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, 1999 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, 1999:
28,948,882 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, 1999 and 1998 2
Condensed Balance Sheets at June 30, 1999
and December 31, 1998 3
Condensed Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 4
Notes to Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote
of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
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>
Quarter Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $413,043 $400,482 $829,461 $803,016
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 35,146 36,535 72,573 73,208
Materials, labor and other
operating expenses 317,542 306,986 646,373 614,870
Selling, general and
administrative expenses 32,038 29,747 61,135 60,075
- ----------------------------------------------------------------------------
384,726 373,268 780,081 748,153
- ----------------------------------------------------------------------------
Earnings from operations 28,317 27,214 49,380 54,863
Interest expense (11,995) (12,135) (24,339) (24,347)
Other income (expense), net (1,217) 872 (8,927)* 2,476
- ----------------------------------------------------------------------------
Earnings before taxes
on income 15,105 15,951 16,114 32,992
Provision for taxes on
income (Note 2) 5,739 5,902 6,123 12,207
- ----------------------------------------------------------------------------
Net earnings $ 9,366 $ 10,049 $ 9,991 $ 20,785
============================================================================
Net earnings per
common share (Note 3):
Basic $ .33 $ .35 $ .35 $ .72
Diluted .33 .35 .35 .72
Dividends per common share
(annual rate) 1.74 1.74 1.74 1.74
Average shares outstanding
(in thousands):
Basic 28,945 29,008 28,935 29,005
Diluted 28,982 29,054 28,947 29,048
- ----------------------------------------------------------------------------
<FN>
*Includes a first quarter nonrecurring charge of $7.5 million ($4.6 million
after tax) for expenses related to the termination of efforts to form a
timber real estate investment trust with Anderson-Tully Company.
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Condensed Balance Sheets
1999 amounts unaudited (Dollars in thousands -
except per-share amounts)
- -----------------------------------------------------------------------------
<CAPTION>
June 30, December 31,
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 10,908 $ 11,650
Short-term investments 352 6,422
Receivables, net 199,538 162,268
Inventories (Note 4) 171,955 200,257
Prepaid expenses 24,001 27,258
- -----------------------------------------------------------------------------
Total current assets 406,754 407,855
Land, other than timberlands 9,073 9,073
Plant and equipment, at cost less
accumulated depreciation 1,569,727 1,504,522
Timber, timberlands and related
logging facilities 341,371 338,617
Other assets 65,246 117,239
- -----------------------------------------------------------------------------
$2,392,171 $2,377,306
=============================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 83,283 $ 74,939
Current installments on long-term debt 10,323 10,021
Accounts payable and accrued liabilities 249,150 225,339
- -----------------------------------------------------------------------------
Total current liabilities 342,756 310,299
Long-term debt 701,762 712,113
Other long-term obligations 165,427 163,453
Deferred taxes 258,589 253,691
Put options 3,369 6,844
Stockholders' equity 920,268 930,906
- -----------------------------------------------------------------------------
$2,392,171 $2,377,306
=============================================================================
Stockholders' equity per common share $31.79 $32.19
Working capital $63,998 $97,556
Current ratio 1.2:1 1.3:1
- -----------------------------------------------------------------------------
<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
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operations
Net earnings $ 9,991 $ 20,785
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 72,573 73,208
Deferred taxes 4,898 4,883
Working capital changes 24,898 40,033
Other, net (124) (795)
- -----------------------------------------------------------------------------
Net cash provided by operations 112,236 138,114
- -----------------------------------------------------------------------------
Cash Flows From Financing
Change in book overdrafts (6,798) (4,799)
Increase (decrease) in notes payable 8,344 (36,240)
Proceeds from long-term debt 99,935 -
Repayment of long-term debt (109,984) 7
Issuance of treasury stock 707 324
Dividends (25,170) (25,233)
- -----------------------------------------------------------------------------
Net cash used for financing (32,966) (65,941)
- -----------------------------------------------------------------------------
Cash Flows From Investing
Additions to investments (3,535) (9,288)
Reductions in investments 9,938 6,181
Receipt of note receivable 50,000 -
Additions to plant and properties (133,625) (68,169)
Other, net (2,790) 2,051
- -----------------------------------------------------------------------------
Net cash used for investing (80,012) (69,225)
- -----------------------------------------------------------------------------
Increase (decrease) in cash (742) 2,948
Balance at beginning of period 11,650 9,026
- -----------------------------------------------------------------------------
Balance at end of period $ 10,908 $ 11,974
=============================================================================
<FN>
Net interest payments (net of amounts capitalized) for the six months ended
June 30, 1999 and 1998 were $22.8 million and $24.5 million, respectively.
