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, 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 June 30, 1996:
28,843,881 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, 1996 and 1995 2
Condensed Balance Sheets at June 30, 1996
and December 31, 1995 3
Condensed Statements of Cash Flows for the six
months ended June 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 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
-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>
Quarter Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $386,068 $397,243 $774,689 $791,851
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 33,244 32,491 68,308 65,198
Materials, labor and other
operating expenses 290,451 292,804 599,000 581,733
Selling, general and
administrative expenses 23,624 22,207 48,255 45,401
- ------------------------------------------------------------------------
347,319 347,502 715,563 692,332
- ------------------------------------------------------------------------
Earnings from operations 38,749 49,741 59,126 99,519
Interest expense (11,011) (11,885) (23,234) (24,489)
Interest and dividend income 695 269 1,507 330
Other income (expense), net 835 429 (126) 1,151
- ------------------------------------------------------------------------
Earnings before taxes on
income and extraordinary
item 29,268 38,554 37,273 76,511
Provision for taxes on
income (Note 2) 11,122 14,650 14,164 29,074
- ------------------------------------------------------------------------
Net earnings before
extraordinary item 18,146 23,904 23,109 47,437
Extraordinary item - loss from
early extinguishment of debt,
net of taxes (Note 3) (2,946) - (2,946) -
- ------------------------------------------------------------------------
Net earnings $ 15,200 $ 23,904 $ 20,163 $ 47,437
========================================================================
Net earnings per
common share (Note 4):
Before extraordinary item $ .63 $ .81 $ .80 $1.62
After extraordinary item .53 .81 .70 1.62
Dividends per common share
(annual rate) 1.66 1.60 1.66 1.60
Average shares outstanding
(in thousands) 28,910 29,223 28,925 29,224
- ------------------------------------------------------------------------
<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
1996 amounts unaudited (Dollars in thousands -
except per-share amounts)
- ---------------------------------------------------------------------------
<CAPTION>
June 30, December 31,
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 9,855 $ 7,571
Short-term investments 2,682 102,583
Receivables, net 150,752 152,407
Inventories (Note 5) 162,723 191,102
Prepaid expenses 27,433 23,586
- ---------------------------------------------------------------------------
Total current assets 353,445 477,249
Land, other than timberlands 9,089 9,089
Plant and equipment, at cost less
accumulated depreciation 1,430,843 1,356,020
Timber, timberlands and related
logging facilities 352,058 352,321
Other assets 76,459 70,632
- ---------------------------------------------------------------------------
$2,221,894 $2,265,311
===========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 57,802 $ -
Current installments on long-term debt 31,379 122,018
Accounts payable and accrued liabilities 210,211 227,165
- ---------------------------------------------------------------------------
Total current liabilities 299,392 349,183
Long-term debt 622,951 616,132
Other long-term obligations 148,428 145,022
Deferred taxes 185,178 180,235
Put options 8,097 12,247
Stockholders' equity 957,848 962,492
- ---------------------------------------------------------------------------
$2,221,894 $2,265,311
===========================================================================
Stockholders' equity per common share $33.21 $33.23
Working capital $54,053 $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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<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
- ---------------------------------------------------------------------------
<CAPTION>
Six Months Ended
June 30
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings $ 20,163 $ 47,437
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 68,308 65,198
Deferred taxes 4,943 8,706
Working capital changes 11,345 4,903
Other, net 4,708 201
- ---------------------------------------------------------------------------
Net cash provided by operations 109,467 126,445
- ---------------------------------------------------------------------------
Cash Flows From Financing
Change in bank overdrafts (2,112) 2,556
Increase (decrease) in notes payable 57,802 (12,881)
Proceeds from long-term debt 40,000 -
Repayment of long-term debt (123,820) (36,912)
Issuance of treasury stock 209 11
Purchase of treasury stock (5,239) (208)
Premium on early retirement of debt (4,088) -
Dividends (24,021) (23,380)
- ---------------------------------------------------------------------------
Net cash used for financing (61,269) (70,814)
- ---------------------------------------------------------------------------
Cash Flows From Investing
Decrease (increase) in short-term investments 100,411 (30,900)
Additions to investments (44,037) (17,092)
Reductions in investments 52,209 60,465
Funding of qualified pension plans (19,734) -
Additions to plant and properties (138,250) (63,419)
Disposition of plant and properties 2,722 1,049
Other, net 765 (4,738)
- ---------------------------------------------------------------------------
Net cash used for investing (45,914) (54,635)
- ---------------------------------------------------------------------------
Increase in cash 2,284 996
Balance at beginning of period 7,571 9,018
- ---------------------------------------------------------------------------
Balance at end of period $ 9,855 $ 10,014
===========================================================================
<FN>
Certain 1995 amounts have been restated to conform to the 1996 presentation.
