SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1994 Commission file number 1-5313
POTLATCH CORPORATION
(Exact name of registrant as specified in its charter)
A Delaware Corporation 82-0156045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Maritime Plaza
San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 576-8800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes[X] No[ ]
The number of shares of common stock outstanding as of June 30, 1994:
29,217,181 shares of Common Stock, par value $1 per share.
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Index to Form 10-Q
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Statements of Earnings for the quarter and six
months ended June 30, 1994 and 1993 2
Condensed Balance Sheets at June 30, 1994
and December 31, 1993 3
Condensed Statements of Cash Flows for the six
months ended June 30, 1994 and 1993 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5 - 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security
Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
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<TABLE>
PART I
Item 1. Financial Statements
Potlatch Corporation and Consolidated Subsidiaries
Statements of Earnings
Unaudited (Dollars in thousands - except per-share amounts)
________________________________________________________________________
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $345,120 $326,624 $710,402 $688,167
- ------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 34,387 30,221 69,410 58,589
Materials, labor and other
operating expenses 270,982 262,202 551,333 528,668
Selling, general and
administrative expenses 20,915 19,634 40,429 41,116
- ------------------------------------------------------------------------
326,284 312,057 661,172 628,373
- ------------------------------------------------------------------------
Earnings from operations 18,836 14,567 49,230 59,794
Interest expense (12,562) (11,724) (25,305) (22,026)
Interest and dividend income 85 481 224 787
Other income (expense), net 3,403 1,052 (5,816) 1,000
- ------------------------------------------------------------------------
Earnings before taxes on
income and cumulative
effect of accounting
changes 9,762 4,376 18,333 39,555
Provision for taxes on
income (Note 2) 3,710 1,618 6,967 14,635
- ------------------------------------------------------------------------
Net earnings before cumulative
effect of accounting changes 6,052 2,758 11,366 24,920
Cumulative effect of
accounting changes for post-
retirement benefits and income
taxes, net of tax - - - (31,704)
- ------------------------------------------------------------------------
Net earnings (loss) $ 6,052 $ 2,758 $ 11,366 $ (6,784)
========================================================================
Net earnings (loss) per common
share (Note 3):
Before accounting changes $ .21 $ .09 $ .39 * $ .85
After accounting changes .21 .09 .39 * (.24)
Dividends per common share
(annual rate) 1.56 1.50 1.56 1.50
Average shares outstanding
(in thousands) 29,214 29,184 29,213 29,178
- ------------------------------------------------------------------------
<FN>
* Includes a charge of $.21 per common share for early retirement programs
in the first quarter of 1994.
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Balance Sheets
1994 amounts unaudited (Dollars in thousands -
except per-share amounts)
___________________________________________________________________________
<CAPTION>
June 30, December 31,
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 6,283 $ 6,813
Short-term investments 48,160 20,421
Receivables, net 116,952 118,601
Inventories (Note 4) 148,912 155,560
Prepaid expenses 26,239 25,758
- ---------------------------------------------------------------------------
Total current assets 346,546 327,153
Land, other than timberlands 9,112 9,105
Plant and equipment, at cost less
accumulated depreciation 1,322,351 1,340,028
Timber, timberlands and related
logging facilities 345,795 343,044
Other assets 30,379 66,322
- ---------------------------------------------------------------------------
$2,054,183 $2,085,652
===========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable (Note 5) $ 20,000 $ -
Current installments on long-term debt 18,807 7,057
Accounts payable and accrued liabilities 192,783 190,958
- ---------------------------------------------------------------------------
Total current liabilities 231,590 198,015
Long-term debt 637,292 707,131
Other long-term obligations 133,963 120,388
Deferred taxes 142,545 140,454
Stockholders' equity 908,793 919,664
- ---------------------------------------------------------------------------
$2,054,183 $2,085,652
===========================================================================
Stockholders' equity per common share $31.10 $31.50
Working capital $114,956 $129,138
Current ratio 1.5:1 1.7:1
- ---------------------------------------------------------------------------
<FN>
December 31, 1993 amounts have been restated to conform to the 1994 presentation
in which bank overdrafts are classified as a current liability.
