<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, 1997
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
----- -----
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended June 30,
-------------------------
1997 1996
--------- ---------
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues ................................ $ 171,962 $ 138,744
--------- ---------
Costs and Expenses:
Cost of Goods Sold ................ 118,226 98,002
Selling, General and Administrative 11,053 7,992
--------- ---------
Total Costs and Expenses ........ 129,279 105,994
--------- ---------
Operating Income ........................ 42,683 32,750
Interest Expense ........................ (15,055) (11,541)
Interest Income ......................... 202 192
Other Expense - Net ..................... (454) (59)
--------- ---------
Income before Income Taxes .............. 27,376 21,342
Provision for Income Taxes .............. 152 365
--------- ---------
Net Income .............................. $ 27,224 $ 20,977
General Partner Interest ................ 8,218 5,819
--------- ---------
Net Income Allocable to Unitholders ..... $ 19,006 $ 15,158
========= =========
Net Income per Unit ..................... $ 0.42 $ 0.37
========= =========
</TABLE>
See accompanying Notes to Combined Financial Statements.
1
<PAGE> 3
PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------- ---------
1997 1996
--------- ---------
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues ................................ $ 343,210 $ 266,438
--------- ---------
Costs and Expenses:
Cost of Goods Sold ................ 235,710 190,903
Selling, General and Administrative 21,595 15,387
--------- ---------
Total Costs and Expenses ........ 257,305 206,290
--------- ---------
Operating Income ........................ 85,905 60,148
Interest Expense ........................ (30,520) (23,061)
Interest Income ......................... 459 331
Other Expense - Net ..................... (692) (83)
--------- ---------
Income before Income Taxes .............. 55,152 37,335
Provision for Income Taxes .............. 570 443
--------- ---------
Net Income .............................. $ 54,582 $ 36,892
General Partner Interest ................ 15,429 11,537
--------- ---------
Net Income Allocable to Unitholders ..... $ 39,153 $ 25,355
========= =========
Net Income per Unit ..................... $ 0.85 $ 0.62
========= =========
</TABLE>
See accompanying Notes to Combined Financial Statements.
2
<PAGE> 4
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents ............. $ 135,141 $ 123,892
Accounts Receivable ................... 32,680 23,697
Inventories ........................... 41,298 53,884
Timber Contract Deposits .............. 9,813 5,987
Other Current Assets .................. 5,753 15,025
---------- ----------
224,685 222,485
Timber and Timberlands - Net ................ 903,671 922,652
Property, Plant and Equipment - Net ......... 165,298 172,688
Other Assets ................................ 18,221 18,609
---------- ----------
Total Assets .......................... $1,311,875 $1,336,434
========== ==========
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt ..... $ 18,400 $ 17,400
Accounts Payable ...................... 16,809 13,443
Interest Payable ...................... 9,282 9,530
Wages Payable ......................... 12,706 13,187
Taxes Payable ......................... 6,110 5,275
Workers' Compensation Liabilities ..... 1,450 1,450
Other Current Liabilities ............. 8,753 9,212
---------- ----------
73,510 69,497
Long-Term Debt .............................. 584,000 602,400
Line of Credit .............................. 161,000 161,000
Workers' Compensation Liabilities ........... 8,655 8,533
Other Liabilities ........................... 3,513 3,356
---------- ----------
Total Liabilities ..................... 830,678 844,786
---------- ----------
Commitments and Contingencies
PARTNERS' CAPITAL
Limited Partners' Units ..................... 480,155 490,105
General Partner ............................. 1,042 1,543
---------- ----------
Total Partners' Capital ............... 481,197 491,648
---------- ----------
Total Liabilities and Partners' Capital $1,311,875 $1,336,434
========== ==========
</TABLE>
See accompanying Notes to Combined Financial Statements.
