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, 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.)
601 West Riverside Ave., Suite 1100
Spokane, Washington 99201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (509) 835-1500
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, 1997:
28,950,462 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 nine
months ended September 30, 1997 and 1996 2
Condensed Balance Sheets at September 30, 1997
and December 31, 1996 3
Condensed Statements of Cash Flows for the nine
months ended September 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 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
1
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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
1997 1996 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $395,447 $398,227 $1,189,115 $1,172,916
- ---------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 38,991 37,377 113,866 105,685
Materials, labor and other
operating expenses 299,184 299,230 923,399 898,230
Selling, general and
administrative expenses 27,229 25,857 78,630 74,112
- ---------------------------------------------------------------------------
365,404 362,464 1,115,895 1,078,027
- ---------------------------------------------------------------------------
Earnings from operations 30,043 35,763 73,220 94,889
Interest expense (11,154) (10,138) (33,944) (33,372)
Interest and dividend income 98 280 271 1,787
Other income, net 2,716 1,443 7,151 1,317
- ---------------------------------------------------------------------------
Earnings before taxes
on income and
extraordinary item 21,703 27,348 46,698 64,621
Provision for taxes
on income (Note 2) 7,596 7,807 16,344 21,971
- ---------------------------------------------------------------------------
Net earnings before
extraordinary item 14,107 19,541 30,354 42,650
Extraordinary item - loss from
early extinguishment of debt,
net of taxes - - - (2,946)
- ---------------------------------------------------------------------------
Net earnings $ 14,107 $ 19,541 $ 30,354 $ 39,704
===========================================================================
Net earnings per
common share (Note 3):
Before extraordinary item $ .49 $ .68 $1.05 $1.48
After extraordinary item .49 .68 1.05 1.38
Dividends per common share
(annual rate) 1.70 1.66 1.70 1.66
Average shares outstanding
(in thousands) 28,935 28,845 28,909 28,899
- ---------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
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<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Balance Sheets
1997 amounts unaudited (Dollars in thousands -
except per-share amounts)
- --------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 6,102 $ 7,740
Short-term investments 6,509 4,576
Receivables, net 174,242 163,075
Inventories (Note 4) 168,835 176,899
Prepaid expenses 25,520 25,821
- --------------------------------------------------------------------------
Total current assets 381,208 378,111
Land, other than timberlands 9,099 9,088
Plant and equipment, at cost less
accumulated depreciation 1,493,040 1,465,682
Timber, timberlands and related
logging facilities 344,090 349,466
Other assets 65,710 63,332
- --------------------------------------------------------------------------
$2,293,147 $2,265,679
==========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 38,582 $ 14,281
Current installments on long-term debt 25 31,379
Accounts payable and accrued liabilities 240,189 214,485
- --------------------------------------------------------------------------
Total current liabilities 278,796 260,145
Long-term debt 672,067 672,048
Other long-term obligations 152,127 148,092
Deferred taxes 231,613 223,441
Put options 5,357 7,758
Stockholders' equity 953,187 954,195
- --------------------------------------------------------------------------
$2,293,147 $2,265,679
==========================================================================
Stockholders' equity per common share $32.93 $33.06
Working capital $102,412 $117,966
Current ratio 1.4:1 1.5:1
- --------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
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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
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings $ 30,354 $ 39,704
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 113,866 105,685
Deferred taxes 8,172 6,856
Working capital changes 24,291 27,336
Other, net (5,027) 3,241
- --------------------------------------------------------------------------
Net cash provided by operations 171,656 182,822
- --------------------------------------------------------------------------
Cash Flows From Financing
Change in bank overdrafts (1,389) 5,239
Increase in notes payable 24,301 44,868
Proceeds from long-term debt - 40,000
Repayment of long-term debt (31,335) (123,992)
Issuance of treasury stock 1,956 229
Purchase of treasury stock 78 (5,042)
Premium on early retirement of debt - (4,088)
Dividends (36,850) (35,992)
- --------------------------------------------------------------------------
Net cash used for financing (43,239) (78,778)
- --------------------------------------------------------------------------
Cash Flows From Investing
