<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, 1996
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>
First Quarter
--------------------------
1996 1995
---- ----
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues $ 127,694 $ 144,094
--------- ---------
Costs and Expenses:
Cost of Goods Sold 92,901 94,220
Selling, General and Administrative 7,395 8,916
--------- ---------
Total Costs and Expenses 100,296 103,136
--------- ---------
Operating Income 27,398 40,958
Interest Expense (11,520) (11,950)
Interest Income 139 344
Other Expense - Net (24) (603)
--------- ---------
Income before Income Taxes 15,993 28,749
Provision for Income Taxes 78 357
--------- ---------
Net Income $ 15,915 $ 28,392
General Partner Interest 5,718 4,641
--------- ---------
Net Income Allocable to Unitholders $ 10,197 $ 23,751
========= =========
Net Income per Unit $ 0.25 $ 0.58
========= =========
</TABLE>
See accompanying Notes to Combined Financial Statements
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PLUM CREEK TIMBER COMPANY, L. P.
COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 75,563 $ 87,604
Accounts Receivable 32,101 31,750
Inventories 54,737 47,366
Timber Contract Deposits 1,000 2,320
Other Current Assets 5,507 4,949
--------- ---------
168,908 173,989
Timber and Timberlands - Net 460,566 467,992
Property, Plant and Equipment - Net 163,674 166,152
Other Assets 16,857 17,953
--------- ---------
Total Assets $ 810,005 $ 826,086
========= =========
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt $ 14,100 $ 14,100
Accounts Payable 7,569 15,771
Interest Payable 12,163 7,543
Wages Payable 7,690 11,513
Taxes Payable 6,547 5,122
Workers' Compensation Liabilities 2,318 2,318
Other Current Liabilities 7,494 6,081
--------- ---------
57,881 62,448
Long-Term Debt 419,800 419,800
Lines of Credit 97,500 97,500
Workers' Compensation Liabilities 8,432 8,405
Other Liabilities 2,536 4,065
--------- ---------
Total Liabilities 586,149 592,218
--------- ---------
Commitments and Contingencies
PARTNERS' CAPITAL
Limited Partners' Units 224,416 234,117
General Partner (560) (249)
--------- ---------
Total Partners' Capital 223,856 233,868
--------- ---------
Total Liabilities and Partners' Capital $ 810,005 $ 826,086
========= =========
</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>
First Quarter
--------------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 15,915 $ 28,392
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization 13,923 13,029
Gain on Asset Dispositions - Net (53) (2,421)
Working Capital Changes:
Accounts Receivable (351) (1,386)
Inventories (7,371) 9,186
Timber Contract Deposits and Other Current Assets 762 220
Accounts Payable (8,202) (4,918)
Other Accrued Liabilities 3,635 3,899
Other (603) 2,271
--------- ---------
Net Cash Provided By Operating Activities $ 17,655 $ 48,272
--------- ---------
Cash Flows From Investing Activities:
Additions to Properties $ (4,374) $ (5,621)
Proceeds from Asset Dispositions 449 3,451
Other 156
--------- ---------
Net Cash Used In Investing Activities $ (3,769) $ (2,170)
--------- ---------
Cash Flows From Financing Activities:
Cash Distributions $ (25,927) $ (22,059)
Borrowings on Lines of Credit 134,500 85,500
Repayments on Lines of Credit (134,500) (85,500)
--------- ---------
Net Cash Used In Financing Activities $ (25,927) $ (22,059)
--------- ---------
Increase (Decrease) In Cash and Cash Equivalents (12,041) 24,043
Cash and Cash Equivalents:
Beginning of Period 87,604 60,942
--------- ---------
End of Period $ 75,563 $ 84,985
========= =========
</TABLE>
See accompanying Notes to Combined Financial Statements
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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"), Plum Creek Manufacturing, L.P.
("Manufacturing") and Plum Creek Marketing, Inc. ("Marketing"). All significant
intercompany transactions have been eliminated in the combination.
