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10/23/17
Potlatch Corporation Reports Third Quarter 2017 Results

SPOKANE, Wash., Oct. 23, 2017 (GLOBE NEWSWIRE) -- Potlatch Corporation(Nasdaq:PCH) today reported net income of $33.7 million, or $0.82 per diluted share, on revenues of $190.4 million for the quarter ended September 30, 2017. Excluding amounts related to a lumber swap and an environmental claim related to Avery Landing, adjusted net income was $38.7 million, or $0.94 per diluted share for the third quarter of 2017. Net income was $27.6 million, or $0.68 per diluted share, on revenues of $174.0 million in the quarter ended September 30, 2016.

“Our geographical diversity was apparent in our strong third quarter results, which were driven by robust northern sawlog markets and western lumber prices,” said Mike Covey, chairman and chief executive officer. “Cedar sawlog prices remain at a record level and mixed sawlog prices benefited from the increase in lumber prices in the quarter. 2017 is proving to be a banner year for Potlatch given solid earnings and our separate announcement that we have reached an agreement to merge with Deltic. I am very excited about our future prospects,” stated Mr. Covey.

Financial Highlights (in millions, except per share data)

    Q3 2017     Q2 2017     Q3 2016  
Revenues   $ 190.4     $ 163.2     $ 174.0  
Net income   $ 33.7     $ 24.2     $ 27.6  
Net income per diluted share   $ 0.82     $ 0.59     $ 0.68  
Distribution per share   $ 0.375     $ 0.375     $ 0.375  
Net cash from operations   $ 50.0     $ 37.4     $ 28.7  
Cash and cash equivalents   $ 116.8     $ 110.3     $ 72.9  
                         

Business Performance: Q3 2017 vs. Q2 2017

Resource

Resource’s operating income was $41.8 million on revenues of $94.7 million in the third quarter, compared to operating income of $19.5 million on revenues of $55.9 million in the second quarter of 2017. Northern sawlog prices increased 7% relative to the second quarter. Harvest volumes were seasonally higher in the North and the South.

Wood Products

Wood Products earned $19.3 million on revenues of $116.5 million in the third quarter, compared to operating income of $24.7 million on revenues of $114.5 million in the second quarter of 2017. Average lumber prices were comparable and lumber shipments increased 3% in the third quarter compared to the second quarter. The segment recorded a gain of $3.3 million in the second quarter and a loss of $2.1 million in the third quarter related to a lumber price swap.

Real Estate

Real Estate’s operating income was $1.4 million on revenues of $3.3 million in the third quarter, compared to operating income of $5.8 million on revenues of $8.1 million in the second quarter of 2017. Fewer acres were sold in the third quarter compared to the second quarter.

Reconciliation of Q3 2017 Earnings (in millions, except per share data)

    Amount     Per Share  
Net income   $ 33.7     $ 0.82  
Environmental charges for Avery Landing, net of taxes     3.0       0.07  
Change in unrealized (gain) loss on lumber price swap, net of taxes1     1.3       0.03  
Lumber price swap settlements, net of taxes1     0.7       0.02  
Adjusted net income2   $ 38.7     $ 0.94  

1 Lumber price swap adjusted to exclude the change in unrealized (gain) loss and include settlements during the period.
2 Adjusted net income is a non-GAAP measure that management uses to evaluate the performance of the company. Adjusted net income should not be considered in isolation, and is not intended to represent an alternative to our GAAP results. We believe that these non-GAAP measures, when read in conjunction with our GAAP financials, provide useful information to investors by facilitating the comparability of our ongoing operating results over the periods presented, the ability to identify trends in our underlying business and the comparison of our operating results against analyst financial models and operating results of other public companies that supplement their GAAP results with non-GAAP financial measures.

Transaction with Deltic and Conference Call Information

In a separate press release issued this morning, the Company also announced a definitive agreement to combine with Deltic in an all-stock transaction to create a leading domestic timberland owner and top-tier lumber manufacturer. Potlatch will host a conference call today at 5:30 a.m. Pacific Time / 8:30 a.m. Eastern Time to discuss third quarter results as well as the Deltic transaction.

Investors may access the webcast at www.potlatchcorp.com by clicking on the Investor Resources link or by conference call at 1-866-393-8403 for U.S./Canada and 1-706-679-7929 for international callers. Participants will be asked to provide conference I.D. number 90286636.

