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 March 31, 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 March 31, 1994:
29,212,606 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 three months
ended March 31, 1994 and 1993 2
Condensed Balance Sheets at March 31, 1994
and December 31, 1993 3
Condensed Statements of Cash Flows for the three
months ended March 31, 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 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
-1-
<PAGE>
<TABLE>
PART I
Item 1. Financial Statements
Potlatch Corporation and Consolidated Subsidiaries
Statements of Earnings
Unaudited (Dollars in thousands - except per-share amounts)
______________________________________________________________________
<CAPTION>
Three Months Ended
March 31
1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Net sales $365,282 $361,543
- ----------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and cost of
fee timber harvested 35,023 28,368
Materials, labor and other operating
expenses 280,351 266,466
Selling, general and administrative
expenses 19,514 21,482
- ----------------------------------------------------------------------
334,888 316,316
- ----------------------------------------------------------------------
Earnings from operations 30,394 45,227
Interest expense (12,743) (10,302)
Interest and dividend income 139 306
Other expense, net (Note 5) (9,219) (52)
- ----------------------------------------------------------------------
Earnings before taxes on income and
cumulative effect of accounting changes 8,571 35,179
Provision for taxes on income (Note 2) 3,257 13,017
- ----------------------------------------------------------------------
Net earnings before cumulative effect of
accounting changes 5,314 22,162
Cumulative effect of accounting changes
for postretirement benefits and income
taxes, net of tax - (31,704)
- ----------------------------------------------------------------------
Net earnings (loss) $ 5,314 $ (9,542)
======================================================================
Net earnings (loss) per common share (Note 3):
Before accounting changes $ .18 $ .76
After accounting changes .18 (.33)
Dividends per common share (annual rate) 1.56 1.50
Average shares outstanding (in thousands) 29,211 29,171
- ----------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Balance Sheets
1994 amounts unaudited (Dollars in thousands -
except per-share amounts)
______________________________________________________________________
<CAPTION>
March 31, December 31,
1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 9,973 $ 6,813
Short-term investments 4,233 20,421
Receivables, net 129,943 118,601
Inventories (Note 4) 150,775 155,560
Prepaid expenses 25,402 25,758
- ----------------------------------------------------------------------
Total current assets 320,326 327,153
Land, other than timberlands 9,120 9,105
Plant and equipment, at cost less
accumulated depreciation 1,330,276 1,340,028
Timber, timberlands and related
logging facilities 343,774 343,044
Other assets 68,261 66,322
- ----------------------------------------------------------------------
$2,071,757 $2,085,652
======================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current installments on long-term debt $ 22,012 $ 7,057
Accounts payable and accrued liabilities 194,873 190,958
- ----------------------------------------------------------------------
Total current liabilities 216,885 198,015
Long-term debt 666,995 707,131
Other long-term obligations 132,449 120,388
Deferred taxes 141,431 140,454
Stockholders' equity 913,997 919,664
- ----------------------------------------------------------------------
$2,071,757 $2,085,652
======================================================================
Stockholders' equity per common share $31.29 $31.50
Working capital $103,441 $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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<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
- ----------------------------------------------------------------------
<CAPTION>
Three Months Ended
March 31
1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings (loss) $ 5,314 $ (9,542)
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 35,023 28,368
Deferred taxes 977 3,000
Working capital changes (5,085) 24,764
Other, net 499 (172)
- ----------------------------------------------------------------------
Net cash provided by operations 36,728 78,122
- ----------------------------------------------------------------------
Cash Flows From Financing
Change in bank overdrafts 2,799 (2,984)
Repayment of long-term debt (25,181) (274)
Issuance of treasury stock 288 864
Dividends (11,392) (10,939)
- ----------------------------------------------------------------------
Net cash used for financing (33,486) (13,333)
- ----------------------------------------------------------------------
Cash Flows From Investing
Decrease (increase) in
short-term investments 16,188 (33,692)
Additions to plant and properties (23,397) (41,037)
Disposition of plant and properties 334 207
Other, net 6,793 4,403
- ----------------------------------------------------------------------
Net cash used for investing (82) (70,119)
- ----------------------------------------------------------------------
Increase (decrease) in cash 3,160 (5,330)
Balance at beginning of period 6,813 16,708
- ----------------------------------------------------------------------
Balance at end of period $ 9,973 $ 11,378
======================================================================
<FN>
Net interest payments (net of amounts capitalized) for the three months ended
March 31, 1994 and 1993 were $2.8 million and $.3 million, respectively. Net
income tax payments (receipts) for the three months ended March 31, 1994 and
1993 were $.6 million and $(3.2) million, respectively.
