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 September 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 September 30,
1994: 29,223,181 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 nine
months ended September 30, 1994 and 1993 2
Condensed Balance Sheets at September 30, 1994
and December 31, 1993 3
Condensed Statements of Cash Flows for the nine
months ended September 30, 1994 and 1993 4
Notes to Financial Statements 5
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 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 Nine Months Ended
September 30 September 30
1994 1993 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $373,324 $338,223 $1,083,726 $1,026,390
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 35,016 33,132 104,426 91,721
Materials, labor and other
operating expenses 287,014 273,323 838,347 801,991
Selling, general and
administrative expenses 22,488 19,615 62,917 60,731
- -------------------------------------------------------------------------------
344,518 326,070 1,005,690 954,443
- -------------------------------------------------------------------------------
Earnings from operations 28,806 12,153 78,036 71,947
Interest expense (12,862) (11,890) (38,167) (33,916)
Interest and dividend income 54 345 278 1,132
Other income (expense), net 1,040 1,750 (4,776) 2,750
- -------------------------------------------------------------------------------
Earnings before taxes on
income and cumulative
effect of accounting
changes 17,038 2,358 35,371 41,913
Provision for taxes
on income (Note 2) 6,297 4,537 13,264 19,172
- -------------------------------------------------------------------------------
Net earnings (loss) before
cumulative effect of
accounting changes 10,741 (2,179) 22,107 22,741
Cumulative effect of
accounting changes for post-
retirement benefits and
income taxes, net of tax - - - (31,704)
- -------------------------------------------------------------------------------
Net earnings (loss) $ 10,741 $ (2,179) $ 22,107 $ (8,963)
Net earnings (loss) per common
share (Note 3):
Before accounting changes * $ .37 $(.07) $ .76 $ .78
After accounting changes * .37 (.07) .76 (.31)
Dividends per common share
(annual rate) 1.56 1.50 1.56 1.50
Average shares outstanding
(in thousands) 29,220 29,186 29,215 29,180
- -------------------------------------------------------------------------------
<FN>
*Nine months 1994 includes a charge of $.21 per common share for early
retirement programs in the first quarter of 1994. Third quarter 1993
includes the effects of a one percent federal tax increase, which had
a negative effect of $.13 per common share.
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>
September 30, December 31,
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 8,209 $ 6,813
Short-term investments 43,214 20,421
Receivables, net 129,619 118,601
Inventories (Note 4) 147,967 155,560
Prepaid expenses 25,640 25,758
- ---------------------------------------------------------------------------
Total current assets 354,649 327,153
Land, other than timberlands 9,069 9,105
Plant and equipment, at cost less
accumulated depreciation 1,319,322 1,340,028
Timber, timberlands and related
logging facilities 346,475 343,044
Other assets 31,654 66,322
- ---------------------------------------------------------------------------
$2,061,169 $2,085,652
===========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 12,000 $ -
Current installments on long-term debt 18,808 7,057
Accounts payable and accrued liabilities 203,404 190,958
- ---------------------------------------------------------------------------
Total current liabilities 234,212 198,015
Long-term debt 637,004 707,131
Other long-term obligations 137,193 120,388
Deferred taxes 144,433 140,454
Stockholders' equity 908,327 919,664
- ---------------------------------------------------------------------------
$2,061,169 $2,085,652
===========================================================================
Stockholders' equity per common share $31.08 $31.50
Working capital $120,437 $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>
Nine Months Ended
September 30
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings (loss) $ 22,107 $ (8,963)
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 104,426 91,721
Deferred taxes 3,979 8,116
Working capital changes 2,647 22,708
Other, net (1,703) (400)
- ---------------------------------------------------------------------------
Net cash provided by operations 131,456 144,886
- ---------------------------------------------------------------------------
Cash Flows From Financing
Change in bank overdrafts 6,492 11,679
Proceeds from long-term debt - 5,124
Repayment of long-term debt (46,376) (2,159)
Issuance of treasury stock 514 948
Dividends (34,180) (32,827)
- ---------------------------------------------------------------------------
Net cash used for financing (73,550) (17,235)
- ---------------------------------------------------------------------------
Cash Flows From Investing
Decrease (increase) in short-term investments 15,479 (9,292)
Additions to plant and properties (77,150) (115,549)
Disposition of plant and properties 3,339 1,105
Other, net 1,822 (14,143)
- ---------------------------------------------------------------------------
Net cash used for investing (56,510) (137,879)
- ---------------------------------------------------------------------------
Increase (decrease) in cash 1,396 (10,228)
Balance at beginning of period 6,813 16,708
- ---------------------------------------------------------------------------
Balance at end of period $ 8,209 $ 6,480
===========================================================================
<FN>
Net interest payments (net of amounts capitalized) for the nine months ended
September 30, 1994 and 1993 were $27.4 million and $22.4 million, respectively.
