<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10239
PLUM CREEK TIMBER COMPANY, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 91-1443693
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
999 Third Avenue, Seattle, Washington 98104-4096
Telephone: (206) 467-3600
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
filing requirements for the past 90 days.
Yes X No
-------- ----------
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
First Quarter
------------------
1994 1993
---- ----
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues .................................... $142,457 $116,422
-------- --------
Costs and Expenses:
Cost of Goods Sold ........................ 87,899 74,669
Selling, General and Administrative ....... 11,137 9,052
-------- --------
Total Costs and Expenses ................ 99,036 83,721
-------- --------
Operating Income ............................ 43,421 32,701
Interest Expense ............................ (11,239) (8,859)
Interest Income ............................. 276 717
Other Expense - Net ......................... (1,696) (985)
-------- --------
Income before Income Taxes .................. 30,762 23,574
Provision for Income Taxes .................. 111 14
-------- --------
Net Income .................................. $ 30,651 $ 23,560
General Partner Interest .................... 3,580 1,671
-------- --------
Net Income Allocable to Unitholders ......... $ 27,071 $ 21,889
======== ========
Net Income per Unit ......................... $ 0.67 $ 0.49
======== ========
</TABLE>
See accompanying Notes to Combined Financial Statements.
1
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PLUM CREEK TIMBER COMPANY, L.P.
COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents..................................... $ 52,766 $ 34,025
Accounts Receivable........................................... 25,045 28,711
Inventories................................................... 45,750 48,102
Timber Contract Deposits...................................... 1,373 2,987
Other Current Assets.......................................... 5,670 5,399
-------- --------
130,604 119,224
Timber and Timberlands - Net.................................... 519,391 526,762
Property, Plant and Equipment - Net............................. 161,847 162,633
Other Assets.................................................... 7,795 7,923
-------- --------
Total Assets................................................ $819,637 $816,542
======== ========
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt............................. $ 13,000 $ 13,000
Current Portion of Long-Term Line of Credit................... 12,500
Accounts Payable.............................................. 6,479 13,038
Interest Payable.............................................. 11,538 3,005
Wages Payable................................................. 5,369 7,857
Taxes Payable................................................. 7,953 5,648
Workers' Compensation Liabilities............................. 2,610 2,610
Other Current Liabilities..................................... 10,685 8,338
-------- --------
57,634 65,996
Long-Term Debt.................................................. 296,900 296,900
Long-Term Line of Credit........................................ 247,500 247,500
Workers' Compensation Liabilities............................... 9,791 9,805
Other Liabilities............................................... 3,442 3,786
-------- --------
Total Liabilities......................................... 615,267 623,987
-------- ---------
Commitments and Contingencies
PARTNERS' CAPITAL
Limited Partners' (40,608,300 Units)............................ 204,565 192,925
General Partner................................................. (195) (370)
-------- --------
Total Partners' Capital................................... 204,370 192,555
-------- --------
Total Liabilities and Partners' Capital................... $819,637 $816,542
======== ========
</TABLE>
See accompanying Notes to Combined Financial Statements.
2
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PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
First Quarter
-------------------
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income............................................... $ 30,651 $ 23,560
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization.............. 12,892 8,970
Gain on Asset Dispositions - Net...................... (1,029) (5,345)
Working Capital Changes:
Accounts Receivable................................. 3,666 (3,490)
Inventories......................................... 2,352 2,588
Timber Contract Deposits and Other Current Assets... 1,343 (2,678)
Accounts Payable.................................... (6,559) (318)
Other Accrued Liabilities........................... 10,697 10,861
Other................................................. (522) 704
-------- --------
Net Cash Provided By Operating Activities................ $ 53,491 $ 34,852
-------- --------
Cash Flows From Investing Activities:
Expenditures for Property, Plant and Equipment........ $ (4,045) $ (5,309)
Expenditures for Timber and Timberlands............... (712) (776)
Proceeds from Asset Dispositions...................... 1,343 3,639
-------- --------
Net Cash Used In Investing Activities $ (3,414) $ (2,446)
-------- --------
Cash Flows From Financing Activities:
Cash Distributions.................................... $(18,836) $(13,680)
Borrowings Under the Long-term Line of Credit......... 27,500
Repayments Under the Long-term Line of Credit......... (40,000)
-------- --------
Net Cash Used In Financing Activities.................... $(31,336) $(13,680)
-------- --------
Increase In Cash and Cash Equivalents.................... 18,741 18,726
Cash and Cash Equivalents:
Beginning of Period................................... 34,025 69,582
-------- --------
End of Period......................................... $ 52,766 $ 88,308
======== ========
</TABLE>
See accompanying Notes to Combined Financial Statements.
