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, 1998 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 March 31, 1998:
29,005,537 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, 1998 and 1997 2
Condensed Balance Sheets at March 31, 1998
and December 31, 1997 3
Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 4
Notes to Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
1
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Statements of Earnings
Unaudited (Dollars in thousands - except per-share amounts)
- -----------------------------------------------------------------------
<CAPTION>
Three Months Ended
March 31
1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Net sales $402,534 $399,445
- -----------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 36,673 38,134
Materials, labor and other
operating expenses 307,884 317,970
Selling, general and
administrative expenses 30,328 25,290
- -----------------------------------------------------------------------
374,885 381,394
- -----------------------------------------------------------------------
Earnings from operations 27,649 18,051
Interest expense (12,212) (11,739)
Interest and dividend income 831 87
Other income, net 773 3,394
- -----------------------------------------------------------------------
Earnings before taxes on income 17,041 9,793
Provision for taxes on income (Note 2) 6,305 3,428
- -----------------------------------------------------------------------
Net earnings $ 10,736 $ 6,365
=======================================================================
Net earnings per common share (Note 3):
Basic $ .37 $ .22
Diluted .37 .22
Dividends per common share (annual rate) 1.74 1.70
Average shares outstanding (in thousands) 29,002 28,886
Average shares outstanding, assuming
dilution (in thousands) 29,043 28,921
- -----------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Balance Sheets
1998 amounts unaudited (Dollars in thousands -
except per-share amounts)
- -----------------------------------------------------------------------
<CAPTION>
March 31, December 31,
1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 9,146 $ 9,026
Short-term investments 8,349 6,516
Receivables, net 192,432 179,159
Inventories (Note 4) 170,631 182,303
Prepaid expenses 26,569 26,773
- -----------------------------------------------------------------------
Total current assets 407,127 403,777
Land, other than timberlands 9,093 9,093
Plant and equipment, at cost less
accumulated depreciation 1,491,604 1,493,417
Timber, timberlands and related
logging facilities 342,634 342,503
Other assets 116,444 116,346
- -----------------------------------------------------------------------
$2,366,902 $2,365,136
=======================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 68,300 $ 95,550
Current installments on long-term debt 10,021 22
Accounts payable and accrued liabilities 229,505 201,984
- -----------------------------------------------------------------------
Total current liabilities 307,826 297,556
Long-term debt 712,078 722,080
Other long-term obligations 155,790 155,336
Deferred taxes 239,456 236,934
Put options 1,638 1,638
Stockholders' equity 950,114 951,592
- -----------------------------------------------------------------------
$2,366,902 $2,365,136
=======================================================================
Stockholders' equity per common share $32.76 $32.82
Working capital $99,301 $106,221
Current ratio 1.3:1 1.4:1
- -----------------------------------------------------------------------
<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
1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings $ 10,736 $ 6,365
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 36,673 38,134
Deferred taxes 2,522 1,713
Working capital changes 36,023 4,333
Other, net (369) (3,374)
- -----------------------------------------------------------------------
Net cash provided by operations 85,585 47,171
- -----------------------------------------------------------------------
Cash Flows From Financing
Change in bank overdrafts (9,899) (434)
Increase (decrease) in notes payable (27,250) 7,634
Repayment of long-term debt (3) (5,177)
Issuance of treasury stock 248 709
Purchase of treasury stock - 78
Dividends (12,614) (12,274)
- -----------------------------------------------------------------------
Net cash used for financing (49,518) (9,464)
- -----------------------------------------------------------------------
Cash Flows From Investing
Decrease (increase) in short-term investments (2,100) 1,108
Additions to plant and properties (30,712) (35,957)
Disposition of plant and properties 230 1,499
Other, net (3,365) (296)
- -----------------------------------------------------------------------
Net cash used for investing (35,947) (33,646)
- -----------------------------------------------------------------------
Increase in cash 120 4,061
Balance at beginning of period 9,026 7,740
- -----------------------------------------------------------------------
Balance at end of period $ 9,146 $ 11,801
=======================================================================
<FN>
Net interest payments (net of amounts capitalized) for the three months
ended March 31, 1998 and 1997 were $2.7 million and $1.6 million,
respectively. Net income tax payments (refunds) for the three months
ended March 31, 1998 and 1997 were $(2.1) million and $(1.9) 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 March 31,
1998, and December 31, 1997, and the statements of earnings and the condensed
statements of cash flows for the three months ended March 31, 1998, and 1997,
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 37 percent for
the quarter ended March 31, 1998, and 35 percent for the quarter ended March 31,
1997.
