SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
AMENDMENT NO. 1
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, 2000 Number 1-5313
[LOGO OF POTLATCH]
Potlatch Corporation
A Delaware Corporation (IRS Employer Identification
Number 82-0156045)
601 West Riverside Ave., Suite 1100
Spokane, Washington 99201
Telephone (509) 835-1500
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
($1 par value) Exchange
Pacific 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 requirements 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, 2001, was approximately $854.8 million.
The number of shares of common stock outstanding as of January 31, 2001:
28,346,434 shares of Common Stock, par value of $1 per share.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 2001 annual meeting of
stockholders are incorporated by reference in Part III hereof.
Introductory Note
This Form 10-K/A is the result of discussions between Potlatch Corporation's
management and the Securities and Exchange Commission (SEC) during a normal
review of Potlatch Corporations's SEC filings. Apart from changes that
supplement or revise textual information, this form 10-K/A contains no changes
to the consolidated financial statements as previously reported other than to
the notes thereto. The information contained in this Form 10-K/A has not been
updated to reflect events and circumstances occurring since its original
filing. Such matters have been or will be addressed in subsequent reports
filed with the SEC.
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO 2000 FORM 10-K/A
Page
Number
------
PART I
ITEM 1. Business.................................................... 2-5
ITEM 2. Properties.................................................. 6
ITEM 3. Legal Proceedings........................................... 6
ITEM 4. Submission of Matters to a Vote of Security Holders......... 7
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.................................... 8
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......................................................... 10
SIGNATURES............................................................ 11-12
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................ 13
EXHIBIT INDEX......................................................... 40-41
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 pulp and paper products. Its
timberlands and all of its manufacturing facilities are located within the
continental United States.
Information relating to the amounts of net sales, operating income (loss)
and identifiable assets attributable to each of the company's industry
segments for 1998-2000 is included in Note 13 to the financial statements on
pages 33-35 of this report.
This report contains, in addition to historical information, certain
forward-looking statements, including without limitation, statements regarding
future revenues, costs, manufacturing output, capital expenditures and timber
supply issues. These forward-looking statements are based on management's best
estimates and assumptions regarding future events, and are therefore subject
to known and unknown risks and uncertainties and are not guarantees of future
performance. The company's actual results of operations could differ
materially from those expressed or implied by forward-looking statements.
Factors that could cause or contribute to such differences include, but are
not limited to, changes in the United States and international economies;
changes in worldwide demand for the company's products; changes in worldwide
production and production capacity in the forest products industry;
competitive pricing pressures for the company's products; unanticipated
manufacturing disruptions; and changes in raw material, energy and other
costs.
Resource
The principal source of raw material used in the company's operations is
wood fiber obtained from its own timberlands and purchased on the open market.
The company owns in fee approximately 1.5 million acres of timberland: 501,000
acres in Arkansas, 671,000 acres in Idaho and 337,000 acres in Minnesota. The
company also owns 22,000 acres of agricultural land in Oregon which is being
developed for production of hybrid poplar, an alternative source of fiber.
The primary functions of the resource segment are managing company-owned
timberlands and supplying the fiber requirements of the company's
manufacturing facilities. The segment's net sales are derived through sales of
sawlogs and pulpwood at market prices to the company's manufacturing segments
and to third parties. Net sales to the company's manufacturing segments
totaled $315.1 million in 2000, or 89 percent of total segment net sales, and
net sales to third parties totaled $37.2 million, or 11 percent of total
segment net sales. The segment also generates a small amount of income from
nonstrategic land sales and hunting leases. Income from these activities in
2000 was $2.2 million and $1.2 million, respectively.
The amount of timber harvested in any year from company-owned lands varies
according to the requirements of sound forest management and the supply of
timber available for purchase on the open market. The company intends to
manage long-term harvest levels on its timberlands in a manner that ensures
sustainable yields consistent with the Sustainable Forestry Initiative (SFI)
Program. The SFI Program was developed by the American Forest & Paper
Association (AF&PA) to establish principles and objectives for program
participants committed to sustainable forestry and the measures by which the
public can monitor and evaluate this commitment. As a member of AF&PA and a
participant in the SFI Program, we have agreed to implement all of the
principles of the SFI Program, which include sustainable forestry as well as
responsible practices, forest health and productivity, and
2
protecting special sites. By continually improving forestry and silviculture
techniques and other forest management practices, the company has been able to
increase the volume of wood fiber produced per acre from its timberlands. In
most cases, the cost of timber from company land is substantially below the
cost of timber obtained on the open market.
The company's fee lands provided approximately 55 percent of its sawlogs in
2000 and an average of 67 percent over the past five years. Including the raw
materials used for pulp, oriented strand board and particleboard, these
percentages were 30 percent in 2000 and an average of 41 percent over the past
five years. Additional logs and fiber are obtained from private landowners,
state and local governments, and other third party vendors. In 2000, private
landowners supplied approximately 17 percent of our log and fiber
requirements, state and local governments supplied approximately 2 percent,
and other third party vendors supplied approximately 51 percent. Substantially
all of the wood fiber acquired by Potlatch from outside sources occurred in
market transactions at current market prices and, generally, the company does
not have a significant number of long-term supply contracts.
At the present time, timber from the company's lands, together with outside
purchases, is adequate to support manufacturing operations. For more than a
decade, the timber supply from federal lands has been increasingly curtailed,
largely due to environmental pressures that are expected to continue for the
foreseeable future. This trend has had a favorable effect on earnings for the
segment, but the long-term effect of this trend on company earnings cannot be
predicted.
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 ("OSB"), lumber,
plywood and particleboard. 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 company's
plywood mill in Jaype, Idaho, which had annual production capacity of 130,000
msf (thousand square feet), was permanently closed in September 2000, due to a
combination of poor plywood markets, lack of adequate raw materials and long-
term transportation concerns. The company continues to operate its remaining
plywood mill in St. Maries, Idaho, which has approximately the same capacity
as the mill that was closed.
The forest products industry is highly competitive, and the company competes
with substantially larger forest products companies and companies that
manufacture substitutes for wood and wood fiber products. The company believes
it is one of the larger manufacturers of OSB although the market for OSB is
fragmented and the company believes that its market share is under ten
percent. The company's share of the market for lumber, plywood and
particleboard is not significant compared to the total U.S. market for these
products. The company's principal methods of competing are product quality,
customer service and price.
Printing Papers
The company produces and markets coated printing papers at two facilities in
Minnesota. It also produces bleached pulp at one of those facilities. A
description of these facilities is included under Item 2 of this report.
3
Pulp for these paper mills is supplied primarily by the company's bleached
hardwood kraft pulp mill in Cloquet, Minnesota, and secondarily by purchases
of market pulp, including recycled pulp. In 2000, the segment purchased
approximately 21 percent of the pulp used at its paper mills on the open
market. The company has completed a major modernization and expansion of its
Minnesota pulp mill, which gives it the capability to supply all of the pulp
needs of the two coated paper mills, except for recycled pulp. Excess hardwood
pulp production is sold as market pulp. The majority of pulp sales are made
through agents. The company does not consider itself among the larger North
American sellers of hardwood market pulp.
Printing papers are used primarily for annual reports, showroom catalogs,
art reproductions and high-quality advertising and are sold principally to
paper merchants for distribution. Various company sales offices located
throughout the United States are utilized to service customers. Although the
company is not one of the larger manufacturers of printing papers, it is one
of the nation's leading producers of premium coated papers. The company's
principal methods of competing are product quality, customer service and
price.
Pulp and Paper
The company produces and markets bleached paperboard, tissue products and
bleached pulp. A description of the facilities used to produce these products
is included under Item 2 of this report.
The company is a major producer of bleached paperboard in the United States.
Bleached paperboard manufactured by the company is used primarily for the
packaging of liquids and other food products, pharmaceuticals, toiletries and
other consumable goods as well as paper cups and paper plates. The company is
also a leading North American producer of private label household tissue
products. Based on industry data, total private label tissue sales for 2000
were approximately 13 percent of total consumer tissue sales, and the company
had the largest share of the private label tissue market for grocery stores in
the western U.S. The company's household tissue products (facial and bathroom
tissues, towels and napkins) are packaged to order for grocery and drug chains
and cooperative buying organizations. These products are sold to consumers
under customer brand names and compete with nationally advertised and other
private label brands. The company does not consider itself among the larger
North American manufacturers of softwood market pulp.
The company utilizes various methods of sale and distribution for its
softwood pulp and paper products. In general, it 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, Australia, China and other Southeast Asian
countries. Tissue products are sold to major retail outlets through brokers.
The majority of softwood market pulp sales also are generally made through
agents. The company's principal methods of competing are product quality,
customer service and price.
Environment
Information regarding environmental matters is included under Item 7--
Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 15 of this report.
4
Employees
As of December 31, 2000, the company had approximately 6,500 employees. We
consider our labor relations to be good. Labor contracts expiring in 2001 are
as follows:
Approximate
Contract Number of
Expiration Hourly
Date Location Union Employees
---------- -------- ----- -----------
May 7 Wood Products International Association 240
Southern Division & of Machinists &
Resource Management Aerospace Workers
Division
Warren, Arkansas
October 14 Wood Products Paper, Allied-Industrial, 140
Minnesota Division Chemical and Energy Workers
Grand Rapids, Minnesota International Union
5
ITEM 2. PROPERTIES
For information regarding the company's timberlands, see the discussion
under the heading "Resource" on pages 2-3 of this report. The principal
manufacturing facilities of the company, all of which are owned by the
company, together with their respective 2000 capacities and production, are as
follows:
Capacity(A) Production(A)
------------ -------------
Wood Products
Oriented Strand Board Plants: (B)
Bemidji, Minnesota................................. 515,000 msf 510,000 msf
Cook, Minnesota (C)................................ 250,000 msf 241,000 msf
Grand Rapids, Minnesota............................ 355,000 msf 345,000 msf
Sawmills:
Prescott, Arkansas................................. 150,000 mbf 147,000 mbf
Warren, Arkansas (D)............................... 170,000 mbf 174,000 mbf
Lewiston, Idaho.................................... 160,000 mbf 150,000 mbf
St. Maries, Idaho.................................. 90,000 mbf 88,000 mbf
Bemidji, Minnesota................................. 85,000 mbf 79,000 mbf
Plywood Plants: (B)
Jaype, Idaho*...................................... 85,000 msf 68,000 msf
St. Maries, Idaho.................................. 130,000 msf 104,000 msf
Particleboard Plant: (E)
Post Falls, Idaho.................................. 70,000 msf 69,000 msf
Printing Papers
Pulp Mill:
Cloquet, Minnesota................................. 425,000 tons 348,000 tons
Printing Paper Mills:
Brainerd, Minnesota................................ 160,000 tons 140,000 tons
Cloquet, Minnesota................................. 230,000 tons 227,000 tons
Pulp and Paper
Pulp Mills:
Cypress Bend, Arkansas............................. 255,000 tons 244,000 tons
Lewiston, Idaho.................................... 500,000 tons 488,000 tons
Bleached Paperboard Mills:
Cypress Bend, Arkansas............................. 275,000 tons 260,000 tons
Lewiston, Idaho.................................... 355,000 tons 333,000 tons
Tissue Mill:
Lewiston, Idaho.................................... 170,000 tons 169,000 tons
Tissue Converting Facilities:
Lewiston, Idaho.................................... 110,000 tons 108,000 tons
Las Vegas, Nevada.................................. 40,000 tons 37,000 tons
- --------
* Capacity is prorated to date of closure.
