Exhibit 99.1
Potlatch Reports Third Quarter Results
SPOKANE, Wash.--(BUSINESS WIRE)--Oct. 25, 2007--Potlatch
Corporation (NYSE:PCH) today reported financial results for the third
quarter ended September 30, 2007.
Q3 2007 FINANCIAL SUMMARY
- -- Earnings from continuing operations for the quarter were $41.2
million, or $1.04 per diluted common share, compared to $31.1
million, or $0.80 per diluted common share for the third quarter
of 2006.
- -- Net earnings for the quarter were $41.0 million, or $1.04 per
diluted common share, compared to $25.7 million, or $0.66 per
diluted common share for the third quarter of 2006.
-- Included in net earnings were net losses of $0.2 million and
$5.4 million for the third quarters of 2007 and 2006,
respectively, related to the company's former hybrid poplar
tree farm, which are classified as discontinued operations in
the Statements of Operations and Comprehensive Income. The tree
farm was sold in the first half of 2007.
- -- Cash provided by operating activities from continuing operations
for the nine months ended September 30, 2007, was $125.1 million.
"During the third quarter, our Resource segment continued to
benefit from selling additional volume at improved pricing, compared
to 2006 when we partially curtailed harvest levels due to poor log
markets. Improved markets in the southern region, particularly for
pulpwood, and increased harvest levels in both the northern and
southern regions also helped to build a strong quarter for the
segment," said Michael J. Covey, chairman, president and chief
executive officer.
"Potlatch is on course to achieve our goal of selling
15,000-20,000 acres of non-strategic land by year end. In conjunction
with the purchase of 179,000 acres in Idaho, we have cued up all
planned land sales to match as many closings as possible with 1031
like-kind exchange opportunities.
"Pulp and Paperboard results remained very strong throughout the
third quarter. Paperboard pricing in the high-end folding carton
segment that we serve was strong due to very high operating rates and
the weak U.S. dollar. We had outstanding operating performance during
the quarter at both paperboard mills.
"During the quarter, our Consumer Products segment experienced
record converting production and finished goods sales. These
production improvements helped to offset the continued high cost of
pulp for the segment.
"Although we faced a continued slump in housing and weak lumber
pricing, we continued to generate positive income and cash flow from
our Wood Products segment, mainly due to our positioning in industrial
and specialty niche markets, including cedar siding and decking,"
concluded Mr. Covey.
THIRD QUARTER 2007 BUSINESS PERFORMANCE
Resource
-- Operating income for the segment was $38.2 million, compared to
$24.8 million earned in the third quarter of 2006.
-- During the third quarter, Potlatch announced the acquisition of
179,000 acres of timberland in central Idaho.
-- The purchase price was approximately $215 million, or roughly
$1,200 per acre.
-- The acquisition is being made in two phases, the first of
which involved the majority of the timberlands and closed in
September 2007. The acquisition of the remaining lands is
expected to close in January 2008.
-- The acquired land is located in the heart of the central
Idaho outdoor recreational corridor. It consists of stocked
forests of ponderosa pine and mixed fir that complement
Potlatch's core timberland base. In addition, the company
believes that the acreage has exceptional recreational
amenities and real estate value.
-- Potlatch continued to capitalize 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 levels in the southern region increased 77
percent in the quarter compared to the third quarter of
2006, and increased 4.9 percent compared to the second
quarter of 2007.
-- Overall sales prices rose 37.5 percent compared to the third
quarter of 2006, and 4.8 percent compared to the second
quarter of 2007, primarily due to strong pulpwood markets.
-- Harvest levels in the northern region were up overall compared to
the same period last year. The primary reasons for the better
performance were increased harvest levels in Idaho and harvested
timber from the Wisconsin timberland, which Potlatch acquired
earlier this year.
-- Fee harvest in the northern region increased 31 percent over
the third quarter of 2006 and rose 83 percent over second
quarter 2007 levels, primarily due to normal seasonal
logging curtailments in the second quarter.
-- Prices declined 4.7 percent compared to the third quarter of
2006 due to general market price erosion in Minnesota,
however, prices rose 3.8 percent in the northern region
compared to second quarter 2007.
Real Estate
(formerly known as Land Sales and Development)
- -- Operating income for the segment was $2.4 million, compared with
$0.8 million for the third quarter of 2006. The improved results
were attributable primarily to the sale of more acres of non-
strategic lands.
