<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 June 30, 1995
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)
Delaware 91-1443693
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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 such
filing requirements for the past 90 days.
Yes X No
----- -----
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Second Quarter
----------------------
1995 1994
-------- --------
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues ............................................... $139,372 $135,659
-------- --------
Costs and Expenses:
Cost of Goods Sold ................................. 92,270 88,900
Selling, General and Administrative ................ 10,447 10,812
-------- --------
Total Costs and Expenses ......................... 102,717 99,712
-------- --------
Operating Income ....................................... 36,655 35,947
Interest Expense ....................................... (11,804) (11,123)
Interest Income ........................................ 277 242
Other Expense - Net .................................... (381) (1,073)
-------- --------
Income before Income Taxes ............................. 24,747 23,993
Provision for Income Taxes ............................. 213 195
-------- --------
Net Income ............................................. $ 24,534 $ 23,798
General Partner Interest ............................... 5,890 3,444
-------- --------
Net Income Allocable to Unitholders .................... $ 18,644 $ 20,354
======== ========
Net Income per Unit .................................... $ 0.46 $ 0.50
======== ========
</TABLE>
See accompanying Notes to Combined Financial Statements.
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PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
----------------------
1995 1994
-------- --------
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues ............................................... $283,466 $278,116
-------- --------
Costs and Expenses:
Cost of Goods Sold ................................. 185,525 176,799
Selling, General and Administrative ................ 20,328 21,949
-------- --------
Total Costs and Expenses ......................... 205,853 198,748
-------- --------
Operating Income ....................................... 77,613 79,368
Interest Expense ....................................... (23,754) (22,362)
Interest Income ........................................ 621 518
Other Expense - Net .................................... (984) (2,769)
-------- --------
Income before Income Taxes ............................. 53,496 54,755
Provision for Income Taxes ............................. 570 306
-------- --------
Net Income ............................................. $ 52,926 $ 54,449
General Partner Interest ............................... 10,531 7,024
-------- --------
Net Income Allocable to Unitholders .................... $ 42,395 $ 47,425
======== ========
Net Income per Unit .................................... $ 1.04 $ 1.17
======== ========
</TABLE>
See accompanying Notes to Combined Financial Statements.
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PLUM CREEK TIMBER COMPANY, L.P.
COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents .......................... $ 75,277 $ 60,942
Accounts Receivable ................................ 29,444 26,866
Inventories ........................................ 37,626 54,685
Timber Contract Deposits ........................... 1,679 2,823
Other Current Assets ............................... 4,843 4,013
-------- --------
148,869 149,329
Timber and Timberlands - Net .......................... 482,258 495,462
Property, Plant and Equipment - Net .................. 164,266 162,017
Other Assets ........................................... 15,376 16,418
-------- --------
Total Assets ....................................... $810,769 $823,226
======== ========
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt .................. $ 13,000 $ 13,000
Accounts Payable ................................... 11,651 13,231
Interest Payable ................................... 7,510 7,681
Wages Payable ...................................... 5,069 6,430
Taxes Payable ...................................... 5,961 6,094
Workers' Compensation Liabilities .................. 1,968 2,610
Other Current Liabilities .......................... 6,242 6,778
-------- --------
51,401 55,824
Long-Term Debt ......................................... 420,900 433,900
Lines of Credit ........................................ 97,500 97,500
Workers' Compensation Liabilities ...................... 9,393 9,367
Other Liabilities ...................................... 3,658 3,658
-------- --------
Total Liabilities .................................. 582,852 600,249
-------- --------
Commitments and Contingencies
PARTNERS' CAPITAL
Limited Partners' Units ................................ 228,064 223,028
General Partner ........................................ (147) (51)
-------- --------
Total Partners' Capital ............................ 227,917 222,977
-------- --------
Total Liabilities and Partners' Capital ............ $810,769 $823,226
======== ========
</TABLE>
See accompanying Notes to Combined Financial Statements.