A replay of the conference call will be available two hours following the call until October 30, 2017 by calling 1‑800-585-8367 for U.S./Canada or 1-404-537-3406 for international callers. Callers must enter conference I.D. number 90286636 to access the replay.

Cancelling Third Quarter Conference Call

In light of today’s announced agreement with Deltic, Potlatch has cancelled its previously scheduled 2017 third quarter earnings call on Tuesday, October 24, 2017 at 9:00 a.m. Pacific Time / 12:00 p.m. Eastern Time.

About Potlatch

Potlatch is a Real Estate Investment Trust (REIT) with approximately 1.4 million acres of timberland in Alabama, Arkansas, Idaho, Minnesota and Mississippi. Potlatch, a certified forest practices leader, is committed to providing superior returns to stockholders through long-term stewardship of its forest resources. The company also conducts a land sales and development business and operates wood products manufacturing facilities through its taxable REIT subsidiary. More information about Potlatch can be found on the company’s website at www.potlatchcorp.com.

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, our expectations regarding the U.S. housing market; strong repair and remodel market; lumber demand and pricing; future company performance; the direction of our business markets; business conditions, pricing, EBITDDA and earnings in our Resource, Wood Products and Real Estate segments; company earnings in the fourth quarter of 2017 and for the full year;  harvest volumes in the fourth quarter of 2017 and for the full year; percentage of total harvest that will occur in the North and South and the percentage of sawlogs to be harvested in the North and the South in the fourth quarter of 2017; robust cedar sawlog market resulting in an increase in EBITDDA compared to 2016; lumber shipments in the fourth quarter of 2017 and for the year; real estate sales in the fourth quarter of 2017; capital projects and capital expenditures in 2017; corporate expenses and interest expense in the fourth quarter of 2017; final accrual relating to the Avery Landing environmental claim; tax rate for the fourth quarter of 2017 and full year; debt maturities; and similar matters. 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, the U.S. housing market, 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; availability of logging contractors and shipping capacity; changes in the United States and international economies; changes in the level of construction activity; changes in Asia demand; changes in tariffs, quotas and trade agreements involving wood products; currency fluctuation; changes in demand for our products; changes in production and production capacity in the forest products industry; competitive pricing pressures for our products; unanticipated manufacturing disruptions; changes in general and industry-specific environmental laws and regulations; unforeseen environmental liabilities or expenditures; weather conditions; restrictions on harvesting due to fire danger; changes in raw material, fuel and other costs; changes in share price; failure to settle the Avery Landing environmental claim; the successful execution of the company’s strategic plans, including its ability to complete and realize the expected benefits of the proposed transaction with Deltic Timber; and other risks and uncertainties described from time to time in the company's public filings with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this press release and the company does not undertake to update any forward-looking statements.

ADDITIONAL INFORMATION

This communication is being made in respect of the proposed merger transaction involving Potlatch Corporation (“Potlatch”) and Deltic Timber Corporation (“Deltic”). This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. In connection with the proposed merger, Potlatch and Deltic will file relevant materials with the Securities and Exchange Commission (“SEC”), including a Potlatch registration statement on Form S-4 that will include a joint proxy statement of Potlatch and Deltic and also constitutes a prospectus of Potlatch. Potlatch and Deltic also plan to file other documents with the SEC regarding the proposed merger transaction and a definitive joint proxy statement/prospectus will be mailed to stockholders of Potlatch and Deltic. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, SECURITY HOLDERS OF POTLATCH AND DELTIC ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The joint proxy statement/prospectus, as well as other filings containing information about Potlatch and Deltic will be available without charge, at the SEC’s Internet site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, when available, without charge, from Potlatch’s website at http://www.Potlatchcorp.com under the Investor Resources tab (in the case of documents filed by Potlatch) and on Deltic’s website at http://www.Deltic.com under the Investor Relations tab (in the case of documents filed by Deltic).

