<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, 1998
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 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended June 30,
---------------------------------
1998 1997
------------- -------------
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues $ 171,799 $ 171,962
------------- -------------
Costs and Expenses:
Cost of Goods Sold 121,124 118,226
Selling, General and Administrative 17,824 11,053
------------- -------------
Total Costs and Expenses 138,948 129,279
------------- -------------
Operating Income 32,851 42,683
Interest Expense (14,603) (15,055)
Interest Income 229 202
Other Expense - Net (2,226) (454)
------------- -------------
Income before Income Taxes 16,251 27,376
Provision for Income Taxes 120 152
------------- -------------
Net Income $ 16,131 $ 27,224
General Partner Interest 8,500 8,218
------------- -------------
Net Income Allocable to Unitholders $ 7,631 $ 19,006
============= =============
Net Income per Unit $ 0.17 $ 0.42
============= =============
</TABLE>
See accompanying Notes to Combined Financial Statements.
1
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PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------
1998 1997
------------- -------------
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues $ 336,124 $ 343,210
------------- -------------
Costs and Expenses:
Cost of Goods Sold 239,768 235,710
Selling, General and Administrative 27,430 21,595
------------- -------------
Total Costs and Expenses 267,198 257,305
------------- -------------
Operating Income 68,926 85,905
Interest Expense (29,576) (30,520)
Interest Income 467 459
Other Expense - Net (2,259) (692)
------------- -------------
Income before Income Taxes 37,558 55,152
Provision for Income Taxes 147 570
------------- -------------
Net Income $ 37,411 $ 54,582
General Partner Interest 16,599 15,429
------------- -------------
Net Income Allocable to Unitholders $ 20,812 $ 39,153
============= =============
Net Income per Unit $ 0.45 $ 0.85
============= =============
</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,
1998 1997
------------- -------------
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 134,140 $ 135,381
Accounts Receivable 34,598 28,698
Inventories 47,911 58,956
Timber Contract Deposits 4,935 3,711
Other Current Assets 8,150 5,508
------------- -------------
229,734 232,254
Timber and Timberlands - Net 874,186 887,694
Property, Plant and Equipment - Net 176,289 163,556
Other Assets 13,113 17,393
------------- -------------
Total Assets $ 1,293,322 $ 1,300,897
============= =============
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt $ 18,400 $ 18,400
Accounts Payable 16,143 12,990
Interest Payable 9,275 9,556
Wages Payable 10,227 17,156
Taxes Payable 5,742 4,757
Workers' Compensation Liabilities 1,450 1,450
Other Current Liabilities 17,064 9,683
------------- -------------
78,301 73,992
Long-Term Debt 565,600 584,000
Line of Credit 200,000 161,000
Workers' Compensation Liabilities 7,970 8,466
Other Liabilities 3,147 3,102
------------- -------------
Total Liabilities 855,018 830,560
------------- -------------
Commitments and Contingencies
PARTNERS' CAPITAL
Limited Partners' Units 438,754 469,824
General Partner (450) 513
------------- -------------
Total Partners' Capital 438,304 470,337
------------- -------------
Total Liabilities and Partners' Capital $ 1,293,322 $ 1,300,897
============= =============
</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,
---------------------------------
1998 1997
------------- -------------
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 37,411 $ 54,582
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization 31,876 32,538
(Gain) Loss on Asset Dispositions - Net 421 (197)
Working Capital Changes, net of effect of business acquisition:
Accounts Receivable (5,900) (8,983)
Inventories 15,026 12,586
Timber Contract Deposits and Other Current Assets (3,834) 5,446
Accounts Payable 3,153 3,366
Other Accrued Liabilities 1,156 (353)
Other 3,940 1,164
------------- -------------
Net Cash Provided By Operating Activities $ 83,249 $ 100,149
------------- -------------
Cash Flows From Investing Activities:
Additions to Properties $ (35,955) $ (6,840)
Proceeds from Asset Dispositions 310 373
------------- -------------
Net Cash Used In Investing Activities $ (35,645) $ (6,467)
------------- -------------
Cash Flows From Financing Activities:
Cash Distributions $ (69,445) $ (65,033)
Retirement of Long-Term Debt (18,400) (17,400)
Borrowings on the Lines of Credit 388,000 366,250
Repayments on the Lines of Credit (349,000) (366,250)
------------- -------------
Net Cash Used In Financing Activities $ (48,845) $ (82,433)
------------- -------------
Increase (Decrease) In Cash and Cash Equivalents (1,241) 11,249
Cash and Cash Equivalents:
Beginning of Period 135,381 123,892
------------- -------------
End of Period $ 134,140 $ 135,141
============= =============
</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 1997 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. Reclassifications
of certain prior period amounts have been made in order to be consistent with
current period presentation.
The taxable income, deductions, and credits of the Partnership and
Manufacturing are allocated monthly to the Unitholders based on the number of
depositary units representing limited partner interests ("Units") held.
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 1998 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. Marketing provides for deferred taxes in order to
reflect the tax consequences in future years of the difference
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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,
1998 and 1997, respectively.
2. REORGANIZATION
On June 8, 1998 the Partnership announced that the Board of Directors of
PC Advisory Corp. I, the ultimate general partner of the Partnership, had
authorized the Partnership to seek approval from its Unitholders to convert (the
"Conversion Transaction") its structure from a publicly traded Master Limited
Partnership into a publicly traded Real Estate Investment Trust (the "REIT").
The Conversion Transaction is conditioned upon the approval of the holders of
two-thirds of the Partnership's outstanding Units. In connection with the
Conversion Transaction, the Unitholders will exchange, on a one-for-one basis,
their Units for shares of common stock in the REIT. The General Partner will
exchange its general partner interests in the Partnership and Manufacturing and
its interest in Marketing for a 27% equity interest in the REIT and will also
receive certain control rights. The solicitation of Unitholder approval of the
Conversion Transaction and the exchange of shares in the REIT for the
Partnership's outstanding Units will be made by means of a proxy
statement/prospectus transmitted to the Partnership's Unitholders. The
Partnership is currently preparing a proxy statement/prospectus and anticipates
completing the Conversion Transaction by year-end. Reorganization costs are
being expensed in the period incurred and are included in the "Other
Expense-Net" category.
3. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Raw materials (logs) $ 12,615 $ 29,177
Work-in-process 7,716 6,108
Export logs 747 715
Finished goods 18,826 15,295
------------- -------------
39,904 51,295
Supplies 8,007 7,661
------------- -------------
Total $ 47,911 $ 58,956
============= =============
</TABLE>
6
<PAGE> 8
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, 1998 and December 31, 1997 was $38.6
million and $50.0 million, respectively.
4. TIMBER AND TIMBERLANDS AND PROPERTY, PLANT AND EQUIPMENT
Timber and timberlands consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Timber and logging roads - net $ 775,689 $ 789,513
Timberlands 98,497 98,181
------------- -------------
Timber and Timberlands - net $ 874,186 $ 887,694
============= =============
</TABLE>
Property, plant and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Land, buildings and improvements $ 64,319 $ 61,155
Machinery and equipment 256,886 235,349
------------- -------------
321,205 296,504
Accumulated depreciation (144,916) (132,948)
------------- -------------
Property, Plant and Equipment - net $ 176,289 $ 163,556
============= =============
</TABLE>
5. BORROWINGS
As of June 30, 1998, the Company had $200.0 million of borrowings under
its revolving line of credit ("Line of Credit"). The 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 July 6, 1998, $130.0 million of borrowings on the Line
of Credit were repaid.
6. STOCK-BASED COMPENSATION
In April 1998, the fifth and final target under the Company's long-term
incentive plans was met. As a result, the General Partner has adopted new
incentive plans with similar terms in which
7
<PAGE> 9
awards may be earned through the year ending December 31, 2003. During the
second quarter, grants of 1,158,500 Unit Appreciation Rights were made to
officers and key employees, which over the life of the plan could result in
1,158,500 Units being earned if all targets are met.
7. SUBSEQUENT EVENTS
On July 14, 1998, the Board of Directors of the General Partner
authorized the Partnership to make a distribution of $0.57 per Unit for the
second quarter of 1998. Total distributions will equal approximately $35.5
million (including $9.1 million to the General Partner) and will be paid on
August 27, 1998 to Unitholders of record on August 14, 1998.
