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, 1995 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,
1995: 29,109,206 shares of Common Stock, par value $1 per share.
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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, 1995 and 1994 2
Condensed Balance Sheets at September 30, 1995
and December 31, 1994 3
Condensed Statements of Cash Flows for the nine
months ended September 30, 1995 and 1994 4
Notes to Financial Statements 5 - 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 9
PART II. OTHER INFORMATION
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
1995 1994 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $411,186 $373,324 $1,203,037 $1,083,726
- ------------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 35,598 35,016 100,796 104,426
Materials, labor and other
operating expenses 293,432 287,014 875,165 838,347
Selling, general and
administrative expenses 21,826 22,488 67,227 62,917
- ------------------------------------------------------------------------------
350,856 344,518 1,043,188 1,005,690
- ------------------------------------------------------------------------------
Earnings from operations 60,330 28,806 159,849 78,036
Interest expense (11,714) (12,862) (36,203) (38,167)
Interest and dividend income 721 54 1,051 278
Other income (expense), net 849 1,040 2,000 (4,776)*
- ------------------------------------------------------------------------------
Earnings before taxes
on income 50,186 17,038 126,697 35,371
Provision for taxes
on income (Note 2) 18,437 6,297 47,511 13,264
- ------------------------------------------------------------------------------
Net earnings $ 31,749 $ 10,741 $ 79,186 $ 22,107
==============================================================================
Net earnings per
common share (Note 3) $1.09 $ .37 $2.71 $ .76
Dividends per common share
(annual rate) 1.60 1.56 1.60 1.56
Average shares outstanding
(in thousands) 29,147 29,220 29,198 29,215
- ------------------------------------------------------------------------------
<FN>
*Includes pre-tax charges for early retirement programs of $10.0 million or
$.21 per share after tax 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
1995 amounts unaudited (Dollars in thousands -
except per-share amounts)
- ------------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 7,811 $ 9,018
Short-term investments 34,791 46,789
Receivables, net 146,487 137,418
Inventories (Note 4) 182,911 152,236
Prepaid expenses 25,219 25,857
- ------------------------------------------------------------------------------
Total current assets 397,219 371,318
Land, other than timberlands 9,089 9,089
Plant and equipment, at cost less
accumulated depreciation 1,332,573 1,313,939
Timber, timberlands and related
logging facilities 352,961 346,199
Other assets 68,313 40,684
- ------------------------------------------------------------------------------
$2,160,155 $2,081,229
==============================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ - $ 12,881
Current installments on long-term debt 38,636 18,831
Accounts payable and accrued liabilities 233,724 196,878
- ------------------------------------------------------------------------------
Total current liabilities 272,360 228,590
Long-term debt 601,344 633,473
Other long-term obligations 156,329 147,877
Deferred taxes 170,071 151,082
Put options (Note 5) 12,359 -
Stockholders' equity 947,692 920,207
- ------------------------------------------------------------------------------
$2,160,155 $2,081,229
==============================================================================
Stockholders' equity per common share $32.56 $31.49
Working capital $124,859 $142,728
Current ratio 1.5:1 1.6:1
- ------------------------------------------------------------------------------
<FN>
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
1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings $ 79,186 $ 22,107
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 100,796 104,426
Deferred taxes 18,989 3,979
Working capital changes (10,165) 2,647
Other, net (943) (1,703)
- ------------------------------------------------------------------------------
Net cash provided by operations 187,863 131,456
- ------------------------------------------------------------------------------
Cash Flows From Financing
Change in bank overdrafts 7,905 6,492
Decrease in notes payable (12,881) -
Proceeds from long-term debt 25,000 -
Repayment of long-term debt (37,323) (46,376)
Issuance of treasury stock 135 514
Purchase of treasury stock (5,035) -
Dividends (35,037) (34,180)
- ------------------------------------------------------------------------------
Net cash used for financing (57,236) (73,550)
- ------------------------------------------------------------------------------
Cash Flows From Investing
Decrease in short-term investments 9,015 15,479
Decrease (increase) in investments
of unexpended revenue bond funds (23,266) 537
Additions to plant and properties (113,975) (77,150)
Disposition of plant and properties 2,487 3,339
Other, net (6,095) 1,285
- ------------------------------------------------------------------------------
Net cash used for investing (131,834) (56,510)
- ------------------------------------------------------------------------------
Increase (decrease) in cash (1,207) 1,396
Balance at beginning of period 9,018 6,813
- ------------------------------------------------------------------------------
Balance at end of period $ 7,811 $ 8,209
==============================================================================
<FN>
Net interest payments (net of amounts capitalized) for the nine months ended
September 30, 1995 and 1994 were $27.2 million and $28.9 million, respectively.