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PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
-----------------------
1995 1994
--------- ---------
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income ............................................. $ 52,926 $ 54,449
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization ........... 25,692 23,899
Gain on Asset Dispositions - Net ................... (2,424) (1,785)
Working Capital Changes:
Accounts Receivable .............................. (2,578) (9,263)
Inventories ...................................... 17,059 9,640
Timber Contract Deposits and Other Current Assets. 314 (700)
Accounts Payable ................................. (1,580) (287)
Other Accrued Liabilities......................... (2,843) (1,065)
Funding of Benefit Plans - Net ..................... 994 (10,026)
Other .............................................. (2,665) 469
--------- ---------
Net Cash Provided By Operating Activities .............. $ 84,895 $ 65,331
--------- ---------
Cash Flows From Investing Activities:
Additions to Properties ............................ $ (14,004) $ (10,316)
Proceeds from Asset Dispositions ................... 4,430 2,653
--------- ---------
Net Cash Used In Investing Activities .................. $ (9,574) $ (7,663)
--------- ---------
Cash Flows From Financing Activities:
Cash Distributions ................................. $ (47,986) $ (37,673)
Retirement of Long-Term Debt........................ (13,000) (13,000)
Borrowings on the Lines of Credit .................. 114,500 147,290
Repayments on the Lines of Credit .................. (114,500) (159,790)
--------- ---------
Net Cash Used In Financing Activities .................. $ (60,986) $ (63,173)
--------- ---------
Increase (Decrease) In Cash and Cash Equivalents ....... 14,335 (5,505)
Cash and Cash Equivalents:
Beginning of Period ............................... 60,942 34,025
--------- ---------
End of Period ...................................... $ 75,277 $ 28,520
========= =========
</TABLE>
See accompanying Notes to Combined Financial Statements.
4
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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 1994 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. 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 1995 taxable
income allocated to Unitholders will be in excess of 1995 cash distributions.
For tax exempt entities, such as IRAs, most of the Partnership's and
Manufacturing's taxable income is treated as Unrelated Business Taxable 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 taxable
corporation, provides for income taxes on a separate company basis. Marketing
provides for deferred taxes in order to reflect the tax consequences in future
years of the difference between the financial statement and tax basis of assets
and liabilities at year-end.
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Net Income per Unit is calculated using the weighted average number of
Units outstanding, 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 for the three and six month periods ended June
30, 1995 and 1994.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
(in thousands)
<S> <C> <C>
Raw materials (logs) . . . . . . . . . . . . . . $ 9,304 $25,908
Work-in-process . . . . . . . . . . . . . . . . 5,479 5,349
Export logs . . . . . . . . . . . . . . . . . . 443 1,274
Finished goods . . . . . . . . . . . . . . . . . 16,411 16,485
------- -------
31,637 49,016
Supplies . . . . . . . . . . . . . . . . . . . . 5,989 5,669
------- -------
Total . . . . . . . . . . . . . . . . . . . . $37,626 $54,685
------- -------
</TABLE>
Excluding supplies, which are valued at average cost, the cost of the
LIFO inventories valued at the lower of average cost or market (which
approximates current cost) at June 30, 1995 and December 31, 1994 was $38.6
million and $54.9 million, respectively.
3. TIMBER AND TIMBERLANDS AND PROPERTY, PLANT AND EQUIPMENT
Timber and timberlands consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Timber and logging roads - net . . . . . . . . . $437,760 $450,956
Timberlands . . . . . . . . . . . . . . . . . . . 44,498 44,506
-------- --------
Timber and Timberlands - net . . . . . . . $482,258 $495,462
-------- --------
</TABLE>
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Property, plant and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Land, buildings and improvements . . . . . . . $ 47,598 $ 47,429
Machinery and equipment . . . . . . . . . . . . 219,868 208,085
--------- --------
267,466 255,514
Accumulated depreciation . . . . . . . . . . . . (103,200) (93,497)
--------- --------
Property, Plant and Equipment - net . . . . $ 164,266 $162,017
--------- --------
</TABLE>
4. BORROWINGS
As of June 30, 1995, the Company had $97.5 million of borrowings under
revolving lines of credit and letters of credit outstanding in the amount of
$0.8 million. As of June 30, 1995, the Company had unused bank lines of credit
totaling $36.7 million. As of July 7, 1995, $80.5 million of borrowings on the
lines of credit were repaid.
5. SUBSEQUENT EVENTS
On July 18, 1995, the Board of Directors of the General Partner
authorized the Partnership to make a distribution of $0.49 per Unit for the
second quarter of 1995. Total distributions will equal approximately $25.9
million (including $6.0 million to the General Partner) and will be paid on
August 25, 1995 to Unitholders of record on August 16, 1995.
