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, 1996 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,
1996: 28,844,731 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, 1996 and 1995 2
Condensed Balance Sheets at September 30, 1996
and December 31, 1995 3
Condensed Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 4
Notes to Financial Statements 5
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5 - 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
1996 1995 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $398,227 $411,186 $1,172,916 $1,203,037
- ------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 37,377 35,598 105,685 100,796
Materials, labor and other
operating expenses 299,230 293,432 898,230 875,165
Selling, general and
administrative expenses 25,857 21,826 74,112 67,227
- ------------------------------------------------------------------------
362,464 350,856 1,078,027 1,043,188
- ------------------------------------------------------------------------
Earnings from operations 35,763 60,330 94,889 159,849
Interest expense (10,138) (11,714) (33,372) (36,203)
Interest and dividend income 280 721 1,787 1,051
Other income, net 1,443 849 1,317 2,000
- ------------------------------------------------------------------------
Earnings before taxes
on income and
extraordinary item 27,348 50,186 64,621 126,697
Provision for taxes
on income (Note 2) 7,807 18,437 21,971 47,511
- ------------------------------------------------------------------------
Net earnings before
extraordinary item 19,541 31,749 42,650 79,186
Extraordinary item - loss from
early extinguishment of debt,
net of taxes - - (2,946) -
- ------------------------------------------------------------------------
Net earnings $ 19,541 $ 31,749 $ 39,704 $ 79,186
========================================================================
Net earnings per
common share (Note 3):
Before extraordinary item $ .68 $1.09 $1.48 $2.71
After extraordinary item .68 1.09 1.38 2.71
Dividends per common share
(annual rate) 1.66 1.60 1.66 1.60
Average shares outstanding
(in thousands) 28,845 29,147 28,899 29,198
- ------------------------------------------------------------------------
<FN>
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
1996 amounts unaudited (Dollars in thousands -
except per-share amounts)
- ---------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 11,704 $ 7,571
Short-term investments 3,917 102,583
Receivables, net 141,691 152,407
Inventories (Note 4) 174,055 191,102
Prepaid expenses 25,033 23,586
- ---------------------------------------------------------------------------
Total current assets 356,400 477,249
Land, other than timberlands 9,089 9,089
Plant and equipment, at cost less
accumulated depreciation 1,456,151 1,356,020
Timber, timberlands and related
logging facilities 348,539 352,321
Other assets 73,605 70,632
- ---------------------------------------------------------------------------
$2,243,784 $2,265,311
===========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 44,868 $ -
Current installments on long-term debt 31,379 122,018
Accounts payable and accrued liabilities 233,424 227,165
- ---------------------------------------------------------------------------
Total current liabilities 309,671 349,183
Long-term debt 622,779 616,132
Other long-term obligations 150,509 145,022
Deferred taxes 187,091 180,235
Put options 11,817 12,247
Stockholders' equity 961,917 962,492
- ---------------------------------------------------------------------------
$2,243,784 $2,265,311
===========================================================================
Stockholders' equity per common share $33.35 $33.23
Working capital $46,729 $128,066
Current ratio 1.2:1 1.4:1
- ---------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
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Potlatch Corporation and Consolidated Subsidiaries
Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
- -------------------------------------------------------------------------
<CAPTION>
Nine Months Ended
September 30
1996 1995
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<S> <C> <C>
Cash Flows From Operations
Net earnings $ 39,704 $ 79,186
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 105,685 100,796
Deferred taxes 6,856 18,989
Working capital changes 27,336 (10,165)
Other, net 3,241 (943)
- -------------------------------------------------------------------------
Net cash provided by operations 182,822 187,863
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Cash Flows From Financing
Change in book overdrafts 5,239 7,905
Increase (decrease) in notes payable 44,868 (12,881)
Proceeds from long-term debt 40,000 25,000
Repayment of long-term debt (123,992) (37,323)
Issuance of treasury stock 229 135
Purchase of treasury stock (5,042) (5,035)
Premium on early retirement of debt (4,088) -
Dividends (35,992) (35,037)
- -------------------------------------------------------------------------
Net cash used for financing (78,778) (57,236)
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Cash Flows From Investing
Decrease (increase) in short-term investments 98,411 (32,580)
Additions to investments (46,020) (44,154)
Reductions in investments 57,573 62,125
Funding of qualified pension plans (19,734) (3,000)
Additions to plant and properties (196,441) (113,975)
Disposition of plant and properties 4,424 2,487
Other, net 1,876 (2,737)
- -------------------------------------------------------------------------
Net cash used for investing (99,911) (131,834)
- -------------------------------------------------------------------------
Increase (decrease) in cash 4,133 (1,207)
Balance at beginning of period 7,571 9,018
- -------------------------------------------------------------------------
Balance at end of period $ 11,704 $ 7,811
=========================================================================
<FN>
Certain 1995 amounts have been restated to conform to 1996 presentation.