3
<PAGE> 5
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------- ---------
1997 1996
--------- ---------
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income .............................................. $ 54,582 $ 36,892
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization .......... 32,538 26,366
(Gain) Loss on Asset Dispositions - Net ........... (197) 192
Working Capital Changes:
Accounts Receivable ............................. (8,983) (6,692)
Inventories ..................................... 12,586 2,420
Timber Contract Deposits and Other Current Assets 5,446 (2,186)
Accounts Payable ................................ 3,366 (3,410)
Other Accrued Liabilities ....................... (353) (3,061)
Other ............................................. 1,164 (54)
--------- ---------
Net Cash Provided By Operating Activities ............... $ 100,149 $ 50,467
--------- ---------
Cash Flows From Investing Activities:
Additions to Properties ........................... $ (6,840) $ (10,273)
Proceeds from Asset Dispositions .................. 373 5
--------- ---------
Net Cash Used In Investing Activities ................... $ (6,467) $ (10,268)
--------- ---------
Cash Flows From Financing Activities:
Cash Distributions ................................ $ (65,033) $ (51,854)
Retirement of Long-Term Debt ...................... (17,400) (14,100)
Borrowings on the Lines of Credit ................. 366,250 276,500
Repayments on the Lines of Credit ................. (366,250) (276,500)
--------- ---------
Net Cash Used In Financing Activities ................... $ (82,433) $ (65,954)
--------- ---------
Increase (Decrease) In Cash and Cash Equivalents ........ 11,249 (25,755)
Cash and Cash Equivalents:
Beginning of Period .............................. 123,892 87,604
--------- ---------
End of Period ..................................... $ 135,141 $ 61,849
========= =========
</TABLE>
See accompanying Notes to Combined Financial Statements.
4
<PAGE> 6
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 1996 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 reclassifications have been made to the
1996 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 1997 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 for a tax year, it may be required to pay federal
income taxes. Marketing, as a separate taxable corporation, provides for income
taxes on a separate company basis.
5
<PAGE> 7
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.
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 46,323,300 for the three and six month periods ended June 30,
1997 and was 40,608,300 for the three and six month periods ended June 30, 1996.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------- ------------
<S> <C> <C>
Raw materials (logs) $ 9,700 $23,171
Work-in-process 6,940 7,227
Export logs 265 1,048
Finished goods 16,909 15,034
------- -------
33,814 46,480
Supplies 7,484 7,404
------- -------
Total $41,298 $53,884
======= =======
</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, 1997 and December 31, 1996 was $34.5
million and $46.4 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,
1997 1996
-------- ------------
<S> <C> <C>
Timber and logging roads - net $805,531 $824,160
Timberlands 98,140 98,492
-------- --------
Timber and Timberlands - net $903,671 $922,652
======== ========
</TABLE>
6
<PAGE> 8
Property, plant and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Land, buildings and improvements $ 60,343 $ 60,173
Machinery and equipment 233,410 229,513
--------- ---------
293,753 289,686
Accumulated depreciation (128,455) (116,998)
--------- ---------
Property, Plant and Equipment - net $ 165,298 $ 172,688
========= =========
</TABLE>
4. BORROWINGS
As of June 30, 1997, the Company had $161.0 million of borrowings under
its revolving line of credit and letters of credit outstanding in the amount of
$0.1 million. The revolving line of credit allows the Partnership to borrow $225
million, including up to $20 million of standby letters of credit issued on
behalf of the Partnership or Manufacturing, through December 13, 2001. As of
June 30, 1997, $64 million remained available for borrowing under the line of
credit. As of July 7, 1997, $134 million of borrowings on the line of credit
were repaid.
5. SUBSEQUENT EVENTS
On July 10, 1997, a Unit Value Target ("UVT") was achieved under the
Long-Term Incentive Plan and the Key Employee Long-Term Incentive Plan
(collectively, the "Plans"). Total compensation expense with respect to the
achievement of this UVT will be $7.3 million, of which $5.5 million will be
recognized in the third quarter of 1997. The remaining compensation expense will
be recognized over the remaining performance period under the Plans ending
December 31, 1998.