3
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PLUM CREEK TIMBER COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include all the accounts of Plum
Creek Timber Company, L.P. (the "Partnership") and its combined subsidiaries.
All significant intercompany transactions have been eliminated in the
combination.
The Partnership owns 98 percent of Plum Creek Manufacturing, L.P.
("Manufacturing") and 96 percent of Plum Creek Marketing, Inc. ("Marketing").
Plum Creek Management Company, L.P. (the "General Partner") manages the
businesses of the Partnership, Manufacturing and Marketing and owns the
remaining 2 percent of Manufacturing and 4 percent of Marketing. As used
herein, "Company" refers to the combined entities of the Partnership,
Manufacturing and Marketing.
The financial statements included in this Form 10-Q are unaudited and
do not contain all of the information required by generally accepted accounting
principles to be included in a full set of financial statements. The
financial statements in the Partnership's 1993 annual report on Form 10-K
include a summary of significant accounting policies of the Company and should
be read in conjunction with this Form 10-Q. In the opinion of management, all
material adjustments necessary to present fairly the results of operations for
such periods have been included. All such adjustments are of a normal and
recurring nature. Certain financial statement reclassifications have been made
to the prior year information for comparability purposes and have no impact on
net income. First quarter 1993 information has been restated for the December
6, 1993 three-for-one Unit split, and the change in accounting for certain
inventories from the average cost method to the last-in, first-out ("LIFO")
method of accounting. See Note 2 to Notes to Combined Financial Statements.
The results of operations for any interim period are not necessarily indicative
of the results of operations for the entire year.
The taxable income, deductions, and credits of the Partnership and
Manufacturing are allocated to the Unitholders based on the number of
depositary units representing limited partner interests ("Units") held and the
holding period. Distributions of cash to a Unitholder are considered a
non-taxable return of capital to the extent of the Unitholder's basis in the
Units (as such basis is increased by the allocable share of the Partnership's
and Manufacturing's taxable income). Any such distributions in excess of the
Unitholder's basis in the Units will result in taxable gain. However,
Unitholders will be required to include in their income tax filings their
allocable share of the Partnership's and Manufacturing's income, regardless of
whether cash distributions are made. It is anticipated that 1994 taxable
income allocated to Unitholders will be in excess of 1994 cash distributions.
For tax exempt entities, such as IRAs, a portion of the Partnership's and
Manufacturing's taxable income is treated as Unrelated Business Taxable
4
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Income ("UBTI"). To the extent a tax exempt entity has more than $1,000 of
UBTI, it may be required to pay federal income taxes. Marketing, as a separate
corporation, provides for income taxes based upon its anticipated level of
taxable income for the year.
Net Income per Unit is calculated using the weighted average number of
Units outstanding, plus the unredeemed Deferred Participation Interests ("DPIs"
- - 1.25 million outstanding at March 31, 1993, on a pre-Unit split basis, which
were redeemed in August 1993) divided into the combined Company net income,
after adjusting for the General Partner Interest. The weighted average number
of Units outstanding was 40,608,300 and 44,358,300 for the three months ended
March 31, 1994 and 1993, respectively.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION> March 31, December 31,
1994 1993
----------- -----------
(in thousands)
<S> <C> <C>
Raw materials (logs) . . . . . . . . . . . . . . $ 17,683 $ 22,868
Work-in-progress . . . . . . . . . . . . . . . . 5,108 5,442
Export logs . . . . . . . . . . . . . . . . . . 1,408 2,488
Finished goods . . . . . . . . . . . . . . . . . 17,858 13,570
------ ------
42,057 44,368
Supplies . . . . . . . . . . . . . . . . . . . . 3,693 3,734
------- ------
Total . . . . . . . . . . . . . . . . . . . . $ 45,750 $ 48,102
========= ========
</TABLE>
During the fourth quarter 1993, the Company changed its method of
valuing logs, work-in-process, and finished goods inventories from the average
cost method of accounting to the LIFO method. The change was effective January
1, 1993 and decreased previously reported first quarter 1993 earnings by $2.0
million or $0.05 per Unit. The cost of the LIFO inventories valued at the
lower of average cost or market (which approximates current cost) at March 31,
1994 and December 31, 1993 was $50.5 million and $52.4 million, respectively.
