January 31, 2012

Potlatch Reports Fourth Quarter and Full Year 2011 Results

SPOKANE, Wash., Jan. 31, 2012 (GLOBE NEWSWIRE) -- Potlatch Corporation (Nasdaq:PCH) today reported financial results for the fourth quarter and full year ended December 31, 2011.

"Economic conditions remained challenging throughout 2011, which is reflected in our fourth quarter and full year results," said Michael Covey, chairman, president and chief executive officer of Potlatch Corporation. "For full year 2011, earnings from continuing operations were $40.3 million, which was comparable to 2010. In our Resource segment, we experienced varying conditions between our regions. Demand remained strong in our Northern region, which kept timber prices and harvest volumes at favorable levels. In fact, we were even able to shift a portion of our harvest from the Southern region to the Northern region to capture better pricing opportunities. In our Southern region, fiber availability due to dry weather kept prices depressed most of the year, which was the primary driver of our harvest deferral. Wood Products had a solid year, with operating income and shipments comparable to last year, and Real Estate had another very good year in 2011, with four large non-strategic timberland sales and continued steady demand for HBU and rural real estate properties," concluded Mr. Covey.

Q4 2011 FINANCIAL SUMMARY

  • In Q4 2011, Potlatch had a loss from continuing operations of $1.5 million, or a loss of $0.04 per diluted common share, compared to earnings from continuing operations of $8.9 million, or $0.22 per diluted common share in Q4 2010.
  • In Q4 2010, the company completed a non-strategic timberland sale of approximately 29,000 acres in Wisconsin and 17,400 acres in Arkansas to RMK Timberland Group, a timber investment management organization, for $36.1 million, which provided $0.16 of non-recurring positive EPS impact.

Q4 2011 BUSINESS PERFORMANCE

Resource

Operating income for the Resource segment in Q4 2011 was $12.6 million, compared to $12.8 million in Q4 2010 and $25.6 million in Q3 2011. The decrease from Q3 2011 was primarily due to seasonal factors as the third quarter is the Northern region's strongest production quarter.    

Northern Region      

  • Total fee harvest volume in Q4 2011 increased 8 percent over Q4 2010, due to the harvest shift to the Northern region, together with an increased demand for pulpwood.   Total fee harvest volume in Q4 2011 decreased 39 percent from Q3 2011, primarily due to normal seasonality. In addition, Q3 2011 volume was higher than it otherwise would have been as a result of our shift of a portion of the harvest to the Northern region from the Southern region to capture better pricing opportunities. 
  • Sawlog volume increased 6 percent in Q4 2011 over Q4 2010 as a result of the harvest shift between the regions. Sawlog prices increased 6 percent year-over-year due to a general strengthening of sawlog demand in Idaho.    
  • Sawlog harvest volume decreased 41 percent in Q4 2011 from Q3 2011 due to seasonal factors and the high volume in Q3 2011 mentioned above. Sawlog prices decreased 6 percent sequentially, driven by weak cedar prices coupled with a drop in the lumber price index, to which a majority of sales are tied. 
  • Pulpwood volume and prices increased 23 percent and 10 percent, respectively, in Q4 2011 over Q4 2010 due to increased demand for pulpwood in the Pacific Northwest and continued strong demand in Minnesota for hardwood pulpwood.
  • Pulpwood volume decreased 22 percent in Q4 2011 from Q3 2011 because of normal seasonal factors. Pulpwood prices increased 8 percent in Q4 2011 over Q3 2011, primarily due to improved demand for pulpwood in the Pacific Northwest resulting from a shortage of residual chips.

Southern Region

  • Total fee harvest volume decreased 7 percent in Q4 2011 from Q4 2010 as a result of the harvest reduction following the closure of a large customer's facility at the end of Q3 2011, partially offset by an increase in hardwood pulpwood harvest due to pine plantation thinnings and easier access to hardwood pulpwood stands afforded by dry logging conditions. Total fee harvest volume for the Southern region decreased 17 percent in Q4 2011 from Q3 2011 due to harvest reductions associated with the closure mentioned above, plus seasonal factors. 
  • Sawlog volume and prices decreased 25 percent and 9 percent, respectively, in Q4 2011 from Q4 2010, due to weak demand for pine sawlogs and the harvest reduction. 
  • Sawlog volume and prices decreased 18 percent and 7 percent, respectively, in Q4 2011 from Q3 2011 due to the harvest reduction and continued weak demand.
  • Pulpwood volume increased 21 percent in Q4 2011 over Q4 2010 as a result of the increase in pine plantation thinnings and the dry logging conditions that allowed access to hardwood pulpwood stands, while prices decreased 8 percent due to excess fiber availability.  
  • Pulpwood volume decreased 14 percent in Q4 2011 from Q3 2011 due to normal seasonality coupled with decreased pulpwood production resulting from the harvest reduction. Pulpwood prices increased 3 percent in Q4 2011 over Q3 2011 due to reduced availability of residual chips.