8
<PAGE> 10
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 the Cascades Region have declined
approximately 15% compared to second quarter 1997, primarily due to an excess
supply of logs. The U.S. West coast is currently experiencing an oversupply of
logs due to the re-direction of export quality logs to the domestic market as a
result of the economic weakness in Asia, principally Japan. Additionally,
British Columbian producers have increased log shipments to the U.S. West coast
due to the combination of declining lumber exports to Japan and restrictions
(quota limitations under the U.S. - Canadian lumber trade agreement) on lumber
imports to the U.S. Domestic log prices in the Rocky Mountain Region have
declined since the second quarter of 1997, primarily due to lower lumber prices
and excess supply. Log supply in the region has increased due to favorable
harvesting conditions. Second quarter sawlog and pulp log prices in the Southern
Region improved compared to the second quarter of 1997, primarily due to
weather-related harvesting curtailments during the first quarter of 1998.
However, log prices in the Southern Region were under downward pressure late in
the quarter primarily due to an increased supply of logs. The supply of logs
increased primarily due to extremely dry weather during the second quarter and
salvage logging as a result of first quarter storms.
Export log prices for the second quarter of 1998 were significantly (20%
to 25%) below second quarter 1997 prices, primarily due to weak demand in Japan.
Japanese demand remains weak due to a stagnant domestic economy, which has
resulted in lower housing starts, high unemployment, a weakened Japanese yen,
and low consumer confidence. Additionally, there remains a steady supply of
lower cost substitutes from global sources, including Russian logs and
Scandinavian and Canadian lumber.
Second quarter 1998 industry composite indices for lumber prices were
22% below second quarter 1997 levels primarily due to excess supply. Second
quarter 1998 demand for lumber has remained extremely strong due to a robust
U.S. economy, high consumer confidence, low interest rates, steady job growth,
and a low inventory of unsold houses. Additionally, housing starts were up 6%
through May, compared to the same prior year period. However, despite the robust
U.S. housing market, lumber prices have been under downward pressure since the
third quarter of 1997 primarily due to excess supply as a result of weak
Asian markets. Lumber exports to Asia from the U.S. and Canada declined 31% and
48%, respectively, during the first quarter of 1998. This
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volume, which is now being directed to the U.S. market, represents approximately
600 MMBF, or 4% of the North American lumber supply for the period. Board prices
in the repair and remodel markets have also been under downward pressure since
the third quarter of 1997. Second quarter 1998 board prices declined
approximately 15% compared to second quarter 1997 levels, primarily due to
excess supply. As a result of weak Asian markets and the strong U.S. dollar,
European board producers have been diverting a significant portion of their
production to the U.S. market (first quarter 1998 volume was five times greater
than in the first quarter of 1997).
Second quarter 1998 commodity plywood prices decreased approximately 10%
compared to second quarter 1997 and remained flat compared to first quarter 1998
levels, despite favorable housing starts. The price decline is primarily due to
the continued capacity expansion of OSB. OSB output increased approximately 12%
during the first quarter of 1998 and now accounts for nearly 48% of total North
American panel production, up from 44% a year ago and 34% three years ago.
Second quarter 1998 MDF prices increased by 3% compared to second
quarter 1997 and first quarter 1998 prices. The modest upward price pressure is
due primarily to strong seasonal demand and longer than expected start-up times
for new MDF plants. Demand continues to increase at a rate of approximately 15%
per year, with the largest growth occurring in applications that require
high-quality panels, such as molding, kitchen cabinets and store fixtures.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. This could
result in a system failure or miscalculation in the year 2000 when using date
sensitive software. During the first quarter of 1997, the Company adopted a Year
2000 Plan to identify and address both internal and external Year 2000 Issues.
Pursuant to the Company's Year 2000 Plan, all necessary modifications to the
Company's internal systems are scheduled to be completed in the second quarter
of 1999.
The Company has analyzed the potential impacts from third parties'
failures to address their Year 2000 Issues. The Company has requested, and
continues to pursue, certification from various vendors that their software is,
or will be, functional in the year 2000. For those vendors who have not been
willing to demonstrate or certify Year 2000 compliance, the Company is
conducting testing and, if necessary, replacing those vendors.
Based on the Company's assessments, Year 2000 Issues are not expected to
have a material impact on the Company's financial position, results of
operations or liquidity. The Company expects to be Year 2000 compliant in
the second quarter of 1999. Any unforeseen contingencies are expected to be
non-material and would be addressed on a case by case basis.
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<PAGE> 12
RESULTS OF OPERATIONS
SECOND QUARTER 1998 COMPARED TO SECOND QUARTER 1997
The following table compares operating income by segment for the
quarters ended June 30, 1998 and 1997.
Operating Income by Segment
<TABLE>
<CAPTION>
Quarter Ended June 30,
--------------------------------
(In Thousands)
1998 1997
------------- -------------
<S> <C> <C>
Resources Segment .......... $ 31,229 $ 29,793
Manufacturing Segment ...... 3,685 12,099
Other Costs and Eliminations (2,063) 791
------------- -------------
Total ................... $ 32,851 $ 42,683
============= =============
</TABLE>
Resources Segment revenues increased by $4.2 million, or 5%, to $80.7
million for the quarter ended June 30, 1998, compared to $76.5 million for the
quarter ended June 30, 1997. This increase was primarily due to increased
Cascades Region domestic log sales volume, a $2.3 million increase in land sales
revenue, and higher Southern Region sawlog prices, offset in part by lower
export log sales volume, lower Southern Region pulp log sales volume and lower
Cascades Region domestic log prices. Cascades Region domestic log sales volume
increased by approximately 70% compared to the second quarter of 1997, primarily
due to the re-direction of export quality logs to the domestic market as a
result of weak Asian markets and favorable harvesting conditions. Southern
Region sawlog prices increased approximately 10% compared to the second quarter
of 1997, primarily due to the first quarter 1998 weather-related regional log
shortage. Export log sales volume decreased by approximately 25% compared to the
second quarter of 1997, primarily due to low Japanese demand. Southern Region
pulp log sales volume decreased by approximately 19% compared to second quarter
1997, primarily due to extensive thinning operations performed during 1997 to
improve long-term growth rates. Cascades Region domestic log prices decreased by
approximately 15% compared to the second quarter of 1997 levels, primarily due
to an increased supply of logs.
Resources Segment operating income was 39% as a percentage of revenues
for each of the quarters ended June 30, 1998 and 1997. Resources Segment costs
and expenses increased by $2.8 million, or 6%, to $49.5 million for the quarter
ended June 30, 1998, compared to $46.7 million for the quarter ended June 30,
1997. This increase was primarily due to higher Cascades Region log sales
volume.
11
<PAGE> 13
Manufacturing Segment revenues decreased by $4.4 million, or 4%, to
$120.4 million for the quarter ended June 30, 1998, compared to $124.8 million
for the quarter ended June 30, 1997. This decrease was primarily due to lower
Northwest and Southern lumber prices, offset in part by increased Northwest
lumber, plywood, and MDF sales volume. Northwest lumber prices decreased by 16%
compared to the prior year second quarter, primarily due to excess supply. The
supply of lumber in the U.S. increased primarily due to decreased exports to
Japan and increased imports from Europe as a result of weak Asian markets.
Southern lumber sales prices decreased by 13% compared to the prior year's
second quarter, primarily due to excess supplies of lumber and logs. The supply
of lumber has increased primarily due to the weak Asian markets, which has
resulted in a greater percentage of Western species being directed to this
region. The supply of logs has also increased due to extremely favorable
harvesting conditions in the Southern Region. Northwest lumber sales volume
increased by 3% compared to the prior year's second quarter primarily due to the
acquisition of a new remanufacturing facility in Meridian, Idaho in May, 1998.
Northwest plywood sales volume increased by 6% compared to the prior year's
second quarter primarily due to additional shifts and improved fiber recovery.
MDF sales volume increased by 13% compared to the prior year's second quarter,
primarily due to an 11% increase in production as a result of operational
improvements.
Manufacturing Segment operating income was 3% and 10% as a percentage of
revenues for the quarters ended June 30, 1998 and 1997, respectively. The
decrease is primarily due to 16% and 13% declines in Northwest lumber and
Southern lumber prices, respectively. Manufacturing Segment costs and expenses
increased by $4.0 million, or 4%, to $116.7 million for the quarter ended June
30, 1998, compared to $112.7 for the quarter ended June 30, 1997. This increase
was primarily due to higher sales volumes for Northwest lumber, plywood and MDF.