(A) msf means thousand square feet; mbf means thousand board feet
(B) 3/8 inch panel thickness basis.
(C) The capacity in 2001 is 435,000 msf
(D) There are two sawmills in Warren.
(E) 3/4" inch panel thickness basis
ITEM 3. LEGAL PROCEEDINGS
The company is not a party to any legal proceedings requiring disclosure
under Item 3.
6
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, 2000.
Executive Officers of the Registrant
Information as of March 1, 2001, and for the past five years concerning the
executive officers of the company is as follows:
L. Pendleton Siegel (age 58), first elected an officer in 1983, has served
as Chairman of the Board and Chief Executive Officer since May 1999. From May
1994 to May 1999, he was President and Chief Operating Officer. Mr. Siegel was
elected a director of the company effective November 1997. He is a member of
the Finance Committee of the Board of Directors.
Richard L. Paulson (age 59), first elected an officer in 1992, has served as
President and Chief Operating Officer since May 1999. From May 1996 through
April 1999, he was Vice President, Minnesota Pulp and Paper Division. Prior to
May 1996, he was Vice President, Consumer Products Division.
Phillip M. Baker (age 41), first elected an officer in 1999, has served as
Vice President, Minnesota Pulp and Paper Division, since May 1999. Prior to
May 1999, he was an appointed officer and served in the following positions:
from December 1997 through April 1999 he was Vice President, Sales and
Marketing for the Minnesota Pulp and Paper Division; from October 1997 through
November 1997 he was Vice President, Marketing, for the Minnesota Pulp and
Paper Division. From May 1996 through September 1997 he was Director of
Purchasing Services. Prior to May 1996, he was the Environmental Manager for
Pulp-Based Operations.
Gerald L. Zuehlke (age 52), first elected an officer in 1994, has served as
Vice President, Finance, Chief Financial Officer and Treasurer since June
2000. From June 1994 to June 2000, he was Treasurer.
Richard K. Kelly (age 53), first elected an officer in 1999, has served as
Vice President, Wood Products Division, since July 1999. From May 1999 to July
1999, he served as Vice President, Western Wood Products Division. From April
1993 to May 1999, he was an appointed officer and served as Vice President,
Western Wood Products Division.
John R. Olson (age 52), first elected an officer in 1999, has served as Vice
President, Resource Management Division, since May 1999. From August 1998
through May 1999 he was an appointed officer serving as Vice President,
Resource Management Division. From August 1992 to August 1998, he was Poplar
Project Manager.
Craig H. Nelson (age 44), first elected an officer in 1996, has served as
Vice President, Consumer Products and Paperboard Division, since May 2000.
From May 1996 through May 2000, he was Vice President, Consumer Products
Division. Prior to May 1996, he was an appointed officer serving as Vice
President, Manufacturing, Consumer Products Division.
NOTE: The aforementioned officers of the company are elected to hold 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:
2000 1999
------------- -------------
Quarter High Low High Low
------- ------ ------ ------ ------
1st............................................ $44.88 $36.00 $39.50 $32.50
2nd............................................ 44.50 32.94 44.44 33.94
3rd............................................ 37.63 29.75 44.06 38.19
4th............................................ 34.38 28.56 45.50 39.06
Year........................................... 44.88 28.56 45.50 32.50
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 3,100 common
stockholders of record at December 31, 2000.
Quarterly dividend payments per common share for 2000 and 1999 were:
Quarter 2000 1999
------- ----- -----
1st............................................................ $.435 $.435
2nd............................................................ .435 .435
3rd............................................................ .435 .435
4th............................................................ .435 .435
----- -----
$1.74 $1.74
===== =====
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.................................. 14
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 14-19
ITEM 8. Financial Statements and Supplementary Data.............. 20-39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the company is set forth under the
heading "Election of Directors" on pages 3-5 of the company's definitive proxy
statement, dated March 28, 2001, for the 2001 annual meeting of stockholders
(the "2001 Proxy Statement"), which information is incorporated herein by
reference. Information under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" on page 7 of the 2001 Proxy Statement is also
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 8-12 of the 2001 Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of management set forth under the
heading "Stock Ownership" on pages 6-7 of the 2001 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information set forth under the heading "Certain Transactions" on page 12 of
the 2001 Proxy Statement is incorporated herein by reference.
9
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements are listed in the Index to Consolidated Financial
Statements on page 12 of this Form 10-K. No financial statement schedules are
presented because they are either immaterial, not required, or the required
information is given in the consolidated financial statements.
(b) The company filed a current report on Form 8-K dated November 15, 2000,
which reported under Item 5, "Other Events," that the company was revising its
financial statements for the quarters ended June 30 and September 30, 2000,
due to an accounting error.
(c) Exhibits are listed in the Exhibit Index on pages 38-39 of this Form 10-
K.
10
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)
*
_________________________________
L. Pendleton Siegel
Chairman of the Board and Chief
Executive Officer
Date: January 9, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on January 9, 2002 by the following persons on
behalf of the company in the capacities indicated.
Signature Title
--------- -----
* Director and Chairman of
______________________________________ the Board and Chief
L. Pendleton Siegel Executive Officer
(Principal Executive
Officer)
* President and Chief
______________________________________ Operating Officer
Richard L. Paulson (Principal Operating
Officer)
* Vice President, Finance,
______________________________________ Chief Financial Officer
Gerald L. Zuehlke and Treasurer (Principal
Financial Officer)
* Controller (Principal
______________________________________ Accounting Officer)
Terry L. Carter
* Director
______________________________________
Richard A. Clarke
* Director
______________________________________
Boh A. Dickey
11
Signature Title
--------- -----
* Director
______________________________________
Vivian W. Piasecki
* Director
______________________________________
Gregory L. Quesnel
* Director
______________________________________
Toni Rembe
Director
______________________________________
Jerome C. Knoll
* Director
______________________________________
Judith M. Runstad
* Director
______________________________________
Frederick T. Weyerhaeuser
* Director
______________________________________
Dr. William T. Weyerhaeuser
/s/ Malcolm A. Ryerse
*By: _________________________________
Malcolm A. Ryerse
(Attorney-in-fact)
12
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following documents are filed as part of this Report:
Page
Number
------
Consolidated Financial Statements:
Selected Financial Data............................................... 14
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 14-19
Statements of Earnings for the years ended December 31, 2000, 1999 and
1998................................................................. 20
Balance Sheets at December 31, 2000 and 1999.......................... 21
Statements of Cash Flows for the years ended December 31, 2000, 1999
and 1998............................................................. 22
Statements of Stockholders' Equity for the years ended December 31,
2000, 1999 and 1998.................................................. 23
Summary of Principal Accounting Policies.............................. 24-26
Notes to Consolidated Financial Statements............................ 27-38
Independent Auditors' Report.......................................... 39
13
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands--except per-share amounts)
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Net sales............... $1,808,770 $1,808,388 $1,688,705 $1,693,371 $1,675,756
Net earnings (loss):
Before extraordinary
item.................. (33,214) 40,947 37,232 36,059 61,534
After extraordinary
item.................. (33,214) 40,947 37,232 36,059 58,089
Net cash provided by
operations............. 93,912 204,629 217,544 154,891 224,776
Working capital......... 44,740 51,756 97,556 106,221 117,966
Current ratio........... 1.1 to 1 1.1 to 1 1.3 to 1 1.4 to 1 1.5 to 1
Long-term debt
(noncurrent portion)... $ 801,549 $ 701,798 $ 712,113 $ 722,080 $ 672,048
Stockholders' equity.... 813,236 921,039 930,906 951,592 954,195
Debt to stockholders'
equity ratio........... .99 to 1 .76 to 1 .76 to 1 .76 to 1 .70 to 1
Capital expenditures.... $ 166,422 $ 247,651 $ 147,027 $ 158,485 $ 239,908
Total assets............ 2,542,445 2,446,500 2,377,306 2,365,136 2,265,679
Basic net earnings
(loss) per common
share:
Before extraordinary
item.................. $ (1.16) $ 1.41 $ 1.28 $ 1.25 $ 2.13
After extraordinary
item.................. (1.16) 1.41 1.28 1.25 2.01
Average common shares
outstanding (in
thousands)............ 28,523 28,947 29,000 28,930 28,888
Diluted net earnings
(loss) per common
share:
Before extraordinary
item.................. $ (1.16) $ 1.41 $ 1.28 $ 1.24 $ 2.13
After extraordinary
item.................. (1.16) 1.41 1.28 1.24 2.01
Average common shares
outstanding, assuming
dilution (in
thousands)............. 28,523 28,967 29,020 28,986 28,912
Cash dividends per
common share........... $ 1.74 $ 1.74 $ 1.74 $ 1.71 $ 1.67
Net sales figures have been restated due to the reclassification of freight
costs.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity
In 2000, the company's net cash provided by operations, as presented in the
Statements of Cash Flows on page 21, totaled $93.9 million, compared with
$204.6 million in 1999 and $217.5 million in 1998. The decline in 2000
compared to 1999 was largely due to a decrease in net income of $74.2 million.
At December 31, 2000, the company maintained credit lines for general
corporate purposes that totaled $300.0 million (subsequently increased to
$350.0 million), of which $100.0 million may be used for long-term debt and
the balance may be used for short-term debt. At December 31, 2000, the company
had $100.0 million outstanding under the short-term portion of the credit
line. The remainder of the credit line is used to back the company's
commercial paper program. Commercial paper outstanding at December 31, 2000,
totaled $188.9 million, of which $88.9 million was classified as short-term
debt and $100.0 million was classified as long-term debt. The company is
exploring opportunities to refinance a significant portion of its short-term
debt with long-term debt instruments.
The ratio of long-term debt to stockholders' equity was .99 to 1 at December
31, 2000, compared to .76 to 1 at December 31, 1999, and December 31, 1998.
Long-term debt increased $99.8 million during 2000. The increase was due to
classifying $100.0 million of commercial paper borrowings as long-term debt.
The company classifies commercial paper as long-term when it expects that the
commercial paper will be outstanding for more than twelve months.
Stockholders' equity declined $107.8 million, due to dividend payments of
$49.7 million, treasury stock purchases of $25.9 million and a net loss of
$33.2 million.
14
One of the company's stated objectives is to maintain a sound financial
structure. In that regard, the company believes that debt ratings within
investment grade categories are important for long-term access to capital
markets. The company's senior long-term debt is rated BBB+ by Standard &
Poors, Baa1 by Moody's and BBB+ by Fitch, all of which are under review with
negative implications. With the company's ability to generate cash flow and
its access to capital markets, the company believes it is capable of funding
its expected capital expenditures, working capital and other liquidity needs
for the foreseeable future.