Net interest payments (net of amounts capitalized) for the nine months ended
September 30, 1996 and 1995 were $27.4 million and $27.2 million, respectively.
Net income tax payments for the nine months ended September 30, 1996 and 1995
were $10.2 million and $29.1 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, 1996 and December 31, 1995, and the statements of earnings
for the quarter and nine months ended September 30, 1996 and 1995, and
the condensed statements of cash flows for the nine months ended
September 30, 1996 and 1995, 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 34 percent for 1996 and 37.5 percent for 1995. The third quarter
provision for 1996 and 1995 reflects the adjustment of the tax rate to
34 percent and 37.5 percent, respectively, 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:
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<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Raw materials $ 98,974 $105,067
Work in process 6,715 5,972
Finished goods 68,366 80,063
-------- --------
$174,055 $191,102
======== ========
</TABLE>
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 1996,
as presented in the Condensed Statements of Cash Flows on page 4,
totaled $182.8 million, compared with $187.9 million for the same
period in 1995.
The company's ratio of long-term debt to stockholders' equity was
.65 to 1 at September 30, 1996, compared with .64 to 1 at December 31,
1995. The ratio was primarily affected by the issuance of $40.0 million
of revenue bonds for qualifying capital projects in Minnesota and the
reclassification of $30.0 million of long-term debt to current
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liabilities: $15.0 million of medium term notes due within one year and
$15.0 million of 9.625 percent sinking fund debentures the company
intends to redeem within one year.
Working capital of $46.7 million at September 30, 1996, decreased
$81.3 million from December 31, 1995. The decrease was due to changes
in several components of working capital. A decrease of $98.7 million
in short-term investments, $10.7 million in accounts receivable and
$17.0 million in inventories, combined with an increase of $44.9 million
in notes payable were only partially offset by a $90.6 million reduction
in current installments on long-term debt. A significant portion of the
reduction in current installments on long-term debt related to the
redemption of $85.0 million of the company's 9.625 percent sinking fund
debentures due 2016.
Capital expenditures totaled $196.4 million for the first nine
months of 1996. Of this amount, the company spent $34.3 million in the
wood products segment, which included expenditures for the upgrade of
the dry end at the Prescott, Arkansas, sawmill and the modernization of
the company's two plywood plants in Idaho. The company spent $87.5
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 $74.5 million. A significant portion of this total related to
the replacement of washers at the Lewiston, Idaho, pulp mill. The total
also includes spending for the continued development of the hybrid
poplar tree farm in Boardman, Oregon, including the purchase of
additional acreage to expand the project.
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Results of Operations
A summary of period-to-period changes in items included in the
the statements of earnings is presented on page 9 of this Form 10-Q.
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Segment Information (Dollars in thousands)
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<CAPTION>
Third Quarter Nine Months
1996 1995 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Wood products
Oriented strand board $ 38,726 $ 53,297 $ 119,277 $ 151,167
Lumber 54,129 44,957 149,046 134,416
Plywood 11,824 18,343 43,935 56,293
Particleboard 2,588 3,171 9,304 11,603
Other 17,936 12,414 34,202 28,236
- ----------------------------------------------------------------------
125,203 132,182 355,764 381,715
- ----------------------------------------------------------------------
Printing papers 110,805 113,791 332,169 334,580
- ----------------------------------------------------------------------
Other pulp-based products
Pulp 3,812 6,431 8,557 17,950
Paperboard 101,481 108,412 301,931 327,521
Tissue 56,926 50,370 174,495 141,271
- ----------------------------------------------------------------------
162,219 165,213 484,983 486,742
- ----------------------------------------------------------------------
Total net sales $398,227 $411,186 $1,172,916 $1,203,037
======================================================================
Operating Income
Wood products $ 18,511 $ 30,824 $ 48,829 $ 85,050
Printing papers 14,482 13,468 37,862 46,258
Other pulp-based products 10,908 23,094 28,630 51,026
- ----------------------------------------------------------------------
43,901 67,386 115,321 182,334
Corporate (16,553) (17,200) (50,700) (55,637)
- ----------------------------------------------------------------------
Earnings before taxes
on income and
extraordinary item $ 27,348 $ 50,186 $ 64,621 $ 126,697
======================================================================
</TABLE>
Lower net sales realizations for the company's paperboard and panel
products led to lower earnings for the third quarter of 1996. A change
in the company's tax rate, due to recent legislation and a settlement of
certain state tax issues, favorably affected results for the quarter.