7
<PAGE> 9
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, plywood and MDF 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 export quality 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 domestic logs have decreased
from levels experienced in the second quarter of 1994 as a result of a weak
lumber market caused by rising interest rates. The downward pressure on prices
was mitigated in part by strong demand for whole logs for chipping in pulp and
paper markets. Export log prices increased as compared to the second quarter
of 1994 and the first quarter of 1995. The increase was primarily supply
driven due to low
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inventory levels in both Japan and the U.S. west coast. Export prices began
declining gradually in the second quarter of 1995 as a result of a decrease in
the Japanese demand for North American logs due to a weakened Japanese economy,
a strong yen, and increased competition from lower priced substitutes.
Second quarter 1995 industry composite indices for lumber and plywood
commodity prices were 22% lower and 5% higher, respectively, than the second
quarter of 1994, and were 16% and 3% lower than the first quarter of 1995,
respectively. The decrease in lumber prices is attributed to both a weakened
housing market, in which the typical spring building season never materialized,
and strong production and aggressive pricing by eastern Canadian mills.
Overall, plywood markets have remained strong, with only slight decreases in
prices in the second quarter of 1995 as compared to the first quarter of 1995.
MDF prices increased by 10% in the second quarter of 1995 as compared to the
second quarter of 1994; however, prices decreased by 4% as compared to the
first quarter of 1995. The decrease in prices as compared to earlier this year
was due to a weakening in demand caused by excess inventory levels as a result
of heavy purchases by end users in earlier quarters in anticipation of a robust
spring demand which never occurred.
NORTHERN SPOTTED OWL REGULATIONS. 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
("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 have to be preserved.
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.
In June 1992, the Washington State Forest Practices Board (the
"Board") adopted temporary regulations related to all forest practice
applications ("FPA's") which require that FPA's comply with the Washington
State Environmental Policy Act ("SEPA") for all activities within the 500 acres
of habitat surrounding nest sites or activity centers. By its terms, the rule
was to have sunseted in March 1994. The Board, however, has extended the rule
as it considers a permanent regulation.
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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 December 1994, the Forest Plan was approved by a Federal
District Court.
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 modifications 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. On June 29, 1995, the United States
Supreme Court overturned the Circuit Court's decision and upheld the
regulation.
Finally, on February 7, 1995, the USFWS announced that it is proposing
to draft a special rule ("Special Rule") to redefine private landowner
obligations with regard to Owls under the ESA. In its description of the
proposed Special Rule, the USFWS indicated that the Guidelines will serve as
the basis for regulation in special emphasis areas ("SEA") for the Owl.
However, outside of the SEAs, only 70 acres around nest sites will be
restricted. If adopted, the proposed Special Rule is not likely to materially
alter the current level of regulation on the Partnership's activities due to
the Owl. This is because a substantial majority of the Partnership's Cascade
Region timberlands that contain occupied Owl habitat lie within SEAs.
IMPACT OF REGULATIONS ON PARTNERSHIP. Under the Guidelines issued by
the USFWS in 1990, approximately 143,000 acres of the 330,000 acres in the
Partnership's Cascade region lie within Activity Areas. 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.
In July 1994, the Partnership announced that it intended to apply for a
multi-species, 50 year permit under the ESA from the USFWS that would cover the
Partnership's forest management on 170,000 acres in the Cascade Region. The
permit, if issued, would serve as the basis for regulating the Partnership's
forest management activities and replace restrictions for Owls under the
Guidelines, the Special Rule, if adopted, and SEPA. It is unclear what the
conditions to the permit, or the cost, will be. There are, therefore, no
assurances that the permit will continue to be pursued or ultimately whether a
permit will be issued by the USFWS.
The permit, if issued, would provide additional long-term certainty
and predictability to the Partnership's harvest activities. These activities
would be regulated by a Habitat Conservation Plan ("HCP") which, under the ESA,
allows impacts on listed species incidental to normal management activities in
exchange for mitigating measures agreed to by the landowner. The Partnership's
HCP would address four listed species: the Owl, Marbled Murrelet, Grizzly Bear
and Gray Wolf, as well as numerous other unlisted species in the planning area.
The ESA also prohibits the federal government from causing jeopardy to
species listed under the ESA or from destroying or adversely modifying their
designated critical habitat. Private landowners are potentially affected by
this restriction if a private activity requires federal action, such
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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 cause direct or indirect adverse modification of its designated
critical habitat. If the landowner's proposed activity does adversely modify
critical habitat, the USFWS must 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.
