing
for tissue. Thus, margins are being squeezed. Offsetting this are
efforts to reduce freight and increase converting capacity that has
allowed the segment to shift its sales mix away from un-converted,
bulk parent rolls to finished products.
Other Items
In the second quarter of 2007, the company recorded an income tax
provision of $6.3 million related to continuing operations. The income
tax provision was due to pre-tax income for the company's taxable REIT
subsidiary.
Dividend Distribution
During the second quarter, Potlatch paid a regular quarterly
distribution on the company's common stock of $0.49 per share.
Outlook
"Our performance in the first half of this year reinforces our
conviction that we have the right strategy for Potlatch," remarked Mr.
Covey. "Regardless of the business environment, we remain focused on
our long-term goals of concentrating on our timberlands business and
capitalizing on our real estate segment.
"We expect log pricing to remain firm in all regions. Lumber
prices have increased by approximately 7 percent since the fourth
quarter of 2006. We anticipate additional downward pressure on framing
lumber in the third and fourth quarter, and anticipate cedar to remain
firm. In addition, we anticipate paperboard markets to remain strong
throughout the second half of the year, and we believe Potlatch is
well positioned to capitalize on this strength with a continuation of
exceptional production at both the Arkansas and Idaho paper mills. We
expect tissue margins to remain under pressure due to high pulp costs
anticipated for the balance of 2007."
Mr. Covey concluded, "We believe Potlatch is on target to achieve
its 2007 goal of 15,000-20,000 acres in land sales by the end of this
year, as interest and demand for rural recreational land property
remains strong."
Conference Call Information
A live Web Cast and conference call will be held today, July 26,
at 8 a.m. Pacific time (11 a.m. Eastern). Those interested may access
the Web Cast at www.potlatchcorp.com and 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 pass code
number 65659071.
For those unable to participate in the live call, an archived
recording will be available through the Potlatch Corporation website
at www.potlatchcorp.com for approximately one year following the
conference call. A telephone replay of the conference call will be
available until August 2, 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 pass code number 55546446.
About Potlatch
Potlatch is a Real Estate Investment Trust (REIT) with 1.5 million
acres of forestland in Arkansas, Idaho, Minnesota and Wisconsin.
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 real estate 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.
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 company
performance, future land sales and closings, like-kind exchanges and
tax consequences, direction of markets, product pricing, pulp costs
and margins. 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 the company's
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
Statements of Operations and Comprehensive Income
Unaudited (Dollars in thousands - except per-share amounts)
Quarter Ended Six Months Ended
-------------------- -------------------
June 30, June 30,
2007 2006 2007 2006
- ----------------------------------------------------------------------
Revenues $414,714 $413,293 $800,920 $814,517
- ----------------------------------------------------------------------
Costs and expenses:
Depreciation, depletion and
amortization 19,320 19,327 38,672 38,979
Materials, labor and other
operating expenses 325,985 358,815 661,730 691,731
Selling, general and
administrative expenses 20,987 21,673 41,878 44,995
Restructuring charge 35 - 2,832 -
- ----------------------------------------------------------------------
366,327 399,815 745,112 775,705
- ----------------------------------------------------------------------
Earnings from continuing
operations before interest
and taxes 48,387 13,478 55,808 38,812
Interest expense (7,340) (7,323) (14,891) (14,682)
Interest income 596 295 897 1,097
- ----------------------------------------------------------------------
Earnings from continuing
operations before taxes 41,643 6,450 41,814 25,227
Provision (benefit) for taxes 6,250 (1,795) 983 (52,332)
- ----------------------------------------------------------------------
Earnings from continuing
operations 35,393 8,245 40,831 77,559
- ----------------------------------------------------------------------
Discontinued operations:
Loss from discontinued
operations (including gain
(loss) on disposal of $55,
$-, $(35,774) and $-) (1,396) (6,346) (39,443) (10,406)
Income tax provision
(benefit) 47 (507) (2,786) (977)
- ----------------------------------------------------------------------
(1,443) (5,839) (36,657) (9,429)
- ----------------------------------------------------------------------
Net earnings $ 33,950 $ 2,406 $ 4,174 $ 68,130
======================================================================
Other comprehensive income,
net of tax $ 1,047 $ - $ 2,734 $ -
- ----------------------------------------------------------------------
Comprehensive income $ 34,997 $ 2,406 $ 6,908 $ 68,130
======================================================================
Earnings per common share
from continuing operations:
Basic $ 0.91 $ 0.21 $ 1.05 $ 2.27
Diluted 0.90 0.21 1.04 2.26
Loss per common share from
discontinued operations:
Basic (0.04) (0.15) (0.94) (0.28)
Diluted (0.04) (0.15) (0.93) (0.27)
Net earnings per common
share:
Basic 0.87 0.06 0.11 1.99
Diluted 0.87 0.06 0.11 1.98
Average shares outstanding
(in thousands):
Basic 39,027 38,681 38,989 34,159
Diluted 39,242 38,819 39,232 34,336
- ----------------------------------------------------------------------
Certain prior period amounts have been reclassified to conform to the
current period presentation.