Net income tax payments for the nine months ended September 30, 1995 and 1994
were $29.1 million and $12.8 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, 1995 and December 31, 1994, and the statements of earnings
for the quarter and nine months ended September 30, 1995 and 1994, and
the condensed statements of cash flows for the nine months ended
September 30, 1995 and 1994, 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. All adjustments were of a normal recurring nature; there were
no material nonrecurring adjustments.
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 1995 and 1994. The third quarter provision for
1995 and 1994 reflects the adjustment of the tax rate to 37.5 percent
from 38 percent used for the first half of each year.
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, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Raw materials $101,024 $ 87,836
Work in process 7,882 5,002
Finished goods 74,005 59,398
-------- --------
$182,911 $152,236
======== ========
</TABLE>
NOTE 5. PUT OPTIONS - In December 1994, the company announced a stock
repurchase program which authorizes the company to purchase up to 1
million shares of its common stock over several years. Under the
program, the company can purchase shares of common stock from time to
time through open market and privately negotiated transactions at prices
deemed appropriate by management. The purchases of such shares are
planned to be accomplished while also maintaining the company's targeted
financial structure. As of September 30, 1995, the company had
purchased 121,600 shares under the plan.
In conjunction with the repurchase plan, the company had issued put
options on 300,000 shares of its stock through September 30, 1995. The
put options give the purchaser the right to sell shares of Potlatch
stock to the company at prices ranging from $40.56 to $41.50 per share
on specific dates in 1995 and 1996. The $12.4 million related to the
company's potential obligation to buy back the 300,000 shares was
classified as put options in the Balance Sheets and the related offset
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was recorded in common shares in treasury under stockholders' equity,
net of $.5 million of premiums received from the issuance of the put
options.
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 1995,
as presented in the Condensed Statements of Cash Flows on page 4,
totaled $187.9 million, compared with $131.5 million for the same
period in 1994.
The company's ratio of long-term debt to stockholders' equity was
.63 to 1 at September 30, 1995, compared with .69 to 1 at December 31,
1994. The decrease in the ratio was largely due to the reduction in
long-term debt of $57.1 million through September 30, 1995, partially
offset by the issuance of $25.0 million of revenue bonds in August. The
ratio was also favorably affected by an increase in stockholder's equity
from current year earnings.
Working capital of $124.9 million at September 30, 1995, decreased
$17.9 million from December 31, 1994. The decrease was due to changes
in several components of working capital. A net $19.8 million increase
in current installments on long-term debt, a $36.8 million increase in
accounts payable and accrued liabilities and a decrease in cash and
short-term investments of $13.2 million were the factors responsible for
reducing working capital. These items were partially offset by
increases in receivables and inventories of $9.1 million and $30.7
million, respectively, and by the repayment of $12.9 million of current
notes payable.
Capital expenditures totaled $114.0 million for the first nine
months of 1995. Of this amount, the company spent $29.8 million in the
wood products segment, which included expenditures for the installation
of pollution control equipment at the company's three oriented strand
board plants in Minnesota. The company spent $57.6 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 in Brainerd, Minnesota.
Spending in the other pulp-based products segment totaled $26.5 million.
A significant portion of this total related to the continued development
of the hybrid poplar tree farm in Boardman, Oregon.