The Partnership owns 98 percent of Manufacturing and 96 percent of
Marketing. Plum Creek Management Company, L.P. (the "General Partner") manages
the businesses of the Partnership, Manufacturing and Marketing and owns the
remaining two percent general partner interest of Manufacturing and four 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 1995 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. Certain financial statement reclassifications
have been made to the 1995 amounts presented for comparability purposes and have
no impact on net income. 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). However, Unitholders are 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. In
virtually all cases, a Unitholder's 1996 cash distribution will significantly
exceed the tax liability related to the Unitholder's allocated taxable income
from the Partnership and Manufacturing. 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
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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.
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 month periods ended March 31, 1996 and
1995.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Raw materials (logs) $22,964 $18,967
Work-in-process 7,872 5,798
Export logs 205 420
Finished goods 17,288 16,012
------- -------
48,329 41,197
Supplies 6,408 6,169
------- -------
Total $54,737 $47,366
------- -------
</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 March 31, 1996 and December 31, 1995 was $53.7
million and $46.3 million, respectively.
3. TIMBER AND TIMBERLANDS AND PROPERTY, PLANT AND EQUIPMENT
Timber and timberlands consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Timber and logging roads - net $415,452 $423,475
Timberlands 45,114 44,517
-------- --------
Timber and Timberlands - net $460,566 $467,992
-------- --------
</TABLE>
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Property, plant and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Land, buildings and improvements $ 50,476 $ 50,056
Machinery and equipment 229,789 227,598
--------- ---------
280,265 277,654
Accumulated depreciation (116,591) (111,502)
--------- ---------
Property, Plant and Equipment - net $ 163,674 $ 166,152
--------- ---------
</TABLE>
4. BORROWINGS
As of March 31, 1996, the Company had $97.5 million of borrowings under
the two revolving lines of credit and letters of credit outstanding in the
amount of $0.8 million. One line of credit allows the Partnership to borrow $100
million through October 31, 2000, of which $82.5 million was outstanding at
March 31, 1996. The other line of credit allows the Partnership to borrow $35
million through October 28, 1996 (any borrowings outstanding at that time are
payable in quarterly installments, at the option of the Partnership, due January
1997 through October 1998), of which $15 million was outstanding at March 31,
1996. The $15 million was classified as long-term debt due in 2000 due to the
Company's intent and ability to finance these borrowings on a long-term basis.
As of March 31, 1996, the Company had unused bank lines of credit totaling $36.7
million. As of April 5, 1996, $77.5 million of borrowings on the lines of credit
were repaid.
5. SUBSEQUENT EVENTS
On April 15, 1996, the Board of Directors of the General Partner
authorized the Partnership to make a distribution of $0.49 per Unit for the
first quarter of 1996. Total distributions will equal approximately $25.9
million (including $6.0 million to the General Partner) and will be paid on May
24, 1996 to Unitholders of record on May 16, 1996.
7
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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 two percent of Manufacturing and four 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 exchange markets, competition, log supply, the availability of
substitute products and other factors. In particular, the demand for logs,
lumber, plywood and medium density fiberboard ("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. Additionally, the demand for logs is impacted by the
demand for wood chips in the pulp and paper markets.
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, affecting
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. In addition to seasonal fluctuations in demand, prices
of manufactured products can be impacted by weather-related, seasonal
fluctuations in supply, as production can be hampered during severely cold
winter months and then rebound when warmer spring weather arrives. Log
inventories increase during the winter months to prepare for reduced harvest
during spring break-up. Working capital varies with seasonal fluctuations.
CURRENT MARKET CONDITIONS. Prices for domestic logs in the Cascades
Region approximated levels experienced in the first quarter of 1995; however,
prices have decreased since the fourth
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quarter of 1995 primarily as a result of weak chip markets. Prices for domestic
logs in the Rockies Region have decreased from levels experienced in the first
quarter of 1995 as a result of weaker lumber, plywood and chip markets.