- -- During the third quarter, Potlatch deferred approximately $1
million in built-in-gain taxes from REIT land sales by using
forward and reverse 1031 exchanges within the allowable periods,
such as the purchase of the central Idaho timberland.
Upon completion of the acquisition in central Idaho, Potlatch will
own approximately 1.7 million acres of timberland in the U.S. In
accordance with its intensive land value stratification process,
announced in December 2006, the company intends to stratify the newly
acquired central Idaho acreage into core timberland for growing
merchantable timber and non-core and higher and better use (HBU) lands
for real estate sales. Through the stratification process, Potlatch
has identified 250,000-300,000 acres over its entire ownership that
are non-strategic to its core forestland operations and which the
company expects to sell over the next 10 years.
Wood Products
- -- Operating income for the segment was $2.4 million, compared to an
operating loss of $5.2 million for the third quarter of 2006.
- -- Lumber results continued to be positively impacted by strong sales
of inland red cedar.
- -- Improved operating efficiencies at the company's lumber facilities
helped to lower conversion costs and increase production over the
third quarter of 2006.
- -- Wood costs for the lumber operations were lower compared to last
year's third quarter. Cedar log costs were higher, but the
increase was more than offset by reduced costs for southern yellow
pine sawlogs and mixed species sawlogs in Idaho.
Pulp and Paperboard
- -- Operating income for the segment was $17.6 million, compared to
$16.8 million for the third quarter of 2006.
- -- Market prices for both pulp and paperboard products increased in
the third quarter compared to the same period in 2006. Pulp prices
rose 12 percent and paperboard prices increased 4 percent compared
to the third quarter of 2006.
- -- The weaker U.S. dollar and general global demand for pulp created
the best global pulp market in approximately a decade.
- -- Exports of paperboard to Europe increased during the third quarter.
- -- The company's two paperboard mills, in Arkansas and Idaho, ran
exceptionally well with near record production attained during the
quarter.
-- The Idaho mill's chip supply was ample during the quarter,
resulting in an 8 percent reduction in pricing compared to the
second quarter of 2007, but still 33 percent higher than the
third quarter of 2006.
Consumer Products (or "Tissue")
- -- Operating income for the segment was $5.1 million for the third
quarter of 2007, compared to $6.2 million for the same period last
year.
- -- Pulp prices increased by 14 percent, resulting in a $3.8 million
negative cost impact for the third quarter compared to the same
period last year.
As the company continued to ramp up production at its midwest
converting facility, it has reduced less profitable parent roll sales
and reduced its midwest and total freight expenses. Despite the
increase in pulp costs, pricing of tissue products in the marketplace
remained very competitive, as additional competitive paper machine
tonnage has come on line and the company has been unable to increase
pricing without negatively impacting sales volume.
Other Items
In the third quarter of 2007, the company recorded an income tax
benefit of $2.6 million related to continuing operations. The income
tax benefit was the result of a favorable adjustment of $3.5 million
due to the final determination of amounts owed to the Internal Revenue
Service for the years 1995-2004. Excluding this benefit, the company
recorded an income tax provision of $0.9 million for the third quarter
of 2007, which was largely related to pre-tax income from the
company's taxable REIT subsidiary.
Dividend Distribution
During the third quarter, Potlatch paid a regular quarterly
distribution on the company's common stock of $0.49 per share.
OUTLOOK
"We believe we are well positioned through the balance of this
year to capture strong demand for rural recreational real estate and
we expect continued outstanding performance from our pulp and
paperboard segment. Log prices are expected to stay strong for cedar
and southern pulpwood, however, we do not expect a recovery in housing
starts or a bounce in lumber prices for several quarters," concluded
Mr. Covey.
CONFERENCE CALL INFORMATION
A live Web cast and conference call will be held today, October
25, 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 November 1, 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 82200693.