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 the quarter and six months ended June 30, 2006, as if the common
stock portion of the distribution had occurred at the beginning of
each period:
Quarter Ended Six Months Ended
---------------------------------
June 30, June 30,
2006 2006
---------------------------------
Per diluted common share:
Earnings from continuing
operations
As reported $0.21 $2.26
Pro forma 0.21 2.00
Net earnings
As reported 0.06 1.98
Pro forma 0.06 1.76
Potlatch Corporation and Consolidated Subsidiaries
Condensed Balance Sheets
Unaudited (Dollars in thousands - except per-share amounts)
June 30, December 31,
2007 2006
- ----------------------------------------------------------------------
Assets
Current assets:
Cash $ 6,754 $ 7,759
Restricted cash - 6,673
Short-term investments 31,394 21,564
Receivables, net 108,638 135,105
Inventories 165,906 168,816
Prepaid expenses 18,653 16,602
- ----------------------------------------------------------------------
Total current assets 331,345 356,519
Land other than timberlands 8,549 8,554
Plant and equipment, at cost less accumulated
depreciation 523,759 562,387
Timber, timberlands and related deposits, net 382,579 391,577
Pension assets 127,140 118,355
Other assets 35,496 20,215
- ----------------------------------------------------------------------
$1,408,868 $1,457,607
======================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current installments on long-term debt $ 3,209 $ 6,157
Accounts payable and accrued liabilities 179,699 190,107
- ----------------------------------------------------------------------
Total current liabilities 182,908 196,264
Long-term debt 321,285 321,474
Liability for pensions and other
postretirement benefits 287,257 289,791
Other long-term obligations 16,777 19,059
Deferred taxes 48,627 53,160
Stockholders' equity 552,014 577,859
- ----------------------------------------------------------------------
$1,408,868 $1,457,607
======================================================================
Stockholders' equity per common share $ 14.14 $ 14.88
Working capital $ 148,437 $ 160,255
Current ratio 1.8:1 1.8:1
- ----------------------------------------------------------------------
Potlatch Corporation and Consolidated Subsidiaries
Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
Six Months Ended
---------------------
June 30,
2007 2006
- ----------------------------------------------------------------------
Cash Flows From Operations
Net earnings $ 4,174 $ 68,130
Adjustments to reconcile net earnings to net
operating cash flows:
Loss from discontinued operations 3,674 9,429
Loss on disposal of discontinued operations 32,983 -
Depreciation, depletion and amortization 38,672 38,979
Proceeds from sales deposited with a like-
kind exchange intermediary (14,829) -
Non-cash cost of real estate sold 403 110
Deferred taxes (3,495) (53,331)
Equity-based compensation expense 2,839 1,942
Employee benefit plans (7,565) (1,464)
Other 385 2,215
Working capital changes 17,099 42,011
Excess tax benefit from share-based payment
arrangements (2,192) (528)
Income tax benefit related to stock issued in
conjunction with stock compensation plans 958 1,086
- ----------------------------------------------------------------------
Net cash provided by operating activities
from continuing operations 73,106 108,579
- ----------------------------------------------------------------------
Cash Flows From Investing
Decrease (increase) in short-term investments (9,830) 43,240
Additions to plant and properties (33,097) (25,806)
Deposits on timberlands (54,021) -
Other, net (173) (3,813)
- ----------------------------------------------------------------------
Net cash provided by (used for) investing
activities from continuing operations (97,121) 13,621
- ----------------------------------------------------------------------
Cash Flows From Financing
Change in book overdrafts (3,319) 5,564
Issuance of common stock 3,654 5,479