Throughout both regions there are currently excess chip inventories due to the
continued weakness in the pulp and paper markets, which has resulted in
production curtailments and declining chip prices, and as a result, has
contributed to the downward pressure on the price of domestic logs. Pulp log
prices continued to decline in the first quarter of 1996 in both regions due to
the saturation of logs and chips. Export log prices decreased as compared to the
first quarter of 1995 due to weaker Japanese demand as a result of increased
acceptance of substitute products in the Japanese market and low consumer
confidence. The fourth quarter 1995 price improvement due to low log inventories
in both Japan and the U.S. west coast continued throughout most of the first
quarter. However, prices began to recede near the end of the first quarter of
1996 due to the normal seasonal declines as a result of the approaching rainy
season in Japan and the increase in the available supply of logs.
First quarter 1996 industry composite indices for lumber and plywood
commodity prices were 8% and 13% lower, respectively, than the first quarter of
1995, and were 5% higher and 10% lower than the fourth quarter of 1995,
respectively. The decrease in lumber prices, as compared to prior year first
quarter, is primarily due to the harsh winter weather throughout most of the
U.S. during the first quarter of 1996, which severely hampered retail home
center sales and repair and remodeling activity. Also contributing to the price
decline was competition from substitute products and aggressive production by
Canadian lumber producers in anticipation of an impending five year trade
agreement with the United States. The trade agreement is expected to reduce the
level of Canadian lumber exports into the United States, although the ultimate
impact of the agreement is unclear. The first quarter improvement in lumber
prices over the fourth quarter of 1995 is primarily due to sawmill production
curtailments due to weak chip prices.
Commodity plywood prices have decreased as a result of severe weather
conditions which constrained building activity, and increased competition from
substitute products due to the capacity expansion of oriented strand board
(OSB). During the first quarter of 1996, eight new OSB plants, located in the
U.S. and Canada, with an annual capacity of 3.4 billion square feet began
operations. MDF prices decreased by 24% in the first quarter of 1996, as
compared to the first quarter of 1995, due to a weakening in demand and
significant capacity expansion expected during 1996. MDF demand weakened due to:
(1) a slowdown in both ready-to-assemble furniture and store fixture sales, (2)
reduced repair and remodeling activity, and (3) excess inventories carried by
both distributors and end-users. MDF prices decreased slightly in the first
quarter of 1996, as compared to the fourth quarter of 1995, due to continued
weak demand and concern over the 1996 North American capacity expansion, which
is expected to increase annual production capacity from its current level of 1.3
billion square feet to 2.0 billion square feet.
THREATENED AND ENDANGERED SPECIES. 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").
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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. The Guidelines recommend several
measures, 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 should be maintained as suitable Owl habitat. In addition, 70
acres immediately around nest sites should be preserved in order to avoid
harming Owls.
In June 1992, the Washington State Forest Practices Board (the "Board")
adopted temporary regulations related to all forest practice applications
("FPAs") which require that FPAs comply with the Washington State Environmental
Policy Act ("SEPA") for all activities within the 500 acres of habitat
surrounding nest sites or activity centers. In November 1995, the Forest
Practices Board adopted a final Owl rule that is scheduled to take effect in
July 1996. Until the final rule takes effect, the temporary rule will govern.
Under the final rule, designated Owl special emphasis areas ("SEAs") will have
restrictions that are similar to, but slightly greater than those contained in
the Guidelines. Outside of SEAs, 70 acres surrounding Activity Areas would be
protected during the breeding season only. As a result, the final rule will
result in a somewhat higher level of regulation on areas within SEAs and fewer
restrictions on the Partnership's activities in areas outside of SEAs due to the
Owl. Approximately 60% of the Partnership's lands in the Cascade Region are
within SEAs.
In February 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. The proposed rule has been circulated for public
review and comment. The final Washington state Owl rule is expected to form the
basis for the Special Rule in Washington state.
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.
IMPACT OF REGULATIONS ON PARTNERSHIP. Under the Guidelines issued by
the USFWS in 1990, approximately 111,000 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 FPAs in
Owl Activity Areas and may cause denials of future Partnership FPAs.
