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 10 of Item 8 of Part II of this Form 10-K.
(c) NARRATIVE DESCRIPTION OF BUSINESS
(i-x) Principal Products, Markets and Methods of Distribution
TIMBER - The company 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.
At October 31, 1997, the company owned in fee 560,377 acres of tree farms which are managed on a sustained yield basis with rotations of 40 years for hardwood and 55 to 70 years for coniferous species. Based on recent large purchases and sales, we now estimate the value of the tree farms to be between six and nine times book value. Environmental regulations requiring set asides, buffer zones and which otherwise limit our ability to harvest timber reduce the value of our tree farms. The company estimates that the reduction in value due to such regulations does not exceed ten percent of realizable value.
The company owns and operates a sawmill in Leavenworth, Washington. Having a sawmill in this region has improved the log realization of 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 and Los Angeles, 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 from post-consumer and post-industrial waste, purchased bleached pulp, and augmented by log chipping operations owned by the company and others. Wood chips, our principal raw material, and sawdust and shavings are purchased from more than 60 sawmills, plywood plants and whole-log chipping facilities within a 1,300-mile radius from the Longview Mill.
During fiscal 1997 and 1996, chip costs had declined to levels that were reasonably comparable to those in the South which helped to restore this region's competitive position. Chip costs in the Pacific Northwest are rising somewhat from recent low levels. Maximum efforts continue to broaden supply by greater recovery of wastes. Increased use of recycled containers lowers fiber costs and enhances supply.
The company purchases bleached pulp from various sources including an arrangement to purchase pressed bleached pulp (which has not been dried) from a nearby mill which has excess capacity. This has proven to be a beneficial arrangement.
Extensive paper machine modernizations to improve quality, efficiency and ability to make custom grades continue. The rebuild on No. 11 paper machine to make extensible grades has been completed.
To spread risk, the company has been engaged in a long campaign to increase value added products, such as extensible paper, recycled kraft paper, masking paper, and colored kraft paper. 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 basic commodity products (paperboard and bag paper) were 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.
CONVERTED PRODUCTS - The company's sixteen converting plants in eleven states produce shipping containers, merchandise bags and grocery bags. The tonnage of paper and containerboard used in the converting plants equals approximately 63% 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, Los Angeles and Oakland, California; Twin Falls, Idaho; Spanish Fork and Cedar City, Utah; Milwaukee, Wisconsin; Rockford, Illinois; Cedar Rapids, Iowa; Minneapolis, Minnesota; Atlanta, Georgia; 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.
The company is well along in major modernization of its box plants, which included the installation of improved and specialized equipment to produce premium products. A corrugated sheet plant has been constructed in Grand Forks, N.D. Modernization will continue at a slower pace.
In the paper and paperboard segment, there is intense competition among a significant number of competitors, including conventional paper mills, and recycling mills that rely on recycled post- consumer and industrial material as the principal fibre source. The converted products segment also involves intense competition among many competitors. Competition in these manufacturing segments is based principally on price, quality of product, service and reliability. The company emphasizes quality, service and reliability, and has not competed aggressively on the basis of price or sought out large national customer accounts that frequently involve demands for discount pricing.
The following table sets forth the contribution to sales by each class of similar products which accounted for more than 10% of sales. 1997 1996 1995 Paper and Paperboard 25% 24% 31% Timber 24% 23% 21% Converted Products 51% 53% 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. 		 (xii) This item is completed by reference to Item 7 of Part II of this 	 Form 10-K.
(xiii) The company has approximately 3,900 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 10 of Item 8 of Part II of this Form 10-K.
ITEM 2.
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, 1997, the company owned in fee 560,377 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 available 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 55 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 85% during fiscal 1997.
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 fourteen 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 " " " Grand Forks, North Dakota Corrugated Boxes from Corrugated Sheets Cedar City, Utah " " " 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 slightly during the past fiscal year. Capacity is available for increased sales.
ITEM 3.
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 or results of operation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward Looking Statements" in Item 7 of Part II of this Form 10-K.
ITEM 4.
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.
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Office and Year First Elected
R. P. Wollenberg 82 (1) Chairman of the Board, President and Chief Executive Officer (1953)
R. E. Wertheimer 69 (2) Executive Vice President (1960)
R. J. Parker 49 (3) Senior Vice President-Production (1994) and Mill Manager
D. L. Bowden 62 (4) Senior Vice President-Timber (1989)
L. J. Holbrook 42 (5) Senior Vice President-Finance, Secretary and Treasurer (1989)
D. C. Stibich 66 (6) Senior Vice President-Paper Sales (1981)
R. B. Arkell 66 (7) Vice President-Industrial Relations and General Counsel (1986)
R. H. Wollenberg 44 (8) Senior Vice President-Production Western Container Division (1996)
(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 Superintendent 1985-1992 Assistant Pulp Mill Superintendent
(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
(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
(8) R. H. Wollenberg From 1995 Senior Vice President-Production, Western Container Division 1994-1995 Vice President-Production, Western Container Division 1993-1994 Manager-Production, Western Container Division 1988-1993 Assistant General Counsel
PART II
ITEM 5.
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 1997 	 1996 Quarter High Low	 High Low 1st $19.25 $16.50	$18.38 $14.63 2nd 17.25 15.00	 18.13 15.75 3rd 19.50 16.13	 18.25 14.13 4th 22.38 15.88	 17.63 14.88
The company estimated it had approximately 11,500 shareholders on December 8, 1997.