At December 31, 2000, working capital was $44.7 million, compared with $51.8
million at December 31, 1999, and $97.6 million at December 31, 1998. An
increase in current liabilities of $74.4 million was partially offset by an
increase in current assets of $67.3 million. Increases in notes payable of
$67.5 million and accounts payable and accrued liabilities of $16.9 million
were largely responsible for the rise in current liabilities. Current assets
increased primarily due to increases in inventories of $26.5 million and
prepaid expenses of $37.4 million.
Capital Resources and Funding
Capital expenditures totaled $166.4 million in 2000, compared with $247.7
million in 1999 and $147.0 million in 1998. The decline in 2000 was due to the
substantial completion of the Cloquet, Minnesota, pulp mill at the end of
1999.
Capital spending in the resource segment amounted to $20.5 million in 2000.
Approximately half of this total related to development activities at the
company's hybrid poplar plantation in Boardman, Oregon. The remaining
expenditures were largely for reforestation and logging roads on the company's
timberlands.
The company spent $75.3 million on capital projects during 2000 in the wood
products segment. A majority of this amount, $55.0 million, was spent on the
modernization and expansion of the Cook, Minnesota, OSB mill. Completion of
the project in early 2001 will increase the mill's design capacity from
250,000 msf (thousand square feet) to 435,000 msf and is expected to make it
cost-competitive. Most of the remaining expenditures were for various projects
designed to improve efficiency and product quality at the company's Arkansas
and Idaho mills, as well as for several smaller environmental and safety
projects.
The printing papers segment recorded capital expenditures totaling $21.8
million in 2000. The most significant portion of the outlays, $14.9 million,
related to the final stages of the expansion project at the Cloquet pulp mill.
Spending for the project centered on finishing construction of the incinerator
and birch handling system. The remaining expenditures in this segment related
to multiple small projects with environmental, safety and efficiency benefits.
Capital spending in the pulp and paper segment totaled $48.2 million. A
significant portion of this amount, $18.3 million, was spent on a retrofit of
the recovery boiler at the Cypress Bend, Arkansas, pulp mill. This project
should increase the mill's pulp production capacity, boiler availability and
recovery steam generation. The remaining expenditures were dispersed across a
variety of smaller environmental, safety and general replacement projects.
Authorized but unexpended appropriations totaled $114.3 million at December
31, 2000. Of that amount, $89.8 million is budgeted to be expended in 2001.
Our capital expenditures are budgeted to include: $19.6 million for essential
projects such as environmental compliance, safety programs, and fire
protection; $26.2 million for general replacement projects necessary as a
result of equipment wear and tear and obsolescence; $33.8 million for
discretionary projects targeted to operational improvements; and approximately
$9.7 million for forest resources projects, primarily reforestation. Major
expenditures are expected to include initial construction on a high-speed
small log sawmill in Arkansas; installation of environmental equipment at the
company's Bemidji, Minnesota, OSB mill;
15
completion of the modernization and expansion of the OSB mill at Cook; and the
continued development of the hybrid poplar plantation in Boardman. The 2001
capital program will be funded primarily from internally generated sources.
Historically, the company has spent less on capital expenditures than the
annual amount budgeted and expects that will be the case again in 2001. In
2000, the company spent $16.4 million less than the $182.8 million budgeted.
Spending on projects may be delayed due to acquisition of environmental
permits, acquisition of equipment, engineering, weather and other factors.
Since December 1999, the company has been authorized under a stock
repurchase program to repurchase up to 2 million shares of stock. Under the
plan, purchases of common stock may be made from time to time through open
market and privately negotiated transactions at prices deemed appropriate by
management, and through the company's put option program. Through December 31,
2000, a total of 660,900 shares have been acquired under the program. As of
December 31, 2000, the company's potential obligation under the program
amounted to approximately $10.5 million.
Environment
The company is subject to extensive federal and state environmental
regulations at its operating facilities. The company endeavors to comply with
all environmental regulations and regularly monitors its activities 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
million during 2000 and are budgeted to be approximately $16 million in 2001.
In addition, the company made expenditures for pollution control facilities as
part of major mill modernization and expansions currently under way or
recently completed.
In early 1998 the Environmental Protection Agency (EPA) published the
"Cluster Rule" regulations applicable specifically to the pulp and paper
industry. These extensive regulations govern both air and water emissions.
During 2000, the company continued making modifications to process equipment
and operating procedures in order to comply with the regulations. Based on an
analysis of the regulations, the condition of the company's three pulp mills,
and the work completed in 2000 and scheduled to be completed in 2001, the
company estimates the total cost of the project will be approximately $12
million, most of which was spent in 2000. The company does not expect that
such compliance costs will have a material adverse effect on its competitive
position.
The company's pulp mill at Lewiston, Idaho, discharges treated mill effluent
into the nearby Snake River. By federal law the company is required to comply
with provisions of a National Pollution Discharge Elimination System (NPDES)
permit. As allowed by federal regulations, the company is operating under an
NPDES permit which expired in 1997, but which continues to be in force until
the effective date of a new NPDES permit. Negotiations for a new permit have
been ongoing since that time.
The EPA published a draft NPDES permit in December 1999, which includes an
end-of-the-pipe discharge temperature requirement of 68 degrees Fahrenheit, to
be achieved within five years of the date a new permit becomes effective.
Meeting this requirement would necessitate installation of refrigeration
equipment at a total capital cost ranging between $25 million and $30 million.
Discussions are ongoing with the EPA and other agencies involved in the
reissuance of the NPDES permit. There are regional precedents for a higher
temperature limit. Compliance with a higher temperature limit, should it be
allowed, can be achieved with process modifications and less costly equipment
configurations than refrigeration.
If the company is required to install and operate the refrigeration
equipment, it believes the pulp mill will be substantially less competitive
than similar mills, none of which face such requirements.
16
Results of Operations
Comparison of 2000 with 1999
Consolidated net sales for 2000 totaled $1.81 billion, equal to net sales of
$1.81 billion for 1999. The company incurred a net loss for 2000 of $4.9
million, before restructuring and mill closure charges totaling $28.3 million
after taxes. Including the charges, the company incurred a net loss for the
year of $33.2 million. In 1999 the company earned $40.9 million, which
included a nonrecurring after-tax charge of $4.6 million related to the
termination of efforts to form a timber real estate investment trust. The
diluted loss per common share for 2000 was $1.16, which includes per share
charges of $.99 for restructuring and mill closure costs. Diluted net earnings
per common share were $1.41 for 1999.
The unfavorable results for 2000 were largely due to the significant
downturn in solid wood products markets, which began in the second quarter of
the year, and charges incurred by the company to restructure its salaried
workforce and permanently close a plywood mill. A modest improvement in
earnings for the company's pulp-based businesses only partially offset the
negative effects of the charges and weak wood products markets.
In June 2000, the company recorded a $26.0 million pre-tax charge to cover
costs associated with a company-wide reduction and reorganization of its
salaried workforce. In December an additional $1.9 million pre-tax charge was
recorded as a result of final cost determinations for pension and medical
benefits. The charges are included in the "Restructuring and other charges"
line in the Statements of Earnings. A total of 290 salaried positions were
affected by the reduction and reorganization. As of December 31, 2000, $16.5
million had been recorded against the accrued liability associated with the
charge. The company anticipates annual pre-tax savings of $21 million as a
result of the reduction in force. Also included in "Restructuring and other
charges" is an $18.5 million pre-tax charge for costs associated with the
closure of its Jaype, Idaho, plywood mill in September. The closure was deemed
necessary due to a combination of poor plywood markets, lack of adequate raw
materials and long-term transportation concerns. The amounts of revenues and
operating income or loss attributable to the mill were not material in
relation to revenues and operating income of the company as a whole. Closure
of the mill affected 215 salaried and hourly positions. As of December 31,
2000, $6.9 million had been recorded against the accrued liability associated
with the charge. The mill is scheduled to be dismantled, with equipment and
parts used at other company facilities or sold to outside bidders. The company
will continue to operate a log yard at the site.
Resource segment operating income of $61.4 million was lower than the $68.0
million reported in 1999. The lower earnings were largely due to a decline in
the volume of third party log sales and sawlog production in Idaho. Higher log
production in Arkansas and Minnesota partially offset the negative Idaho
results. The segment also recorded fewer land sales in 2000 compared to 1999.
At the present time, timber from the company's own lands, together with
outside purchases, is adequate to support manufacturing operations. For more
than a decade the timber supply from federal lands has been increasingly
curtailed, largely due to environmental pressures that are expected to
continue for the foreseeable future. This trend has had a favorable effect on
earnings for the segment, but the long-term effect of this trend on company
earnings cannot be predicted.
The wood products segment incurred an operating loss of $18.3 million in
2000, compared to earnings of $83.1 million in 1999. Included in the results
for 2000 is the $18.5 million pre-tax charge related to the permanent closure
of the Jaype plywood mill. Beginning in the second quarter of 2000, market
conditions became very competitive in the solid wood products sector due to
increased foreign imports and a slowdown in construction activity caused by
high interest rates. As a result, net sales realizations were lower for all of
the company's wood products compared to 1999. For instance, OSB realizations
were down 38 percent in December 2000 compared to January 2000 and averaged
17
16 percent lower for the year compared to 1999. Shipments of panel products
declined as well, due in part to the plywood mill closure in Jaype, Idaho, and
the shutdown of the Cook, Minnesota, OSB mill in December. The Cook mill was
shut down to facilitate the completion of its modernization and expansion
project. The mill resumed production in mid-January 2001.
The printing papers segment reported operating income of $1.5 million,
versus a loss of $13.8 million in 1999. The improved results were due to lower
pulp production costs and the sale of hardwood market pulp during the year,
which were made possible by the startup of the new pulp mill in Cloquet,
Minnesota, at the end of 1999. Demand for printing papers remained soft
throughout 2000 and shipments declined compared to the previous year. Market
conditions were also negatively affected by a 25 percent increase in the
amount of coated paper imports entering the U.S. market in 2000, the second
straight year of such increases. Operations at the Cloquet and Brainerd,
Minnesota, paper mills were curtailed late in the year to help align inventory
levels with existing market conditions.
Operating income for the pulp and paper segment was $12.9 million in 2000,
slightly lower than 1999 income of $14.8 million. A decline in paperboard and
softwood pulp shipments, higher energy costs during the second half of the
year, especially in Idaho, and downtime resulting from a rebuild of the
recovery boiler at the company's pulp mill in Arkansas were largely
responsible for the unfavorable comparison. Partially offsetting these factors
were higher net sales realizations for paperboard and pulp. Tissue product
shipments were modestly higher and net sales realizations increased compared
to 1999, but higher energy and purchased pulp costs more than offset the
benefits realized.
Interest expense for 2000 of $59.4 million was significantly higher than the
$45.4 million charged against income in 1999. The difference is due to a
change in the amount of interest capitalized, $4.0 million in 2000 compared to
$10.3 million in 1999, with the balance reflecting the increase in debt
acquired during the year. Less interest was capitalized in 2000 mainly due to
the completion of the Cloquet pulp mill modernization project in late 1999.