In October 1995, the Partnership formally applied for a two part, 100
year permit under the ESA from the USFWS and the National Marine Fisheries
Service ("NMFS") that would cover the Partnership's forest management on 170,000
acres within SEAs in the Cascade Region (the "Planning Area"). As a part of the
permit application, the Partnership prepared a habitat conservation plan ("HCP")
that would govern the Partnership's management activities in the
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Planning Area. The Partnership expects to receive the permit in the second
quarter of 1996, following completion of the public review process. There are,
however, no assurances that the permit will ultimately be issued by the USFWS
and NMFS.
The permit, if issued, would authorize during the first 50-year part of
the permit the incidental take in the Planning Area of the Owl, Marbled
Murrelet, Grizzly Bear and Gray Wolf, which are currently listed under the ESA,
as well as numerous other species should they become listed in the future. As an
incentive to the Partnership to create additional wildlife habitat in the
Planning Area, the permit would provide certain additional incidental take
authorization during the second 50-year part of the permit if wildlife habitat
within the Planning Area exceeds levels set in the HCP. The permit thus would
provide long-term certainty and predictability to the Partnership's harvest
activities. Under the ESA, the permit may allow impacts on species incidental to
normal management activities in exchange for mitigating measures agreed to by
the landowner in the HCP. The restrictions in the HCP would replace restrictions
for Owls under the final Washington state Owl rule, the Guidelines, the Special
Rule, if adopted, and SEPA.
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 as the granting
of access or federal funding. Where there is such a federal connection, the
federal agency involved must consult with the USFWS or NMFS, in the case of
anadromous fish, 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 would
cause jeopardy, the USFWS or NMFS 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.
In December 1995, the Company entered into a Grizzly Bear Conservation
Agreement with the USFWS, the USFS, and the state of Montana covering 370,000
acres in the Swan Valley in western Montana. Under this agreement, the Company
has received a permit that authorizes incidental take of Grizzly Bears in the
Swan Valley. Moreover the agreement will facilitate future consultations with
the USFWS over road access projects and land exchanges in the Swan Valley.
The ultimate impact of the Owl listing, as well as listings of
additional species under the ESA, 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 wildlife 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
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multi-species permit from the USFWS and NMFS, (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 makes 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 U.S. 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. In
order to enforce this substitution prohibition, the legislation requires persons
who export private logs and who wish to purchase federal timber to obtain an
approved federal timber "sourcing area". To win approval it must be shown that
the desired federal timber sourcing area is economically and geographically
separate from the area from which such person exports private logs. In 1991, the
Company applied for and obtained an approved sourcing area for the Partnership's
conversion facilities. Under the legislation, sourcing areas are subject to
review and renewal at least every five years. The Partnership's sourcing area
may, therefore, be reviewed in 1996.
In October 1995, the USFS issued final regulations implementing the
1990 legislation that could have made it more difficult to obtain sourcing
areas. These regulations, however, have been temporarily withdrawn pursuant to
Congressional action to allow time for further public comment and for Congress
to consider modifications to the export law. Revisions to the law and
regulations have not yet been proposed. Although the uncertainty surrounding the
export law and regulations makes it difficult to predict the timing or the
outcome of a review, the Company believes that its sourcing area meets the
current statutory test and should be renewed.
In addition, federal legislation prohibits the export of unprocessed
logs harvested from certain state lands. Initially, Washington and Oregon
prohibited the export of all logs harvested from state lands. The legislation
provided, however, that the ban in Washington state on the export of state logs
would become a partial ban beginning January 1, 1996. Pending finalization of
the rules, the full ban is being maintained. 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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ITEM 3. 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 startup in 1990 of a boiler at the Company's Pablo sawmill did
not meet new source performance standards ("NSPS"). Work on the boiler project
commenced in March of 1989, when NSPS did not apply to boilers of this size.
Prior to final startup of the boiler, however, new rules were proposed that, if
applicable, would have required meeting these standards. The EPA has taken the
position that the new rules applied, and is seeking compliance with NSPS. In
December 1995, Plum Creek voluntarily installed both a pollution control device
and an opacity monitor on the boiler and is in full compliance with both the
Order and NSPS. On March 12, 1996, the EPA filed suit in federal district court
seeking civil penalties for the alleged violation of NSPS.