On July 15, 1997, the Board of Directors of the General Partner
authorized the Partnership to make a distribution of $0.55 per Unit for the
second quarter of 1997. Total distributions will equal approximately $34.0
million (including $8.5 million to the General Partner) and will be paid on
August 28, 1997 to Unitholders of record on August 15, 1997.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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.
CURRENT MARKET CONDITIONS
Prices for domestic logs in both the Cascades and Rocky Mountain
Regions have improved since the second quarter of 1996 but have remained
relatively stable compared to first quarter 1997 prices. The second quarter 1997
price improvement over the same period in the prior year is primarily due to the
continued strength of the lumber markets. Pulp log and residual chip prices
remain depressed in both the Cascades and Rocky Mountain Regions due to weak
pulp and paper markets. However, chip inventories continued to decline during
the second quarter, and western chip inventories are at their lowest levels in
two years. Second quarter domestic and pulp log prices in the Southern Region
improved compared to first quarter pricing due to continued strong lumber
markets and weather-related regional log shortages. However, log prices in the
Southern Region began to moderate late in the second quarter as weather
conditions began to improve.
Export log prices for the second quarter of 1997 were relatively flat
compared to the prior year second quarter. Export log prices decreased from the
first quarter of 1997 due to a decline in the valuation of the Japanese yen
against the U.S. dollar and high log inventories in both Japan and on the U.S.
West Coast. In addition, demand has slowed seasonally as a result of reduced
building activity during the summer rainy season in Japan.
Second quarter 1997 industry composite indices for lumber were 11%
higher than the second quarter of 1996 and were comparable with the first
quarter of 1997. Second quarter 1997 lumber prices improved compared to the
prior year second quarter due to favorable housing markets and strength in the
repair and remodel markets in the retail sector. Demand for lumber has remained
robust due to continued strong housing starts (1997 starts are projected to be
1.42 million compared to 1.47 million in 1996), an unusually low number of new
homes on the market (4.2 months of inventory at June 30, 1997 compared to 5.9
months of inventory at the same time in the prior year), and favorable mortgage
rates (thirty-year fixed rate mortgage average of 7.69% for June 1997 compared
to 8.32% in June 1996). Second quarter 1997 lumber prices in the retail board
markets improved compared to the prior year second quarter due to a decline in
the supply of preferred western species and numerous mills targeting production
toward the housing market sector.
8
<PAGE> 10
Second quarter 1997 industry composite indices for commodity plywood
prices were comparable with the second quarter of 1996 and the first quarter of
1997. Despite continued capacity expansion of low-cost oriented strand board
(OSB), plywood prices remained firm during the second quarter due to low field
inventories, maintenance shutdowns by numerous mills and strong housing markets.
However, commodity plywood prices are expected to remain under downward pressure
due to continued OSB capacity expansion. First quarter 1997 OSB production was
25% greater than the prior year's first quarter. Additionally, OSB comprised
approximately 38% of the 36 billion square feet of structural panels produced in
North America in 1996, and is forecasted to increase to 45% of the market in
1998. Second quarter 1997 MDF prices decreased 7% compared to the prior year
second quarter and were 10% below first quarter 1997 prices. The decline was
primarily due to continued industry capacity expansion and aggressive pricing
by start-up mills in an attempt to gain market share. North American MDF annual
production capacity expanded by 13% in 1996 and is expected to increase by an
additional 50% through 1999.
RESULTS OF OPERATIONS
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
The following table compares operating income by segment for the
quarters ended June 30, 1997 and 1996.
Operating Income by Segment
<TABLE>
<CAPTION>
Quarter Ended June 30,
--------------------
(In Thousands)
1997 1996
------- -------
<S> <C> <C>
Resources Segment .......... $29,793 $23,727
Manufacturing Segment ...... 12,099 4,670
Other Costs and Eliminations 791 4,353
------- -------
Total ................... $42,683 $32,750
======= =======
</TABLE>
Resources Segment revenues increased by $15.9 million, or 26%, to $76.5
million for the quarter ended June 30, 1997, compared to $60.6 million for the
quarter ended June 30, 1996. This increase was primarily due to revenues of
$29.5 million from the Southern Timberlands, purchased in the Southern Region
Acquisition in the fourth quarter of 1996, and increased Northwest domestic log
prices, offset in part by lower Northwest domestic and export log sales volumes.