Dividends per share paid in fiscal 1997, 1996 and 1995:
1997 1996 1995 January $0.16 $0.15 $0.13 April 0.16 0.15 0.14 July 0.16 0.15 0.14	 October 0.16 0.19 0.19	 $0.64 $0.64 $0.60
The Directors declared a regular dividend of $0.16 per share which was paid on January 9, 1998, to shareholders of record on December 24, 1997.
Restrictions on the company's ability to pay cash dividends are completed by reference to Note 5 of Item 8 of Part II of this Form 10-K.
ITEM 6.
ITEM 6. SELECTED FINANCIAL AND OTHER DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS fiscal 1997 vs. fiscal 1996
Results in fiscal 1997 were increasingly unsatisfactory as earnings decreased 77% from fiscal 1996.
Timber profits declined from $104,449,000 to $101,740,000 in fiscal 1997 primarily because of a 10% reduction in log footage sold. Volume declined because the company did not aggressively market its logs into a weakening export market. Average log prices were 1% higher. Domestic log prices remained firm. Export log prices were somewhat lower due to an increase in supply of export quality logs, reduced end user demand and the strengthening of the U.S. Dollar. Although export prices declined, they were at good levels.
The company operates its 560,377 acres on a sustained yield basis with rotations of 40 years for hardwood and 55 to 70 years for coniferous species. Based on recent large purchases and sales, we now estimate the value of the tree farms to be between six and nine times book value. Environmental regulations requiring set asides, buffer zones and which otherwise limit our ability to harvest timber reduce the value of our tree farms. The company estimates that the reduction in value due to such regulations does not exceed ten percent of realizable value.
Operating results for paper and paperboard declined from an operating profit in fiscal 1996 of $4,300,000 to an operating loss of $5,143,000 in fiscal 1997. The addition of new recycling containerboard mills increased industry capacity and resulted in lower prices for containerboard. Average paperboard and paper prices decreased 7% and 4% respectively while volume sold increased 13%. Product prices started to improve modestly in the fourth quarter but not to levels needed for profitable results.
Principal raw materials for paper and paperboard include wood chips, purchased bleached pulp, sawdust and reclaimed fibers. Wood chip costs were about 26% lower than the prior fiscal year. Chip costs are rising somewhat from recent low levels. Maximum efforts continue to be made to broaden supply by greater recovery of woods wastes and going further distances for sawmill wastes. Purchase of bleached pulp from a variety of sources has proved to be a beneficial arrangement. Old corrugated container (OCC) prices have remained low but may increase.
Mill operation was at about 85% of capacity. Downtime was utilized for vacations and displaced machine crews were reassigned as temporary mechanical helpers so no lay-offs resulted. Reassigning machine crews reduced the backlog of maintenance and installation work.
Operating losses from converted products increased from $3,963,000 in fiscal 1996 to $49,196,000 in fiscal 1997 due to a reduction in average price of 12%. Corrugated box prices were driven down by lower containerboard prices available in the marketplace due to increased industry capacity.
The company believes that increased demand for paper and paperboard is reducing industry overcapacity. In addition, the increase in the number of recycling containerboard mills may cause the price of old corrugated
containers to increase which should help diminish the aggressive price competition of those mills. Accordingly there may be prospects for higher prices for paper, paperboard and converted products in fiscal 1998.
To serve customers who need "just in time" service, we are going to need to charge higher prices if we are to cover the added capital, storage, handling and shipping costs.
With an increasingly flexible national market for both electricity and natural gas, some additional margin has been achieved by shutting cogeneration down for periods when spot replacement electricity costs are less and our purchased gas can be wheeled to others with some overall cost reduction. During fiscal 1996, miscellaneous income included $9,470,000 received as consideration for the termination of an electrical power sales agreement.
Selling, administrative and general expenses were 8% of sales in fiscal 1997 and 7% of sales in fiscal 1996. Higher total borrowing resulted in an increase in interest expensed from $29,506,000 to $31,613,000.
The company believes the current market for the company's manufactured products has finally bottomed out. The company's sales of extensible papers are growing slowly. Log markets remain good. Fibre costs may increase modestly but they should be more than offset by better product prices.
OVERVIEW fiscal 1998:
November 1997 log sales were down substantially from year ago levels due to high export log inventories resulting from increased export supply versus reduced end user demand. Logging operations were redeployed until the imbalance in the supply demand ratio was corrected in December. December results were negatively affected by increased costs associated with the equivalent of a 9-day mill shutdown, downtime for the rebuild of No.6 paper machine and increased wood chip costs. Although January results are not yet known, it is probable that the company will have a loss in the first quarter of fiscal 1998. Currently, log export demand appears to be good and prices have improved modestly. Domestic markets for our manufactured products appear to have bottomed out, but the export market for paperboard is uncertain.
RESULTS OF OPERATIONS fiscal 1996 vs. fiscal 1995
Fiscal 1996 was another difficult year as earnings decreased 26%.
Timber profits declined from $121,738,000 to $104,449,000 in fiscal 1996 primarily because prices for logs were 5% lower and volume was down 7%. Domestic log prices were adversely affected by reduced residual chip prices in early fiscal 1996, but there was some recovery of domestic log prices as lumber markets improved. Export log prices remained fairly stable at high levels throughout fiscal 1996 due to reduced overall supply of export quality logs.
Environmental overregulation continued to reduce return on our tree farm operations.