Other Costs and Eliminations (which consists of corporate overhead,
intercompany log profit elimination, and intercompany LIFO elimination)
decreased operating income by $2.1 million in the second quarter of 1998,
compared to an increase of $0.8 million in the second quarter of 1997. The
variance of $2.9 million is primarily due to increased corporate overhead,
offset in part by lower intercompany profit elimination. Corporate overhead
increased by $5.2 million compared to the second quarter of 1997. The increase
in corporate overhead is primarily due to an expense of $8.8 million recognized
during the second quarter of 1998 as a result of achieving the fifth and final
target under the Company's long-term incentive plans, offset in part by lower
incentive compensation accruals due to lower earnings levels. The profit on
intercompany log sales is deferred (eliminated) until Manufacturing converts
existing log inventories into finished products and sells them to third parties
(at which time intercompany profit is recognized).
Other Expense - Net increased by $1.8 million to $2.2 million compared
to $0.4 million for the second quarter of 1997. The increase is primarily due to
reorganization costs associated with the proposed conversion of the Partnership
to a REIT. (See Note 2 of Notes to Combined Financial Statements.)
Reorganization costs consist of fees for legal, investment banking and tax
consultants, as well as printing and other related costs. Reorganization costs
are being expensed as incurred.
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<PAGE> 14
The income allocated to the General Partner increased by $0.3 million to
$8.5 million for the quarter ended June 30, 1998, compared to $8.2 million for
the quarter ended June 30, 1997. This increase was primarily due to higher
quarterly distributions to Unitholders. The General Partner's incentive
distribution is based on the number of outstanding Units times a percentage of
the per Unit distribution paid to Unitholders. The distribution for the first
quarter of 1998, which was paid during the second quarter of 1998, was $0.57 per
Unit, compared to $0.55 per Unit paid during the second quarter of 1997. 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 1998 COMPARED TO SIX MONTHS 1997
The following table compares operating income by segment for the six
months ended June 30, 1998 and 1997.
Operating Income by Segment
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
(In Thousands)
1998 1997
-------- --------
<S> <C> <C>
Resources Segment .......... $ 63,996 $ 68,892
Manufacturing Segment ...... 9,789 23,824
Other Costs and Eliminations (4,859) (6,811)
-------- --------
Total ..................... $ 68,926 $ 85,905
======== ========
</TABLE>
Resources Segment revenues decreased by $4.2 million, or 2%, to $166.8
million for the six months ended June 30, 1998, compared to $171.0 million for
the six months ended June 30, 1997. The decrease was primarily due to lower
export log sales volume, a decline in Rockies Region log sales volume and
decreased Cascades Region log sales prices, offset in part by higher Cascades
Region log sales volume and increased Southern Region sawlog sales prices.
Export log sales volume decreased by approximately 45% compared to the first six
months of 1997, primarily due to the weak Japanese economy. Rockies Region log
sales volume decreased by approximately 5% compared to the first six months of
1997, primarily due to favorable harvesting conditions during the first quarter
1997, which allowed the Company to build internal mill log inventories. Cascades
Region log sales prices decreased by approximately 13% compared to the first six
months of 1997, primarily due to abundant log supplies. Cascades Region logs
sales volume increased by approximately 43% compared to the first six months of
1997, primarily due to the re-direction of export quality logs to domestic
markets as a result of weak Asian markets and favorable harvesting conditions.
Southern Region sawlog sales prices increased approximately 13% compared to the
first six months of 1997, primarily due to weather-related log shortages during
the first quarter of 1998.
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<PAGE> 15
Resources Segment operating income was 38% and 40% as a percentage of
revenues for the six months ended June 30, 1998 and 1997, respectively. The
decrease is primarily due to a 25% decrease in export log sales prices and a 13%
decrease in Cascades Region domestic log sales prices. Resources Segment costs
and expenses increased by $0.7 million to $102.8 million for the six months
ended June 30, 1998, compared to $102.1 million for the six months ended June
30, 1997.
Manufacturing Segment revenues decreased by $3.7 million, or 2%, to
$240.0 million for the six months ended June 30, 1998, compared to $243.7
million for the six months ended June 30, 1997. This decrease was primarily due
to lower Northwest lumber prices, offset in part by increased Northwest plywood,
lumber and MDF sales volume. Northwest lumber sales prices decreased by 14%
compared to the first six months of 1997, primarily due to excess supply. The
supply of lumber in the U.S. increased primarily due to decreased exports to
Japan and increased imports from Europe. Northwest plywood sales volume
increased by 7% compared to the first six months of 1997, primarily due to
additional shifts and improved fiber recovery. Northwest lumber sales volume
increased by 3% compared to the first six months of 1997, primarily due to the
addition of the Meridian, Idaho remanufacturing facility in May 1998. MDF sales
volume increased by 14% compared to the first six months of 1997, primarily due
to increased production as a result of operational improvements.
Manufacturing Segment operating income was 4% and 10% as a percentage of
revenues for the six months ended June 30, 1998 and 1997, respectively. The
decrease is primarily due to a 14% decline in Northwest lumber sales prices.
Manufacturing Segment costs and expenses increased by $10.3 million, or 5%, to
$230.2 million for the six months ended June 30, 1998, compared to $219.9 for
the six months ended June 30, 1997. This increase was primarily due to higher
sales volumes for Northwest plywood, lumber, and MDF and increased Southern
Region log costs. Log costs increased primarily due to a weather-related log
supply shortage during the first quarter.
Other Costs and Eliminations (which consists of corporate overhead,
intercompany log profit elimination, and intercompany LIFO elimination)
decreased operating income by $4.9 million in the first six months of 1998,
compared to $6.8 million in the first six months of 1997. This favorable
variance of $1.9 million is primarily due to intercompany profit elimination,
offset in part by higher corporate overhead. The profit on intercompany log
sales is deferred (eliminated) until Manufacturing converts existing log
inventories into finished products and sells them to third parties (at which
time intercompany profit is recognized). During the first six months of 1998,
intercompany log profit of $12.3 million was recognized, while $6.0 million was
recognized during the first six months of 1997. The increase in operating income
due to intercompany log profit is primarily due to the build-up of log
inventories in the Company's Southern Region during the fourth quarter of 1997
and the subsequent processing of these logs during the first quarter of 1998 as
a result of weather-related harvest restrictions during the first quarter of
1998. Corporate overhead increased by $4.7 million compared to the first six
months of 1997. The increase in corporate overhead is primarily due to an
expense of $8.8 million recognized during the second quarter of 1998 as a result
of achieving the fifth and final target under the Company's long-term
14
<PAGE> 16
incentive plans, offset in part by lower incentive compensation accruals due to
lower earnings levels.
Other Expense - Net increased by $1.6 million to $2.3 million compared to
$0.7 million for the first six months of 1997. The increase is primarily due to
reorganization costs associated with the proposed conversion of the Partnership
to a REIT. (See Note 2 of Notes to Combined Financial Statements.)
Reorganization costs consist of fees for legal, investment banking and tax
consultants, as well as printing and other related costs. Reorganization costs
are being expensed as incurred.
The income allocated to the General Partner increased by $1.2 million to
$16.6 million for the six months ended June 30, 1998, compared to $15.4 million
for the six months ended June 30, 1997. This increase was primarily due to
higher quarterly distributions to Unitholders. The General Partner's incentive
distribution is based on the number of outstanding Units times a percentage of
the per Unit distribution paid to Unitholders, which was $1.12 per Unit during
the first six months of 1998, compared to $1.06 per Unit during the first six
months of 1997. 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 1998, net cash provided by operating
activities totaled $83.2 million compared to $100.1 million for the same period
in 1997. The decrease of $16.9 million was primarily due to a decrease in net
income of $17.2 million. Additionally, there was an unfavorable working capital
variance of $2.5 million for the first six months of 1998 compared to the same
prior year period consisting primarily of a decrease of Other Current Assets,
offset in part by an increase in Other Accrued Liabilities. Other Current Assets
decreased primarily due to the collection of a $9.9 million installment note
receivable in the first quarter of 1997 related to a fourth quarter 1996 "higher
and better use" land sale. Other Accrued Liabilities increased primarily due to
the deferred funding of the fifth target of the Company's long-term incentive
plans. The related funding of $9.8 million is expected to take place after the
second quarter of 1998 but prior to the distribution date (first quarter of
1999).
The Partnership has an unsecured Line of Credit 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, 1998, the Partnership had
$200.0 million outstanding under the Line of Credit. As of July 6, 1998, the
Partnership had repaid $130.0 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
15
<PAGE> 17
coverage ratio. The Company was in compliance with its debt covenants as of June
30, 1998.
The Company has begun discussions with its lenders in order to explore
obtaining certain consents in connection with the Conversion Transaction.
Management believes that the outcome of such discussions will not be material
to the Company's financial position, results of operations or liquidity.
