OREANDA-NEWS. Potlatch Corporation (Nasdaq:PCH) today reported a net loss of $31.3 million, or $0.77 per diluted share, on revenues of $141.5 million for the quarter ended June 30, 2016.  Excluding the after-tax loss of $36.7 million on the previously announced sale of 172,000 acres in central Idaho, net income was $5.4 million, or $0.13 per diluted share, in the second quarter.  Net income was $0.7 million, or $0.02 per diluted share, on revenues of $128.7 million in the second quarter of 2015.

"Our solid second quarter results were driven by favorable hauling conditions in northern Idaho, a meaningful increase in lumber prices and the early completion of a conservation real estate transaction," said Mike Covey, chairman and chief executive officer. "Proceeds from the central Idaho timberlands sale that we announced in April were used to pay $42.6 million of debt and repurchase almost 170,000 common shares at an average price of $35 per share.  We expect seasonally higher harvest volumes and sawlog prices along with increased lumber shipments and prices to drive strong third quarter results," stated Mr. Covey.

Financial Highlights (in millions, except per share data)

    Q2 2016     Q1 2016     Q2 2015  
Revenues   $ 141.5     $ 127.9     $ 128.7  
Net income (loss)   $ (31.3 )   $ 0.2     $ 0.7  
Net income (loss) per diluted share   $ (0.77 )   $ —     $ 0.02  
Distribution per share   $ 0.375     $ 0.375     $ 0.375  
Net cash from operations   $ 16.8     $ 28.9     $ (7.7 )
Cash and short-term investments at end of period   $ 65.4     $ 7.8     $ 10.6  
                         

Reconciliation of Q2 2016 Earnings (in millions, except per share data)

    Amount     Per Share  
Net income (loss)   $ (31.3 )   $ (0.77 )
Net loss on sale of central Idaho timberland     36.7       0.90  
Net income, as adjusted   $ 5.4     $ 0.13  
                 

Business Performance: Q2 2016 vs. Q1 2016

Resource

Resource’s operating income was $15.7 million on revenues of $54.8 million in the second quarter, compared to operating income of $10.2 million on revenues of $48.7 million in the first quarter of 2016. Harvest volumes were higher than typical in the North in the second quarter due to drier than normal conditions. Northern sawlog prices were 14% higher in the second quarter. Prices realized for sawlogs in the South increased 6% primarily due to a seasonally higher mix of hardwood logs.

Wood Products

Wood Products earned $4.7 million on revenues of $90.9 million in the second quarter, compared to operating income of $1.0 million on revenues of $83.2 million in the first quarter of 2016.  Average lumber prices were 8% higher and lumber shipments were 5% higher in the second quarter compared to the first quarter.  Our Warren, Arkansas sawmill took 12 days of downtime in the second quarter for a capital project and annual boiler maintenance.

Real Estate

Excluding the central Idaho timberland sale, Real Estate’s operating income was $5.0 million on revenues of $10.0 million in the second quarter, compared to operating income of $2.1 million on revenues of $5.6 million in the first quarter of 2016.  More acres were sold in the second quarter at a higher average sales price, compared to the first quarter.

Other

The following notable items also occurred during the second quarter:

  • Potlatch recorded an after-tax loss of $36.7 million, or $0.90 per diluted share, on the sale of 172,000 acres of timberland in central Idaho on April 21, 2016.
  • Proceeds from the sale were used to redeem $42.6 million of 5.9% revenue bonds on June 6, 2016.  The bonds were due October 1, 2026.
  • Potlatch also repurchased 169,625 of its common shares during the quarter at an average price of $35.08 per share.
  • An after-tax charge of $0.5 million was recorded in connection with an Environmental Protection Agency claim for unreimbursed costs related to a northern Idaho environmental remediation project that was completed in 2013.

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.

 
Potlatch Corporation
Consolidated Statements of Income (Loss)
Unaudited (Dollars in thousands, except per share amounts)
 
    Quarters Ended June 30,     Six Months Ended June 30,  
    2016     2015     2016     2015  
Revenues   $ 141,495     $ 128,747     $ 269,391     $ 262,872  
Costs and expenses:                                
Cost of goods sold     113,377       109,441       223,192       217,213  
Selling, general and administrative expenses     13,824       11,995       26,833       24,321  
Loss on sale of central Idaho timber and timberlands     48,522       —       48,522       —  
      175,723       121,436       298,547       241,534  
Operating income (loss)     (34,228 )     7,311       (29,156 )     21,338  
Interest expense, net     (8,206 )     (8,016 )     (14,231 )     (16,085 )
Income (loss) before income taxes     (42,434 )     (705 )     (43,387 )     5,253  
Income tax benefit     11,196       1,416       12,306       1,114  
Net income (loss)   $ (31,238 )   $ 711     $ (31,081 )   $ 6,367  
                                 
Net income (loss) per share:                                
Basic   $ (0.77 )   $ 0.02     $ (0.76 )   $ 0.16  
Diluted   $ (0.77 )   $ 0.02     $ (0.76 )   $ 0.16  
Dividends per share   $ 0.375     $ 0.375     $ 0.75     $ 0.75  
Weighted-average shares outstanding (in thousands):                                
Basic     40,784       40,843       40,837       40,822  
Diluted     40,784       40,963       40,837       40,933  
                                 
 
Potlatch Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in thousands)
 