Northwest domestic log prices increased by 9% compared to the second quarter of
1996 primarily as a result of strong lumber markets. Northwest domestic log
sales volume decreased by 29% compared to the second quarter of 1996, primarily
due to: (i) the October 1996 sale of 107,000 acres of timberlands in the Rocky
Mountain Region, (ii) the acceleration of production into the first quarter
9
<PAGE> 11
of 1997 in the Cascades Region to take advantage of favorable pricing, and (iii)
adverse weather conditions in June 1997 which limited harvesting activities in
the Rocky Mountain Region. Export log sales volume decreased by 34% compared to
the second quarter of 1996, primarily due to unusually heavy snow pack, which
limited the Partnership's ability to harvest at higher elevations, and the
diversion of lower quality export logs to the domestic market in response to
weaker Japanese demand and stronger domestic markets.
Resources Segment operating income was 39% as a percentage of revenues
for each of the quarters ended June 30, 1997 and 1996. Resources Segment costs
and expenses increased by $9.9 million, or 27%, to $46.7 million for the quarter
ended June 30, 1997, compared to $36.8 million for the quarter ended June 30,
1996. This increase was primarily due to $16.4 million of additional costs
related to the Southern Region and increased log and haul expenses in the
Northwest as a result of more costly logging methods required in the areas
harvested, offset in part by lower Northwest domestic and export sales volume.
Manufacturing Segment revenues increased by $31.6 million, or 34%, to
$124.8 million for the quarter ended June 30, 1997, compared to $93.2 million
for the quarter ended June 30, 1996. This increase was primarily due to revenues
of $37.3 million from the Southern Conversion Facilities, increased lumber sales
prices, and higher MDF sales volumes, offset in part by decreased lumber and
wood chip sales volume and lower MDF sales prices. Lumber sales prices in the
Northwest increased by 9% compared to the second quarter of 1996 primarily due
to the continued strength of both the housing sector and the retail repair and
remodel market as a result of a robust U.S. economy and strong consumer
confidence, and the reduced supply of certain lumber products. The supply of
lumber for the retail board markets has declined due to numerous mills that are
targeting production toward the strong housing sector and a decline in the
availability of preferred western species. MDF sales volume increased by 7%
compared to the prior year second quarter, primarily due to the resolution of
first half 1996 production issues associated with the start-up of new high
energy refiners. Northwest lumber sales volume decreased by 15% compared to the
prior year second quarter, primarily due to the October 1996 sale of the Arden
sawmill in Colville, Washington. Wood chip sales volume decreased compared to
the prior year second quarter due to the sale of the Arden sawmill. MDF sales
prices decreased by 7% primarily as a result of continued industry capacity
expansion and aggressive pricing by start-up mills in an attempt to gain
market share.
Manufacturing Segment operating income was 10% and 5% as a percentage of
revenues for the quarters ended June 30, 1997 and 1996, respectively. The
increase was primarily a result of higher lumber sales prices. Manufacturing
Segment costs and expenses increased by $24.2 million, or 27%, to $112.7 million
for the quarter ended June 30, 1997, compared to $88.5 million for the quarter
ended June 30, 1996. This increase was primarily due to $33.9 million of
additional costs related to the Southern Region and increased MDF sales volumes,
offset in part by lower Northwest lumber sales volume.
