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, 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 June 30, 1998:
29,008,812 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, 1998 and 1997 2
Condensed Balance Sheets at June 30, 1998
and December 31, 1997 3
Condensed Statements of Cash Flows for the six
months ended June 30, 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 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
1998 1997 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $400,482 $394,223 $803,016 $793,668
- ----------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 36,535 36,741 73,208 74,875
Materials, labor and other
operating expenses 306,986 306,245 614,870 624,215
Selling, general and
administrative expenses 29,747 26,111 60,075 51,401
- ----------------------------------------------------------------------------
373,268 369,097 748,153 750,491
- ----------------------------------------------------------------------------
Earnings from operations 27,214 25,126 54,863 43,177
Interest expense (12,135) (11,051) (24,347) (22,790)
Interest and dividend income 939 86 1,770 173
Other income (expense), net (67) 1,041 706 4,435
- ----------------------------------------------------------------------------
Earnings before taxes
on income 15,951 15,202 32,992 24,995
Provision for taxes on
income (Note 2) 5,902 5,320 12,207 8,748
- ----------------------------------------------------------------------------
Net earnings $ 10,049 $ 9,882 $ 20,785 $ 16,247
============================================================================
Net earnings per
common share (Note 3):
Basic $ .35 $ .34 $ .72 $ .56
Diluted .35 .34 .72 .56
Dividends per common share
(annual rate) 1.74 1.70 1.74 1.70
Average shares outstanding
(in thousands):
Basic 29,008 28,905 29,005 28,895
Diluted 29,054 28,933 29,048 28,926
- ----------------------------------------------------------------------------
<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>
June 30, December 31,
1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 11,974 $ 9,026
Short-term investments 10,080 6,516
Receivables, net 193,191 179,159
Inventories (Note 4) 151,460 182,303
Prepaid expenses 27,476 26,773
- --------------------------------------------------------------------------
Total current assets 394,181 403,777
Land, other than timberlands 9,073 9,093
Plant and equipment, at cost less
accumulated depreciation 1,495,530 1,493,417
Timber, timberlands and related
logging facilities 340,786 342,503
Other assets 111,444 116,346
- --------------------------------------------------------------------------
$2,351,014 $2,365,136
==========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 59,310 $ 95,550
Current installments on long-term debt 10,021 22
Accounts payable and accrued liabilities 221,110 201,984
- --------------------------------------------------------------------------
Total current liabilities 290,441 297,556
Long-term debt 712,088 722,080
Other long-term obligations 157,175 155,336
Deferred taxes 241,817 236,934
Put options 4,000 1,638
Stockholders' equity 945,493 951,592
- --------------------------------------------------------------------------
$2,351,014 $2,365,136
==========================================================================
Stockholders' equity per common share $32.59 $32.82
Working capital $103,740 $106,221
Current ratio 1.4:1 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>
Six Months Ended
June 30
1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings $ 20,785 $ 16,247
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 73,208 74,875
Deferred taxes 4,883 4,374
Working capital changes 40,033 21,617
Other, net (795) (3,524)
- --------------------------------------------------------------------------
Net cash provided by operations 138,114 113,589
- --------------------------------------------------------------------------
Cash Flows From Financing
Change in bank overdrafts (4,799) (2,105)
Increase (decrease) in notes payable (36,240) 23,864
Repayment of long-term debt 7 (31,170)
Issuance of treasury stock 324 1,090
Dividends (25,233) (24,555)
- --------------------------------------------------------------------------
Net cash used for financing (65,941) (32,876)
- --------------------------------------------------------------------------
Cash Flows From Investing
Decrease in short-term investments - 3,125
Additions to investments (9,288) (4,088)
Reductions in investments 6,181 5,804
Funding of qualified pension plans (320) (5,037)
Additions to plant and properties (68,169) (71,575)
Disposition of plant and properties 842 906
Other, net 1,529 (6,173)
- --------------------------------------------------------------------------
Net cash used for investing (69,225) (77,038)
- --------------------------------------------------------------------------
Increase in cash 2,948 3,675
Balance at beginning of period 9,026 7,740
- --------------------------------------------------------------------------
Balance at end of period $ 11,974 $ 11,415
==========================================================================
<FN>
Net interest payments (net of amounts capitalized) for the six months ended
June 30, 1998 and 1997 were $24.5 million and $22.5 million, respectively.
