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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File
December 31, 1994 Number 1-5313
POTLATCH
Potlatch Corporation
A Delaware Corporation (IRS Employer Identification
Number 82-0156045)
One Maritime Plaza
San Francisco, California 94111
Telephone (415) 576-8800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, New York Stock Exchange
($1 par value) Pacific Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
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 require-
ments for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at January 31, 1995, was approximately $1,025 million.
The number of shares of common stock outstanding as of January 31, 1995:
29,224,481 shares of Common Stock, par value of $1 per share.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 1995 annual meeting of stock-
holders are incorporated by reference in Part III hereof.
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Index to 1994 Form 10-K
Page
Number
PART I
ITEM 1. Business 2 - 4
ITEM 2. Properties 5
ITEM 3. Legal Proceedings 6
ITEM 4. Submission of Matters to a Vote of Security Holders 6
Executive Officers of the Registrant 7
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters 8
ITEM 6. Selected Financial Data 8
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
ITEM 8. Financial Statements and Supplementary Data 8
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 9
PART III
ITEM 10. Directors and Executive Officers of the
Registrant 9
ITEM 11. Executive Compensation 9
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 9
ITEM 13. Certain Relationships and Related Transactions 9
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 9
SIGNATURES 10
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES 11
EXHIBIT INDEX 36 - 38
-1-
PART I
ITEM 1. Business
General
Potlatch Corporation (the "company"), incorporated in 1903, is an
integrated forest products company with substantial timber resources. It is
engaged principally in the growing and harvesting of timber and the
manufacture and sale of wood products, printing papers and other pulp-based
products. Its timberlands and all of its manufacturing facilities are located
within the continental United States.
Information relating to the amounts of revenue, operating profit or loss
and identifiable assets attributable to each of the company's industry
segments for 1992-1994 is included in Note 12 to the financial statements on
pages 31-32 of this report.
Fiber Resources
The principal source of raw material used in the company's operations is
timber, obtained from its own timberlands and purchased on the open market.
The company owns in fee approximately 1.5 million acres of timberland: 497,000
acres in Arkansas, 678,000 acres in Idaho and 345,000 acres in Minnesota. In
addition, the company owns and is developing 10,000 acres in Oregon as a
hybrid poplar tree farm for pulp fiber. The company plans to acquire an
additional 12,000 acres for this purpose in 1995.
The amount of timber harvested in any one year from company-owned lands
varies according to the requirements of sound forest management, as well as
the supply of timber available for purchase on the open market. By
continually improving forestry and silviculture techniques and other forest
management practices, the company has been able to increase the volume of wood
fiber available from its timberlands and to provide for a continuous supply
of wood fiber in the future. In most cases, the cost of timber from company
land is substantially less than that of timber obtained on the open market.
The company's fee lands provided approximately 59 percent of its sawlogs
and plywood logs in 1994 and an average of 62 percent over the past five
years. Including the raw materials used for pulp and oriented strand board,
the percentages decline to 35 percent for 1994 and 38 percent for the past
five years. Additional logs were obtained principally under cutting contracts
from lands owned by federal, state and local governments and from private
purchases. Such cutting contracts cover areas of varying size and generally
have terms ranging from a few months to several years. The company enters
into many such contracts each year. At December 31, 1994, the market value
of uncut timber remaining under timber cutting contracts approximated $60.7
million. The company is not unconditionally obligated for that amount on such
contracts and uncut timber values are subject to change depending on the
market value at time of harvest.
At the present time, timber from the company's own lands, together with
outside purchases, is adequate to support manufacturing operations. In recent
years the timber supply from federal lands has been increasingly curtailed
largely due to environmental pressures that are expected to continue into the
foreseeable future. Although this trend has had a favorable effect on
-2-
earnings for the company as a whole, it has had an adverse effect on wood
costs. The long-term effect of this trend on company earnings cannot be
predicted. However, the company has implemented plans to develop additional
fiber supplies, primarily hybrid poplar, for the Lewiston, Idaho, pulp mill
and by the year 2000 expects to provide approximately 70 percent of chip fiber
requirements for this mill from resources it controls, compared with
approximately 40 percent currently.
The company assumes substantially all risk of loss from fire and other
hazards on the standing timber it owns, as do most owners of timber tracts in
the United States.
Wood Products
The company manufactures and markets oriented strand board, plywood,
particleboard, lumber and other wood products. These products are sold
through the company's sales offices primarily to wholesalers for nationwide
distribution.
To produce these solid wood products, the company owns and operates several
manufacturing facilities in Arkansas, Idaho and Minnesota. A description of
these facilities is included under Item 2 of this report.
The forest products industry is highly competitive, and the company
competes with substantially larger forest products companies and companies
which manufacture substitutes for wood and wood fiber products. For both
lumber and plywood products, the company's share of the market is not
significant to the total U. S. market for these products. However, the
company does have a significant market share of oriented strand board, which
is a product that competes with plywood. The company's principal methods of
competing are product quality, service and price.
Printing Papers
The company produces coated free sheet printing papers at two facilities
in Minnesota. A description of these facilities is included under Item 2 of
this report.
Pulp for these paper mills is supplied primarily by the company's bleached
kraft pulp mill in Minnesota and secondarily by purchases of market pulp,
including recycled pulp. Coated papers are used for annual reports, showroom
catalogs, art reproductions and high quality advertising.
Printing papers are sold principally to paper merchants for distribution.
Various company sales offices located throughout the United States are
utilized to service our customers. Although the company does not consider
itself among the larger manufacturers of printing papers, it is one of the
nation's leading producers of premium coated papers. The principal methods
of competing are product quality, service and price.
Other Pulp-Based Products
The company produces and markets bleached kraft pulp and paperboard,
tissue, toweling and napkins. A description of the facilities used to produce
these products is included under Item 2 of this report.
-3-
The company is a major producer of bleached kraft paperboard in the United
States. Bleached kraft paperboard manufactured by the company is used for the
packaging of milk and other foods, pharmaceuticals and toiletries, and for
paper cups and paper plates. The company does not consider itself among the
larger national manufacturers of any of its other pulp-based products.
However, the company is the leading west coast producer of private label
household tissue products. The company's principal methods of competing are
product quality, service and price.
The company produces household tissues which are packaged to order for
grocery and drug chains, club stores and cooperative buying organizations.
Facial and bathroom tissues, paper towels and napkins are sold to consumers
under customer brand names. These products compete with nationally advertised
and other private label brands.
Methods of sale and distribution of the company's other pulp-based products
vary for its several products. The majority of pulp sales are generally
through brokers. The company, in general, maintains domestic sales offices
through which it sells paperboard to packaging converters. The majority of
international paperboard sales are made through sales representative offices
in Japan and Australia. The balance of such sales are made through brokers
and agents. Tissue products are sold through food brokers or directly to
major retail outlets.
Environment
Information regarding environmental matters is included under Item 3 -
Legal Proceedings on page 6 and Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 14-15 of this report.
Employees
As of December 31, 1994, the company had approximately 6,700 employees.
Labor contracts expiring in 1995 are as follows:
Contract Approximate
Expiration Hourly
Date Location Union Employees
April 30 Wood Products Ozan Unit International 130
Prescott, Arkansas Woodworkers of
America
September 1 Idaho Pulp & Paperboard United Paperworkers 1,250
and Consumer Products International Union
Lewiston, Idaho & International
Brotherhood of
Electrical Workers
October 14 Minnesota Wood Products Independent Union of 140
Grand Rapids, Minnesota Waferboard Workers
-4-
ITEM 2. Properties
The principal manufacturing facilities of the company, together with
their respective 1994 capacities and production are as follows:
Capacity Production
Wood Products
Oriented Strand Board Plants: (A)
Bemidji, Minnesota 499,200 m.sq.ft. 491,937 m.sq.ft.
Cook, Minnesota 242,400 m.sq.ft. 240,007 m.sq.ft.
Grand Rapids, Minnesota 350,300 m.sq.ft. 348,454 m.sq.ft.
Sawmills:
Prescott, Arkansas 63,000 m.bd.ft. 63,089 m.bd.ft.
Warren, Arkansas (B) 101,700 m.bd.ft. 76,749 m.bd.ft.
Lewiston, Idaho 113,000 m.bd.ft. 99,927 m.bd.ft.
St. Maries, Idaho 80,800 m.bd.ft. 84,129 m.bd.ft.
Bemidji, Minnesota 79,400 m.bd.ft. 80,002 m.bd.ft.
Plywood Plants: (A)
Jaype, Idaho 150,000 m.sq.ft. 141,796 m.sq.ft.
St. Maries, Idaho 160,000 m.sq.ft. 156,247 m.sq.ft.
Particleboard Plant: (C)
Post Falls, Idaho 67,800 m.sq.ft. 66,803 m.sq.ft.
Split-Cedar Mill: (D)
Santa, Idaho 3,188 m.bd.ft.
Hardwood Flooring Plant: (E)
Stuttgart, Arkansas 1,175 m.bd.ft.