Wood Products

The Wood Products segment reported an operating loss of $1.3 million in Q4 2011 compared to an operating loss of $3.4 million in Q4 2010 and operating income of $2.9 million in Q3 2011. 

  • Lumber prices and shipment volumes increased 2 percent and 1 percent, respectively, in Q4 2011 over Q4 2010, primarily due to slightly better market conditions.
  • Lumber prices decreased 1 percent and shipment volumes decreased 3 percent in Q4 2011 compared to Q3 2011, primarily due to weaker demand. 
  • In Q4 2011, the segment recorded a negative $0.4 million mark to market adjustment related to lumber hedges, compared to a positive $2.0 million adjustment in Q3 2011 and a negative $2.9 million adjustment in Q4 2010. 

Real Estate

Real Estate segment revenues totaled $3.2 million in Q4 2011 compared to $39.1 million in Q4 2010 and $14.8 million in Q3 2011. Operating income for the segment was $2.1 million in Q4 2011 compared to $13.6 million in Q4 2010 and $9.9 million in Q3 2011. The year to year variances in revenues and operating income were due to the approximately 46,400 acre non-strategic land sale in Wisconsin and Arkansas in Q4 2010. The sequential variances in revenues and operating income were due to the third and final phase of a 5,912 acre non-strategic/rural real estate sale that occurred in Q3 2011.  While there were no large non-strategic timberland sales in Q4 2011, sales of rural real estate and HBU properties continued at a steady pace and with comparable or greater average prices per acre compared to both Q3 2011 and Q4 2010. A total of 39 rural real estate, HBU and non-strategic timberland transactions closed in Q4 2011.

Corporate

Corporate expenses were $16.5 million in Q4 2011 compared to $17.7 million in Q4 2010, primarily due to lower environmental remediation charges. Q4 2010 included a charge of $4.1 million and an additional $1.2 million was accrued for the Avery, Idaho site in Q4 2011 to reflect increased remediation cost estimates, bringing the total accrual to $6.0 million as of December 31, 2011.

2011 FULL YEAR FINANCIAL SUMMARY

  • Earnings from continuing operations for the full year 2011 were $40.3 million, or $1.00 per diluted common share, compared to $40.3 million, or $1.00 per diluted common share for the full year 2010.
  • Operating income for the Resource segment was $59.8 million in 2011 compared to $62.1 million in 2010. Total harvest volumes were 4.1 million tons in 2011 and 4.2 million tons in 2010. Harvest volumes and prices were generally higher in the Northern region and lower in the Southern region in 2011 compared to 2010.
  • Operating income for the Real Estate segment totaled $31.4 million in 2011 compared to $30.4 million in 2010. Although fewer acres were sold in 2011, the increased operating income was primarily due to the sale of lower basis non-strategic timberlands in 2011 compared to 2010. The timberland sold in Idaho in 2011 had been owned for a much longer time and thus had a much lower basis compared to the Wisconsin properties sold in 2010 that had been purchased in 2007.
  • The Wood Products segment had operating income of $7.3 million in 2011 compared to $7.1 million in 2010. Lumber shipment volumes and average prices were basically comparable between years. Lumber hedges provided earnings of $4.5 million in 2011, compared to a negative $2.9 million adjustment in 2010.
  • Corporate expenses totaled $56.4 million in 2011 compared to $56.7 million in 2010. 

Dividend Distribution

During the fourth quarter, Potlatch paid a quarterly cash dividend distribution on the company's common stock of $0.31 per share, which reflects the current dividend level for the company. 

Credit Agreement Amendment

In December 2011, the revolving credit agreement was amended, which reduced the Minimum Interest Coverage Ratio to 2.00 to 1.00 from 3.00 to 1.00 and added a Minimum Liquidity requirement of $60.0 million.   

OUTLOOK

"Our outlook for 2012 remains cautious and conservative, which is in line with our harvest and dividend reduction announced December 5th. Although there was a slight increase in housing starts late in 2011, the housing market remains depressed and we expect only a modest improvement in housing starts in 2012. In our Wood Products segment, although there has been a small near-term improvement in some markets, we expect lumber prices in 2012 to be very similar to 2011. With the continued weak housing outlook and the impact of our customer's mill closure in Arkansas, we plan to reduce our harvest volumes by 17% to approximately 3.5 million tons for 2012. In our Real Estate segment, although we do not anticipate any large non-strategic timberland sales in 2012, we will still have smaller sales of non-strategic properties. In addition, we expect a consistent level of rural and HBU sales to continue, at slightly higher prices. We remain in a position of strong liquidity with over $70 million of cash and short-term investments on our balance sheet. We have debt maturities of $22 million in the first half of 2012 that we will be able to cover with our cash on hand.  We are cautiously optimistic about our outlook as we move into 2012 and beyond, as we expect the recovery of the housing market to begin slowly in the near term but then accelerate as we move into 2013, and demand from China should continue to positively affect our business," concluded Mr. Covey.