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, (iv) future regulations and restrictions placed on private and
public lands, (v) promulgation, interpretation and application of Owl
regulations by both the USFWS (including the proposed Special Rule) and the
Washington State Department of Natural Resources, (vi) the outcome of the
Partnership's efforts to obtain a permit from the USFWS, (vii) the impact of
reduced harvests upon stumpage prices, and (viii) 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 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, its results of operations or
liquidity. 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, financial position or liquidity 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.
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<PAGE> 13
LEGAL PROCEEDINGS
On June 7, 1995, the Company received a Compliance Order ("Order")
from the Environmental Protection Agency ("EPA") under the Clean Air Act. The
Order alleges that the installation in 1990 of a boiler at the Company's Pablo
sawmill did not undergo new source performance review. Work on the boiler
project commenced in March of 1989, when the applicable regulation did not
require a review. Prior to final installation of the boiler, however, new
rules were promulgated that required such review. The EPA has taken the
position that the new rules applied, and is seeking compliance with the new
source performance standards which require testing and installation of an
emissions monitoring system. The standards, if applicable, would also require
the installation of emissions control equipment on the boiler. Plum Creek is
working with the EPA to determine whether the new standards were applicable to
the boiler and to resolve other issues arising under the Order.
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, the results of
operations or liquidity of the Company.
FINANCIAL CONDITION AND LIQUIDITY
During the first six months of 1995, net cash provided by operating
activities totaled $84.9 million compared to $65.3 million for the same period
in 1994. The increase was primarily due to favorable changes in working
capital and to non-recurring cash advances and reimbursements made in 1994 to
the General Partner to fund the General Partner's various executive and key
employee benefit plans.
The Partnership has two unsecured revolving lines of credit ("Lines of
Credit") with a group of banks that permit the Partnership to borrow up to $135
million for general corporate purposes, including up to $5 million of standby
letters of credit issued on behalf of the Partnership or Manufacturing. The
Lines of Credit bear a floating rate of interest. One line of credit allows
the Partnership to borrow $100 million through October 31, 1999, of which $97.5
million was outstanding at June 30, 1995. The other line of credit allows the
Partnership to borrow $35 million through October 30, 1995 (any borrowings
outstanding at that time are payable in quarterly installments, at the option
of the Partnership, due January 1996 through October 1997), of which no
borrowings were outstanding at June 30, 1995. As of June 30, 1995, there were
letters of credit outstanding in the amount of $0.8 million. As of July 7,
1995, $80.5 million of borrowings on the Lines of Credit were repaid.
The Company's borrowing agreements contain certain restrictive
covenants, including limitations on harvest levels, sale of assets, cash
distributions and the amount of future indebtedness. The Company was in
compliance with such covenants as of June 30, 1995.
The Partnership will distribute $0.49 per Unit for the second quarter
of 1995. The
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<PAGE> 14
distribution will equal $25.9 million (including $6.0 million to the General
Partner), and will be paid on August 25, 1995 to Unitholders of record on
August 16, 1995. 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.
Cash required to meet the Company's quarterly cash distributions,
capital expenditures 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 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, financial position or
liquidity.
CAPITAL EXPENDITURES
Capital expenditures for the first six months of 1995 totaled $14.0
million compared to $10.3 million for the same period in 1994. Total 1995
capital expenditures are expected to equal $30 million, compared to $25.8
million expended in 1994. The principal projects in the 1995 plan include a
project in the MDF plant to produce "Super-Refined MDF2", a higher quality MDF
product that can be machined and finished more efficiently, adding significant
value to the MDF product line. Planned capital expenditures also include the
purchase and installation of various lumber and plywood value-added projects,
equipment upgrades to meet environmental requirements and road construction and
timberland reforestation. It is anticipated that the planned 1995 capital
expenditures will be funded from current funds and cash generated from
operations.
13
<PAGE> 15
RESULTS OF OPERATIONS
SECOND QUARTER 1995 COMPARED TO SECOND QUARTER 1994
The following table compares operating income by segment for the
quarters ended June 30, 1995 and 1994.