3. BORROWINGS
During March 1994, the Partnership and Manufacturing renegotiated
their short-term revolving credit facilities (the "Facilities") with a group of
banks. The renegotiations eliminated the Partnership's collateral requirement
and increased its available borrowings under the facility from $15 million to
$35 million. There were no borrowings outstanding under the Facilities at March
31, 1994.
5
<PAGE> 7
4. SUBSEQUENT EVENTS
On April 4, 1994, the Partnership announced that the Board of
Directors of the General Partner has authorized the General Partner to purchase
up to 1.2 million Units to fund awards earned under certain of its executive
and key employee incentive compensation benefit plans. The Partnership
reimburses the General Partner for costs, including the purchases of Units
associated with these benefit plans. During April 1994, the Partnership
reimbursed the General Partner for its purchase of 140,000 Units at a total
cost of $3.8 million.
On April 26, 1994, the Board of Directors of the General Partner
authorized the Partnership to make a distribution of $0.38 per Unit for the
first quarter of 1994. Total distributions will equal approximately $18.8
million (including $3.4 million to the General Partner) and will be paid on May
27, 1994 to Unitholders of record on May 16, 1994.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Plum Creek Timber Company, L.P. (the "Partnership") owns 98 percent of
Plum Creek Manufacturing, L.P. ("Manufacturing") and 96 percent of Plum Creek
Marketing, Inc. ("Marketing"). Plum Creek Management Company, L.P. (the
"General Partner") manages the businesses of the Partnership, Manufacturing and
Marketing and owns the remaining 2 percent of Manufacturing and 4 percent of
Marketing. As used herein, "Company" refers to the combined entities of the
Partnership, Manufacturing, and Marketing. "Resources Segment" refers to the
combined timber and land management businesses of the Partnership, and
"Manufacturing Segment" refers to the combined businesses of Manufacturing and
Marketing.
EVENTS AND TRENDS AFFECTING OPERATING RESULTS
MARKET FORCES. The demand for logs and manufactured wood products
depends upon international and domestic market conditions, the value of the
U.S. dollar in foreign markets, competition, log supply, the use and
introduction of alternative products and other factors. In particular, the
demand for logs, lumber and plywood is affected by residential and industrial
construction, and repair and remodel activity. These activities are subject to
fluctuations from changes in economic conditions, tariffs, interest rates,
population growth and other economic, demographic and environmental factors.
SEASONALITY. Domestic log sales volumes are typically at their lowest
point in the second quarter of each year during spring break-up, when warming
weather thaws and softens roadbeds, restricting access to logging sites.
Revenues from export log sales are affected in part by variations in inventory,
both domestically and in the countries where such logs are sold as well as by
weather conditions. Winter logging activity in the Pacific Northwest takes
place at lower elevations, where predominantly second growth logs are found,
decreasing the volume of old growth logs sold during this time of the year.
Demand for manufactured products is generally lower in the fall and
winter when activity in the construction, industrial and repair and remodeling
markets is slower, and higher in the spring and summer quarters when these
markets are more active. Working capital varies with seasonal fluctuations.
Log inventories increase during the winter months to prepare for reduced
harvest during spring break-up.
CURRENT MARKET CONDITIONS. Prices for both export and domestic logs
were stronger during the first quarter of 1994 as compared to the same period
in 1993. Log prices were higher primarily due to increased domestic demand for
finished wood products as well as continued log supply shortages, resulting
from litigation and environmental restrictions.
7
<PAGE> 9
First quarter 1994 industry composite indices for lumber and plywood
commodity prices were 10% higher and 11% lower, respectively, than the first
quarter 1993. During the first quarter 1994, wood product markets were
adversely affected by the severe winter weather across the U.S., which has
slowed residentially construction markets.