Comparison of 1999 with 1998
The company's 1999 consolidated net sales of $1.81 billion were slightly
higher than 1998 net sales of $1.69 billion. Net earnings for 1999 were $40.9
million, modestly higher than the $37.2 million earned in 1998. Diluted net
earnings per common share for 1999 were $1.41, compared to $1.28 in 1998.
Strong market conditions during 1999 for the company's wood products,
especially panel products, helped to offset continued weakness in its pulp-
based businesses and led to the modestly improved results. The 1999 results
include a nonrecurring after-tax charge of $4.6 million for expenses related
to the termination of efforts to form a timber real estate investment trust.
Resource segment operating income of $68.0 million for 1999 was slightly
lower than the $71.3 million earned in 1998. Although sales for the segment
increased slightly in 1999 compared to 1998, lower harvest from company
timberlands in Arkansas and lower market prices for logs in Minnesota were
responsible for the earnings decline.
The wood products segment reported 1999 operating income of $83.1 million, a
substantial improvement over the $2.5 million earned in 1998. Significantly
higher net sales realizations and increased product shipments for oriented
strand board, plywood and particleboard were primarily responsible for the
results. Demand for panel products was driven by the strong housing market
during 1999, and prices reached historic highs before declining by the year's
end. Net sales realizations for lumber were also higher in 1999 and, combined
with increased product shipments, helped contribute to the favorable results.
18
The company's printing papers segment incurred an operating loss of $13.8
million in 1999, compared to earnings of $14.2 million in 1998. Weak market
conditions existed throughout the year for coated printing papers. Although
segment sales were higher than in 1998, net sales realizations were lower in
1999 due to the product mix and continued pricing pressures on all paper
grades. Also, segment results for 1999 were adversely affected by costs
associated with the new pulp mill in Cloquet, Minnesota. The mill started up
late in the fourth quarter of 1999.
Operating income for the pulp and paper segment was $14.8 million in 1999,
significantly lower than the $53.4 million earned in 1998. The unfavorable
comparison was largely due to lower net sales realizations for paperboard, as
prices reached the bottom of the then-current cycle around midyear, and an
unfavorable product mix compared to 1998. The unfavorable product mix was
attributable to weak markets for liquid packaging paperboard during the first
half of 1999. Also, operating problems at the Lewiston, Idaho, paperboard mill
during the year resulted in a production decline and higher costs. Paperboard
markets began to improve in the second half of 1999. Consumer tissue markets
remained steady for the second straight year in 1999, with a modest increase
in tissue product shipments being offset by a small decline in net sales
realizations.
Income Taxes
The company's effective tax rates for 2000, 1999 and 1998 were 39.0 percent,
38.0 percent and 36.0 percent, respectively.
Market Risks of Financial Instruments
The company's exposure to market risks on its financial instruments is
limited to interest rate changes on its variable rate debt and outstanding
debt under its credit lines, as well as equity price risk on put option
contracts associated with its common stock repurchase program. The company
currently has approximately $388.8 million of variable rate debt and credit
line debt outstanding. The interest rates applied to these borrowings are
adjusted often and therefore react quickly to any movement in the general
trend of market interest rates. Interest expense incurred annually related to
the company's variable rate debt and credit lines is dependent upon the amount
outstanding during the year and the extent to which interest rates rise or
fall. The maturity for debt issued under the credit lines is generally less
than 30 days, while the variable rate debt has maturities beginning in 2007
and extending through 2030. The exposure to equity price risk on put option
contracts associated with the company's common stock is immaterial due to the
limited number of such contracts outstanding.
Pending Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative financial instruments and hedging
activities. SFAS No. 133, as amended, becomes effective for the company's
fiscal year 2001. The Statements require recognition of derivatives as assets
or liabilities in the Balance Sheets, measured at fair value. The company
currently has not entered into any significant contracts or agreements that
would be classified as derivative financial instruments.
Subsequent Event
In January 2001, the company announced plans to reduce the hourly workforce
at its pulp, paperboard and consumer products operations in Lewiston, Idaho,
as part of an on-going effort to reduce costs and increase efficiency. A total
of 124 jobs will be eliminated, with potentially 80 of those job cuts being
realized through an early retirement program offered to qualifying employees.
The company anticipates the workforce reduction will result in a one-time
charge to operating earnings of approximately $5 million.
19
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF EARNINGS
(Dollars in thousands--except per-share amounts)
For the years ended December 31
-----------------------------------
2000 1999 1998
---------- ---------- ----------
Net sales................................. $1,808,770 $1,808,388 $1,688,705
---------- ---------- ----------
Costs and expenses:
Depreciation, amortization and cost of
fee timber harvested.................... 161,847 150,253 150,278
Materials, labor and other operating
expenses................................ 1,468,316 1,404,562 1,305,923
Selling, general and administrative
expenses................................ 123,347 141,580 133,297
Restructuring and other charges (Note
14)..................................... 46,411 -- --
---------- ---------- ----------
1,799,921 1,696,395 1,589,498
---------- ---------- ----------
Earnings from operations.................. 8,849 111,993 99,207
Interest expense, net of capitalized
interest of $3,964 ($10,320 in 1999 and
$5,070 in 1998).......................... (59,438) (45,442) (49,744)
Other income (expense), net............... (3,860) (507)* 8,712
---------- ---------- ----------
Earnings (loss) before taxes on income.... (54,449) 66,044 58,175
Provision (benefit) for taxes on income
(Note 5)................................. (21,235) 25,097 20,943
---------- ---------- ----------
Net earnings (loss)....................... $ (33,214) $ 40,947 $ 37,232
========== ========== ==========
Net earnings (loss) per common share:
Basic.................................... $ (1.16) $ 1.41 $ 1.28
Diluted.................................. (1.16) 1.41 1.28
========== ========== ==========
Net sales figures have been restated due to the reclassification of freight
costs.
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
- --------
* Includes a nonrecurring charge of $7.5 million ($4.6 million after tax) for
expenses related to the termination of efforts to form a timber real estate
investment trust.
The accompanying notes and summary of principal accounting policies are
an integral part of these financial statements.
20
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(Dollars in thousands--except per-share amounts)
At December 31
----------------------
2000 1999
---------- ----------
ASSETS
Current assets:
Cash (Note 10)........................................ $ 11,652 $ 11,531
Short-term investments (Note 10)...................... 9 159
Receivables, net of allowance for doubtful accounts of
$1,012 ($1,786 in 1999).............................. 187,819 184,312
Inventories (Note 1).................................. 223,206 196,733
Prepaid expenses...................................... 61,153 23,767
---------- ----------
Total current assets................................... 483,839 416,502
Land, other than timberlands........................... 9,044 9,073
Plant and equipment, at cost less accumulated
depreciation of $1,609,210 ($1,487,310 in 1999) (Note
2).................................................... 1,637,374 1,616,055
Timber, timberlands and related logging facilities, net
(Note 3).............................................. 333,249 335,194
Other assets (Note 4).................................. 78,939 69,676
---------- ----------
$2,542,445 $2,446,500
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Notes 6 and 10)........................ $ 188,943 $ 121,464
Current installments on long-term debt (Notes 6 and
10).................................................. 325 10,323
Accounts payable and accrued liabilities (Note 7)..... 249,831 232,959
---------- ----------
Total current liabilities.............................. 439,099 364,746
---------- ----------
Long-term debt (Notes 6 and 10)........................ 801,549 701,798
---------- ----------
Other long-term obligations (Note 8)................... 184,147 172,986
---------- ----------
Deferred taxes (Note 5)................................ 293,961 275,644
---------- ----------
Put options (Notes 9 and 10)........................... 10,453 10,287
---------- ----------
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............................ 128,984 128,678
Retained earnings..................................... 773,697 856,609
Common shares in treasury 4,375,546 (3,749,748 in
1999)................................................ (122,167) (96,970)
---------- ----------
Total stockholders' equity............................. 813,236 921,039
---------- ----------
$2,542,445 $2,446,500
========== ==========
The accompanying notes and summary of principal accounting policies are
an integral part of these financial statements.
21
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the years ended December
31
-------------------------------
2000 1999 1998
--------- --------- ---------
CASH FLOWS FROM OPERATIONS
Net earnings (loss).......................... $ (33,214) $ 40,947 $ 37,232
Adjustments to reconcile net earnings (loss)
to net cash provided by operations:
Depreciation, amortization and cost of fee
timber harvested........................... 161,847 150,253 150,278
Deferred taxes.............................. 18,317 21,953 16,757
Other, net.................................. (2,129) (3,190) (3,105)
Decrease (increase) in receivables........... (3,507) (22,044) 16,891
Decrease (increase) in inventories........... (26,473) 3,524 (17,954)
Decrease (increase) in prepaid expenses...... (37,386) 3,491 (485)
Increase in accounts payable and accrued
liabilities................................. 16,457 9,695 17,930
--------- --------- ---------
Net cash provided by operations............ 93,912 204,629 217,544
--------- --------- ---------
CASH FLOWS FROM INVESTING
Decrease in short-term investments........... 150 -- --
Additions to investments..................... (4,493) (51,720) (13,207)
Reductions in investments.................... 1,350 57,492 13,755
Collection of note receivable................ -- 50,000 --
Funding of qualified pension plans........... (6) (10) (1,816)
Additions to plant and equipment, and to land
other than timberlands...................... (157,243) (237,671) (137,160)
Additions to timber, timberlands and related
logging facilities.......................... (9,179) (9,980) (9,867)
Disposition of plant and properties.......... 1,877 3,046 3,115
--------- --------- ---------
Net cash used for investing................ (167,544) (188,843) (145,180)
--------- --------- ---------
CASH FLOWS FROM FINANCING
Change in book overdrafts.................... 415 (2,075) 5,425
Increase (decrease) in notes payable......... 67,479 46,525 (20,611)
Proceeds from long-term debt................. 100,000 99,935 --
Repayment of long-term debt.................. (10,247) (109,948) 32
Issuance of treasury stock................... 861 1,250 550
Purchase of treasury stock................... (25,892) -- (3,261)
Dividends on common stock.................... (49,698) (50,362) (50,472)
Other, net................................... (9,165) (1,230) (1,403)
--------- --------- ---------
Net cash provided by (used for) financing.. 73,753 (15,905) (69,740)
--------- --------- ---------
Increase (decrease) in cash.................. 121 (119) 2,624
Balance at beginning of year................. 11,531 11,650 9,026
--------- --------- ---------
Balance at end of year....................... $ 11,652 $ 11,531 $ 11,650
========= ========= =========
Net interest paid (net of amounts capitalized) in 2000, 1999 and 1998 was
$59.3 million, $43.9 million and $49.7 million, respectively. Net income taxes
paid in 2000, 1999 and 1998 were $.2 million, $4.5 million and $4.2 million,
respectively.
The accompanying notes and summary of principal accounting policies are
an integral part of these financial statements.