Other Costs and Eliminations (which consists of corporate overhead,
intercompany log profit elimination, and intercompany LIFO elimination)
increased operating income by $0.8 million in
10
<PAGE> 12
the second quarter of 1997, compared to $4.4 million in the second quarter of
1996. The variance of $3.6 million is primarily due to a decrease in the amount
of intercompany log profit released during the second quarter of 1997 compared
to the prior year period and increased corporate overhead. The lower
intercompany profit is primarily a result of the sale of the Arden sawmill and a
higher percentage of logs purchased from the Resources Segment during the second
quarter of 1997 compared to the second quarter of 1996 due to adverse weather
conditions limiting harvesting activity on third party timberlands. The profit
on intercompany log sales is deferred until Manufacturing converts existing log
inventories into finished products and sells them to third parties.
Interest expense increased by $3.6 million, or 30%, to $15.1 million,
for the quarter ended June 30, 1997, compared to $11.5 million for the quarter
ended June 30, 1996, primarily due to the issuance of $200 million of senior
notes in the fourth quarter of 1996 related to the Southern Region Acquisition.
The income allocated to the General Partner increased by $2.4 million to
$8.2 million for the quarter ended June 30, 1997, compared to $5.8 million for
the quarter ended June 30, 1996. This increase was due to higher quarterly
distributions to Unitholders, the issuance of 5.7 million additional Limited
Partner Units in the fourth quarter of 1996, and higher net income. The General
Partner's incentive distribution is based on the number of outstanding Units
times a percentage of the per Unit distribution paid to Limited Partners, which
was $0.55 per Unit during the second quarter of 1997, compared to $0.49 per Unit
during the second quarter of 1996. Net income is allocated to the General
Partner based on 2 percent of the Company's net income (after adjusting for the
incentive distribution), plus the incentive distribution.
SIX MONTHS 1997 COMPARED TO SIX MONTHS 1996
The following table compares operating income by segment for the six
months ended June 30, 1997 and 1996.
Operating Income by Segment
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
(In Thousands)
1997 1996
-------- --------
<S> <C> <C>
Resources Segment .......... $ 68,892 $ 54,881
Manufacturing Segment ...... 23,824 6,450
Other Costs and Eliminations (6,811) (1,183)
-------- --------
Total ................... $ 85,905 $ 60,148
======== ========
</TABLE>
11
<PAGE> 13
Resources Segment revenues increased by $36.8 million, or 27%, to $171.0
million for the six months ended June 30, 1997, compared to $134.2 million for
the six months ended June 30, 1996. This increase was primarily due to revenues
of $52.8 million from the Southern Timberlands acquired in the fourth quarter of
1996, increased Northwest domestic log prices, and a $3.3 million increase in
land sales revenue, offset in part by lower Northwest domestic and export log
sales volumes. Northwest domestic log prices increased by 6% compared to the
first six months of 1996 primarily as a result of strong lumber markets.
Northwest domestic log sales volume decreased by 21% compared to the first six
months of 1996, primarily due to: (i) the October 1996 sale of 107,000 acres of
timberlands in the Rocky Mountain Region, (ii) increased production in the first
quarter of 1996 in the Rocky Mountain Region as a result of unusually low
internal log inventories at December 31, 1995, and (iii) planned harvest level
reduction in the Cascades Region. Export log sales volume decreased by 23%
compared to the first six months of 1996, primarily due to unusually heavy snow
pack which limited the Partnership's ability to harvest at higher elevations and
the diversion of lower quality export logs to the domestic market.
Resources Segment operating income was 40% and 41% as a percentage of
revenues for the six months ended June 30, 1997 and 1996, respectively.
Resources Segment costs and expenses increased by $22.8 million, or 29%, to
$102.1 million for the six months ended June 30, 1997, compared to $79.3 million
for the six months ended June 30, 1996. This increase was primarily due to $31.5
million of additional costs related to the Southern Region and increased log and
haul expenses in the Northwest as a result of more costly logging methods
required in the areas harvested, offset in part by lower Northwest domestic and
export sales volume.