Operating profits for paper and paperboard declined from $7,442,000 to $4,300,000. Reduced end usage coupled with expanded industry capacity resulted in lower prices and capacity utilization, offset in part by lower raw
material costs. Volume sold decreased 29% and average price decreased 5% and 27% for paper and paperboard, respectively.
Wood chip costs were about 11% lower than the prior fiscal year. Costs declined to levels that were reasonably comparable to those in the South. Increased use of recycled containers lowered fiber costs and enhanced supply.
An arrangement has been made to purchase pressed bleached pulp (which has not been dried) from a nearby mill which has excess capacity.
Mill operation was at about 82% of capacity. Because of weak markets, the paper mill operated for much of the year with reduced crews and shorter hours on several machines, displacing a substantial number of machine hands. Rather than lay these employees off, the company elected to utilize them primarily as temporary helpers in the mechanical department. This permitted catch-up in maintenance and installation work and was good for morale. Labor costs remained high.
Converting results declined from an operating profit of $18,594,000 to an operating loss of $3,963,000 due to a 5% reduction in tonnage sold and an average price decrease of 2% and increased costs.
Price stability for our manufactured products was not achieved.
In the face of aggressive (and often short term) price cutting by competitors, the company continued to stress quality, service, and specialized capabilities and made efforts to achieve compensatory prices.
Due to deregulation, power sales markets for firm power have decreased. Our customer bought its way out of our contract for $9,470,000 in fiscal 1996. Thereafter our cogeneration was used internally. It still made a modest contribution to reducing costs, but this was less than the prior contribution when part was sold.
Selling, administrative and general expenses were 7% of sales in fiscal 1996 and 6% of sales in 1995. Higher total borrowing partially offset by lower interest rates resulted in an increase in interest expensed from $29,447,000 to $29,506,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations decreased by $25,215,000 in fiscal 1997 compared with fiscal 1996 primarily due to reduced earnings.
Working capital was $40,381,000 at October 31, 1997 compared to $50,974,000 at October 31, 1996.
Capital expenditures for the year were above available funds from cash flow and were funded by borrowings. Therefore, long-term debt, current installments of long-term debt and short-term borrowings increased by an aggregate of $69,881,000 in fiscal 1997.
At October 31, 1997, the company had bank lines of credit totaling $330,000,000. Of this amount, $200,000,000 was under a credit agreement with a group of banks expiring February 28, 1999, with renewal provisions beyond that date. The company had outstanding $200,000,000 of notes payable under
this agreement at October 31, 1997. At October 31, 1997, the company had an outstanding balance of $100,000,000 under the remaining $130,000,000 of bank credit lines. The unused portion of all bank lines of credit was $30,000,000 as of October 31, 1997.
Also outstanding at October 31, 1997 were senior notes of $239,000,000 and revenue bonds of $28,900,000. For further details regarding borrowing, see Notes 4 and 5 of Item 8 of Part II of this Form 10-K.
Capital expenditures for fiscal 1997 were $139,727,000 for plant and equipment and $15,716,000 for timberlands. Capital expenditures for fiscal 1996 for plant and equipment were $127,558,000 and for timberlands were $3,822,000. The backlog of approved capital projects as of October 31, 1997 was $48,000,000. With reduced cash flow, capital authorizations are being reduced. While much remains to be done to optimize our manufacturing capabilities, the most urgent projects have been completed or will be completed in the near future.
Capital expenditures for plant and equipment are expected to be between $50,000,000 and $70,000,000 in fiscal 1998. Purchase of timberlands will depend on offerings, price levels and competition. Any offers we make will be at prices we believe to be conservative. We plan to fund capital expenditures principally from internally generated funds supplemented, if necessary, by additional borrowing (see Notes 4 and 5 of Item 8 of Part II of this Form 10-K).
During fiscal 1997, the company purchased 29,010 shares of its stock for an average price of $17.85 per share. During fiscal 1996, the company purchased 45,455 shares for an average price of $16.37 per share. Purchases began in 1964; the total number of shares acquired through fiscal 1997 is 21,403,633 shares for $97,090,164 at an average cost of $4.54 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.
Dividends of $.64 per share were paid in fiscal 1997 and 1996. Shareholders' equity decreased $20,906,000 in fiscal 1997, as compared with an increase of $22,513,000 in fiscal 1996.
The company anticipates that cash flow from operations, supplemented as necessary by short or long term borrowings will be adequate to fund capital projects.
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 a final air and water quality rule referred to as the "Cluster Rule". The company estimates that over the next 2 to 3 years required pollution control capital expenditures could range from $10 million to $20 million with another $20 million to $30 million possible 5 years later.
Although future pollution control expenditures cannot be predicted with any certainty because of continuing changes in laws and regulations and uncertainty as to how they will be interpreted and applied, 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.
The company does not anticipate that expenditures to ensure that its computerized systems are year 2000 compliant will have a material impact on its financial position or its results of operations.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements concerning anticipated pricing and market conditions for the company's products, anticipated future raw material costs, anticipated competitive conditions and actions of competitors, the expected results of planned paper mill improvement projects, the anticipated cost of and availability of financing for planned capital improvement projects, and anticipated cost of compliance with environmental regulations and the effects of environmental contingencies and litigation on financial condition and results of operations. Actual events could differ materially from those anticipated by the company due to a variety of factors, including, among others, developments in the world, national or regional economy involving the company's products or raw materials, changes in product or raw material prices, initiatives by competitiors, changes in currency exchange rates between the U.S. dollars and the currencies of important export markets, capital project delays or cost overruns, weather, labor disputes, unanticipated adverse developments in environmental or other legal proceedings or the assertion of additional claims, significant unforeseen developments in the company's business or adverse changes in the capital markets or interest rates affecting the availability of financing or other unforeseen events.