22
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands--except per-share amounts)
Common Stock
Issued Additional Treasury Stock Total
------------------ Paid-In Retained ------------------- Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
---------- ------- ---------- -------- --------- -------- -------------
Balance, December 31,
1997................... 32,721,980 $32,722 $127,554 $879,264 3,727,118 $ 87,948 $951,592
Exercise of stock
options.............. -- -- 471 -- (23,825) (550) 1,021
Shares purchased at
cost................. -- -- -- -- 100,000 4,000 (4,000)
Put options........... -- -- -- -- -- 5,206 (5,206)
Premium on issuance of
put options.......... -- -- -- -- -- (739) 739
Net earnings.......... -- -- -- 37,232 -- -- 37,232
Common dividends,
$1.74 per share...... -- -- -- (50,472) -- -- (50,472)
---------- ------- -------- -------- --------- -------- --------
Balance, December 31,
1998................... 32,721,980 $32,722 $128,025 $866,024 3,803,293 $ 95,865 $930,906
Exercise of stock
options and stock
awards............... -- -- 653 -- (53,545) (1,250) 1,903
Put options........... -- -- -- -- -- 3,443 (3,443)
Premium on issuance of
put options.......... -- -- -- -- -- (1,088) 1,088
Net earnings.......... -- -- -- 40,947 -- -- 40,947
Common dividends,
$1.74 per share...... -- -- -- (50,362) -- -- (50,362)
---------- ------- -------- -------- --------- -------- --------
Balance, December 31,
1999................... 32,721,980 $32,722 $128,678 $856,609 3,749,748 $ 96,970 $921,039
Exercise of stock
options and stock
awards............... -- -- 306 -- (35,102) (861) 1,167
Shares purchased at
cost................. -- -- -- -- 660,900 22,253 (22,253)
Put options........... -- -- -- -- -- 4,240 (4,240)
Premium on issuance of
put options.......... -- -- -- -- -- (435) 435
Net loss.............. -- -- -- (33,214) -- -- (33,214)
Common dividends,
$1.74 per share...... -- -- -- (49,698) -- -- (49,698)
---------- ------- -------- -------- --------- -------- --------
Balance, December 31,
2000................... 32,721,980 $32,722 $128,984 $773,697 4,375,546 $122,167 $813,236
========== ======= ======== ======== ========= ======== ========
The accompanying notes and summary of principal accounting policies are an
integral part of these financial statements.
23
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.
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 pulp and paper products. Its timberlands and all of its
manufacturing facilities are located within the continental United States. The
primary market for the company's products is the United States, although it
sells a significant amount of paperboard to countries in the Pacific Rim.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
Inventories
Inventories are stated at the lower of cost or market. The last-in, first-
out method is used to determine cost of logs, lumber, plywood, particleboard
and chips. The average cost method is used to determine cost of all other
inventories.
Earnings Per Common Share
Earnings per common share are computed by dividing net earnings by the
weighted average number of common shares outstanding in accordance with
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share."
The following table reconciles the number of common shares used in the basic
and diluted earnings per share calculations:
2000 1999 1998
---------- ---------- ----------
Basic average common
shares outstanding....... 28,522,659 28,946,900 29,000,250
Incremental shares due to:
Common stock options.... -- 18,971 19,294
Put options............. -- 1,291 --
---------- ---------- ----------
Diluted average common
shares outstanding....... 28,522,659 28,967,162 29,019,544
========== ========== ==========
Incremental shares due to common stock options of 4,209 and put options of
40,039 were not included in the diluted average common shares outstanding
total for 2000 due to their antidilutive effect as a result of the company's
net loss for the year. Stock options to purchase 2,025,050, 1,949,725 and
1,230,475 shares of common stock for 2000, 1999 and 1998, respectively, were
not included in the computation of diluted earnings per share because the
exercise prices of the stock options were greater than the average market
price of the common shares.
24
Properties
Property, plant and equipment are valued at cost less accumulated
depreciation. Depreciation of buildings, equipment and other depreciable
assets is determined using the straight-line and units of production methods
of depreciation. Estimated useful lives range from 30 to 40 years for
buildings and structures and 2 to 25 years for equipment.
Timber, timberlands and related logging facilities are valued at cost net of
the cost of fee timber harvested and depreciation or amortization. Cost of fee
timber harvested is determined annually based on costs incurred and the
related current estimated recoverable volume. Recoverable volume includes
growth that has occurred to-date and does not include any anticipated future
cost or future growth. Permit timber is timber purchased under contracts where
the company does not own the land. The cost of permit timber is capitalized in
timber accounts and these costs are classified as depletion expense as the
volume of timber is harvested.
Expenditures for reforestation include all costs related to stand
establishment, such as site preparation, costs of seeds or seedlings, and tree
planting. All reforestation expenditures representing direct costs incurred
for stand establishment are capitalized in reproduction accounts until the
timber reaches maturity. Costs are then depleted when harvesting activities
begin. Expenditures for forest management, which consist of regularly
recurring items necessary to the ownership and administration of the company's
timber and timberlands, are accounted for as current operating expenses.
Logging roads and related facilities on land not owned by the company are
amortized as the related timber is removed. Logging roads and related
facilities on company-owned land are presumed to become a part of the
company's road system unless it is known at the time of construction that the
road will be abandoned. Therefore, the base cost of the road, such as the
clearing, grading, and ditching, is not amortized and remains a capitalized
item until abandonment or other disposition, while other portions of the
initial cost, such as bridges, culverts and gravel surfacing are depreciated
over their useful lives, which range from 10 to 20 years. When it is known at
the time of construction or purchase that a road will be abandoned after a
given event has occurred, the total cost is amortized in the same manner as
for roads on non-owned land.
Major improvements and replacements of property are capitalized.
Maintenance, repairs, and minor improvements and replacements are expensed.
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.
Shipping Costs
To determine net sales the company deducts from gross sales discounts,
returns and allowances. Historically, costs that the company incurs to ship
its products to customers were also deducted. Shipping costs incurred for the
years ended December 31, 2000, 1999 and 1998 were $138.1 million, $131.6
million and $122.8 million, respectively. In September 2000 the Emerging
Issues Task Force of the Financial Accounting Standards Board reached a
consensus on Issue 00-10 "Accounting for Shipping and Handling Fees and
Costs." The Issue concludes that shipping costs should not be netted against
revenues but included in cost of sales. As a result, the company has restated
net sales and cost of sales for all years presented in this report.
Income Taxes
The provision for taxes on income is based on earnings reported in the
financial statements. Deferred income taxes are recorded for the temporary
differences between reported earnings and taxable income using current tax
laws and rates.
25
Preoperating and Startup Costs
Preoperating and startup costs are expensed as incurred in compliance with
the Accounting Standards Executive Committee Statement of Position 98-5,
"Reporting on the Costs of Startup Activities."
Environment
As part of its corporate policy, the company has an ongoing process to
monitor, report on and comply with environmental requirements. Based on this
ongoing process, accruals for environmental liabilities are established in
accordance with Statement of Financial Accounting Standards No. 5. Potlatch's
estimates of its environmental liabilities are based on various assumptions
and judgments, the specific nature of which varies in light of the particular
facts and circumstances surrounding each environmental liability. These
estimates typically reflect assumptions and judgments as to the probable
nature, magnitude and timing of required investigation, remediation and
monitoring activities and the probable cost of these activities, and in some
cases reflect assumptions and judgments as to the obligation or willingness
and ability of third parties to bear a proportionate or allocated share of the
cost of these activities. Due to the numerous uncertainties and variables
associated with these assumptions and judgments, and the effects of changes in
governmental regulation and environmental technologies, both the precision and
reliability of the resulting estimates of the related liabilities are subject
to substantial uncertainties. Potlatch regularly monitors its estimated
exposure to environmental liabilities and, as additional information becomes
known, may change its estimates significantly. Potlatch's estimates of its
environmental liabilities do not reflect potential future recoveries from
insurance carriers except to the extent that recovery may from time to time be
deemed probable as a result of a carrier's agreement to payment terms. In
those instances in which Potlatch's estimated exposure reflects actual or
anticipated cost-sharing arrangements with third parties, Potlatch does not
believe that it will be exposed to additional material liability as a result
of non-performance by such third parties. Currently, the company is not aware
of any material environmental liabilities and has not accrued for any specific
environmental remediation costs.
Pending Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative financial instruments and hedging
activities. SFAS No. 133, as amended, becomes effective for the company's
fiscal year 2001. The Statements require recognition of derivatives as assets
or liabilities in the Balance Sheets, measured at fair value. The company
currently has not entered into any significant contracts or agreements that
would be classified as derivative financial instruments.
26
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Inventories
2000 1999
-------- --------
(Dollars in
thousands)
Logs, pulpwood, chips and sawdust......................... $ 22,108 $ 23,339
Lumber and other manufactured wood products............... 14,800 10,945
Pulp, paper and converted paper products.................. 125,914 102,815
Materials and supplies.................................... 60,384 59,634
-------- --------
$223,206 $196,733
======== ========
Valued at lower of cost or market:
Last-in, first-out basis................................ $ 34,503 $ 31,860
Average cost basis...................................... 188,703 164,873
-------- --------
$223,206 $196,733
======== ========
If the last-in, first-out inventory had been priced at lower of current
average cost or market, the values would have been approximately $23.6 million
higher at December 31, 2000, and $28.5 million higher at December 31, 1999.
Note 2. Plant and Equipment
2000 1999
---------- ----------
(Dollars in
thousands)
Land improvements..................................... $ 60,912 $ 59,012
Buildings and structures.............................. 451,398 419,155
Machinery and equipment............................... 2,412,848 2,374,570
Other................................................. 107,179 106,875
Construction in progress.............................. 214,247 143,753
---------- ----------
$3,246,584 $3,103,365
========== ==========
Depreciation charged against income amounted to $136.5 million in 2000
($126.7 million in 1999 and $126.3 million in 1998).
Authorized but unexpended appropriations for capital projects totaled $114.3
million at December 31, 2000. Of that amount, $89.8 million is budgeted to be
expended in 2001. Historically, the company has spent less on capital
expenditures than the annual amount budgeted and expects that trend to
continue in 2001. Spending on projects may be delayed due to acquisition of
environmental permits, acquisition of equipment, engineering, weather and
other factors.
Note 3. Timber, Timberlands and Related Logging Facilities
2000 1999
-------- --------
(Dollars in
thousands)
Timber and timberlands.................................... $286,293 $290,917
Related logging facilities................................ 46,956 44,277
-------- --------
$333,249 $335,194
======== ========
The cost of timber harvested from company-owned lands amounted to $8.3
million in 2000 ($8.8 million in 1999 and $9.3 million in 1998). The cost of
permit timber harvested from non-company
27
owned lands amounted to $14.3 million in 2000 ($12.5 million in 1999 and $12.1
million in 1998). Amortization of logging roads and related facilities
amounted to $2.1 million in 2000 ($1.7 million in 1999 and $1.7 million in
1998).