Decrease in short-term investments 3,125 98,411
Additions to investments (11,398) (46,020)
Reductions in investments 8,175 57,573
Funding of qualified pension plans (5,037) (19,734)
Additions to plant and properties (124,406) (196,441)
Disposition of plant and properties 2,611 4,424
Other, net (3,125) 1,876
- --------------------------------------------------------------------------
Net cash used for investing (130,055) (99,911)
- --------------------------------------------------------------------------
Increase (decrease) in cash (1,638) 4,133
Balance at beginning of period 7,740 7,571
- --------------------------------------------------------------------------
Balance at end of period $ 6,102 $ 11,704
==========================================================================
<FN>
Net interest payments (net of amounts capitalized) for the nine months
ended September 30, 1997 and 1996 were $24.2 million and $27.4 million,
respectively. Net income tax payments for the nine months ended September 30,
1997 and 1996 were $5.5 million and $10.2 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 September 30,
1997 and December 31, 1996, and the statements of earnings for the quarter
and nine months ended September 30, 1997 and 1996, and the condensed
statements of cash flows for the nine months ended September 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 nine months ended September 30, 1997. The rate was 34
percent for 1996. The third quarter provision for 1996 reflects the
adjustment of the rate to 34 percent from 38 percent used for the first half
of the 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, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials $ 86,280 $ 97,132
Work in process 7,428 4,774
Finished good 75,127 74,993
-------- --------
$168,835 $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 nine months of 1997, as
presented in the Condensed Statements of Cash Flows on page 4, totaled $171.7
million, compared with $182.8 million for the same period in 1996.
The company's ratio of long-term debt to stockholders' equity was .71 to
1 at September 30, 1997, compared with .70 to 1 at December 31, 1996. The
change was a result of a $1.0 million decrease in stockholders' equity.
5
<PAGE>
Working capital of $102.4 million at September 30, 1997, decreased $15.6
million from December 31, 1996. Working capital was reduced by an $8.1
million decrease in inventories and increases of $24.3 million in notes
payable and $25.7 million in accounts payable and accrued liabilities.
Partially offsetting these items was an increase of $11.2 million in accounts
receivable and a decrease in current installments on long-term debt of $31.4
million.
Capital expenditures totaled $124.4 million for the first nine months of
1997. Of this amount, the company spent $24.2 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 $64.1 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 $35.7 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>
Third Quarter Nine Months
1997 1996 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Wood products
Oriented strand board $ 27,048 $ 38,726 $ 74,903 $ 119,277
Lumber 63,430 54,129 192,200 149,046
Plywood 17,139 11,824 50,904 43,935
Particleboard 3,294 2,588 9,725 9,304
Other 17,701 17,936 46,343 34,202
- ---------------------------------------------------------------------------
128,612 125,203 374,075 355,764
- ---------------------------------------------------------------------------
Printing papers 108,731 110,805 325,637 332,169
- ---------------------------------------------------------------------------
Other pulp-based products
Pulp 1,594 3,812 9,787 8,557
Paperboard 96,665 101,481 309,945 301,931
Tissue 59,845 56,926 169,671 174,495
- ---------------------------------------------------------------------------
158,104 162,219 489,403 484,983
- ---------------------------------------------------------------------------
Total net sales $395,447 $398,227 $1,189,115 $1,172,916
===========================================================================
</TABLE>
6
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------
Segment Information (continued) (Dollars in thousands)
- ---------------------------------------------------------------------------
<CAPTION>
Third Quarter Nine Months
1997 1996 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Income
Wood products $ 15,301 $ 18,511 $ 35,133 $ 48,829
Printing papers 10,951 14,482 30,803 37,862
Other pulp-based products 15,110 10,908 38,108 28,630
- ---------------------------------------------------------------------------
41,362 43,901 104,044 115,321
Corporate (19,659) (16,553) (57,346) (50,700)
- ---------------------------------------------------------------------------
Earnings before taxes
on income and
extraordinary item $ 21,703 $ 27,348 $ 46,698 $ 64,621
===========================================================================
</TABLE>
Poor market conditions for oriented strand board led to lower earnings
for the third quarter of 1997. Net earnings for the third quarter were $14.1
million or $.49 per common share. Net earnings in 1996's third quarter were
$19.5 million or $.68 per common share. Net sales were $395.4 million for
the quarter, compared with $398.2 million in the third quarter of 1996.