CONFERENCE CALL INFORMATION

A live conference call and webcast will be held Tuesday, January 31, 2012, at 9 a.m. Pacific Time (noon Eastern Time). 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 40945433. Supplemental materials that will be discussed during the call will be available on our website.   

A telephone replay of the conference call will be available until February 7, 2012, 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 40945433 to access the replay.

ABOUT POTLATCH

Potlatch is a Real Estate Investment Trust (REIT) with approximately 1.44 million acres of timberland in Arkansas, Idaho and Minnesota. Potlatch, a verified 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. 

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, company outlook for 2012, housing starts in 2012, lumber demand and pricing, future harvest levels, non-strategic timberland sales in 2012, demand and pricing for rural and HBU real estate, company liquidity, 2012 debt maturities, recovery of housing market, Chinese demand,and related 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, 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 the level of construction activity; changes in tariffs, quotas and trade agreements involving wood products; changes in demand for our products, including changes in Asian demand; 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; insect infestation (including the mountain pine beetle); changes in raw material 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. These forward-looking statements are made as of the date hereof and the company does not undertake to update any forward-looking statements.

 
Potlatch Corporation
Consolidated Condensed Statements of Operations
Unaudited (Dollars in thousands, except per-share amounts)
         
  Three Months Ended Twelve Months Ended
  December 31, December 31,
  2011 2010 2011 2010
Revenues  $ 109,927  $ 146,174  $ 497,421  $ 539,447
Costs and expenses:        
Cost of goods sold  94,778  118,359  382,252  423,353
Selling, general and administrative expenses  12,081  11,439  40,549  39,347
Environmental remediation charge  1,200  4,096  1,200  4,096
Asset impairment charge  --  --  1,180  --
   108,059  133,894  425,181  466,796
Earnings from continuing operations before interest and taxes  1,868  12,280  72,240  72,651
Interest expense, net  (6,706)  (6,745)  (27,829)  (27,780)
Earnings (loss) from continuing operations before taxes  (4,838)  5,535  44,411  44,871
Income tax benefit (provision)  3,360  3,364  (4,145)  (4,596)
Earnings (loss) from continuing operations  (1,478)  8,899  40,266  40,275
Discontinued operations, net of tax  --  477  --  119
Net earnings (loss)  $ (1,478)  $ 9,376  $ 40,266  $ 40,394
         
Earnings (loss) per common share from continuing operations        
Basic  $ (0.04)  $ 0.22  $ 1.00  $ 1.01
Diluted  (0.04)  0.22  1.00  1.00
Earnings per common share from discontinued operations        
Basic  $ --   $ 0.01  $ --   $ -- 
Diluted  --   0.01  --   -- 
Net earnings (loss) per common share:        
Basic  $ (0.04)  $ 0.23  $ 1.00  $ 1.01
Diluted  (0.04)  0.23  1.00  1.00
Average shares outstanding (in thousands):        
Basic  40,195  40,021  40,159  39,971
Diluted  40,401  40,257  40,383  40,219
 
 
Potlatch Corporation
Consolidated Condensed Balance Sheets
Unaudited (Dollars in thousands, except per-share amounts)
     
  December 31, December 31,
  2011 2010
Assets    
Current assets:    
Cash  $ 7,819  $ 5,593
Short-term investments  62,989  85,249
Receivables, net  13,533  21,278
Inventories  28,603  24,375
Deferred tax assets  11,909  13,346
Other assets  9,998  11,953
Total current assets  134,851  161,794
     
Property, plant and equipment, net  61,453  67,174
Timber and timberlands, net  459,687  472,349
Deferred tax assets  57,924  49,054
Other assets  32,305  31,340
     
   $ 746,220  $ 781,711
Liabilities and Stockholders' Equity    
Current liabilities:    
Current installments on long-term debt  $ 21,661  $ 5,011
Current liability for pensions and other postretirement employee benefits  8,172  9,517
Accounts payable and accrued liabilities  47,776  51,504
Total current liabilities  77,609  66,032
     
Long-term debt  344,742  363,485
Liability for pensions and other postretirement employee benefits  163,116  129,124
Other long-term obligations  18,615  18,631
Stockholders' equity  142,138  204,439
     
   $ 746,220  $ 781,711
     
Stockholders' equity per common share  $ 3.54  $ 5.11
Working capital  $ 57,242  $ 95,762
Current ratio 1.7:1  2.5:1 
     
Certain 2010 amounts have been reclassified to conform to the 2011 presentation.
 