Potlatch and Deltic, and certain of their respective directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the stockholders of Deltic and Potlatch in respect of the proposed merger transaction.  Certain information about the directors and executive officers of Potlatch is set forth in its Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the SEC on February 17, 2017, its proxy statement for its 2017 annual meeting of stockholders, which was filed with the SEC on April 3, 2017 and its Current Report on Form 8-K, which was filed on May 1, 2017.  Certain Information about the directors and executive officers of Deltic is set forth in its Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the SEC on March 7, 2017, its proxy statement for its 2017 annual meeting of stockholders, which was filed with the SEC on March 20, 2017, its supplement to the proxy statement for its 2017 annual meeting of the stockholders, which was filed with the SEC on March 30, 2017 and its Current Reports on Form 8-K, which were filed with the SEC on September 1, 2017, May 2, 2017, March 8, 2017 and February 27, 2017.  Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the joint proxy statement/prospectus and other relevant documents filed with the SEC when they become available. 

 
Potlatch Corporation
Consolidated Statements of Income (Loss)
Unaudited
 
    Three Months Ended     Nine Months Ended  
    September 30,     June 30,     September 30,     September 30,  
(Dollars in thousands, except per share amount)   2017     2017     2016     2017     2016  
Revenues   $ 190,441     $ 163,229     $ 174,027     $ 503,351     $ 443,418  
Costs and expenses:                                        
Cost of goods sold     124,971       111,556       122,132       349,310       345,324  
Selling, general and administrative expenses     14,619       14,165       12,901       41,773       38,712  
Environmental charges for Avery Landing     4,978                   4,978       1,022  
Loss (gain) on lumber price swap     2,080       (3,265 )           (1,185 )      
Loss on sale of central Idaho1                             48,522  
      146,648       122,456       135,033       394,876       433,580  
Operating income     43,793       40,773       38,994       108,475       9,838  
Interest expense, net     (7,336 )     (7,348 )     (7,786 )     (19,654 )     (22,017 )
Income (loss) before income taxes     36,457       33,425       31,208       88,821       (12,179 )
Income tax (provision) benefit     (2,757 )     (9,181 )     (3,562 )     (13,956 )     8,744  
Net income (loss)   $ 33,700     $ 24,244     $ 27,646     $ 74,865     $ (3,435 )
                                         
Net income (loss) per share:                                        
Basic   $ 0.83     $ 0.59     $ 0.68     $ 1.83     $ (0.08 )
Diluted   $ 0.82     $ 0.59     $ 0.68     $ 1.82     $ (0.08 )
Dividends per share   $ 0.375     $ 0.375     $ 0.375     $ 1.125     $ 1.125  
Weighted-average shares outstanding (in thousands):                                  
Basic     40,829       40,823       40,740       40,814       40,807  
Diluted     41,250       41,219       40,933       41,183       40,807  

1 In the second quarter of 2016, we sold approximately 172,000 acres of timberlands located in central Idaho for $114 million at a loss of $48.5 million before taxes. 

 
Potlatch Corporation
Condensed Consolidated Balance Sheets
Unaudited
 
(Dollars in thousands)   September 30, 2017     December 31, 2016  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 116,803     $ 82,584  
Receivables, net     23,461       17,284  
Inventories     39,261       52,622  
Other assets     8,820       11,155  
Total current assets     188,345       163,645  
Property, plant and equipment, net     76,138       72,820  
Timber and timberlands, net     657,546       641,856  
Deferred tax assets, net     40,889       42,051  
Other assets     8,075       7,309  
Total assets   $ 970,993     $ 927,681  
                 
LIABILITIES AND STOCKHOLDERS EQUITY                
Current liabilities:                
Current portion of long-term debt   $ 20,304     $ 11,032  
Accounts payable and accrued liabilities     60,741       43,710  
Current portion of pension and other postretirement employee benefits     5,839       5,839  
Total current liabilities     86,884       60,581  
Long-term debt     559,019       572,956  
Pension and other postretirement employee benefits     118,505       123,284  
Other long-term obligations     15,395       14,586  
Total liabilities     779,803       771,407  
Commitments and contingencies                
Stockholders' equity:                
Common stock, $1 par value     40,611       40,519  
Additional paid-in capital     357,736       355,274  
Accumulated deficit     (99,677 )     (128,775 )
Accumulated other comprehensive loss     (107,480 )     (110,744 )
Total stockholders’ equity     191,190       156,274  
Total liabilities and stockholders' equity   $ 970,993     $ 927,681  

  