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 three months of 1996, net cash provided by operating
activities totaled $17.7 million compared to $48.3 million for the same period
in 1995. The decrease of $30.6 million was primarily due to unfavorable working
capital changes of $18.5 million and lower net income of $12.5 million, in the
first quarter of 1996. The unfavorable working capital variance change is
primarily related to a $16.6 million fluctuation in inventory, which principally
related to logs. During the first quarter of 1995 log inventories decreased by
28% primarily due to an early spring breakup, while first quarter of 1996 log
inventories increased by 18% primarily as a result of favorable weather
conditions for logging.
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, 2000, of which $82.5
million was outstanding at March 31, 1996. The other line of credit allows the
Partnership to borrow $35 million through October 28, 1996 (any borrowings
outstanding at that time are payable in quarterly installments, at the option of
the Partnership, due January 1997 through October 1998), of which $15 million
was outstanding at March 31, 1996. As of March 31, 1996, there were letters of
credit outstanding in the amount of $0.8 million. As of April 5, 1995, $77.5
million of borrowings on the Lines of Credit were repaid.
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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 March 31, 1996.
The Partnership will distribute $0.49 per Unit for the first quarter of
1996. The distribution will equal $25.9 million (including $6.0 million to the
General Partner), and will be paid on May 24, 1996 to Unitholders of record on
May 16, 1996. 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. It is
anticipated that future capital expenditures will be funded 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 three months of 1996 totaled $4.4
million compared to $5.6 million for the same period in 1995. Total 1996 capital
expenditures are expected to equal $20 million, compared to $30.7 million
expended in 1995. The principal projects in the 1996 plan include the purchase
and installation of various lumber and plywood optimization projects,
replacement and equipment upgrades in the manufacturing facilities and road
construction and timberland reforestation.
14
<PAGE> 15
RESULTS OF OPERATIONS
FIRST QUARTER 1996 COMPARED TO FIRST QUARTER 1995
The following table compares operating income by segment for the
quarters ended March 31, 1996 and 1995.
Operating Income by Segment
<TABLE>
<CAPTION>
First Quarter
-------------
(In Thousands)
1996 1995
---- ----
<S> <C> <C>
Resources Segment $ 31,154 $ 29,044
Manufacturing Segment 1,780 9,815
Other Costs and Eliminations (5,536) 2,099
-------- --------
Total $ 27,398 $ 40,958
======== ========
</TABLE>
Resources Segment revenues were $73.7 million and $67.6 million for the
first quarter of 1996 and 1995, respectively. Revenues were $6.1 million higher
in 1996 primarily due to increased domestic and export sales volumes, offset in
part by lower domestic and export log prices and a decrease of $3.1 million in
land sales. Domestic log sales volume increased 27%, as compared to the first
quarter of 1995, primarily due to favorable weather conditions for logging in
the first quarter of 1996 as opposed to an early spring break-up in the prior
year first quarter. Export log sales volume increased by 8%, as compared to the
first quarter of 1995, as a result of accelerating production into the first
quarter to take advantage of favorable export prices. Domestic log sales prices
decreased by 6%, as compared to the first quarter of 1995, due to weak lumber,
plywood and chip markets. Export prices decreased by 5%, as compared to the
first quarter of 1995, due to weaker Japanese demand as a result of increased
acceptance of substitute products in the Japanese market and low consumer
confidence.
Resources Segment costs and expenses were $42.5 million and $38.6
million for the first quarter of 1996 and 1995, respectively. Costs and expenses
were $3.9 million higher in 1996 primarily due to the increase in domestic and
export log sales volumes, offset in part by lower land sales costs.
Manufacturing Segment revenues were $85.6 million and $100.0 million
for the first quarter of 1996 and 1995, respectively. Revenues were $14.4
million lower in 1996 due to decreases of 11%, 7% and 24% in sales prices for
lumber, plywood and MDF, respectively, decreased plywood and MDF sales volumes
and decreased residual revenues, as compared to the first quarter of 1995.
