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, 1997 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, 1997:
28,913,087 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, 1997 and 1996 2
Condensed Balance Sheets at June 30, 1997
and December 31, 1996 3
Condensed Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5 - 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security
Holders 9
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
1997 1996 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $394,223 $386,068 $793,668 $774,689
- ------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 36,741 33,244 74,875 68,308
Materials, labor and other
operating expenses 306,245 290,451 624,215 599,000
Selling, general and
administrative expenses 26,111 23,624 51,401 48,255
- ------------------------------------------------------------------------
369,097 347,319 750,491 715,563
- ------------------------------------------------------------------------
Earnings from operations 25,126 38,749 43,177 59,126
Interest expense (11,051) (11,011) (22,790) (23,234)
Interest and dividend income 86 695 173 1,507
Other income (expense), net 1,041 835 4,435 (126)
- ------------------------------------------------------------------------
Earnings before taxes on
income and extraordinary
item 15,202 29,268 24,995 37,273
Provision for taxes on
income (Note 2) 5,320 11,122 8,748 14,164
- ------------------------------------------------------------------------
Net earnings before
extraordinary item 9,882 18,146 16,247 23,109
Extraordinary item - loss from
early extinguishment of debt,
net of taxes - (2,946) - (2,946)
- ------------------------------------------------------------------------
Net earnings $ 9,882 $ 15,200 $ 16,247 $ 20,163
========================================================================
Net earnings per
common share (Note 3):
Before extraordinary item $ .34 $ .63 $ .56 $ .80
After extraordinary item .34 .53 .56 .70
Dividends per common share
(annual rate) 1.70 1.66 1.70 1.66
Average shares outstanding
(in thousands) 28,905 28,910 28,895 28,925
- ------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
-2-
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Balance Sheets
1997 amounts unaudited (Dollars in thousands -
except per-share amounts)
- ---------------------------------------------------------------------------
<CAPTION>
June 30, December 31,
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 11,415 $ 7,740
Short-term investments 1,471 4,576
Receivables, net 183,803 163,075
Inventories (Note 4) 155,856 176,899
Prepaid expenses 29,307 25,821
- ---------------------------------------------------------------------------
Total current assets 381,852 378,111
Land, other than timberlands 9,107 9,088
Plant and equipment, at cost less
accumulated depreciation 1,474,760 1,465,682
Timber, timberlands and related
logging facilities 348,354 349,466
Other assets 66,635 63,332
- ---------------------------------------------------------------------------
$2,280,708 $2,265,679
===========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 38,145 $ 14,281
Current installments on long-term debt 202 31,379
Accounts payable and accrued liabilities 237,168 214,485
- ---------------------------------------------------------------------------
Total current liabilities 275,515 260,145
Long-term debt 672,055 672,048
Other long-term obligations 149,894 148,092
Deferred taxes 227,815 223,441
Put options 5,357 7,758
Stockholders' equity 950,072 954,195
- ---------------------------------------------------------------------------
$2,280,708 $2,265,679
===========================================================================
Stockholders' equity per common share $32.86 $33.06
Working capital $106,337 $117,966
Current ratio 1.4:1 1.5:1
- ---------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
- ---------------------------------------------------------------------------
<CAPTION>
Six Months Ended
June 30
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings $ 16,247 $ 20,163
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 74,875 68,308
Deferred taxes 4,374 4,943
Working capital changes 21,617 11,345
Other, net (3,524) 4,708
- ---------------------------------------------------------------------------
Net cash provided by operations 113,589 109,467
- ---------------------------------------------------------------------------
Cash Flows From Financing
Change in bank overdrafts (2,105) (2,112)
Increase in notes payable 23,864 57,802
Proceeds from long-term debt - 40,000
Repayment of long-term debt (31,170) (123,820)
Issuance of treasury stock 1,090 209
Purchase of treasury stock 78 (5,239)
Premium on early retirement of debt - (4,088)
Dividends (24,555) (24,021)
- ---------------------------------------------------------------------------
Net cash used for financing (32,798) (61,269)
- ---------------------------------------------------------------------------
Cash Flows From Investing
Decrease in short-term investments 3,125 100,411
Additions to investments (4,088) (44,037)
Reductions in investments 5,804 52,209
Funding of qualified pension plans (5,037) (19,734)
Additions to plant and properties (71,575) (138,250)
Disposition of plant and properties 906 2,722
Other, net (6,251) 765
- ---------------------------------------------------------------------------
Net cash used for investing (77,116) (45,914)
- ---------------------------------------------------------------------------
Increase in cash 3,675 2,284
Balance at beginning of period 7,740 7,571
- ---------------------------------------------------------------------------
Balance at end of period $ 11,415 $ 9,855
===========================================================================
<FN>
Net interest payments (net of amounts capitalized) for the six months ended
June 30, 1997 and 1996 were $22.5 million and $25.1 million, respectively.
Net income tax payments for the six months ended June 30, 1997 and 1996 were
$3.3 million and $5.8 million, respectively.