The Partnership will distribute $0.57 per Unit for the second quarter of
1998. The distribution will equal $35.5 million (including $9.1 million to the
General Partner), and will be paid on August 27, 1998 to Unitholders of record
on August 14, 1998. 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. The General Partner anticipates 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 1998 totaled $36.0
million compared to $6.8 million for the same period in 1997. Total 1998 capital
expenditures are expected to be approximately $58 million, compared to $28.3
million in 1997. Planned capital expenditures for the Resources Segment in 1998
are primarily for road construction and reforestation. The Manufacturing
Segment's 1998 principal capital projects include a $20.0 million investment at
the Joyce, Louisiana facility to expand lumber operations, the acquisition in
May 1998 of a remanufacturing facility in Meridian, Idaho for $9.4 million
(which includes $4.0 million of working capital), as well as equipment upgrades
in several of the manufacturing facilities.
OTHER INFORMATION
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes a new model
for accounting for derivatives and hedging activities. The implementation of
FAS 133 is required for financial statements issued for periods beginning after
June 15, 1999; earlier application is permitted. Management is currently
evaluating the requirements of FAS 133; however it is not expected to have a
material impact on the presentation of the Company's financial statements.
FEDERAL AND STATE REGULATIONS
THREATENED AND ENDANGERED SPECIES. As discussed more fully in the
Partnership's Form 10-K for the year ended December 31, 1997, the activities of
the Partnership are subject to various
16
<PAGE> 18
federal and state environmental laws and regulations. Among these laws, the
Endangered Species Act ("ESA") protects species threatened with possible
extinction. A number of species indigenous to the Partnership'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. As a result, the
Partnership's activities in or adjacent to the habitat of such species may be
subject to restrictions relating to the harvesting of timber and the
construction of roads.
As first reported in the Partnership's Form 10-Q for the second quarter
of 1997, on June 13, 1997 the United States Fish and Wildlife Service ("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. On July 10, 1998, the
USFWS listed certain population segments of the bull trout as threatened under
the ESA. As a result of this listing, timber harvesting and road building in and
adjacent to riparian areas could be subject to additional regulation. The
Partnership is unable at this time to predict the nature or scope of any land
management restrictions that might be required to protect the bull trout.
The Partnership is currently working with the USFWS and the National
Marine Fisheries Service to develop a habitat conservation plan for bull trout
and other native fish species that, if approved, would result in the issuance of
a permit authorizing forest practices consistent with the plan. Although
discussions are underway, the Partnership is unable to predict whether any such
agreement will ultimately be entered into or what the terms of any such
agreement would be.
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.
17
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is no pending or threatened litigation involving the
Company which the General Partner believes would have a material adverse effect
on the financial position, the results of operations or liquidity of the
Company.
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
<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).
10.8* Long-term Incentive Plan, Plum Creek Management Company, L.P. See
attached exhibit.
27* Financial Data Schedule for the quarter ended June 30, 1998. See
attached exhibit.
</TABLE>
(b) REPORTS ON FORM 8-K
The Partnership filed a current report on Form 8-K dated April 17, 1998,
in which it reported the achievement and related expense of the fifth and final
target under the Partnership's long-term incentive plans for its executives and
other key employees.
18
<PAGE> 20
The Partnership filed a current report on Form 8-K dated June 5, 1998,
in which it reported the Partnership's plan to convert from a publicly traded
Master Limited Partnership to a publicly traded Real Estate Investment Trust.
19
<PAGE> 21
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 13, 1998
20
<PAGE> 1
1998 PLUM CREEK MANAGEMENT COMPANY, L.P.
LONG-TERM INCENTIVE PLAN
SECTION 1 - ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE
1.1 Establishment of Plan. Plum Creek Management Company, L.P., a
Delaware limited partnership (the "Company") hereby establishes the "1998 PLUM
CREEK MANAGEMENT COMPANY, L.P. LONG-TERM INCENTIVE PLAN" (the "Plan") for the
benefit of certain executives of the Company and its Related Companies, as
defined herein, effective as of the Effective Date, as defined herein.
1.2 Purpose. The purpose of the Plan is to help retain the services of
participating executives, to align their interests with the interests of the
partners of the Partnership, and to encourage participating executives to
increase operating profitability, allocate capital wisely, and generate cash
with the ultimate goal of attaining appreciation in the value of the Units as
defined herein. Transfers of Units that will occur should performance targets
and other terms and conditions of the Plan be met, will reward participating
executives with ownership interests in Plum Creek Timber Company, L.P. (the
"Partnership") for which the Company serves as general partner. This Plan is
intended to be an unfunded "bonus program" within the meaning of the United
States Code of Federal Regulations Section 2510.3-2(c) and is maintained
primarily for the purpose of providing long-term incentives to a select group of
management or highly compensated employees.
SECTION 2 - DEFINITIONS
2.1 Definitions. When used in the Plan, the following terms shall have
the meanings specified below:
(a) "Account" means a Participant's Reinvested Distribution
Account and Unit Appreciation Account.
(b) "Base Unit Value" means, with respect to Unit Appreciation
Rights granted as of the Effective Date, an amount equal to the Target
Amount, as defined herein, and, with respect to Unit Appreciation Rights
granted after the Effective Date, the amount established by the
Committee pursuant to Section 5.1 (b).
(c) "Beneficiary" means the person or entity determined to be a
Participant's beneficiary pursuant to Section 16.
(d) "Board" means the Board of Directors of PC Advisory Corp. I.
(e) "Cause" means, when used in the phrase "for Cause" or
"without Cause" in connection with a termination of employment, that the
termination is evidenced by a
1
<PAGE> 2
resolution adopted in good faith by at least two-thirds (2/3) of the
members of the Board who are not employees of the Company or the
Partnership, that the Participant
(i) willfully and continually failed substantially to
perform the Participant's duties with the Company or a Related
Company (other than a failure resulting from the Participant's
incapacity due to physical or mental illness) which failure
continued for a period of at least 30 days after a written
notice of demand for substantial performance has been delivered
to the Participant specifying the manner in which the
Participant has failed substantially to perform the
Participant's duties, or
(ii) willfully engaged in conduct which is demonstrably and
materially injurious to the Company or a Related Company,
monetarily or otherwise;
provided, however, that no termination of the Participant's employment
shall be for Cause as set forth in clause (ii) above until there shall
have been delivered to the Participant a copy of a written notice
stating that the Participant had engaged in the conduct set forth in
clause (ii) and specifying the particulars thereof in detail, and the
Participant shall have been provided an opportunity to be heard by the
Board (with the assistance of the Participant's counsel if the
Participant so desires). No act, nor failure to act, on the
Participant's part, shall be considered "willful"unless the Participant
acted, or failed to act, with an absence of good faith and without a
reasonable belief that such action or failure to act was in the best
interest of the Company or a Related Company. Notwithstanding anything
contained in this Plan to the contrary, no failure to perform by the
Participant after notice of termination is given to the Participant
shall constitute Cause.
(f) "Change in Control" shall be deemed to occur at such time as
Mr. John H. Scully and Mr. William E. Oberndorf no longer control either
individually or in the aggregate, the Company; provided, however, that
the consummation of a Conversion Transaction, as defined herein, shall
not constitute a Change in Control.
(g) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Committee" means a committee of two or more Board members
appointed by the Board.
(i) "Conversion Transaction" means any transaction or series of
transactions in which the Partnership directly or indirectly converts
into a Real Estate Investment Trust via a merger, liquidation,
contribution of assets, redemption or similar means.
(j) "Distribution Date" means the date a Partnership
Distribution is paid to the unitholders.
2
<PAGE> 3
(k) "Effective Date" means the earlier of January 1, 1999 or the
day after the fifth value target is achieved under the Plum Creek
Management Company, L.P. Long-Term Incentive Plan dated January 28,
1994.
(l) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(n) "Ex-Dividend Date" means the first date on which the Units
are sold without the upcoming distribution attached.
(o) "Good Reason" means the occurrence of any of the following
events or conditions:
(i) a change in the Participant's status or responsibilities
(including reporting responsibilities) which represents a
substantial reduction of the status or responsibilities as in
effect immediately prior thereto; the assignment to the
Participant of any duties or responsibilities which are
inconsistent with such status or responsibilities; or any
removal of the Participant from or failure to reappoint or
reelect the Participant to a position of responsibility, except
in connection with the termination of the Participant's
employment for Cause, Permanent Disability, as a result of
death, or by the Participant for other than Good Reason;
(ii) a reduction in the Participant's annual base salary;
(iii) the failure by the Company or a Related Company to
provide the Participant with benefits substantially equal (in
terms of aggregate benefit levels and reward opportunities) to
those provided under the employee benefit plans, programs and
practices as in effect on the Effective Date;
(iv) any material breach by the Company of any provision of
this Plan; and
(v) any purported termination of the Participant's
employment for Cause by the Company or a Related Company, as the
case may be, which does not otherwise comply with the terms of
this Plan.