 
Potlatch Corporation
Consolidated Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
     
  Twelve Months Ended
  December 31,
  2011 2010
Cash Flows From Continuing Operations    
Net earnings  $ 40,266  $ 40,394
Adjustments to reconcile net earnings to net operating cash flows from continuing operations:    
Depreciation, depletion and amortization  29,092  31,204
Basis of real estate sold  10,219  48,670
Change in deferred taxes  4,218  5,427
Loss (gain) on disposition of property, plant and equipment  (131)  1,078
Employee benefit plans  (2,181)  (6,241)
Equity-based compensation expense  4,404  3,952
Asset impairment  1,180  --
Gain from discontinued operations  --  (119)
Proceeds from sales deposited with a like-kind exchange intermediary  --  (341)
Other  55  --
Funding of qualified pension plans  (9,400)  --
Working capital changes  (607)  2,049
Net cash provided by operating activities from continuing operations  77,115  126,073
Cash Flows From Investing    
Decrease (increase) in short-term investments  22,260  (31,743)
Additions to property, plant and equipment  (5,338)  (5,215)
Additions to timber and timberlands  (11,548)  (9,786)
Proceeds from disposition of property, plant and equipment  224  3,075
Other, net  (1,095)  (1,807)
Net cash provided by (used for) investing activities from continuing operations  4,503  (45,476)
Cash Flows From Financing    
Distributions to common stockholders  (73,921)  (81,578)
Payments on long-term debt  (5,011)  (11)
Issuance of common stock  1,430  2,156
Change in book overdrafts  157  2,178
Deferred financing costs  (698)  (249)
Employee tax withholdings on equity-based compensation  (1,641)  (2,075)
Other, net  292  41
Net cash used for financing activities from continuing operations  (79,392)  (79,538)
Cash flows provided by continuing operations  2,226  1,059
Cash flows provided by discontinued operations  --  3,002
Increase in cash  2,226  4,061
Cash at beginning of period  5,593  1,532
Cash at end of period  $ 7,819  $ 5,593
 
 
Potlatch Corporation
Highlights
Unaudited (Dollars in thousands, except per-share amounts)
         
  Three Months Ended Twelve Months Ended
  December 31, December 31,
  2011 2010 2011 2010
Cash distributions per common share  $ 0.31  $ 0.51 $1.84  $ 2.04
         
         
Segment Information
Unaudited (Dollars in thousands)
         
  Three Months Ended Twelve Months Ended
  December 31, December 31,
  2011 2010 2011 2010
Revenues        
Resource  $ 54,382  $ 53,118  $ 226,969  $ 225,834
Real Estate  3,221  39,069  50,029  85,226
Wood Products  67,237  64,055  271,580  273,887
   124,840  156,242  548,578  584,947
Intersegment revenues - Resource  (14,913)  (10,068)  (51,157)  (45,500)
         
Total consolidated revenues  $ 109,927  $ 146,174  $ 497,421  $ 539,447
         
         
Operating income (loss)        
Resource  $ 12,584  $ 12,824  $ 59,792  $ 62,107
Real Estate  2,089  13,622  31,384  30,425
Wood Products  (1,281)  (3,436)  7,267  7,140
Eliminations and adjustments  (1,750)  222  2,410  1,900
   11,642  23,232  100,853  101,572
Corporate  (16,480)  (17,697)  (56,442)  (56,701)
         
Earnings (loss) from continuing operations before taxes  $ (4,838)  $ 5,535  $ 44,411  $ 44,871
         
         
Depreciation, depletion and amortization        
Resource  $ 3,569  $ 4,592  $ 17,420  $ 20,481
Real Estate  7  --   28  -- 
Wood Products  1,923  2,000  7,829  8,188
   5,499  6,592  25,277  28,669
Corporate  677  755  3,815  2,535
         
Total depreciation, depletion and amortization  $ 6,176  $ 7,347  $ 29,092  $ 31,204
         
         
Basis of real estate sold - Real Estate  $ 213  $ 23,178  $ 13,500  $ 48,670
Eliminations and adjustments  (47)  --   (3,281)  -- 
         
Total basis of real estate sold - Real Estate  $ 166  $ 23,178  $ 10,219  $ 48,670
CONTACT: (Investors)

         Eric Cremers

         509.835.1521

         

         (Media)

         Mark Benson

         509.835.1513


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