Net income tax payments for the nine months ended September 30, 1994 and 1993
were $12.8 million and $11.4 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
September 30, 1994 and December 31, 1993, and the statements of earnings
for the quarter and nine months ended September 30, 1994 and 1993, and
the condensed statements of cash flows for the nine months ended
September 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 37.5 percent for 1994 and 38 percent for 1993. The third quarter
provision for 1994 reflects the adjustment of the tax rate to 37.5
percent from 38 percent used for the first half.
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>
September 30, 1994 December 31, 1993
------------------ -----------------
<S> <C> <C>
Raw materials $ 89,566 $ 86,508
Work in process 6,668 4,809
Finished goods 51,733 64,243
-------- --------
$147,967 $155,560
======== ========
</TABLE>
NOTE 5. CHANGE IN ACCOUNTING PRACTICE - In January 1994, the company
began accruing for normal annual maintenance shutdowns over the entire
year. Previously, these costs were expensed as incurred. While this
change in accounting practice has no effect on an annual basis, it does
affect the comparability of interim periods as prior year interim
periods have not been restated. The effect of the change by quarter for
1994 was to decrease earnings before taxes $3.7 million for the first
quarter and $.7 million for the second quarter, and increase earnings
before taxes $9.1 million for the third quarter.
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<PAGE>
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 nine months of 1994,
as presented in the Condensed Statements of Cash Flows on page 4,
totaled $131.5 million, compared with $144.9 million for the same
period in 1993.
The company's ratio of long-term debt to stockholders' equity was
.70 to 1 at September 30, 1994, compared with .77 to 1 at December 31,
1993. The decrease in the ratio was primarily due to repayment of $33.0
million of commercial paper outstanding and the reclassification in June
1994 of $20.0 million of commercial paper to current notes payable based
on the company's intent to retire this amount within a year. The
company also reclassified $15.0 million of its medium-term notes from
long-term to current due to their maturity within one year.
Working capital of $120.4 million at September 30, 1994, decreased
$8.7 million from December 31, 1993. Increases of $12.0 million in
notes payable, $11.8 million in current installments on long-term debt,
and $12.4 million in accounts payable and accrued liabilities combined
with a decrease of $7.6 million in inventories were largely responsible
for the decline. The effect of these changes was partially offset by a
$22.8 million increase in short-term investments and $11.0 million
increase in receivables. Short-term investments increased due to a
reclassification of assets previously classified as long-term, which
will mature within one year.
Capital expenditures totaled $77.2 million for the first nine months
of 1994. Of this amount, the company spent $26.5 million in the wood
products segment, which included expenditures for the replacement of a
company sawmill in Warren, Arkansas and log processing equipment at the
Lewiston, Idaho, sawmill. The company spent $17.8 million in the
printing papers segment, including expenditures for the continued
modernization and expansion of the company's pulp mill in Cloquet,
Minnesota and the rebuild of a paper machine at the company's Brainerd,
Minnesota, facility. Spending in the other pulp-based products segment
totaled $32.5 million. A significant portion of this total related to
the rebuild of a tissue machine at the Consumer Products Division's
Lewiston, Idaho, facility and the expansion of the warehouse at the Las
Vegas, Nevada, tissue converting facility.
