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 March 31, 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 March 31, 1997:
28,896,612 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 three months
ended March 31, 1997 and 1996 2
Condensed Balance Sheets at March 31, 1997
and December 31, 1996 3
Condensed Statements of Cash Flows for the three
months ended March 31, 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 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
-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>
Three Months Ended
March 31
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Net sales $399,445 $388,621
- ----------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and cost of
fee timber harvested 38,134 35,064
Materials, labor and other operating
expenses 317,970 308,549
Selling, general and administrative
expenses 25,290 24,631
- ----------------------------------------------------------------------
381,394 368,244
- ----------------------------------------------------------------------
Earnings from operations 18,051 20,377
Interest expense (11,739) (12,223)
Interest and dividend income 87 812
Other income (expense), net 3,394 (961)
- ----------------------------------------------------------------------
Earnings before taxes on income 9,793 8,005
Provision for taxes on income (Note 2) 3,428 3,042
- ----------------------------------------------------------------------
Net earnings $ 6,365 $ 4,963
======================================================================
Net earnings per common share (Note 3) $ .22 $ .17
Dividends per common share (annual rate) 1.70 1.66
Average shares outstanding (in thousands) 28,886 28,941
- ----------------------------------------------------------------------
<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>
March 31, December 31,
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 11,801 $ 7,740
Short-term investments 3,233 4,576
Receivables, net 184,550 163,075
Inventories (Note 4) 160,472 176,899
Prepaid expenses 24,592 25,821
- ----------------------------------------------------------------------
Total current assets 384,648 378,111
Land, other than timberlands 9,085 9,088
Plant and equipment, at cost less
accumulated depreciation 1,471,974 1,465,682
Timber, timberlands and related
logging facilities 346,831 349,466
Other assets 61,311 63,332
- ----------------------------------------------------------------------
$2,273,849 $2,265,679
======================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 21,915 $ 14,281
Current installments on long-term debt 26,205 31,379
Accounts payable and accrued liabilities 222,203 214,485
- ----------------------------------------------------------------------
Total current liabilities 270,323 260,145
Long-term debt 672,045 672,048
Other long-term obligations 149,059 148,092
Deferred taxes 225,154 223,441
Put options 9,395 7,758
Stockholders' equity 947,873 954,195
- ----------------------------------------------------------------------
$2,273,849 $2,265,679
======================================================================
Stockholders' equity per common share $32.80 $33.06
Working capital $114,325 $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>
Three Months Ended
March 31
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings $ 6,365 $ 4,963
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 38,134 35,064
Deferred taxes 1,713 1,217
Working capital changes 4,333 (851)
Other, net (3,374) (83)
- ----------------------------------------------------------------------
Net cash provided by operations 47,171 40,310
- ----------------------------------------------------------------------
Cash Flows From Financing
Change in bank overdrafts (434) (6,655)
Increase in notes payable 7,634 -
Repayment of long-term debt (5,177) (35,273)
Issuance of treasury stock 709 170
Purchase of treasury stock 78 (1,089)
Dividends (12,274) (12,010)
- ----------------------------------------------------------------------
Net cash used for financing (9,464) (54,857)
- ----------------------------------------------------------------------
Cash Flows From Investing
Decrease in short-term investments 1,108 93,011
Funding of qualified pension plans - (19,734)
Additions to plant and properties (35,957) (61,453)
Disposition of plant and properties 1,499 3,105
Other, net (296) (4,153)
- ----------------------------------------------------------------------
Net cash provided by
(used for) investing (33,646) 10,776
- ----------------------------------------------------------------------
Increase (decrease) in cash 4,061 (3,771)
Balance at beginning of period 7,740 7,571
- ----------------------------------------------------------------------
Balance at end of period $ 11,801 $ 3,800
======================================================================
<FN>
Net interest payments (net of amounts capitalized) for the three months ended
March 31, 1997 and 1996 were $1.6 million and $2.6 million, respectively. Net
income tax payments (refunds) for the three months ended March 31, 1997 and 1996
were $(1.9) million and $(1.0) 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 March
31, 1997 and December 31, 1996, and the statements of earnings and the
condensed statements of cash flows for the three months ended March 31,
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 TAXES - 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 ended March 31, 1997 and 38 percent for
the quarter ended March 31, 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>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Raw materials $ 87,119 $ 97,132
Work in process 8,170 4,774
Finished goods 65,183 74,993
-------- --------
$160,472 $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 (as presented in the Condensed
Statements of Cash Flows on page 4) totaled $47.2 million, compared with
$40.3 million for the first quarter of 1996.
The company's ratio of long-term debt to stockholders' equity was
.71 to 1 at March 31, 1997, compared to .70 to 1 at December 31, 1996.
The change was a result of a $6.3 million decrease in stockholders'
equity.
Working capital of $114.3 million at March 31, 1997, decreased $3.6
million from December 31, 1996. The change in working capital was
largely due to a decrease in inventories of $16.4 million and increases
of $7.6 million in notes payable and $7.7 million in accounts payable
-5-
<PAGE>
and accrued liabilities. These amounts were partially offset by a $21.5
million increase in receivables and a $5.2 million decrease in current
installments on long-term debt.