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
___________________________________________________________________________
<CAPTION>
Six Months Ended
June 30
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings (loss) $ 11,366 $ (6,784)
Adjustments to reconcile net earnings (loss)
to cash provided by operations:
Cumulative effect of accounting changes - 31,704
Depreciation, amortization and cost of
fee timber harvested 69,410 58,589
Deferred taxes 2,091 6,000
Working capital changes 4,815 20,618
Other, net (1,167) (324)
- ---------------------------------------------------------------------------
Net cash provided by operations 86,515 109,803
- ---------------------------------------------------------------------------
Cash Flows From Financing
Change in bank overdrafts 4,826 (3,448)
Proceeds from long-term debt - 5,124
Repayment of long-term debt (38,089) (1,968)
Issuance of treasury stock 386 864
Dividends (22,785) (21,883)
- ---------------------------------------------------------------------------
Net cash used for financing (55,662) (21,311)
- ---------------------------------------------------------------------------
Cash Flows From Investing
Decrease (increase) in short-term investments 10,533 (16,056)
Additions to plant and properties (48,351) (77,437)
Disposition of plant and properties 2,448 763
Other, net 3,987 (6,252)
- ---------------------------------------------------------------------------
Net cash used for investing (31,383) (98,982)
- ---------------------------------------------------------------------------
Decrease in cash (530) (10,490)
Balance at beginning of period 6,813 16,708
- ---------------------------------------------------------------------------
Balance at end of period $ 6,283 $ 6,218
===========================================================================
<FN>
Net interest payments (net of amounts capitalized) for the six months ended
June 30, 1994 and 1993 were $24.1 million and $20.4 million, respectively. Net
income tax payments for the six months ended June 30, 1994 and 1993 were $8.1
million and $10.3 million, respectively.
The accompanying notes are an integral part of these financial statements.
</TABLE>
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Potlatch Corporation and Consolidated Subsidiaries
Notes to Financial Statements
(Dollars in thousands)
_______________________________________________________________________
NOTE 1. GENERAL - The accompanying condensed balance sheets at June 30,
1994 and December 31, 1993, and the statements of earnings for the
quarter and six months ended June 30, 1994 and 1993, and the condensed
statements of cash flows for the six months ended June 30, 1994 and
1993, have been prepared in conformity with generally accepted
accounting principles. The management of Potlatch Corporation (the
"company") believes that all adjustments necessary for a fair statement
of the results of such interim periods have been included.
NOTE 2. INCOME TAX - The provision for taxes on income has been
computed by applying an estimated annual effective tax rate. This rate
was 38 percent for 1994, compared with 37 percent in 1993.
NOTE 3. EARNINGS PER COMMON SHARE - Earnings per common share are
computed by dividing net earnings by the weighted average number of
common shares outstanding. Common stock equivalents which would arise
from the exercise of stock options were not included in the weighted
average because of immateriality.
NOTE 4. INVENTORIES - Inventories at the balance sheet dates consist
of:
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
------------- -----------------
<S> <C> <C>
Raw materials $ 78,500 $ 86,508
Work in process 6,746 4,809
Finished goods 63,666 64,243
-------- --------
$148,912 $155,560
======== ========
</TABLE>
NOTE 5. NOTES PAYABLE - Notes payable at June 30, 1994 represent the
portion of the company's outstanding commercial paper which it intends
to retire within one year. The amount presented, $20.0 million, was
reclassified from long-term debt in the second quarter of 1994.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Funding
Net cash provided by operations for the first six months of 1994, as
presented in the Condensed Statements of Cash Flows on page 4, totaled
$86.5 million, compared with $109.8 million for the same period in 1993.
The company's ratio of long-term debt to stockholders' equity was
.70 to 1 at June 30, 1994, compared with .77 to 1 at December 31, 1993.
The decrease in the ratio was primarily due to a decrease of $33.0
million in commercial paper outstanding and the reclassification of
$20.0 million of the remaining amount of outstanding commercial paper
from long-term to current due to the company's intent to retire this
amount within a year. The company also reclassified $15.0 million of
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its medium-term notes from long-term to current due to their maturity
within one year.
Working capital of $115.0 million at June 30, 1994, decreased $14.1
million from December 31, 1993. Increases of $20.0 million in notes
payable, as discussed previously, and $11.8 million in current
installments on long-term debt combined with a decrease of $6.6 million
in inventories were largely responsible for the decline. The effect of
these changes was partially offset by a $27.7 million increase in short-
term investments. Short-term investments increased due to a
reclassification of assets previously classified as long-term, which
will mature within one year.
Capital expenditures totaled $48.4 million for the first six months
of 1994. Of this amount, the company spent $16.5 million in the wood
products segment, which included expenditures for the replacement of a
company sawmill in Warren, Arkansas. The company spent $9.9 million in
the printing papers segment, including expenditures for the continued
modernization and expansion of the company's pulp mill in Cloquet,
Minnesota. Spending in the other pulp-based products segment totaled
$21.7 million. A significant portion of this total related to the
rebuild of a tissue machine at the Consumer Products Division's
Lewiston, Idaho facility.