Net interest payments (net of amounts capitalized) for the six months ended
June 30, 1996 and 1995 were $25.1 million and $24.7 million, respectively.
Net income tax payments for the six months ended June 30, 1996 and 1995 were
$5.8 million and $27.9 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 June 30,
1996 and December 31, 1995, and the statements of earnings for the
quarter and six months ended June 30, 1996 and 1995, and the condensed
statements of cash flows for the six months ended June 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 38 percent for the quarters and six months ended June 30, 1996 and
1995.
NOTE 3. EXTRAORDINARY ITEM - On April 15, 1996, the company redeemed
$85.0 million of its 9.625 percent debentures due 2016. The company
recorded an extraordinary loss of $4.8 million ($2.9 million net of
taxes), consisting of redemption premiums and the write-off of deferred
financing costs.
NOTE 4. 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 5. INVENTORIES - Inventories at the balance sheet dates consist
of:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Raw materials $ 91,673 $105,067
Work in process 7,542 5,972
Finished goods 63,508 80,063
-------- --------
$162,723 $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 six months of 1996, as
presented in the Condensed Statements of Cash Flows on page 4, totaled
$109.5 million, compared with $126.4 million for the same period in
1995.
The company's ratio of long-term debt to stockholders' equity was
.65 to 1 at June 30, 1996, compared with .64 to 1 at December 31, 1995.
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<PAGE>
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
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 $54.1 million at June 30, 1996, decreased $74.0
million from December 31, 1995. The decrease was due to changes in
several components of working capital. A decrease of $99.9 million in
short-term investments and $28.4 million in inventories and an increase
of $57.8 million in notes payable were only partially offset by a $90.6
million reduction in current installments on long-term debt and a $17.0
million decrease in accounts payable and accrued liabilities. 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 $138.3 million for the first six months
of 1996. Of this amount, the company spent $20.6 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 $61.8 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
$55.8 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.
<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>
Second Quarter Six Months
1996 1995 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Wood products
Oriented strand board $ 40,606 $ 45,364 $ 80,551 $ 97,870
Lumber 54,357 45,798 94,917 89,459
Plywood 15,834 19,066 32,111 37,950
Particleboard 3,244 3,683 6,716 8,432
Other 7,114 7,230 16,266 15,822
- ----------------------------------------------------------------------
121,155 121,141 230,561 249,533
- ----------------------------------------------------------------------
Printing papers 107,552 112,289 221,364 220,789
- ----------------------------------------------------------------------
Other pulp-based products
Pulp 2,591 7,831 4,745 11,519
Paperboard 100,681 114,078 200,450 219,109
Tissue 54,089 41,904 117,569 90,901
- ----------------------------------------------------------------------
157,361 163,813 322,764 321,529
- ----------------------------------------------------------------------
Total net sales $386,068 $397,243 $774,689 $791,851
======================================================================
</TABLE>
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<PAGE>
<TABLE>
- ----------------------------------------------------------------------
Segment Information (continued) (Dollars in thousands)
______________________________________________________________________
<CAPTION>
Second Quarter Six Months
1996 1995 1996 1995
- ----------------------------------------------------------------------
<C> <S> <S> <S> <S>
Operating Income
Wood products $ 19,284 $ 22,371 $ 30,318 $ 54,226
Printing papers 11,406 15,149 23,380 32,790
Other pulp-based products 13,392 19,508 17,722 27,932
- ----------------------------------------------------------------------
44,082 57,028 71,420 114,948
Corporate (14,813) (18,474) (34,146) (38,437)
- ----------------------------------------------------------------------
Earnings before taxes
on income and
extraordinary item $ 29,269 $ 38,554 $ 37,274 $ 76,511
======================================================================
</TABLE>
Net sales realizations declined for most of the company's solid wood
and pulp-based products, resulting in lower earnings for the second
quarter of 1996, compared with 1995's second quarter. Second quarter
1996 results also include the effects of an extraordinary charge for
early extinguishment of debt. Net earnings for the second quarter were
$18.1 million or $.63 per common share, before the extraordinary charge.
Including the extraordinary charge, earnings were $15.2 million and
earnings per common share were $.53. For 1995's second quarter, net
earnings were $23.9 million or $.81 per common share. Net sales were
$386.1 million, compared with $397.2 million in 1995's second quarter.
Net earnings for the first half of 1996, before the extraordinary
charge, were $23.1 million or $.80 per common share. Including the
extraordinary charge, net earnings were $20.2 million or $.70 per common
share. Net earnings for the first half of 1995 were $47.4 million or
$1.62 per common share. Net sales for the first half of 1996 were
$774.7 million, compared with $791.9 million for 1995's first half.
Depreciation, amortization and cost of Potlatch timber harvested
totaled $68.3 million for the first half of 1996, a 5 percent increase
from the $65.2 million reported in 1995's first half.