Good Reason should not be inferred from a mere change in title or
position or because the exigencies of competition, changes in business
climate and opportunities presented in the marketplace may require a
Participant to undertake new roles and tasks or to travel or move in
order to best further the interests of the Company or any Related
Company.
3
<PAGE> 4
(p) "Incentive Plans" means the Plan, the Plum Creek Management
Company, L.P. Management Incentive Plan, the 1998 Plum Creek Management
Company, L.P. Key Employee Long-Term Incentive Plan and any other
incentive plan maintained by the Company and designated by the Committee
as an Incentive Plan.
(q) "Market Price" means with respect to a Unit, the closing
reported sales price, regular way, per Unit on the New York Stock
Exchange Composite Tape, or if Units are not then traded on such stock
exchange, the principal national securities exchange on which Units are
then traded, or if not so traded, the highest bid quotation on the
over-the-counter market as reported by the National Quotations Bureau,
or any similar organization, on any relevant date, or if not so
reported, as determined by the Committee in a manner consistently
applied.
(r) "Participant" means an executive employee of the Company or
a Related Company designated as a Participant pursuant to Section 4.1 or
Section 4.2 or a former executive employee of the Company or a Related
Company who has any rights under the Plan.
(s) "Partnership Distributions" means cash distributions of the
Partnership with respect to the Units, including all ordinary and
extraordinary cash distributions. For purpose of determining Unit Value,
Partnership Distributions shall be deemed paid on the Ex-Dividend Date.
(t) "Performance Period" means the period beginning on the
Effective Date and ending on December 31, 2003.
(u) "Permanent Disability" means a condition that results in the
Participant's being totally disabled, whether due to physical or mental
causes, to the extent that the Participant is prevented from engaging in
further employment with the Company or any Related Company and the
Participant's condition is likely to be permanent and continuous during
the remainder of the Participant's life, as determined by the Committee,
upon the basis of medical evidence.
(v) "Plan" means the 1998 Plum Creek Management Company, L.P.
Long-Term Incentive Plan as set forth herein and as amended from time
to time.
(w) "Realization Event" means the first to occur of (i) the
expiration of the Performance Period, (ii) the occurrence of a Change in
Control, (iii) the Participant's termination of employment with the
Company and any Related Company as a result of the Participant's
Permanent Disability, (iv) the termination of the Participant's
employment with the Company and any Related Company either voluntarily
by the Participant for Good Reason or involuntarily by the employer
without Cause, or (v) the Participant's death.
4
<PAGE> 5
(x) "Reinvested Distribution Account" means a book account
maintained by the Company with respect to each Participant reflecting
the number of Shadow Units credited to the Participant with respect to
Partnership Distributions.
(y) "Related Companies" means the Partnership, Plum Creek
Manufacturing, L.P., Plum Creek Marketing, Inc. and Plum Creek Plywood
L.L.C., but not the Company, and any other entity owned, directly or
indirectly, now or in the future, by the Partnership to the extent of
50% or more.
(z) "Revocation Event" means a determination by the Board in its
sole discretion that any of the following has occurred or is likely to
occur:
(i) a determination by the Department of Labor or a court of
competent jurisdiction that the assets of the Trust are subject
to Part 4 of Subtitle B of Title I of ERISA or
(ii) a determination by the Internal Revenue Service or a
court of competent jurisdiction that any amount deposited in the
Trust is taxable to any Participant or Beneficiary prior to the
distribution to the Participant or Beneficiary of such amount.
(aa) "Securities Act" means the Securities Act of 1933, as
amended from time to time.
(ab) "Shadow Unit" means the right of a Participant to receive
an equal number of Units to be transferred (if not forfeited) pursuant
to the terms of the Plan upon the occurrence of a Realization Event.
(ac) "Target Amount " means an amount equal to $40.23 less the
value per unit of all the Partnership Distributions paid on or after
January 1, 1994 through and including the Effective Date.
(ad) "Termination of Employment" means ceasing to be an employee
of either the Company or a Related Company for any reason.
(ae) "Trust" means any trust established in connection with the
Plan.
(af) "Trustee" means the trustee of the Trust.
(ag) "Unit Appreciation Account" means a book account maintained
by the Company with respect to each Participant reflecting the number of
Shadow Units credited to the Participant with respect to the attainment
of one or more of the Unit Value targets established pursuant to Section
5.2.
5
<PAGE> 6
(ah) "Unit Appreciation Right" means the right of the
Participant to be credited pursuant to Section 5.3 with Shadow Units
upon the attainment of Unit Value targets.
(ai) "Units" means the depositary units representing limited
partner interests in the Partnership, or such other substituted units as
may replace them pursuant to Section 13 hereof.
(aj) "Unit Value" on any date means, with respect to a Unit
Appreciation Right, the arithmetic sum of the Market Price of a Unit on
such date and the value of all Partnership Distributions paid on or
after the later of the Effective Date or the date of grant of the Unit
Appreciation Right. For the purpose of determining Unit Value, the
Market Price on any day that Units are not traded shall be the Market
Price on the first preceding day that Units were traded.
Any terms not specifically defined herein shall have the same meaning in this
Plan as in the Amended and Restated Agreement of Limited Partnership of Plum
Creek Timber Company, L.P.
SECTION 3 - ADMINISTRATION
3.1 Administration. The Committee shall be responsible for the
administration of the Plan. The Committee, by majority action thereof, is
authorized to interpret and construe any provision of the Plan, to determine
eligibility and benefits under the Plan, to prescribe, amend, and rescind rules
and regulations relating to the Plan, to adopt such forms as it may deem
appropriate for the administration of the Plan, to provide for conditions and
assurances deemed necessary or advisable to protect the interests of the
Company, and to make all other determinations necessary or advisable for the
administration of the Plan, but only to the extent not contrary to the express
provisions of the Plan. Determinations, interpretations, or other actions made
or taken by the Committee under the Plan shall be final and binding for all
purposes and upon all persons. Committee decisions shall be made by a majority
of its members present at a meeting (which meeting may be held by telephone) at
which a quorum is present. Any decision reduced to writing and signed by all
members of the Committee shall be fully effective as if it had been made at a
meeting duly held.
3.2 Indemnification of Committee. The Company and the Partnership shall
indemnify each member of the Committee (which, for purposes of this Section 3.2,
includes any employee of the Company or a Related Company to whom the Committee
has delegated any responsibility in the administration of the Plan) against any
and all claims, losses, damages, expenses, including counsel fees incurred by
the Committee, and any liability, including any amounts paid in settlement with
the Company's approval, arising from the member's or the Committee's
determination, action or failure to act, except when the same is judicially
determined to be attributable to the gross negligence or willful misconduct of
such member. The right of indemnity described in the preceding sentence shall be
conditioned upon (i) the timely receipt of notice by the Company of any claim
asserted against the Committee member, which notice, in
6
<PAGE> 7
the event of a lawsuit, shall be given within ten (10) days after receipt by the
Committee member, and (ii) the timely receipt by the Company of an offer from
the Committee member of an opportunity to participate in the settlement or
defense of such claim.
3.3 Cost. Although the Plan is maintained by the Company for
administrative convenience, all expenses and costs associated with the Plan,
including the cost of administration and the cost of funding the benefits to be
provided by the Plan, shall be borne by the Partnership. All economic benefits
and burdens will accrue to and be incurred by the Partnership, and the Company
shall have no opportunity to profit from the operation of the Plan.
SECTION 4 - ELIGIBILITY AND PARTICIPATION
4.1 Participants on Effective Date. The Participants in the Plan on the
Effective Date shall be those executives designated in Section 5. l (a).
4.2 Participants Designated by the Committee. The Committee may, in its
sole discretion, designate one or more of the senior executives of the Company
or any Related Company to be a Participant in the Plan effective as of such date
as the Committee in its sole discretion shall specify.
SECTION 5 - ALLOCATION OF UNIT APPRECIATION RIGHTS AND CREDITING
OF SHADOW UNITS
5.1 Unit Appreciation Rights. A grant of a Unit Appreciation Right
entitles the Participant to receive a benefit in the form of Units to be
transferred to the Participant (if not forfeited pursuant to Section 6) pursuant
to the terms of the Plan. The right to receive Units with respect to Unit
Appreciation Rights granted under the Plan in accordance with the terms and
conditions of the Plan is reflected by Shadow Units credited to the
Participant's Account.