<TABLE>
Results of Operations
A summary of period-to-period changes in items included in the
statements of earnings is presented on page 8 of this Form 10-Q.
______________________________________________________________________
Segment Information (Dollars in thousands)
______________________________________________________________________
<CAPTION>
Second Quarter Six Months
1994 1993 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Wood products $129,766 $121,184 $270,938 $256,618
Printing papers 91,148 87,467 193,264 186,235
Other pulp-based products 124,206 117,973 246,200 245,314
- ----------------------------------------------------------------------
Total net sales $345,120 $326,624 $710,402 $688,167
======================================================================
Operating Income
Wood products $ 35,891 $ 40,619 $ 82,334 $ 91,977
Printing papers 6,787 (1,934) 15,246 989
Other pulp-based products (15,802) (17,960) (44,315) (19,217)
- ----------------------------------------------------------------------
26,876 20,725 53,265 73,749
Corporate (17,114) (16,349) (34,932) (34,194)
- ----------------------------------------------------------------------
Earnings before taxes on
income and cumulative effect
of accounting changes $ 9,762 $ 4,376 $ 18,333 $ 39,555
======================================================================
</TABLE>
Higher earnings for the second quarter of 1994 were due to improved
results for the company's pulp-based businesses. Net earnings increased
to $6.1 million for the second quarter, up from 1993's $2.8 million.
Earnings per common share were $.21, compared with $.09 reported for the
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second quarter of 1993. Net sales were $345.1 million, compared with
$326.6 million in 1993's second quarter.
Net earnings for the first half of 1994 were $11.4 million, or $.39
per common share, which included a $.21 per share charge for early
retirement programs. Comparatively, earnings for the first half of
1993, before accounting changes, were $24.9 million, or $.85 per common
share. After accounting changes for postretirement benefits and income
taxes, the company posted a 1993 first half net loss and loss per common
share of $6.8 million and $.24, respectively. Net sales for the first
half of 1994 were $710.4 million, compared with $688.2 million a year
ago.
Depreciation, amortization and cost of Potlatch timber harvested
totaled $69.4 million for the first half of 1994, an 18 percent increase
over the $58.6 million reported in 1993's first half.
The Wood Products Group reported earnings of $35.9 million for the
second quarter of 1994, down from 1993's $40.6 million. The decline in
earnings was attributable to accelerated depreciation associated with
the replacement of equipment at the Lewiston, Idaho, sawmill and start-
up costs of the new sawmill in Warren, Arkansas. The new sawmill
experienced considerable downtime during the quarter primarily due to
equipment-related operating problems and was also shut down for a day
late in the second quarter as a result of an electrical outage.
The Northwest Paper Division reported second quarter earnings of
$6.8 million, compared with a loss of $1.9 million in 1993. The results
reflect a combination of improved production, lower costs and higher
shipments. Sales realizations for coated papers improved from the first
quarter of 1994, but remained relatively unchanged overall from the
second quarter of 1993. Although both periods included normal annual
maintenance shutdowns, the earnings comparison was favorably affected by
a change in accounting for these shutdowns in 1994. The related costs
are now being accrued over the entire year.
The other pulp-based businesses, which include the Pulp and
Paperboard Group and the Consumer Products Division, reported a second
quarter loss of $15.8 million, compared with a loss of $18.0 million
last year. The improvement was due in large part to the absence of the
extended shutdown of the Lewiston pulp mill, which occurred in the
second quarter of 1993, and the start-up problems that followed. Market
conditions for pulp and tissue products improved slightly during the
quarter. The rise in pulp prices allowed the company to begin selling
market pulp. Sales of market pulp had been curtailed since late 1993.
Sales realizations were lower for paperboard compared with the prior
year but began to improve near the end of the quarter. The electrical
outage that reduced earnings for wood products also hampered results at
the Arkansas pulp and paperboard facility.
"Interest expense" for the second quarter and first half of 1994
increased primarily due to a reduction in the amount of interest
capitalized on long-term construction projects.