Net income tax payments (refunds) for the six months ended June 30, 1999 and
1998 were ($1.0) million and $1.7 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, 1999
and December 31, 1998, the statements of earnings for the quarter and six
months ended June 30, 1999 and 1998, and the condensed statements of cash
flows for the six months ended June 30, 1999 and 1998, 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 38 percent
for the quarter and six months ended June 30, 1999. The rate was 37 percent
for the quarter and six months ended June 30, 1998.
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:
Quarter Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
Basic average common shares
outstanding (in thousands) 28,945 29,008 28,935 29,005
Incremental shares due to common
stock options (in thousands) 37 46 12 43
------ ------ ------ ------
Diluted average common shares
outstanding (in thousands) 28,982 29,054 28,947 29,048
====== ====== ====== ======
Stock options to purchase shares of common stock of 1,217,950 for the
quarter and six months ended June 30, 1999, and 601,650 and 960,525 for the
quarter and six months ended June 30, 1998, 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:
June 30, 1999 December 31, 1998
Raw materials $ 77,611 $ 88,591
Work in process 7,696 9,385
Finished goods 86,648 102,281
-------- --------
$171,955 $200,257
======== ========
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 1999, as
presented in the Condensed Statements of Cash Flows on page 4, totaled $112.2
million, compared with $138.1 million for the same period in 1998. The
difference is largely due to a $10.8 million decline in earnings and normal
changes in working capital components.
The company's ratio of long-term debt to stockholders' equity was .76 to
1 at June 30, 1999, unchanged from December 31, 1998. During the first
quarter of 1999, the company issued $100.0 million of long-term debt, the
proceeds of which were used to repay a like amount of commercial paper which
had been classified as long-term debt. Also during the first quarter, $10.0
million of medium-term notes were reclassified from long-term to current due
to their maturity within a year. Stockholders' equity decreased largely due
to the payment of dividends in excess of earnings.
Working capital of $64.0 million at June 30, 1999, decreased $33.6
million from December 31, 1998. Current liabilities increased $32.5 million,
largely due to an increase in accounts payable and accrued liabilities of
$23.8 million combined with an increase in notes payable of $8.3 million.
Changes in current assets substantially offset each other as receivables
increased $37.3 million while inventories decreased $28.3 million and short-
term investments decreased $6.1 million.
Capital expenditures totaled $133.6 million for the six months of 1999.
Of this amount, the company spent $19.1 million in the wood products segment,
which included expenditures for the modernization and expansion at the Cook,
Minnesota, oriented strand board plant and for the continued development of
the hybrid poplar tree farm in Boardman, Oregon. The company spent $102.2
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 pulp and paper segment totaled $12.0
million.
6
<PAGE>
Results of Operations
A summary of period-to-period changes in items included in the statements
of earnings is presented on page 10 of this Form 10-Q.
<TABLE>
Segment Information (Dollars in thousands)
- -----------------------------------------------------------------------------
<CAPTION>
Second Quarter Six Months
1999 1998 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Wood products
Oriented strand board $ 61,600 $ 40,575 $106,094 $ 73,933
Lumber 66,319 59,628 130,654 118,386
Plywood 17,211 13,179 33,682 25,973
Particleboard 4,237 3,842 8,000 7,177
Logs, chips, etc. 23,511 26,508 54,376 57,913
- -----------------------------------------------------------------------------
172,878 143,732 332,806 283,382
- -----------------------------------------------------------------------------
Printing papers 103,883 103,210 212,307 215,473
- -----------------------------------------------------------------------------
Pulp and paper
Pulp 6,266 3,349 12,322 5,747
Paperboard 86,563 107,673 182,140 214,878
Tissue 59,228 57,770 123,081 118,725
- -----------------------------------------------------------------------------
152,057 168,792 317,543 339,350
- -----------------------------------------------------------------------------
428,818 415,734 862,656 838,205
Elimination of intersegment sales (15,775) (15,252) (33,195) (35,189)
- -----------------------------------------------------------------------------
Total consolidated net sales $413,043 $400,482 $829,461 $803,016
=============================================================================
Intersegment sales or transfers
Wood products $ 15,763 $ 15,224 $ 33,160 $ 35,103
Pulp and paper 12 28 35 86
- -----------------------------------------------------------------------------
Total $ 15,775 $ 15,252 $ 33,195 $ 35,189
=============================================================================
Operating Income
Wood products $ 42,524 $ 13,988 $ 64,949 $ 27,523
Printing papers (2,427) 819 (2,253) 9,473
Pulp and paper (2,217) 21,219 2,877 36,800
- -----------------------------------------------------------------------------
37,880 36,026 65,573 73,796
Corporate (22,775) (20,075) (49,459) (40,804)
- -----------------------------------------------------------------------------
Consolidated earnings before
taxes on income $ 15,105 $ 15,951 $ 16,114 $ 32,992
=============================================================================
</TABLE>
Earnings for the second quarter of 1999 were slightly lower than last
year's second quarter. Improved results for the company's wood products were
offset by unfavorable market conditions during the quarter for the company's
pulp-based products. The 1999 results also reflect additional costs,
including training, associated with the planned startup of the Cloquet,
Minnesota, pulp mill modernization project in the fourth quarter. Net
earnings for the second quarter of 1999 were $9.4 million or $.33 per diluted
common share. For 1998's second quarter, net earnings were $10.0 million or
$.35 per diluted common share. Net sales were $413.0 million, compared with
$400.5 million in the second quarter of 1998.