ITEM 7A
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE Financial Statements:
Report of Independent Accountants . . . . . . . . . . . . . . . . . 14 Consolidated Statement of Income for the three years ended October 31, 1997 . . . . . . . . . . . . . . . 15 Consolidated Statement of Shareholders' Equity for the three years ended October 31, 1997. . . . . . . . 15 Consolidated Balance Sheet at October 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . 16 Consolidated Statement of Cash Flows for the three years ended October 31, 1997 . . . . . . . . . . . . . 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.
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, 1997, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1997, 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 audit 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 8, 1997
CONSOLIDATED STATEMENT OF INCOME
Years Ended October 31
(thousands except per share) 1997 1996 1995 NET SALES. . . . . . . . . . . . . . . . . . . $772,845 $822,722 $985,515 Timber . . . . . . . . . . . . . . . . . 186,814 186,405 207,735 Paper and paperboard . . . . . . . . . . 196,192 199,827 308,356 Converted products . . . . . . . . . . . 389,839 436,490 469,424 Cost of products sold, including outward freight . . . . . . . . . . . . . . . 661,684 657,737 778,032 GROSS PROFIT . . . . . . . . . . . . . . . . . 111,161 164,985 207,483 Selling, administrative and general expenses . 63,760 60,199 59,709 OPERATING PROFIT . . . . . . . . . . . . . . . 47,401 104,786 147,774 Timber . . . . . . . . . . . . . . . . . 101,740 104,449 121,738 Paper and paperboard . . . . . . . . . . (5,143) 4,300 7,442 Converted products . . . . . . . . . . . (49,196) (3,963) 18,594 Interest income. . . . . . . . . . . . . . . . 784 611 594 Interest expensed. . . . . . . . . . . . . . . (31,613) (29,506) (29,447) Miscellaneous. . . . . . . . . . . . . . . . . 2,922 10,973 1,318 INCOME BEFORE INCOME TAXES . . . . . . . . . . 19,494 86,864 120,239 PROVISION FOR TAXES ON INCOME (see Note 9) Current. . . . . . . . . . . . . . . . . . . . (1,315) 14,861 29,049 Deferred . . . . . . . . . . . . . . . . . . . 8,115 15,639 15,151 6,800 30,500 44,200
NET INCOME . . . . . . . . . . . . . . . . . . $ 12,694 $ 56,364 $ 76,039 Per share. . . . . . . . . . . . . . . . $ 0.25 $ 1.09 $ 1.47
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(thousands) 1997 1996 1995 COMMON STOCK: Balance at beginning of year . . . . . . $ 77,558 $ 77,627 $ 77,745 Ascribed value of stock purchased. . . . (43) (69) (118) Balance at end of year . . . . . . . . . $ 77,515 $ 77,558 $ 77,627 ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year . . . . . . $ 3,306 $ 3,306 $ 3,306 Balance at end of year . . . . . . . . . $ 3,306 $ 3,306 $ 3,306 RETAINED EARNINGS: Balance at beginning of year . . . . . . $389,548 $366,966 $323,202 Net income . . . . . . . . . . . . . . . 12,694 56,364 76,039 Less cash dividends on common stock ($0.64, $0.64, $0.60 per share, respectively) . . . . . . . . . . . . (33,083) (33,107) (31,070) Less purchases of common stock . . . . . (474) (675) (1,205) Balance at end of year . . . . . . . . . $368,685 $389,548 $366,966 COMMON SHARES: Balance at beginning of year . . . . . . 51,706 51,751 51,830 Purchases. . . . . . . . . . . . . . . . (29) (45) (79) Balance at end of year . . . . . . . . . 51,677 51,706 51,751
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED BALANCE SHEET
October 31
(dollars in thousands except per share) 1997 1996 1995 ASSETS Current assets: Accounts and notes receivable. . . . . . . . $ 105,850 $ 99,147 $ 118,164 Allowance for doubtful accounts. . . . . . 1,100 1,100 1,100 Inventories (see Note 2) . . . . . . . . . . 84,502 93,718 82,534 Other. . . . . . . . . . . . . . . . . . . . 8,432 11,923 9,372 Total current assets . . . . . . 197,684 203,688 208,970 Capital assets: Buildings, machinery and equipment at cost . 1,572,089 1,456,432 1,355,740 Accumulated depreciation . . . . . . . . . 774,852 710,946 655,822 Costs to be depreciated in future years (see Note 3). . . . . . . . . . . 797,237 745,486 699,918 Plant sites at cost. . . . . . . . . . . . . 3,041 2,909 2,834 800,278 748,395 702,752 Timber at cost less depletion. . . . . . . . 187,141 177,683 178,494 Roads at cost less amortization. . . . . . . 8,866 8,956 9,291 Timberland at cost . . . . . . . . . . . . . 17,076 16,103 16,049 213,083 202,742 203,834 Total capital assets . . . . . . 1,013,361 951,137 906,586 Other assets . . . . . . . . . . . . . . . . 49,858 42,455 38,267 $1,260,903 $1,197,280 $1,153,823