Note 4. Other Assets
2000 1999
------- -------
(Dollars in
thousands)
Pension assets............................................... $66,151 $59,377
Other........................................................ 12,788 10,299
------- -------
$78,939 $69,676
======= =======
Note 5. Taxes on Income
The provision (benefit) for taxes on income is comprised of the following:
2000 1999 1998
-------- ------- -------
(Dollars in thousands)
Current........................................... $ 1,517 $ 3,763 $ 4,453
Deferred.......................................... (22,752) 21,334 16,490
-------- ------- -------
Provision (benefit) for taxes on income........... $(21,235) $25,097 $20,943
======== ======= =======
The provision (benefit) for taxes on income differs from the amount computed
by applying the statutory federal income tax rate of 35 percent to earnings
before taxes on income due to the following:
2000 1999 1998
-------- ------- -------
(Dollars in thousands)
Computed "expected" tax expense (benefit)...... $(19,057) $23,115 $20,361
State and local taxes, net of federal income
tax benefits.................................. (2,123) 2,492 2,022
Tax credits and other benefits................. -- (150) (1,570)
Foreign sales corporation...................... (548) (685) (1,221)
All other items................................ 493 325 1,351
-------- ------- -------
Provision (benefit) for taxes on income........ $(21,235) $25,097 $20,943
Effective tax rate............................. 39.0% 38.0% 36.0%
======== ======= =======
28
The tax effects of significant temporary differences creating deferred tax
assets and liabilities at December 31 were:
2000 1999
--------- ---------
(Dollars in
thousands)
Plant and equipment................................... $(376,899) $(352,770)
Timber, timberlands and related logging facilities.... (25,807) (25,783)
Postretirement benefits............................... 59,140 55,214
Alternative minimum tax............................... 58,236 57,871
Net operating loss carryforward....................... 33,334 --
Employee benefits..................................... 21,275 18,511
Pensions.............................................. (16,843) (14,003)
Other, net............................................ 11,972 7,879
--------- ---------
Net deferred tax liability............................ (235,592) (253,081)
Current deferred tax assets (1)....................... (58,369) (22,563)
--------- ---------
Net noncurrent deferred tax liabilities............... $(293,961) $(275,644)
========= =========
- --------
(1) Included in Prepaid expenses in the Balance Sheets.
As of December 31, 2000, the company had an $85.5 million net operating loss
carryforward that will expire after 20 years.
The company's federal income tax returns have been examined and settled for
all tax years through 1988. The company has filed protective claims for refund
associated with settlements reached for the years 1989 through 1992. The years
1993 through 1998 are currently under examination. In the opinion of
management, adequate provision has been made at December 31, 2000 for income
taxes that might be due as a result of these audits and any resulting
assessments will have no material effect on the company's consolidated
earnings.
Note 6. Debt
2000 1999
-------- --------
(Dollars in
thousands)
Revenue bonds fixed rate 5.9% to 7.5% due 2000 through
2026.................................................... $137,044 $137,314
Revenue bonds variable rate due 2007 through 2030........ 99,879 99,866
Debentures 6.25% due 2002................................ 99,975 99,953
Debentures 6.95% due 2015................................ 99,840 99,829
Credit sensitive debentures 9.125% due 2009.............. 100,000 100,000
Medium-term notes fixed rate 8.27% to 9.46% due 2000
through 2022............................................ 165,000 175,000
Commercial paper 7.4% to 8.55%........................... 100,000 --
Other notes.............................................. 136 159
-------- --------
801,874 712,121
Less current installments on long-term debt.............. 325 10,323
-------- --------
Long-term debt........................................... $801,549 $701,798
======== ========
29
The interest rate payable on the 9.125 percent credit sensitive debentures
is subject to adjustment in accordance with the table below if certain changes
in the debt rating of the debentures occur. No such change in the interest
rate payable occurred in 2000.
Ratings
--------------------------------------
Moody's S&P Applicable Rate(%)
----------- ----------- ------------------
Aaa AAA 8.825
Aa1 - Aa3 AA+-AA- 8.925
A1 - Baa2 A+-BBB 9.125
Baa3 BBB- 9.425
Ba1 BB+ 12.500
Ba2 BB 13.000
Ba3 BB- 13.500
B1 or lower B+ or lower 14.000
The commercial paper is backed by the company's credit arrangements,
enabling it to classify up to $100.0 million of short-term borrowings as long-
term debt, which the company chose to do at December 31, 2000. The remaining
balance of commercial paper outstanding at December 31, 2000, totaling $88.9
million, as well as all commercial paper outstanding at December 31, 1999,
totaling $96.5 million, were classified as a portion of current notes payable
in the Balance Sheets. At December 31, 2000, the weighted average annual
interest rate payable on commercial paper was 7.8 percent.
Certain credit agreements have restrictive covenants. At December 31, 2000,
the company was in compliance with such covenants. The company does not
currently have any covenants in any of its loan agreements which limit the
payment of dividends. No significant assets of the company have been pledged,
mortgaged or otherwise subjected to liens.
Payments due on long-term debt during each of the five years subsequent to
December 31, 2000 are as follows:
(Dollars
in
thousands)
----------
2001.................................................. $ 325
2002.................................................. 130,606
2003.................................................. 15,707
2004.................................................. 100,707
2005.................................................. 1,708
At December 31, 2000, the company maintained credit lines of $300.0 million
for general corporate purposes. Of that amount, $200.0 million was available
for short-term borrowings, $50.0 million of which will expire on November 7,
2001, and the balance is subject to renewal annually. The $100.0 million long-
term portion will expire on November 17, 2004. At December 31, 2000, the
company had $100.0 million of outstanding indebtedness under the short-term
credit line, which is classified as a portion of current notes payable in the
Balance Sheets. The weighted average annual interest rate payable for such
indebtedness was 7.14 percent.
30
Note 7. Accounts Payable and Accrued Liabilities
2000 1999
-------- --------
(Dollars in
thousands)
Trade accounts payable.................................... $ 68,707 $ 69,723
Accrued wages, salaries and employee benefits............. 54,460 57,822
Accrued taxes other than taxes on income.................. 18,393 17,360
Accrued interest.......................................... 8,225 8,012
Accrued taxes on income................................... 15,124 13,827
Book overdrafts........................................... 28,348 27,933
Accrued restructuring and mill closure charges............ 23,007 --
Other..................................................... 33,567 38,282
-------- --------
$249,831 $232,959
======== ========
Note 8. Other Long-Term Obligations
2000 1999
-------- --------
(Dollars in
thousands)
Postretirement benefits................................... $151,643 $141,574
Pension and related liabilities........................... 21,323 19,932
Other..................................................... 11,181 11,480
-------- --------
$184,147 $172,986
======== ========
Note 9. Put Options
In December 1999, the company implemented a stock repurchase program to
repurchase up to 2 million shares of stock. Under the plan purchases of common
stock may be made from time to time through open market and privately
negotiated transactions at prices deemed appropriate by management, and
through the company's put option program.
In conjunction with the repurchase program, the company issued put options
which gave the purchaser the right to sell shares of Potlatch stock to the
company at prices ranging from $31.50 to $42.73 per share on specific dates in
1999, 2000 and 2001. Potlatch accounts for put options under the treasury
stock method of accounting and received $0.4 million in premiums upon issuance
of put options in 2000, $1.1 million in 1999, and $0.7 million in 1998.
Activity during 2000 and 1999 is summarized as follows:
Shares Covered Potential
by Put Options Obligation
-------------- ----------
(Dollars in thousands)
Balance, December 31, 1998......................... 200,000 $ 6,844
Sales............................................ 250,000 10,287
Expirations...................................... (200,000) (6,844)
-------- -------
Balance, December 31, 1999......................... 250,000 10,287
Sales............................................ 100,000 4,240
Repurchases...................................... (100,000) (4,074)
-------- -------
Balance, December 31, 2000......................... 250,000 $10,453
======== =======
The company's potential obligations of $10.5 million and $10.3 million at
December 31, 2000 and 1999, respectively, are classified as "Put options" in
the Balance Sheets and the related offset is recorded in "Common shares in
treasury" under Stockholders' equity.
31
Note 10. Disclosures about Fair Value of Financial Instruments
Estimated fair values of the company's financial instruments are as follows:
2000 1999
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(Dollars in thousands)
Cash and short-term investments........ $ 11,661 $ 11,661 $ 11,690 $ 11,690
Current notes payable.................. 188,943 188,943 121,464 121,464
Long-term debt......................... 801,874 816,887 712,121 698,377
Put options............................ 10,453 10,453 10,287 10,287
======== ======== ======== ========
For short-term investments, current notes payable and put options, the
carrying amount approximates fair value. 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.
Note 11. Retirement, Savings and Other Postretirement Benefit Plans
Substantially all employees of the company are eligible to participate in
401(k) savings plans and are covered by noncontributory defined benefit
pension plans. These include both company-sponsored and multi-employer plans.
In 2000, 1999 and 1998 the company made matching 401(k) contributions on
behalf of employees of $9.8 million, $9.1 million and $8.1 million,
respectively. The company also provides benefits under company-sponsored
defined benefit retiree health care and life insurance plans, which cover most
salaried and certain hourly employees. Most of the retiree health care plans
require retiree contributions and contain other cost sharing features. The
retiree life insurance plans are primarily noncontributory.
The change in benefit obligation, change in plan assets, funded status and
related balance sheet amounts for company-sponsored benefit plans are as
follows:
Other
Pension Benefit Postretirement
Plans Benefit Plans
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(Dollars in thousands)
Benefit obligation at beginning of
year............................. $ 487,720 $ 481,337 $ 159,671 $ 168,341
Service cost...................... 13,944 13,870 3,360 3,486
Interest cost..................... 34,181 31,921 11,641 10,894
Plan amendments................... 8,415 15,381 (3,782) (674)
Actuarial losses (gains).......... (381) (25,874) 9,346 (13,502)
Curtailments...................... -- -- (1,858) --
Special termination benefits...... -- -- 5,418 --
Mergers, sales and closures....... (1,216) -- -- --
Benefits paid..................... (31,900) (28,915) (10,997) (8,874)
--------- --------- --------- ---------
Benefit obligation at end of
year............................. 510,763 487,720 172,799 159,671
--------- --------- --------- ---------
Fair value of plan assets at
beginning of year................ 661,310 637,873 43,970 43,079
Actual return on plan assets...... 36,310 51,384 (2,098) 6,388
Employer contribution............. 1,186 968 -- --
Benefits paid..................... (31,900) (28,915) (6,459) (5,497)
--------- --------- --------- ---------
Fair value of plan assets at end
of year.......................... 666,906 661,310 35,413 43,970
--------- --------- --------- ---------
Funded status..................... 156,143 173,590 (137,386) (115,701)
Unrecognized prior service cost... 31,897 29,688 (9,168) (5,658)
Unrecognized net gain............. (137,199) (159,649) (5,089) (20,215)
Unrecognized net transition
asset............................ (120) (292) -- --
--------- --------- --------- ---------
Prepaid (accrued) benefit cost.... $ 50,721 $ 43,337 $(151,643) $(141,574)
========= ========= ========= =========
32
The projected benefit obligation, accumulated benefit obligation and value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $17.9 million, $14.1 million and $0, respectively,
at December 31, 2000, and $26.3 million, $22.2 million and $7.7 million,
respectively, at December 31, 1999.