Net earnings for the first nine months of 1997 were $30.4 million, or
$1.05 per common share. Net earnings for the first nine months of 1996,
before a $.10 per common share extraordinary charge for early extinguishment
of debt, were $42.6 million, or $1.48 per common share. Net sales for the
first nine months of 1997 were $1.19 billion, versus $1.17 billion in 1996.
The wood products segment reported operating income of $15.3 million for
the third quarter of 1997, down from $18.5 million earned in 1996's third
quarter. The decline was due to lower net sales realizations for oriented
strand board, which were 29 percent lower than the same period last year.
However, improved shipments and realizations for all other wood products
offset the majority of the earnings decline from oriented strand board.
Operating income for the printing papers segment was $11.0 million for
the quarter, down from $14.5 million earned in the third quarter of 1996.
Lower net sales realizations reflected a less favorable product mix compared
to last year's stronger markets.
The other pulp-based products segment, which includes the Pulp and
Paperboard Group and the Consumer Products Division, reported third quarter
1997 operating income of $15.1 million, up from $10.9 million earned a year
ago. The primary reasons for the increase were improved operations and lower
production costs for the Pulp and Paperboard Group. The Consumer Products
Division benefited from higher net sales realizations, although the benefits
were offset by higher pulp costs.
7
<PAGE>
<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
1997 1996 (Decrease) 1997 1996 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $395,447 $398,227 (1%) $1,189,115 $1,172,916 1%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 38,991 37,377 4% 113,866 105,685 8%
Materials, labor and other
operating expenses 299,184 299,230 -% 923,399 898,230 3%
Selling, general and
administrative expenses 27,229 25,857 5% 78,630 74,112 6%
Earnings from operations 30,043 35,763 (16%) 73,220 94,889 (23%)
Interest expense (11,154) (10,138) 10% (33,944) (33,372) 2%
Interest and dividend income 98 280 (65%) 271 1,787 (85%)
Other income, net 2,716 1,443 * 7,151 1,317 *
Provision for taxes on income 7,596 7,807 (3%) 16,344 21,971 (26%)
Net earnings before
extraordinary item 14,107 19,541 (28%) 30,354 42,650 (29%)
Extraordinary item - loss from
early extinguishment of debt,
net of taxes - - * - (2,946) *
Net earnings 14,107 19,541 (28%) 30,354 39,704 (24%)
*Not a meaningful figure.
</TABLE>
8
<PAGE>
PART II
ITEM 5. Other Information
L. Pendleton Siegel, the company's president and chief operating officer,
has been elected to the company's board of directors, effective November 1,
1997.
In late September the company relocated its executive office from
San Francisco, California, to Spokane, Washington.
ITEM 6. Exhibits and Reports on 8-K
Exhibits
The exhibit index is located on page 11 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, 1997.
9
<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: October 31, 1997
10
<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
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,102
<SECURITIES> 200
<RECEIVABLES> 146,759
<ALLOWANCES> 2,541
<INVENTORY> 168,835
<CURRENT-ASSETS> 381,208
<PP&E> 3,114,484
<DEPRECIATION> 1,268,255
<TOTAL-ASSETS> 2,293,147
<CURRENT-LIABILITIES> 278,796
<BONDS> 672,067
<COMMON> 32,722
0
0
<OTHER-SE> 920,465
<TOTAL-LIABILITY-AND-EQUITY> 2,293,147
<SALES> 1,189,115
<TOTAL-REVENUES> 1,189,115
<CGS> 1,037,265
<TOTAL-COSTS> 1,037,265
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,944
<INCOME-PRETAX> 46,698
<INCOME-TAX> 16,344
<INCOME-CONTINUING> 30,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,354
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 0
</TABLE>