Manufacturing Segment revenues increased by $64.9 million, or 36%, to
$243.7 million for the six months ended June 30, 1997, compared to $178.8
million for the six months ended June 30, 1996. This increase was primarily due
to revenues of $72.7 million from the Southern Conversion Facilities, increased
lumber sales prices, and higher MDF sales volumes, offset in part by decreased
lumber and wood chip sales volume. Lumber sales prices in the Northwest
increased by 12% compared to the first six months of 1996 primarily due to the
continued strength of both the housing sector and the retail repair and remodel
market as a result of a robust U.S. economy and strong consumer confidence, and
the reduced supply of certain lumber products. The supply of lumber for the
retail board markets has declined due to the targeting of production by
numerous mills toward the strong housing sector and a decline in the
availability of preferred western species. MDF sales volume increased by 14%
compared to the prior year period, primarily due to the resolution of first
half 1996 production issues associated with the start-up of new high energy
refiners. Northwest lumber sales volume decreased by 16% compared to the prior
year period, primarily due to the October 1996 sale of the Arden sawmill in
Colville, Washington. Wood chip sales volume decreased compared to the prior
year period due to the sale of the Arden sawmill and the continued temporary
closure of the Cle Elum chip plant. The chip plant has been closed since the
spring of 1996 as a result of weak pulp and paper markets.
Manufacturing Segment operating income was 10% and 4% as a percentage of
revenues for the six months ended June 30, 1997 and 1996, respectively. The
increase was primarily a result of
12
<PAGE> 14
higher lumber sales prices. Manufacturing Segment costs and expenses increased
by $47.6 million, or 28%, to $219.9 million for the six months ended June 30,
1997, compared to $172.3 million for the six months ended June 30, 1996. This
increase was primarily due to $66.1 million of additional costs related to the
Southern Region and increased MDF sales volumes, offset in part by lower
Northwest lumber sales volume and chip plant expenses.
Other Costs and Eliminations (which consists of corporate overhead,
intercompany log profit elimination, and intercompany LIFO elimination)
decreased operating income by $6.8 million in the first six months of 1997,
compared to $1.2 million in the first six months of 1996. The variance of $5.6
million is primarily due to increased corporate overhead and a decrease in the
amount of intercompany log profit released during the first six months of 1997
compared to the prior year period. The increase in corporate overhead is
primarily due to the Southern Region Acquisition and higher employee benefit
expenses as a result of better operating results. The profit on intercompany log
sales is deferred until Manufacturing converts existing log inventories into
finished products and sells them to third parties.
Interest expense increased by $7.4 million, or 32%, to $30.5 million,
for the six months ended June 30, 1997, compared to $23.1 million for the six
months ended June 30, 1996, primarily due to the issuance of $200 million of
senior notes in the fourth quarter of 1996 related to the Southern Region
Acquisition.
The income allocated to the General Partner increased by $3.9 million to
$15.4 million for the six months ended June 30, 1997, compared to $11.5 million
for the six months ended June 30, 1996. This increase was due to the issuance of
5.7 million additional Limited Partner Units in the fourth quarter of 1996,
higher quarterly distributions to Unitholders, and higher net income. The
General Partner's incentive distribution is based on the number of outstanding
Units times a percentage of the per Unit distribution paid to Limited Partners,
which was $1.06 per Unit during the first six months of 1997, compared to $0.98
per Unit during the first six months of 1996. Net income is allocated to the
General Partner based on 2 percent of the Company's net income (after adjusting
for the incentive distribution), plus the incentive distribution.