REGULATION. In July 1990, the United States Fish and Wildlife Service
("USFWS") listed the Northern Spotted Owl ("Owl") as a threatened species
throughout its range in Washington, Oregon and California under the federal
Endangered Species Act ("ESA").
At the time of the listing, the USFWS issued suggested guidelines to
be followed by landowners in order to comply with the ESA's prohibition against
harming or harassing Owls. These guidelines were rescinded in response to an
industry lawsuit, but continue to serve as the basis for USFWS enforcement of
the ESA. The guidelines impose several requirements, including the restriction
and preclusion of harvest activities in areas within a 1.8 mile radius
(approximately 6,600 acres) of known nest sites or activity centers for pairs
of Owls or territorial single Owls ("Activity Areas"). Under the guidelines,
at least 40% in the aggregate of the area within Activity Areas has to be
maintained as suitable Owl habitat. In addition, 70 acres immediately around
nest sites has to be preserved. Under the guidelines, approximately 140,000
acres of the 330,000 acres in the Partnership's Cascade region lie within
Activity Areas.
The USFWS announced on December 29, 1993, that it is proposing to
draft a special rule ("Special Rule") to redefine private landowner obligations
under the ESA. In its description of the proposed Special Rule, the USFWS
indicated that the guidelines would serve as the basis for regulation in areas
of special concern ("ASC") for the Owl. Outside of the ASCs, only 70 acres
around nest sites would be restricted. A substantial majority of the
Partnership's Timberlands that contain occupied Owl habitat lie within ASCs.
Accordingly, the proposed Special Rule, if adopted in its current form, is not
likely to materially alter the current level of regulation on the Partnership's
activities due to the Owl.
In March 1994, the U.S. Circuit Court of Appeals for the District of
Columbia ruled in Sweet Home Chapter of Communities for a Great Oregon v.
Babbitt, that Congress never intended habitat modification to be a violation of
the ESA. The court therefore found invalid the regulation that defines "harm"
to a species to include habitat modification. This regulation provides the
legal basis for the guidelines. The government has announced that it will
appeal the ruling. The government has also taken the position that the ruling
does not apply to areas outside of the District of Columbia circuit.
Accordingly, it is unclear whether the decision will reduce the regulatory
impact of the ESA on the Partnership.
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All forest practice applications ("FPA's") within Activity Areas must
also comply with the Washington State Environmental Policy Act ("SEPA") and
Forest Practices Act. In June 1992, the Washington State Forest Practices
Board (the "Board") adopted regulations which provide that SEPA will apply to
FPA's for activities on the 500 acres of habitat surrounding nest sites or
activity centers. By its terms, the rule was to have sunsetted in March 1994.
In February 1994, the Board, however, extended the rule for an additional four
months.
Compliance with the ESA and SEPA is causing delays and in some cases
modification of Partnership FPA's in Owl Activity Areas and may cause denials
of future Partnership FPA's.
The ESA also prohibits the federal government from causing jeopardy to
any listed species Owl or destroying or adversely modifying its designated
critical habitat. Private landowners are potentially affected by this
restriction if a private activity requires federal action, such as the granting
of access or federal funding. Where there is such a federal connection, the
federal agency involved must consult with the USFWS to determine that the
proposed activity would not cause jeopardy to the listed species or direct or
indirect adverse modification of its designated critical habitat, or if it
would, then to propose, where possible, alternatives or modifications to the
proposed activity. The Partnership's timberlands are often intermingled with
federal land in or near areas that include the habitats of a number of
threatened or endangered species such as the Owl and the grizzly bear. Thus,
access across federal lands to certain of the Partnership's Timberlands in such
areas has been and, is likely to continue to be, delayed by the administrative
process and legal challenges and may be subjected to restriction under the ESA.
On June 9, 1992, the USFWS published its draft recovery plan (the
"Draft Plan") for the Owl. A recovery plan, once final is not legally binding,
but it may form the basis for future regulation. The Draft Plan recommends
that 7.5 million acres of federal land be set aside in designated conservation
areas ("DCA's") where timber harvesting and road building would be prohibited.
On July 16, 1993, the Clinton Administration proposed a new forest policy (the
"Forest Plan") that would substantially reduce harvest from public lands in Owl
forests and provide for the conservation of the Owl and numerous other species.