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Payable to bank resulting from checks in transit . . . . . . . . . . . . . $ 9,834 $ 13,031 $ 10,272 Accounts payable . . . . . . . . . . . . . . 53,647 44,533 60,730 Short-term borrowings (see Note 4) . . . . . 56,000 38,000 36,000 Payrolls payable . . . . . . . . . . . . . . 13,206 11,125 10,703 Federal income taxes payable . . . . . . . . - - 2,475 Other taxes payable. . . . . . . . . . . . . 10,498 11,906 12,112 Current installments of long-term debt . . . 14,118 34,119 34,119 Total current liabilities . . . 157,303 152,714 166,411 Long-term debt (see Note 5). . . . . . . . . 498,137 426,255 409,374 Deferred taxes - net (see Note 9). . . . . . 141,623 135,106 119,205 Other liabilities. . . . . . . . . . . . . . 14,334 12,793 10,934 Commitments (see Note 12). . . . . . . . . . - - - Shareholders' equity: Preferred stock; authorized 2,000,000 shares - - - Common stock, ascribed value $1.50 per share; authorized 150,000,000 shares; issued 51,676,567, 51,705,577 and 51,751,032 shares, respectively (see Note 11). . . . . 77,515 77,558 77,627 Additional paid-in capital . . . . . . . . . 3,306 3,306 3,306 Retained earnings. . . . . . . . . . . . . . 368,685 389,548 366,966 Total shareholders' equity . . . 449,506 470,412 447,899 $1,260,903 $1,197,280 $1,153,823
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS Years Ended October 31
(thousands) 1997 1996 1995 CASH PROVIDED BY (USED FOR) OPERATIONS: Net income . . . . . . . . . . . . . . . . . $ 12,694 $ 56,364 $ 76,039 Charges to income not requiring cash: Depreciation . . . . . . . . . . . . . . 81,213 74,709 66,719 Depletion and amortization . . . . . . . 5,158 4,745 12,684 Deferred taxes - net . . . . . . . . . . 6,517 15,901 15,971 Loss on disposition of capital assets . . 3,961 5,762 1,428
Change in: Accounts and notes receivable - net . . . (6,703) 19,017 (16,874) Inventories . . . . . . . . . . . . . . . 9,216 (11,184) (15,229) Other . . . . . . . . . . . . . . . . . . 3,491 (2,551) (1,775) Other noncurrent assets . . . . . . . . . (7,403) (4,188) (6,819) Accounts, payrolls and other taxes payable . . . . . . . . . . . . . 6,950 (16,109) 7,886 Federal income taxes payable. . . . . . . - (2,475) (454) Other noncurrent liabilities. . . . . . . 1,541 1,859 2,195 Cash provided by operations. . . . . . . . . 116,635 141,850 141,771
CASH PROVIDED BY (USED FOR) INVESTING: Additions to: Plant and equipment.. . . . . (139,727) (127,558) (138,613) Timber and timberlands. . . . (15,716) (3,822) (35,046) Proceeds from sale of capital assets . . . . 2,887 1,613 1,751 Cash used for investing. . . . . . . . . . . (152,556) (129,767) (171,908)
CASH PROVIDED BY (USED FOR) FINANCING: Additions to long-term debt. . . . . . . . . 86,000 51,000 77,000 Reduction in long-term debt. . . . . . . . . (34,119) (34,119) (45,993) Short-term borrowings. . . . . . . . . . . . 18,000 2,000 35,000 Payable to bank resulting from checks in transit . . . . . . . . . . . . . (3,197) 2,759 (2,233) Accounts payable for construction. . . . . . 2,837 128 (1,244) Cash dividends . . . . . . . . . . . . . . . (33,083) (33,107) (31,070) Purchase of common stock . . . . . . . . . . (517) (744) (1,323) Cash provided by (used for) financing. . . . 35,921 (12,083) 30,137
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) . . . $ 32,037 $ 30,023 $ 28,718 Capitalized interest . . . . . . . . . . . 3,290 3,230 3,442 Income taxes . . . . . . . . . . . . . . . (3,197) 19,625 30,109
The accompanying notes are an integral part of the financial statements.
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 51,691,411, 51,731,407, and 51,786,698 for 1997, 1996 and 1995, 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 recognizes revenues when goods are shipped.
MISCELLANEOUS INCOME In fiscal 1996, $9,470,000 was recorded as miscellaneous income as consideration for the termination of an electrical power sales agreement.
NOTE 2 - INVENTORIES: Inventories consist of the following: October 31 (thousands) 1997 1996 1995 Finished goods . . . . . . . . $ 43,571 $ 39,962 $ 38,973 Goods in process. . . . . . . . 28,881 33,632 39,905 Raw materials . . . . . . . . . 11,879 22,505 35,350 Supplies (at average cost). . . 42,322 45,236 38,707 126,653 141,335 152,935 LIFO Reserve. . . . . . . . . . (42,151) (47,617) (70,401) $ 84,502 $ 93,718 $ 82,534
NOTE 3 - BUILDINGS, MACHINERY AND EQUIPMENT: At cost - net of accumulated depreciation consist of the following:
October 31 (thousands) 1997 1996 1995 Buildings - net . . . . . . . . $ 66,494 $ 61,914 $ 54,115 Machinery and equipment - net . 730,743 683,572 645,803 $797,237 $745,486 $699,918
NOTE 4 - SHORT-TERM BORROWINGS: At October 31, 1997, the company had bank lines of credit totaling $330 million. Of this amount, $200 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 0.5% 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 0.25% facility fee. This agreement has an expiration date of February 28, 1999 with renewal provisions beyond that date. At October 31, 1997, the company had loans of $200 million under the credit agreement.