Issuance of treasury stock - 513
Repayment of long-term debt (3,137) (2,336)
Distributions to common stockholders (38,244) (127,133)
Excess tax benefit from share-based payment
arrangements 2,192 528
Other, net (1,654) (196)
- ----------------------------------------------------------------------
Net cash used for financing activities from
continuing operations (40,508) (117,581)
- ----------------------------------------------------------------------
Cash flows from continuing operations (64,523) 4,619
Cash flows of discontinued operations:
Operating cash flows 153 (3,271)
Investing cash flows 63,365 (1,509)
Financing cash flows - -
- ----------------------------------------------------------------------
Decrease in cash (1,005) (161)
Cash at beginning of period 7,759 6,133
- ----------------------------------------------------------------------
Cash at end of period $ 6,754 $ 5,972
======================================================================
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Highlights
Unaudited (Dollars in thousands - except per-share amounts)
Quarter Ended Six Months Ended
------------- -----------------
June 30, June 30,
2007 2006 2007 2006
- ----------------------------------------------------------------------
Distributions per common share (1)
(annual rate) $1.96 $1.96 $1.96 $1.96
======================================================================
(1) Distributions for 2006 reflect the annualized rate, after
adjustment for a special earnings and profit distribution of $15.15
per common share paid in the first quarter.
Segment Information
Unaudited (Dollars in thousands)
Quarter Ended Six Months Ended
--------------------- ---------------------
June 30, June 30,
2007 2006 2007 2006
- ----------------------------------------------------------------------
Revenues
Resource $ 72,438 $ 66,598 $ 131,704 $ 129,786
- ----------------------------------------------------------------------
Real Estate 8,563 2,031 8,656 2,671
- ----------------------------------------------------------------------
Wood Products
Lumber 92,221 107,671 180,929 213,068
Plywood 14,080 15,368 27,716 29,795
Particleboard 5,676 5,012 10,592 9,210
Other 12,496 10,628 24,407 22,434
- ----------------------------------------------------------------------
124,473 138,679 243,644 274,507
- ----------------------------------------------------------------------
Pulp and Paperboard
Paperboard 142,711 132,130 273,487 264,663
Pulp 26,111 15,317 46,235 30,807
Other 318 294 580 613
- ----------------------------------------------------------------------
169,140 147,741 320,302 296,083
- ----------------------------------------------------------------------
Consumer Products 105,933 117,142 216,185 216,677
- ----------------------------------------------------------------------
480,547 472,191 920,491 919,724
Intersegment revenues (65,833) (58,898) (119,571) (105,207)
- ----------------------------------------------------------------------
Total revenues $414,714 $413,293 $ 800,920 $ 814,517
======================================================================
Operating income (loss)
Resource $ 19,937 $ 16,110 $ 33,097 $ 34,552
Real Estate 7,374 1,491 7,007 1,980
Wood Products 6,388 3,622 8,578 11,065
Pulp and Paperboard 17,005 (5,396) 10,976 (2,395)
Consumer Products 4,092 6,984 8,867 13,873
Eliminations 4,026 1,050 8,973 1,720
- ----------------------------------------------------------------------
58,822 23,861 77,498 60,795
Corporate (17,179) (17,411) (35,684) (35,568)
- ----------------------------------------------------------------------
Earnings from continuing
operations before taxes $ 41,643 $ 6,450 $ 41,814 $ 25,227
======================================================================
Certain prior period amounts have been reclassified to conform to the
current period presentation.
CONTACT: Potlatch Corporation
(Media)
Matt Van Vleet, 509-254-1571
or
(Investors)
Douglas D. Spedden, 509-835-1549