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 in accordance with FASB Statement No. 128, "Earnings Per Share."
The following table reconciles the number of common shares used in the
basic and diluted earnings per share calculations:
Three Months Ended
March 31
1998 1997
---- ----
Basic average common shares outstanding 29,001,754 28,886,041
Incremental shares due to common stock options 40,983 35,307
---------- ----------
Diluted average common shares outstanding 29,042,737 28,921,348
========== ==========
Options to purchase shares of common stock of 781,575 and 502,475 at March 31,
1998, and 1997, respectively, were not included in the above computations
because the options' exercise price was greater than the average market price
of common shares.
5
<PAGE>
Note 4. INVENTORIES - Inventories at the balance sheet dates consist of:
March 31, 1998 December 31, 1997
Raw materials $ 86,342 $ 93,625
Work in process 7,357 5,989
Finished goods 76,932 82,689
-------- --------
$170,631 $182,303
======== ========
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 three months of 1998, as
presented in the Condensed Statements of Cash Flows on page 4, totaled
$85.6 million, compared with $47.2 million for the same period in 1997.
The company's ratio of long-term debt to stockholders' equity was
.75 to 1 at March 31, 1998, compared with .76 to 1 at December 31, 1997.
The change was primarily due to the reclassification of $10.0 million of
medium-term notes from long-term to current due to their maturity within a
year.
Working capital of $99.3 million at March 31, 1998, decreased $6.9
million from December 31, 1997. The decrease was due to changes in several
components of working capital. A decrease of $11.7 million in inventories
and increases of $10.0 million in current installments on long-term debt and
$27.5 million in accounts payable and accrued liabilities were major factors
reducing working capital and more than offset an increase in receivables of
$13.3 million and a decrease in notes payable of $27.3 million.
Capital expenditures totaled $30.7 million for the first three months of
1998. Of this amount, the company spent $6.3 million in the wood products
segment, which included expenditures for pollution control equipment at the
Cook and Bemidji, Minnesota, oriented strand board plants and for the plant
expansion at Cook. The company spent $19.4 million in the printing papers
segment; the majority of these expenditures were for the continued modernization
and expansion of the company's pulp mill in Cloquet, Minnesota. Spending in
the other pulp-based products segment totaled $4.4 million. A portion of this
total related to the replacement of washers, the caustic plant upgrade and a
new green liquor clarifier, all at the Lewiston, Idaho, pulp mill and the
continued development of the hybrid poplar tree farm in Boardman, Oregon.
6
<PAGE>
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.
<TABLE>
- ------------------------------------------------------------------------
Segment Information (Dollars in thousands)
- ------------------------------------------------------------------------
<CAPTION>
Three Months
1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Net Sales
Wood products
Oriented strand board $ 33,345 $ 21,377
Lumber 58,758 61,977
Plywood 12,794 17,194
Particleboard 3,335 3,245
Other 11,539 16,518
- ------------------------------------------------------------------------
119,771 120,311
- ------------------------------------------------------------------------
Printing papers 112,263 115,172
- ------------------------------------------------------------------------
Other pulp-based products
Pulp 2,351 5,191
Paperboard 107,205 102,985
Tissue 60,944 55,786
- ------------------------------------------------------------------------
170,500 163,962
- ------------------------------------------------------------------------
Total net sales $402,534 $399,445
========================================================================
Operating Income
Wood products $ 13,535 $ 11,150
Printing papers 8,654 10,300
Other pulp-based products 15,581 6,540
- ------------------------------------------------------------------------
37,770 27,990
Corporate (20,729) (18,197)
- ------------------------------------------------------------------------
Earnings before taxes on income $ 17,041 $ 9,793
========================================================================
</TABLE>
Improved production at the Lewiston, Idaho, pulp mill and improved
oriented strand board markets were largely responsible for higher earnings
for the first quarter of 1998. Markets for most of the company's pulp-based
products continued to be very competitive. Net earnings for the first
quarter of 1998 were $10.7 million, or $.37 per diluted common share. First
quarter 1997 net earnings were $6.4 million, or $.22 per diluted common
share. Net sales for the first quarter of 1998 were $402.5 million, compared
with $399.4 million a year ago.