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE>
Potlatch Corporation and Consolidated Subsidiaries
Notes to Financial Statements
(Dollars in thousands)
_______________________________________________________________________
NOTE 1. GENERAL - The accompanying condensed balance sheets at March
31, 1994 and December 31, 1993, and the statements of earnings and the
condensed statements of cash flows for the three months ended March 31,
1994 and 1993, have been prepared in conformity with generally accepted
accounting principles. The management of Potlatch Corporation believes
that all adjustments necessary for a fair statement of the results of
such interim periods have been included.
In 1994, the company began accruing for major maintenance shutdowns
at its pulp-based operations over the entire year. This change had an
unfavorable effect on the earnings comparison for the first quarter of
1994.
NOTE 2. INCOME TAXES - The provision for taxes on income has been
computed by applying an estimated annual effective tax rate. This rate
was 38 percent for the quarter ended March 31, 1994, compared with 37
percent for 1993's first quarter.
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>
March 31, 1994 December 31, 1993
-------------- -----------------
<S> <C> <C>
Raw materials $ 82,854 $ 86,508
Work in process 6,613 4,809
Finished goods 61,308 64,243
-------- --------
$150,775 $155,560
======== ========
</TABLE>
NOTE 5. OTHER EXPENSE, NET - Other expense, net for the period ended
March 31, 1994, includes a pre-tax charge for early retirement programs
of $10.0 million or $.21 per share after tax. An agreement has been
reached with the labor unions involved and the early retirement programs
were in process at the end of the quarter. Any necessary adjustments to
the charge will be made once total participation in the programs is
determined.
-5-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Funding
Net cash provided by operations (as presented in the Condensed
Statements of Cash Flows on page 4) totaled $36.7 million, compared with
$78.1 million for the first quarter of 1993.
The company's ratio of long-term debt to stockholders' equity was
.73 to 1 at March 31, 1994, compared with .77 to 1 at December 31, 1993.
The decrease in the ratio was primarily due to a decrease of $25.0
million in commercial paper outstanding and the reclassification of
$15.0 million of the company's medium-term notes from long-term to
current due to their maturity within one year.
Working capital of $103.4 million at March 31, 1994, decreased $25.7
million from December 31, 1993. A decrease of $16.2 million in short-
term investments combined with an increase of $15.0 million in current
installments on long-term debt were largely responsible for the decline.
Partially offsetting the decrease was an $11.3 million increase in
receivables.
Capital expenditures totaled $23.4 million for the first three
months of 1994. Of this amount, $7.1 million was spent in the wood
products segment, which included expenditures for the replacement of a
company sawmill in Warren, Arkansas. In the printing papers segment
$3.4 million was spent, 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
$12.8 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 9 of this Form 10-Q.
______________________________________________________________________
Segment Information (Dollars in thousands)
______________________________________________________________________
<CAPTION>
Three Months
1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Net Sales
Wood products $141,172 $135,434
Printing papers 102,116 98,768
Other pulp-based products 121,994 127,341
- ----------------------------------------------------------------------
Total net sales $365,282 $361,543
======================================================================
</TABLE>
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<PAGE>
<TABLE>
______________________________________________________________________
Segment Information (continued) (Dollars in thousands)
______________________________________________________________________
<CAPTION>
Three Months
1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Operating Income
Wood products $ 46,443 $ 51,358
Printing papers 8,459 2,923
Other pulp-based products (28,513) (1,257)
- ----------------------------------------------------------------------
26,389 53,024
Corporate (17,818) (17,845)
- ----------------------------------------------------------------------
Earnings before taxes on income and
cumulative effect of accounting changes $ 8,571 $ 35,179
======================================================================
</TABLE>
The company reported first quarter 1994 earnings of $11.5 million,
or $.39 per common share, before the effects of early retirement
programs announced in February. Including the one-time, pre-tax $10.0
million charge for these early retirement programs, earnings were $5.3
million, or $.18 per share. Comparatively, first quarter 1993 earnings
before accounting changes were $22.2 million, or $.76 per share. After
accounting changes for postretirement benefits and income taxes, the
company posted a 1993 first quarter loss and loss per common share of
$9.5 million and $.33, respectively. Net sales for the first quarter of
1994 were $365.3 million, compared with $361.5 million a year ago.