7
<PAGE> 8
(a) Original Grants. Pursuant to the Committee's determination,
Unit Appreciation Rights shall be granted as of the Effective Date to
the Participants listed below in the amount indicated in Appendix A.
William R. Brown
Michael J. Covey
Lindsay G. Crawford
Barbara L. Crowe
Charles P. Grenier
Rick R. Holley
Diane M. Irvine
James A. Kraft
The Base Unit Value with respect to Unit Appreciation Rights
granted pursuant to this Section 5.1(a) shall be the Target Amount. Unit
Appreciation Rights granted pursuant to this Section 5.1(a) shall be
conditioned upon their having been made in compliance with Rule 16b-3
promulgated under Section 16(b) of the Exchange Act or any comparable or
successor rule or regulatory requirement.
(b) Subsequent Grants. Unit Appreciation Rights may be granted
to Participants by the Committee, in its sole discretion, provided that
the total of all Unit Appreciation Rights granted pursuant to this
Section 5.1 and not canceled pursuant to Section 6 shall not exceed at
any time 875,000. Although the Committee may grant additional Unit
Appreciation Rights pursuant to this Section 5.1(b) to a Participant who
received a grant on the Effective Date pursuant to Section 5.1(a), it is
not presently expected or intended that the Committee will make such a
grant. The Base Unit Value with respect to Unit Appreciation Rights
granted pursuant to this Section 5.1(b) shall be established by the
Committee in its sole discretion at the time of the grant.
5.2 Unit Appreciation Rights Triggered by Unit Value Targets. When the
Unit Value equals or exceeds one of the Unit Value targets established with
respect to Unit Appreciation Rights pursuant to this Section 5.2 for 75 calendar
days during any 90 consecutive calendar day period beginning on the first
trading day the Unit Value equals or exceeds the applicable Unit Value target, a
percentage of the Unit Appreciation Rights granted shall be triggered.
8
<PAGE> 9
(a) Value Targets for Original Unit Appreciation Right Grants.
The following table sets forth five Unit Value targets for all original
grants of Unit Appreciation Rights pursuant to Section 5.1(a) and the
percentage of such Unit Appreciation Rights triggered with respect to
that Unit Value target:
<TABLE>
<CAPTION>
Percentage of
Unit Unit Appreciation
Target Value Target Rights Triggered
------ ------------ ----------------
<S> <C> <C>
First Base Unit Value x 115% 20%
Second First Target x 115% 20%
Third Second Target x 115% 20%
Fourth Third Target x 115% 20%
Fifth Fourth Target x 115% 20%
</TABLE>
(b) Unit Value Targets for Subsequent Unit Appreciation Right
Grants. The Committee in its sole discretion shall establish at the time
of the grant of Unit Appreciation Rights pursuant to Section 5.1(b) one
or more Unit Value targets and the percentage of such Unit Appreciation
Rights triggered with respect to each such Unit Value target.
5.3 Shadow Units Credited to Unit Appreciation Account. The Company
shall establish a Unit Appreciation Account for each Participant granted Unit
Appreciation Rights pursuant to Section 5. 1. The Participant's Unit
Appreciation Account shall reflect the number of Shadow Units credited to the
Participant as a result of Unit Appreciation Rights triggered by the attainment
of Unit Value targets. The number of Shadow Units credited to the Participant's
Unit Appreciation Account upon the attainment of a Unit Value target with
respect to Unit Appreciation Rights granted to the Participant shall be
determined by multiplying (i) the Unit Appreciation Rights granted to the
Participant by (ii) the percentage of Unit Appreciation Rights which are
triggered by the Unit Value target attained.
If a Participant has been granted Unit Appreciation Rights pursuant to more than
one grant, the number of Shadow Units determined pursuant to this Section 5.3
shall be determined and credited separately with respect to each grant of Unit
Appreciation Rights.
5.4 Shadow Units Credited to Reinvested Distribution Account. The
Company shall establish a Reinvested Distribution Account for each Participant
who has Shadow Units credited to his Account under the Plan. The purpose of the
Reinvested Distribution Account is to provide
9
<PAGE> 10
the Participant with an additional benefit under the Plan equal to the value of
the benefit the Participant would have received from Partnership Distributions
if the Participant were the unitholder of the Units which are reflected in the
form of Shadow Units credited to the Participant's Account. On the Distribution
Date of any Partnership Distribution, Shadow Units shall be credited to the
Participant's Reinvested Distribution Account in an amount equal to:
(a) the product of the Shadow Units credited to the
Participant's Account as of the Distribution Date and the amount of the
Partnership Distribution determined on a per Unit basis, divided by
(b) the Market Price of a Unit on the Distribution Date.
SECTION 6 - CANCELLATIONS AND FORFEITURES
6.1 Cancellation of Unit Appreciation Rights. The Unit Appreciation
Rights granted to a Participant shall be canceled upon the occurrence of a
Realization Event or a forfeiture pursuant to Section 6.2 with respect to the
Participant. Upon the cancellation of such Unit Appreciation Rights, the right
of a Participant to have further Shadow Units credited to his or her Account
with respect to such Unit Appreciation Rights upon the attainment of Unit Value
targets not previously attained shall be forfeited; provided, however, that the
Committee, in its sole discretion, may provide (although it is not presently
expected or intended that the Committee will exercise such authority) that all
or a portion of such Unit Appreciation Rights shall not be canceled upon the
occurrence of a Realization Event and that the Participant shall continue to
participate in the Plan in accordance with the provisions of the Plan subject to
such additional terms and conditions as the Committee, in its sole discretion,
may require. Any Unit Appreciation Rights canceled in accordance with this
Section 6.1 shall, subject to Section 8, be available again to be used in
connection with a subsequent grant pursuant to Section 5.1(b) at any time prior
to the end of the Performance Period.
6.2 Forfeiture of Unit Appreciation Rights and Shadow Units. A
Participant shall forfeit all rights to any benefit under this Plan including,
without limitation, any Unit Appreciation Rights and Shadow Units credited to
the Participant's Account and any related transfer of Units to be made under
this Plan if, prior to the occurrence of a Realization Event, the Participant's
employment with the Company and any Related Company is terminated either by the
employer for Cause or by the Participant without Good Reason.
6.3 Participant Consent to Cancellation. A Participant may consent to
cancellation of Unit Appreciation Rights previously granted, including
cancellation in connection with the re-granting of Unit Appreciation Rights
under new terms.
10
<PAGE> 11
SECTION 7 - TRANSFER OF UNITS
Upon the occurrence of a Realization Event with respect to a
Participant, the Company shall transfer or cause to be transferred to the
Participant a number of Units equal to the number of whole Shadow Units then
credited to the Participant's Account, less any withholding pursuant to Section
14. Subject to such rules as the Committee may prescribe, a Participant may
elect to defer the receipt of the Units that are restricted pursuant to Section
11(c) herein until Termination of Employment. Said deferral election must be
made within 30 days of becoming a Participant in the Plan. Deferred Units will
be distributed by lump sum, or by annual payments over a period of 5 years or 10
years. Prior to January 1 of any calendar year, the Committee may allow each
Participant to change the payment provisions for past and current deferred
Units, provided, however, that the Participant must remain employed by the
Company or a Related Company for 3 years prior to the changes taking effect.
SECTION 8 - DURATION OF PLAN
Subject to Section 15 and Section 17, the Plan shall remain in effect
until December 31, 2003.
SECTION 9 - UNITS SUBJECT TO PLAN
Unit Appreciation Rights shall be granted under the Plan with respect to
a maximum of 875,000 Units, subject to the subsequent grant of previously
granted Unit Appreciation Rights after cancellation or forfeiture pursuant to
Section 6 and subject to any adjustment that may be made in connection with an
event described in Section 13. The number of Units transferred under the Plan
shall be subject to increase by the number of Shadow Units credited to
Participants' Reinvested Distribution Accounts and shall also be subject to any
adjustment that may be made in connection with an event described in Section 13.