Printing Papers
Pulp Mill:
Cloquet, Minnesota 192,600 tons 191,455 tons
Printing Paper Mills:
Brainerd, Minnesota 138,500 tons 146,704 tons
Cloquet, Minnesota 194,200 tons 193,972 tons
Other Pulp-Based Products
Pulp Mills:
Cypress Bend, Arkansas 248,500 tons 235,423 tons
Lewiston, Idaho 441,100 tons 388,944 tons
Bleached Paperboard Mills:
Cypress Bend, Arkansas 271,100 tons 254,569 tons
Lewiston, Idaho 340,000 tons 294,622 tons
Tissue Mill:
Lewiston, Idaho 141,300 tons 134,510 tons
Tissue Converting Facilities:
Lewiston, Idaho 100,600 tons 94,741 tons
North Las Vegas, Nevada 24,100 tons 22,685 tons
(A) 3/8" Basis
(B) There are two sawmills in Warren.
(C) 3/4" Basis
(D) This facility was sold in September 1994.
(E) This facility was closed in September and sold in December 1994.
-5-
ITEM 3. Legal Proceedings
In June 1994, the company received a Notice of Violation ("NOV") issued by
the Idaho Department of Health and Welfare ("IDHW") alleging 41 violations of
State of Idaho environmental laws relating to air quality at the company's
facilities in Lewiston, Idaho. Many of the alleged violations include
continuing violations over a period of time. The IDHW also submitted a list
of 14 alleged federal New Source Performance Standard violations. The
aggregate penalty proposed by the IDHW for settlement of all of the alleged
state and federal violations is approximately $2.7 million. The company
believes it has legal and equitable defenses to many of the alleged violations
and has held settlement discussions with the IDHW and the United States
Environmental Protection Agency ("EPA"). The company will continue to discuss
settlement of all outstanding issues.
In August 1993, the company received a NOV from the 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 to commence a civil enforcement action against the
company. The company believes that it has legal and equitable defenses to the
alleged violations.
The company believes that adequate provision has been made for any amounts
which may be paid as a result of the alleged violations described above.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1994.
-6-
Executive Officers of the Registrant
Information as of March 1, 1995, and for the past five years concerning the
executive officers of the company is as follows:
John M. Richards (age 57), first elected an officer in 1972, has served as
Chairman of the Board and Chief Executive Officer since May 1994. Prior to
May 1994 he was President and Chief Operating Officer. He was elected a
director of the company effective January 1991. He is a member of the Finance
Committee of the Board of Directors.
L. Pendleton Siegel (age 52), first elected an officer in 1983, has served
as President and Chief Operating Officer since May 1994. From August 1993 to
May 1994, he was Executive Vice President, Pulp-Based Operations and Planning.
From March 1992 through July 1993, he was Group Vice President, Pulp and
Paperboard. Prior to March 1992, he was Group Vice President, Wood Products.
In addition, from October 1990 through May 1994, he was also responsible for
planning and business development.
Robert V. Hershey (age 62), first elected an officer in 1993, has served
as Vice President, Northwest Paper Division since August 1993. From June 1991
through July 1993, he was an appointed officer serving as Vice President,
Manufacturing, Northwest Paper Division. Prior to that he served as Vice
President, Manufacturing, for the Northwest Paper Division's Cloquet plant.
Richard L. Paulson (age 53), first elected an officer in 1992, has served
as Vice President, Consumer Products since January 1993. Prior to that he was
an appointed officer serving as Vice President, Manufacturing, for the
Northwest Paper Division's Brainerd plant.
George E. Pfautsch (age 59), first elected an officer in 1971, has served
as Senior Vice President, Finance since October 1989. From January 1993
through May 1994, he also served as Treasurer.
Charles R. Pottenger (age 55), first elected an officer in 1991, has served
as Group Vice President, Pulp and Paperboard since August 1993. From February
1991 through July 1993, he was Vice President, Northwest Paper Division.
Prior to February 1991, he was an appointed officer serving as Northwest Paper
Division Vice President, Manufacturing.
Thomas J. Smrekar (age 52), first elected an officer in 1992, has served
as Group Vice President, Wood Products since March 1992. Prior to March 1992,
he was an appointed officer serving as Minnesota Wood Products Division Vice
President.
NOTE: The aforementioned officers of the company are elected to hold office
until the next annual meeting of the Board of Directors. Each officer holds
office until the officer's successor has been duly elected and has qualified
or until the earlier of the officer's death, resignation, retirement or
removal by the board.
-7-
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The company's common stock is traded on the New York, Chicago and Pacific
Stock Exchanges. Quarterly and yearly price ranges were:
1994 1993
Quarter High Low High Low
1st $49.50 $40.50 $51.88 $44.25
2nd 42.25 38.00 50.50 40.75
3rd 44.25 38.00 44.63 38.25
4th 41.38 35.50 47.75 40.00
Year 49.50 35.50 51.88 38.25
In general, all holders of Potlatch common stock who own shares 48
consecutive calendar months or longer ("long-term holders") are entitled to
exercise four votes per share of stock so held, while stockholders who are not
long-term holders are entitled to one vote per share. All stockholders are
entitled to only one vote per share on matters arising under certain
provisions of the company's charter. There were approximately 3,500 common
stockholders of record at December 31, 1994.
Quarterly dividend payments per common share for the past two years were:
Quarter 1994 1993
1st $ .39 $ .375
2nd .39 .375
3rd .39 .375
4th .40 .39
----- ------
$1.57 $1.515
===== ======
ITEMS 6, 7 and 8.
The information called for by Items 6, 7 and 8, inclusive, of Part II of
this form, is contained in the following sections of this Report at the pages
indicated below:
Page
Number
ITEM 6 Selected Financial Data 12
ITEM 7 Management's Discussion
and Analysis of Financial
Condition and Results of
Operations 12-16
ITEM 8 Financial Statements and
Supplementary Data 17-35
-8-
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information regarding the directors of the company is set forth under the
heading "Information with Respect to Nominees for Election and Directors
Continuing in Office" on pages 3-5 of the company's definitive proxy
statement, dated March 27, 1995, for the 1995 annual meeting of stockholders
(the "1995 Proxy Statement"), which information is incorporated herein by
reference. Information concerning Executive Officers is included in Part I
of this report following Item 4.
ITEM 11. Executive Compensation
Information set forth under the heading "Compensation of Directors and the
Named Executive Officers" on pages 9-19 of the 1995 Proxy Statement, is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of management, included under the
heading "Stock Ownership of Directors and Executive Officers" on pages 7-8
of the 1995 Proxy Statement, is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
Information set forth under the heading "Certain Transactions" on page 19
of the 1995 Proxy Statement, is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Exhibits are listed in the Exhibit Index on pages 36-38 of this
Form 10-K.
2. Financial statement schedules are listed in the Index to Consolidated
Financial Statements and Schedules on page 11 of this Form 10-K.
3. No reports on Form 8-K were filed for the quarter ended December 31, 1994.
-9-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POTLATCH CORPORATION
(Registrant)
Date: March 23, 1995 By John M. Richards
----------------------
John M. Richards
Chairman of the Board
and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 23, 1995, by the following persons on
behalf of the company in the capacities indicated.
By John M. Richards
-----------------------------
John M. Richards RICHARD A. CLARKE*
Director and Chairman of Director
the Board and Chief KENNETH T. DERR*
Executive Officer Director
(Principal Executive Officer) ALLEN F. JACOBSON*
Director
By L. Pendleton Siegel GEORGE F. JEWETT, JR.*
----------------------------- Director
L. Pendleton Siegel RICHARD B. MADDEN*
President and Chief Director
Operating Officer RICHARD M. MORROW*
(Principal Operating Officer) Director
VIVIAN W. PIASECKI*
By George E. Pfautsch Director
----------------------------- TONI REMBE*
George E. Pfautsch Director
Senior Vice President, REUBEN F. RICHARDS*
Finance Director
(Principal Financial Officer) RICHARD M. ROSENBERG*
Director
By Terry L. Carter ROBERT G. SCHWARTZ*
----------------------------- Director
Terry L. Carter CHARLES R. WEAVER*
Controller Director
(Principal Accounting Officer) FREDERICK T. WEYERHAEUSER*
Director
DR. WILLIAM T. WEYERHAEUSER*
Director
*By Sandra T. Powell
------------------
Sandra T. Powell
(Attorney-in-fact)
-10-
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Page
Number
The following documents are filed as part of this Report:
Consolidated Financial Statements:
Selected Financial Data 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 16
Statements of Earnings for the years ended December 31,
1994, 1993 and 1992 17
Balance Sheets at December 31, 1994 and 1993 18
Statements of Cash Flows for the years ended December 31,
1994, 1993 and 1992 19
Statements of Stockholders' Equity for the years ended
December 31, 1994, 1993 and 1992 20
Summary of Principal Accounting Policies 21 - 22
Notes to Financial Statements 23 - 33
Independent Auditors' Report 34
Schedules:
II. Valuation and Qualifying Accounts 35
All other schedules are omitted because they are
not required, not applicable or the required
information is given in the consolidated
financial statements.