In April 1994, the Clinton Administration formally adopted the Forest Plan and
submitted it for judicial approval. Before the Forest Plan can be implemented
administratively, however, it is likely to be subjected to additional legal
challenges and thus its implementation remains uncertain.
The ultimate impact of the Owl listing on the Partnership will depend
on (i) the number of Activity Areas actually found on or near Partnership
Timberlands, (ii) the availability and amount of suitable habitat within
individual Activity Areas, (iii) the outcome of the Clinton Administration's
forest policy, including the proposed Special Rule, (iv) future regulations
and restrictions placed on private and public lands, (v) promulgation,
interpretation and application of Owl regulations by both the USFWS and the
Washington State Department of Natural Resources, (vi) the impact of reduced
harvests upon stumpage prices, and (vii) the outcome of litigation. Although
the continuing uncertainty surrounding efforts to conserve the Owl make it
difficult to assess the future impact of the Owl listing on the Partnership, at
this time, the
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General Partner does not believe that federal and state laws and regulations
related to the Owl will have a materially adverse effect on the financial
position of the Company or its results of operations. There can be no
assurances, however, that (i) future interpretation or administration of
current laws and regulations, (ii) changes in laws or regulations, (iii)
increases in the number of Owls on or near Partnership lands, or (iv) decreases
in suitable habitat adjacent to Partnership lands will not adversely affect the
operations or financial position of the Company.
The General Partner anticipates that increasingly strict laws and
regulations relating to the environment, natural resources, forestry
operations, and health and safety matters, as well as increased social concern
over environmental issues, may result in additional restrictions on the Company
causing increased costs, additional capital expenditures and reduced operating
flexibility.
LEGISLATION RESTRICTING LOG EXPORTS. Federal legislation currently
prohibits the sale of unprocessed logs harvested from federal lands located in
the western half of the U.S. if such logs will be exported from the United
States by the purchaser thereof or if such logs will be used by the purchaser
thereof as a substitute for timber from private lands which is exported by such
purchaser. This prohibition does not impact the purchase of timber by the
Partnership from federal lands in the geographic area of the Conversion
Facilities. In addition, federal legislation prohibits the export of
unprocessed logs harvested from certain state lands. As a result, Washington
and Oregon currently prohibit the export of all logs harvested from state
lands. Proposals have also been made from time to time, but to date have been
unsuccessful, to either ban or tax the export of unprocessed logs harvested
from private lands.
LEGAL PROCEEDINGS
On May 1, 1992, the Company received a Notice of Violation ("NOV")
from the Environmental Protection Agency ("EPA") under the Clean Air Act. The
NOV alleges that Plum Creek's Evergreen veneer dryers in Kalispell, Montana
were not in compliance with an air quality permit on January 15, 1992 when
visible emissions from the veneer dryers were observed by the EPA. These
dryers were also the subject of a suit filed by the Montana Air Quality Bureau
("MAQB") in March 1990. Prior to the January 15, 1992 alleged violation, the
Company entered into a Consent Decree with the MAQB. The Company installed
approximately $900,000 of emission control equipment on the dryers on April
14, 1992, in order to comply with the permit and all State and Federal visible
emission limits. The Company will work with the EPA to provide information and
resolve issues arising under the NOV. The EPA has not notified the Company
what sanctions, if any, the EPA would seek as a result of the NOV.
There is no pending litigation, and to the knowledge of the General
Partner there is no threatened litigation, involving the Company which would
have a material adverse effect on the financial position or the results of
operations of the Company.
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FINANCIAL CONDITION AND LIQUIDITY
First quarter 1994 net cash provided by operating activities was $53.5
million compared to $34.9 million for the same period in 1993. The increase
was primarily due to higher net income and increased depletion resulting from
the 865,000 acres of timberland purchased in November 1993 (the "Montana
Timberland Acquisition"). These amounts were partially offset by lower gains
on land sales during the first quarter 1994 as compared to the same period in
1993.