Net income tax payments for the six months ended June 30, 1998 and 1997 were
$1.7 million and $3.3 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, 1998
and December 31, 1997, and the statements of earnings for the quarter and six
months ended June 30, 1998 and 1997, and the condensed statements of cash
flows for the six months ended June 30, 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 and six months ended June 30, 1998. The rate was 35 percent
for the quarter and six months ended June 30, 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:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic average common shares
outstanding (in thousands) 29,008 28,905 29,005 28,895
Incremental shares due to common
stock options (in thousands) 46 28 43 31
------ ------ ------ ------
Diluted average common shares
outstanding (in thousands) 29,054 28,933 29,048 28,926
====== ====== ====== ======
</TABLE>
Options to purchase shares of common stock of 601,650 and 499,625 at June
30, 1998, and 1997, respectively, were not included in the above computations
because the options' exercise prices were greater than the average market
price of common shares.
5
<PAGE>
Note 4. INVENTORIES - Inventories at the balance sheet dates consist of:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
<S> <C> <C>
Raw materials $ 74,659 $ 93,625
Work in process 5,430 5,989
Finished goods 71,371 82,689
-------- --------
$151,460 $182,303
======== ========
</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 1998, as
presented in the Condensed Statements of Cash Flows on page 4, totaled $138.1
million, compared with $113.6 million for the same period in 1997.
The company's ratio of long-term debt to stockholders' equity was .75 to
1 at June 30, 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 one year.
Working capital of $103.7 million at June 30, 1998, decreased $2.5
million from December 31, 1997. The decrease was due to changes in several
components of working capital. A decrease of $30.8 million in inventories
and increases of $10.0 million in current installments on long-term debt and
$19.1 million in accounts payable and accrued liabilities were major factors
reducing working capital. Such changes more than offset increases in cash and
short-term investments of $6.5 million and receivables of $14.0 million, and
a decrease in notes payable of $36.2 million.
Capital expenditures totaled $68.2 million for the first six months of
1998. Of this amount, the company spent $13.3 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 $39.9 million in the printing papers
segment, the majority of which 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 $14.3 million. A portion of this
total related to the replacement of washers, the caustic plant upgrade and a
new green liquor clarifier at the Lewiston, Idaho, pulp mill, and the
continued development of the hybrid poplar tree farm in Boardman, Oregon.
6
<PAGE>
<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
1998 1997 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Wood products
Oriented strand board $ 40,565 $ 26,478 $ 73,910 $ 47,855
Lumber 59,628 66,793 118,386 128,770
Plywood 13,179 16,571 25,973 33,765
Particleboard 3,842 3,186 7,177 6,431
Other 11,294 12,124 22,833 28,642
- -----------------------------------------------------------------------------
128,508 125,152 248,279 245,463
- -----------------------------------------------------------------------------
Printing papers 103,210 101,734 215,473 216,906
- -----------------------------------------------------------------------------
Other pulp-based products
Pulp 3,327 3,002 5,678 8,193
Paperboard 107,673 110,295 214,878 213,280
Tissue 57,764 54,040 118,708 109,826
- -----------------------------------------------------------------------------
168,764 167,337 339,264 331,299
- -----------------------------------------------------------------------------
Total net sales $400,482 $394,223 $803,016 $793,668
=============================================================================
Operating Income
Wood products $ 13,988 $ 8,682 $ 27,523 $ 19,832
Printing papers 819 9,552 9,473 19,852
Other pulp-based products 21,219 16,458 36,800 22,998
- -----------------------------------------------------------------------------
36,026 34,692 73,796 62,682
Corporate (20,075) (19,490) (40,804) (37,687)
- -----------------------------------------------------------------------------
Earnings before taxes
on income $ 15,951 $ 15,202 $ 32,992 $ 24,995
=============================================================================
</TABLE>
Improved market conditions for the company's oriented strand board
resulted in slightly higher earnings for the second quarter of 1998.
However, markets for the company's pulp-based products continued to be very
competitive and the company's lumber markets deteriorated substantially
during the quarter. Net earnings for the second quarter of 1998 were $10.0
million or $.35 per diluted common share. For 1997's second quarter, net
earnings were $9.9 million or $.34 per diluted common share. Net sales were
$400.5 million, compared with $394.2 million in the second quarter of 1997.
Net earnings for the first half of 1998 were $20.8 million or $.72 per
diluted common share. Net earnings for the first half of 1997 were $16.2
million or $.56 per diluted common share. Net sales for the first half of
1998 were $803.0 million, compared with $793.7 million for 1997's first half.
Operating income for the wood products segment was $14.0 million for the
second quarter of 1998, an improvement over 1997's $8.7 million. Higher net
sales realizations and increased shipments for oriented strand board were
responsible for the improvement, which more than offset significantly lower
lumber realizations.