    June 30, 2016     December 31, 2015  
ASSETS                
Current assets:                
Cash   $ 25,301     $ 7,886  
Short-term investments     40,077       39  
Receivables, net     22,531       13,420  
Inventories     30,045       35,162  
Other assets     17,162       14,246  
Total current assets     135,116       70,753  
Property, plant and equipment, net     74,558       75,285  
Timber and timberlands, net     643,814       816,599  
Deferred tax assets, net     51,569       46,600  
Other assets     9,088       7,375  
Total assets   $ 914,145     $ 1,016,612  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Revolving line of credit borrowings   $ —     $ 30,000  
Current portion of long-term debt     5,082       5,007  
Accounts payable and accrued liabilities     48,290       39,740  
Current portion of pension and other postretirement employee benefits     5,973       5,973  
Total current liabilities     59,345       80,720  
Long-term debt     581,205       598,874  
Pension and other postretirement employee benefits     119,590       119,369  
Other long-term obligations     13,462       13,913  
Total liabilities     773,602       812,876  
Commitments and contingencies                
Stockholders' equity:                
Common stock, $1 par value     40,519       40,681  
Additional paid-in capital     352,497       350,541  
Accumulated deficit     (140,351 )     (72,983 )
Accumulated other comprehensive loss     (112,122 )     (114,503 )
Total stockholders’ equity     140,543       203,736  
Total liabilities and stockholders' equity   $ 914,145     $ 1,016,612  
                 

 

 
Potlatch Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
 
    Six Months Ended June 30,  
    2016     2015  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income (loss)   $ (31,081 )   $ 6,367  
Adjustments to reconcile net income (loss) to net cash from operating activities:                
Depreciation, depletion and amortization     16,474       15,597  
Basis of real estate sold     5,421       1,008  
Change in deferred taxes     (6,784 )     (1,707 )
Employee benefit plans     6,416       3,166  
Equity-based compensation expense     2,176       2,259  
Loss on sale of central Idaho timber and timberlands     48,522       —  
Other, net     (1,280 )     (5,496 )
Working capital and operating-related activities, net     5,797       (4,538 )
Net cash from operating activities     45,661       16,656  
CASH FLOWS FROM INVESTING ACTIVITIES                
Change in short-term investments     (40,038 )     24,537  
Property, plant and equipment     (3,488 )     (12,248 )
Timberlands reforestation and roads     (5,544 )     (6,004 )
Acquisition of timber and timberlands     (1,161 )     —  
Net proceeds from sale of central Idaho timber and timberlands     111,460       —  
Other, net     109       433  
Net cash from investing activities     61,338       6,718  
CASH FLOWS FROM FINANCING ACTIVITIES                
Dividends to common stockholders     (30,453 )     (30,507 )
Repayment of revolving line of credit borrowings     (30,000 )     —  
Revolving line of credit borrowings     —       15,000  
Repayment of long-term debt     (47,600 )     —  
Proceeds from issuance of long-term debt     27,500       —  
Repurchase of common stock     (5,956 )     —  
Change in book overdrafts     (2,836 )     (2,246 )
Employee tax withholdings on vested performance share awards     (102 )     (1,445 )
Other, net     (137 )     (37 )
Net cash from financing activities     (89,584 )     (19,235 )
Increase in cash     17,415       4,139  
Cash at beginning of period     7,886       4,644  
Cash at end of period   $ 25,301     $ 8,783  
                 

 

 
Potlatch Corporation
Segment Information
Unaudited (Dollars in thousands)
 
     Quarters Ended June 30,     Six Months Ended June 30,  
(Dollars in thousands)   2016     2015     2016     2015  
Revenues:                                
Resource   $ 54,826     $ 44,111     $ 103,536     $ 98,066  
Wood Products     90,924       84,191       174,162       173,424  
Real Estate     9,954       10,745       15,520       13,856  
      155,704       139,047       293,218       285,346  
Elimination of intersegment revenues - Resource     (14,209 )     (10,300 )     (23,827 )     (22,474 )
Total consolidated revenues   $ 141,495     $ 128,747     $ 269,391     $ 262,872  
                                 
Operating income (loss):                                
Resource   $ 15,672     $ 8,797     $ 25,879     $ 23,775  
Wood Products     4,695       (1,953 )     5,651       1,547  
Real Estate1     (43,429 )     8,521       (41,354 )     10,120  
Eliminations and adjustments     (969 )     539       496       3,514  
      (24,031 )     15,904       (9,328 )     38,956  
Corporate     (10,197 )     (8,593 )     (19,828 )     (17,618 )
Operating income (loss)     (34,228 )     7,311       (29,156 )     21,338  
Interest expense, net     (8,206 )     (8,016 )     (14,231 )     (16,085 )
Income (loss) before income taxes   $ (42,434 )   $ (705 )   $ (43,387 )   $ 5,253  
                                 
Depreciation, depletion and amortization:                                
Resource   $ 5,387     $ 4,797     $ 11,515     $ 11,051  
Wood Products     1,800       1,661       3,701       3,237  
Real Estate     1       15       3       30  
      7,188       6,473       15,219       14,318  
Corporate     213       251       421       535  
Bond discounts and deferred loan fees     468       369       834       744  
Total depreciation, depletion and amortization   $ 7,869     $ 7,093     $ 16,474     $ 15,597  
                                 
Basis of real estate sold:                                
Real Estate   $ 3,509     $ 710     $ 5,754     $ 1,181  
Eliminations and adjustments     (122 )     (110 )     (333 )     (173 )
Total basis of real estate sold   $ 3,387     $ 600     $ 5,421     $ 1,008  
 
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.