7
<PAGE>
Net earnings for the first half of 1999 were $14.6 million or $.51 per
diluted common share, before a nonrecurring after-tax charge of $4.6 million
taken in the first quarter. Including the charge, net earnings for the first
half of 1999 were $10.0 million or $.35 per diluted common share. Net
earnings for the first half of 1998 were $20.8 million or $.72 per diluted
common share. Net sales for the first half of 1999 were $829.5 million,
compared with $803.0 million for 1998's first half.
Operating income for the wood products segment was $42.5 million for the
second quarter of 1999, substantially higher than the $14.0 million earned in
1998's second quarter. Higher net sales realizations for the company's wood
products, especially oriented strand board, were primarily responsible for
the favorable results. Continued strength in new home construction has had a
positive effect on this portion of the company's business.
The printing papers segment recorded a second quarter operating loss of
$2.4 million, compared to income of $0.8 million reported a year ago.
Markets for printing papers remained soft, resulting in lower net sales
realizations compared to the second quarter of 1998.
The pulp and paper segment reported a second quarter operating loss of
$2.2 million, versus income of $21.2 million for 1998's second quarter.
Markets for paperboard continue to be very competitive, with net sales
realizations substantially below 1998 levels. However, markets appear to
have reached bottom during the quarter with some improvement seen towards the
end of the period. The volume of paperboard shipped was also lower than in
last year's second quarter. Consumer tissue markets continued to be stable,
and an increase in product shipments was offset by a decline in net sales
realizations.
YEAR 2000
The company is continuing its comprehensive review of all its computer
programs and systems to identify and resolve potential Year 2000 problems. A
Year 2000 steering team has been in place since June 1998 to coordinate the
review of programs and systems, evaluate the findings and implement the
changes necessary to become substantially Year 2000 compliant. The company
has been using outside consultants to assist in this effort and believes it
has allocated adequate resources to the issue. It expects to complete the
review and any necessary changes on a timely basis.
The review has been divided into two categories: business systems and
manufacturing systems. The business systems have been undergoing
modifications to address the Year 2000 issue over the last few years.
Routine changes, modifications and new software purchases have all been made
with Year 2000 compliance in mind. As a result, the company believes that
its business systems have been substantially Year 2000 compliant since
December 31, 1998. Extensive testing to confirm compliance has largely been
completed.
The company has completed a comprehensive inventory of its manufacturing
systems (including both embedded technology and information technology),
8
<PAGE>
which it used to identify systems that are not Year 2000 compliant.
Assessment of essentially all devices and systems is complete, and
remediation is underway. While remediation is not yet complete, the process
is on schedule and no obstacles to achieving satisfactory compliance have
been identified.
The costs incurred to date to conduct the manufacturing systems inventory
and other Year 2000 conversion work have not been material to the company's
results of operations for any reporting period in which expenditures have
been made. These costs, including hardware, software, internal personnel and
external consultants, are expensed as incurred, except for expenditures
relating to system replacements or upgrades occurring in the normal course of
business that are capitalized under company guidelines. Prior to 1998, the
company did not separately identify internal costs related to Year 2000
conversion work. The total costs incurred from January 1998 through the
conclusion of the Year 2000 project are expected to be in the range of $4
million to $6 million, exclusive of normal replacements and upgrades.