 
Potlatch Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
 
    Nine Months Ended September 30,  
(Dollars in thousands)   2017     2016  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income (loss)   $ 74,865     $ (3,435 )
Adjustments to reconcile net income (loss) to net cash from operating activities:                
Depreciation, depletion and amortization     21,908       25,723  
Basis of real estate sold     6,351       6,686  
Change in deferred taxes     (925 )     1,375  
Pension and other postretirement employee benefits     9,863       11,743  
Equity-based compensation expense     3,536       3,290  
Loss on sale of central Idaho timber and timberlands           48,522  
Other, net     (1,467 )     (1,141 )
Funding of qualified pension plans     (5,275 )     (1,300 )
Change in working capital and operating-related activities, net     20,489       (17,073 )
Net cash from operating activities     129,345       74,390  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of property, plant and equipment     (9,445 )     (4,262 )
Timberlands reforestation and roads     (11,577 )     (10,421 )
Acquisition of timber and timberlands     (22,033 )     (1,180 )
Net proceeds from sale of central Idaho timber and timberlands           111,460  
Other, net     (106 )     525  
Net cash from investing activities     (43,161 )     96,122  
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Dividends to common stockholders     (45,686 )     (45,647 )
Repayment of revolving line of credit borrowings           (30,000 )
Repayment of long-term debt     (5,000 )     (113,335 )
Proceeds from issuance of long-term debt           93,235  
Repurchase of common stock           (5,956 )
Other, net     (1,279 )     (3,879 )
Net cash from financing activities     (51,965 )     (105,582 )
Change in cash and cash equivalents     34,219       64,930  
Cash and cash equivalents at beginning of period     82,584       7,925  
Cash and cash equivalents at end of period   $ 116,803     $ 72,855  

  

 
Potlatch Corporation
Segment Information
Unaudited
 
    Three Months Ended     Nine Months Ended  
    September 30,     June 30,     September 30,     September 30,  
(Dollars in thousands)   2017     2017     2016     2017     2016  
Revenues:                                        
Resource   $ 94,705     $ 55,924     $ 85,822     $ 202,397     $ 189,358  
Wood Products     116,487       114,529       97,620       326,608       271,782  
Real Estate     3,282       8,136       8,426       25,922       23,946  
      214,474       178,589       191,868       554,927       485,086  
Intersegment Resource revenues     (24,033 )     (15,360 )     (17,841 )     (51,576 )     (41,668 )
Total consolidated revenues   $ 190,441     $ 163,229     $ 174,027     $ 503,351     $ 443,418  
                                         
Income (loss) before income taxes:                                        
Resource   $ 41,796     $ 19,520     $ 33,303     $ 76,245     $ 59,182  
Wood Products     19,281       24,705       10,657       52,670       16,308  
Real Estate     1,469       5,725       5,885       15,837       (35,469 )
Eliminations and adjustments     (3,141 )     1,053       (1,946 )     (1,029 )     (1,450 )
      59,405       51,003       47,899       143,723       38,571  
Corporate     (15,612 )     (10,230 )     (8,905 )     (35,248 )     (28,733 )
Operating income     43,793       40,773       38,994       108,475       9,838  
Interest expense, net     (7,336 )     (7,348 )     (7,786 )     (19,654 )     (22,017 )
Income (loss) before income taxes   $ 36,457     $ 33,425     $ 31,208     $ 88,821     $ (12,179 )
                                         
Depreciation, depletion and amortization:                          
Resource   $ 6,207     $ 4,274     $ 6,456     $ 14,865     $ 17,971  
Wood Products     1,821       1,839       1,837       5,487       5,538  
Real Estate                       1       3  
      8,028       6,113       8,293       20,353       23,512  
Corporate     168       158       187       443       608  
Bond discounts and deferred loan fees     369       370       769       1,112       1,603  
Total depreciation, depletion and amortization   $ 8,565     $ 6,641     $ 9,249     $ 21,908     $ 25,723  
                                         
Basis of real estate sold:                                        
Real Estate   $ 618     $ 1,047     $ 1,364     $ 6,474     $ 7,118  
Eliminations and adjustments     (39 )     (65 )     (99 )     (123 )     (432 )
Total basis of real estate sold   $ 579     $ 982     $ 1,265     $ 6,351     $ 6,686  


Contact:  (Investors) (Media)  
  Jerry Richards  Mark Benson  
  509.835.1521 509.835.1513  

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Source: Potlatch Corporation