-11-
Potlatch Corporation and Consolidated Subsidiaries
Selected Financial Data
(Dollars in thousands - except per-share amounts)
1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------
Net sales $1,471,258 $1,368,854 $1,326,612 $1,236,988 $1,252,906
Net earnings:
Before accounting changes 48,995 38,339 78,914 55,802 98,612
After accounting changes 48,995 6,635 78,914 55,802 98,612
Working capital 142,728 129,138 153,537 125,190 86,187
Current ratio* 1.6 to 1 1.7 to 1 1.9 to 1 1.7 to 1 1.4 to 1
Long-term debt
(noncurrent portion) $ 633,473 $ 707,131 $ 634,209 $ 563,014 $ 391,892
Stockholders' equity 920,207 919,664 955,581 914,750 896,122
Debt to stockholders'
equity ratio .69 to 1 .77 to 1 .66 to 1 .62 to 1 .44 to 1
Capital expenditures $ 104,389 $ 201,655 $ 179,539 $ 267,038 $ 317,650
Total assets* 2,081,229 2,085,652 2,015,747 1,908,631 1,731,248
Net earnings per common share:
Before accounting changes $1.68 $ 1.31 $ 2.71 $1.92 $3.41
After accounting changes 1.68 .22 2.71 1.92 3.41
Cash dividends
per common share 1.57 1.515 1.425 1.34 1.23
========================================================================================================================
* 1990-1993 amounts have been restated to conform to the 1994 presentation.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity
Liquidity of a company can be measured by several factors. Of major
importance are:
Capability of generating earnings and cash flow
Maintenance of a sound financial structure
Access to capital markets
Maintenance of adequate working capital
In 1994, the company's net cash provided by operations, excluding working
capital changes, as presented in the Statements of Cash Flows on page 19,
totaled $197.9 million, compared with $170.7 million in 1993 and $166.2
million in 1992.
The ratio of long-term debt to stockholders' equity was .69 to 1 at
December 31, 1994, compared with .77 to 1 at December 31, 1993, and .66 to 1
at December 31, 1992. The improvement in 1994 was largely due to a reduction
in outstanding commercial paper classified as long-term debt from $75.0
million at December 31, 1993, to $20.0 million at December 31, 1994. Total
commercial paper outstanding at December 31, 1994, was $33.0 million. Also
affecting the ratio was the reclassification of $15.0 million of the company's
medium-term notes from long-term to current due to the debt maturing within
one year.
-12-
At December 31, 1994, the company had credit lines totaling $150.0 million
for general corporate purposes. Of that amount, $50.0 million was in short-
term lines and $100.0 million was in a revolving credit and term loan
agreement. At December 31, 1994, there were no borrowings by the company
under any credit lines; however, the company uses the credit lines to back its
issuance of commercial paper. At December 31, 1994, a portion of the
revolving credit was being used to back outstanding commercial paper.
One of the company's stated objectives is to maintain a sound financial
structure. The company's long-term debt to equity ratio of .69 to 1 at
December 31, 1994, is somewhat above the range of its targeted financial
structure. The company believes that the combination of its internal cash
flow and projected levels of dividends and capital spending in 1995 will
permit it to return to its targeted range within the next year.
The company also believes that debt ratings within investment grade
categories are important for long-term access to capital markets. At the end
of 1994, the company's senior long-term debt was rated A- by Standard & Poors
and Duff and Phelps, and Baa1 by Moody's. With the company's ability to
generate cash flow and its access to capital markets, the company believes it
is capable of funding capital expenditures, working capital and other
liquidity needs for the foreseeable future.
At December 31, 1994, working capital was $142.7 million, compared with
$129.1 million at December 31, 1993, and $153.5 million at December 31, 1992.
The improvement for 1994 was largely due to increases of $26.4 million in
short-term investments and $18.8 million in receivables, which were partially
offset by increases of $12.9 million in notes payable, $11.8 million in
current installments on long-term debt and $5.9 million in accounts payable
and accrued liabilities.
Capital Resources and Funding
Capital expenditures totaled $104.4 million in 1994, compared with $201.7
million in 1993 and $179.5 million in 1992.
In 1994, the company spent $37.9 million in the wood products segment.
Significant projects included the completion of the new sawmill in Warren,
Arkansas, installation of a new log processing center at the Lewiston, Idaho,
sawmill and installation of required pollution control equipment at the Grand
Rapids, Minnesota, oriented strand board plant. The Warren sawmill, which is
progressing steadily to its designed capabilities, will improve lumber quality
and the yield from the available log supply while making more efficient use
of manpower. The new log processing center in Lewiston will reduce
manufacturing costs as well as increase production and improve yield.
Capital spending in the printing papers segment totaled $25.2 million,
where the first phase of the modernization and expansion of the Cloquet,
Minnesota, pulp mill continued during 1994. Also included were expenditures
for the rebuild of a paper machine at the Brainerd, Minnesota, facility.
-13-
Spending in the other pulp-based products segment totaled $40.8 million,
including two major projects in the Consumer Products Division where an older
tissue machine was rebuilt in Lewiston and the warehouse at the North Las
Vegas, Nevada, tissue converting facility was expanded. These two projects
improve the division's competitive position by improving product quality and
service. Other pulp-based products spending also included the continuing
development of acreage near Boardman, Oregon, to grow hybrid poplar trees for
pulp fiber to be used at the Lewiston pulp mill.
Authorized but unexpended appropriations totaled $332.5 million at
December 31, 1994. Of that amount, $225.1 million is budgeted to be expended
in 1995. Such expenditures will include the continuing modernization and
expansion of the Cloquet pulp mill; the continued rebuild of a paper machine
in Brainerd; the continued development of the hybrid poplar tree farm in
Boardman; the upgrade of the green stacker, planer and kiln at the Prescott,
Arkansas, sawmill; and installation of pollution control equipment at the
Minnesota oriented strand board plants. As in 1994, the 1995 capital program
will be funded primarily from internally generated sources.
Historically, the company has spent less on capital expenditures than the
annual amount budgeted. In 1994, the company spent $63.8 million less than
the $168.2 million budgeted. Spending on projects may be delayed due to
acquisition of environmental permits, acquisition of equipment, engineering,
weather and other factors. It is likely that the company will again spend
less than the budgeted amount in 1995.
In December 1994, the company announced a stock repurchase program which
authorizes the company to purchase up to 1 million shares of its common stock
over several years. Under the program, the company can purchase shares of
common stock from time to time through open market and privately negotiated
transactions at prices deemed appropriate by management. The purchases of
such shares are planned to be accomplished while also maintaining the
company's targeted financial structure.
Environment
The company is subject to extensive federal and state environmental control
regulations at its operating facilities. The company endeavors to comply with
all environmental regulations and monitors its activities on a regular basis
for such compliance. Compliance with environmental regulations requires
capital expenditures as well as additional operating costs. Capital
expenditures specifically designated for environmental compliance totaled
approximately $17.0 million during 1994 and are budgeted to be $25.0 million
in 1995. In addition, the company made expenditures for pollution control
facilities as part of major mill modernizations and expansions currently under
way.
In late 1993, the Environmental Protection Agency published proposed
regulations applicable to the pulp and paper industry. This extensive set of
regulations is designed to address both air and water emissions. As proposed,
the regulations would require modifications to process equipment and
procedures. Based on an examination of the capital costs of the proposals,
the company estimates that compliance would require capital expenditures in
the broad range of $200.0 million. Of this amount, approximately $100.0
million is already included in the planned expansion and modernization project
-14-
under way at the Cloquet, Minnesota, pulp mill, which is expected to cost in
excess of $500.0 million. The company does not expect that such compliance
costs would have a material adverse effect on its competitive position.
Results of Operations
Comparison of 1994 with 1993
Potlatch consolidated net sales of $1.47 billion increased 7 percent from
1993's $1.37 billion. Earnings were $49.0 million, compared with $38.3
million before the one-time effects of accounting changes for 1993. Earnings
per common share for 1994 were $1.68, which included a $.21 per share first
quarter charge for early retirement programs. Earnings per share for 1993
were $1.31 before the one-time effects of accounting changes.
Market improvements in most of the company's pulp-based businesses, along
with continued favorable market conditions for wood products, resulted in
higher earnings for 1994. The operating difficulties experienced by the
Lewiston, Idaho, pulp and paperboard mill in 1993 were reduced in 1994, but
some problems continue with the pulp mill washers. Although no reduction of
current operating levels is anticipated, the company is planning to replace
these washers.
The wood products segment reported earnings of $160.3 million,
approximately equal to the $160.2 million earned in 1993. Higher net sales
realizations for the company's lumber and panel products were offset by
startup costs of the new sawmill in Warren, Arkansas, and costs associated
with the installation of new log processing equipment at the Lewiston, Idaho,
sawmill. Late in the year the company sold two small manufacturing
operations: a split-cedar mill in Idaho and a hardwood flooring plant in
Arkansas.
At the present time, timber from the company's own lands, together with
outside purchases, is adequate to support manufacturing operations. In recent
years the timber supply from federal lands has been increasingly curtailed
largely due to environmental pressures that are expected to continue into the
foreseeable future. Although this trend has had a favorable effect on
earnings for the company as a whole, it has had an adverse effect on wood
costs. The long-term effect of this trend on company earnings cannot be
predicted. However, the company has implemented plans to develop additional
fiber supplies for the Lewiston, Idaho, pulp mill and by the year 2000 expects
to provide approximately 70 percent of chip fiber requirements for this mill
from resources it controls, compared with approximately 40 percent currently.
Earnings for the printing papers segment were $40.2 million, a substantial
improvement over 1993's $15.8 million. Higher shipments and net sales
realizations, resulting from a strengthening marketplace, along with
production improvements at the segment's facilities, were largely responsible
for the increase. An improved product mix also contributed to the positive
results.