Also available was a bank credit agreement providing committed lines of credit totaling $55 million. The agreement provides for a nominal commitment fee and expires November 1, 1999 with renewal provisions beyond that date. At October 31, 1997 the company had loans of $45 million under this credit agreement.
Other bank credit lines totaling $75 million were available for additional borrowing needs. Included in this amount were committed lines of credit of $20 million and $10 million both of which expire March 31, 1999. The other $45 million is uncommitted. At October 31, 1997, the company had an outstanding balance of $55 million under these credit lines.
Short-term borrowings of $244 million, $223 million and $222 million at October 31, 1997, 1996 and 1995, 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.
Short-term borrowing activity including the amount reclassified as long-term is summarized as follows:
(thousands) 1997 1996 1995 Notes payable October 31 . . . . $300,000 $261,000 $258,000 Interest rate October 31 . . . . 6.2% 5.9% 6.4% Average daily amount of notes payable outstanding during year . . . . . . . . . . $286,227 $253,893 $250,512 Average* interest rate during year . . . . . . . . . . 6.1% 6.1% 6.5% Maximum amount of notes payable at any month end. . . . $303,000 $274,000 $272,000
*Computed by dividing interest incurred by average notes payable outstanding.
NOTE 5 - LONG-TERM DEBT: Long-term debt consists of the following:
October 31 (thousands) 1997 1996 1995 Senior notes due through 2004 (6.17%-9.49%) - Note (a) . . . . $239,000 $208,000 $192,000 Revenue bonds payable through 2018 (floating rates, currently 3.65%-3.95%) - Note (b). . . . . 28,900 28,900 28,900 Other . . . . . . . . . . . . . . 355 474 593 Notes payable - banks - Note 4 above . . . . . . . . . . 244,000 223,000 222,000 512,255 460,374 443,493 Less current installments . . 14,118 34,119 34,119 Net long-term debt. . . . . . . . $498,137 $426,255 $409,374
Scheduled maturities 1999 $274,119 2000 30,118 2001 40,000 2002 45,000 2003-2018 108,900 $498,137
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, 1997, approximately $53 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, 1997, $28,900,000 was secured by liens on the equipment.
NOTE 6 - 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 $1 million, $2 million and $7 million at October 31, 1997, 1996 and 1995, respectively.
NOTE 7 - 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 7.5% and 5.25% for 1997 and 1996 and 8% and 5.25% for 1995. The expected long-term rate of return on assets was 10% for 1997 and 9% for 1996 and 1995.
The following table sets forth the plans' funded status and amounts recognized in the company's consolidated financial statements at October 31:
(thousands) 1997 1996 1995 Actuarial present value of benefit obligations: Vested . . . . . . . . . . . . . $165,335 $155,770 $139,308 Vested and nonvested . . . . . . $171,314 $156,317 $140,608 Projected for service rendered . . . . . . . . . . . $196,510 $184,079 $165,042 Plan assets at fair value, primarily listed stocks. . . . . . 386,372 311,548 269,785 Excess plan assets. . . . . . . . . 189,862 127,469 104,743 Items not recognized in earnings: Net (asset) at adoption of FAS 87. (4,686) (6,056) (7,425) Unrecognized prior service cost. . 12,592 16,698 20,699 Unrecognized net (gain) . . . . . (159,545) (107,542) (91,950) Pension asset recognized in the consolidated balance sheet . . . . $ 38,223 $ 30,569 $ 26,067
Net pension (income) includes the following: Service cost . . . . . . . . . . $ 5,189 $ 4,557 $ 4,220 Interest cost. . . . . . . . . . 13,689 12,824 12,211 Actual (return) on plan assets . (84,422) (51,069) (41,199) Net amortization and deferral. . 57,890 29,186 22,795
Net pension (income). . . . . . . . $ (7,654) $ (4,502) $ (1,973)
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 was $1,295,000, $1,199,000 and $1,151,000 during 1997, 1996 and 1995, respectively.
NOTE 8 - 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 $2,095,000, $2,271,000 and $2,589,000 in 1997, 1996 and 1995, respectively.
The components of expense were as follows:
(thousands) 1997 1996 1995	 Service cost . . . . . . . . . . . . . . . $ 718 $ 545 $ 717	 Interest cost. . . . . . . . . . . . . . . 1,125 1,227 1,373 Net amortization and deferral. . . . . . . 252 499 499 Net periodic postretirement benefit cost . $2,095 $2,271 $2,589
The accumulated postretirement benefit obligation consists of the following:
(thousands) 1997 1996 1995 Retirees . . . . . . . . . . . . . . . . . $ (1,829) $ (2,954) $ (3,448) Fully eligible active plan participants. . (3,844) (3,817) (3,836) Other active plan participants . . . . . . (10,877) (10,494) (11,519) Total accumulated postretirement	 benefit obligation . . . . . . . . . . . (16,550) (17,265) (18,803) Unrecognized net(gain)loss . . . . . . . . (5,262) (3,440) (606) Unrecognized transition obligation . . . . 7,478 7,976 8,475 Accrued postretirement benefit cost. . . . $(14,334) $(12,729) $(10,934)
The net periodic postretirement benefit cost was calculated using a health care cost trend rate of 12% for the indemnity plan and 7.5% for the HMO plan. The accrued postretirement benefit cost at October 31, 1997 was calculated using a health care cost trend rate of 11% for the indemnity plan and 7% 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 $2,102,000 effect on the accumulated postretirement benefit obligation as of October 31, 1997 and a $143,000 effect on the aggregate of the service and interest cost components of the net periodic postretirement benefit cost. The weighted-average discount rate used was 7.5% at October 31, 1997 and 1996 and 8% at October 31, 1995.