The company has made inquiries of its major customers and significant
suppliers, including its energy and other utility service providers and
transportation vendors, to evaluate their Year 2000 readiness. While the
company has no control over the readiness of its suppliers, failure by them
or the company to be substantially Year 2000 compliant could have a material
adverse effect on the company's operations and financial results. Although
management believes it is unlikely to occur, a plausible worst case scenario
would involve the failure of a critical system of the company or of a
supplier, causing a temporary halt or slowdown at one or more of the
company's manufacturing operations.
The company is developing contingency plans for each of its facilities.
These plans address both internal and external potential failures, as well as
any unresolved issues. The company expects to have the contingency plans
written by mid August 1999 and activated by early in the fourth quarter.
This report contains, in addition to historical information, certain
forward-looking statements, including without limitation, statements
regarding Year 2000 issues. These forward-looking statements are based on
management's best estimates and assumptions regarding future events, and are
therefore subject to known and unknown risks and uncertainties and are not
guarantees of future performance. The company's actual results of operations
could differ materially from those expressed or implied by forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to, changes in the United States and
international economies; changes in worldwide demand for the company's
products; changes in worldwide production and production capacity in the
forest products industry; competitive pricing pressures for the company's
products; impact of Year 2000 issues; and changes in raw material, energy and
other costs.
9
<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
1999 1998 (Decrease) 1999 1998 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Net sales $413,043 $400,482 3% $829,461 $803,016 3%
Costs and expenses:
Depreciation, amortization and
cost of fee timber harvested 35,146 36,535 (4%) 72,573 73,208 (1%)
Materials, labor and other
operating expenses 317,542 306,986 3% 646,373 614,870 5%
Selling, general and
administrative expenses 32,038 29,747 8% 61,135 60,075 2%
Earnings from operations 28,317 27,214 4% 49,380 54,863 (10%)
Interest expense (11,995) (12,135) (1%) (24,339) (24,347) -%
Other income (expense), net (1,217) 872 * (8,927) 2,476 *
Provision for taxes on income 5,739 5,902 (3%) 6,123 12,207 (50%)
Net earnings 9,366 10,049 (7%) 9,991 20,785 (52%)
<FN>
*Not a meaningful figure.
</TABLE>
10
<PAGE>
PART II
ITEM 1. Legal Proceedings
In December 1995, the company filed a complaint against Beloit
Corporation in the District Court of the State of Idaho, Nez Perce County.
The complaint alleged that a pulp washer system supplied by Beloit
Corporation and installed at the company's pulp mill in Lewiston, Idaho,
experienced massive defects and deficiencies and failed to meet contract
performance requirements and criteria. In June 1997, a jury awarded damages
of $95 million to the company. Beloit appealed the case to the Idaho Supreme
Court (the "Court"). On April 2, 1999, the Court vacated the judgment and
remanded the case to the trial court for a new trial. In its ruling, the
Court did not decide the merits of the company's case. On April 23, 1999,
the company filed a Petition for Rehearing with the Court, which was denied
on June 18, 1999. On June 7, 1999, Beloit Corporation and its parent,
Harnischfeger Industries, Inc., filed voluntary petitions for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. As a result, further action on
the company's claim against Beloit has been stayed until such time as the
bankruptcy court lifts the stay and permits the company to proceed. Subject
to the requirements of the Bankruptcy Code, the company intends to continue
to pursue its claims against Beloit.
ITEM 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the company held on May 20,
1999, the company's stockholders voted in favor of the election of four
directors to the company's Board of Directors. There were 62,495,735 votes
represented which equaled 88.7% of the total outstanding votes of 70,417,888.
The number of votes for or withheld as to each matter approved at the annual
meeting of stockholders were as follows:
Proposal No. 1 For Withheld
Election of 4 Directors
Kenneth T. Derr 61,811,217 684,518
Toni Rembe 61,822,545 673,190
Charles R. Weaver 61,777,941 717,794
William T. Weyerhaeuser 61,861,572 634,163
Proposal No. 2 For Against Abstain
Ratification of Selection
of Independent Auditors 61,842,829 284,177 368,729
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
The exhibit index is located on page 13 of this Form 10-Q.
Reports on Form 8-K
A current report on Form 8-K was filed, dated April 9, 1999. Under Item
5, Other Events, it was reported that the Idaho Supreme Court had vacated the
trial court judgment awarded to the company in its lawsuit against Beloit
Corporation.