The other pulp-based products segment, which includes the Pulp and
Paperboard Group and the Consumer Products Division, reported a loss of $53.5
million versus a loss of $40.9 million for 1993. The 1994 results include a
first quarter charge for early retirement programs of $10.0 million. The
company anticipates annual savings of $10.0 million as a result of the
-15-
programs. Higher paperboard shipments for the Pulp and Paperboard Group were
partially offset by lower paperboard net sales realizations and costs
associated with operating problems during the year. Sales of market pulp had
been curtailed since late 1993. However, market conditions improved
considerably from the beginning of 1994 and resulted in the resumption of
market pulp sales during the second quarter. The Consumer Products Division
increased product shipments 10 percent in 1994, but higher pulp costs and a
very competitive tissue market resulted in a loss for the year.
Comparison of 1993 with 1992
Potlatch consolidated net sales of $1.37 billion in 1993 increased slightly
over 1992's $1.33 billion. Earnings per common share before accounting
changes were $1.31 in 1993 compared with $2.71 for 1992. Including a one-
time, after-tax net charge of $31.7 million related to new accounting
requirements for postretirement benefits and income taxes, the company earned
$6.6 million or $.22 per common share in 1993. The results for 1992 include
a nonrecurring, net after-tax gain of $14.7 million or $.51 per common share
from the sale of the company's packaging operations and a charge related to
a litigation settlement.
Despite very favorable market conditions for wood products, earnings
continued to be adversely affected by weak market conditions throughout 1993
for the company's pulp-based products. Operating difficulties at the
Lewiston, Idaho, pulp and paperboard mill also negatively affected earnings.
Earnings for the wood products segment were $160.2 million, an increase of
61 percent over 1992's $99.8 million. Substantially higher net sales
realizations for most of the company's wood products were the primary reason
for the improved results. Timber supply constraints in the Pacific Northwest
continued to have a significant positive influence on product pricing in 1993,
as they did in 1992.
In 1993 the printing papers segment reported earnings of $15.8 million,
down from the $27.3 million earned in 1992. The poor market conditions for
printing papers of the past few years continued in 1993. Shipments increased
modestly during the year, but realizations were lower than in 1992.
The other pulp-based products segment, which includes the Pulp and
Paperboard Group and the Consumer Products Division, reported a loss of $40.9
million for 1993, compared with earnings of $33.3 million in 1992. Lower
paperboard shipments and sales realizations as a result of very depressed
market conditions combined with higher wood costs in Idaho were largely
responsible for the decline. Operating difficulties and extended shutdowns
at both of the company's pulp and paperboard mills in Lewiston, Idaho, and
Cypress Bend, Arkansas, during 1993 also contributed to the disappointing
results. The Consumer Products Division also incurred a loss for the year due
to very competitive markets and higher operating costs associated with the
startup of the new tissue machine in Lewiston and the new converting facility
in North Las Vegas, Nevada.
Income Taxes
The company's effective tax rates for 1994, 1993 and 1992 were 35.5
percent, 41.0 percent and 36.7 percent, respectively.
-16-
Potlatch Corporation and Consolidated Subiaries
Statements of Earnings
(Dollars in thousands - except per-share amounts)
For the years ended December 31 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
Net sales $1,471,258 $1,368,854 $1,326,612
- ----------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and cost of
fee timber harvested 138,251 123,544 107,165
Materials, labor and other operating
expenses 1,121,491 1,064,260 1,006,887
Selling, general and administrative
expenses 82,799 83,958 83,409
- ----------------------------------------------------------------------------------------------------------------------
1,342,541 1,271,762 1,197,461
- ----------------------------------------------------------------------------------------------------------------------
Earnings from operations 128,717 97,092 129,151
Interest expense, net of capitalized
interest of $2,799 ($6,384 in 1993 and
$16,581 in 1992) (51,137) (46,230) (34,902)
Interest and dividend income 348 1,352 3,790
Other income (expense), net (1,967) 12,790 26,575
- ----------------------------------------------------------------------------------------------------------------------
Earnings before taxes on income and cumulative
effect of accounting changes 75,961 65,004 124,614
Provision for taxes on income (Note 4) 26,966 26,665 45,700
- ----------------------------------------------------------------------------------------------------------------------
Net earnings before cumulative
effect of accounting changes 48,995 38,339 78,914
Cumulative effect of accounting
changes for postretirement
benefits and income taxes,
net of tax (Notes 4 and 10) - (31,704) -
- ----------------------------------------------------------------------------------------------------------------------
Net earnings $ 48,995 $ 6,635 $ 78,914
======================================================================================================================
Net earnings per common share:
Before accounting changes* $1.68 $1.31 $2.71
After accounting changes* 1.68 .22 2.71
======================================================================================================================
* Net earnings per common share for 1994 include a charge of $.21 for early retirement programs, 1992 includes unusual
items which produced a net gain of $.51 per share.
The accompanying notes and summary of principal accounting policies are an integral part of these financial statements.
-17-
Potlatch Corporation and Consolidated Subsidiaries
Balance Sheets
(Dollars in thousands - except per-share amounts)
At December 31 1994 1993
- -------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash (Note 8) $ 9,018 $ 6,813
Short-term investments (Note 8) 46,789 20,421
Receivables, net of allowance for doubtful
accounts of $2,625 ($2,057 in 1993) 137,418 118,601
Inventories (Note 1) 152,236 155,560
Prepaid expenses (Note 4) 25,857 25,758
- -------------------------------------------------------------------------------------------------
Total current assets 371,318 327,153
Land, other than timberlands 9,089 9,105
Plant and equipment, at cost less
accumulated depreciation of $1,018,500
($926,032 in 1993) (Note 2) 1,313,939 1,340,028
Timber, timberlands and related logging
facilities, net (Note 3) 346,199 343,044
Other assets 40,684 66,322
- -------------------------------------------------------------------------------------------------
$2,081,229 $2,085,652
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Notes 5 and 8) $ 12,881 $ -
Current installments on long-term debt (Notes 5 and 8) 18,831 7,057
Accounts payable and accrued liabilities (Note 6) 196,878 190,958
- -------------------------------------------------------------------------------------------------
Total current liabilities 228,590 198,015
- -------------------------------------------------------------------------------------------------
Long-term debt (Notes 5 and 8) 633,473 707,131
- -------------------------------------------------------------------------------------------------
Other long-term obligations (Note 7) 147,877 120,388
- -------------------------------------------------------------------------------------------------
Deferred taxes (Note 4) 151,082 140,454
- -------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock
Authorized 4,000,000 shares - -
Common stock, $1 par value
Authorized 40,000,000 shares, issued 32,721,980 shares 32,722 32,722
Additional paid-in capital 125,564 125,346
Retained earnings 836,628 836,845
Common shares in treasury 3,497,499 (3,522,834 in 1993) (74,707) (75,249)
- -------------------------------------------------------------------------------------------------
Total stockholders' equity 920,207 919,664
- -------------------------------------------------------------------------------------------------
$2,081,229 $2,085,652
=================================================================================================
December 31, 1993 amounts have been restated to conform to the 1994 presentation in which book overdrafts are
classified as a current liability.
The accompanying notes and summary of principal accounting policies are an integral part of these financial statements.
-18-
Potlatch Corporation and Consolidated Subsidiaries
Statements of Cash Flows
(Dollars in thousands)
For the years ended December 31 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATIONS
Net earnings $ 48,995 $ 6,635 $ 78,914
Adjustments to reconcile net earnings
to cash provided by operations:
Cumulative effect of accounting changes - 31,704 -
Depreciation, amortization and cost of
fee timber harvested 138,251 123,544 107,165
Deferred taxes 12,764 18,069 7,291
Net gain on disposition of plant
and properties (2,131) (9,254) (27,156)
- ----------------------------------------------------------------------------------------------------------------------
Cash provided by operations excluding
working capital changes 197,879 170,698 166,214
- ----------------------------------------------------------------------------------------------------------------------
Increase in receivables (18,817) (3,583) (14,336)
Decrease (increase) in inventories 3,324 (3,931) (3,907)
Increase in prepaid expenses (99) (5,619) (3,821)
Increase in accounts payable
and accrued liabilities 618 14,638 2,608
- ----------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) working
capital changes (14,974) 1,505 (19,456)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 182,905 172,203 146,758
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
Change in book overdrafts 5,302 1,953 90
Increase (decrease) in notes payable 12,881 - (14,981)
Proceeds from long-term debt - 79,525 75,124
Repayment of long-term debt (61,884) (3,488) (3,846)
Issuance of treasury stock 542 1,181 2,366
Dividends on common stock (45,870) (44,214) (41,476)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing (89,029) 34,957 17,277
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
Decrease (increase) in short-term investments 11,904 (6,761) 1,003
Decrease (increase) in deferred charges
included in other assets (158) 3,575 (14,359)
Increase in investments included in other assets (4,715) (12,152) (9,911)
Additions to plant and equipment, and to
land other than timberlands (95,254) (137,898) (170,857)
Additions to timber, timberlands and
related logging facilities (9,135) (63,757) (8,682)
Disposition of plant and properties 4,561 10,349 37,158
Other, net 1,126 (10,411) (5,843)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for investing (91,671) (217,055) (171,491)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 2,205 (9,895) (7,456)
Balance at beginning of year 6,813 16,708 24,164
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 9,018 $ 6,813 $ 16,708
======================================================================================================================
During 1994, the company's investment in corporate owned life insurance in the amount of $38.3 million was reclassified
from Other assets to Short-term investments.