During March 1994, the Partnership and Manufacturing renegotiated
their short-term revolving credit agreements with a group of banks that now
allow for borrowings of up to $35 million and $20 million, respectively, for
working capital purposes and standby letters of credit. As of March 31, 1994,
there were letters of credit issued in the amounts of $2.6 million and $0.5
million for the Partnership and Manufacturing, respectively. On April 7, 1994
the Partnership and Manufacturing borrowed $32.4 million and $19.5 million,
respectively, under the short-term revolving credit agreements for the purpose
of temporarily repaying a portion of the long-term reducing revolving line of
credit ("Line of Credit") (below). Manufacturing also has a $20 million
short-term revolving credit agreement with the Partnership, for which there
were no borrowings outstanding at March 31, 1994. Total borrowings, in the
aggregate, by Manufacturing under its revolving credit agreements cannot exceed
$20 million.
The Partnership and Manufacturing have a capital facility which
enables Manufacturing to borrow up to $20 million from the Partnership. There
were no such borrowings outstanding as of March 31, 1994.
The Partnership has a Line of Credit with a group of banks, which as
of March 31, 1994 allows for up to $275 million of borrowings. The Line of
Credit decreases by $13,750,000 semiannually, on May 1 and November 1 of each
year, through November 1, 2001, at which time the balance is due. At March 31,
1994 the Partnership had $247.5 million of borrowings outstanding under the
Line of Credit. In April 1994, $102.5 million of borrowings under the Line of
Credit were temporarily repaid with proceeds from the short-term revolving
credit agreements and current funds.
The Company's borrowing agreements contain certain restrictive
covenants, including limitations on harvest levels, land sales, cash
distributions and the amount of future indebtedness. The Company was in
compliance with such covenants as of March 31, 1994.
The Partnership will distribute $0.38 per Unit for the first quarter
of 1994. The distribution will equal $18.8 million (including $3.4 million to
the General Partner), and will be paid on May 27, 1994 to Unitholders of record
on May 16, 1994. The computation of cash available for distribution includes
required reserves for the payment of principal and interest, as well as other
reserves established at the discretion of the General Partner for working
capital, capital expenditures, and future cash distributions.
11
<PAGE> 13
On April 4, 1994, the Partnership announced that the Board of
Directors of the General Partner has authorized the General Partner to purchase
up to 1.2 million Units to fund awards earned under certain of its executive
and key employee incentive compensation benefit plans. The Partnership
reimburses the General Partner for costs, including the purchases of Units
associated with these benefit plans. During April 1994, the Partnership
reimbursed the General Partner for its purchase of 140,000 Units at a total
cost of $3.8 million.
Cash required to meet the Company's quarterly cash distributions,
capital expenditures, funding of certain compensation benefit plans, and
principal and interest payments will be significant. The General Partner
expects that all debt service will be funded from current funds and cash
generated from operations. The Partnership expects to make cash distributions
and the funding of benefit plans from current funds and cash generated from
operations.
The Company is involved in certain environmental and regulatory
proceedings and other related matters. Although it is possible that new
information or future developments could require the Company to reassess its
potential exposure related to these matters, the Company believes, based upon
available information, that the resolution of these issues will not have a
materially adverse effect on its results of operations or financial position.
CAPITAL EXPENDITURES
Capital expenditures for the first quarter of 1994 totaled $4.8
million compared to $6.1 million for the same period in 1993. Total 1994
capital expenditures are expected to equal $29 million, which approximates the
total amount expended in 1993 (excluding the $255.3 million expended on the
purchase of the Montana Timberland Acquisition). The principal projects
included in the 1994 plan include the purchase and installation of various
lumber value-added projects, semi-automatic lay-up line and core composer in
plywood, wood chip refining and value- added projects in MDF, equipment
upgrades to meet environmental requirements and road construction and
reforestation of the Timberlands. It is anticipated that the planned 1994
capital expenditures will be funded from current funds and cash generated
from operations.
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RESULTS OF OPERATIONS
FIRST QUARTER 1994 COMPARED TO FIRST QUARTER 1993
The following table compares operating income by segment for the
quarters ended March 31, 1994 and 1993.