NOTE 9 - INCOME TAXES: Provision for taxes on income is made up of the following components:
(thousands) 1997 1996 1995 Current: Federal. . . . . . . . . . . . . . $(1,293) $13,452 $26,495 State. . . . . . . . . . . . . . . (22) 1,409 2,554 (1,315) 14,861 29,049 Deferred: Federal. . . . . . . . . . . . . . 7,453 15,348 14,405 State. . . . . . . . . . . . . . . 662 291 746 8,115 15,639 15,151 $ 6,800 $30,500 $44,200 An analysis of the effective income tax rate as compared to the expected federal income tax rate is as follows:
1997 1996 1995 Expected federal income tax rate . . 35% 35% 35% Foreign Sales Corporation. . . . . . (2) - (1) State income taxes less federal income tax benefit . . . . 2 1 2 Other. . . . . . . . . . . . . . . . - (1) 1 35% 35% 37%
The deferred income tax liabilities (assets) recorded in the Consolidated Balance Sheet as of October 31, are as follows:
(thousands) 1997 1996 1995 Current: Non-deductible accruals. . . . . . $ (4,555) $ (6,153) $ (5,891)
Non-current: Depreciation . . . . . . . . . . . $148,661 $139,951 $135,146 Employee Benefit Plans . . . . . . 14,058 11,219 9,648 Alternative Minimum Tax. . . . . . (12,672) (10,042) (20,547) Other. . . . . . . . . . . . . . . (8,424) (6,022) (5,042) Non-current deferred tax . . . . . $141,623 $135,106 $119,205
Federal income tax returns through 1991 have been settled with the Internal Revenue Service.
NOTE 10 - 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 sixteen converting plants in eleven states produce shipping containers, and merchandise and grocery bags. The tonnage of paper and containerboard used in the converting plants equals approximately 63% of the Longview mill production.
Included in sales to customers are export sales, principally to Japan, Hong Kong and Southeast Asia, of $169,055,000, $153,878,000 and $229,984,000 during 1997, 1996 and 1995, 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.
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 $309,562,000, $306,101,000 and $253,674,000 have been allocated to converted products at October 31, 1997, 1996 and 1995, respectively.
Depreciation, depletion and amortization and additions to capital assets have been segregated and allocated similarly to the method used for identifiable assets.
(thousands) 1997 1996 1995 SALES TO CUSTOMERS: Timber . . . . . . . . . . . . . . . $ 186,814 $ 186,405 $207,735 Paper and paperboard . . . . . . . . 196,192 199,827 308,356 Converted products . . . . . . . . . 389,839 436,490 469,424 Total. . . . . . . . . . . . . . . 772,845 822,722 985,515 INCOME (LOSS) ON SALES: Timber . . . . . . . . . . . . . . . 101,740 104,449 121,738 Paper and paperboard . . . . . . . . (5,143) 4,300 7,442 Converted products . . . . . . . . . (49,196) (3,963) 18,594 Interest expensed and other. . . . . (27,907) (17,922) (27,535) Income before income taxes . . . . 19,494 86,864 120,239 IDENTIFIABLE ASSETS AT OCTOBER 31: Timber . . . . . . . . . . . . . . . 260,832 255,529 254,586 Paper and paperboard . . . . . . . . 319,548 279,383 313,778 Converted products . . . . . . . . . 680,523 662,368 585,459 Total. . . . . . . . . . . . . . . 1,260,903 1,197,280 1,153,823 DEPRECIATION, DEPLETION AND AMORTIZATION: Timber . . . . . . . . . . . . . . . 8,669 7,921 15,740 Paper and paperboard . . . . . . . . 22,940 20,201 22,964 Converted products . . . . . . . . . 54,762 51,332 40,699 Total. . . . . . . . . . . . . . . 86,371 79,454 79,403 ADDITIONS TO CAPITAL ASSETS: Timber . . . . . . . . . . . . . . . 17,608 7,939 38,289 Paper and paperboard . . . . . . . . 43,955 29,552 26,721 Converted products . . . . . . . . . 93,880 93,889 108,649 Total. . . . . . . . . . . . . . . $ 155,443 $ 131,380 $ 173,659
NOTE 11 - SHAREHOLDER RIGHTS PLAN: On December 6, 1996, the company's Board of Directors amended the Shareholder Rights Plan by lowering the ownership and tender offer thresholds triggering a distribution of the rights certificates under the rights agreement. With certain exceptions, the rights will become exercisable only in the event that an acquiring party accumulates 10% or more of the company's voting stock or a party announces an offer to acquire 10% 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 business day following the acquisition of 10% or more, or an offer to acquire 10% or more, of the company's voting stock. NOTE 12 - COMMITMENTS AND CONTINGENCIES: Estimated costs to complete approved capital projects were approximately $48 million, $103 million and $93 million at October 31, 1997, 1996 and 1995, respectively.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal Year Quarters Total Fiscal (thousands except per share) 1st 2nd 3rd 4th Year
Net sales. . . . . . . . . . $182,211 $185,860 $197,385 $207,389 $772,845 Gross profit . . . . . . . . 22,517 29,675 30,839 28,130 111,161 Net income . . . . . . . . . 28 4,626 4,142 3,898 12,694 Net income per share (1) . . - 0.09 0.08 0.08 0.25
Net sales. . . . . . . . . . $209,213 $199,716 $197,593 $216,200 $822,722 Gross profit . . . . . . . . 46,767 38,077 33,228 46,913 164,985 Net income . . . . . . . . . 15,539 10,035 13,924 16,866 56,364 Net income per share (1) . . 0.30 0.19 0.27 0.33 1.09
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
(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.