In addition to the $10.0 million pre-tax charge, two other factors
reduced first quarter earnings. An ice storm in February hampered all
of the company's operations in Arkansas, with power outages reducing
production of both paperboard and wood products. In addition, the
company rebuilt one of its tissue machines in Idaho, which increased
costs and reduced production. The rebuild was completed at the end of
the first quarter.
Depreciation, amortization and cost of Potlatch timber harvested
totaled $35.0 million, 23 percent above the $28.4 million reported a
year ago.
The Wood Products Group reported earnings of $46.4 million for the
first quarter of 1994, down from 1993's $51.4 million. Despite higher
net sales realizations for lumber and particleboard, earnings declined
in large part because of lower net sales realizations for oriented
strand board and plywood. Costs associated with inclement weather in
Arkansas also contributed to the decline. Markets for virtually all
wood products weakened significantly in the last few weeks of the
quarter.
The Northwest Paper Division reported first quarter 1994 earnings of
$8.5 million, a significant increase from the $2.9 million reported in
the prior year. The earnings improvement was primarily the result of
lower production costs and increased shipments. Markets for the
company's coated papers improved somewhat during the quarter.
-7-
<PAGE>
The company's other pulp-based products businesses, which includes
the Pulp and Paperboard Group and the Consumer Products Division,
reported a first quarter loss of $28.5 million, which includes the $10.0
million pre-tax reserve established to cover the costs of early
retirement programs in the company's pulp-based operations in Idaho.
This compares with a loss of $1.3 million in 1993's first quarter.
Markets for paperboard were very weak during the quarter and markets for
tissue products remained competitive. The early retirement programs are
the final steps in the modernization of the pulp mill. They will help
the company to fully realize the efficiencies of the new mill and will
reduce ongoing costs by approximately $10.0 million a year.
"Interest expense" increased due primarily to a reduction in the
amount of interest capitalized on long-term construction projects.
"Other expense, net" for the period ended March 31, 1994, includes
the aforementioned pre-tax charge for early retirement programs of $10.0
million. An agreement has been reached with the labor unions involved
and the early retirement programs were in process at the end of the
quarter. Any necessary adjustments to the charge will be made once
total participation in the programs is determined.
-8-
<PAGE>
<TABLE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Changes in Statements of Earnings
(Dollars in thousands)
<CAPTION>
Three Months Ended March 31
---------------------------
Increase
1994 1993 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Net sales $365,282 $361,543 1%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 35,023 28,368 23%
Materials, labor and other
operating expenses 280,351 266,466 5%
Selling, general and
administrative expenses 19,514 21,482 (9%)
Earnings from operations 30,394 45,227 (33%)
Interest expense (12,743) (10,302) 24%
Interest and dividend income 139 306 (55%)
Other income expense, net (9,219) (52) *
Provision for taxes on income 3,257 13,017 (75%)
Net earnings before cumulative
effect of accounting changes 5,314 22,162 (76%)
Change in accounting for post-
retirement benefit and income,
net of tax - (31,704) *
Net earnings (loss) 5,314 (9,542) *
*Not a meaningful figure.
</TABLE>
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<PAGE>
PART II
ITEM 5. Other Information
In late 1993, the Environmental Protection Agency published proposed
regulations applicable to the pulp and paper industry. This extensive set
of regulations is designed to address both air and water emissions. As
proposed, the regulations would require modifications to process equipment
and procedures. Based on a recently completed examination of the capital
costs of the proposals, the company estimates that compliance would require
capital expenditures in the broad range of $200.0 million. Of this amount,
approximately $100.0 million is already included in the planned $500.0 million
plus expansion and modernization project under way at the Cloquet,
Minnesota pulp mill.
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 March 31,
1994.
-10-
<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 and Treasurer
(Duly Authorized; Principal
Financial Officer)
By T. L. Carter
---------------------------
T. L. Carter
Controller
(Duly Authorized; Principal
Accounting Officer)
Date: April 22, 1994
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<PAGE>
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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