FINANCIAL CONDITION AND LIQUIDITY
During the first six months of 1997, net cash provided by operating
activities totaled $100.1 million compared to $50.5 million for the same period
in 1996. The increase of $49.6 million was primarily due to favorable working
capital changes of $25.0 million and higher net income of $17.7 million compared
to the prior year period. The favorable working capital variance is primarily
due to $12.1 million and $10.2 million fluctuations in Other Current Assets and
Inventory, respectively. The change in Other Current Assets is primarily due to
the collection of an installment note receivable during the first quarter of
1997 related to a fourth quarter 1996 higher and better use land sale. The
inventory change is primarily due to a greater decrease in log inventories at
our Northwest Conversion Facilities during the first six months of 1997 compared
to the first six
13
<PAGE> 15
months of 1996 and a seasonal decline in log inventories at our Southern
Conversion Facilities during the first six months of 1997. Log inventories at
our Northwest Conversion Facilities decreased 60% during the first six months of
1997 compared to 37% during the first six months of 1996, as a result of poor
weather-related harvesting conditions during the second half of 1995. Log
inventories at our Southern Conversion Facilities decreased 54% during the first
six months of 1997, primarily due to the build-up of log inventories during the
fourth quarter of 1996 in anticipation of the rainy season. The Partnership
plans to fund certain unit award benefit plans during the third quarter of 1997
as a result of achieving a UVT on July 10, 1997. See Note 5 to Notes to Combined
Financial Statements. Total funding is expected to be approximately $7.3 million
and is expected to be funded from cash generated from operations.
The Partnership has an unsecured revolving line of credit ("Line of
Credit") with a group of banks that permits the Partnership to borrow up to $225
million for general corporate purposes, including up to $20 million of standby
letters of credit issued on behalf of the Partnership or Manufacturing. The Line
of Credit matures on December 13, 2001 and bears a floating rate of interest. As
of June 30, 1997, the Partnership had $161.0 million outstanding under the Line
of Credit. As of July 7, 1997, the Partnership had repaid $134.0 million of the
borrowings under the Line of Credit.
The Company's borrowing agreements contain certain restrictive
covenants, including limitations on harvest levels, sales of assets, cash
distributions and the amount of future indebtedness. In addition, the Line of
Credit requires the maintenance of a required interest coverage ratio. The
Company was in compliance with its debt covenants as of June 30, 1997.
The Partnership will distribute $0.55 per Unit for the second quarter of
1997. The distribution will equal $34.0 million (including $8.5 million to the
General Partner), and will be paid on August 28, 1997 to Unitholders of record
on August 15, 1997. 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 cash distributions will be funded from cash on
hand and cash generated from operations. It is anticipated that all debt service
and future capital expenditures will be funded from cash on hand, cash generated
from operations, and borrowings under the Line of Credit.
CAPITAL EXPENDITURES
Capital expenditures for the first six months of 1997 totaled $6.8
million compared to $10.3 million for the same period in 1996. Total 1997
capital expenditures are expected to be approximately $31 million, compared to
$19.3 million (excluding $560.7 million related to the
14
<PAGE> 16
Southern Region Acquisition) expended in 1996. Planned capital expenditures for
the Resources Segment in 1997 are primarily for road construction and
reforestation. The Manufacturing Segment's 1997 principal projects include
reconfiguration of the Pablo sawmill in western Montana to allow for more
efficient processing of small logs, various lumber and plywood projects to
improve productivity and increase log recovery, as well as replacements and
upgrades of equipment in several of the Conversion Facilities.
OTHER INFORMATION
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Common Share"
("FAS 128"). FAS 128 simplifies the standards for computing earnings per share
and makes them comparable to international earnings per share standards. The
implementation of FAS 128 is required for financial statements issued for
periods ending after December 15, 1997; earlier application is not permitted.
The impact of the adoption of this standard is not expected to materially change
the Company's earnings per Unit presentation.
FEDERAL AND STATE REGULATIONS
THREATENED AND ENDANGERED SPECIES. The Endangered Species Act ("ESA")
protects species threatened with possible extinction. Protection of endangered
species may include the imposition of restrictions on timber harvesting and road
building activities in areas containing the affected species. A number of
species indigenous to the Company's timberlands have been listed as threatened
or endangered or have been proposed or are candidates for such status under the
ESA, including the northern spotted owl, marbled murrelet, gray wolf, red
cockaded woodpecker, mountain caribou, grizzly bear, bald eagle, bull trout and
various salmon species.