ABOUT POTLATCH
Potlatch is a Real Estate Investment Trust (REIT) with 1.6 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, log and lumber pricing, future land sales and closings,
like-kind exchanges and tax consequences, direction of markets, and
pulp and paperboard sales. 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 Nine Months Ended
------------------- -----------------------
September 30, September 30,
2007 2006 2007 2006
- ----------------------------------------------------------------------
Revenues $436,066 $396,752 $1,236,986 $1,211,269
- ----------------------------------------------------------------------
Costs and expenses:
Depreciation,
depletion and
amortization 20,864 20,494 59,536 59,473
Materials, labor and
other operating
expenses 347,179 328,037 1,008,909 1,019,768
Selling, general and
administrative
expenses 23,244 22,990 65,122 67,985
Restructuring charge (141) - 2,691 -
- ----------------------------------------------------------------------
391,146 371,521 1,136,258 1,147,226
- ----------------------------------------------------------------------
Earnings from continuing
operations before
interest and taxes 44,920 25,231 100,728 64,043
Interest expense (7,380) (7,229) (22,271) (21,911)
Debt retirement costs - 53 - 53
Interest income 1,046 355 1,943 1,452
- ----------------------------------------------------------------------
Earnings from continuing
operations before taxes 38,586 18,410 80,400 43,637
Benefit for taxes (2,581) (12,665) (1,598) (64,997)
- ----------------------------------------------------------------------
Earnings from continuing
operations 41,167 31,075 81,998 108,634
- ----------------------------------------------------------------------
Discontinued operations:
Loss from discontinued
operations (including
loss on disposal of
$-, $-, $(35,774) and
$-) (260) (5,542) (39,703) (15,948)
Income tax benefit (106) (164) (2,892) (1,141)
- ----------------------------------------------------------------------
(154) (5,378) (36,811) (14,807)
- ---------------------------------------------------------------------
Net earnings $ 41,013 $ 25,697 $ 45,187 $ 93,827
======================================================================
Other comprehensive
income, net of tax $ 1,366 $ - $ 4,100 $ -
- ----------------------------------------------------------------------
Comprehensive income $ 42,379 $ 25,697 $ 49,287 $ 93,827
======================================================================
Earnings per common share
from continuing
operations:
Basic $ 1.05 $ 0.80 $ 2.10 $ 3.04
Diluted 1.04 0.80 2.09 3.03
Loss per common share
from discontinued
operations:
Basic - (0.14) (0.94) (0.41)
Diluted - (0.14) (0.94) (0.41)
Net earnings per common
share:
Basic 1.05 0.66 1.16 2.63
Diluted 1.04 0.66 1.15 2.62
Average shares
outstanding (in
thousands):
Basic 39,172 38,724 39,050 35,688
Diluted 39,415 38,858 39,316 35,870
- ----------------------------------------------------------------------
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 nine months ended September 30, 2006, as if the common stock
portion of the distribution had occurred at the beginning of the
period:
Nine Months Ended
-----------------------
September 30,
2006
-----------------------
Per diluted common share:
Earnings from continuing
operations
As reported $ 3.03
Pro forma 2.80
Net earnings
As reported 2.62
Pro forma 2.42
Potlatch Corporation and Consolidated Subsidiaries
Condensed Balance Sheets
Unaudited (Dollars in thousands - except per-share amounts)
September 30, December 31,
2007 2006
- ----------------------------------------------------------------------
Assets
Current assets:
Cash $ 8,032 $ 7,759
Restricted cash - 6,673
Short-term investments 28,384 21,564
Receivables, net 113,142 135,105
Inventories 167,483 168,816
Prepaid expenses 17,444 16,602
- ----------------------------------------------------------------------
Total current assets 334,485 356,519
Land other than timberlands 8,549 8,554
Plant and equipment, at cost less
accumulated depreciation 516,125 562,387
Timber, timberlands and related deposits,
net 540,520 391,577
Pension assets 131,532 118,355
Other assets 21,149 20,215
- ----------------------------------------------------------------------
$1,552,360 $1,457,607
======================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current installments on long-term debt $ 3,209 $ 6,157
Current notes payable 110,000 --
Accounts payable and accrued liabilities 182,202 190,107
- ----------------------------------------------------------------------
Total current liabilities 295,411 196,264
Long-term debt 321,291 321,474
Liability for pensions and other
postretirement benefits 287,952 289,791
Other long-term obligations 17,228 19,059
Deferred taxes 48,585 53,160
Stockholders' equity 581,893 577,859
- ----------------------------------------------------------------------
$1,552,360 $1,457,607
======================================================================
Stockholders' equity per common share $ 14.85 $ 14.88
Working capital $ 39,074 $ 160,255
Current ratio 1.1:1 1.8:1
Potlatch Corporation and Consolidated Subsidiaries
Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
Nine Months Ended