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<TABLE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Changes in Statements of Earnings
(Dollars in thousands)
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
--------------------- ------------------------
Increase Increase
1994 1993 (Decrease) 1994 1993 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $345,120 $326,624 6% $710,402 $688,167 3%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 34,387 30,221 14% 69,410 58,589 18%
Materials, labor and other
operating expenses 270,982 262,202 3% 551,333 528,668 4%
Selling, general and
administrative expenses 20,915 19,634 7% 40,429 41,116 (2%)
Earnings from operations 18,836 14,567 29% 49,230 59,794 (18%)
Interest expense (12,562) (11,724) 7% (25,305) (22,026) 15%
Interest and dividend income 85 481 (82%) 224 787 (72%)
Other income, net 3,403 1,052 * (5,816) 1,000 *
Provision for taxes on income 3,710 1,618 129% 6,967 14,635 (52%)
Net earnings before cumulative
effect of accounting changes 6,052 2,758 119% 11,366 24,920 (54%)
Change in accounting for
postretirement benefits
and income taxes, net of tax - - * - (31,704) *
Net earnings (loss) 6,052 2,758 119% 11,366 (6,784) *
<FN>
* Not a meaningful figure.
</TABLE>
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PART II
ITEM 1. Legal Proceedings
In June 1994, the company received a Notice of Violation ("NOV")
issued by the Idaho Department of Health and Welfare ("IDHW") alleging
41 violations of State of Idaho environmental laws relating to air
quality at the company's facilities in Lewiston, Idaho. Many of the
alleged violations include continuing violations over a period of time.
The IDHW also submitted a list of 14 alleged federal New Source
Performance Standard violations. The aggregate penalty proposed for
settlement of all of the alleged state and federal violations is
approximately $2.7 million. The company believes it has legal and
equitable defenses to many of the alleged violations and has held
initial settlement discussions with the IDHW and the United States
Environmental Protection Agency ("EPA"). The company will continue to
discuss settlement of all outstanding issues.
As reported in its Report on Form 10-Q for the Quarter ended
September 30, 1993, the company received a NOV from the EPA, Region 5,
in August 1993. The NOV alleged that the company commenced construction
of its three oriented strand board plants in Bemidji, Cook and Grand
Rapids, Minnesota, prior to obtaining permits pursuant to regulations to
prevent the significant deterioration of air quality in any area which
has attained the National Ambient Air Quality Standards. The
allegations contained in the NOV arise from the same facts and are the
same allegations as set forth in NOVs previously issued to the company
by the Minnesota Pollution Control Agency ("MPCA"). In early January
1994, the company entered into an agreement with the MPCA which resolved
the alleged violations under the NOVs issued by the MPCA. Pursuant to
the agreement the company will install improved pollution control
equipment at all three plants in phases starting with the installation
of improved pollution control equipment at the Grand Rapids plant during
1994. The agreement did not resolve the allegations of the EPA set
forth in the August 1993, NOV. In July 1994, the EPA informed the
company that it will refer the matter to the United States Department of
Justice to commence a civil enforcement action against the company. The
company believes that it has legal and equitable defenses which would
defeat the alleged violations or minimize the amount of any civil
penalties.
The company believes that adequate provision has been made for any
amounts which may be paid as a result of the alleged violations
described above.
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ITEM 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the company held on May 19,
1994, the company's stockholders voted in favor of the election of five
directors to the company's Board of Directors and the ratification of
KPMG Peat Marwick as the company's independent auditors for 1994. There
were 61,052,337 votes represented which equaled 89.5 percent of the
total outstanding votes of 68,223,157. The number of votes for, against
or withheld, as well as the number of abstentions, as applicable, as to
each matter approved at the annual meeting of stockholders were as
follows:
Proposal No. 1 For Withheld
Election of 5 Directors
Richard B. Madden 60,835,458 216,879
Richard M. Morrow 60,742,747 309,590
John M. Richards 60,837,595 214,742
Reuben F. Richards 60,829,959 222,378
Frederick T. Weyerhaeuser 60,838,097 214,240
Proposal No. 2 For Against Abstain
Ratification of Selection
of Independent Auditors 60,806,782 44,336 201,219
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
The exhibit index is located on page 11 of this Form 10-Q.
Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended June
30, 1994.
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SIGNATURES
Pursuant to the requirements 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.
POTLATCH CORPORATION
(Registrant)
By G. E. Pfautsch
------------------------------
G. E. Pfautsch
Senior Vice President, Finance
(Duly Authorized; Principal
Financial Officer)
By T. L. Carter
------------------------------
T. L. Carter
Controller
(Duly Authorized; Principal
Accounting Officer)
Date: August 2, 1994
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POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Exhibit Index
Exhibit
PART II
(4) Registrant undertakes to file with the Securities and
Exchange Commission, upon request, any instrument with
respect to long-term debt.
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