The accompanying notes are an integral part of these financial statements.
</TABLE>
-4-
<PAGE>
Potlatch Corporation and Consolidated Subsidiaries
Notes to Financial Statements
(Dollars in thousands)
_______________________________________________________________________
NOTE 1. GENERAL - The accompanying condensed balance sheets at June 30,
1997 and December 31, 1996, and the statements of earnings for the
quarter and six months ended June 30, 1997 and 1996, and the condensed
statements of cash flows for the six months ended June 30, 1997 and
1996, 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 35 percent for the quarter and six months ended June 30, 1997 and 38
percent for the quarter and six months ended June 30, 1996.
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>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Raw materials $ 76,571 $ 97,132
Work in process 8,585 4,774
Finished goods 70,700 74,993
-------- --------
$155,856 $176,899
======== ========
</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 1997, as
presented in the Condensed Statements of Cash Flows on page 4, totaled
$113.6 million, compared with $109.5 million for the same period in
1996.
The company's ratio of long-term debt to stockholders' equity was
.71 to 1 at June 30, 1997, compared with .70 to 1 at December 31, 1996.
The change was a result of a $4.1 million decrease in stockholders'
equity.
Working capital was $106.3 million at June 30, 1997, down $11.6
million from December 31, 1996. A $21.0 million decrease in inventories
combined with increases of $23.9 million in notes payable and $22.7
-5-
<PAGE>
million in accounts payable and accrued liabilities were largely
responsible for the decline and more than offset a $20.7 million
increase in receivables and $31.2 million decrease in current
installments on long-term debt.
Capital expenditures totaled $71.6 million for the first six months
of 1997. Of this amount, the company spent $13.3 million in the wood
products segment, which included the final expenditures for the upgrade
of the dry end at the Prescott, Arkansas, sawmill and installation of
pollution control equipment at the company's oriented strand board
plants in Minnesota. The company spent $34.0 million in the printing
papers segment, largely for the recovery boiler and turbine generator
phase of the modernization and expansion of the company's pulp mill in
Cloquet, Minnesota. Spending in the other pulp-based products segment
totaled $24.2 million. A significant portion of this total related to
the continued development of the hybrid poplar plantation in Boardman,
Oregon, as well as several projects at the Lewiston, Idaho, pulp mill:
the continuation of the washer replacement project, a caustic plant
upgrade and a new green liquor clarifier.
<TABLE>
Results of Operations
A summary of period-to-period changes in items included in the
statements of earnings is presented on page 8 of this Form 10-Q.
- ----------------------------------------------------------------------
Segment Information (Dollars in thousands)
- ----------------------------------------------------------------------
<CAPTION>
Second Quarter Six Months
1997 1996 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Wood products
Oriented strand board $ 26,478 $ 40,606 $ 47,855 $ 80,551
Lumber 66,793 54,357 128,770 94,917
Plywood 16,571 15,834 33,765 32,111
Particleboard 3,186 3,244 6,431 6,716
Other 12,124 7,114 28,642 16,266
- ----------------------------------------------------------------------
125,152 121,155 245,463 230,561
- ----------------------------------------------------------------------
Printing papers 101,734 107,552 216,906 221,364
- ----------------------------------------------------------------------
Other pulp-based products
Pulp 3,002 2,591 8,193 4,745
Paperboard 110,295 100,681 213,280 200,450
Tissue 54,040 54,089 109,826 117,569
- ----------------------------------------------------------------------
167,337 157,361 331,299 322,764
- ----------------------------------------------------------------------
Total net sales $394,223 $386,068 $793,668 $774,689
======================================================================
</TABLE>
-6-
<PAGE>
<TABLE>
- ----------------------------------------------------------------------
Segment Information (continued) (Dollars in thousands)
- ----------------------------------------------------------------------
<CAPTION>
Second Quarter Six Months
1997 1996 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Income
Wood products $ 8,682 $ 19,284 $ 19,832 $ 30,318
Printing papers 9,552 11,406 19,852 23,380
Other pulp-based products 16,458 13,392 22,998 17,722
- ----------------------------------------------------------------------
34,692 44,082 62,682 71,420
Corporate (19,490) (14,814) (37,687) (34,147)
- ----------------------------------------------------------------------
Earnings before taxes
on income and
extraordinary item $ 15,202 $ 29,268 $ 24,995 $ 37,273
======================================================================
</TABLE>
Net sales realizations for oriented strand board were significantly
lower than a year ago and were largely responsible for lower earnings in
the second quarter of 1997. Net earnings for the second quarter were
$9.9 million or $.34 per common share. For 1996's second quarter, net
earnings were $18.1 million or $.63 per common share, before a $.10 per
common share extraordinary charge for early extinguishment of debt. Net
sales were $394.2 million in 1997, compared with $386.1 million in
1996's second quarter.