7
<PAGE>
Depreciation, amortization and cost of Potlatch timber harvested totaled
$36.7 million for the first three months of 1998, compared to $38.1 million
for the first quarter of 1997. The decrease was the result of lower harvest
volumes from the company's fee timberlands.
The wood products segment reported higher operating income of $13.5
million for the first quarter of 1998, compared to $11.2 million in 1997's
first quarter. The oriented strand board market showed some improvement
during the quarter with higher net sales realizations and shipments compared
to the first quarter of 1997. In early March of 1997, the company halted
production at its three mills in Minnesota for two weeks due to unfavorable
market conditions. The improvement for oriented strand board in 1998 helped
to offset decreased lumber shipments and lower net sales realizations.
The printing papers segment reported first quarter 1998 operating income
of $8.7 million, down from $10.3 million earned in the first quarter of 1997.
Markets for coated papers were somewhat weaker than at the same time last year.
Shipments for coated papers were down compared to the first quarter of 1997.
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 1998 of $15.6 million, versus $6.5 million
earned in 1997's first quarter. Improved production at the Lewiston, Idaho,
pulp mill, together with higher shipments and net sales realizations for
paperboard, were largely responsible for the positive results. However,
markets were very competitive for pulp and paperboard in the first quarter,
with pulp average net sales realizations down from the fourth quarter. The
Consumer Products Division recorded slightly higher results, as increased
shipments and a decrease in pulp costs more than offset a decline in net
sales realizations for tissue products.
8
<PAGE>
<TABLE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Changes in Statements of Earnings
(Dollars in thousands)
<CAPTION>
Three Months Ended March 31
--------------------------------
Increase
1998 1997 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Net sales $402,534 $399,445 1%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 36,673 38,134 (4%)
Materials, labor and other
operating expenses 307,884 317,970 (3%)
Selling, general and
administrative expenses 30,328 25,290 20%
Earnings from operations 27,649 18,051 53%
Interest expense (12,212) (11,739) 4%
Interest and dividend income 831 87 855%
Other income, net 773 3,394 (77%)
Provision for taxes on income 6,305 3,428 84%
Net earnings 10,736 6,365 69%
</TABLE>
9
<PAGE>
PART II
ITEM 6. Exhibits and Reports on 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
March 31, 1998.
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 S. T. Powell
---------------------------
S. T. Powell
Vice President,
Financial Services
(Duly Authorized Officer
of the Registrant)
By T. L. Carter
---------------------------
T. L. Carter
Controller
(Duly Authorized; Principal
Accounting Officer)
Date: May 5, 1998
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,146
<SECURITIES> 2,250
<RECEIVABLES> 160,172
<ALLOWANCES> 2,045
<INVENTORY> 170,631
<CURRENT-ASSETS> 407,127
<PP&E> 3,167,717
<DEPRECIATION> 1,324,386
<TOTAL-ASSETS> 2,366,902
<CURRENT-LIABILITIES> 307,826
<BONDS> 712,078
<COMMON> 32,722
0
0
<OTHER-SE> 917,392
<TOTAL-LIABILITY-AND-EQUITY> 2,366,902
<SALES> 402,534
<TOTAL-REVENUES> 402,534
<CGS> 344,557
<TOTAL-COSTS> 344,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,212
<INCOME-PRETAX> 17,041
<INCOME-TAX> 6,305
<INCOME-CONTINUING> 10,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,736
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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> .22
</TABLE>