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<TABLE>
Results of Operations
A summary of period-to-period changes in items included in the
statements of earnings is presented on page 9 of this Form 10-Q.
Segment Information (Dollars in thousands)
_________________________________________________________________________
<CAPTION>
Third Quarter Nine Months
1994 1993 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Wood products $140,862 $118,144 $ 411,800 $ 374,762
Printing papers 102,469 95,876 295,733 282,111
Other pulp-based products 129,993 124,203 376,193 369,517
- -------------------------------------------------------------------------
Total net sales $373,324 $338,223 $1,083,726 $1,026,390
=========================================================================
Operating Income
Wood products $ 36,439 $ 24,713 $ 118,773 $ 116,690
Printing papers 8,485 6,109 23,731 7,098
Other pulp-based products (8,823) (11,758) (53,138) (30,975)
- -------------------------------------------------------------------------
36,101 19,064 89,366 92,813
Corporate (19,063) (16,706) (53,995) (50,900)
- -------------------------------------------------------------------------
Earnings before taxes on
income and cumulative
effect of accounting
changes $ 17,038 $ 2,358 $ 35,371 $ 41,913
=========================================================================
</TABLE>
Stronger markets for wood panels and improvement in the company's
pulp-based businesses resulted in improved earnings for the third
quarter of 1994. Third quarter earnings were $10.7 million, compared
with a loss of $2.2 million for 1993's third quarter. Earnings per
common share were $.37, versus a loss of $.07 per share in 1993.
Included in the results for the third quarter of 1993 were the effects
of a federal tax increase, which had a negative effect of $.13 per
common share. Sales were $373.3 million for the quarter, compared with
$338.2 million in 1993.
Net earnings for the first nine months of 1994 were $22.1 million,
or $.76 per common share, which included a $.21 per share charge for
early retirement programs. Earnings for the same period in 1993 were
$22.7 million or $.78 per common share before accounting changes. Sales
for the first nine months of 1994 were $1.08 billion, up 5 percent from
1993's $1.03 billion.
Depreciation, amortization and cost of Potlatch timber harvested
totaled $104.4 million for the first nine months of 1994, a 14 percent
increase over the $91.7 million reported in 1993's first nine months.
The Wood Products Group reported third quarter earnings of $36.4
million, significantly higher than the $24.7 million reported for the
third quarter of 1993. The improved results were attributable primarily
to higher oriented strand board sales realizations. Prices for the
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company's other wood products were also generally higher than a year ago
and contributed to the favorable comparison. Operationally, new log
processing equipment was installed at the Lewiston, Idaho, sawmill
during the quarter, which required substantial downtime. The company's
newest sawmill in Warren, Arkansas, which started up earlier this year,
continues to show steady improvement in productivity.
Earnings for the Northwest Paper Division were $8.5 million,
compared with $6.1 million in 1993's third quarter. Higher shipments
and net sales realizations along with good operating results were
responsible for the improvement over the prior year. Market conditions
for printing papers improved during the quarter.
The other pulp-based businesses, which include the Pulp and
Paperboard Group and the Consumer Products Division, reported a loss for
the quarter of $8.8 million, versus a loss of $11.8 million last year.
Although realizations for paperboard were significantly below the levels
of a year ago, market conditions for all products in this segment had
shown substantial improvement by the end of the quarter. The Lewiston
pulp and paperboard facility experienced productivity improvements
during the quarter.
"Selling, general and administrative expenses" for the third quarter
of 1994 increased primarily due to higher selling expenses for printing
papers and tissue products combined with an increase in the expense
associated with stock appreciation rights.
"Interest expense" for the third quarter and first nine months of
1994 increased primarily due to a reduction in the amount of interest
capitalized on long-term construction projects.