ITEM 9.
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.
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 hereby incorporated by reference 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.
ITEM 11. EXECUTIVE COMPENSATION
This item is completed by reference to Notice of Annual Meeting of Shareholders and Proxy Statement which is hereby incorporated by reference as part of this Form 10-K.
ITEM 12.
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 hereby incorporated by reference as part of this Form 10-K.
ITEM 13.
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.
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 1997, 1996 and 1995 consolidated financial statements are included in Item 8 of Part II of this Form 10-K.
The individual financial statements of the company and its subsidiaries have been omitted since the company is primarily an operating company and all subsidiaries included in the consolidated financial statements, in 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, 1997.
(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 Part II 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 (b) 3.2 Bylaws of Longview Fibre Company (b)
4.1 Rights Agreement (a)
4.2 First Amendment to Rights Agreement (i)
4.3 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% - 9.49%) $239,000,000
Revenue Bonds payable through 2018 (floating rates, 3.65% through 3.95% at October 31, 1997) $28,900,000
Other $ 355,000
10.1 Form of Termination Protection Agreement (g)(*)
10.2 $170,000,000 Credit Agreement (f)
10.3 First Amendment to Credit Agreement (f)
10.4 Second Amendment to Credit Agreement (g)
10.5 Third Amendment to Credit Agreement (g)
10.6 Fourth Amendment to Credit Agreement (h)
10.7 Fifth Amendment to Credit Agreement (j)
10.8 Sixth Amendment to Credit Agreement
23 Consent of Independent Accountants
27 Financial Data Schedule
99.1 Salary Savings Plan (c)(*)
99.2 Salary Savings Plan - Amendment No. 1 (g)(*)
99.3 Salary Savings Plan - Amendment No. 2 (g)(*)
99.4 Salary Savings Plan - Amendment No. 3 (g)(*)
99.5 Salary Savings Plan - Amendment No. 4 (h)(*)
99.6 Salary Savings Plan - Amendment No. 5 (h)(*)
99.7 Salary Savings Plan - Amendment No. 6 (h)(*)
99.8 Salary Savings Plan - Amendment No. 7 (h)(*)
99.9 Hourly Savings Plan (d)
99.10 Hourly Savings Plan - Amendment No. 1 (g)
99.11 Hourly Savings Plan - Amendment No. 2 (g)
99.12 Hourly Savings Plan - Amendment No. 3 (g)
99.13 Hourly Savings Plan - Amendment No. 4 (h)
99.14 Hourly Savings Plan - Amendment No. 5 (h)
99.15 Branch Hourly Savings Plan (e)
99.16 Branch Hourly Savings Plan - Amendment No. 1 (g)
99.17 Branch Hourly Savings Plan - Amendment No. 2 (g)
99.18 Branch Hourly Savings Plan - Amendment No. 3 (h)
99.19 Branch Hourly Savings Plan - Amendment No. 4 (h)
(a) Incorporated by reference to company's Annual Report on Form 10-K for the year ended October 31, 1989. (b) Incorporated by reference to company's Annual Report on Form 10-K for the year ended October 31, 1990. (c) Incorporated by reference to the Registration Statement on Form S-8 (No. 33-14358) filed November 4, 1990. (d) Incorporated by reference to the company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1992. (e) Incorporated by reference to the Registration Statement on Form S-8 (No. 33-56620) filed December 31, 1992. (f) Incorporated by reference to company's Annual Report on Form 10-K for the year ended October 31, 1993. (g) Incorporated by reference to company's Annual Report on Form 10-K for the year ended October 31, 1994. (h) Incorporated by reference to company's Annual Report on Form 10-K for the year ended October 31, 1995. (i) Incorporated by reference to company's Current Report on Form 8-K dated December 6, 1996. (j) Incorporated by reference to company's Annual Report on Form 10-K for the year ended October 31, 1996.
(*) 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, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LONGVIEW FIBRE COMPANY Registrant
\s\ L. J. Holbrook 1-27-98 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 registrant and in the capacities and on the dates indicated.
\s\ R. P. Wollenberg 1-27-98 R. P. Wollenberg, Chief Executive Officer Date and Director
\s\ L. J. Holbrook 1-27-98 L. J. Holbrook, Chief Financial Officer Date and Director
\s\ A. G. Higgens 1-27-98 A. G. Higgens, Chief Accounting Officer Date
\s\ R. B. Arkell 1-27-98 R. B. Arkell, Director Date
\s\ D. L. Bowden 1-27-98 D. L. Bowden, Director Date
\s\ M. A. Dow 1-27-98 M. A. Dow, Director Date
\s\ J. R. Kretchmer 1-27-98 J. R. Kretchmer, Director Date
\s\ R. J. Parker 1-27-98 R. J. Parker, Director Date
\s\ D. A. Wollenberg 1-27-98 D. A. Wollenberg, Director Date
\s\ R. H. Wollenberg 1-27-98 R. H. Wollenberg, Director Date