Capital expenditures totaled $36.0 million for the first three
months of 1997. Of this amount, the company spent $6.2 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. In the printing papers segment the
company spent $16.2 million, 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 $13.5 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>
Three Months
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Net Sales
Wood products
Oriented strand board $ 21,377 $ 39,945
Lumber 61,977 40,560
Plywood 17,194 16,277
Particleboard 3,245 3,472
Other 16,518 9,152
- ----------------------------------------------------------------------
120,311 109,406
- ----------------------------------------------------------------------
Printing papers 115,172 113,812
- ----------------------------------------------------------------------
Other pulp-based products
Pulp 5,191 2,154
Paperboard 102,985 99,769
Tissue 55,786 63,480
- ----------------------------------------------------------------------
163,962 165,403
- ----------------------------------------------------------------------
Total net sales $399,445 $388,621
======================================================================
Operating Income
Wood products $ 11,150 $ 11,034
Printing papers 10,300 11,974
Other pulp-based products 6,540 4,330
- ----------------------------------------------------------------------
27,990 27,338
Corporate (18,197) (19,333)
- ----------------------------------------------------------------------
Earnings before taxes on income $ 9,793 $ 8,005
======================================================================
</TABLE>
-6-
<PAGE>
The company had higher earnings for the first quarter of 1997
despite lower realizations for all of its pulp-based products and
oriented strand board. The results for the first quarter of 1996 were
adversely affected by flood-related problems in Idaho. Net earnings for
the first quarter of 1997 were $6.4 million, or $.22 per common share.
First quarter 1996 net earnings were $5.0 million, or $.17 per common
share. Net sales for the first quarter of 1997 were $399.4 million,
compared with $388.6 million a year ago.
Depreciation, amortization and cost of Potlatch timber harvested
totaled $38.1 million, a 9 percent increase from the $35.1 million
reported a year ago. A significant portion of the increase is related
to increased harvest levels from the company's timberlands.
The wood products segment reported operating income of $11.2 million
for the first quarter of 1997, a slight improvement from 1996's $11.0
million. Demand for the company's lumber products was good during the
quarter and resulted in higher net sales realizations and increased
shipments. However, markets for panel products were poor. Oriented
strand board markets deteriorated to the point that it was necessary to
halt production at the company's three mills in Minnesota for two weeks
in early March. Net sales realizations for oriented strand board
declined by approximately one-third compared to the first quarter of
1996.
The printing papers segment reported first quarter 1997 operating
income of $10.3 million, down from $12.0 million earned in the first
quarter of 1996. Good operating results at the company's two coated
paper mills in Minnesota were largely offset by lower net sales
realizations. Normal startup costs associated with the new pulp mill
fiberline also contributed to the lower earnings.
The other pulp-based products segment, which includes the Pulp and
Paperboard Group and the Consumer Products Division, reported operating
income for the first quarter of 1997 of $6.5 million, versus $4.3
million in 1996's first quarter, when flooding occurred in Idaho. Lower
net sales realizations for pulp and paperboard were largely offset by
improved results in the Consumer Products Division, which benefitted
from lower pulp costs.
"Other income (expense), net" for the three months ended March 31,
1997, includes a $3.3 million gain from sales of timberland.
-7-
<PAGE>
<TABLE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Changes in Statements of Earnings
(Dollars in thousands)
<CAPTION>
Three Months Ended March 31
------------------------------
Increase
1997 1996 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Net sales $399,445 $388,621 3%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 38,134 35,064 9%
Materials, labor and other
operating expenses 317,970 308,549 3%
Selling, general and
administrative expenses 25,290 24,631 3%
Earnings from operations 18,051 20,377 (11%)
Interest expense (11,739) (12,223) (4%)
Interest and dividend income 87 812 (89%)
Other income (expense), net 3,394 (961) *
Provision for taxes on income 3,428 3,042 13%
Net earnings 6,365 4,963 28%
*Not a meaningful figure.
</TABLE>
-8-
<PAGE>
PART II
ITEM 1. Legal Proceedings
In August 1993, the company received a Notice of Violation ("NOV") from
the U.S. Environmental Protection Agency ("EPA"). The NOV alleged that
construction of the company's three oriented strand board plants in
Minnesota commenced prior to obtaining proper permits and that particulate
emissions from the dryers at one plant exceeded applicable limits. The
Minnesota Pollution Control Agency ("MPCA") had previously issued NOVs to
the company which set forth the same allegations. In early January 1994,
the company entered into an agreement with the MPCA which resolved the
alleged violations under its NOVs by agreeing to install additional
pollution control equipment at all three plants and pay a civil penalty of
$300,000. The agreement did not resolve the EPA allegations. In January
1995, the EPA informed the company that it referred the matter to the
United States Department of Justice (the "DOJ") to commence a civil
enforcement action against the company. In April 1997, the DOJ advised the
company that the EPA has withdrawn the referral.
ITEM 6. Exhibits and Reports on Form 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 March 31,
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: April 30, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,801
<SECURITIES> 1,975
<RECEIVABLES> 154,087
<ALLOWANCES> 2,296
<INVENTORY> 160,472
<CURRENT-ASSETS> 384,648
<PP&E> 3,037,429
<DEPRECIATION> 1,209,539
<TOTAL-ASSETS> 2,273,849
<CURRENT-LIABILITIES> 270,323
<BONDS> 672,045
<COMMON> 32,722
0
0
<OTHER-SE> 915,151
<TOTAL-LIABILITY-AND-EQUITY> 2,273,849
<SALES> 399,445
<TOTAL-REVENUES> 399,445
<CGS> 356,104
<TOTAL-COSTS> 356,104
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,739
<INCOME-PRETAX> 9,793
<INCOME-TAX> 3,428
<INCOME-CONTINUING> 6,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,365
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