---------------------
September 30,
2007 2006
- ----------------------------------------------------------------------
Cash Flows From Operations
Net earnings $ 45,187 $ 93,827
Adjustments to reconcile net earnings to net
operating cash flows:
Loss from discontinued operations 3,828 14,807
Loss on disposal of discontinued operations 32,983 -
Depreciation, depletion and amortization 59,536 59,473
Proceeds from sales deposited with a like-
kind exchange intermediary (16,812) -
Non-cash cost of real estate sold 879 168
Deferred taxes (4,305) (71,634)
Equity-based compensation expense 4,284 2,970
Employee benefit plans (8,671) (1,233)
Other 572 3,229
Working capital changes 7,113 61,329
Excess tax benefit from share-based payment
arrangements (2,447) (651)
Income tax benefit related to stock issued in
conjunction with stock compensation plans 2,955 1,233
Funding of qualified pension plans - (18,092)
- ----------------------------------------------------------------------
Net cash provided by operating activities
from continuing operations 125,102 145,426
- ----------------------------------------------------------------------
Cash Flows From Investing
Decrease (increase) in short-term investments (6,820) 48,263
Additions to plant and properties (79,504) (35,266)
Deposits on timberlands (162,280) -
Other, net (501) (5,232)
- ----------------------------------------------------------------------
Net cash provided by (used for) investing
activities from continuing operations (249,105) 7,765
- ----------------------------------------------------------------------
Cash Flows From Financing
Change in book overdrafts 2,628 3,228
Increase in notes payable 110,000 -
Issuance of common stock 7,955 6,261
Issuance of treasury stock - 513
Repayment of long-term debt (3,131) (7,833)
Distributions to common stockholders (57,439) (146,112)
Excess tax benefit from share-based payment
arrangements 2,447 651
Other, net (1,421) (533)
- ----------------------------------------------------------------------
Net cash provided by (used for) financing
activities from continuing operations 61,039 (143,825)
- ----------------------------------------------------------------------
Cash flows from continuing operations (62,964) 9,366
Cash flows of discontinued operations:
Operating cash flows (129) (6,868)
Investing cash flows 63,366 (1,316)
Financing cash flows - -
- ----------------------------------------------------------------------
Increase in cash 273 1,182
Cash at beginning of period 7,759 6,133
- ----------------------------------------------------------------------
Cash at end of period $ 8,032 $ 7,315
======================================================================
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 Nine Months Ended
------------------- ----------------------
September 30, September 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 Nine Months Ended
------------------- ----------------------
September 30, September 30,
2007 2006 2007 2006
- ----------------------------------------------------------------------
Revenues
Resource $ 99,707 $ 82,332 $ 231,411 $ 212,118
- ----------------------------------------------------------------------
Real Estate 3,679 1,139 12,335 3,810
- ----------------------------------------------------------------------
Wood Products
Lumber 91,344 89,703 272,273 302,771
Plywood 14,247 12,657 41,963 42,452
Particleboard 4,721 5,928 15,313 15,138
Other 11,527 10,226 35,934 32,660
- ----------------------------------------------------------------------
121,839 118,514 365,483 393,021
- ----------------------------------------------------------------------
Pulp and Paperboard
Paperboard 149,805 131,080 423,292 395,743
Pulp 24,244 23,004 70,479 53,811
Other 241 302 821 915
- ----------------------------------------------------------------------
174,290 154,386 494,592 450,469
- ----------------------------------------------------------------------
Consumer Products 112,429 113,232 328,614 329,909
- ----------------------------------------------------------------------
511,944 469,603 1,432,435 1,389,327
Intersegment revenues (75,878) (72,851) (195,449) (178,058)
- ----------------------------------------------------------------------
Total revenues $436,066 $396,752 $1,236,986 $1,211,269
======================================================================
Operating income (loss)
Resource $ 38,175 $ 24,804 $ 71,272 $ 59,356
Real Estate 2,405 788 9,412 2,768
Wood Products 2,402 (5,210) 10,980 5,855
Pulp and Paperboard 17,559 16,753 28,535 14,358
Consumer Products 5,139 6,186 14,006 20,059
Eliminations (8,446) (6,579) 527 (4,859)
- ----------------------------------------------------------------------
57,234 36,742 134,732 97,537
Corporate (18,648) (18,332) (54,332) (53,900)
- ----------------------------------------------------------------------
Earnings from continuing
operations before taxes $ 38,586 $ 18,410 $ 80,400 $ 43,637
======================================================================
Certain prior period amounts have been reclassified to conform to the
current period presentation.
CONTACT: Potlatch Corporation
Matt Van Vleet, 509-254-1571 (Media)
Douglas D. Spedden, 509-835-1549 (Investors)