The wood products segment reported operating income of $19.3 million
for the second quarter of 1996, down from 1995's $22.4 million. The
earnings decline was primarily due to lower net sales realizations for
the company's panel products as well as lower panel product shipments.
Increased oriented strand board capacity in the industry continued to
adversely affect results for this product line.
The printing papers segment second quarter operating income was
$11.4 million, compared with $15.1 million reported a year ago. Lower
net sales realizations were largely responsible for the decline.
However, lower pulp costs partially offset the decline in net sales
realizations.
The other pulp-based products segment, which includes the Pulp and
Paperboard Group and the Consumer Products Division, reported second
quarter operating income of $13.4 million, versus $19.5 million last
-7-
<PAGE>
year. Net sales realizations for pulp and paperboard were lower than a
year ago, with realizations for pulp less than half of 1995's level. In
May the company completed an annual maintenance shutdown at its pulp and
paperboard mill in Lewiston, Idaho. It was discovered during the
shutdown that repairs need to be made to the facility's largest recovery
boiler, which will require an additional shutdown in the fourth quarter
of 1996. The costs of the second shutdown will be recognized over the
remainder of the year.
The Consumer Products Division achieved significantly improved
results compared with the second quarter of 1995 due to substantially
higher shipments and higher net sales realizations, combined with lower
pulp costs.
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<PAGE>
<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
1996 1995 (Decrease) 1996 1995 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $386,068 $397,243 (3%) $774,689 $791,851 (2%)
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 33,244 32,491 2% 68,308 65,198 5%
Materials, labor and other
operating expenses 290,451 292,804 (1%) 599,000 581,733 3%
Selling, general and
administrative expenses 23,624 22,207 6% 48,255 45,401 6%
Earnings from operations 38,749 49,741 (22%) 59,126 99,519 (41%)
Interest expense (11,011) (11,885) (7%) (23,234) (24,489) (5%)
Interest and dividend income 695 269 158% 1,507 330 357%
Other income (expense), net 835 429 * (126) 1,151 *
Provision for taxes on income 11,122 14,650 (24%) 14,164 29,074 (51%)
Net earnings before
extraordinary items 18,146 23,904 (24%) 23,109 47,437 (51%)
Extraordinary item - loss from
early extinguishment of debt,
net of taxes (2,946) - * (2,946) - *
Net earnings 15,200 23,904 (36%) 20,163 47,437 (57%)
<FN>
* Not a meaningful figure.
</TABLE>
<PAGE>
PART II
ITEM 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the company held on May 16,
1996, the company's stockholders voted in favor of the election of five
directors to the company's Board of Directors, the 1995 Stock Incentive
Plan, and the ratification of KPMG Peat Marwick LLP as the company's
independent auditors for 1996. There were 62,146,851 votes represented
which equaled 89.2 percent of the total outstanding votes of 69,634,007.
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
Kenneth T. Derr 61,200,510 946,341
Toni Rembe 61,275,640 871,211
Richard M. Rosenberg 61,267,862 878,989
Charles R. Weaver 61,248,939 897,912
William T. Weyerhaeuser 60,919,143 1,227,708
Proposal No. 2 Broker
For Against Abstain Non-Votes
Approval of the 1995
Stock Incentive Plan 55,817,613 4,208,762 2,120,476 2,422,336
Proposal No. 3
For Against Abstain
Ratification of Selection
of Independent Auditors 61,198,982 291,735 656,134
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 June
30, 1996.
-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 Chief Financial Officer
(Duly Authorized; Principal
Financial Officer)
By T. L. Carter
------------------------------
T. L. Carter
Controller
(Duly Authorized; Principal
Accounting Officer)
Date: August 2, 1996
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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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,855
<SECURITIES> 325
<RECEIVABLES> 145,828
<ALLOWANCES> 2,407
<INVENTORY> 162,723
<CURRENT-ASSETS> 353,445
<PP&E> 2,945,487
<DEPRECIATION> 1,153,497
<TOTAL-ASSETS> 2,221,894
<CURRENT-LIABILITIES> 299,392
<BONDS> 622,951
<COMMON> 32,722
0
0
<OTHER-SE> 925,126
<TOTAL-LIABILITY-AND-EQUITY> 2,221,894
<SALES> 774,689
<TOTAL-REVENUES> 774,689
<CGS> 667,308
<TOTAL-COSTS> 667,308
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,234
<INCOME-PRETAX> 37,273
<INCOME-TAX> 14,164
<INCOME-CONTINUING> 23,109
<DISCONTINUED> 0
<EXTRAORDINARY> 2,946
<CHANGES> 0
<NET-INCOME> 20,163
<EPS-PRIMARY> .70
<EPS-DILUTED> 0
</TABLE>