<TABLE>
<CAPTION>
Operating Income by Segment
(Unaudited)
First Quarter
----------------------
(In Thousands)
1994 1993
----------- ----------
<S> <C> <C>
Resources Segment . . . . . . . . . . . . . . . . $ 38,037 $ 28,573
Manufacturing Segment . . . . . . . . . . . . . . 8,358 7,829
Other Costs and Eliminations . . . . . . . . . . . (2,974) (3,701)
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . $ 43,421 $ 32,701
========== ==========
</TABLE>
Resources Segment revenues were $75.9 million and $56.3 million for
the first quarter 1994 and 1993, respectively. The higher 1994 revenues were
primarily due to higher log prices and higher sales volumes of domestic logs,
which were partially offset by $6.0 million of lower land sales. Domestic and
export log prices increased by 44% and 10%, respectively, over the year earlier
period, primarily due to improving domestic wood product demand resulting from
an improving U.S. economy, as well as from continued logging curtailments in
the Northwest. First quarter 1994 domestic log sales volume increased by 24%
over the first quarter 1993 due to favorable logging conditions, as well as
from the increased timber volumes obtained from the Montana Timberland
Acquisition.
Resources Segment costs and expenses were $37.9 million and $27.7
million for the first quarter 1994 and 1993, respectively. Costs and expenses
were $10.2 million higher in 1994 primarily due to higher sales volumes of
domestic logs, higher log and haul costs caused by longer hauling distances and
more expensive helicopter logging, as well as from higher silvicultural
expenses resulting from the Company's fertilization program in the Cascade
Region.
Manufacturing Segment revenues were $91.0 million and $79.4 million
for the first quarter 1994 and 1993, respectively. Revenues were $11.6 million
higher in 1994 due to higher prices in all product lines and higher sales
volumes of lumber and MDF, which were partially offset by lower plywood sales
volumes. Lumber, plywood and MDF prices increased by 8%, 7% and 18%,
respectively, over the first quarter 1993. The higher prices were primarily
the result of an improving U.S. economy, which increased domestic wood product
demand. Lumber sales volumes were 7% higher during the first quarter 1994 due
to the adverse 1993 weather conditions which slowed both production and
shipping volumes. MDF sales volumes were 19%
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higher during the first quarter 1994 as compared to the year earlier period due
to stronger demand and efficiency improvements in the production process. In
addition, 1993 sales were adversely affected by a fire at the plant that
temporarily interrupted MDF production. First quarter 1994 plywood sales
volumes were 4% lower than the year ago period due to relatively weak
non-industrial market demand and a change in the production mix to higher
return, thicker panel products.
Manufacturing Segment costs and expenses were $82.6 million and $71.6
million for the first quarter 1994 and 1993, respectively. The $11.0 million
of higher costs and expenses were primarily due to higher sales volumes of
lumber and MDF products and higher log cost (32% higher for both lumber and
plywood), which were offset in part by lower plywood sales volumes.
Other Costs and Eliminations were $0.7 million lower in the first
quarter of 1994 as compared to the first quarter 1993. The variance was
primarily due to $1.7 million of lower intercompany profit accumulating in
inventory during the first quarter 1994, which was caused by a larger decrease
in log inventories from the beginning of the year as compared to the first
quarter 1993. The profit on intercompany log sales is deferred until
Manufacturing converts existing log inventories into finished products and
sells them to third parties. The lower intercompany profit was partially
offset by approximately $1.0 million of higher employee benefit expenses
associated with certain executive and key employee benefit plans.
The income allocated to the General Partner increased by $1.9 million
in the first quarter of 1994 as compared to the year earlier period. The
increase was the result of higher net income and a higher quarterly
distribution to Unitholders, which increased the incentive distribution paid to
the General Partner. Net income is allocated to the General Partner based on 2
percent of the Company's net income (adjusted for the incentive distribution),
plus the incentive distribution. The incentive distribution is based on a
percentage of the quarterly distribution paid during the quarter, which was
$0.38 per Unit in the first quarter 1994 as compared to $0.30 per Unit during
the first quarter 1993 (1993 amounts were restated for the December 6, 1993
three-for-one Unit split).
PART II - OTHER INFORMATION
Items 1, 2, 3, 4, 5 and 6 of Part II are not applicable and have been omitted.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLUM CREEK TIMBER COMPANY, L.P
------------------------------
(Registrant)
By: Plum Creek Management Company, L.P.
as General Partner
By: /s/ Diane M. Irvine
-----------------------
DIANE M. IRVINE
Vice President and
Chief Financial Officer
By: /s/Allan F. Trinkwald
------------------------
ALLAN F. TRINKWALD
Controller and Treasurer
Date: May 2, 1994
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