Net periodic (benefit) costs were:
Other Postretirement
Pension Benefit Plans Benefit Plans
---------------------------- -------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- ------- ------- -------
(Dollars in thousands)
Service cost............ $ 13,944 $ 13,870 $ 12,340 $ 3,360 $ 3,486 $ 2,815
Interest cost........... 34,181 31,921 30,552 11,641 10,894 10,757
Expected return on plan
assets................. (55,553) (49,334) (44,118) (3,691) (3,621) (3,172)
Amortization of prior
service cost........... 3,075 2,477 1,973 (717) (412) (411)
Recognized actuarial
gain................... (3,586) (5) (187) -- -- --
Recognized net initial
asset.................. (172) (374) (626) -- -- --
Other................... -- -- -- 58 -- 66
-------- -------- -------- ------- ------- -------
Net periodic (benefit)
cost................... $ (8,111) $ (1,445) $ (66) $10,651 $10,347 $10,055
======== ======== ======== ======= ======= =======
The 2000 pension benefit presented above excludes a cost of $1.9 million for
a workforce reduction program and a mill closure, which is included in
"Restructuring and other charges" in the Statements of Earnings. The 2000
postretirement cost presented above excludes $3.9 million for a workforce
reduction program, which is included in "Restructuring and other charges" in
the Statements of Earnings.
Weighted average assumptions as of December 31 were:
Pension Other Postretirement
Benefit Plans Benefit Plans
---------------- ----------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ------ ------ ------
Discount rate....................... 7.25% 7.25% 6.75% 7.25% 7.25% 6.75%
Expected return on plan assets...... 9.50 9.50 9.50 9.00 9.00 9.00
Rate of salaried compensation
increase........................... 5.00 5.00 5.00 -- -- --
The health care cost trend rate assumption used in determining the
accumulated postretirement benefit obligation is 5.92 percent for 2000. The
rate is assumed to decrease to 5.25 percent in 2001 and remain at that level
thereafter. This assumption has a significant effect on the amounts reported.
A one percentage point change in the health care cost trend rates would have
the following effects:
1% Increase 1% Decrease
----------- -----------
(Dollars in thousands)
Effect on total of service and interest cost
components....................................... $ 2,310 $ (1,890)
Effect on postretirement benefit obligation....... 22,118 (18,317)
Hourly employees at two of the company's manufacturing facilities
participate in a multi-employer defined benefit pension plan, the Paper,
Allied-Industrial, Chemical and Energy Workers International Union (PACE)
Pension Fund. The company also makes contributions to a trust fund established
to provide retiree medical benefits for these employees, which is managed by
PACE. Company contributions to these plans in 2000, 1999 and 1998 amounted to
$5.2 million, $4.7 million and $4.7 million, respectively.
33
Note 12. Stock Compensation Plans
The company currently has four fixed stock option plans under which options
are issued and outstanding. Options are granted at market value and prior to
1995 may have included 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, 2000. Options are fully exercisable after two
years and expire not later than 10 years from the date of grant. The company
was originally authorized to issue up to 1.2 million, 1.5 million, 1.7 million
and 1.4 million shares under its 1983 Stock Option Plan, 1989 Stock Incentive
Plan, 1995 Stock Incentive Plan and 2000 Stock Incentive Plan, respectively.
At December 31, 2000, no shares were available for future use under the 1983
Stock Option Plan and 1989 Stock Incentive Plan, while approximately 12,000
and 1.2 million shares were authorized for future use under the 1995 Stock
Incentive Plan and the 2000 Stock Incentive Plan, respectively.
The company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized when options are granted under the
plans. Had compensation costs for the plans been determined based on the fair
value at the grant dates for option awards under those plans as prescribed by
Financial Accounting Standards Board Statement No. 123, the company's net
earnings (loss) and earnings (loss) per share would have been reduced to the
pro forma amounts indicated below:
For the years ended
December 31
-------------------------
2000 1999 1998
-------- ------- -------
(Dollars in thousands--
except
per-share amounts)
Net earnings (loss)
as reported.................................. $(33,214) $40,947 $37,232
pro forma.................................... (35,782) 38,459 35,287
Diluted earnings (loss) per share
as reported.................................. $ (1.16) $ 1.41 $ 1.28
pro forma.................................... (1.25) 1.33 1.22
A summary of the status of the company's stock options as of December 31,
2000, 1999 and 1998 and changes during those years is presented below:
2000 1999 1998
------------------------ ------------------------ ------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
------- --------- ------------- --------- ------------- --------- -------------
Outstanding at January
1...................... 2,529,850 $41.97 2,096,600 $41.96 1,758,725 $42.81
Granted................. 469,575 32.06 541,775 41.39 430,300 37.75
Shares exercised........ (18,900) 29.96 (35,650) 35.76 (23,825) 34.60
SARs exercised.......... (16,400) 30.37 (14,400) 35.72 (27,350) 32.25
Canceled or expired..... (300,100) 41.65 (58,475) 41.85 (41,250) 44.71
--------- --------- ---------
Outstanding at December
31..................... 2,664,025 40.41 2,529,850 41.97 2,096,600 41.96
Options exercisable..... 1,984,437 42.29 1,792,425 42.60 1,504,900 42.50
Options outstanding
which include a stock
appreciation right..... 142,225 187,875 204,375
Shares reserved for
future grants.......... 1,248,680 1,496,355 593,525
Fair value of options
granted during the
year................... $ 5.77 $ 9.58 $ 5.86
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 2000, 1999 and 1998, respectively: dividend yield of 5.43, 4.21 and
4.61 percent; stock volatility of .2707, .2355 and .1945; risk free rate of
return of 5.21, 6.28 and 5.03 percent; and expected term of 10 years for all
grants.
34
The following table summarizes information about stock options outstanding
at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------ --------------------------
Number Weighted Avg. Weighted Avg. Number
Outstanding Remaining Exercise Exercisable Weighted Avg.
Range of Exercise Prices at 12/31/00 Contractual Life Price at 12/31/00 Exercise Price
- ------------------------ ----------- ---------------- ------------- ----------- --------------
$32.0625 to $37.75...... 1,045,650 7.9 years $34.75 576,075 $36.95
$41.25 to $48.25........ 1,618,375 6.1 years 44.07 1,408,362 44.47
--------- ---------
$32.0625 to $48.25...... 2,664,025 6.8 years 40.41 1,984,437 42.29
Note 13. Segment Information
The company has divided its operations into four reporting segments:
resource, wood products, printing papers and pulp and paper, based upon
similarities in product lines, manufacturing processes, marketing and
management of its businesses. The resource segment manages the company's
timberland base and provides wood fiber to the manufacturing segments. The
wood products segment produces oriented strand board, lumber, plywood and
particleboard. The printing papers segment produces coated printing papers and
pulp. The pulp and paper segment produces paperboard, consumer tissue and
pulp.
The reporting segments follow the same accounting policies used for the
company's consolidated financial statements and described in the summary of
significant accounting policies with the exception of the valuation of
inventories. All segment inventories are reported using the average cost
method and the LIFO reserve is recorded at the corporate level. Management
evaluates a segment's performance based upon profit or loss from operations
before income taxes. Intersegment sales or transfers are recorded based on
prevailing market prices.
Following is a tabulation of business segment information for each of the
past three years. Certain prior year amounts have been reclassified to conform
to the 2000 presentation. Corporate information is included to reconcile
segment data to the consolidated financial statements.
2000 1999 1998
-------- -------- --------
(Dollars in thousands)
Segment Sales:
Resource........................................... $352,324 $337,558 $325,934
-------- -------- --------
Wood products:
Oriented strand board............................ 208,067 246,943 192,775
Lumber........................................... 246,129 271,235 233,310
Plywood.......................................... 51,550 71,924 58,451
Particleboard.................................... 19,481 20,126 17,725
-------- -------- --------
Other............................................ 27,680 27,416 35,474
-------- -------- --------
552,907 637,644 537,735
-------- -------- --------
Printing papers:
Printing papers.................................. 449,621 454,734 435,428
Pulp............................................. 53,755 -- --
-------- -------- --------
503,376 454,734 435,428
-------- -------- --------
Pulp and paper:
Paperboard....................................... 426,537 410,493 425,932
Tissue........................................... 282,625 256,764 257,165
Pulp............................................. 20,906 26,152 13,622
-------- -------- --------
730,068 693,409 696,719
-------- -------- --------
35
2000 1999 1998
---------- ---------- ----------
(Dollars in thousands)
2,138,675 2,123,345 1,995,816
Elimination of intersegment sales......... (329,905) (314,957) (307,111)
---------- ---------- ----------
Total consolidated net sales........ $1,808,770 $1,808,388 $1,688,705
========== ========== ==========
Intersegment Sales or Transfers: (1)
Resource................................ $ 315,116 $ 298,859 $ 282,938
Wood products........................... 13,311 16,042 24,061
Printing papers......................... 1,428 -- --
Pulp and paper.......................... 50 56 112
---------- ---------- ----------
Total............................... $ 329,905 $ 314,957 $ 307,111
========== ========== ==========
Operating Income (Loss):
Resource................................ $ 61,395 $ 68,006 $ 71,296
Wood products........................... (18,283) 83,073 2,515
Printing papers......................... 1,530 (13,816) 14,204
Pulp and paper.......................... 12,929 14,786 53,394
Eliminations and adjustments............ 1,534 1,590 (655)
---------- ---------- ----------
59,105 153,639 140,754
Corporate Items:
Administration expense.................. (25,664) (38,228) (37,247)
Interest expense........................ (59,438) (45,442) (49,744)
Other, net.............................. (28,452) (3,925) 4,412
---------- ---------- ----------
Consolidated earnings (loss) before
taxes on income........................ $ (54,449) $ 66,044 $ 58,175
========== ========== ==========
Depreciation, Amortization and Cost of Fee
Timber Harvested:
Resource................................ $ 25,260 $ 23,945 $ 24,109
Wood products........................... 27,715 28,785 30,136
Printing papers......................... 52,388 41,999 41,618
Pulp and paper.......................... 55,383 54,609 53,525
---------- ---------- ----------
160,746 149,338 149,388
Corporate............................... 1,101 915 890
---------- ---------- ----------
Total............................... $ 161,847 $ 150,253 $ 150,278
========== ========== ==========
Assets:
Resource................................ $ 430,583 $ 420,326 $ 410,264
Wood products........................... 310,100 291,263 326,963
Printing papers......................... 820,132 828,828 685,743
Pulp and paper.......................... 751,980 731,030 759,701
---------- ---------- ----------
2,312,795 2,271,447 2,182,671
Corporate............................... 229,650 175,053 194,635
---------- ---------- ----------
Total consolidated assets........... $2,542,445 $2,446,500 $2,377,306
========== ========== ==========
Capital Expenditures:
Resource................................ $ 20,499 $ 17,356 $ 18,832
Wood products........................... 75,259 26,557 18,303
Printing papers......................... 21,831 181,944 87,147
Pulp and paper.......................... 48,200 20,850 21,943
---------- ---------- ----------
165,789 246,707 146,225
Corporate............................... 633 944 802
---------- ---------- ----------
Total............................... $ 166,422 $ 247,651 $ 147,027
========== ========== ==========
36
- --------
(1) Intersegment sales for 1998-2000, which were based on prevailing market
prices, consisted primarily of logs, chips, pulp logs and other fiber
sales to the wood products, printing papers and pulp and paper segments.