In January 1994, the company began accruing for normal annual
maintenance shutdowns over the entire year. Previously, these costs
were expensed as incurred.
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<TABLE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Changes in Statements of Earnings
(Dollars in thousands)
<CAPTION>
Quarter Ended September 30 Nine Months Ended September 30
-------------------------- ------------------------------
Increase Increase
1994 1993 (Decrease) 1994 1993 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $373,324 $338,223 10% $1,083,726 $1,026,390 6%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 35,016 33,132 6% 104,426 91,721 14%
Materials, labor and other
operating expenses 287,014 273,323 5% 838,347 801,991 5%
Selling, general and
administrative expenses 22,488 19,615 15% 62,917 60,731 4%
Earnings from operations 28,806 12,153 137% 78,036 71,947 8%
Interest expense (12,862) (11,890) 8% (38,167) (33,916) 13%
Interest and dividend income 54 345 (84%) 278 1,132 (75%)
Other income (expense), net 1,040 1,750 * (4,776) 2,750 *
Provision for taxes on income 6,297 4,537 39% 13,264 19,172 (31%)
Net earnings (loss) before
cumulative effect of
accounting changes 10,741 (2,179) * 22,107 22,741 (3%)
Change in accounting for
postretirement benefits and
income taxes, net of tax - - * - (31,704) *
Net earnings (loss) 10,741 (2,179) * 22,107 (8,963) *
<FN>
* Not a meaningful figure.
</TABLE>
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<PAGE>
PART II
ITEM 1. Legal Proceedings
As reported in its Report on Form 10-K for the Fiscal Year ended
December 31, 1993, since November 1992, the Company has held numerous
discussions with representatives of the United States Department of
Justice and the Environmental Protection Agency regarding alleged
violations of the Clean Air Act in connection with an asbestos removal
and demolition project at the Company's pulp and paperboard facility at
Lewiston, Idaho. As a result of those discussions, the Company agreed
to settle the alleged violations by paying a civil penalty of $250,000
and adopting an asbestos control program covering the removal of
asbestos at all of its facilities.
On October 4, 1994, the United States filed a civil Complaint in the
United States District Court for the District of Idaho against the
Company and several other defendants who were independent contractors
involved in the removal and demolition project. The Complaint alleges
numerous violations of the National Emissions Standards for Hazardous
Air Pollutants, which govern asbestos removal and disposal, in
connection with the asbestos removal and demolition project at the
Company's facility. The Complaint seeks civil penalties and injunctive
relief.
On October 5, 1994, the United States filed a proposed Consent
Decree between the United States and the Company which sets forth the
Company's agreement to pay the civil penalty and adopt an asbestos
removal program. The proposed Consent Decree is subject to Court
approval after the required public comment period. Olshan Asbestos
Removal Corp., one of the defendants, has agreed to pay the $250,000
penalty incurred by the Company.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
The exhibit index is located on page 12 of this Form 10-Q.
Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
September 30, 1994.
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<PAGE>
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: November 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.
(27) Financial Data Schedule
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 8,209
<SECURITIES> 415
<RECEIVABLES> 126,614
<ALLOWANCES> 2,449
<INVENTORY> 147,967
<CURRENT-ASSETS> 354,649
<PP&E> 2,673,522
<DEPRECIATION> 998,656
<TOTAL-ASSETS> 2,061,169
<CURRENT-LIABILITIES> 234,212
<BONDS> 637,004
<COMMON> 32,722
0
0
<OTHER-SE> 875,605
<TOTAL-LIABILITY-AND-EQUITY> 2,061,169
<SALES> 1,083,726
<TOTAL-REVENUES> 1,083,726
<CGS> 942,773
<TOTAL-COSTS> 942,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,167
<INCOME-PRETAX> 35,371
<INCOME-TAX> 13,264
<INCOME-CONTINUING> 22,107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,107
<EPS-PRIMARY> .76
<EPS-DILUTED> 0
</TABLE>