7
<PAGE>
The printing papers segment second quarter operating income of $.8
million was down from the $9.6 million reported a year ago. Significantly
lower net sales realizations, due to a less favorable product mix and pricing
pressure on mid-line paper grades, 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 $21.2 million, up from $16.5 million earned last year.
Markets for pulp and paperboard continued to be very competitive. Production
improvements at the Lewiston, Idaho, pulp and paperboard mill helped to
reduce costs, which contributed to the favorable comparison. The Consumer
Products Division benefited from higher production combined with lower pulp
costs to record improved results versus the second quarter of 1997.
8
<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
1998 1997 (Decrease) 1998 1997 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Net sales $400,482 $394,223 2% $803,016 $793,668 1%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 36,535 36,741 (1%) 73,208 74,875 (2%)
Materials, labor and other
operating expenses 306,986 306,245 -% 614,870 624,215 (1%)
Selling, general and
administrative expenses 29,747 26,111 14% 60,075 51,401 17%
Earnings from operations 27,214 25,126 8% 54,863 43,177 27%
Interest expense (12,135) (11,051) 10% (24,347) (22,790) 7%
Interest and dividend income 939 86 992% 1,770 173 923%
Other income (expense), net (67) 1,041 * 706 4,435 (84%)
Provision for taxes on income 5,902 5,320 11% 12,207 8,748 40%
Net earnings 10,049 9,882 2% 20,785 16,247 28%
*Not a meaningful figure.
</TABLE>
9
<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 21,
1998, the company's stockholders voted in favor of the election of six
directors to the company's Board of Directors. There were 62,901,700 votes
represented which equaled 91.3% of the total outstanding votes of 68,883,856.
The number of votes for or withheld as to the one matter approved at the
annual meeting of stockholders were as follows:
Proposal No. 1 For Withheld
Election of 6
Directors
Richard A. Clarke 62,278,234 623,466
Allen F. Jacobson 62,194,905 706,795
George F. Jewett, Jr. 62,285,368 616,332
Vivian W. Piasecki 62,256,020 645,680
Robert G. Schwartz 62,250,212 651,488
L. Pendleton Siegel 62,288,124 613,576
There were no other proposals submitted for a vote at the meeting, and
therefore, there were no votes against, no abstentions, and no broker non-
votes cast.
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 June 30,
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/ S. T. Powell
------------------------------
S. T. Powell
Senior Vice President, Finance
(Duly Authorized; Principal
Financial Officer)
By /S/ T. L. Carter
------------------------------
T. L. Carter
Controller
(Duly Authorized; Principal
Accounting Officer)
Date: August 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
(10)(n)(iv)1 Amendment, effective May 21, 1998, to the Potlatch
Corporation 1995 Stock Incentive Plan, previously filed as
Exhibit (10)(n) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
1 Management compensatory plan or arrangement.
12
RESOLUTION
DIRECTORS' FEES
May 21, 1998
RESOLVED, that Sections 10(b) and 10(c) of the 1995 Stock
Incentive Plan be amended to provide as follows:
(b) Award Upon Election.
Each Outside Director who is elected by the Board to fill a
vacancy on the Board after May 21, 1998, shall receive a
Nonqualified Stock Option for 2,000 Shares on the date of the
Board's regular meeting in December following his or her election.
(c) Annual Awards.
Effective May 21, 1998, each Outside Director shall receive
a Nonqualified Stock Option for 1,000 Shares on the date of the
Board's regular meeting in December of each year he or she
serves as Outside Director, other than a year in which the
Outside Director receives an award under Section 10(b) above.
Exhibit (10)(n)(iv)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,974
<SECURITIES> 150
<RECEIVABLES> 161,545
<ALLOWANCES> 2,064
<INVENTORY> 151,460
<CURRENT-ASSETS> 394,181
<PP&E> 3,199,713
<DEPRECIATION> 1,354,324
<TOTAL-ASSETS> 2,351,014
<CURRENT-LIABILITIES> 290,441
<BONDS> 712,088
<COMMON> 32,722
0
0
<OTHER-SE> 912,771
<TOTAL-LIABILITY-AND-EQUITY> 2,351,014
<SALES> 803,016
<TOTAL-REVENUES> 803,016
<CGS> 688,078
<TOTAL-COSTS> 688,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,347
<INCOME-PRETAX> 32,992
<INCOME-TAX> 12,207
<INCOME-CONTINUING> 20,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,785
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<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> .56
</TABLE>