Net interest paid (net of amounts capitalized) in 1994, 1993 and 1992 was $51.2 million, $44.0 million and $34.5 million,
respectively. Net income taxes paid in 1994, 1993 and 1992 were $12.4 million, $13.0 million and $55.8 million,
respectively.
The accompanying notes and summary of principal accounting policies are an integral part of these financial statements.
-19-
Potlatch Corporation and Consolidated Subsidiaries
Statements of Stockholders' Equity
(Dollars in thousands - except per-share amounts)
For the years ended December 31 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year $125,346 $124,865 $123,838
Exercise of stock options 218 481 1,027
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of year $125,564 $125,346 $124,865
=====================================================================================================================
RETAINED EARNINGS
Balance at beginning of year $836,845 $874,424 $836,986
Net earnings 48,995 6,635 78,914
Common dividends, $1.57 per share ($1.515 per
share in 1993 and $1.425 per share in 1992) (45,870) (44,214) (41,476)
Minimum pension liability adjustment (3,342) - -
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of year $836,628 $836,845 $874,424
=====================================================================================================================
COMMON SHARES IN TREASURY
Balance at beginning of year 3,522,834 shares
(3,578,159 in 1993 and 3,688,899 in 1992) $ 75,249 $ 76,430 $ 78,796
Exercise of stock options 25,335 shares
(55,325 in 1993 and 110,740 in 1992) (542) (1,181) (2,366)
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of year 3,497,499 shares
(3,522,834 in 1993 and 3,578,159 in 1992) $ 74,707 $ 75,249 $ 76,430
=====================================================================================================================
The accompanying notes and summary of principal accounting policies are an integral part of these financial statements.
-20-
Potlatch Corporation and Consolidated Subsidiaries
Summary of Principal Accounting Policies
Consolidation
The financial statements include the accounts of Potlatch Corporation and
its subsidiaries after elimination of significant intercompany transactions
and accounts. There are no significant unconsolidated subsidiaries.
Inventories
Inventories are stated at the lower of cost or market. The last-in, first-
out method is used to determine cost of most wood products. The average cost
method is used to determine cost of all other inventories.
Earnings Per Common Share
Earnings per common share are computed on the weighted average number of
common shares outstanding each year. Outstanding stock options are common
stock equivalents but are excluded from earnings per common share computations
due to immateriality. The weighted average number of common shares used in
earnings per common share computations for 1994, 1993 and 1992 were
29,217,261, 29,183,871 and 29,110,179, respectively.
Properties
Property, plant and equipment are valued at cost less accumulated
depreciation. Depreciation of buildings, equipment and other depreciable
assets is determined by using the straight-line method on estimated useful
lives. Estimated useful lives of plant and equipment range from 2 to 40
years.
Timber, timberlands and related logging facilities are valued at cost net
of the cost of fee timber harvested and depreciation or amortization. Logging
roads and related facilities are amortized over their useful lives or as
related timber is removed. Cost of fee timber harvested is determined
annually based on the estimated volumes of recoverable timber and related
cost.
Major improvements and replacements of property are capitalized.
Maintenance, repairs, and minor improvements and replacements are expensed.
Amounts expensed in 1994, 1993 and 1992 were $167.7 million, $166.6 million
and $155.1 million, respectively. Upon retirement or other disposition of
property, applicable cost and accumulated depreciation or amortization are
removed from the accounts. Any gains or losses are included in earnings.
Income Taxes
The provision for taxes on income is based on earnings reported in the
financial statements. Deferred income taxes are provided on the temporary
differences between reported earnings and taxable income using current tax
laws and rates.
-21-
Preoperating and Startup Costs
Preoperating costs are expensed as incurred except for charges relating to
major new facilities. Deferred preoperating costs are amortized over a 60-
month period. Startup costs are expensed as incurred.
-22-
Potlatch Corporation and Consolidated Subsidiaries
Notes to Financial Statements
Note 1. Inventories
(Dollars in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------
Logs, pulpwood, chips and sawdust $ 18,401 $ 18,391
Lumber and other manufactured wood products 7,369 8,184
Pulp, paper and converted paper products 66,937 71,479
Materials and supplies 59,529 57,506
- ------------------------------------------------------------------------------------------------------
$152,236 $155,560
======================================================================================================
Valued at lower of cost or market:
Last-in, first-out basis $ 21,935 $ 15,241
Average cost basis 130,301 140,319
- ------------------------------------------------------------------------------------------------------
$152,236 $155,560
======================================================================================================
If the last-in, first-out inventory had been priced at lower of current
average cost or market, the values would have been approximately $32.3 million
higher at December 31, 1994, and $27.8 million higher at December 31, 1993.
In 1994 and 1993, reductions in quantities of LIFO inventories valued at lower
costs prevailing in prior years had the effect of increasing earnings, net of
income taxes, by approximately $1.6 million ($.06 per common share) and $2.4
million ($.08 per common share), respectively.
Note 2. Plant and Equipment
(Dollars in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------
Land improvements $ 55,012 $ 53,900
Buildings and structures 367,630 354,678
Machinery and equipment 1,744,809 1,685,432
Other 81,296 78,564
Construction in progress 83,692 93,486
- ------------------------------------------------------------------------------------------------------
$2,332,439 $2,266,060
======================================================================================================
Depreciation charged against income amounted to $119.6 million in 1994
($108.4 million in 1993 and $95.8 million in 1992).
Authorized but unexpended appropriations totaled $332.5 million at December
31, 1994. Of that amount, $225.1 million is budgeted to be expended in 1995.
Note 3. Timber, Timberlands and Related Logging Facilities
(Dollars in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------
Timber and timberlands $319,482 $319,305
Related logging facilities 26,717 23,739
- ------------------------------------------------------------------------------------------------------
$346,199 $343,044
======================================================================================================
Timber, timberlands and related logging facilities are stated at cost less
cost of fee timber harvested and amortization. Cost of fee timber harvested
amounted to $15.1 million in 1994 ($12.0 million in 1993 and $9.1 million in
1992). Amortization of logging roads and related facilities amounted to $1.1
million in 1994 ($.7 million in 1993 and 1992).
-23-
Note 4. Taxes on Income
Effective January 1, 1993, the company adopted the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes. The
statement requires the liability method for recording differences in financial
and taxable income. The company recorded the cumulative effect of the
accounting change in the first quarter of 1993, which increased income by
$43.8 million or $1.50 per share. Prior years' financial statements were not
restated.
Significant components of the provision for taxes on income:
(Dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Current:
Federal $ 16,653 $ 15,311 $31,689
State 2,118 1,646 5,874
- ------------------------------------------------------------------------------------------------------
Total current 18,771 16,957 37,563
- ------------------------------------------------------------------------------------------------------
Deferred:
Depreciation 25,271 26,139 12,694
Alternative minimum tax (14,370) (15,222) (2,000)
Pension costs 739 2,803 (1,357)
Postretirement benefits and
related funding (4,527) (4,943) (1,332)
Net operating loss - (1,897) -
Federal tax rate change - 3,245 -
Other 1,082 (417) 132
- ------------------------------------------------------------------------------------------------------
Total deferred 8,195 9,708 8,137
- ------------------------------------------------------------------------------------------------------
Provision for taxes on income $ 26,966 $ 26,665 $45,700
======================================================================================================
The provision for taxes on income differs from the amount computed by
applying the statutory federal income tax rate (35 percent in 1994 and 1993
and 34 percent in 1992) to earnings before taxes on income and cumulative
effect of accounting changes due to the following:
(Dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Computed "expected" tax expense $26,586 $22,751 $42,369
State and local taxes, net of federal
income tax benefits 2,755 2,695 5,355
Federal tax rate change - 3,245 -
All other items (2,375) (2,026) (2,024)
- ------------------------------------------------------------------------------------------------------
Provision for taxes on income $26,966 $26,665 $45,700
Effective tax rate 35.5% 41.0% 36.7%
======================================================================================================
-24-
Principal current and noncurrent deferred tax assets and liabilities at
December 31:
(Dollars in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------
Current deferred tax assets:
Employee benefits $ 15,101 $ 15,523
Inventories 1,961 2,289
Net operating loss 1,897 1,897
Other 1,713 1,284
- ------------------------------------------------------------------------------------------------------
Total current asset(1) 20,672 20,993
- ------------------------------------------------------------------------------------------------------
Noncurrent deferred tax assets (liabilities):
Postretirement benefits 42,272 37,745
Alternative minimum tax 35,851 21,481
Depreciation (228,790) (198,498)
Other, net (415) (1,182)
- ------------------------------------------------------------------------------------------------------
Total net noncurrent liability (151,082) (140,454)
- ------------------------------------------------------------------------------------------------------
Net deferred tax liability $(130,410) $(119,461)
======================================================================================================
(1) Included in Prepaid expenses in the Balance Sheets.