Lumber prices decreased due to adverse weather conditions throughout most of the
United States and increased competition from both Canadian imports and
substitute products. The adverse winter weather negatively impacted remodeling
activity and business at retail home centers. The decrease
15
<PAGE> 16
in plywood prices is primarily a result of declining commodity prices due to
increased competition from oriented strand board due to capacity expansion, as
well as from severe winter weather. Plywood sales volume decreased by 6% due to
adverse weather conditions and slow industrial markets. MDF prices decreased due
to a weakening in demand which began in the second quarter of 1995 and continued
through the first quarter of 1996, along with the impact of significant 1996
capacity expansion. MDF sales volume decreased by 16% as a result of lower
production. The decreased production is required to ensure that we maintain the
superior quality of our new Super-Refined MDF2 while we experiment with minor
modifications to our new high-energy refiner plates. Residual chip prices
decreased by 10% over the first quarter of 1995 due to excess chip inventories
throughout the entire industry, as a result of weakness in the pulp and paper
sector.
Manufacturing Segment costs and expenses were $83.8 million and $90.2
million for the first quarter of 1996 and 1995, respectively. The $6.4 million
of lower costs and expenses was primarily due to 8% lower log costs for lumber
and the decrease in MDF sales volumes.
Other Costs and Eliminations (which consists of corporate overhead,
intercompany log profit elimination, and intercompany LIFO elimination)
decreased operating income by $5.5 million in the first quarter of 1996, as
compared to increasing operating income by $2.1 million in the first quarter of
1995. The variance is primarily due to the release of intercompany log profit
during the first quarter of 1995 as Manufacturing's log inventories were being
depleted, compared to the deferral of intercompany log profit during the first
quarter of 1996 as Manufacturing was building log inventories. Weather is the
primary factor influencing the Resource Segment's log production, which directly
impacts Manufacturing's intercompany log purchases. On a combined basis, the
Resource Segment's profit on intercompany log sales is deferred until
Manufacturing converts existing log inventories into finished products and sells
them to third parties.
The income allocated to the General Partner was $1.1 million higher in
the first quarter of 1996, 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, offset in part
by lower net income. 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 first quarter of 1996, as compared to $0.43 per Unit
during the first quarter of 1995.
16
<PAGE> 17
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.
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
Exhibit
Designation Nature of Exhibit
3A Amended and Restated Agreement of Limited Partnership of Plum
Creek Timber Company, L.P. dated June 8, 1989, as amended and
restated through October 17, 1995 (Form 10-Q, No. 1-10239,
filed November 1995).
3B 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).
27* Financial Data Schedule. See attached exhibit.
(b) REPORTS ON FORM 8-K
None.
17
<PAGE> 18
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: May 8, 1996
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<S> <C> <C>
3A* -- Amended and Restated Agreement of Limited Partnership of Plum
Creek Timber Company, L.P. dated June 8, 1989, as amended and
restated through October 17, 1995 (Form 10-Q, No. 1-10239,
filed November 1995).
3B* -- 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).
27 -- Financial Data Schedule. See attached exhibit.
</TABLE>
--------------
* Previously Filed
<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 quarter ended March 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 75563
<SECURITIES> 0
<RECEIVABLES> 33440
<ALLOWANCES> 1339
<INVENTORY> 54737
<CURRENT-ASSETS> 168908
<PP&E> 740831
<DEPRECIATION> 116591
<TOTAL-ASSETS> 810005
<CURRENT-LIABILITIES> 57881
<BONDS> 517300
0
0
<COMMON> 0
<OTHER-SE> 223856
<TOTAL-LIABILITY-AND-EQUITY> 810005
<SALES> 127694
<TOTAL-REVENUES> 127694
<CGS> 92901
<TOTAL-COSTS> 100296
<OTHER-EXPENSES> 24
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11520
<INCOME-PRETAX> 15993
<INCOME-TAX> 78
<INCOME-CONTINUING> 15915
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15915
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0
</TABLE>