All of the company's manufacturing facilities and all other assets are
located within the continental United States. However, the company sells and
ships products to many foreign countries. Geographic information regarding the
company's net sales is summarized as follows:
2000 1999 1998
---------- ---------- ----------
(Dollars in thousands)
United States.............................. $1,660,546 $1,681,704 $1,515,050
Japan...................................... 52,661 50,741 64,129
Australia.................................. 7,245 14,759 23,022
Canada..................................... 20,870 16,944 31,234
China...................................... 22,594 16,130 25,939
Italy...................................... 14,606 13,087 18,631
Other foreign countries.................... 30,248 15,023 10,700
---------- ---------- ----------
Total consolidated net sales............. $1,808,770 $1,808,388 $1,688,705
========== ========== ==========
Note 14. Restructuring and Other Charges
In June 2000 the company recorded a $26.0 million pre-tax charge to cover
costs associated with a company-wide reduction and reorganization of its
salaried production and administrative workforce. In December an additional
$1.9 million pre-tax charge was recorded as a result of final cost
determinations for pension and medical benefits. As of December 31, 2000,
$16.5 million had been recorded against the accrued liability associated with
the charge. The charges are included in the "Restructuring and other charges"
line in the Statements of Earnings. In establishing the initial liability, we
estimated 261 employees would be terminated. As of December 31, 2000, a total
of 273 employees had been terminated under the reduction and reorganization
plan. The company anticipates annual pre-tax savings of $21 million as a
result of the reduction in force. Also included in "Restructuring and other
charges" is an $18.5 million pre-tax charge for costs associated with the
closure of its Jaype, Idaho, plywood mill in September 2000. As of December
31, 2000, $6.9 million had been recorded against the accrued liability
associated with the charge. The closure was deemed necessary due to a
combination of poor plywood markets, lack of adequate raw materials and long-
term transportation concerns. The amounts of revenues and operating income or
loss attributable to the mill were not material in relation to revenues and
operating income of the company as a whole. As of December 31, 2000, 5
salaried and 200 hourly production and maintenance employees had been
terminated due to the closure. The mill is scheduled to be dismantled, with
equipment and parts used at other company facilities or sold to outside
bidders. The company will continue to operate a log yard at the site. The
following table summarizes the components of the accrued liabilities and the
amounts applied against them as of December 31, 2000:
Accrued Ancillary
Compensation and Site Asset
Employee Benefits* Maintenance Valuation Total
------------------ ----------- --------- --------
(Dollars in thousands)
Workforce reduction
charge................. $ 27,909 $ -- $ -- $ 27,909
Cash payments......... (14,492) -- -- (14,492)
Noncash allocations... (2,009) -- -- (2,009)
-------- ------ ------ --------
11,408 -- -- 11,408
-------- ------ ------ --------
Mill closure charge..... 7,825 3,837 6,840 18,502
Cash payments......... (2,562) (489) -- (3,051)
Noncash allocations... (3,852) -- -- (3,852)
-------- ------ ------ --------
1,411 3,348 6,840 11,599
-------- ------ ------ --------
$ 12,819 $3,348 $6,840 $ 23,007
======== ====== ====== ========
37
- --------
* Noncash allocation amounts represent costs incurred for postretirement
medical and pension benefits.
Note 15. Financial Results by Quarter (Unaudited)
Three Months Ended
--------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ------------------ ------------------ ------------------
2000 1999 2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands--except per-share amounts)
Net sales............... $474,556 $450,475 $462,523 $445,166 $452,017 $480,083 $419,674 $432,664
-------- -------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Depreciation,
amortization and cost
of fee timber
harvested............. 40,837 37,427 38,829 35,146 41,543 38,270 40,638 39,410
Materials, labor and
other operating
expenses.............. 382,359 360,106 365,826 346,786 363,630 360,567 356,501 337,103
Selling, general and
administrative
expenses.............. 33,140 31,879 33,132 34,917 27,370 34,136 29,705 40,648
Restructuring and other
charges............... -- -- 26,000 -- 18,502 -- 1,909 --
-------- -------- -------- -------- -------- -------- -------- --------
456,336 429,412 463,787 416,849 451,045 432,973 428,753 417,161
-------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
operations........... $ 18,220 $ 21,063 $ (1,264) $ 28,317 $ 972 $ 47,110 $ (9,079) $ 15,503
======== ======== ======== ======== ======== ======== ======== ========
Net earnings (loss)... $ 2,436 $ 625 $ (9,444) $ 9,366 $(10,503) $ 22,589 $(15,703) $ 8,367
======== ======== ======== ======== ======== ======== ======== ========
Net earnings (loss) per
common share:
Basic.................. $ .08 $ .02 $ (.32) $ .33 $ (.37) $ .78 $ (.55) $ .29
Diluted................ .08 .02 (.32) .33 (.37) .77 (.55) .29
======== ======== ======== ======== ======== ======== ======== ========
Net sales figures have been restated due to the reclassification of freight
costs.
Certain 1999 amounts have been reclassified to conform to the 2000
presentation.
38
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
We have audited the accompanying balance sheets of Potlatch Corporation and
consolidated subsidiaries as of December 31, 2000 and 1999 and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 2000. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 as of December 31, 2000 and 1999 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Portland, Oregon
January 24, 2001
39
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
EXHIBIT INDEX
Exhibit Number Document Description
-------------- --------------------
(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, 1997 ("1997 Form 10-K").
(3)(c)** By-laws, as amended through January 25, 2001.
(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 November 27, 1990.
(4)(a)(i)** Officers' Certificate, dated January 24, 1991.
(4)(a)(ii)* Officers' Certificate, dated December 12, 1991, filed as
Exhibit (4)(a)(ii) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 ("1996 Form 10-K").
(10)(a)/1/** Potlatch Corporation Management Performance Award Plan, as
amended effective March 1, 1996.
(10)(b)/1/* Potlatch Corporation Severance Program for Executive
Employees, as amended and restated as of December 1, 1999,
filed as Exhibit (10)(b) to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000.
(10)(c)/1/* Potlatch Corporation 2000 Stock Incentive Plan, adopted
December 2, 1999, filed as Exhibit (10)(c) to the Annual
Report on Form 10-K for the fiscal year ended December 31,
1999 ("1999 Form 10-K").
(10)(d)/1/* Potlatch Corporation Salaried Employees' Supplemental Benefit
Plan (As Amended and Restated Effective January 1, 1989),
filed as Exhibit (10)(d) to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 ("1998 Form 10-
K").
(10)(d)(i)/1/* Amendment, effective as of January 1, 1998, to Plan described
in Exhibit (10)(d), filed as Exhibit (10)(d)(i) to the 1998
Form 10-K.
(10)(g)/1/* Potlatch Corporation Deferred Compensation Plan for
Directors, as amended through May 18, 2000, filed as Exhibit
(10)(g) to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000.
(10)(i)/1/** Compensation of Directors, dated May 18, 1995.
(10)(j)/2/* Form of Indemnification Agreement with each director of
Potlatch Corporation, as set forth on Schedule A, filed as
Exhibit (10)(j) to the 1996 Form 10-K.
(10)(j)(i)/2/** Amendment No. 3 to Schedule A to Exhibit (10)(j).
(10)(k)/2/* Form of Indemnification Agreement with certain officers of
Potlatch Corporation as set forth on Schedule A, filed as
Exhibit (10)(k) to the 1996 Form 10-K.
(10)(k)(i)/2/** Amendment No. 3 to Schedule A to Exhibit (10)(k).
(10)(l)/1/* Potlatch Corporation 1989 Stock Incentive Plan adopted
December 8, 1988, and as amended and restated December 2,
1999, filed as Exhibit (10)(l) to the 1999 Form 10-K.
(10)(l)(ii)/1/** 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 1990-1997.
(10)(l)(iii)/1/* Form of Stock Option Agreement for the Potlatch Corporation
1989 Stock Incentive Plan together with the Addendum thereto
as used for options granted in December, 1998, filed as
Exhibit (10)(l)(iii) to the 1998 Form 10-K.
40
Exhibit Number Document Description
-------------- --------------------
(10)(m)(i)/1/* Form of Amendments, dated January 12, 1999, to outstanding
employee Stock Option Agreements, filed as Exhibit (10)(m)(i)
to the 1998 Form 10-K.
(10)(m)(ii)/1/* Form of Amendment, dated December 29, 1998, to outstanding
outside director Stock Option Agreements, filed as Exhibit
(10)(m)(ii) to the 1998 Form 10-K.
(10)(n)/1/* Potlatch Corporation 1995 Stock Incentive Plan adopted
December 7, 1995, as amended and restated December 2, 1999,
filed as Exhibit (10)(n) to the 1999 Form 10-K.
(10)(n)(i)/1/** Form of Stock Option Agreement used for employees for the
Potlatch Corporation 1995 Stock Incentive Plan together with
the Addendum thereto as used for options granted in December,
1995.
(10)(n)(ii)/1/* Form of Addendum used in connection with the Stock Option
Agreement set forth in Exhibit (10)(n)(i) for options granted
in each December, 1996 and 1997, filed as Exhibit (10)(n)(ii)
to the 1996 Form 10-K.
(10)(n)(iii)/1/* Form of Stock Option Agreement used for outside directors for
the Potlatch Corporation 1995 Stock Incentive Plan together
with the form of Addendum used for options granted in
December 1995 and the Form of Addendum used for options
granted in each December 1996 and 1997, filed as Exhibit
(10)(n)(iii) to the 1996 Form 10-K.
(10)(n)(iv)/1/* Form of employee Stock Option Agreement for the Potlatch
Corporation 1995 Stock Incentive Plan together with the
Addendum thereto as used for options granted in December
1998, filed as Exhibit (10)(n)(iv) to the 1998 Form 10-K.
(10)(n)(v)/1/* Form of outside director Stock Option Agreement for the
Potlatch Corporation 1995 Stock Incentive Plan together with
the Addendum thereto as used for options granted in December
1998, filed as Exhibit (10)(n)(v) to the 1998 Form 10-K.
(10)(n)(vi)/1/* Form of employee Stock Option Agreement for the Potlatch
Corporation 1995 Stock Incentive Plan together with the
Addendum thereto as used for options granted in December 1999
and 2000, filed as Exhibit (10)(n)(vi) to the 1999 Form 10-K.
(10)(n)(vii)/1/* Form of outside director Stock Option Agreement for the
Potlatch Corporation 1995 Stock Incentive Plan together with
the Addendum thereto as used for options granted in December
1999 and 2000, filed as Exhibit (10)(n)(vii) to the 1999 Form
10-K.
(21)** Potlatch Corporation Subsidiaries.
(23) Consent of Independent Auditors.
(24)** Powers of Attorney.
- --------
* Incorporated by reference.
** Previously filed.
/1/ Management compensatory plan or arrangement.
/2/ Management contract.
41