SECTION 10 - FUNDING OF THE PLAN
The Plan constitutes an unsecured promise by the Company to pay benefits
in the future. Although the Company may cause Units that are subject to be
transferred pursuant to the terms of the Plan or are otherwise reserved and
other funds reserved for use under the Plan and other Incentive Plans to be held
under a grantor trust agreement, the Plan is unfunded. All benefits under the
Plan shall be paid from the general assets of the Company. A Trust, which shall
be intended to be a "grantor trust" within the meaning of section 671 of the
Code, shall be established pursuant to a trust agreement, to assist the Company
in meeting its obligations under the Incentive Plans. Such trust agreement shall
provide that the Trust may invest in Units. Nothing contained in this Plan and
no action taken pursuant to the provisions of this Plan shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the
Company, the Partnership, any Related Company, the Board (or any of its
members), or the
11
<PAGE> 12
Committee (or any of its members) and any Participant, any Beneficiary, or any
other person. Although the Company may establish an accounting reserve with
respect to future payments under the Plan, no reserve or set aside amounts shall
imply any rights of any Participant therein. Any reserve or set aside shall be
fully subject to the claims of the Company's creditors to the same extent as the
general assets of the Company. To the extent that any person acquires a right to
receive Units from the Company under this Plan, such right shall be no greater
than the right of any unsecured general creditor of the Company. Nothing
contained in this Plan shall be construed to give any Participant an ownership
interest in, or the right to receive distributions from the Partnership with
respect to any Shadow Units credited to the Participant's Account or any Units
subject to a transfer related to such Shadow Units until such Units have been
transferred to the Participant pursuant to the terms of the Plan.
The trust agreement creating the Trust shall contain procedures
substantially to the following effect which may be revised to the extent deemed
desirable by the Company for the purpose of ensuring that Participants will not
be in constructive receipt of income or incur an economic benefit for federal
income tax purposes because of the adoption or maintenance of the Trust:
(a) The Trustee shall cease payment of benefits to Participants
and their Beneficiaries if the Company is Insolvent. The Company shall
be considered "Insolvent" for purposes of this trust agreement if (i)
the Company is unable to pay its debts as they become due, or (ii) the
Company is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.
(b) At all times during the continuance of this Trust, the
principal and income of the Trust shall be subject to claims of general
creditors of the Company under federal and state law as set forth below.
(c) The Board and the President and Chief Executive Officer of
the Company shall have the duty to inform the Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the
Company alleges in writing to the Trustee that the Company has become
Insolvent, the Trustee shall determine whether the Company is Insolvent
and, pending such determination, the Trustee shall discontinue payment
of benefits to Participants or their Beneficiaries.
(d) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming
to be a creditor alleging that the Company is Insolvent, the Trustee
shall have no duty to inquire whether the Company is Insolvent. The
Trustee may in all events rely on such evidence concerning the Company's
solvency as may be furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a determination concerning
the Company's solvency.
(e) If at any time the Trustee has determined that the Company
is Insolvent,
12
<PAGE> 13
the Trustee shall discontinue payments to Participants or their
Beneficiaries and shall hold the assets of the Trust for the benefit of
the Company's general creditors. Nothing in the trust agreement shall in
any way diminish any rights of Participants or their Beneficiaries to
pursue their rights as general creditors of the Company with respect to
benefits due under the Incentive Plans or otherwise.
(f) The Trustee shall resume the payment of benefits to
Participants or their Beneficiaries in accordance with the provisions of
the trust agreement only after the Trustee has determined that the
Company is not Insolvent (or is no longer Insolvent).
(g) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to
subsections (a) and (e) and subsequently resumes such payments, the
first payment following such discontinuance shall include the aggregate
amount of all payments due to Participants or their Beneficiaries under
the terms of the Incentive Plans for the period of such discontinuance,
less the aggregate amount of any payments made to Incentive Plan
participants or their beneficiaries by the Company in lieu of the
payments provided for hereunder during any such period of
discontinuance.
SECTION 11 - TRANSFERS OF UNITS AND PAYMENTS UNDER THE PLAN
(a) Within 30 business days after the occurrence of a
Realization Event, the Company shall deliver or cause to be delivered to
the Participant certificates for a number of Units equal to the whole
number of such Shadow Units credited to such Participant's Account as of
the Realization Event and cash with respect to any fractional Shadow
Unit credited to such Participant's Account in an amount equal to the
product of such fraction and the Market Price of a Unit on the date the
Realization Event occurs.
(b) The Plan's principal purpose is to provide Participants with
a continuing long term investment in the Partnership. In order to
accomplish that principal purpose, it is imperative that a Participant's
rights under the Plan generally be required to remain in the form of
Shadow Units credited to the Participant's Account until the occurrence
of a Realization Event with respect to the Participant. Accordingly, in
the event that a court of competent jurisdiction finally determines that
the Company is obligated to distribute to a Participant, Beneficiary or
any other person certificates for any Units reflecting Shadow Units
credited to a Participant's Account prior to the occurrence of a
Realization Event with respect to the Participant or the Committee
determines the distribution of such certificates is appropriate, the
certificates so distributed to such Participant, Beneficiary or other
person shall be restricted as to transferability until the date that a
Realization Event would have occurred with respect to the Participant
had they not been distributed to the Participant, Beneficiary or other
person and remained subject to the Plan, and each such Unit certificate
shall bear the following legend:
13
<PAGE> 14
The transferability of this certificate and the Units
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture and restrictions against
transfer) applicable to the Shadow Units to which the Units
represented by this certificate relate, all as contained in the
1998 Plum Creek Management Company, L.P. Long-Term Incentive
Plan. A copy of the Plan is on file in the office of the Plum
Creek Management Company; 999 Third Avenue, Suite 2300; Seattle,
Washington 98104.
(c) To further promote and ensure the accomplishment of the
Plan's principal purpose of providing Participants with a continuing
long-term investment in the Partnership, each Participant will be
required to retain until Termination of Employment at least fifty
percent (50%) of the after-tax benefit provided under the Plan as
reflected by the Shadow Units credited to the Participant's Account in a
long-term investment in the Partnership in the form of Units transferred
to the Participant pursuant to this Plan. Accordingly, a percentage of
the Units transferred pursuant to this Plan shall be restricted as to
transferability until the Participant's Termination of Employment equal
to fifty percent (50%) of the excess of one hundred percent (100%) over
the highest marginal combined federal and applicable state individual
income tax rate, and the certificates for such Units shall bear such
legend as the Committee shall in its sole discretion deem appropriate to
reflect such restriction on transferability. In lieu of holding
restricted Units, the Participant may elect to defer receipt of such
restricted Units pursuant to Section 7 herein. The Committee may in its
sole discretion modify or choose not to impose the requirement of this
Section 11(c) at any time with respect to one or more Participants or
with respect to one or more grants of Unit Appreciation Rights as it may
deem appropriate.
SECTION 12 - SECURITIES MATTERS
Subject to Section 11, the Partnership shall use its best efforts to
assure that any securities distributed to Participants hereunder are marketable
at the time of distribution, including, to the extent required under applicable
law, effecting the registration pursuant to the Securities Act of any Units to
be distributed hereunder or effecting similar compliance under any state laws.
Notwithstanding anything herein to the contrary, the Partnership shall not be
obligated to cause to be issued or delivered any certificates evidencing Units
awarded pursuant to the Plan unless and until the Partnership is advised by its
counsel that the issuance and delivery of such certificates is in compliance
with all applicable laws, regulations of governmental authority and the
requirements of the New York Stock Exchange and any other securities exchange on
which Units are traded. The Committee may require, as a condition of the
issuance and delivery of certificates evidencing Units pursuant to the terms
hereof, that the recipient of such Units make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee,
in its sole discretion, deems necessary or desirable.
14
<PAGE> 15
SECTION 13 - ADJUSTMENT OF ACCOUNTS IN CERTAIN EVENTS
(a) Unless the Committee otherwise determines, a Participant's
Account shall be adjusted to reflect any securities, cash and other
property received with respect to Units equal in number to the Shadow
Units credited to such Participant's Account as a result of any Unit
distribution or split, recapitalization, extraordinary distribution,
merger, consolidation, combination or exchange of Units or similar
change or any other event that the Committee, in its sole discretion,
deems appropriate. The purpose of this adjustment is to treat
Participants as if they were unitholders of Units with respect to the
number of Shadow Units credited to their Accounts. However, the
Committee may convert any securities, cash or other property that would
have been received in respect of Units into an equivalent number of
Shadow Units to be credited to the Participant's Account, or may provide
that any security received in respect of Units shall be substituted for
Units under the Plan.
(b) In the event of any change in the number of Units
outstanding by reason of any Unit distribution or split,
recapitalization, extraordinary dividend, merger, consolidation,
combination or exchange of Units or similar change or any other event
that the Committee, in its sole discretion, deems appropriate, the
maximum aggregate number of Units subject to the Incentive Plans, the
number of Unit Appreciation Rights granted under this Plan, the number
of Shadow Units credited to the Accounts of Participants, and the amount
of any target established under Section 5.2 shall be appropriately
adjusted by the Committee. In the event of any change in the number of
Units outstanding by reason of any other event or transaction, the
Committee may, but need not, make such adjustments in the number and
class of Units subject to the Incentive Plans, the terms of Unit
Appreciation Rights created and allocated under this Plan and the Shadow
Units credited to Participants' Accounts as the Committee may deem
appropriate.