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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
1995 1994 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Wood products
Oriented strand board $ 53,297 $ 57,696 $ 151,167 $ 165,681
Lumber 44,957 46,871 134,416 149,063
Plywood 18,343 17,638 56,293 52,501
Particleboard 3,171 3,763 11,603 13,002
Other 12,414 14,894 28,236 31,553
- ------------------------------------------------------------------------------
132,182 140,862 381,715 411,800
- ------------------------------------------------------------------------------
Printing papers 113,791 102,469 334,580 295,733
- ------------------------------------------------------------------------------
Other pulp-based products
Pulp 6,431 4,846 17,950 6,320
Paperboard 108,412 80,967 327,521 243,990
Tissue 50,370 44,180 141,271 125,883
- ------------------------------------------------------------------------------
165,213 129,993 486,742 376,193
- ------------------------------------------------------------------------------
Total net sales $411,186 $373,324 $1,203,037 $1,083,726
==============================================================================
Operating Income
Wood products $ 30,824 $ 36,439 $ 85,050 $ 118,773
Printing papers 13,468 8,485 46,258 23,731
Other pulp-based products 23,094 (8,823) 51,026 (53,138)
- ------------------------------------------------------------------------------
67,386 36,101 182,334 89,366
Corporate (17,200) (19,063) (55,637) (53,995)
- ------------------------------------------------------------------------------
Earnings before taxes on
on income $ 50,186 $ 17,038 $ 126,697 $ 35,371
==============================================================================
</TABLE>
The company reported significantly improved results for the third
quarter of 1995 as its pulp-based businesses continued to benefit from
positive market conditions for their products. Net earnings for the
third quarter were $31.7 million, versus $10.7 million for 1994's third
quarter. Earnings per common share were $1.09, compared with $.37 per
common share in the third quarter of 1994. Net sales were $411.2
million for the quarter, up from 1994's $373.3 million.
Net earnings for the first nine months of 1995 were $79.2 million,
or $2.71 per common share. Net earnings for the first nine months of
1994 were $28.3 million, or $.97 per common share, before a one-time,
pre-tax charge of $10.0 million for early retirement programs in Idaho.
Including the charge, 1994 nine months earnings were $22.1 million or
$.76 per common share. Net sales for the first nine months of 1995 were
$1.20 billion, up 11 percent from $1.08 billion in 1994.
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Depreciation, amortization and cost of Potlatch timber harvested
totaled $100.8 million for the first nine months of 1995, compared with
$104.4 million reported in 1994's first nine months. During the first
nine months of 1994, the company had $6.0 million of additional
depreciation related to the write-off of obsolete equipment.
The wood products segment reported earnings of $30.8 million for the
third quarter of 1995, down from $36.4 million earned in 1994's third
quarter. Lower net sales realizations for most of the company's lumber
and panel products were largely responsible for the decline. Wood
products markets were soft as the quarter began but improved throughout
the quarter.
The printing papers segment earned $13.5 million during the quarter,
up from $8.5 million in the third quarter of 1994. Strong operating
results at the company's two coated paper facilities led to increased
production, which positively affected earnings. The improvement was
also the result of higher net sales realizations for coated papers,
which more than offset higher pulp costs.
The other pulp-based products segment, which includes the Pulp and
Paperboard Group and the Consumer Products Division, reported third
quarter 1995 earnings of $23.1 million, versus a loss of $8.8 million a
year ago. Net sales realizations were higher for paperboard, tissue and
especially pulp, compared with the third quarter of 1994. The company's
pulp and paperboard mill in Arkansas operated very well during the
quarter. However, the annual maintenance shutdown taken in September at
the company's pulp and paperboard mill in Idaho was longer than
anticipated. During the shutdown some additional structural problems
with the pulp mill washers were discovered. Repairs to be made during
the fourth quarter are estimated to result in reduced production of
about 10,000 to 12,000 tons. The company is currently finalizing plans
to replace the washers.
"Other income (expense), net" for the period ended September 30,
1994, included the aforementioned pre-tax charge of $10.0 million for
early retirement programs in Idaho.
-8-
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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
1995 1994 (Decrease) 1995 1994 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $411,186 $373,324 10% $1,203,037 $1,083,726 11%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 35,598 35,016 2% 100,796 104,426 (3%)
Materials, labor and other
operating expenses 293,432 287,014 2% 875,165 838,347 4%
Selling, general and
administrative expenses 21,826 22,488 (3%) 67,227 62,917 7%
Earnings from operations 60,330 28,806 109% 159,849 78,036 105%
Interest expense (11,714) (12,862) (9%) (36,203) (38,167) (5%)
Interest and dividend income 721 54 1,235% 1,051 278 278%
Other income (expense), net 849 1,040 * 2,000 (4,776) *
Provision for taxes on income 18,437 6,297 193% 47,511 13,264 258%
Net earnings 31,749 10,741 196% 79,186 22,107 258%
<FN>
*Not a meaningful figure.
</TABLE>
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PART II
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, 1995.
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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: November 2, 1995
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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.
-12-
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<ALLOWANCES> 2504
<INVENTORY> 182911
<CURRENT-ASSETS> 397219
<PP&E> 2782321
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