Noncurrent deferred tax assets at December 31, 1994 and 1993, are net of
valuation allowances of $8.9 million and $8.1 million, respectively. Based
on the company's history of operating earnings and its expectations for the
future, management has determined that operating income will more likely than
not be sufficient to recognize fully all other deferred tax assets.
In the third quarter of 1993, the company adjusted its current and deferred
income tax balances to reflect an increase in the statutory federal tax rate
from 34 percent to 35 percent retroactive to January 1, 1993. The provision
for taxes on income for 1993 includes $3.2 million of expense for the effect
of the tax increase on beginning of the year deferred tax balances.
The company's federal income tax returns have been examined and settlements
have been reached for all years through 1988, except a petition which has been
filed with the U.S. Tax Court regarding the deductibility of certain expenses
on the company's 1985 federal income tax return. Assessments made for the
years 1989 and 1990 are presently being negotiated at the appellate level.
The company believes that adequate provision has been made for possible
assessments of additional taxes.
Note 5. Debt
(Dollars in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------
Revenue bonds fixed rate 5.8% to 9% due 1994
through 2013 $140,946 $144,144
Revenue bonds variable rate due 2007 through 2014 34,928 34,921
Credit sensitive debentures 9.125% due 2009 100,000 100,000
Sinking fund debentures 9.625% due 2016 100,000 100,000
Medium-term notes fixed rate 7.55% to 9.46%
due 1995 through 2022 250,000 250,000
Commercial paper 6.12% to 6.425%
(3.38% to 3.65% in 1993) 20,000 74,841
Other notes 6,430 10,282
- ------------------------------------------------------------------------------------------------------
652,304 714,188
Less current installments on long-term debt 18,831 7,057
- ------------------------------------------------------------------------------------------------------
Long-term debt $633,473 $707,131
======================================================================================================
-25-
The commercial paper is backed by the company's revolving credit agreement,
which enables it to refinance these short-term borrowings to a long-term basis
should the company choose to do so. Because of this capability and the
likelihood of $20.0 million of the commercial paper being outstanding for more
than a year, that amount has been classified as long-term debt. The balance
of commercial paper outstanding at December 31, 1994, is classified as current
notes payable in the Balance Sheets. The weighted average interest rate
payable is 6.302 percent.
The interest rate payable on the 9.125 percent credit sensitive debentures
is subject to adjustment if certain changes in the debt rating of the
debentures occur. No such change in the interest rate payable has occurred.
Certain credit agreements have restrictive covenants. At December 31,
1994, the company was in compliance with such covenants.
Payments due on long-term debt during each of the five years subsequent to
December 31, 1994:
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------
1995 $18,800
- ------------------------------------------------------------------------------------------------------
1996 37,000
- ------------------------------------------------------------------------------------------------------
1997 21,400
- ------------------------------------------------------------------------------------------------------
1998 5,000
- ------------------------------------------------------------------------------------------------------
1999 15,000
- ------------------------------------------------------------------------------------------------------
The above installments do not include any payments on commercial paper
outstanding.
At December 31, 1994, the company had credit lines totaling $150.0 million
for general corporate purposes. Of that amount, $50.0 million was in short-
term lines and $100.0 million was in a revolving credit and term loan
agreement. The short-term credit lines are LIBOR based and permit the company
to borrow at any time through May 31, 1995. The revolving credit and term
loan agreement dated September 1, 1994, contains a 364-day commitment period,
is renewable annually and includes a two-year term loan option. At December
31, 1994, there were no borrowings by the company under any credit lines.
Note 6. Accounts Payable and Accrued Liabilities
(Dollars in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------
Trade accounts payable $ 57,016 $ 54,726
Accrued wages, salaries and employee benefits 53,678 57,878
Accrued taxes other than taxes on income 16,570 15,517
Accrued interest 13,224 11,623
Accrued taxes on income 9,926 8,464
Book overdrafts 24,195 18,893
Other 22,269 23,857
- ------------------------------------------------------------------------------------------------------
$196,878 $190,958
======================================================================================================
-26-
Note 7. Other Long-Term Obligations
(Dollars in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------
Postretirement benefits $111,034 $ 98,366
Pension and related liabilities 26,517 11,345
Other 10,326 10,677
- ------------------------------------------------------------------------------------------------------
$147,877 $120,388
======================================================================================================
Note 8. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
CASH AND SHORT-TERM INVESTMENTS
For short-term investments, the carrying amount approximates fair value.
Short-term investments include bank certificates of deposit, repurchase
agreements, money market preferreds and various other investment grade
securities which can be readily purchased or sold using established markets.
Short-term investments at December 31, 1994, include $45.3 million for the
company's investment in corporate owned life insurance (COLI). COLI does not
qualify as a financial instrument and therefore is not included in the fair
values stated below.
CURRENT NOTES PAYABLE
The fair value of the company's current notes payable, which consists of
commercial paper, is estimated based upon the quoted market prices for the
same or similar issues.
LONG-TERM DEBT
The fair value of the company's long-term debt is estimated based upon the
quoted market prices for the same or similar debt issues. The amount of long-
term debt for which there is no quoted market price is immaterial and the
carrying amount approximates fair value.
Estimated fair values of the company's financial instruments:
1994 1993
Carrying Fair Carrying Fair
(Dollars in thousands) Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------
Cash and short-term investments $ 10,494 $ 10,494 $ 27,234 $ 27,234
Current notes payable 12,881 12,880 - -
Long-term debt 652,304 658,541 714,188 770,014
======================================================================================================
Note 9. Retirement, Incentive and Savings Plans
Substantially all employees and directors of the company are covered by
noncontributory defined benefit pension plans. These include both company-
sponsored and multi-employer plans. Total pension expense was $4.5 million
in 1994, $6.3 million in 1993 and $7.3 million in 1992. The 1994 pension
expense presented above excludes $4.6 million for early retirement programs
which is included in Other income and expense in the Statements of Earnings.
-27-
The salaried plan provides benefits based on the participants' final
average pay and years of service. Plans covering hourly employees generally
provide benefits of stated amounts for each year of service. The directors'
plan provides a benefit equal to the retainer in effect at the time the
participant ceases to be a director if the director has completed five years
of service as a nonemployee director. Benefits are paid for the lesser of 10
years or the number of years of service as a nonemployee director.
Pension cost for company-sponsored plans:
(Dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Service cost - benefits earned during year $ 8,440 $ 7,512 $ 6,861
Interest cost on projected benefit obligation 24,949 24,641 23,807
Actual return on assets 3,670 (48,160) (33,153)
Net amortization and deferral (35,208) 19,649 7,201
- ------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 1,851 $ 3,642 $ 4,716
======================================================================================================
Funded status and related balance sheet amounts for company-sponsored
pension plans at December 31:
Plans Where Plans Where
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets Total
(Dollars in thousands) 1994 1993 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 214,012 $ 285,369 $ 95,095 $ 12,926 $ 309,107 $ 298,295
Accumulated benefit obligation 219,562 298,903 105,505 13,973 325,067 312,876
Projected benefit obligation 232,183 313,150 111,907 20,131 344,090 333,281
======================================================================================================
Plan assets at fair value,
primarily publicly traded
equity and fixed income
securities $ 252,204 $ 349,697 $ 83,268 $ 4,829 $ 335,472 $ 354,526
Projected benefit obligation (232,183) (313,150) (111,907) (20,131) (344,090) (333,281)
- ------------------------------------------------------------------------------------------------------
Plan assets above (below)
projected benefit obligation 20,021 36,547 (28,639) (15,302) (8,618) 21,245
Unrecognized prior service cost (3,203) 1,114 19,709 6,516 16,506 7,630
Unrecognized net (gain) loss (184) (15,124) 5,710 (233) 5,526 (15,357)
Unrecognized net transition asset (5,477) (9,048) (1,385) (283) (6,862) (9,331)
Adjustment required to recognize
minimum liability - - (20,271) (742) (20,271) (742)
- ------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 11,157 $ 13,489 $ (24,876) $(10,044) $ (13,719) $ 3,445
======================================================================================================
The projected benefit obligation for the company's unfunded, nonqualified
plans at December 31, 1994 and 1993, was $16.2 million and $15.2 million,
respectively. These amounts are included in the total for Plans Where
Accumulated Benefits Exceed Assets.
As of December 31, 1994, $20.3 million of minimum pension liabilities for
underfunded plans was included in other long-term liabilities, with
corresponding intangible assets of $14.8 million and a charge of $3.4 million
to retained earnings, which is net of deferred taxes of $2.1 million. As of
December 31, 1993, minimum pension liabilities totaled $.7 million, with
corresponding intangible assets of the same amount.
The projected benefit obligation at December 31, 1994, 1993 and 1992, was
determined using an assumed discount rate of 8.25 percent, 7.75 percent and
8.5 percent, respectively, and an assumed long-term rate of salaried
-28-
compensation increase of 5 percent, 5 percent and 6 percent, respectively.
The assumed rate of return on plan assets was 9.5 percent for 1994, 9.5
percent for 1993 and 9 percent for 1992. The actual return on plan assets has
averaged approximately 12 percent over the past 17 years.
Funding of company-sponsored plans is based on accepted actuarial methods
in accordance with applicable governmental regulations and is determined
separately from the net periodic cost presented above.