Operating Income by Segment
(Unaudited)
<TABLE>
<CAPTION>
Second Quarter
----------------
(In Thousands)
1995 1994
------- --------
<S> <C> <C>
Resources Segment . . . . . . . . . . . . . $26,941 $26,179
Manufacturing Segment . . . . . . . . . . . 5,320 2,602
Other Costs and Eliminations . . . . . . . . 4,394 7,166
------- -------
Total . . . . . . . . . . . . . . . . . . $36,655 $35,947
======= =======
</TABLE>
Resources Segment revenues were $67.3 million and $59.6 million for
the second quarter of 1995 and 1994, respectively. Revenues were $7.7 million
higher in 1995 primarily due to higher sales volume for domestic logs, which
increased by 32% over the prior year quarter, and a $2.7 million increase in
revenues from pulp log sales. The higher 1995 domestic log sales volume was
due to an increase in internal demand resulting from lower log inventory levels
at the mills at the beginning of the second quarter of 1995, as compared to the
year earlier period, caused by an early spring break-up in 1995, and increased
lumber production. The increase in pulp revenues was due to a significant
increase in pulp log prices and sales volume as compared to the second quarter
of 1994 as a result of strong pulp and paper markets. The increased revenue
related to domestic and pulp log sales was partially offset by lower domestic
log prices and lower sales volume for export logs, which decreased 16% from the
second quarter of 1994. The 8% decrease in domestic log prices, as compared to
the second quarter of 1994, is attributable entirely to the Rockies Region and
was due to high log and lumber inventories at local mills, lumber mill
closures, and weak lumber markets. The decrease in export log sales volume was
the result of a planned reduction in the harvest of export quality logs.
Resources Segment costs and expenses were $40.3 million and $33.4
million for the second quarter of 1995 and 1994, respectively. Costs and
expenses were $6.9 million higher in 1995 primarily due to higher sales volumes
of domestic and pulp logs and higher log and haul costs resulting from more
expensive logging methods required due to ground conditions and sloped terrain
which would not permit the use of traditional logging methods. These costs
were offset in part by lower export log sales volume.
Manufacturing Segment revenues were $90.7 million and $90.0 million
for the second quarter
14
<PAGE> 16
of 1995 and 1994, respectively. Revenues were $0.7 million higher in 1995 due
to higher plywood and MDF prices and higher lumber sales volume, offset in part
by decreased lumber prices and MDF sales volume. Plywood and MDF prices
increased by 5% and 10%, respectively, over the second quarter of 1994. The
higher plywood prices were the result of strong industrial market (recreational
vehicle, boats and fiberglass reinforced panels) demand. The increase in MDF
prices was due to growing demand for MDF throughout 1994 and the first quarter
of 1995. Lumber sales volume was 10% higher during the second quarter of 1995
as compared to the year earlier period due to increased production as a result
of additional production shifts and the new lumber remanufacturing facility
which began operations in November 1994. Lumber prices decreased by 15% as
compared to the second quarter of 1994 due to weak market conditions caused by
a slow housing market and excess supply. While our lumber prices are
influenced by commodity prices, we are able to maintain sales volume due to our
high concentration of sales in the repair & remodel and industrial markets,
which are less impacted by a slow housing market. MDF sales volume decreased
by 23% as a result of deterioration in demand late in the second quarter,
primarily due to excess inventories being carried by end users due to a slow
spring building season. The slowdown resulted in 12 days of production
downtime for Plum Creek in June.
Manufacturing Segment costs and expenses were $85.4 million and $87.4
million for the second quarter of 1995 and 1994, respectively. The $2.0
million of lower costs and expenses was primarily due to the decrease in MDF
sales volume and lower log costs (16% and 7% lower for lumber and plywood,
respectively), offset in part by increased lumber sales volume.
Other Costs and Eliminations increased operating income by $2.8
million less in the second quarter of 1995 as compared to the second quarter of
1994. The variance was primarily due to a decrease during the second quarter
of 1995 as compared to the year earlier period in the amount of intercompany
profit released from inventory and the intercompany LIFO elimination. The
lower intercompany profit and LIFO eliminations are due to a lower log transfer
price as a result of a weaker domestic log market. The profit on intercompany
log sales is deferred until Manufacturing converts existing log inventories
into finished products and sells them to third parties. The LIFO elimination
reverses Manufacturing's increase in the LIFO reserve related to intercompany
price increases.
The income allocated to the General Partner was $2.4 million higher in
the second quarter of 1995 as compared to the year earlier period. The
increase was the result of 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 $0.49 per Unit in the
second quarter of 1995 as compared to $0.38 per Unit during the second quarter
of 1994.
15
<PAGE> 17
SIX MONTHS 1995 COMPARED TO SIX MONTHS 1994
The following table compares operating income by segment for the six
months ended June 30, 1995 and 1994.