11
<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
and Chief Financial Officer
(Duly Authorized; Principal
Financial Officer)
By /S/ T. L. Carter
------------------------------
T. L. Carter
Controller
(Duly Authorized; Principal
Accounting Officer)
Date: August 4, 1999
12
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Exhibit Index
Exhibit
(4) Registrant undertakes to file with the Securities and
Exchange Commission, upon request, any instrument with
respect to long-term debt
(10)(b)(i)1 Amendment, dated May 20, 1999, to the Potlatch Corporation
Severance Program for Executive Employees.
(10)(n)(vi)1 Amendment, dated May 20, 1999, to the Potlatch Corporation
1995 Stock Incentive Plan.
1 Management compensatory plan or arrangement.
13
AMENDMENT
1995 STOCK INCENTIVE PLAN
Effective May 20, 1999, Sections 10(b) and 10(c) of
the 1995 Stock Incentive Plan are 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 the date on which
Nonqualified Stock Options were last awarded pursuant
to Section 10(c) below, shall receive a Nonqualified
Stock Option for 5,000 Shares on the date of the
Board's regular meeting in December following his or
her election; and if an Outside Director is so elected
on the date of such meeting, he or she shall receive a
Nonqualified Stock Option for 5,000 shares on the date
of such meeting.
(c) Annual Awards.
Each Outside Director shall receive a
Nonqualified Stock Option for 2,500 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)(b)(i)
RESOLUTION
AMEND EXECUTIVE EMPLOYEES' SEVERANCE PROGRAM
May 20, 1999
RESOLVED, that Section 3(b) of the Potlatch
Corporation Severance Program for Executive
Employees shall be amended to read as follows
through the table in subsection (i) of Section
3(b):
(b) Change of Control Benefits. Upon the
occurrence of any of the events specified in
Section 4(b), an Eligible Employee shall
receive (in lieu of any severance benefit
payable under Section 3(a) or any other
severance benefit payable under any other plan
or program now or hereafter maintained by a
Participating Company) Change of Control
Benefits under the Program as follows:
(i) Within ten (10) business days
following the effective date an Eligible
Employee terminates, a lump sum cash benefit
equal to the Eligible Employees' annual Base
Compensation plus his or her annual Base
Compensation multiplied by his or her standard
bonus percentage (as determined pursuant to the
Management Performance Award Plan), determined
as of the date of the Change of Control or the
effective date the Eligible Employee
terminates, whichever produces the larger
amount, multiplied by the appropriate factor
from the following table:
Eligible Pay Multiple
Employee Factor
Chief Executive Officer 3.0
Chief Operating Officer 3.0
Other Principal Officers 2.5
and be it further
Exhibit (10)(n)(vi)
1
<PAGE>
RESOLVED, that Section 3(c) of the
Potlatch Corporation Severance Program for
Executive Employees be amended to read as
follows:
(c) Payment of Excise Taxes. If any
payment or benefit to or for the benefit of the
Eligible Employee in connection with a Change
of Control is deemed an "excess parachute
payment" as defined in Section 280G of the
Internal Revenue Code of 1986 (the "Code")
subject to the excise tax imposed by Section
4999 of the Code, the Company shall pay to the
Eligible Employee an additional amount such
that the total amount of all such payments and
benefits (including payments made pursuant to
this section 3(c)) to the Eligible Employee
shall equal the total amount of all such
payments and benefits to which the Eligible
Employee would have been entitled (but for this
Section 3(c)) net of all applicable federal,
state and local taxes except the excise tax.
For purposes of this Section 3(c), the Eligible
Employee shall be deemed to pay federal, state
and local taxes at the highest marginal rate of
taxation for the applicable calendar year. The
amount of the payment to the Eligible Employee
shall be estimated by the firm of independent
certified public accountants serving as the
outside auditors of the company as of the date
of the event specified in Section 4(a) or, if
earlier, as of the date of the Change of
Control as determined pursuant to Section 4(b).
Within thirty (30) business days following
the effective date an Eligible Employee
terminates, the estimated amount due the
Eligible Employee pursuant to this Section 3(c)
shall be paid to the Eligible Employee. In the
event that the amount of the estimated payment
is less than the amount actually due to the
Eligible Employee under this Section 3(c), the
amount of any such shortfall shall be paid to
the Eligible Employee within ten (10) business
day after the existence of the shortfall is
discovered.
The Eligible Employee shall not be
required to mitigate the amount of any payments
2
<PAGE>
provided under Section 3(b) and 3(c), nor shall
any payment or benefit provided for in Section
3(b) and 3(c) be offset by any compensation
earned by the Eligible Employee as the result
of employment by another employer or by
retirement benefits.
3
<TABLE> <S> <C>
<ARTICLE> 5
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