Hourly employees at two of the company's manufacturing facilities
participate in a multi-employer defined benefit pension plan, the Paper
Industry Union-Management Pension Fund. Company contributions were $2.6
million for 1994, $2.7 million for 1993 and $2.6 million for 1992 and equaled
the amounts charged to pension expense.
Key management employees participate in a management performance award plan
under which awards are based on certain minimum and standard performance
criteria established each year. All company employees are eligible to
participate in 401(k) savings plans.
Note 10. Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. The statement requires accrual basis
recognition of the projected future cost of providing postretirement benefits.
The company elected immediate recognition of the transition obligation, which
amounted to $118.0 million ($75.5 million after income tax benefits or $2.59
per share). The obligation, which is presented in Other long-term obligations
in the Balance Sheets, was partially offset by $31.2 million of plan assets.
The company provides many of its retired employees with health care and
life insurance benefits. Benefits are provided under company-sponsored
defined benefit retiree health care and life insurance plans which cover most
salaried and certain hourly employees. Employees become eligible for these
benefits as they retire from active employment. Most of the retiree health
care plans require retiree contributions and contain other cost sharing
features such as deductibles and coinsurance. The retiree life insurance
plans are primarily noncontributory. The retiree health care plans are
partially funded. The retiree life insurance plans are unfunded.
Net periodic postretirement benefit cost:
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------------------------------------------
Service cost - benefits earned during year $ 3,931 $ 3,450
Interest cost on accumulated
postretirement benefit obligation 11,054 11,510
Actual return on assets 330 (2,259)
Net amortization and deferral (2,026) 449
- -----------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $13,289 $13,150
=====================================================================================================
The 1994 postretirement benefit cost presented above excludes $1.9 million
for early retirement programs which is included in Other income and expense
in the Statements of Earnings. Postretirement benefit cost on a pay-as-you-go
basis totaled $5.7 million for 1992 and has not been restated.
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Funded status and related balance sheet amounts for postretirement health
care and life insurance plans at December 31:
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ (79,359) $ (76,469)
Fully eligible active plan participants (25,541) (24,080)
Other active plan participants (47,427) (45,107)
- -----------------------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation (152,327) (145,656)
Plan assets at fair value, primarily publicly
traded equity and fixed income securities 25,392 29,884
- -----------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets (126,935) (115,772)
Unrecognized prior service cost 8,242 9,390
Unrecognized net loss 7,659 8,016
- -----------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $(111,034) $ (98,366)
=====================================================================================================
The discount rate used in determining the accumulated postretirement
benefit obligation at December 31, 1994 and 1993, was 8.25 percent and 7.75
percent, respectively. The expected long-term rate of return on plan assets
for 1994 and 1993 was 9.5 percent.
The health care cost trend rate assumption used in determining the
accumulated postretirement benefit obligation at December 31, 1994 and 1993,
is based on an initial rate of 10 percent, decreasing incrementally to 5
percent over an 8-year period and remaining at that level thereafter. This
assumption has a significant effect on the amounts reported. For example, a
1 percent increase in the health care cost trend rates would have increased
the accumulated postretirement benefit obligation at December 31, 1994, to
$176.7 million and increased the net periodic cost for 1994 to $15.9 million
from the $13.3 million actually recorded.
Funding of postretirement health care plans is based on accepted actuarial
methods in accordance with applicable governmental regulations and is
determined separately from the net periodic cost presented above.
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment
Benefits. The statement requires accrual basis recognition of postemployment
benefits provided to former or inactive employees after employment but before
retirement. The effect of implementing the new standard was not material.
Note 11. Stock Options
Under the company's stock option plans, options for shares of the company's
common stock have been issued to certain key personnel. Options are granted
at market value and may include a stock appreciation right. Options may also
be issued in the form of restricted stock and other share-based awards, none
of which were outstanding at December 31, 1994. Options are fully exercisable
after two years and expire not later than 10 years from the date of grant.
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Information with respect to the company's stock options:
For the years ended December 31 1994 1993
- -----------------------------------------------------------------------------------------------------
Option (share) price range, $ 14.50 $ 14.50
fair market value to to
at date of grant $46.375 $46.375
- -----------------------------------------------------------------------------------------------------
Options (shares) outstanding at January 1 990,085 926,112
Granted 279,050 241,350
Shares exercised (25,335) (55,325)
SARs(1) exercised (42,075) (109,227)
Canceled or expired (36,925) (12,825)
- -----------------------------------------------------------------------------------------------------
Options (shares) outstanding at December 31 1,164,800 990,085
=====================================================================================================
At December 31 1994 1993
Options (shares) exercisable 770,200 633,785
Options (shares) outstanding which include
a stock appreciation right 722,925 623,075
Shares reserved for future grants 251,750 493,875
=====================================================================================================
(1) Stock appreciation rights (an appropriate accrual has been made).
Note 12. Segment Information
Potlatch Corporation is an integrated forest products company with
substantial timber resources. It is engaged principally in the growing and
harvesting of timber and the manufacture and sale of wood products, printing
papers and other pulp-based products. Its timberlands and all of its
manufacturing facilities are located within the United States.
Following is a tabulation of business segment information for each of the
past three years:
(Dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Sales to Unaffiliated Customers:(1)
Wood products:
Oriented strand board $ 224,586 $ 194,514 $ 174,557
Lumber 196,577 196,544 159,080
Plywood 73,413 72,815 65,462
Particleboard 17,058 14,593 10,642
Other 41,078 25,159 17,017
- ------------------------------------------------------------------------------------------------------
552,712 503,625 426,758
- ------------------------------------------------------------------------------------------------------
Printing papers 405,553 369,012 365,636
- ------------------------------------------------------------------------------------------------------
Other pulp-based products:
Pulp 10,812 12,915 17,863
Paperboard 335,803 343,419 371,511
Tissue 166,378 139,883 118,162
Packaging(2) - - 26,682
- ------------------------------------------------------------------------------------------------------
512,993 496,217 534,218
- ------------------------------------------------------------------------------------------------------
Total $1,471,258 $1,368,854 $1,326,612
======================================================================================================
Intersegment Sales or Transfers:(3)
Wood products $ 64,111 $ 63,618 $ 66,142
Printing papers 10 - -
Other pulp-based products 159 948 1,733
- ------------------------------------------------------------------------------------------------------
Total $ 64,280 $ 64,566 $ 67,875
======================================================================================================
-31-
(Dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Operating Income (Loss):
Wood products $ 160,345 $ 160,220 $ 99,833
Printing papers 40,174 15,796 27,316
Other pulp-based products (53,462) (40,944) 33,298
- ------------------------------------------------------------------------------------------------------
147,057 135,072 160,447
Corporate Items:
Administration expense (21,389) (26,922) (30,022)
Interest expense (51,137) (46,230) (34,902)
Interest and dividend income 348 1,352 3,790
Other, net 1,082 1,732 25,301
- ------------------------------------------------------------------------------------------------------
Earnings before taxes on income and
cumulative effect of accounting changes $ 75,961 $ 65,004 $ 124,614
======================================================================================================
Identifiable Assets:
Wood products $ 697,144 $ 689,598 $ 615,093
Printing papers 462,721 458,276 448,312
Other pulp-based products 804,267 824,015 807,597
Corporate 117,097 113,763 144,745
- ------------------------------------------------------------------------------------------------------
Total $2,081,229 $2,085,652 $2,015,747
======================================================================================================
Depreciation, Amortization and
Cost of Fee Timber Harvested:
Wood products $ 49,510 $ 39,909 $ 36,092
Printing papers 31,754 30,521 28,788
Other pulp-based products 55,962 52,142 41,320
Corporate 1,025 972 965
- ------------------------------------------------------------------------------------------------------
Total $ 138,251 $ 123,544 $ 107,165
======================================================================================================
Capital Expenditures:
Wood products $ 37,918 $ 97,612 $ 28,077
Printing papers 25,247 42,482 32,292
Other pulp-based products 40,771 59,559 118,503
Corporate 453 2,002 667
- ------------------------------------------------------------------------------------------------------
Total $ 104,389 $ 201,655 $ 179,539
======================================================================================================
(1) Total export sales, including those made through brokers and agents,
amounted to $133.1 million, $106.1 million and $106.1 million in
1994, 1993 and 1992, respectively. Export paperboard sales (a majority
of which were shipped to Japan) amounted to 85 percent, 86 percent and
80 percent, respectively, of total export sales.
(2) The company's packaging operations were sold in April 1992.
(3) Intersegment sales for 1992-1994, the majority of which are based on
prevailing market prices, consisted primarily of chips, pulp logs and
other fiber sales to the pulp, papermaking and converting facilities.
The company's timber, timberlands and related logging facilities
generally have been assigned to the wood products segment.