Operating Income by Segment
(Unaudited)
<TABLE>
<CAPTION>
Six Months
-------------
(In Thousands)
1995 1994
------- -------
<S> <C> <C>
Resources Segment . . . . . . . . . . . $55,985 $64,216
Manufacturing Segment . . . . . . . . . 15,135 10,960
Other Costs and Eliminations . . . . . . 6,493 4,192
------- -------
Total . . . . . . . . . . . . . . . . $77,613 $79,368
======= =======
</TABLE>
Resources Segment revenues were $134.9 million and $135.5 million for
the six month periods ended June 30, 1995 and 1994, respectively. Revenues
were $0.6 million lower in 1995 primarily due to lower sales volume of export
logs and lower prices for domestic logs, which were offset in part by higher
sales volume of domestic logs, increased pulp log sales volume and prices, and
a $1.8 million increase in land sales. Export log sales volume decreased by
23% during the first six months of 1995 as compared to the same period in 1994
due to more favorable weather conditions experienced during the first quarter
of 1994 and a planned reduction in the harvest of export quality logs.
Domestic log prices decreased by 10% during the first six months of 1995 as
compared to the same period in 1994 primarily due to a weak lumber market.
During the first six months of 1995 domestic log sales volume was 12% higher
than the year earlier period primarily due to an increase in internal demand
resulting from increased lumber production. Pulp log sales volumes and prices
increased in the first six months of 1995 as compared to the first six months
of 1994 as a result of strong pulp and paper markets.
Resources Segment costs and expenses were $79.0 million and $71.3
million for the first six months of 1995 and 1994, respectively. Costs and
expenses were $7.7 million higher in 1995 due to higher sales volumes of
domestic and pulp logs and higher log and haul costs, offset in part by lower
export log sales volumes. The increase in log and haul costs resulted from more
expensive logging methods required due to ground conditions and sloped terrain
which would not permit the use of traditional logging methods.
Manufacturing Segment revenues were $190.7 million and $181.0 million
during the first six months of 1995 and 1994, respectively. Revenues were $9.7
million higher in 1995 due to increased plywood and MDF prices and increased
lumber and plywood sales volumes. These increases were partially offset by
decreases in lumber prices and MDF sales volumes. Plywood and MDF prices
increased by 5% and 16%, respectively, over the first six months of 1994. The
higher plywood prices were the result of strong industrial market demand. The
increase in MDF prices was due to
16
<PAGE> 18
growing demand for MDF throughout 1994 and the first quarter of 1995. Lumber
and plywood sales volumes increased by 11% and 5%, respectively, in 1995 as
compared to the year earlier period, primarily due to increased production.
Lumber production increased as a result of additional production shifts and the
new lumber remanufacturing facility which began operations in November 1994.
Plywood production increased due to favorable weather and operating conditions.
Lumber prices decreased by 13% as compared to the first six months of 1994 due
to weak market conditions caused by a slow housing market and excess supply.
While our lumber prices are influenced by commodity prices, we are able to
maintain sales volume due to our high concentration of sales in the repair &
remodel and industrial markets, which are less impacted by a slow housing
market. MDF sales volume decreased by 12% as a result of deterioration in
demand late in the second quarter, primarily due to excess inventories being
carried by end users due to a slow spring building season. The slowdown
resulted in 12 days of production downtime in June.
Manufacturing Segment costs and expenses were $175.6 million and
$170.0 million for the six month period ended June 30, 1995 and 1994,
respectively. The $5.6 million of higher costs and expenses was primarily due
to higher sales volumes of lumber and plywood offset in part by lower log costs
(13% and 6% lower for lumber and plywood, respectively).
Other Costs and Eliminations increased operating income by $2.3
million more during the six month period ended June 30, 1995 as compared to
same period in 1994. The variance was primarily due to lower intercompany
profit accumulating in inventory during the first six months of 1995, offset in
part by a decrease in the intercompany LIFO elimination. The lower
accumulation of intercompany profit was caused by a larger depletion of log
inventories during the first six months of 1995 as compared to the first six
months of 1994 due to higher production and sales volumes in both lumber and
plywood. The lower LIFO elimination was due to a lower log transfer price as a
result of a weaker domestic log market. The profit on intercompany log sales
is deferred until Manufacturing converts existing log inventories into finished
products and sells them to third parties. The LIFO elimination reverses
Manufacturing's increase in the LIFO reserve related to intercompany price
increases.