Net earnings for the first half of 1997 were $16.2 million or $.56
per common share. Net earnings for the first half of 1996, before the
extraordinary charge, were $23.1 million or $.80 per common share. Net
sales for the first half of 1997 were $793.7 million, compared with
$774.7 million for 1996's first half.
Depreciation, amortization and cost of Potlatch timber harvested
totaled $74.9 million for the first half of 1997, a 10 percent increase
from $68.3 million reported in 1996's first half. A significant portion
of the increase is due to increased harvest levels from the company's
fee timberlands.
Operating income for the wood products segment was $8.7 million for
the second quarter of 1997, down from 1996's $19.3 million. The
earnings decline was primarily due to lower net sales realizations for
oriented strand board, which more than offset higher lumber realizations
and shipments.
The printing papers segment second quarter operating income was $9.6
million, down from $11.4 million reported a year ago. Lower net sales
realizations, due to a less favorable product mix, were largely
responsible for the decline.
The other pulp-based products segment, which includes the Pulp and
Paperboard Group and the Consumer Products Division, reported second
quarter operating income of $16.5 million, up from $13.4 million earned
last year. Shipments for pulp and paperboard were higher than a year
ago, and realizations for pulp were above 1996's level. The Consumer
Products Division benefited from slightly higher net sales realizations
compared with the second quarter of 1996.
-7-
<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
1997 1996 (Decrease) 1997 1996 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $394,223 $386,068 2% $793,668 $774,689 2%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 36,741 33,244 11% 74,875 68,308 10%
Materials, labor and other
operating expenses 306,245 290,451 5% 624,215 599,000 4%
Selling, general and
administrative expenses 26,111 23,624 11% 51,401 48,255 7%
Earnings from operations 25,126 38,749 (35%) 43,177 59,126 (27%)
Interest expense (11,051) (11,011) -% (22,790) (23,234) (2%)
Interest and dividend income 86 695 (88%) 173 1,507 (89%)
Other income (expense), net 1,041 835 * 4,435 (126) *
Provision for taxes on income 5,320 11,122 (52%) 8,748 14,164 (38%)
Net earnings before
extraordinary items 9,882 18,146 (46%) 16,247 23,109 (30%)
Extraordinary item - loss from
early extinguishment of debt,
net of taxes - (2,946) * - (2,946) *
Net earnings 9,882 15,200 (35%) 16,247 20,163 (19%)
* Not a meaningful figure.
</TABLE>
-8-
<PAGE>
PART II
ITEM 1. Legal Proceedings
Late in the quarter, a jury in the State of Idaho's District Court,
Second Judical District, awarded the company $95 million for damages
resulting from defects and deficiencies associated with a pulp washer
system that was installed in the company's Lewiston, Idaho, pulp mill.
The washers were supplied by Beloit Corporation, the defendant in the
case. The jury award is subject to post-trial motions and appeal.
Therefore, the company's financial statements for the second quarter do
not include the award.
ITEM 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the company held on May 15,
1997, the company's stockholders voted in favor of the election of five
directors to the company's Board of Directors, against the stockholder
proposal requesting adoption of cumulative voting, and against the
stockholder proposal requesting elimination of the classified board of
directors. There were 60,155,086 votes represented at the meeting,
which equaled 87.6% of the total outstanding votes of 68,640,366. 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:
Richard B. Madden 58,918,345 1,236,741
Richard M. Morrow 58,999,059 1,156,026
John M. Richards 59,010,391 1,144,695
Reuben F. Richards 58,931,633 1,223,453
Frederick T. Weyerhaeuser 59,097,129 1,057,957
Proposal No. 2: Broker
For Against Abstain Non-Votes
Adoption of
Cumulative Voting 12,206,429 46,016,911 500,750 1,430,996
Proposal No. 3: Broker
For Against Abstain Non-Votes
Elimination of Classified
Board of Directors 12,862,953 45,352,270 508,967 1,430,896
-9-
<PAGE>
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
A current report on Form 8-K was filed on June 23, 1997.
Information was reported under Item 5, Other Events, concerning the
outcome of a lawsuit the company had filed against Beloit Corporation in
December 1995.
-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 1, 1997
-11-
<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.
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,415
<SECURITIES> 200
<RECEIVABLES> 156,943
<ALLOWANCES> 2,421
<INVENTORY> 155,856
<CURRENT-ASSETS> 381,852
<PP&E> 3,070,584
<DEPRECIATION> 1,238,363
<TOTAL-ASSETS> 2,280,708
<CURRENT-LIABILITIES> 275,515
<BONDS> 672,055
<COMMON> 32,722
0
0
<OTHER-SE> 917,350
<TOTAL-LIABILITY-AND-EQUITY> 2,280,708
<SALES> 793,668
<TOTAL-REVENUES> 793,668
<CGS> 699,090
<TOTAL-COSTS> 699,090
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,790
<INCOME-PRETAX> 24,995
<INCOME-TAX> 8,748
<INCOME-CONTINUING> 16,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,247
<EPS-PRIMARY> .56
<EPS-DILUTED> 0
</TABLE>