In December 1995, the Partnership entered into an agreement to conserve
grizzly bears (the "Grizzly Bear Agreement") with the United States Fish and
Wildlife Service ("USFWS"), the United States Forest Service ("USFS") and the
state of Montana covering 83,000 acres of the Partnership's timberlands in the
Swan Valley in western Montana. Under the Grizzly Bear Agreement, the
Partnership has agreed to protect certain habitat and to minimize the impact of
the Partnership's forestry activities on the grizzly bear. In consideration for
this mitigation, the USFWS authorized forestry practices in the Swan Valley that
are consistent with the agreement.
In November 1996, several organizations filed a lawsuit against the
Secretary of the Interior and certain USFWS and USFS officials in Federal
District Court for the District of Montana challenging the Grizzly Bear
Agreement under the ESA and the National Environmental Policy Act. The
Partnership expects a decision in this lawsuit in the near future but is unable
at this time to predict the outcome of the challenge or what effect, if any, it
might have on the Grizzly Bear Agreement, if successful.
15
<PAGE> 17
On June 13, 1997, the USFWS proposed a rule to list certain population
segments of the bull trout under the ESA. Bull trout are present in numerous
streams and rivers which flow across the Partnership's lands in Montana, Idaho
and Washington. Final listing of the bull trout, which would not occur for at
least a year, could lead to additional regulation of timber harvesting and road
building in riparian areas. The Partnership is unable at this time to predict
the outcome of the listing proposal or the nature or scope of any land
management restrictions that might be imposed to protect the bull trout as a
result of any such listing.
At this time, the Partnership believes that federal and state laws and
regulations related to the environment and the protection of endangered species
will not have a material adverse effect on the Partnership's financial position,
results of operations or liquidity. The Partnership anticipates, however, that
increasingly strict laws and regulations relating to the environment, natural
resources and forestry operations, as well as increased social concern over
environmental issues, may result in additional restrictions on the Partnership
leading to 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 obtain 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
Partnership applied for and obtained an approved sourcing area for the
Partnership's Northwest conversion facilities. Under the legislation, sourcing
areas are subject to review and renewal at least every five years.
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, along with regulations providing for periodic review
of sourcing areas, 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 export law were
recently proposed which the Partnership believes would eliminate the uncertainty
caused by the final regulations and would favorably affect the Partnership's
ability to obtain subsequent approvals of its sourcing area. The Partnership is
unable to predict, however, whether the proposed revisions will be enacted as
drafted, if at all. Whether or not the proposed amendments to the export law are
enacted, however, the Partnership 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
16
<PAGE> 18
export of state logs would become a partial ban beginning January 1, 1996.
Pending finalization of the rules, the full ban is being maintained. The
proposed amendments to the export law would make the Washington state full ban
permanent. Proposals have also been made from time to time to either ban or tax
the export of unprocessed logs harvested from private lands. To date, such
proposals have been unsuccessful.
PART II -OTHER INFORMATION
Items 1, 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
<TABLE>
<CAPTION>
Exhibit
Designation Nature of Exhibit
- ----------- -----------------
<S> <C>
3.1 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, File No. 1-
10239, for the quarter ended September 30, 1995).
3.2 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.
</TABLE>
(B) REPORTS ON FORM 8-K
None.
17
<PAGE> 19
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 11, 1997
18
<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,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 135,141
<SECURITIES> 0
<RECEIVABLES> 34,623
<ALLOWANCES> 1,943
<INVENTORY> 41,298
<CURRENT-ASSETS> 224,685
<PP&E> 1,197,424
<DEPRECIATION> 128,455
<TOTAL-ASSETS> 1,311,875
<CURRENT-LIABILITIES> 73,510
<BONDS> 745,000
0
0
<COMMON> 0
<OTHER-SE> 481,197
<TOTAL-LIABILITY-AND-EQUITY> 1,311,875
<SALES> 343,210
<TOTAL-REVENUES> 343,210
<CGS> 235,710
<TOTAL-COSTS> 257,305
<OTHER-EXPENSES> 692
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,520
<INCOME-PRETAX> 55,152
<INCOME-TAX> 570
<INCOME-CONTINUING> 54,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,582
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0
</TABLE>