(c) A Participant shall have no rights as a result of any Unit
distribution or split, recapitalization, extraordinary distribution,
merger, consolidation, combination or exchange of Units or similar
change, except as may be determined by the Committee pursuant to this
Section 13.
SECTION 14 - PAYROLL AND WITHHOLDING TAXES
All federal, state, local and other withholding tax requirements, if
any, attributable to a distribution shall be met pursuant to the following
procedures:
(a) The Company or Related Company shall have the right to
withhold from any cash amounts payable to a Participant (including
salary, bonus or any other amounts payable from the Company or any
Related Company to the Participant) an amount sufficient to satisfy such
federal, state, local and other withholding tax requirements, prior
15
<PAGE> 16
to the delivery of any certificate or certificates for such Units or
other payments pursuant to the Plan.
(b) The Company or Related Company shall have the right to
require Participants to remit to the Company or Related Company in cash
an amount sufficient to satisfy such federal, state, local and other
withholding tax requirements, prior to the delivery of any certificate
or certificates for such Units or other payments pursuant to the Plan.
(c) At the election of the Participant, to the extent permitted
by the Committee, the Participant shall deliver, or the Company or
Related Company (or, if a distribution is to be made from the Trust, the
Trustee) shall withhold, a number of such Units, the Market Price of
which on the date the Units are to be distributed to the Participant is
determined by the Committee to be sufficient to satisfy the minimum
federal, state, local and other withholding tax requirements under
applicable law.
(d) If a Participant is subject to Section 16(b) of the Exchange
Act, the Committee may prescribe such requirements or limitations on the
Participant's ability to elect the withholding options contained in
Section 14(c) as may be required by Rule 16b-3 promulgated under
Section 16(b) of the Exchange Act or by any comparable or successor
exemption.
SECTION 15 - TERMINATION AND AMENDMENT
The Plan may be terminated with respect to any or all Participants at
any time by the Board. Subject to Section 11 hereof, in order to meet the
benefit obligations under the Plan upon such termination, the Company shall
deliver or cause to be delivered to each Participant with respect to whom the
Plan has been terminated a certificate for a number of Units equal to the whole
number of Shadow Units credited to such Participant's Account as of the date the
Plan was terminated and cash with respect to any fractional Shadow Units
credited to such Participant's Account, in an amount equal to the product of
such fraction and the Market Price of a Unit as of the date the Plan was
terminated. The Plan may be amended by the Board from time to time in any
respect. No amendment or termination shall be made that would impair the rights
of any Participant in any Unit Appreciation Right theretofore granted, any
Shadow Unit theretofore credited or any Unit theretofore transferred, without
such Participant's prior written consent; provided that the Company may amend
the Plan and the Trust from time to time in such a manner as may be necessary to
avoid having the trust agreement pursuant to which the Trust is created, the
Incentive Plans or the Trust being subject to ERISA (other than as a Top Hat
Plan) and to avoid the current taxation of the assets held in the trusts
established in connection with the Incentive Plans to Participants. Neither a
Participant's incurring any income tax liability nor the loss of an investment
opportunity as a result of the termination of the Plan shall be considered an
impairment of the rights of a Participant.
16
<PAGE> 17
SECTION 16 - BENEFICIARIES, PERMITTED TRANSFEREES, AND OTHER
PAYEES
16.1 Designation of Beneficiary. Each Participant shall have the right
to designate in writing from time to time a Beneficiary by filing a written
notice of such designation with the Committee, on such form and subject to such
rules as the Committee may establish. A Participant's designation of a
Beneficiary may be revoked by filing with the Committee an instrument of
revocation or a later designation on such form and subject to such rules as the
Committee may establish. Any designation or revocation shall be effective when
received by the Committee. In the event of the death of a Participant, any
payment required to be made hereunder to such Participant shall be made to such
Participant's Beneficiary. Unless the Participant's Beneficiary designation
provides otherwise, no person shall be entitled to benefits upon the death of
the Participant unless such person survives the Participant. If the Beneficiary
designated by a Participant does not survive the Participant or if the
Participant has not made a valid Beneficiary designation, the Participant's
Beneficiary shall be the Participant's estate. No payment shall be made after
the death of a Participant with respect to the Participant's Account, unless the
Committee shall have been furnished with such evidence as the Committee may deem
necessary to establish the validity of the payment.
16.2 Nontransferability. Except as provided in Section 16. 1, no Unit
Appreciation Rights allocated to Participants under the Plan, no Shadow Units
credited to the Participants' Account under the Plan, no Units subject to
transfer that have not yet been transferred to Participants pursuant to the
Plan, no interest in any trust that may hold Units for the purpose of meeting
the Company's obligations under the Incentive Plans, and no other interest or
right of a Participant under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated (except by will or by the laws
of descent and distribution), or in any manner be liable for or subject to the
debts, contracts, liabilities, engagements or torts of a Participant or
Beneficiary entitled thereto, or be subject to any lien, directly or indirectly,
by operation of law or otherwise, including execution, levy, garnishment,
attachment, and bankruptcy.
16.3 Incapacity of Participant or Beneficiary. If the Committee finds
that any Participant or Beneficiary to whom a payment is payable under the Plan
is unable to care for his or her affairs because of illness or accident or is
under age of majority or other legal disability, any payment due (unless a prior
claim therefore shall have been made by a duly appointed legal representative),
may in the sole discretion of the Committee, be paid to the spouse, child,
parent or brother or sister of such Participant or Beneficiary. Any such payment
shall be a complete discharge of the obligations of the Company under the
provisions of the Plan.
17
<PAGE> 18
SECTION 17 - EFFECT OF REVOCATION EVENT
Upon the occurrence of a Revocation Event, the Board may, in its sole
discretion, elect to terminate the Plan, the Trust, or any Participant's
Account. The Company shall, in its sole discretion, (a) pay to each Participant
whose Account is terminated, as soon as practicable after the date of such
termination, a lump sum in cash equal to the Market Price of a Unit multiplied
by the number of Shadow Units reflected in each Participant's Account as of the
date of such termination or (b) distribute to each Participant whose Account is
terminated, as soon as practicable after the date of such termination, that
number of Units that would have been distributable to such Participant under the
Plan upon the occurrence of a Realization Event as of the date of Termination
with respect to the Participant. If it is finally determined in a proceeding,
which the Company either controls or was offered the right to control and
declines, that the Participant has an interest in the Trust that is taxable to
the Participant notwithstanding any termination of such Participant's Account,
the Company shall pay or distribute the Participant's interest (whether or not
the Board has previously elected to terminate the Plan, the Trust or the
Participant's Account) in accordance with either (a) or (b) of the preceding
sentence, as determined by the Company in its sole discretion.
SECTION 18 - RIGHTS OF EMPLOYMENT
Nothing in this Plan shall interfere with or limit in any way the right
of the Company or any Related Company to terminate any Participant's employment
at any time, nor confer upon any Participant any right to continue in the employ
of the Company or any Related Company.
SECTION 19 - REQUIREMENTS OF LAW AND GOVERNING LAW
19.1 Requirements of Law. The transfer of Units under the Plan shall be
subject to all applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.
19.2 Governing Law. The Plan and all agreements under the Plan shall be
construed in accordance with and governed by the laws of the State of
Washington.
Witness: PLUM CREEK MANAGEMENT COMPANY, L.P.
____________________ By_________________________
Date:_______________________
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,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 134,140
<SECURITIES> 0
<RECEIVABLES> 35,895
<ALLOWANCES> 1,297
<INVENTORY> 47,911
<CURRENT-ASSETS> 229,734
<PP&E> 1,195,391
<DEPRECIATION> 144,916
<TOTAL-ASSETS> 1,293,322
<CURRENT-LIABILITIES> 78,301
<BONDS> 765,600
0
0
<COMMON> 0
<OTHER-SE> 438,304
<TOTAL-LIABILITY-AND-EQUITY> 1,293,322
<SALES> 336,124
<TOTAL-REVENUES> 336,124
<CGS> 239,768
<TOTAL-COSTS> 267,198
<OTHER-EXPENSES> 2,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,576
<INCOME-PRETAX> 37,558
<INCOME-TAX> 147
<INCOME-CONTINUING> 37,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,411
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0
</TABLE>