The income allocated to the General Partner was $3.5 million higher
during the first six months of 1995 as compared to the year earlier period.
The increase was the result of 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 each quarter, which was $0.92 per Unit during the
first two quarters of 1995 as compared to $0.76 per Unit during the first two
quarters of 1994.
17
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the discussion of legal proceedings under Part I, Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Items 2, 3, 4 and 5 of Part II are not applicable and have been omitted.
18
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) LIST OF EXHIBITS
Each exhibit set forth below in the Index to Exhibits is filed as a
part of this report. Exhibits not incorporated by reference to a prior filing
are designated by an asterisk ("*"); all exhibits not so designated are
incorporated herein by reference to a prior filing as indicated.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Designation Nature of Exhibit
----------- -----------------
<S> <C>
3.A Amended and Restated Agreement of Limited Partnership of Plum Creek Timber
Company, L.P. dated June 8, 1989, as amended to date (conformed composite
version) (Form 10-K/A, Amendment No. 1, filed April 1994).
3.B Certificate of Limited Partnership of Plum Creek Timber Company, L.P., as
filed with the Secretary of State of the state of Delaware on April 12,
1989 (Form S-1, Regis. No. 33-28094, filed May, 1989).
10.B.1 Plum Creek Supplemental Benefits Plan (Form 10-K/A, Amendment No. 1, filed
April 1995).
10.B.2 Incentive Sharing Plan, Plum Creek Management Company. (Form 10-K, No. 1-10239,
filed March, 1990). Amendment number 1, dated April 1991, Incentive Sharing
Plan, Plum Creek Management Company. (Form 10-Q, No. 1-10239, filed May, 1991).
10.B.3 Unit Awards Plan, PCTC, Inc. (Form 10-K, No. 1-10239, filed March, 1990).
Amendment number 1, dated April 1991, to Unit Awards Plan, PCTC, Inc.
(Form 10-Q, No. 1-10239, filed May, 1991).
10.B.4 Incentive Compensation Plan, Plum Creek Management Company. (Form 8 Amendment
No. 1, filed April, 1990). Amendment dated January 1, 1991 to Incentive
Compensation Plan, Plum Creek Management Company. (Form 8 Amendment No. 1,
filed April 1991).
10.B.5 Retirement Plan for Directors, Plum Creek Management Company. (Form 8
Amendment No. 1, filed April 1991).
10.B.6 Long-term Incentive Plan, Plum Creek Management Company, L.P. (Form 10-K/A,
Amendment No. 1, filed April 1994).
10.B.7 Management Incentive Plan, Plum Creek Management Company, L.P. (Form 10-K/A,
Amendment No. 1, filed April 1994).
10.B.8 Executive and Key Employee Salary and Incentive Compensation Deferral Plan,
Plum Creek Management Company, L.P. (Form 10-K/A, Amendment No. 1, filed
April 1995).
10.B.9 Deferred Compensation Plan for Directors, PC Advisory Corp. I (Form 10-K/A,
Amendment No. 1, filed April 1995).
27* Financial Data Schedule. See attached exhibit.
</TABLE>
19
<PAGE> 21
(B) REPORTS ON FORM 8-K
None.
20
<PAGE> 22
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
(Duly Authorized Officer and
Principal Financial and Accounting
Officer)
Date: August 8, 1995
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMBINED FINANCIAL
STATEMENTS OF PLUM CREEK TIMBER COMPANY, L.P. FOR THE SIX MONTHS ENDED JUNE 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 75,277
<SECURITIES> 0
<RECEIVABLES> 30,653
<ALLOWANCES> 1,209
<INVENTORY> 37,626
<CURRENT-ASSETS> 148,869
<PP&E> 749,724
<DEPRECIATION> 103,200
<TOTAL-ASSETS> 810,769
<CURRENT-LIABILITIES> 51,401
<BONDS> 518,400
<COMMON> 0
0
0
<OTHER-SE> 227,917
<TOTAL-LIABILITY-AND-EQUITY> 810,769
<SALES> 283,466
<TOTAL-REVENUES> 283,466
<CGS> 185,525
<TOTAL-COSTS> 205,853
<OTHER-EXPENSES> 984
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,754
<INCOME-PRETAX> 53,496
<INCOME-TAX> 570
<INCOME-CONTINUING> 52,926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,926
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 0
</TABLE>