-32-
Note 13. Financial Results by Quarter (Unaudited)
(Dollars in thousands - except per-share amounts) Three Months Ended
- ----------------------------------------------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993 1994 1993 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $365,282 $361,543 $345,120 $326,624 $373,324 $338,223 $387,532 $342,464
- ----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization
and cost of fee timber
harvested 35,023 28,368 34,387 30,221 35,016 33,132 33,825 31,823
Materials, labor and other
operating expenses 280,351 266,466 270,982 262,202 287,014 273,323 283,144 262,269
Selling, general and
administrative expenses 19,514 21,482 20,915 19,634 22,488 19,615 19,882 23,227
- ----------------------------------------------------------------------------------------------------------------------------------
334,888 316,316 326,284 312,057 344,518 326,070 336,851 317,319
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings from operations(1) $ 30,394 $ 45,227 $ 18,836 $ 14,567 $ 28,806 $ 12,153 $ 50,681 $ 25,145
==================================================================================================================================
Net earnings (loss) $ 5,314 $ (9,542) $ 6,052 $ 2,758 $ 10,741 $ (2,179)(2) $ 26,888 $ 15,598
==================================================================================================================================
Net earnings per common share:
Before accounting changes $.18 $ .76 $.21 $.09 $.37 $(.07)(2) $.92 $.53
After accounting changes .18 (.33) .21 .09 .37 (.07)(2) .92 .53
==================================================================================================================================
(1) In 1994 the company began accruing for normal annual maintenance shutdowns over the entire year versus the previous
practice of expensing the costs as incurred. The effect of this change in accounting practice on earnings before
taxes by quarter for 1994 was a decrease of $3.7 million for the first quarter, a decrease of $.7 million for the
second quarter, an increase of $9.1 million for the third quarter and a decrease of $4.7 million for the fourth
quarter. There is no effect on an annual comparison.
(2) Includes a retroactive 1 percent federal tax increase on earnings for the first nine months of 1993 and $3.2
million of expense for the effect of the tax increase on deferred tax balances.
-33-
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
We have audited the accompanying balance sheets of Potlatch Corporation and
consolidated subsidiaries as of December 31, 1994 and 1993 and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1994. In connection with
our audits of the financial statements, we also have audited the financial
statement schedule on page 35. These financial statements and financial
statement schedule are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Potlatch Corporation and
consolidated subsidiaries at December 31, 1994 and 1993 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, present fairly, in all material respects, the information set
forth herein.
As discussed in the notes to the financial statements, in 1993 the company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," and Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits."
KPMG Peat Marwick LLP
Portland, Oregon
January 25, 1995
-34-
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES Schedule II
Valuation and Qualifying Accounts
For the Years Ended December 31, 1994, 1993 and 1992
(Dollars in thousands)
Amounts
charged
Balance at (credited) to
beginning costs and Balance at
Description of year expenses Deductions end of year
----------- ---------- ------------- ---------- -----------
Reserve deducted from related assets:
Doubtful accounts - Accounts receivable
Year ended December 31, 1994 $2,057 $ 621 $ (53)(1) $2,625
==============================================
Year ended December 31, 1993 $1,781 $ 92 $ 184 (1) $2,057
==============================================
Year ended December 31, 1992 $2,610 $(216) $(613)(1) $1,781
==============================================
1 - Accounts written off - net of recoveries.
-35-
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Exhibit Index
Exhibit
*(3)(a) Restated Certificate of Incorporation, restated and filed
with the state of Delaware on May 1, 1987, filed as
Exhibit (3)(a) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 ("1992 Form 10-K").
*(3)(c) By-laws, as amended through May 20, 1993, filed as
Exhibit (3)(c) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 ("1993 Form 10-K").
(4) See Exhibits (3)(a) and (3)(c). Registrant also
undertakes to file with the Securities and Exchange
Commission, upon request, any instrument with respect to
long-term debt.
(4)(a) Form of Indenture, dated as of April 1, 1986.
(4)(b) Form of Debenture for the $100 Million Principal Amount
of 9-5/8% Sinking Fund Debentures due April 15, 2016.
(4)(c) Form of Debenture for the $100 Million Principal Amount
of 9-1/8% Credit Sensitive Debentures due December 1,
2009.
(4)(d) Officers' Certificate, dated December 6, 1989.
*(4)(e) Form of Indenture, dated as of November 27, 1990, filed
as Exhibit (4)(e) to the Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 ("1990 Form
10- K").
*(4)(f) Officers' Certificate, dated January 24, 1991, filed as
Exhibit (4)(f) to the 1990 Form 10-K.
*(4)(g) Officers' Certificate, dated December 12, 1991, filed as
Exhibit (4)(g) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 ("1991 Form 10-K").
*(10)(a) Potlatch Corporation Management Performance Award Plan,
as amended effective January 1, 1986, filed as Exhibit
(10)(a) to the 1990 Form 10-K.
(10)(a)(i) Amendment, dated May 5, 1989, to the Plan described in
Exhibit (10)(a).
*Incorporated by reference.
-36-
*(10)(b) Potlatch Corporation Severance Program for Executive
Employees, as amended and restated as of February 24,
1989, filed as Exhibit (10)(b)(iv) to the 1993 Form 10-K.
*(10)(c) Letter agreement, dated May 21, 1979, between Potlatch
Corporation and George F. Jewett, Jr., regarding
consulting services, filed as Exhibit (10)(c) to the 1990
Form 10-K.
*(10)(c)(i) Amendment, dated February 19, 1986, to agreement
described in Exhibit (10)(c), filed as Exhibit (10)(c)(i)
to the 1990 Form 10-K.
*(10)(d) Potlatch Corporation Salaried Employees' Supplemental
Benefit Plan (As Amended and Restated Effective
January 1, 1988), filed as Exhibit (10)(d)(i) to the 1993
Form 10-K.
*(10)(d)(i) Amendment, effective as of December 31, 1992, to Plan
described in Exhibit (10)(d), filed as Exhibit
(10)(d)(ii) to the 1992 Form 10-K.
*(10)(f) Supplemental Retirement Benefit and Life Insurance
Agreement, dated February 19, 1988, together with
Amendment to Agreement thereto, dated as of January 1,
1992, between Potlatch Corporation and Richard B. Madden,
filed as Exhibit (10)(f)(iii) to the 1992 Form 10-K.
(10)(f)(i) Description of facilities use by Richard B. Madden.
*(10)(g) Potlatch Corporation 1983 Stock Option Plan (effective
September 24, 1983), together with amendments thereto,
dated December 14, 1984, February 24, 1989 and
February 22, 1990, filed as Exhibit (10)(r) to the 1993
Form 10-K.
(10)(g)(i) Form of Stock Option Agreement for the Potlatch
Corporation 1983 Stock Option Plan together with the
Addendum thereto as used for options granted on
December 14, 1989.
(10)(g)(ii) Form of Amendment to Stock Option Agreement together with
the Addendum thereto to add stock appreciation rights to
stock option agreements issued under the Potlatch
Corporation 1983 Stock Option Plan.
*(10)(g)(iii) Form of Stock Option Agreement for the Potlatch
Corporation 1983 Stock Option Plan together with the
Addendum thereto as used for options granted in each
December of 1990-1992, filed as Exhibit (10)(s)(v) to the
1990 Form 10-K.
(10)(h) Potlatch Corporation Deferred Compensation Plan for
Directors, as amended and restated as of May 1991.
*Incorporated by reference.
-37-
(10)(i) Potlatch Corporation Directors' Retirement Plan,
effective October 1, 1989.
*(10)(j) Compensation of Directors, dated May 20, 1993, filed as
Exhibit (10)(w)(vi) to the 1993 Form 10-K.
*(10)(k) Form of Indemnification Agreement with each director of
Potlatch Corporation, dated as of the dates set forth on
Schedule A and Amendments 1, 2, 3 and 4 to Schedule A,
filed as Exhibit (10)(x) to the 1991 Form 10-K.
*(10)(k)(i) Amendment No. 5 to Schedule A to Exhibit (10)(k), filed
as Exhibit (10)(x)(i) to the 1992 Form 10-K.
*(10)(k)(ii) Amendment No. 6 to Schedule A to Exhibit (10)(k), filed
as Exhibit (10)(x)(ii) to the 1993 Form 10-K.
*(10)(l) Form of Indemnification Agreement with certain officers
of Potlatch Corporation identified on Schedule A and
Amendments 1, 2, and 3 to Schedule A, filed as Exhibit
(10)(y) to the 1991 Form 10-K.
*(10)(l)(i) Amendment No. 4 to Schedule A to Exhibit (10)(l), filed
as Exhibit (10)(y) to the 1992 Form 10-K.
*(10)(l)(ii) Amendment No. 5 to Schedule A to Exhibit (10)(l), filed
as Exhibit (10)(y)(ii) to the 1993 Form 10-K.
*(10)(m) Potlatch Corporation 1989 Stock Incentive Plan adopted
December 8, 1988, and as amended and restated
February 24, 1989, filed as Exhibit (10)(z) to the 1993
Form 10-K.
(10)(m)(i) Form of Stock Option Agreement for the Potlatch
Corporation 1989 Stock Incentive Plan together with the
Addendum thereto as used for options granted on
December 14, 1989.
*(10)(m)(ii) Form of Stock Option Agreement for the Potlatch
Corporation 1989 Stock Incentive Plan together with the
Addendum thereto as used for options granted in each
December of 1990-1994, filed as Exhibit (10)(z)(ii) to
the 1990 Form 10-K.
*(10)(n) Form of Amendments to Stock Options and Stock Incentive
Plans, dated March 30, 1990, filed as Exhibit (10)(aa) to
the 1990 Form 10-K.
(22) Potlatch Corporation Subsidiaries.
(23) Consent of Independent Auditors.
(24) Powers of Attorney.
*Incorporated by reference.
-38-