Net earnings for the third quarter were $19.5 million, down from $31.7
million for 1995's third quarter. Earnings per common share were $.68,
compared with $1.09 per common share in the third quarter of 1995. Net
sales were $398.2 million for the quarter, compared with 1995's $411.2
million.
Net earnings for the first nine months of 1996 were $42.6 million,
or $1.48 per common share, before a $2.9 million extraordinary charge
for early extinguishment of debt or $.10 per common share. Including
the extraordinary charge, earnings were $39.7 million, or $1.38 per
common share. Net earnings for the first nine months of 1995 were $79.2
million, or $2.71 per common share. Net sales for the first nine months
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of 1996 were $1.17 billion, versus $1.20 billion in 1995.
Depreciation, amortization and cost of Potlatch timber harvested
totaled $105.7 million for the first nine months of 1996, compared with
$100.8 million reported in 1995's first nine months.
The wood products segment reported operating income of $18.5 million
for the third quarter of 1996, down from $30.8 million earned in 1995's
third quarter. Lower net sales realizations for the company's panel
products were largely responsible for the decline. Also, plywood
shipments during the quarter were adversely affected by downtime taken
at the two Idaho plywood mills to facilitate the shift to industrial
grade products.
Operating income for the printing papers segment was $14.5 million
for the quarter, up from $13.5 million in the third quarter of 1995.
Shipments were higher for the segment's coated papers, reflecting good
strength in high line grades for this time of the year. The segment's
two coated paper facilities operated well during the quarter, leading to
increased production which positively affected earnings. A decline in
average net sales realizations of 7 percent partially offset these
benefits.
The other pulp-based products segment, which includes the Pulp and
Paperboard Group and the Consumer Products Division, reported third
quarter operating income of $10.9 million, compared with $23.1 million
a year ago. The decline was primarily due to lower net sales
realizations for paperboard, compared to the third quarter of 1995.
However, results for the Consumer Products Division continue to show
improvement versus 1995.
Near the end of the quarter the company started up the first of the
replacement washers at the Lewiston, Idaho, pulp mill. Additional
washers are scheduled to start up during the fourth quarter and it is
expected that the substantial operating problems caused by the washers
will be largely resolved by year end.
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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
1996 1995 (Decrease) 1996 1995 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $398,227 $411,186 (3%) $1,172,916 $1,203,037 (3%)
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 37,377 35,598 5% 105,685 100,796 5%
Materials, labor and other
operating expenses 299,230 293,432 2% 898,230 875,165 3%
Selling, general and
administrative expenses 25,857 21,826 18% 74,112 67,227 10%
Earnings from operations 35,763 60,330 (41%) 94,889 159,849 (41%)
Interest expense (10,138) (11,714) (13%) (33,372) (36,203) (8%)
Interest and dividend income 280 721 (61%) 1,787 1,051 70%
Other income, net 1,443 849 * 1,317 2,000 *
Provision for taxes on income 7,807 18,437 (58%) 21,971 47,511 (54%)
Net earnings before
extraordinary item 19,541 31,749 (38%) 42,650 79,186 (46%)
Extraordinary item - loss from
early extinguishment of debt,
net of taxes - - * (2,946) - *
Net earnings 19,541 31,749 (38%) 39,704 79,186 (50%)
<FN>
*Not a meaningful figure.
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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, 1996.
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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
and Chief Financial Officer
(Duly Authorized; Principal
Financial Officer)
By T. L. Carter
------------------------------
T. L. Carter
Controller
(Duly Authorized; Principal
Accounting Officer)
Date: October 31, 1996
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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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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,704
<SECURITIES> 2,325
<RECEIVABLES> 137,103
<ALLOWANCES> 2,428
<INVENTORY> 174,055
<CURRENT-ASSETS> 356,400
<PP&E> 2,996,459
<DEPRECIATION> 1,182,680
<TOTAL-ASSETS> 2,243,784
<CURRENT-LIABILITIES> 309,671
<BONDS> 622,779
<COMMON> 32,722
0
0
<OTHER-SE> 929,195
<TOTAL-LIABILITY-AND-EQUITY> 2,243,784
<SALES> 1,172,916
<TOTAL-REVENUES> 1,172,916
<CGS> 1,003,915
<TOTAL-COSTS> 1,003,915
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,372
<INCOME-PRETAX> 64,621
<INCOME-TAX> 21,971
<INCOME-CONTINUING> 42,650
<DISCONTINUED> 0
<EXTRAORDINARY> 2,946
<CHANGES> 0
<NET-INCOME> 39,704
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 0
</TABLE>
